FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                  15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2001

                                       OR

                 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
                  15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to
                                -----------    -----------

Commission File No.  000-31951
                     ---------

                                 MONROE BANCORP
                                 --------------
             (Exact name of registrant as specified in its charter)

          Indiana                                   35-1594 017
-------------------------------         ---------------------------------
(State or other jurisdiction of         (IRS Employer Identification No.)
incorporation or organization)


                            210 East Kirkwood Avenue
                              Bloomington, IN 47408
                    (Address of principal executive offices)
                                   (Zip Code)
                                 (812) 336-0201
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes  X    No
                                     ---      ---

Outstanding Shares of Common Stock on October 31, 2001:  6,100,840
                                                         ---------

<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                                    FORM 10-Q

                                      INDEX
                                                                        Page No.
                                                                        --------

Forward Looking Statements.....................................................3


Part I. Financial Information:

    Item 1.  Financial Statements:

                  Consolidated Condensed Balance Sheet.........................4

                  Consolidated Condensed Statement of Income - Nine Months.....5

                  Consolidated Condensed Statement of Income - Three Months....6

                  Consolidated Condensed Statement of Shareholders' Equity.....7

                  Consolidated Condensed Statement of Cash Flows...............8

                  Notes to Consolidated Condensed Financial Statements.........9

    Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations........................10

    Item 3.  Quantitative and Qualitative Disclosures about Market Risk.......14

Part II. Other Information:

    Item 1.  Legal Proceedings................................................18

    Item 2.  Changes In Securities............................................18

    Item 3.  Defaults Upon Senior Securities..................................18

    Item 4.  Submission of Matters to a Vote of Security Holders..............18

    Item 5.  Other Information................................................18

    Item 6a. Exhibits.........................................................18

    Item 6b. Reports Filed on Form 8-K........................................18

Signatures....................................................................19

                                       2
<PAGE>

Forward Looking Statements
--------------------------

This Quarterly Report on Form 10-Q, including Management's Discussion and
Analysis, contains statements which constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places in this Quarterly Report and include
statements regarding the intent, belief, outlook, estimate or expectations of
Monroe Bancorp and subsidiary (the "Company"), its directors or its officers
primarily with respect to future events and the future financial performance of
the Company. Readers of this Quarterly Report are cautioned that any such
forward looking statements are not guarantees of future events or performance
and involve risks and uncertainties, and that actual results may differ
materially from those in the forward looking statements as a result of various
factors. The accompanying information contained in this Quarterly Report
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
financial institutions; substantial changes in financial markets; changes in
real estate values and the real estate market or regulatory changes.



                                       3
<PAGE>


Item 1.           Financial Statements
-------           ---------------------

                          MONROE BANCORP AND SUBSIDIARY
                      Consolidated Condensed Balance Sheet
                                   (Unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    September 30,   December 31,
                                                                         2001           2000
                                                                      ---------      ---------
<S>                                                                   <C>            <C>
Assets
     Cash and due from banks ....................................     $  25,621      $  19,483
       Federal funds sold .......................................                        6,500
                                                                      ------------------------
            Cash and cash equivalents ...........................        25,621         25,983
     Trading securities .........................................         2,870          3,171
     Investment securities
         Available for sale .....................................        18,171         23,636
         Held to maturity .......................................        65,288         75,443
                                                                      ------------------------
              Total investment securities .......................        83,458         99,079
       Loans held for sale ......................................         1,823            794
     Loans, net of allowance for loan losses of $3,912 and $3,873       342,783        292,092
     Premises and equipment .....................................        10,990         10,447
     Federal Home Loan Bank of Indianapolis stock, at cost ......         1,350          1,257
     Interest receivable and other assets .......................         8,578          9,008
                                                                      ------------------------

         Total assets ...........................................     $ 477,474      $ 441,831
                                                                      ========================

Liabilities
     Deposits
         Noninterest-bearing ....................................     $  58,832      $  58,846
         Interest-bearing .......................................       304,441        284,149
                                                                      ------------------------
              Total deposits ....................................       363,273        342,995
     Short-term borrowings ......................................        43,621         48,871
     Long-term debt .............................................        24,177          6,542
     Interest payable and other liabilities .....................         6,427          5,691
                                                                      ------------------------
         Total liabilities ......................................       437,498        404,099
                                                                      ------------------------

Commitments and Contingent Liabilities

Shareholders' Equity
     Common stock, no-par value
         Authorized - 18,000,000 shares
         Issued and outstanding -6,100,840 and 6,150,240 shares,
                    respectively ................................           137            137
     Additional paid-in capital .................................         2,782          3,346
     Retained earnings ..........................................        36,742         34,392
     Accumulated other comprehensive income .....................           423            (35)
     Unearned ESOT shares .......................................          (108)          (108)
                                                                      ------------------------
            Total shareholders' equity ..........................        39,976         37,732
                                                                      ------------------------
         Total liabilities and shareholders' equity .............     $ 477,474      $ 441,831
                                                                      ========================
</TABLE>

See notes to consolidated condensed financial statements.

