U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

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

    For the fiscal year ended December 31, 2003

    [ ]  Transition report under Section 13 or 15(d) of the Securities Exchange
         Act of 1934

    For the transition period from __________ to_________

                        Commission file number: 000-32641

                           James Monroe Bancorp, Inc.
                 (Name of Small Business Issuer in its Charter)

            Virginia                                  54-1941875
   (State or other jurisdiction           (I.R.S. Employer Identification No.)
 of incorporation or organization)

                3033 Wilson Boulevard, Arlington, Virginia 22201
         (Address of Principal Executive Offices)            (Zip Code)

Issuer's Telephone Number:  703.524.8100

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

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

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  [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.   [ ]

The issuer's revenues for the fiscal year ended December 31, 2003 were
approximately $14,173,000

The aggregate market value of the outstanding Common Stock held by nonaffiliates
as of March 10, 2004 was approximately $67,309,620.

As of March 10, 2004, the number of outstanding shares of the Common Stock,
$1.00 par value, of James Monroe Bancorp, Inc. was 2,955,929.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         James Monroe Bancorp (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on April 9, 1999 to be the holding company for
James Monroe Bank (the "Bank"). The Company acquired all of the shares of the
Bank on July 1, 1999 in a mandatory share exchange under which each outstanding
share of common stock of the Bank was exchanged for one share of the Company
common stock. The Bank, a Virginia chartered commercial bank, which is a member
of the Federal Reserve System, is the Company's sole operating subsidiary. The
Bank commenced banking operations on June 8, 1998, and currently operates out of
its main office and three full service branch offices and one drive-up/walk
through limited service branch. The Bank seeks to provide a high level of
personal service and a sophisticated menu of products to individuals and small
to medium sized businesses. While the Bank offers a full range of services to a
wide array of depositors and borrowers, it has chosen small to medium sized
businesses, professionals and the individual retail customer as its primary
target market. The Bank believes that as financial institutions grow and are
merged with or acquired by larger institutions with headquarters that are far
away from the local customer base, the local business and individual is further
removed from the point of decision-making. The Bank attempts to place the
customer contact and the ultimate decision on products and credits as close
together as possible.

LENDING ACTIVITIES

         The Bank offers a wide array of lending services to its customers,
including commercial loans, lines of credit, personal loans, auto loans and
financing arrangements for personal equipment and business equipment. Loan
terms, including interest rates, loan to value ratios, and maturities, are
tailored as much as possible to meet the needs of the borrower. A special effort
is made to keep loan products as flexible as possible within the guidelines of
prudent banking practices in terms of interest rate risk and credit risk.

         When considering loan requests, the primary factors taken into
consideration are the cash flow and financial condition of the borrower, the
value of the underlying collateral, if applicable, and the character and
integrity of the borrower. These factors are evaluated in a number of ways
including an analysis of financial statements, credit reviews, trade reviews,
and visits to the borrower's place of business. We have implemented a
comprehensive loan policy and procedures manual to provide our loan officers
with term, collateral, loan-to-value and pricing guidelines. The policy manual
and sound credit analysis, together with thorough review by the Asset-Liability
Committee, have resulted in a profitable loan portfolio with minimal
delinquencies or problem loans.

         Our aim is to build and maintain a commercial loan portfolio consisting
of term loans, demand loans, lines of credit and commercial real estate loans
provided to primarily locally-based borrowers. These types of loans are
generally considered to have a higher degree of risk of default or loss than
other types of loans, such as residential real estate loans, because repayment
may be affected by general economic conditions, interest rates, the quality of
management of the business, and other factors which may cause a borrower to be
unable to repay its obligations. Traditional installment loans and personal
lines of credit will be available on a selective basis. General economic
conditions can directly affect the quality of a small and mid-sized business
loan portfolio. We attempt to manage the loan portfolio to avoid high
concentrations of similar industry and/or collateral pools, although this cannot
be assured.

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

         At December 31, 2003, the Bank's statutory lending limit to any single
borrower was $3.76 million, subject to certain exceptions provided under
applicable law. As of December 31, 2003, the Bank's credit exposure to its
largest borrower was $3,420,293

         Commercial Loans. Commercial loans are written for any prudent business
purpose, including the financing of plant and equipment, the carrying of
accounts receivable, contract administration, and the acquisition and
construction of real estate projects. Special attention is paid to the
commercial real estate market, which is particularly active in the Northern
Virginia


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market area. The Bank's commercial loan portfolio reflects a diverse group of
borrowers with no concentration in any borrower, or group of borrowers.

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

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

         Commercial real estate loans will generally be owner occupied or
managed transactions with a principal reliance on the borrower's ability to
repay, as well as prudent guidelines for assessing real estate values. Risks
inherent in managing a commercial real estate portfolio relate to either sudden
or gradual drops in property values as a result of a general or local economic
downturn. A decline in real estate values can cause loan to value margins to
increase and diminish the bank's equity cushion on both an individual and
portfolio basis. The Bank attempts to mitigate commercial real estate lending
risks by carefully underwriting each loan of this type to address the perceived
risks in the individual transaction. Generally, the Bank requires a loan to
value ratio of 75% of the lower of an appraisal or cost. A borrower's ability to
repay is carefully analyzed and policy calls for an ongoing cash flow to debt
service requirement of 1.1:1.0. An approved list of commercial real estate
appraisers selected on the basis of rigorous standards has been established.
Each appraisal is scrutinized in an effort to insure current comparable market
values.

         As noted above, commercial real estates loans are generally made on
owner occupied or managed properties where there is both a reliance on the
borrower's financial health and the ability of the borrower and the business to
repay. Whenever appropriate and available, the Bank seeks Federal and State loan
guarantees, such as the Small Business Administration's "7A" and "504" loan
programs, to reduce risks. The Bank generally requires personal guarantees on
all loans as a matter of policy; exceptions to policy are documented. All
borrowers will be required to forward annual corporate, partnership and personal
financial statements to comply with bank policy and enforced through the loan
covenants documentation for each transaction. Interest rate risks to the Bank
are mitigated by using either floating interest rates or by fixing rates for a
short period of time, generally less than five years. While loan amortizations
may be approved for up to 360 months, loans generally have a call provision
(maturity date) of 5-10 years or less. Specific and non-specific provisions for
loan loss reserves are generally set based upon a methodology developed by
management and approved by the board of directors and described more fully in
the Company's Critical Accounting Policies included herein.

         Commercial term loans are used to provide funds for equipment and
general corporate needs. This loan category is designed to support borrowers who
have a proven ability to service debt over a term generally not to exceed 60
months. The Bank generally requires a first lien position on all collateral and
guarantees from owners having at least a 20% interest in the involved business.
Interest rates on commercial term loans are generally floating, adjust within 3
to 5 years, or are fixed for a term not to exceed five years. Management
carefully monitors industry and collateral concentrations to avoid loan
exposures to a large group of similar industries and/or similar collateral.
Commercial loans are evaluated for historical and projected cash flow
attributes, balance sheet strength, and primary and alternate resources of
personal guarantors. Commercial term loan documents require borrowers to forward
regular financial information on both the business and on personal guarantors.
Loan covenants require at least annual submission of complete financial
information and in certain cases this information is required more frequently,
depending on the degree to which lenders desire information resources for
monitoring a borrower's financial condition and compliance with loan covenants.
Examples of properly margined collateral for loans, as required by bank policy,
would be a 75% advance on the lesser of appraisal or recent sales price on


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commercial property, 80% or less advance on eligible receivables, 50% or less
advance on eligible inventory and an 80% advance on appraised residential
property. Collateral borrowing certificates may be required to monitor certain
collateral categories on a monthly or quarterly basis. Key person life insurance
is required as appropriate and as necessary to mitigate the risk loss of a
primary owner or manager.

         The Bank attempts to further mitigate commercial term loan loss by
using Federal and State loan guarantee programs such as offered by the United
States Small Business Administration. The loan loss reserve of approximately
1.16% of the entire portfolio in this group has been established. Specific loan
reserves will be used to increase overall reserves based on increased credit
and/or collateral risks on an individual loan basis. At December 31, 2003,
specific reserves have been assigned or made for specific credits. A risk rating
system is used to proactively determine loss exposure and provide a measurement
system for setting general and specific reserve allocations.

         Commercial lines of credit are used to finance a business borrower's
short-term credit needs and/or to finance a percentage of eligible receivables
and inventory. In addition to the risks inherent in term loan facilities, line
of credit borrowers typically require additional monitoring to protect the
lender against increasing loan volumes and diminishing collateral values.
Commercial lines of credit are generally revolving in nature and require close
scrutiny. The Bank generally requires at least an annual out of debt period (for
seasonal borrowers) or regular financial information (monthly or quarterly
financial statements, borrowing base certificates, etc.) for borrowers with more
growth and greater permanent working capital financing needs. Advances against
collateral are generally in the same percentages as in term loan lending. Lines
of credit and term loans to the same borrowers are generally cross-defaulted and
cross-collateralized. Industry and collateral concentration, general and
specific reserve allocation and risk rating disciplines are the same as those
used in managing the commercial term loan portfolio. Interest rate charges on
this group of loans generally float at a factor at or above the prime lending
rate. Generally, personal guarantees are required on these loans.

         As part of its internal loan review process management reviews all
loans 30-days delinquent, loans on the Watch List, loans rated special mention,
substandard, or doubtful, and other loans of concern at least quarterly. Loan
reviews are reported to the board of directors with any adversely rated changes
specifically mentioned. All other loans with their respective risk ratings are
reported monthly to the Bank's Board of Directors. The Audit Committee
coordinates periodic documentation and internal control reviews by outside
vendors to complement loan reviews.

         Mortgage Lending. In the first quarter of 2003, the Company established
a mortgage lending operation as a division of the Bank, which originates
conforming, 1-4 family residential mortgage loans, on a pre-sold basis, for sale
to secondary market purchasers, servicing released. Under the program, loans are
originated and funded by the Bank in conformity to the standards of the
secondary market purchasers, and which the secondary market purchasers will
agree to purchase prior to funding by the bank. While the Bank is subject to
repurchasing certain loans which are ultimately determined not to meet the
purchaser's standards, including as a result of inaccuracies or fraud in
borrower's documentation, the Company's risk related to the borrower's credit in
respect of these loans is minimal. Activity in the residential mortgage loan
market is highly sensitive to changes in interest rates. There is no assurance
that the Company will be able to successfully maintain the mortgage loan
operation, that it will continue to be profitable, or that the Company will not
be subject to borrower credit risks in respect of these loans.

         Other Loans. Loans are considered for any worthwhile personal or
business purpose on a case-by-case basis, such as the financing of equipment,
receivables, contract administration expenses, land acquisition and development,
and automobile financing. Consumer credit facilities are underwritten to focus
on the borrower's credit record, length of employment and cash flow to debt
service. Car, residential real estate and similar loans require advances of the
lesser of 80% loan to collateral value or cost. Loan loss reserves for this
group of loans are generally set at approximately 1.15% subject to adjustments
as required by national or local economic conditions.

INVESTMENT ACTIVITIES

         The investment policy of the Bank is an integral part of its overall
asset/liability management program. The investment policy is to establish a
portfolio which will provide liquidity necessary to facilitate funding of loans
and to cover deposit fluctuations while at the same time achieving a
satisfactory return on the funds invested. The Bank seeks to maximize earnings
from its investment portfolio consistent with the safety and liquidity of those
investment assets.


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         The securities in which the Bank may invest are subject to regulation
and are limited to securities which are considered investment grade securities.
In addition, the Bank's internal investment policy restricts investments to the
following categories: U.S. Treasury securities; obligations of U.S. government
agencies; investment grade obligations of U.S. private corporations;
mortgage-backed securities, including securities issued by Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation; or
securities of states and political subdivisions.

SOURCES OF FUNDS

         Deposits. Deposits obtained through bank offices have traditionally
been the principal source of the Bank's funds for use in lending and for other
general business purposes. In order to better serve the needs of its customers,
the Bank offers several types of deposit accounts in addition to standard
savings, checking, and NOW accounts. Special deposit accounts include the
Clarendon, Loudoun and Fairfax Money Market Accounts which pay a higher rate of
interest but require a larger minimum deposit. Personal checking requires a $300
minimum balance and may have no monthly fee, per check charge, or activity
limit. Small Business Checking allows a small business to pay no monthly service
charge with a minimum balance of $1,000 but limits the number of checks and
deposits per month. If the minimums are exceeded in this account, the small
business may move to another account with a minimum balance of $2,500 and would
be entitled to a higher minimum number of checks and deposits without incurring
a monthly fee. If the small business grows and exceeds these minimums, the
regular commercial analysis account is available where adequate balance can
offset the cost of activity. Therefore, the bank offers a range of accounts to
meet the needs of the customer without the customer incurring charges or fees.

         Bills have been introduced in each of the last several Congresses which
would permit banks to pay interest on checking and demand deposit accounts
established by businesses, a practice which is currently prohibited by
regulation. If the legislation effectively permitting the payment of interest on
business demand deposits is enacted, of which there can be no assurance, it is
likely that we may be required to pay interest on some portion of our
noninterest bearing deposits in order to compete against other banks. As a
significant portion of our deposits are non-interest bearing demand deposits
established by businesses, payment of interest on these deposits could have a
significant negative impact on our net income, net interest income, interest
margin, return on assets and equity, and other indices of financial performance.
We expect that other banks would be faced with similar negative impacts. We also
expect that the primary focus of competition would continue to be based on other
factors, such as quality of service.

         Borrowing. While the Company has not placed significant reliance on
borrowings as a source of liquidity, we have established various borrowing
arrangements in order to provide management with additional sources of liquidity
and funding, thereby increasing flexibility. Management believes that the
Company currently has adequate liquidity available to respond to current
liquidity demands.

COMMUNITY REINVESTMENT ACT

         The Bank is committed to serving the banking needs of the entire
community, including low and moderate income areas, and is a supporter of the
Community Reinvestment Act ("CRA"). There are several ways in which the Bank
attempts to fulfill this commitment, including working with economic development
agencies, undertaking special projects, and becoming involved with neighborhood
outreach programs.

         The Bank has contacts with state and city agencies that assist in the
financing of affordable housing developments as well as with groups which
promote the economic development of low and moderate income individuals. The
Bank has computer software to geographically code all types of accounts to track
business development and performance by census tract and to assess market
penetration in low and moderate income neighborhoods within the primary service
area. The Bank is a registered Small Business Administration lender.

         The Company encourages its directors and officers to participate in
community, civic and charitable organizations. Management and members of the
Board of Directors periodically review the various CRA activities of the Bank,
including the advertising program and geo-coding of real estate loans by census
tract data which specifically focuses on low income neighborhoods, its credit
granting process with respect to business prospects generated in these areas,
and its involvement with community leaders on a personal level.


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COMPETITION

         In attracting deposits and making loans, we encounter competition from
other institutions, including larger commercial banking organizations, savings
banks, credit unions, other financial institutions and non-bank financial
service companies serving our market area. Financial and non-financial
institutions not located in the market are also able to reach persons and
entities based in the market through mass marketing, the internet,
telemarketing, and other means. The principal methods of competition include the
level of loan interest rates, interest rates paid on deposits, efforts to obtain
deposits, range of services provided and the quality of these services. Our
competitors include a number of major financial companies whose substantially
greater resources may afford them a marketplace advantage by enabling them to
maintain numerous banking locations and mount extensive promotional and
advertising campaigns. In light of the deregulation of the financial service
industry and the absence of interest rate controls on deposits, we anticipate
continuing competition from all of these institutions in the future.
Additionally, as a result of legislation which reduced restrictions on
interstate banking and widened the array of companies that may own banks, we may
face additional competition from institutions outside our market and outside the
traditional range of bank holding companies which may take advantage of such
legislation to acquire or establish banks or branches in our market. There can
be no assurance that we will be able to successfully meet these competitive
challenges.

         In addition to offering competitive rates for its banking products and
services, our strategy for meeting competition has been to concentrate on
specific segments of the market for financial services, particularly small
business and individuals, by offering such customers customized and personalized
banking services.

         We believe that active participation in civic and community affairs is
an important factor in building our reputation and, thereby, attracting
customers.

EMPLOYEES

         As of December 31, 2003, the Bank had 46 full-time and 7 part-time
employees. The Company has no employees who are not also employees of the Bank.
Our employees are not represented by any collective bargaining unit, and we
believe our employee relations are good. The Bank maintains a benefit program,
which includes health and dental insurance, life, short-term and long-term
disability insurance, and a 401(k) plan for substantially all employees.

                           SUPERVISION AND REGULATION

JAMES MONROE BANCORP

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

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

         Under current law, with certain limited exceptions, a bank holding
company is prohibited from acquiring control of any voting shares of any company
which is not a bank or bank holding company and from engaging directly or
indirectly in any activity other than banking or managing or controlling banks
or furnishing services to or performing service for its authorized subsidiaries.
A bank holding company may, however, engage in or acquire an interest in, a
company that engages in activities which the Federal Reserve Board has
determined by order or regulation to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. In making such
a determination, the Federal Reserve Board is required to consider whether the
performance of such activities can reasonably be expected to produce benefits to
the public, such as convenience, increased competition or gains in efficiency,
which outweigh possible adverse effects, such as undue


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concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices. The Federal Reserve Board is also
empowered to differentiate between activities commenced de novo and activities
commenced by the acquisition, in whole or in part, of a going concern. Some of
the activities that the Federal Reserve Board has determined by regulation to be
closely related to banking include making or servicing loans, performing certain
data processing services, acting as a fiduciary or investment or financial
advisor, and making investments in corporations or projects designed primarily
to promote community welfare.

         Effective on March 11, 2001, the Gramm Leach Bliley Act (the "GLB Act")
allows a bank holding company or other company to certify status as a financial
holding company, which will allow such company to engage in activities that are
financial in nature, that are incidental to such activities, or are
complementary to such activities. The GLB Act enumerates certain activities that
are deemed financial in nature, such as underwriting insurance or acting as an
insurance principal, agent or broker, underwriting, dealing in or making markets
in securities, and engaging in merchant banking under certain restrictions. It
also authorizes the Federal Reserve Board to determine by regulation what other
activities are financial in nature, or incidental or complementary thereto.

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

         The Federal Reserve has also adopted capital guidelines for bank
holding companies that are substantially the same as those applying to state
member banks, although these requirements are not currently applicable to
Bancorp.

JAMES MONROE BANK

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

         Banking is a business which depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and
its other borrowings and the interest received by a bank on loans extended to
its customers and securities held in its investment portfolio constitute the
major portion of the Bank's earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United States
and its agencies, particularly the Federal Reserve Board, which regulates the
supply of money through various means including open market dealings in United
States government securities. The nature and timing of changes in such policies
and their impact on the Bank cannot be predicted.

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


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

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

         State member banks are expected to meet a minimum ratio of total
qualifying capital (the sum of core capital (Tier 1) and supplementary capital
(Tier 2)) to risk weighted assets of 8%. At least half of this amount (4%)
should be in the form of core capital.

