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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31,
2006

Commission file number 0-49611

MILLENNIUM BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Virginia                                                       |  | 54-1920520                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|1601 Washington Plaza Reston, Virginia                         |  | 20190                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code (703) 464-0100

Securities registered pursuant to Section 12(b) of the Exchange Act:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|Common Stock, par value $5.00 per share |  | The Nasdaq Stock Market                  

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

(Title of class)

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

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

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

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

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

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

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

The aggregate market value of the common stock held by non-affiliates as of June 30, 2006 was approximately $73,215,000 (based upon the closing sales price of $8.77 on June 30, 2006, as reported on the
Nasdaq Capital Market).

The number of outstanding shares of the registrants common stock as of March 20, 2007 was 8,826,291.

Documents Incorporated by Reference

Portions of registrants Proxy Statement filed for its 2007 Annual Meeting of Shareholders (Part III).



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TABLE OF CONTENTS



|         |  |                                                                                                              |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                              |  | Page
|         |  | PART I                                                                                                       |  |     
|         |  |                                                                                                             
|ITEM 1.  |  | BUSINESS                                                                                                     |  | 1   
|         |  |                                                                                                             
|ITEM 1A. |  | RISK FACTORS                                                                                                 |  | 11  
|         |  |                                                                                                             
|ITEM 1B. |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 15  
|         |  |                                                                                                             
|ITEM 2.  |  | PROPERTIES                                                                                                   |  | 16  
|         |  |                                                                                                             
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  | 17  
|         |  |                                                                                                             
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 17  
|         |  |                                                                                                             
|         |  | PART II                                                                                                      |  |     
|         |  |                                                                                                             
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 18  
|         |  |                                                                                                             
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                      |  | 20  
|         |  |                                                                                                             
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                         |  | 21  
|         |  |                                                                                                             
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ABOUT MARKET RISK.                                |  | 39  
|         |  |                                                                                                             
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 42  
|         |  |                                                                                                             
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 81  
|         |  |                                                                                                             
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  | 81  
|         |  |                                                                                                             
|ITEM 9B. |  | OTHER INFORMATION                                                                                            |  | 81  
|         |  |                                                                                                             
|         |  | PART III                                                                                                     |  |     
|         |  |                                                                                                             
|ITEM 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  | 82  
|         |  |                                                                                                             
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  | 82  
|         |  |                                                                                                             
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 82  
|         |  |                                                                                                             
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  | 83  
|         |  |                                                                                                             
|ITEM 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  | 83  
|         |  |                                                                                                             
|         |  | PART IV                                                                                                      |  |     
|         |  |                                                                                                             
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |  | 83  



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PART I



|ITEM 1. | BUSINESS
|------- | --------

General

Millennium Bankshares Corporation (Millennium) is a financial holding company headquartered in Reston, Virginia. We were incorporated in 1998
and began operations in April 1999. We provide commercial and consumer banking services through Millennium Bank National Association (Millennium Bank or the Bank). At December 31, 2006, Millennium had total consolidated
assets of $591.5 million, deposits of $482.7 million and stockholders equity of $47.6 million.

Millennium Bank is a nationally
chartered community bank with seven banking offices  two in Reston, Virginia and one each in Great Falls, Herndon, Warrenton, Colonial Heights, and Richmond, Virginia. Four of our banking offices are situated in Fairfax County, Virginia, just
west of Washington, D.C., one in Fauquier County, and two are located in the Richmond, Virginia metropolitan area. Our branches are located in growing counties. The population of Fairfax County grew from 818,584 in 1990 to 1,006,529 in 2005, and the
combined population of Henrico County and Chesterfield County where our Richmond area branches are located, grew from 427,155 in 1990 to 569,457 in 2005.

Millennium Bank provides a broad range of commercial and retail banking services designed to meet the needs of businesses and consumers in the communities we serve. Local decision-making and attentive personal service
to customers is emphasized. By combining the technological support and products and services that our customers demand with direct access to senior management and responsive customer service, Millennium Bank seeks to foster a business and consumer
banking environment that allows effective competition in our particular market with other financial institutions of all sizes.

Millennium
Bank offers 24 hours a day, seven days a week Internet banking services. These services allow consumers and businesses to view accounts, make transfers, submit wire transfer requests, pay bills and place stop payments on checks over the Internet.

As of December 31, 2006, we determined that it was in our best interest to wind down our mortgage operating subsidiaries. It was our
desire to focus exclusively on core banking activities going forward to eliminate, going forward, the risks normally associated with mortgage banking activities. The wind down decision was also precipitated by credit quality issues that surfaced in
the held for sale loan portfolio during the fourth quarter. Accordingly, the results of our mortgage operations are presented in a separate category on the income statement following the results from continuing operations. Additional discussion of
discontinued operations can be found in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of this report on Form 10-K.

Subsidiaries

Millennium conducts primarily all of its business through Millennium Bank and its
wholly and majority owned subsidiaries. The subsidiaries of Millennium Bank involved in mortgage operations, which are listed below, are being wound down due to Millenniums decision at December 31, 2006 to terminate the business
relationship with these entities.

The subsidiaries listed in the following table originate, process, and underwrite first and second trust
residential mortgage loans.



|                                             |  |               |  |                              |  |                 
|-------------------------------------------- |  | ------------- |  | ---------------------------- |  | ----------------
|Subsidiary                                   |  | Location      |  | Nature of Business           |  | Date Established
|                                             |  |               | 
|Millennium Capital, Inc.                     |  | Reston, VA    |  | Wholesale and Retail Lending |  | May 1999        
|Millennium Sunbelt Mortgage, LLC (Sunbelt) |  | Las Vegas, NV |  | Retail Lending               |  | Dec. 2001       
|Millennium Bank Mortgage, LLC (MBM)        |  | Reston, VA    |  | Wholesale and Retail Lending |  | Sept. 2005      
|Millennium Hyland Mortgage, LLC (Hyland)   |  | Reston, VA    |  | Wholesale and Retail Lending |  | Sept. 2005      



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In September 2005, Millennium restructured its mortgage operations. Prior to September 2005, Millennium
was recording gross gains on mortgage sales, which were offset by compensation expense and other direct expenses for the mortgage department. Under the new structure, the activities of Millennium Capital, Inc., a subsidiary of Millennium Bank, were
terminated, and Millennium established contractual relationships with three mortgage banking limited liability companies, the terms of each of which provide for a per loan fee to be paid to Millennium (the 51% owner of the LLCs)
for each mortgage loan sold and requires the 49% owners to pay for all costs of operation while retaining all other fee income. At December 31, 2006, Millennium terminated the business relationship by written notice.

We formed Millennium Financial, Inc. on February 23, 2004, to provide insurance services to our bank customers through Metropolitan Life Insurance
Company.

Strategy

We have been in
operation for just under eight years, and an important part of our business is our current and future strategies. Our strategies include the following goals:



| |  |  | Attract customers by providing the financial sophistication and breadth of products of a regional bank while maintaining the quick response and service of a
community bank. In our first seven years of operations, we have established a diverse product line, including commercial, Small Business Administration, consumer, and mortgage loans. We also have introduced securities brokerage services and
insurance.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increase net income and return to shareholders through continued quality loan growth, while controlling the cost of our deposits and noninterest expense.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Diversify our loan portfolio through use of our diverse array of commercial and Small Business Administration loan products. We are also focused on increasing our
core deposits, reducing our dependence on brokered deposits and attracting additional small business customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Proceed with a branch realignment strategy to expand our footprint into the one of the fastest growing counties in the
nation while at the same time improving the overall visibility and accessibility of our branch network. Subject to regulatory approvals, Millennium intends to relocate, early in the 2ndquarter 2007, its Wiehle (Reston) and Great Falls offices to a newly constructed office in Sterling, Virginia in Loudoun County
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Market Area

We consider our target market
to be the greater Washington metropolitan area, which we define as the District of Columbia, the northern Virginia counties of Fairfax, Fauquier, Loudoun and Prince William, and the Maryland counties of Frederick, Montgomery and Prince
Georges. Our target market also includes Richmond, Virginia and the surrounding counties of Chesterfield and Henrico.

According to the 2005 U.S. Census data, the population of the greater Washington metropolitan area was approximately 5.1 million people. The average median household income figures reported in the 2005 U.S. Census for each of the 15
jurisdictions comprising the greater Washington metropolitan area was approximately $74,708, compared to a national median household income of approximately $46,242. Based on estimates released by the Bureau of Labor Statistics of the U.S.
Department of Labor for September 2006, the unemployment rate for the greater Washington metropolitan area was approximately 2.9%, compared to a national unemployment rate of 5.8%. According to 2005 U.S. Census figures, approximately 46% of adults
at least 25 years of age in this area have a bachelors degree or higher, compared to approximately 27% nationally. As of June 30, 2006, total deposits in this area were approximately $145 billion.

Our headquarters is located approximately 20 miles west of Washington, D.C., in Reston, Virginia, which is in Fairfax County. The 2005 U.S. Census data
indicates that Fairfax County is the most populous county in



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Virginia with a population of approximately one million people and a median household income of over $82,000. The U.S. Census data shows that over 55% of
Fairfax County adults at least 25 years old have a bachelors degree or higher.

Competition

Our headquarters is in the Reston-Herndon market area where there is a limited community bank presence. It is a community serviced by the branches of
large regional banks that are headquartered, for the most part, in cities outside the Washington D.C. Metropolitan area. Our market area is a highly competitive, highly branched banking market. We compete as a financial intermediary with other
commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Fairfax
County market area and elsewhere.

Competition in the market area for loans to small businesses and professionals is intense, and pricing
is important. Most of our competitors have substantially greater resources than Millennium. Many competitors offer services, such as extensive branch networks and trust services, we currently do not provide. Moreover, larger institutions operating
in the Northern Virginia market have access to borrowed funds at lower costs than are available to the Bank. Deposit competition among institutions in the market area also is strong. As a result, it is possible that we will pay above-market rates to
attract deposits. According to a market share report prepared by the FDIC, we held 0.61% of deposits in the Fairfax County market as of June 30, 2006, the most recent date for which market share information is available.

Credit Policies

The principal risk associated with
each of the categories of loans in Millenniums portfolio is the creditworthiness of its borrowers. Within each category, credit risk is increased or decreased, depending on prevailing economic conditions. In an effort to manage the risk of
loans made, our policy gives loan approval limits to individual officers based on their position and experience. Loans that are held for sale are underwritten to investor guidelines. All fixed rate residential first mortgage loans are pre-sold prior
to settlement on the loan.

Millennium Bank has written policies and procedures to help manage credit risk. We have implemented a loan
review process that includes portfolio management strategy, underwriting standards and risk assessment guidelines, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure
and to ascertain compliance with the Banks policies.

Millennium Bank uses an Officers Loan Committee and Directors Loan Committee to
approve loans. The Officers Loan Committee, which consists of the Chairman and additional officers, meets as necessary to review most applications for loans that are intended to be held in the portfolio. A Directors Loan Committee, which currently
consists of six directors, approves loans in excess of $1,000,000 that have been previously approved by the Officers Loan Committee. The Directors Loan Committee also reviews lending policies proposed by management.

We obtain small business and commercial loans through direct solicitation of owners and continued business from customers. The Banks loan officers
review completed commercial loan applications. As part of the application process, information is obtained concerning the income, financial condition, employment and credit history of the applicant. If commercial real estate is involved, information
is also obtained concerning cash flow after debt service. Loan quality is analyzed based on the Banks experience and its credit underwriting guidelines, as well as guidelines issued by the Office of the Comptroller of the Currency.

In the normal course of business, the Bank makes various commitments and incurs certain contingent liabilities, which are disclosed in the footnotes
of its annual financial statements, including commitments to extend credit. At December 31, 2006, commitments to extend credit totaled $63.8 million and standby letters of credit totaled $1.2 million.



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Commercial Lending

General. Commercial business loans and commercial real estate loans generally have a higher degree of risk than residential mortgage loans, but have commensurately higher yields. To manage these risks, we
generally secure appropriate collateral, obtain personal guarantees from principals, and monitor the financial condition of our business borrowers. The availability of funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself. Further, the collateral for commercial business loans may depreciate over time and cannot be appraised with as much precision as residential real estate. At December 31, 2006, commercial loans
totaled $144.0 million, or 48.2% of the total loan portfolio.

We have implemented a credit review and monitoring system to review the
cash flow of commercial borrowers. Residential mortgage loans generally are made on the basis of the borrowers ability to make repayment from his/her employment and other income and are secured by real estate, the value of which tends to be
easily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrowers ability to make repayment from cash flow from its business and are secured by assets, such as commercial real estate, accounts
receivable, equipment and inventory.

Real Estate Loans.Commercial real estate loans may be secured by various types of commercial
real estate in Millenniums market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers, and churches. In its underwriting of commercial real estate, the Bank may lend up to 80% of the
secured propertys appraised value. The Banks commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrowers creditworthiness and prior credit history and reputation, and
generally requires personal guarantees or endorsements of borrowers. At December 31, 2006, commercial real estate loans totaled $125.5 million, or 42.0% of the total loan portfolio.

Construction Loans.Our loan policy allows for local construction loans, primarily to individual small builders on a limited basis. At
December 31, 2006, there was $55.2 million in construction and land development loans outstanding in the commercial real estate loan portfolio. The Bank will obtain a first lien on the property as security for its construction loans and
personal guarantees from the borrowers principal owners.

Small Business Lending. Today, the principal activity of the
Banks commercial loan division is the origination of commercial mortgage and non-mortgage loans to small and medium sized businesses. We regularly use various loan guarantee programs offered through the Small Business Administration, including
the 504 loan program, which is intended to help small and medium sized businesses avoid large down payments and floating interest rates that are typically associated with purchases of fixed assets used to expand operations. Whenever possible, the
504-loan program provides long-term and fixed rate financing for investment in fixed assets, primarily real estate and large/heavy equipment. At December 31, 2006, Small Business Administration loans totaled approximately $16.2 million.

One-to-Four-Family Residential Real Estate Lending

We may retain in our portfolio loans secured by one-to-four-family residences, some of which are located in our market area. We also may retain non-conforming adjustable rate mortgages for consumers that do not reside
in our market area.

We evaluate both the borrowers ability to make principal and interest payments and the value of the property
that will secure the loan. We make first mortgage loans in amounts of up to 100% LTV of the appraised value of the underlying real estate, but retain in our portfolio some loans with an 80% LTV or less appraised value. We retain some second mortgage
loans secured by property in various market areas. Second mortgage loans with a loan to value ratio over 95% are underwritten to institutional investor guidelines. For conventional loans in excess of 80% loan to value, private mortgage insurance is
secured insuring the mortgage loans to 75% loan to value.

Our current one-to-four-family residential adjustable rate mortgage loans have
interest rates that adjust every 1, 3, 5, or 7 years, based on a spread over the rates on one-year U.S. Treasury bills. Millenniums adjustable rate mortgage loans generally limit interest rate increases to 2% each rate adjustment period and
have an established ceiling rate at the time the loans are made of up to 6% over the original interest rate. Borrowers are qualified at the first year interest rate plus 2%. There are risks resulting from increased costs to a borrower as a result of
the periodic repricing mechanisms of these loans. Despite the benefits of adjustable rate mortgage loans to an



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institutions asset/liability management, they pose additional risks, primarily because as interest rates rise, the underlying payments by the borrowers
rise, increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. We minimize these risks by underwriting these loans to be sold in the secondary mortgage
market.

Millennium requires title opinions and fire and casualty insurance coverage, as well as title insurance and flood insurance where
appropriate, to protect Millenniums interest. The borrower pays the cost of this insurance coverage. We typically require escrows for taxes and insurance.

Consumer Lending

Millennium offers various secured and unsecured consumer loans, including unsecured personal loans and
lines of credit, automobile loans, deposit account loans, installment and demand loans, letters of credit, home equity loans and beginning in 2006, marine loans. Such loans are generally made to customers with a pre-existing relationship with
Millennium or to new customers in the greater Washington, D.C. area including Maryland and Virginia. Marine loans are also originated through a channel of approved dealers and brokers.

Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of unsecured consumer loans, such as lines of credit,
or loans secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. The underwriting standards employed by the Bank for consumer loans include a determination of the applicants payment history on other debts and an assessment of ability to meet existing obligations
and payments on the proposed loan. The stability of the applicants monthly income may be determined by verification of gross monthly income for primary employment, and additionally from any verifiable secondary income. Although
creditworthiness of the applicant is of primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount. Only fiberglass hull power boats and sail boats are considered
under the marine lending program.

Employees

At December 31, 2006, Millennium had 78 full-time equivalent employees. None of our employees are represented by a collective bargaining unit or union. Millennium believes that its relations with employees are satisfactory.

Supervision and Regulation

General.As a financial holding company, we are subject to regulation under the Bank Holding Company Act of 1956, as amended, and the examination and reporting requirements of the Board of Governors of the Federal Reserve System. Other federal and state
laws govern the activities of our bank subsidiary, including the activities in which it may engage, the investments that it makes, the aggregate amount of loans that it may grant to one borrower, and the dividends it may declare. These laws are
intended primarily to protect depositors and customers of the Bank, not shareholders of Millennium. Our bank subsidiary is also subject to various consumer and compliance laws. As a national bank, Millennium Bank is subject to primary regulation,
supervision and examination by the Office of the Comptroller of the Currency.

The following description summarizes the significant federal
and state laws applicable to us. To the extent that statutory or regulatory provisions are described, the description is qualified in its entirety by reference to that particular statutory or regulatory provision.

The Bank Holding Company Act.Under the Bank Holding Company Act, we are subject to periodic examination by the Federal Reserve and
required to file periodic reports regarding our operations and any additional information that the Federal Reserve may require. The activities of a bank holding company are generally limited to:



| |  |  | banking, managing or controlling banks;
| | - |  | ---------------------------------------



| |  |  | furnishing services to or performing services for our subsidiaries; and
| | - |  | -----------------------------------------------------------------------



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| |  |  | engaging in other activities that the Federal Reserve has determined by regulation or order to be so closely related to banking as to be a proper incident to these
activities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Some of the activities that the Federal Reserve Board has determined by regulation to be closely related to
the business of banking include making or servicing loans and specific types of leases, performing specific data processing services and acting in some circumstances as a fiduciary or investment or financial adviser.

Under the Gramm-Leach-Bliley Act, which is discussed in more detail below, a bank holding company that satisfies certain criteria may elect to become a
financial holding company and engage in a broader range of activities. With some limited exceptions, the Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:



| |  |  | acquiring substantially all the assets of any bank;
| | - |  | ---------------------------------------------------



| |  |  | acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting
shares of such bank (unless it already owns or controls the majority of such shares); or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | merging or consolidating with another bank holding company.
| | - |  | -----------------------------------------------------------

In addition, and subject to some exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with their regulations, require Federal Reserve approval prior to any person or company acquiring
control of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a
person acquires 10% or more, but less than 25%, of any class of voting securities and if the institution has registered securities under Section 12 of the Securities Exchange Act of 1934 or no other person owns a greater percentage of that
class of voting securities immediately after the transaction. The regulations provide a procedure for challenging this rebuttable control presumption.

Gramm-Leach Bliley Act. The Gramm-Leach-Bliley Act of 1999 was signed into law on November 12, 1999. The GLBA covers a broad range of issues, including a repeal of most of the restrictions on affiliations
among depository institutions, securities firms and insurance companies. The following description summarizes some of its significant provisions.

The GLBA repeals sections 20 and 32 of the Glass-Steagall Act, thus permitting unrestricted affiliations between banks and securities firms. It also permits bank holding companies to elect to become financial holding companies. A financial
holding company may engage in or acquire companies that engage in a broad range of financial services, including securities activities such as underwriting, dealing, investment, merchant banking, insurance underwriting, sales and brokerage
activities. In order to become a financial holding company, the bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed and have at least a satisfactory Community Reinvestment Act rating. We
became a financial holding company after the MOU was lifted in April 2004.

The GLBA provides that the states continue to have the
authority to regulate insurance activities, but prohibits the states in most instances from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage in insurance sales, solicitations or
cross-marketing activities. Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in specific
areas identified under the law. Under the new law, the federal bank regulatory agencies adopted insurance consumer protection regulations that apply to sales practices, solicitations, advertising and disclosures.

The GLBA adopts a system of functional regulation under which the Federal Reserve Board is designated as the umbrella regulator for financial holding
companies, but financial holding company affiliates are principally regulated by functional regulators such as the OCC for national bank affiliates, the Securities and Exchange Commission for securities affiliates, and state insurance regulators for
insurance affiliates. It repeals the broad exemption of banks from the definitions of broker and dealer for purposes of the Securities Exchange Act of 1934, as amended. It also identifies a set of specific activities,
including traditional bank trust and fiduciary



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activities, in which a bank may engage without being deemed a broker, and a set of activities in which a bank may engage without being deemed a
dealer. Additionally, the law makes conforming changes in the definitions of broker and dealer for purposes of the Investment Company Act of 1940, as amended, and the Investment Advisers Act of 1940, as amended.

The GLBA contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its
customers, both at the inception of the customer relationship and on an annual basis, the institutions policies and procedures regarding the handling of customers nonpublic personal financial information. The law provides that, except
for specific limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the
opportunity to opt out of such disclosure. An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes. The GLBA
also provides that the states may adopt customer privacy protections that are more strict than those contained in the act.

Payment of
Dividends.We are a legal entity separate and distinct from our banking and other subsidiaries. Virtually all of our revenues will result from dividends paid to us by our bank subsidiary, Millennium Bank. Our bank subsidiary is subject to
laws and regulations that limit the amount of dividends that it can pay. Under the National Bank Act, a national bank may not declare a dividend in excess of its undivided profits, which means that Millennium Bank must recover any accumulated losses
before it may pay a dividend to us. Additionally, Millennium Bank may not declare a dividend to us if the total amount of all dividends, including the proposed dividend, declared by it in any calendar year exceeds the total of its retained net
income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the OCC. Millennium Bank may not declare or pay any dividend if, after making the dividend, the national bank would be
undercapitalized, as defined in the federal regulations.

Both the OCC and the FDIC have the general authority to limit the
dividends paid by national banks and insured banks if the payment is deemed an unsafe and unsound practice. Both the OCC and the FDIC have indicated that paying dividends that deplete a banks capital base to an inadequate level would be an
unsound and unsafe banking practice.

In addition, we are subject to certain regulatory requirements to maintain capital at or above
regulatory minimums. These regulatory requirements regarding capital affect our dividend policies. The Federal Reserve has indicated that a bank holding company, generally, should pay dividends only if its net income available to common shareholders
over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organizations capital needs, asset quality and overall financial condition. Virginia law also
imposes some restrictions on our ability to pay dividends. See Item 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities below for more information on these
restrictions.

Insurance of Accounts, Assessments and Regulation by the FDIC.The deposits of our bank subsidiary are insured
by the FDIC up to the limits set forth under applicable law. The deposits of our bank subsidiary are subject to the deposit insurance assessments of the Deposit Insurance Fund, or DIF, of the FDIC. The DIF is the successor to the Bank
Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006.

The FDIC modified its risk-based deposit insurance
assessment system under authority granted by the Federal Deposit Insurance Reform Act of 2005. Under the revised system, insured institutions are assigned to one of four risk categories based on regulatory capital levels, supervisory evaluations,
and certain other factors. Under the new rules, all insured depository institutions will pay deposit insurance premiums, currently ranging between 5 and 7 basis points on an institutions assessment base for institutions in risk category 1, the
healthiest institutions, to 43 basis points on an institutions assessment base for the riskiest institutions. These rates may be adjusted uniformly from one quarter to the next, except that no single adjustment can exceed 3 basis points. In
addition to being influenced by the risk profile of the particular depository institution, FDIC premiums are also influenced by the size of the FDIC insurance fund in relation to the designated reserve ratio range. If the reserve ratio falls below
1.15 percent, or is expected to within 6 months, the FDIC must adopt a restoration plan that provides that the DIF will return to 1.15 percent within 5 years. If the reserve ratio exceeds 1.35%, the FDIC may pay dividends to insured institutions.



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The FDIC is authorized to prohibit any DIF-insured institution from engaging in any activity that the
FDIC determines by regulation or order to pose a serious threat to the insurance fund. Also, the FDIC may initiate enforcement actions against banks, after first giving the institutions primary regulatory authority an opportunity to take such
action. The FDIC may terminate the deposit insurance of any depository institution if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, order or any condition imposed in writing by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the deposits at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years, as determined
by the FDIC. We are not aware of any existing circumstances that could result in termination of any of our bank subsidiarys deposit insurance.

Capital Requirements.Each of the OCC and the Federal Reserve Board has issued risk-based and leverage capital guidelines applicable to banking organizations that it supervise. Under the risk-based
capital requirements, we and our bank subsidiary are each generally required to maintain a minimum ratio of total capital to risk-weighted assets (including specific off-balance sheet activities, such as standby letters of credit) of 8%. At least
half of the total capital must be composed of Tier 1 Capital, which is defined as common equity, retained earnings, qualifying perpetual preferred stock and minority interest in common equity accounts of consolidated subsidiaries, less
certain intangibles. The remainder may consist of Tier 2 Capital, which is defined as specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock and a limited amount of the loan loss allowance and
pretax net unrealized holding gains on certain equity securities. In addition, each of the federal banking regulatory agencies has established minimum leverage capital requirements for banking organizations. Under these requirements, banking
organizations must maintain a minimum ratio of Tier 1 capital to adjusted average quarterly assets equal to 3% to 5%, subject to federal bank regulatory evaluation of an organizations overall safety and soundness. In sum, the capital measures
used by the federal banking regulators are:



| |  |  | the Total Risk-Based Capital ratio, which is the total of Tier 1 Risk-Based Capital and Tier 2 Capital;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the Tier 1 Risk-Based Capital ratio; and
| | - |  | ----------------------------------------



| |  |  | the leverage ratio.
| | - |  | -------------------

Under these
regulations, a national bank will be:



| |  |  | well capitalized if it has a Total Risk-Based Capital ratio of 10% or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater, a leverage ratio
of 5% or greater, and is not subject to any written agreement, order, capital directive, or prompt corrective action directive by a federal bank regulatory agency to meet and maintain a specific capital level for any capital measure;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adequately capitalized if it has a Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital ratio of 4% or greater, and a
leverage ratio of 4% or greateror 3% in certain circumstancesand is not well capitalized;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | undercapitalized if it has a Total Risk-Based Capital ratio of less than 8%, a Tier 1 Risk-Based Capital ratio of less than 4% (or 3% in certain
circumstances), or a leverage ratio of less than 4% (or 3% in certain circumstances).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significantly undercapitalized if it has a Total Risk-Based Capital ratio of less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3%, or a
leverage ratio of less than 3%; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | critically undercapitalized if its tangible equity is equal to or less than 2% of tangible assets.
| | - |  | ----------------------------------------------------------------------------------------------------

The risk-based capital standards of each of the OCC and the Federal Reserve Board explicitly identify concentrations of credit risk and the risk arising
from non-traditional activities, as well as an institutions ability to manage these risks, as important factors to be taken into account by the agency in assessing an institutions overall capital adequacy. The capital guidelines also
provide that an institutions exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organizations capital adequacy.



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The OCC and the FDIC may take various corrective actions against any undercapitalized bank and any bank
that fails to submit an acceptable capital restoration plan or fails to implement a plan accepted by the OCC or the FDIC. These powers include, but are not limited to, requiring the institution to add capital, prohibiting asset growth, restricting
interest rates paid, requiring prior approval of capital distributions by any bank holding company that controls the institution, requiring divestiture by the institution of its subsidiaries or by the holding company of the institution itself,
requiring new election of directors, and requiring the dismissal of directors and officers. Our bank subsidiary presently maintains sufficient capital to remain in compliance with these capital requirements.

Other Safety and Soundness Regulations.There are a number of obligations and restrictions imposed on bank holding companies and their
depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event that the depository
institution is insolvent or is in danger of becoming insolvent. These obligations and restrictions are not for the benefit of investors. Regulators may pursue an administrative action against any bank holding company or national bank, which violates
the law, engages in an unsafe or unsound banking practice or which is about to engage in an unsafe and unsound banking practice. The administrative action could take the form of a cease and desist proceeding, a removal action against the responsible
individuals or, in the case of a violation of law or unsafe and unsound banking practice, a civil money penalty action. A cease and desist order, in addition to prohibiting certain action, could also require that certain action be undertaken. Under
the policies of the Federal Reserve Board, we are required to serve as a source of financial strength to our subsidiary depository institution and to commit resources to support the bank in circumstances where we might not do so otherwise.

Interstate Banking and Branching.Current federal law authorizes interstate acquisitions of banks and bank holding companies
without geographic limitation. Effective June 1, 1997, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states had opted out of such interstate merger authority prior
to such date. For example, as a bank headquartered in Virginia, we may acquire a bank in Maryland, but we cannot simply establish a branch in Maryland. After a bank has acquired a branch in a state through an interstate merger transaction, the bank
may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law.

Monetary Policy.The commercial banking business is affected not only by general economic conditions but also by the monetary policies of
the Federal Reserve Board. The instruments of monetary policy employed by the Federal Reserve Board include open market operations in United States government securities, changes in the discount rate on member bank borrowing and changes in reserve
requirements against deposits held by all federally insured banks. The Federal Reserve Boards monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the
future. In view of changing conditions in the national and international economy and in the money markets, as well as the effect of actions by monetary fiscal authorities, including the Federal Reserve Board, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or the business and earnings of our bank subsidiary.

Federal Reserve
System.In 1980, Congress enacted legislation that imposed reserve requirements on all depository institutions that maintain transaction accounts or nonpersonal time deposits. NOW accounts, money market deposit accounts and other types of
accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to these reserve requirements, as are any nonpersonal time deposits at an institution. For net transaction accounts in
2007, the first $8.5 million will be exempt from reserve requirements. A 3% reserve ratio will be assessed on net transaction accounts over $8.5 million up to and including $45.8 million. A 10% reserve ratio will be applied to amounts in net
transaction accounts in excess of $45.8 million. These percentages are subject to adjustment by the Federal Reserve Board. Because required reserves must be maintained in the form of vault cash or in a non-interest-bearing account at, or on behalf
of, a Federal Reserve Bank, the effect of the reserve requirement is to reduce the amount of the institutions interest-earning assets.

Transactions with Affiliates.Transactions between banks and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve Boards Regulation W. An affiliate of a bank is any
bank or entity that controls, is controlled by or is under common control with such bank. Generally, Section 23A



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(i) limits the extent to which the bank or its subsidiaries may engage in covered transactions with any one affiliate to an amount equal to
10% of such institutions capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) requires that all such transactions be on
terms substantially the same, or at least as favorable, to the bank as those provided to a nonaffiliate. The term covered transaction includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of
transactions. Section 23B applies to covered transaction as well as sales of assets and payments of money to an affiliate. These transactions must also be conducted on terms substantially the same, or at least as favorable, to the
bank as those provided to nonaffiliates.

Loans to Insiders.The Federal Reserve Act and related regulations impose specific
restrictions on loans to directors, executive officers and principal shareholders of banks. Under Section 22(h) of the Federal Reserve Act and the Federal Reserve Boards Regulation O, any loan to a director, an executive officer and to a
principal shareholder of a bank, and to entities controlled by any of the foregoing, may not exceed, together with all other outstanding loans to such person and the entities controlled by such person, the banks loan-to-one borrower limit.
Loans in the aggregate to insiders and their related interests as a class may not exceed two times the banks unimpaired capital and unimpaired surplus until the banks total assets equal or exceed $100,000,000, at which time the aggregate
is limited to the banks unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal shareholders of a
bank or bank holding company, and to entities controlled by such persons, unless such loans are approved in advance by a majority of the board of directors of the bank with any interested director not participating in the voting. For
Millennium Bank, the loan amount, which includes all other outstanding loans to such person, as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus (up to $500,000). Section 22(h)
requires that loans to directors, executive officers and principal shareholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.

