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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF
1934



For the fiscal year ended December 31, 2004



Commission file number 0-49611



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MILLENNIUM BANKSHARES CORPORATION

(Name of small business issuer in its
charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)                          



(703) 464-0100

Issuers telephone number



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



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|None                |  | n/a                                      



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



Common Stock, par value $5.00 per share

(Title of class)



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



Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B, is not contained in this form, and no
disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x



The issuers revenue for
its most recent fiscal year was $26,435,000.



The aggregate
market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing sales price of such stock on March 31, 2005 as reported on the Nasdaq SmallCap Market, was approximately $70,181,000.



The number of outstanding shares of Common Stock as of March 11, 2005 was
8,785,959.



DOCUMENTS INCORPORATED BY REFERENCE



Proxy Statement for the 2005 Annual Meeting of Shareholders
 Part III



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TABLE OF CONTENTS



|         |  |                                                                                                                 |  |     
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                 |  | Page
|PART I  
|         |  |                                                                                                                
|ITEM 1.  |  | DESCRIPTION OF BUSINESS                                                                                         |  | 3   
|         |  |                                                                                                                
|ITEM 2.  |  | DESCRIPTION OF PROPERTY                                                                                         |  | 16  
|         |  |                                                                                                                
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                               |  | 17  
|         |  |                                                                                                                
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 17  
|        
|PART II 
|         |  |                                                                                                                
|ITEM 5.  |  | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |  | 17  
|         |  |                                                                                                                
|ITEM 6.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                            |  | 18  
|         |  |                                                                                                                
|ITEM 7.  |  | FINANCIAL STATEMENTS                                                                                            |  | 40  
|         |  |                                                                                                                
|ITEM 8.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 40  
|         |  |                                                                                                                
|ITEM 8A. |  | CONTROLS AND PROCEDURES                                                                                         |  | 40  
|         |  |                                                                                                                
|ITEM 8B  |  | OTHER INFORMATION                                                                                               |  | 40  
|        
|PART III
|         |  |                                                                                                                
|ITEM 9.  |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |  | 41  
|         |  |                                                                                                                
|ITEM 10. |  | EXECUTIVE COMPENSATION                                                                                          |  | 41  
|         |  |                                                                                                                
|ITEM 11. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  |  | 41  
|         |  |                                                                                                                
|ITEM 12. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 42  
|         |  |                                                                                                                
|ITEM 13. |  | EXHIBITS                                                                                                        |  | 42  
|         |  |                                                                                                                
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          |  | 43  



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PART I



ITEM 1. DESCRIPTION OF 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. At December 31,
2004 we had total consolidated assets of $371.9 million, deposits of $280.8 million and stockholders equity of $47.1 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 969,749 in 2000, and the combined population of Henrico County and Chesterfield County where our Richmond area branches are located, grew from
217,881 in 1990 to 262,300 in 2000.



We own a community bank,
which provides 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 attentive personal
service to our customers. By combining the technological support and products and services that our customers demand with direct access to senior management and responsive customer service, we seek 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.



Even though we are a small bank, we seek to provide our customers with the technological support that banking in todays market requires. We offer 24
hour a day, seven day 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.



Subsidiaries



We conduct primarily all of our business through Millennium Bank and its wholly and majority owned subsidiaries. The
subsidiaries other than Millennium Capital, Inc. are not material to the business of Millennium or Millennium Bank.



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 |  | Las Vegas, NV |  | Retail Lending               |  | Dec. 2001       



Millennium Bankshares
Corporation was the sole shareholder of Millennium Brokerage Services, Inc., which offered securities brokerage services, financial analysis, professional money management, stocks, bonds and mutual funds through UVEST. The relationship with UVEST
was terminated in March 2004. We signed an agreement with MetLife Securities, Inc. to provide retail securities brokerage services to our customers. We formed Millennium Financial, Inc. on February 23, 2004, to provide insurance services to our bank
customers through Metropolitan Life Insurance Company.



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In addition, we are a majority owner of Millennium e-Banking Solutions, L.L.C. This entity is currently
marketing a proprietary financial software solution through Millennium Bank.



Strategy



We have been in operation for just
under six 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 five 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. Mortgage loan production will continue to be important,
but we intend to be less dependent on mortgage lending in the future. We are expanding our branch network to increase our core deposits, reduce our dependence on brokered deposits and attract additional small business customers.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Commercial lending will be the driving product, together with Small Business Administration loans. The mortgage banking area will shift from internet lending to less risky and
traditional mortgage banking.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 2000 U.S. Census data, the population of the greater Washington metropolitan area was approximately 4.5 million people. The average of the median household income figures reported in the 2000
U.S. Census for each of the 15 jurisdictions comprising the greater Washington metropolitan area was approximately $64,200, compared to a national median household income of approximately $42,000. Based on estimates released by the Bureau of Labor
Statistics of the U.S. Department of Labor for September 2003, the unemployment rate for the greater Washington metropolitan area was approximately 3.3%, compared to a national unemployment rate of 5.8%. According to 2000 U.S. Census figures,
approximately 44% of adults at least 25 years of age in this area have a bachelors degree or higher, compared to approximately 24% nationally. As of June 30, 2003, total deposits in this area were approximately $104 billion.



Our headquarters is located approximately 20 miles west of Washington, D.C.,
in Reston, Virginia, which is in Fairfax County. The 2000 U.S. Census data indicates that Fairfax County is the



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most populous county in Virginia with a population of approximately one million people and a median household income of over $81,000. Based on estimates
released by the Bureau of Labor Statistics of the U.S. Department of Labor for September 2003, the unemployment rate in Fairfax County was 2.4%. The U.S. Census data shows that over 54% 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, 2004, 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



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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, 2004, commitments to extend credit totaled $45.5 million.



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, 2004, commercial loans totaled $134.7 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 employment and other income and are secured by real estate whose value 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, 2004, commercial real estate loans totaled $120.0 million, or 43.0% 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, 2004, there was $35.6 million in construction and land development loans outstanding in the commercial 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 loan 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,
2004, Small Business Administration loans totaled approximately $15 million, or 5.3% of the commercial loan portfolio.



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One-to-Four-Family Residential Real Estate Lending



Millennium Capital, Incorporated (Millennium Capital) makes residential loans and sells them to investors in the
secondary mortgage market. We originate both conforming and non-conforming residential loans. We make mortgage loans in our banking offices as well as through the mortgage banking subsidiaries of Millennium.



In 2003 as the mortgage refinancing boom peaked, many mortgage companies were
posting record profits. Millennium Capital, however, did not return a profit to us in 2003. There are several reasons for this disappointment. The restructuring of the Millennium Capital organization, continued emphasis on internet mortgage banking,
as well its loan product offerings and marketing focus, all contributed to this poor performance.



We began the reorganization of the Millennium Capital structure in the fourth quarter of 2002. As part of the reorganization, we changed the loan products
we offer. Our focus shifted from a high emphasis on riskier second mortgage loans, where the loan amount exceeded the value of the collateral, to a focus on more traditional first mortgage loans and second mortgage loans with a loan to value ratio
of 100% or less. We discontinued the production of the riskier second mortgage loans in January 2003. With this change, our lenders converted from originating the second mortgage loans to loan products where they lacked expertise. Hiring experienced
first mortgage lenders was difficult during the mortgage-refinancing boom in the first nine months of 2003. However, during the fourth quarter 2003, several very experienced, seasoned first mortgage lenders joined our team. The results of their
efforts increased our mortgage loan production volumes during the first quarter of 2004.



Additionally, Millennium Capital has shifted its first mortgage lending emphasis from internet referral lending to traditional referral sources, including personal contacts, realtor and construction industry
relationships, advertising and cross-selling throughout our organization. Until November 2003, the majority of our first mortgage loan volume came from Internet referral sources. We not only paid a modest fee for each lead, but a substantial fee of
$500 or more for each loan that closed. At the same time, borrowers who use internet referral services shop strictly on the basis of price, so the gains from selling these loans usually are less than on loans where a borrower is referred by a
builder or real estate agent for whom dependability and timely performance are important. This shift should provide business relationships that lead to repeat and ongoing business. It also relies on lender skill and expertise, rather than pricing
alone, to attract customers.



Changes related to cost controls,
reduction of overhead and salary expense were implemented in December 2003. Resource needs in staffing and outside services were thoroughly analyzed, based on cost benefit and loan production levels.



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.



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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 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, and home equity loans. Such loans are generally made to customers with a pre-existing relationship with
Millennium.



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.



Employees



At December 31, 2004, Millennium had the equivalent of 235 employees, 2 of
which are part-time employees. A collective bargaining unit represents none of Millenniums employees.



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. Our bank subsidiary is also subject to various consumer and compliance laws. As a national bank, Millennium Bank is subject



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to primary regulation, supervision and examination by the Office of the Comptroller of the Currency. Our bank subsidiary also is subject to regulation,
supervision and examination by the Federal Deposit Insurance Corporation.



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. Our activities at the bank holding company level are limited to:



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



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



| |  |  | 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 a financial holding company 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.



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.



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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 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. 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 it 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.



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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 Common Equity and Related Stockholder Matters 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 Bank Insurance Fund, or BIF, of the FDIC.



The FDIC has implemented a risk-based deposit insurance
assessment system under which the assessment rate for an insured institution may vary according to regulatory capital levels of the institution and other factors, including supervisory evaluations. For example, depository institutions insured by the
BIF that are well capitalized and that present few or no supervisory concerns are required to pay only the statutory minimum assessment of $2,000 annually for deposit insurance, while all other banks are required to pay premiums ranging
from 0.03% to 0.27% of domestic deposits. These rate schedules are subject to future adjustments by the FDIC. 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 total deposits in FDIC insured banks. The FDIC has authority to impose special assessments from time to time.



The FDIC is authorized to prohibit any BIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a
serious threat to the respective 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



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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.



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



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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 or branch 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 no personal 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 no personal time deposits at an institution. For net transaction accounts in 2005, the first $7.0 million will be exempt from reserve
requirements. A 3% reserve ratio will be assessed on net transaction accounts over $7.0 million to and including $47.6 million. A 10% reserve ratio will be applied to amounts in net transaction accounts in excess of $47.6 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.



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Transactions with Affiliates.Transactions between banks and their affiliates are governed by Sections 23A
and 23B of the Federal Reserve Act. 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 (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, 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. The OCC has prescribed the loan amount, which includes all other outstanding loans to such person, as to which such prior board of
director approval is required, as being 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.



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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.



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.



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ITEM 2. DESCRIPTION OF PROPERTY



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                                  |  | Date Facility Opened |  | Ownership and Leasing Arrangements                                                                                                                                                                                                        
|Main Office:                              |  |                      |  |                                                                                                                                                                                                                                           
|                                          |  |                     
|1601 Washington Plaza Reston, Virginia    |  | 1999                 |  | Leased from 1601 Washington Plaza, LLC, a Virginia limited liability company comprised of unit owners that 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 2005, subject to Millenniums right to renew for three additional five-year terms.                                                                                                                      
|                                          |  |                     
|1051 Elden Street Herndon, Virginia       |  | 2001                 |  | Leased from 1051 Elden Street, LLC, a Virginia limited liability company comprised of unit owners that are also Millennium shareholders. Lease expires in 2013 and 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 Arthur J. Shaheen. Lease expires in 2009 and has two consecutive five-year renewal options.                                                                                                                                   
|                                          |  |                     
|3400 Boulevard Colonial Heights, Virginia |  | 2002                 |  | Leased from Poovillam S. Subramaniam. 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 have five (5) three (3) year periods                                                                                                                                       
|                                          |  |                     
|Loan Offices                              |  |                      |  |                                                                                                                                                                                                                                           
|                                          |  |                     
|Warrenton, Virginia                       |  | 2004                 |  | Leased from Corinth Investments, LLC. Lease expires in 2009 and has five-year renewal options.                                                                                                                                            



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|                                                           |  |                      |  |                                                                                                                        
|---------------------------------------------------------- |  | -------------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Location                                                   |  | Date Facility Opened |  | Ownership and Leasing Arrangements                                                                                     
|2217 Princess Anne St., Ste 212-1 Fredericksburg, VA 22401 |  | 2004                 |  | Leased from Tommy Mitchell. Lease expires in 2005 and can be leased in 12 month periods from the end of the first term.



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



ITEM 3.LEGAL PROCEEDINGS



In
the course of our operations, we may become a party to legal proceedings. We are not aware of any material pending or threatened legal proceedings.



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



No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of our security holders.



PART II



|ITEM | 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|---- | -----------------------------------------------------------



Our common stock has been listed for quotation on the Nasdaq SmallCap Market under the symbol MBVA since February 6, 2002, following our
initial public offering at $6.00 per share. Prior to that time there were no trades of shares of our common stock. As of March 4, 2005, our common stock was held by 180 stockholders of record and approximately 1,008 beneficial holders who own shares
in street name.



The high and low sale prices per share for our
common stock for each quarter of 2003 and 2004, as well as the amount of cash dividends per share we declared in each quarter, were as follows:



|            |  |      |  |      |  |         
|----------- |  | ---- |  | ---- |  | --------
|            |  | High |  | Low  |  | Dividend
|2003        |  |      |  |      |  |         
|1stQuarter  |  | 7.06 |  | 6.20 |  |        
|2ndQuarter  |  | 8.00 |  | 6.60 |  |        
|3rdQuarter  |  | 8.00 |  | 7.26 |  |        
|4th Quarter |  | 7.98 |  | 7.20 |  |        
|            |  |      | 
|2004        |  |      |  |      |  |         
|1stQuarter  |  | 7.64 |  | 7.19 |  |        
|2ndQuarter  |  | 7.30 |  | 7.25 |  |        
|3rdQuarter  |  | 8.20 |  | 8.14 |  |        
|4thQuarter  |  | 8.87 |  | 8.31 |  |        



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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 us and Millennium Bank, applicable governmental regulations and policies and other factors deemed relevant by our board of
directors. Our Board of Directors intends to follow a policy of retaining any earnings to provide funds to operate and expand our business for the foreseeable future, which means that we have no plans to pay dividends.



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 statues 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.



We did not repurchase any shares of our common stock during any quarter of the year ended December 31, 2004.



ITEM 6. 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 mortgage and 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.



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The following presents managements discussion and analysis of our consolidated financial condition
at December 31, 2004 and 2003 and the results of our operations for the years ended December 31, 2004 and 2003. The discussion should be read in conjunction with the accompanying consolidated financial statements presented elsewhere in this
prospectus.



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 prospectus.



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.



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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, 2004, Millennium reported net income of $2,009,000, or $0.22 per share and $0.21 per diluted share, compared to net income
of $965,000, or $0.27 per share and $0.23 per diluted share for the same period in 2003. The annualized return on average assets and return on equity for the period ended December 31, 2004, are 0.59% and 5.44% respectively, compared to 0.31% and
6.20% for the comparable period in 2003. The reduction in return on equity is due to our May 2004 secondary stock offering and the approximately $30 million in additional equity it obtained.



Total assets increased to $371.9 million at December 31, 2004, compared to
$313.4 million at December 31, 2003, representing an increase of $58.5 million or 18.7%. Loans, net of allowance for loan losses at December 31, 2004 were $276.3 million, an increase of $61.3 million from the December 31, 2003 balance of $215.0
million Loans held for sale represented $20.3 million of the total increase while mortgage loans held in the banks portfolio decreased by $1.8 million. Commercial and commercial real estate loans increased by $25.4 million due to our increased
loan officers efforts and construction lending increased by $18.3 million.. Our investment portfolio decreased by $3.1 million at December 31, 2004 as compared to the prior year ended December 31, 2003. Total deposits reached $280.8 million at
December 31, 2004, an $8.7 million increase over the prior year-end. This increase was comprised of $3.8 in demand deposits and $13.5 million in certificates of deposits. NOW, savings and money market accounts reduced by a net $8.5 million primarily
in money market accounts.



Shareholders equity was $47.1
million at December 31, 2004. This amount represents an increase of $31.2 million from the December 31, 2003 balance of $15.9 million. Shareholders equity was increased by our 2004 secondary stock offering and warrants redemption, earnings,
exercise of stock options and by the change in other comprehensive income. Other comprehensive income is the change in the market value of the investment portfolio due to changes in interest rates net of taxes. The number of common shares
outstanding at December 31, 2004 was increased by 5,125,231 in the secondary offering and warrants redemption transaction. An additional 12,320 common shares were issued through the exercise of stock options in 2004. Book value per share was $5.37
at December 31, 2004 and $4.37 at December 31, 2003.



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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.



Our net interest margin is sensitive to the volume of mortgage loan originations. Loans originated by our mortgage subsidiary are sold, servicing
released, in the secondary mortgage market. When the volume of mortgage loan originations increases, typically in a declining interest rate environment, funds advanced in settlement of mortgage loans increase, pending delivery of the loans to the
loan purchaser. Until a mortgage loan is transferred to the purchaser, we receive interest on the loan at the note rate. While such funds advanced contribute to net interest income, the interest rate spread on mortgage loans held for sale is not as
great as the spread on our loan portfolio, which normally carries a higher interest yield. Thus, as funds advanced in settlement of mortgage loans increase, the interest spread and the net interest margin decrease.



Net interest income was $11.2 million for the year ended December 31, 2004
compared to $9.6 million for the year ended December 31, 2003, an increase 16.7%. This improvement in the net interest income was partially due to the volume increases in the loan portfolio. Average loans for the year ended December 31, 2004
increased 15.0% over average loans in 2003 or by $33.1 million. Noninterest bearing deposits also increased in 2004 allowing us to fund more of the earning assets with these deposits. The increase in average noninterest bearing deposits was $3.4
million or 20.9% at December 31, 2004 as compared to December 31, 2003.