                                       4
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                   Consolidated Condensed Statement of Income
                                   (Unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                                                                    September 30
                                                              ----------------------
                                                                2001          2000
                                                              ----------------------
<S>                                                           <C>           <C>
Interest Income
     Loans, including fees ..............................     $ 20,208      $ 19,015
     Trading securities .................................           62            61
     Investment securities
         Taxable ........................................        2,677         3,015
         Tax exempt .....................................          962         1,146
     Federal funds sold .................................           82           126
                                                              ----------------------
         Total interest income ..........................       23,991        23,363
                                                              ----------------------

Interest Expense
     Deposits ...........................................        9,948         9,571
     Short-term borrowings ..............................        1,085         1,592
     Long-term debt .....................................          473           496
                                                              ----------------------
         Total interest expense .........................       11,506        11,659
                                                              ----------------------

Net Interest Income .....................................       12,485        11,704
     Provision for loan losses ..........................          545           540
                                                              ----------------------
Net Interest Income After Provision for Loan Losses .....       11,940        11,164
                                                              ----------------------

Other Income
     Trust fees .........................................          651           598
     Service charges on deposit accounts ................        1,540         1,123
     Commission income ..................................          503           506
     Securities gains ...................................            4             6
     Unrealized loss on trading securities ..............         (412)          (16)
     Gain on sale of loans ..............................          311           148
     Other operating income .............................          724           590
                                                              ----------------------
         Total other income .............................        3,321         2,955
                                                              ----------------------

Other Expenses
     Salaries and employee benefits .....................        5,510         4,977
     Premises and equipment .............................        1,447         1,361
     Advertising ........................................          386           318
     Appreciation (depreciation) on directors' deferred
            compensation plan ...........................         (356)           45
     Other operating expense ............................        1,580         1,442
                                                              ----------------------
         Total other expenses ...........................        8,567         8,143
                                                              ----------------------

Income Before Income Tax ................................        6,694         5,976
     Income tax expense .................................        2,321         1,975
                                                              ----------------------

Net Income ..............................................     $  4,373      $  4,001
                                                              ======================

Basic earnings per share ................................     $    .71      $    .65
Diluted earnings per share ..............................          .71           .65
</TABLE>

See notes to consolidated condensed financial statements.

                                       5
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                   Consolidated Condensed Statement of Income
                                   (Unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                  September 30
                                                              --------------------
                                                                2001         2000
                                                              --------------------
<S>                                                           <C>          <C>
Interest Income
     Loans, including fees ..............................     $ 6,812      $ 6,706
     Trading securities .................................          19           22
     Investment securities
         Taxable ........................................         799          982
         Tax exempt .....................................         308          366
     Federal funds sold .................................          13           66
                                                              --------------------
         Total interest income ..........................       7,951        8,142
                                                              --------------------

Interest Expense
     Deposits ...........................................       3,097        3,457
     Short-term borrowings ..............................         252          611
     Long-term debt .....................................         240           99
                                                              --------------------
         Total interest expense .........................       3,589        4,167
                                                              --------------------

Net Interest Income .....................................       4,362        3,975
     Provision for loan losses ..........................         225          180
                                                              --------------------
Net Interest Income After Provision for Loan Losses .....       4,137        3,795
                                                              --------------------

Other Income
     Trust fees .........................................         216          207
     Service charges on deposit accounts ................         490          374
     Commission income ..................................         192          173
     Securities gains (losses) ..........................           1           (4)
     Unrealized gain (loss) on trading securities .......        (275)          (7)
     Gain on sale of loans ..............................          81           57
     Other operating income .............................         193          210
                                                              --------------------
         Total other income .............................         898        1,010
                                                              --------------------

Other Expenses
     Salaries and employee benefits .....................       1,945        1,695
     Premises and equipment .............................         481          445
     Advertising ........................................         135           97
     Appreciation (depreciation) on directors' deferred
            compensation plan ...........................        (259)          11
     Other operating expense ............................         551          481
                                                              --------------------
         Total other expenses ...........................       2,853        2,729
                                                              --------------------

Income Before Income Tax ................................       2,182        2,076
     Income tax expense .................................         760          678
                                                              --------------------

Net Income ..............................................     $ 1,422      $ 1,398
                                                              ====================

Basic earnings per share ................................     $   .23      $   .23
Diluted earnings per share ..............................         .23          .23
</TABLE>

See notes to consolidated condensed financial statements.

                                       6
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
            Consolidated Condensed Statement of Shareholders' Equity
                  For the Nine Months Ended September 30, 2001
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                           Unearned
                                    Common Stock                                             Accumulated   Employee
                               ---------------------- Additional                               Other        Stock
                                  Shares               Paid In    Comprehensive  Retained   Comprehensive  Ownership
                               Outstanding   Amount    Capital        Income     Earnings   Income (Loss) Trust Shares     Total
                               ----------------------------------------------------------------------------------------------------
<S>                              <C>           <C>      <C>         <C>           <C>           <C>         <C>           <C>
Balances, January 1, 2001        6,150,240     $ 137    $ 3,346                   $34,392       $ (35)      $ (108)       $ 37,732

Comprehensive Income:
    Net income for the period                                         $ 4,373       4,373                                    4,373
    Unrealized gains on securities                                        458                      458                         458
    Cash dividend ($.33 per share)                                                 (2,023)                                  (2,023)
    Common stock purchased                                 (571)                                                              (571)
    ESOT shares earned                                        7                                                                  7
                               ----------------------------------------------------------------------------------------------------

Balances, September 30, 2001     6,150,240     $ 137     $2,782       $ 4,831     $36,742        $ 423      $ (108)        $39,976
                               ====================================================================================================
</TABLE>

See notes to consolidated condensed financial statements.