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

         In addition to the risk-based capital requirements, the Federal Reserve
Board has established a minimum 4.0% Leverage Capital Ratio (Tier 1 Capital to
total adjusted assets) requirement for the most highly-rated banks, with an
additional cushion of at least 100 to 200 basis points for all other banks,
which effectively increases the minimum Leverage Capital Ratio for such other
banks to 4.0% - 6.0% or more. The highest-rated banks are those that are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, those which are considered a strong
banking organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply
with such requirement, submit a reasonable plan describing the means and timing
by which a bank shall achieve its minimum Leverage Capital Ratio requirement. A
bank that fails to file such plan is deemed to be operating in an unsafe and
unsound manner, and could subject that bank to a cease-and-desist order. Any
insured depository institution with a Leverage Capital Ratio that is less than
2.0% is deemed to be operating in an unsafe or unsound condition pursuant to
Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and is subject to
potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding solely on account of its capital
ratios, if it has entered into and is in compliance with a written agreement to
increase its Leverage Capital Ratio and to take such other action as may be
necessary for the institution to be operated in a safe and sound manner. The
capital regulations also provide, among other things, for the issuance of a
capital directive, which is a final order issued to a bank that fails to
maintain minimum capital or to restore its capital to the minimum capital
requirement within a specified time period. Such directive is enforceable in the
same manner as a final cease-and-desist order.

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


                                       8

<PAGE>

Capital Ratio that is less than 8.0%, a Tier 1 Risk based Capital Ratio that is
less than 4.0% or a Leverage Capital Ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) "significantly undercapitalized" if it has a Total
Risk Based Capital Ratio that is less than 6.0%, a Tier 1 Risk Based Capital
Ratio that is less than 3.0% or a Leverage Capital Ratio that is less than 3.0%;
and (v) "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%.

         An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. A federal banking agency must provide the institution with
written notice of approval or disapproval within 60 days after receiving a
capital restoration plan, subject to extensions by the applicable agency.

         An institution which is required to submit a capital restoration plan
must concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an amount
equal to 5.0% of the institution's total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty shall expire after the federal banking
agency notifies the institution that it has remained adequately capitalized for
each of four consecutive calendar quarters. An institution which fails to submit
a written capital restoration plan within the requisite period, including any
required performance guaranty, or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section 38 of
the FDIA which are applicable to significantly undercapitalized institutions.

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

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

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


                                       9

<PAGE>

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

         Deposit Insurance Premiums. The FDIA establishes a risk based deposit
insurance assessment system. Under applicable regulations, deposit premium
assessments are determined based upon a matrix formed utilizing capital
categories - well capitalized, adequately capitalized and undercapitalized -
defined in the same manner as those categories are defined for purposes of
Section 38 of the FDIA. Each of these groups is then divided into three
subgroups which reflect varying levels of supervisory concern, from those which
are considered healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging from 0.00% of insured deposits for well
capitalized institutions having the lowest level of supervisory concern, to
0.27% of insured deposits for undercapitalized institutions having the highest
level of supervisory concern. In general, while the Bank Insurance Fund of the
FDIC ("BIF") maintains a reserve ratio of 1.25% or greater, no deposit insurance
premiums are required. When the BIF reserve ratio falls below that level, all
insured banks would be required to pay premiums. Payment of deposit premiums,
either under current law or as the deposit insurance system may be reformed,
will have an adverse impact on earnings.

ITEM 2.  DESCRIPTION OF PROPERTY.

         We currently maintain five banking offices in the Northern Virginia
market. All of our properties are occupied under leases which have terms
extending until at least 2007 and have one or more renewal options. We have also
leased 14,107 square feet in a new building in Chantilly, Virginia which will
house our sixth banking office and certain administrative and operations
functions and is expected to open in the second quarter of 2004. Our office
locations are set forth below.

       ADDRESS                                  TYPE OF FACILITY
       -------                                  ----------------
3033 Wilson Boulevard          Main banking office, executive offices, back
Arlington, Virginia                office operations
7023 Little River Turnpike     Full service branch, Mortgage division
Annandale, Virginia
10509 Judicial Drive           Full service branch
Fairfax, Virginia
606 South King Street          Full service branch
Leesburg, Virginia
10 W. Market Street            Drive through/walk through limited service branch
Leesburg, Virginia
3914 Centreville Road          Full service branch - expected to open second
Chantilly, Virginia                quarter 2004;  Future site of certain
                                   administrative and operations functions.

         Management believes the existing facilities are adequate to conduct the
Company's business.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company may be involved in routine legal proceedings in the
ordinary course of its business. At December 31, 2003, there were no pending or
threatened legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

            No matters were submitted for the vote of shareholders during the
quarter ended December 31, 2003.


                                       10

<PAGE>



                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
        ISSUER PURCHASES OF SECURITIES.

         Market for Common Stock and Dividends. Since August 27, 2002, our
common stock has been trading on the Nasdaq SmallCap Market under the symbol
"JMBI." Prior to that date and since January 19, 2001, the common stock was
traded on the OTC Bulletin Board. Prior to January 19, 2001, private trades were
conducted without brokers and there may have been other trades of which we are
either not aware of the price or of the transaction. Such trades and
transactions did not necessarily reflect the intrinsic or market values of the
common stock. As of December 31, 2003, there were 2,943,802 shares of common
stock outstanding, held by approximately 485 shareholders of record. At that
date, there were also outstanding options to purchase 260,956 shares of common
stock, 227,305 of which were exercisable.

         Set forth below is our share price history for the each quarter since
January 1, 2001 through December 31, 2003. Information provided represents high
and low bid prices, which reflect inter-dealer prices without retail mark-up,
mark-down or commission, and may not represent actual trades. To date, trading
in the common stock has been sporadic and volume has been light. No assurance
can be given that an active trading market will develop, or if one develops, can
be maintained. Information has been adjusted to reflect the three-for-two stock
split in the form of a 50% stock dividend paid on July 25, 2002, and the
five-for-four stock split in the form of a 25% stock dividend paid on May 16,
2003.

                              2003              2002               2001
                         --------------     ------------      -------------

  Period Ended           High       Low     High     Low      High      Low
                         ----       ---     ----     ---      ----      ---
  March 31              $17.80    $13.00   $10.14   $9.07     $8.27    $7.20

  June 30               $21.52    $14.04   $12.81   $9.40     $7.74    $6.40

  September 30,         $26.20    $21.75   $12.41   $8.88     $9.07    $7.34

  December 31           $26.36    $22.20   $13.61   $10.44   $10.14    $7.47

         Dividends. Holders of the common stock are entitled to receive
dividends as and when declared by the Board of Directors. On July 25 2002, the
Company effected a three-for-two stock split in the form of a 50% stock
dividend. On May 16, 2003, we paid a five-for-four stock split in the form of a
25% stock dividend. The Company has not paid cash dividends since it became the
holding company for the Bank, and prior to that time the Bank did not pay any
cash dividends, each electing to retain earnings to support growth. We currently
intend to continue the policy of retaining earnings to support growth for the
immediate future. Future dividends will depend primarily upon the Bank's
earnings, financial condition, and need for funds and capital, as well as
applicable governmental policies and regulations. There can be no assurance that
we will have earnings at a level sufficient to support the payment of dividends,
or that we will in the future elect to pay dividends.

         Regulations of the Federal Reserve and Virginia law place a limit on
the amount of dividends the Bank may pay without prior approval. Prior
regulatory approval is required to pay dividends which exceed the Bank's net
profits for the current year plus its retained net profits for the preceding two
calendar years, less required transfers to surplus. At December 31, 2003,
$5,371,000 was available for the payment of dividends by the Bank without prior
regulatory approval. State and federal regulatory authorities also have
authority to prohibit a bank from paying dividends if they deem payment to be an
unsafe or unsound practice.

         The Federal Reserve has established guidelines with respect to the
maintenance of appropriate levels of capital by registered bank holding
companies. Compliance with such standards, as presently in effect, or as they
may be amended from time to time, could possibly limit the amount of dividends
that the Company may pay in the future. In 1985, the Federal Reserve issued a
policy statement on the payment of cash dividends by bank holding companies. In
the statement, the Federal Reserve expressed its view that a holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income, or which could only be funded in ways that weakened the holding
company's financial health, such as by borrowing.


                                       11

<PAGE>

         As a depository institution, the deposits of which are insured by the
FDIC, the Bank may not pay dividends or distribute any of its capital assets
while it remains in default on any assessment due the FDIC. The Bank is not
currently in default under any of its obligations to the FDIC.

         Recent Sales of Unregistered Shares. During the past three years, the
Company has not sold any securities without registration under the Securities
Act of 1933, except for:

         o         On each of February 10, 2001 and February 12, 2002, Director
                   Dr. Alvin Nashman exercised options to purchase 3,188 shares
                   of common stock at an exercise price of $5.34 per share (as
                   adjusted for the stock splits). The Company relied on the
                   exemption provided by Section 4(2) of the Securities Act of
                   1933.

         o         On June 30, 2002, the Company completed the sale of 488,480
                   shares of its common stock, $1.00 par value (as adjusted for
                   the stock splits), in a private placement transaction to
                   accredited investors and 26 nonaccredited investors,
                   conducted in accordance with the provisions of Rule 506
                   promulgated under Section 4(2) of the Securities Exchange Act
                   of 1934. The shares were sold for cash at a split adjusted
                   price of $9.60 per share, resulting in gross proceeds of
                   $4,689,414. No person or entity underwrote any portion of the
                   offering. Commissions of approximately $0.38 per share, or
                   $25,200 in the aggregate were paid to a registered broker
                   dealer acting as finder in connection with the sale of 65,625
                   shares to two investors in the offering.

          o         At March 26, 2002, the Company's new wholly owned statutory
                    business trust, JMBI Capital Trust I ("Trust I"), issued
                    $5.0 million of floating rate preferred capital securities
                    to a third party. Trust I invested the proceeds in an
                    equivalent amount of junior subordinated debt securities
                    (trust preferred capital notes) of the Company bearing an
                    interest rate equal to the coupon rate on the securities
                    issued by Trust I. After the payment of placement fees, the
                    Company received an aggregate of $4,845,000 from these
                    transactions. The net proceeds received by the Company will
                    be used for the general corporate purposes of the Company
                    and the Bank, including supporting continued expansion
                    activities through the establishment and/or acquisition of
                    additional branch offices and possible corporate
                    acquisitions. The trust preferred capital notes securities,
                    which are the sole assets of Trust I, are subordinate and
                    junior in right of payment to all present and future senior
                    debt (as defined in the indenture) and certain other
                    financial obligations of the Company. The Company and Trust
                    I issued these securities in reliance on the exemption from
                    registration provided by Section 4(2) of the Securities Act
                    of 1933, as amended.

          o         At July 31, 2003, the Company's new wholly owned statutory
                    business trust, JMBI Capital Trust II ("Trust II"), issued
                    $4.0 million of floating rate preferred capital securities
                    to a third party. Trust II invested the proceeds in an
                    equivalent amount of junior subordinated debt securities
                    (trust preferred capital notes) of the Company bearing an
                    interest rate equal to the coupon rate on the securities
                    issued by Trust II. After the payment of placement fees, the
                    Company received an aggregate of $3,900,009 from these
                    transactions. The net proceeds received by the Company will
                    be used for the general corporate purposes of the Company
                    and the Bank, including supporting continued expansion
                    activities through the establishment and/or acquisition of
                    additional branch offices and possible corporate
                    acquisitions. The trust preferred capital notes securities,
                    which are the sole assets of Trust II, are subordinate and
                    junior in right of payment to all present and future senior
                    debt (as defined in the indenture) and certain other
                    financial obligations of the Company. The Company and Trust
                    II issued these securities in reliance on the exemption from
                    registration provided by Section 4(2) of the Securities Act
                    of 1933, as amended.

         Use of Proceeds:  Not Applicable.


                                       12

<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

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 James Monroe Bancorp, Inc. and its
subsidiaries as of and for the years ended December 31, 2003, 2002 and 2001.
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 fourth quarter of 2003. 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.

         Homogenous 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 homogenous 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


                                       13

<PAGE>

or an indication of a trend that would guide the Company in expected material
losses in these types of homogenous pools of loans.

         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, 2002 ARE:

         o    Average assets grew $91.3 million (52%).
         o    Average loans grew $39.0 million (37%). o Average deposits grew
              $81.4 million (52%).
         o    Although rates continued to soften during 2003, our net interest
              margin declined only 17 basis points to 3.73%.
         o    The Company raised $4 million of additional capital through the
              issuance of trust preferred securities by a subsidiary. The trust
              preferred securities reflect interests in 30 year junior
              subordinated debentures of the Company. The securities bear
              interest at a rate equal to three month Libor plus 310 basis
              points, initially 4.21%, subject to a cap of 12% prior to July 31,
              2008. During 2003 the interest rates ranged from 4.21% to 4.24%.
              The securities have a maturity date of July 31, 2033, and are
              subject to optional call provisions beginning July 31, 2008.
         o    The Company raised $12.8 million in equity (net of expenses) by
              the sale in an underwritten offering of 600 thousand shares of
              common stock at $23.00 per share. This additional equity, along
              with the $4 million in trust preferred securities, has enhanced
              the capital base to support further growth.
         o    In 2003 the Company established a mortgage lending division which
              originates conforming mortgage loans on a pre-sold basis, for sale
              to secondary market investors, servicing released.
         o    Asset quality remains strong with $97 thousand of net charge offs
              in 2003, or 0.07% of average loans for 2003.
         o    The Company has excellent liquidity and adequate capital at
              December 31, 2003.

BALANCE SHEET

         DECEMBER 2003 VS. DECEMBER 2002. Total assets increased by $66.9
million from December 31, 2002 to December 31, 2003, ending the period at $305.7
million. During this period, the Company emphasized the importance of becoming
the primary banker for our customers with the goal of providing both lending and
deposit services. These efforts resulted in deposit growth of $41.2 million and
loan growth of $47.4 million. With the growth in deposits and the proceeds from
the trust preferred capital notes and equity offerings along with utilization of
$28.8 million in short term funds, the Company was able to fund a $47.4 million
net increase in loans and add $46.3 million to the securities portfolio. To
minimize exposure to historically low short-term interest rates the Company
became a net purchaser of overnight funds during the fourth quarter of 2003.
Stockholders' equity increased $14.7 million as a result of the $2.6 million of
earnings retention for the year 2003, the $12.8 million, net of expenses, from
the sale of common stock in the public offering, and $370 thousand from the
exercise of options offset by a $1.0 million decrease in the unrealized gains on
securities available for sale.

         DECEMBER 2002 VS. DECEMBER 2001. Total assets increased by $112.1
million from December 31, 2001 to December 31, 2002, ending the period at $238.8
million. The increase in assets since December 31, 2001 resulted from the
Company's emphasis on deposit generation as much as loan generation. Deposits
increased $99.6 million, with noninterest-bearing deposits increasing $31.7
million and interest-bearing deposits increasing $67.9 million. With the growth
in deposits and the proceeds from the trust preferred capital notes and equity
offerings, the Company was able to fund a $34.5 million net increase in loans,
add $53.9 million to the securities portfolio, and increase the Company's
short-term liquidity position (Cash and due from banks, Federal funds sold and
Interest bearing deposits) by $23 million. Stockholders' equity increased $7.2
million as a result of the $1.6 million of earnings retention for the year 2002,
the $4.7 million from the sale of common stock in the private placement, $67
thousand from the exercise of options and $962 thousand increase in the
unrealized gains on securities available for sale.


                                       14

<PAGE>


RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                ------------------------------------------------
(Dollars in thousands except share data)             2003             2002            2001
                                                ---------------- ---------------- --------------
<S>                                                 <C>              <C>             <C>
BALANCE SHEET HIGHLIGHTS:
Total assets                                        $   305,651      $   238,793     $  126,658
Total loans                                             169,047          121,047         86,139
Total liabilities                                       271,760          219,598        114,691
Total stockholders' equity                               33,891           19,195         11,967
----------------------------------------------- ---------------- ---------------- --------------
RESULTS OF OPERATIONS:
Total interest income                               $    13,026      $    10,091     $    7,548
Total interest expense                                    3,618            3,609          2,918
Net interest income                                       9,408            6,482          4,630
Provision for loan losses                                   662              483            450
Other income                                              1,147              760            554
Noninterest expense                                       5,964            4,394          3,033
Income before taxes                                       3,929            2,365          1,701
Net income                                                2,601            1,553          1,112
----------------------------------------------- ---------------- ---------------- --------------
PER SHARE DATA*:
Earnings per share, basic                           $      1.09      $      0.75     $     0.62
Earnings per share, diluted                         $      1.02      $      0.72     $     0.59
Weighted average shares
     outstanding--basic                               2,393,287        2,054,844      1,800,186
Weighted average shares
     outstanding--diluted                             2,553,267        2,160,539      1,866,413
Book value (at period-end)                          $     11.51      $      8.34     $     6.65
Shares outstanding                                    2,943,802        2,300,846      1,800,876
----------------------------------------------- ---------------- ---------------- --------------
PERFORMANCE RATIOS:
Return on average assets                                  0.97%            0.88%          1.02%
Return on average equity                                 11.94%           10.15%          9.65%
Net interest margin                                       3.73%            3.90%          4.56%
Efficiency Ratio (1)                                     56.50%           60.67%         58.51%
----------------------------------------------- ---------------- ---------------- --------------
OTHER RATIOS:
Allowance for loan losses to total loans                  1.16%            1.15%          1.20%
Equity to assets                                         11.09%            8.04%          9.45%
Nonperforming loans to total loans                        0.30%            0.24%          0.31%
Net charge-offs to average loans                          0.07%            0.12%          0.03%
Risk-Adjusted Capital Ratios:
     Tier 1                                               21.9%            15.4%          11.9%
     Total                                                22.9%            16.4%          13.0%
     Leverage Ratio                                       14.3%            10.5%           9.5%
</TABLE>

  * Information has been adjusted to reflect the 3-for-2 stock split in the
    form of a 50% stock dividend paid on July 25, 2002 and the 5-for-4 stock
    split in the form of a 25% stock dividend paid on May 16, 2003.


(1)      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.


                                       15

<PAGE>


COMPARISON OF 2003 OPERATING RESULTS TO 2002 OPERATING RESULTS

         For the year ended December 31, 2003, the Company earned $2.6 million,
or $1.09 per basic share and $1.02 per diluted share, compared with $1.6
million, or $.75 per basic share and $.72 per diluted share, for the year ended
December 31, 2002. Return on average assets was .97% and return on average
equity was 11.94% for the year ended December 31, 2003 compared to a .88% return
on average assets and a 10.15% return on average equity for the year ended
December 31, 2002.

         Per share earnings and the ratios for 2003 are negatively impacted as a
result of the sale and issuance of 600,000 additional shares of common stock in
November 2003.

         During 2003, the Company continued to focus on managing its net
interest margin, especially in light of the sustained extremely low rate
environment in 2003. After reducing interest rates 11 times in 2001 for a total
reduction of 475 basis points, the Federal Reserve reduced rates twice over the
past two years by 50 basis in November 2002 and 25 basis points in June 2003.
These rate reductions had an impact in 2002 and 2003 on the rates earned on the
Bank's outstanding floating or adjustable rate loans, as well as new loans, and
on the rates earned on other investments. This was partially offset by continued
repricing upon renewal of certificates of deposit. The Company effectively
managed rate reductions as the net interest margin decreased only 17 basis
points during 2003 from 2002. Although the Company has grown dramatically in
asset size each year since its inception in 1998, it has been able to control
its operating efficiency. The Company's Efficiency Ratio improved significantly
from 60.67% in 2002 to 56.50% in 2003. 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.

NET INTEREST INCOME

         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 a financial institution'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 the Bank, rely primarily on net interest income from traditional
banking activities as the primary revenue source. Table 1 presents average
balance sheets and a net interest income analysis for the years ended December
31, 2003 and December 31, 2002. The Company did not have any tax-exempt income
during any of the periods presented in Table 1.

