SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

For the quarterly period ended March 31, 2006

                                       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.  0-31951
                     -------

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

          Indiana                                        35-1594017
          -------                                        ----------
(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 [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

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

Outstanding Shares of Common Stock on April 30, 2006:  6,639,842

<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                                    FORM 10-Q

                                      INDEX
<TABLE>
<CAPTION>
                                                                              Page No.
                                                                              --------

Part I. Financial Information:
<S>                                                                             <C>

    Item 1.    Financial Statements:

                  Consolidated Condensed Balance Sheets...........................3

                  Consolidated Condensed Statements of Income - Three Months......4

                  Consolidated Condensed Statement of Shareholders' Equity........5

                  Consolidated Condensed Statements of Cash Flows.................6

                  Notes to Consolidated Condensed Financial Statements............7

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

    Item 3.    Quantitative and Qualitative Disclosures about Market Risk........17

    Item 4.    Controls and Procedures...........................................19

Part II.  Other Information:

    Item 1.    Legal Proceedings.................................................19

    Item 1A.   Risk Factors......................................................20

    Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.......20

    Item 3.    Defaults Upon Senior Securities...................................20

    Item 4.    Submission of Matters to a Vote of Security Holders...............20

    Item 5.    Other Information.................................................20

    Item 6.  Exhibits............................................................20

Signatures.......................................................................23

Exhibit Index....................................................................24
</TABLE>


                                       2
<PAGE>
Part I. Financial Information

Item 1. Financial Statements

                          MONROE BANCORP AND SUBSIDIARY
                      Consolidated Condensed Balance Sheets
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                               March 31,   December 31,
                                                                 2006         2005
                                                              (Unaudited)
                                                               ---------    ---------
<S>                                                            <C>          <C>
Assets
       Cash and due from banks .............................   $  17,409    $  26,634
       Federal funds sold ..................................         575        7,100
       Interest-earning deposits ...........................         818        2,866
                                                               ---------    ---------
             Total cash and cash equivalents ...............      18,802       36,600

       Trading securities, at fair value ...................       3,325        3,408
       Investment securities:
            Available for sale .............................     114,259      113,483
            Held to maturity ...............................       2,054        2,353
                                                               ---------    ---------
                 Total investment securities ...............     116,313      115,836

       Loans ...............................................     538,472      524,158
       Allowance for loan losses ...........................      (5,675)      (5,585)
                                                               ---------    ---------
            Net loans ......................................     532,797      518,573
       Loans held for sale .................................       1,914        1,308
       Premises and equipment ..............................      14,003       13,039
       Federal Home Loan Bank of Indianapolis stock, at cost       2,545        2,545
       Other assets ........................................      22,236       21,751
                                                               ---------    ---------
                  Total assets .............................   $ 711,935    $ 713,060
                                                               =========    =========

Liabilities
       Deposits:
            Noninterest-bearing ............................   $  81,495    $  85,198
            Interest-bearing ...............................     485,226      490,983
                                                               ---------    ---------
                 Total deposits ............................     566,721      576,181

       Borrowings ..........................................      85,965       76,762
       Other liabilities ...................................       7,885        9,603
                                                               ---------    ---------
                  Total liabilities ........................     660,571      662,546

Commitments and Contingent Liabilities

Shareholders' Equity
       Common stock, no-par value
           Authorized, 18,000,000 shares
           Issued and outstanding - 6,639,842 shares .......         137          137
       Additional paid-in capital ..........................      11,303       11,277
       Retained earnings ...................................      41,680       40,700
       Accumulated other comprehensive loss ................      (1,421)      (1,265)
       Unearned ESOT shares ................................        (335)        (335)
                                                               ---------    ---------
                  Total shareholders' equity ...............      51,364       50,514
                                                               ---------    ---------
                  Total liabilities and shareholders' equity   $ 711,935    $ 713,060
                                                               =========    =========
</TABLE>
            See notes to consolidated condensed financial statements.


                                       3
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                   Consolidated Condensed Statements of Income
                                   (Unaudited)
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                           March 31,
                                                                       ------------------
                                                                          2006      2005
                                                                        -------   -------
<S>                                                                     <C>       <C>
Interest Income
       Loans, including fees ........................................   $ 9,030   $ 6,884
       Trading securities ...........................................        20        15
       Investment securities
            Taxable .................................................       854       761
            Tax exempt ..............................................       216       113
       Federal funds sold ...........................................        41         6
       Other interest income ........................................        14         9
                                                                        -------   -------
                  Total interest income .............................    10,175     7,788
                                                                        -------   -------

Interest Expense
       Deposits .....................................................     3,835     2,124
       Short-term borrowings ........................................       516       245
       Other borrowings .............................................       393       393
                                                                        -------   -------
                  Total interest expense ............................     4,744     2,762
                                                                        -------   -------
                  Net interest income ...............................     5,431     5,026
       Provision for loan losses ....................................       300       330
                                                                        -------   -------
                  Net interest income after provision for loan losses     5,131     4,696
                                                                        -------   -------

Noninterest Income
       Fiduciary activities .........................................       409       376
       Service charges on deposit accounts ..........................       866       756
       Commission income ............................................       202       225
       Securities gains .............................................        44        66
       Unrealized gains (losses) on trading securities ..............        29       (46)
       Net gains on loans sales .....................................       184       237
       Debit card interchange fees ..................................       184       150
       Other operating income .......................................       331       270
                                                                        -------   -------
                  Total other income ................................     2,249     2,034
                                                                        -------   -------

Noninterest Expenses
       Salaries and employee benefits ...............................     2,827     2,579
       Net occupancy and equipment expense ..........................       777       644
       Advertising ..................................................       219       119
       Legal fees ...................................................        87       180
       Appreciation (depreciation) in directors' and executives'
            deferred compensation plans .............................        96       (32)
       Other operating expense ......................................       816       779
                                                                        -------   -------
                  Total other expenses ..............................     4,822     4,269
                                                                        -------   -------

                  Income before income tax ..........................     2,558     2,461
                  Income tax expense ................................       785       818
                                                                        -------   -------
                             Net income .............................   $ 1,773   $ 1,643
                                                                        =======   =======

       Basic and diluted earnings per share .........................   $  0.27   $  0.25
       Dividends declared and paid per share ........................    0.1200    0.1182
</TABLE>
       See notes to consolidated condensed financial statements.


