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 June 30, 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 July 31, 2006:  6,639,842
<PAGE>


                          MONROE BANCORP AND SUBSIDIARY
                                    FORM 10-Q

                                      INDEX
<TABLE>
<CAPTION>
                                                                                 Page No.
                                                                                 -------
<S>                                                                                <C>
Part I. Financial Information:


    Item 1.    Financial Statements:

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

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

                  Consolidated Condensed Statements of Income - Three Months........5

                  Consolidated Condensed Statement of Shareholders' Equity..........6

                  Consolidated Condensed Statements of Cash Flows...................7

                  Notes to Consolidated Condensed Financial Statements..............8

    Item 2.    Management's Discussion and Analysis of Financial
                      Condition and Results of Operations..........................12

    Item 3.    Quantitative and Qualitative Disclosures about Market Risk..........23

    Item 4.    Controls and Procedures.............................................25

Part II.  Other Information:

    Item 1.    Legal Proceedings...................................................25

    Item 1A.  Risk Factors.........................................................25

    Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.........25

    Item 3.    Defaults Upon Senior Securities.....................................26

    Item 4.    Submission of Matters to a Vote of Security Holders.................26

    Item 5.    Other Information...................................................26

    Item 6.  Exhibits..............................................................26

Signatures.........................................................................29

Exhibit Index......................................................................30
</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>

                                                               June 30,   December 31,
                                                                 2006         2005
                                                              (Unaudited)
                                                               ---------    ---------
<S>                                                            <C>          <C>
Assets
       Cash and due from banks .............................   $  19,567    $  26,634
       Federal funds sold ..................................      22,550        7,100
       Interest-earning deposits ...........................       8,706        2,866
                                                               ---------    ---------
             Total cash and cash equivalents ...............      50,823       36,600

       Trading securities, at fair value ...................       3,320        3,408
       Investment securities:
            Available for sale .............................     108,977      113,483
            Held to maturity ...............................       2,055        2,353
                                                               ---------    ---------
                 Total investment securities ...............     111,032      115,836

       Loans ...............................................     554,540      524,158
       Allowance for loan losses ...........................      (5,817)      (5,585)
                                                               ---------    ---------
            Net loans ......................................     548,723      518,573
       Loans held for sale .................................       4,741        1,308
       Premises and equipment ..............................      14,004       13,039
       Federal Home Loan Bank of Indianapolis stock, at cost       2,545        2,545
       Other assets ........................................      22,268       21,751
                                                               ---------    ---------
                  Total assets .............................   $ 757,456    $ 713,060
                                                               =========    =========

Liabilities
       Deposits:
            Noninterest-bearing ............................   $  85,530    $  85,198
            Interest-bearing ...............................     508,326      490,983
                                                               ---------    ---------
                 Total deposits ............................     593,856      576,181

       Borrowings ..........................................     101,268       76,762
       Other liabilities ...................................      10,348        9,603
                                                               ---------    ---------
                  Total liabilities ........................     705,472      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 ..........................      11,329       11,277
       Retained earnings ...................................      42,827       40,700
       Accumulated other comprehensive loss ................      (1,974)      (1,265)
       Unearned ESOT shares ................................        (335)        (335)
                                                               ---------    ---------
                  Total shareholders' equity ...............      51,984       50,514
                                                               ---------    ---------
                  Total liabilities and shareholders' equity   $ 757,456    $ 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>
                                                                          Six Months Ended
                                                                              June 30,
                                                                        --------------------
                                                                          2006        2005
                                                                        --------    --------
<S>                                                                     <C>         <C>
Interest Income
       Loans, including fees ........................................   $ 18,687    $ 14,308
       Trading securities ...........................................         42          32
       Investment securities
            Taxable .................................................      1,712       1,588
            Tax exempt ..............................................        459         216
       Federal funds sold ...........................................        185          11
       Other interest income ........................................         46          19
                                                                        --------    --------
                  Total interest income .............................     21,131      16,174
                                                                        --------    --------

Interest Expense
       Deposits .....................................................      8,119       4,655
       Short-term borrowings ........................................      1,133         519
       Other borrowings .............................................        765         798
                                                                        --------    --------
                  Total interest expense ............................     10,017       5,972
                                                                        --------    --------
                  Net interest income ...............................     11,114      10,202
       Provision for loan losses ....................................        600         660
                                                                        --------    --------
                  Net interest income after provision for loan losses     10,514       9,542
                                                                        --------    --------

Noninterest Income
       Fiduciary activities .........................................        813         762
       Service charges on deposit accounts ..........................      1,846       1,687
       Commission income ............................................        416         511
       Securities gains .............................................         51          99
       Unrealized gains/losses on trading securities ................        (13)          5
       Net gains on loans sales .....................................        481         575
       Debit card interchange fees ..................................        380         308
       Other operating income .......................................        646         567
                                                                        --------    --------
                  Total other income ................................      4,620       4,514
                                                                        --------    --------

Noninterest Expenses
       Salaries and employee benefits ...............................      5,868       5,219
       Net occupancy and equipment expense ..........................      1,559       1,282
       Advertising ..................................................        423         303
       Legal fees ...................................................        127         363
       Appreciation in directors' and executives'
            deferred compensation plans .............................         81          34
       Other operating expense ......................................      1,716       1,590
                                                                        --------    --------
                  Total other expenses ..............................      9,774       8,791
                                                                        --------    --------

                  Income before income tax ..........................      5,360       5,265
                  Income tax expense ................................      1,646       1,770
                                                                        --------    --------
                              Net income ............................   $  3,714    $  3,495
                                                                        ========    ========

       Basic and diluted earnings per share..........................   $   0.56    $   0.53
       Dividends declared and paid per share.........................     0.2400      0.2364
</TABLE>
       See notes to consolidated condensed financial statements.