                                       7
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                 Consolidated Condensed Statement of Cash Flows
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                  Nine Months Ended
                                                                                    September 30,
                                                                               ----------------------
                                                                                 2001          2000
                                                                               ----------------------
<S>                                                                            <C>           <C>
Operating Activities
     Net income ..........................................................     $  4,373      $  4,001
     Adjustments to reconcile net income to net cash provided by
           operating activities
       Provision for loan losses .........................................          545           540
       Depreciation and amortization .....................................          560           526
       Deferred income tax ...............................................          256           110
       Investment securities amortization ................................          178           236
       Securities (gain) loss ............................................           (4)            1
       Origination of loans held for sale ................................      (28,198)      (11,890)
       Proceeds from sale of loans held for sale .........................       27,480        12,487
       Gain on sale of loans held for sale ...............................         (311)         (148)
       ESOT compensation .................................................            7           (12)
       Net change in:
         Trading securities ..............................................          304           (31)
         Interest receivable and other assets ............................         (130)       (1,169)
         Interest payable and other liabilities ..........................          736           342
                                                                               ----------------------
              Net cash provided by operating activities ..................        5,796         4,993
                                                                               ----------------------

Investing Activities
     Purchases of securities available for sale ..........................       (3,529)         (128)
     Proceeds from sales of securities available for sale ................           63           265
     Proceeds from paydowns and maturities of securities
            available for sale ...........................................        9,670         1,393
     Purchases of securities held to maturity ............................         (312)       (2,003)
     Proceeds from paydowns and  maturities of securities held to maturity       10,313         8,853
     Purchase of FHLB stock ..............................................          (93)          (74)
     Net change in loans .................................................      (51,236)      (20,142)
     Purchases of premises and equipment .................................       (1,103)         (635)
                                                                               ----------------------
              Net cash used by investing activities ......................      (36,227)      (12,471)
                                                                               ----------------------

Financing Activities
     Net change in
       Noninterest-bearing, interest-bearing demand and savings deposits .       16,099        17,048
       Certificates of deposit ...........................................        4,179         8,201
       Short-term borrowings .............................................       (5,250)         (789)
     Proceeds of long-term debt ..........................................       19,683           -
     Repayment of long-term debt .........................................       (2,048)       (9,603)
     Cash dividends paid .................................................       (2,023)       (1,839)
     Repurchases of common stock .........................................         (571)          -
                                                                               ----------------------
              Net cash provided (used) by financing activities ...........       30,069        13,018
                                                                               ----------------------
Net Change in Cash and Cash Equivalents ..................................         (362)        5,540
Cash and Cash Equivalents, Beginning of Period ...........................       25,983        17,404
                                                                               ----------------------

Cash and Cash Equivalents, End of Period .................................     $ 25,621      $ 22,944
                                                                               ======================

Supplemental cash flow disclosures
     Interest paid .......................................................     $ 11,561      $ 11,446
     Income tax paid .....................................................        2,260         1,745
</TABLE>

See notes to consolidated condensed financial statements.

                                       8
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
              Notes to Consolidated Condensed Financial Statements
                               September 30, 2001
                                   (Unaudited)

Note 1: Basis of Presentation
-----------------------------

The consolidated financial statements include the accounts of Monroe Bancorp
(the "Company") and its wholly owned subsidiary, Monroe Bank, a state chartered
bank (the "Bank"). A summary of significant accounting policies is set forth in
Note 1 of Notes to Financial Statements included in the December 31, 2000,
Annual Report to Shareholders. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The interim consolidated financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.

The interim consolidated financial statements at September 30, 2001, and for the
nine months and three months ended September 30, 2001 and 2000, have not been
audited by independent accountants, but reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
such periods.


Note 2: Earnings Per Share
--------------------------

The number of shares used to compute basic and diluted earnings per share was as
follows:

                                                 Nine months ended
                                                 -----------------
                                     September 30, 2001    September 30, 2000
                                     ------------------    ------------------
Weighted average shares outstanding      6,145,025              6,150,240
Average unearned ESOT shares                (8,051)              (18,134)
                                        ----------            ----------
   Shares used to compute basic and
       diluted earnings per share        6,136,974            6,132,106
                                        ==========            ==========


                                                Three months ended
                                                ------------------
                                     September 30, 2001    September 30, 2000
                                     ------------------    ------------------
Weighted average shares outstanding      6,134,766              6,150,240
Average unearned ESOT shares                (5,525)               (15,635)
                                        ----------             ----------
   Shares used to compute basic and
       diluted earnings per share        6,129,241              6,134,605
                                        ==========              ==========

Unexercised option shares outstanding at September 30, 2001 and 2000 were not
included in the earnings per share calculation because the exercise price
exceeded the market price.