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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, 2004  |         |                   | December 31, 2003 |             |  | December 31, 2002 |                    
|(Dollars in thousands)                     |  | AverageBalances(1) |         | Earnings/ Expense |                   | Yield/ Rate |  |                   | AverageBalances (1) |  | Earnings/ Expense |         | Yield/ Rate |   |        | AverageBalances (1) |      | Earnings/ Expense |  | Yield/ Rate |        
|Assets:                                    |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Interest Earning Assets                    |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Loans, net of unearned discounts (2)       |  | $                  | 253,573 |                   | $                 | 15,300      |  | 6.03              | %                   |  | $                 | 220,513 |             | $ | 13,603 |                     | 6.17 | %                 |  | $           | 218,922 |  | $ | 14,664 |  | 6.70 | %
|Securities                                 |  |                    | 76,416  |                   |                   | 3,032       |  | 3.97              | %                   |  |                   | 83,654  |             |   | 3,237  |                     | 3.87 | %                 |  |             | 37,472  |  |   | 1,746  |  | 4.66 | %
|Federal funds sold                         |  |                    | 3,184   |                   |                   | 40          |  | 1.26              | %                   |  |                   | 650     |             |   | 25     |                     | 3.85 | %                 |  |             | 3,585   |  |   | 60     |  | 1.67 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Total interest earning assets              |  |                    | 333,173 |                   | $                 | 18,372      |  | 5.51              | %                   |  |                   | 304,817 |             | $ | 16,865 |                     | 5.53 | %                 |  |             | 259,979 |  | $ | 16,470 |  | 6.34 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                    
|Other assets                               |  |                    | 7,683   |                   |                   |             |  |                   |                     |  |                   | 8,486   |             |   |        |                     |      |                   |  |             | 9,889   |  |   |        |  |      |  
|Total assets                               |  | $                  | 340,856 |                   |                   |             |  |                   |                     |  | $                 | 313,303 |             |   |        |                     |      |                   |  | $           | 269,868 |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Liabilities                                |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Interest-bearing deposits                  |  | $                  | 245,363 |                   | $                 | 6,094       |  | 2.48              | %                   |  | $                 | 253,042 |             | $ | 6,452  |                     | 2.55 | %                 |  | $           | 222,373 |  | $ | 7,728  |  | 3.48 | %
|Borrowed funds                             |  |                    | 37,401  |                   |                   | 1,061       |  | 2.84              | %                   |  |                   | 27,069  |             |   | 782    |                     | 2.89 | %                 |  |             | 15,569  |  |   | 478    |  | 3.07 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Total interest-bearing liabilities         |  |                    | 282,764 |                   |                   | 7,155       |  | 2.53              | %                   |  |                   | 280,111 |             |   | 7,234  |                     | 2.58 | %                 |  |             | 237,942 |  |   | 8,206  |  | 3.45 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                    
|Liabilities:                               |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Demand deposits                            |  |                    | 19,883  |                   |                   |             |  |                   |                     |  |                   | 16,444  |             |   |        |                     |      |                   |  |             | 13,312  |  |   |        |  |      |  
|Other liabilities                          |  |                    | 1297    |                   |                   |             |  |                   |                     |  |                   | 1,195   |             |   |        |                     |      |                   |  |             | 1,442   |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Total liabilities                          |  |                    | 303,944 |                   |                   |             |  |                   |                     |  |                   | 297,750 |             |   |        |                     |      |                   |  |             | 252,696 |  |   |        |  |      |  
|Shareholders equity                       |  |                    | 36,912  |                   |                   |             |  |                   |                     |  |                   | 15,553  |             |   |        |                     |      |                   |  |             | 17,172  |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                  | 340,856 |                   |                   |             |  |                   |                     |  | $                 | 313,303 |             |   |        |                     |      |                   |  | $           | 269,868 |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Net interest income                        |  |                    |         |                   | $                 | 11,217      |  |                   |                     |  |                   |         |             | $ | 9,631  |                     |      |                   |  |             |         |  | $ | 8,264  |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  
|Interest spread                            |  |                    |         |                   |                   |             |  | 2.98              | %                   |  |                   |         |             |   |        |                     | 2.95 | %                 |  |             |         |  |   |        |  | 2.89 | %
|Net interest yield on earning assets       |  |                    |         |                   |                   |             |  | 3.37              | %                   |  |                   |         |             |   |        |                     | 3.16 | %                 |  |             |         |  |   |        |  | 3.18 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                     |      |                   |  |             |         |  |   |        |  |      |  





-22-



---

##### Table of Contents

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, 2004 vs. 2003 |       |   | December 31, 2003 vs. 2002 |  
|(Dollars in thousands)                              |  | Due toVolume               |       |   | Change inRate              |   |      | Total |  |   | Due toVolume |   |  | Change inRate |       |   | Total |  
|Interest Earned On:                                 |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  
|Loans                                               |  | $                          | 1,995 |   |                            | $ | (298 | )     |  | $ | 1,697        |   |  | $             | 98    |   |       | $ | (1,159 | ) |  | $ | (1,061 | )
|Securities                                          |  |                            | (287  | ) |                            |   | 82   |       |  |   | (205         | ) |  |               | 1,787 |   |       |   | (296   | ) |  |   | 1,491  |  
|Federal Funds Sold                                  |  |                            | 32    |   |                            |   | (17  | )     |  |   | 15           |   |  |               | (113  | ) |       |   | 78     |   |  |   | (35    | )
|                                                    |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  
|Total interest earned on interest-bearing assets    |  |                            | 1,740 |   |                            |   | (233 | )     |  |   | 1,507        |   |  |               | 1,772 |   |       |   | (1,377 | ) |  |   | 395    |  
|                                                    |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  
|Interest Paid On:                                   |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  
|Interest-bearing deposits                           |  |                            | (191  | ) |                            |   | (167 | )     |  |   | (358         | ) |  |               | 782   |   |       |   | (2,058 | ) |  |   | (1,276 | )
|Borrowed funds                                      |  |                            | 293   |   |                            |   | (14  | )     |  |   | 279          |   |  |               | 332   |   |       |   | (28    | ) |  |   | 304    |  
|                                                    |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  
|Total interest paid on Interest-bearing liabilities |  |                            | 102   |   |                            |   | (181 | )     |  |   | (79          | ) |  |               | 1,114 |   |       |   | (2,086 | ) |  |   | (972   | )
|                                                    |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  
|Net interest income                                 |  | $                          | 1,638 |   |                            | $ | (52  | )     |  | $ | 1,586        |   |  | $             | 658   |   |       | $ | 709    |   |  | $ | 1,367  |  
|                                                    |  |                            |       |   |                            |   |      |       |  |   |              |   |  |               |       |   |       |   |        |   |  |   |        |  



Interest Sensitivity



The nature of the banking business, which involves paying
interest on deposits at varying rates and terms and charging interest on loans at other rates and terms, creates interest rate risk. As a result, earnings and the market value of assets and liabilities are subject to fluctuations, which arise due to
changes in the level and direction of interest rates. Managements objective is to minimize the fluctuation in the net interest margin caused by changes in interest rates using cost-effective strategies and tools.



An important element of both earnings performance and liquidity is the
management of the interest sensitivity gap. The interest sensitivity gap is the difference between interest-sensitive assets and interest-sensitive liabilities maturing or repricing within a specific time interval. 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 amounts 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. We evaluate interest rate risk and then formulate guidelines regarding asset generation and pricing, funding sources and
pricing, and off-balance sheet commitments in order to decrease sensitivity risk. These guidelines are based upon our outlook regarding future interest rate movements, the state of the regional and national economy, and other financial and business
risk factors.



At December 31, 2004, we had $4.4 million more
assets than liabilities that reprice within one year or less and therefore we were in an asset sensitive position. An asset sensitive position can adversely affect earnings in periods of decreasing interest rates. This position is the result of the
held for sale mortgage loan portfolio.



We have an
Asset/Liability Committee, which reviews deposit pricing, changes in borrowed money, investment activity, loan sale activities, liquidity levels and the overall interest sensitivity. The actions of this committee are reported to the Board of
Directors monthly. The chief financial officer manages the daily monitoring of interest rate risk and investment activity with input from other committee members.



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---

##### Table of Contents

The following table presents the amounts of Millenniums interest sensitive assets and liabilities
that mature or reprice in the periods indicated.



|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------------------------- | ------- | - | ---------- | - | ------- | --------- |  | - | ------------ | - |  | - | ------- | -
|                                                                                           |  | December 31, 2004 Maturing or Repricing In: |        
|(Dollars in thousands)                                                                     |  | 3 Monthsor less                             |         |   | 4-12Months |   |         | 1-5 Years |  |   | Over 5 Years |  
|Interest-sensitive assets:                                                                 |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Loans (1)                                                                                  |  | $                                           | 128,851 |   |            | $ | 18,787  |           |  | $ | 97,758       |   |  | $ | 33,932  |  
|Investments (2)(4)                                                                         |  |                                             |        |   |            |   |        |           |  |   | 25,946       |   |  |   | 57,525  |  
|Federal funds sold                                                                         |  |                                             | 55      |   |            |   |        |           |  |   |             |   |  |   |        |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Total interest-sensitive assets                                                            |  |                                             | 128,906 |   |            |   | 18,787  |           |  |   | 123,704      |   |  |   | 91,457  |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Cumulative interest-sensitive assets                                                       |  |                                             | 128,906 |   |            |   | 147,693 |           |  |   | 271,397      |   |  |   | 362,854 |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Interest-sensitive liabilities:                                                            |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|NOW accounts(3)                                                                            |  |                                             | 818     |   |            |   | 3,856   |           |  |   | 4,674        |   |  |   |        |  
|Savings/Money Market deposit accounts(3)                                                   |  |                                             | 29,401  |   |            |   | 67,623  |           |  |   | 20,582       |   |  |   |        |  
|Certificates of deposit                                                                    |  |                                             | 8,164   |   |            |   | 29,810  |           |  |   | 92,981       |   |  |   |        |  
|Borrowed money                                                                             |  |                                             |        |   |            |   | 5,500   |           |  |   | 21,000       |   |  |   |        |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Total interest-sensitive liabilities                                                       |  |                                             | 38,383  |   |            |   | 106,789 |           |  |   | 139,237      |   |  |   |        |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Cumulative interest-sensitive liabilities                                                  |  |                                             | 38,383  |   |            |   | 145,172 |           |  |   | 284,409      |   |  |   | 284,409 |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Period gap                                                                                 |  |                                             | 90,523  |   |            |   | (88,002 | )         |  |   | (15,533      | ) |  |   | 91,457  |  
|Cumulative gap                                                                             |  | $                                           | 90,523  |   |            | $ | 2,521   |           |  | $ | (13,012      | ) |  | $ | 78,445  |  
|Ratio of cumulative interest-sensitive assets to cumulative interest-sensitive liabilities |  |                                             | 335.84  | % |            |   | 101.74  | %         |  |   | 95.43        | % |  |   | 127.58  | %
|Ratio of cumulative gap to total assets                                                    |  |                                             | 24. 34  | % |            |   | 0.68    | %         |  |   | -3.50        | % |  |   | 21.41   | %
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  
|Total Assets                                                                               |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   | 371,858 |  
|                                                                                           |  |                                             |         |   |            |   |         |           |  |   |              |   |  |   |         |  

---

|(1) | Loans maturing or repricing in three months or less includes $29.3 million of mortgage loans held for sale.
|--- | -----------------------------------------------------------------------------------------------------------

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

|(3) | Assumed to not be sensitive to changes in interest rates.
|--- | ---------------------------------------------------------

|(4) | 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 Millennium 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.



Investments



At December 31, 2004, Millennium had $86.2 million in total available for
sale securities, a decrease of 3.5% from $89.4 million at December 31, 2003. The difference reflects the net effect of asset management with excess funds being used for loans first and securities when excess is available prior to planned loan
settlements.



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---

##### Table of Contents

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



|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|--------------------------------- |  | ----------------- | ------ | ----------------- | - | ----------------- |  | ------ | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|                                  |  | December 31, 2004 |        | December 31, 2003 |   | December 31, 2002
|(Dollars in thousands)            |  | Cost              |        | Market            |   | Cost              |  | Market |        | Cost |   | Market
|Available for sale                |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|US Government & Agency Securities |  | $                 | 84,502 |                   | $ | 83,471            |  | $      | 87,741 |      | $ | 86,651 |  | $ | 49,664 |  | $ | 50,221
|Other                             |  |                   |       |                   |   |                  |  |        |       |      |   |       |  |   | 2,078  |  |   | 2,104 
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Total available for sale          |  |                   | 84,502 |                   |   | 83,471            |  |        | 87,741 |      |   | 86,651 |  |   | 51,742 |  |   | 52,325
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Other                             |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Federal Home Loan Bank stock      |  |                   | 1,817  |                   |   | 1,817             |  |        | 1,991  |      |   | 1,991  |  |   | 1,505  |  |   | 1,505 
|Federal Reserve Bank stock        |  |                   | 871    |                   |   | 871               |  |        | 658    |      |   | 658    |  |   | 688    |  |   | 688   
|Other stocks                      |  |                   | 60     |                   |   | 60                |  |        | 59     |      |   | 59     |  |   | 59     |  |   | 59    
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Total                             |  | $                 | 87,250 |                   | $ | 86,219            |  | $      | 90,449 |      | $ | 89,359 |  | $ | 53,994 |  | $ | 54,577
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       



The following table
sets forth the maturity distribution and weighted average yields of the investment portfolio at book value as of December 31, 2004. The weighted average yields are calculated on the basis of the amortization of premium and accretion of discount. The
chart anticipates prepayments on FNMA and FHLMC pools.



|                                       |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|-------------------------------------- |  | ------------- | - | ---------------- | - | ------ | ------------------ |  | - | -------------- | - |  | - | ------ | -
|(Dollars in thousands)                 |  | 1 Year orLess |   | 1 YearTo 5 Years |   |        | 5 YearsTo 10 Years |  |   | After 10 Years |  
|Maturity Distribution                  |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|U. S. Agency issues                    |  | $             |  |                  | $ | 26,071 |                    |  | $ | 42,851         |   |  | $ | 14,549 |  
|Federal Home Loan                      |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|Bank/Other                             |  |               |  |                  |   |       |                    |  |   |               |   |  |   | 2,090  |  
|Federal Reserve Bank stock             |  |               |  |                  |   |       |                    |  |   |               |   |  |   | 658    |  
|                                       |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|Total Maturity Distribution            |  | $             |  |                  | $ | 26,071 |                    |  | $ | 42,851         |   |  | $ | 17,297 |  
|                                       |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|Weighted Average Yield                 |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|U. S. Agency issues                    |  |               |  |                  |   | 3.75   | %                  |  |   | 4.16           | % |  |   | 4.09   | %
|Federal Home Loan                      |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|Bank/Other                             |  |               |  |                  |   |       |                    |  |   |               |   |  |   | 3.75   | %
|Federal Reserve Bank stock             |  |               |  |                  |   |       |                    |  |   |               |   |  |   | 6.00   | %
|                                       |  |               |   |                  |   |        |                    |  |   |                |   |  |   |        |  
|Total Portfolio Weighted Average Yield |  |               |  |                  |   | 3.75   | %                  |  |   | 4.16           | % |  |   | 4.13   | %



-25-



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##### Table of Contents

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 $276.3 million at
December 31, 2004, an increase of 28.5% from December 31, 2003.



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



|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|--------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                            |  | December 31, |        
|(Dollars in thousands)      |  | 2004         |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|Mortgage loans              |  | $            | 104,884 |   |      | $ | 86,399  |      |  | $ | 167,030 |   |  | $    | 139,511 |   |  | $ | 52,791 |  
|Commercial real estate      |  |              | 120,021 |   |      |   | 93,819  |      |  |   | 53,391  |   |  |      | 10,918  |   |  |   | 15,133 |  
|Construction and land loans |  |              | 35,570  |   |      |   | 17,318  |      |  |   | 3,926   |   |  |      |        |   |  |   |       |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total real estate loans     |  |              | 260,475 |   |      |   | 197,536 |      |  |   | 224,347 |   |  |      | 150,429 |   |  |   | 67,924 |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Commercial business loans   |  |              | 14,688  |   |      |   | 15,466  |      |  |   | 15,446  |   |  |      | 24,614  |   |  |   | 9,987  |  
|Consumer loans              |  |              | 4,152   |   |      |   | 5,055   |      |  |   | 2,617   |   |  |      | 1,120   |   |  |   | 714    |  
|Overdrafts                  |  |              | 13      |   |      |   | 21      |      |  |   | 13      |   |  |      | 292     |   |  |   | 92     |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total loans receivable      |  |              | 279,328 |   |      |   | 218,078 |      |  |   | 242,423 |   |  |      | 176,455 |   |  |   | 78,717 |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Less:                       |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Deferred costs (fees)       |  |              | (147    | ) |      |   | (39     | )    |  |   | 168     |   |  |      | 16      |   |  |   | 69     |  
|Allowance for loan losses   |  |              | (2,925  | ) |      |   | (3,057  | )    |  |   | (3,499  | ) |  |      | (1,391  | ) |  |   | (466   | )
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total loans receivable, net |  | $            | 276,256 |   |      | $ | 214,982 |      |  | $ | 239,092 |   |  | $    | 175,080 |   |  | $ | 78,320 |  
|                            |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  



The changes in our
loan portfolio reflect our strategy of increasing commercial business, commercial real estate and construction loans. At December 31, 2004, these three categories totaled $170.3 million or 61.0% of total loans receivable, compared to $126.6 million,
or 58.1% of total loans receivable at December 31, 2003. At December 31, 2004, residential mortgage loans were $104.9 million, which represented 37.5% of total loans receivable, compared to $86.4 million at December 31, 2003, or 39.6% of total loans
receivable. The balance of Millenniums residential mortgage loans.