                                       4
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                   Consolidated Condensed Statements of Income
                                   (Unaudited)
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                              June 30,
                                                                        --------------------
                                                                          2006        2005
                                                                        --------    --------
<S>                                                                     <C>         <C>
Interest Income
       Loans, including fees ........................................   $  9,656    $  7,424
       Trading securities ...........................................         22          17
       Investment securities
            Taxable .................................................        860         826
            Tax exempt ..............................................        243         103
       Federal funds sold ...........................................        143           5
       Other interest income ........................................         32          11
                                                                        --------    --------
                  Total interest income .............................     10,956       8,386
                                                                        --------    --------

Interest Expense
       Deposits .....................................................      4,285       2,532
       Short-term borrowings ........................................        616         274
       Other borrowings .............................................        372         404
                                                                        --------    --------
                  Total interest expense ............................      5,273       3,210
                                                                        --------    --------
                  Net interest income ...............................      5,683       5,176
       Provision for loan losses ....................................        300         330
                                                                        --------    --------
                  Net interest income after provision for loan losses      5,383       4,846
                                                                        --------    --------

Noninterest Income
       Fiduciary activities .........................................        404         386
       Service charges on deposit accounts ..........................        980         932
       Commission income ............................................        214         287
       Securities gains .............................................          8          33
       Unrealized gains (losses) on trading securities ..............        (43)         51
       Net gains on loans sales .....................................        297         338
       Debit card interchange fees ..................................        196         158
       Other operating income .......................................        315         296
                                                                        --------    --------
                  Total other income ................................      2,371       2,481
                                                                        --------    --------

Noninterest Expenses
       Salaries and employee benefits ...............................      3,041       2,640
       Net occupancy and equipment expense ..........................        782         638
       Advertising ..................................................        204         184
       Legal fees ...................................................         40         183
       Appreciation (depreciation) in directors' and executives'
            deferred compensation plans .............................        (15)         67
       Other operating expense ......................................        900         811
                                                                        --------    --------
                  Total other expenses ..............................      4,952       4,523
                                                                        --------    --------

                  Income before income tax ..........................      2,802       2,804
                  Income tax expense ................................        861         952
                                                                        --------    --------
                              Net income ............................   $  1,941    $  1,852
                                                                        ========    ========

       Basic and diluted earnings per share..........................   $   0.29    $   0.28
       Dividends declared and paid per share.........................     0.1200      0.1182
</TABLE>
       See notes to consolidated condensed financial statements.

                                       5
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
            Consolidated Condensed Statement of Shareholders' Equity
                            For the Six Months Ended
                                  June 30, 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.......                                   $ 3,714       3,714                               3,714
  Other comprehensive income
    -unrealized loss on securities                                      (709)                  (709)                    (709)
ESOT shares earned................                            20                                                          20
Stock option compensation
    expense.......................                            32                                                          32
Cash dividend ($0.24 per share)                                                   (1,587)                             (1,587)
                                   ------------------------------------------------------------------------------------------
Balances June 30, 2006............  6,639,842   $ 137   $ 11,329     $ 3,005    $ 42,827   $ (1,974)      $ (335)   $ 51,984
                                   ==========================================================================================
</TABLE>
See notes to consolidated condensed financial statements.






                                       6
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                 Consolidated Condensed Statements of Cash Flows
                                   (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                                                    June 30,
                                                                              --------------------
                                                                                2006        2005
                                                                              --------    --------
<S>                                                                           <C>         <C>
Operating Activities
     Net income ...........................................................   $  3,714    $  3,495
     Adjustments to reconcile net income to net cash provided
             by operating activities:
         Provision for loan losses ........................................        600         660
         Depreciation and amortization ....................................        564         506
         Deferred income tax ..............................................       (208)       (169)
         Investment securities amortization, net ..........................         50         117
         Securities gain ..................................................        (51)        (98)
         Origination of loans held for sale ...............................    (38,178)    (41,150)
         Proceeds from sale of loans held for sale ........................     35,226      38,726
         Gain on sale of loans held for sale ..............................       (481)       (575)
         ESOT compensation ................................................         20           4
         Stock-based compensation expense .................................         32          --
         Net change in:
              Trading securities ..........................................        139         (27)
              Interest receivable and other assets ........................         69      (1,173)
              Interest payable and other liabilities ......................        745       1,089
                                                                              --------    --------
                        Net cash provided by operating activities .........      2,241       1,405
                                                                              --------    --------

Investing Activities
     Purchase of securities available for sale ............................    (15,950)    (32,645)
     Proceeds from sales of securities available for sale .................         --      13,397
     Proceeds from paydowns and maturities of securities available for sale     19,316      10,215
     Proceeds from paydowns and maturities of securities held to maturity .        301       4,985
     Purchase of FHLB stock ...............................................         --         (55)
     Net change in loans ..................................................    (30,750)    (25,477)
     Purchase of premises and equipment ...................................     (1,529)     (1,136)
                                                                              --------    --------
                        Net cash used by investing activities .............    (28,612)    (30,716)
                                                                              --------    --------

Financing Activities
     Net change in:
         Noninterest-bearing, interest-bearing demand and savings deposits      25,127      37,970
         Certificates of deposit ..........................................     (7,452)      8,055
         Borrowings .......................................................     28,506     (17,786)
     Proceeds from Federal Home Loan Bank advances ........................         --      15,000
     Repayments of Federal Home Loan Bank advances ........................     (4,000)     (4,154)
     Cash dividends paid ..................................................     (1,587)     (1,560)
     Stock options exercised ..............................................         --          66
     Repurchase of common stock ...........................................         --         (66)
                                                                              --------    --------
                        Net cash provided by financing activities .........     40,594      37,525
                                                                              --------    --------
Net Change in Cash and Cash Equivalents ...................................     14,223       8,214
Cash and Cash Equivalents, Beginning of Period ............................     36,600      21,396
                                                                              --------    --------
Cash and Cash Equivalents, End of Period ..................................   $ 50,823    $ 29,610
                                                                              ========    ========

Supplemental cash flow disclosures
     Interest paid ........................................................   $  9,731    $  5,785
     Income tax paid ......................................................      1,612       1,780
</TABLE>
See notes to consolidated condensed financial statements.

