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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, 2003



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)



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



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|                    |  |                                          
|------------------- |  | -----------------------------------------
|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 past 90 days.    Yes  x    No ̈



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



The issuers gross income for its most recent fiscal year was $21,373,000.



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 February 20, 2004, as reported on the Nasdaq SmallCap Market, was approximately $24,643,070.



The number of outstanding shares of Common Stock as of March 17, 2004 was 3,642,818.



DOCUMENTS INCORPORATED BY REFERENCE



Proxy Statement for the 2004 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                                                                                         |  | 18  
|         |  |                                                                                                                
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                               |  | 19  
|         |  |                                                                                                                
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 19  
|         | 
|PART II  |  |                                                                                                                
|         |  |                                                                                                                
|ITEM 5.  |  | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |  | 20  
|         |  |                                                                                                                
|ITEM 6.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           |  | 21  
|         |  |                                                                                                                
|ITEM 7.  |  | FINANCIAL STATEMENTS                                                                                            |  | 43  
|         |  |                                                                                                                
|ITEM 8.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 43  
|         |  |                                                                                                                
|ITEM 8A. |  | CONTROLS AND PROCEDURES                                                                                         |  | 43  
|         | 
|PART III |  |                                                                                                                
|         |  |                                                                                                                
|ITEM 9.  |  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |  | 44  
|         |  |                                                                                                                
|ITEM 10. |  | EXECUTIVE COMPENSATION                                                                                          |  | 44  
|         |  |                                                                                                                
|ITEM 11. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  |  | 44  
|         |  |                                                                                                                
|ITEM 12. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  |  | 44  
|         |  |                                                                                                                
|ITEM 13. |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                |  | 44  
|         |  |                                                                                                                
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEE AND SERVICES                                                                           |  | 46  



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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, 2003 we had total consolidated assets of $313.4 million, deposits of $272.1 million and stockholders equity of $15.9 million.



Millennium Bank is a nationally chartered community bank with six banking
offices  two in Reston, Virginia and one each in Great Falls, Herndon, Colonial Heights, and Richmond, Virginia. Four of our banking offices are situated in Fairfax County, Virginia, just west of Washington, D.C. 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.



Subsidiaries



We conduct primarily all of our business through Millennium Bank and its
wholly and majority owned subsidiaries. The subsidiaries other than Millennium Capital 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           |  | Reston, VA    |  | Wholesale and Retail Lending |  | May 1999        
|Millennium Wholesale Lending |  | Reston, VA    |  | Wholesale Lending            |  | May 2001        
|Millennium Sunbelt Mortgage  |  | Las Vegas, NV |  | Retail Lending               |  | Dec. 2001       



Millennium Bankshares
Corporation is the sole shareholder of Millennium Brokerage Services, Inc., which offers securities brokerage services, financial analysis, professional money management, stocks, bonds and mutual funds through UVEST. We have notified UVEST that the
relationship will be terminated in the first half of 2004 and we have signed an agreement with MetLife Securities, Inc. to



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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.



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 five years, and an important part
of our business is our current and future strategies. Our strategies include the following goals:



| |  | We will 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 four 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We will increase net income and return to shareholders through continued quality loan growth, while controlling the cost of our deposits and non-interest expense.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our diverse array of commercial and Small Business Administration loan products will account for an increasing percentage of our loan portfolio. 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 continue to 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.



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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 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 0.22% of deposits in the Fairfax County market as of June 30, 2003, 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.



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



In
the normal course of business, the bank makes various commitments and incurs certain contingent liabilities, which are disclosed in the footnotes of its annual financial statements, including commitments to extend credit. At December 31, 2003,
commitments to extend credit totaled $25.8 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, 2003, commercial loans totaled $127.8 million, or 58.6% 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, 2003, commercial real estate loans totaled $94.9 million, or 43.5% 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, 2003, there was $17.4 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



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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, 2003, Small Business Administration loans totaled $13.2 million, or 10.33% of the commercial loan portfolio.



One-to-Four-Family Residential Real Estate Lending



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 located in Reston and Richmond,
Virginia, and Las Vegas, Nevada.



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. The president of Millennium Capital resigned in November
2002. This, together with the loss of our most experienced loan officers, reduced loan production in 2003. An interim president of Millennium Capital was named in May 2003, to oversee the restructuring and guide us through compliance with the
memorandum of understanding, pending the appointment of an experienced mortgage professional to lead Millennium Capital.



On November 18, 2003, James OBrien was named president of Millennium Capital. He brings to us over 25 years in the mortgage industry and a wealth of
sales knowledge. Since his arrival, Mr. OBrien has recruited four managers and 22 additional mortgage loan officers. He continues to oversee the reorganization of the mortgage operations area to ensure that procedures and processes continue to
support increasing loan volume.



As part of this
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 are expected to begin increasing 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.



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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.



In addition to changing the management of Millennium Capital and the types of loans it offers, we have entered into an employment contract with Mr.
OBrien that is intended to limit our risk in the mortgage banking area. Under the contract, Millennium Bank will earn interest on its loans to Millennium Capital at 2.5% over our average cost of funds and receive a payment of $500 for each
loan made by Millennium Capital, as well as reimbursement for expenses incurred in creating the loan. Mr. OBrien will receive the net income of Millennium Capital, after payments of those fees and interest to Millennium Bank.



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



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



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



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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, 2003, Millennium had the equivalent of 104 employees, 2 of which are part-time employees. None of
Millenniums employees are represented by a collective bargaining unit.



Supervision and Regulation



General. As
a bank 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 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.



Office of the Comptroller of the Currency Memorandum of Understanding. On November 21, 2002, Millennium Bank entered into a memorandum of understanding with the Comptroller of the Currency. Millennium Bank has agreed to operate in
compliance with the memorandum of understanding, which required the following:



| |  | The Board was required to appoint a Compliance Committee, which is responsible for monitoring and coordinating Millennium Banks compliance with the memorandum of
understanding. The Compliance Committee is required to meet at least monthly and to submit written reports to the Board of Directors and the Assistant Deputy Comptroller of the Currency each quarter.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A director education program to strengthen individual director knowledge and understanding of the areas of Millennium Bank governed by the various committees on which they serve was
required and has been adopted. The program included engaging the services of an outside corporate attorney to provide counsel on individual and collective Board responsibilities under the law.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | The Board was required to make sure Millennium Banks books and records were restored to a complete and accurate condition. It also was required to make sure that proper
internal controls are in place, with particular attention to mortgage banking transactions, to develop a strong system of controls to protect Millennium Banks assets, to ensure compliance with applicable laws and regulations and to prevent,
and allow for the early detection of, errors and defalcations. The Board was required to make sure that Millennium Bank has sufficient personnel with necessary skills to ensure implementation of, timely updating to and adherence to the control
systems developed.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Board was required to adopt, implement and adhere to an independent internal audit program and submit it to the Assistant Deputy Comptroller.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Board was required to adopt and ensure adherence to a written asset liability management policy, which incorporates the use of simulation or valuation modeling as the primary
means for measuring interest rate risk and upon adoption, forward the policy to the Assistant Deputy Comptroller for review.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Board was required to reaffirm, and ensure the independence of an effective, ongoing loan review system to review, at least quarterly, the Banks loan and lease portfolios
to assure timely identification and categorization of problem credits and the timely monitoring of portfolio risks and trends.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Board was required to develop a written profit plan to improve and sustain the earnings of Millennium Bank and each of its operating subsidiaries. As long as the memorandum of
understanding remains in effect, Millennium Bank must submit annual budgets to the Assistant Deputy Comptroller.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Board was required to develop and implement a written policy governing Millennium Banks development of any new products, services or involvement in new business ventures.
Before developing any new products, services or involvement in new business ventures, an analysis must be performed and submitted to the Assistant Deputy Comptroller.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Board was required to adopt a written comprehensive policy providing guidelines for permissible business transactions between Millennium Bank and the directors, principal
shareholders, executive officers, affiliates and employees and related interests of Millennium Bank and Millennium Bankshares Corporation. The policy was adopted in January, 2003 and it requires each insider to disclose to us his outside business
interests and all potential conflicts of interest between him and Millennium. All proposed transactions, or modifications of transactions between an insider or his related interests and us must be reviewed in advance for compliance with our policy.
A transaction is permissible if it is on terms that are substantially the same, or at least as favorable to us, as those obtainable from unrelated parties. If we cannot identify terms for comparable transactions with unrelated parties, a transaction
with an insider must be on commercially reasonable terms. Before Millennium Bank engages in a transaction with an insider or his related interests, the Board must find that the primary purpose of the transaction is to further the banks best
interests and approve the transaction. All transactions with insiders and their related interests must be reviewed annually for compliance with the policy. The Compliance Committee also was required to conduct an initial review of Millennium
Banks business relationships with its insiders and insiders of Millennium
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Bankshares. The review was for the purpose of identifying relationships not in conformity with Millennium Banks policy. The Committee had the
responsibility to make sure that any nonconforming relationships were brought into conformity with the policy and that Millennium Bank was reimbursed for any excess or improper payments. The Compliance Committee reviewed 20 business relationships
with insiders and their related interests and it did not find any excessive or improper payments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Asset growth of Millennium Bank was limited to no more than 10% per year and no more than 5% in any calendar quarter. These asset growth restrictions may be exceeded with the prior
written consent of the Assistant Deputy Comptroller. In December 2003 we received permission to grow at 15% per year.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Board of Directors and its committees have devoted much time and effort to bringing Millennium Bank into compliance with the memorandum of
understanding. We believe that those efforts have improved our operations, although we have not yet been advised that we are in full compliance with the provisions of the memorandum that require improvements in our internal controls and loan
reviews. In the case of internal controls, full compliance will require us to continue the improvements we have made to date and, also, do a better job of making all employees aware of written policies and procedures for the functions they perform
and be able to demonstrate that our policies and procedures adequately prevent errors in bank records and violations of laws and regulations.



In the case of loan reviews, full compliance will require our loan review reports to better quantify the impact on us of credit and collateral
documentation exceptions, the trend of exceptions and whether exceptions noted by the reviewer were previously identified by us. Until October 2003, loan review reports did not identify the officer who originated problem loans. Finally, loan review
reports, until October 2003, did not quantify the policies, address the accuracy of our exception tracking systems or identify individual loans that do not comply in all respects with our lending policies.



We believe that we have addressed and corrected the criticisms of our
internal controls and loan reviews described above.



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 subsidiary; 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 proper incidents to the business of a bank 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.



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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 either 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.



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. Most of its provisions require the federal bank regulatory agencies and
other regulatory bodies to adopt implementing regulations, and for that reason an assessment of the full impact of the GLBA on us must await completion of that regulatory process. The following description summarizes some of its significant
provisions.



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



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



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being deemed a broker, and a set of activities in which a bank may engage without being deemed a
dealer. Additionally, the new 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 new 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.



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



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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.



We are currently paying the FDIC more than the statutory minimum assessment because we are subject to the memorandum of
understanding with the OCC.



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 supervises. Under the risk-based capital requirements, we and our bank subsidiary are each generally required to maintain a minimum ratio of total
capital to risk-weighted assets (including specific off-balance sheet activities, such as standby letters of credit) of 8%. At least half of the total capital must be composed of Tier 1 Capital, which is defined as common equity,
retained earnings and qualifying perpetual preferred stock, 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. 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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | 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 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 funds 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 bank 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



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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 established 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 2003, the first $5.7 million will be exempt from reserve
requirements. A 3% reserve ratio will be assessed on net transaction accounts over $5.7 million to and including $41.3 million. A 10% reserve ratio will be applied to net transaction accounts in excess of $41.3 million. These percentages are subject
to adjustment by the Federal Reserve Board. Because required reserves must be maintained in the form of vault cash or in a non-interest-bearing account at, or on behalf of, a Federal Reserve Bank, the effect of the reserve requirement is to reduce
the amount of the institutions interest-earning assets.



Transactions with Affiliates. Transactions between banks and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. 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



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$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 regulatory. A bank holding company will not
be permitted to become a financial holding company and no new activities authorized under the GLBA may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a satisfactory
rating in its latest Community Reinvestment Act examination.



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



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



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,



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and the Fair Housing Act, require compliance by depository institutions with various disclosure requirements and
requirements regulating the availability of funds after deposit or the making of some loans to customers.



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



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



|ITEM 2. | DESCRIPTION OF PROPERTY
|------- | -----------------------



Millennium conducts its business from its main office in Reston, Virginia, five 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.                                                                                                                      



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|                                                       |  |                      |  |                                                                                                                                                                                                                
|------------------------------------------------------ |  | -------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Location                                               |  | Date Facility Opened |  | Ownership and Leasing Arrangements                                                                                                                                                                             
|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.                                                                                                 
|                                                       |  |                     
|Loan Offices: 170 W Shirley Avenue Warrenton, Virginia |  | 2003                 |  | Leased from Angler Development, LLC. Lease expires May 9, 2004.                                                                                                                                                
|                                                       |  |                     
|Planned Branch Office Warrenton, Virginia              |  | 2004                 |  | Leased from Corinth Investments, LLC. Lease expires in 2009 and has five-year renewal options.                                                                                                                 



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



|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.



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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 10, 2004, our common stock was held by 163 shareholders of record and approximately 640 beneficial holders who own shares
in street name.



The high and low sale prices per share for our
common stock for each quarter of 2002 and 2003, as well as the amount of cash dividends per share we declared in each quarter, were as follows:



|           |  |      |  |      |  |         
|---------- |  | ---- |  | ---- |  | --------
|           |  | High |  | Low  |  | Dividend
|2002       |  |      |  |      |  |         
|1stQuarter |  | 7.38 |  | 6.35 |  |        
|2ndQuarter |  | 8.06 |  | 7.35 |  |        
|3rdQuarter |  | 7.85 |  | 6.05 |  |        
|4thQuarter |  | 6.97 |  | 5.72 |  |        
|           |  |      | 
|2003       |  |      |  |      |  |         
|1stQuarter |  | 7.06 |  | 6.20 |  |        
|2ndQuarter |  | 8.00 |  | 6.60 |  |        
|3rdQuarter |  | 8.00 |  | 7.26 |  |        
|4thQuarter |  | 7.98 |  | 7.20 |  |        



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 statutes and regulations. Furthermore, under Virginia law, we may not declare or pay a cash dividend on our capital stock if we are insolvent or if the payment of the dividend would render us insolvent or unable to pay our
obligations as they become due in the ordinary course of business. For additional information on these limitations, see Item 1. Business  Government Supervision and Regulation  Payment of Dividends above.



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|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



General



Millennium Bankshares Corporation is a financial 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 six banking offices, all in Virginia. Two offices are in Reston, one each is in Great Falls and Herndon, and two are in the Richmond,
Virginia area. We also have a loan production office in Warrenton, 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.



The following presents managements discussion and analysis of our consolidated financial condition at December 31, 2003 and 2002 and the results of
our operations for the years ended December 31, 2003 and 2002. 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.



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Allowance for Loan Losses



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



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



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



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



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Financial Summary



For the year ended December 31, 2003, Millennium reported net income of $965,000, or $0.27 per share and $0.23 per diluted share, compared to a net loss
of $3.4 million, or $1.00 per share and $1.00 per diluted share for the same period in 2002. The increase in net income is primarily attributable to reduced interest expense, reduced non-interest expenses and to gains on the sale of investment
securities. The net loss for 2002 included a total provision for loan losses of $3.3 million and expenses and asset write-offs related to a failed mortgage banking joint venture totaling approximately $1.5 million. The venture has since been closed.
The annualized return on average assets and return on equity for the period ended December 31, 2003, are 0.31% and 6.20% respectively, compared to (1.28%) and (19.43%) for the comparable period in 2002.



Total assets increased to $313.4 million at December 31, 2003, compared to
$306.3 million at December 31, 2002, representing an increase of $7.1 million or 0.33%. Loans, net of allowance for loan losses at December 31, 2003 were $215.0 million, a decrease of $24.1 million from the December 31, 2002 balance of $239.1
million. This decrease was due to a $55.6 million decrease in loans held for sale which was partially offset by our effort to increase commercial, commercial real estate and construction lending. Funds in excess of our loan demand were placed in
investment securities to increase yield over the yield offered on overnight investments. The investment portfolio increased 63.7% to $89.4 million at December 31, 2003, compared to $54.6 million at December 31, 2002. Deposits increased $13.6 million
to $272.1 million at December 31, 2003 from $258.5 million at December 31, 2002. We use brokered deposits in addition to borrowings from the Federal Home Loan Bank and the Community Bankers Bank.



Shareholders equity was $15.9 million at December 31, 2003. This amount
represents an increase of 2.6% from the December 31, 2002 balance of $15.5 million. Shareholders equity was increased by 2003 earnings and the exercise of stock options and decreased 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 rates net of taxes. Book value per share was $4.37 at December 31, 2003 and $4.39 at December 31, 2002.



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 amounted to $9.6 million for 2003 compared
to $8.3 million for the same period in 2002. The increase is largely due to growth in the investment portfolio, reduced rates paid for deposits and the increased loans outstanding. Average loans for the year ended December 31, 2003 increased 0.73%
over average loans in 2002.