Community Reinvestment Act.Under the Community Reinvestment Act and related regulations, depository institutions have an affirmative
obligation to assist in meeting the credit needs of their market areas, including low and moderate-income areas, consistent with safe and sound banking practice. The Community Reinvestment Act requires the adoption by each institution of a Community
Reinvestment Act statement for each of its market areas describing the depository institutions efforts to assist in its communitys credit needs. Depository institutions are periodically examined for compliance with the Community
Reinvestment Act and are periodically assigned ratings in this regard. Banking regulators consider a depository institutions Community Reinvestment Act rating when reviewing applications to establish new branches, undertake new lines of
business, and/or acquire part or all of another depository institution. An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution
subsidiaries.

The Gramm-Leach-Bliley Act and federal bank regulators have made various changes to the Community Reinvestment Act. Among
other changes, Community Reinvestment Act agreements with private parties must be disclosed and annual reports must be made to a banks primary federal regulator. A bank holding company will not be permitted to become a financial holding
company and no activities authorized under the GLBA may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory rating in its latest Community Reinvestment Act
examination.

Fair Lending; Consumer Laws.In addition to the Community Reinvestment Act, other federal and state laws
regulate various lending and consumer aspects of the banking business. Governmental agencies, including the Department of Housing and Urban Development, the Federal Trade Commission and the Department of Justice, have become concerned that
prospective borrowers experience discrimination in their efforts to obtain loans from depository and other lending institutions. These agencies have brought litigation against depository institutions alleging discrimination against borrowers. Many
of these suits have been settled, in some cases for material sums, short of a full trial.

Recently, these governmental agencies have
clarified what they consider to be lending discrimination and have specified various factors that they will use to determine the existence of lending discrimination under the Equal Credit Opportunity Act and the Fair Housing Act, including evidence
that a lender discriminated on a prohibited basis, evidence that a lender treated applicants differently based on prohibited factors in the absence of evidence that the treatment was the result of prejudice or a conscious intention to discriminate,
and evidence that a lender applied an otherwise neutral non-discriminatory policy uniformly to all applicants, but the practice had a discriminatory effect, unless the practice could be justified as a business necessity.



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Banks and other depository institutions also are subject to numerous consumer-oriented laws and
regulations. These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, and the Fair Housing Act, require compliance
by depository institutions with various disclosure requirements and requirements regulating the availability of funds after deposit or the making of some loans to customers.

USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks in New York, Pennsylvania
and Washington, D.C., which occurred on September 11, 2001. The Patriot Act is intended to strengthen the ability of U.S. law enforcement agencies and the intelligence communities to work cohesively to combat terrorism on a variety of fronts.
The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including
standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Future Regulatory Uncertainty

Because
federal regulation of financial institutions changes regularly and is the subject of constant legislative debate, we cannot forecast how federal regulation of financial institutions may change in the future and impact our operations. Although
Congress in recent years has sought to reduce the regulatory burden on financial institutions with respect to the approval of specific transactions, we fully expect that the financial institution industry will remain heavily regulated in the near
future and that additional laws or regulations may be adopted further regulating specific banking practices.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Associated with Millennium

Wind down of mortgage operations and subsequent disposition of remaining held for sale loans and repurchase obligations could
result in additional losses over and above amounts already reserved.

We determined that it was in our best interest to wind down
our mortgage operating subsidiaries as of December 31, 2006 due, in part, to credit quality issues that surfaced in the subprime sector of our held for sale portfolio during the fourth quarter 2006. The subprime sector of the held for sale portfolio
included loans that carried a higher level of risk because the loans were made to individuals who would not otherwise qualify for traditional loan products. At year end we established reserves of $3.0 million associated with the remaining loans held
for sale from these operations and reserves of $2.9 million associated with potential repurchase exposure on loans already sold to investors. While management believes it has isolated and identified its loss exposure at December 31, 2006, there is
inherent imprecision in the estimation of losses and therefore there can be no assurance that additional reserves may not be required in future periods. The effects of an economic slowdown, continued softness in the housing market, rising interest
rates and events that affect specifically the geographic areas in which the loans are made are all factors that could increase the loss exposure and could result in additional losses reflected in the operating results of future periods.

Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on our results of operation and
financial condition.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and
effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal control
we may discover material weaknesses or significant deficiencies in our internal control as defined under standards adopted by the Public Company Accounting Oversight Board that require remediation.

As of December 31, 2006, we determined that it was in our best interest to wind down our mortgage operating subsidiaries. It was our desire to focus
exclusively on core banking activities going forward to eliminate, going forward, the risks normally associated with mortgage banking activities. The wind down decision was also precipitated by credit quality issues that surfaced in the held for
sale loan portfolio during the fourth quarter. As a result, in connection with the evaluation of our disclosure controls and procedures as of December 31, 2006, we determined that there was a material weakness in our internal control over financial
reporting as of that date arising from our inability to identify promptly these credit quality issues. Under the PCAOB standards, a material weakness is a control deficiency, or combination of control deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. We have provided additional information on this material weakness, including our remediation of it, in Item 9A.
Controls and Procedures of this report on Form 10-K.

We cannot make any assurances that other internal or disclosure control
deficiencies might not be identified. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could, among other things, result in losses from fraud or error, harm our reputation
or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operation and financial condition.

A large percentage of our loans are secured by real estate, and an adverse change in the real estate market may result in losses and adversely
affect our profitability.

Approximately 89% of our loan portfolio, as of December 31, 2006 was comprised of loans secured by
real estate. In addition, loans held for sale of $37.7 million at December 31, 2006 consist of loans secured by residential real estate. An adverse change in the economy affecting values of real estate generally or in our market areas
specifically could impair the value of our collateral and our ability to sell the collateral upon foreclosure. In the event of a default with respect to any of these loans, the amounts we receive upon sale of the collateral may be insufficient to
recover outstanding principal and interest on the loan. As a result, our profitability and financial condition could be negatively impacted by an adverse change in the real estate market.

We are dependent on our management team, and the loss of our senior executive officers or other key employees could impair our relationship with
our customers and adversely affect our business and financial results

On April 4, 2007 we announced the hiring of Richard I.
Linhart to succeed Carroll C. Markley as President and Chief Executive Officer. Mr. Linhart previously served as Senior Executive Vice President and Chief Operating Officer for James Monroe Bancorp. He is expected to join us in mid-July 2007.
Dale G. Phelps, our Chief Financial Officer, was appointed to an interim role as President and Chief Executive Officer until Mr. Linharts arrival. Mr. Phelps has over 29 years of experience in the financial services industry.
Concurrently, John F. Novak was appointed to serve as Chief Operating Officer until Mr. Linharts arrival. Mr. Novak has over 38 years of experience in the financial services industry. Our success is dependent upon the continued
service and skills of these individuals as well as other senior officers. The unexpected loss of services of one or more of these key personnel could have an adverse impact on our business because of their skills, knowledge of our market, years of
industry experience and the difficulty of promptly finding qualified replacement personnel.



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Our business is subject to interest rate risk and fluctuations in interest rates may adversely
affect our earnings and capital levels.

The majority of our assets are monetary in nature and, as a result, we are subject to
significant risk from changes in interest rates. Changes in interest rates can impact our net interest income as well as the valuation of our assets and liabilities. Our earnings are significantly dependent on our net interest income, which is the
difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience gaps in
the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if
market interest rates should move contrary to our position, this gap will work against us and our earnings may be negatively affected.

An increase in the general level of interest rates may also, among other things, reduce the demand for loans and our ability to originate loans. Conversely, a decrease in the general level of interest rates, among other things, may lead to
an increase in prepayments on our loans and increased competition for deposits. Accordingly, changes in the general level of market interest rates affect our net yield on interest-earning assets, loan origination volume, loan portfolios and our
overall results.

Although our asset-liability management strategy is designed to control our risk from changes in the general level of
market interest rates, market interest rates are affected by many factors outside of our control, including inflation, recession, changes in unemployment, money supply and international disorder and instability in domestic and foreign financial
markets. It is quite possible that significant changes in interest rates may take place in the future, and we cannot always accurately predict the nature or magnitude of such changes or how such changes may affect our business.

Market conditions may adversely affect our ability to continue to rely on brokered deposits as a source of funds and cause us to seek alternative
sources that may not be on terms favorable to us.

We solicit deposits from brokers because our banking offices do not attract
enough deposits to fund all of the loans that we make. These brokered deposits represent funds that brokers gather from third parties and package in batches in order to find higher interest rates than are typically available for
certificates of deposits with large balances, as compared to individually deposited smaller denomination deposits. Deposit holders then earn a higher rate on the money that they have invested, and the broker charges a fee for its service. Brokered
deposits are available in bulk, and they do not require any investments in branch offices or branch personnel or spending for marketing or education of employees. At December 31, 2006, $74.2 million of our deposits were brokered deposits. The
weighted average interest rate on our brokered deposits was 5.09% at December 31, 2006.

Brokered deposits are normally more costly
than traditional core deposits, as they carry a higher blended interest rate. If market conditions change, brokers may transfer deposited funds from us into other investments or demand higher interest rates for new deposits. Moreover, brokers
operate in a national market and will place funds with banks that offer to pay the highest interest rates. Unlike businesses and individuals who bank with us in our market, there is no basis for a business relationship with deposit brokers that
would provide a stable deposit base. There is a higher likelihood that, unlike deposits from our local customers, the funds that brokered deposits provide us will not remain with us after maturity.

We could be confronted with the choice of curtailing our lending activity or paying above market interest rates in order to attract and retain deposits.
Either action could reduce our net income. Any inability to keep our deposit growth on pace with the growth in our loan portfolio may affect our net income. In this situation, we may need to obtain alternative sources of funding, which may or may
not be available to us on terms that we would consider favorable.

Government regulations may adversely affect our ability to
continue to rely on brokered deposits as a source of funds and cause us to curtail our mortgage banking business.

Federal Deposit
Insurance Corporation regulations could affect our ability to continue to accept brokered deposits. A well-capitalized bank (one that significantly exceeds specified capital ratios) may accept brokered deposits without restriction. Undercapitalized
banks (those that fail to meet minimum regulatory capital



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requirements) may not accept brokered deposits, and adequately capitalized banks (those that are not well-capitalized or undercapitalized) may only accept
such deposits with the consent of the FDIC. Millennium Bank currently is well-capitalized and, therefore, may accept brokered deposits without restriction. If, as a result of rapid asset growth or unanticipated losses, Millennium Bank ceased to be
well-capitalized, the FDIC might not permit it to maintain its desired level of brokered deposits. If it were required to reduce its level of brokered deposits, Millennium Bank also would have to reduce its assets and, most likely, curtail its
mortgage banking business. Any reduction could have an adverse effect on our revenues.

Our profitability depends significantly on
local economic conditions.

Our success depends primarily on the general economic conditions of the geographic markets in which we
operate. Unlike larger banks that are more geographically diversified, we provide banking and financial services to customers primarily in the northern Virginia and Richmond, Virginia area. The local economic conditions in these areas have a
significant impact on our commercial, real estate and construction loans, the ability of our borrowers to repay their loans and the value of the collateral securing these loans. A significant decline in general economic conditions, caused by
inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic calamities, unemployment or other factors could impact these local economic conditions and negatively affect our financial results.

We could be subject to environmental risks and associated costs on our foreclosed real estate assets.

A significant portion of our loan portfolio is secured by real property. There is a risk that hazardous or toxic waste could be found on the properties
that secure our loans. If we acquire such properties as a result of foreclosure, we could be held responsible for the cost of cleaning up or removing this waste, and this cost could exceed the value of the underlying properties and adversely affect
our profitability. Although we have policies and procedures that require us to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental
hazards.

Our allowance for loan losses may not be sufficient to cover actual loan losses, which could adversely affect our earnings.

We are exposed to the risk that our loan customers may not repay their loans according to the terms of these loans and the
collateral securing the payment of these loans may be insufficient to fully compensate the bank for the outstanding balance of the loan plus the costs to dispose of the collateral. We may experience significant loan losses, which could have a
material adverse effect on our operating results and financial condition. Management makes various assumptions and judgments about the collectibility of our loan portfolio, including the diversification by industry of our commercial loan portfolio,
the effect of changes in the local real estate market on collateral values, the results of recent regulatory examinations, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers, the amount of
charge-offs for the period, the amount of nonperforming loans and related collateral security, and the evaluation of our loan portfolio by the external loan review.

We maintain an allowance for loan losses in an attempt to cover loan losses inherent in our loan portfolio. Additional loan losses will likely occur in the future and may occur at a rate greater than we have
experienced to date. In determining the size of the allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be
sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Material additions to the allowance would materially decrease net income.

In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses
or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a material negative effect on our
operating results and financial condition.



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Our small to medium-sized business target market may have fewer financial resources to weather a
downturn in the economy.

We target our business development and marketing strategy primarily to serve the banking and financial
services needs of small to medium-sized businesses. These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. If general economic conditions negatively impact the
central and northern Virginia area or the other markets in which we operate, our results of operations and financial condition may be negatively affected.

An interruption in or breach in security of our information systems may result in a loss of customer business.

We rely heavily on communications and information systems to conduct our business. Any failure or interruption or breach in security of these systems could result in failures or disruptions in our customer
relationship management, general ledger, deposits, servicing or loan origination systems. We cannot assure you that such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us. The occurrence of
any failures or interruptions could result in a loss of customer business and have a negative effect on our results of operations and financial condition.

Our growth strategy may not be successful, and that could have an adverse effect on the value of your common stock.

Our business strategy calls for us to take advantage of our existing investments in facilities and personnel by growing in our existing banking market and expanding into new markets if appropriate opportunities arise.
We may not be successful in increasing the volume of our loans and deposits at acceptable risk levels and on acceptable terms, in expanding our asset base to a targeted size, or in managing the costs and implementation risks associated with our
growth strategy. Even if we successfully increase our capital, increasing the volume of our loans will require that we be able to fund that increase through additional deposits we accept in our market or through brokers, or through other funding
sources, such as borrowings. In addition, we may not be able to maintain capital sufficient to support our continued growth and may not be able to fund any particular amount of increase in our loans.

If we need additional capital in the future, we may not be able to obtain it on terms that are favorable, which may limit our growth.

We anticipate that we will support our growth strategy through additional deposits at new branch locations and investment
opportunities. It is possible that we may need to raise additional capital to support our future growth. Our ability to raise capital through borrowings or the sale of securities will depend primarily upon our financial condition and the conditions
of financial markets at the time. We cannot make any assurance that additional capital would be available on terms satisfactory to us or at all. The failure to raise additional capital on terms that are favorable to us or at all may force us to
limit our growth strategy.

Risks Associated With Our Industry

We face strong competition from other financial institutions and financial service companies, which could adversely affect our operations and financial condition.

We face vigorous competition from banks and other financial institutions, including savings and loan associations, savings banks, finance companies and
credit unions. A number of these banks and other financial institutions have substantially greater resources and lending limits, larger branch systems and a wider array of banking services than we do. We also compete with other providers of
financial services, such as money market mutual funds, brokerage firms, consumer finance companies, insurance companies and governmental organizations, each of which may offer more favorable financing than we are able to provide. Some of our nonbank
competitors are not subject to the same extensive regulations that govern us. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our results of operations and financial condition.



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We operate in a highly regulated environment and, as a result, are subject to extensive regulation
and supervision that could adversely affect our financial performance, and we may be adversely affected by changes in federal and local laws and regulations.

We are subject to extensive regulation, supervision and examination by federal and state banking authorities. Any change in applicable regulations or federal or state legislation could have a substantial impact on us,
our subsidiaries, and our operations. Additional legislation and regulations may be enacted or adopted in the future that could significantly affect our powers, authority and operations, or the powers, authority and operations of Millennium Bank,
which could have a material adverse effect on our financial condition and results of operations. Further, regulators have significant discretion and power to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank
holding companies in the performance of their supervisory and enforcement duties. The exercise of this regulatory discretion and power may have a negative impact on us.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not applicable



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|ITEM 2. | PROPERTIES
|------- | ----------

Millennium conducts its
business from its main office in Reston, Virginia, six other branch banking offices and one loan production office. Majority owned subsidiaries occupy space that is not an obligation of Millennium and contractually provided by the minority owner.
The following table provides certain information with respect to our properties:



|                                                    |  |                     |  |                                                                                                                                                                                                                                   
|--------------------------------------------------- |  | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Location                                            |  | DateFacility Opened |  | Ownership and Leasing Arrangements                                                                                                                                                                                                
|Main Office: 1601 Washington Plaza Reston, Virginia |  | 1999                |  | Leased from 1601 Washington Plaza, LLC, a Virginia limited liability company, the members of which are also Millennium shareholders. Lease expires in 2010, subject to Millenniums right
to renew for an additional 10-year term.
|                                                    |  |                    
|Branch Offices:                                     |  |                     |  |                                                                                                                                                                                                                                   
|                                                    |  |                    
|1025-K Seneca Road Great Falls, Virginia            |  | 2001                |  | Lease from Tectum, LLC expires in 2010, subject to Millenniums right to renew for two additional five-year terms.                                                                                                                
|                                                    |  |                    
|1051 Elden Street Herndon, Virginia                 |  | 2001                |  | Leased from 1051 Elden Street, LLC, a Virginia limited liability company, the members of which are also Millennium shareholders. Lease expires in 2013 and has three consecutive five-year
renewal options.                       
|                                                    |  |                    
|11260 Roger Bacon Drive Reston, Virginia            |  | 2002                |  | Leased from Roger Bacon Associates Limited Partnership. Lease expires in 2007 and has four consecutive five-year renewal options.                                                                                                 
|                                                    |  |                    
|8821 West Broad Street Richmond, Virginia           |  | 2002                |  | Leased from individual. Lease expires in 2009 and has two consecutive five-year renewal options.                                                                                                                                  
|                                                    |  |                    
|3400 Boulevard Colonial Heights, Virginia           |  | 2002                |  | Leased from individual. Lease expires in 2007 and has two consecutive five-year renewal options.                                                                                                                                  
|                                                    |  |                    
|11A Main Street Warrenton VA, 20186                 |  | 2004                |  | Leased from Corinth Investments, LLC. Lease expires in 2009 and has five consecutive three year renewal options.                                                                                                                  

We believe that all of our properties are maintained in good operating condition and are suitable
and adequate for our operational needs.



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##### Table of Contents

|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

In the course of our
operations, we may become a party to legal proceedings arising from the banking, financial, and other activities it conducts. Management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material
effect on Millenniums financial condition, operating results or liquidity.

On July 14, 2006, a lawsuit was filed in the Circuit
Court for the City of Alexandria, Virginia by a former management employee of Millennium Capital, Inc., an indirect subsidiary of Millennium, alleging, among other things, that Millennium Capital, Millennium Bank, N.A., a direct wholly owned
subsidiary of Millennium, and Anita L. Shull, the then Executive Vice President and Chief Operating Officer Millennium and President and Chief Operating Officer of Millennium Bank breached certain obligations to the former management employee
related to the terms of his business and compensation arrangements within Millenniums mortgage operations. The former employee further alleged that, during the course of a personal relationship between he and Ms. Shull, she made certain
promises to him regarding his prospective management role with Millennium Capital and that these promises also were not honored. In the lawsuit, the former employee was seeking, among other things, damages in the amount of $3.38 million, including
rescission of an $880,000 personal loan from Millennium Bank to the former employee, and an accounting with respect to amounts allegedly owed him by Millennium Bank and Millennium Capital. The allegations of the former employee, and the existence of
an on-going investigation into these matters by the Board of Directors of Millennium, were previously reported by Millennium in a Current Report on Form 8-K dated June 7, 2006.

At year-end 2006, Millennium reached a settlement in this lawsuit. In response to the lawsuit, Millennium had filed motions to dismiss or
otherwise challenge all of the alleged claims that sought monetary relief. While those motions were pending, the parties reached a settlement under terms that did not result in a material charge to Millennium. The lawsuit was dismissed with
prejudice.



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

Millennium held its Annual Meeting of Shareholders on Thursday, September 28, 2006 in Reston, Virginia. The shareholders elected four directors for terms of three years each and ratified the appointment of Crowe Chizek and Company LLC
as Millenniums independent auditors for 2006.

The votes cast for or withheld for the election of the directors were as follows:



|                    |  |           |  |          
|------------------- |  | --------- |  | ---------
|NAME                |  | FOR       |  | WITHHELD 
|William P. Haggerty |  | 7,930,793 |  | 98,864   
|David M.W. Harvey   |  | 7,921,669 |  | 107,988  
|Carroll C. Markley  |  | 6,055,060 |  | 1,974,597
|Joseph W. Paulini   |  | 7,074,478 |  | 955,179  

The votes cast for, against or abstain for the ratification of the appointment of the firm of
Crowe Chizek and Company LLC as Millenniums independent auditors for 2006 were as follows:



|          |  |         |  |        
|--------- |  | ------- |  | -------
|FOR       |  | AGAINST |  | ABSTAIN
|7,364,316 |  | 81,087  |  | 584,254

There were no matters presented to Millenniums shareholders during the quarter ended
December 31, 2006.



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##### Table of Contents

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Market Prices and Dividends

Our common stock has been
listed for quotation on the Nasdaq Capital Market (formerly known as the Nasdaq Small Cap Market) under the symbol MBVA since February 6, 2002, following our initial public offering at $6.00 per share. As of March 16, 2007, our
common stock was held by 108 shareholders of record and 987 beneficial holders who own shares in street name.

The high and low sale prices
per share for our common stock for each quarter of 2006 and 2005, as well as the amount of cash dividends per share we declared in each quarter, were as follows:



|           |  |      |  |      |  |         
|---------- |  | ---- |  | ---- |  | --------
|           |  | High |  | Low  |  | Dividend
|2006       |  |      |  |      |  |         
|1stQuarter |  | 9.85 |  | 8.40 |  | .02     
|2ndQuarter |  | 9.65 |  | 8.60 |  | .02     
|3rdQuarter |  | 9.29 |  | 8.22 |  | .02     
|4thQuarter |  | 9.35 |  | 8.12 |  | .02     
|           |  |      | 
|2005       |  |      |  |      |  |         
|1stQuarter |  | 9.00 |  | 8.02 |  |        
|2ndQuarter |  | 8.47 |  | 6.50 |  |        
|3rdQuarter |  | 8.00 |  | 7.10 |  |        
|4thQuarter |  | 8.70 |  | 7.14 |  |        

Dividend Policy

Our future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including future consolidated earnings, financial condition, liquidity and capital
requirements of both Millennium and Millennium Bank, applicable governmental regulations and policies and other factors deemed relevant by our board of directors. During the first quarter of 2006, Millennium declared its first quarterly dividend
since it began operations in 1999.

Our ability to distribute cash dividends will depend primarily on the ability of our subsidiary bank to
pay dividends to us. As a national bank, Millennium Bank is subject to certain restrictions on our reserves and capital imposed by federal banking statutes and regulations. Furthermore, under Virginia law, we may not declare or pay a cash dividend
on our capital stock if we are insolvent or if the payment of the dividend would render us insolvent or unable to pay our obligations as they become due in the ordinary course of business. For additional information on these limitations, see
Item 1. Business  Government Supervision and Regulation  Payment of Dividends above.

Stock Repurchases

We did not repurchase any shares of our common stock during any quarter of the year ended December 31, 2006. The Board of Directors approved a stock
repurchase program on April 6, 2007. Under the program, we may repurchase up to 446,314 shares of our common stock, which represents 5% of the outstanding shares of common stock. The executive committee of the Board of Directors will administer
the program, which does not have an expiration date. Any repurchased stock will become authorized and unissued stock available for future issuance by us.



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Stock Performance Graph

Set forth below is a graph comparing the total return of Millennium common stock, The Nasdaq Stock Market index and Nasdaq Bank Stocks index. The graph assumes $100 invested on February 7, 2002 in Millennium
common stock, the first day that Millennium common stock traded on the Nasdaq Stock Market, and each of the indexes, and the reinvestment of dividends.

LOGO





|                                  |  |                                            |  |        |  |        |  |        |  |        |  |       
|--------------------------------- |  | ------------------------------------------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                                  |  | Cumulative Total Return Fore Period Ending
|                                  |  | 2/02                                       |  | 12/02  |  | 12/03  |  | 12/04  |  | 12/05  |  | 12/06 
|MILLENNIUM BANKSHARES CORPORATION |  | 100                                        |  | 100.93 |  | 123.72 |  | 139.53 |  | 134.11 |  | 144.50
|NASDAQ STOCK MARKET               |  | 100                                        |  | 75.62  |  | 113.06 |  | 123.04 |  | 125.66 |  | 138.05
|NASDAQ BANK STOCKS                |  | 100                                        |  | 103.72 |  | 133.43 |  | 152.69 |  | 149.17 |  | 167.41

The Nasdaq Stock Market index consists of all domestic shares traded on the Nasdaq Stock Market
The Nasdaq Bank Stocks index consists of shares traded on the Nasdaq Stock Market with a Standard Business Classification code of 6020 and 6712 only.



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following
consolidated selected financial data is derived from our audited financial statements as of and for the five years ended December 31, 2006. The selected financial data should be read in conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes contained elsewhere in this report.

Summary Consolidated Financial Data



|                                                     |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|---------------------------------------------------- |  | ------------------------------------------ | --------- | -- | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | --
|                                                     |  | As of and for the Years Ended December 31, |          
|(dollars in thousands expect share amounts)          |  | 2006                                       |           |    | 2005 |   |           | 2004 |  |   | 2003      |   |  | 2002 |          
|Income Statement Data                                |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Interest income                                      |  | $                                          | 29,105    |    |      | $ | 23,581    |      |  | $ | 16,840    |   |  | $    | 15,088    |   |  | $ | 11,664    |   
|Interest expense                                     |  |                                            | 17,383    |    |      |   | 10,983    |      |  |   | 6,004     |   |  |      | 6,138     |   |  |   | 5,087     |   
|                                                     |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Net interest income                                  |  |                                            | 11,722    |    |      |   | 12,598    |      |  |   | 10,836    |   |  |      | 8,950     |   |  |   | 6,577     |   
|Provision for loan losses                            |  |                                            | (19       | )  |      |   | 412       |      |  |   | 271       |   |  |      | 687       |   |  |   | 3,253     |   
|                                                     |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Net interest income after provision for loan losses  |  |                                            | 11,741    |    |      |   | 12,186    |      |  |   | 10,565    |   |  |      | 8,263     |   |  |   | 3,324     |   
|Noninterest income                                   |  |                                            | 1,531     |    |      |   | 1,464     |      |  |   | 1,743     |   |  |      | 1,431     |   |  |   | 2,757     |   
|Noninterest expense                                  |  |                                            | 10,274    |    |      |   | 11,825    |      |  |   | 8,737     |   |  |      | 7,137     |   |  |   | 7,859     |   
|                                                     |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Income (loss) before income tax                      |  |                                            | 2,998     |    |      |   | 1,825     |      |  |   | 3,571     |   |  |      | 2,557     |   |  |   | (1,778    | ) 
|Income tax                                           |  |                                            | 484       |    |      |   | 514       |      |  |   | 1,211     |   |  |      | 869       |   |  |   | (604      | ) 
|Income from continuing operations                    |  |                                            | 2,514     |    |      |   | 1,311     |      |  |   | 2,360     |   |  |      | 1,688     |   |  |   | (1,174    | ) 
|Income (loss) from discontinued operations           |  |                                            | (2,995    | )  |      |   | 323       |      |  |   | (351      | ) |  |      | (723      | ) |  |   | (2,271    | ) 
|                                                     |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Net Income (loss)                                    |  | $                                          | (481      | )  |      | $ | 1,634     |      |  | $ | 2,009     |   |  | $    | 965       |   |  | $ | (3,445    | ) 
|                                                     |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Per Share Data                                       |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Net income -continuing operations - basic            |  | $                                          | .28       |    |      | $ | 0.15      |      |  | $ | 0.34      |   |  | $    | 0.48      |   |  | $ | (0.34     | ) 
|Net income -continuing operations - diluted          |  |                                            | .28       |    |      |   | 0.15      |      |  |   | 0.32      |   |  |      | 0.40      |   |  |   | (0.34     | ) 
|Net income - discontinued operations basic           |  |                                            | (.34      | )  |      |   | 0.04      |      |  |   | (0.05     | ) |  |      | (0.20     | ) |  |   | (0.66     | ) 
|Net income - discontinued operations- diluted        |  |                                            | (.33      | )  |      |   | 0.04      |      |  |   | (0.05     | ) |  |      | (0.17     | ) |  |   | (0.66     | ) 
|Net income-basic                                     |  |                                            | (.05      | )  |      |   | .019      |      |  |   | 0.29      |   |  |      | 0.27      |   |  |   | (1.00     | ) 
|Net income-diluted                                   |  |                                            | (.05      | )  |      |   | .018      |      |  |   | 0.27      |   |  |      | 0.23      |   |  |   | (1.00     | ) 
|Cash dividends declared                              |  |                                            | .08       |    |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |   
|Book value per share                                 |  |                                            | 5.33      |    |      |   | 5.39      |      |  |   | 5.37      |   |  |      | 4.37      |   |  |   | 4.39      |   
|Balance Sheet Data                                   |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Assets                                               |  | $                                          | 591,542   |    |      | $ | 421,515   |      |  | $ | 371,858   |   |  | $    | 313,396   |   |  | $ | 306,341   |   
|Loans, net (1)                                       |  |                                            | 295,057   |    |      |   | 248,203   |      |  |   | 246,919   |   |  |      | 205,913   |   |  |   | 174,351   |   
|Securities                                           |  |                                            | 177,152   |    |      |   | 128,365   |      |  |   | 86,219    |   |  |      | 89,359    |   |  |   | 54,577    |   
|Deposits                                             |  |                                            | 482,729   |    |      |   | 298,996   |      |  |   | 280,833   |   |  |      | 272,113   |   |  |   | 258,509   |   
|Shareholders equity                                 |  |                                            | 47,552    |    |      |   | 47,693    |      |  |   | 47,111    |   |  |      | 15,918    |   |  |   | 15,502    |   
|Shares outstanding                                   |  |                                            | 8,926,291 |    |      |   | 8,848,329 |      |  |   | 8,780,459 |   |  |      | 3,642,818 |   |  |   | 3,531,778 |   
|Performance Ratios                                   |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Return on average assets (2)                         |  |                                            | (.10      | )% |      |   | 0.39      | %    |  |   | 0.59      | % |  |      | 0.31      | % |  |   | (1.28     | )%
|Return on average shareholders equity (2)           |  |                                            | (.99      | )  |      |   | 3.36      |      |  |   | 5.44      |   |  |      | 6.20      |   |  |   | (20.07    | ) 
|Average equity to average assets                     |  |                                            | 9.86      |    |      |   | 11.72     |      |  |   | 10.83     |   |  |      | 4.96      |   |  |   | 6.36      |   
|Net interest margin (2)                              |  |                                            | 2.85      |    |      |   | 3.24      |      |  |   | 3.37      |   |  |      | 3.16      |   |  |   | 3.18      |   
|Allowance for loan losses to loans (3)               |  |                                            | 1.11      |    |      |   | 1.18      |      |  |   | 1.05      |   |  |      | 1.40      |   |  |   | 1.44      |   
|Asset Quality Ratios                                 |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Net charge-offs to average loans outstanding (3)     |  |                                            | (.02      | )% |      |   | 0.05      | %    |  |   | 0.16      | % |  |      | 0.51      | % |  |   | 0.52      | % 
|Non-performing loans to period-end loans (4)         |  |                                            | .88       |    |      |   | 0.22      |      |  |   | 0.30      |   |  |      | 0.07      |   |  |   | 0.23      |   
|Non-performing assets to total assets (4)            |  |                                            | .51       |    |      |   | 0.14      |      |  |   | 0.22      |   |  |      | 0.05      |   |  |   | 0.18      |   
|Allowance for loan losses to non-performing loans(4) |  |                                            | 111.50    |    |      |   | 537.62    |      |  |   | 355.84    |   |  |      | 2,093.84  |   |  |   | 638.50    |   
|Liquidity and Capital Ratios:                        |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Risk-based:                                          |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Tier 1 capital                                       |  |                                            | 9.74      | %  |      |   | 19.38     | %    |  |   | 21.95     | % |  |      | 9.73      | % |  |   | 9.88      | % 
|Total capital                                        |  |                                            | 16.75     |    |      |   | 20.46     |      |  |   | 23.10     |   |  |      | 12.78     |   |  |   | 13.48     |   
|Average loans to average deposits                    |  |                                            | 82.09     |    |      |   | 94.13     |      |  |   | 95.60     |   |  |      | 81.83     |   |  |   | 92.89     |   
|Average shares outstanding                           |  |                                            |           |    |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |   
|Basic                                                |  |                                            | 8,902,634 |    |      |   | 8,798,106 |      |  |   | 7,037,771 |   |  |      | 3,551,251 |   |  |   | 3,456,674 |   
|Diluted                                              |  |                                            | 9,115,857 |    |      |   | 8,939,052 |      |  |   | 7,356,247 |   |  |      | 4,198,661 |   |  |   | 3,456,674 |   



|(1) | Excludes loans held for sale.
|--- | -----------------------------



|(2) | On an annualized basis.
|--- | -----------------------



|(3) | Includes loans held for sale.
|--- | -----------------------------



|(4) | Non-performing loans do not include loans past due 90 or more days but still accruing.
|--- | --------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|------- | ------------------------------------------------------------------------------------

General

Millennium Bankshares Corporation is a bank holding company headquartered in Reston,
Virginia. We were incorporated in 1998 and began operations in April 1999. We provide services through our principal operating subsidiary, Millennium Bank. We presently operate seven banking offices, all in Virginia. Two offices are in Reston, one
each is in Great Falls, Herndon, and Warrenton, and two are in the Richmond, Virginia area. We also have a loan production office located in Fredericksburg, Virginia. We are a community bank providing a broad range of commercial and retail banking
services designed to meet the needs of businesses and consumers in the communities we serve. We emphasize local decision-making within our organization and provide personal service to our customers. By combining the technological support, products
and services that our customers demand with direct access to senior management and responsive customer service, we work to foster a business and consumer banking environment that allows us to effectively compete in our particular market with other
financial institutions of all sizes.

