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 June 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 July 31, 2001:  6,150,240
                                                      ---------

<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 - Six 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......13

Part II.  Other Information:

    Item 1.  Legal Proceedings...............................................16

    Item 2.  Changes In Securities...........................................16

    Item 3.  Defaults Upon Senior Securities.................................16

    Item 4.  Submission of Matters to a Vote of Security Holders.............16

    Item 5.  Other Information...............................................16

    Item 6a. Exhibits........................................................16

    Item 6b. Reports Filed on Form 8-K.......................................17

Signatures...................................................................18

                                       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>
                                                                      June 30,    December 31,
                                                                        2001         2000
                                                                   ---------------------------
<S>                                                                  <C>           <C>
Assets
     Cash and due from banks ....................................    $  21,512     $  19,483
     Federal funds sold .........................................        5,800         6,500
                                                                     -----------------------
       Cash and cash equivalents ................................       27,312        25,983
     Trading securities .........................................        3,113         3,171
     Investment securities
         Available for sale .....................................       17,936        23,636
         Held to maturity .......................................       66,545        75,443
                                                                     -----------------------
              Total investment securities .......................       84,481        99,079
     Loans held for sale ........................................          612           794
     Loans, net of allowance for loan losses of $3,890 and $3,873      319,323       292,092
     Premises and equipment .....................................       10,664        10,447
     Federal Home Loan Bank of Indianapolis stock, at cost ......        1,350         1,257
     Interest receivable and other assets .......................        8,793         9,008
                                                                     -----------------------

         Total assets ...........................................    $ 455,648     $ 441,831
                                                                     =======================

Liabilities
     Deposits
         Noninterest-bearing ....................................    $  53,880     $  58,846
         Interest-bearing .......................................      307,961       284,149
                                                                     -----------------------
              Total deposits ....................................      361,841       342,995
     Short-term borrowings ......................................       35,267        48,871
     Long-term debt .............................................       12,699         6,542
     Interest payable and other liabilities .....................        6,212         5,691
                                                                     -----------------------
         Total liabilities ......................................      416,019       404,099
                                                                     -----------------------

Commitments and Contingent Liabilities

Shareholders' Equity
     Common stock, no-par value
         Authorized - 18,000,000 shares
         Issued and outstanding -6,150,240 shares ...............          137           137
     Additional paid-in capital .................................        3,347         3,346
     Retained earnings ..........................................       35,992        34,392
     Accumulated other comprehensive income .....................          261           (35)
     Unearned ESOT shares .......................................         (108)         (108)
                                                                     -----------------------
            Total shareholders' equity ..........................       39,629        37,732
                                                                     -----------------------
            Total liabilities and shareholders' equity ..........    $ 455,648     $ 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>
                                                                Six Months Ended
                                                                    June 30
                                                             ---------------------
                                                               2001          2000
                                                             ---------------------
<S>                                                          <C>          <C>
Interest Income
     Loans, including fees ..............................    $ 13,396     $ 12,308
     Trading securities .................................          43           40
     Investment securities
         Taxable ........................................       1,878        2,033
         Tax exempt .....................................         654          779
       Federal funds sold ...............................          69           60
                                                             ---------------------
         Total interest income ..........................      16,040       15,220
                                                             ---------------------

Interest Expense
     Deposits ...........................................       6,851        6,115
     Short-term borrowings ..............................         833          980
     Long-term debt .....................................         233          396
                                                             ---------------------
         Total interest expense .........................       7,917        7,491
                                                             ---------------------

Net Interest Income .....................................       8,123        7,729
     Provision for loan losses ..........................         320          360
                                                             ---------------------
Net Interest Income After Provision for Loan Losses .....       7,803        7,369
                                                             ---------------------

Other Income
     Trust fees .........................................         435          391
     Service charges on deposit accounts ................       1,050          748
     Commission income ..................................         310          332
     Securities gains ...................................           4           10
     Unrealized loss on trading securities ..............        (137)          (9)
     Gain on sale of loans ..............................         229           91
     Other operating income .............................         531          382
                                                             ---------------------
         Total other income .............................       2,422        1,945
                                                             ---------------------