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##### Table of Contents

The following table shows the contractual maturity of selected categories of loans at December 31, 2004.
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, 2004                   
|(Dollars in thousands) |  | Commercial,Financial andAgricultural |        | Real Estate/Construction
|Within 1 year          |  | $                                    | 4,852  |                          | $ | 30,847 
|Variable Rate:         |  |                                      |        |                          |   |        
|1 to 5 years           |  |                                      | 4,034  |                          |   | 38,124 
|After 5 years          |  |                                      | 2,777  |                          |   | 155,216
|                       |  |                                      |        |                          |   |        
|Total                  |  | $                                    | 11,663 |                          | $ | 224,187
|                       |  |                                      |        |                          |   |        
|Fixed Rate:            |  |                                      |        |                          |   |        
|1 to 5 years           |  |                                      | 3,025  |                          |   | 11,550 
|After 5 years          |  |                                      |       |                          |   | 24,738 
|                       |  |                                      |        |                          |   |        
|Total                  |  | $                                    | 3,025  |                          | $ | 36,288 
|                       |  |                                      |        |                          |   |        
|Total Maturities       |  | $                                    | 14,688 |                          | $ | 260,475
|                       |  |                                      |        |                          |   |        



Asset Quality



General



Asset quality is an important factor in the successful operation of a financial institution. Banking regulations require
institutions to classify their own 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 loan. Millennium writes off any loans that are classified as loss.



Unless well secured and in the process of collection, Millennium places loans on a non-accrual status after being delinquent
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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##### Table of Contents

Non-Performing Assets



We had $822,000 in non-accrual loans at December 31, 2004, compared to $146,000 at December 31, 2003. The following table details information concerning
non-accrual, past due and restructured loans at the dates indicated:



|                                                           |  |              |     |      |   |      |  |      |     |      |   |   |  |   |  
|---------------------------------------------------------- |  | ------------ | --- | ---- | - | ---- |  | ---- | --- | ---- | - | - |  | - | -
|                                                           |  | December 31,
|(Dollars in thousands)                                     |  | 2004         |     | 2003 |   | 2002 |  | 2001 |     | 2000
|Non-accrual loans                                          |  | $            | 822 |      | $ | 146  |  | $    | 548 |      | $ |  |  | $ | 
|Foreclosed properties                                      |  |              |    |      |   |     |  |      |    |      |   |  |  |   | 
|Restructured loans                                         |  |              |    |      |   |     |  |      |    |      |   |  |  |   | 
|Total non-performing assets                                |  | $            | 822 |      | $ | 146  |  | $    | 548 |      | $ |  |  | $ | 
|                                                           |  |              |     |      |   |      |  |      |     |      |   |   |  |   |  
|Loans past due 90 days or more and still accruing interest |  | $            | 339 |      | $ | 162  |  | $    | 72  |      | $ |  |  | $ | 
|                                                           |  |              |     |      |   |      |  |      |     |      |   |   |  |   |  



Information regarding
impaired and non-performing loans is as follows:



|                                                             |  |              |     |      |   |      |  |   |  
|------------------------------------------------------------ |  | ------------ | --- | ---- | - | ---- |  | - | -
|                                                             |  | December 31,
|                                                             |  | 2004         |     | 2003 |   | 2002
|Loans with no allocated allowance for loan losses            |  | $            |    |      | $ |     |  | $ | 
|Loans with allocated allowance for loan losses               |  |              | 175 |      |   |     |  |   | 
|                                                             |  |              |     |      |   |      |  |   |  
|Total                                                        |  | $            | 175 |      | $ |     |  | $ | 
|                                                             |  |              |     |      |   |      |  |   |  
|Amount of the allowance for loan losses allocated            |  | $            | 44  |      | $ |     |  | $ | 
|Average investment in impaired loans                         |  | $            | 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.



Allowance for losses on loans and real estate



Millennium provides valuation allowances for probable losses incurred on
loans and real estate 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.



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##### Table of Contents

An analysis of the allowance for loan losses, including charge-off activity, is presented below for the
periods indicated. The increases in our allowance for loan losses are the result of adjustments that management has made in response to the growth of our loan portfolio.



|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|----------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ---- | -
|                                                                        |  | Year Ended December 31 |      
|(In thousands)                                                          |  | 2004                   |       |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|Balance, beginning of period                                            |  | $                      | 3,057 |   |      | $ | 3,499 |      |  | $ | 1,391 |   |  | $    | 466   |   |  | $ | 161  |  
|Less Charge-offs:                                                      |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|Commercial                                                              |  |                        |      |   |      |   | 160   |      |  |   | 971   |   |  |      |      |   |  |   |     |  
|Real estate-mortgage                                                    |  |                        | 520   |   |      |   | 981   |      |  |   | 217   |   |  |      | 96    |   |  |   |     |  
|Consumer installment loans                                              |  |                        | 1     |   |      |   |      |      |  |   |      |   |  |      |      |   |  |   |     |  
|Plus Recoveries:                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|Commercial                                                              |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |   |     |  
|Real estate-mortgage                                                    |  |                        | 117   |   |      |   | 12    |      |  |   | 43    |   |  |      | 1     |   |  |   |     |  
|Consumer installment loans                                              |  |                        | 1     |   |      |   |      |      |  |   |      |   |  |      |      |   |  |   |     |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|Net Charge-offs                                                         |  |                        | 403   |   |      |   | 1,129 |      |  |   | 1,145 |   |  |      | 95    |   |  |   |     |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|Provision for loan losses                                               |  |                        | 271   |   |      |   | 687   |      |  |   | 3,253 |   |  |      | 1,020 |   |  |   | 305  |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|Balance, end of period                                                  |  | $                      | 2,925 |   |      | $ | 3,057 |      |  | $ | 3,499 |   |  | $    | 1,391 |   |  | $ | 466  |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |      |  
|Ratio of net charge-offs to average loans outstanding during the period |  |                        | 0.16  | % |      |   | 0.51  | %    |  |   | 0.52  | % |  |      | 0.09  | % |  |   | 0.00 | %



The allowance for loan
losses at December 31, 2004, was $2.9 million, compared to $3.1 million at December 31, 2003. The provision for loan losses for 2004 was $271,000 as compared to $687,000 for the period ended December 31, 2003.



The allowance for loan losses was 1.05% of total loans outstanding at
December 31, 2004. Net charge-offs as a percentage of loans were 0.16% and 0.51% for December 31, 2004 and 2003, respectively. There was $162,000 in past due 90 days or more at December 31, 2004. Management believes the allowance for loan losses is
adequate to cover credit losses probable and incurred in the loan portfolio at December 31, 2004.



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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,
|                              |  | 2004         |   | 2003
|(Dollars in thousands)        |  | Percent      |   |      | Amount |       | Percent |       |   | Amount
|Loans secured by real estate: |  |              |   |      |        |       |         |       |   |        |   |      
|Construction/land development |  | 0.0          | % |      | $      |      |         | 4.7   | % |        | $ | 143  
|1  4 family residential      |  | 16.7         | % |      |        | 488   |         | 52.1  | % |        |   | 1,595
|Multi-family residential      |  | 9.2          | % |      |        | 268   |         | 0.3   | % |        |   | 9    
|Non-farm, non-residential     |  | 2.9          | % |      |        | 84    |         | 25.9  | % |        |   | 792  
|Loans to farmers              |  | 0.0          | % |      |        |      |         | 0.0   | % |        |   |     
|Commercial and industrial     |  | 64.9         | % |      |        | 1,900 |         | 15.6  | % |        |   | 477  
|Loans to individuals          |  | 6.3          | % |      |        | 185   |         | 1.4   | % |        |   | 41   
|                              |  |              |   |      |        |       |         |       |   |        |   |      
|Total                         |  | 100.0        | % |      | $      | 2,925 |         | 100.0 | % |        | $ | 3,057
|                              |  |              |   |      |        |       |         |       |   |        |   |      



|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    
|----------------------------- |  | ----------- | - | ---- | ------ | ----- | ------- | ----- | - | ------ | - | ------- |  | ----- | ------ |  | - | ---
|                              |  | December 31
|                              |  | 2002        |   | 2001 |        | 2000 
|(Dollars in thousands)        |  | Percent     |   |      | Amount |       | Percent |       |   | Amount |   | Percent |  |       | Amount
|Loans secured by real estate: |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    
|Construction/land development |  | 0.0         | % |      | $      |      |         | 0.0   | % |        | $ |        |  | 0.0   | %      |  | $ |   
|1  4 family residential      |  | 53.5        | % |      |        | 1,873 |         | 85.4  | % |        |   | 1,188   |  | 75.8  | %      |  |   | 353
|Multi-family residential      |  | 0.0         | % |      |        |      |         | 0.0   | % |        |   |        |  | 0.0   | %      |  |   |   
|Non-farm, non-residential     |  | 19.2        | % |      |        | 673   |         | 11.3  | % |        |   | 157     |  | 13.3  | %      |  |   | 62 
|Loans to farmers              |  | 0.0         | % |      |        |      |         | 0.0   | % |        |   |        |  | 0.0   | %      |  |   |   
|Commercial and industrial     |  | 27.1        | % |      |        | 948   |         | 2.7   | % |        |   | 38      |  | 9.2   | %      |  |   | 43 
|Loans to individuals          |  | 0.2         | % |      |        | 5     |         | 0.6   | % |        |   | 8       |  | 1.7   | %      |  |   | 8  
|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    
|Total                         |  | 100.0       | % |      | $      | 3,499 |         | 100.0 | % |        | $ | 1,391   |  | 100.0 | %      |  | $ | 466
|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    



Non-Interest Income



Millenniums non-interest income consists primarily of loan fees,
net gains on sale of loans and fees and service charges on deposit accounts. The following table presents information on the sources and amounts of non-interest income.



|                                         |  |             |       |      |   |       |  |   |      
|---------------------------------------- |  | ----------- | ----- | ---- | - | ----- |  | - | -----
|                                         |  | December 31
|Non Interest Income                      |  | 2004        |       | 2003 |   | 2002 
|(Dollars in thousands)                   |  |             |       |      |   |       |  |   |      
|Service charges                          |  | $           | 244   |      | $ | 172   |  | $ | 155  
|Gain on sale of loans and loan fees, net |  |             | 7,407 |      |   | 3,593 |  |   | 3,088
|Gain on sale of securities, net          |  |             | 4     |      |   | 452   |  |   | 41   
|Other income                             |  |             | 408   |      |   | 291   |  |   | 176  
|                                         |  |             |       |      |   |       |  |   |      
|Total                                    |  | $           | 8,063 |      | $ | 4,508 |  | $ | 3,460
|                                         |  |             |       |      |   |       |  |   |      



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##### Table of Contents

The tables that follow summarize residential mortgage loan originations, purchases and sales by type of loan for the
periods indicated.



|                                                          |  |              |         |            |        |   |        |   |            |  |        |  
|--------------------------------------------------------- |  | ------------ | ------- | ---------- | ------ | - | ------ | - | ---------- |  | ------ | -
|                                                          |  | December 31, |        
|                                                          |  | 2004         |         |            | 2003   |  
|(Dollars in thousands)                                    |  | Amount       |         | % of Total |        |   | Amount |   | % of Total | 
|Mortgage Loans Originated and Purchased                   |  |              |         |            |        |   |        |   |            |  |        |  
|Fixed Rate                                                |  |              |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  | $            | 105,828 |            | 33.2   | % |        | $ | 161,595    |  | 71.8   | %
|Second Mortgage                                           |  |              | 5,741   |            | 1.8    | % |        |   | 11,695     |  | 5.2    | %
|                                                          |  |              |         |           
|Adjustable Rate                                           |  |              |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  |              | 206,357 |            | 64.7   | % |        |   | 51,392     |  | 22.9   | %
|Second Mortgage                                           |  |              | 859     |            | .3     | % |        |   | 132        |  | 0.1    | %
|                                                          |  |              |         |            |        |   |        |   |            |  |        |  
|Total Residential Mortgage Loans Originated and Purchased |  | $            | 318,785 |            | 100.00 | % |        | $ | 224,814    |  | 100.00 | %
|                                                          |  |              |         |            |        |   |        |   |            |  |        |  
|Mortgage Loans Sold                                       |  |              |         |            |        |   |        |   |            |  |        |  
|Fixed Rate                                                |  |              |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  | $            | 104,245 |            | 33.1   | % |        | $ | 160,809    |  | 72.0   | %
|Second Mortgage                                           |  |              | 5,506   |            | 1.8    | % |        |   | 11,501     |  | 5.1    | %
|                                                          |  |              |         |           
|Adjustable Rate                                           |  |              |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  |              | 203,834 |            | 64.8   | % |        |   | 51,052     |  | 22.8   | %
|Second Mortgage                                           |  |              | 859     |            | .3     | % |        |   | 132        |  | 0.1    | %
|                                                          |  |              |         |            |        |   |        |   |            |  |        |  
|Total Mortgage Loans Sold                                 |  | $            | 314,444 |            | 100.00 | % |        | $ | 223,494    |  | 100.00 | %
|                                                          |  |              |         |            |        |   |        |   |            |  |        |  



We make mortgage loans
through Millennium Capital and our majority owned operating subsidiary. In the twelve months ended December 31, 2004, most of our residential mortgage loan production came from our non-banking operating subsidiary and Millennium Capital. Each
operating subsidiarys loan production consists primarily of loans to consumers acquired through the Internet, direct relationships and brokers. The minority shareholder may terminate its relationship with us on six months notice. Our remaining
residential mortgage loan production comes from Millennium Capital.



We sell residential first and second mortgage loans in the secondary mortgage market to institutional purchasers. All second mortgage loans and all fixed rate first mortgage loans originated or purchased are held for sale. Millennium began
originating federally insured or guaranteed mortgage loans in March 2004. We do not swap mortgage loans for mortgage backed securities. All loan sales are for cash. When we sell loans we give customary representations and warranties. If we breach
those representations and warranties, a buyer of loans can require us to repurchase the loans.



Mortgage banking activities generally involve risks of loss if secondary mortgage market interest rates increase substantially while a loan is in the pipeline (the period beginning with the
application to make or the commitment to purchase a loan and ending with the sale of the loan). In order to reduce this interest rate risk, we sell each fixed rate first mortgage loan when the borrower locks in the interest rate on the loan.
Millennium does not use options, futures or other derivatives to hedge its interest rate risk.



In an environment of stable interest rates, our gains on the sale of mortgage loans would generally be limited to those gains resulting from the yield differential between retail mortgage loan interest rates and rates
required by secondary market purchasers. A loss from the sale of a loan may occur if interest rates increase between the time we establish the interest rate on a loan and the time the loan is sold.



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Periods of rising interest rates will adversely affect our income from our mortgage banking
operations. In periods of rising interest rates, consumer demand for new mortgages and refinancing decreases, which in turn adversely affects our mortgage lending. Because of the uncertainty of future loan origination volume and the future level of
interest rates, there can be no assurance that we will realize gains on the sale of loans in future periods.



Non-Interest Expense



|                                 |  |              |        |      |   |        |  |   |       
|-------------------------------- |  | ------------ | ------ | ---- | - | ------ |  | - | ------
|                                 |  | December 31,
|Non Interest Expense             |  | 2004         |        | 2003 |   | 2002  
|(Dollars in thousands)           |  |              |        |      |   |       
|Salary and benefits              |  | $            | 9,972  |      | $ | 6,172  |  | $ | 7,539 
|Occupancy                        |  |              | 1,088  |      |   | 994    |  |   | 887   
|Furniture, equipment & computers |  |              | 1,380  |      |   | 1,238  |  |   | 1,009 
|Litigation expenses (1)          |  |              |       |      |   | 574    |  |   | 426   
|Marketing fees                   |  |              | 146    |      |   | 92     |  |   | 250   
|Professional fees (2)            |  |              | 1,042  |      |   | 137    |  |   | 620   
|Administrative expense           |  |              | 2,342  |      |   | 2,783  |  |   | 2,959 
|                                 |  |              |        |      |   |        |  |   |       
|Total                            |  | $            | 15,970 |      | $ | 11,990 |  | $ | 13,690
|                                 |  |              |        |      |   |        |  |   |       

---

|(1) | Includes litigation-related legal fees and related expenses.
|--- | ------------------------------------------------------------

|(2) | Excludes litigation-related legal fees and expenses.
|--- | ----------------------------------------------------



Income Taxes



Millennium recorded income tax expense in the amount of $1,030 for the year ended December 31, 2004. The income tax expense for 2003 was $497.



As of December 31, 2004 we have used all of our net operating losses
available. In addition to federal income taxes the bank pays a Virginia State franchise tax. The franchise tax was $182,769, $229,178, and $102,655 for the years ending December 31, 2004, 2003, and 2002, respectively.



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 of gathering deposits to fund our mortgage loan operations and commercial lending. Alternative methods used are FHLB of Atlanta for daily and longer-term borrowings and 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 years certificates of deposits, which may increase Millenniums overall cost of funds and decrease 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



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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, individual retirement accounts and is expanding to provide products and services for businesses. Millenniums
principal use of deposits is to originate loans and fund investment securities.



At December 31, 2004, deposits were $280.8 million, an increase of 3.2% from $272.1 million at December 31, 2003. The deposit growth 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, will reduce our reliance on time deposits and short term borrowings.



