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

                                    FORM 10-K

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

         For the fiscal year ended December 31, 2004

|_|      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.
             (Exact name of Registrant as specified 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

Indicate by check mark whether the registrant; (1) has 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 |_|

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

Indicate by check mark whether the registrant is an accelerated filer.
Yes |_|  No |X|

The aggregate market value of the outstanding Common Stock held by nonaffiliates
as of June 30, 2004 was approximately $68.26 million.

As of February 23, 2005, the number of outstanding shares of the Common Stock,
$1.00 par value, of James Monroe Bancorp, Inc. was 4,445,224.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders, to be held on April 28, 2005, are incorporated by reference in
part III hereof.


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                                     PART I

ITEM 1. 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 five 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, 2004, the Bank's statutory lending limit to any single
borrower was $5.22 million, subject to certain exceptions provided under
applicable law. As of December 31, 2004, the Bank's credit exposure to its
largest borrower was $4,181,000.

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         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 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
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.


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         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
1.12% of the entire portfolio in this group, exclusive of the government
guaranteed portion, 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, 2004, 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 1.12% 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, 2004, the Bank had 84 full time equivalent
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 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.


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         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.

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

         Capital Adequacy Guidelines. The Federal Reserve Board 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.


                                       8
<PAGE>

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

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

         An 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.


                                       9
<PAGE>

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

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

         Deposit Insurance Premiums. The FDIA establishes a risk based deposit
insurance assessment system. Under applicable regulations, deposit premium
assessments are determined based upon a matrix formed utilizing capital
categories - well capitalized, adequately capitalized and undercapitalized -
defined in the same manner as those categories are defined for purposes of
Section 38 of the FDIA. Each of these groups is then divided into three
subgroups which reflect varying 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.  PROPERTIES.

         We currently maintain seven banking offices in the Northern Virginia
market. All of our properties are occupied under leases which have terms
extending until at least 2006 and with the exception of our Manassas office have
one or more renewal options. We have also leased 14,107 square feet in a new
building in Chantilly, Virginia which houses our Chantilly branch and certain
administrative and operations functions.

      ADDRESS                                 TYPE OF FACILITY
      -------                                 ----------------
3033 Wilson Boulevard                    Main banking office, executive office
Arlington, Virginia
3914 Centreville Road                    Full service branch, administrative
Chantilly, Virginia                      offices, back 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
Leesburg, Virginia                       service branch
7900 Sudley Road                         Full service branch
Manassas, Virginia


                                       10
<PAGE>

         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, 2004, there were no pending or,
to the knowledge of the Company, 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, 2004.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS.

         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. As of December 31, 2004, there were 4,445,224
shares of common stock outstanding, held by approximately 1,900 shareholders of
record. At that date, there were also outstanding options to purchase 532,713
shares of common stock, 443,487 of which were exercisable.

         Set forth below is our share price history for the each quarter since
January 1, 2002 through December 31, 2004. 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 relatively 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, the five-for-four stock
split in the form of a 25% stock dividend paid on May 16, 2003, and the
three-for-two stock split in the form of a 50% stock dividend paid on June 1,
2004

                           2004                  2003                  2002
                   ------------------   --------------------   -----------------
Period Ended         High      Low         High       Low       High      Low
                   --------  --------   ---------   --------   -------  --------
March 31,           $19.13    $16.43      $11.87     $ 8.72     $6.76    $6.05
June 30,            $19.35    $17.51      $15.87     $11.20     $8.54    $6.27
September 30,       $19.25    $18.00      $17.60     $14.50     $8.27    $5.92
December 31,        $19.90    $17.65      $17.80     $14.80     $9.07    $6.96

         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. On June 1, 2004 the Company effected a three-for-two stock
split in the form of a 50% 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, 2004,
$7,218,000 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.  None.

         Use of Proceeds:  Not Applicable.

         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))
--------------------------------------------------------------------------------------------------------------------------
                                               (a)                          (b)                          (c)
<S>                          <C>             <C>                           <C>                         <C>
Equity compensation plans
approved by security holders (1)             532,713                       $10.22                      177,594
Equity compensation plans not
approved by security holders                    0                           N/A                           0
                                  ----------------------------------------------------------------------------------------
              Total                          532,713                       $10.22                      177,594

</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 in response
     to Item 10 hereof. 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.

         Issuer Repurchases of Common Stock. No shares of the Company's common
stock were repurchased by or on behalf of the Company during the fourth quarter
of 2004.


                                       12
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)             2004          2003          2002          2001          2000
----------------------------------------          ----------    ----------    ----------    ----------    ----------
<S>                                               <C>           <C>           <C>           <C>            <C>
BALANCE SHEET HIGHLIGHTS:
Total assets                                      $  450,770    $  305,651    $  238,793    $  126,658     $ 89,2308
Total loans                                          249,996       169,047       121,047        86,139        50,040
Total liabilities                                    413,869       271,760       219,598       114,691        78,497
Total stockholders' equity                            36,901        33,891        19,195        11,967        10,733
----------------------------------------          ----------    ----------    ----------    ----------    ----------
RESULTS OF OPERATIONS:
Total interest income                             $   17,462    $   13,026    $   10,091    $    7,548    $    5,413
Total interest expense                                 4,833         3,618         3,609         2,918         2,177
Net interest income                                   12,629         9,408         6,482         4,630         3,236
Provision for loan losses                                990           662           483           450           237
Other income                                           1,175         1,147           760           554           302
Noninterest expense                                    8,287         5,964         4,394         3,033         2,348
Income before taxes                                    4,527         3,929         2,365         1,701           953
Net income                                             2,970         2,601         1,553         1,112           810
----------------------------------------          ----------    ----------    ----------    ----------    ----------
PER SHARE DATA(1):
Earnings per share, basic                         $     0.67    $     0.73    $     0.50    $     0.41    $     0.37
Earnings per share, diluted                       $     0.64    $     0.68    $     0.48    $     0.39    $     0.36
Weighted average shares
     outstanding--basic                            4,435,905     3,589,931     3,082,266     2,700,279     2,191,658
Weighted average shares
     outstanding--diluted                          4,675,171     3,829,901     3,240,809     2,799,620     2,262,358
Book value (at period-end)                        $     8.30    $     7.68    $     5.56    $     4.43    $     3.98
Shares outstanding                                 4,445,224     4,415,703     3,451,269     2,701,314     2,696,532
----------------------------------------          ----------    ----------    ----------    ----------    ----------
PERFORMANCE RATIOS:
Return on average assets                                0.83%         0.97%         0.88%         1.02%        1.19%
Return on average equity                                8.35%        11.94%        10.15%         9.65%       10.75%
Net interest margin                                     3.72%         3.73%         3.90%         4.56%        5.09%
Efficiency Ratio (2)                                   60.03%        56.50%        60.67%        58.51%       66.40%
----------------------------------------          ----------    ----------    ----------    ----------    ----------
OTHER RATIOS:
Allowance for loan losses to total loans                1.12%         1.16%         1.15%         1.20%        1.20%
Equity to assets                                        8.19%        11.09%         8.04%         9.45%       12.03%
Nonperforming loans to total loans                      0.14%         0.30%         0.24%         0.31%        0.00%
Net charge-offs to average loans                        0.07%         0.07%         0.12%         0.03%        0.00%
Risk-Adjusted Capital Ratios:
     Tier 1                                             16.2%         21.9%         15.4%         11.9%        18.5%
     Total                                              17.1%         22.9%         16.4%         13.0%        19.6%
     Leverage Ratio                                     10.7%         14.3%         10.5%          9.5%        12.6%

</TABLE>

(1) Information has been adjusted to reflect the 3-for-2 stock split paid on
June 1, 2004, the 5-for-4 stock split paid on May 16, 2003 and the 3-for-2 stock
split paid on July 25, 2002.

(2) Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, including securities gains or
losses and gains or losses on the sale of loans. This is a non-GAAP financial
measure, which we believe provides investors with important information
regarding our operational efficiency. Comparison of our efficiency ratio with
those of other companies may not be possible, because other companies may
calculate the efficiency ratio differently.



                                       13
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

FORWARD LOOKING STATEMENTS

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

INTRODUCTION

         This Management's Discussion and Analysis reviews the financial
condition and results of operations of the Company and its subsidiaries as of
and for the years ended December 31, 2004, 2003 and 2002. 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, 2004.

CRITICAL ACCOUNTING POLICIES

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

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

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



                                       14
<PAGE>

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

COMPANY HIGHLIGHTS SINCE DECEMBER 31, 2003 ARE:

     o    Average assets grew $91.5 million (34%).

     o    Average loans grew $63.3 million (44%).

     o    Average deposits grew $72.4 million (30%).

     o    Net interest margin was 3.72% for the full year 2004 compared to 3.73%
          for the full year 2003.

     o    Asset quality remained strong as nonperforming assets decreased $161
          thousand to $349 thousand. The allowance for loan losses totaled 1.12%
          of total loans outstanding at December 31, 2004.

     o    The Company ended the year with excellent liquidity and adequate
          capital to support further growth.

     o    The Company opened a sixth banking office in Chantilly, Virginia on
          July 26, 2004. In addition to the branch site, the Company leased
          7,000 square feet of space on the second floor of the branch building
          to accommodate expanding administrative, operational support and
          mortgage services departments. The move into the new operations space
          was accomplished on July 10, enabling the Bank to maintain its focus
          on excellent customer service while continuing to grow at a rapid
          rate.

     o    The Company opened a seventh banking office in Manassas, Virginia on
          September 27, 2004. The Bank has hired three lenders who have spent a
          significant part of their banking careers working in the Manassas
          market.

     o    The Company's expansion into the Chantilly and Manassas markets, along
          with the opening of the new operations center, are growth oriented
          initiatives taken after additional capital was raised in the fourth
          quarter of 2003. While these pro-active initiatives have increased
          operating expenses, as evidenced by the rise in the Bank's efficiency
          ratio to 60% for the full year 2004, the Company's focus remains on a
          long term strategy of expanding our franchise throughout the Northern
          Virginia market.

     o    The Company effected a three-for-two stock split for shareholders of
          record on May 14, 2004, paid on June 1, 2004.

BALANCE SHEET

         Year Ended December 31, 2004 vs. Year Ended December 31, 2003. Total
assets increased by $144.8 million from December 31, 2003 to December 31, 2004,
ending the period at $450.8 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 $148.9 million and loan growth of $80.9 million. The securities
portfolio grew during the year by $24.5 million, ending the period at $146.8
million. The Company's liquidity position improved by $42.6 million as overnight
investments totaled $35.8 million at year end. Stockholders' equity increased
$3.0 million as a result of the $2.967 million of earnings retention for the
year 2004, and $401,000 in proceeds from the issuance of shares upon the
exercise of options and the sale of shares in the Company's KSOP plan, offset by
a $358,000 decrease in the unrealized gains on securities available for sale.

         Year Ended December 31, 2003 vs. Year Ended December 31, 2002. Total
assets increased by $66.9 million from December 31, 2002 to December 31, 2003,
ending the period at $305.7 million. The increase in assets was funded by
deposit growth of $41.2 million, issuance of common stock of $12.8 million, $5
million in proceeds from the issuance of trust preferred capital notes and $6.9
million in short term borrowings. These funding mechanisms enabled the Company
to fund an increase in loans of $47.4 million and the addition of $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 $2.601 million of earnings retention for the year 2003, the $12.8
million, net of commissions and expenses, from the sale of common stock in the
public offering, and $370,000 from the exercise of options and sale of shares in
the Company's KSOP plan, offset by a $1.0 million decrease in the unrealized
gains on securities available for sale.



                                       15
<PAGE>

RESULTS OF OPERATIONS

         For the year ended December 31, 2004, the Company earned $2.970
million, or $.67 per basic share and $.64 per diluted share, compared with
$2.601 million, or $.73 per basic share and $.68 per diluted share, for the year
ended December 31, 2003 and $1.553 million, or $.50 per basic share and $.48 per
diluted share, for the year ended December 31, 2002. The comparable earnings per
share are impacted by the 600,000 shares issued in November 2003, coupled with
the 3-for-2 stock split this year, resulting in approximately 850,000 more
shares outstanding in computing 2004 earnings per share. Return on average
assets was .83% and return on average equity was 8.35% for the year ended
December 31, 2004 compared to a .97% return on average assets and 11.94% return
on average equity for the year ended December 31, 2003 and a .88% return on
average assets and a 10.15% return on average equity for the year ended December
31, 2002.