         For the year ended December 31, 2003, net interest income increased
$2.9 million, or 45.1%, to $9.4 million from the $6.5 million for the year ended
December 31, 2002. This was primarily a result of the increase in the volume of
interest earning assets, and partially offset by the effect of declining
interest rates, loan repricing, the investment of the liquidity generated into
lower yielding securities, and short-term investments. Total average earning
assets increased by $86.4 million, or 52.0%, from 2002 to 2003. The yield on
earning assets decreased by 92 basis points from 2002, reflecting the continued
impact of reductions in interest rates over the past three years. Yields on
federal funds and the securities portfolio decreased by 56 and 130 basis points,
respectively. Average loans outstanding grew by $39.0 million, or 36.8%, during
2003. The yield on such loans decreased by 65 basis points. The securities yield
reflected the most sensitivity to declining rates, while loan yields and the
federal funds rate, which is the short-term liquidity yield declined, but not as
significantly. In the case of the securities portfolio, many agency bonds were
called in 2003 and 2002 and reinvested at the current lower market rates.

         Interest expense for 2003 was $3.6 million, the same level as 2002
despite an increase of $54.9 million or 45.3% in average interest bearing
liabilities.

COMPARISON OF AVERAGE BALANCES, INTEREST AND YIELDS

         The following table provides certain information relating to the
Company's average consolidated statements of financial condition and reflects
the interest income on interest-earning assets and interest expense of
interest-bearing liabilities for the periods indicated and the average yields
earned and rates paid for 2003 and 2002. These yields and costs


                                       16

<PAGE>

are derived by dividing income or expense by the average daily balance of the
related asset or liability for the periods presented. Non-accrual loans have
been included in the average balances of loans receivable.

TABLE 1
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
2003 COMPARED TO 2002
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                         Year Ended                                Year Ended
                                                      December 31, 2003                         December 31, 2002
---------------------------------------------------------------------------------------------------------------------------
                                                Average                     Yield/       Average                     Yield/
                                                Balance     Interest         Rate        Balance      Interest        Rate
---------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>             <C>         <C>           <C>            <C>
ASSETS
Loans:
     Commercial                                $  39,171    $  2,501        6.38%       $  32,732     $  2,251       6.88%
     Commercial real estate                       92,410       6,302         6.82          60,735        4,543        7.48
     Consumer                                     13,537         855         6.32          12,639          963        7.62
                                            --------------------------------------   --------------------------------------
          Total Loans                            145,118       9,658         6.66         106,106        7,757        7.31
Taxable securities                                86,213       3,118         3.62          41,924        2,062        4.92
Mortgage loans held for sale                       1,230          60         4.88              --           --          --
Federal funds sold and cash equivalents           19,955         190         0.95          18,071          272        1.51
                                            --------------------------------------   --------------------------------------
  TOTAL EARNING ASSETS
Less allowance for loan losses                   252,516      13,026        5.16%         166,101       10,091        6.08%
Cash and due from banks                           (1,643)                                  (1,257)
Premises and equipment, net                       13,671                                    9,441
Other assets                                       1,392                                    1,289
                                                   1,890                                      994
                                            -------------                            -------------
  TOTAL ASSETS                                 $ 267,826                                $ 176,568
                                            =============                            =============
LIABILITIES AND
  STOCKHOLDERS' EQUITY
Interest-bearing demand deposits               $  10,919    $     88        0.81%       $   5,739     $     61       1.06%
Money market deposit accounts                    113,802       2,064         1.81          69,037        1,750        2.53
Savings accounts                                   1,954          26         1.33           1,240           22        1.77
Time deposits                                     42,543       1,115         2.62          41,381        1,558        3.77
Borrowed funds                                     6,904         325         4.71           3,849          218        5.66
                                            --------------------------------------   --------------------------------------
  TOTAL INTEREST-BEARING
   LIABILITIES                                   176,122       3,618        2.05%        121,246         3,609       2.98%
                                            --------------------------------------   --------------------------------------

Net Interest Income and Net Yield
on Interest-Earning Assets                                  $  9,408        3.73%                     $  6,482       3.90%

                                                         =========================                =========================

Noninterest-bearing demand
     deposits
                                                  69,124                                   39,554
Other liabilities
                                                     798                                      474
Stockholders' equity
                                                  21,782                                   15,294
                                            -------------                            -------------
          TOTAL LIABILITIES AND
          STOCKHOLDERS' EQUITY                 $ 267,826                                $ 176,568
                                            =============                            =============
</TABLE>



                                       17

<PAGE>


         Table 2 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 between 2003 and 2002. As the table shows, the
increase in net interest income in 2003 as compared to 2002 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 $305
thousand reduction of net interest income, whereas the growth in earning assets
and deposits resulted in an increase of $3.2 million to net interest income.

TABLE 2

EFFECT OF VOLUME RATE CHANGES ON NET INTEREST INCOME

                                                  December 31
                                                 2003 vs. 2002
                                  --------------------------------------------
                                                        Due to Change
                                    Increase             in Average:
                                       or       ------------------------------
(Dollars in thousands)             (Decrease)       Volume          Rate
                                  --------------------------------------------
EARNING ASSETS:
Loans                                 $   1,901      $   2,514      $   (613)
Taxable securities                        1,056          1,408          (352)
Mortgage loans held for sale                 60             60            --
Federal funds sold                          (82)            34          (116)
                                  --------------------------------------------
     Total interest income                2,935          4,016        (1,081)

INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits             27             35            (8)
Money market deposit
  accounts                                  314            560          (246)
Savings deposits                              4              7            (3)
Time deposits                              (443)            47          (490)
Borrowed funds                              107            136           (29)
                                  --------------------------------------------
     Total interest expense                   9            785          (776)
                                  --------------------------------------------
          Net Interest Income         $   2,926      $   3,231      $   (305)
                                  ============================================

COMPARISON OF 2002 OPERATING RESULTS TO 2001 OPERATING RESULTS

         For the year ended December 31, 2002, the Company earned $1.6 million,
or $.75 per basic share and $.72 per diluted share, compared with $1.1 million,
or $.62 per basic share and $.59 per diluted share, for the year ended December
31, 2001. Return on average assets was .88% and return on average equity was
10.15% for the year ended December 31, 2002 compared to a 1.02% return on
average assets and a 9.65% return on average equity for the year ended December
31, 2001.

         Per share earnings and the ratios for 2002 are negatively impacted as a
result of the sale and issuance of approximately 487,500 additional shares of
common stock in June 2002, as adjusted for the stock splits.


                                       18

<PAGE>


         During 2002, the Company continued to focus on managing its net
interest margin, especially in light of the rapidly changing interest rate
environment in 2001 and then the sustained extremely low rate environment in
2002. In 2001, the Federal Reserve reduced interest rates 11 times, for a total
reduction of 475 basis points, an unprecedented reduction both in terms of the
number of, and amount of, rate changes in a 12-month period. The Federal Reserve
reduced interest rates an additional 50 basis points in November 2002. These
rate reductions had a direct impact in 2001 and 2002 on the rates earned on the
Bank's outstanding floating or adjustable rate loans, as well as new loans, and
on the rates earned on other investments. These dramatic reductions in a
relatively short period continued to impact the loan and investment portfolios
in 2002, 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. These rate reductions resulted in a reduction in the
net interest margin, which declined from 5.09% in 2000 to 4.56% in 2001 to 3.90%
in 2002. Despite these reductions, the Company's practice of managing its
interest rate risk process has mitigated the negative effect of such a severely
declining rate environment. Although the Company continued to grow in asset size
since its inception in 1998, and added its third and fourth branches in 2002, it
has been able to control its operating efficiency. The Company's Efficiency
Ratio increased only slightly from 58.51% in 2001 to 60.67% in 2002. 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. Comparison of
our efficiency ratio with those of other companies may not be possible, because
other companies may calculate the efficiency ratio differently.

NET INTEREST INCOME

         Table 3 presents average balance sheets and a net interest income
analysis for the years ended December 31, 2002 and December 31, 2001. The
Company did not have any tax-exempt income during any of the periods presented
in Table 3.

         For the year ended December 31, 2002, net interest income increased
$1.9 million, or 40.0%, to $6.5 million from the $4.6 million for the year ended
December 31, 2001. This was primarily a result of the increase in the volume of
interest earning assets, and partially offset by the effect of declining
interest rates, loan repricing, the investment of the liquidity generated into
lower yielding securities, and short-term investments rather than loans. Total
average earning assets increased by $64.7 million, or 63.8%, from 2001 to 2002.
The yield on earning assets decreased by 136 basis points from 2001, reflecting
the continued impact of the dramatic reductions in interest rates in 2001.
Yields on federal funds and the securities portfolio decreased by 216 and 136
basis points, respectively. Average loans outstanding grew by $40.2 million, or
60.9%, during 2002. The yield on such loans decreased by 125 basis points. The
federal funds rate, which is the short-term liquidity yield, reflected the most
sensitivity to declining rates, while loan yields and the securities yields
declined, but not as significantly. This is due to the composition of the loan
portfolio being comprised of variable, fixed, and adjustable rates, which are
not all subject to immediate rate reductions. In the case of the securities
portfolio, many agency bonds were called in 2002 and 2001.

         Interest expense for 2002 was $3.6 million compared with $2.9 million
in interest expense for 2001. This increase is predominately a result of the
$53.5 million, or 79.1% growth in the volume of interest-bearing liabilities.

COMPARISON OF AVERAGE BALANCES, INTEREST AND YIELDS

         The following table provides certain information relating to the
Company's average consolidated statements of financial condition and reflects
the interest income on interest-earning assets and interest expense of
interest-bearing liabilities for the periods indicated and the average yields
earned and rates paid for 2002 and 2001. 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. Non-accrual loans have been included in the
average balances of loans receivable.


                                       19

<PAGE>


TABLE 3
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
2002 COMPARED TO 2001
(Dollars in thousands)

<TABLE>
<CAPTION>

                                                        Year Ended                               Year Ended
                                                     December 31, 2002                         December 31, 2001
---------------------------------------------------------------------------------------------------------------------------
                                              Average                   Yield/         Average                   Yield/
                                              Balance     Interest       Rate          Balance      Interest      Rate
---------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>             <C>         <C>           <C>            <C>
ASSETS
Loans:
     Commercial                                $  32,732    $  2,251        6.88%       $  25,521     $  2,110       8.27%
     Commercial real estate                       60,735       4,543         7.48          30,401        2,689        8.84
     Consumer                                     12,639         963         7.62          10,009          844        8.43
                                            --------------------------------------   --------------------------------------
          Total Loans                            106,106       7,757         7.31          65,931        5,643        8.56
Taxable securities                                41,924       2,062         4.92          23,218        1,464        6.31
Federal funds sold and cash equivalents           18,071         272         1.51          12,282          441        3.59
                                            --------------------------------------   --------------------------------------
  TOTAL EARNING ASSETS                           166,101      10,091        6.08%         101,431        7,548       7.44%
Less allowance for loan losses                    (1,257)                                    (756)
Cash and due from banks                            9,441                                    6,167
Premises and equipment, net                        1,289                                      871
Other assets                                         994                                      822
                                            -------------                            -------------
  TOTAL ASSETS                                 $ 176,568                                $ 108,535
                                            =============                            =============
LIABILITIES AND
  STOCKHOLDERS' EQUITY
Interest-bearing demand deposits               $   5,739    $     61        1.06%        $  4,851     $     78       1.61%
Money market deposit accounts                     69,037       1,750         2.53          33,516        1,203        3.59
Savings accounts                                   1,240          22         1.77             687           17        2.47
Time deposits                                     41,381       1,558         3.77          28,646        1,620        5.66
Trust preferred capital notes                      3,849         218         5.66              --           --          --
                                            --------------------------------------   --------------------------------------
  TOTAL INTEREST-BEARING
   LIABILITIES                                   121,246       3,609         2.98%         67,700        2,918       4.31%
                                            --------------------------------------   --------------------------------------
Net Interest Income and Net Yield on
Interest-Earning Assets                                     $  6,482         3.90%                    $  4,630       4.56%
                                                         =========================                =========================
Noninterest-bearing demand deposits               39,554                                   28,786
Other liabilities                                    474                                      527
Stockholders' equity                              15,294                                   11,522
                                            -------------                            -------------
          TOTAL LIABILITIES AND
          STOCKHOLDERS' EQUITY                 $ 176,568                                $ 108,535
                                            =============                            =============
</TABLE>



                                       20

<PAGE>


         Table 4 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 between 2002 and 2001. As the table shows, the
increase in net interest income in 2002 as compared to 2001 is primarily 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 managed
its exposure to changes in interest rates such that the negative effect of the
decline in rates in 2001 resulted in a $1.7 million reduction of net interest
income, whereas the growth in earning assets and deposits resulted in an
increase of $3.5 million to net interest income.

TABLE 4

EFFECT OF VOLUME RATE CHANGES ON NET INTEREST INCOME

                                                     December 31
                                                    2002 vs. 2001
                                     -------------------------------------------
                                                          Due to Change
                                       Increase            in Average:
                                          or       -----------------------------
(Dollars in thousands)                (Decrease)       Volume          Rate
                                     -------------------------------------------
EARNING ASSETS:
Loans                                  $   2,114      $   2,779     $    (665)
Taxable securities                           598            823          (225)
Federal funds sold                          (169)           721          (890)
                                     -------------------------------------------
     Total interest income                 2,543          4,323        (1,780)

INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits             (17)            20           (37)
Money market deposit accounts                547            756          (209)
Savings deposits                               5              8            (3)
Time deposits                                (62)          (254)          192
Trust preferred capital notes                218            218            --
                                     -------------------------------------------
     Total interest expense                  691            748           (57)
                                     -------------------------------------------
          Net interest income          $   1,852      $   3,575     $  (1,723)
                                     ===========================================



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 company
and peer group historical charge off history, trends in delinquencies and loan
grading, current economic conditions, and factors that include the composition
of the Company's loan portfolio. At December 31, 2003, the Company had $324,000
in impaired loans on non-accrual status.

         A methodology established for determining an appropriate allowance for
loan losses was approved by the Audit Committee and the Board of Directors in
2003. 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 6 below, the allowance is allocated among the
various categories of loans based upon the methodology described herein.


                                       21

<PAGE>


TABLE 5

        The  following  table  presents the activity in the  allowance  for
loan losses for the years ended  December 31, 1999 through 2003.

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                 -----------------------------------------------------------------------------------------
(Dollars in thousands)                2003               2002              2001              2000              1999
                                 ----------------   ---------------   ----------------  ---------------   ----------------
<S>              <C>                  <C>               <C>                <C>               <C>                <C>
Balance, January 1                    $    1,390        $    1,030         $      600        $     363          $     132
Provision for loan losses                    662               483                450              237                231
Loan charge-offs:
     Commercial                              (71)             (122)                (5)              --                 --
     Consumer                                (41)               (4)               (15)              --                 --
                                 ----------------   ---------------   ----------------  ---------------   ----------------
       Total charge-offs                    (112)             (126)               (20)              --                 --
Loan recoveries:
     Commercial                               15                --                 --               --                 --
     Consumer                                 --                 3                 --               --                 --
                                 ----------------   ---------------   ----------------  ---------------   ----------------
     Net charge-offs                         (97)             (123)               (20)              --                 --
                                 ----------------   ---------------   ----------------  ---------------   ----------------
Balance, December 31                  $    1,955        $    1,390         $    1,030        $     600          $     363
                                 ================   ===============   ================  ===============   ================
</TABLE>

TABLE 6

         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.

<TABLE>
<CAPTION>
                                                                         December 31,
                           ---------------------------------------------------------------------------------------------------------
                                   2003                 2002                 2001                  2000                 1999
                           -------------------  -------------------- --------------------  -------------------- --------------------
                                     Percent              Percent              Percent               Percent              Percent
                                    of total             of total             of total              of total             of total
(Dollars in thousands)     Amount    loans      Amount    loans      Amount    loans       Amount    loans      Amount    loans
                           -------------------  -------------------- --------------------  -------------------- --------------------
<S>                         <C>        <C>       <C>          <C>     <C>         <C>        <C>        <C>        <C>
Construction loans          $    50    10.7 %    $      35    10.0 %  $   78      10.9 %     $  53      8.9 %      $  --      -- %
Commercial loans                984    14.7            765    23.0       281      27.3         202     33.7          200    50.9
Commercial real estate
  loans                         823    67.0            504    58.1       528      51.3         250     41.5          120    31.7
Real estate 1-4 family
  residental loans                4     2.2              6     1.7        40       3.9          50      8.3           10     3.2
Home equity loans                 9     1.9              8     2.0        19       1.8          --      1.1           --     0.5
Consumer loans                   85     3.4             72     5.2        84       4.8          45      6.5           33    13.7
                           -------------------  -------------------- --------------------  -------------------- --------------------
Balance End of Period       $ 1,955   100.0 %    $   1,390   100.0 %  $1,030     100.0 %     $ 600   100.0 %       $ 363   100.0 %
                           ===================  ==================== ====================  ==================== ====================
</TABLE>



                                       22

<PAGE>


TABLE 7


The following table shows the amounts of non-performing assets at the dates
indicated.

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                   -----------------------------------------------------------------------
(Dollars in Thousands)                                2003           2002           2001          2000           1999
                                                   ------------   ------------  -------------  ------------   ------------
<S>                                                    <C>            <C>            <C>            <C>            <C>
Nonaccrual loans excluded from impaired loans:
   Commercial                                          $   150        $    22        $    --        $   --         $   --
   Consumer                                                 36             34             --            --             --
Accruing loans- past due 90 days or more:
   Commercial                                               --             --            266            39             --
Impaired loans:
   Commercial                                              324            240             --            --             --
                                                   ------------   ------------  -------------  ------------   ------------
Total non-performing assets                            $   510        $   296        $   266        $   39         $   --
                                                   ============   ============  =============  ============   ============
</TABLE>


         At December 31, 2003, there were no performing loans considered
potential problem loans, defined as loans which are not included in the past
due, nonaccrual or restructured categories, but for which known information
about possible credit problems causes management to have serious doubts as to
the ability of the borrowers to comply with the present loan repayment terms. It
is the Company's policy to apply all payments received on nonaccrual loans to
principal until the balance has been satisfied or the loan returns to accrual
status. During 2003, $35,158 in gross interest income would have been recorded
on nonaccrual and impaired loans had the loans been accruing interest throughout
the period.

LOANS

         The loan portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At December 31,
2003, total loans were $169.0 million, a 39.7% increase from the $121.0 million
in loans outstanding at December 31, 2002. Total loans at December 31, 2002
represented a 40.5% increase from the $86.1 million of loans at December 31,
2001. 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.

         Virtually all of the Company's commercial real estate mortgage and
development loans, which account for approximately 78% of our total loans at
December 31, 2003, 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 8, 25% of the Company's loans are fixed
rate loans and 99% 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, residential construction loans secured by a first deed of trust,
home equity loans, or home improvement loans. The consumer portfolio, which
includes consumer loans, home equity loans, and 1-4 family residential loans,
represents 7.5% of the loan portfolio at December 31, 2003, as compared to 8.9%
at December 31, 2002 and 10.4% at December 31, 2001.