                                       7
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
              Notes to Consolidated Condensed Financial Statements
                                  June 30, 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 June 30, 2006, and
for the three and six months ended June 30, 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 condensed 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.



                                       8
<PAGE>

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

                                                         Six months ended
                                                   ----------------------------
                                                   June 30, 2006  June 30, 2005
                                                   -------------  -------------

     Net income (in thousands) ..................   $     3,714    $     3,495
                                                    ===========    ===========
     Weighted average shares outstanding ........     6,639,842      6,639,809
     Average unearned ESOT shares ...............       (29,975)       (37,897)
                                                    -----------    -----------
     Shares used to compute basic earnings
          per share .............................     6,609,867      6,601,912
     Effect of dilutive securities- stock options        20,744         19,724
                                                    -----------    -----------
     Shares used to compute diluted earnings
          per share .............................     6,630,611      6,621,636
                                                    ===========    ===========

     Earnings per share, basic ..................   $      0.56    $      0.53
     Earnings per share, diluted ................          0.56           0.53


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 June 30, 2006, but
were not included in the computation of diluted EPS for the six months ended
June 30, 2006 because the options' exercise price was greater than the average
market price of the common shares.

                                                        Three months ended
                                                   ----------------------------
                                                   June 30, 2006  June 30, 2005
                                                   -------------  -------------

     Net income (in thousands) ..................   $     1,941    $     1,852
                                                    ===========    ===========
     Weighted average shares outstanding ........     6,639,842      6,639,842
     Average unearned ESOT shares ...............       (29,013)       (37,173)
                                                    -----------    -----------
     Shares used to compute basic earnings
          per share .............................     6,610,829      6,602,669
     Effect of dilutive securities- stock options        20,722         17,247
                                                    -----------    -----------
     Shares used to compute diluted earnings
          per share .............................     6,631,551      6,619,916
                                                    ===========    ===========

     Earnings per share, basic ..................   $      0.29    $      0.28
     Earnings per share, diluted ................          0.29           0.28


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 June 30, 2006, and
options to purchase 11,000 shares of common stock at $14.73 per share were
outstanding at June 30, 2005, but were not included in the computation of
diluted EPS for the three months ended June 30, 2006 and 2005, respectively
because the options' exercise price was greater than the average market price of
the common shares.


                                       9
<PAGE>

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 $32,000 in compensation expense related to
vested stock options less estimated forfeitures for the six month period ended
June 30, 2006, and $16,000 for the three month period ended June 30, 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 two tables below illustrate 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.


                                                           Six Months Ended
                                                            June 30, 2005
                                                           ----------------

Net income, as reported..................................      $     3,495
Less:  Total stock-based employee compensation cost
    determined under the fair value based method, net of
    income taxes.........................................                5
                                                           ----------------
Pro forma net income.....................................      $     3,490
                                                           ================

Earnings per share:
     Basic - as reported.................................      $     0.53
     Basic - pro forma...................................            0.53
     Diluted - as reported...............................            0.53
     Diluted - pro forma.................................            0.53







                                       10
<PAGE>

                                                            Three Months Ended
                                                              June 30, 2005
                                                            ------------------

Net income, as reported..................................     $        1,852
Less:  Total stock-based employee compensation cost
    determined under the fair value based method, net of
    income taxes.........................................                  2
                                                            ------------------
Pro forma net income.....................................            $ 1,850
                                                            ==================

Earnings per share:
     Basic - as reported..................................    $         0.28
     Basic - pro forma....................................              0.28
     Diluted - as reported................................              0.28
     Diluted - pro forma..................................              0.28


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 was a creditor in two 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
reached a settlement in April 2006 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
June 30, 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.

Note 7:  Trust Preferred Securities
-----------------------------------

On July 24, 2006, the Company completed a private placement of $3 million in
trust preferred securities through Monroe Bancorp Capital Trust I (the Trust), a
statutory business trust formed by the Company. The securities were sold
pursuant to an applicable exemption from registration under the Securities Act
of 1933, as amended. The Company received the proceeds from the sale of the
securities in exchange for subordinated debt issued by the Company to the Trust.
Because the Trust will not be consolidated with the Company, pursuant to
Financial


                                       11
<PAGE>

Accounting Standard Board Interpretation No. 46, the Company's financial
statements will reflect the subordinated debt issued to the Trust.


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.




                                       12
<PAGE>

Management has used the following 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 noninterest income and noninterest 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 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
     noninterest income and noninterest 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 second quarter of 2006 was $1,941,000, a 4.8 percent increase
from net income of $1,852,000 for the same quarter last year. Basic and diluted
earnings per share for the second quarter of 2006 were $0.29, up from $0.28 per
share for the second quarter of 2005.

Annualized return on average equity (ROE) for the second quarter of 2006
decreased to 15.04 percent compared to 15.39 percent for second quarter of 2005.
The annualized return on average assets (ROA) was 1.07 percent for the second
quarter of 2006 compared to 1.14 percent for the same period of 2005.