         During 2004, the Company continued to focus on managing its net
interest margin, especially in light of the low interest rate environment.
Beginning in 2001 through June 2003, the Federal Reserve reduced the federal
funds target rate an aggregate of 550 basis points. These dramatic reductions
over a relatively short period continued to impact the loan and investment
portfolios in 2003 and 2004, as loans repriced on a delayed basis or renewed at
lower interest rates, and as investment securities matured or were called, and
were reinvested at lower rates. This was partially offset by continued repricing
upon renewal of certificates of deposit. While the Federal Reserve began to
reverse the rate reductions, through a series of five increases aggregating 125
basis points, beginning on June 30, 2004, and continuing in August, September,
November and December 2004, the rate reductions and continuing low rate
environment has resulted in a reduction in the net interest margin throughout
the period, from 5.09% in 2000 to 4.56% in 2001 to 3.90% in 2002 to 3.73% in
2003 to 3.72 in 2004. Despite these reductions, the Company's practice of
managing its interest rate risk process has mitigated the negative effect of
such a severely declining and low rate environment. The Company expects that
continued increases in the federal funds target rate will contribute to an
increased margin as earning assets reprice, while repricing of deposits lags.
However, as discussed further under "Liquidity and Interest Rate Sensitivity
Management," as a result of competitive factors, market conditions, customer
preferences and other factors, the Company may not be able to benefit from
further increases in market interest rates.

         Although the Company has continued to grow in asset size since its
inception in 1998 it has been able to control its operating efficiency. During
the third and fourth quarters of 2004 the Company expanded into the Chantilly
and Manassas markets and opened a new operations center. These are growth
oriented initiatives taken after additional capital was raised in the fourth
quarter of 2003. While these pro-active initiatives have increased operating
expenses, as evidenced by the rise in the efficiency ratio to 60.0% for the year
as compared to 56.5% in 2003, the Company's focus remains on a long term
strategy of expanding our franchise throughout the Northern Virginia market. The
efficiency ratio is a non-GAAP financial measure, which we believe provides
investors with important information regarding our operational efficiency. We
compute our efficiency ratio by dividing noninterest expense by the sum of net
interest income on a tax equivalent basis and noninterest income, which includes
securities gains or losses and gains or losses on the sale of mortgage loans.
Comparison of our efficiency ratio with those of other companies may not be
possible, because other companies may calculate the efficiency ratio
differently.

NET INTEREST INCOME, AVERAGE BALANCES AND YIELDS

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

         Table 1 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 years ended December 31, 2004, 2003 and 2002 and the average yields
earned and rates paid during those periods. These yields and costs are derived
by dividing income or expense by the average daily balance of the related asset
or liability for the periods presented. The Company did not have any tax exempt
income during any of the periods presented in Table 1. Nonaccrual loans have
been included in the average balances of loans receivable.


                                       16
<PAGE>

         2004 vs. 2003. For the year ended December 31, 2004, net interest
income increased $3.2 million, or 34.2%, to $12.6 million from the $9.4 million
for the year ended December 31, 2003. This was primarily a result of the
increase in the volume of interest earning assets, and partially offset by the
effect of loan repricings. Total average earning assets increased by $87.2
million, or 34.5%, from 2003 to 2004. The yield on earning assets decreased by
only 2 basis points from 2003, reflecting the benefit of faster growth in higher
yielding loans rather than lower yielding securities and overnight investments.
Average loans outstanding grew by $63.3 million, or 43.6%, during 2004. The
yield on such loans decreased by 48 basis points. Average federal funds
increased $2.4 million, or 12.0%, while the yield increased 53 basis points. The
average balance of the security portfolio grew $21.8 million, or 25.3%, and the
yield on the portfolio improved 27 basis points. Although many agency bonds were
called throughout 2004 they were reinvested at favorable rates in similar
instruments.

         For the year ended December 31, 2004, average interest bearing
liabilities increased $64.8 million or 36.8% from the prior year. Interest
bearing deposits grew $59.6 million and borrowings, which includes federal funds
purchased and trust preferred capital notes, increased $5.2 million. Interest
expense paid on these liabilities for 2004 was $4.8 million compared with $3.6
million for 2003. The cost of funds declined 4 basis points from 2.05% during
2003 to 2.01% during 2004.

         The resulting effect of the changes in interest rates between 2004 and
2003, offset by changes in the volume and mix of earning assets and interest
bearing liabilities resulted in a virtually stable net interest margin of 3.72%
in 2004 versus 3.73% in 2003. Management believes this stability is indicative
of the Company's interest rate risk management process.

         2003 vs. 2002. 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.

         For the year ended December 31, 2003, average interest bearing
liabilities increased $54.9 million or 45.3% from the prior year. Interest
bearing deposits grew $51.8 million and borrowings, which includes federal funds
purchased and trust preferred capital notes, increased $3.1 million. Interest
expense paid on these liabilities for 2003 was $3.6 million, the same level as
2002. The cost of funds declined 93 basis points from 2.98% during 2002 to 2.05%
during 2003.

         The resulting effect of the changes in interest rates between 2003 and
2002, offset by changes in the volume and mix of earning assets and interest
bearing liabilities resulted in a slight decline in the interest margin of 3.73%
in 2003 versus 3.90% in 2002.


                                       17
<PAGE>


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

<TABLE>
<CAPTION>
                                               Year Ended                     Year Ended                     Year Ended
                                            December 31, 2004              December 31, 2003              December 31, 2002
                                      -----------------------------  -----------------------------  -----------------------------
                                        Average             Yield/     Average             Yield/    Average              Yield/
                                        Balance   Interest   Rate      Balance   Interest   Rate     Balance    Interest   Rate
                                        -------   --------  ------     -------   --------  ------    -------    --------  ------
<S>                                      <C>        <C>      <C>        <C>        <C>      <C>       <C>         <C>      <C>
(Dollars in thousands)
ASSETS
Loans:
     Commercial                          $ 54,979   $ 3,353  6.10%      $ 39,171   $ 2,501  6.38%     $ 32,732    $ 2,251  6.88%
     Commercial real estate               138,877     8,715  6.28%        92,410     6,302  6.82%       60,735      4,543  7.48%
     Consumer                              14,585       818  5.61%        13,537       855  6.32%       12,639        963  7.62%
                                          -------   -------  -----       -------   -------  -----      -------    -------  -----
          Total Loans                     208,441    12,886  6.18%       145,118     9,658  6.66%      106,106      7,757  7.31%
Taxable securities                        108,004     4,196  3.89%        86,213     3,118  3.62%       41,924      2,062  4.92%
Mortgage loans held for sale                  881        49  5.56%         1,230        60  4.88%            -          -  0.00%
Federal funds sold and cash equivalents    22,353       331  1.48%        19,955       190  0.95%       18,071        272  1.51%
                                          -------   -------  -----       -------   -------  -----      -------    -------  -----
    TOTAL EARNING ASSETS                  339,679   $17,462  5.14%       252,516   $13,026  5.16%      166,101    $10,091  6.08%
                                                    =======  =====                 =======  =====                 =======  ====
Less allowance for loan losses             (2,319)                        (1,643)                       (1,257)
Cash and due from banks                    16,698                         13,671                         9,441
Premises and equipment, net                 2,075                          1,392                         1,289
Other assets                                3,362                          1,890                           994
                                         --------                       --------                      --------
    TOTAL ASSETS                         $359,495                       $267,826                      $176,568
                                         ========                       ========                      ========

LIABILITIES AND
  STOCKHOLDERS' EQUITY
Interest-bearing deposits:
  Interest-bearing demand deposits       $ 12,692   $    85  0.67%      $ 10,919   $    88  0.81%     $  5,739    $    61  1.06%
  Money market deposit accounts           158,653     2,958  1.86%       113,802     2,064  1.81%       69,037      1,750  2.53%
  Savings accounts                          3,665        46  1.26%         1,954        26  1.33%        1,240         22  1.77%
  Time deposits                            53,821     1,256  2.33%        42,543     1,115  2.62%       41,381      1,558  3.77%
                                          -------   -------  -----       -------   -------  -----      -------     ------  -----
    Total interest-bearing deposits       228,831     4,345  1.90%       169,218     3,293  1.95%      117,397      3,391  2.89%
Borrowings:
  Trust preferred capital notes             9,279       452  4.87%         6,688       323  4.83%        3,849        218  5.66%
  Other borrowed funds                      2,781        36  1.29%           216         2  0.93%            -          -  0.00%
                                          -------   -------  -----       -------   -------  -----      -------     ------  -----
    Total borrowings                       12,060       488  4.05%         6,904       325  4.71%        3,849        218  5.66%

    TOTAL INTEREST-BEARING
      LIABILITIES                         240,891     4,833   2.01%      176,122     3,618  2.05%      121,246      3,609  2.98%
                                          -------   -------  -----       -------   -------  -----      -------     ------  -----

Net interest income and net yield
  on interest earning assets                        $12,629  3.72%                 $ 9,408  3.73%                 $ 6,482  3.90%
                                                    =======  ====                  =======  ====                  =======  ====

Noninterest-bearing demand deposits        81,961                         69,124                        39,554
Other liabilities                           1,067                            798                           474
Stockholders' equity                       35,576                         21,782                        15,294
                                         --------                       --------                      --------
    TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY               $359,495                       $267,826                      $176,568
                                         ========                       ========                      ========
</TABLE>



                                       18
<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. As the table shows, the increase in net interest income of $3.2
million for the year ended December 31, 2004, as compared to the twelve months
ended December 31, 2003, is due to the growth in the volume of earning assets
and interest bearing liabilities. While the decrease in interest rates has, to
date, affected total interest income, and to a lesser extent, total interest
expense, management has controlled its exposure to changes in interest rates
such that the negative effect of the decline in interest rates and the decline
in loan yields, as adjustable rate loans have repriced downward over the past
several years, resulted in a modest $501,000 reduction of net interest income,
whereas the growth in earning assets and deposits resulted in an increase of
$3.7 million to net interest income. Interest income over the past year
increased $4.4 million. As shown in the table, $5.0 million of this increase is
the result of the Company's strong growth in earning assets, particularly in
loans, while changes in rates resulted in a $572,000 reduction in interest
income. Interest expense during this comparable period increased $1.2 million or
33.6%, from $3.6 million in interest expense in 2003 to $4.8 million in interest
expense in 2004. Of this increase, $1.3 million is due to growth in interest
bearing liabilities, and $71,000 is attributable to declining rates.

         Similar to changes in 2004, the increase in net interest income of $2.9
million for the year ended December 31, 2003 as compared to the twelve months
ended December 31, 2002 is due to the growth in the volume of earning assets and
interest bearing liabilities. Of this increase, $3.7 million is attributable to
strong growth in earning assets and interest bearing liabilities, whereas,
declining rates resulted in a $774,000 reduction in net interest income.
Interest income increased $2.9 million from $10.1 million in 2002 to $13.0
million in 2003. Of this increase, $5.1 million is the result of growth in
earning assets whereas $2.2 million is attributable to declining interest rates.
Interest expense was virtually the same in 2003 as in 2002 at $3.6 million;
however, increased balances of $55.0 million resulted in an increase in interest
expense of $1.4 million while at the same time management of interest rates paid
on these liabilities reduced interest expense by a similar amount.

TABLE 2

<TABLE>
<CAPTION>
                                                      December 31,                                December 31,
                                                     2004 vs. 2003                               2003 vs. 2002
                                          ----------------------------------------  -----------------------------------------
                                                              Due to Change                              Due to Change
                                            Increase          in Average              Increase            in Average
                                              or         -------------------------       or        --------------------------
(Dollars in thousands)                     (Decrease)      Volume        Rate        (Decrease)      Volume         Rate
                                          -------------  -----------  ------------  -------------  -----------  -------------
<S>                                        <C>          <C>            <C>           <C>          <C>             <C>
EARNING ASSETS:
  Loans                                    $ 3,228      $ 4,214        $ (986)       $ 1,901      $ 2,852         $ (951)
  Mortgage loans                               (11)         (17)            6             60           60              -
  Taxable securities                         1,085          788           297          1,056        2,178         (1,122)
  Federal funds sold and cash equivalents      134           23           111            (82)          28           (110)
                                           -------      -------        ------        -------      -------         -------
    Total interest income                    4,436        5,008          (572)         2,935        5,118         (2,183)

INTEREST BEARING LIABILITIES:
  Interest bearing demand deposits              (3)          14           (17)            27           55            (28)
  Money market deposit accounts                894          813            81            314        1,135           (821)
  Savings deposits                              20           23            (3)             4           13             (9)
  Time deposits                                141          296          (155)          (443)          44           (487)
  Trust preferred capital notes                127          116            11            105          169            (64)
  Other borrowed funds                          36           24            12              2            2              -
                                           -------      -------        ------        -------      -------         -------
    Total interest expense                   1,215        1,286           (71)             9        1,418         (1,409)
                                           -------      -------        ------        -------      -------         -------
    Net interest income                    $ 3,221      $ 3,722        $ (501)       $ 2,926      $ 3,700         $ (774)
                                           =======      =======        ======        =======      =======         =======
</TABLE>


                                       19
<PAGE>

PROVISION AND ALLOWANCE FOR LOAN LOSSES

         The provision for loan losses is based upon a methodology that includes
among other factors, a specific evaluation of commercial and commercial real
estate loans that are considered special mention, substandard or doubtful. All
other loans are then categorized in pools of loans with common characteristics.
A potential loss factor is applied to these loans which considers the historical
charge off history of the Company and its peer group, trends in delinquencies
and loan grading, current economic conditions, and factors that include the
composition of the Company's loan portfolio. At December 31, 2004, the Company
had impaired loans on nonaccrual status totaling $349,000. The Company had no
other loans over 90 days past due and had no other loans on nonaccrual status as
of December 31, 2004. The provision for loan losses increased primarily due to
reserves required on new loans. See Note 3 to the audited consolidated financial
statements for additional information regarding the Company's asset quality and
allowance for loan losses.