                                       23

<PAGE>


TABLE 8

         Table 8 shows the maturities of the loan portfolio and the sensitivity
of loans to interest rate fluctuations at December 31, 2003. 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>
                                                            DECEMBER 31, 2003
                                       -----------------------------------------------------
                                                       AFTER ONE
                                          WITHIN      YEAR THROUGH   AFTER FIVE
(Dollars in thousands)                   ONE YEAR      FIVE YEARS      YEAR          TOTAL
                                       -----------------------------------------------------
<S>                                     <C>           <C>            <C>           <C>
Construction loans                      $  18,130     $      --      $     --      $  18,130
Commercial loans                           22,061          2,824           --         24,885
Commercial real estate loans               43,975         67,604        1,737        113,316
Real estate 1-4 family residential          2,735            699          367          3,801
Home equity loans                           3,193             --           --          3,193
Consumer loans                              3,918          1,773           --          5,691
Overdrafts                                     31             --           --             31
                                       -----------------------------------------------------
Total                                   $  94,043     $   72,900     $  2,104     $  169,047
                                       =====================================================

</TABLE>

<TABLE>
<CAPTION>
                                                            DECEMBER 31, 2003
                                       -----------------------------------------------------
                                                       AFTER ONE
                                          WITHIN      YEAR THROUGH   AFTER FIVE
(Dollars in thousands)                   ONE YEAR      FIVE YEARS      YEAR          TOTAL
                                       -----------------------------------------------------
<S>                                     <C>           <C>            <C>           <C>
Fixed Rate                              $  16,535     $   24,005     $  2,104     $   42,644
Variable/Adjustable Rate                   77,508         48,895           --        126,403
                                       -----------------------------------------------------
Total                                   $  94,043     $   72,900     $  2,104     $  169,047
                                       =====================================================
</TABLE>


         At December 31, 2003, the aggregate amount of loans due after one year
which have fixed rates was approximately $26.1 million, and the amount with
variable or adjustable rates was approximately $48.9 million.

TABLE 9

The following table presents the composition of the loan portfolio by type of
loan at the dates indicated.


<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                      ----------------------------------------------------------------------------------------
(Dollars in thousands)                     2003              2002              2001              2000              1999
                                      ---------------   ---------------   ----------------  ----------------  ----------------
<S>                                      <C>               <C>                 <C>               <C>                <C>
Construction loans                       $    18,130       $    12,160         $    9,408        $    4,429         $      --
Commercial loans                              24,885            27,862             23,478            16,842            15,812
Commercial real estate loans                 113,316            70,318             44,192            20,783             9,849
Real estate-1-4 family residential             3,801             2,069              3,363             4,165             1,003
Home equity loans                              3,193             2,390              1,554               546               158
Consumer loans                                 5,691             6,088              4,025             3,275             4,217
Overdrafts                                        31               160                119                --                --
                                      ---------------   ---------------   ----------------  ----------------  ----------------
Total                                        169,047           121,047             86,139            50,040            31,039
Less allowance for loan losses                (1,955)           (1,390)            (1,030)             (600)             (363)
                                      ---------------   ---------------   ----------------  ----------------  ----------------
Total Net Loans                          $   167,092       $   119,657         $   85,109        $   49,440         $  30,676
                                      ===============   ===============   ================  ================  ================
</TABLE>


                                       24

<PAGE>


INVESTMENT SECURITIES

         The carrying value (fair value) of the Company's securities portfolio
increased $46.3 million to $122.3 million at December 31, 2003 from $76.1
million at December 31, 2002 The carrying value (fair value) of the Company's
securities portfolio increased $53.9 million to $76.1 million at December 31,
2002 from $22.1 million at December 31, 2001

          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 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.

         TABLE 10

The following table presents detail of investment securities in our portfolio at
the dates indicated.

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                   ------------------------------------------------------------------------------
                                                            2003                       2002                       2001
                                                   ------------------------------------------------------------------------------
                                                                 Percent of                 Percent of                Percent of
(Dollars in thousands)                               Balance     Portfolio     Balance      Portfolio     Balance     Portfolio
                                                   ------------------------  -------------------------  -------------------------
<S>                                                   <C>            <C>        <C>             <C>         <C>            <C>
Available for Sale (at Estimated Market Value):
   U.S. Agency                                        $ 94,929       77.6%      $  35,298       46.4%       $  3,593       16.2%
   Mortgage-backed securities                           16,250       13.3%         20,954       27.5%          6,451       29.2%
   Adjustable rate mortgage-backed securities            3,677        3.0%          6,159        8.1%          1,699        7.7%
   Corporate bonds                                       6,571        5.4%         13,023       17.1%          9,942       44.9%
   Restricted stock                                        901        0.7%            629        0.8%            434        2.0%
                                                   ------------------------  -------------------------  -------------------------
Total                                                $ 122,328      100.0%      $  76,063      100.0%      $  22,119      100.0%
                                                   ========================  =========================  =========================
</TABLE>


                                       25

<PAGE>


TABLE 11

         The following table presents the amount and maturities of the
investment securities in our portfolio.

<TABLE>
<CAPTION>

MATURITY OF SECURITIES
                                               Years to Maturity
-----------------------------------------------------------------------------------------------------------------
                                         Within            Over 1 Year       Over 5 Years             Over
      (Dollars in thousands)             1 Year          through 5 Years    through 10 Years         10 Years            Total
-----------------------------------------------------------------------------------------------------------------------------------
                                     Amount   Yield       Amount   Yield      Amount  Yield      Amount    Yield    Amount   Yield
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AVAILABLE-FOR-SALE:
<S>                                  <C>      <C>      <C>        <C>      <C>        <C>     <C>         <C>    <C>         <C>
U. S. Agency                         $   --      --    $ 59,810   2.79%    $ 32,058   4.18%   $   3,061   6.00%  $  94,929   3.36%
Mortgage-backed securities               54   6.33%         878   4.69%         761   5.04%      14,557   4.70%     16,250   4.72%
Adjustable rate mortgage-backed
securities                               --      --          --      --          --      --       3,677   4.06%      3,677   4.06%
Corporate bonds                          --      --       5,520   5.03%       1,051   4.50%          --      --      6,571   4.95%
Restricted stock                         --      --          --      --          --      --         901   4.78%        901   4.78%
                                   ---------        ------------         -----------        ------------        -----------
  Total Debt Securities
   Available-for-Sale                $   54   6.33%    $ 66,208   3.00%    $ 33,870  4.21%    $ 22,196    4.78%  $ 122,328   3.66%
                                   =========        ============         ===========        ============        ===========
</TABLE>

         For additional information regarding the investment portfolio, see Note
2 to the consolidated financial statements for the year ended December 31, 2003.

         At December 31, 2003, there were no issuers, other than issuers who are
US government agencies, whose securities owned by the Company had an aggregate
book value of more than 10% of total stockholders' equity of the Company.

OFF BALANCE SHEET ARRANGEMENTS

          Credit-Related Financial Instruments. The Company is a party to credit
related financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby letters of credit and
commercial letters of credit. Such commitments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
consolidated balance sheets.

         The Company's exposure to credit loss is represented by the contractual
amount of these commitments. The Company follows the same credit policies in
making commitments as it does for on-balance sheet instruments. At December 31,
2003 and 2002, the following financial instruments were outstanding whose
contract amounts represent credit risk:

                                   2003           2002
                                 --------       --------
                                 (Dollars in thousands)

Commitments to extend credit     $25,863        $24,864
Stand-by letters-of-credit         1,371            420

         Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The commitments for equity lines of credit may
expire without being drawn upon. Therefore, the total commitments amounts do not
necessarily represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by the Company, is based on management's
credit evaluation of the customer.

         Unfunded commitments under commercial lines-of-credit, revolving credit
lines and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines-of-credit are
uncollateralized and usually do not contain a specified maturity date and may
not be drawn upon to the total extent to which the Company is committed.


                                       26
<PAGE>

         Commercial and standby letters-of-credit are conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party. Those letters-of-credit are primarily issued to support public and
private borrowing arrangements. Essentially all letters-of-credit issued have
expiration dates within one year. The credit risk involved in issuing
letters-of-credit is essentially the same as that involved in extending loan
facilities to customers. The Company generally holds collateral supporting those
commitments if deemed necessary.

         With the exception of these off-balance sheet arrangements, and the
Company's obligations in connection with its trust preferred securities, the
Company has no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on the Company's financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources, that is material to investors. For
further information, see Notes 11 and 17 to the consolidated financial
statements.

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 December 31, 2003, our Basic
Surplus ratio (net access to cash and secured borrowings as a percentage of
total assets) was approximately 10% 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 depicted in Table 12. 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 December 31, 2003 we were modestly liability sensitive in the short
term and then we become asset sensitive out beyond one year. 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


                                       27

<PAGE>


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 December 31, 2003, the following 12-month impact on net interest income
is estimated to range from a positive impact of 2% if rates rise to a negative
impact of 7% if rates continue to decline for the multiple scenarios. 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.

         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
December 31, 2003. The Company is positioned to substantially improve earnings
if and when rates rise. With respect to further reductions in rates, Declining
Rate scenario and the Ramp Down scenarios, 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                        (0.4) %
Ramp Up 100bp-12 Months                   1.9  %
Ramp Up 200bp-12 Months                   2.2  %
Ramp Down 100 bp-12 Months               (2.1) %
Ramp Down 200bp-12 Months                (4.3) %
Rising rate scenario                      0.7  %
Declining rate scenario                  (7.0) %


                                       28

<PAGE>


TABLE 12

<TABLE>
<CAPTION>

(Dollars in thousands)
-------------------------------------------------------------------------------------------------------------------------------
                                                     Match Funding Matrix
                                                      James Monroe Bank
                                                      December 31, 2003
--------------------------------------------------------------------------------------------------------------------------------

                         60+       37 - 60    25 - 36    13 - 24    10 - 12      7 - 9      4 - 6      1 - 3
              ASSETS>   MONTHS      MONTHS     MONTHS     MONTHS     MONTHS     MONTHS     MONTHS     MONTHS      0/N    TOTAL

--------------------------------------------------------------------------------------------------------------------------------
<S>          <C>        <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>     <C>

LIABILITIES             32,015      43,409     46,494     51,886     18,290     14,630     22,620     25,240    51,171  305,755
& EQUITY

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

 60 +        101,586    32,015      43,409     26,162                                                                   101,586
MONTHS

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

 37 - 60       1,150                            1,150                                  ASSET SENSITIVE                    1,150
 MONTHS

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

25 - 36          573                              573                                                                       573
 MONTHS

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

13 - 24        2,469                            2,469                                                                     2,469
 MONTHS

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

10 - 12       13,238                           13,238                                                                    13,238
 MONTHS

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

 7 - 9        11,355                            2,902      8,453                                                         11,355
 MONTHS

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

 4 - 6         8,830                                       8,830                                                          8,830
 MONTHS

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

 1 - 3       159,564                                      34,603     18,290     14,630     22,620     25,240    44,181  159,564
 MONTHS

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


  O/N          6,990           LIABILITY SENSITIVE                                                               6,990    6,990

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


 TOTAL       305,755    32,015      43,409     46,494     51,886     18,290     14,630     22,620     25,240    51,171  305,755

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

</TABLE>



                                       29

<PAGE>


NONINTEREST INCOME AND EXPENSE

         Noninterest income consists primarily of service 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.

TABLE 13

Table 13 provides information regarding the Company's noninterest income for the
periods indicated.

                                                           DECEMBER 31,
                                                      ----------------------
(Dollars in thousands)                                 2003    2002    2001
                                                      ------  ------  ------
Service charges on deposit accounts                   $  290  $ 263   $ 263
Cash management fee income                               113    130     113
Gain on sale of securities                               299    244     107
Gain on sale of mortgages                                255     --      --
Other fee income                                         190    123      71
                                                      ------  -----   -----
                          Total Noninterest Income    $1,147  $ 760   $ 554
                                                      ======  =====   =====

         The increases in noninterest income for the each period shown are the
result of the continued growth of the Company and the expansion of products
resulting in fee income. 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. In addition, the Company earned cash
management fees relating to off-balance sheet customer sweep accounts which had
average balances of between $16 and $24 million during 2003. During 2003, cash
management fees have declined primarily due to lower balances resulting from
commercial customers not utilizing the product during this sustained extremely
low interest rate environment.

TABLE 14

Major expense categories that exceed 1% of operating revenues for the
comparative years ended December 31 are as follows:

                                                        DECEMBER 31,
                                                ----------------------------
(Dollars in thousands)                            2003      2002      2001
                                                --------  --------  --------
Salaries and benefits                           $ 3,240   $ 2,220   $ 1,513
Occupancy cost, net                                 611       541       367
Equipment expense                                   430       308       184
Data processing costs                               373       360       269
Advertising and public relations                    102       123        84
Professional fees                                   197       168       181
Courier and express services                        134       105        73
State franchise tax                                 217       155       107
Other                                               660       414       255
                                                -------   -------   -------
                    Total Noninterest Expense   $ 5,964   $ 4,394   $ 3,033
                                                =======   =======   =======

         Non-interest expense increased $1.6 million or 35.7% from $4.4 million
for the year ended December 31, 2002, to $6.0 million for 2003. Approximately
60% of this increase is in salary and benefit costs. In the second quarter of
2003 the


                                       30

<PAGE>


Company added personnel to staff the newly formed mortgage division and during
2003 the Company added a number of commercial loan officers and processing staff
to support the growth in customers and transactions being processed. Salaries
and benefits also includes the commissions paid to loan originators in the newly
established mortgage division. The increase in occupancy cost is due to a full
year of costs related to two facilities opened in 2002. The rise in equipment
expense is attributable to additional investments in technology. Growth in other
expenses is due in part to costs related to new products such as lockbox
services and loans originated through the newly formed mortgage division.

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 15

The following table reflects average deposits and average rates paid by category
for the periods indicated.

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                   --------------------------------------------------------------------
                                                           2003                    2002                     2001
                                                   --------------------------------------------------------------------
(Dollars in thousands)                             Average     Average      Average    Average      Average     Average
                                                   Balance      Rate        Balance     Rate        Balance      Rate
                                                   --------------------------------------------------------------------
<S>                                                 <C>          <C>        <C>          <C>         <C>          <C>
Deposits
    Noninterest-bearing demand                      $ 69,124       --%      $ 39,554       --%       $28,786        --%
    Interest-bearing demand                           10,919     0.81          5,739     1.06          4,851      1.61
    Money Market                                     113,802     1.81         69,037     2.53         33,516      3.59
    Savings                                            1,954     1.32          1,240     1.77            687      2.47
    Certificates of deposit of $100,000 or more       27,954     2.62         24,528     3.70         15,123      5.73
    Other time                                        14,589     2.62         16,853     3.86         13,523      5.58
                                                   --------------------------------------------------------------------
Total interest bearing depsoits                     $169,218     1.95%      $117,397     2.89%       $67,700      4.31%
                                                    --------                --------                -------
Total Deposits                                      $238,342                $156,951                $96,486
                                                    ========                ========                =======
</TABLE>

TABLE 16

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

<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 $100MM              $  3,249    $ 3,402     $  5,410     $ 2,479    $ 14,540
Certificates of deposit of $100MM or more                7,634      5,428       19,197       1,713      33,972
                                                      ---------------------------------------------------------
                                                      $ 10,883    $ 8,830     $ 24,607     $ 4,192    $ 48,512
                                                      =========================================================
</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 December 31, 2003, stockholders' equity increased
$14.7 million from the $19.2 million of equity at December 31, 2002 primarily as
a result of the $2.6 million in retained earnings for 2003 and the $12.8 million
net proceeds from the equity sold in November 2003.


                                       31

<PAGE>


         The Company has reported a steady improvement in earnings since the
Bank opened on June 8, 1998. Positive earnings were reported in the ninth month
of operations and have continued with $810 thousand of earnings in 2000, $1.1
million of earnings for 2001, $1.6 million of earnings for 2002, and $2.6
million of earnings for 2003. One of the Company's first strategies was to
restore the lost capital from the initial organization costs of $254 thousand
and the accumulated earnings loss of $452 thousand for 1998. As of December 31,
2001, the earnings for 2000 and 2001 had recouped the losses and at December 31,
2002 the Company had retained earnings of approximately $2.9 million. In
addition, the Company has fully utilized its net operating losses for tax
purposes beginning in September 2001 and has been at a 34% effective tax rate
since that date.

         For information regarding our regulatory capital ratios, please refer
to note 10 to the consolidated financial statements.

         The Federal Reserve is currently reviewing the capital treatment of
trust preferred securities, in light of recent accounting pronouncements and
interpretations regarding variable interest entities, which have been read to
encompass the subsidiary trusts established to issue trust preferred securities,
and to which the Company issued subordinated debentures. As a result of such
review, the capital treatment of trust preferred securities, which can be
counted as Tier 1 capital at the holding company level, up to 25% of total
capital, may be adversely affected. At December 31, 2003 trust preferred
securities represented 21.0% of the Company's tier one capital and 20.1% of its
total capital. Future trust preferred issuances to increase holding company
capital levels may not be available. In the event of adverse changes in the
capital treatment for trust preferred securities, the Company may be required to
raise additional equity capital, through the sale of common stock or otherwise,
sooner than it would otherwise do so.


                                       32

<PAGE>


ITEM 7. FINANCIAL STATEMENTS.