Our operating revenues are derived primarily from interest earned on loans and investment securities
portfolio net of interest paid on deposit products and borrowings. Millennium also receives revenue from sales of Small Business Administration loans and fee income from loans, deposits and other banking products.

Millennium continues to seek and evaluate additional expansion alternatives either through loan production offices or new branch locations. The new
branch locations can be a prior branch location purchased from an existing institution or a de novo site determined to best suit our strategic plans. In addition, we intend to consider various strategic acquisitions of banks, banking assets or
financial service entities related to banking in our geographical areas that management believes would complement and increase our existing business lines, or expansion into new market areas or product lines that management determines would be in
the best interest of Millennium and its shareholders.

As of December 31, 2006, we determined that it was in our best interest to wind
down our mortgage operating subsidiaries. It was our desire to focus exclusively on core banking activities going forward to eliminate, going forward, the risks normally associated with mortgage banking activities. The wind down decision was also
precipitated by credit quality issues that surfaced in the held for sale loan portfolio during the fourth quarter. Accordingly, the results of our mortgage operations are presented in a separate category on the income statement following the results
from continuing operations. As a result of charges in excess of $6.0 million that were recorded in conjunction with the wind down of mortgage operations, we reported a net loss of $3.1 million for the quarter ended December 31, 2006 and a net
loss of $481,000 for the year ended December 31, 2006.

The following presents managements discussion and analysis of our
consolidated financial condition at December 31, 2006 and 2005 and the results of our operations for the years ended December 31, 2006, 2005 and 2004. The discussion should be read in conjunction with the accompanying consolidated
financial statements presented elsewhere in this Form 10-K.

Critical Accounting Policies

General

The financial condition and results of
operations presented in the Consolidated Financial Statements, accompanying Notes to the Consolidated Financial Statements and managements discussion and analysis are, to a large degree, dependent upon our accounting policies. The selection
and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.

Presented
below is discussion of those accounting policies that management believes are the most important to the portrayal and understanding of our financial condition and results of operations. These critical accounting policies require managements
most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially
different financial condition or results of operations is a reasonable likelihood. See also Note 1 of the accompanying Consolidated Financial Statements presented elsewhere in this Form 10-K.



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##### Table of Contents

Allowance for Loan Losses

Millennium monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio. Millennium maintains policies and procedures that address the systems of control
over the following areas of maintenance of the allowance: the systematic methodology used to determine the appropriate level of the allowance to provide assurance that the allowance for loan losses is maintained in accordance with accounting
principles generally accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; and the loan grading system.

Millennium evaluates various loans individually for impairment as required by Statement of Financial Accounting Standard (SFAS) No. 114, Accounting
by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and Disclosures. Loans evaluated individually for impairment include non-performing loans, such as loans on
non-accrual, loans past due 90 days or more, restructured loans and other loans selected by management. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually
impaired, then a specific reserve is established for the amount of impairment. If a loan evaluated individually is not impaired, then the loan is assessed for impairment under SFAS No. 5, Accounting for Contingencies (SFAS 5), with a group of
loans that have similar characteristics.

For loans without individual measures of impairment, Millennium makes estimates of losses for
groups of loans as required by SFAS 5. Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and the general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is
derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan. The resulting estimate of losses for groups of loans are adjusted for relevant environmental factors and
other conditions of the portfolio of loans, including: borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth
of lending management; and national and local economic conditions.

The amount of estimated impairment for individually evaluated loans and
groups of loans is added together for a total estimate of loan losses. This estimate of losses is compared to the allowance for loan losses of Millennium as of the evaluation date and, if the estimate of losses exceeds the allowance, an additional
provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. If the
estimate of losses were below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for loan losses. Millennium recognizes the inherent imprecision in estimates of losses due to various uncertainties
and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high. If different assumptions or conditions were to prevail and it is
determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which amount may be material to the Consolidated Financial Statements.

Financial Summary

For the year ended
December 31, 2006, Millennium reported income from continuing operations of $2.5 million, or $0.27 per diluted share, compared to income from continuing operations of $1.3 million, or $0.15 per diluted share for the same period in 2005.

As a result of charges in excess of $6.0 million that were recorded in conjunction with the wind down of mortgage operations, we reported
a net loss of $3.1 million for the quarter ended December 31, 2006 and a net loss of $481,000 for the year. Further information regarding discontinued operations can be found under the subheading Discontinued Operations within this
Item.



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A significant focus in 2005 was centered on the acquisition of Albemarle First Bank, Charlottesville,
Virginia. This acquisition, however, was terminated on November 28, 2005 due to our failure to receive requisite shareholder approval. Income from continuing operations for the year ended 2005 was negatively impacted by after tax charges of
$339 thousand related to writing off transaction costs associated with the terminated acquisition. In 2005, Millennium also incurred after tax securities losses of $137 thousand in a transaction designed to improve the investment portfolio risk
profile.

Total assets increased to $591.5 million at December 31, 2006, compared to $421.5 million at December 31, 2005,
representing an increase of $170.0 million or 40.3%. Loans including loans held for sale, net of allowance for loan losses at December 31, 2006 were $332.8 million, an increase of $62.6 million from the December 31, 2005 balance of $270.2
million. Loans held for sale increased $15.7 million while the Banks portfolio increased by $46.9 million. The investment portfolio increased by $48.8 million at December 31, 2006 as compared to the prior year ended December 31,
2005. The increase was reflected primarily in two sectors: states and political subdivisions and mortgage-backed securities, as Millennium sought to improve portfolio diversification and the overall risk profile. Total deposits reached $482.7
million at December 31, 2006, a $103.7 million increase over the prior year-end with the bulk of the increase in total deposits reflected in time deposits.

Shareholders equity was $47.6 million at December 31, 2006 compared with $47.7 million at December 31, 2005. Book value per share was $5.33 at December 31, 2006 and $5.39 at December 31,
2005.

Net Interest Income

Net
interest income is the largest component of our earnings and is equal to the amount by which interest income exceeds interest expense. Interest earning assets consist primarily of loans and securities, while deposits and borrowings represent the
major portion of interest bearing liabilities. Changes in the volume and mix of assets and liabilities, as well as changes in the yields and rates paid, determine changes in net interest income. The net interest margin is calculated by dividing net
interest income by average interest earning assets.

Net interest income on a fully taxable-equivalent basis attributable to continuing
operations was $12.5 million in 2006, $12.7 million in 2005 and $10.8 million in 2004. Net interest income from discontinued operations was $867,000 in 2006, $176,000 in 2005 and $380,000 in 2004. The net interest income from discontinued operations
is attributable to average loans held for sale which is included in the table that follows in loans.

As reflected in the following table,
net interest income on a fully taxable-equivalent basis was $13.4 million for the year ended December 31, 2006 compared to $12.9 million for the same period in 2005. Interest income for the year ended December 31, 2006 was $32.4 million,
up from $24.2 million for the same period last year. The interest income increase was attributable to an 18.2% increase in average earning assets coupled with an 81 basis point increase in gross yield. Of the $8.2 million increase in interest
income, $4.4 million was attributable to volume and $3.8 million was attributable to rate changes. Growth in interest income would have been more pronounced except that the composition of average earning assets shifted to a higher percentage of
investment securities. Additional funds were deployed in the investment portfolio to reduce the overall interest rate exposure in a declining rate scenario. Loan yield increased 99 basis points as existing variable rate loans tied to prime repriced
upward concurrent with the continuing tightening of short-term rates by the Federal Open Market Committee, which tends to cause increases in the prime rate, and as new volume was originated in a rising rate environment. Average loans increased 8.8%
while average securities increased 33.5%. Interest expense increased $7.7 million as the average balance of deposits and borrowed funds increased as well as the rates paid thereon. Most of the increased funding for earning assets was concentrated in
higher-rate certificates of deposit, the rate paid on interest-bearing liabilities increased in greater magnitude than earning asset yield. The increase in rates paid on interest-bearing liabilities was also influenced by intense competition, the
implementation of a more aggressive deposit pricing strategy and the negative effects of the inverted yield curve. Funding of earning assets from interest free sources also declined from 14.4% for the year ended December 31, 2005 to 12.1% for
the same period this year. Millennium is continuing its focus in 2007 on deposit initiatives designed to generate higher volumes of lower cost demand and transaction accounts. The net interest margin decreased by 39 basis points to 2.85% for the
year ended December 31, 2006 as compared to 3.24% for the same period in 2005.



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##### Table of Contents

The following tables set forth average balances of total interest earning assets and total interest
bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders equity and the related income, expense and corresponding weighted average yields and costs.



|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|------------------------------------------ |  | ----------------- | ------- | ---------------- | ----------------- | ---------- |  | ----------------- | --------------- |  | ---------------- | ------- | ---------- | - | ------ | --------------- | ---- | ---------------- |  | ---------- | ------- |  | - | ------ |  | ---- | -
|                                           |  | Year Ended        |        
|                                           |  | December 31, 2006 |         |                  | December 31, 2005 |            |  | December 31, 2004 |                
|(Dollars in thousands)                     |  | AverageBalances   |         | Earnings/Expense |                   | Yield/Rate |  |                   | AverageBalances |  | Earnings/Expense |         | Yield/Rate |   |        | AverageBalances |      | Earnings/Expense |  | Yield/Rate |        
|Assets:                                    |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Interest Earning Assets                    |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Loans, net of unearned discounts (1)       |  | $                 | 306,019 |                  | $                 | 24,041     |  | 7.86              | %               |  | $                | 281,248 |            | $ | 19,320 |                 | 6.87 | %                |  | $          | 253,573 |  | $ | 15,300 |  | 6.03 | %
|Securities (2)                             |  |                   | 152,571 |                  |                   | 7,780      |  | 5.10              | %               |  |                  | 114,244 |            |   | 4,820  |                 | 4.22 | %                |  |            | 76,416  |  |   | 3,032  |  | 3.97 | %
|Federal funds sold                         |  |                   | 10,838  |                  |                   | 565        |  | 5.21              | %               |  |                  | 1,718   |            |   | 37     |                 | 2.15 | %                |  |            | 3,184   |  |   | 40     |  | 1.26 | %
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Total interest earning assets              |  |                   | 469,428 |                  |                   | 32,386     |  | 6.90              | %               |  |                  | 397,210 |            | $ | 24,177 |                 | 6.09 | %                |  |            | 333,173 |  | $ | 18,372 |  | 5.51 | %
|Other assets                               |  |                   | 24,714  |                  |                   |            |  |                   |                 |  |                  | 18,146  |            |   |        |                 |      |                  |  |            | 7,683   |  |   |        |  |      |  
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Total assets                               |  | $                 | 494,142 |                  |                   |            |  |                   |                 |  | $                | 415,356 |            |   |        |                 |      |                  |  | $          | 340,856 |  |   |        |  |      |  
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Liabilities                                |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Interest-bearing deposits                  |  | $                 | 342,867 |                  | $                 | 15,250     |  | 4.45              | %               |  | $                | 274,200 |            | $ | 8,562  |                 | 3.12 | %                |  | $          | 245,363 |  | $ | 6,094  |  | 2.48 | %
|Borrowed funds                             |  |                   | 69,979  |                  |                   | 3,775      |  | 5.39              | %               |  |                  | 65,714  |            |   | 2,737  |                 | 4.17 | %                |  |            | 37,401  |  |   | 1,061  |  | 2.84 | %
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Total interest-bearing liabilities         |  |                   | 412,846 |                  |                   | 19,025     |  | 4.61              | %               |  |                  | 339,914 |            |   | 11,299 |                 | 3.32 | %                |  |            | 282,764 |  |   | 7,155  |  | 2.53 | %
|Liabilities:                               |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Demand deposits                            |  |                   | 29,902  |                  |                   |            |  |                   |                 |  |                  | 24,589  |            |   |        |                 |      |                  |  |            | 19,883  |  |   |        |  |      |  
|Other liabilities                          |  |                   | 2,640   |                  |                   |            |  |                   |                 |  |                  | 2,156   |            |   |        |                 |      |                  |  |            | 1,297   |  |   |        |  |      |  
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Total liabilities                          |  |                   | 445,388 |                  |                   |            |  |                   |                 |  |                  | 366,659 |            |   |        |                 |      |                  |  |            | 303,944 |  |   |        |  |      |  
|Shareholders equity                       |  |                   | 48,754  |                  |                   |            |  |                   |                 |  |                  | 48,697  |            |   |        |                 |      |                  |  |            | 36,912  |  |   |        |  |      |  
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                 | 494,142 |                  |                   |            |  |                   |                 |  | $                | 415,356 |            |   |        |                 |      |                  |  | $          | 340,856 |  |   |        |  |      |  
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Net interest income                        |  |                   |         |                  | $                 | 13,361     |  |                   |                 |  |                  |         |            | $ | 12,878 |                 |      |                  |  |            |         |  | $ | 11,217 |  |      |  
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  
|Interest spread (3)                        |  |                   |         |                  |                   |            |  | 2.29              | %               |  |                  |         |            |   |        |                 | 2.77 | %                |  |            |         |  |   |        |  | 2.98 | %
|Net interest yield on earning assets (4)   |  |                   |         |                  |                   |            |  | 2.85              | %               |  |                  |         |            |   |        |                 | 3.24 | %                |  |            |         |  |   |        |  | 3.37 | %
|                                           |  |                   |         |                  |                   |            |  |                   |                 |  |                  |         |            |   |        |                 |      |                  |  |            |         |  |   |        |  |      |  



|(1) | Includes loans held for sale.
|--- | -----------------------------



|(2) | Income computed on a fully tax-equivalent basis.
|--- | ------------------------------------------------



|(3) | Interest spread is the average yield earned on earning assets less the average rate paid on interest bearing liabilities.
|--- | -------------------------------------------------------------------------------------------------------------------------



|(4) | Net interest margin is net interest income expressed as a percentage of average earning assets.
|--- | -----------------------------------------------------------------------------------------------



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The following table describes the impact on Millenniums interest income resulting from changes in
average balances and average rates for the periods indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.



|                                                    |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|--------------------------------------------------- |  | -------------------------- | ----- | -------------------------- | - | ----- | ----- |  | ------------ | ----- |  | ------------- | ----- | ----- |  | - | ----- |  | - | ----- | -
|                                                    |  | December 31, 2006 vs. 2005 |       | December 31, 2005 vs. 2004 |  
|(Dollars in thousands)                              |  | Due toVolume               |       | Changein Rate              |   |       | Total |  | Due toVolume |       |  | Changein Rate |       | Total | 
|Interest Earned On:                                 |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|Loans                                               |  | $                          | 1,946 |                            | $ | 2,775 |       |  | $            | 4,721 |  | $             | 1,901 |       |  | $ | 2,119 |  | $ | 4,020 |  
|Securities                                          |  |                            | 1,954 |                            |   | 1,006 |       |  |              | 2,960 |  |               | 1,596 |       |  |   | 192   |  |   | 1,788 |  
|Federal Funds Sold                                  |  |                            | 475   |                            |   | 53    |       |  |              | 528   |  |               | (32   | )     |  |   | 29    |  |   | (3    | )
|                                                    |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|Total interest earned on interest-bearing assets    |  |                            | 4,375 |                            |   | 3,834 |       |  |              | 8,209 |  |               | 3,465 |       |  |   | 2,340 |  |   | 5,805 |  
|                                                    |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|Interest Paid On:                                   |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|Interest-bearing deposits                           |  |                            | 3,054 |                            |   | 3,634 |       |  |              | 6,688 |  |               | 900   |       |  |   | 1,568 |  |   | 2,468 |  
|Borrowed funds                                      |  |                            | 230   |                            |   | 808   |       |  |              | 1,038 |  |               | 1,179 |       |  |   | 497   |  |   | 1,676 |  
|                                                    |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|Total interest paid on Interest-bearing liabilities |  |                            | 3,284 |                            |   | 4,442 |       |  |              | 7,726 |  |               | 2,079 |       |  |   | 2,065 |  |   | 4,144 |  
|                                                    |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  
|Net interest income                                 |  | $                          | 1,091 |                            | $ | (608  | )     |  | $            | 483   |  | $             | 1,386 |       |  | $ | 275   |  | $ | 1,661 |  
|                                                    |  |                            |       |                            |   |       |       |  |              |       |  |               |       |       |  |   |       |  |   |       |  

Investments

At December 31, 2006, Millennium had $177.2 million in total available for sale securities, an increase of 38.0% from $128.4 million at December 31, 2005. Increases were reflected in all investment sectors
however the increase in available for sale securities since year-end 2005 was more heavily concentrated in mortgage-backed securities and obligations of states and political subdivisions. The increase in these two sectors was reflective of on-going
efforts to further improve portfolio diversification and the overall risk profile.

The following tables show the amortized cost and fair
market value of investment securities at the dates indicated.



|                                                          |  |                   |         |                   |   |                   |  |            |         |      |   |            |  |   |        |  |   |       
|--------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ----------------- |  | ---------- | ------- | ---- | - | ---------- |  | - | ------ |  | - | ------
|                                                          |  | December 31, 2006 |         | December 31, 2005 |   | December 31, 2004
|(Dollars in thousands)                                    |  | Cost              |         | Fair Value        |   | Cost              |  | Fair Value |         | Cost |   | Fair Value
|Available for sale U. S. Government and Agency securities |  | $                 | 72,160  |                   | $ | 70,597            |  | $          | 60,287  |      | $ | 58,315     |  | $ | 62,636 |  | $ | 61,690
|Mortgage-backed securities                                |  |                   | 50,716  |                   |   | 50,014            |  |            | 33,702  |      |   | 32,886     |  |   | 21,866 |  |   | 21,781
|States and political Subdivisions                         |  |                   | 43,695  |                   |   | 43,364            |  |            | 25,409  |      |   | 25,026     |  |   |       |  |   |      
|Other                                                     |  |                   | 8,802   |                   |   | 8,728             |  |            | 7,584   |      |   | 7,587      |  |   |       |  |   |      
|                                                          |  |                   |         |                   |   |                   |  |            |         |      |   |            |  |   |        |  |   |       
|Total debt securities                                     |  |                   | 175,373 |                   |   | 172,703           |  |            | 126,982 |      |   | 123,814    |  |   | 84,502 |  |   | 83,471
|                                                          |  |                   |         |                   |   |                   |  |            |         |      |   |            |  |   |        |  |   |       
|Equity securities                                         |  |                   | 4,449   |                   |   | 4,449             |  |            | 4,551   |      |   | 4,551      |  |   | 2,748  |  |   | 2,748 
|                                                          |  |                   |         |                   |   |                   |  |            |         |      |   |            |  |   |        |  |   |       
|Total                                                     |  | $                 | 179,822 |                   | $ | 177,152           |  | $          | 131,533 |      | $ | 128,365    |  | $ | 87,250 |  | $ | 86,219
|                                                          |  |                   |         |                   |   |                   |  |            |         |      |   |            |  |   |        |  |   |       

The following table sets forth the maturity distribution and weighted average tax-equivalent
yields, based on contractual maturity, of all debt securities in the securities available for sale portfolio based on amortized cost as



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##### Table of Contents

of December 31, 2006. Actual maturities for mortgage-backed securities will vary based on the level of prepayments in the underlying mortgage pools.



|                                       |  |              |       |   |                          |   |        |                            |  |   |               |   |  |       |        |   |  |   |         |  
|-------------------------------------- |  | ------------ | ----- | - | ------------------------ | - | ------ | -------------------------- |  | - | ------------- | - |  | ----- | ------ | - |  | - | ------- | -
|(Dollars in thousands)                 |  | Within 1Year |       |   | After 1 ButWithin 5Years |   |        | After 5 But Within 10years |  |   | After 10years |   |  | Total |       
|U. S. Government and Agency securities |  | $            | 1,000 |   |                          | $ | 34,026 |                            |  | $ | 34,462        |   |  | $     | 2,672  |   |  | $ | 72,160  |  
|Mortgage-backed securities             |  |              |      |   |                          |   | 4,423  |                            |  |   | 6,263         |   |  |       | 40,030 |   |  |   | 50,716  |  
|States and political Subdivisions      |  |              |      |   |                          |   |       |                            |  |   | 7,116         |   |  |       | 36,579 |   |  |   | 43,695  |  
|Other                                  |  |              |      |   |                          |   |       |                            |  |   |              |   |  |       | 8,802  |   |  |   | 8,802   |  
|                                       |  |              |       |   |                          |   |        |                            |  |   |               |   |  |       |        |   |  |   |         |  
|Total Debt Securities                  |  | $            | 1,000 |   |                          | $ | 38,449 |                            |  | $ | 47,841        |   |  | $     | 88,083 |   |  | $ | 175,373 |  
|                                       |  |              |       |   |                          |   |        |                            |  |   |               |   |  |       |        |   |  |   |         |  
|U. S. Government and Agency securities |  |              | 3.5   | % |                          |   | 4.27   | %                          |  |   | 4.46          | % |  |       | 5.46   | % |  |   | 4.39    | %
|Mortgage-backed securities             |  |              |      | % |                          |   | 3.27   | %                          |  |   | 4.51          | % |  |       | 5.31   | % |  |   | 5.03    | %
|States and political Subdivisions      |  |              |      | % |                          |   |       | %                          |  |   | 5.56          | % |  |       | 6.15   | % |  |   | 6.05    | %
|Other                                  |  |              |      | % |                          |   |       | %                          |  |   |              | % |  |       | 6.57   | % |  |   | 6.57    | %
|Total tax-equivalent yield             |  |              | 3.5   | % |                          |   | 4.15   | %                          |  |   | 4.63          | % |  |       | 5.79   | % |  |   | 5.10    | %

There are no securities with a single issuer for which the amortized cost in the aggregate exceeds
10% of shareholders equity.

Loans

Net loans consist of total loans, deferred loan fees and the allowance for loan losses and include loans held for sale. Net loans were $332.8 million at December 31, 2006, an increase of 23.1% from December 31, 2005.

The following table sets forth the composition of Millenniums loan portfolio at the dates indicated.



|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                            |  | December 31, |        
|(Dollars in thousands)      |  | 2006         |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|Loans held for sale         |  | $            | 37,728  |   |      | $ | 22,044  |      |  | $ | 29,337  |   |  | $    | 9,069   |   |  | $ | 64,741  |  
|Mortgage loans, net         |  |              | 85,929  |   |      |   | 65,919  |      |  |   | 75,547  |   |  |      | 77,330  |   |  |   | 102,289 |  
|Commercial real estate      |  |              | 125,540 |   |      |   | 126,325 |      |  |   | 120,021 |   |  |      | 93,819  |   |  |   | 53,391  |  
|Construction and land loans |  |              | 55,245  |   |      |   | 43,368  |      |  |   | 35,570  |   |  |      | 17,318  |   |  |   | 3,926   |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total real estate loans     |  |              | 304,442 |   |      |   | 257,656 |      |  |   | 260,475 |   |  |      | 197,536 |   |  |   | 224,347 |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial business loans   |  |              | 18,502  |   |      |   | 13,180  |      |  |   | 14,688  |   |  |      | 15,466  |   |  |   | 15,446  |  
|Consumer loans              |  |              | 13,468  |   |      |   | 2,897   |      |  |   | 4,152   |   |  |      | 5,055   |   |  |   | 2,617   |  
|Overdrafts                  |  |              | 22      |   |      |   | 20      |      |  |   | 13      |   |  |      | 21      |   |  |   | 13      |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans receivable      |  |              | 336,434 |   |      |   | 273,753 |      |  |   | 279,328 |   |  |      | 218,078 |   |  |   | 242,423 |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Less:                       |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Deferred costs (fees)       |  |              | (208    | ) |      |   | (291    | )    |  |   | (147    | ) |  |      | (39     | ) |  |   | 168     |  
|Allowance for loan losses   |  |              | (3,441  | ) |      |   | (3,215  | )    |  |   | (2,925  | ) |  |      | (3,057  | ) |  |   | (3,499  | )
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans receivable, net |  | $            | 332,785 |   |      | $ | 270,247 |      |  | $ | 276,256 |   |  | $    | 214,982 |   |  | $ | 239,092 |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  

At December 31, 2006, increases were noted in nearly all loan sectors compared with sector
balances at December 31, 2005. On a percentage basis the largest increase was realized in consumer loans as Millennium introduced a well-received boat loan product during 2006. The loan portfolio remains heavily weighted in loans secured by
real estate.



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##### Table of Contents

The following table shows the contractual maturity of selected categories of loans at December 31,
2006. The table reflects the entire unpaid principal balance in the maturity period that includes the final loan payment date, and accordingly, does not give effect to periodic principal repayments or possible prepayments.



|                       |  |                                      |        |                          |   |        
|---------------------- |  | ------------------------------------ | ------ | ------------------------ | - | -------
|                       |  | December 31, 2006                   
|(Dollars in thousands) |  | Commercial,Financial andAgricultural |        | Real Estate/Construction
|Within 1 year          |  | $                                    | 10,921 |                          | $ | 52,852 
|Variable Rate:         |  |                                      |        |                          |   |        
|1 to 5 years           |  |                                      | 880    |                          |   | 35,263 
|After 5 years          |  |                                      | 5,636  |                          |   | 162,618
|                       |  |                                      |        |                          |   |        
|Total                  |  | $                                    | 17,437 |                          | $ | 250,733
|                       |  |                                      |        |                          |   |        
|Fixed Rate:            |  |                                      |        |                          |   |        
|1 to 5 years           |  |                                      | 1,065  |                          |   | 15,741 
|After 5 years          |  |                                      |       |                          |   | 37,968 
|                       |  |                                      |        |                          |   |        
|Total                  |  | $                                    | 1,065  |                          | $ | 53,709 
|                       |  |                                      |        |                          |   |        
|Total Maturities       |  | $                                    | 18,502 |                          | $ | 304,442
|                       |  |                                      |        |                          |   |        

Asset Quality

General

Asset quality is an important factor in the successful operation of a financial institution. Banking regulations
require institutions to classify their assets and to establish prudent general allowances for losses for assets classified as substandard or doubtful. For the portion of assets classified as loss, an institution is required to either establish
specific allowances of 100% of the amount classified or charge such amounts off its books.

Assets which do not currently expose Millennium
to sufficient risk to warrant classification in one of the aforementioned categories, but possess potential weaknesses, are required to be designated special mention by management. These loans are monitored closely so that we can mitigate our
exposure to further deterioration in the asset. Millennium charges off any loans that are classified as loss.

Unless well secured and in
the process of collection, Millennium places loans in a non-accrual status once they become past due greater than 90 days, or earlier in situations in which the loans have developed inherent problems that indicate payment of principal and interest
may not be made in full. Whenever the accrual of interest is stopped, previously accrued but uncollected interest income is reversed. Thereafter, interest is recognized only as cash is received. The loan is reinstated to an accrual basis after it
has been brought current as to principal and interest under the contractual terms of the loan.



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Non-Performing Assets

Millennium had $3.0 million of non-accrual loans at December 31, 2006, compared to $598,000 at December 31, 2005. The following table details information concerning non-accrual, past due and restructured
loans at the dates indicated:



|                                                           |  |              |       |      |   |      |  |      |     |      |   |     |  |   |    
|---------------------------------------------------------- |  | ------------ | ----- | ---- | - | ---- |  | ---- | --- | ---- | - | --- |  | - | ---
|                                                           |  | December 31,
|(Dollars in thousands)                                     |  | 2006         |       | 2005 |   | 2004 |  | 2003 |     | 2002
|Non-accrual loans                                          |  | $            | 3,043 |      | $ | 598  |  | $    | 822 |      | $ | 146 |  | $ | 548
|Foreclosed properties                                      |  |              | 74    |      |   |     |  |      |    |      |   |    |  |   |   
|Restructured loans                                         |  |              |      |      |   |     |  |      |    |      |   |    |  |   |   
|Total non-performing assets                                |  | $            | 3,117 |      | $ | 598  |  | $    | 822 |      | $ | 146 |  | $ | 548
|                                                           |  |              |       |      |   |      |  |      |     |      |   |     |  |   |    
|Loans past due 90 days or more and still accruing interest |  | $            | 379   |      | $ | 166  |  | $    | 339 |      | $ | 162 |  | $ | 72 
|                                                           |  |              |       |      |   |      |  |      |     |      |   |     |  |   |    

We received early payment default notifications in 2007 on residential loans originated and sold
in 2006 by our mortgage operating subsidiaries. These notifications obligate us to repurchase the loans in accordance with the terms of investor agreements. As a result, the balance of nonperforming assets is expected to increase by approximately
$10.0 million in 2007. Management has assigned an internal team of qualified professionals to handle the workout of these loans. We have recorded loss reserves of $2.9 million at year-end 2006 for these loans which we believe are adequate to absorb
any potential loss.