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,
|                        |  | 2004         |         | 2003 |   | 2002   
|(Dollars in thousands)  |  |              |         |      |   |        
|Savings accounts        |  | $            | 19,679  |      | $ | 1,504   |  | $ | 1,139  
|Demand deposit accounts |  |              | 22,924  |      |   | 19,150  |  |   | 13,912 
|NOW accounts            |  |              | 9,348   |      |   | 9,663   |  |   | 7,889  
|Money market accounts   |  |              | 97,927  |      |   | 124,300 |  |   | 142,514
|CDs less than $100K    |  |              | 55,078  |      |   | 49,572  |  |   | 46,142 
|CDs greater than $100K |  |              | 75,877  |      |   | 67,924  |  |   | 46,913 
|                        |  |              |         |      |   |         |  |   |        
|Total                   |  | $            | 280,833 |      | $ | 272,113 |  | $ | 258,509
|                        |  |              |         |      |   |         |  |   |        



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, |        
|                                     |  | 2004                     |         |                 | 2003 |   |                | 2002 |                
|                                     |  | AverageBalance           |         | AverageRatePaid |      |   | AverageBalance |      | AverageRatePaid |  |      | AverageBalance |  | AverageRatePaid |        
|(Dollars in thousands)               |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |        
|Non-interest bearing Demand deposits |  | $                        | 19,883  |                 | 0.00 | % |                | $    | 16,444          |  | 0.00 | %              |  | $               | 13,312  |  | 0.00 | %
|Interest bearing NOW accounts        |  |                          | 9,723   |                 | 0.79 | % |                |      | 8,855           |  | 0.88 | %              |  |                 | 6,490   |  | 1.53 | %
|Savings/Money Market accounts        |  |                          | 113,005 |                 | 1.47 | % |                |      | 137,106         |  | 1.69 | %              |  |                 | 110,409 |  | 3.01 | %
|Time deposits                        |  |                          | 122,635 |                 | 4.05 | % |                |      | 107,081         |  | 3.80 | %              |  |                 | 105,474 |  | 4.13 | %
|                                     |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  
|Total deposits                       |  | $                        | 265,246 |                 | 2.30 | % |                | $    | 269,486         |  | 2.39 | %              |  | $               | 235,685 |  | 3.28 | %
|                                     |  |                          |         |                 |      |   |                |      |                 |  |      |                |  |                 |         |  |      |  



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The variety of deposit accounts offered by Millennium has allowed us to be competitive in obtaining funds
and has allowed it 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 as of December 31, 2004:



|                                            |  |                 |       |                   |   |                    |  |                |        |       |   |        |  |   |        
|------------------------------------------- |  | --------------- | ----- | ----------------- | - | ------------------ |  | -------------- | ------ | ----- | - | ------ |  | - | -------
|                                            |  | Maturity       
|(Dollars in thousands)                      |  | 3 Monthsor less |       | Over 3 to6 months |   | Over 6 to12 months |  | Over 12 months |        | Total
|Certificates of deposit less than $100,000  |  | $               | 4,742 |                   | $ | 4,675              |  | $              | 6,936  |       | $ | 38,724 |  | $ | 55,077 
|Certificates of deposit of $100,000 or more |  |                 | 3,422 |                   |   | 8,610              |  |                | 9,589  |       |   | 54,257 |  |   | 75,878 
|                                            |  |                 |       |                   |   |                    |  |                |        |       |   |        |  |   |        
|Total certificates of deposits              |  | $               | 8,164 |                   | $ | 13,285             |  | $              | 16,525 |       | $ | 92,981 |  | $ | 130,955
|                                            |  |                 |       |                   |   |                    |  |                |        |       |   |        |  |   |        



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 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 investment securities. At December 31, 2004, and December 31, 2003, $26.5 million and $10.4 million, respectively, was outstanding to the Federal Home Loan Bank.



Millenniums borrowings also include securities sold under agreements to repurchase and federal funds purchased.
Securities sold under agreements to repurchase are collateralized with Government Agency securities. The proceeds are used by Millennium for general corporate purposes. At December 31, 2004, and December 31, 2003, Millennium had $0 and $112,
respectively, of securities sold under agreements to repurchase.



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 periods indicated.



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|                                               |  |                         |        |      |   |        |  |   |       
|---------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                               |  | Year Ended December 31,
|(Dollars in thousands)                         |  | 2004                    |        | 2003 |   | 2002  
|Maximum Balance:                               |  |                         |        |      |   |        |  |   |       
|FHLB advances                                  |  | $                       | 26,500 |      | $ | 23,400 |  | $ | 24,800
|Federal funds purchased                        |  |                         | 7,066  |      |   | 7,290  |  |   | 11,613
|Trust preferred securities                     |  |                         | 8,000  |      |   | 8,000  |  |   | 8,000 
|Securities sold under agreements to repurchase |  | $                       |       |      | $ | 1,151  |  | $ | 1,676 



|                                              |  |                |        |                     |      |   |                |   |                     |  |      |                |  |                     |       |  |      |  
|--------------------------------------------- |  | -------------- | ------ | ------------------- | ---- | - | -------------- | - | ------------------- |  | ---- | -------------- |  | ------------------- | ----- |  | ---- | -
|                                              |  | AverageBalance |        | WeightedAverageRate |      |   | AverageBalance |   | WeightedAverageRate |  |      | AverageBalance |  | WeightedAverageRate |      
|FHLB advances                                 |  | $              | 23,419 |                     | 2.18 | % |                | $ | 14,875              |  | 1.78 | %              |  | $                   | 8,164 |  | 2.09 | %
|Federal funds purchased                       |  |                | 5,174  |                     | 1.78 | % |                |   | 3,381               |  | 1.69 | %              |  |                     | 2,631 |  | 2.17 | %
|Trust preferred securities                    |  |                | 8,000  |                     | 5.71 | % |                |   | 8,000               |  | 5.73 | %              |  |                     | 3,901 |  | 6.31 | %
|Securities sold under agreement to repurchase |  | $              | 560    |                     | 0.25 | % |                | $ | 813                 |  | 0.25 | %              |  | $                   | 874   |  | 0.46 | %



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.



For the year ended December 31, 2004 operating activities used approximately $14.6 million in cash as compared to providing $39.8 million in cash in 2003.
This change resulted primarily from the net increase in loans held for sale of $20.3 million in 2004 as compared to the net decrease in loans held for sale of $36.3 million in 2003. Investing activities absorbed approximately $40.1 million and $49.9
million respectively for the years ended December 31, 2004 and 2003. In 2004, investing activities were primarily a result of a net increase in loans of $41.3 million and net increase in investment securities of $3.1 million. For the year ended
December 31, 2003, investing activities were primarily a result of a net increase in loans of $12.9 million and an increase in net investment activities of $36.7 million. In addition, for the years ended December 31, 2004 and 2003, financing
activities provided $55.4 and $7.4 million, respectively. For the year ended 2004, financing activities were a result of the proceeds from issuance of common stock netting $24.6 million. In addition net increases in deposits of $8.7 million and net
increases in FHLB borrowings of $16.1 million occurred. For the year ended 2003, financing activities were a result of net payoffs of Federal Home Loan Bank advances of $3.0 million, net proceeds from issuance of common stock of $555,000 and a net
increase in deposits of approximately $13.6 million.



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Millennium uses its sources of funds primarily to meet operating needs, to pay deposit withdrawals and
fund loan commitments. At December 31, 2004 and December 31, 2003 total approved loan commitments were $58.0 million and $37.9 million respectively. Certificates of deposit scheduled to mature in one year or less at December 31, 2004, totaled $38.0
million.



At December 31, 2004, we had a borrowing limit of
$76.6 million with the Federal Home Loan Bank. Our outstanding borrowings from the Federal Home Loan Bank totaled $ 26.5 million at December 31, 2004, which leaves an additional borrowing capacity of $50.1 million. Our borrowing limit is based on
10% 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 $12.0 million secured and $8.7 million unsecured. Our outstanding borrowings from the Community Bankers Bank
totaled $7.1 million at December 31, 2004, with remaining available lines of credit of $13.8 million.



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, 2004, Millennium exceeded all such regulatory capital requirements as shown in the following table.



|                                                |  |                                  |        |   |                 |   |        |  
|----------------------------------------------- |  | -------------------------------- | ------ | - | --------------- | - | ------ | -
|                                                |  | December 31, 2004                |       
|(Dollars in thousands)                          |  | Millennium BanksharesCorporation |        |   | Millennium Bank |  
|Tier 1 Capital:                                 |  |                                  |        |   |                 |   |        |  
|Common stock                                    |  | $                                | 43,902 |   |                 | $ | 14,800 |  
|Capital surplus                                 |  |                                  | 4,056  |   |                 |   | 14,800 |  
|Trust preferred securities(1)                   |  |                                  | 8,000  |   |                 |   |       |  
|Retained earnings                               |  |                                  | (167   | ) |                 |   | 666    |  
|                                                |  |                                  |        |   |                 |   |        |  
|Disallowed intangible assets                    |  |                                  |       |   |                 |   |       |  
|                                                |  |                                  |        |   |                 |   |        |  
|Total Tier 1 Capital                            |  |                                  | 55,791 |   |                 |   | 30,266 |  
|                                                |  |                                  |        |   |                 |   |        |  
|Tier 2 Capital:                                 |  |                                  |        |   |                 |   |        |  
|Allowance for loan losses(2)                    |  |                                  | 2,925  |   |                 |   | 2,787  |  
|Trust preferred securities                      |  |                                  |       |   |                 |   |       |  
|                                                |  |                                  |        |   |                 |   |        |  
|Total Tier 2 Capital                            |  |                                  | 2,925  |   |                 |   | 2,787  |  
|                                                |  |                                  |        |   |                 |   |        |  
|Total Risk Based Capital                        |  | $                                | 58,716 |   |                 | $ | 33,053 |  
|                                                |  |                                  |        |   |                 |   |        |  
|Risk Weighted Assets                            |  |                                  |        |   |                 |   |        |  
|                                                |  |                                 
|Capital Ratios:                                 |  |                                  |        |   |                 |   |        |  
|Tier 1 Risk-based                               |  |                                  | 21.95  | % |                 |   | 11.94  | %
|Total Risk-based                                |  |                                  | 23.10  | % |                 |   | 13.04  | %
|Tier 1 Capital to average adjusted total assets |  |                                  | 15.57  | % |                 |   | 8.91   | %

---

|(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, 2004 (in thousands) |  | Less than 1 year   |        | Greaterthan 1 yearto 3 years |   | Greater than3 years to 5years |  | Greater than 5 years |       | Total
|Standby letters of credit        |  | $                  | 1,095  |                              | $ |                              |  | $                    |      |       | $ |       |  | $ | 1,095 
|Commitments to extend credit     |  |                    | 11,533 |                              |   | 7,604                         |  |                      | 2,298 |       |   | 22,174 |  |   | 43,609
|Mortgage Banking Commitments:    |  |                    |        |                              |   |                               |  |                      |       |       |   |        |  |   |       
|Rate lock commitments            |  | $                  | 14,348 |                              | $ |                              |  | $                    |      |       | $ |       |  | $ | 14,348



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.



Our mortgage banking activities generally include two types of commitments by the Company. The first type is a rate lock commitment with the client. In a
rate lock commitment, a client while in process of obtaining approval for a fixed rate secondary market loan can, at their own determination, fix or lock in the rate on the loan. The commitments are generally for periods of 60 to 90 days
and are at market rates. To mitigate risk from market interest rate fluctuations and to provide for a mechanism to deliver these loans into the secondary market, we generally enter into mandatory forward sales contracts on rate lock commitments.
Second, we also have mandatory sales contracts covering loans held for sale, which represents a price commitment.



Aggregate Contractual Obligations



The following table summarizes our contractual obligations.



|                       |  |                                            |         |                             |   |                              |  |                     |        |       |   |     |  |   |        
|---------------------- |  | ------------------------------------------ | ------- | --------------------------- | - | ---------------------------- |  | ------------------- | ------ | ----- | - | --- |  | - | -------
|                       |  | Maturity by Period as of December 31, 2004
|(Dollars in thousands) |  | Less than 1 year                           |         | Greaterthan 1year to 3years |   | Greaterthan 3years to 5years |  | Greater than5 years |        | Total
|Deposits               |  | $                                          | 187,852 |                             | $ | 61,300                       |  | $                   | 31,259 |       | $ | 422 |  | $ | 280,833
|                       |  |                                            |         |                             |  
|FHLB Borrowings        |  |                                            | 5,500   |                             |   | 11,000                       |  |                     | 10,000 |       |   |    |  |   | 26,500 
|Lease commitments      |  |                                            | 604     |                             |   | 985                          |  |                     | 864    |       |   | 469 |  |   | 2,922  
|                       |  |                                            |         |                             |   |                              |  |                     |        |       |   |     |  |   |        
|Total                  |  | $                                          | 193,956 |                             | $ | 73,285                       |  | $                   | 42,123 |       | $ | 891 |  | $ | 310,255
|                       |  |                                            |         |                             |   |                              |  |                     |        |       |   |     |  |   |        



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 the Company 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.





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##### Table of Contents

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 annual report 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.



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.
| | - |  | -------------------------------------------------------------------



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.



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##### Table of Contents

ITEM 7. FINANCIAL STATEMENTS



The following financial statements are filed as a part of this report following Item 14 below:



Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



Not applicable.



ITEM 8A. 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 chief executive officer and chief financial officer.
These officers concluded that the Companys disclosure controls and procedures were effective. Based upon that evaluation, our management concluded that our disclosure controls and procedures are 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 also 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. 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 8B. OTHER INFORMATION



None.



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##### Table of Contents

PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT



Pursuant to General Instruction E(3) of Form 10-KSB, the information required to be disclosed in this Item 9 is contained in our Proxy Statement for the
2005 Annual Meeting of Shareholders and is incorporated herein by reference.



ITEM 10. EXECUTIVE COMPENSATION



Pursuant to General Instruction E(3) of Form 10-KSB, the information required to be disclosed in this Item 10 is contained in our Proxy Statement for the 2005 Annual Meeting of Shareholders and is incorporated herein by reference.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Pursuant to General Instruction E(3) of Form 10-KSB, the information required to be disclosed in this Item 11 is contained in our Proxy Statement for the
2005 Annual Meeting of Shareholders and is incorporated herein by reference.



|                                                        |  |                                                                                          |  |                                                                           |      |                                                                                               |        
|------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------- | -------
|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
|Incentive Stock Option Plan                             |  | 772,949                                                                                  |  | $                                                                         | 5.87 |                                                                                               | 797,421
|Equity Compensation Plans Not Approved by Shareholders2 |  |                                                                                         |  |                                                                           |     |                                                                                               |       
|                                                        |  |                                                                                          |  |                                                                           |      |                                                                                               |        
|Total                                                   |  | 772,949                                                                                  |  | $                                                                         | 5.87 |                                                                                               | 797,421
|                                                        |  |                                                                                          |  |                                                                           |      |                                                                                               |        

---

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

|2 | The Company does not have any equity compensation plans that have not been approved by
shareholders.
|- | ----------------------------------------------------------------------------------------------------



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##### Table of Contents

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Pursuant to General Instruction E(3) of Form 10-KSB, the information required to be disclosed in this Item 12 is contained in our Proxy Statement for the 2005 Annual Meeting of Shareholders and is incorporated herein
by reference.



ITEM 13. EXHIBITS



|     |  |                                                                                                                                                                                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation (restated in electronic format), attached as Exhibit 3.1 to the Registration Statement on Form SB-2, as amended, Registration No. 333-72500, filed with the
Commission on October 30, 2002 (the Form SB-2), incorporated herein by reference.  
|     | 
|3.2  |  | Bylaws, attached as Exhibit 3.2 to the Form SB-2, 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 |  | Executive Employment Agreement of Carroll C. Markley effective as of January 1, 2005.                                                                                                                                                                                      
|     | 
|10.2 |  | Form of Employee Stock Option of Millennium Bankshares Corporation, attached as Exhibit 10.2 to the Form SB-2, incorporated herein by reference.                                                                                                                           
|     | 
|10.3 |  | 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.                            
|     | 
|10.4 |  | Executive Employment Agreement of Janet A. Valentine effective as of January 1, 2004.                                                                                                                                                                                      
|     | 
|10.5 |  | Executive Employment Agreement of Anita L. Shull effective as of May 27, 2004.                                                                                                                                                                                             
|     | 
|10.6 |  | Commercial Lease Agreement between 1051 Elden Street, L.L.C., the lessor, and Millennium Bank, N.A., the lessee, dated April 1, 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.



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##### Table of Contents

|     |  |                                                                                                                                                                                                                                                                               
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7 |  | Commercial Lease Agreement between Corinth Investments, LLC, the lessor, and Millennium Bank, N.A., the lessee, dated January 22, 2004, attached as Exhibit 10.2 to the Quarterly Report on
Form 10-QSB for the period ended March 31, 2004, incorporated herein by reference.
|     | 
|21   |  | List of Subsidiaries, attached as Exhibit 21 to the Annual Report on Form 10-KSB for the year ended December 31, 2002, incorporated herein by reference.                                                                                                                      
|     | 
|23   |  | Consent of Crowe Chizek and Company LLC.                                                                                                                                                                                                                                      
|     | 
|31.1 |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                                       
|     | 
|31.2 |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                                                                                                      
|     | 
|32.1 |  | Statement of Chief Executive Officer Pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                            
|     | 
|32.2 |  | Statement of Chief Financial Officer Pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                            



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Pursuant to General Instruction E(3) of Form 10-KSB, the information required to be disclosed in this Item 14 is contained in our Proxy Statement for the 2005 Annual Meeting of Shareholders and is incorporated herein
by reference.



-43-



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##### Table of Contents

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 sheet of Millennium Bankshares Corporation as of December 31, 2004, and the related consolidated statements of income, changes in stockholders equity and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the 2004 financial statements based on our audit. The financial statements of Millennium Bankshares Corporation for the year
ended December 31, 2003, and the years ended December 31, 2003 and 2002 were audited by other auditors whose report dated January 31, 2004, expressed an unqualified opinion on those statements.



We conducted our audit 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 audit provides a reasonable basis for our opinion.



In our opinion, the 2004 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2004, and the results of its operations
and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.