                          INDEPENDENT AUDITOR'S REPORT








To the Stockholders and Directors
James Monroe Bancorp, Inc. and Subsidiaries
Arlington, Virginia


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


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


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


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

Winchester, Virginia
January 9, 2004


                                       33

<PAGE>



                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002
                    (Dollars in thousands, except share data)

                                                                 DECEMBER 31,
                                                              ----------------
ASSETS                                                        2003        2002
                                                              ----        ----
Cash and due from banks                                     $ 11,908   $ 11,051
Interest bearing deposits in banks                                 -        655
Federal funds sold                                                 -     28,826
Securities available for sale, at fair value                 122,328     76,063
Loans held for sale                                              561          -
Loans, net of allowance for loan losses of $1,955 in
  2003 and $1,390 in 2002                                    167,092    119,657
Bank premises and equipment, net                               1,388      1,333
Accrued interest receivable                                    1,336        916
Other assets                                                   1,038        292
                                                            --------   --------

TOTAL ASSETS                                                $305,651   $238,793
                                                            ========   ========


LIABILITIES AND STOCKHOLDERS' EQUITY
 Deposits:
  Noninterest bearing deposits                              $ 65,598   $ 66,729
  Interest bearing deposits                                  189,518    147,141
                                                            --------   --------
   Total deposits                                            255,116    213,870
Federal funds purchased                                        6,886          -
Trust preferred capital notes                                  9,000      5,000
Accrued interest payable and other liabilities                   758        728
                                                            --------   --------
   Total liabilities                                         271,760    219,598
                                                            --------   --------

STOCKHOLDERS' EQUITY
  Common stock, $1 par value; authorized 5,000,000 shares;
     issued and outstanding 2,943,802 shares in 2003,
     1,840,677 shares in 2002.                                 2,944      1,841
 Capital surplus                                              25,425     13,354
 Retained earnings                                             5,491      2,894
 Accumulated other comprehensive income, net                      31      1,106
                                                            --------   --------
   Total stockholders' equity                                 33,891     19,195
                                                            --------   --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $305,651   $238,793
                                                            ========   ========

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


                                       34

<PAGE>


                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
              For the Years Ended December 31, 2003, 2002 and 2001
                 (Dollars in thousands, except per share data)

                                                        YEARS ENDED DECEMBER 31,
                                                        ------------------------
                                                          2003     2002    2001
                                                        -------  -------  ------

INTEREST AND DIVIDEND INCOME:
 Loans, including fees                                  $ 9,658  $ 7,757  $5,643
 Loans held for sale                                         60       --      --
 Securities, taxable                                      3,118    2,062   1,464
 Federal funds sold                                         189      260     379
 Other interest income                                        1       12      62
                                                        -------  -------  ------
   Total interest and dividend income                    13,026   10,091   7,548
                                                        -------  -------  ------
INTEREST EXPENSE:
  Deposits                                                3,293    3,391   2,918
  Borrowed funds                                            325      218      --
                                                        -------  -------  ------
   Total interest expense                                 3,618    3,609   2,918
                                                        -------  -------  ------
   Net interest income                                    9,408    6,482   4,630
PROVISION FOR LOAN LOSSES                                   662      483     450
                                                        -------  -------  ------
   Net interest income after provision for loan losses    8,746    5,999   4,180
                                                        -------  -------  ------
NONINTEREST INCOME:
 Service charges and fees                                   290      263     263
 Gain on sales of securities                                299      244     107
 Gain on sales of loans                                     255       --      --
 Other                                                      303      253     184
                                                        -------  -------  ------
   Total noninterest income                               1,147      760     554
                                                        -------  -------  ------
NONINTEREST EXPENSES:
 Salaries and wages                                       2,678    1,907   1,307
 Employee benefits                                          562      313     206
 Occupancy expenses                                         611      541     367
 Equipment expenses                                         430      308     184
 Other operating expenses                                 1,683    1,325     969
                                                        -------  -------  ------
   Total noninterest expenses                             5,964    4,394   3,033
                                                        -------  -------  ------
   Income before income taxes                             3,929    2,365   1,701
PROVISION FOR INCOME TAXES                                1,328      812     589
                                                        -------  -------  ------
   Net income                                           $ 2,601  $ 1,553  $1,112
                                                        =======  =======  ======

EARNINGS PER SHARE, basic                               $  1.09  $  0.75  $ 0.62
EARNINGS PER SHARE, diluted                             $  1.02  $  0.72  $ 0.59

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


                                       35

<PAGE>




                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              For the Years Ended December 31, 2003, 2002 and 2001
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                 ACCUMULATED
                                                                                    OTHER                              TOTAL
                                         COMMON       CAPITAL     RETAINED      COMPREHENSIVE     COMPREHENSIVE     STOCKHOLDERS'
                                          STOCK       SURPLUS     EARNINGS         INCOME            INCOME            EQUITY
                                         ------       -------     --------      -------------     --------------    ------------
<S>                                      <C>          <C>          <C>             <C>               <C>             <C>
BALANCE, DECEMBER 31, 2000               $  959       $ 9,506      $  229          $    39                           $ 10,733
Comprehensive income:
 Net income                                                         1,112                            $ 1,112            1,112
 Net change in unrealized gains on
   available for sale securities, net
   of deferred taxes of $91                                                                              176
 Less: reclassification adjustment,
    net of income taxes of $36                                                                           (71)
                                                                                                     -------
    Other comprehensive income, net of
       tax                                                                             105               105              105
                                                                                                      ------
 Total comprehensive income                                                                          $ 1,217
                                                                                                     =======
 Exercise of stock options                    1            16                                                              17
                                         ------       -------      ------          -------                           --------
BALANCE, DECEMBER 31, 2001                  960         9,522       1,341              144                             11,967
Comprehensive income:
    Net income                                                      1,553                            $ 1,553            1,553
    Net change in unrealized gains on
       available for sale securities,
       net of deferred taxes of $579                                                                   1,123
 Less: reclassifications adjustment,
    net of income taxes of $83                                                                          (161)
                                                                                                     -------
   Other comprehensive income, net of                                                  962               962              962
       tax
                                                                                                     -------
 Total comprehensive income                                                                          $ 2,515
                                                                                                     =======
 Exercise of stock options                    7            60                                                              67
   Issuance of common stock                 261         4,385                                                           4,646
   Effect of  stock split                   613          (613)                                                             --
                                         ------       -------      ------          -------                           --------
BALANCE, DECEMBER 31, 2002                1,841        13,354       2,894            1,106                             19,195
Comprehensive income:
   Net income                                                       2,601                            $ 2,601            2,601
   Net change in unrealized gains on
       available for sale securities, net
       of deferred taxes of $452                                                                        (878)
 Less: reclassification adjustment,
   net of income taxes of $102                                                                          (197)
                                                                                                     -------
   Other comprehensive loss, net of
       tax                                                                          (1,075)           (1,075)          (1,075)
                                                                                                     -------
   Total comprehensive income                                                                        $ 1,526
                                                                                                     =======
   Exercise of stock options                 40           330                                                             370
   Issuance of common stock                 603        12,201                                                          12,804
   Effect of stock split                    460          (460)                                                             --
   Cash paid in lieu of fractional
       shares                                                          (4)                                                 (4)
                                         ------       -------      ------          -------                           --------
BALANCE, DECEMBER 31, 2003               $2,944       $25,425      $5,491          $    31                           $ 33,891
                                         ======       =======      ======          =======                           ========
</TABLE>

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


                                       36

<PAGE>

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 2003, 2002 and 2001
                             (Dollars in thousands)


<TABLE>
<CAPTION>
                                                                                             YEARS ENDED DECEMBER 31
                                                                             ---------------------------------------------------
                                                                                 2003                  2002              2001
                                                                             ---------------      ---------------    ------------
<S>                                                                           <C>                  <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                   $       2,601        $       1,553      $    1,112
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                                                         323                  257             177
  Provision for loan losses                                                             662                  483             450
  Amortization of bond premium                                                          439                  212              46
  Accretion of bond discount                                                            (69)                 (67)            (49)
  Realized (gain) on sales of securities available for sale                            (299)                (244)           (107)
  Realized (gain) on sales of mortgage loans held for sale                             (255)                  --              --
  Origination of mortgage loans held for sale                                       (17,222)                  --              --
  Proceeds from sales of mortgage loans held for sale                                16,916                   --              --
  Deferred income tax (benefit)                                                        (220)                (109)           (125)
  (Increase) in accrued interest receivable                                            (420)                (285)            (64)
  (Increase) decrease in other assets                                                    28                 (196)            (48)
  Increase (decrease) in accrued interest payable and other liabilities                  30                  119             (23)
                                                                             ---------------       --------------    ------------
   Net cash provided by operating activities                                          2,514                1,723           1,369
                                                                             ---------------       --------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of securities available for sale                                       (144,197)             (85,969)        (21,655)
  Proceeds from calls and maturities of securities available for sale                23,835               27,223          13,889
  Proceeds from sales of seurities available for sale                                72,397                6,359           5,955
  Purchases of premises and equipment                                                  (378)                (583)           (492)
  (Increase) decrease in interest bearing cash balances                                 655                1,380             (25)
  (Increase) decrease in Federal funds sold                                          28,826              (19,357)            464
  Net (increase) in loans                                                           (48,097)             (35,031)        (36,119)
                                                                             ---------------       --------------    ------------
   Net cash (used in) investing activities                                          (66,959)            (105,978)        (37,983)
                                                                             ===============       ==============    ============
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in demand deposits, savings deposits
   and money market accounts                                                         31,054               90,879          33,178
  Net increase in time deposits                                                      10,192                8,732           3,039
  Net increase in Federal funds purchased                                             6,886                   --              --
  Proceeds from issuance of common stock                                             13,174                4,713              17
  Proceeds from issuance of trust preferred capital notes                             4,000                5,000              --
  Cash paid in lieu of fractional shares                                                 (4)                  --              --
                                                                             ---------------       --------------    ------------
   Net cash provided by financing activities                                         65,302              109,324          36,234
                                                                             ===============       ==============    ============

   Increase (decrease) in cash and due from banks                                       857                5,069            (380)
CASH AND DUE FROM BANKS
  Beginning                                                                          11,051                5,982           6,362
                                                                             ---------------       --------------    ------------
  Ending                                                                      $      11,908        $      11,051      $    5,982
                                                                             ===============       ==============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid on deposits and borrowed funds                                $       3,709        $       3,640      $    2,945
                                                                             ===============       ==============    ============
  Income taxes paid                                                           $       1,272        $         859      $      732
                                                                             ===============       ==============    ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,
   UNREALIZED GAIN (loss) on securities available for sale                    $      (1,629)       $       1,458      $      160
                                                                             ===============       ==============    ============
</TABLE>

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


                                       37

<PAGE>


Notes to Audited Consolidated Financial Statements

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

NOTE 1.       NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

              BASIS OF PRESENTATION AND CONSOLIDATION

              The consolidated financial statements include the accounts of
              James Monroe Bancorp, Inc. (the "Company") and its wholly owned
              subsidiaries, James Monroe Bank (the "Bank"), James Monroe
              Statutory Trust I ("Trust I") and James Monroe Statutory Trust II
              ("Trust II"). In consolidation, significant inter-company accounts
              and transactions have been eliminated.

              BUSINESS

              The Company, through its banking subsidiary, offers various loan,
              deposit and other financial service products to its customers,
              principally located throughout Northern Virginia. Additionally,
              the Company maintains correspondent banking relationships and
              transacts daily federal funds transactions on an unsecured basis,
              with regional correspondent banks.

              The accounting and reporting policies and practices of the Company
              conform with accounting principles generally accepted in the
              United States of America. The following is a summary of the most
              significant of such policies and procedures.

              USE OF ESTIMATES

              The preparation of financial statements in conformity with
              accounting principles generally accepted in the United States of
              America requires management to make estimates and assumptions that
              affect the reported amounts of assets and liabilities and
              disclosure of contingent assets and liabilities at the date of the
              financial statements and the reported amounts of revenues and
              expenses during the reporting period. Actual results could differ
              from those estimates. Material estimates that are particularly
              susceptible to significant change in the near term relate to the
              determination of the allowance for loan losses and the valuation
              of deferred tax assets.

              CASH AND CASH EQUIVALENTS

              For purposes of reporting cash flows, cash and due from banks
              include cash on hand and amounts due from banks, including cash
              items in process of clearing.

              INTEREST BEARING DEPOSITS IN BANKS

              Interest bearing deposits in banks mature within one month and are
              carried at cost.

              SECURITIES AVAILABLE FOR SALE

              Securities classified as available for sale are equity securities
              with readily determinable fair values and those debt securities
              that the Company intends to hold for an indefinite period of time
              but not necessarily to maturity. Any decision to sell a security
              classified as available for sale would be based on various
              factors, including significant movements in interest rates,
              changes in the maturity mix of the Company's assets and
              liabilities, liquidity needs, regulatory capital considerations,
              and other similar factors. These securities are carried at fair
              value, with any unrealized gains or losses reported as a separate
              component of other comprehensive income net of the related
              deferred tax effect. Declines in the fair value below their cost
              that are deemed to be other than temporary are reflected in
              earnings as realized losses. Interest income, including
              amortization of premiums and accretion of discounts, computed by
              the interest method, is included in interest income in the
              consolidated statements of income. Gains and losses on the sale of
              securities are recorded on the trade date and are determined using
              the specific identification method.


                                       38

<PAGE>


              LOANS

              The Company, through its banking subsidiary, grants mortgage,
              commercial and consumer loans to customers. A substantial portion
              of the loan portfolio is represented by commercial real estate
              loans throughout Northern Virginia. The ability of the Company's
              debtors to honor their contracts is dependent upon the real estate
              and general economic conditions in this area.

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

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

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

              LOANS HELD FOR SALE

              Loans originated and intended for sale in the secondary market are
              carried at the lower of cost or estimated fair value in the
              aggregate. Net unrealized losses, if any, are recognized through a
              valuation allowance by charges to income.

              ALLOWANCE FOR LOAN LOSSES

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

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

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


                                       39

<PAGE>

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

              BANK PREMISES AND EQUIPMENT

              Premises and equipment are stated at cost less accumulated
              depreciation and amortization that is computed using the
              straight-line method over the following estimated useful lives:

                                           YEARS
              Leasehold improvements         10
              Furniture and equipment      3-10

              Costs incurred for maintenance and repairs are expensed currently.

              INCOME TAXES

              Deferred income tax assets and liabilities are determined using
              the liability (or balance sheet) method. Under this method, the
              net deferred tax asset or liability is determined based on the tax
              effects of the temporary differences between the book and tax
              bases of the various balance sheet assets and liabilities and
              gives current recognition to changes in tax rates and laws.
              Deferred tax assets are reduced by a valuation allowance when, in
              the opinion of management, it is more likely than not that some
              portion or all of the deferred tax assets will not be realized.

              FAIR VALUE OF FINANCIAL INSTRUMENTS

              Statement of Financial Accounting Standards (SFAS) No. 107,
              Disclosures About Fair Value of Financial Instruments, requires
              disclosure of fair value information about financial instruments,
              whether or not recognized in the balance sheet, for which it is
              practicable to estimate that value. In cases where quoted market
              prices are not available, fair values are based on estimates using
              present value techniques. Those techniques are significantly
              affected by the assumptions used, including the discount rate and
              estimates of future cash flows. In that regard, the derived fair
              value estimates cannot be substantiated by comparison to
              independent markets and, in many cases, could not be realized in
              immediate settlement of the instrument. SFAS No. 107 excludes
              certain financial instruments and all nonfinancial instruments
              from its disclosure requirements. Accordingly, the aggregate fair
              value amounts presented should not be considered an indication of
              the fair value of the Company taken as a whole.


                                       40

<PAGE>


              Stock Compensation Plans

              At December 31, 2003, the Company has three stock-based
              compensation plans which are described more fully in Note 8. 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.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                      -------------------------------------
                                                      2003            2002             2001
                                                      ----            ----             ----
                                                  (Dollars in thousands, except per share data)

             <S>                                      <C>            <C>             <C>
             Net income, as reported                  $2,601         $1,553          $1,112
             Deduct: Total stock-based employee
             compensation expense determined
             under fair value based method for
             all awards                                 (299)           (75)            (86)
                                                      ------         ------          ------
             Pro forma net income                     $2,302         $1,478          $1,026
                                                      ======         ======          ======

             Earnings per share:
                  Basic - as reported                  $1.09          $0.75           $0.62
                                                      ======         ======          ======
                  Basic - pro forma                    $0.96          $0.72           $0.57
                                                      ======         ======          ======
                  Diluted - as reported                $1.02          $0.72           $0.59
                                                      ======         ======          ======
                  Diluted - pro forma                  $0.90          $0.68           $0.55
                                                      ======         ======          ======
</TABLE>


              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 assumptions:

<TABLE>
<CAPTION>
                                                      2003            2002             2001
                                                      ----            ----             ----

<S>                                               <C>             <C>              <C>
              Dividend yield                          0.00%          0.00%            0.00%
              EXPECTED LIFE                       8.3 years       10 years         10 years
              Expected volatility                    32.07%          0.50%            0.50%
              Risk-free interest rate                 4.07%          5.05%            4.93%
</TABLE>

              EARNINGS PER SHARE

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


                                       41

<PAGE>


              Earnings per common share have been computed based on the
              information in the following table. Shares have been restated to
              reflect the stock splits as discussed in Note 18. For the year
              ended December 31, 2003, 2,875 options were excluded from the
              computation of diluted earnings per share as their effect would
              have been anti-dilutive. No options were excluded from the
              computation of diluted earnings per share for the years ended
              December 31, 2002 and 2001. For the years presented, there was no
              adjustment to income from potential common shares.


<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                          -------------------------------------
                                                                          2003            2002             2001
                                                                          ----            ----             ----
                                                                                 (Dollars In Thousands)

             <S>                                                         <C>             <C>              <C>
             Net income                                                  $2,601          $1,553           $1,112
                                                                         ======          ======           ======

             Weighted average common shares outstanding                   2,393           2,055            1,800
             Effect of dilutive options                                     160             106               66
                                                                         ------          ------           ------
             Weighted average common shares outstanding used to
                 calculate diluted earnings per share                     2,553           2,161            1,866
                                                                         ======          ======           ======
</TABLE>


              RECENT ACCOUNTING PRONOUNCEMENTS

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

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

              In January 2003, the FASB issued FASB Interpretation No. 46,
              "Consolidation of Variable Interest Entities" ("FIN 46"). This
              Interpretation provides guidance with respect to the
              identification of variable interest entities and when the assets,
              liabilities, noncontrolling interests, and results of operations
              of a variable interest entity need to be included in a company's
              consolidated financial statements. The Interpretation requires
              consolidation by business enterprises of variable interest
              entities in cases where (a) the equity investment at risk is not
              sufficient to permit the entity to finance its activities without
              additional subordinated financial support from other parties,
              which is provided through other interests that will absorb some or
              all of the expected losses of the entity, or (b) in cases where
              the equity investors lack one or more of the essential
              characteristics of a controlling financial interest, which include
              the ability to make decisions about the entity's activities
              through voting rights, the obligations to absorb the expected
              losses of the entity if they occur, or the right to receive the
              expected residual returns of the entity if they occur. Management
              has evaluated the Company's investments in variable interest
              entities and potential variable interest entities or transactions,


                                       42

<PAGE>

              particularly in trust preferred securities structures. The
              implementation of FIN 46 did not have a significant impact on
              either the Company's consolidated financial position or
              consolidated results of operations. Interpretive guidance relating
              to FIN 46 is continuing to evolve and the Company's management
              will continue to assess various aspects of consolidations and
              variable interest entity accounting as additional guidance becomes
              available.

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

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

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

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


                                       43

<PAGE>


NOTE 2.  SECURITIES AVAILABLE FOR SALE

              The amortized cost and estimated fair value of securities
              available for sale, with gross unrealized gains and losses
              follows:

<TABLE>
<CAPTION>
                                                               GROSS            GROSS
                                              AMORTIZED      UNREALIZED       UNREALIZED
                                                COST           GAINS            LOSSES        FAIR VALUE
                                              ---------      ----------       ----------      ----------
                                                                         2003
                                           -------------------------------------------------------------
                                                                (Dollars in thousands)
             <S>                              <C>               <C>              <C>           <C>
             U.S. Government and
                federal agency                $ 95,196          $  322           $(589)        $ 94,929
             Mortgage backed                    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>
                                                                         2002
                                           -------------------------------------------------------------
             <S>                              <C>               <C>              <C>           <C>
             U.S. Government and
              federal agency                  $ 35,013          $  285           $  --         $ 35,298
             Mortgage backed                    26,606             571             (64)          27,113
             Corporate notes                    12,139             884              --           13,023
             Restricted stock                      629               -              --              629
                                              --------          ------           -----         --------
                                              $ 74,387          $1,740           $ (64)        $ 76,063
                                              ========          ======           =====         ========
</TABLE>

              At December 31, 2003, investments in an unrealized loss position
are as follows:

<TABLE>
<CAPTION>
                                              DURATION OF UNREALIZED LOSSES
                           -------------------------------------------------------------------
                                 LESS THAN 12 MONTHS                   12 MONTHS OR MORE                           TOTAL
                           ------------------------------         ----------------------------         ----------------------------
                                              UNREALIZED                            UNREALIZED                           UNREALIZED
                           FAIR VALUE           (LOSS)            FAIR VALUE          (LOSS)           FAIR VALUE          (LOSS)
                           ----------         ----------          ----------        ----------         ----------        ----------
<S>                         <C>                 <C>                   <C>               <C>             <C>                <C>

U.S. Government
   and federal agency       $51,316             $(589)                $--               $--             $51,316            $(589)
Mortgage backed              10,046              (162)                 --                --              10,046             (162)
Corporate notes               1,051                (9)                 --                --               1,051               (9)
                             ------             -----                 ---               ---             -------            -----
                            $62,413             $(760)                $--               $--             $62,413            $(760)
                            =======             =====                 ===               ===             =======            =====
</TABLE>

              The bonds in an unrealized loss position at December 31, 2003 were
              temporarily impaired due to the current interest rate environment
              and not increased credit risk. All securities owned by the Company
              are payable at par at maturity. Of the temporarily impaired
              securities, fifteen are U.S. Government agency issued bonds
              (Government National Mortgage Association and the Federal Home
              Loan Bank) rated AAA by Standard and Poor's, thirteen are
              government sponsored enterprise issued bonds (Federal National
              Mortgage Association and Federal Home Loan Mortgage Corporation)
              rated AAA by Standard and Poor's, and one is a corporate bond
              rated BBB by Standard and Poor's.