Other Expenses
     Salaries and employee benefits .....................       3,565        3,324
     Premises and equipment .............................         965          916
     Advertising ........................................         251          221
     Appreciation (depreciation) on directors' deferred
       compensation plan ................................         (96)          34
     Other operating expense ............................       1,029          919
                                                             ---------------------
         Total other expenses ...........................       5,714        5,414
                                                             ---------------------

Income Before Income Tax ................................       4,511        3,900
     Income tax expense .................................       1,560        1,297
                                                             ---------------------

Net Income ..............................................    $  2,951     $  2,603
                                                             =====================

Basic earnings per share ................................    $    .48     $    .42
Diluted earnings per share ..............................      .   48          .42
</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
                                                                June 30
                                                           ------------------
                                                             2001       2000
                                                           ------------------
<S>                                                        <C>        <C>
Interest Income
     Loans, including fees ............................    $ 6,682    $ 6,295
     Trading securities ...............................         23         18
     Investment securities
         Taxable ......................................        898      1,014
         Tax exempt ...................................        321        385
     Federal funds sold ...............................         30         58
                                                           ------------------
         Total interest income ........................      7,954      7,770
                                                           ------------------

Interest Expense
     Deposits .........................................      3,374      3,199
     Short-term borrowings ............................        333        511
     Long-term debt ...................................        137        182
                                                           ------------------
         Total interest expense .......................      3,844      3,892
                                                           ------------------

Net Interest Income ...................................      4,110      3,878
     Provision for loan losses ........................        170        180
                                                           ------------------
Net Interest Income After Provision for Loan Losses ...      3,940      3,698
                                                           ------------------

Other Income
     Trust fees .......................................        221        199
     Service charges on deposit accounts ..............        529        383
     Commission income ................................        196        190
     Securities gains (losses) ........................          1         (8)
     Unrealized gain (loss) on trading securities .....        108        (84)
     Gain on sale of loans ............................        137         62
     Other operating income ...........................        307        179
                                                           ------------------
         Total other income ...........................      1,499        921
                                                           ------------------

Other Expenses
     Salaries and employee benefits ...................      1,844      1,677
     Premises and equipment ...........................        475        451
     Advertising ......................................        134         98
     Appreciation (depreciation) on directors' deferred
       compensation plan ..............................        128        (69)
     Other operating expense ..........................        551        482
                                                           ------------------
         Total other expenses .........................      3,132      2,639
                                                           ------------------

Income Before Income Tax ..............................      2,307      1,980
     Income tax expense ...............................        803        659
                                                           ------------------

Net Income ............................................    $ 1,504    $ 1,321
                                                           ==================

Basic earnings per share ..............................    $   .24    $   .21
Diluted earnings per share ............................     .   24        .21
</TABLE>

See notes to consolidated condensed financial statements.

                                       6
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
            Consolidated Condensed Statement of Shareholders' Equity
                     For the Six Months Ended June 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                                          $ 2,951       2,951                                   2,951
    Unrealized gains on securities                                         296                      296                        296
    Cash dividend ($.22 per share)                                                  (1,351)                                 (1,351)
    ESOT shares earned                                         1                                                                 1
                               ----------------------------------------------------------------------------------------------------