Information regarding impaired loans is as follows:





|                                                             |  |              |       |      |   |      |  |   |    
|------------------------------------------------------------ |  | ------------ | ----- | ---- | - | ---- |  | - | ---
|                                                             |  | December 31,
|                                                             |  | 2006         |       | 2005 |   | 2004
|Loans with no allocated allowance for loan losses            |  | $            |      |      | $ |     |  | $ |   
|Loans with allocated allowance for loan losses               |  |              | 3,043 |      |   | 598  |  |   | 175
|                                                             |  |              |       |      |   |      |  |   |    
|Total                                                        |  | $            | 3,043 |      | $ | 598  |  | $ | 175
|                                                             |  |              |       |      |   |      |  |   |    
|Amount of the allowance for loan losses allocated            |  | $            | 555   |      | $ | 289  |  | $ | 44 
|Average investment in impaired loans                         |  | $            | 1,651 |      | $ | 120  |  | $ | 49 
|Interest income recognized during impairment                 |  | $            |      |      | $ |     |  | $ |   
|Interest income recognized on a cash basis on impaired loans |  | $            |      |      | $ |     |  | $ |   

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

Delinquent and problem loans

When a borrower fails
to make a required payment on a loan, Millennium attempts to cure the delinquency by contacting the borrower. A notice is mailed to the borrower after a payment is 15 days past due and again when the loan is 30 days past due. For most loans, if the
delinquency is not cured within 60 days, Millennium issues a notice of intent to foreclose on the property and if the delinquency is not cured within 90 days, Millennium may institute foreclosure action. In most cases, deficiencies are cured
promptly.



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##### Table of Contents

Allowance for losses on loans

Millennium provides valuation allowances for probable losses incurred on loans when we determine that a significant decline in the value of the collateral has occurred, and if the value of the collateral is less than
the amount of the unpaid principal of the related loan plus estimated costs of acquisition and sale. In addition, Millennium also provides reserves based on the dollar amount and type of collateral securing its loans, in order to protect against
unanticipated losses. A loss experience percentage is established for each loan type and is reviewed at least annually, and more frequently if we identify factors that require us to consider a change to the percentage. Each month, the loss
percentage is applied to the portfolio, by product type, to determine the minimum amount of reserves required. Although management believes that it uses the best information available to make such determinations, future adjustments to reserves may
be necessary, and net income could be significantly affected, if circumstances differ substantially from assumptions used in making the initial determinations.

An analysis of the allowance for loan losses, including charge-off activity, is presented below for the periods indicated. Net recoveries of $73,000 were experienced in 2006 versus net charge-offs of $148,000 in 2005
and accordingly, the provision for loan loss expense was lower than in 2005. Also in 2005, the provision for loan loss expense was influenced by a revision to revised qualitative factors utilized in the allowance methodology.



|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|----------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                                        |  | Year Ended December 31 |      
|(In thousands)                                                          |  | 2006                   |       |   | 2005 |   |       | 2004 |  |   | 2003  |   |  | 2002 |      
|Balance, beginning of period                                            |  | $                      | 3,215 |   |      | $ | 2,925 |      |  | $ | 3,057 |   |  | $    | 3,499 |   |  | $ | 1,391 |  
|Less Charge-offs:                                                       |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial                                                              |  |                        |      |   |      |   | 55    |      |  |   |      |   |  |      | 160   |   |  |   | 971   |  
|Real estate-mortgage                                                    |  |                        |      |   |      |   | 217   |      |  |   | 520   |   |  |      | 981   |   |  |   | 217   |  
|Consumer installment loans                                              |  |                        |      |   |      |   |      |      |  |   | 1     |   |  |      |      |   |  |   |      |  
|Plus Recoveries:                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial                                                              |  |                        |      |   |      |   | 49    |      |  |   |      |   |  |      |      |   |  |   |      |  
|Real estate-mortgage                                                    |  |                        | 73    |   |      |   | 75    |      |  |   | 117   |   |  |      | 12    |   |  |   | 43    |  
|Consumer installment loans                                              |  |                        |      |   |      |   |      |      |  |   | 1     |   |  |      |      |   |  |   |      |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Net Charge-offs (recoveries)                                            |  |                        | (73   | ) |      |   | 148   |      |  |   | 403   |   |  |      | 1,129 |   |  |   | 1,145 |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Provision for loan losses                                               |  |                        | 153   |   |      |   | 438   |      |  |   | 271   |   |  |      | 687   |   |  |   | 3,253 |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Balance, end of period                                                  |  | $                      | 3,441 |   |      | $ | 3,215 |      |  | $ | 2,925 |   |  | $    | 3,057 |   |  | $ | 3,499 |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Ratio of net charge-offs to average loans outstanding during the period |  |                        | 0.02  | % |      |   | 0.05  | %    |  |   | 0.16  | % |  |      | 0.51  | % |  |   | 0.52  | %

The allowance for loan losses at December 31, 2006, was $3.4 million, compared to $3.2
million at December 31, 2005. The provision for loan losses for 2006 was $153,000 as compared to $438,000 for the year ended December 31, 2005.

The allowance for loan losses was 1.15% of total loans outstanding at December 31, 2006 compared to 1.28% at December 31, 2005. Net charge-offs (recoveries) as a percentage of average loans were (0.02%) and
0.05% for December 31, 2006 and 2005, respectively. Management believes the allowance for loan losses is adequate to cover credit losses probable and incurred in the loan portfolio at December 31, 2006.



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##### Table of Contents

A breakdown of the allowance for loan losses in dollars and loans in each category to total loans in
percentages is provided in the following tables. Because all of these factors are subject to change, the breakdown does not necessarily predict future loan losses in the indicated categories.



|                              |  |              |   |      |        |       |         |       |   |        |   |      
|----------------------------- |  | ------------ | - | ---- | ------ | ----- | ------- | ----- | - | ------ | - | -----
|                              |  | December 31,
|                              |  | 2006         |   | 2005
|(Dollars in thousands)        |  | Percent      |   |      | Amount |       | Percent |       |   | Amount
|Loans secured by real estate: |  |              |   |      |        |       |         |       |   |        |   |      
|Construction/land development |  | 16.3         | % |      | $      | 371   |         | 15.9  | % |        | $ | 243  
|1  4 family residential      |  | 34.3         | % |      |        | 1,199 |         | 28.3  | % |        |   | 810  
|Multi-family residential      |  | 2.9          | % |      |        | 66    |         | 3.9   | % |        |   | 12   
|Non-farm, non-residential     |  | 37.0         | % |      |        | 1,143 |         | 45.5  | % |        |   | 544  
|Loans to farmers              |  | 0            | % |      |        |      |         | 0.5   | % |        |   |     
|Commercial and industrial     |  | 5.5          | % |      |        | 472   |         | 4.8   | % |        |   | 1,554
|Loans to individuals          |  | 4.0          | % |      |        | 190   |         | 1.1   | % |        |   | 52   
|                              |  |              |   |      |        |       |         |       |   |        |   |      
|Total                         |  | 100.0        | % |      | $      | 3,441 |         | 100.0 | % |        | $ | 3,215
|                              |  |              |   |      |        |       |         |       |   |        |   |      



|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |      
|----------------------------- |  | ----------- | - | ---- | ------ | ----- | ------- | ----- | - | ------ | - | ------- |  | ----- | ------ |  | - | -----
|                              |  | December 31
|                              |  | 2004        |   | 2003 |        | 2002 
|(Dollars in thousands)        |  | Percent     |   |      | Amount |       | Percent |       |   | Amount |   | Percent |  |       | Amount
|Loans secured by real estate: |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |      
|Construction/land development |  | 12.8        | % |      | $      |      |         | 8.0   | % |        | $ | 143     |  | 1.6   | %      |  | $ |     
|1  4 family residential      |  | 36.2        | % |      |        | 488   |         | 38.5  | % |        |   | 1,595   |  | 69.7  | %      |  |   | 1,873
|Multi-family residential      |  | 1.2         | % |      |        | 268   |         | 0.6   | % |        |   | 9       |  | 0.6   | %      |  |   |     
|Non-farm, non-residential     |  | 43.0        | % |      |        | 84    |         | 43.5  | % |        |   | 792     |  | 21.5  | %      |  |   | 673  
|Loans to farmers              |  | 0.0         | % |      |        |      |         | 0.0   | % |        |   |        |  | 0.0   | %      |  |   |     
|Commercial and industrial     |  | 5.3         | % |      |        | 1,900 |         | 7.1   | % |        |   | 477     |  | 5.5   | %      |  |   | 948  
|Loans to individuals          |  | 1.5         | % |      |        | 185   |         | 2.3   | % |        |   | 41      |  | 1.1   | %      |  |   | 5    
|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |      
|Total                         |  | 100.0       | % |      | $      | 2,925 |         | 100.0 | % |        | $ | 3,057   |  | 100.0 | %      |  | $ | 3,499
|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |      

Noninterest Income

Millenniums noninterest income from continuing operations consists primarily of loan fees, net gains on sale of loans and fees, service charges on deposit accounts and, beginning in 2005, income from bank owned
life insurance. The following table presents information on the sources and amounts of noninterest income.



|                                         |  |             |       |      |   |       |      |  |   |      
|---------------------------------------- |  | ----------- | ----- | ---- | - | ----- | ---- |  | - | -----
|                                         |  | December 31
|Noninterest Income                       |  | 2006        |       | 2005 |   |       | 2004
|(Dollars in thousands)                   |  |             |       |      |   |       |     
|Service charges                          |  | $           | 306   |      | $ | 262   |      |  | $ | 244  
|Gain on sale of loans and loan fees, net |  |             | 587   |      |   | 1,024 |      |  |   | 992  
|Gain (loss) on sale of securities, net   |  |             | 56    |      |   | (208  | )    |  |   | 4    
|Income from bank owned life insurance    |  |             | 451   |      |   | 195   |      |  |   |     
|Other income                             |  |             | 131   |      |   | 191   |      |  |   | 503  
|                                         |  |             |       |      |   |       |      |  |   |      
|Total                                    |  | $           | 1,531 |      | $ | 1,464 |      |  | $ | 1,743
|                                         |  |             |       |      |   |       |      |  |   |      



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##### Table of Contents

The loss on sale of securities recognized in 2005 was incurred in conjunction with an investment
portfolio repositioning designed to improve the investment portfolio risk profile.

Noninterest Expense



|                                 |  |              |        |      |   |        |  |   |      
|-------------------------------- |  | ------------ | ------ | ---- | - | ------ |  | - | -----
|                                 |  | December 31,
|Noninterest Expense              |  | 2006         |        | 2005 |   | 2004  
|(Dollars in thousands)           |  |              |        |      |   |       
|Salary and benefits              |  | $            | 5,264  |      | $ | 5,736  |  | $ | 4,349
|Occupancy                        |  |              | 1,069  |      |   | 1,128  |  |   | 940  
|Furniture, equipment & computers |  |              | 943    |      |   | 1,134  |  |   | 1,209
|Marketing fees                   |  |              | 206    |      |   | 172    |  |   | 106  
|Professional fees                |  |              | 634    |      |   | 720    |  |   | 588  
|Merger related expense           |  |              | 4      |      |   | 513    |  |   |     
|Administrative expense           |  |              | 2,154  |      |   | 2,422  |  |   | 1,545
|                                 |  |              |        |      |   |        |  |   |      
|Total                            |  | $            | 10,274 |      | $ | 11,825 |  | $ | 8,737
|                                 |  |              |        |      |   |        |  |   |      

Salaries and benefits expense, the largest component of noninterest expense from continuing
operations, declined in 2006 compared with 2005 due primarily to a staffing reduction that was initiated in December 2005. Millennium eliminated 15 staff positions, some of which were open and expected to be filled, and the remainder involving the
reduction of existing positions, in an effort to rationalize our infrastructure and improve our efficiency and profitability. The benefit from the staffing reduction was partially offset by $223,000 in stock compensation expense recognized in 2006
in accordance with adoption of FAS 123R. Most other categories of expense also declined in 2006 compared with 2005 coincident with managements focus on cost savings and efficiency.

The merger related expenses recognized in 2006 and 2005 were transaction costs associated with the terminated acquisition of Albemarle First Bank.

Income Taxes

Millennium recorded
income tax expense from continuing operations in the amount of $484,000 for the year ended December 31, 2006 compared with $514,000 for 2005 and $1.2 million for 2004. Income tax expense varies from one year to the next with changes in the
level of income before taxes, changes in the amount of tax-exempt income, and the relationship of these changes to each other. Beginning in 2005 and continuing in 2006, Millennium increased its investments in municipal securities and bank owned life
insurance, the income from which is not taxable, thereby reducing its effective tax rate. The effective tax rate for the years ended 2006, 2005 and 2004 were 16.1%, 28.2% and 33.9%, respectively.

In addition to federal income taxes, the bank pays a Virginia State franchise tax. The franchise tax was $245,000, $243,000, and $183,000, for the years
ending December 31, 2006, 2005, and 2004, respectively.

Discontinued Operations

As of December 31, 2006, we determined that it was in our best interest to wind down our mortgage operating subsidiaries. It was our desire to focus
exclusively on core banking activities going forward to eliminate, the risks normally associated with mortgage banking activities. The wind down decision was also precipitated by credit quality issues that surfaced in the subprime sector of the held
for sale loan portfolio during the fourth quarter. The subprime sector of the held for sale portfolio included loans that carried a higher level of inherent risk because the loans were made to individuals who would otherwise not qualify for
traditional loan products Accordingly, the results our mortgage operations are presented in a separate category on the income statement following the results from continuing operations. The components of discontinued operations are reflected in the
table that follows.



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##### Table of Contents

STATEMENT OF INCOME FOR DISCONTINUED OPERATIONS

|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|-------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                               |  | 2006 |        |   | 2005 |   |       | 2004 | 
|Interest Income                                                |  | $    | 2,509  |   |      | $ | 492   |      |  | $ | 1,532 |  
|Interest Expense                                               |  |      | 1,642  |   |      |   | 316   |      |  |   | 1,152 |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Net Interest Income                                            |  |      | 867    |   |      |   | 176   |      |  |   | 380   |  
|Provision for Loan Losses                                      |  |      | (172   | ) |      |   | (26   | )    |  |   |      |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Net Interest Income after Provision for Loan Losses            |  |      | 695    |   |      |   | 150   |      |  |   | 380   |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Noninterest Income                                             |  |      |        |   |      |   |       |      |  |   |       |  
|Gain (loss) on sale of loans and loan fees, net                |  |      | (1,814 | ) |      |   | 2,078 |      |  |   | 837   |  
|Other income                                                   |  |      | 8      |   |      |   |      |      |  |   | (140  | )
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Total Noninterest Income                                       |  |      | (1,806 | ) |      |   | 2,078 |      |  |   | 697   |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Noninterest Expense                                            |  |      |        |   |      |   |       |      |  |   |       |  
|Officers and employees compensation and benefits             |  |      | 278    |   |      |   |      |      |  |   |      |  
|Occupancy and equipment expense                                |  |      |       |   |      |   | 483   |      |  |   | 319   |  
|Marketing, promotion and advertising expense                   |  |      |       |   |      |   | 132   |      |  |   | 40    |  
|Other operating expense                                        |  |      | 3,148  |   |      |   | 1,124 |      |  |   | 1,250 |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Total Noninterest Expense                                      |  |      | 3,426  |   |      |   | 1,739 |      |  |   | 1,609 |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Income (loss) from Discontinued Operations before Income Taxes |  |      | (4,537 | ) |      |   | 489   |      |  |   | (532  | )
|Income Tax Expense (benefit)                                   |  |      | (1,542 | ) |      |   | 166   |      |  |   | (181  | )
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Income (loss) from Discontinued Operations                     |  | $    | (2,995 | ) |      | $ | 323   |      |  | $ | (351  | )
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  

In September 2005, we restructured mortgage operations. Prior to September 2005, we recorded gross
gains on mortgage sales, which were offset by compensation expense and other direct expenses for the mortgage department. Beginning in 2006, prior periods were restated to reflect a net gain presentation (gross gains on mortgage sales netted with
compensation cost). Under the new structure we established in September 2005, contractual relationships with three mortgage banking limited liability companies, the terms of each of which provided for a per loan fee to be paid to us,
(the 51% owner of the LLCs) for each mortgage loan sold and required the 49% owners to pay for all costs of operation while retaining all other fee income.

At December 31, 2006 there were $37.7 million in loans held for sale attributable to discontinued operations. Included in the carrying amount for loans held for sale was a $3.0 million lower of cost or market
adjustment. The expense associated with this adjustment is reflected as a contra revenue item in gain on sale of loans, net. The amount reflected in other loan expense for 2006 in the following table is a charge to establish a $2.9 million reserve
for potential off-balance sheet exposure associated with loans already sold to investors. Investor agreements provide that the seller must buyback the loan under certain conditions, such as early payment default, and management determined at
December 31, 2006 that it was more likely than not that buyback conditions occurred in some of the production sold to investors, particularly for identified loans that were originated under sub prime underwriting guidelines.



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Other operating expenses consist of the following:

|                                        |  |      |       |      |   |       |  |   |      
|--------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                        |  | 2006 |       | 2005 |   | 2004 
|Dues and fees                           |  | $    |      |      | $ | 1     |  | $ | 2    
|Franchise taxes and miscellaneous taxes |  |      |      |      |   | 2     |  |   |     
|Insurance expense                       |  |      |      |      |   | 5     |  |   | 3    
|Meetings and seminar expense            |  |      |      |      |   | 50    |  |   | 19   
|Miscellaneous operating expenses        |  |      | 235   |      |   | 55    |  |   | 72   
|Office expenses                         |  |      |      |      |   | 173   |  |   | 170  
|Outside services                        |  |      |      |      |   | 9     |  |   | 127  
|Professional fees                       |  |      |      |      |   | 194   |  |   | 454  
|Other loan expense                      |  |      | 2,913 |      |   | 635   |  |   | 403  
|                                        |  |      |       |      |   |       |  |   |      
|Total Other Operating Expenses          |  | $    | 3,148 |      | $ | 1,124 |  | $ | 1,250
|                                        |  |      |       |      |   |       |  |   |      

Sources of Funds

Deposits

Deposits have been the principal source of Millenniums funds for use in lending and for other general
business purposes. At present, Millennium has employed alternative methods to gather deposits to fund our mortgage loan operations and commercial lending. Alternative methods used are advances from the Federal Home Loan Bank of Atlanta for daily and
longer-term borrowings and also brokered deposits. Brokered deposits are deposits that we obtain through brokers for a fee. Brokered deposits are available in bulk, and they do not require any investments in branch offices, branch personnel or
additional spending for marketing or education of employees. The brokered deposits that we obtain consist primarily of jumbo 30 day to 3-year certificates of deposits. Brokered deposits often earn a rate of interest that is higher than the rates we
pay on other deposit products, which increases Millenniums overall cost of funds and decreases our net interest margin.

In addition
to deposits, Millennium derives funds from loan repayments, cash flows generated from operations, which includes interest credited to deposit accounts, repurchase agreements entered into with commercial banks and Federal Home Loan Bank of Atlanta
advances. Borrowings may be used to compensate for reductions in deposits or deposit-inflows at less than projected levels and have been used on a longer-term basis to support expanded lending activities.

Millennium attracts both short-term and long-term deposits from the general public by offering a wide assortment of accounts and rates. Millennium offers
statement savings accounts, various checking accounts, various money market accounts, fixed-rate certificates with varying maturities, and individual retirement accounts and is expanding to provide deposit products and services for businesses.
Millenniums principal use of deposits is to originate loans and fund investment securities.

At December 31, 2006, deposits were
$482.7 million, an increase of 61.4% from $299.0 million at December 31, 2005. The increase in deposits was most heavily concentrated in certificates of deposit, the result of a highly successful promotion. This influx of certificates of
deposit, while a more expensive funding source than other retail products, provides cross sell opportunities. Raising low cost deposits continues to be a challenge in our marketplace, which has been further exacerbated by the inverted yield curve.
The decline in savings account balances from December 31, 2005 reflects a customer preference for the higher yielding short-term certificates of deposit. The deposit growth in other categories is a reflection of branch office growth, aggressive
pricing, marketing and other bank consolidation in Millenniums principal market. In order to reduce the overall cost of funds and reduce our reliance on high cost time deposits and short-term borrowings as a funding source, we continue to
direct extensive marketing efforts towards attracting lower cost transaction accounts, however, there is no assurance that these efforts will be successful, or if successful, that they will reduce our reliance on time deposits and short-term
borrowings.



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The following table sets forth the dollar amount of deposits in the various types of deposit programs
offered by Millennium at the dates indicated.



|                        |  |              |         |      |   |         |  |   |        
|----------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | -------
|                        |  | December 31,
|(Dollars in thousands)  |  | 2006         |         | 2005 |   | 2004   
|Savings accounts        |  | $            | 9,434   |      | $ | 24,604  |  | $ | 19,679 
|Demand deposit accounts |  |              | 31,303  |      |   | 25,765  |  |   | 22,924 
|NOW accounts            |  |              | 54,185  |      |   | 43,062  |  |   | 9,348  
|Money market accounts   |  |              | 50,932  |      |   | 56,184  |  |   | 97,927 
|CDs less than $100K    |  |              | 180,763 |      |   | 55,496  |  |   | 55,078 
|CDs greater than $100K |  |              | 156,112 |      |   | 93,885  |  |   | 75,877 
|                        |  |              |         |      |   |         |  |   |        
|Total                   |  | $            | 482,729 |      | $ | 298,996 |  | $ | 280,833
|                        |  |              |         |      |   |         |  |   |        

The following table contains information pertaining to the average amount and the average rate
paid on each of the following deposit categories for the periods indicated.



|                       |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  
|---------------------- |  | ------------------------ | ------- | --------------- | ---- | - | -------------- | ---- | --------------- |  | ---- | -------------- |  | --------------- | ------- |  | ---- | -
|                       |  | Years Ended December 31, |        
|                       |  | 2006                     |         |                 | 2005 |   |                | 2004 |                
|(Dollars in thousands) |  | AverageBalance           |         | AverageRatePaid |      |   | AverageBalance |      | AverageRatePaid |  |      | AverageBalance |  | AverageRatePaid |        
|Non-interest bearing   |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  
|Demand deposits        |  | $                        | 29,902  |                 | 0.00 | % |                | $    | 24,589          |  | 0.00 | %              |  | $               | 19,883  |  | 0.00 | %
|Interest bearing       |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  
|NOW accounts           |  |                          | 45,117  |                 | 3.67 | % |                |      | 39,717          |  | 2.54 | %              |  |                 | 9,723   |  | 0.79 | %
|Savings/Money          |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  
|Market accounts        |  |                          | 68,754  |                 | 3.54 | % |                |      | 105,431         |  | 2.37 | %              |  |                 | 113,005 |  | 1.47 | %
|Time deposits          |  |                          | 228,996 |                 | 4.87 | % |                |      | 129,052         |  | 3.92 | %              |  |                 | 122,635 |  | 4.05 | %
|                       |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  
|Total deposits         |  | $                        | 372,769 |                 | 4.09 | % |                | $    | 298,789         |  | 2.87 | %              |  | $               | 265,246 |  | 2.30 | %
|                       |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  

The variety of deposit accounts offered by Millennium has allowed us to be competitive in
obtaining funds and has allowed us to respond with flexibility to, although not to eliminate, the threat of disintermediation (the flow of funds away from depository institutions such as banking institutions into direct investment vehicles such as
government and corporate securities). The ability of Millennium to attract and maintain deposits, and its cost of funds, has been, and will continue to be, significantly affected by money market conditions.

The following table indicates the amount of Millenniums certificates of deposits by time remaining until maturity at December 31, 2006:



|                                            |  |                  |        |                    |   |                     |  |                |        |       |   |         |  |   |        
|------------------------------------------- |  | ---------------- | ------ | ------------------ | - | ------------------- |  | -------------- | ------ | ----- | - | ------- |  | - | -------
|                                            |  | Maturity        
|(Dollars in thousands)                      |  | 3 Months or less |        | Over 3 to 6 months |   | Over 6 to 12 months |  | Over 12 months |        | Total
|Certificates of deposit less than $100,000  |  | $                | 57,856 |                    | $ | 39,906              |  | $              | 32,550 |       | $ | 50,451  |  | $ | 180,763
|Certificates of deposit of $100,000 or more |  |                  | 41,160 |                    |   | 32,262              |  |                | 29,622 |       |   | 53,068  |  |   | 156,112
|                                            |  |                  |        |                    |   |                     |  |                |        |       |   |         |  |   |        
|Total certificates of deposits              |  | $                | 99,016 |                    | $ | 72,168              |  | $              | 62,172 |       | $ | 103,519 |  | $ | 336,875
|                                            |  |                  |        |                    |   |                     |  |                |        |       |   |         |  |   |        

Borrowings

As a member of the Federal Home Loan Bank of Atlanta, Millennium is required to own capital stock in the Federal Home Loan Bank and is authorized to apply for advances from the Federal Home Loan Bank. Each



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Federal Home Loan Bank credit program has its own interest rate, which may be fixed or variable, and range of maturities. The Federal Home Loan Bank may
prescribe the acceptable uses to which these advances may be put, as well as on the size of the advances and repayment provisions. The advances are collateralized by Millenniums investment in Federal Home Loan Bank stock and by
Millenniums agency and mortgage-backed investment securities. At December 31, 2006, and December 31, 2005, $47.9 million and $65.0 million, respectively, was outstanding to the Federal Home Loan Bank.

Millenniums borrowings also include federal funds purchased. At December 31, 2006 and December 31, 2005, Millennium had $0 and $215,000,
respectively, in federal funds purchased.

Millennium uses borrowings to supplement deposits when borrowings are available at a lower
overall cost to Millennium or they can be invested at a positive rate of return.

The following tables set forth the maximum month-end
balances, average balances and weighted average rates, of Federal Home Loan Bank advances, securities sold under agreements to repurchase and other borrowings for the years indicated.



|                                               |  |                         |        |      |   |        |  |   |       
|---------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                               |  | Year Ended December 31,
|(Dollars in thousands)                         |  | 2006                    |        | 2005 |   | 2004  
|Maximum Balance:                               |  |                         |        |      |   |        |  |   |       
|FHLB advances                                  |  | $                       | 82,600 |      | $ | 66,100 |  | $ | 45,000
|Federal funds purchased                        |  |                         | 7,620  |      |   | 20,907 |  |   | 7,066 
|Subordinated debentures                        |  |                         | 8,000  |      |   | 8,000  |  |   | 8,000 
|Securities sold under agreements to repurchase |  | $                       |       |      | $ |       |  | $ |      



|                                              |  |                |        |                     |      |   |                |   |                     |  |      |                |  |                     |        |  |      |  
|--------------------------------------------- |  | -------------- | ------ | ------------------- | ---- | - | -------------- | - | ------------------- |  | ---- | -------------- |  | ------------------- | ------ |  | ---- | -
|                                              |  | AverageBalance |        | WeightedAverageRate |      |   | AverageBalance |   | WeightedAverageRate |  |      | AverageBalance |  | WeightedAverageRate |       
|FHLB advances                                 |  | $              | 60,563 |                     | 4.82 | % |                | $ | 49,435              |  | 3.57 | %              |  | $                   | 23,419 |  | 2.18 | %
|Federal funds purchased                       |  |                | 1,416  |                     | 5.15 | % |                |   | 8,279               |  | 3.86 | %              |  |                     | 5,174  |  | 1.78 | %
|Subordinated debentures                       |  |                | 8,000  |                     | 9.76 | % |                |   | 8,000               |  | 8.18 | %              |  |                     | 8,000  |  | 5.71 | %
|Securities sold under agreement to repurchase |  | $              |       |                     |     | % |                | $ |                    |  |     | %              |  | $                   | 560    |  | 0.25 | %

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through the sale of existing assets or the acquisition of additional
funds through asset and liability management. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided. As a result of Millenniums management of liquid assets and the ability to generate liquidity
through increasing deposits, management believes that Millennium maintains overall liquidity that is sufficient to satisfy its depositors requirements and meet its customers credit needs.

Millenniums primary sources of funds are deposits, borrowings, and amortization, prepayments and maturities of outstanding loans and investments,
and loan sales. While scheduled payments from the amortization of loans and securities are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and
competition. Excess funds are invested in overnight deposits to fund cash requirements experienced in the normal course of business. Millennium has been able to generate sufficient cash through its deposits as well as borrowings.



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Operating activities in 2006 and 2005 absorbed approximately $14.4 million and $8.6 million,
respectively. This change resulted primarily from the net increase in loans held for sale of $15.7 million in 2006 as compared to the net decrease in loans held for sale of $7.3 million in 2005. Investing activities absorbed approximately $149.0
million and $56.2 million respectively for the years ended December 31, 2006 and 2005. In 2006 the change resulted primarily from approximate increases of $49.4 million in federal funds sold, $47.0 in the net increase in loans, and $59.3 in the
net increase of investment securities. In 2005, the change resulted primarily from a net increase in investment securities of $44.6 million and the purchase of $8.0 million in bank owned life insurance. In addition, for the years ended
December 31, 2006 and 2005, financing activities provided $166.2 and $50.1 million, respectively. In 2006, this change was primarily a result of an increase of approximately $183.7 million in deposits. This increase was partially offset by an
approximate $17.1 million decrease in FHLB borrowings. In 2005, this change was mainly attributable to an increase in deposits of $18.2 million and a $38.5 million increase in FHLB borrowings. These increases were partially offset by a $6.9 million
decrease in federal funds purchased.

Millennium uses its sources of funds primarily to meet operating needs, to pay deposit withdrawals
and fund loan commitments. At December 31, 2006 and December 31, 2005 total approved loan commitments were $65.0 million and $51.6 million, respectively. Certificates of deposit scheduled to mature in one year or less at December 31,
2006, totaled $233.4 million.

At December 31, 2006, we had a borrowing limit of $145.9 million with the Federal Home Loan Bank. Our
outstanding borrowings from the Federal Home Loan Bank totaled $ 47.9 million at December 31, 2006, which leaves an additional borrowing capacity of $98.0 million. Our borrowing limit is based on 25% of Bank assets at each quarter end
date. We also have two lines of credit with the Community Bankers Bank in Virginia in the amounts of $10.1 million secured and $12.1 million unsecured. Our outstanding borrowings from the Community Bankers Bank were $0 at December 31, 2006,
leaving remaining available lines of credit of $22.1 million. In addition, we have a $5.0 million line and $7.5 million lines of credit with The Bankers Bank and Compass Bank, respectively. There were no borrowings outstanding against either of
these lines at December 31, 2006.

Management intends to fund anticipated loan closings and operating needs through cash on hand,
brokered deposits, proceeds from the sale of loans, cash generated from operations and anticipated increases in deposits. Current and anticipated marketing programs will be primarily targeted at the attraction of lower cost transaction accounts.

Capital represents funds, earned or obtained, over which financial institutions can exercise greater control in comparison with deposits
and borrowed funds. The adequacy of Millenniums capital is reviewed by management on an ongoing basis with reference to size, composition and quality of Millenniums resources and consistent with regulatory requirements and industry
standards. Management seeks to maintain a capital structure that will support anticipated asset growth and absorb any potential losses.