Net income was $3,714,000 and $3,495,000 for the six months ended June 30, 2006
and 2005, respectively, an increase of $219,000 or 6.3 percent. Diluted earnings
per share for the six months ended June 30, 2006 were $0.56 compared to $0.53
for the same period in 2005.

Annualized return on average equity (ROE) for the six months ended June 30, 2006
decreased slightly to 14.55 percent compared to 14.56 percent for same period of
2005. The annualized return on average assets (ROA) was 1.04 percent for the six
months ended June 30, 2006 down from 1.09 percent for the same period in 2004.

Growth in loans and improved asset quality resulted in growth in net interest
income in 2006. Progress continues to be made towards improving asset quality as
indicated by several measures of credit quality. At June 30, 2006,
non-performing assets and 90-day past due loans totaled $1,346,000 (0.18 percent
of total assets) compared to $3,902,000 (0.58 percent) at June 30, 2005, a 65.5
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 0.58 percent
at June 30, 2006, down from 0.98 percent at June 30, 2005. A lower tax rate also
contributed to increased net income. The Company's effective tax rate was 30.7
percent for the six months ended June 30, 2006 compared to 33.6 percent for the
same period in 2005. The tax rate decreased primarily because municipal bond
(tax-exempt) income represented a larger percentage of total income in the first
six months of 2006.


                                       13
<PAGE>

Noninterest income was flat for the first six months of 2006 compared to the
same period of 2005 as increases in service charges on deposit accounts (up
$159,000 or 9.4 percent) and increases in the cash surrender value of bank owned
life insurance (up $78,000 or 48.8 percent) were offset by declines in
commissions earned on the sale of investments (down $95,000 or 18.6 percent) and
gains on the sales of real estate loans ($94,000 or 16.4 percent).

Total noninterest expense for the six-month period ending June 30, 2006 was 11.2
percent greater than that of the same period of 2005. The increase was largely
related to the Company's strategies to grow in its core and Central Indiana
markets.

The Company opened a new full-service banking center in Brownsburg Indiana, west
of Indianapolis, in January 2006. Average deposits for the second quarter of
2006 at this new branch were $29,730,000, an increase of $4,757,000, or 19.0
percent, over first quarter average deposits of $24,973,000. Two additional
full-service banking centers are planned for 2007. Loans generated by our
Central Indiana operations, located in Hamilton and Hendricks counties, were
$132,780,000 million at June 30, 2006, or 23.7 percent of total loans of
$559,281,000, compared to $91,758,000 at June 30, 2005, or 18.2 percent of total
loans of $505,315,000.

Net Interest Income / Net Interest Margin
-----------------------------------------
The tables on the following pages present information to assist in analyzing net
interest income. The tables of Average Balance Sheets and Interest Rates present
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.



























                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                   Average Balance Sheets and Interest Rates
                                                       --------------------------------------------------------------------
                                                        Six Months Ended June 30, 2006      Six Months Ended June 30, 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.........................................  $ 88,321    $ 1,842      4.21%      $ 94,347    $ 1,716      3.67%
    Tax-exempt (1)..................................    28,498        765      5.41%        15,458        360      4.70%
                                                      --------    -------                 --------    -------
      Total securities..............................   116,819      2,607      4.50%       109,805      2,076      3.81%

  Loans (2).........................................   542,951     18,720      6.95%       486,837     14,310      5.93%
  FHLB Stock........................................     2,545         65      5.15%         2,472         53      4.32%
  Federal funds sold................................     6,876        185      5.43%           819         11      2.71%
  Interest-earning deposits.........................     3,047         78      5.14%         1,476         33      4.55%
                                                      --------    -------                 --------    -------
      Total interest earning assets.................   672,238     21,655      6.50%       601,409     16,483      5.53%
                                                      --------    -------                 --------    -------

Noninterest earning assets
  Allowance for loan losses.........................    (5,695)                             (5,435)
  Premises and equipment & other assets.............    35,980                              29,761
  Cash and due from banks...........................    16,617                              18,771
                                                      --------                            --------
      Total assets..................................  $719,140                            $644,506
                                                      ========                            ========

        LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
  Total interest-bearing deposits...................   494,545      8,119      3.31%       432,767      4,655      2.17%
  Borrowed funds....................................    88,155      1,898      4.34%        81,359      1,317      3.26%
                                                      --------    -------                 --------    -------
      Total interest-bearing liabilities............   582,700     10,017      3.47%       514,126      5,972      2.34%
                                                      --------    -------                 --------    -------


Noninterest-bearing liabilities
  Noninterest-bearing demand deposits...............    77,301                              75,656
  Other liabilities.................................     7,651                               6,599
  Shareholders' equity..............................    51,488                              48,125
                                                      --------                            --------
      Total liabilities and shareholders' equity....  $719,140                            $644,506
                                                      ========                            ========


Interest margin recap
Net interest income and interest rate spread
  Tax-equivalent net interest income margin.........               11,638      3.03%                   10,511      3.19%
  Tax-equivalent net interest margin as a percent of
    total average earning assets....................                           3.49%                               3.51%
Tax-equivalent adjustment (1).......................                  524                                 309
                                                                  -------                             -------

  Net interest income                                             $11,114                             $10,202
                                                                  =======                             =======
</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.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                   Average Balance Sheets and Interest Rates
                                                       --------------------------------------------------------------------
                                                       Three Months Ended June 30, 2006    Three Months Ended June 30, 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.........................................  $ 86,127    $   925      4.31%      $ 95,562    $   894      3.75%
    Tax-exempt (1)..................................    29,557        405      5.50%        15,341        172      4.49%
                                                      --------    -------                 --------    -------
      Total securities..............................   115,684      1,330      4.61%       110,903      1,065      3.85%