Balances, June 30, 2001          6,150,240      $ 137     $3,347       $ 3,247     $35,992        $ 261       $ (108)      $39,629
                               ====================================================================================================
</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>
                                                                                Six Months Ended
                                                                                    June 30,
                                                                              ---------------------
                                                                                2001         2000
                                                                              ---------------------
<S>                                                                           <C>          <C>
Operating Activities
     Net income ..........................................................    $  2,951     $  2,603
     Adjustments to reconcile net income to net cash provided by
         operating activities
       Provision for loan losses .........................................         320          360
       Depreciation and amortization .....................................         370          354
       Deferred income tax ...............................................         148          (21)
       Investment securities amortization ................................         117          161
       Securities (gain) loss ............................................          (4)           2
       Origination of loans held for sale ................................     (16,295)      (7,393)
       Proceeds from sale of loans held for sale .........................      16,706        7,605
       Gain on sale of loans held for sale ...............................        (229)         (91)
       ESOT compensation .................................................          --            4
       Net change in:
         Trading securities ..............................................          62           (7)
         Interest receivable and other assets ............................        (129)        (556)
         Interest payable and other liabilities ..........................         521          (83)
                                                                              ---------------------
              Net cash provided by operating activities ..................       4,538        2,938
                                                                              ---------------------

Investing Activities
     Purchases of securities available for sale ..........................      (3,515)         (83)
     Proceeds from sales of securities available for sale ................          25          137
     Proceeds from paydowns and maturities of securities
         available for sale ..............................................       9,670        1,000
     Purchases of securities held to maturity ............................          --       (2,004)
     Proceeds from paydowns and  maturities of securities held to maturity       8,794        5,908
     Purchase of FHLB stock ..............................................         (93)         (74)
     Net change in loans .................................................     (27,551)     (17,627)
     Purchases of premises and equipment .................................        (587)        (474)
                                                                              ---------------------
              Net cash used by investing activities ......................     (13,257)     (13,217)
                                                                              ---------------------

Financing Activities
     Net change in
       Noninterest-bearing, interest-bearing demand and savings deposits .      23,856        4,561
       Certificates of deposit ...........................................      (5,010)      40,493
       Short-term borrowings .............................................     (13,604)      (9,460)
     Proceeds of long-term debt ..........................................       8,183           --
     Repayment of long-term debt .........................................      (2,026)      (9,098)
     Cash dividends paid .................................................      (1,351)      (1,228)
                                                                              ---------------------
              Net cash provided (used) by financing activities ...........      10,048       25,268
                                                                              ---------------------
Net Change in Cash and Cash Equivalents ..................................       1,329       14,989
Cash and Cash Equivalents, Beginning of Period ...........................      25,983       17,404
                                                                              ---------------------

Cash and Cash Equivalents, End of Period .................................    $ 27,312     $ 32,393
                                                                              =====================

Supplemental cash flow disclosures
     Interest paid .......................................................    $  8,114     $  7,383
     Income tax paid .....................................................       1,505        1,145
</TABLE>

See notes to consolidated condensed financial statements.

                                       8
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
              Notes to Consolidated Condensed Financial Statements
                                  June 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 June 30, 2001, and for the six
months and three months ended June 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:

                                                 Six months ended
                                                 ----------------
                                        June 30, 2001        June 30, 2000
                                        -------------        -------------
Weighted average shares outstanding       6,150,240            6,150,240
Average unearned ESOT shares                 (9,313)             (17,500)
                                        -------------        -------------
   Shares used to compute basic and
       diluted earnings per share         6,140,927            6,132,740
                                        =============        =============


                                                Three months ended
                                                ------------------
                                        June 30, 2001        June 30, 2000
                                        -------------        -------------
 Weighted average shares outstanding      6,150,240            6,150,240
Average unearned ESOT shares                  (8,051)            (16,250)
                                        -------------        -------------
   Shares used to compute basic and
       diluted earnings per share         6,142,189            6,133,990
                                        =============        =============

Unexercised option shares outstanding at June 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. The
Bank is the primary business activity of the Company.