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Millennium Bankshares and Millennium Bank are subject to regulatory capital requirements of the Federal
Reserve. At December 31, 2006, Millennium exceeded all such regulatory capital requirements as shown in the following table.



|                                                |  |                                  |        |   |                |   |        |  
|----------------------------------------------- |  | -------------------------------- | ------ | - | -------------- | - | ------ | -
|                                                |  | December 31, 2006                |       
|                                                |  | MillenniumBankshares Corporation |        |   | MillenniumBank |  
|(Dollars in thousands)                          |  |                                  |        |   |                |  
|Tier 1 Capital:                                 |  |                                  |        |   |                |   |        |  
|Common stock                                    |  | $                                | 44,631 |   |                | $ | 14,800 |  
|Capital surplus                                 |  |                                  | 4,408  |   |                |   | 29,800 |  
|Trust preferred securities(1)                   |  |                                  | 8,000  |   |                |   |       |  
|Retained earnings                               |  |                                  | 275    |   |                |   | 2,265  |  
|                                                |  |                                  |        |   |                |   |        |  
|Disallowed intangible assets                    |  |                                  |       |   |                |   |       |  
|                                                |  |                                  |        |   |                |   |        |  
|Total Tier 1 Capital                            |  |                                  | 57,314 |   |                |   | 46,865 |  
|                                                |  |                                  |        |   |                |   |        |  
|                                                |  |                                 
|Tier 2 Capital:                                 |  |                                  |        |   |                |   |        |  
|Allowance for loan losses(2)                    |  |                                  | 3,441  |   |                |   | 3,377  |  
|Off balance sheet risk exposure                 |  |                                  | 1,204  |   |                |   | 1,211  |  
|Trust preferred securities                      |  |                                  |       |   |                |   |       |  
|                                                |  |                                  |        |   |                |   |        |  
|Total Tier 2 Capital                            |  |                                  | 4,645  |   |                |   | 4,588  |  
|                                                |  |                                  |        |   |                |   |        |  
|Total Risk Based Capital                        |  | $                                | 61,959 |   |                | $ | 51,453 |  
|                                                |  |                                  |        |   |                |   |        |  
|Risk Weighted Assets                            |  |                                  |        |   |                |   |        |  
|                                                |  |                                 
|Capital Ratios:                                 |  |                                  |        |   |                |   |        |  
|Tier 1 Risk-based                               |  |                                  | 15.50  | % |                |   | 12.83  | %
|Total Risk-based                                |  |                                  | 16.75  | % |                |   | 14.08  | %
|Tier 1 Capital to average adjusted total assets |  |                                  | 9.74   | % |                |   | 8.09   | %



|(1) | Limited to 25% of Tier 1 Capital. Remainder is Tier 2 capital.
|--- | --------------------------------------------------------------



|(2) | Limited to 1.25% of risk weighted assets.
|--- | -----------------------------------------

Off Balance Sheet Arrangements

The following table
summarizes our off-balance sheet arrangements.



|                                 |  |                    |        |                              |   |                               |  |                    |       |       |   |        |  |   |       
|-------------------------------- |  | ------------------ | ------ | ---------------------------- | - | ----------------------------- |  | ------------------ | ----- | ----- | - | ------ |  | - | ------
|                                 |  | Maturity by Period
|December 31, 2006 (in thousands) |  | Lessthan 1 year    |        | Greater than1 year to 3years |   | Greater than3 years to 5years |  | Greaterthan 5years |       | Total
|Standby letters of credit        |  | $                  | 1,163  |                              | $ |                              |  | $                  |      |       | $ |       |  | $ | 1,163 
|Commitments to extend credit     |  |                    | 23,568 |                              |   | 12,221                        |  |                    | 2,603 |       |   | 25,422 |  |   | 63,814
|Mortgage banking commitments:    |  |                    |        |                              |   |                               |  |                    |       |       |   |        |  |   |       
|Rate lock commitments            |  | $                  | 17,450 |                              | $ |                              |  | $                  |      |       | $ |       |  | $ | 17,450

Standby letters of credit represent commitments by us to repay a third party beneficiary when a
customer fails to repay a loan or debt instrument. The terms and risk of loss involved in issuing standby letters of credit are similar to those involved in issuing loan commitments and extending credit. In addition to credit risk, we also have
liquidity risk associated with stand by letters of credit because funding for these obligations could be required immediately.



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Commitments to extend credit are loan commitments, which assure a borrower of financing for a specified
period of time at a specified rate on a loan Millennium intends to hold in its portfolio. The risk to Millennium under such commitments is limited to the terms of the contracts. For example, Millennium may not be obligated to advance funds if the
customers financial condition deteriorates or if the customer fails to meet specific covenants. An approved loan commitment represents a potential credit risk once the funds are advanced to the customer. This is also a liquidity risk since the
customer may demand immediate cash that would require funding and interest rate risk as market interest rates may rise above the rate committed.

Aggregate Contractual Obligations

The following table summarizes our contractual obligations.



|                        |  |                                         |         |                              |   |                               |  |                     |        |       |   |        |  |   |        
|----------------------- |  | --------------------------------------- | ------- | ---------------------------- | - | ----------------------------- |  | ------------------- | ------ | ----- | - | ------ |  | - | -------
|                        |  | Maturity by Period at December 31, 2006
|(Dollars in thousands)  |  | Less than 1 year                        |         | Greater than1 year to 3years |   | Greater than3 years to 5years |  | Greater than5 years |        | Total
|Deposits                |  | $                                       | 233,357 |                              | $ | 92,082                        |  | $                   | 11,436 |       | $ |       |  | $ | 336,875
|FHLB borrowings         |  |                                         | 17,500  |                              |   | 7,600                         |  |                     | 12,800 |       |   | 10,000 |  |   | 47,900 
|Subordinated debentures |  |                                         |        |                              |   |                              |  |                     |       |       |   | 8,000  |  |   | 8,000  
|Lease commitments       |  |                                         | 645     |                              |   | 1,163                         |  |                     | 522    |       |   | 1,422  |  |   | 3,752  
|                        |  |                                         |         |                              |   |                               |  |                     |        |       |   |        |  |   |        
|Total                   |  | $                                       | 251,502 |                              | $ | 100,845                       |  | $                   | 24,758 |       | $ | 19,422 |  | $ | 396,527
|                        |  |                                         |         |                              |   |                               |  |                     |        |       |   |        |  |   |        

Deposits represent non-interest bearing, money market, savings, NOW, certificates of deposits,
brokered and all other deposits held by the Company. Amounts that have an indeterminate maturity period are included in the less than one-year category above.

FHLB borrowings represent the amounts that are due to the FHLB of Atlanta. These amounts have fixed maturity dates. Some of these borrowings, although fixed, are subject to conversion provisions at the option of the
FHLB or Millennium can prepay these advances without a penalty. Management does not believe these advances will be converted in the near term.

Lease commitments represent the total minimum lease payments under non-cancelable operating leases.

Impact of Inflation and Changing Prices
and Seasonality

The financial statements that are included in this document have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institutions performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services,
since such prices are affected by inflation.

Caution About Forward Looking Statements

We make forward-looking statements in this Form 10-K that are subject to risks and uncertainties. These forward looking statements include statements
regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy and financial and other goals. The words believes, expects, may, will,
should, projects, contemplates, anticipates, forecasts, intends or other similar words or terms are intended to identify forward looking statements.



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These forward-looking statements are subject to significant uncertainties because they are based upon or
are affected by factors including:



| |  |  | The ability to successfully manage our growth or implement our growth strategies if we are unable to identify attractive markets, locations or opportunities to
expand in the future;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reliance on our management team, including our ability to attract and retain key personnel;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | The successful management of interest rate risk, including managing changing rates and policies,
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Risks inherent in making loans such as repayment risks and fluctuating collateral values;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Problems with technology utilized by us;
| | - |  | ----------------------------------------



| |  |  | Competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater
access to capital and other resources;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Demand, development and acceptance of new products and services;
| | - |  | ----------------------------------------------------------------



| |  |  | Changing trends in customer profiles and behavior;
| | - |  | --------------------------------------------------



| |  |  | Maintaining capital levels adequate to support our growth;
| | - |  | ----------------------------------------------------------



| |  |  | Maintaining cost controls and asset qualities as we open or acquire new branches;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Changes in general economic and business conditions in our market area; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | Changes in banking and other laws and regulations applicable to us.
| | - |  | -------------------------------------------------------------------



| |  |  | The other matters discussed under Item 1A, Risk Factors, of this Form 10-K.
| | - |  | ---------------------------------------------------------------------------

Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In
addition, our past results of operations do not necessarily indicate our future results.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices.
Millenniums primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of Millenniums asset/liability management process, which is governed by policies established by
its Board of Directors that are reviewed and approved annually. The Board of Directors delegated the responsibility for carrying out asset/liability management policies to the Asset/Liability Committee (ALCO) of the Bank. In this
capacity, ALCO develops guidelines and strategies that govern the Companys asset/liability management related activities, based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.

Millennium uses two primary methods to evaluate market risk to changes in interest rates: static gap analysis and simulation analysis.

Static gap is the difference between interest-sensitive assets and interest-sensitive liabilities maturing or repricing within a specific
time interval measured at a balance sheet date. The gap can be managed by repricing assets or liabilities, by selling investments, by replacing an asset or liability prior to maturity, or by adjusting the interest rate during the life of an asset or
liability. Matching the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net income due to changes in market interest rates. As reflected in the table below, Millennium, at
December 31, 2006, had $165.9 million more in liabilities than assets that can reprice within one year or less and therefore we were in a liability sensitive position. Generally, a liability sensitive position is favorable to the Bank in a
decreasing rate environment and unfavorable to the Bank in an increasing rate environment. It is important to recognize that deposits with no stated maturity have been presented in this gap table in the 3 months or less bucket because they can
reprice in that time frame. These deposits may not indeed reprice that quickly, however.



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The following table presents the amounts of Millenniums interest sensitive assets and liabilities
that mature or reprice in the periods indicated, exclusive of non-accrual loans.



|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------------------------- | ------- | -- | ---------- | - | -------- | -------- |  | - | ----------- | -- |  | - | ------- | -
|                                                                                           |  | December 31, 2006 Maturing or Repricing In: |        
|                                                                                           |  | 3 Monthsor less                             |         |    | 4-12Months |   |          | 1-5Years |  |   | Over 5Years |   
|(Dollars in thousands)                                                                     |  |                                             |         |    |            |   |          |          |  |   |             |   
|Interest-sensitive assets:                                                                 |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Loans (1)                                                                                  |  | $                                           | 129,888 |    |            | $ | 28,441   |          |  | $ | 110,236     |    |  | $ | 64,618  |  
|Investments (2)(3)                                                                         |  |                                             | 9,802   |    |            |   |         |          |  |   | 64,261      |    |  |   | 101,310 |  
|Federal funds sold                                                                         |  |                                             | 50,364  |    |            |   |         |          |  |   |            |    |  |   |        |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Total interest-sensitive assets                                                            |  |                                             | 190,054 |    |            |   | 28,441   |          |  |   | 174,497     |    |  |   | 165,928 |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Cumulative interest-sensitive assets                                                       |  |                                             | 190,054 |    |            |   | 218,495  |          |  |   | 392,992     |    |  |   | 558,920 |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Interest-sensitive liabilities:                                                            |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|NOW accounts                                                                               |  |                                             | 54,185  |    |            |   |         |          |  |   |            |    |  |   |        |  
|Savings/Money Market deposit accounts                                                      |  |                                             | 60,367  |    |            |   |         |          |  |   |            |    |  |   |        |  
|Certificates of deposit                                                                    |  |                                             | 99,016  |    |            |   | 134,341  |          |  |   | 103,518     |    |  |   |        |  
|Borrowed money                                                                             |  |                                             | 35,500  |    |            |   | 2,500    |          |  |   | 17,900      |    |  |   |        |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Total interest-sensitive liabilities                                                       |  |                                             | 249,068 |    |            |   | 136,841  |          |  |   | 121,418     |    |  |   |        |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Cumulative interest-sensitive liabilities                                                  |  |                                             | 249,068 |    |            |   | 385,909  |          |  |   | 507,327     |    |  |   | 507,327 |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Period gap                                                                                 |  |                                             | (59,014 | )  |            |   | (108,400 | )        |  |   | 53,079      |    |  |   | 165,928 |  
|Cumulative gap                                                                             |  | $                                           | (59,014 | )  |            | $ | (167,414 | )        |  | $ | (114,335    | )  |  | $ | 51,593  |  
|Ratio of cumulative interest-sensitive assets to cumulative interest-sensitive liabilities |  |                                             | 76.31   | %  |            |   | 56.62    | %        |  |   | 77.46       | %  |  |   | 110.17  | %
|Ratio of cumulative gap to total assets                                                    |  |                                             | (9.98   | )% |            |   | (28.30   | )%       |  |   | (19.33      | )% |  |   | 8.72    | %
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  
|Total Assets                                                                               |  |                                             |         |    |            |   |          |          |  |   |             |    |  | $ | 591,542 |  
|                                                                                           |  |                                             |         |    |            |   |          |          |  |   |             |    |  |   |         |  



|(1) | Includes mortgage loans held for sale.
|--- | --------------------------------------



|(2) | Excludes Federal Reserve, Federal Home Loan Bank, and Community Bankers Bank stock.
|--- | -----------------------------------------------------------------------------------



|(3) | Anticipates prepayments on FNMA and FHLMC pools.
|--- | ------------------------------------------------

Contractual principal repayments of loans do not necessarily reflect the actual term of Millenniums loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and
enforcement of due-on-sale clauses, which gives the Bank the right to declare a loan immediately due and payable in the event, among other things, the borrower sells the real property subject to the mortgage and the loan is not repaid. In addition,
certain borrowers increase their equity in the security property by making payments in excess of those required under the terms of the mortgage.

Due to the inherent limitations of gap analysis, Millennium utilizes simulation analysis as its primary tool for managing interest rate risk. Simulation analysis calculates expected net interest income under varying interest rate scenarios
and the theoretical impact of immediate and sustained rate changes referred to as rate shocks. This methodology is more sophisticated than the traditional gap analysis and more accurately reflects the impact on net interest income from
embedded options in earning assets and interest-bearing liabilities. Millennium places a higher degree of reliance on simulation modeling in its ALCO decision-making process. The simulation model is prepared and updated on a regular basis. This
sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure of no more than -15%.



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The following reflects the results of Millenniums net interest income sensitivity analysis at
December 31, 2006.



|            |  |                                          
|----------- |  | -----------------------------------------
|Rate Change |  | Estimated Net Interest Income Sensitivity
|+200 bp     |  | No change                                
|-200 bp     |  | -12.8%                                   

At December 31, 2006, Millenniums interest rate risk model indicated that, in a rising
rate environment of 200 basis points, net interest income would remain flat. In the same time period the interest rate risk model indicated that in a declining rate environment of 200 basis points, net interest income would decrease 12.8%.
Millenniums net interest income at risk is within policy limits. Management has been actively engaging in strategies to minimize the identified risk in the declining rate environment and anticipates the magnitude of sensitivity in the
declining rate environment will continue to diminish in 2007. Management also does not view the likelihood of a 200 basis point decline in the near term as very probable but is nonetheless currently contemplating additional actions which can be
taken to further minimize the identified risk in the declining rate environment.

The preceding sensitivity analysis does not represent a
forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, including the nature and timing of interest rate levels such as yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows. In late 2006, Millennium changed the repricing assumption in the interest rate risk
model such that offering rates on transactional deposits would move in tandem, both in magnitude and timing, with changes in market rates to more closely align the model to our current deposit pricing strategy While assumptions are developed based
upon current economic and local market conditions, Millennium cannot make any assurances about the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to factors such as prepayment and
refinancing levels likely deviating from those assumed, the varying impact of interest rate change, caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor
early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might take in response to, or in anticipation of, changes in interest rates.

While ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year horizon, it also employs additional tools
to monitor potential longer-term interest rate risk.

Millennium also performs economic value of equity modeling as a measurement tool. The
market value of equity measures the degree to which the market value of Millenniums assets and liabilities will change given a change in interest rates.

The following table presents the economic value of equity shock analysis at December 31, 2006.



|                      |  |                                                  
|--------------------- |  | -------------------------------------------------
|Change in Yield Curve |  | (in thousands) Change in Economic Value of Equity
|+200 basis points     |  | $42,244                                          
|Flat                  |  | $54,042                                          
|-200 basis points     |  | $53,975                                          



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

The following financial statements are filed as a part of this Form 10-K.



|                                                                                                                |  |   
|--------------------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                                         |  | 43
|Consolidated Balance Sheets as of December 31, 2006 and 2005                                                    |  | 44
|Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004                          |  | 45
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2006, 2005 and 2004 |  | 47
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004                      |  | 48
|Notes to Consolidated Financial Statements                                                                      |  | 49



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Report Of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Millennium Bankshares Corporation

Reston, Virginia

We have audited the accompanying consolidated balance sheets of Millennium Bankshares Corporation as of December 31, 2006 and 2005, and the related
consolidated statements of income, changes in stockholders equity and cash flows for each of the three years in the period ended December 31, 2006. 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
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2006 in conformity with U.S. generally accepted accounting principles.

LOGO

Crowe Chizek and Company LLC

Lexington, Kentucky

April 13, 2007



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MILLENNIUM BANKSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2006 AND 2005

(dollars in
thousands, except share data)



|                                                                                                                      |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                      |  | 2006 |         |   | 2005 |  
|ASSETS                                                                                                                |  |      |         |   |      |   |         |  
|Cash and due from banks                                                                                               |  | $    | 8,288   |   |      | $ | 5,505   |  
|Federal funds sold                                                                                                    |  |      | 50,364  |   |      |   | 915     |  
|Securities available for sale                                                                                         |  |      | 172,703 |   |      |   | 123,814 |  
|Restricted stock                                                                                                      |  |      | 4,449   |   |      |   | 4,551   |  
|Loans held for sale, included in discontinued operations                                                              |  |      | 37,728  |   |      |   | 22,044  |  
|Loans receivable (net of allowance for loan losses of $3,441 in 2006 and $3,215 in 2005)                              |  |      | 295,057 |   |      |   | 248,203 |  
|Premises and equipment, net                                                                                           |  |      | 2,029   |   |      |   | 2,625   |  
|Accrued interest receivable                                                                                           |  |      | 3,226   |   |      |   | 2,070   |  
|Bank owned life insurance                                                                                             |  |      | 12,645  |   |      |   | 8,195   |  
|Other assets                                                                                                          |  |      | 5,053   |   |      |   | 3,593   |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Assets                                                                                                          |  | $    | 591,542 |   |      | $ | 421,515 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |      |         |   |      |   |         |  
|Liabilities                                                                                                           |  |      |         |   |      |   |         |  
|Deposits                                                                                                              |  |      |         |   |      |   |         |  
|Noninterest-bearing                                                                                                   |  | $    | 31,303  |   |      | $ | 25,765  |  
|Interest-bearing                                                                                                      |  |      | 451,426 |   |      |   | 273,231 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Deposits                                                                                                        |  |      | 482,729 |   |      |   | 298,996 |  
|Federal funds purchased and repurchase agreements                                                                     |  |      |        |   |      |   | 215     |  
|Advances from Federal Home Loan Bank                                                                                  |  |      | 47,900  |   |      |   | 65,000  |  
|Subordinated debentures                                                                                               |  |      | 8,000   |   |      |   | 8,000   |  
|Accrued interest payable                                                                                              |  |      | 1,287   |   |      |   | 784     |  
|Other accrued expenses                                                                                                |  |      | 4,074   |   |      |   | 827     |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Liabilities                                                                                                     |  |      | 543,990 |   |      |   | 373,822 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Stockholders Equity                                                                                                  |  |      |         |   |      |   |         |  
|Common stock, $5 par value; authorized 10,000,000 shares; issued and outstanding 8,926,291 in 2006, 8,848,329 in 2005 |  |      | 44,631  |   |      |   | 44,241  |  
|Additional paid-in capital                                                                                            |  |      | 4,408   |   |      |   | 4,075   |  
|Accumulated other comprehensive income (loss)                                                                         |  |      | (1,762  | ) |      |   | (2,090  | )
|Retained earnings                                                                                                     |  |      | 275     |   |      |   | 1,467   |  
|Total Stockholders Equity                                                                                            |  |      | 47,552  |   |      |   | 47,693  |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Liabilities and Stockholders Equity                                                                            |  | $    | 591,542 |   |      | $ | 421,515 |  
|                                                                                                                      |  |      |         |   |      |   |         |  

The Notes to Consolidated Financial Statements are an integral part of these statements.



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MILLENNIUM BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Dollars in thousands, except share data)



|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                      |  | 2006 |        |   | 2005 |   |        | 2004 | 
|Interest Income                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Loans, including fees                                 |  | $    | 21,532 |   |      | $ | 18,828 |      |  | $ | 13,768 |  
|Securities                                            |  |      | 7,008  |   |      |   | 4,716  |      |  |   | 3,032  |  
|Federal funds sold                                    |  |      | 565    |   |      |   | 37     |      |  |   | 40     |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Total Interest Income                                 |  |      | 29,105 |   |      |   | 23,581 |      |  |   | 16,840 |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Interest Expense                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Deposits                                              |  |      | 13,876 |   |      |   | 8,308  |      |  |   | 5,045  |  
|Federal funds purchased and repurchase agreements     |  |      | 67     |   |      |   | 310    |      |  |   | 78     |  
|Advances from Federal Home Loan Bank                  |  |      | 2,659  |   |      |   | 1,711  |      |  |   | 424    |  
|Subordinated debentures                               |  |      | 781    |   |      |   | 654    |      |  |   | 457    |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Total Interest Expense                                |  |      | 17,383 |   |      |   | 10,983 |      |  |   | 6,004  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Net Interest Income                                   |  |      | 11,722 |   |      |   | 12,598 |      |  |   | 10,836 |  
|Provision for Loan Losses                             |  |      | (19    | ) |      |   | 412    |      |  |   | 271    |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Net Interest Income after Provision for Loan Losses   |  |      | 11,741 |   |      |   | 12,186 |      |  |   | 10,565 |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Noninterest Income                                    |  |      |        |   |      |   |        |      |  |   |        |  
|Gain on sale of loans and loan fees, net              |  |      | 587    |   |      |   | 1,024  |      |  |   | 992    |  
|Service charges                                       |  |      | 306    |   |      |   | 262    |      |  |   | 244    |  
|Gain (loss) on sale of securities                     |  |      | 56     |   |      |   | (208   | )    |  |   | 4      |  
|Other income                                          |  |      | 582    |   |      |   | 386    |      |  |   | 503    |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Total Noninterest Income                              |  |      | 1,531  |   |      |   | 1,464  |      |  |   | 1,743  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Noninterest Expense                                   |  |      |        |   |      |   |        |      |  |   |        |  
|Officers and employees compensation and benefits    |  |      | 5,264  |   |      |   | 5,736  |      |  |   | 4,349  |  
|Occupancy and equipment expense                       |  |      | 2,012  |   |      |   | 2,262  |      |  |   | 2,149  |  
|Marketing, promotion and advertising expense          |  |      | 206    |   |      |   | 172    |      |  |   | 106    |  
|Other operating expense                               |  |      | 2,792  |   |      |   | 3,655  |      |  |   | 2,133  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Total Noninterest Expense                             |  |      | 10,274 |   |      |   | 11,825 |      |  |   | 8,737  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Income from Continuing Operations before Income Taxes |  |      | 2,998  |   |      |   | 1,825  |      |  |   | 3,571  |  
|Provision for Income Tax Expense                      |  |      | 484    |   |      |   | 514    |      |  |   | 1,211  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Income from Continuing Operations                     |  |      | 2,514  |   |      |   | 1,311  |      |  |   | 2,360  |  
|Income (loss) from Discontinued Operations            |  |      | (2,995 | ) |      |   | 323    |      |  |   | (351   | )
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Net Income (loss)                                     |  | $    | (481   | ) |      | $ | 1,634  |      |  | $ | 2,009  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |  

The Notes to Consolidated Financial Statements are an integral part of these statements.



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MILLENNIUM BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2006, 2005 AND
2004-CONTINUED

(Dollars in thousands, except share data)



|                                                              |  |      |           |      |   |           |  |   |           |  
|------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | -
|                                                              |  | 2006 |           | 2005 |   | 2004      | 
|Earnings per common share from continuing operations          |  |      |           |      |   |           |  |   |           |  
|Basic                                                         |  | $    | 0.28      |      | $ | 0.15      |  | $ | 0.34      |  
|Diluted                                                       |  | $    | 0.28      |      | $ | 0.15      |  | $ | 0.32      |  
|Earnings (loss) per common share from discontinued operations |  |      |           |      |   |           |  |   |           |  
|Basic                                                         |  | $    | (0.34)    |      | $ | 0.04      |  | $ | (0.05     | )
|Diluted                                                       |  | $    | (0.33)    |      | $ | 0.04      |  | $ | (0.05     | )
|Earnings (loss) per common share                              |  |      |           |      |   |           |  |   |           |  
|Basic                                                         |  | $    | (0.05)    |      | $ | 0.19      |  | $ | 0.29      |  
|Diluted                                                       |  | $    | (0.05)    |      | $ | 0.18      |  | $ | 0.27      |  
|Dividends per common share                                    |  | $    | 0.08      |      | $ |          |  | $ |          |  
|Weighted average shares outstanding                           |  |      |           |      |   |           |  |   |           |  
|Basic                                                         |  |      | 8,902,634 |      |   | 8,798,106 |  |   | 7,037,771 |  
|Diluted                                                       |  |      | 9,115,857 |      |   | 8,939,052 |  |   | 7,356,247 |  

The Notes to Consolidated Financial Statements are an integral part of these statements.



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MILLENNIUM BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Dollars in thousands except share data)



|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------- |  | -------- | ------ | -------------- | - | ----- | ------------------------- |  | - | ------------------------------------------ | - |  | ------ | ------ | - | ------------------- | - | ------ | - |  | - | ------ | -
|                                                                                          |  | Number ofShares |  | ParValue |        | Paid inCapital |   |       | RetainedEarnings(Deficit) |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Totals |        |   | ComprehensiveIncome |  
|Balance, January 1, 2004                                                                  |  | 3,642,908       |  | $        | 18,214 |                | $ | 599   |                           |  | $ | (2,176                                     | ) |  | $      | (719   | ) |                     | $ | 15,918 |   |  |   |        |  
|Sale of common stock, net of expenses                                                     |  | 4,074,961       |  |          | 20,375 |                |   | 4,199 |                           |  |   |                                            |   |  |        |        |   |                     |   | 24,574 |   |  |   |        |  
|Options exercised                                                                         |  | 12,320          |  |          | 62     |                |   | 10    |                           |  |   |                                            |   |  |        |        |   |                     |   | 72     |   |  |   |        |  
|Conversion of warrants to common stock                                                    |  | 1,050,270       |  |          | 5,251  |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   | 5,251  |   |  |   |        |  
|Redemption of 603,010 warrants for cash                                                   |  |                 |  |          |        |                |   | (752  | )                         |  |   |                                            |   |  |        |        |   |                     |   | (752   | ) |  |   |        |  
|Changes in net unrealized gain (loss) on securities available for sale, net of tax effect |  |                 |  |          |       |                |   |      |                           |  |   |                                           |   |  |        | 39     |   |                     |   | 39     |   |  | $ | 39     |  
|Net income                                                                                |  |                |  |          |       |                |   |      |                           |  |   | 2,009                                      |   |  |        |        |   |                     |   | 2,009  |   |  |   | 2,009  |  
|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Balance, December 31, 2004                                                                |  | 8,780,459       |  |          | 43,902 |                |   | 4,056 |                           |  |   | (167                                       | ) |  |        | (680   | ) |                     |   | 47,111 |   |  |   | 2,048  |  
|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Options exercised                                                                         |  | 67,870          |  |          | 339    |                |   | 19    |                           |  |   |                                           |   |  |        |       |   |                     |   | 358    |   |  |   |        |  
|Changes in net unrealized gain (loss) on securities available for sale, net of tax effect |  |                 |  |          |       |                |   |      |                           |  |   |                                           |   |  |        | (1,410 | ) |                     |   | (1,410 | ) |  |   | (1,410 | )
|Net income                                                                                |  |                |  |          |       |                |   |      |                           |  |   | 1,634                                      |   |  |        |       |   |                     |   | 1,634  |   |  |   | 1,634  |  
|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Balance, December 31, 2005                                                                |  | 8,848,329       |  |          | 44,241 |                |   | 4,075 |                           |  |   | 1,467                                      |   |  |        | (2,090 | ) |                     |   | 47,693 |   |  |   | 224    |  
|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Options exercised                                                                         |  | 77,962          |  |          | 390    |                |   | 110   |                           |  |   |                                           |   |  |        |       |   |                     |   | 500    |   |  |   |        |  
|Stock compensation expense                                                                |  |                 |  |          |        |                |   | 223   |                           |  |   |                                           |   |  |        |       |   |                     |   | 223    |   |  |   |        |  
|Dividends paid                                                                            |  |                 |  |          |        |                |   |       |                           |  |   | (711                                       | ) |  |        |        |   |                     |   | (711   | ) |  |   |        |  
|Changes in net unrealized gain (loss) on securities available for sale, net of tax effect |  |                 |  |          |       |                |   |      |                           |  |   |                                           |   |  |        | 328    |   |                     |   | 328    |   |  |   | 328    |  
|Net income (loss)                                                                         |  |                |  |          |       |                |   |      |                           |  |   | (481                                       | ) |  |        |        |   |                     |   | (481   | ) |  |   | (481   | )
|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Balance, December 31, 2006                                                                |  | 8,926,291       |  | $        | 44,631 |                | $ | 4,408 |                           |  | $ | 275                                        |   |  | $      | (1,762 | ) |                     | $ | 47,552 |   |  | $ | (153   | )
|                                                                                          |  |                 |  |          |        |                |   |       |                           |  |   |                                            |   |  |        |        |   |                     |   |        |   |  |   |        |  

The Notes to Consolidated Financial Statements are an integral part of these statements.



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MILLENNIUM BANKSHARES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(dollars in thousands, except share data)



|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                             |  | 2006 |          |   | 2005 |   |         | 2004 | 
|Net income (loss)                                                            |  | $    | (481     | ) |      | $ | 1,634   |      |  | $ | 2,009   |  
|Noncash items included in net income                                         |  |      |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                |  |      | 713      |   |      |   | 839     |      |  |   | 919     |  
|Provision for loan losses, including discontinued operations                 |  |      | 153      |   |      |   | 438     |      |  |   | 271     |  
|Deferred tax expense (benefit)                                               |  |      |         |   |      |   | (729    | )    |  |   | 491     |  
|Amortization of investment security premiums and accretion of discounts, net |  |      | 190      |   |      |   | 139     |      |  |   | 251     |  
|Realized loss (gain) on sale of investment securities available for sale     |  |      | (56      | ) |      |   | 208     |      |  |   | (4      | )
|Loss on disposal of assets                                                   |  |      |         |   |      |   | 15      |      |  |   | 133     |  
|Stock Compensation Expense                                                   |  |      | 223      |   |      |   |        |      |  |   |        |  
|Cash surrender value of bank owned life insurance                            |  |      | (450     | ) |      |   | (195    | )    |  |   |        |  
|Change in                                                                    |  |      |          |   |      |   |         |      |  |   |         |  
|Loans held for sale, net (discontinued operations)                           |  |      | (15,684  | ) |      |   | 7,293   |      |  |   | (20,268 | )
|Accrued interest receivable                                                  |  |      | (1,156   | ) |      |   | (487    | )    |  |   | (108    | )
|Other assets                                                                 |  |      | (1,629   | ) |      |   | 167     |      |  |   | 655     |  
|Accrued interest payable                                                     |  |      | 503      |   |      |   | 203     |      |  |   | 41      |  
|Other accrued expenses                                                       |  |      | 3,247    |   |      |   | (940    | )    |  |   | 971     |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Net Cash Provided by (Used in) Operating Activities                          |  |      | (14,427  | ) |      |   | 8,585   |      |  |   | (14,639 | )
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                                         |  |      |          |   |      |   |         |      |  |   |         |  
|Decrease (increase) in Federal funds sold                                    |  |      | (49,449  | ) |      |   | (860    | )    |  |   | 6       |  
|Loan originations and payments, net                                          |  |      | (47,007  | ) |      |   | (1,722  | )    |  |   | (41,277 | )
|Purchase of securities available for sale                                    |  |      | (59,293  | ) |      |   | (66,439 | )    |  |   | (50,931 | )
|Sales of securities available for sale                                       |  |      | 3,178    |   |      |   | 12,787  |      |  |   | 48,236  |  
|Pay down of securities available for sale                                    |  |      | 7,691    |   |      |   | 9,022   |      |  |   | 5,102   |  
|Purchase of bank owned life insurance                                        |  |      | (4,000   | ) |      |   | (8,000  | )    |  |   |        |  
|Payments for the purchase of premises and equipment                          |  |      | (117     | ) |      |   | (1,012  | )    |  |   | (1,247  | )
|Proceeds from disposal of property                                           |  |      |         |   |      |   |        |      |  |   | 16      |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Net Cash Used in Investing Activities                                        |  |      | (148,997 | ) |      |   | (56,224 | )    |  |   | (40,095 | )
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Cash Flows from Financing Activities                                         |  |      |          |   |      |   |         |      |  |   |         |  
|Proceeds from issuance of common stock                                       |  |      | 500      |   |      |   | 358     |      |  |   | 24,646  |  
|Dividend distributions                                                       |  |      | (711     | ) |      |   |        |      |  |   |        |  
|Net proceeds from warrants redemption                                        |  |      |         |   |      |   |        |      |  |   | 4,499   |  
|Net increase in deposits                                                     |  |      | 183,733  |   |      |   | 18,163  |      |  |   | 8,721   |  
|Net increase (decrease) in FHLB borrowings                                   |  |      | (17,100  | ) |      |   | 38,500  |      |  |   | 16,100  |  
|Net increase (decrease) in Federal funds purchased and repurchase agreements |  |      | (215     | ) |      |   | (6,851  | )    |  |   | 1,437   |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Net Cash Provided by Financing Activities                                    |  |      | 166,207  |   |      |   | 50,170  |      |  |   | 55,403  |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Net Increase in Cash and Due from Banks                                      |  |      | 2,783    |   |      |   | 2,531   |      |  |   | 669     |  
|Cash and Due from Banks, beginning of year                                   |  |      | 5,505    |   |      |   | 2,974   |      |  |   | 2,305   |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Cash and Due from Banks, end of year                                         |  | $    | 8,288    |   |      | $ | 5,505   |      |  | $ | 2,974   |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  
|Supplemental Cash Flow Information                                           |  |      |          |   |      |   |         |      |  |   |         |  
|Interest Paid                                                                |  | $    | 16,832   |   |      | $ | 10,731  |      |  | $ | 5,915   |  
|Taxes Paid                                                                   |  | $    | 810      |   |      | $ | 2,001   |      |  | $ | 42      |  
|Noncash Investing Activities                                                 |  |      |          |   |      |   |         |      |  |   |         |  
|Loans transferred from held for sale to held to maturity                     |  | $    |         |   |      | $ |        |      |  | $ | 122     |  
|                                                                             |  |      |          |   |      |   |         |      |  |   |         |  

The Notes to Consolidated Financial Statements are an integral part of these statements.