  Loans (2).........................................   548,671      9,674      7.07%       492,298      7,425      6.05%
  FHLB Stock........................................     2,545         33      5.20%         2,485         26      4.20%
  Federal funds sold................................     9,873        144      5.85%           686          5      2.92%
  Interest-earning deposits.........................     4,293         53      4.98%         1,102         17      6.31%
                                                      --------    -------                 --------    -------
      Total interest earning assets.................   681,066     11,234      6.62%       607,474      8,539      5.64%
                                                      --------    -------                 --------    -------

Noninterest earning assets
  Allowance for loan losses.........................    (5,750)                             (5,535)
  Premises and equipment & other assets.............    36,291                              30,573
  Cash and due from banks...........................    16,729                              19,772
                                                      --------                            --------
      Total assets..................................  $728,336                            $652,284
                                                      ========                            ========

          LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
  Total interest-bearing deposits...................  $502,601      4,286      3.42%      $440,137      2,531      2.31%
  Borrowed funds....................................    88,710        987      4.46%        79,208        679      3.44%
                                                      --------    -------                 --------    -------
      Total interest-bearing liabilities............   591,311      5,273      3.58%       519,345      3,210      2.48%
                                                      --------    -------                 --------    -------


Noninterest-bearing liabilities
  Noninterest-bearing demand deposits...............    77,294                              77,524
  Other liabilities.................................     7,943                               7,135
  Shareholders' equity..............................    51,788                              48,280
                                                      --------                            --------
      Total liabilities and shareholders' equity....  $728,336                            $652,284
                                                      ========                            ========


Interest margin recap
Net interest income and interest rate spread
  Tax-equivalent net interest income margin............           $ 5,961      3.04%                   $5,329      3.16%
  Tax-equivalent net interest margin as a percent of
    total average earning assets..............................                 3.51%                               3.52%
Tax-equivalent adjustment (1)..................................       278                                 153
                                                                  -------                             -------

      Net interest income..................................       $ 5,683                              $5,176
                                                                  =======                              ======
</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.

                                       16
<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.
For the six months ended June 30, 2006, the tax-equivalent net interest margin
as a percent of average earning assets was 3.49 percent, a decrease from 3.51
percent for the same period last year. Average loan yields for the first six
months of 2006 increased by 102 basis points (1.02 percent) over the same period
in 2005 and deposit yields increased 114 basis points. Average tax-equivalent
securities yields for the first six months of 2006 increased by 69 basis points
over the same period in 2005, and borrowed funds yields increased 108 basis
points. Tax-equivalent net interest income was $11,114,000 for the six months
ended June 30, 2006 compared to $10,202,000 for the same period in 2005, an
increase of 8.9 percent.

The tax-equivalent net interest margin as a percent of average earning assets
was 3.51 percent for the quarter ended June 30, 2006, down from 3.52 percent for
the same quarter last year. Average second quarter 2006 loan yields increased by
102 basis points over second quarter 2005 yields and deposit yields increased
111 basis points in the same time period. Average second quarter 2006
tax-equivalent securities yields increased by 76 basis points over the second
quarter of 2005, and borrowed funds yields increased 102 basis points.
Tax-equivalent net interest income was $5,683,000 for the three months ended
June 30, 2006 compared to $5,176,000 for the same period in 2005, an increase of
9.8 percent. Net interest income increased, despite the decrease in the margin,
due to strong loan growth and improving yields in the investment portfolio.

The federal funds rate has increased from 3.25 percent at June 30, 2005 to 5.25
percent at June 30, 2006. During the first six months and the second quarter of
2006, deposit yields increased more than loan yields because the Company is
liability sensitive (i.e. deposits reprice more quickly than loans). Many of the
Company's repricing liabilities have rates that are administratively set by the
Bank as opposed to being tied to a specific index. Management's ability to lag
rate increases on these administratively set deposit products has helped keep
the increase in the cost of deposits well below the increase in market rates
which helped the margin.

Noninterest Income / Noninterest Expense
----------------------------------------
Total noninterest income was $2,371,000 for the three months ended June 30, 2006
compared to $2,481,000 for the same period in 2005, a decrease of $110,000.
Omitting the net realized and unrealized losses on rabbi trust securities in the
amount of $35,000 in the second quarter of 2006 and gains in the amount of
$51,000 in the second quarter of 2005, other income increased $24,000 or 0.38
percent during the second quarter of 2006 compared to the second quarter of
2005.

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

o    Service charges on deposit accounts were $980,000 during the second quarter
     of 2006 compared to $932,000 in the second  quarter of 2005, an increase of
     $48,000, or 5.2 percent.  Growth primarily occurred in fees associated with
     overdrawn accounts (NSF fees).
o    Commissions  on platform  annuity  and mutual  fund sales and  full-service
     brokerage  activity were $214,000 in the second quarter of 2006 compared to
     $287,000  for the same  period  in 2005,  a  decrease  of  $73,000  or 25.4
     percent.  Fixed annuity sales were substantially  lower because of the flat
     yield curve and other factors that  contributed  to yields on fixed annuity
     products being less attractive than they had been in earlier periods.
o    Gains  on the  sale of real  estate  loans  in the  secondary  market  were
     $297,000  during the second  quarter of 2006  compared to $338,000  for the
     same  period of 2005,  a decrease of $41,000 or 12.1  percent.  As interest
     rates increased, the market for refinancing was less favorable in 2006.
o    Debit card  interchange  income was $196,000  during the second  quarter of
     2006  compared  to  $158,000  for the same  period of 2005,  an increase of
     $38,000 or 24.1 percent, primarily due to increased debit card usage.