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##### Table of Contents

Net interest income was $8.3 million for the year ended December 31, 2002 compared to $4.7 million for
the year ended December 31, 2001, an increase of 76.6%. 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, 2002 increased 130.6% over average
loans in 2001.



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.



|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|------------------------------------------ |  | ------------------ | ------- | ----------------- | ----------------- | ----------- |  | ----------------- | ------------------- |  | ----------------- | ------- | ----------- | - | ------ | -------------------- | ---- | ----------------- |  | ----------- | ------- |  | - | ------ |  | ---- | -
|                                           |  | December 31, 2003  |         |                   | December 31, 2002 |             |  | December 31, 2001 |                    
|(Dollars in thousands)                     |  | AverageBalances(1) |         | Earnings/ Expense |                   | Yield/ Rate |  |                   | AverageBalances (1) |  | Earnings/ Expense |         | Yield/ Rate |   |        | Average Balances (1) |      | Earnings/ Expense |  | Yield/ Rate |        
|Assets:                                    |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Interest Earning Assets                    |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Loans, net of unearned discounts (2)       |  | $                  | 220,513 |                   | $                 | 13,603      |  | 6.17              | %                   |  | $                 | 218,922 |             | $ | 14,664 |                      | 6.70 | %                 |  | $           | 113,007 |  | $ | 9,515  |  | 8.42 | %
|Securities                                 |  |                    | 83,654  |                   |                   | 3,237       |  | 3.87              | %                   |  |                   | 37,472  |             |   | 1,746  |                      | 4.66 | %                 |  |             | 6,944   |  |   | 373    |  | 5.37 | %
|Federal funds sold                         |  |                    | 650     |                   |                   | 25          |  | 3.85              | %                   |  |                   | 3,585   |             |   | 60     |                      | 1.67 | %                 |  |             | 4,376   |  |   | 156    |  | 3.56 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Total interest earning assets              |  |                    | 304,817 |                   | $                 | 16,865      |  | 5.53              | %                   |  |                   | 259,979 |             | $ | 16,470 |                      | 6.34 | %                 |  |             | 124,327 |  | $ | 10,044 |  | 8.08 | %
|Other assets                               |  |                    | 8,486   |                   |                   |             |  |                   |                     |  |                   | 9,889   |             |   |        |                      |      |                   |  |             | 5,836   |  |   |        |  |      |  
|Total assets                               |  | $                  | 313,303 |                   |                   |             |  |                   |                     |  | $                 | 269,868 |             |   |        |                      |      |                   |  | $           | 130,163 |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Liabilities                                |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Interest-bearing deposits                  |  | $                  | 253,042 |                   | $                 | 6,452       |  | 2.55              | %                   |  | $                 | 222,373 |             | $ | 7,728  |                      | 3.48 | %                 |  | $           | 98,336  |  | $ | 5,081  |  | 5.17 | %
|Borrowed funds                             |  |                    | 27,069  |                   |                   | 782         |  | 2.89              | %                   |  |                   | 15,569  |             |   | 478    |                      | 3.07 | %                 |  |             | 6,455   |  |   | 260    |  | 4.03 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Total interest-bearing liabilities         |  |                    | 280,111 |                   | $                 | 7,234       |  | 2.58              | %                   |  |                   | 237,942 |             | $ | 8,206  |                      | 3.45 | %                 |  |             | 104,791 |  | $ | 5,341  |  | 5.10 | %
|Liabilities:                               |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Demand deposits                            |  |                    | 16,444  |                   |                   |             |  |                   |                     |  |                   | 13,312  |             |   |        |                      |      |                   |  |             | 12,613  |  |   |        |  |      |  
|Other liabilities                          |  |                    | 1,195   |                   |                   |             |  |                   |                     |  |                   | 1,442   |             |   |        |                      |      |                   |  |             | 1,788   |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Total liabilities                          |  |                    | 297,750 |                   |                   |             |  |                   |                     |  |                   | 252,696 |             |   |        |                      |      |                   |  |             | 119,992 |  |   |        |  |      |  
|Shareholders equity                       |  |                    | 15,553  |                   |                   |             |  |                   |                     |  |                   | 17,172  |             |   |        |                      |      |                   |  |             | 10,971  |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                  | 312,903 |                   |                   |             |  |                   |                     |  | $                 | 269,868 |             |   |        |                      |      |                   |  | $           | 129,763 |  |   |        |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Net interest income                        |  |                    |         |                   | $                 | 9,631       |  |                   |                     |  |                   |         |             | $ | 8,264  |                      |      |                   |  |             |         |  | $ | 4,703  |  |      |  
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  
|Interest spread                            |  |                    |         |                   |                   |             |  | 2.95              | %                   |  |                   |         |             |   |        |                      | 2.89 | %                 |  |             |         |  |   |        |  | 2.98 | %
|Net interest yield on earning assets       |  |                    |         |                   |                   |             |  | 3.16              | %                   |  |                   |         |             |   |        |                      | 3.18 | %                 |  |             |         |  |   |        |  | 3.78 | %
|                                           |  |                    |         |                   |                   |             |  |                   |                     |  |                   |         |             |   |        |                      |      |                   |  |             |         |  |   |        |  |      |  



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##### 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, 2003 vs. 2002 |       |   | December 31, 2002 vs. 2001 |  
|(In thousands)                                      |  | Due to Volume              |       |   | Change in Rate             |   |        | Total |  |   | Due to Volume |   |  | Change in Rate |       |   | Total |  
|Interest Earned On:                                 |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  
|Loans                                               |  | $                          | 98    |   |                            | $ | (1,159 | )     |  | $ | (1,061        | ) |  | $              | 7,094 |   |       | $ | (1,945 | ) |  | $ | 5,149 |  
|Securities                                          |  |                            | 1,787 |   |                            |   | (296   | )     |  |   | 1,491         |   |  |                | 1,422 |   |       |   | (49    | ) |  |   | 1,373 |  
|Federal Funds Sold                                  |  |                            | (113  | ) |                            |   | 78     |       |  |   | (35           | ) |  |                | (13   | ) |       |   | (83    | ) |  |   | (96   | )
|                                                    |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  
|Total interest earned on interest-bearing assets    |  | $                          | 1,772 |   |                            | $ | (1,377 | )     |  | $ | 395           |   |  | $              | 8,504 |   |       | $ | (2,078 | ) |  | $ | 6,426 |  
|                                                    |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  
|Interest Paid On:                                   |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  
|Interest-bearing deposits                           |  | $                          | 782   |   |                            | $ | (2,058 | )     |  | $ | (1,276        | ) |  | $              | 4,311 |   |       | $ | (1,664 | ) |  | $ | 2,647 |  
|Borrowed funds                                      |  |                            | 332   |   |                            |   | (28    | )     |  |   | 304           |   |  |                | 280   |   |       |   | (62    | ) |  |   | 218   |  
|                                                    |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  
|Total interest paid on interest-bearing liabilities |  | $                          | 1,114 |   |                            | $ | (2,086 | )     |  | $ | (972          | ) |  | $              | 4,590 |   |       | $ | (1,725 | ) |  | $ | 2,865 |  
|                                                    |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  
|Net interest income                                 |  | $                          | 658   |   |                            | $ | 709    |       |  | $ | 1,367         |   |  | $              | 3,913 |   |       | $ | (352   | ) |  | $ | 3,561 |  
|                                                    |  |                            |       |   |                            |   |        |       |  |   |               |   |  |                |       |   |       |   |        |   |  |   |       |  



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, 2003, we had $40.4 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, 2003 Maturing or Repricing In: |        
|(Dollars in thousands)                                                                     |  | 3 Months or less                            |         |   | 4-12 Months |   |         | 1-5 Years |  |   | Over 5 Years |  
|Interest-sensitive assets:                                                                 |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Loans (1)                                                                                  |  | $                                           | 98,279  |   |             | $ | 32,931  |           |  | $ | 74,290       |   |  | $ | 12,533  |  
|Investments (2)(4)                                                                         |  |                                             | 10,683  |   |             |   | 4,983   |           |  |   | 57,169       |   |  |   | 17,620  |  
|Federal funds sold                                                                         |  |                                             | 61      |   |             |   | 0       |           |  |   | 0            |   |  |   | 0       |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Total interest-sensitive assets                                                            |  |                                             | 109,023 |   |             |   | 37,914  |           |  |   | 131,459      |   |  |   | 30,153  |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Cumulative interest-sensitive assets                                                       |  |                                             | 109,023 |   |             |   | 146,937 |           |  |   | 278,396      |   |  |   | 308,549 |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Interest-sensitive liabilities:                                                            |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|NOW accounts(3)                                                                            |  |                                             | 800     |   |             |   | 2,399   |           |  |   | 4,944        |   |  |   | 1,520   |  
|Savings/Money Market deposit accounts(3)                                                   |  |                                             | 10,530  |   |             |   | 31,395  |           |  |   | 64,788       |   |  |   | 19,939  |  
|Certificates of deposit                                                                    |  |                                             | 17,042  |   |             |   | 25,353  |           |  |   | 73,783       |   |  |   | 1,317   |  
|Borrowed money                                                                             |  |                                             | 18,628  |   |             |   | 400     |           |  |   | 5,000        |   |  |   | 0       |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Total interest-sensitive liabilities                                                       |  |                                             | 47,000  |   |             |   | 59,547  |           |  |   | 148,515      |   |  |   | 22,776  |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Cumulative interest-sensitive liabilities                                                  |  |                                             | 47,000  |   |             |   | 106,547 |           |  |   | 255,062      |   |  |   | 277,838 |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Period gap                                                                                 |  | $                                           | 62,023  |   |             | $ | (21,633 | )         |  | $ | (17,056      | ) |  | $ | 7,377   |  
|Cumulative gap                                                                             |  | $                                           | 62,023  |   |             | $ | 40,390  |           |  | $ | 23,334       |   |  | $ | 30,711  |  
|Ratio of cumulative interest-sensitive assets to cumulative interest-sensitive liabilities |  |                                             | 231.96  | % |             |   | 137.91  | %         |  |   | 109.15       | % |  |   | 111.05  | %
|Ratio of cumulative gap to total assets                                                    |  |                                             | 19.79   | % |             |   | 12.89   | %         |  |   | 7.45         | % |  |   | 9.80    | %
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  
|Total Assets                                                                               |  | $                                           | 313,396 |   |             | $ | 313,396 |           |  | $ | 313,396      |   |  | $ | 313,396 |  
|                                                                                           |  |                                             |         |   |             |   |         |           |  |   |              |   |  |   |         |  

---

|(1) | Loans maturing or repricing in three months or less includes $20.5 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.



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##### Table of Contents

Investments



At December 31, 2003, Millennium had $89.4 million in total available for sale securities, an increase of 63.7% from $54.6 million at December 31, 2002.
The increase reflects the net effect of purchases of these securities with excess funds and dispositions of callable securities that were called during this period.



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



|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|--------------------------------- |  | ----------------- | ------ | ----------------- | - | ----------------- |  | ------ | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|                                  |  | December 31, 2003 |        | December 31, 2002 |   | December 31, 2001
|(In thousands)                    |  | Cost              |        | Market            |   | Cost              |  | Market |        | Cost |   | Market
|Available for sale                |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|US Government & Agency Securities |  | $                 | 87,741 |                   | $ | 86,651            |  | $      | 49,664 |      | $ | 50,221 |  | $ | 11,748 |  | $ | 11,718
|Other                             |  |                   |       |                   |   |                  |  |        | 2,078  |      |   | 2,104  |  |   |       |  |   |      
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Total available for sale          |  |                   | 87,741 |                   |   | 86,651            |  |        | 51,742 |      |   | 52,325 |  |   | 11,748 |  |   | 11,718
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Other                             |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Federal Home Loan Bank stock      |  |                   | 1,991  |                   |   | 1.991             |  |        | 1,505  |      |   | 1,505  |  |   | 631    |  |   | 631   
|Federal Reserve Bank stock        |  |                   | 658    |                   |   | 658               |  |        | 688    |      |   | 688    |  |   | 174    |  |   | 174   
|Other stocks                      |  |                   | 59     |                   |   | 59                |  |        | 59     |      |   | 59     |  |   | 59     |  |   | 59    
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       
|Total                             |  | $                 | 90,449 |                   | $ | 89,359            |  | $      | 53,994 |      | $ | 54,577 |  | $ | 12,612 |  | $ | 12,582
|                                  |  |                   |        |                   |   |                   |  |        |        |      |   |        |  |   |        |  |   |       



The following table
sets forth the maturity distribution and weighted average yields of the investment portfolio at December 31, 2003. The weighted average yields are calculated on the basis of the amortization of premium and accretion of discount.



|                                       |  |                |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|-------------------------------------- |  | -------------- | - | ----------------- | - | ----- | ------------------- |  | - | -------------- | - |  | - | ------ | -
|Maturity Distribution                  |  | 1 Year or Less |   | 1 Year To 5 Years |   |       | 5 Years To 10 Years |  |   | After 10 Years |  
|(Dollars in thousands)                 |  |                |   |                   |   |       |                     |  |   |                |  
|U. S. Agency issues                    |  | $              |  |                   | $ | 2,876 |                     |  | $ | 53,857         |   |  | $ | 31,008 |  
|Federal Home Loan Bank/Other           |  |                |  |                   |   |      |                     |  |   |               |   |  |   | 1,991  |  
|Federal Reserve Bank stock             |  |                |  |                   |   |      |                     |  |   |               |   |  |   | 658    |  
|                                       |  |                |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|Total Maturity Distribution            |  | $              |  |                   | $ | 2,876 |                     |  | $ | 53,857         |   |  | $ | 33,657 |  
|                                       |  |                |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|Weighted Average Yield                 |  |                |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|U. S. Agency issues                    |  |                |  |                   |   | 2.99  | %                   |  |   | 4.19           | % |  |   | 4.19   | %
|Federal Home Loan Bank/Other           |  |                |  |                   |   |      |                     |  |   |               |   |  |   | 3.50   | %
|Federal Reserve Bank stock             |  |                |  |                   |   |      |                     |  |   |               |   |  |   | 6.00   | %
|                                       |  |                |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|Total Portfolio Weighted Average Yield |  |                |  |                   |   | 2.99  | %                   |  |   | 4.19           | % |  |   | 4.18   | %
|                                       |  |                |   |                   |   |       |                     |  |   |                |   |  |   |        |  



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##### Table of Contents

The following table sets forth the maturity distribution and weighted average yields of the investment
portfolio at December 31, 2002. The weighted average yields are calculated on the basis of the amortization of premium and accretion of discount.



|                                       |  |                |      |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|-------------------------------------- |  | -------------- | ---- | - | ----------------- | - | ----- | ------------------- |  | - | -------------- | - |  | - | ------ | -
|Maturity Distribution                  |  | 1 Year or Less |      |   | 1 Year To 5 Years |   |       | 5 Years To 10 Years |  |   | After 10 Years |  
|(Dollars in thousands)                 |  |                |      |   |                   |   |       |                     |  |   |                |  
|U. S. Agency issues                    |  | $              | 5    |   |                   | $ | 1,982 |                     |  | $ | 20,866         |   |  | $ | 29,472 |  
|Other corporate issues                 |  |                |     |   |                   |   |      |                     |  |   |               |   |  |   | 1,564  |  
|Federal Reserve Bank stock             |  |                |     |   |                   |   |      |                     |  |   |               |   |  |   | 688    |  
|                                       |  |                |      |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|Total Maturity Distribution            |  | $              | 5    |   |                   | $ | 1,982 |                     |  | $ | 20,866         |   |  | $ | 31,724 |  
|                                       |  |                |      |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|Weighted Average Yield                 |  |                |      |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|U. S. Agency issues                    |  |                | 3.45 | % |                   |   | 4.24  | %                   |  |   | 3.85           | % |  |   | 4.53   | %
|Other corporate issues                 |  |                |     |   |                   |   |      |                     |  |   |               |   |  |   | 5.00   | %
|Federal Reserve Bank stock             |  |                |     |   |                   |   |      |                     |  |   |               |   |  |   | 6.00   | %
|                                       |  |                |      |   |                   |   |       |                     |  |   |                |   |  |   |        |  
|Total Portfolio Weighted Average Yield |  |                | 3.45 | % |                   |   | 4.24  | %                   |  |   | 3.85           | % |  |   | 4.59   | %
|                                       |  |                |      |   |                   |   |       |                     |  |   |                |   |  |   |        |  



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 $215.0 million at December 31, 2003, a decrease of 10.1% from December 31, 2002. Net loans increased each year for the four years ended December 31, 2002.