                                       4
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
            Consolidated Condensed Statement of Shareholders' Equity
                           For the Three Months Ended
                                 March 31, 2006
                                   (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      Loss      Trust Shares   Total
                                    ---------------------------------------------------------------------------------------------
<S>                                  <C>         <C>      <C>          <C>         <C>         <C>           <C>         <C>
Balances January 1, 2006............ 6,639,842   $ 137    $ 11,277                 $ 40,700    $ (1,265)     $ (335)     $50,514

Comprehensive Income:
  Net income for the period.........                                   $ 1,773        1,773                                1,773
  Other comprehensive income
     -unrealized loss on securities                                       (156)                    (156)                    (156)
ESOT shares earned..................                            10                                                            10
Stock option compensation                                                                                                     --
     expense........................                            16                                                            16
Cash dividend ($.12 per share)                                                         (793)                                (793)
                                     --------------------------------------------------------------------------------------------
Balances March 31, 2006............. 6,639,842   $ 137    $ 11,303     $ 1,617     $ 41,680    $ (1,421)     $ (335)     $51,364
                                     ============================================================================================
</TABLE>




See notes to consolidated condensed financial statements.


                                       5
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                 Consolidated Condensed Statements of Cash Flows
                                   (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                       March 31,
                                                                                 --------------------
                                                                                   2006        2005
                                                                                 --------    --------
<S>                                                                              <C>         <C>
Operating Activities
        Net income ...........................................................   $  1,773    $  1,643
        Adjustments to reconcile net income to net cash provided
                by operating activities:
             Provision for loan losses .......................................        300         330
             Depreciation and amortization ...................................        273         251
             Deferred income tax .............................................        (36)        (73)
             Investment securities amortization, net .........................         28          65
             Securities gain .................................................        (44)        (64)
             Origination of loans held for sale ..............................    (13,485)    (14,318)
             Proceeds from sale of loans held for sale .......................     13,063      14,634
             Gain on sale of loans held for sale .............................       (184)       (237)
             ESOT compensation ...............................................         10           4
             Stock-based compensation expense ................................         16          --
             Net change in:
                  Trading securities .........................................        127          89
                  Interest receivable and other assets .......................       (361)     (1,005)
                  Interest payable and other liabilities .....................     (1,718)        617
                                                                                 --------    --------
                            Net cash provided (used) by operating activities .       (238)      1,936
                                                                                 --------    --------

Investing Activities
        Purchase of securities available for sale ............................     (8,566)    (15,369)
        Proceeds from sales of securities available for sale .................         --       7,740
        Proceeds from paydowns and maturities of securities available for sale      7,517       4,507
        Proceeds from paydowns and maturities of securities held to maturity .        300       2,670
        Purchase of FHLB stock ...............................................         --         (25)
        Net change in loans ..................................................    (14,524)    (12,147)
        Purchase of premises and equipment ...................................     (1,237)       (286)
                                                                                 --------    --------
                            Net cash used by investing activities ............    (16,510)    (12,910)
                                                                                 --------    --------

Financing Activities
        Net change in:
             Noninterest-bearing, interest-bearing demand and savings deposits     (8,854)     21,921
             Certificates of deposit .........................................       (606)      8,371
             Borrowings ......................................................     11,203     (16,135)
        Proceeds from Federal Home Loan Bank advances ........................         --          --
        Repayments of Federal Home Loan Bank advances ........................     (2,000)     (4,000)
        Cash dividends paid ..................................................       (793)       (780)
        Stock options exercised ..............................................         --          66
        Repurchase of common stock ...........................................         --         (66)
                                                                                 --------    --------
                            Net cash provided (used) by financing activities .     (1,050)      9,377
                                                                                 --------    --------
Net Change in Cash and Cash Equivalents ......................................    (17,798)     (1,597)
Cash and Cash Equivalents, Beginning of Period ...............................     36,600      21,396
                                                                                 --------    --------
Cash and Cash Equivalents, End of Period .....................................   $ 18,802    $ 19,799
                                                                                 ========    ========

Supplemental cash flow disclosures
        Interest paid ........................................................   $  4,643    $  2,771
        Income tax paid ......................................................         47          65
</TABLE>
See notes to consolidated condensed financial statements.


                                       6
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
              Notes to Consolidated Condensed Financial Statements
                                 March 31, 2006
                                   (Unaudited)

Note 1: Basis of Presentation
-----------------------------
The consolidated condensed financial statements include the accounts of Monroe
Bancorp (the "Company") and its wholly owned subsidiary, Monroe Bank, a state
chartered bank (the "Bank") and the Bank's wholly owned subsidiary MB Portfolio
Management, Inc. A summary of significant accounting policies is set forth in
Note 1 of Notes to Financial Statements included in the December 31, 2005,
Annual Report to Shareholders. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The interim consolidated condensed 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 condensed financial statements at March 31, 2006, and
for the three months ended March 31, 2006 and 2005, 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.

The consolidated condensed balance sheet of the Company as of December 31, 2005
has been derived from the audited consolidated balance sheet of the Company as
of that date. Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K annual report filed with the Securities and
Exchange Commission.

The results of operations for the period are not necessarily indicative of the
results to be expected for the year.

Note 2:  Shareholders' Equity
-----------------------------
On November 17, 2005, the Company paid a 10 percent stock dividend. All 2005
share and per share data have been restated to reflect this stock dividend.



                                       7
<PAGE>

Note 3: Earnings Per Share
--------------------------
The number of shares used to compute basic and diluted earnings per share was as
follows:


                                                 Three months ended
                                                 ------------------
                                         March 31, 2006       March 31, 2005
                                         --------------       --------------

Net income (in thousands) .........        $     1,773         $     1,643
                                           ===========         ===========

Weighted average shares outstanding          6,639,842           6,639,845

Average unearned ESOT shares ......            (30,937)            (38,620)
                                           -----------         -----------
   Shares used to compute basic
       earnings per share .........          6,608,905           6,601,225

Effect of dilutive securities -
    stock options .................             20,766              22,201
                                           -----------         -----------

   Shares used to compute diluted
        earnings per share ........          6,629,671           6,623,426
                                           ===========         ===========

Earnings per share, basic..........        $      0.27         $      0.25
Earnings per share, diluted........               0.27                0.25

Options to purchase 30,000 shares of common stock at $16 per share and 210,000
shares of common stock at $22 per share were outstanding at March 31, 2006, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares.