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

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

TABLE 3

         The following table presents the activity in the allowance for loan
losses for the years ended December 31, 2000 through 2004.

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                 -----------------------------------------------------------------------------------------
(Dollars in thousands)                2004               2003              2002              2001              2000
                                 ----------------   ---------------   ---------------   ----------------  ----------------

<S>                                     <C>               <C>               <C>                  <C>               <C>
Balance, January 1                       $ 1,955           $ 1,390           $ 1,030            $   600             $ 363
Provision for loan losses                    990               662               483                450               237
Loan charge-offs:
     Commercial                             (135)              (71)             (122)                (5)                -
     Consumer                                (21)              (41)               (4)               (15)                -
                                         -------           -------           -------              -----             -----
       Total charge-offs                    (156)             (112)             (126)               (20)                -
Loan recoveries:
     Commercial                                -                15                 -                  -                 -
     Consumer                                  1                 -                 3                  -                 -
                                         -------           -------           -------              -----             -----
     Net charge-offs                        (155)              (97)             (123)               (20)                -
                                         -------           -------           -------              -----             -----
Balance, December 31                     $ 2,790           $ 1,955           $ 1,390            $ 1,030             $ 600
                                         =======           =======           =======            =======             =====

Ratio of net charge-offs during
the period average loans
outstanding                                 0.07%             0.07%             0.12%              0.03%             0.00%

</TABLE>


                                       20
<PAGE>

TABLE 4

         The following table shows the allocation of the allowance for loan
losses at the dates indicated. The allocation of portions of the allowance to
specific categories of loans is not intended to be indicative of future losses,
and does not restrict the use of the allowance to absorb losses in any category
of loans. See Note 3 to the audited consolidated financial statements included
in this report for additional information regarding the allowance for loan
losses and nonperforming assets.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                           ----------------------------------------------------------------------------------------------
                             2004               2003               2002               2001                2000
                           -----------------  ------------------ ------------------ ------------------  -----------------
                                    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>      <C>
Construction loans           $  299   14.1%    $    50    10.7%   $    35    10.0%    $    78   10.9%      $  53    8.9%
Commercial loans                553   13.1%        984    14.7%       765    23.0%        281   27.3%        202   33.7%
Commercial real estate
loans                         1,868   67.0%        823    67.0%       504    58.1%        528   51.3%        250   41.5%
Real estate 1-4 family
residental Loans                 20    0.6%          4     2.2%         6     1.7%         40    3.9%         50    8.3%
Home equity loans                17    2.2%          9     1.9%         8     2.0%         19    1.8%          -    1.1%
Consumer loans                   33    3.0%         85     3.4%        72     5.2%         84    4.8%         45    6.5%
                             ------  ------    -------   ------   -------   ------    -------  ------      -----  ------
  Balance End of Period      $2,790  100.0%    $ 1,955   100.0%   $ 1,390   100.0%    $ 1,030  100.0%      $ 600  100.0%
                             ======  ======    =======   ======   =======   ======    =======  ======      =====  ======
</TABLE>

TABLE 5

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

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                   -----------------------------------------------------------------------
(Dollars in Thousands)                                2004           2003           2002          2001           2000
                                                   ------------   ------------  -------------  ------------   ------------

<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                                              349            324            240             -              -
                                                         -----          -----          -----         -----           ----
Total non-performing assets                              $ 349          $ 510          $ 296         $ 266           $ 39
                                                         =====          =====          =====         =====           ====
</TABLE>

         At December 31, 2004, 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, approximately $23,000 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,
2004, total loans were $250.0 million, a 47.9% increase from the $169.0 million
in loans outstanding at December 31, 2003. Total loans at December 31, 2003
represented a 39.7% increase from the $121.0 million of loans at December 31,
2002. 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.



                                       21
<PAGE>

         Virtually all of the Company's commercial real estate mortgage and
development loans, which account for approximately 67% of our total loans at
December 31, 2004, relate to property in the Northern Virginia market. As such,
they are subject to risks relating to the general economic conditions in that
market, and the market for real estate in particular. While the region has
experienced some decline in economic activity during 2002 and 2003, the local
real estate market remains generally strong, and the Company attempts to
mitigate risk though careful underwriting, including primary reliance on the
borrower's financial capacity and ability to repay without resort to the
property, and lends primarily with respect to properties occupied or managed by
the owner.

         The Company's 1-4 family residential real estate loans are generally
not the typical purchase money first mortgage loan or refinancing, but are loans
made for other purposes and the collateral obtained is a first deed of trust on
the residential property of the borrower. The underlying loan would have a final
maturity much shorter than the typical first mortgage and may be a variable or
fixed rate loan. As reflected in Table 6, 34% of the Company's loans are fixed
rate loans and 84% 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 5.8% of the loan portfolio at December 31, 2004, as compared to 7.5%
at December 31, 2003 and 8.9% at December 31, 2002.

TABLE 6

         Table 6 shows the maturities of the loan portfolio and the sensitivity
of loans to interest rate fluctuations at December 31, 2004. Maturities are
based on the earlier of contractual maturity or repricing date. Demand loans,
loans with no contractual maturity and overdrafts are represented in one year or
less.

<TABLE>
<CAPTION>
                                                           DECEMBER 31, 2004
                                       -------------------------------------------------------
                                                       AFTER ONE
                                          WITHIN      YEAR THROUGH   AFTER FIVE
(Dollars in thousands)                   ONE YEAR      FIVE YEARS      YEARS           TOTAL
                                         --------      ----------    ----------       --------

<S>                                       <C>           <C>         <C>           <C>
Construction loans                        $ 32,092      $    2,104    $     970      $  35,166
Commercial loans                            26,986           5,641          155         32,782
Commercial real estate loans                52,096          79,690       35,910        167,696
Real estate 1-4 family residential             308             680          571          1,559
Home equity loans                            1,232           1,721        2,447          5,400
Consumer loans                               5,495           1,795            -          7,290
Deposit overdrafts                             103               -            -            103
                                         ---------      ----------     --------      ---------
    Total                                $ 118,312      $   91,631     $ 40,053      $ 249,996
                                         =========      ==========     ========      =========

                                                       AFTER ONE
                                          WITHIN      YEAR THROUGH   AFTER FIVE
(Dollars in thousands)                   ONE YEAR      FIVE YEARS      YEARS         TOTAL
                                         --------      ----------    ----------     --------

Fixed rate                              $  32,302       $ 41,250     $ 11,260      $  84,812
Variable/Adjustable rate                   86,010         50,381       28,793        165,184
                                        ---------       --------     --------      ---------
    Total                               $ 118,312       $ 91,631     $ 40,053      $ 249,996
                                        =========       ========     ========      =========
</TABLE>

         At December 31, 2004, the aggregate amount of loans due after one year
which have fixed rates was approximately $52.5 million, and the amount with
variable or adjustable rates was approximately $79.2 million.


                                       22
<PAGE>


TABLE 7

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)                     2004              2003              2002              2001              2000
                                      ---------------   ---------------   ----------------  ----------------  ----------------

<S>                                        <C>               <C>                <C>                <C>               <C>
Construction loans                         $  35,166         $  18,130          $  12,160          $  9,408          $  4,429
Commercial loans                              32,782            24,885             27,862            23,478            16,842
Commercial real estate loans                 167,696           113,316             70,318            44,192            20,783
Real estate-1-4 family residential             1,559             3,801              2,069             3,363             4,165
Home equity loans                              5,400             3,193              2,390             1,554               546
Consumer loans                                 7,290             5,691              6,088             4,025             3,275
Overdrafts                                       103                31                160               119                 -
                                           ---------         ---------          ---------          --------          --------
    Total                                    249,996           169,047            121,047            86,139            50,040
Less allowance for loan losses                (2,790)           (1,955)            (1,390)           (1,030)             (600)
                                           ---------         ---------          ---------          --------          --------
    Total Net Loans                        $ 247,206         $ 167,092          $ 119,657          $ 85,109          $ 49,440
                                           =========         =========          =========          ========          ========
</TABLE>

INVESTMENT SECURITIES

         The carrying value (fair value) of the Company's securities portfolio
increased $24.5 million to $146.8 million at December 31, 2004 from $122.3
million at December 31, 2003. 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 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 8

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

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                       -----------------------------------------------------------------------------
                                                               2004                       2003                      2002
                                                       ------------------------  ------------------------  -------------------------
                                                                   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 Market Value):
   U.S. Agency                                           $ 121,137       82.5%       $ 94,929      77.6%        $ 35,298      46.4%
   Mortgage-backed securities                               20,580       14.0%         16,250      13.3%          20,954      27.5%
   Adjustable rate mortgage-backed securities                1,592        1.1%          3,677       3.0%           6,159       8.1%
   Corporate bonds                                           2,148        1.5%          6,571       5.4%          13,023      17.1%
   Restricted stock                                          1,338        0.9%            901       0.7%             629       0.8%
                                                         ---------------------      --------------------        -------------------
Total                                                    $ 146,795      100.0%      $ 122,328     100.0%        $ 76,063     100.0%
                                                         =====================      ====================        ===================
</TABLE>



                                       23
<PAGE>

TABLE 9

         The following table provides information regarding the maturity
composition of our investment portfolio, at fair value, at December 31, 2004.

<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
                                    -------   ------    -------   ------   -------   ------    -------    ------    -------   -----
AVAILABLE FOR SALE (FAIR VALUE):
<S>                                <C>         <C>     <C>         <C>    <C>        <C>      <C>          <C>     <C>         <C>
U. S. Agency                       $ 79,813    3.88%   $ 40,063    4.13%  $1,261     4.05%    $      -         -   $ 121,137   3.96%
Mortgage-backed securities               16    6.50%        800    4.80%   2,378     4.20%      17,386     4.84%      20,580   4.77%
Adjustable rate mortgage-
  backed securities                       -       -           -       -        -        -        1,592     3.85%       1,592   3.85%
Corporate bonds                           -       -       2,148    5.36%       -        -            -        -        2,148   5.36%
Restricted stock                          -       -          -        -        -        -        1,338     5.13%       1,338   5.13%
                                   --------            --------           ------              --------             ---------
Total debt securities
  Available for sale               $ 79,829    3.88%   $ 43,011    4.20%  $3,639     4.15%    $ 20,316     4.78%   $ 146,795   4.11%
                                   ========            ========           ======              ========             =========
</TABLE>

         For additional information regarding the investment portfolio, see Note
2 to the consolidated financial statements for the year ended December 31, 2004.

         At December 31, 2004, there were no issuers, other than issuers who are
U.S. government agencies, whose securities owned by the Company had an aggregate
book value of more than 10% of total 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,
2004 and 2003, the following financial instruments were outstanding whose
contract amounts represent credit risk:

                                                   2004               2003
                                              ----------------   ---------------
                                                    (Dollars in thousands)

         Commitments to extend credit         $ 52,461             $ 25,863
         Stand-by letters-of-credit           $  2,591             $  1,371

         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.


                                       24
<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.

CONTRACTUAL OBLIGATIONS

TABLE  10

         The Company has entered into certain contractual obligations including
long term debt, operating leases and obligations under service contracts. The
following table summarizes the Company's contractual cash obligations as of
December 31, 2004.