                                       9
<PAGE>

Item 2.           Management's Discussion and Analysis of Financial Condition
-------           and Results of Operations
                  -----------------------------------------------------------

General
-------

Monroe Bancorp (the "Company") is a one-bank holding company formed under
Indiana law in 1984. The Company holds all of the outstanding stock of Monroe
Bank, formerly Monroe County Bank, (the "Bank"), which was formed in 1892.
Banking is the primary business activity of the Company.


The Bank, with its primary offices located in Bloomington, Indiana, conducts
business from sixteen locations in Monroe, Jackson, Lawrence, and Hendricks
Counties, Indiana. Approximately 85% of the Bank's business is in Monroe County
and is concentrated in and around the city of Bloomington.

The Bank is a traditional community bank which provides a variety of financial
services to its customers, including:

o    accepting deposits;
o    making commercial, mortgage and installment loans;
o    originating fixed rate residential mortgage loans for sale into the
     secondary market;
o    providing personal and corporate trust services;
o    providing investment advisory and brokerage services; and
o    providing fixed annuities and other insurance products.

The majority of the Bank's revenue is derived from interest and fees on loans
and investments, and the majority of its expense is interest paid on deposits
and general and administrative expenses related to its business.

Market Expansion
----------------
The Company has recently opened two branch offices in eastern Hendricks County,
which is adjacent to Marion County and Indianapolis, Indiana. The Company's
motive for entering this high growth market is to develop additional sources of
business growth.

The Company opened its first branch in September of this year. The branch was
located in the town of Avon. A second branch opened in October (Plainfield) and
a third Hendricks County branch is planned to open late in the first quarter of
2002. Additional offices may be developed in surrounding communities as the
Company refines its expansion strategies and tactics which are derived from
three core concepts:

     o    Hire experienced and established professionals from within the market.
          This accelerates the Bank's ability to build name recognition and
          credibility in the new market.
     o    Avoid the start-up expense associated with pursuing the mass retail
          market. Instead open relatively low cost offices in professional
          buildings. Target marketing efforts to the high potential commercial
          real estate, residential mortgage, and large depositor segments.
     o    Stress community involvement and business development activities
          supported by the involvement of executives from the Company's primary
          market.

Early results of the expansion strategy are encouraging. As of November 2, 2001,
the Company's Hendricks County initiative has added $7.2 million of loans to its
portfolio and over $5.0 million to its deposit base.

                                       10
<PAGE>

Results of Operations
---------------------

Overview
--------
Net income for the third quarter 2001 was $1.4 million a 1.7% increase over the
same quarter last year. Basic and diluted earnings per share were $0.23 for the
three months ended September 30, 2001 and 2000. Net income was $4.4 million for
the nine-month period ended September 30, 2001 which represents a 9.3% increase
over the $4.0 million net income in the nine-month period ended September 30,
2000. Basic and diluted earnings per share were $0.71 for the nine months ended
September 30 2001, compared to $0.65 for the nine months ended September 30,
2000.

Annualized return on average equity (ROE) for the third quarter decreased to
14.08% compared with 15.30% for the same quarter last year. The annualized
return on average assets (ROA) was 1.21% for the third quarter of 2001 compared
with 1.28% for the same period in 2000. For the nine-month periods ended
September 30, 2001 and 2000, annualized ROE was 14.89% and 15.00%, respectively,
while the annualized ROA was 1.30% and 1.25%, respectively.

The growth in net income shown between the first nine months of 2001 and the
same period in 2000 can be attributed to growth in our core lending business, an
increase in mortgage loan sales, the maturity of high yielding time deposits and
an improvement in back office efficiency. As expected, investment in opening the
Company's new Hendricks County branches had a slight adverse impact on ROA and
ROE during the third quarter.

As of September 30, 2001, year-to-date dividends paid were 0.33 per share,
compared to 0.30 per share for the same period in 2000, an increase of 10.0%. At
September 30, 2001 the dividend yield was 4.04% compared to 4.26% at September
30, 2000. The decrease in yield occurred due to an increase in the market value
of the stock. In keeping with management's strategy, the Company has increased
the dividend rate each year for more than 15 years.

Net Interest Income / Net Interest Margin
-----------------------------------------
Net interest income is the primary source of the Company's earnings. It is a
function of the net interest margin and the volume of average earning assets.
The tax-equivalent net interest margin was 4.19% for the quarter ended September
30, 2001, compared to 4.13% for the same quarter last year. The 2001 year to
date tax-equivalent margin was also 4.19%, compared to 4.17% for the same period
last year. Strong loan growth coupled with the maturity of high yielding time
deposits has helped to increase the margin.

Net interest income after the provision for loan losses was $4.1 million for the
three months ended September 30, 2001 compared to $3.8 million for the same
period in 2000, an increase of 9.0%. Total interest income decreased by
$191,000, or 2.3%, for the third quarter of 2001 compared to the third quarter
of 2000. This decrease was the result of a decrease in the average
tax-equivalent yield on earning assets to 7.5% compared to 8.3% for the third
quarter of 2000. This decrease reflects the declining interest rate environment
experienced during 2001. The average balance of loans increased to $338.4
million during the third quarter of 2001 compared to $293.7 million for the same
period in 2000. This growth was partially offset by a decrease in the average
balance of investment securities to $86.7 million in the third quarter of 2001
compared to $102.7 million in the third quarter of 2000. Interest expense
decreased $578,000 for the third quarter of 2001 compared to the third quarter
of 2000. This decrease resulted from a decrease in the average rate paid on
interest bearing liabilities to 4.0% during the third quarter of 2001 from 4.9%
for the same quarter in 2000. Average interest bearing liabilities increased
$23.2 million in the third quarter of 2001 compared to 2000. The Company's net
interest margin improved to 4.2% for the third quarter of 2001 compared to 4.1%
for the third quarter of 2000.