Note 4: Change in Accounting Principle
--------------------------------------
The Company has a stock-based employee compensation plan, which is described in
Notes of Financial Statements included in the December 31, 2005 Annual Report to
shareholders.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment ("SFAS 123(R)"). SFAS 123(R) addresses
all forms of share-based payment awards, including shares under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
SFAS 123(R) requires all share-based payments to be recognized as expense, based
upon their fair values, in the financial statements over the vesting period of
the awards. The Company has elected the modified prospective application and, as
a result, has recorded approximately $16,000 in compensation expense related to
vested stock options less estimated forfeitures for the three month period ended
March 31, 2006. Certain disclosures required by SFAS 123(R) have been omitted
due to their immaterial nature.

Prior to the adoptions of SFAS 123(R), the Company accounted for this plan under
the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost was reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The table on the following page illustrates the effect
on net income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Table dollar amounts are in thousands except share and per share data.


                                       8
<PAGE>

                                                              Three Months Ended
                                                                March 31, 2005
                                                              ------------------

     Net income, as reported..................................      $ 1,643
     Less:  Total stock-based employee compensation cost
         determined under the fair value based method, net of
         income taxes.........................................            2
                                                                -----------
     Pro forma net income.....................................      $ 1,641
                                                                ===========

     Earnings per share:
          Basic - as reported.................................      $  0.25
          Basic - pro forma...................................         0.25
          Diluted - as reported...............................         0.25
          Diluted - pro forma.................................         0.25


Note 5:  Reclassifications
--------------------------
Reclassifications of certain amounts in the 2005 consolidated condensed
financial statements have been made to conform to the 2006 presentation.

Note 6:  Contingencies
----------------------
The Company is a creditor in two pending Chapter 11 cases filed by a real estate
developer and his real estate development corporation. The Chapter 11 Trustee
appointed in the bankruptcy cases filed a complaint in the Bankruptcy Court
against the Company and 17 other named defendants seeking unspecified damages on
theories of fraudulent transfer and preference. The Company and the Trustee have
reached a settlement of the Trustee's claims against the Company for payment of
the sum of $50,000, plus assignment of a promissory note payable by the Trustee
to the Company in the principal amount of $20,000, subject to Bankruptcy Court
approval. Most of the 17 other named defendants alleged cross claims against the
Company for indemnification and those claims have been dismissed by the
Bankruptcy Court for lack of jurisdiction. These other defendants may
subsequently reassert their alleged indemnification claims against the Company
in other forums. In addition, some of these other defendants have alleged
certain other claims in other pending litigation or have threatened claims
against the Bank. While the Company denies any liability for any of these
claims, it is impossible to predict the outcome of any such pending litigation
or potential future litigation or the full range of potential loss to the
Company. Furthermore, on February 17, 2005, the loan officer who made the loans
related to the claims and threatened claims was indicted by a federal grand
jury. Based upon current facts and circumstances, it is not possible at this
time to predict the effect that these proceedings will have on the financial
statements of the Company. The Company has not recorded any liability in its
March 31, 2006 financial statements for these matters.

The Company and Bank are from time-to-time subject to other claims and lawsuits
which arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Company.


                                       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 (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 seventeen locations in Monroe, Jackson, Lawrence, Hamilton and
Hendricks counties in Indiana. Approximately 75 percent 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 personal 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 annuities and other investment 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.

Critical Accounting Policies
----------------------------
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements on pages 24 to 26 of the
December 31, 2005 Annual Report to Shareholders - Financial Review. Certain of
these policies are important to the portrayal of the Company's financial
condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently
uncertain. Management has identified these policies in the Critical Accounting
Policies section of the Management's Discussion and Analysis on pages 5 of the
2005 Annual Report to Shareholders -Financial Review. There have been no changes
in these critical accounting policies to date.

Non-GAAP Financial Measures
---------------------------
In January 2003, the United States Securities and Exchange Commission ("SEC")
issued Regulation G, "Conditions for Use of Non-GAAP Financial Measures." A
non-GAAP financial measure is a numerical measure of a company's historical or
future performance, financial position, or cash flow that excludes (includes)
amounts or adjustments that are included (excluded) in the most directly
comparable measure calculated in accordance with generally accepted accounting
principles ("GAAP"). Regulation G requires companies that present non-GAAP
financial measures to disclose a numerical reconciliation to the most directly
comparable measurement using GAAP as well as the reason why the non-GAAP measure
is an important measure.

Management has used two non-GAAP financial measures throughout this quarterly
report on Form 10-Q.

     o    In the "Net Interest Income / Net Interest Margin" section, the
          discussion is focused on tax-equivalent rates and margin. Management
          believes a discussion of the changes in tax-equivalent rates and
          margin is more relevant because it better explains changes in
          after-tax net income.

     o    In the "Noninterest Income / Noninterest Expense" section of this
          document, we report other income and other expense without the effect
          of unrealized gains and losses on securities in a grantor trust
          ("rabbi trust") which is a non-GAAP financial measure. Other income
          includes realized and unrealized securities gains and losses on
          trading securities (mutual funds) held in a grantor trust ("rabbi
          trust") in connection with the Company's Directors' and Executives'
          Deferred Compensation Plans. These securities are held as trading
          securities, and hence, unrealized gains and losses are recognized on
          the


                                       10
<PAGE>

          income statement. Any unrealized or realized loss on securities held
          in the rabbi trust net of any dividend or interest income earned on
          the securities in the rabbi trust (included in net interest income)
          are directly offset by a decrease to directors' fee/deferred executive
          compensation expense (included in other expense), and conversely, any
          net realized or unrealized gain combined with interest and dividends
          earned on the securities in the trust are directly offset by an
          increase to directors' fee/deferred executive compensation expense.
          These offsets are included in the line item identified on page 4 of
          the consolidated financial statements as "Appreciation (depreciation)
          on directors' and executives' deferred compensation plans." The
          activity in the rabbi trust has no effect on the Company's net income,
          therefore, management believes a more accurate comparison of current
          and prior year other income and other expense can be made if the rabbi
          trust realized and unrealized gains and losses and offsetting
          appreciation (depreciation) on the deferred compensation plans are
          removed.