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



|                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|------------------------------------ |  | ----------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                     |  | December 31 |        
|(In thousands)                       |  | 2003        |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |       
|Mortgage loans                       |  | $           | 85,216  |   |      | $ | 167,030 |      |  | $ | 139,511 |   |  | $    | 52,791 |   |  | $ | 11,459 |  
|Commercial real estate               |  |             | 94,924  |   |      |   | 53,391  |      |  |   | 10,918  |   |  |      | 15,133 |   |  |   | 7,978  |  
|Construction and land loans          |  |             | 17,396  |   |      |   | 3,926   |      |  |   | 0       |   |  |      | 0      |   |  |   | 0      |  
|                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|Total real estate loans              |  |             | 197,536 |   |      |   | 224,347 |      |  |   | 150,429 |   |  |      | 67,924 |   |  |   | 19,437 |  
|Commercial business loans            |  |             | 15,466  |   |      |   | 15,446  |      |  |   | 24,614  |   |  |      | 9,987  |   |  |   | 3,493  |  
|Consumer loans                       |  |             | 5,055   |   |      |   | 2,617   |      |  |   | 1,120   |   |  |      | 714    |   |  |   | 96     |  
|Overdrafts                           |  |             | 21      |   |      |   | 13      |      |  |   | 292     |   |  |      | 92     |   |  |   | 0      |  
|                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|Total loans receivable               |  |             | 218,078 |   |      |   | 242,423 |      |  |   | 176,455 |   |  |      | 78,717 |   |  |   | 23,026 |  
|                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|Less:                                |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|Deferred fees and unearned discounts |  |             | (39     | ) |      |   | (168    | )    |  |   | (16     | ) |  |      | 69     |   |  |   | (23    | )
|Allowance for loan losses            |  |             | (3,057  | ) |      |   | (3,499  | )    |  |   | (1,391  | ) |  |      | (466   | ) |  |   | (161   | )
|                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|Total loans receivable, net          |  | $           | 214,982 |   |      | $ | 239,092 |      |  | $ | 175,080 |   |  | $    | 78,320 |   |  | $ | 22,842 |  
|                                     |  |             |         |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  



The changes in our
loan portfolio reflect our strategy of increasing commercial business, commercial real estate and construction loans. At December 31, 2003, these three categories totaled $127.8 million or 58.6% of total loans receivable, compared to $72.8 million,
or 30.1% of total loans receivable at December 31, 2002. At December 31, 2003, residential mortgage loans were $85.2 million, which represented 39.1% of total loans receivable, compared to $167.0 million at December 31, 2002, or 68.9% of total loans
receivable. The dollar amount of Millenniums residential mortgage loans decreased in 2003 due to reduced mortgage lending as we restructured Millennium Capital and our increased emphasis on selling mortgage loans as quickly as possible after
the loans close.



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##### Table of Contents

The following table shows the contractual maturity of selected categories of loans at December 31, 2003.
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, 2003                     
|(In thousands)   |  | Commercial, Financial and Agricultural |        | Real Estate/ Construction
|Within 1 year    |  | $                                      | 7,646  |                           | $ | 18,357 
|                 |  |                                        |        |                           |   |        
|Variable Rate:   |  |                                        |        |                           |   |        
|1 to 5 years     |  |                                        | 4,085  |                           |   | 17,504 
|After 5 years    |  |                                        | 2,541  |                           |   | 58,100 
|                 |  |                                        |        |                           |   |        
|Total            |  | $                                      | 6,626  |                           | $ | 75,604 
|                 |  |                                        |        |                           |   |        
|Fixed Rate:      |  |                                        |        |                           |   |        
|1 to 5 years     |  |                                        | 1,151  |                           |   | 8,353  
|After 5 years    |  |                                        | 43     |                           |   | 10,006 
|                 |  |                                        |        |                           |   |        
|Total            |  | $                                      | 1,194  |                           | $ | 18,359 
|                 |  |                                        |        |                           |   |        
|Total Maturities |  | $                                      | 15,466 |                           | $ | 112,320
|                 |  |                                        |        |                           |   |        



Asset Quality



General



Asset quality is an important factor in the successful operation of a financial institution. Banking regulations require us
to classify our 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, we are 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.



Non-Performing Assets



We had $146,000 in non-accrual loans at December 31, 2003, compared to $548,000 at December 31, 2002. On the basis of
managements review of its assets, at December 31, 2003, Millennium had classified $3.6 million of its assets as substandard $755,000 as doubtful and $144,000 as loss.



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##### Table of Contents

The following table details information concerning non-accrual, past due and restructured loans at the
dates indicated:



|                                                           |  |             |     |      |   |      |  |      |   |      |   |   |  |   |  
|---------------------------------------------------------- |  | ----------- | --- | ---- | - | ---- |  | ---- | - | ---- | - | - |  | - | -
|                                                           |  | December 31
|(In thousands)                                             |  | 2003        |     | 2002 |   | 2001 |  | 2000 |   | 1999
|Non-accrual loans                                          |  | $           | 146 |      | $ | 548  |  | $    | 0 |      | $ | 0 |  | $ | 0
|Foreclosed properties                                      |  |             | 0   |      |   | 0    |  |      | 0 |      |   | 0 |  |   | 0
|Restructured loans                                         |  |             | 0   |      |   | 0    |  |      | 0 |      |   | 0 |  |   | 0
|                                                           |  |             |     |      |   |      |  |      |   |      |   |   |  |   |  
|Total non-performing assets                                |  | $           | 146 |      | $ | 548  |  | $    | 0 |      | $ | 0 |  | $ | 0
|                                                           |  |             |     |      |   |      |  |      |   |      |   |   |  |   |  
|Loans past due 90 days or more and still accruing interest |  | $           | 164 |      | $ | 72   |  | $    | 0 |      | $ | 0 |  | $ | 0
|                                                           |  |             |     |      |   |      |  |      |   |      |   |   |  |   |  



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 anticipated losses 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)                                                          |  | 2003                   |       |   | 2002 |   |       | 2001 |  |   | 2000  |   |  | 1999 |     
|Balance, beginning of period                                            |  | $                      | 3,499 |   |      | $ | 1,391 |      |  | $ | 466   |   |  | $    | 161  |   |  | $ | 0    |  
|Less Charge-offs:                                                      |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |      |   |  |   |      |  
|Commercial                                                              |  |                        | 160   |   |      |   | 971   |      |  |   | 0     |   |  |      | 0    |   |  |   | 0    |  
|Real estate-mortgage                                                    |  |                        | 981   |   |      |   | 217   |      |  |   | 96    |   |  |      | 0    |   |  |   | 0    |  
|Consumer installment loans                                              |  |                        | 0     |   |      |   | 0     |      |  |   | 0     |   |  |      | 0    |   |  |   | 0    |  
|Plus Recoveries:                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |      |   |  |   |      |  
|Commercial                                                              |  |                        | 0     |   |      |   | 0     |      |  |   | 0     |   |  |      | 0    |   |  |   | 0    |  
|Real estate-mortgage                                                    |  |                        | 12    |   |      |   | 43    |      |  |   | 1     |   |  |      | 0    |   |  |   | 0    |  
|Consumer installment loans                                              |  |                        | 0     |   |      |   | 0     |      |  |   | 0     |   |  |      | 0    |   |  |   | 0    |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |      |   |  |   |      |  
|Net Charge-offs                                                         |  |                        | 1,141 |   |      |   | 1,145 |      |  |   | 95    |   |  |      | 0    |   |  |   | 0    |  
|Additions charged to operating expense                                  |  |                        | 687   |   |      |   | 3,253 |      |  |   | 1,020 |   |  |      | 305  |   |  |   | 161  |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |      |   |  |   |      |  
|Balance, end of period                                                  |  | $                      | 3,057 |   |      | $ | 3,499 |      |  | $ | 1,391 |   |  | $    | 466  |   |  | $ | 161  |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |      |   |  |   |      |  
|Ratio of net charge-offs to average loans outstanding during the period |  |                        | .52   | % |      |   | .52   | %    |  |   | .09   | % |  |      | 0.00 | % |  |   | 0.00 | %



The allowance for loan
losses at December 31, 2003, was $3.1 million, compared to $3.5 million at December 31, 2002. The provision for loan losses for 2003 was $687,000, a decrease of $2.6 million from $3.3 million for the period ended December 31, 2002. The large
provision for loan losses in 2002 reflected $770,000 in anticipated loan losses in connection with a failed mortgage banking joint venture. We also increased our allowance in 2002 because we concluded that additional reserves were required against
approximately $11.0 million in second mortgage loans that we could not sell in the secondary mortgage market. Finally, significant charge-offs in 2002 required additional provisions to make sure our allowance remained adequate.



The allowance for loan losses was 1.4% of total loans outstanding at December
31, 2003. Net charge-offs as a percentage of loans were .52% for both December 31, 2003 and 2002. The $981,000 in real estate mortgage loans charged off included $409,000 in loans to our partner in a failed mortgage banking joint venture. The
remainder consisted of second mortgage loans we previously had sold that we were required to repurchase. All of those second mortgage loans were more than 90 days delinquent when we repurchased them. There were $164,000 loans past due 90 days or
more at December 31, 2003. Management believes the allowance for loan losses is adequate to cover credit losses anticipated or inherent in the loan portfolio at December 31, 2003.



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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
|                              |  | 2003        |   | 2002
|(Dollars in thousands)        |  | Percent     |   |      | Amount |       | Percent |       |   | Amount
|Loans secured by real estate: |  |             |   |      |        |       |         |       |   |        |   |      
|Construction/land development |  | 4.8         | % |      | $      | 143   |         | 0.0   | % |        | $ | 0    
|1  4 family residential      |  | 53.3        | % |      |        | 1,595 |         | 53.5  | % |        |   | 1,873
|Multi-family residential      |  | 0.3         | % |      |        | 9     |         | 0.0   | % |        |   | 0    
|Non-farm, non-residential     |  | 26.6        | % |      |        | 792   |         | 19.2  | % |        |   | 673  
|Loans to farmers              |  | 0.0         | % |      |        | 0     |         | 0.0   | % |        |   | 0    
|Commercial and industrial     |  | 13.6        | % |      |        | 407   |         | 27.1  | % |        |   | 948  
|Loans to individuals          |  | 1.4         | % |      |        | 41    |         | 0.2   | % |        |   | 5    
|                              |  |             |   |      |        |       |         |       |   |        |   |      
|Total                         |  | 100.0       | % |      | $      | 2,987 |         | 100.0 | % |        | $ | 3,499



|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    
|----------------------------- |  | ----------- | - | ---- | ------ | ----- | ------- | ----- | - | ------ | - | ------- |  | ----- | ------ |  | - | ---
|                              |  | December 31
|                              |  | 2001        |   | 2000 |        | 1999 
|(Dollars in thousands)        |  | Percent     |   |      | Amount |       | Percent |       |   | Amount |   | Percent |  |       | Amount
|Loans secured by real estate: |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    
|Construction/land development |  | 0.0         | % |      | $      | 0     |         | 0.0   | % |        | $ | 0       |  | 0.0   | %      |  | $ | 0  
|1  4 family residential      |  | 85.4        | % |      |        | 1,188 |         | 75.8  | % |        |   | 353     |  | 46.0  | %      |  |   | 74 
|Multi-family residential      |  | 0.0         | % |      |        | 0     |         | 0.0   | % |        |   | 0       |  | 0.0   | %      |  |   | 0  
|Non-farm, non-residential     |  | 11.3        | % |      |        | 157   |         | 13.3  | % |        |   | 62      |  | 37.3  | %      |  |   | 60 
|Loans to farmers              |  | 0.0         | % |      |        | 0     |         | 0.0   | % |        |   | 0       |  | 0.0   | %      |  |   | 0  
|Commercial and industrial     |  | 2.7         | % |      |        | 38    |         | 9.2   | % |        |   | 43      |  | 16.2  | %      |  |   | 26 
|Loans to individuals          |  | 0.6         | % |      |        | 8     |         | 1.7   | % |        |   | 8       |  | 0.5   | %      |  |   | 1  
|                              |  |             |   |      |        |       |         |       |   |        |   |         |  |       |        |  |   |    
|Total                         |  | 100.0       | % |      | $      | 1,391 |         | 100.0 | % |        | $ | 466     |  | 100.0 | %      |  | $ | 161



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. Commissions from purchases and sales of securities for customers represented less than 5% of total non-interest income in 2003. The following table presents information on
the sources and amounts of non-interest income.



|                                      |  |             |       |      |   |       |  |   |      
|------------------------------------- |  | ----------- | ----- | ---- | - | ----- |  | - | -----
|                                      |  | December 31
|Non Interest Income                   |  | 2003        |       | 2002 |   | 2001 
|(In thousands)                        |  |             |       |      |   |      
|Service charges, commissions and fees |  | $           | 172   |      | $ | 350   |  | $ | 94   
|Mortgage banking operations income    |  |             | 3,191 |      |   | 2,921 |  |   | 5,138
|Other income                          |  |             | 1,145 |      |   | 189   |  |   | 164  
|                                      |  |             |       |      |   |       |  |   |      
|Total                                 |  | $           | 4,508 |      | $ | 3,460 |  | $ | 5,396
|                                      |  |             |       |      |   |       |  |   |      



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##### Table of Contents

For 2003, non-interest income increased to $4.5 million, compared to $3.5 million for 2002 and $5.3
million for 2001. A large component of other non-interest income for 2003 was $452,000 in net securities gains. Service charges on deposit accounts for 2003 totaled $172,000, compared to $155,000 in 2002, an increase of $17,000. This increase is
attributable to the opening of three new branches in 2002 and increased service charges on accounts. Income on loans sold increased to $3.2 million in 2003 from $2.9 million in 2002. Net gains from the sale of mortgage loans decreased $2.2 million
in 2002 as compared to 2001. Fees and estimated gains and losses on loans held for sale in 2002 were revised in the amended and restated Quarterly Report on Form 10-QSB for the period ended March 31, 2002. In the second quarter of 2002, we
recognized the need to reduce the carrying value of mortgage loans held for sale, together with related gains. Of a total pre-tax adjustment of $2.3 million, $1.4 million was recorded in the first quarter of 2002, as we could not determine the
amount of that adjustment that was applicable to prior periods. For more information on our mortgage banking operations, see Item 1. BusinessOne-to-Four-Family Residential Real Estate Lending above. During the first six months of
2003, mortgage banking income increased due to the high volume of refinancing. During the remainder of 2003, this income declined, as mortgage loan refinancings declined due to higher interest rates on mortgage loans. Management continues to review
alternative methods, such as service fees, SBA lending and sales and increased activities at the brokerage subsidiary that may provide non-interest income.



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



|                                                          |  |             |         |            |        |   |        |   |            |  |        |  
|--------------------------------------------------------- |  | ----------- | ------- | ---------- | ------ | - | ------ | - | ---------- |  | ------ | -
|                                                          |  | December 31 |        
|                                                          |  | 2003        |         |            | 2002   |  
|(Dollars in thousands)                                    |  | Amount      |         | % of Total |        |   | Amount |   | % of Total | 
|Mortgage Loans Originated and Purchased                   |  |             |         |            |        |   |        |   |            |  |        |  
|Fixed Rate                                                |  |             |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  | $           | 161,595 |            | 71.88  | % |        | $ | 276,469    |  | 71.18  | %
|Second Mortgage                                           |  |             | 11,695  |            | 5.20   | % |        |   | 65,808     |  | 16.94  | %
|Adjustable Rate                                           |  |             |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  |             | 51,392  |            | 22.86  | % |        |   | 46,142     |  | 11.88  | %
|Second Mortgage                                           |  |             | 132     |            | 0.06   | % |        |   | 0          |  | 0.00   | %
|                                                          |  |             |         |            |        |   |        |   |            |  |        |  
|Total Residential Mortgage Loans Originated and Purchased |  | $           | 224,814 |            | 100.00 | % |        | $ | 388,419    |  | 100.00 | %
|                                                          |  |             |         |            |        |   |        |   |            |  |        |  
|                                                          |  |             |         |           
|Mortgage Loans Sold                                       |  |             |         |            |        |   |        |   |            |  |        |  
|Fixed Rate                                                |  |             |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  | $           | 160,809 |            | 71.95  | % |        | $ | 269,404    |  | 73.34  | %
|Second Mortgage                                           |  |             | 11,501  |            | 5.15   | % |        |   | 53,839     |  | 14.66  | %
|Adjustable Rate                                           |  |             |         |            |        |   |        |   |            |  |        |  
|First Mortgage                                            |  |             | 51,052  |            | 22.84  | % |        |   | 44,107     |  | 12.00  | %
|Second Mortgage                                           |  |             | 132     |            | 0.06   | % |        |   | 0          |  | 0.00   | %
|                                                          |  |             |         |            |        |   |        |   |            |  |        |  
|Total Mortgage Loans Sold                                 |  | $           | 223,494 |            | 100.00 | % |        | $ | 367,350    |  | 100.00 | %
|                                                          |  |             |         |            |        |   |        |   |            |  |        |  



We make mortgage loans
through Millennium Bank and its majority owned operating subsidiaries. In the year ended December 31, 2003, 2.3% of our residential mortgage loan production came from our non-banking operating subsidiaries. Each operating subsidiarys loan
production consists primarily of loans to consumers acquired through the Internet, direct mail and brokers. In each case the minority shareholder may terminate its relationship with us on six months notice. Our remaining residential mortgage loan
production comes from Millennium Bank.



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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.