<TABLE>
<CAPTION>
                                                                     PAYMENTS DUE-BY PERIOD
                                             -----------------------------------------------------------------------------
                                                          LESS THAN       ONE TO       FOUR TO FIVE        AFTER FIVE
 (Dollars in thousands)                         TOTAL      ONE YEAR     THREE YEARS       YEARS               YEARS
                                             ----------  ------------  -------------  ---------------   ------------------
<S>                                          <C>             <C>             <C>             <C>            <C>
 Trust preferred capital notes               $  9,279        $     -         $     -         $     -        $  9,279
 Operating leases                               6,145            890           1,697           1,108           2,450
 Data processing services                       1,116            372             744               -               -
                                             --------        -------         -------         -------        --------
    Total contractual cash obligations       $ 16,540        $ 1,262         $ 2,441         $ 1,108        $ 11,729
                                             ========        =======         =======         =======        ========
</TABLE>


         The table does not reflect deposit liabilities entered into in the
ordinary course of the Company's banking business. At December 31, 2004, the
Company had $239.1 million of demand and savings deposits, exclusive of
interest, which have no stated maturity or payment date. The Company also had
$73.1 million of time deposits, exclusive of interest, the maturity distribution
of which is set forth in Note 5 to the Consolidated Financial Statements. For
additional information about the Company's deposit obligations, see "Net
Interest Income" and "Deposits" above. See Note 17 to the Consolidated Financial
Statements for additional information regarding the trust preferred securities
and related capital notes.

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, 2004, our Basic
Surplus ratio (net access to cash and secured borrowings as a percentage of
total assets) was approximately 17.2% compared to the present internal minimum
guideline range of 5% to 10%.



                                       25
<PAGE>

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

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

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

         At December 31, 2004, we were modestly liability sensitive in the short
term and then we become asset sensitive out beyond two years. This is primarily
caused by the assumptions used in allocating a repricing term to nonmaturity
deposits--demand deposits, savings accounts, and money market deposit accounts.
The actual impact due to changes in interest rates is difficult to quantify in
that the administrative ability to change rates on these products is influenced
by competitive market conditions in changing rate environments, prepayments of
loans, customer demands, and many other factors. These products may not reprice
consistently with assets such as variable rate commercial loans or other loans
that immediately reprice as the prime rate changes. While the traditional gap
analysis and the matched funding matrix show a general picture of our potential
sensitivity to changes in interest rates, it cannot quantify the actual impact
of interest rate changes.

         Thus, the Company manages its exposure to possible changes in interest
rates by simulation modeling or "what if" scenarios to quantify the potential
financial implications of changes in interest rates. In practice, each quarter
approximately 14 different "what if" scenarios are evaluated which include the
following scenarios: Static Rates, Most Likely Rate Projection, Rising Rate
Environment, Declining Rate Environment, Ramp Up 100bp and 200bp over 12-months,
and Ramp Down 100bp and 200bp over 12-months scenarios. In addition, 8 rate
shock scenarios are modeled at 50bp up and 50bp down increments but not below
zero. At December 31, 2004, the following 12-month impact on net interest income
is estimated to range from a positive impact of 3.8% in a rising rate scenario,
to a negative impact of (0.8)% if rates decline 100 basis points from current
levels. The Company believes these ranges of exposure to changes in interest
rates to be well within acceptable range given a wide variety of potential rate
change scenarios. This process is performed each quarter to ensure the Company
is not materially at risk to possible changes in interest rates.

         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, 2004. The Company is positioned to improve earnings if rates
continue to rise. With respect to further reductions in rates, the Company would
experience further negative implications on margins and earnings; however, the
Company does not believe that a 100 basis point decline is realistic given that
interest rates remain near historically low levels, and in light of the Federal
Reserve's indications with respect to the interest rate environment. 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                       1.9 %
                    Ramp Up 100bp- 12 months                1.2 %
                    Ramp Up 200bp- 12 months                2.3 %
                    Ramp Down 100bp- 12 months             (0.8)%
                    Rising Rate Scenario                    3.8 %
                    Low Rate Environment                    0.9 %


                                       26
<PAGE>

TABLE 11
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                  MATCH FUNDING MATRIX
                                                                   James Monroe Bank
                                                                   December 31, 2004
-----------------------------------------------------------------------------------------------------------------------------------
                            60+    37 - 60    25 - 36    13 - 24   10 - 12    7 - 9    4 - 6       1 - 3
                 ASSETS>  MONTHS    MONTHS     MONTHS     MONTHS    MONTHS    MONTHS   MONTHS     MONTHS    O/N         TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S>             <C>        <C>      <C>        <C>       <C>       <C>        <C>      <C>       <C>       <C>          <C>
Liabilities
& Equity                   84,360   70,439     56,244    47,505    26,555     17,599   13,879    23,052    110,917      450,550
-----------------------------------------------------------------------------------------------------------------------------------
60+
Months          129,827    84,360   45,467                                                                              129,827
-----------------------------------------------------------------------------------------------------------------------------------
37 - 60                                                                                     ASSET SENSITIVE
Months            2,761              2,761                                                                                2,761
-----------------------------------------------------------------------------------------------------------------------------------
25 - 36
Months            5,675              5,675                                                                                5,675
-----------------------------------------------------------------------------------------------------------------------------------
13 - 24
Months            2,608              2,608                                                                                2,608
-----------------------------------------------------------------------------------------------------------------------------------
10 - 12
Months           13,360             13,360                                                                               13,360
-----------------------------------------------------------------------------------------------------------------------------------
7 - 9
Months           13,960                568     13,392                                                                    13,960
-----------------------------------------------------------------------------------------------------------------------------------
4 - 6
Months           24,455                        24,455                                                                    24,455
-----------------------------------------------------------------------------------------------------------------------------------
1 - 3
Months          257,904                        18,397    47,505    26,555     17,599   13,879    23,052    110,917      257,904
-----------------------------------------------------------------------------------------------------------------------------------
                               LIABILITY SENSITIVE
O/N                0                                                                                                       0
-----------------------------------------------------------------------------------------------------------------------------------
Total           450,550    84,360   70,439     56,244    47,505    26,555     17,599   13,879    23,052    110,917      450,550
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       27
<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 12

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

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                   -------------------------------------------------
(Dollars in thousands)                                  2004             2003             2002
                                                   ---------------  ---------------  ---------------

<S>                                                       <C>              <C>                <C>
Service charges on deposit accounts                       $   340          $   290            $ 263
Cash management fee income                                    100              113              130
Gain on sale of securities                                     59              299              244
Gain on sale of mortgages                                     423              255                -
Other fee income                                              253              190              123
                                                          -------          -------            -----
    Total Noninterest Income                              $ 1,175          $ 1,147            $ 760
                                                          =======          =======            =====
</TABLE>

         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 2004. During 2004 and
2003, cash management fees declined primarily due to lower balances resulting
from commercial customers not utilizing the product during this sustained
extremely low interest rate environment.

TABLE 13

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

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                              --------------------------------------------------------
(Dollars in thousands)                              2004                2003               2002
                                              -----------------   ------------------  ----------------

<S>                                                    <C>                  <C>               <C>
Salaries and benefits                                  $ 4,689              $ 3,240           $ 2,220
Occupancy cost, net                                        871                  611               541
Equipment expense                                          497                  430               308
Data processing costs                                      498                  373               360
Advertising and public relations                           229                  102               123
Professional fees                                          178                  136               168
Courier and express services                               122                  134               105
State franchise tax                                        263                  217               155
Director fees                                              169                   99                61
Compliance expense                                          74                    -                 -
Other                                                      697                  622               353
                                                       -------              -------           -------
    Total Noninterest Expense                          $ 8,287              $ 5,964           $ 4,394
                                                       =======              =======           =======
</TABLE>

Non-interest expense increased $2.3 million or 39.0% from $6.0 million for the
year ended December 31, 2003, to $8.3 million for 2004. Approximately 63% of
this increase is in salary and benefit costs. In 2004 the Company added a number
of commercial loan officers, processing staff, and administrative support staff
to support the growth in customers and transactions being processed. The
increase in occupancy cost is due to the opening of our two new branches in
Chantilly and Manassas and our new operations center in Chantilly. The rise in
equipment expense is attributable to



                                       28
<PAGE>

         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 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 14

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

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------------------------------------
                                                            2004                      2003                      2002
                                                  -----------------------------------------------------------------------------
                                                   AVERAGE       AVERAGE      AVERAGE       AVERAGE     AVERAGE       AVERAGE
 (Dollars in thousands)                            BALANCE         RATE       BALANCE         RATE      BALANCE         RATE
                                                  -----------------------------------------------------------------------------
<S>                                                <C>             <C>        <C>             <C>        <C>             <C>
 Deposits:
   Noninterest-bearing demand                      $  81,961       0.00%      $  69,124       0.00%      $  39,554       0.00%
   Interest-bearing demand                            12,692       0.67%         10,919       0.81%          5,739       1.06%
   Money Market                                      158,653       1.86%        113,802       1.81%         69,037       2.53%
   Savings                                             3,665       1.26%          1,954       1.32%          1,240       1.77%
   Certificates of deposit of $100,000 or more        40,002       2.33%         27,954       2.62%         24,528       3.70%
   Other time                                         13,819       2.34%         14,589       2.62%         16,853       3.86%
                                                   ---------       ----       ---------       ----       ---------       ----
     Total interest bearing deposits               $ 228,831       1.90%      $ 169,218       1.95%      $ 117,397       2.89%
                                                   ---------                  ---------                  ---------       ----
     Total Deposits                                $ 310,792                  $ 238,342                  $ 156,951
                                                   =========                  =========                  =========
</TABLE>

TABLE 15

         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             $  3,269    $  2,763    $  6,367     $  1,423   $ 13,822
Certificates of deposit of $100MM or more               7,001      21,692      20,996        9,621     59,310
                                                   -------------------------------------------------------------
                                                     $ 10,270    $ 24,455    $ 27,363     $ 11,044   $ 73,132
                                                   =============================================================
</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, 2004, stockholders' equity increased
$3.0 million from the $33.9 million of equity at December 31, 2003 primarily as
a result of the $2.967 million in retained earnings for 2004.

         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, $2.6 million of
earnings for 2003, and $3.0 million of



                                       29
<PAGE>

earnings for 2004. 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 ability of the Company to continue to grow is dependent on its
earnings and the ability to obtain additional funds for contribution to the
Bank's capital, through borrowing, the sale of additional common stock, or
through the issuance of additional trust preferred securities. In the event that
the Company is unable to obtain additional capital for the Bank on a timely
basis, the growth of the Company and the Bank may be curtailed, and the Company
and the Bank may be required to reduce their level of assets in order to
maintain compliance with regulatory capital requirements. Under those
circumstances net income and the rate of growth of net income may be adversely
affected. The Company believes that its current capital is sufficient to meet
anticipated growth, although there can be no assurance.

         The Federal Reserve has revised the capital treatment of trust
preferred securities, in light of recent accounting pronouncements and
interpretations regarding variable interest entities, which have been read to
encompass the subsidiary trusts established to issue trust preferred securities,
and to which the Company issued subordinated debentures. As a result, the
capital treatment of trust preferred securities has been revised to provide that
in the future, such securities can be counted as Tier 1 capital at the holding
company level, together with certain other restricted core capital elements, up
to 25% of total capital (net of goodwill), and any excess as Tier 2 capital up
to 50% of Tier 1 capital. At December 31, trust preferred securities represented
21.0% of the Company's tier 1 capital and 18.9% of its total capital. Future
trust preferred issuances to increase holding company capital levels may not be
available to the same extent as currently. The Company may be required to raise
additional equity capital, through the sale of common stock or otherwise, sooner
than it would otherwise do so.


                                       30
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM









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, 2004 and 2003, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 2004, 2003 and 2002. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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, 2004 and 2003, and the results
of their operations and their cash flows for the years ended December 31, 2004,
2003 and 2002, in conformity with U.S. generally accepted accounting principles.