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

Overview
--------
Net income for the first quarter of 2006 was $1.77 million, a 7.9 percent
increase from net income of $1.64 million for the same quarter last year. Basic
and diluted earnings per share for the first quarter of 2006 were $0.27, up from
$0.25 per share for the first quarter of 2005. Annualized return on average
equity (ROE) for the first quarter of 2006 increased to 14.05 percent compared
to 13.94 percent for first quarter of 2005. The annualized return on average
assets (ROA) was 1.01 percent for the first quarter of 2006 compared to 1.05
percent for the same period of 2005.

Growth in net income primarily resulted from loan growth. Loans at March 31,
2006, were $540.4 million, growing 10.5 percent during the past twelve months.
Net interest income for the first quarter of 2006, after the provision for loan
losses, increased $435,000, or 9.3 percent over the first quarter of 2005. The
growth of net interest income was partially offset by increases in noninterest
expense which included additional personnel, occupancy and advertising expense
in the Company's Central Indiana market.

Progress continues to be made towards improving asset quality as indicated by
several measures of credit quality. At March 31, 2006, non-performing assets and
90-day past due loans totaled $1.6 million (0.23 percent of total assets)
compared to $2.0 million (0.28 percent) at December 31, 2005 and $3.9 million
(0.61 percent of total assets) at March 31, 2005, a 59.0 percent year-over-year
reduction. The Company's loan delinquency ratio (loan balances past due 30 days
or more as a percent of total loans) was 0.45 percent at March 31, 2006, down
from 0.79 percent at March 31 2005.

The Company also opened a new full-service branch in Brownsburg, Indiana in
January 2006, which replaced a limited-service office opened in 2002. The
Company continues to make steady progress on its planned opening of another
full-service branch in Hendricks County late in 2006 or early in 2007.

Net Interest Income / Net Interest Margin
-----------------------------------------
The table on the following page presents information to assist in analyzing net
interest income. The table of Average Balance Sheets and Interest Rates presents
the major components of interest-earning assets and interest-bearing
liabilities, related interest income and expense and the resulting yield or
cost. Interest income presented in the table has been adjusted to a
tax-equivalent basis assuming a 40 percent tax rate. The tax equivalent
adjustment recognizes the income tax savings when comparing taxable and
tax-exempt assets.


                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                               Average Balance Sheets and Interest Rates
                                                             ----------------------------------------------------------------------
                                                             Three Months Ended March 31, 2006    Three Months Ended March 31, 2005
                                                             ----------------------------------   ---------------------------------
                                                             Average               Average Rate   Average              Average Rate
                              ASSETS                         Balance    Interest   (annualized)   Balance   Interest   (annualized)
<S>                                                         <C>         <C>            <C>       <C>        <C>           <C>
Interest earning assets
    Securities
          Taxable .......................................   $ 90,537    $    918       4.11%     $ 93,120   $    796      3.46%
          Tax-exempt (1) ................................     27,427         360       5.32%       15,575        188      4.90%
                                                            --------    --------                 --------   --------
               Total securities .........................    117,964       1,278       4.39%      108,695        984      3.67%

    Loans (2) ...........................................    537,168       9,046       6.83%      481,315      6,887      5.80%
    FHLB Stock ..........................................      2,545          33       5.26%        2,458         27      4.45%
    Federal funds sold ..................................      3,846          41       4.32%          955          6      2.55%
    Interest-earning deposits ...........................      1,787          23       5.14%        1,855         15      3.28%
                                                            --------    --------                 --------   --------
               Total interest earning assets ............    663,310      10,421       6.37%      595,278      7,918      5.39%
                                                            --------    --------                 --------   --------

Noninterest earning assets
    Allowance for loan losses ...........................     (5,639)                              (5,335)
    Premises and equipment & other assets ...............     35,396                               28,939
    Cash and due from banks .............................     16,774                               17,759
                                                            --------                             --------
               Total assets .............................   $709,841                             $636,641
                                                            ========                             ========

               LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
    Total interest-bearing deposits .....................   $486,399       3,835       3.20%     $425,315      2,124      2.03%
    Borrowed funds ......................................     87,594         909       4.21%       83,534        638      3.10%
                                                            --------    --------                 --------   --------
          Total interest-bearing liabilities ............    573,993       4,744       3.35%      508,849      2,762      2.20%
                                                            --------    --------                 --------   --------


Noninterest-bearing liabilities
    Noninterest-bearing demand deposits .................     77,308                               73,767
    Other liabilities ...................................      7,384                                6,222
    Shareholders' equity ................................     51,156                               47,803
                                                            --------                             --------
               Total liabilities and shareholders' equity   $709,841                             $636,641
                                                            ========                             ========


Interest margin recap
Net interest income and interest rate spread
    Tax-equivalent net interest income margin ...........               $  5,677       3.02%                $  5,156      3.19%
    Tax-equivalent net interest margin as a percent of
          total average earning assets ..................                              3.47%                              3.51%
Tax equivalent adjustment (1) ...........................                    246                                 130
                                                                        --------                            --------

               Net interest income ......................               $  5,431                            $  5,026
                                                                        ========                            ========
</TABLE>

(1)  Interest income on tax-exempt securities has been adjusted to a tax
     equivalent basis using a marginal income tax rate of 40%.
(2)  Nonaccrual loans are included in average loan balances and loan fees are
     included in interest income.


                                       12
<PAGE>

Net Interest Income / Net Interest Margin (continued)
-----------------------------------------------------
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 as a percent of average earning assets
was 3.47 percent for the quarter ended March 31, 2006, down from 3.51 percent
for the same quarter last year. The decline in the margin was primarily the
result of yields in the investment portfolio not increasing at the same pace as
rates paid on deposits and borrowings due to the flattening of the yield curve
that took place during the last twelve months. The prime rate increased 200
basis points during the last twelve months while the yield on five-year treasury
bonds increased by 69 basis points during the same time period. The Bank
remained liability sensitive (liabilities reprice more quickly than assets),
however the Bank was able to have increases on the rates paid on certain deposit
products lag increases in market rates during 2005, which helped moderate the
impact of being liability sensitive. More deposits have rates tied to specific
indices at March 31, 2006 than at March 31, 2005, so the ability to have deposit
rate increases lag market rate increases has declined.