The Company has made substantial progress toward expanding into eastern
Hendricks County, which is adjacent to Marion County and the Indianapolis,
Indiana area. To date, we have hired five employees to staff our Avon and
Plainfield branches, including an experienced lender from within the Hendricks
County market to lead the Bank's business development initiatives as regional
manager and the branch managers/business development officers for both the Avon
and Plainfield branches. We have also added $4.2 million of loans to our
portfolio from our Hendricks County operations. We have signed leases for our
branches in Avon and Plainfield and anticipate opening the doors for business at
our Avon branch in September 2001 and at our Plainfield branch in October 2001.
We will follow these branch openings with a third Central Indiana branch in
2002. Through competitive pricing, marketing and an emphasis on personal
service, we hope to be able to position ourselves as a strong competitor in this
affluent, fast-growing market. Additionally, by continuing to hire experienced
and established professionals from within the community, we will have a head
start in positioning the Bank and its employees as community leaders.

The Bank, with its primary offices located in Bloomington, Indiana, conducts
business from fourteen locations in Monroe, Jackson and Lawrence Counties,
Indiana. Approximately 85% of the Bank's business is in Monroe County and is
concentrated in and around the city of Bloomington. As a community bank,
management believes that the Bank must continue to promote community involvement
and leadership among Bank employees.

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.


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

Overview
--------
Net income for the second quarter was $1.5 million compared with $1.3 million
for the same quarter last year. Basic and diluted earnings per share were $0.24
for the three months ended June 30, 2001 compared to $0.21 for the three months
ended June 30, 2000. Net income was $3.0 million and $2.6 million for the
six-month periods ended June 30, 2001 and 2000, respectively. Basic and diluted
earnings per share were $0.48 for the six months ended June 30 2001, compared to
$0.42 for the six months ended June 30, 2000.

Annualized return on average equity (ROE) for the second quarter increased to
15.32% compared with 14.95% for the same quarter last year. The annualized
return on average assets (ROA) was 1.36% for the second quarter of 2001 compared
with 1.22% for the same period in 2000. For the six-month periods ended June 30,
2001 and 2000, annualized ROE was 15.31% and 14.85%, respectively, while the
annualized ROA was 1.35% and 1.23%, respectively.

Management believes the improvement shown between the first six months of 2001
and the same period in 2000 can be attributed to growth in our core lending
business, strong earnings on new product lines, an increase in mortgage loan
sales and an improvement in back office efficiency.

                                       10
<PAGE>

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.
Net interest income after the provision for loan losses was $3.9 million for the
three months ended June 30, 2001 compared to $3.7 million for the same period in
2000, an increase of 6.5%. Total interest income increased by $184,000, or 2.4%,
for the second quarter of 2001 compared to the second quarter of 2000. This
growth resulted primarily from an increase in the average balance of loans to
$314.1 million during the second quarter of 2001 compared to $282.8 for the same
period in 2000. This growth was partially offset by a decrease in the average
balance of investment securities to $94.0 million in the second quarter of 2001
compared to $106.7 in the second quarter of 2000. Interest expense decreased
$48,000 for the second quarter of 2001 compared to the second quarter of 2000.
This decrease resulted primarily from a decrease in the average rate paid on
interest bearing liabilities. Average interest bearing liabilities increased
$11.2 million in the second quarter of 2001 compared to 2000.

The tax equivalent yield on earning assets decreased during the second quarter
of 2001 to 7.9% compared to 8.1% for the second quarter of 2000. This was a
reflection of a decrease in the prime rate, from 9.50% during the second quarter
of 2000 to 6.75% at the end of the second quarter of 2001. The rate on interest
bearing liabilities also decreased, from 4.7% during the second quarter of 2000
to 4.5% for the second quarter of 2001. Our net interest margin remained
unchanged, at 4.2% for the second quarters of 2001 and 2000.

For the six months ended June 30, 2001, net interest income after the provision
for loan losses was $7.8 million compared to $7.4 million for the same period in
2000, an increase of 5.9%. Total interest income increased by $820,000, or 5.4%,
for the first six months of 2001 compared to the same period in 2000. Once
again, this growth resulted primarily from an increase in the average balance of
loans to $306.1 million for the first six months of 2001 compared to $279.7
million for the same period in 2000, an increase of 9.4%. This growth was
partially offset by a decrease in the average balance of investment securities
to $97.3 million for the first six months of 2001 compared to $107.5 for the
same period of 2000.