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

Winchester, Virginia
January 7, 2005



                                       31
<PAGE>


                             JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS
                             December 31, 2004 and 2003
                      (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                        -----------------------------
                                                           2004               2003
                                                         ---------          ---------
<S>                                                      <C>                <C>
ASSETS
Cash and due from banks                                    $ 9,286           $ 11,908
Interest bearing deposits in banks                           2,442                  -
Federal funds sold                                          35,754                  -
Securities available for sale, at fair value               146,795            122,328
Loans held for sale                                          2,987                561
Loans, net of allowance for loan losses of
  $2,790 in 2004 and $1,955 in 2003                        247,206            167,092
Bank premises and equipment, net                             2,438              1,388
Accrued interest receivable                                  1,977              1,336
Other assets                                                 1,885              1,317
                                                         ---------          ---------

TOTAL ASSETS                                             $ 450,770          $ 305,930
                                                         =========          =========


LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
  Noninterest bearing deposits                            $ 91,857           $ 65,598
  Interest bearing deposits                                312,197            189,518
                                                         ---------          ---------
Total deposits                                             404,054            255,116
Federal funds purchased                                          -              6,886
Trust preferred capital notes                                9,279              9,279
Accrued interest payable and other liabilities                 536                758
                                                         ---------          ---------
    Total liabilities                                      413,869            272,039
                                                         ---------          ---------

STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized
  10,000,000 shares; issued and outstanding
  4,445,224 in 2004, 4,445,802 in 2003                       4,445              2,944
Capital surplus                                             24,325             25,425
Retained earnings                                            8,458              5,491
Accumulated other comprehensive income (loss)                 (327)                31
                                                         ---------          ---------
  Total stockholders' equity                                36,901             33,891
                                                         ---------          ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $ 450,770          $ 305,930
                                                         =========          =========
</TABLE>

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


                                       32
<PAGE>

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              For the Years Ended December 31, 2004, 2003 and 2002
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                            -------------------------------------------------
                                                              2004                 2003                2002
                                                            --------              -------             -------
<S>                                                         <C>                   <C>                 <C>
INTEREST AND DIVIDEND INCOME:
Loans, including fees                                       $ 12,886              $ 9,658             $ 7,757
Loans held for sale                                               49                   60                   -
Securities, taxable                                            4,196                3,118               2,062
Federal funds sold                                               324                  189                 260
Other interest income                                              7                    1                  12
                                                            --------              -------             -------
    Total interest and dividend income                        17,462               13,026              10,091
                                                            --------              -------             -------
INTEREST EXPENSE:
Deposits                                                       4,345                3,293               3,391
Federal funds purchased                                           36                    2                   -
Borrowed funds                                                   452                  323                 218
                                                            --------              -------             -------
    Total interest expense                                     4,833                3,618               3,609
                                                            --------              -------             -------
    Net interest income                                       12,629                9,408               6,482
PROVISION FOR LOAN LOSSES                                        990                  662                 483
                                                            --------              -------             -------
Net interest income after provision for loan losses           11,639                8,746               5,999
                                                            --------              -------             -------
NONINTEREST INCOME:
Service charges and fees                                         340                  290                 263
Gain on sale of securities                                        59                  299                 244
Gain on sale of loans                                            423                  255                   -
Other                                                            353                  303                 253
                                                            --------              -------             -------
    Total noninterest income                                   1,175                1,147                 760
                                                            --------              -------             -------
NONINTEREST EXPENSES:
Salaries and wages                                             3,964                2,678               1,907
Employee benefits                                                725                  562                 313
Occupancy expenses                                               871                  611                 541
Equipment expenses                                               497                  430                 308
Other operating expenses                                       2,230                1,683               1,325
                                                            --------              -------             -------
    Total noninterest expenses                                 8,287                5,964               4,394
                                                            --------              -------             -------
    Income before income taxes                                 4,527                3,929               2,365
PROVISION FOR INCOME TAXES                                     1,557                1,328                 812
                                                            --------              -------             -------
Net income                                                  $  2,970              $ 2,601             $ 1,553
                                                            ========              =======             =======

EARNINGS PER SHARE, basic                                     $ 0.67               $ 0.73              $ 0.50
EARNINGS PER SHARE, diluted                                   $ 0.64               $ 0.68              $ 0.48
</TABLE>

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


                                       33
<PAGE>


                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              For the Years Ended December 31, 2004, 2003 and 2002
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                       ACCUMULATED
                                                                                         OTHER
                                                COMMON      CAPITAL       RETAINED    COMPREHENSIVE   COMPREHENSIVE   STOCKHOLDERS'
                                                 STOCK      SURPLUS       EARNING     INCOME (LOSS)      INCOME         EQUITY
                                                -------     --------      --------    -------------   -------------   -------------

<S>                                             <C>         <C>           <C>         <C>             <C>             <C>
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 gain
  on available for sale securities,
  net of deferred taxes of $579                                                                            1,123
Less: reclassification adjustment,
net of income taxes of $83                                                                                  (161)
                                                                                                         -------
Other comprehensive income, net of tax                                                       962             962            962
                                                                                                         -------
Total comprehensive income                                                                               $ 2,515
                                                                                                         =======
Issuance of common stock                            261        4,385                                                      4,646
Effect of stock split                               613         (613)                                                         -
Exercise of stock options                             7           60                                                         67
                                                -------     --------      -------         ------                       --------
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 gain
  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
                                                                                                         =======
Issuance of common stock                            603       12,201                                                     12,804
Effect of stock split                               460         (460)                                                         -
Exercise of stock options                            40          330                                                        370
Cash paid in lieu of fractional shares                                         (4)                                           (4)
                                                -------     --------      -------         ------                       --------
BALANCE, DECEMBER 31, 2003                        2,944       25,425        5,491             31                         33,891
Comprehensive income:
Net income                                                                  2,970                        $ 2,970          2,970
Net change in unrealized gain (loss)
  on available for sale  securities,
  net of deferred taxes of $164                                                                             (319)
Less: reclassification adjustment,
net of income taxes of $20                                                                                   (39)
                                                                                                         -------
Other comprehensive (loss), net of tax                                                      (358)           (358)          (358)
                                                                                                         -------
Total comprehensive income                                                                               $ 2,612
                                                                                                         =======
Issuance of common stock                              6          121                                                        127
Effect of stock split                             1,478       (1,478)                                                         -
Exercise of stock options                            17          257                                                        274
Cash paid in lieu of fractional shares                                         (3)                                           (3)
                                                -------     --------      -------         ------                       --------
BALANCE, DECEMBER 31, 2004                      $ 4,445     $ 24,325      $ 8,458         $ (327)                      $ 36,901
                                                =======     ========      =======         ======                       ========
</TABLE>

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


                                       34
<PAGE>

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
              For the Years Ended December 31, 2004, 2003 and 2002
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                         --------------------------------------------------
                                                                           2004                 2003                 2002
                                                                         --------             --------             --------
<S>                                                                       <C>                 <C>                  <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                               $ 2,970              $ 2,601              $ 1,553
 Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization                                              436                  323                  257
   Provision for loan losses                                                  990                  662                  483
   Amortization of bond premium                                               318                  439                  212
   Accretion of bond discount                                                (140)                 (69)                 (67)
   Realized (gain) on sales of securities available for sale                  (59)                (299)                (244)
   Realized (gain) on sales of loans held-for-sale                           (423)                (255)                   -
   Originiation of loans held-for-sale                                    (23,627)             (17,222)                   -
   Proceeds from sales of loans held-for-sale                              21,624               16,916                    -
   Deferred income tax (benefit)                                             (291)                (220)                (109)
   (Increase) in accrued interest receivable                                 (641)                (420)                (285)
   (Increase) decrease in other assets                                        (92)                  28                 (196)
   Increase (decrease) in accrued interest payable and
     other liabilities                                                       (222)                  30                  119
                                                                         --------             --------             --------
     Net cash provided by operating activities                                843                2,514                1,723
                                                                         --------             --------             --------
 CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of securities available for sale                            (103,961)            (144,197)             (85,969)
   Proceeds from calls and maturities of securities
     available for sale                                                    37,655               23,835               27,223
   Proceeds from sales of securities available for sale                    41,174               72,397                6,359
   Purchases of premises and equipment                                     (1,486)                (378)                (583)
   (Increase) decrease in interest bearing cash balances                   (2,442)                 655                1,380
   (Increase) decrease in Federal funds sold                              (35,754)              28,826              (19,357)
   Net (increase) in loans                                                (81,104)             (48,097)             (35,031)
                                                                         --------             --------             --------
     Net cash (used in) investing activities                             (145,915)             (66,959)            (105,978)
                                                                         --------             --------             --------
 CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in demand deposits, savings deposits
     and money market accounts                                            124,319               31,054               90,879
   Net increase in time deposits                                           24,619               10,192                8,732
   Net increase (decrease) in Federal funds purchased                      (6,886)               6,886                    -
   Proceeds from issuance of common stock                                     401               13,174                4,713
   Proceeds from issuance of trust preferred capital notes                      -                4,000                5,000
   Cash paid in lieu of fractional shares                                      (3)                  (4)                   -
                                                                         --------             --------             --------
     Net cash provided by financing activities                            142,450               65,302              109,324
                                                                         --------             --------             --------

   Increase (decrease) in cash and due from banks                          (2,622)                 857                5,069
 CASH AND DUE FROM BANKS
   Beginning                                                               11,908               11,051                5,982
                                                                         --------             --------             --------
   Ending                                                                 $ 9,286             $ 11,908             $ 11,051
                                                                         ========             ========             ========

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Interest paid on deposits and borrowed funds                           $ 4,731              $ 3,709              $ 3,640
                                                                         ========             ========             ========
   Income taxes paid                                                      $ 2,143              $ 1,272                $ 859
                                                                         ========             ========             ========
 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,
    unrealized gain (loss) on securities available for sale                $ (542)            $ (1,629)             $ 1,458
                                                                         ========             ========             ========
</TABLE>

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


                                       35
<PAGE>

Notes to Audited Consolidated Financial Statements

                           JAMES MONROE BANCORP, INC.
                                AND SUBSIDIARIES
               NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. FASB Interpretation No.
              46(R) requires that the Company no longer consolidate James Monroe
              Statutory Trust I and II. The subordinated debt of the trusts is
              reflected as a liability of the Company and the common securities
              of the trusts as another asset.

              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 U.S. generally accepted accounting principals. The
              following is a summary of the most significant of such policies
              and procedures.

              USE OF ESTIMATES

              The preparation of consolidated financial statements in conformity
              with U.S. generally accepted accounting principles 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. Purchase premiums and discounts are
              recognized in interest income using the interest method over the
              terms of the securities. Declines in the fair value of available
              for sale securities below their cost that are deemed to be other
              than temporary are reflected in earnings as realized losses. In
              estimating other than temporary impairment losses, management
              considers (1) the length of time and the extent to which the fair
              value has been less than cost, (2) the financial condition and
              near-term prospects of the issuer, and (3) the intent and ability
              of the Company to retain its investment in the issuer for a period
              of time sufficient to allow for any anticipated recovery in fair
              value. Gains and losses on the sale of securities are recorded on
              the trade date and are determined using the specific
              identification method. Gains and losses on the sale of securities
              are recorded on the trade date and are determined using the
              specific identification method.


                                       36
<PAGE>

Notes to Audited Consolidated Financial Statements


              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. The Company generally
              does not retain the mortgage servicing.

              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 consists of specific, general and unallocated
              components. The specific component relates to loans that are
              classified as either special mention, substandard or doubtful. For
              such loans that are also classified as impaired, an allowance is
              established when the discounted cash flows (or collateral value or
              observable market price) of the impaired loan is lower than the
              carrying value of that loan. The general component covers
              non-classified loans and is based on historical loss experience
              adjusted for qualitative factors. An unallocated component is
              maintained to cover uncertainties that could affect management's
              estimate of probable losses. The unallocated component of the
              allowance reflects the margin of imprecision inherent in the
              underlying assumptions used in the methodologies for estimating
              specific and general losses in the portfolio.

              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.


                                       37
<PAGE>

Notes to Audited Consolidated Financial Statements


              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.

              RATE LOCK COMMITMENTS

              The Company enters into commitments to originate loans whereby the
              interest rate on the loan is determined prior to funding (rate
              lock commitments). Rate lock commitments on mortgage loans that
              are intended to be sold are considered to be derivatives.
              Accordingly, such commitments, along with any related fees
              received from potential borrowers, are to be recorded at fair
              value in derivative assets or liabilities, with changes in fair
              value recorded in the net gain or loss on sale of loans. Fair
              value is based on fees currently charged to enter into similar
              agreements, and for fixed-rate commitments also considers the
              difference between current levels of interest rates and the
              committed rates. Prior to July 1, 2002 such commitments were
              recorded to the extent of fees received. Fees received were
              subsequently included in the net gain or loss on sale of loans.
              Any differences between recorded and calculated amounts were not
              material.


                                       38
<PAGE>

Notes to Audited Consolidated Financial Statements


              STOCK COMPENSATION PLANS

              At December 31, 2004, 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>
                                                                         YEARS ENDED DECEMBER 31,
                                                              ------------------------------------------------
                                                               2004                 2003                2002
                                                              -------              -------             -------
<S>                                                           <C>                  <C>                 <C>
(Dollars in thousands, except per share data)

Net income, as reported                                       $ 2,970              $ 2,601             $ 1,553
Additional expense had the company adopted SFAS No. 123          (667)                (299)                (75)
                                                              -------              -------             -------
Pro forma net income                                          $ 2,303              $ 2,302             $ 1,478
                                                              =======              =======             =======

Earnings per share:
     Basic- as reported                                        $ 0.67               $ 0.73              $ 0.50
                                                              =======              =======             =======
     Basic- pro forma                                            0.52                 0.64                0.48
                                                              =======              =======             =======
     Diluted- as reported                                        0.64                 0.68                0.48
                                                              =======              =======             =======
     Diluted- pro forma                                          0.49                 0.60                0.45
                                                              =======              =======             =======
</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:

                                               2004          2003       2002
                                             --------      --------    -------

              Dividend yield                     0.00%         0.00%      0.00%
              Expected life                  7.7 years     8.3 years   10 years
              Expected volatility               37.23%        32.07%      0.50%
              Risk-free interest rate            3.80%         4.07%      5.05%

              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.