Tax-equivalent net interest income was $5.7 million for the three months ended
March 31, 2006 compared to $5.2 million for the same period in 2005, an increase
of 9.6 percent. The decrease in the Company's net interest margin caused the
growth in net interest income to be less than the 11.4 percent increase in
average earning assets.

Noninterest Income / Noninterest Expense
----------------------------------------
Total noninterest income increased $215,000 for the three months ended March 31,
2006 compared to the same period in 2005. Omitting the net realized and
unrealized gains on rabbi trust securities in the amount of $73,000 in the first
quarter of 2006 and losses on rabbi trust securities in the amount of $45,000 in
the first quarter of 2005, noninterest income increased $97,000 or 4.7 percent
during the first quarter of 2006 compared to the first quarter of 2005.

Significant changes in noninterest income occurred primarily in the following
areas:

o    Debit card interchange income totaled $184,000 for the first quarter of
     2006 compared to $150,000 for the same period in 2005, an increase of
     $34,000 or 22.7 percent, due to an increase in debit card use.
o    Gains on the sale of mortgage loans were $184,000 for the first quarter of
     2006 compared to $237,000 for the same period in 2005. A decrease was
     anticipated due to the rate environment which has slowed refinancing
     activity and a new program whereby the Company retains certain fixed-rate
     mortgages which previously would have been sold. The Company has increased
     its business development efforts to capture a larger portion of the home
     purchase market.
o    Trust fee income totaled $409,000 for the first quarter of 2006 compared to
     $376,000 for the first quarter of 2005, an increase of $33,000 or 8.8
     percent. The Company's Wealth Management Group continued to grow. Trust
     assets under management grew to $244.0 million at March 31, 2006 compared
     to $226.6 million at March 31, 2005.
o    Service charges on deposit accounts were $866,000 during the first quarter
     of 2006 compared to $756,000 in the first quarter of 2005, an increase of
     $110,000 or 14.6 percent. Growth primarily occurred in fees associated with
     overdrawn accounts (NSF fees).

For the quarter ending March 31, 2006, total noninterest expense increased
$553,000 compared to the same period in 2005. Omitting the appreciation in the
Directors' and Executives' Deferred Compensation Plan of $96,000 in the first
quarter of 2006 (which equals the sum of the interest and dividends earned on
the rabbi trust and the realized and unrealized gains or losses on the
securities in the trust) and depreciation of $32,000 during the first quarter of
2005, noninterest expense increased $425,000 or 9.9 percent.


                                       13
<PAGE>

Significant changes in noninterest expense occurred primarily in the following
areas:

o    Salary and employee benefits increased by $248,000 or 9.6 percent during
     the first quarter of 2006 compared to the same period in 2005.
     Approximately 4 percent of this increase was the result of annual raises
     with the remainder being the result of a 9.2 percent increase in full-time
     equivalent employees (FTEs). Approximately 40 percent of the growth in FTEs
     occurred in Central Indiana.
o    Occupancy expense increased by $133,000 or 20.7 percent during the first
     quarter of 2006 compared to the same period in 2005. This increase occurred
     as a result of opening our new full-service branch in Brownsburg, Indiana
     in January and leasing and improving additional space at our Operations
     Center.
o    Advertising expense increased $100,000 or 84.0 percent during the first
     quarter of 2006 compared to the same period in 2005. The majority of this
     increase occurred in the Company's Central Indiana region.
o    Legal fees decreased $93,000 or 51.7 percent during the first quarter of
     2006 compared to the same period in 2005, due to a decrease in legal fees
     associated with legal actions related to loans made to a certain real
     estate developer who filed bankruptcy in 2002.


Income Taxes
------------
The Company records a provision for income taxes currently payable, along with a
provision for those taxes payable in the future. Such deferred taxes arise from
differences in timing of certain items for financial statement reporting rather
than income tax reporting. The major difference between the effective tax rate
applied to the Company's financial statement income and the federal and state
statutory rate of approximately 40 percent is interest on tax-exempt securities.

The Company's effective tax rate was 30.7 percent for the three months ended
March 31, 2005 compared to 33.2 percent for the same period in 2005. The tax
rate decreased primarily because municipal bond (tax-exempt) income represented
a higher percentage of total income in the first quarter of 2006.

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

Assets and Liabilities
----------------------
Total assets of the Company at March 31, 2006 were $711.9 million a decrease of
0.2 percent or $1.1 million compared to $713.1 million at December 31, 2005.
Loans (including loans held for sale) grew to $540.4 million at March 31, 2006
compared to $525.5 million at December 31, 2005, an increase of 2.8 percent. The
Company's Central Indiana operations provided 78.3 percent of the year-to-date
loan growth, with the remainder occurring in the Company's core market of Monroe
County and the surrounding counties. Growth primarily occurred in commercial
real estate loans. Deposits decreased to $566.7 at March 31, 2006 compared to
$576.2 at December 31, 2005, a decrease of $9.5 million or 1.6 percent. The
decline in deposits between these two dates is the result of an $11.8 million
decline in balances maintained by a single public funds customer whose balances
are volatile. Excluding this customer's balances from deposits at December 31,
2005 and March 31, 2006, total deposits increased by $2.3 million. Cash and cash
equivalents declined by $17.8 million at March 31, 2006 compared to December 31,
2005 because a large public fund deposit on December 31, 2005 caused cash in
transit to be unusually high plus federal funds sold were $6.5 million higher at
December 31, 2005 compared to March 31, 2006. Borrowings increased to $86.0
million at March 31, 2006 compared to $76.8 million at December 31, 2005, a 12.0
percent increase. The increase in borrowings was primarily due to an increase in
repurchase agreements of 11.2 million. Federal Home Loan Bank advances declined
by $2.0 million.