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##### Table of Contents

MILLENINUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Organization and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Millennium Bankshares Corporation (the Corporation) and its subsidiaries: Millennium Bank, N.A., Millennium Brokerage Services, Inc. (terminated in 2004), Millennium e-Banking Solutions, L.L.C. (terminated in 2005), and Millennium Financial, Inc.
All significant intercompany accounts and transactions have been eliminated. The Corporation was incorporated in 1998 and began operations on April 1, 1999.

Millennium Bank, N.A., (the Bank) is a federally chartered national bank and is subject to regulation by the Office of the Comptroller of the Currency (OCC). The accounts of Millennium Bank, N.A. include its
subsidiary, Millennium Capital, Inc. and include other investments whose equity is not material to Millennium Bank, N.A. The principal activities of the Bank are to attract deposits and originate loans. Millennium Capital, Inc., a wholly owned
subsidiary of the Bank, conducted mortgage banking, as permitted by applicable regulations, for nationally chartered banks until August 31, 2005. In September, three majority-owned operating subsidiaries engaged in mortgage banking began
operations; Millennium Sunbelt Mortgage, LLC, Millennium Bank Mortgage, LLC and Millennium Hyland Mortgage, LLC (the LLCs). As of December 31, 2006, the Corporation determined that it was in its best interest to wind down its
mortgage operating subsidiaries. It was the Corporations desire to focus exclusively on core banking activities to eliminate, going forward, the risks normally associated with mortgage banking activities. The wind down decision was also
precipitated by credit quality issues that surfaced in the held for sale loan portfolio during the fourth quarter 2006. Accordingly, the results of the Corporations mortgage operations are presented in a separate category on the income
statement following the results from continuing operations.

The Bank is engaged in the general business of banking, aimed at serving
individuals, small and medium sized businesses and the professional communities principally located throughout the Northern Virginia and Richmond, Virginia areas. The Bank conducts full-service banking operations from several branches in these areas
and its headquarters is located in Reston, Virginia.

The accounting and reporting policies of the Corporation are in accordance with
generally accepted accounting principles and conform to general practices within the banking industry. The more significant of these policies are discussed below.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to
the current year.

Use of Estimates

The preparation of financial statements in conformity with 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 revenue and expenses during the reporting period. Actual results could vary from the estimates that were used. 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 fair value of financial instruments.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | -----------------------------------------------------

Use of Estimates(continued)



The determination of the adequacy of the allowance for loan losses is based on estimates that are
particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.

Significant Concentrations

Most of the Corporations activities are with customers located within the Northern Virginia and Richmond, Virginia areas. Most of the Corporations loans are secured by real estate in these areas. Later footnotes discuss the
types of securities that the Corporation invests in and the types of lending the Corporation engages in. The Corporation does not have any significant concentrations in any one customer.

The Corporations primary source of income is interest income.

Investment Securities

Debt securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity. Securities held-to-maturity are carried at amortized cost. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the
interest method over the period to maturity. The Corporation does not have any securities classified as held to maturity.

Debt securities
not classified as held-to-maturity and equity securities are classified as available-for-sale. Securities available-for-sale are carried at fair value with unrealized gains and losses reported in other comprehensive income. Realized gains (losses)
on securities available-for-sale are included in other income (expense). Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Declines in the fair value of 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 independent price quotations, projected target prices of investment analysts within the short term and the financial condition of the issuer.

Loans Held for Sale

Loans originated
and intended for sale in the secondary market are aggregated into pools of loans with similar characteristics and carried at the lower of cost or estimated fair value in the aggregate for each pool. Unrealized losses, if any, are recognized through
a valuation allowance by charges to income. Loans later transferred to a long-term investment classification are transferred at the lower of cost or market value on the transfer date. Any difference between the carrying amount of the loan and its
outstanding principal balance at the time of transfer is recognized as an adjustment to yield by the interest method.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | -----------------------------------------------------



Loans and Loan Fees

The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial and
mortgage loans secured by real estate throughout the Northern Virginia and Richmond, Virginia areas. The ability of the Corporations debtors to honor their contracts is dependent upon the real estate and general economic conditions in these
areas.

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 on loans is generally computed using the simple interest method.

Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over
the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on non-accrual status.

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. Credit card loans and other personal
loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual status 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 non-accrual 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.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level, which, in managements judgment, is adequate to absorb probable incurred losses in the loan portfolio. The amount of the allowance is based on
managements evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, economic conditions, and other risks inherent in
the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation 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 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. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | -----------------------------------------------------

Allowance for Loan Losses(continued)



Although management uses available information to recognize losses on loans, because of uncertainties
associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change
that is reasonably possible cannot be estimated. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses. Past due status is determined based on contractual terms.

Federal Home Loan Bank Stock and
Federal Reserve Bank Stock

The Bank, as a member of the Federal Home Loan Bank (FHLB) of Atlanta, is required to hold shares of capital
stock in the FHLB consisting of two components; membership stock equal to the lesser of a specified percentage of the Banks total assets on December 31 of the prior year, or 0.20 percent, plus activity-based stock which is 4.50 percent
times the Banks outstanding advances from the FHLB. This investment is recorded at cost and periodically evaluated for impairment. Both cash and stock dividends are reported as income. The amount of FHLB stock was $3,052, and $3,628 at
December 31, 2006, and 2005, respectively. The Bank, as a member of the Federal Reserve Bank (FRB) is also required to hold shares of capital stock in the FRB. The amount of FRB stock was $1,338 and $864 at December 31, 2006 and 2005,
respectively.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Leasehold improvements are amortized over the life of the lease using the straight-line method. Furniture and equipment are
depreciated over estimated useful lives of three and seven years using the straight-line method. Computer hardware and software are depreciated over estimated useful lives of three and five years using the straight-line method. Automobiles are
depreciated over the estimated useful live of three years using the straight-line method. The Bank depreciates furniture and equipment using accelerated methods for income tax reporting.

Expenditures for maintenance, repairs, and improvements that do not materially extend the useful lives of property and equipment are charged to earnings.
When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the respective accounts, and the resulting gain or loss is reflected in current earnings.

Advertising Costs

Advertising costs
are charged to expense as incurred.

Stockholders Equity and Dividend Payment Restrictions

The Corporation held its first public offering in February 2002. Costs related to the public offering totaled $665, resulting in net capital proceeds of
$7,960. In May of 2004 the Corporation completed a secondary offering resulting in 4,074,961 additional common shares being issued and the retirement of all warrants issued to the original investors resulting in 1,050,270 shares being issued. This
transaction yielded, net of fees, approximately $29,073 in additional capital.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | -----------------------------------------------------

Stockholders Equity and Dividend Payment Restrictions(continued)



Federal and state banking regulations place certain restrictions on dividends paid and loans or
advances made by the Bank to the Corporation. The total amount of dividends that may be paid in any calendar year is limited to the current years net profits, combined with the retained net profits of the preceding two years and loans or
advances from the Bank to the Corporation are limited to 10 percent of the Banks capital stock and surplus on a secured basis. At December 31, 2006, the Bank had retained earnings of $1,598 available for the payment of dividends. No funds
are available for loans or advances by the Bank to the Corporation.

Income Taxes

Income tax expense is the total of current year income tax due or refundable and the change in deferred tax assets and liabilities. 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.

The Bank pays state franchise
tax in lieu of state income taxes.

Earnings per Common 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 Corporation relate to outstanding stock options and warrants, and are determined using the treasury stock method.

Stock Compensation Plans

Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123R, Share Based Payment. The Company elected to utilize the modified prospective transition method; therefore, prior period results were not restated. Prior to the adoption of SFAS 123R,
stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees.

SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. For options with graded vesting, we
value the stock option grants and recognize compensation expense as if each vesting portion of the award was a single award. Under the modified prospective method, unvested awards, and awards that were granted, modified, or settled on or after
January 1, 2006 are measured and accounted for in accordance with SFAS 123R.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- | ------------------------------------------------------

Stock Compensation Plans(continued)



The following table illustrates the effect on net income and earnings per share if the Corporation
had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                             |  |      |       |   |      |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                                                                                             |  | 2005 |       |   | 2004 |  
|Net income as reported                                                                                                                       |  | $    | 1,634 |   |      | $ | 2,009 |  
|Deduct: Total stock based employees compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (135  | ) |      |   | (125  | )
|                                                                                                                                             |  |      |       |   |      |   |       |  
|Pro forma                                                                                                                                    |  | $    | 1,499 |   |      | $ | 1,884 |  
|                                                                                                                                             |  |      |       |   |      |   |       |  
|Earnings per share:                                                                                                                          |  |      |       |   |      |   |       |  
|Basic - as reported                                                                                                                          |  | $    | 0.19  |   |      | $ | 0.29  |  
|                                                                                                                                             |  |      |       |   |      |   |       |  
|Basic - pro forma                                                                                                                            |  | $    | 0.17  |   |      | $ | 0.27  |  
|                                                                                                                                             |  |      |       |   |      |   |       |  
|Diluted - as reported                                                                                                                        |  | $    | 0.18  |   |      | $ | 0.27  |  
|                                                                                                                                             |  |      |       |   |      |   |       |  
|Diluted - pro forma                                                                                                                          |  | $    | 0.17  |   |      | $ | 0.26  |  
|                                                                                                                                             |  |      |       |   |      |   |       |  

Statements of Cash Flows

The Corporation considers all cash and amounts due from depository institutions, excluding Federal funds sold, to be cash equivalents for purposes of the
statements of cash flows.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Corporation has entered into commitments to extend credit, including commitments under credit card arrangements,
commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | -----------------------------------------------------



Rate Lock Commitments

The Corporation 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 recorded at fair value in derivative assets or
liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage 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. To minimize interest rate risk, it is the policy of the Corporation to sell all fixed rate mortgage loans to the secondary market within 60 days of origination. At December 31, 2006, the
Corporation had rate lock commitments to originate and sell loans held-for-sale of $17.5 million.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred
assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Recent Accounting Pronouncements

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

In
February 2006, the FASB issued Statement No. 155 (SFAS No. 155), Accounting for Certain Hybrid Instruments. SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a
whole, eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after the
beginning of an entitys first fiscal year that begins after September 15, 2006. It is anticipated that this statement will not have a material effect on the Corporations financial statements.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | -----------------------------------------------------



In March 2006, the FASB issued Statement No. 156 (SFAS No. 156),
Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140. Among other requirements SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an
obligation to service a financial asset by entering into a servicing contract. It further requires initial measurement of all newly purchased or issued separately recognized servicing assets and servicing liabilities at fair value, if practicable.
Subsequent measurements may be made using either the fair value or amortization method. SFAS No. 156 is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006 with early adopting permitted.
It is anticipated that this statement will not have a material effect on the Corporations financial statements.

In July 2006, the
FASB released Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This interpretation revises the recognition tests for tax positions taken in tax returns such that a tax benefit is recorded only when it is more
likely than not that the tax position will be allowed upon examination by taxing authorities. The amount of such a tax benefit to record is the largest amount that is more likely than not to be allowed. Any reduction in deferred tax assets or
increase in tax liabilities upon adoption will correspondingly reduce retained earnings. The Corporation has not finalized its analysis of the impact of adopting this Interpretation, which is effective for it on January 1, 2007 but the
Corporations preliminary assessment is that adoption of this Interpretation will not have a material effect on the Corporations financial statements.

In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the SEC staffs views regarding the process of
quantifying financial statement misstatements and requires that the registrants materiality evaluation of an identified unadjusted error quantify the effects of the error on each financial statement and related financial statement disclosures
and that prior year misstatements be considered in quantifying misstatements in current year financial statements. The SEC staff encourages early application of the guidance in SAB 108 for interim periods of the first fiscal year ending after
November 15, 2006. Application of SAB 108 did not have a material effect on its financial statements.

In September 2006, the FASB
issued Statement No. 157 (SFAS No. 157), Fair Value Measurements. SFAS defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. The Corporation does not expect the implementation of SFAS 157 to have a material
impact on its financial statements.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|2. | DISCONTINUED OPERATIONS
|-- | -----------------------

As of December 31,
2006, the Corporation determined that it was in its best interest to wind down its mortgage operating subsidiaries. It was the Corporations desire to focus exclusively on core banking activities going forward to eliminate, going forward, the
risks normally associated with mortgage banking activities. The wind down decision was also precipitated by credit quality issues that surfaced in the held for sale loan portfolio during the fourth quarter. Accordingly, the results of the
Corporations mortgage operations are presented in a separate category on the income statement following the results from continuing operations.

STATEMENT OF INCOME FOR DISCONTINUED OPERATIONS



|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|-------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                               |  | 2006 |        |   | 2005 |   |       | 2004 | 
|Interest Income                                                |  | $    | 2,509  |   |      | $ | 492   |      |  | $ | 1,532 |  
|Interest Expense                                               |  |      | 1,642  |   |      |   | 316   |      |  |   | 1,152 |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Net Interest Income                                            |  |      | 867    |   |      |   | 176   |      |  |   | 380   |  
|Provision for Loan Losses                                      |  |      | (172   | ) |      |   | (26   | )    |  |   |      |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Net Interest Income after Provision for Loan Losses            |  |      | 695    |   |      |   | 150   |      |  |   | 380   |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Noninterest Income                                             |  |      |        |   |      |   |       |      |  |   |       |  
|Gain (loss) on sale of loans and loan fees, net                |  |      | (1,814 | ) |      |   | 2,078 |      |  |   | 837   |  
|Other income                                                   |  |      | 8      |   |      |   |      |      |  |   | (140  | )
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Total Noninterest Income                                       |  |      | (1,806 | ) |      |   | 2,078 |      |  |   | 697   |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Noninterest Expense                                            |  |      |        |   |      |   |       |      |  |   |       |  
|Officers and employees compensation and benefits             |  |      | 278    |   |      |   |      |      |  |   |      |  
|Occupancy and equipment expense                                |  |      |       |   |      |   | 483   |      |  |   | 319   |  
|Marketing, promotion and advertising expense                   |  |      |       |   |      |   | 132   |      |  |   | 40    |  
|Other operating expense                                        |  |      | 3,148  |   |      |   | 1,124 |      |  |   | 1,250 |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Total Noninterest Expense                                      |  |      | 3,426  |   |      |   | 1,739 |      |  |   | 1,609 |  
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Income (loss) from Discontinued Operations before Income Taxes |  |      | (4,537 | ) |      |   | 489   |      |  |   | (532  | )
|Income Tax Expense (benefit)                                   |  |      | (1,542 | ) |      |   | 166   |      |  |   | (181  | )
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  
|Income (loss) from Discontinued Operations                     |  | $    | (2,995 | ) |      | $ | 323   |      |  | $ | (351  | )
|                                                               |  |      |        |   |      |   |       |      |  |   |       |  

In September 2005, the Corporation restructured its mortgage operations. Prior to September 2005,
the Corporation recorded gross gains on mortgage sales, which were offset by compensation expense and other direct expenses for the mortgage department. Beginning in 2006, prior periods were restated to reflect a net gain presentation (gross gains
on mortgage sales netted with compensation cost). Under the new structure the Corporation established in September 2005, contractual relationships with three mortgage banking limited liability companies, the terms of each of which provided for a
per loan fee to be paid to the Corporation, (the 51% owner of the LLCs) for each mortgage loan sold and required the 49% owners to pay for all costs of operation while retaining all other fee income.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|2. | DISCONTINUED OPERATIONS(continued)
|-- | ----------------------------------



At December 31, 2006 there were $37.7 million in loans held for sale attributable to
discontinued operations. Included in the carrying amount for loans held for sale is a $2.965 million lower of cost or market adjustment. The expense associated with this adjustment is reflected as a contra revenue item in gain on sale of loans, net.
The $2.913 million reflected in other loan expense for 2006 in the following table is a charge to establish a reserve for potential off-balance sheet exposure associated with loans already sold to investors. The reserve for off-balance sheet
exposure is included in other liabilities. Other than the establishment of this reserve in 2006, there was no other activity in this reserve account in 2006, 2005 or 2004. Investor agreements provide that the seller must buyback the loan under
certain conditions, such as early payment default, and management determined at December 31, 2006 that it was more likely than not that buyback conditions occurred in some of the production sold to investors, particularly for identified loans
that were originated under sub prime underwriting guidelines.

Other operating expenses consist of the following:



|                                        |  |      |       |      |   |       |  |   |      
|--------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                        |  | 2006 |       | 2005 |   | 2004 
|Dues and fees                           |  | $    |      |      | $ | 1     |  | $ | 2    
|Franchise taxes and miscellaneous taxes |  |      |      |      |   | 2     |  |   |     
|Insurance expense                       |  |      |      |      |   | 5     |  |   | 3    
|Meetings and seminar expense            |  |      |      |      |   | 50    |  |   | 19   
|Miscellaneous operating expenses        |  |      | 235   |      |   | 55    |  |   | 72   
|Office expenses                         |  |      |      |      |   | 173   |  |   | 170  
|Outside services                        |  |      |      |      |   | 9     |  |   | 127  
|Professional fees                       |  |      |      |      |   | 194   |  |   | 454  
|Other loan expense                      |  |      | 2,913 |      |   | 635   |  |   | 403  
|                                        |  |      |       |      |   |       |  |   |      
|Total Other Operating Expenses          |  | $    | 3,148 |      | $ | 1,124 |  | $ | 1,250
|                                        |  |      |       |      |   |       |  |   |      



|3. | RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS
|-- | -----------------------------------------------

The Bank is required to maintain a certain amount of cash on hand or with the Federal Reserve Bank. At December 31, 2006 and 2005 the required reserve balances amounted to $3,175 and $4,143, respectively.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|4. | SECURITIES AVAILABLE FOR SALE
|-- | -----------------------------

The amortized cost
and fair value of securities available for sale as shown in the balance sheets of the Bank are as follows:



|                                      |  |                |         |                        |   |                         |  |   |            |   |  |   |        
|------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | - | ---------- | - |  | - | -------
|                                      |  | AmortizedCost  |         | GrossUnrealizedGains   |   | GrossUnrealizedLosses   |  |   | FairValue 
|December 31, 2006                     |  |                |         |                        |   |                         |  |   |            |   |  |   |        
|U.S. Government and Agency Securities |  | $              | 72,160  |                        | $ | 20                      |  | $ | (1,583     | ) |  | $ | 70,597 
|Mortgage-backed Securities            |  |                | 50,716  |                        |   | 29                      |  |   | (731       | ) |  |   | 50,014 
|States and Political Subdivisions     |  |                | 43,695  |                        |   | 41                      |  |   | (372       | ) |  |   | 43,364 
|Other Debt Securities                 |  |                | 8,802   |                        |   | 8                       |  |   | (82        | ) |  |   | 8,728  
|                                      |  |                |         |                        |   |                         |  |   |            |   |  |   |        
|Total Debt Securities                 |  | $              | 175,373 |                        | $ | 98                      |  | $ | (2,768     | ) |  | $ | 172,703
|                                      |  |                |         |                        |   |                         |  |   |            |   |  |   |        
|                                      |  |                |         |                       
|                                      |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Fair Value
|                                      |  |                |        
|                                      |  |                |        
|December 31, 2005                     |  |                |         |                        |   |                         |  |   |            |   |  |   |        
|U.S. Government and Agency Securities |  | $              | 60,287  |                        | $ |                        |  | $ | (1,972     | ) |  | $ | 58,315 
|Mortgage-backed Securities            |  |                | 33,702  |                        |   |                        |  |   | (816       | ) |  |   | 32,886 
|States and Political Subdivisions     |  |                | 25,409  |                        |   |                        |  |   | (383       | ) |  |   | 25,026 
|Other Debt Securities                 |  |                | 7,584   |                        |   | 3                       |  |   |           |   |  |   | 7,587  
|                                      |  |                |         |                        |   |                         |  |   |            |   |  |   |        
|Total Debt Securities                 |  | $              | 126,982 |                        | $ | 3                       |  | $ | (3,171     | ) |  | $ | 123,814
|                                      |  |                |         |                        |   |                         |  |   |            |   |  |   |        

The amortized cost and fair value of debt securities available for sale at December 31, 2006
by contractual maturity were as follows. Mortgage-backed securities, which are not due at a single maturity date, are shown separately.



|                                   |  |               |         |                 |   |        
|---------------------------------- |  | ------------- | ------- | --------------- | - | -------
|                                   |  | AmortizedCost |         | FairMarketValue
|Less than one year                 |  | $             | 1,000   |                 | $ | 997    
|After one year through five years  |  |               | 34,026  |                 |   | 33,312 
|After five years through ten years |  |               | 41,578  |                 |   | 40,764 
|After ten years                    |  |               | 48,053  |                 |   | 47,616 
|Mortgage-backed securities         |  |               | 50,716  |                 |   | 50,014 
|                                   |  |               |         |                 |   |        
|                                   |  | $             | 175,373 |                 | $ | 172,703
|                                   |  |               |         |                 |   |        



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|4. | SECURITIES AVAILABLE FOR SALE(continued)
|-- | ----------------------------------------



Investment securities with a carrying amount of $99,244 and $76,442 at December 31, 2006 and
2005 respectively, were pledged as collateral for Federal Home Loan Bank and Community Bankers Bank advances, to secure repurchase agreements and for other purposes as required or permitted by law.

During 2006, 2005 and 2004, proceeds from the sale of investment securities totaled $3,178, $12,787 and $48,236, respectively, with gross realized gains
of $56, $1, and $160 respectively, and gross realized losses of $0, $209 and $156, respectively.

Securities with unrealized losses at
year-end 2006 and 2005, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:



|                                        |  |                     |        |                         |                   |        |            |       |                         |        |  |            |        |                         |  |   |         |  |   |        |  
|--------------------------------------- |  | ------------------- | ------ | ----------------------- | ----------------- | ------ | ---------- | ----- | ----------------------- | ------ |  | ---------- | ------ | ----------------------- |  | - | ------- |  | - | ------ | -
|                                        |  | December 31, 2006   |       
|                                        |  | Less than 12 months |        |                         | 12 months or more |        |            | Total |                        
|(Dollars in thousands)                  |  | Fair Value          |        | Gross Unrealized Losses |                   |        | Fair Value |       | Gross Unrealized Losses |        |  | Fair Value |        | Gross Unrealized Losses | 
|                                        |  |                     |        |                         |                  
|                                        |  |                     |        |                         |                  
|U.S. Government and Agencies securities |  | $                   | 3,158  |                         | $                 | (7     | )          |       | $                       | 58,728 |  | $          | (1,576 | )                       |  | $ | 61,886  |  | $ | (1,583 | )
|Mortgage-backed securities              |  |                     | 14,327 |                         |                   | (44    | )          |       |                         | 24,914 |  |            | (687   | )                       |  |   | 39,241  |  |   | (731   | )
|States and political Subdivisions       |  |                     | 18,758 |                         |                   | (200   | )          |       |                         | 10,227 |  |            | (172   | )                       |  |   | 28,985  |  |   | (372   | )
|Other debt securities                   |  |                     | 7,463  |                         |                   | (82    | )          |       |                         |       |  |            |       |                         |  |   | 7,463   |  |   | (82    | )
|                                        |  |                     |        |                         |                   |        |            |       |                         |        |  |            |        |                         |  |   |         |  |   |        |  
|                                        |  | $                   | 43,706 |                         | $                 | (333   | )          |       | $                       | 93,869 |  | $          | (2,435 | )                       |  | $ | 137,575 |  | $ | (2,768 | )
|                                        |  |                     |        |                         |                   |        |            |       |                         |        |  |            |        |                         |  |   |         |  |   |        |  
|                                        | 
|                                        |  | December 31, 2005   |       
|                                        |  | Less than 12 months |        |                         | 12 months or more |        |            | Total |                        
|(Dollars in thousands)                  |  | Fair Value          |        | Gross Unrealized Losses |                   |        | Fair Value |       | Gross Unrealized Losses |        |  | Fair Value |        | Gross Unrealized Losses | 
|                                        |  |                     |        |                         |                  
|                                        |  |                     |        |                         |                  
|U.S. Government and Agencies securities |  | $                   | 8,487  |                         | $                 | (153   | )          |       | $                       | 49,828 |  | $          | (1,819 | )                       |  | $ | 58,315  |  | $ | (1,972 | )
|Mortgage-backed securities              |  |                     | 25,049 |                         |                   | (577   | )          |       |                         | 6,477  |  |            | (239   | )                       |  |   | 31,526  |  |   | (816   | )
|States and political Subdivisions       |  |                     | 15,340 |                         |                   | (383   | )          |       |                         |       |  |            |       |                         |  |   | 15,340  |  |   | (383   | )
|                                        |  |                     |        |                         |                   |        |            |       |                         |        |  |            |        |                         |  |   |         |  |   |        |  
|                                        |  | $                   | 48,876 |                         | $                 | (1,113 | )          |       | $                       | 56,305 |  | $          | (2,058 | )                       |  | $ | 105,181 |  | $ | (3,171 | )
|                                        |  |                     |        |                         |                   |        |            |       |                         |        |  |            |        |                         |  |   |         |  |   |        |  

Unrealized losses on bonds have not been recognized into income because the bonds are investment
grade, management has the intent and ability to hold for the foreseeable future, and the decline in fair value is due to changes in market interest rates, not in estimated cash flows. The fair value is expected to recover as the bonds approach their
maturity date or reset date.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|5. | LOANS RECEIVABLE
|-- | ----------------

Loans receivable include the
following at December 31:



|                           |  |      |         |   |      |   |         |  
|-------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                           |  | 2006 |         |   | 2005 |  
|Real estate loans          |  |      |         |   |      |   |         |  
|Mortgage                   |  | $    | 85,929  |   |      | $ | 65,919  |  
|Commercial                 |  |      | 125,540 |   |      |   | 126,325 |  
|Construction               |  |      | 55,245  |   |      |   | 43,368  |  
|                           |  |      |         |   |      |   |         |  
|Total real estate loans    |  |      | 266,714 |   |      |   | 235,612 |  
|Commercial                 |  |      | 18,502  |   |      |   | 13,180  |  
|Consumer                   |  |      | 13,468  |   |      |   | 2,897   |  
|Overdrafts                 |  |      | 22      |   |      |   | 20      |  
|                           |  |      |         |   |      |   |         |  
|Subtotal                   |  |      | 298,706 |   |      |   | 251,709 |  
|Allowance for loan losses  |  |      | (3,441  | ) |      |   | (3,215  | )
|Deferred loan costs (fees) |  |      | (208    | ) |      |   | (291    | )
|                           |  |      |         |   |      |   |         |  
|Total Loans                |  | $    | 295,057 |   |      | $ | 248,203 |  
|                           |  |      |         |   |      |   |         |  

An analysis of the allowance for loan losses is as follows at December 31:



|                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                  |  | 2006 |       |   | 2005 |   |       | 2004 | 
|Balance beginning of period                       |  | $    | 3,215 |   |      | $ | 2,925 |      |  | $ | 3,057 |  
|Provision for loan losses                         |  |      | (19   | ) |      |   | 412   |      |  |   | 271   |  
|Provision attributable to discontinued operations |  |      | 172   |   |      |   | 26    |      |  |   |      |  
|Loans charged to reserve                          |  |      |      |   |      |   | (272  | )    |  |   | (521  | )
|Recoveries credited to reserve                    |  |      | 73    |   |      |   | 124   |      |  |   | 118   |  
|                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|Totals                                            |  | $    | 3,441 |   |      | $ | 3,215 |      |  | $ | 2,925 |  
|                                                  |  |      |       |   |      |   |       |      |  |   |       |  

The provision for loan losses attributable to discontinued operations relate to losses recognized
on portfolio loans made to provide operating capital to the 49% owners of the LLCs in conjunction with their mortgage operations.

The Bank had non-accrual loans of $3,043 and $598 at December 31, 2006 and 2005, respectively. The Bank had $379 and $166 of loans past due 90 days or more still accruing at December 31, 2006 and 2005, respectively.

Mortgage loans totaling $15.5 million and $6.9 million, respectively, were pledged as collateral for Federal Home Loan Bank advances at December 31,
2006 and December 31, 2005, respectively under a blanket floating lien.