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



Total non-interest expense includes employee-related costs, occupancy and equipment expense and other overhead. For the year
ended December 31, 2003, non-interest expenses were $12.0 million, compared to $13.7 million for the year ended December 31, 2002. Salaries and benefits expense decreased 17.3% from $7.5 million for 2002 to $6.2 million for 2003. The decrease in
salaries and benefits for 2003 was due to a decrease in commissions paid to mortgage loan officers, staff reductions, and an increased amount taken as a credit against salaries under FASB 91 on commercial loans. Occupancy increased $300,000, or
15.8%, from $1.9 million for the year ended December 31, 2002 to $2.2 million for the same period in 2003. We operated three more branches during all of 2003. In 2002, we opened a new branch in each of the second, third and fourth quarters. This
contributed to increases in salary and benefits as well as increases in occupancy and equipment expenses. Other operating expenses (consisting of marketing, professional fees and administrative expense) declined to $3.5 million in the year ended
December 31, 2003 from $4.0 million for the same period in 2002. Litigation expenses were $574,000 for the year ended December 31, 2003, compared to $426,000 in the year ended December 31, 2002. The litigation expenses were from two lawsuits, each
of which was settled in the third quarter of 2003. At this time, we are not involved in any material litigation.



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|                                 |  |             |        |      |   |        |  |   |      
|-------------------------------- |  | ----------- | ------ | ---- | - | ------ |  | - | -----
|                                 |  | December 31
|Non Interest Expense             |  | 2003        |        | 2002 |   | 2001  
|( In thousands)                  |  |             |        |      |   |       
|Salary and benefits              |  | $           | 6,172  |      | $ | 7,539  |  | $ | 5,045
|Occupancy                        |  |             | 994    |      |   | 887    |  |   | 486  
|Furniture, equipment & computers |  |             | 1,238  |      |   | 1,009  |  |   | 608  
|Litigation expenses (1)          |  |             | 574    |      |   | 426    |  |   |     
|Marketing fees                   |  |             | 92     |      |   | 250    |  |   | 232  
|Professional fees (2)            |  |             | 137    |      |   | 620    |  |   | 194  
|Administrative expense           |  |             | 2,783  |      |   | 2,959  |  |   | 1,379
|                                 |  |             |        |      |   |        |  |   |      
|Total                            |  | $           | 11,990 |      | $ | 13,690 |  | $ | 7,944
|                                 |  |             |        |      |   |        |  |   |      

---

|(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 $497,000 for the year ended December 31, 2003. The income tax benefit for 2002 was $1.8 million.



As of December 31, 2003 we have approximately $1.3 million of
net operating losses available, which expire in 2022. In addition to federal income taxes the bank pays a Virginia state franchise tax. The franchise tax was $229,178, $102,655, and $64,587 for the years ended December 31, 2003, 2002, and 2001,
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. Millennium has employed alternative methods of gathering deposits to fund our mortgage loan operations, including 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 180 day certificates of
deposits, which 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 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 and brokered deposits. Millenniums principal use of deposits is to originate loans and fund
investment securities.



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At December 31, 2003, deposits were $272.1 million, an increase of 5.26% from $258.5 million at December
31, 2002. The deposit growth is a reflection of branch office growth, aggressive pricing, marketing and 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
|(In thousands)          |  | 2003        |         | 2002 |   | 2001   
|Savings accounts        |  | $           | 1,504   |      | $ | 1,139   |  | $ | 341    
|Demand deposit accounts |  |             | 19,150  |      |   | 13,912  |  |   | 26,708 
|NOW accounts            |  |             | 9,663   |      |   | 7,889   |  |   | 5,222  
|Money market accounts   |  |             | 124,300 |      |   | 142,514 |  |   | 34,875 
|CDs less than $100K    |  |             | 49,572  |      |   | 46,142  |  |   | 31,885 
|CDs greater than $100K |  |             | 67,924  |      |   | 46,913  |  |   | 89,536 
|                        |  |             |         |      |   |         |  |   |        
|Total                   |  | $           | 272,113 |      | $ | 258,509 |  | $ | 188,567
|                        |  |             |         |      |   |         |  |   |        



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 |        
|                              |  | 2003                    |         |                   | 2002 |   |                 | 2001 |                  
|(Dollars in thousands)        |  | Average Balance         |         | Average Rate Paid |      |   | Average Balance |      | Average Rate Paid |  |      | Average Balance |  | Average Rate Paid |        
|Non-interest bearing          |  |                         |         |                   |      |   |                 |      |                   |  |      |                 |  |                   |         |  |      |  
|Demand deposits               |  | $                       | 16,444  |                   | 0.00 | % |                 | $    | 13,312            |  | 0.00 | %               |  | $                 | 12,613  |  | 0.00 | %
|Interest bearing              |  |                         |         |                   |      |   |                 |      |                   |  |      |                 |  |                   |         |  |      |  
|NOW accounts                  |  |                         | 8,855   |                   | 0.88 | % |                 |      | 6,490             |  | 1.53 | %               |  |                   | 3,560   |  | 2.84 | %
|Savings/Money Market accounts |  |                         | 137,106 |                   | 1.69 | % |                 |      | 110,409           |  | 3.01 | %               |  |                   | 19,118  |  | 4.40 | %
|Time deposits                 |  |                         | 107,081 |                   | 3.80 | % |                 |      | 105,474           |  | 4.13 | %               |  |                   | 75,658  |  | 5.47 | %
|                              |  |                         |         |                   |      |   |                 |      |                   |  |      |                 |  |                   |         |  |      |  
|Total deposits                |  | $                       | 269,486 |                   | 2.39 | % |                 | $    | 235,685           |  | 3.28 | %               |  | $                 | 110,949 |  | 4.58 | %
|                              |  |                         |         |                   |      |   |                 |      |                   |  |      |                 |  |                   |         |  |      |  



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.



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The following table sets forth the deposit flows of Millennium during the periods indicated.



|                       |  |                        |         |   |      |   |         |      |  |   |         |  
|---------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                       |  | Year Ended December 31 |        
|(Dollars in thousands) |  | 2003                   |         |   | 2002 |   |         | 2001 | 
|Opening balance        |  | $                      | 258,509 |   |      | $ | 188,567 |      |  | $ | 71,343  |  
|Net deposits           |  |                        | 6,634   |   |      |   | 62,030  |      |  |   | 111,817 |  
|Interest credited      |  |                        | 6,970   |   |      |   | 7,912   |      |  |   | 5,407   |  
|                       |  |                        |         |   |      |   |         |      |  |   |         |  
|Ending balance         |  | $                      | 272,113 |   |      | $ | 258,509 |      |  | $ | 188,567 |  
|                       |  |                        |         |   |      |   |         |      |  |   |         |  
|Net increase           |  | $                      | 13,604  |   |      | $ | 69,942  |      |  | $ | 117,225 |  
|                       |  |                        |         |   |      |   |         |      |  |   |         |  
|Percent increase       |  |                        | 5.26    | % |      |   | 37.1    | %    |  |   | 164.3   | %
|                       |  |                        |         |   |      |   |         |      |  |   |         |  



The following table
indicates the amount of Millenniums certificates of deposits by time remaining until maturity as of December 31, 2003:



|                                            |  |                  |        |                    |   |                     |  |                |        |       |   |        |  |   |        
|------------------------------------------- |  | ---------------- | ------ | ------------------ | - | ------------------- |  | -------------- | ------ | ----- | - | ------ |  | - | -------
|                                            |  | Maturity        
|(In thousands)                              |  | 3 Months or less |        | Over 3 to 6 months |   | Over 6 to 12 months |  | Over 12 months |        | Total
|Certificates of deposit less than $100,000  |  | $                | 7,249  |                    | $ | 3,130               |  | $              | 8,777  |       | $ | 30,416 |  | $ | 49,572 
|Certificates of deposit of $100,000 or more |  |                  | 9,793  |                    |   | 9,662               |  |                | 3,784  |       |   | 44,685 |  |   | 67,924 
|                                            |  |                  |        |                    |   |                     |  |                |        |       |   |        |  |   |        
|Total certificates of deposits              |  | $                | 17,042 |                    | $ | 12,792              |  | $              | 12,561 |       | $ | 75,101 |  | $ | 117,496
|                                            |  |                  |        |                    |   |                     |  |                |        |       |   |        |  |   |        



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, 2003, and December 31, 2002, $10.4 million and $13.4 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, 2003, and December 31, 2002, Millennium had $111,798 and
$407,045, 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.



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##### Table of Contents

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.



|                                               |  |                        |        |      |   |        |  |   |      
|---------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | - | -----
|                                               |  | Year Ended December 31
|(Dollars in thousands)                         |  | 2003                   |        | 2002 |   | 2001  
|Maximum Balance:                               |  |                        |        |      |   |        |  |   |      
|FHLB advances                                  |  | $                      | 23,400 |      | $ | 24,800 |  | $ | 9,950
|Federal funds purchased                        |  |                        | 7,290  |      |   | 11,613 |  |   | 6,665
|Trust preferred securities                     |  |                        | 8,000  |      |   | 8,000  |  |   | 0    
|Securities sold under agreements to repurchase |  |                        | 1,151  |      |   | 1,676  |  |   | 0    



|                                               |  |                 |        |                       |      |   |                 |   |                       |  |      |                 |  |                       |       |  |      |  
|---------------------------------------------- |  | --------------- | ------ | --------------------- | ---- | - | --------------- | - | --------------------- |  | ---- | --------------- |  | --------------------- | ----- |  | ---- | -
|                                               |  | Average Balance |        | Weighted Average Rate |      |   | Average Balance |   | Weighted Average Rate |  |      | Average Balance |  | Weighted Average Rate |      
|FHLB advances                                  |  | $               | 14,875 |                       | 1.78 | % |                 | $ | 8,164                 |  | 2.09 | %               |  | $                     | 4,101 |  | 4.54 | %
|Federal funds purchased                        |  |                 | 3,381  |                       | 1.69 | % |                 |   | 2,631                 |  | 2.17 | %               |  |                       | 2,012 |  | 4.13 | %
|Trust preferred securities                     |  |                 | 8,000  |                       | 5.73 | % |                 |   | 3,901                 |  | 6.31 | %               |  |                       | 0     |  | 0.00 | %
|Securities sold under agreements to repurchase |  |                 | 813    |                       | 0.25 | % |                 |   | 874                   |  | 0.46 | %               |  |                       | 784   |  | 1.91 | %



The following table
sets forth the balances of Millenniums short-term borrowings at the dates indicated.



|                                                                                 |  |             |       |   |      |   |        |      |  |   |       |  
|-------------------------------------------------------------------------------- |  | ----------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                                                 |  | December 31 |      
|(Dollars in thousands)                                                           |  | 2003        |       |   | 2002 |   |        | 2001 | 
|FHLB advances                                                                    |  | $           | 400   |   |      | $ | 13,000 |      |  | $ | 0     |  
|Federal funds purchased                                                          |  |             | 5,516 |   |      |   | 8,936  |      |  |   | 2,640 |  
|Securities sold under agreements to repurchase                                   |  |             | 112   |   |      |   | 407    |      |  |   | 0     |  
|                                                                                 |  |             |       |   |      |   |        |      |  |   |       |  
|Total short-term borrowings                                                      |  | $           | 6,028 |   |      | $ | 22,343 |      |  | $ | 2,640 |  
|                                                                                 |  |             |       |   |      |   |        |      |  |   |       |  
|Weighted average interest rate of short-term FHLB advances                       |  |             | 6.48  | % |      |   | 1.83   | %    |  |   | 0.00  | %
|Weighted average interest rate of securities sold under agreements to repurchase |  |             | 0.25  | % |      |   | 0.50   | %    |  |   | 0.50  | %
|Weighted average interest rate of other borrowings                               |  |             | 1.33  | % |      |   | 1.38   | %    |  |   | 6.48  | %
|                                                                                 |  |             |       |   |      |   |        |      |  |   |       |  



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.



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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 years ended December 31, 2003 and
2002, operating activities absorbed approximately $39.8 million and $13.1 respectively while investing activities absorbed approximately $(49.9) million and $(113.6) million, respectively. For the year ended December 31, 2003, investing activities
were a result of a net increase in loans of $12.9 million, net increase in federal funds sold of $0.6 million and net increase in investment securities of $36.7 million. For the year ended December 31, 2002, investing activities were a result of a
net increase in loans of $80.0 million, net decrease in federal funds sold of $9.7 million, and an increase in net investment securities of $41.7 million. In addition, for the years ended December 31, 2003 and 2002, financing activities provided
$7.4 and $104.7 million, respectively. 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. For the period ended December 31,2002 financing activities were a result of net proceeds from the issuance of common stock of $7.0 million, a net increase in deposits of approximately $69.9 million, issuance
of trust preferred of $8.0 million, increase in Federal Home Loan Bank advances of $13.0 million, and an increase in federal funds purchased and repurchase agreements of $6.7 million.



Millennium uses its sources of funds primarily to meet operating needs, to pay deposit withdrawals and fund loan
commitments. At December 31, 2003 and December 31, 2002 total approved loan commitments were $25.8 million and $20.3 million respectively. Certificates of deposit scheduled to mature in one year or less at December 31, 2003, totaled $29.8 million.



At December 31, 2003, we had a borrowing limit of $31.3
million with the Federal Home Loan Bank. Our outstanding borrowings from the Federal Home Loan Bank totaled $10.4 million at December 31, 2003, which leaves an additional borrowing capacity of $20.9 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 $11.1 million secured and $8.7 million unsecured. Our outstanding borrowings from the Community Bankers Bank totaled
$5.5 million at December 31, 2003, with remaining available lines of credit of $14.3 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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##### Table of Contents

Millennium Bankshares and Millennium Bank are subject to regulatory capital requirements of the Federal
Reserve. At December 31, 2003, Millennium exceeded all such regulatory capital requirements as shown in the following table.



|                                                |  |                                   |         |   |                 |   |         |  
|----------------------------------------------- |  | --------------------------------- | ------- | - | --------------- | - | ------- | -
|                                                |  | December 31, 2003                 |        
|(Dollars in thousands)                          |  | Millennium Bankshares Corporation |         |   | Millennium Bank |  
|Tier 1 Capital:                                 |  |                                   |         |   |                 |   |         |  
|Common stock                                    |  | $                                 | 18,214  |   |                 | $ | 12,300  |  
|Capital surplus                                 |  |                                   | 599     |   |                 |   | 12,300  |  
|Trust preferred securities(1)                   |  |                                   | 4,159   |   |                 |   | 0       |  
|Retained earnings                               |  |                                   | (2,176  | ) |                 |   | (1,203  | )
|                                                |  |                                   |         |   |                 |   |         |  
|Disallowed intangible assets                    |  |                                   | 0       |   |                 |   | 0       |  
|                                                |  |                                   |         |   |                 |   |         |  
|Total Tier 1 Capital                            |  | $                                 | 20,796  |   |                 | $ | 23,097  |  
|                                                |  |                                   |         |   |                 |   |         |  
|Tier 2 Capital:                                 |  |                                   |         |   |                 |   |         |  
|Allowance for loan losses(2)                    |  |                                   | 2,676   |   |                 |   | 2,666   |  
|Trust preferred securities                      |  |                                   | 3,841   |   |                 |   | 0       |  
|                                                |  |                                   |         |   |                 |   |         |  
|Total Tier 2 Capital                            |  |                                   | 6,517   |   |                 |   | 2,666   |  
|                                                |  |                                   |         |   |                 |   |         |  
|Total Risk Based Capital                        |  | $                                 | 27,313  |   |                 | $ | 25,763  |  
|Risk Weighted Assets                            |  | $                                 | 213,717 |   |                 | $ | 212,920 |  
|                                                |  |                                  
|Capital Ratios:                                 |  |                                   |         |   |                 |   |         |  
|Tier 1 Risk-based                               |  |                                   | 9.73    | % |                 |   | 10.85   | %
|Total Risk-based                                |  |                                   | 12.78   | % |                 |   | 12.10   | %
|Tier 1 Capital to average adjusted total assets |  |                                   | 6.65    | % |                 |   | 7.40    | %
|                                                |  |                                   |         |   |                 |   |         |  

---

|(1) | Limited to 25% of risk weighted assets. 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, 2003(in thousands)   |  | Less than 1 year   |       | Greater than 1 year to 3 years |   | Greater than 3 years to 5 years |  | Greater than 5 years |       | Total
|Standby letters of credit         |  | $                  | 1,814 |                                | $ |                                |  | $                    |      |       | $ |       |  | $ | 1,814 
|Commitments to extend credit      |  |                    | 5,523 |                                |   | 3,594                           |  |                      | 1,109 |       |   | 13,772 |  |   | 23,998
|Mortgage Banking Commitments:     |  |                    |       |                                |   |                                 |  |                      |       |       |   |        |  |   |       
|Rate lock commitments             |  |                    | 8,656 |                                |   |                                |  |                      |      |       |   |       |  |   | 8,656 
|Mandatory forward sales contracts |  |                    | 3,380 |                                |   |                                |  |                      |      |       |   |       |  |   | 3,380 



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. 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, 2003
|December 31, 2003(in thousands) |  | Less than 1 year                           |         | Greater than 1 year to 3 years |   | Greater than 3 years to 5 years |  | Greater than 5 years |        | Total
|Deposits                        |  | $                                          | 197,012 |                                | $ | 49,554                          |  | $                    | 24,176 |       | $ | 1,371 |  | $ | 272,113
|FHLB Borrowings                 |  |                                            | 400     |                                |   | 5,000                           |  |                      | 5,000  |       |   |      |  |   | 10,400 
|Lease commitments               |  |                                            | 251     |                                |   | 481                             |  |                      | 190    |       |   | 13    |  |   | 935    
|                                |  |                                            |         |                                |   |                                 |  |                      |        |       |   |       |  |   |        
|Total                           |  | $                                          | 197,663 |                                | $ | 55,035                          |  | $                    | 29,366 |       | $ | 1,384 |  | $ | 283,448
|                                |  |                                            |         |                                |   |                                 |  |                      |        |       |   |       |  |   |        



Deposits represent non
interest bearing, money market, savings, NOW, certificates of deposits, brokered and all other deposits held by us. 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 us can prepay these advances without a penalty. Management does not believe these advances will be
converted in the near term.