Total noninterest income was $4,620,000 for the first six months of 2006
compared to $4,514,000 for the same period in 2005, an increase of $106,000.
Omitting the net realized and unrealized gains on rabbi trust securities in the
amount of $38,000 in the first six months of 2006 and gains in the amount of
$6,000 in the first six


                                       17
<PAGE>

months of 2005, other income  increased  $74,000 or 1.6 percent during the first
six month of 2006 compared to the same period of 2005.

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

o    Service charges on deposit  accounts were  $1,846,000  during the first six
     months of 2006  compared  to  $1,687,000  in the same  period  of 2005,  an
     increase of $159,000,  or 9.4 percent.  Growth  primarily  occurred in fees
     associated with overdrawn accounts (NSF fees).
o    Increases in the cash surrender  value of bank owned life insurance  (BOLI)
     were $238,000 for the first six months of 2006 compared to $160,000 for the
     same period in 2005, an increase of $78,000, or 48.8 percent. Rates paid on
     BOLI are  driven by the  yields  earned  on the  investment  portfolios  of
     insurance  companies which,  due to their nature,  tend to lag increases in
     market rates.
o    Commissions  on platform  annuity  and mutual  fund sales and  full-service
     brokerage  activity  were  $416,000  for the six months ended June 30, 2006
     compared to $511,000  for the same period in 2005, a decrease of $95,000 or
     18.6 percent.
o    Gains  on the  sale of real  estate  loans  in the  secondary  market  were
     $481,000 for the first six months of 2006 compared to $575,000 for the same
     period of 2005, a decrease of $94,000 or 16.4 percent.

For the quarter ended June 30, 2006, total noninterest expense was $4,952,000
compared to $4,523,000 for the same period in 2005. Omitting the depreciation in
the Directors' and Executives' Deferred Compensation Plan of $15,000 in the
second 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 appreciation of $67,000 during the second quarter
of 2005, noninterest expense increased $511,000 or 11.5 percent.

Significant changes occurred in the following areas:

o    Salaries  and  employee  benefits  expense  was  $3,041,000  for the second
     quarter  2006  compared  to  $2,640,000  for the same  period  in 2005,  an
     increase of $401,000 or 15.2 percent. Most of the increase in this area was
     associated with staff additions related to the Company's growth initiatives
     in its Central Indiana and Bloomington markets.
o    Premises and equipment  expense was $782,000 for the second quarter of 2006
     compared to $638,000  for the same period of 2005,  an increase of $144,000
     or 22.6 percent.  $54,000 of this increase was  attributed to growth in the
     Company's Central Indiana operations in counties surrounding  Indianapolis.
     The Company also expanded its Operation Center facility in 2006 to position
     itself for future growth.
o    Legal fees were $40,000 for the second quarter of 2006 compared to $183,000
     for the same period in 2005,  a decrease of  $143,000  or 78.1  percent.  A
     lawsuit with a builder who filed bankruptcy and his related entities, which
     had been  ongoing  since 2003,  was settled in 2006 and legal fees  dropped
     significantly as a result.

For the six months ended June 30, 2006, total noninterest expense was $9,774,000
compared to $8,791,000 for the same period in 2005. Omitting the appreciation in
the Directors' and Executives' Deferred Compensation Plan of $81,000 in the
first six months of 2006 and appreciation of $34,000 during the same period of
2005, noninterest expense increased $936,000 or 10.7 percent.






                                       18
<PAGE>

Significant changes occurred in the following areas:

o    Salary and  employee  benefits  expense  was  $5,868,000  for the first six
     months of 2006  compared  to  $5,219,000  for the same  period in 2005,  an
     increase of $649,000 or 12.4 percent.  Salary expense increased by $447,000
     primarily  due  to  staff  additions   related  to  the  Company's   growth
     initiatives  in  its  Central  Indiana  and  Bloomington  markets.   Health
     insurance expense  increased by $172,000,  or 80.2 percent during the first
     six months of 2006,  primarily because the claims incurred during first six
     months of 2005 were unusually low.
o    Occupancy  expense was $1,559,000 for the first six months of 2006 compared
     to $1,282,000  for the same period of 2005, an increase of $277,000 or 21.6
     percent.  This  increase  was  primarily  attributed  to growth in  Central
     Indiana and expansion of the Operations Center.
o    Legal  fees were  $127,000  for the first six  months of 2006  compared  to
     $363,000  for the same period in 2005.  A lawsuit  with a builder who filed
     bankruptcy and his related entities, which had been ongoing since 2003, was
     settled in 2006 and legal fees dropped significantly as a result.
o    Advertising  expense was $423,000 for the first six months of 2006 compared
     to $303,000  for the same  period in 2005,  an increase of $120,000 or 39.6
     percent. This increase was primarily associated with increased marketing in
     the Company's Central Indiana locations.

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 six months ended June
30, 2006 compared to 33.6 percent for the same period in 2005. The tax rate
decreased primarily because municipal bond (tax-exempt) income represented a
larger percentage of total income in the first six months of 2006.


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

Assets and Liabilities
----------------------
Total assets of the Company at June 30, 2006 were $757,456,000 an increase of
6.2 percent or $44,396,000 compared to $713,060,000 at December 31, 2005. Loans
(including loans held for sale) grew to $559,281,000 at June 30, 2006 compared
to $525,466,000 at December 31, 2005, an increase of 6.4 percent. The Company's
Central Indiana operations provided 70.1 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
construction and commercial real estate loans.