                                       39
<PAGE>

Notes to Audited Consolidated Financial Statements


              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. Options totaling
              5,000 and 4,313 for the years ended December 31, 2004 and 2003,
              respectively 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 year ended December 31, 2002. For the years
              presented, there was no adjustment to income from potential common
              shares.


<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                            -----------------------------------------------
                                                              2004               2003               2002
                                                            ---------          ---------          ---------
<S>                                                         <C>                <C>                <C>
(Dollars in thousands, except share and per share data)
Net Income                                                    $ 2,970            $ 2,601            $ 1,553
                                                            =========          =========          =========

Weighted average shares outstanding--basic                  4,435,905          3,589,931          3,082,266
Common share equivalents for stock options                    239,266            239,970            158,543
                                                            ---------          ---------          ---------
Weighted average shares outstanding--diluted                4,675,171          3,829,901          3,240,809
                                                            =========          =========          =========

Earnings per share-basic                                       $ 0.67             $ 0.73             $ 0.50
                                                            =========          =========          =========
Earnings per share-diluted                                     $ 0.64             $ 0.68             $ 0.48
                                                            =========          =========          =========
</TABLE>

              RECENT ACCOUNTING PRONOUNCEMENTS

              In January 2003, the Financial Accounting Standards Board ("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 when the assets, liabilities, non-controlling interests,
              and results of operations of a variable interest entity need to be
              included in a Company's consolidated financial statements. An
              entity is deemed a variable interest entity, subject to the
              interpretation, if the equity investment at risk is not sufficient
              to permit the entity to finance its activities without additional
              subordinated financial support from other parties, or in cases in
              which 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. Due to
              significant implementation issues, the FASB modified the wording
              of FIN 46 and issued FIN 46R in December of 2003. FIN 46R deferred
              the effective date for the provisions of FIN 46 to entities other
              than Special Purpose Entities ("SPEs") until financial statements
              issued for periods ending after March 15, 2004. SPEs were subject
              to the provisions of either FIN 46 or FIN 46R as of December 15,
              2003. Management has evaluated the Company's investments in
              variable interest entities and potential variable interest
              entities or transactions, particularly in trust preferred
              securities structures because these entities or transactions
              constitute the Company's primary FIN 46 and FIN 46R exposure. The
              adoption of FIN 46 and FIN 46R did not have a material effect on
              the Company's consolidated financial position or consolidated
              results of operations.

              On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin
              No. 105, "Application of Accounting Principles to Loan
              Commitments" ("SAB 105"). SAB 105 clarifies existing accounting
              practices relating to the valuation of issued loan commitments,
              including interest rate lock commitments ("IRLC"), subject to SFAS
              No. 149 and Derivative Implementation Group Issue C13, "Scope
              Exceptions: When a Loan Commitment is included in the Scope of
              Statement 133." Furthermore, SAB 105 disallows the inclusion of
              the values of a servicing component and other internally developed
              intangible assets in the initial and subsequent IRLC valuation.
              The provisions of SAB 105 were effective for loan commitments
              entered into after March 31, 2004. The Company has adopted the
              provisions of SAB 105. Since the provisions of SAB 105 affect only
              the timing of the recognition of mortgage banking income,
              management does not anticipate that this guidance will have a
              material adverse effect on either the Company's consolidated
              financial position or consolidated results of operations.


                                       40
<PAGE>

Notes to Audited Consolidated Financial Statements


              Emerging Issues Task Force Issue No. (EITF) 03-1, "The Meaning of
              Other-Than-Temporary Impairment and Its Application to Certain
              Investments," was issued and is effective March 31, 2004. The EITF
              03-1 provides guidance for determining the meaning of "other than
              temporarily impaired" and its application to certain debt and
              equity securities within the scope of Statement of Financial
              Accounting Standards No. 115 "Accounting for Certain Investments
              in Debt and Equity Securities" ("SFAS No. 115") and investments
              accounted for under the cost method. The guidance requires that
              investments which have declined in value due to credit concerns or
              solely due to changes in interest rates must be recorded as
              other-than-temporarily impaired unless the Company can assert and
              demonstrate its intention to hold the security for a period of
              time sufficient to allow for a recovery of fair value up to or
              beyond the cost of the investment which might mean maturity. This
              issue also requires disclosures assessing the ability and intent
              to hold investments in instances in which an investor determines
              that an investment with a fair value less than cost is not
              other-than-temporarily impaired. On September 30, 2004, the
              Financial Accounting Standards Board decided to delay the
              effective date for the measurement and recognition guidance
              contained in Issue 03-1. This delay does not suspend the
              requirement to recognize other-than-temporary impairments as
              required by existing authoritative literature. The disclosure
              guidance in Issue 03-1 was not delayed.

              EITF No. 03-16, "Accounting for Investments in Limited Liability
              Companies was ratified by the Board and is effective for reporting
              periods beginning after June 15, 2004." APB Opinion No. 18, "The
              Equity Method of Accounting Investments in Common Stock,"
              prescribes the accounting for investments in common stock of
              corporations that are not consolidated. AICPA Accounting
              Interpretation 2, "Investments in Partnerships Ventures," of
              Opinion 18, indicates that "many of the provisions of the Opinion
              would be appropriate in accounting" for partnerships. In EITF
              Abstracts, Topic No. D-46, "Accounting for Limited Partnership
              Investments," the SEC staff clarified its view that investments of
              more than 3 to 5 percent are considered to be more than minor and,
              therefore, should be accounted for using the equity method.
              Limited liability companies (LLCs) have characteristics of both
              corporations and partnerships, but are dissimilar from both in
              certain respects. Due to those similarities and differences,
              diversity in practice exists with respect to accounting for
              non-controlling investments in LLCs. The consensus reached was
              that an LLC should be viewed as similar to a corporation or
              similar to a partnership for purposes of determining whether a
              non-controlling investment should be accounted for using the cost
              method or the equity method of accounting. The Company had no such
              investments as of December 31, 2004.


              In December 2004, the FASB issued Statement of Financial
              Accounting Standards No. 123 (revised 2004), "Share-Based
              Payment." This Statement establishes standards for the accounting
              for transactions in which an entity exchanges its equity
              instruments for goods or services. It also addresses transactions
              in which an entity incurs liabilities in exchange for goods or
              services that are based on the fair value of the entity's equity
              instruments or that may be settled by the issuance of those equity
              instruments. The Statement focuses primarily on accounting for
              transactions in which an entity obtains employee services in
              share-based payment transactions. The Statement requires a public
              entity to measure the cost of employee services received in
              exchange for an award of equity instruments based on the
              grant-date fair value of the award (with limited exceptions). That
              cost will be recognized over the period during which an employee
              is required to provide service in exchange for the award - the
              requisite service period (usually the vesting period). The entity
              will initially measure the cost of employee services received in
              exchange for an award of liability instruments based on its
              current fair value; the fair value of that award will be
              remeasured subsequently at each reporting date through the
              settlement date. Changes in fair value during the requisite
              service period will be recognized as compensation cost over that
              period. The grant-date fair value of employee share options and
              similar instruments will be estimated using option-pricing models
              adjusted for the unique characteristics of those instruments
              (unless observable market prices for the same or similar
              instruments are available). If an equity award is modified after
              the grant date, incremental compensation cost will be recognized
              in an amount equal to the excess of the fair value of the modified
              award over the fair value of the original award immediately before
              the modification. This Statement is effective for public entities
              that do not file as small business issuers--as of the beginning of
              the first interim or annual reporting period that begins after
              June 15, 2005. Under the transition method, compensation cost is
              recognized on or after the required effective date for the portion
              of outstanding awards for which the requisite service has not yet
              been rendered, based on the grant-date fair value of those awards
              calculated under Statement 123 for either recognition or pro forma
              disclosures. For periods before the required effective date,
              entities may elect to apply a modified version of retrospective
              application under which financial statements for prior periods are
              adjusted on a basis consistent with the pro forma disclosures
              required for those periods by Statement 123.


                                       41
<PAGE>

Notes to Audited Consolidated Financial Statements


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>
                                                                  DECEMBER 31, 2004
                                            ----------------------------------------------------------
                                                               GROSS            GROSS
                                            AMORTIZED        UNREALIZED      UNREALIZED         MARKET
              (Dollars in thousands)           COST            GAINS           LOSSES           VALUE
                                            ---------        ----------      ----------         ------
              <S>                           <C>              <C>             <C>             <C>
              U.S. Government and
                federal agency              $ 121,594          $ 229          $ (686)        $ 121,137
              Mortgage backed                  22,208            172            (208)           22,172
              Corporate notes                   2,151             26             (29)            2,148
              Restricted stock                  1,338              -               -             1,338
                                            ---------          -----          ------         ---------
                                            $ 147,291          $ 427          $ (923)        $ 146,795
                                            =========          =====          ======         =========

                                                                  DECEMBER 31, 2003
                                            ----------------------------------------------------------
                                                               GROSS            GROSS
                                            AMORTIZED        UNREALIZED      UNREALIZED         MARKET
              (Dollars in thousands)           COST            GAINS           LOSSES           VALUE
                                            ---------        ----------      ----------         ------
              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>


                                       42
<PAGE>

Notes to Audited Consolidated Financial Statements


              Information pertaining to securities with gross unrealized losses
              at December 31, 2004 and December 31, 2003, aggregated by
              investment category and length of time that the individual
              securities have been in a continuous loss position, follows:


<TABLE>
<CAPTION>
                                                              DECEMBER 31, 2004
                                          -------------------------------------------------------
                                              LESS THAN 12 MONTHS          12 MONTHS OR MORE
                                          -------------------------    --------------------------
                                                         UNREALIZED                    UNREALIZED
              (Dollars in thousands)      FAIR VALUE       (LOSS)      FAIR VALUE        (LOSS)
                                          ----------     ----------    ----------      ----------
              <S>                          <C>            <C>          <C>             <C>
              U.S. Government and
                federal agency             $ 53,745       $ (336)       $ 11,192         $ (350)
              Mortgage backed                 7,505         (109)          3,556            (99)
              Corporate notes                 1,020          (29)              -              -
                                           --------       ------        --------         ------
                                           $ 62,270       $ (474)       $ 14,748         $ (449)
                                           ========       ======        ========         ======

                                                              DECEMBER 31, 2003
                                          -------------------------------------------------------
                                              LESS THAN 12 MONTHS          12 MONTHS OR MORE
                                          -------------------------    --------------------------
                                                         UNREALIZED                    UNREALIZED
              (Dollars in thousands)      FAIR VALUE       (LOSS)      FAIR VALUE        (LOSS)
                                          ----------     ----------    ----------      ----------
              U.S. Government and
                federal agency             $ 51,316       $ (589)            $ -            $ -
              Mortgage backed                10,046         (162)              -              -
              Corporate notes                 1,051           (9)              -              -
                                           --------       ------        --------         ------
                                            $62,413       $ (760)            $ -            $ -
                                           ========       ======        ========         ======
</TABLE>


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

              The bonds in an unrealized loss position at December 31, 2004 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, 17 are U.S. Government agency issued bonds (Government
              National Mortgage Association and the Federal Home Loan Bank)
              rated AAA by Standard and Poor's, 25 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. As management has the ability to hold debt securities
              until maturity, or for the foreseeable future, no declines are
              deemed to be other than temporary.

              The amortized cost and fair value of securities by contractual
              maturity at December 31, 2004 follows:


<TABLE>
<CAPTION>
                                                                    AMORTIZED             FAIR
               (Dollars in thousands)                                  COST              VALUE
                                                                    ---------           --------
               <S>                                                  <C>                 <C>
               Due within one year                                   $ 80,041           $ 79,829
               Due after one year but within five years                43,241             43,011
               Due after five years but within ten                      3,634              3,639
               Due after ten years                                     19,037             18,978
                                                                    ---------          ---------
                                                                      145,953            145,457
               Restricted stock                                         1,338              1,338
                                                                    ---------          ---------
                   Total available for sale securities              $ 147,291          $ 146,795
                                                                    =========          =========
</TABLE>


                                       43
<PAGE>

Notes to Audited Consolidated Financial Statements


              Securities carried at $43,510,000 and $37,482,000 at December 31,
              2004 and 2003, respectively, were pledged to secure public
              deposits and for other purposes required or permitted by law.