LOGOCrowe Chizek and Company LLC




Lexington, Kentucky

April 5, 2005





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003



(dollars in thousands, except share data)



|                                                                                                                      |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                      |  | 2004 |         |   | 2003 |  
|ASSETS                                                                                                                |  |      |         |   |      |   |         |  
|Cash and due from banks                                                                                               |  | $    | 2,974   |   |      | $ | 2,305   |  
|Federal funds sold                                                                                                    |  |      | 55      |   |      |   | 61      |  
|Investment securities available for sale                                                                              |  |      | 86,219  |   |      |   | 89,359  |  
|Loans held for sale                                                                                                   |  |      | 29,337  |   |      |   | 9,069   |  
|Loans receivable, (net of allowance for loan losses of $2,925 in 2004 and $3,057 in 2003)                             |  |      | 246,919 |   |      |   | 205,913 |  
|Bank premises and equipment, net                                                                                      |  |      | 2,467   |   |      |   | 2,255   |  
|Accrued interest receivable                                                                                           |  |      | 1,583   |   |      |   | 1,475   |  
|Other assets                                                                                                          |  |      | 2,304   |   |      |   | 2,959   |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Assets                                                                                                          |  | $    | 371,858 |   |      | $ | 313,396 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |      |         |   |      |   |         |  
|Liabilities                                                                                                           |  |      |         |   |      |   |         |  
|Deposits                                                                                                              |  |      |         |   |      |   |         |  
|Demand                                                                                                                |  | $    | 22,924  |   |      | $ | 19,150  |  
|NOW accounts                                                                                                          |  |      | 9,348   |   |      |   | 9,663   |  
|Savings and money market                                                                                              |  |      | 117,606 |   |      |   | 125,804 |  
|Time                                                                                                                  |  |      | 130,955 |   |      |   | 117,496 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Deposits                                                                                                        |  |      | 280,833 |   |      |   | 272,113 |  
|                                                                                                                      |  |     
|Federal funds purchased and repurchase agreements                                                                     |  |      | 7,066   |   |      |   | 5,629   |  
|Advances from Federal Home Loan Bank                                                                                  |  |      | 26,500  |   |      |   | 10,400  |  
|Subordinated debentures                                                                                               |  |      | 8,000   |   |      |   | 8,000   |  
|Accrued interest payable                                                                                              |  |      | 581     |   |      |   | 540     |  
|Other accrued expenses                                                                                                |  |      | 1,767   |   |      |   | 796     |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Liabilities                                                                                                     |  |      | 324,747 |   |      |   | 297,478 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Stockholders Equity                                                                                                  |  |      |         |   |      |   |         |  
|Common stock, $5 par value; authorized 10,000,000 shares; issued and outstanding 8,780,369 in 2004, 3,642,818 in 2003 |  |      | 43,902  |   |      |   | 18,214  |  
|Additional paid-in capital                                                                                            |  |      | 4,056   |   |      |   | 599     |  
|Accumulated other comprehensive income (loss)                                                                         |  |      | (680    | ) |      |   | (719    | )
|Retained earnings (deficit)                                                                                           |  |      | (167    | ) |      |   | (2,176  | )
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Stockholders Equity                                                                                            |  |      | 47,111  |   |      |   | 15,918  |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Liabilities and Stockholders Equity                                                                            |  | $    | 371,858 |   |      | $ | 313,396 |  
|                                                                                                                      |  |      |         |   |      |   |         |  



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







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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(dollars in thousands, except share data)



|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|--------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                    |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Interest Income                                     |  |      |           |   |      |   |           |      |  |   |           |  
|Loans, including fees                               |  | $    | 15,300    |   |      | $ | 13,603    |      |  | $ | 14,664    |  
|Investment securities                               |  |      | 3,032     |   |      |   | 3,237     |      |  |   | 1,746     |  
|Federal funds sold                                  |  |      | 40        |   |      |   | 25        |      |  |   | 60        |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Total Interest Income                               |  |      | 18,372    |   |      |   | 16,865    |      |  |   | 16,470    |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Interest Expense                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Deposits                                            |  |      | 6,094     |   |      |   | 6,452     |      |  |   | 7,728     |  
|Federal funds purchased and repurchase agreements   |  |      | 94        |   |      |   | 59        |      |  |   | 61        |  
|Advances from Federal Home Loan Bank                |  |      | 510       |   |      |   | 265       |      |  |   | 171       |  
|Subordinated Debentures                             |  |      | 457       |   |      |   | 458       |      |  |   | 246       |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Total Interest Expense                              |  |      | 7,155     |   |      |   | 7,234     |      |  |   | 8,206     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Net Interest Income                                 |  |      | 11,217    |   |      |   | 9,631     |      |  |   | 8,264     |  
|                                                    |  |      |          
|Provision for Loan Losses                           |  |      | (271      | ) |      |   | (687      | )    |  |   | (3,253    | )
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Net Interest Income after Provision for Loan Losses |  |      | 10,946    |   |      |   | 8,944     |      |  |   | 5,011     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Noninterest Income                                  |  |      |           |   |      |   |           |      |  |   |           |  
|Gain on sale of loans and loan fees, net            |  |      | 7,407     |   |      |   | 3,593     |      |  |   | 3,088     |  
|Service charges                                     |  |      | 244       |   |      |   | 172       |      |  |   | 155       |  
|Gain on sale of securities                          |  |      | 4         |   |      |   | 452       |      |  |   | 41        |  
|Other income                                        |  |      | 408       |   |      |   | 291       |      |  |   | 176       |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Total Noninterest Income                            |  |      | 8,063     |   |      |   | 4,508     |      |  |   | 3,460     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Noninterest Expenses                                |  |      |           |   |      |   |           |      |  |   |           |  
|Officers and employees compensation and benefits  |  |      | 9,972     |   |      |   | 6,172     |      |  |   | 7,539     |  
|Occupancy and equipment expense                     |  |      | 2,468     |   |      |   | 2,232     |      |  |   | 1,896     |  
|Marketing, promotion and advertising expenses       |  |      | 146       |   |      |   | 92        |      |  |   | 250       |  
|Other operating expenses                            |  |      | 3,384     |   |      |   | 3,494     |      |  |   | 4,005     |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Total Noninterest Expenses                          |  |      | 15,970    |   |      |   | 11,990    |      |  |   | 13,690    |  
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Income (Loss) before Income Taxes                   |  |      | 3,039     |   |      |   | 1,462     |      |  |   | (5,219    | )
|                                                    |  |      |          
|Provision for Income Taxes Expense (Benefit)        |  |      | 1,030     |   |      |   | 497       |      |  |   | (1,773    | )
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Net Income (Loss)                                   |  | $    | 2,009     |   |      | $ | 965       |      |  | $ | (3,446    | )
|                                                    |  |      |           |   |      |   |           |      |  |   |           |  
|Earnings (loss) per common share                    |  |      |           |   |      |   |           |      |  |   |           |  
|Basic                                               |  | $    | 0.29      |   |      | $ | 0.27      |      |  | $ | (1.00     | )
|Diluted                                             |  | $    | 0.27      |   |      | $ | 0.23      |      |  | $ | (1.00     | )
|                                                    |  |      |          
|Weighted average shares outstanding                 |  |      |           |   |      |   |           |      |  |   |           |  
|Basic                                               |  |      | 7,037,771 |   |      |   | 3,551,251 |      |  |   | 3,456,674 |  
|Diluted                                             |  |      | 7,356,247 |   |      |   | 4,198,661 |      |  |   | 3,456,674 |  



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





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(dollars in thousands except share data)



|                                                                                          |  |                 |   |  |          |        |   |                |   |       |                 |  |   |                                             |   |  |        |        |   |                     |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------- | - |  | -------- | ------ | - | -------------- | - | ----- | --------------- |  | - | ------------------------------------------- | - |  | ------ | ------ | - | ------------------- | - | ------ | - |  | - | ------ | -
|                                                                                          |  | Number ofShares |   |  | ParValue |        |   | Paid inCapital |   |       | RetainedDeficit |  |   | AccumulatedOther ComprehensiveIncome (Loss) |   |  | Totals |        |   | ComprehensiveIncome |  
|Balance, January 1, 2002                                                                  |  | 2,247,978       |   |  | $        | 11,240 |   |                | $ |      |                 |  | $ | 305                                         |   |  | $      | (20    | ) |                     | $ | 11,525 |   |  |   |        |  
|                                                                                          |  |                 |   |  |          |        |  
|Sale of common stock, net                                                                 |  | 1,437,500       |   |  |          | 7,188  |   |                |   | 772   |                 |  |   |                                            |   |  |        |       |   |                     |   | 7,960  |   |  |   |        |  
|Changes in net unrealized gain (loss) on securities available for sale, net of tax effect |  |                |   |  |          |       |   |                |   |      |                 |  |   |                                            |   |  |        | 405    |   |                     |   | 405    |   |  | $ | 405    |  
|Repurchase of common stock                                                                |  | (153,700        | ) |  |          | (769   | ) |                |   | (173  | )               |  |   |                                            |   |  |        |       |   |                     |   | (942   | ) |  |   |        |  
|Net income                                                                                |  |                |   |  |          |       |   |                |   |      |                 |  |   | (3,446                                      | ) |  |        |       |   |                     |   | (3,446 | ) |  |   | (3,446 | )
|                                                                                          |  |                 |   |  |          |        |   |                |   |       |                 |  |   |                                             |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Balance, December 31, 2002                                                                |  | 3,531,778       |   |  |          | 17,659 |   |                |   | 599   |                 |  |   | (3,141                                      | ) |  |        | 385    |   |                     |   | 15,502 |   |  | $ | (3,041 | )
|                                                                                          |  |                 |   |  |          |        |   |                |   |       |                 |  |   |                                             |   |  |        |        |   |                     |   |        |   |  |   |        |  
|                                                                                          |  |                 |   |  |          |        |  
|Options exercised                                                                         |  | 111,040         |   |  |          | 555    |   |                |   |      |                 |  |   |                                            |   |  |        |       |   |                     |   | 555    |   |  |   |        |  
|Changes in net unrealized gain (loss) on securities available for sale, net of tax effect |  |                 |   |  |          |       |   |                |   |      |                 |  |   |                                            |   |  |        | (1,104 | ) |                     |   | (1,104 | ) |  | $ | (1,104 | )
|Net income                                                                                |  |                |   |  |          |       |   |                |   |      |                 |  |   | 965                                         |   |  |        |        |   |                     |   | 965    |   |  |   | 965    |  
|                                                                                          |  |                 |   |  |          |        |   |                |   |       |                 |  |   |                                             |   |  |        |        |   |                     |   |        |   |  |   |        |  
|Balance, December 31, 2003                                                                |  | 3,642,818       |   |  |          | 18,214 |   |                |   | 599   |                 |  |   | (2,176                                      | ) |  |        | (719   | ) |                     |   | 15,918 |   |  | $ | (139   | )
|                                                                                          |  |                 |   |  |          |        |   |                |   |       |                 |  |   |                                             |   |  |        |        |   |                     |   |        |   |  |   |        |  
|                                                                                          |  |                 |   |  |          |        |  
|Sale of common stock, net of expenses                                                     |  | 4,074,961       |   |  |          | 20,375 |   |                |   | 4,199 |                 |  |   |                                             |   |  |        |        |   |                     |   | 24,574 |   |  |   |        |  
|Exercise of stock options                                                                 |  | 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                                                                |  | 8,780,369       |   |  | $        | 43,902 |   |                | $ | 4,056 |                 |  | $ | (167                                        | ) |  | $      | (680   | ) |                     | $ | 47,111 |   |  | $ | 2,048  |  
|                                                                                          |  |                 |   |  |          |        |   |                |   |       |                 |  |   |                                             |   |  |        |        |   |                     |   |        |   |  |   |        |  



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







---

##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(dollars in thousands, except share data)



|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                             |  | 2004 |         |   | 2003 |   |          | 2002 | 
|Net income (loss)                                                            |  | $    | 2,009   |   |      | $ | 965      |      |  | $ | (3,446   | )
|Noncash items included in net income (loss)                                  |  |      |         |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                |  |      | 919     |   |      |   | 1,077    |      |  |   | 864      |  
|Provision for loan losses                                                    |  |      | 271     |   |      |   | 687      |      |  |   | 3,253    |  
|Deferred tax expense (benefit)                                               |  |      | 491     |   |      |   | 522      |      |  |   | (1,773   | )
|Amortization of investment security premiums and accretion of discounts, net |  |      | 251     |   |      |   | 677      |      |  |   | 132      |  
|Realized gain on sale of investment securities available for sale            |  |      | (4      | ) |      |   | (452     | )    |  |   | (41      | )
|Loss on disposal of assets                                                   |  |      | 133     |   |      |   | 29       |      |  |   | 24       |  
|(Increase) Decrease in Loans held for sale, net                              |  |      | (20,268 | ) |      |   | 36,294   |      |  |   | 12,685   |  
|Accrued interest receivable                                                  |  |      | (108    | ) |      |   | (255     | )    |  |   | (196     | )
|Other assets                                                                 |  |      | 655     |   |      |   | 487      |      |  |   | 2,399    |  
|Increase (Decrease) in Accrued interest payable                              |  |      | 41      |   |      |   | (83      | )    |  |   | (109     | )
|Other accrued expenses                                                       |  |      | 971     |   |      |   | (168     | )    |  |   | (697     | )
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Net Cash Provided (Used) by Operating Activities                             |  |      | (14,639 | ) |      |   | 39,780   |      |  |   | 13,095   |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Cash Flows from Investing Activities                                         |  |      |         |   |      |   |          |      |  |   |          |  
|Decrease (Increase) in Federal funds sold                                    |  |      | 6       |   |      |   | (6       | )    |  |   | 9,659    |  
|Increase in loans receivable, net                                            |  |      | (41,277 | ) |      |   | (12,871  | )    |  |   | (79,950  | )
|Purchase of investment securities available for sale                         |  |      | (50,931 | ) |      |   | (101,565 | )    |  |   | (62,115  | )
|Sales of investment securities available for sale                            |  |      | 48,236  |   |      |   | 50,141   |      |  |   | 11,753   |  
|Paydown of investment securities available for sale                          |  |      | 5,102   |   |      |   | 14,744   |      |  |   | 8,681    |  
|Payments for the purchase of bank premises and equipment                     |  |      | (1,247  | ) |      |   | (335     | )    |  |   | (1,645   | )
|Proceeds from disposal of property                                           |  |      | 16      |   |      |   | 13       |      |  |   | 62       |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Net Cash Used by Investing Activities                                        |  |      | (40,095 | ) |      |   | (49,879  | )    |  |   | (113,555 | )
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Cash Flows from Financing Activities                                         |  |      |         |   |      |   |          |      |  |   |          |  
|Proceeds from issuance of common stock                                       |  |      | 24,646  |   |      |   | 555      |      |  |   | 7,960    |  
|Net proceeds from warrants redemption                                        |  |      | 4,499   |   |      |   |         |      |  |   |         |  
|Proceeds used to reacquire common stock                                      |  |      |        |   |      |   |         |      |  |   | (942     | )
|Net increase in deposits                                                     |  |      | 8,721   |   |      |   | 13,604   |      |  |   | 69,942   |  
|Increases in FHLB borrowings                                                 |  |      | 16,100  |   |      |   |         |      |  |   | 13,000   |  
|Decreases in FHLB borrowings                                                 |  |      |        |   |      |   | (3,000   | )    |  |   |         |  
|Proceeds from subordinated debentures                                        |  |      |        |   |      |   |         |      |  |   | 8,000    |  
|Net Increase (Decrease) in Federal funds purchased and repurchase agreements |  |      | 1,437   |   |      |   | (3,714   | )    |  |   | 6,703    |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Net Cash Provided by Financing Activities                                    |  |      | 55,403  |   |      |   | 7,445    |      |  |   | 104,663  |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Net Increase (Decrease) in Cash and Due from Banks                           |  |      | 669     |   |      |   | (2,654   | )    |  |   | 4,203    |  
|                                                                             |  |      |        
|Cash and Due from Banks, beginning of year                                   |  |      | 2,305   |   |      |   | 4,959    |      |  |   | 756      |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Cash and Due from Banks, end of year                                         |  | $    | 2,974   |   |      | $ | 2,305    |      |  | $ | 4,959    |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  
|Noncash Investing Activities                                                 |  |      |         |   |      |   |          |      |  |   |          |  
|Loans transferred from held for sale to held to maturity                     |  | $    | 122     |   |      | $ | 19,378   |      |  | $ |         |  
|                                                                             |  |      |         |   |      |   |          |      |  |   |          |  



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

DECEMBER 31, 2004 AND 2003

(dollars in
thousands, except per 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., Millennium Insurance Services, Inc. (terminated in 2003) 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, conducts mortgage banking, as
permitted by applicable regulations, for nationally chartered banks. 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



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.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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 and gains from sale of loans. Maintaining a high level of loan sale gains depends on the ability to continue to make a large amount of loans that could be negatively affected by higher interest rates,
economic slowdowns or recessions in their market areas.



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.



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 held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. 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 carried at the lower of cost or estimated fair value in the aggregate. 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.



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.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Loans and Loan Fees(continued)



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 credit losses inherent 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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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per 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



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 in an amount equal to at least 1 percent of the aggregate principal amount of its residential mortgage loans or 5
percent of its borrowings from the FHLB, whichever is larger. This investment is recorded at cost. The amount of FHLB stock was $1,818, and $505 at December 31, 2004, and 2003, respectively.



Bank 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.



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.



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 at any date is generally limited to the retained earnings of the Bank, 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.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Stockholders Equity and Dividend Payment Restrictions(continued)



At December 31, 2004, the Bank has no retained earnings available for the
payment of dividends. No funds are available for loans or advances by the Bank to the Corporation.



In May 2004, the Corporation retired all warrants in conjunction with a secondary offering. Warrants holders were offered the right to exercise for cash
or stock and as a result, 1,050,270 shares were issued and $752 in cash was paid.