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



Impact
of Inflation and Changing Prices and Seasonality



The
financial statements that are included in this prospectus 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.



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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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  | the successful management of interest rate risk;
| | - | ------------------------------------------------



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



| |  | changes in interest rates and interest rate policies;
| | - | -----------------------------------------------------



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



| |  | 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;
| | - | ----------------------------------------------------------------



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



| |  | changing trends in customer profiles and behavior; 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:



|                                                                                                         
|---------------------------------------------------------------------------------------------------------
|Independent Auditors Report                                                                             
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                             
|Consolidated Statements of Income for the Years Ended December 31, 2003 and 2002                         
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2003 and 2002
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and 2002                     
|Notes to Consolidated Financial Statements                                                               



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



On February 27, 2004, we notified Thompson, Greenspon & Co., P.C. that it would be dismissed as our independent
accounting firm after completion of the audit of our financial statements for the fiscal year ended December 31, 2003. The decision to change the independent accounting firm followed a competitive bidding process, in which Thompson Greenspon
participated, to choose a firm to audit our financial statements for the year ending December 31, 2004. Our board of directors and audit committee has appointed Crowe, Chizek and Company, LLC, independent certified public accountants, to perform the
audit of our financial statements for the year ending December 31, 2004. The appointment of Crowe Chizek will be effective following the completion of the 2003 fiscal year audit. We previously disclosed these changes to the Securities and Exchange
Commission on a Current Report on Form 8-K dated February 27, 2004.



|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 our management to allow timely decisions regarding required disclosures.



As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. 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.



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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 2004 Annual Meeting of Shareholders 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
2004 Annual Meeting of Shareholders 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
2004 Annual Meeting of Shareholders is incorporated herein by reference.



|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
2004 Annual Meeting of Shareholders is incorporated herein by reference.



|ITEM 13. | EXHIBITS, LIST AND REPORTS ON FORM 8-K
|-------- | --------------------------------------



(a) 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.                                                                                                                                                            



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##### Table of Contents

|     |  |                                                                                                                                                                                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2  |  | Form of Warrant Agreement, attached as Exhibit 4.2 to the Form SB-2, incorporated herein by reference.                                                                                                                                                                     
|     | 
|10.1 |  | Employment Contract, dated as of February 8, 2001, between Millennium Bankshares Corporation, Millennium Bank and Carroll C. Markley, attached as Exhibit 10.1 to the Form SB-2, incorporated
herein by reference.                                                         
|     | 
|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 between Millennium Bank and Janet A. Valentine, dated July 29, 2002, attached as Exhibit 10.1 to the Quarterly Report on Form 10-QSB for the period ended
September 30, 2002, incorporated herein by reference.                             
|     | 
|10.5 |  | Executive Employment Agreement between Millennium Bank and Anita L. Shull, dated July 29, 2002, attached as Exhibit 10.7 to the Annual Report on Form 10-KSB for the year ended December 31,
2002 (the 2002 Form 10-KSB), incorporated herein by reference.              
|     | 
|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 |  | Amendment to Employment Agreement of Carroll C. Markley dated November 13, 2003, attached as Exhibit 10.1 to the Quarterly Report on Form 10-QSB for the period ended September 30, 2003,
incorporated herein by reference.                                                
|     | 
|21   |  | List of Subsidiaries, attached as Exhibit 21 to the 2002 Form 10-KSB, incorporated herein by reference.                                                                                                                                                                    
|     | 
|23   |  | Consent of Thompson, Greenspon & Co., P.C.                                                                                                                                                                                                                                 
|     | 
|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.                                                                                                                                                                                                         



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##### Table of Contents

(b) Reports on Form 8-K.



On October 20, 2003, we furnished a Current Report on Form 8-K dated October 20, 2003 to report under Item 12, and
incorporate by reference therein, a press release that reported our financial results for the quarter ended September 30, 2003.



|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 12 is contained in our Proxy Statement for the
2004 Annual Meeting of Shareholders is incorporated herein by reference.



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



DECEMBER 31, 2003 AND 2002



---

##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



FINANCIAL REPORT

DECEMBER 31, 2003 AND 2002



CONTENTS



|                                                                      |  |           
|--------------------------------------------------------------------- |  | ----------
|                                                                      |  | Page      
|INDEPENDENT AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS |  | F-1       
|                                                                      | 
|FINANCIAL STATEMENTS                                                  |  |           
|                                                                      | 
|Consolidated Balance Sheets                                           |  | F-2       
|                                                                      | 
|Consolidated Statements of Income                                     |  | F-3       
|                                                                      | 
|Consolidated Statements of Changes in Stockholders Equity            |  | F-4       
|                                                                      | 
|Consolidated Statements of Cash Flows                                 |  | F-5       
|                                                                      | 
|Notes to Consolidated Financial Statements                            |  | F-6 - F-31



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##### Table of Contents

INDEPENDENT AUDITORS REPORT



To the
Board of Directors and Stockholders

Millennium Bankshares Corporation

Reston, Virginia



We have audited the accompanying
consolidated balance sheets of Millennium Bankshares Corporation as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders equity and cash flows for the years then ended. These financial
statements are the responsibility of the Corporations management. Our responsibility is to express an opinion on these financial statements based on our audits.



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



In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Millennium Bankshares Corporation as of December 31, 2003 and 2002, and the results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ Thompson, Greenspon & Co., P.C.



Fairfax, Virginia

January 31, 2004



F-1



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

(Dollars in Thousands, except Share Data)



|                                                                                                                      |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                      |  | 2003 |         |   | 2002 |  
|ASSETS                                                                                                                |  |      |         |   |      |   |         |  
|Cash and due from banks                                                                                               |  | $    | 2,305   |   |      | $ | 4,959   |  
|Federal funds sold                                                                                                    |  |      | 61      |   |      |   | 55      |  
|Investment securities available for sale                                                                              |  |      | 89,359  |   |      |   | 54,577  |  
|Loans held for sale                                                                                                   |  |      | 9,069   |   |      |   | 64,741  |  
|Loans receivable, net                                                                                                 |  |      | 205,913 |   |      |   | 174,351 |  
|Bank premises and equipment, net                                                                                      |  |      | 2,255   |   |      |   | 3,039   |  
|Accrued interest receivable                                                                                           |  |      | 1,475   |   |      |   | 1,220   |  
|Other assets                                                                                                          |  |      | 2,959   |   |      |   | 3,399   |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Assets                                                                                                          |  | $    | 313,396 |   |      | $ | 306,341 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |      |         |   |      |   |         |  
|                                                                                                                      |  |     
|Liabilities                                                                                                           |  |      |         |   |      |   |         |  
|Deposits                                                                                                              |  |      |         |   |      |   |         |  
|Demand                                                                                                                |  | $    | 19,150  |   |      | $ | 13,912  |  
|NOW accounts                                                                                                          |  |      | 9,663   |   |      |   | 7,889   |  
|Savings and money market                                                                                              |  |      | 125,804 |   |      |   | 143,653 |  
|Time                                                                                                                  |  |      | 117,496 |   |      |   | 93,055  |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Deposits                                                                                                        |  |      | 272,113 |   |      |   | 258,509 |  
|                                                                                                                      |  |     
|Federal funds purchased and repurchase agreements                                                                     |  |      | 5,629   |   |      |   | 9,343   |  
|Advances from Federal Home Loan Bank                                                                                  |  |      | 10,400  |   |      |   | 13,400  |  
|Trust preferred capital securities                                                                                    |  |      | 8,000   |   |      |   | 8,000   |  
|Accrued interest payable                                                                                              |  |      | 540     |   |      |   | 623     |  
|Other accrued expenses                                                                                                |  |      | 796     |   |      |   | 964     |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Liabilities                                                                                                     |  |      | 297,478 |   |      |   | 290,839 |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Stockholders Equity                                                                                                  |  |      |         |   |      |   |         |  
|Common stock, $5 par value; authorized 10,000,000 shares; issued and outstanding 3,642,818 in 2003, 3,531,778 in 2002 |  |      | 18,214  |   |      |   | 17,659  |  
|Additional paid-in capital                                                                                            |  |      | 599     |   |      |   | 599     |  
|Accumulated other comprehensive income (loss)                                                                         |  |      | (719    | ) |      |   | 385     |  
|Retained earnings (deficit)                                                                                           |  |      | (2,176  | ) |      |   | (3,141  | )
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Stockholders Equity                                                                                            |  |      | 15,918  |   |      |   | 15,502  |  
|                                                                                                                      |  |      |         |   |      |   |         |  
|Total Liabilities and Stockholders Equity                                                                            |  | $    | 313,396 |   |      | $ | 306,341 |  
|                                                                                                                      |  |      |         |   |      |   |         |  



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



F-2



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2003 AND 2002

(Dollars in Thousands, except Share Data)



|                                                              |  |      |           |   |      |   |           |  
|------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                              |  | 2003 |           |   | 2002 |  
|Interest Income                                               |  |      |           |   |      |   |           |  
|Interest and fees on loans                                    |  | $    | 13,603    |   |      | $ | 14,664    |  
|Interest on investment securities                             |  |      | 3,237     |   |      |   | 1,746     |  
|Interest on Federal funds sold                                |  |      | 25        |   |      |   | 60        |  
|                                                              |  |      |           |   |      |   |           |  
|Total Interest Income                                         |  |      | 16,865    |   |      |   | 16,470    |  
|                                                              |  |      |           |   |      |   |           |  
|Interest Expense                                              |  |      |           |   |      |   |           |  
|Interest on deposits                                          |  |      | 6,452     |   |      |   | 7,728     |  
|Interest on Federal funds purchased and repurchase agreements |  |      | 59        |   |      |   | 61        |  
|Interest on advances from Federal Home Loan Bank              |  |      | 265       |   |      |   | 171       |  
|Interest on trust preferred securities                        |  |      | 458       |   |      |   | 246       |  
|                                                              |  |      |           |   |      |   |           |  
|Total Interest Expense                                        |  |      | 7,234     |   |      |   | 8,206     |  
|                                                              |  |      |           |   |      |   |           |  
|Net Interest Income                                           |  |      | 9,631     |   |      |   | 8,264     |  
|Provision for Loan Losses                                     |  |      | (687      | ) |      |   | (3,253    | )
|                                                              |  |      |           |   |      |   |           |  
|Net Interest Income after Provision for Loan Losses           |  |      | 8,944     |   |      |   | 5,011     |  
|                                                              |  |      |           |   |      |   |           |  
|Noninterest Income                                            |  |      |           |   |      |   |           |  
|Gain on sale of loans and loan fees, net                      |  |      | 3,593     |   |      |   | 3,088     |  
|Service charges                                               |  |      | 172       |   |      |   | 155       |  
|Gain on sale of securities, net                               |  |      | 452       |   |      |   | 41        |  
|Other income                                                  |  |      | 291       |   |      |   | 176       |  
|                                                              |  |      |           |   |      |   |           |  
|Total Noninterest Income                                      |  |      | 4,508     |   |      |   | 3,460     |  
|                                                              |  |      |           |   |      |   |           |  
|Noninterest Expenses                                          |  |      |           |   |      |   |           |  
|Officers and employees compensation and benefits            |  |      | 6,172     |   |      |   | 7,539     |  
|Occupancy and equipment expense                               |  |      | 2,232     |   |      |   | 1,896     |  
|Marketing, promotion and advertising expenses                 |  |      | 92        |   |      |   | 250       |  
|Other operating expenses                                      |  |      | 3,494     |   |      |   | 4,005     |  
|                                                              |  |      |           |   |      |   |           |  
|Total Noninterest Expenses                                    |  |      | 11,990    |   |      |   | 13,690    |  
|                                                              |  |      |           |   |      |   |           |  
|Income (Loss) before Income Taxes                             |  |      | 1,462     |   |      |   | (5,219    | )
|                                                              |  |     
|Provision for Income Taxes Expense (Benefit)                  |  |      | 497       |   |      |   | (1,773    | )
|                                                              |  |      |           |   |      |   |           |  
|Net Income (Loss)                                             |  | $    | 965       |   |      | $ | (3,446    | )
|                                                              |  |      |           |   |      |   |           |  
|Earnings (loss) per common share                              |  |      |           |   |      |   |           |  
|Basic                                                         |  | $    | 0.27      |   |      | $ | (1.00     | )
|Diluted                                                       |  | $    | 0.23      |   |      | $ | (1.00     | )
|                                                              |  |     
|Weighted average shares outstanding                           |  |      |           |   |      |   |           |  
|Basic                                                         |  |      | 3,551,251 |   |      |   | 3,456,674 |  
|Diluted                                                       |  |      | 4,198,661 |   |      |   | 3,456,674 |  



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



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MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2003 AND 2002

(Dollars in Thousands except Share Data)



|                                                                                                                          |  |                 |   |  |          |        |   |                |   |      |                 |  |   |                                             |   |  |        |        |   |                          |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | -------- | ------ | - | -------------- | - | ---- | --------------- |  | - | ------------------------------------------- | - |  | ------ | ------ | - | ------------------------ | - | ------ | - |  | - | ------ | -
|                                                                                                                          |  | Number ofShares |   |  | ParValue |        |   | Paid inCapital |   |      | RetainedDeficit |  |   | AccumulatedOther ComprehensiveIncome (Loss) |   |  | Totals |        |   | OtherComprehensiveIncome |  
|Balance, December 31, 2001                                                                                                |  | 2,247,978       |   |  | $        | 11,240 |   |                | $ |     |                 |  | $ | 305                                         |   |  | $      | (20    | ) |                          | $ | 11,525 |   |  | $ | 921    |  
|                                                                                                                          |  |                 |   |  |          |        |   |                |   |      |                 |  |   |                                             |   |  |        |        |   |                          |   |        |   |  |   |        |  
|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 reclassification adjustment and tax effect |  |                |   |  |          |       |   |                |   |     |                 |  |   |                                            |   |  |        | 405    |   |                          |   | 405    |   |  |   | 405    |  
|Repurchase of common stock                                                                                                |  | (153,700        | ) |  |          | (769   | ) |                |   | (173 | )               |  |   |                                            |   |  |        |       |   |                          |   | (942   | ) |  |   |       |  
|Net loss                                                                                                                  |  |                |   |  |          |       |   |                |   |     |                 |  |   | (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 reclassification adjustment and 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   | )
|                                                                                                                          |  |                 |   |  |          |        |   |                |   |      |                 |  |   |                                             |   |  |        |        |   |                          |   |        |   |  |   |        |  



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



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MILLENNIUM BANKSHARES CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2003 AND 2002