The tax equivalent yield on earning assets remained virtually unchanged at 8.1%
for the first six months of 2001 and 2000. The rate on interest bearing
liabilities increased to 4.7% for the first six months of 2001 from 4.6% for the
same period in 2000. This increase primarily reflected higher yielding
certificates of deposit issued in the fall of 2000 which did not begin maturing
until June 2001. Our net interest margin remained virtually unchanged at 4.2%
for the first six months of 2001 and 2000.

Noninterest Income / Noninterest Expense
----------------------------------------
Total noninterest income increased $578,000 for the three months ended June 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 $386,000 or 38.4% during the second quarter of 2001
compared to the second quarter of 2000. This growth mainly occurred in two
areas. The Bank sells substantially all fixed rate residential mortgage loans it
originates on the secondary market. Gains on these sales increased $75,000
during the second quarter of 2001 compared to 2000, or 121.0%, primarily because
decreases in interest rates induced customers to refinance plus we expanded our
marketing and loan origination efforts. Service charges increased $146,000 or
38.1%, mainly due to the introduction of a new product, the Overdraft Protector.
We also sold a section of land at one of our branches to the city for a road
construction project, and recognized an $88,000 one time gain on the sale during
the second quarter of 2001 which contributed to the $128,000 increase in other
income.

For the first six months of 2001, noninterest income increased $477,000 or 24.5%
over the same period for 2000. Omitting the unrealized gains and losses from the
rabbi trust, noninterest income increased $605,000 or 40.0%. As mentioned above,
the majority of these increases occurred in service charges which increased
$302,000 and in gains on the sale of mortgages in the secondary market which
increased $138,000.

                                       11
<PAGE>

Total other noninterest expense increased $493,000 during the second quarter of
2001 compared to the same period in 2000. As previously discussed above, the net
unrealized gains on trading securities in the rabbi trust directly increased
director fee expense in 2001, and the net unrealized losses decreased directors'
fees in 2000. Without the effect of the rabbi trust on 2001 and 2000, other
noninterest expense increased $296,000 or 10.9%. Salaries and employee benefits
increased $167,000 or 10.0% for two reasons. First, we hired several employees
to staff our 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 six months of 2001, noninterest expense increased $300,000 or 5.5%
over the same period of 2000. Without the effect of the rabbi trust unrealized
gains/losses on directors' fee expense, noninterest expense increased $430,000
or 8.0%. Once again, the bulk of this increase occurred in salaries and employee
benefits, which increased $241,000 or 7.3% due to the reasons mentioned above.


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

Assets and Liabilities
----------------------
Total assets of the Company increased 3.1%, or $13.8 million at June 30, 2001
compared to December 31, 2000. The loan portfolio (excluding loans held for
sale) grew 9.3% during the first half of 2001. Total investment securities
decreased by $14.6 million, or 14.7%, at June 30, 2001 compared to December 31,
2000. This occurred primarily because loan demand exceeded the growth of average
deposits and borrowed funds. As securities matured, proceeds were used to fund
loan growth. Deposits grew 5.5% during first six months of 2001, while
short-term borrowings, primarily repurchase agreements, declined $13.6 million
or 27.8%. This decrease occurred primarily because of two factors. One of our
municipal accounts had an exceptionally high balance at December 31, 2000. Also,
during the first six months of 2001, several not-for-profit entities and
municipalities agreed to transfer their repurchase agreements to interest
bearing demand deposit accounts. This was done to eliminate the need to purchase
additional securities as collateral and thus improve the margin.

Capital
-------
Shareholders' equity increased $1.9 million at June 30, 2001 compared to
December 31, 2000. This increase was a result of year-to-date net income of $3.0
million, dividends paid of $1.4 million and other comprehensive income (the net
change in the Company's available-for-sale securities portfolio) of $296,000.