Capital
-------
Shareholders' equity increased $850,000 at March 31, 2006 compared to December
31, 2005. This increase was a result of year-to-date net income of $1.8 million,
dividends paid of $793,000, other comprehensive loss, consisting solely of the
change (decrease) in net unrecognized gains in the Company's available-for-sale
securities portfolio of $156,000, ESOP shares earned of $10,000 and option
expense of $16,000.


                                       14
<PAGE>

The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations: total risk adjusted capital,
Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk inherent in the entity's activities that are not part of the
calculated ratios.

There are five capital categories defined in the regulations ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At March 31, 2006 and December
31, 2005, the Company and the Bank were categorized as well capitalized and met
all subject capital adequacy requirements. There are no conditions or events
since March 31, 2006 that management believes have changed the Company's or
Bank's classification.

The actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
                                                                         Required for Adequate       To Be Well
                                                              Actual            Capital(1)         Capitalized(1)
                                                      ------------------------------------------------------------
                                                        Amount     Ratio     Amount     Ratio     Amount     Ratio
                                                      ------------------------------------------------------------

           As of March 31, 2006
           --------------------
<S>                                                      <C>       <C>        <C>        <C>    <C>          <C>
           Total capital(1)(to risk-weighted assets)
               Consolidated                           $  58,395    10.94%   $ 42,706     8.0%         N/A      N/A
               Bank                                      58,470    11.02      42,458     8.0    $  53,073    10.0%
           Tier I capital(1)(to risk-weighted assets)
               Consolidated                              52,719     9.88      21,353     4.0          N/A      N/A
               Bank                                      52,794     9.95      21,229     4.0       31,844     6.0
           Tier I capital(1)(to average assets)
               Consolidated                              52,719     7.43      28,394     4.0          N/A      N/A
               Bank                                      52,794     7.47      28,264     4.0       35,330     5.0

           As of December 31, 2005
           -----------------------
           Total capital(1)(to risk-weighted assets)
               Consolidated                           $  57,312    10.94%   $ 41,918     8.0%         N/A      N/A
               Bank                                      57,343    11.01      41,660     8.0    $  52,075    10.0%
           Tier I capital(1)(to risk-weighted assets)
               Consolidated                              51,727     9.87      20,959     4.0          N/A      N/A
               Bank                                      51,758     9.94      20,830     4.0       31,245     6.0
           Tier I capital(1)(to average assets)
               Consolidated                              51,727     7.47      27,691     4.0          N/A      N/A
               Bank                                      51,758     7.51      27,565     4.0       34,457     5.0
</TABLE>

          (1) As defined by regulatory agencies


Classification of Assets, Allowance for Loan Losses, and Nonperforming Loans
----------------------------------------------------------------------------
One of management's top priorities has been improving credit quality. Management
is pleased by the progress made in terms of credit quality over the past year.

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 March 31, 2006, the Bank had $7.6 million
of loans internally classified compared to $8.2 million at December 31, 2005, a
7.9 percent reduction. The allowance for loan losses was $5.7 million, or 1.05
percent of portfolio loans (excluding loans held for sale) at March 31, 2006
compared to


                                       15
<PAGE>

$5.6 million, or 1.06 percent, of portfolio loans at December 31, 2005. A
portion of classified loans are nonaccrual loans. The Bank had nonperforming
assets (nonaccrual loans, restructured loans and ninety-days past due loans
still accruing) totaling $1.6 million, or 0.30 percent of total loans at March
31, 2006 compared to $2.0 million or 0.37 percent of total loans at December 31,
2005. March 31, 2006 nonperforming loans significantly decreased compared to
March 31, 2005, when nonperforming loans were $3.5 million, or 0.72 percent of
total loans.

During the first quarter of 2006, the Bank had net loan charge offs totaling
$210,000 compared to $74,000 charged off for the same period in 2005. The first
quarter of 2005 was unusually low. Past due loans (30 days or more) were 0.45
percent of total loans at March 31, 2006 compared to 0.79 percent of total loans
at March 31, 2005.

Liquidity
---------
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.

Cash Requirements
Management believes that the Company has adequate liquidity and adequate sources
for obtaining additional liquidity if needed. Short-term liquidity needs
resulting from normal deposit/withdrawal functions are provided by the Company
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 (FHLB) and to obtain brokered certificates of deposit
(CDs). FHLB advances were $31.8 million at March 31, 2006 compared to $33.8
million at December 31, 2005. At March 31, 2006, the Company had excess
borrowing capacity at the FHLB of $22.7 million as limited by the Company's
board resolution in effect at that date. If the Company's borrowing capacity
were not limited by the board resolution, the Company would have excess
borrowing capacity of $52.3 million based on collateral. In terms of managing
the Company's liquidity, management's primary focus is on increasing deposits to
fund future growth. However, the Board may increase its resolution limit on FHLB
advances if the Company needs additional liquidity. In July 2005, the Company
began using brokered CDs as an alternate source of funding. At March 31, 2006,
the Company had $50.9 million brokered CDs on its balance sheet. The Company's
internal Asset/Liability Committee (ALCO) meets regularly to review projected
loan demand and discuss appropriate funding sources to adequately manage the
Company's gap position and minimize interest rate risk.

At the bank holding company level, the Company primarily uses cash to pay
dividends to shareholders. The main source of funding for the holding company is
dividends from its subsidiary (the Bank). During the first quarter of 2006, the
Bank declared dividends to the holding company of $765,000. As of April 1, 2006,
the amount of dividends the Bank can pay to the parent company without prior
regulatory approval was $9.3 million, versus $8.3 million at January 1, 2006. As
discussed in Note 11 to the Consolidated Financial Statements (page 34 of the
2005 Annual Report to Shareholders-Financial Review) and Item 1 of the December
31, 2005 Form 10-K, the Bank is subject to many regulations and, among other
things, may be limited in its ability to pay dividends or transfer funds to the
holding company. Accordingly, consolidated cash flows as presented in the
Consolidated Statements of Cash Flows on page 6 may not represent cash
immediately available to the holding company.