(Dollars in Thousands)



|                                                                             |  |      |          |   |      |   |          |  
|---------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                             |  | 2003 |          |   | 2002 |  
|Cash Flows from Operating Activities                                         |  |      |          |   |      |   |          |  
|Net income (loss)                                                            |  | $    | 965      |   |      | $ | (3,446   | )
|Noncash items included in net income (loss)                                  |  |      |          |   |      |   |          |  
|Depreciation and amortization                                                |  |      | 1,077    |   |      |   | 864      |  
|Provision for loan losses                                                    |  |      | 687      |   |      |   | 3,253    |  
|Deferred tax expense (benefit)                                               |  |      | 522      |   |      |   | (1,773   | )
|Amortization of investment security premiums and accretion of discounts, net |  |      | 677      |   |      |   | 132      |  
|Realized gain on sale of investment securities available for sale            |  |      | (452     | ) |      |   | (41      | )
|Loss on disposal of assets                                                   |  |      | 29       |   |      |   | 24       |  
|(Increase) Decrease in                                                       |  |      |          |   |      |   |          |  
|Loans held for sale, net                                                     |  |      | 36,294   |   |      |   | 12,685   |  
|Accrued interest receivable                                                  |  |      | (255     | ) |      |   | (196     | )
|Other assets                                                                 |  |      | 487      |   |      |   | 2,399    |  
|Increase (Decrease) in                                                       |  |      |          |   |      |   |          |  
|Accrued interest payable                                                     |  |      | (83      | ) |      |   | (109     | )
|Other accrued expenses                                                       |  |      | (168     | ) |      |   | (697     | )
|                                                                             |  |      |          |   |      |   |          |  
|Net Cash Provided (Used) by Operating Activities                             |  |      | 39,780   |   |      |   | 13,095   |  
|                                                                             |  |      |          |   |      |   |          |  
|Cash Flows from Investing Activities                                         |  |      |          |   |      |   |          |  
|Decrease (Increase) in Federal funds sold                                    |  |      | (6       | ) |      |   | 9,659    |  
|Increase in loans receivable, net                                            |  |      | (12,871  | ) |      |   | (79,950  | )
|Purchase of investment securities available for sale                         |  |      | (101,565 | ) |      |   | (62,115  | )
|Sales of investment securities available for sale                            |  |      | 50,141   |   |      |   | 11,753   |  
|Paydown of investment securities available for sale                          |  |      | 14,744   |   |      |   | 8,681    |  
|Payments for the purchase of bank premises and equipment                     |  |      | (335     | ) |      |   | (1,645   | )
|Proceeds from disposal of property                                           |  |      | 13       |   |      |   | 62       |  
|                                                                             |  |      |          |   |      |   |          |  
|Net Cash Used by Investing Activities                                        |  |      | (49,879  | ) |      |   | (113,555 | )
|                                                                             |  |      |          |   |      |   |          |  
|Cash Flows from Financing Activities                                         |  |      |          |   |      |   |          |  
|Proceeds from issuance of common stock                                       |  |      | 555      |   |      |   | 7,960    |  
|Proceeds used to reacquire common stock                                      |  |      |         |   |      |   | (942     | )
|Net increase in deposits                                                     |  |      | 13,604   |   |      |   | 69,942   |  
|Net change in FHLB borrowings                                                |  |      | (3,000   | ) |      |   | 13,000   |  
|Proceeds from trust preferred capital securities                             |  |      |         |   |      |   | 8,000    |  
|Net Increase (Decrease) in Federal funds purchased and repurchase agreements |  |      | (3,714   | ) |      |   | 6,703    |  
|                                                                             |  |      |          |   |      |   |          |  
|Net Cash Provided by Financing Activities                                    |  |      | 7,445    |   |      |   | 104,663  |  
|                                                                             |  |      |          |   |      |   |          |  
|Net Increase (Decrease) in Cash and Due from Banks                           |  |      | (2,654   | ) |      |   | 4,203    |  
|                                                                             |  |     
|Cash and Due from Banks, beginning of year                                   |  |      | 4,959    |   |      |   | 756      |  
|                                                                             |  |      |          |   |      |   |          |  
|Cash and Due from Banks, end of year                                         |  | $    | 2,305    |   |      | $ | 4,959    |  
|                                                                             |  |      |          |   |      |   |          |  
|Noncash Investing Activities                                                 |  |      |          |   |      |   |          |  
|Unrealized gain (loss) on securities available for sale, net                 |  | $    | (1,104   | ) |      | $ | 405      |  
|                                                                             |  |      |          |   |      |   |          |  
|Loans transferred from held for sale to held to maturity                     |  | $    | 19,378   |   |      | $ |         |  
|                                                                             |  |      |          |   |      |   |          |  



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



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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 Capital Trust I, Inc., Millennium Brokerage Services, Inc., Millennium e-Banking Solutions, L.L.C., and Millennium Insurance Services,
Inc. (terminated March 31, 2003). 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 valuation of deferred tax assets.



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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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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, 2003 AND 2002



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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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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 $1,991,000 and $1,505,000 at December 31, 2003 and 2002, respectively, and was included in investment securities available-for-sale in
the consolidated balance sheets.



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. The Bank depreciates furniture and equipment using accelerated methods for income tax reporting.



Expenditures for maintenance, repairs, and improvements which 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 its first public offering in
February 2002. Costs related to the public offering totaled $665,000, resulting in net capital proceeds of $7,960,000.



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 which 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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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Stockholders Equity and Dividend Payment Restrictions(continued)



At December 31, 2003, 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 1999,
Millennium Bankshares Corporation issued warrants to original investors who purchased its common stock in a private placement. In the private placement, the Corporation sold 826,640 shares of common stock for $10.00 per share and warrants to
purchase an additional 826,640 shares of common stock at $10.00 per share.



In October 2001, the Corporation had a two-for-one split of their common stock, which doubled the number of outstanding shares of common stock. As a result of the stock split, each warrant agreement gives the warrant
holder the right to purchase twice as many common shares. At the same time, the purchase price per common share was reduced from $10.00 to $5.00, so that the total cost of exercising the warrant remained unchanged.



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.



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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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. Pro forma disclosures include the effects of all awards granted on or after inception of the Corporation and
are presented in a later footnote.



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 $7,317,000 and $8,315,000 and cash paid for income taxes was $-0- and $520,000 in the years ended December 31, 2003 and 2002,
respectively.



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.



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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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



On January 1, 2003, the Corporation adopted FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretations, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Bank has performance letters of credit. Performance letters of credit require the Bank to make payments if the customer fails to perform certain non-financial contractual obligations. The Bank previously did
not record a liability when guaranteeing obligations, unless it became probable that the Bank would have to perform under the guarantee. FIN 45 applies prospectively to any guarantees the Corporation issues or modifies subsequent to December 31,
2002. The Corporation defines the initial fair value of the letters of credit as the fee received from the customer. The fees collected as of December 31, 2003 were not material. The maximum potential undiscounted amounts of future payments of
letters of credit under FIN 45 as of December 31, 2003 are approximately $1,814,000, all of which will expire by September 11, 2004. Amounts due under these letters of credit would be reduced by any proceeds that the Bank would be able to obtain in
liquidating the collateral for the loans, which varies depending on the customer. The Corporation has not recorded any contingent liabilities related to these letters of credit.



In April 2003, the FASB issued Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging
Activities. The statement amends and clarified accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement No. 133. In particular, this statement clarifies
under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. In 2003, the Corporation
adopted SFAS 149. The adoption of these standards did not have a material impact on the Corporations financial statements.



In 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN No. 46), which provides new
accounting guidance on when to consolidate a VIE. A VIE exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics
associated with owning a controlling financial interest. Those characteristics are the direct or indirect ability to make decisions about an entitys activities through voting rights or similar rights, the obligation to absorb the expected
losses of an entity if they occur, and the right to receive the expected residual returns of the entity if they occur.



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Recent Accounting Pronouncements(continued)



FIN No. 46 was effective immediately for new entities that were created or acquired after January 31, 2003, and is to be effective on December 31, 2003
for entities in which the Corporation had a variable interest prior to February 1, 2003. At December 31, 2003, the Corporation had no material variable interest entities.



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, 2003 the required reserve balances amounted to $635,000.



3. INVESTMENT SECURITIES AVAILABLE FOR SALE



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



|                                      |  |                        |        |                      |   |                       |  |   |                        |   |  |   |       
|------------------------------------- |  | ---------------------- | ------ | -------------------- | - | --------------------- |  | - | ---------------------- | - |  | - | ------
|                                      |  | (Dollars in Thousands)
|                                      |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | ApproximateMarketValue
|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
|                                      |  |                        |        |                      |   |                       |  |   |                        |   |  |   |       
|                                      |  |                        |        |                     
|                                      |  | AmortizedCost          |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | ApproximateMarketValue
|December 31, 2002:                    |  |                        |        |                      |   |                       |  |   |                        |   |  |   |       
|U.S. Government and Agency Securities |  | $                      | 51,742 |                      | $ | 715                   |  | $ | (132                   | ) |  | $ | 52,325
|Equity securities                     |  |                        | 2,252  |                      |   |                      |  |   |                       |   |  |   | 2,252 
|                                      |  |                        |        |                      |   |                       |  |   |                        |   |  |   |       
|                                      |  | $                      | 53,994 |                      | $ | 715                   |  | $ | (132                   | ) |  | $ | 54,577
|                                      |  |                        |        |                      |   |                       |  |   |                        |   |  |   |       



The scheduled
maturities of U.S. Government and Agency securities available for sale at December 31, 2003 were as follows:



|                                   |  |                        |        |                        |   |       
|---------------------------------- |  | ---------------------- | ------ | ---------------------- | - | ------
|                                   |  | (Dollars in Thousands)
|                                   |  | AmortizedCost          |        | ApproximateMarketValue
|After one year through five years  |  | $                      | 2,876  |                        | $ | 2,860 
|After five years through ten years |  |                        | 53,857 |                        |   | 52,857
|After ten years                    |  |                        | 31,008 |                        |   | 30,934
|                                   |  |                        |        |                        |   |       
|                                   |  | $                      | 87,741 |                        | $ | 86,651
|                                   |  |                        |        |                        |   |       



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



3. INVESTMENT SECURITIES AVAILABLE FOR SALE (continued)



Investment securities with a carrying amount of $42,129,000 and $35,382,000 at December 31, 2003 and 2002, respectively, were pledged as collateral on
Federal Home Loan Bank and Community Bankers Bank advances and for other purposes as required or permitted by law. At December 31, 2003, the carrying amount of securities pledged to secure repurchase agreements was $3,296,000.



At December 31, 2003 there were no material unrealized losses that have been
in a continuous unrealized loss position for 12 months or more.



4. LOANS RECEIVABLE



Loans receivable include the following at December 31:



|                           |  |                        |         |   |      |   |         |  
|-------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                           |  | (Dollars in Thousands) |        
|                           |  | 2003                   |         |   | 2002 |  
|Loans held for sale        |  | $                      | 9,069   |   |      | $ | 64,741  |  
|Loans receivable, net      |  |                        | 205,913 |   |      |   | 174,351 |  
|                           |  |                        |         |   |      |   |         |  
|                           |  | $                      | 214,982 |   |      | $ | 239,092 |  
|                           |  |                        |         |   |      |   |         |  
|Real estate loans          |  |                        |         |   |      |   |         |  
|Mortgage                   |  | $                      | 77,330  |   |      | $ | 102,289 |  
|Commercial                 |  |                        | 93,819  |   |      |   | 53,391  |  
|Construction               |  |                        | 17,318  |   |      |   | 3,926   |  
|                           |  |                        |         |   |      |   |         |  
|Total real estate loans    |  |                        | 188,467 |   |      |   | 159,606 |  
|Commercial                 |  |                        | 15,466  |   |      |   | 15,446  |  
|Consumer                   |  |                        | 5,055   |   |      |   | 2,617   |  
|Overdrafts                 |  |                        | 21      |   |      |   | 13      |  
|                           |  |                        |         |   |      |   |         |  
|Subtotal                   |  |                        | 209,009 |   |      |   | 177,682 |  
|                           |  |                        |         |   |      |   |         |  
|Loans held for sale        |  |                        | 9,069   |   |      |   | 64,741  |  
|Provision for loan losses  |  |                        | (3,057  | ) |      |   | (3,499  | )
|Deferred loan costs (fees) |  |                        | (39     | ) |      |   | 168     |  
|                           |  |                        |         |   |      |   |         |  
|Total Loans                |  | $                      | 214,982 |   |      | $ | 239,092 |  
|                           |  |                        |         |   |      |   |         |  



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



|                               |  |                        |        |   |      |   |        |  
|------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                               |  | (Dollars in Thousands) |       
|                               |  | 2003                   |        |   | 2002 |  
|Balance beginning of period    |  | $                      | 3,499  |   |      | $ | 1,391  |  
|Provision for loan losses      |  |                        | 687    |   |      |   | 3,253  |  
|Loans charged to reserve       |  |                        | (1,141 | ) |      |   | (1,188 | )
|Recoveries credited to reserve |  |                        | 12     |   |      |   | 43     |  
|                               |  |                        |        |   |      |   |        |  
|Totals                         |  | $                      | 3,057  |   |      | $ | 3,499  |  
|                               |  |                        |        |   |      |   |        |  



The Bank had
non-accrual loans of $146,000 and $548,000 at December 31, 2003 and 2002, respectively. There were no impaired loans outstanding at December 31, 2003 and 2002, respectively. The Bank had $162,000 of loans past 90 days or more still accruing at
December 31, 2003.



There were no mortgage loans pledged as
collateral for Federal Home Loan Bank advances at December 31, 2003.





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



5.PREMISES AND EQUIPMENT



Premises and equipment include the following at December 31:





|                                               |  |                        |        |   |      |   |        |  
|---------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | -
|                                               |  | (Dollars in Thousands) |       
|                                               |  | 2003                   |        |   | 2002 |  
|Furniture and equipment                        |  | $                      | 4,358  |   |      | $ | 4,137  |  
|Leasehold improvements                         |  |                        | 761    |   |      |   | 710    |  
|                                               |  |                        |        |   |      |   |        |  
|Total cost                                     |  |                        | 5,119  |   |      |   | 4,847  |  
|Less accumulated depreciation and amortization |  |                        | (2,864 | ) |      |   | (1,808 | )
|                                               |  |                        |        |   |      |   |        |  
|Premises and equipment, net                    |  | $                      | 2,255  |   |      | $ | 3,039  |  
|                                               |  |                        |        |   |      |   |        |  



Depreciation of
premises and equipment charged to expense amounted to $1,077,000 and $864,000 in 2003 and 2002 respectively.



6. OTHER ASSETS



Included in other assets at December 31, 2003 and 2002 is $409,000 which represents the costs incurred for development of financial software that allows
financial institutions to exchange data with other institutions using standard protocol. The Corporation is in the process of completing BETA testing on this product and is marketing the product to several corporations. Management expects they will
realize, in sales, an amount equal to at least the costs incurred to develop this product. They also anticipate that the software could be used by Millennium Bank, N.A.



7. DEPOSITS



Time deposits in denominations of $100,000 or more totaled $67,924,000 in 2003 and $46,912,000 in 2002. Time deposits mature
as follows at December 31:





|                    |  |                        |        
|------------------- |  | ---------------------- | -------
|                    |  | (Dollars in Thousands)
|                    |  | 2003                  
|2004                |  | $                      | 42,395 
|2005                |  |                        | 25,969 
|2006                |  |                        | 23,585 
|2007                |  |                        | 16,834 
|2008 and thereafter |  |                        | 8,713  
|                    |  |                        |        
|Total               |  | $                      | 117,496
|                    |  |                        |        



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



8. BORROWINGS



The
Corporation had borrowings outstanding as follows:



|                                                  |  |              |   |  |               |  |                             |        
|------------------------------------------------- |  | ------------ | - |  | ------------- |  | --------------------------- | -------
|December 31, 2003:                                |  | InterestRate |   |  | Maturity      |  | (Dollars inThousands)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         | % |  | Feb. 13, 2006 |  |                             | 5,000  
|Advances                                          |  | 2.01         | % |  | Feb. 13, 2008 |  |                             | 5,000  
|                                                  |  |              |   |  |               |  |                             |        
|                                                  |  |              |   |  |               |  |                             | $10,400
|                                                  |  |              |   |  |               |  |                             |        
|                                                  |  |              |  
|December 31, 2002:                                |  | InterestRate |   |  | Maturity      |  | (Dollars inThousands)Amount
|Federal funds purchased and repurchase agreements |  |              |   |  |               |  |                             |        
|Federal funds purchased                           |  | 1.38         | % |  | Demand        |  | $                           | 8,936  
|Repurchase agreements                             |  | 0.50         | % |  | Demand        |  |                             | 407    
|                                                  |  |              |   |  |               |  |                             |        
|                                                  |  |              |   |  |               |  | $                           | 9,343  
|                                                  |  |              |   |  |               |  |                             |        
|Federal Home Loan Bank                            |  |              |   |  |               |  |                             |        
|Advances                                          |  | 1.83         | % |  | Feb. 10, 2003 |  | $                           | 13,000 
|Advances                                          |  | 6.48         | % |  | May 27, 2005  |  |                             | 400    
|                                                  |  |              |   |  |               |  |                             |        
|                                                  |  |              |   |  |               |  | $                           | 13,400 
|                                                  |  |              |   |  |               |  |                             |        





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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



8. BORROWINGS (continued)



At December 31, 2003 the Corporation has the following lines of credit:



|                       |  |                        |        |                  |   |       
|---------------------- |  | ---------------------- | ------ | ---------------- | - | ------
|                       |  | (Dollars in Thousands)
|                       |  | TotalLine ofCredit     |        | Amount Available
|Federal Home Loan Bank |  |                        |        |                  |   |       
|Secured                |  | $                      | 31,260 |                  | $ | 20,860
|Community Bankers Bank |  |                        |        |                  |   |       
|Secured                |  |                        | 11,100 |                  |   | 11,100
|Unsecured              |  |                        | 8,700  |                  |   | 3,183 
|                       |  |                        |        |                  |   |       
|                       |  | $                      | 51,060 |                  | $ | 35,143
|                       |  |                        |        |                  |   |       



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.