Due to unusually high public funds deposits at December 31, 2005, a more
realistic picture of the growth in deposit accounts can be obtained by comparing
average monthly balances. Average deposits for the month of June 2006 were
$593,299,000 compared to $563,381,000 for the month of December 2005, an
increase of 5.3 percent. The increase in deposits resulted primarily from an
increase in interest-bearing demand deposit accounts, much of which is
attributed to a small number of large depositors. Cash and cash equivalents
increased by $14,223,000 at June 30, 2006 compared to December 31, 2005,
primarily due to a $15,450,000 increase in federal funds sold. Borrowings
increased to $101,268,000 at June 30, 2006 compared to $76,762,000 at December
31, 2005, a 31.9 percent increase. The increase in borrowings was due to a
$29,055,000 increase in repurchase agreements offset by a decrease of $4,000,000
in Federal Home Loan Bank (FHLB) advances.

Capital
-------
Shareholders' equity increased to $51,984,000 at June 30, 2006 compared to
$50,514,000 at December 31, 2005, an increase of $1,470,000. This increase was a
result of year-to-date net income of $3,714,000, less dividends paid of
$1,587,000, less other comprehensive loss, consisting solely of net unrecognized
losses in the


                                       19
<PAGE>

Company's  available-for-sale  securities  portfolio  of  $709,000,  plus option
expense of $32,000 and ESOP shares earned of $20,000.

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 June 30, 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
June 30, 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
                                                ----------------------------------------------------------------
<S>                                              <C>         <C>      <C>           <C>      <C>          <C>
     As of June 30, 2006
     -------------------
     Total capital (1) (to risk-weighted assets)
         Consolidated........................... $ 59,688    10.73%   $ 44,517      8.0%          N/A      N/A
         Bank...................................   59,770    10.80      44,270      8.0      $ 55,337     10.0%
     Tier I capital (1) (to risk-weighted assets)
         Consolidated...........................   53,871     9.68      22,259      4.0           N/A      N/A
         Bank...................................   53,953     9.75      22,135      4.0        33,202      6.0
     Tier I capital (1) (to average assets)
         Consolidated...........................   53,871     7.40      29,133      4.0           N/A      N/A
         Bank...................................   53,953     7.44      29,009      4.0        36,262      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
     (1) As defined by regulatory agencies
</TABLE>






                                       20
<PAGE>

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 employs an internal rating system for loans to assist
management in addressing collection and other risks. Loans that are deemed to
have potential or well-defined weaknesses are graded in one of four catagories
comprising criticized loans. As of June 30, 2006, the Bank had $6,951,000 of
loans internally classified compared to $8,210,000 at December 31, 2005, a 15.3
percent reduction. The allowance for loan losses was $5,817,000, or 1.05 percent
of portfolio loans (excluding loans held for sale) at June 30, 2006 compared to
$5,585,000 or 1.07 percent, of portfolio loans at December 31, 2005. A portion
of classified loans are nonperforming loans. The Bank had nonperforming loans
(nonaccrual loans, restructured loans, and ninety-days past due loans still
accruing) totaling $1,346,000, or 0.24 percent of total loans at June 30, 2006
compared to $2,032,000 or 0.37 percent of total loans at December 31, 2005. June
30, 2006 nonperforming loans also significantly decreased compared to June 30,
2005, when nonperforming loans were $3,439,000, or 0.68 percent of total loans.

During the first six months of 2006, the Bank had net loan charge-offs totaling
$369,000 compared to $246,000 charged off for the same period in 2005. The
Company's loan delinquency ratio (loan balances past due 30 days or more as a
percent of total loans) was 0.58 percent at June 30, 2006, down from 0.98
percent at June 30 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 by the ability to raise brokered CDs. FHLB
advances were $29,780,000 at June 30, 2006 compared to $33,780,000 at December
31, 2005. At June 30, 2006, the Company had excess borrowing capacity at the
FHLB of $24,689,000 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 $50,824,000
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 June 30, 2006, the Company had $48,387,000
brokered CDs on its balance sheet compared to $49,712,000 at December 31, 2005.
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 and from time to time, repurchase shares of its common
stock. The main source of funding for the holding company is dividends from its
subsidiary (the Bank). During the six months ended June 30, 2006, the Bank
declared dividends to the holding company of $1,560,000. As of July 1, 2006, the
amount of dividends the Bank can pay to the parent company without prior
regulatory approval was $10,465,000, versus $8,254,000 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.


                                       21
<PAGE>

Sources and Uses of Cash
The following discussion relates to the Consolidated Statements of Cash Flows
(page 7 of the consolidated condensed financial statements). During the six
months ended June 30, 2006, $2,241,000 of cash was provided by operating
activities, compared to $1,405,000 during the same period in 2005. The increase
in this area was primarily a result of an increase in accrued interest
receivable and other assets during the first six months of 2006 compared to a
decrease in the first six months of 2005. During the first six months of 2006,
$28,612,000 was used for investing activities, compared to $30,716,000 in the
same period of 2005. The reduction was primarily a result of fewer securities
being purchased in 2006. In the first six months of 2006, $40,594,000 of cash
was provided by financing activities, primarily from growth in borrowings
(repurchase agreements) and interest-bearing demand deposits, compared to
$37,525,000 provided by financing activities during the same period in 2005.
Overall, net cash and cash equivalents increased $14,223,000 during the six
months ended June 30, 2006 compared to an increase of $8,214,000 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.


                                       22
<PAGE>

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 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 June 30, 2006 remained
consistent with the Company's primary goal of maximizing interest margin while
maintaining a low exposure to interest rate risk.