Sources and Uses of Cash
The following discussion relates to the Consolidated Statements of Cash Flows
(page 6 of the consolidated condensed financial statements). During the three
months ended March 31, 2006, $238,000 of cash was used by operating activities,
compared to $1.9 million provided during the same period in 2005. The decrease
in this area was primarily a result of a decrease in other liabilities. During
the first three months of 2006, $16.5 million was used for investing activities,
compared to $12.9 million in the same period of 2005. The increase in the use of
funds in this category occurred primarily because the Company had a $14.5
million increase in loans in the


                                       16
<PAGE>

first three months of 2006 compared to a $12.1 million increase in the same
period of 2005. During the first three months of 2006, $1.1 million was used by
financing activities compared to $9.4 million of cash provided by financing
activities during the same period in 2005. The decrease in this area occurred
primarily from a much smaller net increase in borrowings and deposits ($1.7
million) in 2006 compared to 2005 ($14.2 million). The Company had unusually
high short term public fund deposits at December 31, 2005. Overall, net cash and
cash equivalents decreased $17.8 million during the three months ended March 31,
2006 compared to a decrease of $1.6 million in the same period of 2005.

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.

Forward-Looking Statements
--------------------------
Portions of information in this Form 10-Q contain forward-looking statements
about the Company which we believe are within the meaning of the Private
Securities Litigation Reform Act of 1995. This Form 10-Q contains certain
forward-looking statements with respect to the financial condition, results of
operations, plans, objectives, future performance and business of the Company.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include the words "believe,"
"expect," "anticipate," "intend," "plan," "estimate" or words of similar
meaning, or future or conditional verbs such as "will," "would," "should,"
"could" or "may" or words of similar meaning. These forward-looking statements,
by their nature, are subject to risks and uncertainties. There are a number of
important factors that could cause future results to differ materially from
historical performance and these forward-looking statements. Factors that might
cause such a difference include, but are not limited to: (1) competitive
pressures among depository institutions; (2) changes in the interest rate
environment; (3) prepayment speeds, charge-offs and loan loss provisions; (4)
general economic conditions, either national or in the markets in which the
Company does business; (5) legislative or regulatory changes adversely affect
the business of the Company; and (6) changes in real estate values or the real
estate markets. Further information on other factors which could affect the
financial results of the Company are included in the Company's Form 10-K for the
year ended December 31, 2005 as filed with the Securities and Exchange
Commission.

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."

The Company's interest sensitivity position at March 31, 2006 remained
consistent with the Company's primary goal of maximizing interest margin while
maintaining a low exposure to interest rate risk.


                                       17
<PAGE>

Management uses several techniques to measure interest rate risk. Interest rate
risk exposure is measured using an interest rate sensitivity analysis to
determine the change in the net portfolio value ("NPV") of its cash flows from
assets and liabilities in the event of hypothetical changes in interest rates.
Management also forecasts the net interest income that the Bank's current
balance sheet would yield over the next twelve months assuming the same
hypothetical changes in interest rates. A third method used by the Bank to
measure interest rate risk is an interest rate sensitivity gap analysis. The gap
analysis is utilized to quantify the repricing characteristics of the Bank's
assets and liabilities.

Management believes that its forecast of changes in net interest income under
various rate shocks is the more valuable and easiest to interpret interest rate
risk measurement technique. Management believes that interested parties will
derive a better understanding of how the Company's intermediation activities
will perform under different rate scenarios from its presentation of projected
net interest income under various rate shocks. This should help users of the
information form clearer opinions of the Company's interest rate sensitivity.

The Company's Board of Directors adopted an interest rate risk policy which
established a 20 percent maximum increase or decrease in net interest income in
the event of a sudden and sustained 2 percent (200 basis point) increase or
decrease in interest rates.

The following table summarizes the results of management's forecast of net
interest income that would be generated by the Bank's March 31, 2006 balance
sheet under various rate shocks:

                         Projected Net Interest
                             Income Over the        $ Change        % Change
Change in Interest Rate    Next Twelve Months   in Net Interest  in Net Interest
    (basis points)           (in thousands)          Income          Income
--------------------------------------------------------------------------------
         +300                    23,302             $ (951)          (3.92) %
         +200                    23,639               (614)          (2.53)
         +100                    23,969               (284)          (1.17)
           0                     24,253                  0               0
         -100                    24,406                153            0.63
         -200                    24,308                 55            0.23


The following table summarizes the results of management's forecast of net
interest income that would be generated by the Bank's December 31, 2005 balance
sheet under various rate shocks:


                         Projected Net Interest
                             Income Over the        $ Change        % Change
Change in Interest Rate    Next Twelve Months   in Net Interest  in Net Interest
    (basis points)           (in thousands)          Income          Income
--------------------------------------------------------------------------------
         +300                  $ 22,688             $ (245)          (1.07) %
         +200                    22,833               (100)          (0.44)
         +100                    22,974                 41            0.18
           0                     22,933                  0               0
         -100                    22,994                 61            0.26
         -200                    22,689               (244)          (1.07)


Management believes a 200 basis point (two percent) decrease in rates is highly
unlikely. Management also believes an increase in rates is more probable;
therefore, we will focus our discussion on the effects of a 100 basis point (one
percent) decrease in rates and an increase of 300 basis points (three percent).


                                       18
<PAGE>

The March 31, 2006 table on the preceding page indicates that the Bank's
projected net interest income for the next twelve months would decline by 3.9
percent in the event of a sudden and sustained 300 basis point increase in
interest rates and increase 0.6 percent in the event of an immediate 100 basis
point decrease in interest rates. While there has been a modest change, these
results are very similar to the rate shock forecast that was made at December
31, 2005. The forecasts from both time periods indicate the interest rate
sensitivities of the Bank's assets and liabilities are relatively well matched
over the rate shock ranges between a drop of 100 basis points and an increase of
300 basis points. The estimated changes in net interest income calculated as of
March 31, 2006, are within the approved guidelines established by the Board of
Directors.

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 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 net
interest income under hypothetical rate shocks. 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.

Item 4.           Controls and Procedures.
------            -----------------------

Monroe Bancorp's management is responsible for establishing and maintaining
effective disclosure controls and procedures, as defined under Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. As of March 31, 2006, an
evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures as of March 31, 2006 were effective in ensuring material information
required to be disclosed in this Quarterly Report on Form 10-Q was recorded,
processed, summarized, and reported on a timely basis. Additionally, there were
no changes in the Company's internal control over financial reporting that
occurred during the quarter ended March 31, 2006 that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.