Income Taxes



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



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



Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it
also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price at the stock grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Corporations stock option plan
have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Corporation has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma
disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Stock Compensation Plans (continued)



The Corporation has one stock-based compensation plan, which is described in footnote 16. The Corporation accounts for the
plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under
the plan have an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income (loss) and earnings (loss) 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.



|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                                                                             |  | 2004 |       |   | 2003 |   |      | 2002 | 
|Net (loss) income as reported                                                                                                                |  | $    | 2,009 |   |      | $ | 965  |      |  | $ | (3,446 | )
|Deduct: Total stock based employees compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (125  | ) |      |   | (292 | )    |  |   | (173   | )
|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  
|Pro forma                                                                                                                                    |  | $    | 1,884 |   |      | $ | 673  |      |  | $ | (3,619 | )
|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  
|Earnings per share:                                                                                                                          |  |      |       |   |      |   |      |      |  |   |        |  
|Basic - as reported                                                                                                                          |  | $    | 0.29  |   |      | $ | 0.27 |      |  | $ | (1.00  | )
|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  
|Basic - pro forma                                                                                                                            |  | $    | 0.27  |   |      | $ | 0.19 |      |  | $ | (1.05  | )
|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  
|Diluted - as reported                                                                                                                        |  | $    | 0.27  |   |      | $ | 0.23 |      |  | $ | (1.00  | )
|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  
|Diluted - pro forma                                                                                                                          |  | $    | 0.26  |   |      | $ | 0.16 |      |  | $ | (1.05  | )
|                                                                                                                                             |  |      |       |   |      |   |      |      |  |   |        |  



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:



|                                     |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------ |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                     |  | 2004 |      |   | 2003 |   |      | 2002 | 
|Assumptions: Risk free interest rate |  |      | 4.26 | % |      |   | 4.28 | %    |  |   | 3.88 | %
|Expected dividend yield              |  |      |     |   |      |   |     |      |  |   |     |  
|Expected life of options(in years)   |  |      | 10   |   |      |   | 10   |      |  |   | 10   |  
|Expected volatility                  |  |      | 17.3 |   |      |   | 20.8 |      |  |   | 20.8 |  
|Estimated fair value per share       |  | $    | 2.51 |   |      | $ | 1.93 |      |  | $ | 0.57 |  



Statements of Cash
Flows



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



Cash paid for interest was $7,182, $7,317, and $8,315 and cash paid for income taxes was $42, $-0-, and $50 for the years ended December 31, 2004, 2003
and 2002, respectively.





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##### Table of Contents

MILLENIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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.



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, 2004, the
effect on the Corporations financial position was not material.



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 2004, the FASB issued SFAS No.
123(Revised), Share-Based Payment (SFAS No. 123R). The provisions of SFAS No. 123R require all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is
measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This will apply to awards granted or modified after the first quarter or year
beginning after December 15, 2005. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants, the fair value of the
options granted at a future date, as well as the vesting period provided, and so cannot currently be predicted.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



2. 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, 2004 and
2003 the required reserve balances amounted to $656 and $635, respectively.



3. INVESTMENT SECURITIES AVAILABLE FOR SALE



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



|                                      |  |               |        |                      |   |                       |  |   |                 |   |  |   |       
|------------------------------------- |  | ------------- | ------ | -------------------- | - | --------------------- |  | - | --------------- | - |  | - | ------
|                                      |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairMarketValue
|December 31, 2004                     |  |               |        |                      |   |                       |  |   |                 |   |  |   |       
|U.S. Government and Agency Securities |  | $             | 62,636 |                      | $ |                      |  | $ | (946            | ) |  | $ | 61,690
|Mortgage Backed Securities            |  |               | 21,866 |                      |   | 16                    |  |   | (101            | ) |  |   | 21,781
|Equity securities                     |  |               | 2,748  |                      |   |                      |  |   |                |   |  |   | 2,748 
|                                      |  |               |        |                      |   |                       |  |   |                 |   |  |   |       
|                                      |  | $             | 87,250 |                      | $ | 16                    |  | $ | (1,047          | ) |  | $ | 86,219
|                                      |  |               |        |                      |   |                       |  |   |                 |   |  |   |       



|                                      |  |               |        |                      |   |                       |  |   |                 |   |  |   |       
|------------------------------------- |  | ------------- | ------ | -------------------- | - | --------------------- |  | - | --------------- | - |  | - | ------
|                                      |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairMarketValue
|December 31, 2003:                    |  |               |        |                      |   |                       |  |   |                 |   |  |   |       
|U.S. Government and Agency Securities |  | $             | 87,741 |                      | $ | 142                   |  | $ | (1,232          | ) |  | $ | 86,651
|Equity securities                     |  |               | 2,708  |                      |   |                      |  |   |                |   |  |   | 2,708 
|                                      |  |               |        |                      |   |                       |  |   |                 |   |  |   |       
|                                      |  | $             | 90,449 |                      | $ | 142                   |  | $ | (1,232          | ) |  | $ | 89,359
|                                      |  |               |        |                      |   |                       |  |   |                 |   |  |   |       



The scheduled
maturities of securities available for sale at December 31, 2004 were as follows:



|                                   |  |               |        |                 |   |       
|---------------------------------- |  | ------------- | ------ | --------------- | - | ------
|                                   |  | AmortizedCost |        | FairMarketValue
|After one year through five years  |  | $             | 26,297 |                 | $ | 26,071
|After five years through ten years |  |               | 43,616 |                 |   | 42,851
|After ten years                    |  |               | 17,337 |                 |   | 17,297
|                                   |  |               |        |                 |   |       
|                                   |  | $             | 87,250 |                 | $ | 86,219
|                                   |  |               |        |                 |   |       



Investment securities
with a carrying amount of $58,133 and $42,129 at December 31, 2004 and 2003 respectively, were pledged as collateral on Federal Home Loan Bank and Community Bankers Bank advances and Federal Reserve Bank and for other purposes as required or
permitted by law.



At December 31, 2004, and 2003 the carrying
amount of securities pledged to secure repurchase agreements was $7,000 and $3,296, respectively. During 2004, 2003 and 2002, proceeds from the sale of investment securities totaled $48,236, $50,141 and $11,753 with gross realized gains of $160,
$507, and $131, and gross realized losses of $156, $55 and $90.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



3. INVESTMENT SECURITIES AVAILABLE FOR SALE (continued)



Securities with unrealized losses at year-end 2004 and 2003, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, are as follows:



December 31, 2004



|                         |  |                     |        |                |                   |      |           |                 |                |                |  |   |      |   |  |   |        |  |   |        |  
|------------------------ |  | ------------------- | ------ | -------------- | ----------------- | ---- | --------- | --------------- | -------------- | -------------- |  | - | ---- | - |  | - | ------ |  | - | ------ | -
|                         |  | Less than 12 months |        |                | 12 months or more |      |           | Total FairValue |                | UnrealizedLoss | 
|                         |  | FairValue           |        | UnrealizedLoss |                   |      | FairValue |                 | UnrealizedLoss |                |  |  
|U.S. Government Agencies |  | $                   | 31,708 |                | $                 | (232 | )         |                 | $              | 22,982         |  | $ | (714 | ) |  | $ | 54,690 |  | $ | (946   | )
|Mortgage Backed          |  |                     | 5,429  |                |                   | (40  | )         |                 |                | 3,042          |  |   | (61  | ) |  |   | 8,471  |  |   | (101   | )
|                         |  |                     |        |                |                   |      |           |                 |                |                |  |   |      |   |  |   |        |  |   |        |  
|                         |  | $                   | 37,137 |                | $                 | (272 | )         |                 | $              | 26,024         |  | $ | (775 | ) |  | $ | 63,161 |  | $ | (1,047 | )
|                         |  |                     |        |                |                   |      |           |                 |                |                |  |   |      |   |  |   |        |  |   |        |  



December 31, 2003



|                         |  |                     |        |                |                   |        |           |                 |                |                |  |   |     |   |  |   |        |  |   |        |  
|------------------------ |  | ------------------- | ------ | -------------- | ----------------- | ------ | --------- | --------------- | -------------- | -------------- |  | - | --- | - |  | - | ------ |  | - | ------ | -
|                         |  | Less than 12 months |        |                | 12 months or more |        |           | Total FairValue |                | UnrealizedLoss | 
|                         |  | FairValue           |        | UnrealizedLoss |                   |        | FairValue |                 | UnrealizedLoss |                |  |  
|U.S. Government Agencies |  | $                   | 37,698 |                | $                 | (998   | )         |                 | $              |               |  | $ |    |   |  | $ | 37,698 |  | $ | (998   | )
|Mortgage Backed          |  |                     | 11,157 |                |                   | (176   | )         |                 |                | 6,673          |  |   | (58 | ) |  |   | 17,830 |  |   | (234   | )
|                         |  |                     |        |                |                   |        |           |                 |                |                |  |   |     |   |  |   |        |  |   |        |  
|                         |  | $                   | 48,855 |                | $                 | (1,174 | )         |                 | $              | 6,673          |  | $ | (58 | ) |  | $ | 55,528 |  | $ | (1,232 | )
|                         |  |                     |        |                |                   |        |           |                 |                |                |  |   |     |   |  |   |        |  |   |        |  



Unrealized losses on bonds have not
been recognized into income because the bonds are of high credit quality (rated AA or higher), management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to changes in interest rates. The
fair value is expected to recover as the bonds approach their maturity date or reset date.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



4. LOANS RECEIVABLE



Loans receivable include the following at December 31:



|                           |  |      |         |   |      |   |         |  
|-------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                           |  | 2004 |         |   | 2003 |  
|Loans held for sale        |  | $    | 29,337  |   |      | $ | 9,069   |  
|Loans receivable, net      |  |      | 246,919 |   |      |   | 205,913 |  
|                           |  |      |         |   |      |   |         |  
|                           |  | $    | 276,256 |   |      | $ | 214,982 |  
|                           |  |      |         |   |      |   |         |  
|Real estate loans          |  |      |         |   |      |   |         |  
|Mortgage                   |  | $    | 75,547  |   |      | $ | 77,330  |  
|Commercial                 |  |      | 120,021 |   |      |   | 93,819  |  
|Construction               |  |      | 35,570  |   |      |   | 17,318  |  
|                           |  |      |         |   |      |   |         |  
|Total real estate loans    |  |      | 231,138 |   |      |   | 188,467 |  
|Commercial                 |  |      | 14,688  |   |      |   | 15,466  |  
|Consumer                   |  |      | 4,152   |   |      |   | 5,055   |  
|Overdrafts                 |  |      | 13      |   |      |   | 21      |  
|                           |  |      |         |   |      |   |         |  
|Subtotal                   |  |      | 249,991 |   |      |   | 209,009 |  
|                           |  |      |         |   |      |   |         |  
|Loans held for sale        |  |      | 29,337  |   |      |   | 9,069   |  
|Allowance for loan losses  |  |      | (2,925  | ) |      |   | (3,057  | )
|Deferred loan costs (fees) |  |      | (147    | ) |      |   | (39     | )
|                           |  |      |         |   |      |   |         |  
|Total Loans                |  | $    | 276,256 |   |      | $ | 214,982 |  
|                           |  |      |         |   |      |   |         |  



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



|                               |  |      |       |   |      |   |        |      |  |   |        |  
|------------------------------ |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                               |  | 2004 |       |   | 2003 |   |        | 2002 | 
|Balance beginning of period    |  | $    | 3,057 |   |      | $ | 3,499  |      |  | $ | 1,391  |  
|Provision for loan losses      |  |      | 271   |   |      |   | 687    |      |  |   | 3,253  |  
|Loans charged to reserve       |  |      | (521  | ) |      |   | (1,141 | )    |  |   | (1,188 | )
|Recoveries credited to reserve |  |      | 118   |   |      |   | 12     |      |  |   | 43     |  
|                               |  |      |       |   |      |   |        |      |  |   |        |  
|Totals                         |  | $    | 2,925 |   |      | $ | 3,057  |      |  | $ | 3,499  |  
|                               |  |      |       |   |      |   |        |      |  |   |        |  



The Bank had
non-accrual loans of $822 and $146 at December 31, 2004 and 2003, respectively. The Bank had $339 and $162 of loans past due 90 days or more still accruing at December 31, 2004 and 2003, respectively.



There were no mortgage loans pledged as collateral for Federal Home Loan
Bank advances at December 31, 2004



Information regarding
impaired loans is as follows:



|                                                             |  |              |     |      |   |      |  |   |  
|------------------------------------------------------------ |  | ------------ | --- | ---- | - | ---- |  | - | -
|                                                             |  | December 31,
|                                                             |  | 2004         |     | 2003 |   | 2002
|Loans with no allocated allowance for loan losses            |  | $            |    |      | $ |     |  | $ | 
|Loans with allocated allowance for loan losses               |  |              | 175 |      |   |     |  |   | 
|                                                             |  |              |     |      |   |      |  |   |  
|Total                                                        |  | $            | 175 |      | $ |     |  | $ | 
|                                                             |  |              |     |      |   |      |  |   |  
|Amount of the allowance for loan losses allocated            |  | $            | 44  |      | $ |     |  | $ | 
|Average investment in impaired loans                         |  | $            | 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 impaired loans above.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



5. PREMISES AND EQUIPMENT



Premises and equipment include the following at December 31:



|                                               |  |      |        |   |      |   |        |  
|---------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                               |  | 2004 |        |   | 2003 |  
|Furniture and equipment                        |  | $    | 4,956  |   |      | $ | 4,358  |  
|Leasehold improvements                         |  |      | 1,126  |   |      |   | 761    |  
|                                               |  |      |        |   |      |   |        |  
|Total cost                                     |  |      | 6,082  |   |      |   | 5,119  |  
|                                               |  |      |        |   |      |   |        |  
|Less accumulated depreciation and amortization |  |      | (3,615 | ) |      |   | (2,864 | )
|                                               |  |      |        |   |      |   |        |  
|Premises and equipment, net                    |  | $    | 2,467  |   |      | $ | 2,255  |  
|                                               |  |      |        |   |      |   |        |  



Depreciation of
premises and equipment charged to expense amounted to $919, $1,077, and $864 in 2004, 2003, and 2002, respectively.



6. DEPOSITS



Time deposits in denominations of $100,000 or more totaled $75,878 in 2004 and $67,924 in 2003. Time deposits mature as follows at December 31:



|                    |  |      |        
|------------------- |  | ---- | -------
|                    |  | 2004
|2005                |  |      | 37,839 
|2006                |  |      | 36,460 
|2007                |  |      | 24,975 
|2008                |  |      | 10,655 
|2009 and thereafter |  |      | 21,026 
|                    |  |      |        
|Total               |  | $    | 130,955
|                    |  |      |        



7.
BORROWINGS



The Corporation had borrowings outstanding
as follows:



|                        |  |              |   |  |                   |  |        |       
|----------------------- |  | ------------ | - |  | ----------------- |  | ------ | ------
|December 31, 2004:      |  | InterestRate |   |  | Maturity          |  | Amount
|Federal funds purchased |  | 2.40         | % |  | Demand            |  | $      | 7,066 
|                        |  |              |   |  |                   |  |        |       
|Federal Home Loan Bank  |  |              |   |  |                   |  |        |       
|Advances                |  | 2.44         | % |  | May 2, 2005       |  | $      | 500   
|Advances                |  | 2.50         | % |  | July 25, 2005     |  |        | 5,000 
|Advances                |  | 2.28         | % |  | February 13, 2006 |  |        | 5,000 
|Advances                |  | 2.33         | % |  | June 11, 2007     |  |        | 5,000 
|Advances                |  | 3.44         | % |  | October 9, 2007   |  |        | 1,000 
|Advances                |  | 2.01         | % |  | February 13, 2008 |  |        | 5,000 
|Advances                |  | 3.14         | % |  | June 11, 2009     |  |        | 5,000 
|                        |  |              |   |  |                   |  |        |       
|                        |  |              |   |  |                   |  | $      | 26,500
|                        |  |              |   |  |                   |  |        |       





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



7. BORROWINGS (continued)



|                                                  |  |              |   |  |                   |  |        |       
|------------------------------------------------- |  | ------------ | - |  | ----------------- |  | ------ | ------
|December 31, 2003:                                |  | InterestRate |   |  | Maturity          |  | Amount
|Federal funds purchased and repurchase agreements |  |              |   |  |                   |  |        |       
|Federal funds purchased                           |  | 1.33         | % |  | Demand            |  | $      | 5,517 
|Repurchase agreements                             |  | 0.25         | % |  | Demand            |  |        | 112   
|                                                  |  |              |   |  |                   |  |        |       
|                                                  |  |              |   |  |                   |  | $      | 5,629 
|                                                  |  |              |   |  |                   |  |        |       
|Federal Home Loan Bank                            |  |              |   |  |                   |  |        |       
|Advances                                          |  | 6.48         | % |  | May 28, 2004      |  | $      | 400   
|Advances                                          |  | 1.46         | % |  | February 13, 2006 |  |        | 5,000 
|Advances                                          |  | 2.01         | % |  | February 13, 2008 |  |        | 5,000 
|                                                  |  |              |   |  |                   |  |        |       
|                                                  |  |              |   |  |                   |  | $      | 10,400
|                                                  |  |              |   |  |                   |  |        |       



At December 31, 2004
the Corporation has the following lines of credit:



|                                |  |                     |        |                 |   |       
|------------------------------- |  | ------------------- | ------ | --------------- | - | ------
|                                |  | Total LineOf Credit |        | AmountAvailable
|Federal Home Loan Bank, secured |  | $                   | 76,613 |                 | $ | 50,113
|Community Bankers Bank          |  |                     |        |                 |   |       
|Secured                         |  |                     | 8,700  |                 |   | 4,934 
|Unsecured                       |  |                     | 12,000 |                 |   | 8,700 
|                                |  |                     |        |                 |   |       
|                                |  | $                   | 97,313 |                 | $ | 63,747
|                                |  |                     |        |                 |   |       



Securities sold under
agreements to repurchase, which are classified as secured borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with
the transaction. The Corporation may be required to provide additional collateral based on the fair value of the underlying securities.