9. TRUST PREFERRED CAPITAL SECURITIES



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, $8,000,000 of the trust preferred securities
were issued in a pooled underwriting totaling approximately $450,000,000. The securities have a LIBOR-indexed floating rate of interest which is set and payable on a quarterly basis. During 2003, the interest rates ranged from 4.76 percent to 5.03
percent. During 2002, the interest rates ranged from 5.00 percent to 5.79 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.



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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



10. INCOME TAXES



The
provision for income taxes consists of the following:



|                                 |  |                        |     |   |      |   |        |  
|-------------------------------- |  | ---------------------- | --- | - | ---- | - | ------ | -
|                                 |  | (Dollars in Thousands) |    
|                                 |  | 2003                   |     |   | 2002 |  
|Current (benefit) provision      |  | $                      | (25 | ) |      | $ | (470   | )
|Deferred (benefit) provision     |  |                        | 522 |   |      |   | (1,303 | )
|                                 |  |                        |     |   |      |   |        |  
|Total provision for income taxes |  | $                      | 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 the net operating loss carryforward, allowance for loan losses and loan fees, are
recognized in different periods for financial reporting and tax return purposes. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income.
Although realization is not assured management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.



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



|                                                               |  |                        |       |   |      |   |       |  
|-------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | -
|                                                               |  | (Dollars in Thousands) |      
|Deferred Source                                                |  | 2003                   |       |   | 2002 |  
|Net operating loss carryforward                                |  | $                      | 522   |   |      | $ | 836   |  
|Start-up costs                                                 |  |                        | 8     |   |      |   | 15    |  
|Loan loss reserve                                              |  |                        | 764   |   |      |   | 956   |  
|Unearned loan fees                                             |  |                        | (13   | ) |      |   | (67   | )
|Depreciation                                                   |  |                        | (197  | ) |      |   | (134  | )
|                                                               |  |                        |       |   |      |   |       |  
|Subtotal                                                       |  |                        | 1,084 |   |      |   | 1,606 |  
|Unrealized gain or loss included in other comprehensive income |  |                        | 371   |   |      |   | (198  | )
|                                                               |  |                        |       |   |      |   |       |  
|Gross deferred tax assets (liability)                          |  |                        | 1,455 |   |      |   | 1,408 |  
|Valuation Allowance                                            |  |                        |      |   |      |   |      |  
|                                                               |  |                        |       |   |      |   |       |  
|Net deferred tax asset                                         |  | $                      | 1,455 |   |      | $ | 1,408 |  
|                                                               |  |                        |       |   |      |   |       |  



The provisions for
income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory Federal income tax rate to pretax income as a result of the following differences:



|                                                 |  |      |   |  |      |  
|------------------------------------------------ |  | ---- | - |  | ---- | -
|                                                 |  | 2003 |   |  | 2002 |  
|Statutory Federal income tax rate                |  | 34   | % |  | 34   | %
|Change in deferred tax asset valuation allowance |  |     |   |  |     |  
|                                                 |  |      |   |  |      |  
|Effective tax rate                               |  | 34   | % |  | 34   | %
|                                                 |  |      |   |  |      |  



The Corporation has a
net operating loss carryforward at December 31, 2003 of $1,277,000 which expires in 2022.



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



11. 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 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, 2003 and 2002, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.



To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table.



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



11. REGULATORY MATTERS (continued)



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



|                                                   |  |                               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|-------------------------------------------------- |  | ----------------------------- | ------ | ------ | ----- | ----- | -------------------------- | - | ------ | ----------------------------- | ----- | - |  | - | ------ |  | ----- | -
|                                                   |  | (Dollar Amounts in Thousands) |       
|                                                   |  | ActualAmount                  |        | Ratio  |       |       | Minimum CapitalRequirement |   |        | Minimum To be WellCapitalized |      
|                                                   |  |                               |        | Amount |       | Ratio |                            |   | Amount |                               | Ratio |  
|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  |  
|                                                   |  |                               |        |        |       |      
|As of December 31, 2002                            |  |                               |        |        |       |       |                            |   |        |                               |       |   |  |   |        |  |       |  
|Total Capital (to risk-weighted assets)            |  | $                             | 25,782 |        | 13.48 | %     |                            | $ | 15,300 |                               | 8.00  | % |  | $ | 19,125 |  | 10.00 | %
|Tier I Capital (to risk-weighted assets)           |  |                               | 18,896 |        | 9.88  |       |                            |   | 7,650  |                               | 4.00  |   |  |   | 11,475 |  | 6.00  |  
|Tier I Capital (to average assets)                 |  |                               | 18,896 |        | 6.07  |       |                            |   | 12,450 |                               | 4.00  |   |  |   | 15,562 |  | 5.00  |  



In November 2002, the
OCC issued to the Bank and its Directors, a Memorandum of Understandings (MOU). As a result of the OCCs June 2003 examination findings (most recent examination), the Bank was notified that it still needs to comply with two articles
of the MOU. It was also notified that it is considered to be fundamentally sound, as defined by regulation 12 C.F.R 5.51 and considered to be well capitalized. The OCC feels there is limited capital support for additional growth and
earnings are still considered to be less than satisfactory.



In December 2003, the regulators approved the Banks request to waive, during 2004, the limit on quarterly growth imposed by the OCC in the MOU. During 2004, the Bank will not be subject to the 5 percent limitation on growth in a
single quarter, and will be permitted annual growth in total assets, as measured at each Call Report date, of up to 15 percent.



12. OPERATING LEASES



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



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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



12. OPERATING LEASES (continued)



The following are the future minimum lease payments at December 31, 2003:



|                          |  |                        |    
|------------------------- |  | ---------------------- | ---
|                          |  | (Dollars in Thousands)
|Years ending December 31, |  |                       
|2004                      |  | $                      | 251
|2005                      |  |                        | 256
|2006                      |  |                        | 225
|2007                      |  |                        | 115
|2008                      |  |                        | 75 
|2009 and thereafter       |  |                        | 13 
|                          |  |                        |    
|Total                     |  | $                      | 935
|                          |  |                        |    



Rent
expense amounted to $597,000 and $597,000 for the years ended December 31, 2003 and 2002, respectively.



13. PROFIT SHARING PLAN



The Corporation maintains a 401(k) profit sharing plan, which has also been adopted by Millennium Bank, N.A., Millennium Capital, Inc., and Millennium
Brokerage Services, Inc. The Plan covers substantially all full time employees. The Plan allows the Corporation, and its affiliates, to make contributions to the plan at the discretion of management. The Corporation and affiliates made no
contributions to the 401(k) plan for the years ended December 31, 2003 and 2002.



14. OTHER INCOME AND OTHER OPERATING EXPENSE



Other income consists of the following:



|                     |  |                        |     |      |   |    
|-------------------- |  | ---------------------- | --- | ---- | - | ---
|                     |  | (Dollars in Thousands)
|                     |  | 2003                   |     | 2002
|Commissions and fees |  | $                      | 132 |      | $ | 60 
|Other income         |  |                        | 159 |      |   | 116
|                     |  |                        |     |      |   |    
|                     |  | $                      | 291 |      | $ | 176
|                     |  |                        |     |      |   |    



Other
operating expenses consist of the following:



|                                         |  |                        |       |      |   |      
|---------------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                         |  | (Dollars in Thousands)
|                                         |  | 2003                   |       | 2002
|Dues and fees                            |  | $                      | 417   |      | $ | 463  
|Franchise taxes and miscellaneous taxes  |  |                        | 229   |      |   | 85   
|Insurance expense                        |  |                        | 240   |      |   | 163  
|Meetings and seminar expense             |  |                        | 170   |      |   | 170  
|Miscellaneous operating expenses         |  |                        | 122   |      |   | 164  
|Office expenses                          |  |                        | 487   |      |   | 544  
|Lawsuit settlements and operating losses |  |                        | 328   |      |   | 177  
|Outside services                         |  |                        | 439   |      |   | 817  
|Professional fees                        |  |                        | 862   |      |   | 1,170
|Recapture and other loan expense         |  |                        | 200   |      |   | 104  
|Organizational expense                   |  |                        |      |      |   | 148  
|                                         |  |                        |       |      |   |      
|Total Other Operating Expenses           |  | $                      | 3,494 |      | $ | 4,005
|                                         |  |                        |       |      |   |      



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



15.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 $38 and $44 for the years ended December 31, 2003 and
2002, respectively.



In 2002, the Corporation retained the
services of an additional law firm for the purposes of collecting fees due from a former joint venture of the Corporation. A director of the Corporation is a partner of the law firm. Fees amounted to $170,000 in 2003 and $426,000 in 2002.



In 2003, the Corporation leased space in Herndon, Virginia
from a related party in the amount of $107,000 and space in Reston, Virginia in the amount of $208,000.



The Bank has entered into loan transactions with certain directors, executive officers, and their affiliates. Such transactions were made in the ordinary
course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve
more than normal credit risk or present other unfavorable features. The aggregate amount of loans to such related parties at December 31, 2003 and 2002 was $7,507,000 and $9,382,000, respectively. During 2003, new loans made to such related parties
amounted to $1,705,000 and payments amounted to $3,580,000. During 2002, new loans made to such related parties amounted to $3,062,000 and payments amounted to $938,000.



The Bank has also entered into deposit transactions with certain directors, executive officers, and their affiliates. Such
transactions were made in the ordinary course of business on substantially the same terms as those offered to other clients. The Bank held related party deposits of approximately $3,728,000 and $4,231,000 at December 31, 2003 and 2002, respectively.



In 2003, one of the executive officers elected to accept
stock options for 31,688 shares valued at approximately $78,000 in lieu of cash compensation due for 2003.



16.COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT



Credit Related Financial Instruments



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



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



F-22



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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

(Dollars in Thousands)



Credit Related Financial Instruments(continued)



At December 31, the following financial instruments were
outstanding whose contract amounts represent credit risk:



|                                                                                               |  |                        |        |      |   |       
|---------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                                                                                               |  | (Dollars in Thousands)
|                                                                                               |  | 2003                   |        | 2002
|Commitments to grant loans, commercial pipeline and unfunded commitments under lines of credit |  | $                      | 37,910 |      | $ | 20,272
|Commercial and standby letters of credit                                                       |  |                        | 1,814  |      |   | 35    
|                                                                                               |  |                        |        |      |   |       
|                                                                                               |  | $                      | 39,724 |      | $ | 20,307
|                                                                                               |  |                        |        |      |   |       



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.



Cash



The Corporation maintains a portion of its cash balances with several financial institutions. Accounts at each institution are secured by the Federal
Deposit Insurance Corporation up to $100,000. There were no unsecured balances at December 31, 2003 and 2002, respectively.



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.



F-23



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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



Performance Indemnification Agreement



The Bank has entered into a performance indemnification agreement which expires on April 30, 2004, with one of its mortgage investors. The agreement
requires the Bank to repurchase any of 23 stated mortgage loans if they become ninety (90) days past due. The maximum amount of the guarantee at December 31, 2003 was $842,000. The Bank has not received notice that any of the loans must be
repurchased by the Bank. The Corporation has not recorded any contingent liabilities related to this performance indemnification agreement.



17. STOCK OPTION PLAN



On August 12, 1999, the Corporation adopted an Incentive Stock Option Plan. The total number of shares granted under the plan cannot exceed 2,000,000
shares. The 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.



|                                                               |  |          |   |      |                               |      |        |          |   |                              |   |     
|-------------------------------------------------------------- |  | -------- | - | ---- | ----------------------------- | ---- | ------ | -------- | - | ---------------------------- | - | ----
|                                                               |  | 2003     |   | 2002
|                                                               |  | Shares   |   |      | WeightedAverageExercise Price |      | Shares |          |   | WeightedAverageExercisePrice
|Outstanding, beginning of year                                 |  | 797,082  |   |      | $                             | 5.33 |        | 767,632  |   |                              | $ | 5.00
|Granted                                                        |  | 144,688  |   |      |                               | 6.63 |        | 150,950  |   |                              |   | 6.83
|Exercised                                                      |  | (111,040 | ) |      |                               | 5.00 |        |         |   |                              |   |    
|Cancelled/Expired                                              |  | (204,332 | ) |      |                               | 5.24 |        | (121,500 | ) |                              |   | 5.13
|                                                               |  |          |   |      |                               |      |        |          |   |                              |   |     
|Outstanding, end of year                                       |  | 626,398  |   |      |                               | 5.71 |        | 797,082  |   |                              |   | 5.33
|                                                               |  |          |   |      |                               |      |        |          |   |                              |   |     
|Options exercisable at end of year                             |  | 270,613  |   |      | $                             | 5.75 |        | 321,846  |   |                              | $ | 5.00
|                                                               |  |          |   |      |                               |      |        |          |   |                              |   |     
|Weighted average fair value of options granted during the year |  |          |   |      | $                             | 1.93 |        |          |   |                              | $ | .57 
|                                                               |  |          |   |      |                               |      |        |          |   |                              |   |     



F-24



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



17. STOCK OPTION PLAN (continued)



Information pertaining to options (in thousands) outstanding at December 31, 2003 is as follows:



|                         |  |                     |  |                                          |  |                               |      |                   |         |                              |   |     
|------------------------ |  | ------------------- |  | ---------------------------------------- |  | ----------------------------- | ---- | ----------------- | ------- | ---------------------------- | - | ----
|                         |  | Options Outstanding |  | Options Exercisable                     
|Range of Exercise Prices |  | NumberOutstanding   |  | WeightedAverageRemaining ContractualLife |  | WeightedAverage ExercisePrice |      | NumberExercisable |         | WeightedAverageExercisePrice
|$5.00                    |  | 401,760             |  | 7.3 years                                |  | $                             | 5.00 |                   | 180,215 |                              | $ | 5.00
|$6.20 - $7.93            |  | 224,638             |  | 9.4 years                                |  | $                             | 6.99 |                   | 90,398  |                              | $ | 7.25



The vesting period of
the remaining options is as follows:



|                       |  |        
|---------------------- |  | -------
|Vested and exercisable |  | 270,613
|February 1, 2004       |  | 117,743
|February 1, 2005       |  | 105,083
|February 1, 2006       |  | 86,149 
|February 1, 2007       |  | 31,410 
|February 1, 2008       |  | 15,400 
|                       |  |        
|                       |  | 626,398
|                       |  |        



The Corporation has
one stock-based compensation plan, which is described above. 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.



|                                                                                                                                             |  |                                                   |      |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ---- | - | ---- | - | ------ | -
|                                                                                                                                             |  | (Dollars in Thousands, except for per Share Data) |     
|                                                                                                                                             |  | 2003                                              |      |   | 2002 |  
|Net (loss) income as reported                                                                                                                |  | $                                                 | 965  |   |      | $ | (3,446 | )
|Deduct: Total stock based employees compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                                   | (292 | ) |      |   | (173   | )
|                                                                                                                                             |  |                                                   |      |   |      |   |        |  
|Pro forma                                                                                                                                    |  | $                                                 | 673  |   |      | $ | (3,619 | )
|                                                                                                                                             |  |                                                   |      |   |      |   |        |  
|Earnings per share:                                                                                                                          |  |                                                   |      |   |      |   |        |  
|Basic - as reported                                                                                                                          |  | $                                                 | 0.27 |   |      | $ | (1.00  | )
|                                                                                                                                             |  |                                                   |      |   |      |   |        |  
|Basic - pro forma                                                                                                                            |  | $                                                 | 0.19 |   |      | $ | (1.05  | )
|                                                                                                                                             |  |                                                   |      |   |      |   |        |  
|Diluted - as reported                                                                                                                        |  | $                                                 | 0.23 |   |      | $ | (1.00  | )
|                                                                                                                                             |  |                                                   |      |   |      |   |        |  
|Diluted - pro forma                                                                                                                          |  | $                                                 | 0.16 |   |      | $ | (1.05  | )
|                                                                                                                                             |  |                                                   |      |   |      |   |        |  



F-25



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



18. EARNINGS PER SHARE



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



|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |       |  
|----------------------------------------------------------------------------------- |  | -------------------------------- |  | --------------- | ---- | ------ | --------- | --------------- | - | ----- | -
|                                                                                    |  | For the Years Ended December 31, | 
|                                                                                    |  | 2003                             |  | 2002            |     
|                                                                                    |  | Shares                           |  | Per ShareAmount |      | Shares |           | Per ShareAmount |  
|Weighted average shares outstanding, and basic earnings (loss) per share            |  | 3,551,251                        |  | $               | 0.27 |        | 3,456,674 |                 | $ | (1.00 | )
|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |       |  
|Effect of dilutive securities                                                       |  |                                  |  |                 |      |        |           |                 |   |       |  
|Stock options                                                                       |  | 143,248                          |  |                 |      |        |          |                 |   |       |  
|Warrants                                                                            |  | 504,162                          |  |                 |      |        |          |                 |   |       |  
|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |       |  
|Weighted average shares adjusted for dilution and diluted earnings (loss) per share |  | 4,198,661                        |  | $               | 0.23 |        | 3,456,674 |                 | $ | (1.00 | )
|                                                                                    |  |                                  |  |                 |      |        |           |                 |   |       |  



Stock options and
Warrants to purchase common stock were outstanding during 2002 but were not included in the computation of EPS because the options were antidilutive.