Information regarding impaired loans is as follows:



|                                                             |  |              |       |      |   |    
|------------------------------------------------------------ |  | ------------ | ----- | ---- | - | ---
|                                                             |  | December 31,
|                                                             |  | 2006         |       | 2005
|Loans with no allocated allowance for loan losses            |  | $            |      |      | $ |   
|Loans with allocated allowance for loan losses               |  |              | 3,043 |      |   | 598
|                                                             |  |              |       |      |   |    
|Total                                                        |  | $            | 3,043 |      | $ | 598
|                                                             |  |              |       |      |   |    
|Amount of the allowance for loan losses allocated            |  | $            | 555   |      | $ | 289
|Average investment in impaired loans                         |  | $            | 1,651 |      | $ | 120
|Interest income recognized during impairment                 |  | $            |      |      | $ |   
|Interest income recognized on a cash basis on impaired loans |  | $            |      |      | $ |   

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



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|6. | PREMISES AND EQUIPMENT
|-- | ----------------------

Premises and equipment
include the following at December 31:



|                                               |  |      |        |   |      |   |        |  
|---------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                               |  | 2006 |        |   | 2005 |  
|Furniture and equipment                        |  | $    | 5,195  |   |      | $ | 5,020  |  
|Leasehold improvements                         |  |      | 1,835  |   |      |   | 1,893  |  
|                                               |  |      |        |   |      |   |        |  
|Total cost                                     |  |      | 7,030  |   |      |   | 6,913  |  
|Less accumulated depreciation and amortization |  |      | (5,001 | ) |      |   | (4,288 | )
|                                               |  |      |        |   |      |   |        |  
|Premises and equipment, net                    |  | $    | 2,029  |   |      | $ | 2,625  |  
|                                               |  |      |        |   |      |   |        |  

Depreciation of premises and equipment charged to expense amounted to $713, $755, and $796 in
2006, 2005, and 2004, respectively.



|7. | DEPOSITS
|-- | --------

Time deposits in denominations of
$100,000 or more totaled $156,112 at year-end 2006 and $93,885 at year-end 2005. Time deposits mature as follows at December 31, 2006:



|      |  |   |        
|----- |  | - | -------
|2007  |  | $ | 233,357
|2008  |  |   | 71,620 
|2009  |  |   | 20,462 
|2010  |  |   | 7,840  
|2011  |  |   | 3,596  
|      |  |   |        
|Total |  | $ | 336,875
|      |  |   |        



|8. | BORROWINGS
|-- | ----------

The Corporation had borrowings
outstanding as follows:



|                          |  |              |   |  |                   |  |        |       
|------------------------- |  | ------------ | - |  | ----------------- |  | ------ | ------
|December 31, 2006:        |  | InterestRate |   |  | Maturity          |  | Amount
|Federal Home Loan Bank(1) |  |              |   |  |                   |  |        |       
|Advances                  |  | 5.46         | % |  | February 13, 2007 |  |        | 5,000 
|Advances                  |  | 5.43         | % |  | June 11, 2007     |  |        | 5,000 
|Advances                  |  | 4.41         | % |  | July 25, 2007     |  |        | 1,500 
|Advances                  |  | 3.44         | % |  | October 9, 2007   |  |        | 1,000 
|Advances                  |  | 5.43         | % |  | December 11, 2007 |  |        | 2,500 
|Advances                  |  | 5.50         | % |  | December 17, 2007 |  |        | 2,500 
|Advances                  |  | 5.46         | % |  | June 2, 2008      |  |        | 2,500 
|Advances                  |  | 4.51         | % |  | July 25, 2008     |  |        | 1,500 
|Advances                  |  | 4.36         | % |  | December 22, 2008 |  |        | 3,600 
|Advances                  |  | 3.90         | % |  | March 23, 2010    |  |        | 5,000 
|Advances                  |  | 4.64         | % |  | July 26, 2010     |  |        | 2,000 
|Advances                  |  | 5.45         | % |  | March 29, 2011    |  |        | 800   
|Advances                  |  | 5.11         | % |  | June 20, 2011     |  |        | 5,000 
|Advances                  |  | 4.86         | % |  | March 12, 2012    |  |        | 5,000 
|Advances                  |  | 5.32         | % |  | June 28, 2016     |  |        | 5,000 
|                          |  |              |   |  |                   |  |        |       
|                          |  |              |   |  |                   |  | $      | 47,900
|                          |  |              |   |  |                   |  |        |       



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|8. | BORROWINGS (continued)
|-- | ----------------------





|                          |  |              |   |  |                   |  |        |       
|------------------------- |  | ------------ | - |  | ----------------- |  | ------ | ------
|December 31, 2005:        |  | InterestRate |   |  | Maturity          |  | Amount
|Federal funds purchased   |  | 4.44         | % |  | Demand            |  | $      | 215   
|                          |  |              |   |  |                   |  |        |       
|Federal Home Loan Bank(1) |  |              |   |  |                   |  |        |       
|Advances                  |  | 4.44         | % |  | Demand            |  | $      | 22,900
|Advances                  |  | 4.33         | % |  | February 13, 2006 |  |        | 5,000 
|Advances                  |  | 4.56         | % |  | June 11, 2007     |  |        | 5,000 
|Advances                  |  | 4.41         | % |  | July 25, 2007     |  |        | 1,500 
|Advances                  |  | 3.44         | % |  | October 9, 2007   |  |        | 1,000 
|Advances                  |  | 4.53         | % |  | December 11, 2007 |  |        | 2,500 
|Advances                  |  | 4.64         | % |  | December 17, 2007 |  |        | 2,500 
|Advances                  |  | 4.54         | % |  | June 2, 2008      |  |        | 2,500 
|Advances                  |  | 4.51         | % |  | July 25, 2008     |  |        | 1,500 
|Advances                  |  | 4.36         | % |  | December 22, 2008 |  |        | 3,600 
|Advances                  |  | 3.14         | % |  | June 11, 2009     |  |        | 5,000 
|Advances                  |  | 3.90         | % |  | March 23, 2010    |  |        | 5,000 
|Advances                  |  | 4.64         | % |  | July 26, 2010     |  |        | 2,000 
|Advances                  |  | 3.98         | % |  | March 12, 2012    |  |        | 5,000 
|                          |  |              |   |  |                   |  |        |       
|                          |  |              |   |  |                   |  | $      | 65,000
|                          |  |              |   |  |                   |  |        |       



|(1) | Of the $47,900 in Federal Home Loan Bank advances outstanding at December 31, 2006, $17,500 have adjustable rates which are reset quarterly, $10,400 have fixed rates to
maturity, and $20,000 have fixed rates which may be convertible to three-month LIBOR. Advances are subject to prepayment penalties.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2006 the Corporation has the following lines of credit:



|                                |  |                      |         |                  |   |        
|------------------------------- |  | -------------------- | ------- | ---------------- | - | -------
|                                |  | Total Line Of Credit |         | Amount Available
|                                | 
|Federal Home Loan Bank, secured |  | $                    | 145,910 |                  | $ | 98,010 
|The Bankers Bank(1)             |  |                      | 5,000   |                  |   | 5,000  
|Compass Bank                    |  |                      | 7,500   |                  |   | 7,500  
|Community Bankers Bank          |  |                      |         |                  |   |        
|Secured(1)                      |  |                      | 10,077  |                  |   | 10,077 
|Unsecured(1)                    |  |                      | 12,000  |                  |   | 12,000 
|                                |  |                      |         |                  |   |        
|                                |  | $                    | 180,487 |                  | $ | 132,587
|                                |  |                      |         |                  |   |        



|(1) | Federal funds facilities. The Community Bankers bank secured facility is collateralized with pledged
investment securities.
|--- | ---------------------------------------------------------------------------------------------------------------------------



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|8. | BORROWINGS (continued)
|-- | ----------------------



Quarter average balances, rates and maximum balances for FHLB borrowings in 2006 and 2005 are
indicated below.



|              |  |                       |        |             |      |   |                       |   |       
|------------- |  | --------------------- | ------ | ----------- | ---- | - | --------------------- | - | ------
|2006          |  | QuarterAverageBalance |        | AverageRate |      |   | QuarterMaximumBalance
|December 31,  |  | $                     | 48,693 |             | 4.81 | % |                       | $ | 59,400
|September 30, |  |                       | 63,035 |             | 5.14 | % |                       |   | 92,600
|June 30,      |  |                       | 63,435 |             | 4.73 | % |                       |   | 83,100
|March 31,     |  |                       | 67,267 |             | 4.27 | % |                       |   | 70,000
|              |  |                       |       
|2005          |  | QuarterAverageBalance |        | AverageRate |      |   | QuarterMaximumBalance
|December 31,  |  | $                     | 57,810 |             | 3.99 | % |                       | $ | 65,000
|September 30, |  |                       | 58,152 |             | 3.60 | % |                       |   | 62,500
|June 30,      |  |                       | 53,587 |             | 3.16 | % |                       |   | 66,100
|March 31,     |  |                       | 27,767 |             | 2.60 | % |                       |   | 39,500

The weighted average interest rate for FHLB borrowings at December 31, 2006 and 2005 was 4.96%
and 4.27% respectively.



|9. | SUBORDINATED DEBENTURES
|-- | -----------------------

On June 27, 2002,
Millennium Capital Trust I, Inc., a subsidiary of the Corporation, was formed for the purpose of issuing redeemable trust preferred securities and purchasing the Corporations junior subordinated debentures, which are its sole assets. The
Corporation owns all of the Trusts outstanding common securities. On July 11, 2002, $8,000 of the trust preferred securities were issued in a pooled offering. The securities have a LIBOR-indexed floating rate of interest, which is set and
payable on a quarterly basis. During 2006, the interest rates ranged from 7.80 percent to 9.16 percent. During 2005, the interest rates ranged from 5.72 percent to 7.80 percent. The securities have a maturity date of July 2032. The Corporation has
the option of redeeming the securities beginning July 2007.

Up to 25 percent of Tier 1 capital may include the above securities for
regulatory capital adequacy determination purposes. The portion of the securities not considered as Tier 1 capital will be included in Tier 2 capital. The Corporation and the Trust believe that, taken together, the Corporations obligations
under the junior subordinated debentures, the Indenture, the Trust declaration and the Guarantee entered into in connection with the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Corporation of the
Trusts obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Corporation 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.

In accordance with FASB Interpretation
No. 46, the Trust is not consolidated with the Company. Accordingly, the Company does not report the securities issued by the Trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by
the Trust, as they are no longer eliminated in consolidation.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|10. | INCOME TAXES
|--- | ------------

The provision for federal income
taxes from continuing operations consists of the following:



|                                 |  |      |      |   |      |   |       |      |  |   |      
|-------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | -----
|                                 |  | 2006 |      |   | 2005 |   |       | 2004
|Current (benefit) provision      |  | $    | 650  |   |      | $ | 1,243 |      |  | $ | 488  
|Deferred (benefit) provision     |  |      | (166 | ) |      |   | (729  | )    |  |   | 723  
|                                 |  |      |      |   |      |   |       |      |  |   |      
|Total provision for income taxes |  | $    | 484  |   |      | $ | 514   |      |  | $ | 1,211
|                                 |  |      |      |   |      |   |       |      |  |   |      

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for
tax reporting and financial statement purposes, principally because certain items, such as, allowance for loan losses and loan fees, are recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not
been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured management believes it is more likely than not that all of the deferred tax
asset will be realized. Deferred tax assets are recorded in other assets.

Net deferred tax assets from continuing operations are comprised
of the following at December 31:



|                                                       |  |      |       |   |      |   |       |  
|------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|Deferred Source                                        |  | 2006 |       |   | 2005 |  
|Loan loss reserve                                      |  | $    | 919   |   |      | $ | 871   |  
|Unearned loan fees                                     |  |      | 64    |   |      |   | (1    | )
|Depreciation                                           |  |      | (13   | ) |      |   | (62   | )
|Other                                                  |  |      | 286   |   |      |   | 282   |  
|                                                       |  |      |       |   |      |   |       |  
|Subtotal                                               |  |      | 1,256 |   |      |   | 1,090 |  
|Unrealized loss included in other comprehensive income |  |      | 908   |   |      |   | 1,077 |  
|                                                       |  |      |       |   |      |   |       |  
|Gross deferred tax assets                              |  | $    | 2,164 |   |      | $ | 2,167 |  
|                                                       |  |      |       |   |      |   |       |  

A reconciliation between actual tax expense from continuing operations and taxes computed at the
statutory federal rate of 34% for each of the three years ended December 31 follows:



|                                             |  |      |       |   |      |   |     |      |  |   |      
|-------------------------------------------- |  | ---- | ----- | - | ---- | - | --- | ---- |  | - | -----
|                                             |  | 2006 |       |   | 2005 |   |     | 2004
|Tax computed at statutory rate               |  | $    | 1,019 |   |      | $ | 621 |      |  | $ | 1,211
|Increases (decreases) in tax resulting from: |  |      |       |   |      |   |     |      |  |   |      
|Tax-exempt interest income                   |  |      | (508  | ) |      |   | (69 | )    |  |   |     
|Bank owned life insurance                    |  |      | (153  | ) |      |   | (66 | )    |  |   |     
|Nondeductible expenses                       |  |      | 126   |   |      |   | 28  |      |  |   |     
|                                             |  |      |       |   |      |   |     |      |  |   |      
|Actual tax expense                           |  | $    | 484   |   |      | $ | 514 |      |  | $ | 1,211
|                                             |  |      |       |   |      |   |     |      |  |   |      



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|11. | REGULATORY MATTERS
|--- | ------------------

The Corporation (on a
consolidated basis) and the Banks primary supervisory agencies are the Federal Reserve and Office of the Comptroller of the Currency (OCC). The supervisory agencies have mandated certain minimum capital standards for the industry and pursuant
to the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) have outlined various levels of capital adequacy for the industry under prompt corrective action regulations.

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 affect on the Corporation and the Banks financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank
must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation and the Banks capital amounts and
classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations) and of Tier I capital to adjusted total assets (as defined). Management believes as of December 31, 2006 and 2005, that the
Corporation and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2006, the most recent
notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions category.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|11. | REGULATORY MATTERS(continued)
|--- | -----------------------------



The Corporations actual capital amounts and ratios are as follows:



|                                                   |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|-------------------------------------------------- |  | ------------ | ------ | ----- | ----- | - | ------------------------- | - | ------ | -------------------------------- | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                                   |  |              |        |       |       |   | MinimumCapitalRequirement |   |        | MinimumTo be WellCapitalized (1) |     
|                                                   |  | ActualAmount |        | Ratio |       |   | Amount                    |   | Ratio  |                                  |      | Amount |  | Ratio |       
|As of December 31, 2006                            |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Total Risk-based Capital (to risk-weighted assets) |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Consolidated                                       |  | $            | 61,959 |       | 16.75 | % |                           | $ | 29,589 |                                  | 8.00 | %      |  | $     | 36,987 |  | 10.00 | %
|Bank                                               |  |              | 51,453 |       | 14.08 |   |                           |   | 29,227 |                                  | 8.00 |        |  |       | 36,534 |  | 10.00 |  
|Tier I Capital (to risk-weighted assets)           |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Consolidated                                       |  |              | 57,314 |       | 15.50 |   |                           |   | 14,795 |                                  | 4.00 |        |  |       | 22,192 |  | 6.00  |  
|Bank                                               |  |              | 46,865 |       | 12.83 |   |                           |   | 14,613 |                                  | 4.00 |        |  |       | 21,920 |  | 6.00  |  
|Tier I Capital (to average assets)                 |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Consolidated                                       |  |              | 57,314 |       | 9.74  |   |                           |   | 23,546 |                                  | 4.00 |        |  |       | 29,433 |  | 5.00  |  
|Bank                                               |  |              | 46,865 |       | 8.09  |   |                           |   | 23,183 |                                  | 4.00 |        |  |       | 28,979 |  | 5.00  |  
|As of December 31, 2005                            |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Total Risk-based Capital (to risk-weighted assets) |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Consolidated                                       |  | $            | 60,998 |       | 20.46 | % |                           | $ | 23,844 |                                  | 8.00 | %      |  | $     | 29,806 |  | 10.00 | %
|Bank                                               |  |              | 35,094 |       | 12.52 |   |                           |   | 22,431 |                                  | 8.00 |        |  |       | 28,038 |  | 10.00 |  
|Tier I Capital (to risk-weighted assets)           |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Consolidated                                       |  |              | 57,783 |       | 19.38 |   |                           |   | 11,922 |                                  | 4.00 |        |  |       | 17,883 |  | 6.00  |  
|Bank                                               |  |              | 32,029 |       | 11.42 |   |                           |   | 11,215 |                                  | 4.00 |        |  |       | 16,823 |  | 6.00  |  
|Tier I Capital (to average assets)                 |  |              |        |       |       |   |                           |   |        |                                  |      |        |  |       |        |  |       |  
|Consolidated                                       |  |              | 57,783 |       | 13.92 |   |                           |   | 16,601 |                                  | 4.00 |        |  |       | 20,752 |  | 5.00  |  
|Bank                                               |  |              | 32,029 |       | 8.08  |   |                           |   | 15,938 |                                  | 4.00 |        |  |       | 19,922 |  | 5.00  |  



|(1) | The Consolidated entity is not subject to the prompt corrective action rules.
|--- | -----------------------------------------------------------------------------



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|12. | OPERATING LEASES
|--- | ----------------

The Bank leases its corporate
headquarters and most of its branch facilities under non-cancelable lease agreements. Most of these leases provide for the payment of property taxes and other costs by the Bank and include one or more renewal options ranging up to ten years.

The following are the future minimum lease payments at December 31, 2006:



|                          |  |   |      
|------------------------- |  | - | -----
|Years ending December 31, |  |  
|2007                      |  | $ | 645  
|2008                      |  |   | 654  
|2009                      |  |   | 509  
|2010                      |  |   | 277  
|2011                      |  |   | 245  
|Thereafter                |  |   | 1,422
|                          |  |   |      
|Total                     |  | $ | 3,752
|                          |  |   |      

Rent expense amounted to $654, $651, and $583 for the years ended December 31, 2006, 2005 and
2004, respectively.



|13. | PROFIT SHARING PLAN
|--- | -------------------

The Corporation maintains a
401(k) profit sharing plan, which has also been adopted by Millennium Bank, N.A., Millennium Capital, Inc., and Millennium Brokerage Services, Inc. The Plan covers substantially all full time employees. The Plan allows the Corporation, and its
affiliates, to make contributions to the plan at the discretion of management. The Corporation and affiliates made no contributions to the 401(k) plan for the years ended December 31, 2006, 2005 and 2004.



|14. | OTHER INCOME AND OTHER OPERATING EXPENSE
|--- | ----------------------------------------

Other
income consists of the following:



|                                                   |  |      |       |      |   |       |      |  |   |      
|-------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | ---- |  | - | -----
|                                                   |  | 2006 |       | 2005 |   |       | 2004
|Commissions and fees                               |  | $    | 131   |      | $ | 206   |      |  | $ | 209  
|Income from bank owned life insurance              |  |      | 451   |      |   | 195   |      |  |   |     
|Other income                                       |  |      |      |      |   | (15   | )    |  |   | 294  
|                                                   |  |      |       |      |   |       |      |  |   |      
|Total other income                                 |  | $    | 582   |      | $ | 386   |      |  | $ | 503  
|                                                   |  |      |       |      |   |       |      |  |   |      
|                                                   |  |      |      
|Other operating expenses consist of the following: |  |      |       |      |   |       |      |  |   |      
|                                                   |  | 2006 |       | 2005 |   |       | 2004
|Dues and fees                                      |  | $    | 181   |      | $ | 175   |      |  | $ | 160  
|Franchise taxes and miscellaneous taxes            |  |      | 249   |      |   | 246   |      |  |   | 183  
|Insurance expense                                  |  |      | 148   |      |   | 211   |      |  |   | 81   
|Meetings and seminar expense                       |  |      | 113   |      |   | 166   |      |  |   | 94   
|Miscellaneous operating expenses                   |  |      | 417   |      |   | 462   |      |  |   | 431  
|Office expenses                                    |  |      | 558   |      |   | 534   |      |  |   | 387  
|Lawsuit settlements and operating losses           |  |      | 28    |      |   | 250   |      |  |   | 78   
|Outside services                                   |  |      | 367   |      |   | 301   |      |  |   | 86   
|Professional fees                                  |  |      | 634   |      |   | 720   |      |  |   | 588  
|Other loan expense                                 |  |      | 92    |      |   | 77    |      |  |   | 45   
|Merger related expense                             |  |      | 5     |      |   | 513   |      |  |   |     
|                                                   |  |      |       |      |   |       |      |  |   |      
|Total other operating expenses                     |  | $    | 2,792 |      | $ | 3,655 |      |  | $ | 2,133
|                                                   |  |      |       |      |   |       |      |  |   |      



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|15. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

The Corporation
receives general legal services from law firms under the control of certain Directors. Legal fees paid to these law firms were $38, $49, and $74 for the years ended December 31, 2006, 2005, and 2004, respectively.

In 2006 and 2005, the Corporation leased space in Herndon, Virginia from a related party in the amount of $124 and $121, respectively and space in Reston,
Virginia in the amount of $228 and $222, respectively.

The Bank has entered into loan transactions with certain directors, executive
officers, and their affiliates. The aggregate amount of loans to such related parties at December 31, 2006 and 2005 was $7,749 and $7,179, respectively. During 2006, disbursements made to such related parties amounted to $2,574 and payments
amounted to $2,004. During 2005, disbursements made to such related parties amounted to $1,748 and payments amounted to $1,480.

The Bank
has also entered into deposit transactions with certain directors, executive officers, and their affiliates. Total deposits at December 31, 2006 and 2005 were $2,152 and $3,450, respectively.



|16. | COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT
|--- | -------------------------------------------------------

Credit Related Financial Instruments

The Corporation 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 the consolidated balance sheets.

The Corporations exposure to credit loss is represented by the contractual amount of these commitments. The Corporation follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At December 31, the following financial instruments, the majority of which are at variable rates, were outstanding whose contract amounts represent
credit risk:



|                                                                                               |  |      |        |      |   |       
|---------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                                               |  | 2006 |        | 2005
|Commitments to grant loans, commercial pipeline and unfunded commitments under lines of credit |  | $    | 63,814 |      | $ | 50,758
|Commercial and standby letters of credit                                                       |  |      | 1,163  |      |   | 851   
|                                                                                               |  |      |        |      |   |       
|                                                                                               |  | $    | 64,977 |      | $ | 51,609
|                                                                                               |  |      |        |      |   |       



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|16. | COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT(continued)
|--- | ------------------------------------------------------------------

Credit Related Financial Instruments(continued)

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. These loans are considered in the
pipeline until closing of the loan.

Unfunded commitments are closed loans where the customer has not drawn the entire amount of the loan
and include commercial lines-of-credit, revolving credit lines and overdraft protection agreements. These commitments may expire without being drawn upon or may be partially drawn on. Therefore, the total commitment amounts do not necessarily
represent future cash requirements.

Commercial and standby letters-of-credit are conditional commitments issued by the Corporation to
guarantee the performance of a customer to a third party. These 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 Corporation generally holds collateral supporting those commitments if deemed necessary.

Legal

Various legal claims arise
from time to time in the normal course of business. No amount of loss, if any, can be reasonably estimated at this time; therefore, no liability has been recorded in the consolidated financial statements. At year-end 2006, the Corporation reached a
settlement in the lawsuit filed on July 14, 2006 by a former management employee of Millennium Capital, Inc., an indirect subsidiary of the Corporation. In response to the lawsuit, the Corporation had filed motions to dismiss or otherwise
challenge all of the alleged claims that sought monetary relief. While those motions were pending, the parties reached a settlement under terms that did not result in a material charge to the Corporation.

Recourse on Loans

The Corporation
has sold loans during the year with limited recourse that is applicable only for the first 120 days. The loss from discontinued operations in 2006 includes a $2.913 million charge to establish a reserve for potential off-balance sheet exposure
associated with loans already sold to investors. Investor agreements provide that the seller must buyback the loan under certain conditions, such as early payment default, and management determined at December 31, 2006 that it was more likely
than not that buyback conditions occurred in some of the 2006 production sold to investors, particularly for identified loans that were originated under sub prime underwriting guidelines.



|17. | STOCK OPTION PLAN
|--- | -----------------

On August 12, 1999, the
Corporation adopted an Incentive Stock Option Plan. The total number of shares granted under the plan cannot exceed 2,000,000 shares. The Board of Directors of the Corporation administers the plan and the plan will terminate as of August 11,
2009. The Board has given the Chairman of the Corporation the authority to grant 300,000 shares to key employees at his discretion. Under the plan, the option price of the shares must be granted at not less than fair market value, the options term
may not exceed ten years and the options are not transferable.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|17. | STOCK OPTION PLAN(continued)
|--- | ----------------------------



|                                   |  |         |   |      |                              |      |        |         |   |                              |   |        |  |         |                              |  |   |     
|---------------------------------- |  | ------- | - | ---- | ---------------------------- | ---- | ------ | ------- | - | ---------------------------- | - | ------ |  | ------- | ---------------------------- |  | - | ----
|                                   |  | 2006    |   | 2005 |                              | 2004
|                                   |  | Shares  |   |      | WeightedAverageExercisePrice |      | Shares |         |   | WeightedAverageExercisePrice |   | Shares |  |         | WeightedAverageExercisePrice
|Outstanding, beginning of year     |  | 708,406 |   |      | $                            | 6.01 |        | 772,949 |   |                              | $ | 5.87   |  | 626,398 |                              |  | $ | 5.71
|Granted                            |  | 108,426 |   |      |                              | 8.89 |        | 78,261  |   |                              |   | 8.00   |  | 131,841 |                              |  |   | 6.63
|Exercised                          |  | (77,962 | ) |      |                              | 6.44 |        | (67,870 | ) |                              |   | 5.29   |  | (12,320 | )                            |  |   | 5.00
|Cancelled/Expired/Restored         |  |        |   |      |                              |     |        | (74,934 | ) |                              |   | 7.37   |  | 27,030  |                              |  |   | 5.24
|                                   |  |         |   |      |                              |      |        |         |   |                              |   |        |  |         |                              |  |   |     
|Outstanding, end of year (1)       |  | 738,870 |   |      |                              | 6.39 |        | 708,406 |   |                              |   | 6.01   |  | 772,949 |                              |  |   | 5.87
|                                   |  |         |   |      |                              |      |        |         |   |                              |   |        |  |         |                              |  |   |     
|Options exercisable at end of year |  | 589,958 |   |      | $                            | 6.00 |        | 540,044 |   |                              | $ | 5.85   |  | 484,030 |                              |  | $ | 5.81



|(1) | Intrinsic value of options outstanding at December 31, 2006 was $2,165.
|--- | -----------------------------------------------------------------------

In November 2005, the Corporation accelerated the vesting of out-of-the-money stock options granted to certain key executives during 2005 totaling 33,706. The acceleration was executed to reduce future compensation
expense to be recognized upon adoption of SFAS 123R.

SFAS 123R requires all share-based payments to employees, including grants of employee
stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. For options with graded vesting, we value the stock option grants and
recognize compensation expense as if each vesting portion of the award was a single award. Under the modified prospective method, unvested awards, and awards that were granted, modified, or settled on or after January 1, 2006 are measured and
accounted for in accordance with SFAS 123R.

The following table details stock options outstanding:



|                                                |  |              |         |      |   |         |  |   |        
|----------------------------------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | -------
|                                                |  | December 31,
|(dollars in thousands)                          |  | 2006         |         | 2005 |   | 2004   
|Stock options vested and currently exercisable: |  |              |         |      |   |         |  |   |        
|Number                                          |  |              | 589,958 |      |   | 540,044 |  |   | 484,030
|Weighted average exercise price                 |  | $            | 6.00    |      | $ | 5.85    |  | $ | 5.81   
|Aggregate intrinsic value                       |  | $            | 1,959   |      | $ | 1,510   |  | $ | 1,544  
|Weighted average remaining life (in years)      |  |              | 5.3     |      |   | 5.9     |  |   | 8.00   

The intrinsic value of options exercised in 2006, 2005, and 2004, respectively was $198, $189 and
$22, respectively. Cash received from option exercises for those same periods were $500, $358, and $72, respectively.

The intrinsic value
for stock options is calculated based on the exercise price of the underlying awards and the market price of our common stock as of the reporting date. The Company recorded $223 ($166 after tax) in stock compensation expense in 2006 to salaries and
employee benefits. The affect on diluted earnings per share from continuing operations in 2006 from this stock compensation expense was ($0.02).



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|17. | STOCK OPTION PLAN (continued)
|--- | -----------------------------



The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes
based stock option valuation model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. Expected volatilities are based on historical volatility of the Companys
stock, and other factors. Expected dividends are based on dividend trends and the market price of the Companys stock price at grant. The Company uses historical data to estimate option exercises within the valuation model. The
risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

The
weighted average assumptions for options granted during the year and the resulting estimated weighted average fair values per share used in our option pricing model are as follows:



|                                     |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------ |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                     |  | 2006 |      |   | 2005 |   |      | 2004 | 
|Assumptions: Risk free interest rate |  |      | 4.65 | % |      |   | 4.40 | %    |  |   | 4.26 | %
|Expected dividend yield              |  |      | 0.71 | % |      |   |     |      |  |   |     |  
|Expected life of options (in years)  |  |      | 10   |   |      |   | 10   |      |  |   | 10   |  
|Expected volatility                  |  |      | 20.1 |   |      |   | 15.8 |      |  |   | 17.3 |  
|Estimated fair value per share       |  | $    | 3.50 |   |      | $ | 3.15 |      |  | $ | 2.51 |  

SFAS 123R requires the recognition of stock based compensation for the number of awards that are
ultimately expected to vest. The Company did not reduce its compensation expense for estimated forfeitures prior to vesting primarily based on the limited number of holders of unvested stock options in 2006. Estimated forfeitures will be
reassessed in subsequent periods and may change based on new facts and circumstances.