                                       44

<PAGE>


              The amortized cost and fair value of securities by contractual
              maturity at December 31, 2003 follows:

<TABLE>
<CAPTION>
                                                                 AMORTIZED              FAIR
                                                                    COST                VALUE
                                                                -----------            -------
                                                                     (Dollars in thousands)

             <S>                                                 <C>                 <C>
             Due within one year                                 $     54            $     54
             Due after one year but within five years              66,221              66,208
             Due after five years but within ten years             33,884              33,870
             Due after ten years                                   21,221              21,295
                                                                 --------            --------
                                                                 $121,380            $121,427
             Restricted stock                                         901                 901
                                                                 --------            --------
                       Total available for sale securities       $122,281            $122,328
                                                                 ========            ========
</TABLE>

              Securities carried at $37,482,000 and $29,244,000 at December 31,
              2003 and 2002, respectively, were pledged to secure public
              deposits and for other purposes required or permitted by law.

              For the years ended December 31, 2003, 2002 and 2001, proceeds
              from sales of securities available for sale amounted to
              $72,397,000, $6,359,000 and $5,955,000, respectively. Gross
              realized gains amounted to $299,000, $244,000 and $107,000,
              respectively. The tax provision applicable to these realized gains
              amounted to $102,000, $83,000 and $36,000, respectively.


NOTE 3.       LOANS AND ALLOWANCE FOR LOAN LOSSES

              Major classifications of loans are as follows:

                                                           DECEMBER 31,
                                                       -------------------
                                                        2003         2002
                                                       ------       ------
                                                      (Dollars in thousands)

             Construction loans                       $ 18,130    $ 12,160
             Commercial loans                           24,885      27,862
             Real estate - commercial                  113,316      70,318
             Real estate - 1 to 4 family residential     3,801       2,069
             Home equity loans                           3,193       2,390
             Consumer loans                              5,691       6,088
             Deposit overdrafts                             31         160
                                                      --------    --------
                                                       169,047     121,047
             Less allowance for loan losses            (1,955)     (1,390)
                                                      --------    --------
                Net loans                             $167,092    $119,657
                                                      ========    ========


                                       45

<PAGE>


              Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                                        Years ended December 31,
                                                                   2003          2002          2001
                                                                  ------        ------        ------
                                                                         (Dollars in Thousands)

             <S>                                                  <C>           <C>           <C>
             Beginning balance                                    $1,390        $1,030        $  600
             Loans charged-off                                      (112)         (126)          (20)
             Recoveries of loans previously charged-off               15             3            --
                                                                  ------        ------        ------
                  Net charge offs                                    (97)         (123)          (20)
                                                                  ------        ------        ------
             Provision for loan losses                               662           483           450
                                                                  ------        ------        ------
             Ending balance                                       $1,955        $1,390        $1,030
                                                                  ======        ======        ======
</TABLE>

              The following is a summary of information pertaining to impaired
              loans:

                                                                 December 31,
                                                             -------------------
                                                              2003         2002
                                                             ------       ------
                                                          (Dollars in thousands)


             Impaired loans with a valuation allowance       $ 324        $ 240
             Impaired loans without a valuation allowance       --           --
                                                             -----        -----
             Total impaired loans                            $ 324        $ 240
                                                             =====        =====
             Valuation allowance related to impaired loans   $ 184        $ 115
                                                             =====        =====

                                                       YEARS ENDED DECEMBER 31,
                                                       ------------------------
                                                          2003   2002   2001
                                                         ------ ------ ------
                                                        (Dollars in thousands)

             Average investments in impaired loans       $ 282  $ 243  $ --
                                                         =====  =====  ====
             Interest income recognized on impaired
             loans                                       $  21  $  --  $ --
                                                         =====  =====  ====
             Interest income recognized on a cash
             basis on impaired loans                     $  21  $  --  $ --
                                                         =====  =====  ====

              There were no impaired loans during 2001. No additional funds are
              committed to be advanced in connection with impaired loans.

              Nonaccrual loans excluded from impaired loan disclosure under SFAS
              No. 114 amounted to $186,000 and $56,000 at December 31, 2003 and
              2002, respectively. If interest on these loans had been accrued,
              such income would have approximated $12,000 for 2003 and $10,000
              for 2002. There were no nonaccrual loans in 2001.

              Loans totaling $34,000 were 90 days past due and still accruing
              interest at December 31, 2003. There were no loans 90 days past
              due and still accruing at December 31, 2002 and 2001.


                                       46

<PAGE>


NOTE 4.       BANK PREMISES AND EQUIPMENT

              Bank premises and equipment consist of the following:

                                                       DECEMBER 31,
                                                     ---------------
                                                      2003     2002
                                                     ------   ------
                                                  (Dollars in thousands)

             Leasehold improvements                  $  749   $  645
             Furniture and equipment                    763      665
             Computers                                  455      382
             Software                                   278      262
             Premises and equipment in process          118       31
                                                     ------   ------
                                                      2,363    1,985
             Less accumulated depreciation              975      652
                                                     ------   ------
                                                     $1,388   $1,333
                                                     ======   ======

              Depreciation and amortization charged to operations totaled
              $323,000, $257,000 and $177,000 for the years ended December 31,
              2003, 2002 and 2001, respectively.

NOTE 5.       DEPOSITS

              Interest bearing deposits consist of the following:

                                                                DECEMBER 31,
                                                             ------------------
                                                               2003      2002
                                                             --------  --------
                                                          (Dollars in thousands)

              NOW accounts                                   $ 12,068  $  7,490
              Savings accounts                                  2,846     1,290
              Money market accounts                           126,091   100,040
              Certificates of deposit under $100,000           13,115    12,272
              Certificates of deposit $100,000 and over        33,694    24,315
              Individual retirement accounts                    1,704     1,734
                                                             --------  --------
                                                             $189,518  $147,141
                                                             ========  ========

              At December 31, 2003, the scheduled maturities of time deposits
              are as follows:

                        (Dollars in thousands)

               2004                  $44,321
               2005                    2,469
               2006                      573
               2007                      691
               2008                      459
                                     -------
                                     $48,513
                                     =======


                                       47

<PAGE>


NOTE 6.       INCOME TAXES

              Significant components of the Company's net deferred tax assets
              (liabilities) consist of the following:

                                                                 DECEMBER 31,
                                                              -----------------
                                                               2003       2002
                                                              ------     ------
                                                         (Dollars in thousands)
             Deferred tax assets:
               Provision for loan losses                      $ 630       $ 405
               Amortization of organization and
                start-up costs                                    2          12
                                                              -----       -----
                                                                632         417
                                                              -----       -----
             Deferred tax liabilities:
                Depreciation                                    (19)        (24)
                Unrealized gain on securities available for
             sale                                               (16)       (570)
                                                              -----       -----
                                                                (35)       (594)
                                                              -----       -----
             Deferred tax asset (liability), net              $ 597       $(177)
                                                              =====       =====

              Allocation of federal income taxes between current and deferred
              portions for the years ended December 31, 2003, 2002 and 2001 is
              as follows:

                                                     DECEMBER 31,
                                               -----------------------
                                                2003     2002    2001
                                               ------   ------  ------
                                                (Dollars in thousands)

             Current tax provision             $1,548    $ 921   $ 714
             Deferred tax (benefit)              (220)    (109)   (125)
                                               ------    -----   -----
                                               $1,328    $ 812   $ 589
                                               ======    =====   =====

              The income tax provision differs from the amount of income tax
              determined by applying the U.S. federal income tax rate to pretax
              income for the years ended December 31, 2003, 2002 and 2001, due
              to the following:

                                                         DECEMBER 31,
                                                 --------------------------
                                                  2003      2002      2001
                                                 ------    ------    ------
                                                   (Dollars in thousands)

           Computed "expected" tax expense       $1,336     $804      $578
           Increase (decrease) in income
             taxes resulting from:
               Nondeductible expenses                 9        8        11
               Other                                (17)      --        --
                                                 ------    -----     -----
                                                 $1,328     $812      $589
                                                 ======    =====     =====


                                       48

<PAGE>



NOTE 7.       LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE

              The Company leases its facilities under operating leases expiring
              at various dates through 2011. The leases provide that the Company
              pay as additional rent, its proportionate share of real estate
              taxes, insurance, and other operating expenses. The leases contain
              a provision for annual increases of 3%. Total rental expense for
              the years ended December 31, 2003, 2002 and 2001 was $450,000,
              $398,000 and $270,000, respectively.

              The minimum lease commitments for the next five years and
              thereafter are:

                             (Dollars in thousands)

             2004                           $  650
             2005                              800
             2006                              826
             2007                              829
             2008                              529
             Thereafter                      2,910
                                            ------
                                            $6,544
                                            ======

NOTE 8.       STOCK OPTION PLANS

              The Company's stock option plan (Plan) for key employees is
              accounted for in accordance with Accounting Principles Board (APB)
              Opinion 25, Accounting for Stock Issued to Employees, and related
              interpretations. The Plan provides that 172,275 shares of the
              Company's common stock will be reserved for both incentive stock
              options and non-qualified stock options to purchase common stock
              of the Company. The exercise price per share for incentive stock
              options and non-qualified stock options shall not be less than the
              fair market value of a share of common stock on the date of grant,
              and may be exercised in increments, commencing after the date of
              grant. One-third of the options granted become vested and
              exercisable in each of the three years following the grant date.
              Each incentive and non-qualified stock option granted under this
              plan shall expire not more than ten years from the date the option
              is granted.

              In 1999, the Company adopted a stock option plan in which options
              for 125,400 shares of common stock were reserved for issuance to
              directors of the Company. The Company applies APB Opinion 25 and
              related interpretations in accounting for the stock option plan.
              Accordingly, no compensation has been recognized for grants under
              this plan. The stock option plan required that options be granted
              at an exercise price equal to at least 100% of the fair market
              value of the common stock on the date of grant. One-third of the
              options granted become vested and exercisable in each of the three
              years following the grant date and shall expire not more than ten
              years from the date the option is granted.

              In 2003, the Company adopted the 2003 Executive Compensation plan
              that reserves 250,000 shares of the Company's common stock for
              both incentive and non-qualified stock options for issuance to
              employees and directors. The Company applies APB Opinion 25 and
              related interpretations in accounting for the plan. Accordingly,
              no compensation has been recognized for grants under this plan.
              The stock option plan required that options be granted at an
              exercise price equal to at least 100% of the fair market value of
              the common stock on the date of grant.


                                       49

<PAGE>


              A summary of the status of the Company's employee stock options is
              presented in the table below. Information has been restated to
              reflect the stock splits as discussed in Note 18.

<TABLE>
<CAPTION>
                                                     2003                        2002                         2001
                                            ----------------------      ----------------------      -----------------------
                                                          WEIGHTED                    WEIGHTED                     WEIGHTED
                                                          AVERAGE                     AVERAGE                      AVERAGE
                                                          EXERCISE                    EXERCISE                     EXERCISE
                                            SHARES         PRICE        SHARES         PRICE        SHARES          PRICE
                                           --------      ----------    --------      ----------    --------       ----------

<S>                                        <C>             <C>         <C>              <C>        <C>               <C>
Outstanding at beginning of year            135,244        $ 6.22       114,150         $5.58       102,431          $5.33
Granted                                      40,900         23.47        21,094          9.67        11,719           7.73
Exercised                                   (40,312)         6.40            --            --            --             --
Forfeited                                    (2,375)        11.69            --            --            --             --
                                           --------                    --------                    --------
Outstanding at end of year                  133,457         11.36       135,244          6.22       114,150           5.58
                                           ========                    ========                    ========
Options exercisable at year end              99,806        $ 8.20       117,271         $5.75       103,361          $5.42
                                           ========                    ========                    ========
Weighted average fair value of
  options granted during the year          $  10.05                    $   3.80                    $   2.98
</TABLE>


              A summary of the status of the Company's director stock options is
              presented in the table below. Information has been restated to
              reflect the stock splits as discussed in Note 18.


<TABLE>
<CAPTION>
                                                     2003                        2002                         2001
                                            ----------------------      ----------------------      -----------------------
                                                          WEIGHTED                    WEIGHTED                     WEIGHTED
                                                          AVERAGE                     AVERAGE                      AVERAGE
                                                          EXERCISE                    EXERCISE                     EXERCISE
                                            SHARES         PRICE        SHARES         PRICE        SHARES          PRICE
                                           --------      ----------    --------      ----------    --------       ----------

<S>                                        <C>             <C>         <C>              <C>        <C>               <C>
Outstanding at beginning of year            107,505        $ 6.04       100,875         $5.33       104,063          $5.33
Granted                                     19,994          22.86        18,146          9.87            --             --
Exercised                                       --             --       (11,516)         5.88        (3,188)          5.33
                                           --------                    --------                    --------
Outstanding at end of year                  127,499          8.68       107,505          6.04       100,875           5.33
                                           ========                    ========                    ========
Options exercisable at year end             127,499        $ 8.68       107,505         $6.04       100,875          $5.33
                                           ========                    ========                    ========
Weighted average fair value of
options granted during the year             $ 11.64                    $   3.92                    $     --
</TABLE>


                                       50

<PAGE>


              Information pertaining to options outstanding for all plans at
              December 31, 2003 is as follows:

<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
                              -----------------------------------------------         ----------------------------
                                                  WEIGHTED
                                                   AVERAGE           WEIGHTED                             WEIGHTED
                                                  REMAINING          AVERAGE                              AVERAGE
        RANGE OF                NUMBER           CONTRACTUAL         EXERCISE           NUMBER            EXERCISE
    EXERCISE PRICES           OUTSTANDING           LIFE              PRICE           EXERCISABLE          PRICE
   -----------------         -------------      -------------       ----------       -------------       ----------

     <S>                       <C>               <C>                  <C>               <C>                <C>
     $5.33 - 7.73              170,400           5.21 years           $ 5.41            170,400            $ 5.41
      9.67 - 9.87               30,162           8.23                   9.78             23,443              9.81
     22.86 - 23.00              51,894           9.63                  22.90             30,628             22.88
     25.24 - 25.90               8,500           9.84                  25.57              2,834             25.57
                             ---------                                               ----------
                               260,956           6.59 years           $10.05            227,305            $ 8.47
                             =========                                               ==========
</TABLE>

NOTE 9.       401(K) PLAN

              Effective January 1, 1999, the Company adopted a Section 401(k)
              plan covering employees meeting certain eligibility requirements
              as to minimum age and years of service. Employees may make
              voluntary contributions to the 401(k) plan through payroll
              deductions on a pre-tax basis. The Company may make discretionary
              contributions to the 401(k) plan based on its earnings. The
              employer's contributions are subject to a vesting schedule
              requiring the completion of five years of service before these
              benefits become vested. A participant's 401(k) plan account,
              together with investment earnings thereon, is distributable
              following retirement, death, disability or other termination of
              employment under various payout options. For the years ended
              December 31, 2003, 2002 and 2001, expense attributable to the plan
              amounted to $43,000, $29,000 and $19,000, respectively.

NOTE 10.      MINIMUM REGULATORY CAPITAL REQUIREMENTS

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

              Quantitative measures established by regulation to ensure capital
              adequacy require the Company and the Bank to maintain minimum
              amounts and ratios (set forth in the following table) of total and
              Tier 1 capital (as defined in the regulations) to risk-weighted
              assets (as defined) and of Tier 1 capital (as defined) to average
              assets (as defined). Management believes, as of December 31, 2003
              and 2002, that the Company and the Bank exceeded all capital
              adequacy requirements to which they are subject.

              As of December 31, 2003, the most recent notification from the
              Federal Deposit Insurance Corporation categorized the Bank as well
              capitalized under the regulatory framework for prompt corrective
              action. To be categorized as well capitalized, an institution must
              maintain minimum total risk-based, Tier 1 risk-based and Tier 1
              leverage ratios as set forth in the following tables. There are no
              conditions or events since the notification that management
              believes have changed the Bank's category. The Company's and the
              Bank's actual capital amounts and ratios as of December 31, 2003
              and 2002 are also presented in the table.


                                       51

<PAGE>

<TABLE>
<CAPTION>
                                                                                                      MINIMUM TO BE WELL
                                                                                                      CAPITALIZED UNDER
                                                                               MINIMUM CAPITAL        PROMPT CORRECTIVE
                                                            ACTUAL               REQUIREMENT          ACTION PROVISIONS
                                                      ------------------      -----------------       -------------------
                                                      AMOUNT       RATIO      AMOUNT      RATIO        AMOUNT       RATIO

<S>                                                   <C>           <C>       <C>           <C>         <C>         <C>
     As of December 31, 2003:
        Total Capital (to Risk Weighted Assets):
          Consolidated                                $44,818       22.9%     $15,660       8.0%         N/A         N/A
          Bank                                        $24,995       13.1%     $15,316       8.0%        $19,145     10.0%
        Tier 1 Capital (to Risk Weighted Assets):
          Consolidated                                $42,863       21.9%     $ 7,830       4.0%         N/A         N/A
          Bank                                        $23,040       12.0%     $ 7,658       4.0%        $11,487      6.0%
        Tier 1 Capital (to Average Assets):
          Consolidated                                $42,863       14.3%     $12,003       4.0%         N/A         N/A
          Bank                                        $23,040        8.0%     $11,461       4.0%        $14,326      5.0%

     As of December 31, 2002:
        Total Capital (to Risk Weighted Assets):
          Consolidated                                $24,479       16.4%     $11,964       8.0%         N/A         N/A
          Bank                                        $17,754       12.0%     $11,843       8.0%        $14,804     10.0%
        Tier 1 Capital (to Risk Weighted Assets):
          Consolidated                                $23,089       15.4%     $ 5,982       4.0%         N/A         N/A
          Bank                                        $16,634       11.1%     $ 5,922       4.0%        $ 8,882      6.0%
        Tier 1 Capital (to Average Assets):
          Consolidated                                $23,089       10.5%     $ 8,772       4.0%         N/A         N/A
          Bank                                        $16,634        7.7%     $ 8,499       4.0%        $ 1,623      5.0%
</TABLE>

              RESTRICTION ON DIVIDENDS

              Prior approval of the Bank's regulatory agencies is required to
              pay dividends which exceed the Bank's net profits for the current
              year, plus its retained net profits for the preceding two years.
              At December 31, 2003, the Bank could pay $5,371,000 in dividends
              without prior regulatory approval. The Bank did not pay any cash
              dividends during the years ended December 31, 2003, 2002 or 2001.

NOTE 11.      OFF-BALANCE SHEET ACTIVITIES

              Credit-Related Financial Instruments. The Company is a party to
              credit related financial instruments with off-balance sheet risk
              in the normal course of business to meet the financing needs of
              its customers. These financial instruments include commitments to
              extend credit, standby letters of credit and commercial letters of
              credit. Such commitments involve, to varying degrees, elements of
              credit and interest rate risk in excess of the amount recognized
              in consolidated balance sheets.