Quarter Average balances, rates and maximum balances for FHLB borrowings in 2004 and 2003 are indicated below.



|              |  |                        |        |             |      |   |                       |   |       
|------------- |  | ---------------------- | ------ | ----------- | ---- | - | --------------------- | - | ------
|2004          |  | Quarter AverageBalance |        | AverageRate |      |   | QuarterMaximumBalance
|December 31,  |  | $                      | 31,500 |             | 2.41 | % |                       | $ | 37,500
|September 30, |  |                        | 38,576 |             | 2.10 | % |                       |   | 45,000
|June 30,      |  |                        | 12,943 |             | 2.01 | % |                       |   | 25,000
|March 31,     |  |                        | 10,400 |             | 1.92 | % |                       |   | 10,400
|              |  |                        |       
|2003          |  | Quarter AverageBalance |        | AverageRate |      |   | QuarterMaximumBalance
|December 31,  |  | $                      | 10,400 |             | 1.96 | % |                       | $ | 10,400
|September 30, |  |                        | 18,172 |             | 1.63 | % |                       |   | 36,500
|June 30,      |  |                        | 15,719 |             | 1.78 | % |                       |   | 33,400
|March 31,     |  |                        | 15,228 |             | 1.83 | % |                       |   | 23,400





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



8. 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 underwriting totaling approximately $450,000. The securities have a LIBOR-indexed floating rate of interest, which is set and payable on a quarterly basis. During 2004, the interest rates ranged from 4.79 percent to 5.72 percent.
During 2003, the interest rates ranged from 4.76 percent to 5.03 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.



9. INCOME TAXES



The provision for federal income taxes consists of the following:



|                                 |  |      |       |      |   |     |      |  |   |        |  
|-------------------------------- |  | ---- | ----- | ---- | - | --- | ---- |  | - | ------ | -
|                                 |  | 2004 |       | 2003 |   |     | 2002 | 
|Current (benefit) provision      |  | $    | 307   |      | $ | (25 | )    |  | $ | (470   | )
|Deferred (benefit) provision     |  |      | 723   |      |   | 522 |      |  |   | (1,303 | )
|                                 |  |      |       |      |   |     |      |  |   |        |  
|Total provision for income taxes |  | $    | 1,030 |      | $ | 497 |      |  | $ | (1,773 | )
|                                 |  |      |       |      |   |     |      |  |   |        |  



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.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



9 INCOME TAXES(continued)



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



|                                                               |  |      |      |   |      |   |       |  
|-------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | -
|Deferred Source                                                |  | 2004 |      |   | 2003 |  
|Net operating loss carry forward                               |  | $    |     |   |      | $ | 522   |  
|Start-up costs                                                 |  |      |     |   |      |   | 8     |  
|Loan loss reserve                                              |  |      | 734  |   |      |   | 764   |  
|Unearned loan fees                                             |  |      | (50  | ) |      |   | (13   | )
|Depreciation                                                   |  |      | (119 | ) |      |   | (197  | )
|Other                                                          |  |      | (204 | ) |      |   |      |  
|                                                               |  |      |      |   |      |   |       |  
|Subtotal                                                       |  |      | 361  |   |      |   | 1,084 |  
|Unrealized gain or loss included in other comprehensive income |  |      | 350  |   |      |   | 371   |  
|                                                               |  |      |      |   |      |   |       |  
|Gross deferred tax assets                                      |  | $    | 711  |   |      | $ | 1,455 |  
|                                                               |  |      |      |   |      |   |       |  
|                                                               |  |     
|Our tax rate is the statutory tax rate of 34%.                 |  |      |      |   |      |   |       |  



10
REGULATORY MATTERS



The Corporation (on a consolidated
basis) and the Banks primary supervisory agents are the Federal Reserve and Office of the Comptroller of the Currency (OCC). The supervisory agents have mandated certain minimum capital standards for the industry. In addition, the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) outlines various levels of capital adequacy for the industry.



Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that if
undertaken, could have a direct material effect on the 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 Corporation and 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, 2004 and 2003, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.



As of December 31, 2004, the most recent notification from the regulators categorized the Corporation and the Bank as well capitalized under the
regulatory framework for prompt correction action. To be categorized as well capitalized the Corporation and the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



10. REGULATORY MATTERS (continued)



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



|                                                   |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|-------------------------------------------------- |  | ------------- | ------ | ------ | ----- | ----- | -------------------------- | - | ------ | ----------------------------- | ----- | - |  | - | ------ |  | ----- | -
|                                                   |  | Actual Amount |        | Ratio  |       |       | Minimum CapitalRequirement |   |        | Minimum To be WellCapitalized |      
|                                                   |  |               |        | Amount |       | Ratio |                            |   | Amount |                               | Ratio |  
|As of December 31, 2004                            |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Total Risk-based Capital (to risk-weighted assets) |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Consolidated                                       |  | $             | 58,716 |        | 23.10 | %     |                            | $ | 17,097 |                               | 8.00  | % |  | $ | 21,371 |  | 10.00 | %
|Bank                                               |  |               | 33,053 |        | 13.04 |       |                            |   | 17,065 |                               | 8.00  |   |  |   | 21,331 |  | 10.00 |  
|Tier I Capital (to risk-weighted assets)           |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Consolidated                                       |  |               | 55,791 |        | 21.95 |       |                            |   | 8,549  |                               | 4.00  |   |  |   | 12,823 |  | 6.00  |  
|Bank                                               |  |               | 30,266 |        | 11.94 |       |                            |   | 12,489 |                               | 4.00  |   |  |   | 18,733 |  | 6.00  |  
|Tier I Capital (to average assets)                 |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Consolidated                                       |  |               | 55,791 |        | 15.57 |       |                            |   | 12,510 |                               | 4.00  |   |  |   | 15,638 |  | 5.00  |  
|Bank                                               |  |               | 30,266 |        | 8.91  |       |                            |   | 12,489 |                               | 4.00  |   |  |   | 15,611 |  | 5.00  |  
|                                                   |  |               |        |        |       |      
|As of December 31, 2003                            |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Total Risk-based Capital (to risk-weighted assets) |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Consolidated                                       |  | $             | 27,313 |        | 12.78 | %     |                            | $ | 17,097 |                               | 8.00  | % |  | $ | 21,371 |  | 10.00 | %
|Bank                                               |  |               | 25,763 |        | 12.10 |       |                            |   | 17,065 |                               | 8.00  |   |  |   | 21,331 |  | 10.00 |  
|Tier I Capital (to risk-weighted assets)           |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Consolidated                                       |  |               | 20,796 |        | 9.73  |       |                            |   | 8,549  |                               | 4.00  |   |  |   | 12,823 |  | 6.00  |  
|Bank                                               |  |               | 23,097 |        | 10.85 |       |                            |   | 12,489 |                               | 4.00  |   |  |   | 18,733 |  | 6.00  |  
|Tier I Capital (to average assets)                 |  |               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Consolidated                                       |  |               | 20,796 |        | 6.65  |       |                            |   | 12,510 |                               | 4.00  |   |  |   | 15,638 |  | 5.00  |  
|Bank                                               |  |               | 23,097 |        | 7.40  |       |                            |   | 12,489 |                               | 4.00  |   |  |   | 15,611 |  | 5.00  |  



In November 2002, the
OCC issued to the Bank and its Directors, a Memorandum of Understanding (MOU). As a result of the OCCs March 2004 examination findings (most recent examination), the Bank was notified that it has complied with the MOU and therefore
the MOU was lifted.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



11. 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, 2004:



|                          |  |   |      
|------------------------- |  | - | -----
|Years ending December 31, |  |  
|2005                      |  | $ | 604  
|2006                      |  |   | 521  
|2007                      |  |   | 464  
|2008                      |  |   | 466  
|2009                      |  |   | 398  
|2010 and thereafter       |  |   | 469  
|                          |  |   |      
|Total                     |  | $ | 2,922
|                          |  |   |      



Rent expense amounted
to $697, $597, and $597 for the years ended December 31, 2004, 2003 and 2002, respectively.



12. 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, 2004, 2003, and 2002.



13. OTHER INCOME AND OTHER OPERATING EXPENSE



|                                                   |  |      |       |      |   |       |  |   |      
|-------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                                   |  | 2004 |       | 2003 |   | 2002 
|Other income consists of the following:            |  |      |       |      |   |       |  |   |      
|Commissions and fees                               |  | $    | 208   |      | $ | 132   |  | $ | 60   
|Other income                                       |  |      | 200   |      |   | 159   |  |   | 116  
|                                                   |  |      |       |      |   |       |  |   |      
|Total other income                                 |  | $    | 408   |      | $ | 291   |  | $ | 176  
|                                                   |  |      |       |      |   |       |  |   |      
|                                                   |  |      |      
|                                                   |  | 2004 |       | 2003 |   | 2002 
|Other operating expenses consist of the following: |  |      |       |      |   |       |  |   |      
|Dues and fees                                      |  | $    | 163   |      | $ | 417   |  | $ | 463  
|Franchise taxes and miscellaneous taxes            |  |      | 183   |      |   | 229   |  |   | 85   
|Insurance expense                                  |  |      | 84    |      |   | 240   |  |   | 163  
|Meetings and seminar expense                       |  |      | 82    |      |   | 170   |  |   | 170  
|Miscellaneous operating expenses                   |  |      | 590   |      |   | 122   |  |   | 164  
|Office expenses                                    |  |      | 554   |      |   | 487   |  |   | 544  
|Lawsuit settlements and operating losses           |  |      | 81    |      |   | 328   |  |   | 177  
|Outside services                                   |  |      | 191   |      |   | 439   |  |   | 817  
|Professional fees                                  |  |      | 1,043 |      |   | 862   |  |   | 1,170
|Other loan expense                                 |  |      | 413   |      |   | 200   |  |   | 104  
|Organizational expense                             |  |      |      |      |   |      |  |   | 148  
|                                                   |  |      |       |      |   |       |  |   |      
|Total Other Operating Expenses                     |  | $    | 3,384 |      | $ | 3,494 |  | $ | 4,005
|                                                   |  |      |       |      |   |       |  |   |      





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



14. RELATED PARTY TRANSACTIONS



Through the normal course of business, the Corporation receives general legal services from law firms under the control of certain Directors. Legal fees
paid to these law firms were $74, $38, and $44 for the years ended December 31, 2004, 2003, and 2002, respectively.



In 2003 and 2004, the Corporation leased space in Herndon, Virginia from a related party in the amount of $107 and $121, respectively and space in Reston,
Virginia in the amount of $208 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, 2004 and 2003 was $6,911 and $7,507, respectively. During 2004, new loans
made to such related parties amounted to $529 and payments amounted to $3,195. During 2003, new loans made to such related parties amounted to $1,705 and payments amounted to $3,580.



The Bank has also entered into deposit transactions with certain directors, executive officers, and their affiliates. Total
deposits at December 31, 2004 and 2003 were $3,587 and $3,728, respectively.



In 2003, one of the executive officers elected to accept stock options for 31,688 shares valued at approximately $78 in lieu of cash compensation due for 2003.



15. 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:



|                                                                                               |  |      |        |      |   |       
|---------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                                               |  | 2004 |        | 2003
|Commitments to grant loans, commercial pipeline and unfunded commitments under lines of credit |  | $    | 74,481 |      | $ | 37,910
|Commercial and standby letters of credit                                                       |  |      | 1,095  |      |   | 1,814 
|                                                                                               |  |      |        |      |   |       
|                                                                                               |  | $    | 75,576 |      | $ | 39,724
|                                                                                               |  |      |        |      |   |       





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except for per share data)



15. 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 also arise from time to time in the normal course of business, which, in the opinion of management, will have no material effect on
the Corporations consolidated financial statements.



Recourse on Loans



The Corporation has sold
loans during the year with limited recourse that is applicable only for the first 120 days. Management estimates no material expenses due to these provisions



16. 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 plan is administered by the Board of Directors of the Corporation 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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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



16. STOCK OPTION PLAN(continued)



|                                                               |  |         |   |      |                              |      |        |          |   |                              |   |        |  |          |                              |  |   |     
|-------------------------------------------------------------- |  | ------- | - | ---- | ---------------------------- | ---- | ------ | -------- | - | ---------------------------- | - | ------ |  | -------- | ---------------------------- |  | - | ----
|                                                               |  | 2004    |   | 2003 |                              | 2002
|                                                               |  | Shares  |   |      | WeightedAverageExercisePrice |      | Shares |          |   | WeightedAverageExercisePrice |   | Shares |  |          | WeightedAverageExercisePrice
|Outstanding, beginning of year                                 |  | 626,398 |   |      | $                            | 5.71 |        | 797,082  |   |                              | $ | 5.33   |  | 767,632  |                              |  | $ | 5.00
|Granted                                                        |  | 131,841 |   |      |                              | 6.63 |        | 144,688  |   |                              |   | 6.63   |  | 150,950  |                              |  |   | 6.83
|Exercised                                                      |  | (12,320 | ) |      |                              | 5.00 |        | (111,040 | ) |                              |   | 5.00   |  |         |                              |  |   |    
|Cancelled/Expired/Restored                                     |  | 27,030  |   |      |                              | 5.24 |        | (204,332 | ) |                              |   | 5.24   |  | (121,500 | )                            |  |   | 5.13
|                                                               |  |         |   |      |                              |      |        |          |   |                              |   |        |  |          |                              |  |   |     
|Outstanding, end of year                                       |  | 772,949 |   |      |                              | 5.87 |        | 626,398  |   |                              |   | 5.71   |  | 797,082  |                              |  |   | 5.33
|                                                               |  |         |   |      |                              |      |        |          |   |                              |   |        |  |          |                              |  |   |     
|Options exercisable at end of year                             |  | 484,030 |   |      | $                            | 5.81 |        | 270,613  |   |                              | $ | 5.75   |  | 321,846  |                              |  | $ | 5.00
|Weighted average fair value of options granted during the year |  |         |   |      | $                            | 2.51 |        |          |   |                              | $ | 1.93   |  |          |                              |  | $ | .57 



Information pertaining
to options outstanding at December 31, 2004 is as follows:



|                         |  |                     |  |                                         |  |                              |      |                   |         |                              |   |     
|------------------------ |  | ------------------- |  | --------------------------------------- |  | ---------------------------- | ---- | ----------------- | ------- | ---------------------------- | - | ----
|                         |  | Options Outstanding |  | Options Exercisable                    
|Range of Exercise Prices |  | NumberOutstanding   |  | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |      | NumberExercisable |         | WeightedAverageExercisePrice
|$5.00                    |  | 459,832             |  | 7.3 years                               |  | $                            | 5.00 |                   | 323,639 |                              | $ | 5.00
|$6.20 - $8.42            |  | 313,117             |  | 9.4 years                               |  | $                            | 6.99 |                   | 160,391 |                              | $ | 7.25



The vesting period of
the remaining options is as follows:



|                       |  |        
|---------------------- |  | -------
|Vested and exercisable |  | 484,030
|February 1, 2005       |  | 107,813
|February 1, 2006       |  | 86,080 
|February 1, 2007       |  | 24,740 
|February 1, 2008       |  | 36,953 
|February 1, 2009       |  | 33,333 
|                       |  |        
|                       |  | 772,949
|                       |  |        





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



17. 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, | 
|                                                                                    |  | 2004                             |  | 2003            |      | 2002   |          
|                                                                                    |  | Shares                           |  | Per ShareAmount |      | Shares |           | Per ShareAmount |   | Shares |  | Per ShareAmount | 
|Weighted average shares Outstanding, and basic Earnings (loss) per share            |  | 7,037,771                        |  | $               | 0.29 |        | 3,551,251 |                 | $ | 0.27   |  | 3,456,674       |  | $ | (1.00 | )
|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  
|Effect of dilutive securities                                                       |  |                                  |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  
|Stock options                                                                       |  | 318,476                          |  |                 |      |        | 143,248   |                 |   |        |  |                |  |   |       |  
|Warrants                                                                            |  |                                 |  |                 |      |        | 504,162   |                 |   |        |  |                 |  |   |      |  
|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  
|Weighted average shares Adjusted for dilution and Diluted earnings (loss) per share |  | 7,356,247                        |  | $               | 0.27 |        | 4,198,661 |                 | $ | 0.23   |  | 3,456,674       |  | $ | (1.00 | )
|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  



18.OTHER COMPREHENSIVE
INCOME



Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity
section of the balance sheet, such items, along with net income, are components of comprehensive income.