                                       11
<PAGE>

For the nine months ended September 30, 2001, net interest income after the
provision for loan losses was $11.9 million compared to $11.2 million for the
same period in 2000, an increase of 6.9%. Total interest income increased by
$628,000, or 2.7%, compared to the same period in 2000. This growth resulted
from the increase in the average balance of loans which overcame the negative
impact caused by the decline in interest rates. Average loans totaled $316.8
million for the first nine months of 2001 compared to $284.4 million for the
same period in 2000, an increase of 11.4%. This growth was partially offset by a
decrease in the average balance of investment securities to $93.7 million for
the first nine months of 2001 compared to $105.9 for the same period of 2000.

The tax equivalent yield on earning assets decreased to 7.9% for the first nine
months of 2001 compared to 8.1% for the same period in 2000. The rate on
interest bearing liabilities decreased to 4.4% for the first nine months of 2001
from 4.7% for the same period in 2000. Once again these decreases primarily
reflected the declining interest rate environment experienced during 2001. The
Company's net interest margin remained virtually unchanged at 4.2% for the first
nine months of 2001 and 2000.

Noninterest Income / Noninterest Expense
----------------------------------------
Total noninterest income decreased $112,000 for the three months ended September
30, 2001 compared to the same period in 2000. Unrealized securities gains and
losses are comprised entirely of net unrealized gains and losses on trading
securities (mutual funds) held in a grantor trust ("rabbi trust") in connection
with the Company's Directors' Deferred Compensation Plan. These securities are
held as trading securities, hence, unrealized gains and losses are recognized on
the income statement. Any net unrealized loss is directly offset by a decrease
to directors' fee expense, and conversely, any net unrealized gain is directly
offset by an increase to directors' fee expense. This is included in the line
item identified on page 5 of the consolidated condensed financial statements as
"Appreciation (depreciation) on directors' deferred compensation plan." The
activity in the rabbi trust has no effect on the Company's net income.

Omitting the unrealized losses/gains on the rabbi trust from 2001 and 2000,
noninterest income increased $156,000 or 15.3% during the third quarter of 2001
compared to the third quarter of 2000. This growth mainly occurred in two areas.
Service charges increased $116,000 or 31.0%, mainly due to the introduction of a
new product, the Overdraft Protector. The Bank also sells substantially all
fixed rate residential mortgage loans it originates on the secondary market.
Gains on these sales increased $24,000 during the third quarter of 2001 compared
to 2000, or 42.1%, primarily because the Company expanded its marketing and loan
origination efforts to take advantage of the opportunity created by decreases in
interest rates which have prompted customers to refinance their home mortgages.

For the first nine months of 2001, noninterest income increased $366,000 or
12.4% over the same period for 2000. Omitting the unrealized gains and losses
from the rabbi trust, noninterest income increased $762,000 or 25.6%. As
mentioned above, the majority of these increases occurred in service charges
which increased $417,000 and in gains on the sale of mortgages in the secondary
market which increased $163,000.

Total other noninterest expense increased $124,000 during the third quarter of
2001 compared to the same period in 2000. As previously discussed, the net
unrealized losses on trading securities in the rabbi trust directly increased
director fee expense in 2001, and the net unrealized gains decreased directors'
fees in 2000. Without the effect of the rabbi trust on 2001 and 2000, other
noninterest expense increased $394,000 or 14.5%. Salaries and employee benefits
increased $250,000 or 14.8% primarily for two reasons. First, the Company hired
new employees to staff its new Hendricks County branches and second, commission
expense, which is included in salaries, also increased because higher
commissions were paid to mortgage loan originators due to increased volume.

For the first nine months of 2001, noninterest expense increased $423,000 or
5.2% over the same period of 2000. Without the effect of the rabbi trust
unrealized gains/losses on directors' fee expense, noninterest expense increased
$825,000 or 10.2%. Once again, the bulk of this increase occurred in salaries
and employee

                                       12
<PAGE>

benefits, which increased $533,000 or 10.7% due to annual raises, increased
commissions, plus additions to staff for the Hendricks County branches.

Financial Condition
-------------------

Assets and Liabilities
----------------------
Total assets of the Company increased 8.1%, or $35.6 million at September 30,
2001 compared to December 31, 2000. The Company experienced extremely strong
loan growth during 2001. The net loan portfolio (excluding loans held for sale)
grew 17.4% during the first nine months of 2001. Total investment securities
decreased by $15.6 million, or 15.8%, at September 30, 2001 compared to December
31, 2000. This occurred primarily because loan demand exceeded the growth of
average deposits and borrowed funds and as securities matured, proceeds were
used to fund loan growth. Deposits grew 5.9% during first nine months of 2001,
while short-term borrowings, primarily repurchase agreements, declined $5.3
million or 10.7%. This decrease occurred primarily because of two factors.
First, municipal repurchase agreements had an exceptionally high balance at
December 31, 2000. Second, several not-for-profit entities and municipalities
agreed to transfer their repurchase agreements to interest bearing demand
deposit accounts during the first nine months of 2001. This was done to
eliminate the need to purchase additional securities as collateral, which would
have had an adverse impact on the Company's margin. Long-term debt increased
$17.6 million or 269.6% during the first nine months of 2001. This increase is
attributed to an increase in Federal Home Loan Bank of Indianapolis (FHLBI)
advances. As interest rates have declined, the Company has obtained more longer
term FHLB advances to lock in these low rates for an extended period of time.