Unrecognized stock option compensation expense
related to unvested awards (net of estimated forfeitures) for 2007 and beyond is estimated as follows:



|     |  |               
|---- |  | --------------
|Year |  | (in thousands)
|2007 |  | 74            
|2008 |  | 65            
|2009 |  | 50            
|2010 |  | 44            
|2011 |  | 24            

Information pertaining to options outstanding at December 31, 2006 is as follows:



|                         |  |                     |  |                                             |  |                                 |      |                    |         |                                 |   |     
|------------------------ |  | ------------------- |  | ------------------------------------------- |  | ------------------------------- | ---- | ------------------ | ------- | ------------------------------- | - | ----
|                         |  | Options Outstanding |  | Options Exercisable                        
|Range of Exercise Prices |  | Number Outstanding  |  | Weighted Average Remaining Contractual Life |  | Weighted Average Exercise Price |      | Number Exercisable |         | Weighted Average Exercise Price
|$5.00 - $6.00            |  | 367,892             |  | 3.8 years                                   |  | $                               | 5.00 |                    | 367,892 |                                 | $ | 5.00
|$6.01 - $7.00            |  | 103,273             |  | 6.3 years                                   |  | $                               | 6.62 |                    | 69,961  |                                 | $ | 6.65
|$7.01 - $8.00            |  | 109,573             |  | 7.5 years                                   |  | $                               | 7.41 |                    | 67,323  |                                 | $ | 7.45
|$8.01 - $9.00            |  | 114,382             |  | 8.6 years                                   |  | $                               | 8.59 |                    | 84,782  |                                 | $ | 8.65
|$9.01 - $9.55            |  | 43,750              |  | 9.3 years                                   |  | $                               | 9.32 |                    |        |                                 |   |    



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|17. | STOCK OPTION PLAN (continued)
|--- | -----------------------------



The vesting period of the remaining options is as follows:



|                       |  |        
|---------------------- |  | -------
|Vested and exercisable |  | 589,958
|2006                   |  | 15,530 
|2007                   |  | 36,326 
|2008                   |  | 31,006 
|2009                   |  | 13,700 
|2010                   |  | 52,350 
|                       |  |        
|                       |  | 738,870
|                       |  |        



|18. | EARNINGS PER SHARE
|--- | ------------------

The following table shows the
weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of potential dilutive common stock.



|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|---------------------------------------------------------- |  | -------------------------------- | --------- | - | ---- | - | --------- |  | - | --------- | -
|                                                           |  | For the Years Ended December 31, |          
|                                                           |  | 2006                             |           |   | 2005 |   | 2004      | 
|Income from continuing operations                          |  | $                                | 2,514     |   |      | $ | 1,311     |  | $ | 2,360     |  
|Weighted average shares outstanding                        |  |                                  | 8,902,634 |   |      |   | 8,798,106 |  |   | 7,037,771 |  
|Basic earnings per share from continuing operations        |  | $                                | 0.28      |   |      | $ | 0.15      |  | $ | 0.34      |  
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|Income from continuing operations                          |  | $                                | 2,514     |   |      | $ | 1,311     |  | $ | 2,360     |  
|Weighted average shares outstanding                        |  |                                  | 8,902,634 |   |      |   | 8,798,106 |  |   | 7,037,771 |  
|Add dilutive effects of assumed exercises of stock options |  |                                  | 213,223   |   |      |   | 140,946   |  |   | 318,476   |  
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|Weighted average shares outstanding adjusted for dilution  |  |                                  | 9,115,857 |   |      |   | 8,939,052 |  |   | 7,356,247 |  
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|Diluted earnings per share from continuing operations      |  | $                                | 0.28      |   |      | $ | 0.15      |  | $ | 0.32      |  
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|                                                           | 
|                                                           |  | For the Years Ended December 31, |          
|                                                           |  | 2006                             |           |   | 2005 |   | 2004      | 
|Income (loss) from discontinued operations                 |  | $                                | (2,993    | ) |      | $ | 323       |  | $ | (351      | )
|Weighted average shares outstanding                        |  |                                  | 8,902,634 |   |      |   | 8,798,106 |  |   | 7,037,771 |  
|Basic earnings per share from discontinued operations      |  | $                                | (0.34     | ) |      | $ | 0.04      |  | $ | (0.05     | )
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|Income (loss) from discontinued operations                 |  | $                                | (2,993    | ) |      | $ | 323       |  | $ | (351      | )
|Weighted average shares outstanding                        |  |                                  | 8,902,634 |   |      |   | 8,798,106 |  |   | 7,037,771 |  
|Add dilutive effects of assumed exercises of stock options |  |                                  | 213,223   |   |      |   | 140,946   |  |   | 318,476   |  
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|Weighted average shares outstanding adjusted for dilution  |  |                                  | 9,115,857 |   |      |   | 8,939,052 |  |   | 7,356,247 |  
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  
|Diluted earnings per share from discontinued operations    |  | $                                | (0.33     | ) |      | $ | 0.04      |  | $ | (0.05     | )
|                                                           |  |                                  |           |   |      |   |           |  |   |           |  



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|18. | EARNINGS PER SHARE(continued)
|--- | -----------------------------



|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                |  | For the Years Ended December 31, |          
|                                                                                                |  | 2006                             |           |   | 2005 |   |           | 2004 | 
|Net income                                                                                      |  | $                                | (481      | ) |      | $ | 1,634     |      |  | $ | 2,009     |  
|Weighted average shares outstanding                                                             |  |                                  | 8,902,634 |   |      |   | 8,798,106 |      |  |   | 7,037,771 |  
|Basic earnings per share                                                                        |  | $                                | (0.05     | ) |      | $ | 0.19      |      |  | $ | 0.29      |  
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|Net income                                                                                      |  | $                                | (481      | ) |      | $ | 1,634     |      |  | $ | 2,009     |  
|Weighted average shares outstanding                                                             |  |                                  | 8,902,634 |   |      |   | 8,798,106 |      |  |   | 7,037,771 |  
|Add dilutive effects of assumed exercises of stock options                                      |  |                                  | 213,223   |   |      |   | 140,946   |      |  |   | 318,476   |  
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|Weighted average shares outstanding adjusted for dilution                                       |  |                                  | 9,115,857 |   |      |   | 8,939,052 |      |  |   | 7,356,247 |  
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|Diluted earnings per share                                                                      |  | $                                | (0.05     | ) |      | $ | 0.18      |      |  | $ | 0.27      |  
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|                                                                                               
|No stock options or warrants were considered anti-dilutive in computing weighted average shares | 
|                                                                                               
|19.    OTHER COMPREHENSIVE INCOME                                                               | 
|                                                                                               
|The components of other comprehensive income and related tax effects are as follows:            | 
|                                                                                                |  | Years Ended December 31,         |          
|                                                                                                |  | 2006                             |           |   | 2005 |   |           | 2004 | 
|Change in unrealized holding gains (losses) on Available-for-sale securities                    |  | $                                | 554       |   |      | $ | (2,345    | )    |  | $ | 63        |  
|Reclassification adjustment for losses (gains) realized in income                               |  |                                  | (56       | ) |      |   | 208       |      |  |   | (4        | )
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|Net unrealized gains (losses)                                                                   |  |                                  | 498       |   |      |   | (2,137    | )    |  |   | 59        |  
|Tax effect                                                                                      |  |                                  | (170      | ) |      |   | 727       |      |  |   | (20       | )
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  
|Other comprehensive income                                                                      |  | $                                | 328       |   |      | $ | (1,410    | )    |  | $ | 39        |  
|                                                                                                |  |                                  |           |   |      |   |           |      |  |   |           |  



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|20. | PARENT COMPANY ACTIVITY
|--- | -----------------------

CONDENSED BALANCE SHEETS



|                                              |  |      |        |   |      |   |        |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                              |  | 2006 |        |   | 2005 |  
|Assets:                                       |  |      |        |   |      |   |        |  
|Interest bearing deposits in banks            |  | $    | 1,820  |   |      | $ | 7,600  |  
|Investment in subsidiaries                    |  |      | 45,114 |   |      |   | 29,953 |  
|Securities available for sale                 |  |      | 997    |   |      |   | 987    |  
|Loans (net)                                   |  |      | 6,992  |   |      |   | 16,276 |  
|Other assets                                  |  |      | 813    |   |      |   | 1,041  |  
|                                              |  |      |        |   |      |   |        |  
|Total Assets                                  |  | $    | 55,736 |   |      | $ | 55,857 |  
|                                              |  |      |        |   |      |   |        |  
|Liabilities:                                  |  |      |        |   |      |   |        |  
|Subordinated debentures                       |  |      | 8,000  |   |      |   | 8,000  |  
|Other liabilities                             |  |      | 184    |   |      |   | 164    |  
|                                              |  |      |        |   |      |   |        |  
|Total Liabilities                             |  |      | 8,184  |   |      |   | 8,164  |  
|                                              |  |      |        |   |      |   |        |  
|Stockholders equity:                         |  |      |        |   |      |   |        |  
|Common stock                                  |  |      | 44,631 |   |      |   | 44,241 |  
|Additional paid-in capital                    |  |      | 4,408  |   |      |   | 4,075  |  
|Accumulated other comprehensive income (loss) |  |      | (1,762 | ) |      |   | (2,090 | )
|Retained earnings                             |  |      | 275    |   |      |   | 1,467  |  
|                                              |  |      |        |   |      |   |        |  
|Total Stockholders Equity                    |  |      | 47,552 |   |      |   | 47,693 |  
|                                              |  |      |        |   |      |   |        |  
|Total Liabilities and Stockholders Equity    |  | $    | 55,736 |   |      | $ | 55,857 |  
|                                              |  |      |        |   |      |   |        |  

CONDENSED STATEMENTS OF INCOME



|                                                |  |      |      |   |      |   |       |      |  |   |       |  
|----------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                |  | 2006 |      |   | 2005 |   |       | 2004 | 
|Equity in earnings of Bank                      |  | $    | (165 | ) |      | $ | 1,764 |      |  | $ | 2,168 |  
|Equity in earnings of Brokerage Services        |  |      |     |   |      |   |      |      |  |   | 8     |  
|Equity in earnings of E-Banking                 |  |      |     |   |      |   | (125  | )    |  |   | (149  | )
|Equity in earnings of Millennium Financial Inc. |  |      | 3    |   |      |   | 3     |      |  |   | 3     |  
|Other expenses                                  |  |      | (338 | ) |      |   | (652  | )    |  |   | (287  | )
|Interest income, (expense) net                  |  |      | 19   |   |      |   | 644   |      |  |   | 266   |  
|                                                |  |      |      |   |      |   |       |      |  |   |       |  
|Net income (loss)                               |  | $    | (481 | ) |      | $ | 1,634 |      |  | $ | 2,009 |  
|                                                |  |      |      |   |      |   |       |      |  |   |       |  



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|20. | PARENT COMPANY ACTIVITY (continued)
|--- | -----------------------------------



CONDENSED STATEMENTS OF CASH FLOWS



|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                          |  | 2006 |         |   | 2005 |   |        | 2004 | 
|Cash Flows from Operating Activities                      |  |      |         |   |      |   |        |      |  |   |         |  
|Net income (loss)                                         |  | $    | (481    | ) |      | $ | 1,634  |      |  | $ | 2,009   |  
|Equity in undistributed net (income) loss of subsidiaries |  |      | 162     |   |      |   | (1,642 | )    |  |   | (2,030  | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Subtotal                                                  |  |      | (319    | ) |      |   | (8     | )    |  |   | (21     | )
|Stock compensation expense                                |  |      | 223     |   |      |   |       |      |  |   |        |  
|(Increase) decrease in other assets                       |  |      | 224     |   |      |   | (618   | )    |  |   | (53     | )
|Increase (decrease) in other liabilities                  |  |      | 20      |   |      |   | 280    |      |  |   | 18      |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Cash Provided (Used) by Operating Activities          |  |      | 148     |   |      |   | (346   | )    |  |   | (56     | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Cash Flows from Investing Activities                      |  |      |         |   |      |   |        |      |  |   |         |  
|Purchase of securities available for sale                 |  |      |        |   |      |   |       |      |  |   | (6,000  | )
|Sales/Calls of securities available for sale              |  |      | 0       |   |      |   | 1,012  |      |  |   | 4,001   |  
|Change in loans                                           |  |      | 9,284   |   |      |   | 1,842  |      |  |   | (18,118 | )
|Increase in investment in subsidiaries                    |  |      | (15,000 | ) |      |   | (274   | )    |  |   | (4,812  | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Cash Provided (Used) by Investing Activities          |  |      | (5,716  | ) |      |   | 2,580  |      |  |   | (24,929 | )
|Cash Flows from Financing Activities                      |  |      |         |   |      |   |        |      |  |   |         |  
|Net proceeds from issuance of common stock                |  |      | 500     |   |      |   | 358    |      |  |   | 24,646  |  
|Dividends distributed                                     |  |      | (712    | ) |      |   |       |      |  |   |        |  
|Net proceeds from redemption of warrants                  |  |      |        |   |      |   |       |      |  |   | 4,499   |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Cash Provided (Used) by Financing Activities          |  |      | (212    | ) |      |   | 358    |      |  |   | 29,145  |  
|Net Increase (Decrease) in Cash and Due from Banks        |  |      | (5,780  | ) |      |   | 2,592  |      |  |   | 4,160   |  
|Cash and Due from Banks, beginning of year                |  |      | 7,600   |   |      |   | 5,008  |      |  |   | 848     |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Cash and Due from Banks, end of year                      |  | $    | 1,820   |   |      | $ | 7,600  |      |  | $ | 5,008   |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|21. | ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | ---------------------------------------------

The
assumptions used and the estimates disclosed represent managements best judgment of appropriate valuation methods. These estimates are based on pertinent information available to management as of the respective reporting dates. In certain
cases, fair values are not subject to precise quantification or verification and may change as economic and market factors, and managements evaluation of those factors change.

Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation
technique. Therefore, these fair value estimates are not necessarily indicative of the amounts that the Corporation would realize in a market transaction. Because of the wide range of valuation techniques and the numerous estimates, which must be
made, it may be difficult to make reasonable comparisons of the Corporations fair value information to that of other financial institutions. SFAS 107 excludes certain financial instruments from its disclosure requirement. Because of this and
the many uncertainties discussed above, the aggregate fair value amount should in no way be construed as representative of the underlying value of the Corporation. The estimated fair values of the Corporations financial instruments at
December 31, 2006 and 2005 are as follows:



|                              |  |                   |         |                   |   |                |  |            |         |  |   |        
|----------------------------- |  | ----------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                              |  | December 31, 2006 |         | December 31, 2005
|                              |  | CarryingAmount    |         | Fair Value        |   | CarryingAmount |  | Fair Value
|Financial assets:             |  |                   |         |                   |   |                |  |            |         |  |   |        
|Cash and due from banks       |  | $                 | 8,288   |                   | $ | 8,288          |  | $          | 5,505   |  | $ | 5,505  
|Federal funds sold            |  |                   | 50,364  |                   |   | 50,364         |  |            | 915     |  |   | 915    
|Securities available for sale |  |                   | 172,703 |                   |   | 172,703        |  |            | 123,814 |  |   | 123,814
|Loans held for sale           |  |                   | 37,728  |                   |   | 37,728         |  |            | 22,044  |  |   | 22,262 
|Loans receivable, net         |  |                   | 295,057 |                   |   | 293,852        |  |            | 248,203 |  |   | 246,851
|Accrued interest receivable   |  |                   | 3,226   |                   |   | 3,226          |  |            | 2,070   |  |   | 2,070  
|Financial liabilities:        |  |                   |         |                   |   |                |  |            |         |  |   |        
|Deposits                      |  |                   | 482,729 |                   |   | 478,153        |  |            | 298,996 |  |   | 298,050
|Federal funds purchased       |  |                   |        |                   |   |               |  |            | 215     |  |   | 215    
|FHLB advances-overnight       |  |                   |        |                   |   |               |  |            | 22,900  |  |   | 22,900 
|FHLB advances-long term       |  |                   | 47,900  |                   |   | 47,524         |  |            | 42,100  |  |   | 42,133 
|Subordinated debentures       |  |                   | 8,000   |                   |   | 8,000          |  |            | 8,000   |  |   | 8,000  
|Accrued interest payable      |  |                   | 1,287   |                   |   | 1,287          |  |            | 784     |  |   | 784    



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|21. | ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS(continued)
|--- | --------------------------------------------------------



The following methods and assumptions were used to estimate the fair value amounts at
December 31, 2006 and 2005:

Cash and Cash Equivalents

Carrying amount approximates fair value.

Loans Held for Sale

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

Loans Receivable, Net of Allowance

Fair value of loans is estimated using discounted cash flow analyses based on contractual repayment schedules. The discount rates used in these analyses are based on either the interest rates paid on U.S. Treasury securities of comparable
maturities adjusted for credit risk and non-interest operating costs or the interest rates currently offered by the Bank for loans with similar terms to borrowers of similar credit quality.

Securities Available-for Sale

Fair
value is based on quoted market prices, excluding Federal Home Loan Bank stock. Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Deposit Liabilities

The carrying
amount of deposit liabilities payable on demand, consisting of NOW accounts, money market deposits, statement savings and other deposit accounts approximates fair value. Fair value of fixed-rate certificates of deposit is estimated based on
discounted cash flow analysis using the remaining maturity of the underlying accounts and interest rates currently offered on certificates of deposit with similar original maturities.

Borrowings

The carrying amount of
short-term FHLB advances approximates fair value. Fair value of all other borrowings is estimated based on discounted cash flow analysis using the remaining maturity of the borrowings and interest rates currently in effect on borrowings with similar
original maturities.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|22. | QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|--- | -------------------------------------------



|                                                               |  |                              |        |   |                               |   |                          |  |                           |       |  |   |      
|-------------------------------------------------------------- |  | ---------------------------- | ------ | - | ----------------------------- | - | ------------------------ |  | ------------------------- | ----- |  | - | -----
|                                                               |  | QuarterEndedDecember 31,2006 |        |   | QuarterEndedSeptember 30,2006 |   | QuarterEndedJune 30,2006 |  | QuarterEndedMarch 31,2006
|Interest income                                                |  | $                            | 8,543  |   |                               | $ | 7,616                    |  | $                         | 6,703 |  | $ | 6,243
|Net interest income                                            |  |                              | 3,040  |   |                               |   | 2,853                    |  |                           | 2,823 |  |   | 3,006
|Provision for loan losses                                      |  |                              | (173   | ) |                               |   | 99                       |  |                           | 55    |  |   |     
|Income from continuing operations before income taxes          |  |                              | 924    |   |                               |   | 467                      |  |                           | 755   |  |   | 852  
|Income taxes                                                   |  |                              | 180    |   |                               |   | 12                       |  |                           | 118   |  |   | 174  
|Income from continuing operations                              |  |                              | 744    |   |                               |   | 455                      |  |                           | 637   |  |   | 678  
|Income (loss) from discontinued operations                     |  |                              | (3,887 | ) |                               |   | 546                      |  |                           | 197   |  |   | 149  
|Net income (loss)                                              |  | $                            | (3,143 | ) |                               | $ | 1,001                    |  | $                         | 834   |  | $ | 827  
|Earnings per common share from continuing operations:          |  |                              |        |   |                               |   |                          |  |                           |       |  |   |      
|Basic                                                          |  |                              | .08    |   |                               |   | .05                      |  |                           | .07   |  |   | .08  
|Diluted                                                        |  |                              | .08    |   |                               |   | .05                      |  |                           | .07   |  |   | .07  
|Earnings (loss) per common share from discontinued operations: |  |                              |        |   |                               |   |                          |  |                           |       |  |   |      
|Basic                                                          |  |                              | (.44   | ) |                               |   | .06                      |  |                           | .02   |  |   | .02  
|Diluted                                                        |  |                              | (.43   | ) |                               |   | .06                      |  |                           | .02   |  |   | .02  
|Earnings (loss) per common share:                              |  |                              |        |   |                               |   |                          |  |                           |       |  |   |      
|Basic                                                          |  |                              | (.35   | ) |                               |   | .11                      |  |                           | .09   |  |   | .09  
|Diluted                                                        |  |                              | (.35   | ) |                               |   | .11                      |  |                           | .09   |  |   | .09  

The loss from discontinued operations for the quarter ended December 31, 2006 was triggered by
charges associated with the decision to wind-down mortgage operations. The most significant charges were a $2,965 lower of cost or market adjustment on loans held for sale, a $2,913 charge to establish a reserve for potential off-balance sheet
exposure associated with loans already sold to investors and a $200 write-off of uncollected receivables.



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MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share data)



|22. | QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(continued)
|--- | ------------------------------------------------------



|                                                               |  |                               |       |   |                                |   |       |                            |  |                            |       |  |   |       |  
|-------------------------------------------------------------- |  | ----------------------------- | ----- | - | ------------------------------ | - | ----- | -------------------------- |  | -------------------------- | ----- |  | - | ----- | -
|                                                               |  | Quarter EndedDecember 31,2005 |       |   | Quarter EndedSeptember 30,2005 |   |       | Quarter EndedJune 30, 2005 |  | Quarter EndedMarch 31,2005 |      
|Interest income                                                |  | $                             | 6,234 |   |                                | $ | 6,252 |                            |  | $                          | 5,922 |  | $ | 5,173 |  
|Net interest income                                            |  |                               | 3,113 |   |                                |   | 3,238 |                            |  |                            | 3,182 |  |   | 3,065 |  
|Provision for loan losses                                      |  |                               | 74    |   |                                |   | 151   |                            |  |                            | 176   |  |   | 11    |  
|Income (loss) from continuing operations before income taxes   |  |                               | (742  | ) |                                |   | 930   |                            |  |                            | 548   |  |   | 1,089 |  
|Income taxes                                                   |  |                               | (344  | ) |                                |   | 339   |                            |  |                            | 147   |  |   | 372   |  
|Income (loss) from continuing operations                       |  |                               | (398  | ) |                                |   | 591   |                            |  |                            | 401   |  |   | 717   |  
|Income (loss) from discontinued operations                     |  |                               | 383   |   |                                |   | (73   | )                          |  |                            | 45    |  |   | (32   | )
|Net income (loss)                                              |  | $                             | (15   | ) |                                | $ | 518   |                            |  | $                          | 446   |  | $ | 685   |  
|Earnings (loss) per common share from continuing operations:   |  |                               |       |   |                                |   |       |                            |  |                            |       |  |   |       |  
|Basic                                                          |  |                               | (.04  | ) |                                |   | .07   |                            |  |                            | .04   |  |   | .08   |  
|Diluted                                                        |  |                               | (.04  | ) |                                |   | .07   |                            |  |                            | .04   |  |   | .00   |  
|Earnings (loss) per common share from discontinued operations: |  |                               |       |   |                                |   |       |                            |  |                            |       |  |   |       |  
|Basic                                                          |  |                               | .04   |   |                                |   | (.01  | )                          |  |                            | .01   |  |   | .00   |  
|Diluted                                                        |  |                               | .00   |   |                                |   | (.01  | )                          |  |                            | .01   |  |   | .00   |  
|Earnings per common share:                                     |  |                               |       |   |                                |   |       |                            |  |                            |       |  |   |       |  
|Basic                                                          |  |                               | .00   |   |                                |   | .06   |                            |  |                            | .05   |  |   | .08   |  
|Diluted                                                        |  |                               | .00   |   |                                |   | .06   |                            |  |                            | .05   |  |   | .08   |  

Income for continuing operations for the quarter ended December 31, 2005 includes the
write-off of merger-related expenses totaling $513 associated with the proposed acquisition of Albemarle First Bank, which was terminated in November 2005. In addition, the Corporation incurred $207 in pre-tax securities losses in conjunction with
investment portfolio restructuring designed to improve the investment portfolio risk profile.



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

Not applicable.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

We maintain
disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and Exchange Commission, including, without limitation, those controls and procedures designed to ensure that such information is accumulated and communicated to the Companys
management to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we carried out an
evaluation under the supervision and with the participation of our management, including our interim chief executive officer and chief financial officer. This officer concluded that the Companys disclosure controls and procedures were not
effective, due to the material weakness as described below. Based upon that evaluation, our management concluded that our disclosure controls and procedures were not effective in timely alerting them to material information relating to us (including
our consolidated subsidiaries) required to be included in our periodic filings with the Commission.

We maintain a system of internal
accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with managements authorization and properly recorded. This system is continually reviewed and is augmented
by written policies and procedures, the careful selection and training of qualified personnel and an internal audit program to monitor its effectiveness.

As described elsewhere in this Form 10-K, we had determined that it was in our best interest to wind down our mortgage operating subsidiaries as of December 31, 2006. One reason for this determination was the
identification of credit quality issues that surfaced in the subprime sector of the held for sale loan portfolio. We were, however, unable to identify these issues promptly in order to determine the financial impact of the wind down of the mortgage
business, including necessary charges against our 2006 earnings, in a timely manner. This inability was due to a lack of sufficient information to fully evaluate potential exposure. As a result, we have determined that we have a material weakness in
our internal control over financial reporting with respect to our inability to identify promptly these credit quality issues. Under the PCAOB standards, a material weakness is a control deficiency, or combination of control deficiencies,
that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

We have addressed this issue by eliminating the origination of subprime loan production and beginning the wind down process of our mortgage operations entirely. In addition, we have assigned an internal management
team to specifically manage the wind down process and ensure that material information is promptly reported to management. In addition, as part of our preparation for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002,
we will continue to evaluate the effectiveness of our internal control on an ongoing basis and will take further action as appropriate.

Because it related only to our financial information in the fourth quarter of 2006 and as of December 31, 2006, the material weakness described above did not result in the restatement of any of the financial statements that we had
previously filed with the Securities and Exchange Commission.

There were no changes in our internal control over financial reporting
identified in connection with the evaluation of it that occurred during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Information required by this Item is incorporated by reference from Millenniums definitive proxy statement for the 2007 Annual Meeting of Shareholders under the heading PROPOSAL 1-ELECTION OF
DIRECTORS and the caption Section 16(a) Beneficial Ownership Reporting Compliance under the heading SECURITY OWNERSHIP and under the heading CORPORATE GOVERNANCE.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Information
regarding executive compensation is incorporated by reference from Millenniums definitive proxy statement for the 2007 Annual Meeting of Shareholders under the headings EXECUTIVE COMPENSATION and DIRECTOR COMPENSATION.



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

Information regarding security ownership of certain beneficial owners and management and securities authorized under equity compensation plans is
incorporated by reference from Millenniums definitive proxy statement for the 2007 Annual Meeting of Shareholders under the heading SECURITY OWNERSHIP

The following table provides information, as of December 31, 2006, regarding securities authorized for issuance under Millenniums equity compensation plans.



|                                                        |  |                                                                                          |  |                                                                           |      |                                                                                               |        
|------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------- | -------
|Plan Category                                           |  | Number of Securities to BeIssued upon Exercise ofOutstanding Options,Warrants and
Rights |  | Weighted Average Exercise Price ofOutstanding Options,Warrants and Rights |      | Number of SecuritiesRemaining Available for Future Issuance Under
Equity Compensation Plans 1
|Equity Compensation Plans Approved by Shareholders      |  | 738,870                                                                                  |  | $                                                                         | 6.39 |                                                                                               | 991,938
|Equity Compensation Plans Not Approved by Shareholders2 |  |                                                                                         |  |                                                                           |     |                                                                                               |       
|Total                                                   |  | 738,870                                                                                  |  | $                                                                         | 6.39 |                                                                                               | 991,938

---

|1 | Amounts exclude any securities
to be issued upon exercise of outstanding options, warrants and rights.
|- | ------------------------------------------------------------------------------------------------------



|2 | Millennium does not have any
equity compensation plans that have not been approved by shareholders
|- | --------------------------------------------------------------------------------------------------



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|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

Information required by this Item is incorporated by reference from Millenniums definitive proxy statement for the 2007 Annual Meeting of Shareholders under the heading CORPORATE GOVERNANCE.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

Information regarding approval of audit and non-audit services by the audit committee as well as fees paid to auditors is incorporated by reference from Millenniums definitive proxy statement for the 2007 Annual Meeting of
Shareholders under the captions Pre-Approval Policies and Procedures and Fees to Audit Firm under the heading PROPOSAL 2- RATIFICATION OF THE APPOINTMENT OF AUDITORS.

PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------

(a) (1) and
(2). The response to this portion of Item 15 is submitted as a separate section of this report.

(a)(3) Exhibits



|            |  |                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                              
|            | 
|3.1         |  | Articles of Incorporation (restated in electronic format), attached as Exhibit 3.1 to the Registration Statement on Form SB-2/A, Registration No. 333-72500, filed with the Commission on
December 14, 2002, incorporated herein by reference.                                           
|            | 
|3.2         |  | Bylaws, as amended on May 25, 2006 and effective September 1, 2006, attached as Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on June 1, 2006,
incorporated herein by reference.                                                                               
|            | 
|4.1         |  | Form of Common Stock Certificate, attached as Exhibit 4.1 to the Form SB-2, incorporated herein by reference.                                                                                                                                                                            
|            | 
|10.1        |  | Form of Employee Stock Option of Millennium Bankshares Corporation, attached as Exhibit 10.2 to the Form SB-2, incorporated herein by reference.**                                                                                                                                       
|            | 
|10.2        |  | Millennium Bankshares Corporation Incentive Stock Option Plan, attached as Exhibit 4.3 to the Registration Statement on Form S-8, Registration No. 333-101076, filed with the Commission on
November 7, 2002, incorporated herein by reference.**                                        
|            | 
|10.3        |  | Executive Employment Agreement, dated as of June 6, 2005, between Millennium Bank and Dale Phelps, attached as Exhibit 10.1 to the Current Report on Form 8-K filed with the
Commission on June 10, 2005, incorporated herein by reference.**                                            
|            | 
|10.4        |  | Commercial Lease Agreement between 1051 Elden Street, L.L.C., the lessor, and Millennium Bank, N.A., the lessee, dated April 2, 2003, attached as Exhibit 10.1 to the Quarterly Report on
Form 10-QSB for the period ended June 30, 2003, incorporated herein by reference.              
|            | 
|10.5        |  | Consulting Agreement of Carroll C. Markley, dated as of August 1, 2006, by and among the Company, the Bank and CCM Consulting Services, Inc., attached as Exhibit 10.1 to the Current Report
on Form 8-K filed with the Commission on August 1, 2006, incorporated herein by reference.**



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|10.6 |  | Employment Agreement of Carroll C. Markley, dated as of August 1, 2006, by and among the Company, the Bank and Carroll C. Markley, attached as Exhibit 10.2 to the Current Report on Form 8-K
filed with the Commission on August 1, 2006, incorporated herein by reference.**                                                                                                       
|     | 
|10.7 |  | Agreement, dated as of August 4, 2006, by and among the Company, Hot Creek Capital, L.L.C., a Nevada limited liability company, Hot Creek Investors L.P., a Nevada limited partnership, David
M.W. Harvey, Joseph Paulini and Charles Dean, attached as Exhibit 10.1 to the Current Report on Form 8-K filed with the Commission on August 7, 2006, incorporated herein by reference.
|     | 
|21   |  | List of Subsidiaries.*                                                                                                                                                                                                                                                                                                                                                               
|     | 
|23   |  | Consent of Crowe Chizek and Company LLC*                                                                                                                                                                                                                                                                                                                                             
|     | 
|31.1 |  | Rule 13a-14(a) Certification of Principal Executive and Financial Officer*                                                                                                                                                                                                                                                                                                           
|     | 
|32.1 |  | Statement of Principal Executive Financial Officer pursuant to 18 U.S.C. § 1350*                                                                                                                                                                                                                                                                                                     



|* | Filed herewith
|- | --------------



|** | Management contracts and compensatory plans and arrangements.
|-- | -------------------------------------------------------------

(b)
Exhibits

The response to this portion of Item 15 as listed in Item 15(a)(3) above is submitted as a separate section of this
report.

(c) Financial Statement Schedules

The response to this portion of Item 15 is submitted as a separate section of this report.



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SIGNATURES

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



|      |  |                                   |  |  |  |     |  |                                              
|----- |  | --------------------------------- |  |  |  | --- |  | ---------------------------------------------
|      |  | MILLENNIUM BANKSHARES CORPORATION
|      |  |                                   |  | 
|Date: |  | April 12, 2007                    |  |  |  | By: |  | /s/ Dale G. Phelps                           
|      |  |                                   |  |  |  |     |  | Dale G. Phelps                               
|      |  |                                   |  |  |  |     |  | Interim President and Chief Executive Officer

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



|                        |  |                                                                                                    |  |               
|----------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------------
|Signature               |  | Title                                                                                              |  | Date          
|                        |  |                                                                                                   
|/s/ Dale G. Phelps      |  | Interim President, Chief Executive Officer                                                         |  | April 12, 2007
|Dale G. Phelps          |  | Chief Financial Officer (Principal Executive Officer) (Principal Financial and Accounting Officer) | 
|                        |  |                                                                                                   
|/s/ William P. Haggerty |  | Director                                                                                           |  | April 12, 2007
|William P. Haggerty     |  |                                                                                                    |  |               
|                        |  |                                                                                                   
|/s/ Grayson P. Hanes    |  | Director                                                                                           |  | April 12, 2007
|Grayson P. Hanes        |  |                                                                                                    |  |               
|                        |  |                                                                                                   
|/s/ David M.W. Harvey   |  | Director                                                                                           |  | April 12, 2007
|David M. W. Harvey      |  |                                                                                                    |  |               
|                        |  |                                                                                                   
|/s/ David B. Morey      |  | Director                                                                                           |  | April 12, 2007
|David B. Morey          |  |                                                                                                    |  |               
|                        |  |                                                                                                   
|/s/ Arthur J. Novick    |  | Director                                                                                           |  | April 12, 2007
|Arthur J. Novick        |  |                                                                                                    |  |               
|                        |  |                                                                                                   
|                        |  | Director                                                                                           |  | April 12, 2007
|Joseph W. Paulini       |  |                                                                                                    |  |               
|                        |  |                                                                                                   
|/s/ Robert T. Smoot     |  | Director                                                                                           |  | April 12, 2007
|Robert T. Smoot         |  |                                                                                                    |  |               



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|                      |  |          |  |               
|--------------------- |  | -------- |  | --------------
|Signature             |  | Title    |  | Date          
|                      |  |         
|/s/ Douglas K. Turner |  | Director |  | April 12, 2007
|Douglas K. Turner     |  |          |  |               
|                      |  |         
|/s/ Barbara Wortley   |  | Director |  | April 12, 2007
|Barbara Wortley       |  |          |  |               



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