19. 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:



|                                                                   |  |                          |        |   |      |   |        |  
|------------------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                   |  | (Dollars in Thousands)   |       
|                                                                   |  | Years Ended December 31, |       
|                                                                   |  | 2003                     |        |   | 2002 |  
|Unrealized holding gains (losses) on available-for-sale securities |  | $                        | (1,066 | ) |      | $ | 614    |  
|Reclassification adjustment for losses (gains) realized in income  |  |                          | (607   | ) |      |   |       |  
|                                                                   |  |                          |        |   |      |   |        |  
|Net unrealized gains (losses)                                      |  |                          | (1,673 | ) |      |   | 614    |  
|Tax effect                                                         |  |                          | 569    |   |      |   | (209   | )
|                                                                   |  |                          |        |   |      |   |        |  
|Net-of-tax amount                                                  |  |                          | (1,104 | ) |      |   | 405    |  
|Net income (loss)                                                  |  |                          | 965    |   |      |   | (3,446 | )
|                                                                   |  |                          |        |   |      |   |        |  
|Other Comprehensive Income                                         |  | $                        | (139   | ) |      | $ | (3,041 | )
|                                                                   |  |                          |        |   |      |   |        |  



F-26



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



19. COMPREHENSIVE INCOME (continued)



The components of accumulated other comprehensive income, included stockholders equity, are as follows:



|                                                            |  |                          |        |   |      |   |      |  
|----------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ---- | -
|                                                            |  | (Dollars in Thousands)   |       
|                                                            |  | Years Ended December 31, |       
|                                                            |  | 2003                     |        |   | 2002 |  
|Net unrealized gain (loss) on available-for-sale securities |  | $                        | (1,090 | ) |      | $ | 583  |  
|Tax effect                                                  |  |                          |        |   |      |   |      |  
|Net-of-tax amount                                           |  |                          | 371    |   |      |   | (198 | )
|                                                            |  |                          |        |   |      |   |      |  
|                                                            |  | $                        | (719   | ) |      | $ | 385  |  
|                                                            |  |                          |        |   |      |   |      |  



20.
PARENT COMPANY ACTIVITY



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



BALANCE SHEETS

(Dollars in Thousands)



|                                              |  |      |        |   |      |   |        |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                              |  | 2003 |        |   | 2002 |  
|Assets:                                       |  |      |        |   |      |   |        |  
|Interest bearing deposits in banks            |  | $    | 848    |   |      | $ | 733    |  
|Investment in subsidiaries                    |  |      | 22,798 |   |      |   | 22,557 |  
|Other assets                                  |  |      | 370    |   |      |   | 220    |  
|                                              |  |      |        |   |      |   |        |  
|Total Assets                                  |  | $    | 24,016 |   |      | $ | 23,510 |  
|                                              |  |      |        |   |      |   |        |  
|Liabilities:                                  |  |      |        |   |      |   |        |  
|Short term line of credit                     |  | $    |       |   |      | $ |       |  
|Trust preferred capital securities            |  |      | 8,000  |   |      |   | 8,000  |  
|Other liabilities                             |  |      | 98     |   |      |   | 8      |  
|                                              |  |      |        |   |      |   |        |  
|Total Liabilities                             |  |      | 8,098  |   |      |   | 8,008  |  
|                                              |  |      |        |   |      |   |        |  
|Stockholders equity:                         |  |      |        |   |      |   |        |  
|Common stock                                  |  |      | 18,214 |   |      |   | 17,659 |  
|Paid-in capital                               |  |      | 599    |   |      |   | 599    |  
|Accumulated other comprehensive income (loss) |  |      | (719   | ) |      |   | 385    |  
|Retained earnings (deficit)                   |  |      | (2,176 | ) |      |   | (3,141 | )
|                                              |  |      |        |   |      |   |        |  
|Total Stockholders Equity                    |  |      | 15,918 |   |      |   | 15,502 |  
|                                              |  |      |        |   |      |   |        |  
|Total Liabilities and Stockholders Equity    |  | $    | 24,016 |   |      | $ | 23,510 |  
|                                              |  |      |        |   |      |   |        |  



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



20. PARENT COMPANY ACTIVITY (continued)



STATEMENTS OF INCOME

(Dollars in Thousands)



|                                         |  |      |       |   |      |   |        |  
|---------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | -
|                                         |  | 2003 |       |   | 2002 |  
|Equity in earnings (loss) of Bank        |  | $    | 1,365 |   |      | $ | (3,268 | )
|Equity in earnings of Brokerage Services |  |      | (5    | ) |      |   | 24     |  
|Equity in earnings of E-Banking          |  |      | (9    | ) |      |   |       |  
|Equity in earnings of Insurance Services |  |      | (3    | ) |      |   | 3      |  
|Other income (expenses)                  |  |      | 49    |   |      |   | 16     |  
|Interest income, (expense) net           |  |      | (432  | ) |      |   | (221   | )
|                                         |  |      |       |   |      |   |        |  
|Net income (loss)                        |  | $    | 965   |   |      | $ | (3,446 | )
|                                         |  |      |       |   |      |   |        |  



STATEMENTS OF CASH
FLOWS

(Dollars in Thousands)



|                                                             |  |      |        |   |      |   |        |  
|------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|                                                             |  | 2003 |        |   | 2002 |  
|Cash Flows from Operating Activities                         |  |      |        |   |      |   |        |  
|Net (loss) income                                            |  | $    | (383   | ) |      | $ | (205   | )
|Equity in undistributed net income (loss) of subsidiaries    |  |      | 1,348  |   |      |   | (3,241 | )
|                                                             |  |      |        |   |      |   |        |  
|Subtotal                                                     |  |      | 965    |   |      |   | (3,446 | )
|Increase in other assets                                     |  |      | (150   | ) |      |   | (92    | )
|Increase in other liabilities                                |  |      | 90     |   |      |   | (170   | )
|                                                             |  |      |        |   |      |   |        |  
|Net Cash Provided (Used) by Operating Activities             |  |      | 905    |   |      |   | (3,708 | )
|                                                             |  |      |        |   |      |   |        |  
|Cash Flows from Investing Activities                         |  |      |        |   |      |   |        |  
|Increase in investment in subsidiaries                       |  |      | (1,345 | ) |      |   | (9,690 | )
|                                                             |  |      |        |   |      |   |        |  
|Cash Flows from Financing Activities                         |  |      |        |   |      |   |        |  
|Proceeds from short term borrowings                          |  |      |       |   |      |   | (950   | )
|Proceeds from trust preferred securities                     |  |      |       |   |      |   | 8,000  |  
|Proceeds from issuance of common stock                       |  |      | 555    |   |      |   | 7,960  |  
|Proceeds used to reacquire common stock                      |  |      |       |   |      |   | (942   | )
|                                                             |  |      |        |   |      |   |        |  
|Net Cash Provided by Financing Activities                    |  |      | 555    |   |      |   | 14,068 |  
|                                                             |  |      |        |   |      |   |        |  
|Net Increase (Decrease) in Cash and Due from Banks           |  |      | 115    |   |      |   | 670    |  
|Cash and Due from Banks, beginning of year                   |  |      | 733    |   |      |   | 63     |  
|                                                             |  |      |        |   |      |   |        |  
|Cash and Due from Banks, end of year                         |  | $    | 848    |   |      | $ | 733    |  
|                                                             |  |      |        |   |      |   |        |  
|Noncash Investing Activities                                 |  |      |        |   |      |   |        |  
|Unrealized gain (loss) on securities available for sale, net |  | $    | (1,104 | ) |      | $ | 405    |  
|                                                             |  |      |        |   |      |   |        |  



F-28



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



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, 2003 and 2002 are as follows:



|                                         |  |                        |         |                   |   |                |  |            |         |  |   |        
|---------------------------------------- |  | ---------------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                                         |  | December 31, 2003      |         | December 31, 2002
|                                         |  | CarryingAmount         |         | Fair Value        |   | CarryingAmount |  | Fair Value
|                                         |  | (Dollars in Thousands)
|Financial assets:                        |  |                        |         |                   |   |                |  |            |         |  |   |        
|Cash and due from banks                  |  | $                      | 2,305   |                   | $ | 2,305          |  | $          | 4,959   |  | $ | 4,959  
|Federal funds sold                       |  |                        | 61      |                   |   | 61             |  |            | 55      |  |   | 55     
|Investment securities available for sale |  |                        | 89,359  |                   |   | 89,359         |  |            | 54,577  |  |   | 54,577 
|Loans held for sale                      |  |                        | 9,069   |                   |   | 9,132          |  |            | 65,252  |  |   | 64,741 
|Loans receivable, net                    |  |                        | 205,913 |                   |   | 206,570        |  |            | 174,351 |  |   | 169,450
|Accrued interest receivable              |  |                        | 1,475   |                   |   | 1,475          |  |            | 1,220   |  |   | 1,220  
|                                         |  |                        |         |                  
|Financial liabilities:                   |  |                        |         |                   |   |                |  |            |         |  |   |        
|Deposits                                 |  |                        | 272,113 |                   |   | 273,460        |  |            | 258,509 |  |   | 259,720
|Federal funds purchased                  |  |                        | 5,629   |                   |   | 5,629          |  |            | 9,343   |  |   | 9,343  
|Short term borrowings                    |  |                        | 400     |                   |   | 400            |  |            | 13,000  |  |   | 13,000 
|Long term borrowings                     |  |                        | 18,000  |                   |   | 18,000         |  |            | 8,400   |  |   | 8,400  
|Accrued interest payable                 |  |                        | 540     |                   |   | 540            |  |            | 623     |  |   | 623    



F-29



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MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



21. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)



The following methods and assumptions were used to estimate the fair value amounts at December 31, 2003 and 2002:



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.



F-30



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##### Table of Contents

MILLENNIUM BANKSHARES CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2003 AND 2002



22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



|                           |  |                                               |        |   |                                |   |        |                            |  |   |                            |   |  |   |        |  
|-------------------------- |  | --------------------------------------------- | ------ | - | ------------------------------ | - | ------ | -------------------------- |  | - | -------------------------- | - |  | - | ------ | -
|                           |  | Quarter EndedDecember 31,2003                 |        |   | Quarter EndedSeptember 30,2003 |   |        | Quarter EndedJune 30, 2003 |  |   | Quarter EndedMarch 31,2003 |  
|                           |  | (Dollars in Thousands, except for Share Data) |       
|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   | )
|Income before income taxes |  |                                               | 265    |   |                                |   | 278    |                            |  |   | 306                        |   |  |   | 613    |  
|Income taxes               |  |                                               | (90    | ) |                                |   | (95    | )                          |  |   | (104                       | ) |  |   | (208   | )
|                           |  |                                               |        |  
|Net income (loss)          |  | $                                             | 175    |   |                                | $ | 183    |                            |  | $ | 202                        |   |  | $ | 405    |  
|                           |  |                                               |        |  
|Earnings per share:        |  |                                               |        |   |                                |   |        |                            |  |   |                            |   |  |   |        |  
|Basic                      |  |                                               | .05    |   |                                |   | .05    |                            |  |   | .06                        |   |  |   | .11    |  
|Diluted                    |  |                                               | .04    |   |                                |   | .04    |                            |  |   | .05                        |   |  |   | .10    |  
|                           |  |                                               |        |  
|                           |  | Quarter EndedDecember 31,2002                 |        |   | Quarter EndedSeptember 30,2002 |   |        | Quarter EndedJune 30, 2002 |  |   | Quarter EndedMarch 31,2002 |  
|                           |  | (Dollars in Thousands, except for Share Data) |       
|Interest income            |  | $                                             | 4,631  |   |                                | $ | 4,640  |                            |  | $ | 3,797                      |   |  | $ | 3,402  |  
|Net interest income        |  |                                               | 2,419  |   |                                |   | 2,355  |                            |  |   | 1,793                      |   |  |   | 1,697  |  
|Provision for loan losses  |  |                                               | (1,716 | ) |                                |   | (655   | )                          |  |   | (657                       | ) |  |   | (225   | )
|Loss before income taxes   |  |                                               | (2,066 | ) |                                |   | (1,329 | )                          |  |   | (783                       | ) |  |   | (1,041 | )
|Income taxes               |  |                                               | (715   | ) |                                |   | (419   | )                          |  |   | (346                       | ) |  |   | (293   | )
|                           |  |                                               |        |  
|Net income (loss)          |  | $                                             | (1,351 | ) |                                | $ | (910   | )                          |  | $ | (437                       | ) |  | $ | (748   | )
|                           |  |                                               |        |  
|Earning per share          |  |                                               |        |   |                                |   |        |                            |  |   |                            |   |  |   |        |  
|Basic                      |  |                                               | (.39   | ) |                                |   | (.25   | )                          |  |   | (.12                       | ) |  |   | (.24   | )
|Diluted                    |  |                                               | (.39   | ) |                                |   | (.25   | )                          |  |   | (.12                       | ) |  |   | (.24   | )



23.
SUBSEQUENT EVENT



Metropolitan Life Insurance
Company



The Corporation signed an agreement with
Metropolitan Life Insurance Company to provide insurance and brokerage services to customers of the Bank beginning in 2004. As a part of this process, Millennium Bankshares will change from a bank holding company to a financial holding company,
effective February 22, 2004.



Public Offering



The Board of Directors has authorized management to begin
the process of a public offering for additional shares of common stock. The net proceeds from this offering will be used for general corporate purposes and to redeem the warrants. As a part of this process, the Corporation will first offer common
shares at $5 per share to holders of the Corporations warrants that were issued in 1999. Any warrants not exercised will be redeemed by the Corporation.



F-31



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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: March 18, 2004 |  |  |  | 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) |  | March 18, 2004
|                                              |  |                                                                                           
|/s/    Janet A. ValentineJanet A. Valentine   |  | Chief Financial Officer (Principal Financial and Accounting Officer)                       |  | March 18, 2004
|                                              |  |                                                                                           
|/s/    Michael Colen                          |  | Director                                                                                   |  | March 18, 2004
|Michael Colen                                 |  |                                                                                            |  |               
|                                              |  |                                                                                           
|/s/    L. James DAgostinoL. James DAgostino |  | Director                                                                                   |  | March 18, 2004
|                                              |  |                                                                                           
|/s/    Susan B. GreggSusan B. Gregg           |  | Director                                                                                   |  | March 18, 2004
|                                              |  |                                                                                           
|/s/    William P. HaggertyWilliam P. Haggerty |  | Director                                                                                   |  | March 18, 2004
|                                              |  |                                                                                           
|Stewart R.
Little                             |  | Director                                                                                   |  | March 18, 2004
|                                              |  |                                                                                           
|/s/    David B. MoreyDavid B. Morey           |  | Director                                                                                   |  | March 18, 2004
|                                              |  |                                                                                           
|Gregory L.
Oxley                              |  | Director                                                                                   |  | March 18, 2004



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##### Table of Contents

|                                          |  |          |  |               
|----------------------------------------- |  | -------- |  | --------------
|Signature                                 |  | Title    |  | Date          
|                                          |  |         
|Rolando
Santos                            |  | Director |  | March 18 2004 
|                                          |  |         
|/s/    Robert T. SmootRobert T. Smoot     |  | Director |  | March 18 2004 
|                                          |  |         
|/s/    Douglas K. TurnerDouglas K. Turner |  | Director |  | March 18, 2004
|                                          |  |         
|/s/    Arthur J. NovickArthur J. Novick   |  |          |  |               





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##### Table of Contents

EXHIBIT INDEX



|       |  |                                                                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                
|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.                                                                                                                                                              
|       | 
|4.2    |  | Form of Warrant Agreement, attached as Exhibit 4.2 to the Form SB-2, incorporated herein by reference.                                                                                                                                                                     
|       | 
|10.1   |  | Employment Contract, dated as of February 8, 2001, between Millennium Bankshares Corporation, Millennium Bank and Carroll C. Markley, attached as Exhibit 10.1 to the Form SB-2, incorporated
herein by reference.                                                         
|       | 
|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 between Millennium Bank and Janet A. Valentine, dated July 29, 2002, attached as Exhibit 10.1 to the Quarterly Report on Form 10-QSB for the period ended
September 30, 2002, incorporated herein by reference.                             
|       | 
|10.5   |  | Executive Employment Agreement between Millennium Bank and Anita L. Shull, dated July 29, 2002, attached as Exhibit 10.7 to the Annual Report on Form 10-KSB for the year ended December 31,
2002 (the 2002 Form 10-KSB), incorporated herein by reference.              
|       | 
|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   |  | Amendment to Employment Agreement of Carroll C. Markley dated November 13, 2003, attached as Exhibit 10.1 to the Quarterly Report on Form 10-QSB for the period ended September 30, 2003,
incorporated herein by reference.                                                



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##### Table of Contents

|     |  |                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------
|21   |  | List of Subsidiaries, attached as Exhibit 21 to the 2002 Form 10-KSB, incorporated herein by reference.
|     | 
|23   |  | Consent of Thompson, Greenspon & Co., P.C.                                                             
|     | 
|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.