Capital
-------
Shareholders' equity increased $2.2 million at September 30, 2001 compared to
December 31, 2000. This increase was a result of year-to-date net income of $4.4
million, dividends paid of $2.0 million and other comprehensive income
(consisting solely of the change in net unrecognized gains in the Company's
available-for-sale securities portfolio) of $458,000.

The Company's capital continues to exceed regulatory minimums. At September 30,
2001, the Company had a Tier I risk-based capital ratio of 12.6%, total
risk-based capital ratio of 13.8%, and a leverage ratio of 8.5%. Regulatory
capital guidelines require a Tier I risk-based capital ratio of 4.0% and a total
risk-based capital ratio of 8.0%. Banks with Tier I risk-based capital ratios of
6.0% and total risk-based capital ratios of 10.0% are considered "well
capitalized."

Classification of Assets, Allowance for Loan Losses, and Nonperforming Loans
----------------------------------------------------------------------------
The Bank currently classifies loans internally to assist management in
addressing collection and other risks. These classified loans represent credits
characterized by the distinct possibility that some loss will be sustained if
deficiencies are not corrected. As of September 30, 2001, the Bank had $5.4
million of loans internally classified compared to $6.1 million at December 31,
2000. The allowance for loan losses was $3.9 million, or 1.1% of total loans at
September 30, 2001 compared to $3.9 million, or 1.3%, of total loans at December
31, 2000. A portion of classified loans are non-accrual loans. The Bank had
non-accrual loans totaling $907,000 at September 30, 2001 compared to $332,000
at December 31, 2000. At September 30, 2001, the Bank had $1.8 million of loans
90 days or more past due but still accruing, compared to $2.3 million at
December 31, 2000.

Liquidity and Capital Resources
-------------------------------

Liquidity refers to the ability of a financial institution to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals
and pay operating expenses. The primary sources of liquidity are cash,

                                       13
<PAGE>

interest-bearing deposits in other financial institutions, marketable
securities, loan repayments, increased deposits and total institutional
borrowing capacity.

Management believes that it has adequate liquidity for the Company's short and
long-term needs. Short-term liquidity needs resulting from normal
deposit/withdrawal functions are provided for by retaining a portion of cash
generated from operations and through utilizing federal funds and repurchase
agreements. Long-term liquidity and other liquidity needs are provided by the
ability of the Company to borrow from the Federal Home Loan Bank of Indianapolis
(FHLBI). FHLBI advances were $22.9 million at September 30, 2001 compared to
$6.5 million at December 31, 2000. As previously mentioned, interest rates have
declined substantially during 2001, and rates on longer term FHLBI advances have
become attractive.

Impact of Inflation and Changing Prices
---------------------------------------

The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles. These principles
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.

The primary assets and liabilities of the Company are monetary in nature.
Consequently, interest rates generally have a more significant impact on
performance than the effects of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services. In a period of rapidly rising interest rates, the
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels. The Company
constantly monitors the liquidity and maturity structure of its assets and
liabilities, and believes active asset/liability management has been an
important factor in its ability to record consistent earnings growth through
periods of interest rate volatility.

Other
-----

The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including Monroe
Bancorp (ticker symbol MROE). The address is http://www.sec.gov.

Item 3.           Quantitative and Qualitative Disclosures about Market Risk
-------           ----------------------------------------------------------

Market risk of the Company encompasses exposure to both liquidity risk and
interest rate risk and is reviewed on an ongoing basis by management and
quarterly by the Asset/Liability Committee ("ALCO") and the Board of Directors.
Liquidity was addressed as part of the discussion entitled "Liquidity and
Capital Resources."

The Company's interest sensitivity position at September 30, 2001 remained
adequate to meet the Company's primary goal of achieving optimum interest
margins while avoiding undue interest rate risk.

The Bank's interest rate risk is measured by computing estimated changes in net
interest income and the net portfolio value ("NPV") of its cash flows from
assets and liabilities in the event of adverse movements in interest rates.
Interest rate risk exposure is measured using an interest rate sensitivity
analysis to determine the change in NPV in the event of hypothetical changes in
interest rates. Another method also used to enhance the overall process is
interest rate sensitivity gap analysis. This method is utilized to determine the
repricing characteristics of the Bank's assets and liabilities.

NPV represents the market value of portfolio equity and is equal to the market
value of assets minus the market value of liabilities. This particular analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and sustained 1% - 3% (100 - 300 basis point) increase or decrease in
interest rates. The

                                       14
<PAGE>

Company's Board of Directors adopted an interest rate risk policy which
established a 10% maximum increase or decrease in the NPV in the event of a
sudden and sustained 2% (200 basis point) increase or decrease in interest
rates.