              The Company's exposure to credit loss is represented by the
              contractual amount of these commitments. The Company follows the
              same credit policies in making commitments as it does for
              on-balance sheet instruments. At December 31, 2003 and 2002, the
              following financial instruments were outstanding whose contract
              amounts represent credit risk:

                                                        2003            2002
                                                        ----            ----
                                                       (Dollars in thousands)

                    Commitments to extend credit       $25,863        $24,864
                    Stand-by letters-of-credit           1,371            420


                                       52

<PAGE>

              Commitments to extend credit are agreements to lend to a customer
              as long as there is no violation of any condition established in
              the contract. Commitments generally have fixed expiration dates or
              other termination clauses and may require payment of a fee. The
              commitments for equity lines of credit may expire without being
              drawn upon. Therefore, the total commitments amounts do not
              necessarily represent future cash requirements. The amount of
              collateral obtained, if it is deemed necessary by the Company, is
              based on management's credit evaluation of the customer.

              Unfunded commitments under commercial lines-of-credit, revolving
              credit lines and overdraft protection agreements are commitments
              for possible future extensions of credit to existing customers.
              These lines-of-credit are uncollateralized and usually do not
              contain a specified maturity date and may not be drawn upon to the
              total extent to which the Company is committed.

              Commercial and standby letters-of-credit are conditional
              commitments issued by the Company to guarantee the performance of
              a customer to a third party. Those letters-of-credit are primarily
              issued to support public and private borrowing arrangements.
              Essentially all letters-of-credit issued have expiration dates
              within one year. The credit risk involved in issuing
              letters-of-credit is essentially the same as that involved in
              extending loan facilities to customers. The Company generally
              holds collateral supporting those commitments if deemed necessary.

              The Company maintains a portion of its cash balances with several
              financial institutions. Accounts at each institution are secured
              by the Federal Deposit Insurance Corporation up to $100,000.
              Unsecured balances were approximately $328,000 at December 31,
              2003.

NOTE 12.      TRANSACTIONS WITH DIRECTORS AND OFFICERS

              The Company has had, and may be expected to have in the future,
              banking transactions in the ordinary course of business with
              directors and principal officers, their immediate families and
              affiliated companies in which they are principal stockholders
              (commonly referred to as related parties). In the opinion of
              management, such loans are made on the same terms, including
              interest rates and collateral, as those prevailing at the time for
              comparable transactions with others. They do not involve more than
              normal credit risk or present other unfavorable features.

              Aggregate loan balances with related parties totaled $4,319,000
              and $1,252,000 at December 31, 2003 and 2002, respectively. During
              the year ended December 31, 2003, total principal additions were
              $3,528,000 and total principal payments were $461,000.

NOTE 13.      FAIR VALUE OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISK

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

              CASH AND CASH EQUIVALENTS - For these instruments, the carrying
              amount is a reasonable estimate of fair value.

              INTEREST BEARING DEPOSITS IN BANKS - The carrying amounts of
              interest bearing deposits maturing within ninety days approximate
              their fair value.

              AVAILABLE FOR SALE SECURITIES - Fair values are based on quoted
              market prices. If a quoted market price is not available, fair
              value is estimated using quoted market prices for similar
              securities.

              LOANS RECEIVABLE - Fair value for performing loans is calculated
              by discounting estimated cash flows using interest rates currently
              being offered for loans with similar terms to borrowers of similar
              credit quality.

              Fair value for non-performing loans is based on the lesser of
              estimated cash flows which are discounted using a rate
              commensurate with the risk associated with the estimated cash
              flows, or values of underlying collateral.


                                       53

<PAGE>

              MORTGAGE LOANS HELD FOR SALE - Fair values of mortgage loans held
              for sale are based on commitments on hand from investors or
              prevailing market prices.

              DEPOSIT LIABILITIES - The fair value of demand deposits, savings
              accounts and certain money market deposits is the amount payable
              on demand at the reporting date. The fair value of certificates of
              deposit is based on the discounted value of contractual cash
              flows. The discount rate is estimated using the rates currently
              offered for deposits of similar remaining maturities.

              LONG-TERM BORROWINGS - The fair values of the Company's long-term
              borrowings are estimated using discounted cash flow analysis based
              on the Company's current incremental borrowing rates for similar
              types of borrowing arrangements.

              ACCRUED INTEREST - The carrying amounts of accrued interest
              approximate fair value.

              OFF BALANCE SHEET INSTRUMENTS - Fair values for off-balance sheet
              credit-related instruments are based on fees currently charged to
              enter similar arrangements, taking into account the remaining
              terms of the agreements and the present creditworthiness of the
              counterparties. For fixed rate loan commitments, fair value also
              considers the difference between current levels of interest rates
              and the committed rates. The fair value of standby letters of
              credit is based on fees currently charged for similar agreements
              or on the estimated cost to terminate them or otherwise settle the
              obligations with the counterparties at the reporting date. At
              December 31, 2003 and 2002, the fair values of loan commitments
              and standby letters of credit were deemed immaterial.


                                       54

<PAGE>


              The estimated fair values of the Company's financial instruments
              at December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                      DECEMBER 31, 2003     DECEMBER 31, 2002
                                    --------------------    ------------------
                                     CARRYING       FAIR    CARRYING     FAIR
                                      AMOUNT       VALUE     AMOUNT     VALUE
                                    ----------    -------  ----------  -------
<S>                                  <C>         <C>        <C>       <C>
(Dollars in Thousands)
FINANCIAL ASSETS:
 Cash and due from banks             $ 11,908    $ 11,908   $ 11,051  $ 11,051
 Interest bearing deposits in banks        --          --        655       655
 Federal funds sold                        --          --     28,826    28,826
 Securities available for sale        122,328     122,328     76,063    76,063
 Loans held for sale                      561         561         --        --
 Loans                                167,092     164,701    119,657   118,050
 Accrued interest                       1,336       1,336        916       916

FINANCIAL LIABILITIES:
 Deposits                            $255,116    $255,439   $213,870  $214,223
 Federal funds purchased                6,886       6,886         --        --
 Long-term borrowings                   9,000       8,982      5,000     4,997
 Accrued interest                         115         115        206       206
</TABLE>

              The Company assumes interest rate risk (the risk that general
              interest rate levels will change) as a result of its normal
              operations. As a result, the fair values of the Company's
              financial instruments will change when interest rate levels change
              and that change may be either favorable or unfavorable to the
              Company. Management attempts to match maturities of assets and
              liabilities to the extent believed necessary to minimize interest
              rate risk. However, borrowers with fixed rate obligations are less
              likely to prepay in a rising rate environment and more likely to
              prepay in a falling rate environment. Conversely, depositors who
              are receiving fixed rates are more likely to withdraw funds before
              maturity in a rising rate environment and less likely to do so in
              a falling rate environment. Management monitors rates and
              maturities of assets and liabilities and attempts to minimize
              interest rate risk by adjusting terms of new loans and deposits
              and by investing in securities with terms that mitigate the
              Company's overall interest rate risk.

NOTE 14.      COMMITMENTS AND CONTINGENT LIABILITIES

              The Bank has unsecured lines of credit with correspondent banks
              totaling $24,000,000 available for overnight borrowing. The
              Company had outstanding balances on these lines of $6,886,000 at
              December 31, 2003. There were no amounts drawn on these lines at
              December 31, 2002.

              As a member of the Federal Reserve System, the Bank is required to
              maintain certain average reserve balances. For the final reporting
              period in the year ended December 31, 2003, the aggregate amount
              of daily average balances was approximately $5,316,000.

NOTE 15.      OTHER NONINTEREST INCOME AND EXPENSES

              The principal components of other noninterest income in the
              consolidated statements of income are:

                                              2003        2002          2001
                                             ------      ------        ------
                                                  (Dollars in thousands)

             Cash management fee income      $ 113       $ 130         $ 113
             Other fee income                  190         123            71
                                             -----       -----         -----
                                             $ 303       $ 253         $ 184
                                             =====       =====         =====


                                       55

<PAGE>


              The principal components of other operating expenses in the
              consolidated statements of income are:

                                                   2003        2002      2001
                                                  ------      ------    ------
                                                      (Dollars in thousands)

             Data processing costs                $  373      $  360     $269
             Advertising and public relations        102         123       84
             Professional fees                       197         168      181
             Courier and express services            134         105       73
             Meals and entertainment                  55          44       38
             Supplies                                 70          75       54
             Postage                                  52          43       35
             State franchise tax                     217         155      107
             Other                                   483         252      128
                                                  ------      ------    -----
                                                  $1,683      $1,325     $969
                                                  ======      ======    =====

NOTE 16.      CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

              Financial information pertaining only to James Monroe Bancorp,
              Inc. is as follows:


                            CONDENSED BALANCE SHEETS
                           December 31, 2003 and 2002

                                                             2003       2002
                                                             ----       ----
                                                         (Dollars in thousands)
             Assets
             Cash                                           $ 1,351   $    --
             Interest bearing deposits in banks                  --       655
             Securities available for sale, at fair value    17,985     6,113
             Investment in subsidiary bank                   23,068    17,310
             Other assets                                       492       200
                                                            -------   -------
                                                            $42,896   $24,278
                                                            =======   =======

             Liabilities and Stockholders' Equity
             Other liabilities                              $     5   $    83
             Trust preferred capital notes                    9,000     5,000
             Stockholders' equity                            33,891    19,195
                                                            -------   -------
                                                            $42,896   $24,278
                                                            =======   =======


                                       56

<PAGE>



                           CONDENSED INCOME STATEMENTS
              For the Years Ended December 31, 2003, 2002 and 2001

                                                           2003    2002    2001
                                                          ------  ------  ------
                                                          (Dollars in thousands)

   Interest income                                        $  284  $  229  $   62
   Interest expense                                          323     218      --
   Operating expense                                         102      69      49
                                                          ------  ------  ------
   Income (loss) before income tax expense (benefit) and    (141)    (58)     13
   equity in undistributed income of subsidiaries
   Income tax expense (benefit)                              (67)    (20)      6
   Equity in undistributed income of subsidiaries          2,675   1,591   1,105
                                                          ------  ------  ------
             Net income                                   $2,601  $1,553  $1,112
                                                          ======  ======  ======

                        CONDENSED STATEMENTS OF CASH FLOW
              For the Years Ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                2003             2002             2001
                                                                                ----             ----             ----
                                                                                        (Dollars in thousands)
<S>                                                                           <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                                   $  2,601         $ 1,553          $ 1,112
 Adjustments to reconcile net income to
    net cash provided by (used in) operating activities:
  Equity in undistributed income of subsidiaries                                (2,675)         (1,591)          (1,105)
  (Increase) decrease in other assets                                             (294)           (184)               5
  Increase (decrease) in other liabilities                                           4               1               (4)
                                                                              --------         -------          -------
  Net cash provided by (used in) operating activities                             (364)           (221)               8
                                                                              --------         -------          -------

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchases of securities available for sale                                    (17,011)         (7,121)              --
 Proceeds from calls and maturities of securities available for sale             4,901           1,249               --
 Investment in subsidiary bank                                                  (4,000)         (5,000)              --
 (Increase) decrease in interest bearing deposits in banks                         655           1,380              (25)
                                                                              --------         -------          -------
   Net cash (used in) investing activities                                     (15,455)         (9,492)             (25)
                                                                              --------         -------          -------

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from issuance of common stock                                         13,174           4,713               17
 Proceeds from issuance of trust preferred capital notes                         4,000           5,000               --
 Cash paid in lieu of fractional shares                                             (4)             --               --
                                                                              --------         -------          -------
   Net cash provided by financing activities                                    17,170           9,713               17
                                                                              --------         -------          -------

   Increase in cash and cash equivalents                                         1,351              --               --

CASH AND CASH EQUIVALENTS, beginning of year                                        --              --               --
                                                                              --------         -------          -------
CASH AND CASH EQUIVALENTS, end of year                                        $  1,351          $   --          $    --
                                                                              ========         =======          =======
</TABLE>


                                       57

<PAGE>



NOTE 17.      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 rate for the quarterly period
              beginning December 26, 2003, was 4.61%. 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 newly formed
              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 securities have a maturity date of July 31, 2033,
              and are subject to ranging call provisions beginning July 31,
              2008.

              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 December 31,
              2003, 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 18.      COMMON STOCK SPLITS

              On July 25, 2002, the Company issued 613,195 additional shares
              necessary to effect a 3-for-2 common stock split in the form of a
              50% stock dividend to shareholders of record July 11, 2002. The
              earnings per common share for all periods prior to July 2002 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 in the form of a
              25% stock dividend to 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.


                                       58

<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

         None.

ITEM 8A.  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 December 31, 2003 that has materially affected,
or is reasonably likely to materially affect, the Bank's internal control over
financial reporting.


<PAGE>


                                    Part III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Set forth below is a description of the principal occupation and
business experience of each of the directors and executive officers of the
Company. Except as expressly indicated below, each person has been engaged in
his principal occupation for at least five years. Each of the members of the
Board of Directors has served since the organization of the Company in 1999, and
has served as a director of the Bank since its inception in 1997, except Mr.
Linhart, who joined the Board of the Company in June 2000 and the Board of the
Bank in May 2000.

         Dr. Terry L. Collins. Dr. Collins is the Co-Founder and President of
Argon Engineering Associates, founded in 1997 (Systems and Information
Technology Firm). He was also the Vice President and General Manager of the
Falls Church Operation of Raytheon E-Systems from 1989 to 1997.

         Norman P. Horn. Mr. Horn retired in 1997 from his position as a
Principal in the Northern Virginia accounting firm, Homes, Lowry, Horn &
Johnson, Ltd.

         Dr. David C. Karlgaard. Dr. Karlgaard is the Founder, Chairman and
President of PEC Solutions, Inc. an information technology firm (listed on the
Nasdaq National Market).

         Richard I. Linhart. Mr. Linhart has been Executive Vice President and
Chief Operating Officer of the Bank since February 1998 and of the Company since
its formation.

         Richard C. Litman. Mr. Litman is a Registered Patent Attorney;
President of Litman Law Offices, Ltd.

         John R. Maxwell. Mr. Maxwell has been President and Chief Executive
Officer of the Bank since April 1997 and of the Company since its formation.

         Dr. Alvin E. Nashman. Dr. Nashman retired in 1991 from his position of
Head of the Systems Group of Computer Sciences Corporation which he held for
over 27 years. Mr. Nashman is a Director of Micros to Mainframes (publicly
traded on Nasdaq).

         Helen L. Newman. Mrs. Newman was Senior Vice President of Government
Operations for Gulfstream Aerospace Corporation until December 31, 2002. She is
currently retired.

         Thomas L. Patterson. Mr. Patterson is an attorney with the law firm of
Linowes and Blocher, LLP. since May 2000. From November 1998 until May 2000, he
was an attorney with the firm of Venable, Baetjer, Howard & Civiletti (or
Tucker, Flyer & Lewis, which became a part of that firm in 2000). Mr. Patterson
was Vice President - Real Estate Counsel of Federal Realty Investment Trust from
March 1997 until September 1998, and prior to that time was an attorney in
private practice.

         David W. Pijor. Mr. Pijor has been Chairman of the Bank since February
1997 and Chairman of the Company since its formation. Mr. Pijor has been an
attorney in private practice for the past 26 years.

         Russell E. Sherman. Mr. Sherman is the President of the law firm of
Sherman & Fromme, P.C.

         Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Common Stock, to file reports of ownership and changes in ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission, and to provide the
Company with copies of all Forms 3, 4, and 5 they file.


                                       60

<PAGE>


         Based solely upon the Company's review of the copies of the forms which
it has received and written representations from the Company's directors,
executive officers and ten percent shareholders, the Company is not aware of any
failure of any such person to comply with the requirements of Section 16(a),
except that Forms 4 reporting the award in July 2003 of options to each of the
non-employee directors were filed late.

         Audit Committee. The Board of Directors has a standing Audit Committee.
The Audit Committee is responsible for the selection, review and oversight of
the Company's independent accountants, the approval of all audit, review and
attest services provided by the independent accountants, the integrity of the
Company's reporting practices and the evaluation of the Company's internal
controls and accounting procedures. It also periodically reviews audit reports
with the Company's independent auditors. The Audit Committee is currently
comprised of Messrs. Horn, Patterson and Karlgaard. Each of the members of the
Audit Committee is independent, as determined under the definition of
independence adopted by the NASD for audit committee members in Rule
4350(d)(2)(A). The Board of Directors has adopted a written charter for the
Audit Committee. During the 2003 fiscal year, the Audit Committee met three
times. The Board of Directors has determined that Mr. Horn is an "audit
committee financial expert" as defined under regulations of the Securities and
Exchange Commission.

         Code of Ethics. The Company has adopted a Code of Ethics that applies
to the President and Executive Vice President/Chief Financial Officer. The
Company will provide a copy of the Code of Ethics without charge upon written
request directed to Richard I. Linhart, Secretary, James Monroe Bancorp, Inc.,
3033 Wilson Boulevard 22207.

ITEM 10.  Executive Compensation

         The following table sets forth a comprehensive overview of the
compensation for Mr. Maxwell, the President of the Bank and the Company, and Mr.
Linhart, the only other executive officer who received total salary and bonuses
of $100,000 or more during the fiscal year ended December 31, 2003.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                         ANNUAL COMPENSATION LONG TERM       COMPENSATION AWARDS
                                         -----------------------------       -------------------
                                                                                  SECURITIES             ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR        SALARY          BONUS            UNDERLYING OPTIONS        COMPENSATION
---------------------------     ----       --------         -------          ------------------        ------------
<S>                             <C>        <C>              <C>                  <C>                   <C>
John R. Maxwell,                2003       $190,000         $80,000                 --                 Less than $10,000
President and Chief             2002       $170,000         $50,400                 --                 Less than $10,000
Executive Officer               2001       $145,833         $38,000                 --                 Less than $10,000

Richard I. Linhart,             2003       $137,000         $45,000              15,000                   $118,808(2)
Executive Vice President        2002       $125,000         $35,000               3,375(1)             Less than $10,000
and Chief Operating Officer     2001       $115,000         $27,000               3,375(1)             Less than $10,000
</TABLE>
----------------------------

(1) Adjusted to reflect the three-for-two stock split in the form of a 50% stock
    dividend paid on July 25, 2002 and a five-for-four stock split in the form
    of a 25% stock dividend paid on May 16, 2003.
(2) Includes $112,808 of reimbursement for taxes incurred in connection with
    exercise of nonqualified stock options granted under initial employment
    agreement, in accordance with the terms of that agreement.

                        OPTION GRANTS IN LAST FISCAL YEAR


<TABLE>
<CAPTION>
                                                     Percent of Total
                          Number of Securities      Options Granted to         Exercise
                           Underlying Options          Employees in           Price Per
        Name                    Granted                 Fiscal Year             Share           Expiration Date
        ----              --------------------      ------------------        ---------         ---------------

<S>                              <C>                       <C>                  <C>               <C>
John R. Maxwell                    --                        --                   --                   --

Richard I. Linhart               15,000                    36.7%                $23.00            11/10/2013
</TABLE>
---------------------


                                       61

<PAGE>


                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR AND OPTION VALUES

<TABLE>
<CAPTION>
                                                                 Number of Securities           Value of Unexercised
                                                                 Underlying Unexercised        In-The-Money Options at
                                                              Options at December 31, 2003        December 31, 2003
                         Shares Acquired on                   ----------------------------   ---------------------------
         Name                Exercise         Value Realized    Exercisable/Unexercisable    Exercisable/Unexercisable(1)
         ----            ------------------   --------------  ----------------------------   ---------------------------
<S>                           <C>               <C>                   <C>                        <C>

John R. Maxwell                 --                 $--                 69,150/$--                $1,377,240/$--

Richard I. Linhart            27,750            $472,317              6,125/10,000               $28,271/$22,500
</TABLE>
---------------------

(1)      Based on $25.25 per share, the last sale price for the common stock as
         of December 31, 2003.