              For the years ended December 31, 2004, 2003 and 2002, proceeds
              from sales of securities available for sale amounted to
              $41,174,000, $72,397,000 and $6,359,000, respectively. Gross
              realized gains amounted to $59,000, $299,000 and $244,000,
              respectively. The tax provision applicable to these realized gains
              amounted to $20,000, $102,000, and $83,000 respectively.

NOTE 3.       LOANS AND ALLOWANCE FOR LOAN LOSSES

              Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                   ----------------------------
                      (Dollars in thousands)                         2004               2003
                                                                   ---------          ---------
                      <S>                                          <C>                <C>
                      Construction loans                            $ 35,166           $ 18,130
                      Commercial loans                                32,782             24,885
                      Commercial real estate loans                   167,696            113,316
                      Real estate-1-4 family residential               1,559              3,801
                      Home equity loans                                5,400              3,193
                      Consumer loans                                   7,290              5,691
                      Deposit overdrafts                                 103                 31
                                                                   ---------          ---------
                                                                     249,996            169,047
                      Less allowance for loan losses                  (2,790)            (1,955)
                                                                   ---------          ---------
                      Net loans                                    $ 247,206          $ 167,092
                                                                   =========          =========
</TABLE>


              Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                                     ----------------------------------------
              (Dollars in thousands)                                  2004             2003             2002
                                                                     -------         -------          -------
              <S>                                                    <C>             <C>              <C>
              Beginning balance                                      $ 1,955         $ 1,390          $ 1,030
              Loan charge-offs:
              Commercial                                                (135)            (71)             (23)
              Consumer                                                   (21)            (41)            (103)
                                                                     -------         -------          -------
              Total charge-offs                                         (156)           (112)            (126)
              Recoveries of loans previously charged-off:
              Commercial                                                   -              15                -
              Consumer                                                     1               -                3
                                                                     -------         -------          -------
              Total recoveries                                             1              15                3
                                                                     -------         -------          -------
                   Net charge-offs                                      (155)            (97)            (123)
                                                                     -------         -------          -------
              Provision for loan losses                                  990             662              483
                                                                     -------         -------          -------
              Ending balance                                         $ 2,790         $ 1,955          $ 1,390
                                                                     =======         =======          =======
</TABLE>


                                       44
<PAGE>

Notes to Audited Consolidated Financial Statements


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

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                               -------------------------
                  (Dollars in thousands)                                        2004               2003
                                                                               ------             ------
                  <S>                                                          <C>                <C>
                                                                                 $349               $324
                  Impaired loans with a valuation allowance                         -                  -
                  Impaired loans without a valuation allowance                      -                  -
                                                                               ------             ------
                  Total impaired loans                                           $349               $324
                                                                               ======             ======
                  Valuation allowance related to impaired loans                  $349               $184
                                                                               ======             ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                           ----------------------------------
                  (Dollars in thousands)                                    2004         2003           2002
                                                                           ------       ------         ------
                  <S>                                                     <C>          <C>             <C>
                  Average investments in impaired loans                    $ 359        $   282         $ 243
                                                                          ======       ========        ======
                  Interest income recognized on impaired                   $   -        $    21         $   -
                  loans
                                                                          ======       ========        ======
                  Interest income recognized on a cash
                  basis on impaired loans                                  $   -        $    21         $   -
                                                                          ======       ========        ======
</TABLE>

              No additional funds are committed to be advanced in connection
              with impaired loans.

              All nonaccrual loans were included in the impaired loan disclosure
              under SFAS No. 114 as of December 31, 2004. 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 loans 90 days past due and still accruing interest
              at December 31, 2004 or 2002. Loans totaling $34,000 were 90 days
              past due and still accruing interest at December 31, 2003.

NOTE 4.       BANK PREMISES AND EQUIPMENT

              Bank premises and equipment consist of the following:

                                                               DECEMBER 31,
                                                            -------------------
                  (Dollars in thousands)                     2004         2003
                                                            -------     -------
                  Leasehold improvements                    $ 1,243     $   749
                  Furniture and equipment                     1,370         763
                  Computers                                     813         455
                  Software                                      399         278
                  Premises and equipment in process              22         118
                                                            -------     -------
                                                              3,847       2,363
                  Less accumulated depreciation               1,409         975
                                                            -------     -------
                                                            $ 2,438     $ 1,388
                                                            =======     =======

              Depreciation and amortization charged to operations totaled
              $436,000, $323,000 and $257,000 for the years ended December 31,
              2004, 2003 and 2002, respectively.


                                       45
<PAGE>

Notes to Audited Consolidated Financial Statements


NOTE 5.       DEPOSITS

              Interest bearing deposits consist of the following:


<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                            -----------------------------
                           (Dollars in thousands)                              2004               2003
                                                                            ----------         ----------
                           <S>                                              <C>                <C>
                           NOW accounts                                       $ 14,389           $ 12,068
                           Savings accounts                                      4,361              2,846
                           Money market accounts                               220,315            126,091
                           Certificates of deposit under $100,000               12,210             13,115
                           Certificates of deposit $100,000 and over            59,310             33,694
                           Individual retirement accounts                        1,612              1,704
                                                                            ----------         ----------
                                                                              $312,197           $189,518
                                                                            ==========         ==========
</TABLE>


              At December 31, 2004, the scheduled maturities of time deposits
              are as follows:

                          (Dollars in thousands)

                          2005                        $ 62,088
                          2006                           2,608
                          2007                           5,675
                          2008                             358
                          2009                           2,403
                                                      --------
                                                      $ 73,132
                                                      ========


                                       46
<PAGE>

Notes to Audited Consolidated Financial Statements

NOTE 6.       INCOME TAXES

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


<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                   -----------------------
                                                                                     2004            2003
                                                                                   --------         ------
                           <S>                                                     <C>              <C>
                           (Dollars in thousands)
                           Deferred tax assets:
                             Provision for loan losses                                $ 901          $ 630
                             Unrealized loss on securities available for sale           169              -
                             Nonaccrual interest                                         21              -
                             Amortization of organization and start-up costs              -              2
                                                                                      1,091            632
                           Deferred tax liabilities:
                             Depreciation                                               (18)           (19)
                             Unrealized gain on securities available for sale             -            (16)
                                                                                   --------         ------
                                                                                        (18)           (35)
                                                                                   --------         ------
                           Deferred tax asset, net                                  $ 1,073          $ 597
                                                                                   ========         ======
</TABLE>


              Allocation of federal income taxes between current and deferred
              portions for the years ended December 31, 2004, 2003 and 2002 is
              as follows:


                                                        DECEMBER 31,
                                           ---------------------------------
                                             2004          2003        2002
                                           --------      --------     ------
              (Dollars in thousands)

              Current tax provision         $ 1,848       $ 1,548      $ 921
              Deferred tax (benefit)           (291)         (220)      (109)
                                           --------      --------     ------
                                            $ 1,557       $ 1,328      $ 812
                                           ========      ========     ======


              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, 2004, 2003 and 2002, due
              to the following:


<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                         -----------------------------------
              (Dollars in thousands)                                       2004          2003          2002
                                                                         --------      --------       ------
              <S>                                                        <C>           <C>            <C>
              Computed "expected" tax expense                             $ 1,539       $ 1,336        $ 804
              Increase (decrease) in income taxes resulting from:
                  Nondeductible expenses                                       11             9            8
                  Other                                                         7           (17)           -
                                                                         --------      --------       ------
                                                                          $ 1,557       $ 1,328        $ 812
                                                                         ========      ========       ======
</TABLE>


                                       47
<PAGE>

Notes to Audited Consolidated Financial Statements


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, 2004, 2003 and 2002 was $662,000,
              $450,000 and $398,000, respectively.

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

                             (Dollars in thousands)

                             2005                                $ 890
                             2006                                  853
                             2007                                  844
                             2008                                  545
                             2009                                  563
                             Thereafter                          2,450
                                                              --------
                                                               $ 6,145
                                                              ========


NOTE 8.       STOCK OPTION PLANS

              The Company's 1998 Stock Option Plan (1998 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 1998 Plan provides that 258,412
              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 188,100 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 requires 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. All options
              granted under this plan have vested and expire not more than ten
              years from the date the options were granted.

              In 2003, the Company adopted the 2003 Executive Compensation plan
              that reserves 375,000 shares of the Company's common stock for
              both incentive and non-qualified stock options, restricted stock,
              and stock appreciation rights, 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. Options granted under this plan
              become vested and exercisable within three to five years following
              the grant date with the exception of options granted to directors
              which vest immediately. Options granted under this plan shall
              expire not more than ten years from the date the option is
              granted.


                                       48
<PAGE>


Notes to Audited Consolidated Financial Statements

              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>

                                                  2004                          2003                         2002
                                       ----------------------------  ---------------------------- ----------------------------
                                                        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            200,187      $   7.57        202,866       $   4.15         171,225        $ 3.72
Granted                                     114,000         18.53         61,350          15.65          31,641          6.45
Exercised                                    (7,412)         9.56        (60,468)          4.27               -             -
Forfeited                                    (6,952)        15.85         (3,562)          7.79               -             -
                                       ------------                   ----------                     ----------
Outstanding at end of year                  299,823         11.46        200,187           7.57         202,866          4.15
                                       ============                   ==========                     ==========
Options excercisable at year end            210,597      $   8.72        149,709       $   5.47         175,907        $ 3.83
                                       ============                   ==========                     ==========
Weighted average fair value of
  options granted during the year            $ 9.72                   $     6.70                     $     2.53
</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>

                                                   2004                          2003                         2002
                                       ----------------------------  ---------------------------- ----------------------------
                                                        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            191,249         $ 5.79        161,258      $    4.03         151,313     $  3.55
Granted                                      57,000          18.61         29,991          15.24          27,219        6.58
Exercised                                   (15,359)         10.48              -              -         (17,274)       3.92
                                       ------------                  ------------                    -----------
Outstanding at end of year                  232,890           8.62        191,249           5.79         161,258        4.03
                                       ============                  ============                    ===========
Options excercisable at year end            232,890         $ 8.62        191,249      $    5.79         161,258     $  4.03
                                       =============                 ============                    ===========
Weighted average fair value of
  options granted during the year            $ 7.13                        $ 7.76                    $      2.61
</TABLE>


                                       49
<PAGE>


              Information pertaining to options outstanding for all plans at
              December 31, 2004 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            OUSTANDING          LIFE             PRICE          EXERCISABLE         PRICE
-----------------------------  ---------------  ----------------  ---------------  ----------------  ---------------

<S>                            <C>                <C>               <C>               <C>               <C>
        $3.56 - 5.00                  247,866      4.15 years       $    3.56            247,866         $    3.56
        $5.01 - 9.50                   39,476         7.02               6.29             39,476              6.29
       $9.51 - 13.00                        -          -                    -                  -                 -
       $13.01 - 18.76                 245,370         9.04              17.58            156,145             17.38
                               ---------------                                       ------------
                                      532,712      6.62 years       $   10.22            443,487         $    8.67
                               ===============                                       ============
</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 plan
              has a KSOP component whereby employees may elect to allocate a
              portion of funds to an Employee Stock Ownership Plan. 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, 2004, 2003 and 2002, expense attributable to the plan
              amounted to $80,000, $43,000 and $29,000 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, 2004
              and 2003, that the Company and the Bank exceeded all capital
              adequacy requirements to which they are subject.

              As of December 31, 2004, 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, 2004
              and 2003 are also presented in the table.


                                       50
<PAGE>

Notes to Audited Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                                                          MINIMUM TO BE WELL
                                                                                                          CAPITALIZED UNDER
                                                                                 MINIMUM CAPITAL          PROMPT CORRECTIVE
                                                             ACTUAL                REQUIREMENT            ACTION PROVISIONS
                                                 --------------------------   ---------------------     -----------------------
 (Dollars in thousands)                            AMOUNT          RATIO        AMOUNT       RATIO        AMOUNT        RATIO
                                                 ----------      ----------   ----------   --------     ----------    ---------
<S>                                                <C>             <C>        <C>             <C>       <C>           <C>
As of December 31, 2004:
  Total Capital (to Risk Weighted Assets):
    Consolidated                                   $ 49,019        17.1%      $ 22,906        8.0%            N/A         N/A
    Bank                                           $ 34,782        12.3%      $ 22,659        8.0%       $ 28,324       10.0%
  Tier 1 Capital (to Risk Weighted Assets):
    Consolidated                                   $ 46,229        16.1%      $ 11,485        4.0%            N/A         N/A
    Bank                                           $ 31,992        11.3%      $ 11,335        4.0%       $ 17,002        6.0%
  Tier 1 Capital (to Average Assets):
    Consolidated                                   $ 46,229        10.7%      $ 17,234        4.0%            N/A         N/A
    Bank                                           $ 31,992         7.7%      $ 16,641        4.0%       $ 20,801        5.0%
  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%
</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, 2004, the Bank could pay $7,218,000 in dividends
              without prior regulatory approval. The Bank did not pay any cash
              dividends during the years ended December 31, 2004, 2003 or 2002.