The components of other comprehensive income and related tax effects are as follows:



|                                                                             |  |                          |     |   |      |   |        |      |  |   |      |  
|---------------------------------------------------------------------------- |  | ------------------------ | --- | - | ---- | - | ------ | ---- |  | - | ---- | -
|                                                                             |  | Years Ended December 31, |    
|                                                                             |  | 2004                     |     |   | 2003 |   |        | 2002 | 
|Change in unrealized holding gains (losses) on Available-for-sale securities |  | $                        | 63  |   |      | $ | (1,221 | )    |  | $ | 654  |  
|Reclassification adjustment for losses (gains) realized in income            |  |                          | (4  | ) |      |   | (452   | )    |  |   | (41  | )
|                                                                             |  |                          |     |   |      |   |        |      |  |   |      |  
|Net unrealized gains (losses)                                                |  |                          | 59  |   |      |   | (1,673 | )    |  |   | 613  |  
|Tax effect                                                                   |  |                          | (20 | ) |      |   | 569    |      |  |   | (208 | )
|                                                                             |  |                          |     |   |      |   |        |      |  |   |      |  
|Other comprehensive income                                                   |  | $                        | 39  |   |      | $ | (1,104 | )    |  | $ | 405  |  
|                                                                             |  |                          |     |   |      |   |        |      |  |   |      |  





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



19. PARENT COMPANY ACTIVITY



The balance sheets and statements of income for the Corporation only, are as follows at December 31:



BALANCE SHEETS



|                                              |  |      |        |   |      |   |        |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                              |  | 2004 |        |   | 2003 |  
|Assets:                                       |  |      |        |   |      |   |        |  
|Interest bearing deposits in banks            |  | $    | 5,008  |   |      | $ | 848    |  
|Investment in subsidiaries                    |  |      | 29,679 |   |      |   | 22,798 |  
|Investment                                    |  |      | 1,999  |   |      |   |       |  
|Loans (net)                                   |  |      | 18,118 |   |      |   |       |  
|Other assets                                  |  |      | 423    |   |      |   | 370    |  
|                                              |  |      |        |   |      |   |        |  
|Total Assets                                  |  | $    | 55,227 |   |      | $ | 24,016 |  
|                                              |  |      |        |   |      |   |        |  
|Liabilities:                                  |  |      |        |   |      |   |        |  
|Subordinated debentures                       |  |      | 8,000  |   |      |   | 8,000  |  
|Other liabilities                             |  |      | 116    |   |      |   | 98     |  
|                                              |  |      |        |   |      |   |        |  
|Total Liabilities                             |  |      | 8,116  |   |      |   | 8,098  |  
|                                              |  |      |        |   |      |   |        |  
|Stockholders equity:                         |  |      |        |   |      |   |        |  
|Common stock                                  |  |      | 43,902 |   |      |   | 18,214 |  
|Paid-in capital                               |  |      | 4,056  |   |      |   | 599    |  
|Accumulated other comprehensive income (loss) |  |      | (680   | ) |      |   | (719   | )
|Retained earnings (deficit)                   |  |      | (167   | ) |      |   | (2,176 | )
|                                              |  |      |        |   |      |   |        |  
|Total Stockholders Equity                    |  |      | 47,111 |   |      |   | 15,918 |  
|                                              |  |      |        |   |      |   |        |  
|Total Liabilities and Stockholders Equity    |  | $    | 55,227 |   |      | $ | 24,016 |  
|                                              |  |      |        |   |      |   |        |  



STATEMENTS OF INCOME



|                                         |  |      |       |   |      |   |       |      |  |   |        |  
|---------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                         |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Equity in earnings of Bank               |  | $    | 2,168 |   |      | $ | 1,365 |      |  | $ | (3,268 | )
|Equity in earnings of Brokerage Services |  |      | 8     |   |      |   | (5    | )    |  |   | 24     |  
|Equity in earnings of E-Banking          |  |      | (149  | ) |      |   | (9    | )    |  |   |       |  
|Equity in earnings of Financial Inc.     |  |      | 3     |   |      |   | (3    | )    |  |   | 3      |  
|Other income (expenses)                  |  |      | (287  | ) |      |   | 49    |      |  |   | 16     |  
|Interest income, (expense) net           |  |      | 266   |   |      |   | (432  | )    |  |   | (221   | )
|                                         |  |      |       |   |      |   |       |      |  |   |        |  
|Net income (loss)                        |  | $    | 2,009 |   |      | $ | 965   |      |  | $ | (3,446 | )
|                                         |  |      |       |   |      |   |       |      |  |   |        |  





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



20. PARENT COMPANY ACTIVITY (continued)



STATEMENTS OF CASH FLOWS



|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                          |  | 2004 |         |   | 2003 |   |        | 2002 | 
|Cash Flows from Operating Activities                      |  |      |         |   |      |   |        |      |  |   |         |  
|Net (loss) income                                         |  | $    | 2,009   |   |      | $ | 965    |      |  | $ | (3,446  | )
|Equity in undistributed net income (loss) of subsidiaries |  |      | (2,030  | ) |      |   | (1,348 | )    |  |   | 3,241   |  
|Subtotal                                                  |  |      | (21     | ) |      |   | (383   | )    |  |   | (205    | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Increase in other assets                                  |  |      | (53     | ) |      |   | (150   | )    |  |   | (92     | )
|Increase (decrease) in other liabilities                  |  |      | 18      |   |      |   | 93     |      |  |   | (101    | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Cash Provided (Used) by Operating Activities          |  |      | (56     | ) |      |   | (440   | )    |  |   | (398    | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Cash Flows from Investing Activities                      |  |      |         |   |      |   |        |      |  |   |         |  
|Increase in Investments                                   |  |      | (6,000  | ) |      |   |       |      |  |   |        |  
|Sales of Investments                                      |  |      | 4,001   |   |      |   |       |      |  |   |        |  
|Increase in loans                                         |  |      | (18,118 | ) |      |   |       |      |  |   |        |  
|Increase in investment in subsidiaries                    |  |      | (4,812  | ) |      |   |       |      |  |   | (13,000 | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Cash Provided (Used) by Investing Activities          |  |      | (24,929 | ) |      |   |       |      |  |   | (13,000 | )
|Cash Flows from Financing Activities                      |  |      |         |   |      |   |        |      |  |   |         |  
|Proceeds from short term borrowings                       |  |      |        |   |      |   |       |      |  |   | (950    | )
|Proceeds from subordinated debentures                     |  |      |        |   |      |   |       |      |  |   | 8,000   |  
|Net proceeds from issuance of common stock                |  |      | 24,646  |   |      |   | 555    |      |  |   | 7,960   |  
|Net proceeds from redemption of warrants                  |  |      | 4,499   |   |      |   |       |      |  |   |        |  
|Proceeds used to reacquire common stock                   |  |      |        |   |      |   |       |      |  |   | (942    | )
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Cash Provided by Financing Activities                 |  |      | 29,145  |   |      |   | 555    |      |  |   | 14,068  |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Net Increase (Decrease) in Cash and Due from Banks        |  |      | 4,160   |   |      |   | 115    |      |  |   | 670     |  
|Cash and Due from Banks, beginning of year                |  |      | 848     |   |      |   | 733    |      |  |   | 63      |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  
|Cash and Due from Banks, end of year                      |  | $    | 5,008   |   |      | $ | 848    |      |  | $ | 733     |  
|                                                          |  |      |         |   |      |   |        |      |  |   |         |  







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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per 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, 2004 and 2003 are as follows:



|                                                 |  |                   |         |                   |   |                |  |            |         |  |   |        
|------------------------------------------------ |  | ----------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                                                 |  | December 31, 2004 |         | December 31, 2003
|                                                 |  | CarryingAmount    |         | Fair Value        |   | CarryingAmount |  | Fair Value
|Financial assets:                                |  |                   |         |                   |   |                |  |            |         |  |   |        
|Cash and due from banks                          |  | $                 | 2,974   |                   | $ | 2,974          |  | $          | 2,305   |  | $ | 2,305  
|Federal funds sold                               |  |                   | 55      |                   |   | 55             |  |            | 61      |  |   | 61     
|Investment securities available for sale         |  |                   | 86,219  |                   |   | 86,219         |  |            | 89,359  |  |   | 89,359 
|Loans held for sale                              |  |                   | 29,337  |                   |   | 30,025         |  |            | 9,069   |  |   | 9,132  
|Loans receivable, net                            |  |                   | 246,919 |                   |   | 254,579        |  |            | 205,913 |  |   | 206,570
|Accrued interest receivable                      |  |                   | 1,583   |                   |   | 1,583          |  |            | 1,475   |  |   | 1,475  
|                                                 |  |                   |         |                  
|Financial liabilities:                           |  |                   |         |                   |   |                |  |            |         |  |   |        
|Deposits                                         |  |                   | 280,833 |                   |   | 283,642        |  |            | 272,113 |  |   | 273,460
|Federal funds purchased                          |  |                   | 7,066   |                   |   | 7,066          |  |            | 5,629   |  |   | 5,629  
|Short term borrowings                            |  |                   | 5,500   |                   |   | 5,500          |  |            | 400     |  |   | 400    
|Long term borrowings                             |  |                   | 21,000  |                   |   | 21,000         |  |            | 18,000  |  |   | 18,000 
|Subordinated debentures Accrued interest payable |  |                   | 581     |                   |   | 581            |  |            | 540     |  |   | 540    





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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per 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, 2004 and 2003:



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.



Investment 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 analyses 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
analyses 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

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



|                           |  |                               |       |   |                                |   |       |                            |  |   |                            |   |  |   |       |  
|-------------------------- |  | ----------------------------- | ----- | - | ------------------------------ | - | ----- | -------------------------- |  | - | -------------------------- | - |  | - | ----- | -
|                           |  | Quarter EndedDecember 31,2004 |       |   | Quarter EndedSeptember 30,2004 |   |       | Quarter EndedJune 30, 2004 |  |   | Quarter EndedMarch 31,2004 |  
|Interest income            |  | $                             | 4,965 |   |                                | $ | 4,867 |                            |  | $ | 4,398                      |   |  | $ | 4,142 |  
|Net interest income        |  |                               | 3,026 |   |                                |   | 2,995 |                            |  |   | 2,727                      |   |  |   | 2,469 |  
|Provision for loan losses  |  |                               |      |   |                                |   | (163  | )                          |  |   | (108                       | ) |  |   | (0    | )
|Income before income taxes |  |                               | 1,167 |   |                                |   | 984   |                            |  |   | 569                        |   |  |   | 319   |  
|Income taxes               |  |                               | (383  | ) |                                |   | (349  | )                          |  |   | (190                       | ) |  |   | (108  | )
|                           |  |                               |       |  
|Net income                 |  | $                             | 784   |   |                                | $ | 635   |                            |  | $ | 379                        |   |  | $ | 211   |  
|                           |  |                               |       |  
|Earnings per share:        |  |                               |       |   |                                |   |       |                            |  |   |                            |   |  |   |       |  
|Basic                      |  |                               | .09   |   |                                |   | .07   |                            |  |   | .05                        |   |  |   | .06   |  
|Diluted                    |  |                               | .08   |   |                                |   | .07   |                            |  |   | .05                        |   |  |   | .06   |  
|                           |  |                               |       |  
|                           |  | Quarter EndedDecember 31,2003 |       |   | Quarter EndedSeptember 30,2003 |   |       | Quarter EndedJune 30, 2003 |  |   | Quarter EndedMarch 31,2003 |  
|Interest income            |  | $                             | 4,059 |   |                                | $ | 4,169 |                            |  | $ | 4,343                      |   |  | $ | 4,294 |  
|Net interest income        |  |                               | 2,354 |   |                                |   | 2,459 |                            |  |   | 2,450                      |   |  |   | 2,368 |  
|Provision for loan losses  |  |                               | (87   | ) |                                |   | (300  | )                          |  |   | (150                       | ) |  |   | (150  | )
|Loss before income taxes   |  |                               | 265   |   |                                |   | 278   |                            |  |   | 306                        |   |  |   | 613   |  
|Income taxes               |  |                               | (90   | ) |                                |   | (95   | )                          |  |   | (104                       | ) |  |   | (208  | )
|                           |  |                               |       |  
|Net income                 |  | $                             | 175   |   |                                | $ | 183   |                            |  | $ | 202                        |   |  | $ | 405   |  
|                           |  |                               |       |  
|Earning per share          |  |                               |       |   |                                |   |       |                            |  |   |                            |   |  |   |       |  
|Basic                      |  |                               | .05   |   |                                |   | .05   |                            |  |   | .06                        |   |  |   | .11   |  
|Diluted                    |  |                               | .04   |   |                                |   | .04   |                            |  |   | .05                        |   |  |   | .10   |  





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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003

(dollars in thousands, except per share data)



23. SEGMENT INFORMATION



The reportable segments are determined by the products and services offered,
primarily distinguished between banking and mortgage banking operations. Loans, investments and deposits provide the revenues in the banking operation, and loan sales provide the revenue in mortgage banking. All operations are domestic



The accounting policies used are the same as those described in the
summary of significant accounting policies except that loan fees are not deferred at the segment level. Segment performance is evaluated using net income. There is no goodwill. Income taxes are allocated separately and indirect expenses are
allocated against revenue. Transactions among segments are made at fair value. Information reported internally for performance assessment follows.



2004



|                          |  |         |         |                 |   |        |                   |  |   |        
|------------------------- |  | ------- | ------- | --------------- | - | ------ | ----------------- |  | - | -------
|                          |  | Banking |         | MortgageBanking |   |        | ConsolidatedTotal
|Net Interest Income       |  | $       | 10,837  |                 | $ | 380    |                   |  | $ | 11,217 
|                          |  |         |        
|Other revenue             |  |         | 656     |                 |   | (95    | )                 |  |   | 561    
|                          |  |         |        
|Noncash items:            |  |         |         |                 |   |        |                   |  |   |        
|Depreciation              |  |         | 756     |                 |   | 163    |                   |  |   | 919    
|Provision for loan loss   |  |         | 271     |                 |   |       |                   |  |   | 271    
|Net gain on sale of loans |  |         | 992     |                 |   | 6,415  |                   |  |   | 7,407  
|Income tax expense        |  |         | 1,548   |                 |   | (518   | )                 |  |   | 1,030  
|Segment profit (loss)     |  |         | 3,016   |                 |   | (1,007 | )                 |  |   | 2,009  
|Segment Assets            |  | $       | 342,106 |                 | $ | 29,752 |                   |  | $ | 371,858
|2003                      |  |         |         |                 |   |        |                   |  |   |        
|                          |  | Banking |         | MortgageBanking |   |        | ConsolidatedTotal
|Net Interest Income       |  | $       | 8,898   |                 | $ | 733    |                   |  | $ | 9,631  
|                          |  |         |        
|Other revenue             |  |         | 879     |                 |   | 36     |                   |  |   | 915    
|                          |  |         |        
|Noncash items:            |  |         |         |                 |   |        |                   |  |   |        
|Depreciation              |  |         | 1,077   |                 |   |       |                   |  |   | 1,077  
|Provision for loan loss   |  |         | 687     |                 |   |       |                   |  |   | 687    
|Net gain on sale of loans |  |         | 575     |                 |   | 3,018  |                   |  |   | 3,593  
|Income tax expense        |  |         | 750     |                 |   | (253   | )                 |  |   | 497    
|                          |  |         |        
|Segment profit            |  |         | 1,457   |                 |   | (492   | )                 |  |   | 965    
|Segment Assets            |  | $       | 304,177 |                 | $ | 9,219  |                   |  | $ | 313,396





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##### Table of Contents

SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



|      |  |                                   |  |                                                
|----- |  | --------------------------------- |  | -----------------------------------------------
|      |  | MILLENNIUM BANKSHARES CORPORATION
|      |  |                                  
|Date: |  | By:                               |  | /s/ Carroll C. Markley                         
|      |  |                                   |  | Carroll C. Markley                             
|      |  |                                   |  | Chairman, President and Chief Executive Officer



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



|                                           |  |                                                                                            |  |               
|------------------------------------------ |  | ------------------------------------------------------------------------------------------ |  | --------------
|Signature                                  |  | Title                                                                                      |  | Date          
|/s/ Carroll C. MarkleyCarroll C. Markley   |  | Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ Janet A. ValentineJanet A. Valentine   |  | Chief Financial Officer (Principal Financial and Accounting Officer)                       |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ Michael ColenMichael Colen             |  | Director                                                                                   |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ L. James DAgostinoL. James DAgostino |  | Director                                                                                   |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ Susan B. GreggSusan B. Gregg           |  | Director                                                                                   |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ William P. HaggertyWilliam P. Haggerty |  | Director                                                                                   |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ Stewart R. LittleStewart R. Little     |  | Director                                                                                   |  | April 14, 2005
|                                           |  |                                                                                           
|/s/ David B. MoreyDavid B. Morey           |  | Director                                                                                   |  | April 14, 2005



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|                                       |  |          |  |               
|-------------------------------------- |  | -------- |  | --------------
|                                       |  |          |  |               
|Signature                              |  | Title    |  | Date          
|/s/ Robert T. SmootRobert T. Smoot     |  | Director |  | April 14, 2005
|                                       |  |         
|/s/ Douglas K. TurnerDouglas K. Turner |  | Director |  | April 14, 2005



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##### Table of Contents

Exhibit Index



|     |  |                                                                                                                                                                                                                                                                               
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation (restated in electronic format), attached as Exhibit 3.1 to the Registration Statement on Form SB-2, as amended, Registration No. 333-72500, filed with the
Commission on October 30, 2002 (the Form SB-2), incorporated herein by reference.     
|     | 
|3.2  |  | Bylaws, attached as Exhibit 3.2 to the Form SB-2, 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 |  | Executive Employment Agreement of Carroll C. Markley effective as of January 1, 2005.                                                                                                                                                                                         
|     | 
|10.2 |  | Form of Employee Stock Option of Millennium Bankshares Corporation, attached as Exhibit 10.2 to the Form SB-2, incorporated herein by reference.                                                                                                                              
|     | 
|10.3 |  | 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.                               
|     | 
|10.4 |  | Executive Employment Agreement of Janet A. Valentine effective as of January 1, 2004.                                                                                                                                                                                         
|     | 
|10.5 |  | Executive Employment Agreement of Anita L. Shull effective as of May 27, 2004.                                                                                                                                                                                                
|     | 
|10.6 |  | Commercial Lease Agreement between 1051 Elden Street, L.L.C., the lessor, and Millennium Bank, N.A., the lessee, dated April 1, 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.   
|     | 
|10.7 |  | Commercial Lease Agreement between Corinth Investments, LLC, the lessor, and Millennium Bank, N.A., the lessee, dated January 22, 2004, attached as Exhibit 10.2 to the Quarterly Report on
Form 10-QSB for the period ended March 31, 2004, incorporated herein by reference.
|     | 
|21   |  | List of Subsidiaries, attached as Exhibit 21 to the Annual Report on Form 10-KSB for the year ended December 31, 2002, incorporated herein by reference.                                                                                                                      
|     | 
|23   |  | Consent of Crowe Chizek and Company LLC.                                                                                                                                                                                                                                      
|     | 
|31.1 |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                                       
|     | 
|31.2 |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                                                                                                      
|     | 
|32.1 |  | Statement of Chief Executive Officer Pursuant to 18 U.S.C. § 1350.                                                                                                                                                                                                            
|     | 
|32.2 |  | Statement of Chief Financial Officer Pursuant to 18 U.S.C. § 1350.