Part II - Other Information
---------------------------

Item 1.        Legal Proceedings.
-------        ------------------

               Except as set forth below, there are no material pending legal
               proceedings, other than routine litigation incidental to the
               business of the Company or the Bank, to which the Company or the
               Bank is a party or of which any of its property is subject.
               Further, there is no material legal proceeding in which any
               director, officer, principal shareholder, or affiliate of the
               Company, or any associate of such director, officer, principal
               shareholder or affiliate is a party, or has a material interest,
               adverse to the Company.

               The Bank is a plaintiff in an action to recover amounts due on
               mortgage loans to a real estate developer and related entities.
               The borrower is in bankruptcy proceedings and has recently been
               indicted by a federal grand jury. The trustee in the borrower's
               bankruptcy petition has filed an action against the Bank and
               other defendants for damages from fraudulent transfer and
               preference payments, and to set aside certain mortgages granted
               to the Bank by the borrower (Case No. 02-21300-JKC-11, United
               States Bankruptcy Court Southern District of Indiana,


                                       19
<PAGE>

               Indianapolis Division, Plaintiff: Robert W. Leasure, Jr., Trustee
               of Royal Haven Builders, Inc. and Eric H. Tauer). Furthermore, on
               February 17, 2005, the loan officer who made the loans related to
               the legal proceedings was indicted by a federal grand jury. Based
               upon current facts and circumstances, it is not possible at this
               time to predict the effect that these proceedings will have on
               the financial statements of the Company.

Item 1A.       Risk Factors.
--------       -------------

               There have been no material changes in our risk factors from
               those disclosed in our 2005 Annual Report on Form 10-K.

Item 2c.       Unregistered Sales of Equity Securities and Use of Proceeds.
--------       ------------------------------------------------------------
               None

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

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

Item 5.        Other Information.
-------        ------------------
               Not applicable.

Item 6.        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 as Amended and Restated January 1,
               2001 is incorporated by reference to registrant's Form 10-Q filed
               November 13, 2002.

10 (vi)        Monroe Bancorp Employee Stock Ownership Plan as Amended and
               Restated January 1, 2001 is incorporated by reference to
               registrant's Form 10-Q filed November 13, 2002.

10(vii)        Third Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to registrant's Form 10-K filed
               March 29, 2004.


                                       20
<PAGE>

10(viii)       Monroe Bancorp Directors' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First, Second and
               First Amendments are incorporated by reference to registrant's
               Form 10-K filed March 29, 2004.

10(ix)         Monroe Bancorp Executives' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First, Second and
               First Amendments are incorporated by reference to registrant's
               Form 10-K filed March 29, 2004.

10 (x)         Form of agreement under the 1999 Management Stock Option Plan of
               Monroe Bancorp is incorporated by reference to registrant's Form
               10-K filed March 15, 2005.

10 (xi)        Schedule of Directors Compensation Arrangements is incorporated
               by reference to registrant's Form 8-K filed May 24, 2005.

10 (xii)       Schedule of 2006 Executive Officers Compensation Arrangements is
               incorporated by reference to registrant's Form 8-K filed May 9,
               2005.

10(xiii)       Fourth Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to Form 10-Q filed May 9, 2005.

10(xiv)        Monroe Bancorp Directors' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xv)         Monroe Bancorp Executives' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xvi)        Form of agreement under the Monroe Bancorp Directors' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xvii)       Form of agreement under the Monroe Bancorp Executives' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xviii)      First Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xix)        Second Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xx)         Third Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xxi)        Fourth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xxii)       Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

31(i)          Certification for Quarterly Report on Form 10-Q by Principal
               Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

31(ii)         Certification for Quarterly Report on Form 10-Q by Principal
               Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.


                                       21
<PAGE>

32(i)          Certification of Principal Executive Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.

32 (ii)        Certification of Principal Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.
































                                       22
<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:    May 8, 2006            By: /s/ Mark D. Bradford
                  -----------                ---------------------------------
                                             Mark D. Bradford, President and
                                             Chief Executive Officer
                                             (Principal Executive Officer)

         Date:    May 8, 2006            By: /s/ Gordon M. Dyott
                  -----------                ---------------------------------
                                             Gordon M. Dyott, Exec. Vice
                                             President, Chief Financial Officer
                                             (Principal Financial Officer)


















                                       23
<PAGE>

                                  Exhibit Index


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

33 (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 as Amended and Restated January 1,
               2001 is incorporated by reference to registrant's Form 10-Q filed
               November 13, 2002.

10 (vi)        Monroe Bancorp Employee Stock Ownership Plan as Amended and
               Restated January 1, 2001 is incorporated by reference to
               registrant's Form 10-Q filed November 13, 2002.

10(vii)        Third Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to registrant's Form 10-K filed
               March 29, 2004.

10(viii)       Monroe Bancorp Directors' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First, Second and
               First Amendments are incorporated by reference to registrant's
               Form 10-K filed March 29, 2004.

10(ix)         Monroe Bancorp Executives' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First, Second and
               First Amendments are incorporated by reference to registrant's
               Form 10-K filed March 29, 2004.

10 (x)         Form of agreement under the 1999 Management Stock Option Plan of
               Monroe Bancorp is incorporated by reference to registrant's Form
               10-K filed March 15, 2005.

10 (xi)        Schedule of Directors Compensation Arrangements is incorporated
               by reference to registrant's Form 8-K filed May 24, 2005.

10 (xii)       Schedule of Executive Officers 2006 Compensation Arrangements is
               incorporated by reference to registrant's Form 8-K filed December
               14, 2005.

10(xiii)       Fourth Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to Form 10-Q filed May 9, 2005.

10(xiv)        Monroe Bancorp Directors' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.


                                       24
<PAGE>

10(xv)         Monroe Bancorp Executives' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xvi)        Form of agreement under the Monroe Bancorp Directors' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xvii)       Form of agreement under the Monroe Bancorp Executives' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xviii)      First Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xix)        Second Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xx)         Third Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xxi)        Fourth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

10(xxii)       Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001 is filed as part of this Form 10-Q.

31(i)          Certification for Quarterly Report on Form 10-Q by Principal
               Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

31(ii)         Certification for Quarterly Report on Form 10-Q by Principal
               Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

32(i)          Certification of Principal Executive Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.

32 (ii)        Certification of Principal Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.











                                       25