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, 2004 and 2003, the
              following financial instruments were outstanding whose contract
              amounts represent credit risk:


               (Dollars in thousands)               2004              2003
                                                 -------------     -----------

               Commitments to extend credit      $      52,461     $    25,863
               Standby letters of credit         $       2,591     $     1,371



                                       51
<PAGE>


Notes to Audited Consolidated Financial Statements

              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 $691,000 at December 31,
              2004.

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 $4,030,000
              and $4,319,000 at December 31, 2004 and 2003, respectively. During
              the year ended December 31, 2004, total principal additions were
              $300,000 and total principal payments were $589,000.

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 for securities,
              excluding restricted stock, 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. The carrying
              value of restricted stock approximates fair value based on the
              redemption provisions of the respective entity.

              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.


                                       52
<PAGE>

Notes to Audited Consolidated Financial Statements

              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.

              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, 2004 and 2003, the fair values of loan commitments
              and standby letters of credit were deemed immaterial.


                                       53
<PAGE>


Notes to Audited Consolidated Financial Statements

              The estimated fair values of the Company's financial instruments
              at December 31, 2004 and 2003 are as follows:
<TABLE>
<CAPTION>

                                                               DECEMBER 31, 2004                DECEMBER 31, 2003
                                                        ------------------------------    -----------------------------
                                                           CARRYING            FAIR           CARRYING            FAIR
              (Dollars in thousands)                        AMOUNT            VALUE            AMOUNT            VALUE
                                                        -------------     ------------    ---------------     ----------
                 <S>                                     <C>               <C>              <C>                <C>
              FINANCIAL ASSETS:
                 Cash and due from banks                 $     9,286       $    9,286       $   11,908         $   11,908
                 Interest bearing deposits in banks            2,442            2,442                -                  -
                 Federal funds sold                           35,754           35,754                -                  -
                 Securities available for sale               146,795          146,795          122,328            122,328
                 Loans held for sale                           2,987            2,987              561                561
                 Loans, net                                  247,206          238,439          167,092            164,701
                 Accrued interest                              1,977            1,977            1,336              1,336

              FINANCIAL LIABILITIES:
                 Deposits                                $   404,054       $  403,399        $ 255,116         $  255,439
                 Federal funds purchased                           -                -            6,886              6,886
                 Long-term borrowings                          9,279            9,256            9,279              9,261
                 Accrued interest                                217              217              115                115
                 </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 $26,500,000 available for overnight borrowing. There were
              no amounts drawn on these lines at December 31, 2004. The Company
              had outstanding balances on these lines of $6,886,000 at December
              31, 2003.

              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, 2004, the aggregate amount
              of daily average balances was approximately $7,269,000.

NOTE 15.      OTHER NONINTEREST INCOME AND EXPENSES

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



<TABLE>
<CAPTION>
              (Dollars in thousands)                 2004           2003          2002
                                                 ------------   ------------  ------------
              <S>                                <C>            <C>           <C>

               Cash management fee income              $ 100          $ 113         $ 130
               Other fee income                          253            190           123
                                                 ------------   ------------  ------------
                                                       $ 353          $ 303         $ 253
                                                 ============   ============  ============
</TABLE>


                                       54
<PAGE>

Notes to Audited Consolidated Financial Statements

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

<TABLE>
<CAPTION>
              (Dollars in thousands)                  2004          2003           2002
                                                  -----------    ----------     ---------
              <S>                                 <C>            <C>            <C>
              Data processing costs               $      498     $     373      $     360
              Advertising and public relations           229           102            123
              Professional fees                          359           197            168
              Courier and express services               122           134            105
              Meals and entertainment                     66            55             44
              Supplies                                    73            70             75
              Postage                                     58            52             43
              State franchise tax                        263           217            155
              Other                                      562           483            252
                                                  -----------    ----------     ---------
                                                  $    2,230     $   1,683      $   1,325
                                                  ===========    ==========     =========

</TABLE>

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, 2004 and 2003

<TABLE>
<CAPTION>
              (Dollars in thousands)                             2004             2003
                                                              ----------       ---------
              <S>                                             <C>              <C>
              ASSETS
                Cash                                          $        -       $  1,351
                Interest bearing deposits in banks                 2,442              -
                Securities available for sale, at fair value      11,347         17,985
                Investment in subsidiary bank                     31,686         23,068
                Other assets                                         710            771
                                                              ----------       --------
                                                              $   46,185       $ 43,175
                                                              ==========       ========
              LIABILITIES AND STOCKHOLDERS' EQUITY
                Other liabilities                             $        5       $      5
                Trust preferred capital notes                      9,279          9,279
                Stockholders' equity                              36,901         33,891
                                                              ----------       --------
                                                              $   46,185       $ 43,175
                                                              ==========       ========
</TABLE>


                                       55
<PAGE>

Notes to Audited Consolidated Financial Statements

                           CONDENSED INCOME STATEMENTS
              For the Years Ended December 31, 2004, 2003 and 2002
<TABLE>
<CAPTION>

(Dollars in thousands)                                 2004               2003               2002
                                                    ----------         ---------          ---------
<S>                                                 <C>                <C>                <C>
Interest income                                     $      660         $     284          $     229
Interest expense                                           452               323                218
Operating expense                                          152               102                 69
                                                    ----------         ---------          ---------
Income (loss) before income tax expense
(benefit) and equity undistributed income
  of subsidiaries                                          56               (141)               (58)
Income tax expense (benefit)                               38                (67)               (20)
Equity in undistributed income of subsidiaries          2,952              2,675              1,591
                                                    ---------          ---------          ---------
          Net income                                  $ 2,970          $   2,601          $   1,553
                                                    =========          =========          =========
</TABLE>

                        CONDENSED STATEMENTS OF CASH FLOW
              For the Years Ended December 31, 2004, 2003 and 2002
<TABLE>
<CAPTION>

(Dollars in thousands)                                                           2004           2003           2002
                                                                              ---------      ---------      ---------
     <S>                                                                      <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                  $   2,970      $   2,601      $   1,553
   Adjustments to reconcile net income to
    net cash provided by (used in) operating activities:
     Equity in undistributed income of subsidiaries                              (2,952)        (2,675)        (1,591)
     (Increase) decrease in other assets                                             60           (294)          (184)
     Increase in other liabilities                                                    -              4              1
                                                                              ---------      ---------      ---------
     Net cash provided by (used in) operating activities                             78           (364)          (221)
                                                                              ---------      ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of securities available for sale                                     (1,980)       (17,011)        (7,121)
  Proceeds from calls and maturities of securities available for sale             8,595          4,901          1,249
  Investment in subsidiary bank                                                  (6,000)        (4,000)        (5,000)
  (Increase) decrease in interest bearing deposits in banks                      (2,442)           655          1,380
                                                                              ---------      ---------      ---------
     Net cash (used in) investing activities                                     (1,827)       (15,455)        (9,492)
                                                                              ---------      ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock                                            401         13,174          4,713
  Proceeds from issuance of trust preferred capital notes                             -          4,000          5,000
  Cash paid in lieu of fractional shares                                             (3)            (4)             -
                                                                              ---------      ---------      ---------
     Net cash provided by financing activities                                      398         17,170          9,713
                                                                              ---------      ---------      ---------
         Increase (decrease) in cash and cash equivalents                        (1,351)         1,351              -

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


                                       56
<PAGE>

Notes to Audited Consolidated Financial Statements

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 2004, the interest rates
              ranged from 4.71% to 5.55%. The rate for the quarterly period
              beginning December 26, 2004, was 6.15%. 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 2004, the interest rates ranged from 4.20%
              to 5.08%. The rate for the quarterly period beginning December 31,
              2004, was 5.66%. 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,
              2004, all of the trust preferred securities qualified as Tier 1
              capital.

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

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

NOTE 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.

              On June 1, 2004, the Company issued 1,478,317 additional shares
              necessary to effect a 3-for-2 common stock split in the form of a
              50% stock dividend to shareholders of record on May 14, 2004. The
              earnings per common share for all periods prior to June 2004 have
              been restated to reflect the stock split.


                                       57
<PAGE>


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

          None.

ITEM 9A.  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, 2004 that has materially affected,
or is reasonably likely to materially affect, the Bank's internal control over
financial reporting.

ITEM 9B.  OTHER INFORMATION.

         None.



                                       58
<PAGE>


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         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 22201.

         The other information required by Item 10 is incorporated by reference
from the material under the caption "Election of Directors" contained at pages 4
through 7, and under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" at page 12, of the Company's definitive proxy
statement for the annual meeting of shareholders to be held on April 28, 2005
(the "Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

         The information required by Item 11 is incorporated by reference from
the material under the caption "Executive Compensation," contained at pages 7
through 12 of the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.

         The information required by Item 12 is incorporated by reference from
the material under the captions "Securities Ownership of Directors, Executive
Officers and Five Percent Beneficial Owners" contained at Page 3 of the Proxy
Statement, and included under the caption "Securities Authorized for Issuance
Under Equity Compensation Plans" under Item 5 hereof.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by Item 13 is incorporated by reference from
the material under the caption "Certain Relationships and Related Transactions"
contained at page 10 of the Proxy Statement.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The information required by Item 14 is incorporated by reference from
the material under the caption "Independent Registered Public Accounting Firm"
contained at page 13 of the Proxy Statement.

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN THIS REPORT:

    Report of Independent Auditors

    Consolidated Balance Sheets at December 31, 2003 and 2004

    Consolidated Statements of Income for the years ended December 31,
    2002, 2003 and 2004

    Consolidated Statements of Cash Flows for the years ended December 31,
    2002, 2003 and 2004

    Consolidated Statements of Changes in Stockholders' Equity for the
    years ended December 31, 2002, 2003 and 2004

    Notes to the Consolidated Financial Statements

                                       59
<PAGE>

(B) 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 (5)
10(c)         James Monroe Bancorp 1998 Management Incentive Stock Option Plan
              (6)
10(d)         James Monroe Bancorp 2000 Director's Stock Option Plan (7)
10(e)         James Monroe Bancorp, Inc. 2003 Equity Compensation Plan (8)
11            Statement re: Computation of Per Share Earnings

              Please refer to Note 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(a)         Certification of Chief Executive Officer
32(b)         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 of same number to the Company's
        Annual Report on Form 10-KSB for the year ended December 31, 2003.

    (6) Incorporated by reference to exhibit 10(b) to the Company's registration
        statement on Form SB-2 (No. 333-38098).

    (7) Incorporated by reference to exhibit 10(c) to the Company's registration
        statement on Form SB-2 (No. 333-38098).

    (8) Incorporated by reference to exhibit 10(e) to the Company's Quarterly
        Report on Form 10-QSB for the quarter ended March 31, 2003



                                       60
<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 9, 2005                                 By:  /s/ John R. Maxwell
                                                   --------------------------
                                                   John R. Maxwell, President

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

<TABLE>
<CAPTION>

       SIGNATURE                           TITLE                                         DATE
       ---------                           -----                                          ----

<S>                                    <C>                                          <C>
/s/ Dr. Terry L. Collins               Director                                      March 9, 2005
---------------------------------
Dr. Terry L. Collins

/s/ Norman P. Horn                     Director                                      March 9, 2005
---------------------------------
Norman P. Horn

/s/ Dr. David C. Karlgaard             Director                                      March 9, 2005
---------------------------------
Dr. David C. Karlgaard


/s/ Richard I. Linhart                 Director, Chief Operating Officer, Secretary  March 9, 2005
---------------------------------      (Principal Accounting and Financial Officer)
Richard I. Linhart

/s/ Richard C. Litman                  Director                                      March 9, 2005
---------------------------------
Richard C. Litman

/s/ John R. Maxwell                    President, Chief Executive Officer            March 9, 2005
---------------------------------      and Director (Principal Executive Officer)
John R. Maxwell

/s/ Dr. Alvin E. Nashman               Director                                      March 9, 2005
---------------------------------
Dr. Alvin E. Nashman

/s/ Thomas L. Patterson                Director                                      March 9, 2005
---------------------------------
Thomas L. Patterson

/s/ David W. Pijor                     Chairman of the Board of Directors            March 9, 2005
---------------------------------
David W. Pijor

/s/ Helen Newman Roche                 Director                                      March 9, 2005
---------------------------------
Helen  Newman Roche

/s/ Russell E. Sherman                 Director                                      March 9, 2005
---------------------------------
Russell E. Sherman
</TABLE>



                                       61