The Company's capital continues to exceed regulatory minimums. At June 30, 2001,
the Company had a Tier I risk-based capital ratio of 12.9%, total risk-based
capital ratio of 14.2%, and a leverage ratio of 8.9%. 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 June 30, 2001, the Bank had $5.2 million
of loans internally classified. The allowance for loan losses was $3.9 million,
or 1.2% of total loans at June 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 $569,000 at June 30, 2001
compared to $332,000 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,
interest-bearing deposits in other financial institutions, marketable
securities, loan repayments, increased deposits and total institutional
borrowing capacity.

                                       12
<PAGE>

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 by the Company 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 $11.4 million at June 30, 2001
compared to $6.7 million at December 31, 2000. As interest rates have declined
during 2001, rates on longer term FHLBI advances have become attractive, and the
Company has utilized advances to assist in funding loan growth.

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 June 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 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 June 30, 2001:

                                       13
<PAGE>

                 Net Portfolio Value at June 30, 2001 (new method)
                 -------------------------------------------------
    Change in Interest Rate    Dollar Amount      $ Change in     % Change in
         (basis points)        (in thousands)          NPV             NPV
    -----------------------    --------------     ------------    ------------
              +300                $ 58,130          $ (1,743)         (2.91)%
              +200                  58,724            (1,149)         (1.92)
              +100                  59,298              (575)         (0.96)
                 0                  59,873               ---            ---
              -100                  60,412               539           0.90
              -200                  60,511               638           1.06
              -300                  60,213               340           0.57


                 Net Portfolio Value at June 30, 2001 (old method)
                 -------------------------------------------------
    Change in Interest Rate    Dollar Amount      $ Change in     % Change in
         (basis points)        (in thousands)          NPV             NPV
    -----------------------    --------------     ------------    ------------
              +300                $ 62,592          $   3,025          5.08%
              +200                  61,656              2,089          3.51
              +100                  60,647              1,080          1.81
                 0                  59,567                ---           ---
              -100                  58,366             (1,201)        (2.02)
              -200                  56,619             (2,948)        (4.95)
              -300                  54,374             (5,193)        (8.72)


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:

             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
    -----------------------    --------------     ------------    ------------
             +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)

The June 30, 2001 (new method) table above indicates that the Bank's estimated
NPV would be expected to decrease by 291 basis points as of June 30, 2001 in the
event of a sudden and sustained 300 basis point increase in interest rates. In
the event of sudden and sustained 300 basis point decrease in prevailing
interest rates, the Bank's estimated NPV would be expected to increase 57 basis
points. As of June 30, 2001 the Company's estimated changes in NPV were well
within the approved guidelines established by the Board of Directors.

When the June 30, 2001 change in NPV is calculated using the old method of
averaging the repricing term of these loans (June 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
June 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 June
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.

                                       14
<PAGE>

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.

                                       15
<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.
-------           ----------------------------------------------------
                  At the April 26,2001 Annual Meeting of Shareholders, the
                  following matters were submitted to a vote of the
                  shareholders. Election of Directors - The following directors
                  were elected for a term of three years.

                                                     VOTE COUNT
                                              FOR      AGAINST    ABSTAINED
                                           ---------   -------    ---------
                  Joyce Claflin Harrell    4,965,437      0         23,716
                  Richard P. Rechter       4,943,437      0         45,716
                  Charles R. Royal, Jr.    4,983,137      0          6,016

                  Selection of Independent Public Accountants - Olive, LLP,
                  Indianapolis, Indiana: Votes For - 4,603,263, Votes Against -
                  24,210, Votes Abstained - 13,190.

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.


                                       16
<PAGE>

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.























                                       17
<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:  August 11, 2001         By: /s/ Mark D. Bradford
           ---------------             -------------------------------------
                                       Mark D. Bradford, President and Chief
                                       Executive Officer

    Date:  August 11, 2001         By: /s/ Kathryn E. Burns
           ---------------             -------------------------------------
                                       Kathryn E. Burns, Sr. Vice President,
                                       Chief Financial Officer







                                       18