EMPLOYMENT AGREEMENTS

         John R. Maxwell. We have entered into an agreement with Mr. Maxwell,
pursuant to which he serves as President and Chief Executive Officer of the Bank
and the Company. Without cause or his consent, he may not be removed from these
positions, nor may any executive position higher than his be established. The
term of his agreement expires on December 31, 2005, and is subject to automatic
one year extensions on each January 1 thereafter, provided that neither we nor
Mr. Maxwell has given written notice of intention not to renew at least 90 days
prior to the renewal date. The agreement provides for the payment of cash and
other benefits to Mr. Maxwell, including a base salary of $190,000 during the
period January 1, 2003 to December 31, 2003. Mr. Maxwell's base salary for
subsequent periods is subject to annual review by the Board of Directors, and is
currently $215,000 for calendar year 2004. He is entitled to a bonus as
determined in the Board's discretion, after consultation with Mr. Maxwell.
Seventy-five percent of bonuses is to be based on objective performance
criteria. Mr. Maxwell is also entitled to $1,700,000 of life insurance at our
expense (subject to increase based upon the percentage increase in base salary),
use of a car and an automobile allowance, and is entitled to reimbursement of
reasonable business expenses. He is also entitled to reimbursement of income
taxes payable upon the exercise of 69,150 options (as adjusted for stock splits)
previously granted under a prior employment agreement, up to the amount of the
tax benefit we realize as a result of the exercise. Mr. Maxwell is entitled to
receive supplemental payments upon disability, in excess of those provided under
our generally applicable plan, to bring total payments to 100% of his base
salary for the first six months of the disability. Subsequently, he will be
entitled to receive only payments under our disability income plan, except he
shall not be subject to the generally applicable $5,000 monthly payment limit.
He is also entitled to participate in any pension, retirement, profit sharing,
stock purchase, stock option, insurance, deferred compensation and other benefit
plans provided to other executives or employees.

         His agreement terminates as of the end of the initial or any renewal
terms if either party gives notice of non-renewal. If he elects not to renew the
agreement, he is not entitled to any additional payments, and is subject to a
two year non-competition restriction. If we elect not to renew the agreement,
Mr. Maxwell is entitled to receive continued salary, bonus and benefits for 18
months, and is subject to the non-competition restriction for that period. If,
within 12 months of a change in control (as defined), Mr. Maxwell terminates the
agreement after we materially change his status, duties or responsibilities,
discontinue compensation plans in which he is participating without providing a
comparable replacement plan, limit his outside activities, or assign the
agreement or our obligations under the agreement, without his consent, he will
be entitled to receive continued salary, bonus and benefits for 24 months, and
will be subject to the non-competition restriction for that period. If we
terminate the agreement in breach of the agreement, or Mr. Maxwell terminates
because of such breach, he will be entitled to receive continued salary, bonus
and benefits for 12 months, and outplacement assistance from an organization of
his choice, at our expense up to 18% of his base salary at the time of
termination, and he will not be subject to the non-competition restriction. The
agreement prohibits conflicts of interests, and requires that Mr. Maxwell
maintain the confidentiality of nonpublic information regarding us and our
customers.

         Richard I. Linhart. We have entered into an agreement with Mr. Linhart,
pursuant to which he serves as Executive Vice President and Chief Operating
Officer. The current term of Mr. Linhart's agreement expires on December 31,
2006. The agreement provides for the payment of cash and other benefits,
including a base salary of $150,000 during the period January 1, 2004 to
December 31, 2004. Mr. Linhart's base salary is subject to annual review,
provided that the salary may not be less than his base salary for the prior
period. In connection with his new employment agreement, Mr. Linhart


62

<PAGE>

received non-incentive options under the 1998 Stock Option Plan to purchase
15,000 shares at $23 per share, vesting in three installments. He is also
entitled to receive non-incentive options to purchase 7,500 additional shares on
each of October 15, 2004 and 2005 at exercise prices equal to the fair market
value of the common stock as of such dates, subject to adjustment in accordance
with the 2003 Equity Compensation Plan. These options will vest in equal
installments over the period from the date of grant through December 31, 2008,
subject to acceleration of vesting if Mr. Linhart retires after December 31,
2006. Mr. Linhart will be deemed to be retired if he is not employed by,
provided consulting services for or received compensation from any person or
entity for services rendered for six months after December 31, 2006. He is
entitled to disability payments in the same manner as Mr. Maxwell, except that
he is entitled to receive his full salary for the first three months of
disability. He is also entitled to major medical health insurance as provided to
other officers, to a car allowance in the amount of $600 per month and to
participate in any pension, retirement, profit sharing, stock purchase, stock
option, insurance, deferred compensation and other benefit plans provided to
other executives or employees.

         If Mr. Linhart terminates the agreement for "good reason" (as defined)
within 12 months of a "change in control" (as defined), he will be entitled to
receive continued salary and benefits for 24 months. If we terminate the
agreement in breach of the agreement, or Mr. Linhart terminates as a result of
our breach, Mr. Linhart is entitled to receive continued salary, bonus and
benefits for the greater of 12 months or the remaining term of the agreement,
and outplacement assistance from an organization of his choice, at our expense
up to 18% of his base salary at the time of termination.

         401(k) Retirement Plan. We maintain a 401(k) defined contribution plan
for all eligible employees. Employees who are at least 21 years of age, have
completed at least ninety days of continuous service with James Monroe Bank and
have completed at least 1,000 hours of work during any plan year are eligible to
participate. Under the plan, a participant may contribute up to 15% of his or
her compensation for the year, subject to certain limitations. We may also make,
but are not required to make, a discretionary contribution for each participant.
The amount of such contribution is determined annually by the Board of
Directors, and was 83.33% of employee contributions up to 6% of salary for 2003
and will be 100% of employee contributions up to 6% of salary in 2004. Company
contributions totaled $42,787 for the fiscal year ended December 31, 2003. Since
the second quarter of 2003, employees participating in the retirement plan may
allocate a portion of their available funds for the purchase shares of our
common stock. Shares are purchased on a quarterly basis, at market value, and
are expected to be issued out of authorized but unissued shares. An aggregate of
100,000 shares have been reserved for issuance under the plan, of which
approximately 5,233 have been issued to date.

         Stock Option Plans. We maintain the 1998 Stock Option Plan for key
employees, pursuant to which options to purchase up to 172,275 shares of common
stock may be issued as either incentive stock options or nonincentive stock
options. As of December 31, 2003, 1,806 options remained available for issuance
under the 1998 plan.

         We also maintain the 2003 Equity Compensation Plan, approved at the
2003 Annual Meeting of Shareholders. The purpose of the 2003 plan is to promote
our long term interests by motivating selected key personnel and directors
through the grant of equity compensation, in the form of stock options,
restricted stock awards, stock appreciation rights, phantom stock and
performance shares. Under this plan, 250,000 shares are available for issuance
upon the exercise of awards under the plan. As of December 31, 2003, options to
purchase 21,994 shares of common stock had been issued under the plan, and
options to purchase 15,000 shares had been reserved for issuance to Mr. Linhart
in accordance with his employment agreement. Subsequent to December 31, 2003,
options to purchase an aggregate of 78,000 shares of common stock were issued.
Mr. Maxwell received an award of options to purchase 40,000 shares at an
exercise price of $27.92, 15,000 of which vested immediately, and the remainder
of which will vest over five years at a rate of 5,000 per year. Each outside
director of the Company received immediately exercisable options to purchase
4,000 shares at an exercise price of $27.92 per share.

DIRECTORS' COMPENSATION

         During 2003 directors received $300 for attendance at meetings of the
Board of Directors of the holding Company or the Bank, and $100 for each
committee meeting, other than Mr. Pijor, the Chairman, who received a monthly
retainer of $2,500 in addition to regular meeting fees. Directors are entitled
to receive options under the 2003 Equity Compensation Plan. In 2003, each
non-employee director other than Messrs. Horn and Sherman was awarded options to
purchase 1,538 shares of common stock at an exercise price of $22.86 per share
under the 2003 Equity Compensation Plan. Messrs. Horn


                                       63

<PAGE>

and Sherman each received options to purchase 3,076 shares. In 2004, each
non-employee director of the Company was awarded options to purchase 4,000
shares of common stock at an exercise price of $27.92 per share, and the one
non-employee director of the Bank who is not also a director of the Company was
awarded options to purchase 2,000 shares at an exercise price of $27.92 per
share

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

         The following table sets forth certain information as of March 12, 2004
concerning the number and percentage of shares of the common stock beneficially
owned by our directors and executive officers, and by all of our directors and
executive officers as a group, as well as information regarding each other
person known by the Company to own in excess of 5% of the outstanding common
stock. Except as otherwise indicated, all shares are owned directly, and the
named person possesses sole voting and sole investment power with respect to all
such shares. Except as set forth below, we are not aware of any other person or
persons who beneficially own in excess of five percent of the common stock.
Further, we are not aware of any arrangement which at a subsequent date may
result in a change of control of the Company.

<TABLE>
<CAPTION>
                                                                                    Shares Beneficially
Name                                  Age                Position                         Owned(1)         Percentage
---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>     <C>                                        <C>                <C>
Directors
Dr. Terry L. Collins                   58                Director                         119,991             4.03%
Norman P. Horn                         72                Director                          28,513             0.96%
Dr. David C. Karlgaard                 57                Director                         132,803             4.46%
Richard Linhart                        60        Director, Executive Vice                  48,687             1.64%
                                               President and Chief Operating
                                                          Officer
Richard C. Litman                      46                Director                          79,566             2.67%
John R. Maxwell                        43        Director, President & CEO                113,339             3.73%
Dr. Alvin E. Nashman                   77                Director                          66,179             2.23%
Helen L. Newman                        60                Director                          65,140             2.20%
Thomas L. Patterson                    51                Director                          36,443             1.23%
David W. Pijor                         51        Chairman of the Board and                 50,935             1.71%
                                                         Director
Russell E. Sherman                     67                Director                          34,452             1.16%

Executive Officers and Directors
as a Group  (11 individuals)                                                              776,048            24.25%

Principal Shareholders

Nino Vaghi                                                                                222,984             7.54%
c/o National Mailing Systems
1749 Old Meadow Road
McLean, VA  22101
</TABLE>
------------------------------------

(1)      The shares "beneficially owned" by an individual are determined in
         accordance with the definitions of "beneficial ownership" set forth in
         the General Rules and Regulations of the U.S. Securities and Exchange
         Commission and may include shares owned by or for the individual's
         spouse and minor children and any other relative of the individual who
         lives in the same home, as well as shares to which the individual has,
         or shares, voting or investment power, or has the right to acquire
         beneficial ownership within sixty (60) days after March 12, 2004.
         Beneficial ownership may be disclaimed as to certain of the shares.

         Directors and executive officers beneficially own the following stock
         options which are exercisable within 60-days following March 12, 2004:
         Collins -- 18,741 shares; Horn -- 16,717 shares; Karlgaard -- 22,491
         shares; Linhart -- 5,000 shares; Litman -- 22,116 shares; Maxwell --
         84,150 shares; Nashman -- 5,538 shares; Newman -- 6,929 shares;
         Patterson -- 14,054 shares; Pijor -- 29,991 shares; Sherman -- 18,217
         shares.

(2)      Includes 2,500 shares held individually by his spouse.

(3)      Includes 49,722 shares of common stock held individually by Mrs. Newman
         and 8,489 shares of common stock held individually by her spouse.

(4)      Includes 5,625 shares held in a trust for which Mr. Patterson has
         voting and/or investment power. Does not include 6,335 shares held by
         Mr. Patterson's sibling for benefit of Mr. Patterson's son.

(5)      Includes 13,738 shares held individually by Mr. Pijor, 6,706 shares
         held jointly, and 500 shares held by his minor children.


                                       64

<PAGE>


         Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information regarding options issuable and issued
under our plans under which stock options or other equity based compensation may
be granted.

                                          EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                                                                            Number of securities
                                                                                                          remaining available for
                                           Number of securities to be                                      future issuance under
                                             issued upon exercise of        Weighted average exercise    equity compensation plans
                                                  outstanding             price of outstanding options,    (excluding securities
           Plan category                   options, warrants and rights         warrants and rights        reflected in column (a)
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                               <C>                           <C>
                                                      (a)                               (b)                         (c)
Equity compensation plans
approved by security holders (1)                    260,956                           $10.05                      276,719
Equity compensation plans not
approved by security holders                           0                                N/A                          0
              Total                                 260,956                           $10.05                      276,719
</TABLE>

(1)  Consists of the 1998 Management Incentive Stock Option Plan, 1999
     Director's Stock Option Plan and 2003 Equity Compensation Plan described
     further in Note 8 to the consolidated financial statements, and under the
     caption Stock Option Plans and Director's Compensation in Item 10 of this
     report. Certain employment arrangements of the Company, which have not
     individually been approved by shareholders, and which are described in
     response to Item 11 hereof, call for the issuance of options to purchase
     common stock under the stock option plan which have been approved by
     shareholders.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company has had, and expects to have in the future, banking
transactions in the ordinary course of business with some of its directors,
officers, and employees and their associates. In the past, substantially all of
such transactions have been on the same terms, including interest rates,
maturities and collateral requirements as those prevailing at the time for
comparable transactions with non-affiliated persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.

         The maximum aggregate amount of loans to officers, directors and
affiliates of the Company during 2003 amounted to $13,447,241 representing
approximately 39.7% of the Company's total shareholders' equity at December 31,
2003. In the opinion of the Board of Directors, the terms of these loans are no
less favorable to the Company than terms of the loans from the Company to
unaffiliated parties. On December 31, 2003, $6,469,803 of loans were outstanding
to individuals who, during 2003, were officers, directors or affiliates of the
Company. At the time each loan was made, management believed that the loan
involved no more than the normal risk of collectibility and did not present
other unfavorable features. None of such loans were classified as Substandard,
Doubtful or Loss.

         David W. Pijor has performed legal services for the Company and the
Bank in the ordinary course of their businesses, and the Company expects that he
will continue to perform services for the Company and the Bank. In 2003, the
aggregate fee paid to Mr. Pijor by the Company and the Bank was $135,772. In
2002 he received $78,857 for his services.


                                       65

<PAGE>


ITEM 13.  Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.       Description of Exhibits

3(a)          Articles of Incorporation of James Monroe Bancorp, as amended (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, filed herewith
10(c)         James Monroe Bancorp1998 Management Incentive Stock Option Plan
              (5)
10(d)         James Monroe Bancorp 2000 Director's Stock Option Plan (6)
10(e)         James Monroe Bancorp, Inc. 2003 Equity Compensation Plan (7)
11            Statement re: Computation of Per Share Earnings

              Please refer to Note 1 to the financial statements included in
              this report.

21            Subsidiaries of the Registrant
23            Independent Auditor's Consent
31(a)         Certification of Chief Executive Officer
31(b)         Certification of Chief Financial Officer
32(c)         Certification of Chief Executive Officer
32(d)         Certification of Chief Financial Officer

--------------------------
(1)      Incorporated by reference to exhibit 3(a) to the Company's Annual
         Report on Form 10-KSB for the year ended December 31, 2002.
(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 10(b) to the Company's
         registration statement on Form SB-2 (No. 333-38098). (6) Incorporated
         by reference to exhibit 10(c) to the Company's registration statement
         on Form SB-2 (No. 333-38098). (7) Incorporated by reference to exhibit
         10(e) to the Company's Quarterly Report on Form 10-QSB for the quarter
         ended March 31, 2003

(B)  REPORTS ON FORM 8-K

         A current report on Form 8-K was filed on October 9, 2003, under items
7, 9 and 12 thereof, reporting earnings for the
quarter ended September 30, 2003.


                                       66

<PAGE>


ITEM 14.  Principal Accountant Fees and Services

         Audit Fees.

         During 2003, the aggregate amount of fees billed to the Company by
Yount, Hyde and Barbour for services rendered by it for the audit of the
Company's financial statements and review of financial statements included in
the Company's reports on Form 10-QSB, and for services normally provided in
connection with statutory and regulatory filings was $55,620. In 2002, Yount
Hyde & Barbour billed $29,100 for such services. This category includes fees for
services necessary to perform the audit of the Company's financial statements
comfort letters and consents in connection with registration statements and
other filings with the Securities and Exchange Commission and assistance with
and review of documents filed with the Commission.

         Audit-Related Fees.

         During 2003, the aggregate amount of fees billed to the Company by
Yount, Hyde and Barbour for assurance and related services reasonably related to
the performance of the audit services rendered by it was $8,683. In 2002, Yount
Hyde & Barbour billed $476 for such services. These services were the audit of
the Company's information technology systems, public funds engagements and
assistance regarding financial accounting and reporting standards.

         Tax Fees.

         During 2003, the aggregate amount of fees billed to the Company by
Yount, Hyde and Barbour for tax advice, compliance and planning services was
$2,275. In 2002, Yount, Hyde & Barbour billed $1,350 for such services. These
services were the preparation of federal and state income tax returns and advice
regarding tax compliance issues.

         All Other Fees.

         During 2003 and 2002, Yount, Hyde and Barbour did not bill the Company
for any other services.

         None of the engagements of Yount, Hyde & Barbour to provide services
other than audit services was made pursuant to the de minimus exception to the
pre-approval requirement contained in the rules of the Securities and Exchange
Commission and the Company's audit committee charter.


                                       67

<PAGE>


                                   SIGNATURES

         In accordance with Section 13 of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                    JAMES MONROE BANCORP, INC.

March 10, 2004                      By:   /s/ John R. Maxwell
                                          -------------------------------------
                                          John R. Maxwell, President

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
       SIGNATURE                                            TITLE                                   DATE

<S>                               <C>                                           <C>
/s/ Dr. Terry L. Collins          Director                                      March 10, 2004
----------------------------
Dr. Terry L. Collins

/s/ Norman P. Horn                Director                                      March 10, 2004
----------------------------
Norman P. Horn

/s/ Dr. David C. Karlgaard        Director                                      March 10, 2004
----------------------------
Dr. David C. Karlgaard


/s/ Richard I. Linhart            Director, Chief Operating Officer, Secretary  March 10, 2004
----------------------------      (Principal Accounting and Financial Officer)
Richard I. Linhart

/s/ Richard C. Litman             Director                                      March 10, 2004
----------------------------
Richard C. Litman

/s/ John R. Maxwell               President, Chief Executive Officer            March 10, 2004
----------------------------      and Director (Principal Executive Officer)
John R. Maxwell

/s/ Dr. Alvin E. Nashman          Director                                      March 10, 2004
----------------------------
Dr. Alvin E. Nashman

/s/ Helen L. Newman               Director                                      March 10, 2004
----------------------------
Helen L. Newman

/s/ Thomas L. Patterson           Director                                      March 10, 2004
----------------------------
Thomas L. Patterson

/s/ David W. Pijor                Chairman of the Board of Directors            March 10, 2004
----------------------------
David W. Pijor

/s/ Russell E. Sherman            Director                                      March 10, 2004
----------------------------
Russell E. Sherman
</TABLE>