Beginning March 31, 2001, the Bank was able to use computer generated reports to
more accurately report the repricing of one-to-four family, multi-family and
nonfarm/nonresidential (i.e., commercial) variable rate mortgage loans (see "new
method" table). Prior to March 31, 2001, a single average number of months until
these loans repriced was calculated for each of these loan types (see "old
method" table).

The following two tables represent the Bank's projected change in NPV for the
various rate change (rate shock) levels as of September 30, 2001:

<TABLE>
<CAPTION>
                      Net Portfolio Value at September 30, 2001 (new method)
                      ------------------------------------------------------

     Change in Interest Rate            Dollar Amount         $ Change in         % Change in
          (basis points)               (in thousands)              NPV                 NPV
          --------------               --------------              ---                 ---
<S>            <C>                        <C>                 <C>                   <C>
               +300                        $ 55,371            $ (1,223)             (2.16)%
               +200                          55,806                (788)             (1.39)
               +100                          56,219                (375)             (0.66)
                  0                          56,594                 ---                ---
               -100                          56,937                 343               0.60
               -200                          57,162                 568               1.00
               -300                          62,558               5,964              10.54

                       Net Portfolio Value at September 30, 2001 (old method)
                       ------------------------------------------------------

     Change in Interest Rate            Dollar Amount         $ Change in         % Change in
          (basis points)               (in thousands)              NPV                 NPV
          --------------               --------------              ---                 ---
               +300                        $ 62,054            $  4,670               8.14%
               +200                          60,611               3,227               5.62
               +100                          59,066               1,682               2.93
                  0                          57,384                 ---                ---
               -100                          55,548              (1,836)             (3.20)
               -200                          53,471              (3,913)             (6.82)
               -300                          51,534              (5,850)            (10.19)

</TABLE>

The following table represents the Bank's projected change in NPV for the
various rate shock levels as of December 31, 2000 under the old method:

<TABLE>
<CAPTION>
                       Net Portfolio Value at December 31, 2000 (old method)
                       -----------------------------------------------------

     Change in Interest Rate            Dollar Amount         $ Change in         % Change in
          (basis points)               (in thousands)              NPV                 NPV
          --------------               --------------              ---                 ---
<S>           <C>                        <C>                  <C>                   <C>
               +300                        $ 58,148             $ 1,316               2.32%
               +200                          57,766                 934               1.64
               +100                          57,324                 492               0.87
                  0                          56,832                 ---                ---
               -100                          56,125                (707)             (1.24)
               -200                          55,096              (1,736)             (3.05)
               -300                          53,858              (2,974)             (5.23)
</TABLE>

                                       15
<PAGE>

The rates in effect after the prime cut on October 2, 2001, were used for this
analysis. At that time, prime was 5.5% and the federal funds rate was 2.5%. We
believe a 300 basis point (3%) decrease in rates is not possible, therefore, we
will focus our discussion on the effects of a 200 basis point increase and
decrease.

The September 30, 2001 (new method) table above indicates that the Bank's
estimated NPV would be expected to decrease by 788 basis points as of September
30, 2001 in the event of a sudden and sustained 200 basis point increase in
interest rates. In the event of sudden and sustained 200 basis point decrease in
prevailing interest rates, the Bank's estimated NPV would be expected to
increase 568 basis points. As of September 30, 2001 the Company's estimated
changes in NPV were well within the approved guidelines established by the Board
of Directors.

When the September 30, 2001 change in NPV is calculated using the old method of
averaging the repricing term of these loans (September 30, 2001 "old method"
table above), the change in NPV moves in the same direction as the change in NPV
at December 31, 2000. The magnitude of the change, both up and down was greater
at September 30, 2001 than at December 31, 2000, but both are within the
approved guidelines established by the Board of Directors. Management does not
believe the gap between the maturities or repricing terms of the Bank's loans
and deposits/borrowings fluctuated significantly between December 31, 2000 and
September 30, 2001.

Computations of prospective effects of hypothetical interest rate changes are
based on a number of assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-off rates, and should not be relied upon
as indicative of actual results. These computations do not contemplate any
actions management may undertake in response to changes in interest rates. The
NPV calculation is based on the net present value of discounted cash flows
utilizing certain prepayment assumptions and market interest rates.

Certain shortcomings are inherent in the method of computing the estimated NPV.
Actual results may differ from that information presented in the table above
should market conditions vary from the assumptions used in preparation of the
table information. If interest rates remain or decrease below current levels,
the proportion of adjustable rate loans in the loan portfolio could decrease in
future periods due to refinancing activity. Also, in the event of an interest
rate change, prepayment and early withdrawal levels would likely be different
from those assumed in the table. Lastly, the ability of many borrowers to repay
their adjustable rate debt may decline during a rising interest rate
environment.

                       Impact of New Accounting Standards
                       ----------------------------------

Accounting for a Business Combination. Statement of Financial Accounting
Standards ("SFAS") No. 141 requires that all business combinations should be
accounted for using the purchase method of accounting; use of the pooling method
is prohibited. A business combination occurs when an enterprise acquires all or
a portion of the net assets that constitutes a business or equity interests of
one or more other enterprises and obtains control over the enterprise or
enterprises. All two-party and multi-party business combinations, including
"roll-up" and "put-together" transactions are included in the scope of this
Statement.

This Statement requires that goodwill be initially recognized as an asset in the
financial statement and measured as the excess of the cost of an acquired entity
over the net of the amounts assigned to identifiable assets acquired and
liabilities assumed. In addition, SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.

                                       16
<PAGE>

The provisions of Statement No. 141 are effective for any business combination
that is initiated after June 30, 2001.

Accounting for Goodwill. Under the provisions of SFAS No. 142, goodwill should
not be amortized but should be tested for impairment at the reporting unit
level. Impairment test of goodwill should be done on an annual basis unless
events or circumstances indicate impairment has occurred in the interim period.
The annual impairment test can be performed at any time during the year as long
as the measurement date is used consistently from year to year.

Impairment testing is a two step process. The first step is a comparison of the
fair value of a reporting unit to its carrying amount including goodwill. If the
fair value of the reporting unit is greater than its carrying value, goodwill is
not impaired and no further work is required. Companies should perform the first
step of the impairment test on all goodwill within six months of initially
applying the Statement. If the fair value is less, the second step should be
performed. The second step is to compare the fair value of goodwill to its
carrying amount. If the fair value of goodwill is less than its carrying value,
then the goodwill is deemed impaired and a loss recognized. Any impairment loss
recognized as a result of completing the transitional impairment test should be
treated as a change in accounting principle and recognized in the first interim
period financial statements.

The provisions of Statement No. 142 would be effective for fiscal years
beginning after December 15, 2001. Early adoption would be permitted for
companies with a fiscal year beginning after March 15, 2001 provided that the
first quarter financial statements have not been previously issued. In all
cases, the Statement must be adopted as of the beginning of a fiscal year.
Goodwill and intangible assets acquired in a transaction completed after June
30, 2001 but before this Statement is initially applied would be accounted for
in accordance with the amortization and nonamortization provisions of the
Statement. The useful economic life of previously recognized intangible assets
should be reassessed upon adoption of the Statement, and remaining amortization
periods should be adjusted accordingly. Intangible assets deemed to have an
indefinite life would no longer be amortized.

Since the Company has no legacy goodwill and is not currently in the process of
acquiring another company, the adoption of SFAS 141 and 142 will have no impact
on the Company's financial statements.





                                       17
<PAGE>

                           Part II - Other Information

Item 1.           Legal Proceedings.
-------           ------------------
                  None.

Item 2.           Changes in Securities.
-------           ----------------------
                  None

Item 3.           Defaults upon Senior Securities.
-------           --------------------------------
                  Not applicable.

Item 4.           Submission of Matters to a Vote by Security Holders.
-------           ----------------------------------------------------
                  None.

Item 5.           Other Information.
-------           ------------------
                  None.

Item 6a.          Exhibits.
--------          ---------

Exhibit No:       Description of Exhibit:
-----------       -----------------------

3 (i)             Monroe Bancorp Articles of Incorporation are incorporated by
                  reference to registrant's Form 10 filed November 14, 2000.

3 (ii)            Monroe Bancorp Bylaws are incorporated by reference to
                  registrant's Form 10 filed November 14, 2000.

10 (i)            1999 Directors' Stock Option Plan of Monroe Bancorp is
                  incorporated by reference to registrant's Form 10 filed
                  November 14, 2000.

10 (ii)           1999 Management Stock Option Plan of Monroe Bancorp is
                  incorporated by reference to registrant's Form 10 filed
                  November 14, 2000.

10 (iii)          Deferred Compensation Trust for Monroe Bancorp is incorporated
                  by reference to registrant's Form 10 filed November 14, 2000.

10                (iv) Monroe County Bank Agreement for Supplemental Death or
                  Retirement Benefits is incorporated by reference to
                  registrant's Form 10 filed November 14, 2000.

10 (v)            Monroe Bancorp Thrift Plan is incorporated by reference to
                  registrant's Form 10 filed November 14, 2000.

10 (vi)           Monroe Bancorp Employee Stock Ownership Plan is incorporated
                  by reference to registrant's Form 10 filed November 14, 2000.

Item 6b.          Reports filed on Form 8-K.
-------           --------------------------
                  Monroe  Bancorp filed an 8-K on July 11, 2001, to report a
                  press release issued June 29, 2001. The press release
                  discussed the name change of the Bank, from Monroe County Bank
                  to Monroe Bank, and contained an earnings release through May
                  31, 2001.

                  Monroe Bancorp filed an 8-K on August 3, 2001, to report a
                  press release issued August 2, 2001. The press release
                  announced that the Company authorized the purchase of up to
                  50,000 shares of Company stock to fund the Company's Employee
                  Stock Ownership Plan.

                                       18
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    MONROE BANCORP

    Date:    November 13, 2001      By: /s/ Mark D. Bradford
             -----------------          -------------------------------------
                                        Mark D. Bradford, President and
                                        Chief Executive Officer

    Date:    November 13, 2001      By: /s/ Kathryn E. Burns
             -----------------          -------------------------------------
                                        Kathryn E. Burns, Sr. Vice President,
                                        Chief Financial Officer






                                       19