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 June 30, 2006 balance
sheet under various rate shocks:

<TABLE>
<CAPTION>
                              Projected Net Interest     $ Change
                                  Income Over the     in Net Interest     % Change
     Change in Interest Rate    Next Twelve Months        Income       in Net Interest
         (basis points)           (in thousands)       (in thousands)      Income
     ---------------------------------------------------------------------------------
<S>          <C>                    <C>                   <C>              <C>
             +200                   $ 24,549              $ (395)          (1.58) %
             +100                     24,799                (145)          (0.58)
                0                     24,944                   0               0
             -100                     24,864                 (80)          (0.32)
             -200                     24,546                (398)          (1.60)
</TABLE>


                                       23
<PAGE>

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:

<TABLE>
<CAPTION>
                              Projected Net Interest     $ Change
                                  Income Over the     in Net Interest     % Change
     Change in Interest Rate    Next Twelve Months        Income       in Net Interest
         (basis points)           (in thousands)       (in thousands)      Income
     ---------------------------------------------------------------------------------
<S>          <C>                   <C>                    <C>              <C>
             +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)
</TABLE>


Management believes a discussion of 200 basis point (two percent) increases and
decreases in rates, though currently unlikely, is useful in terms of developing
an understanding of the Company's interest rate sensitivity.

The June 30, 2006 table above indicates that the Bank's projected net interest
income for the next twelve months would decline by 1.6 percent in the event of a
sudden and sustained 200 basis point increase in interest rates and decline by a
similar amount in the event of an immediate 200 basis point decrease in interest
rates. These results are largely driven by two factors. The first contributing
factor is that the Company has significantly more interest bearing liabilities
($545,399,000) repricing over the twelve-month horizon than interest earning
assets ($415,788,000). This liability sensitivity is mitigated by the fact that
many of these liabilities have rates which are administratively set, which
allows the Company the opportunity to have some deposit rates lag upward
movements in market rates. None-the-less, the model forecasts that the Company's
liability sensitivity will result in a reduction in net interest income in a
rising rate environment.

The second factor is the low level of rates paid on certain categories of
liabilities. Generally being liability sensitive has a favorable impact on net
interest income in a falling rate environment. However, many of the Company's
short-term liabilities (e.g., consumer NOW accounts) are currently priced well
below 2 percent. Accordingly, they cannot reprice downward by 200 basis points
which results in a reduction in net interest income in the event of a rate shock
of this magnitude.

As can be seen in the two charts, the forecasted change in net interest income
for 200 basis point rate shocks using the June 30, 2006 balance sheet are modest
and very similar to the rate shock forecast that was made using the December 31,
2005 balance sheet. The forecasts from both time periods indicate the interest
rate sensitivities of Bank's assets and liabilities are relatively well matched
over the rate shock ranges between a drop of 200 basis points and an increase of
200 basis points. The estimated changes in net interest income calculated as of
June 30, 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.

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.


                                       24
<PAGE>

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 June 30, 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 June 30, 2006 were effective in ensuring 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 June 30, 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 Company was a creditor in two 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 reached a
          settlement in April 2006 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 June 30, 2006 financial statements for these matters.

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 2.   Unregistered Sales of Equity Securities and Use of Proceeds.
-------   ------------------------------------------------------------
          Not applicable.


                                       25
<PAGE>

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

Item 4.   Submission of Matters to a Vote of Security Holders.
-------   ----------------------------------------------------
       (a)     On April 27, 2006, the Corporation held its annual meeting of
               shareholders.

       (b)     At the annual meeting, the following individuals were elected to
               a three-year term expiring in 2009: Bradford J. Bomba, Jr., M.D
               and Timothy D. Ellis.

               The following individual's terms as directors continued after the
               meeting: Mark D. Bradford, James D. Bremner, Joyce Claflin
               Harrell, Harry F. McNaught, Jr. Paul W. Mobley and Charles R.
               Royal, Jr.

       (c)     At the annual meeting, the first item was the election of two
               directors. The vote tabulation for the election of Bradford J.
               Bomba, Jr. M.D. was 5,488,872 "for" and 17,668 withheld and the
               vote tabulation for Timothy D. Ellis was 5,445,204 "for" and
               61,336 withheld.

               The second item was the ratification of BKD, LLP, Certified
               Public Accountants, as the Corporation's independent auditors for
               fiscal year ending December 31, 2006. This matter was approved by
               a vote of 5,490,757 shares "for", 4,487 shares "against", and
               11,295 shares abstained.

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 By-laws as Amended and Restated March 23, 2006,
               are filed as part of this Form 10-Q.

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.


                                       26
<PAGE>

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 filed as part
               of this Form 10-Q.

10 (xii)       Schedule of 2006 Executive Officers 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.

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, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xix)        Second Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xx)         Third Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006. . 10(xxi) Fourth Amendment to the Monroe
               Bancorp Thrift Plan as Amended and Restated January 1, 2001,
               incorporated by reference to Form 10-Q filed May 9, 2006. .

10(xxii)       Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

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.


                                       27
<PAGE>

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.




































                                       28
<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 8, 2006            By: /s/ Mark D. Bradford
           --------------               -----------------------------------
                                         Mark D. Bradford, President and
                                         Chief Executive Officer
                                         (Principal Executive Officer)

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

















                                       30
<PAGE>

                                  Exhibit Index


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 By-laws as Amended and Restated March 23, 2006,
               are filed as part of this Form 10-Q.

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 filed as part
               of this Form 10-Q.

10 (xii)       Schedule of 2006 Executive Officers 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.


                                       30
<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, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xix)        Second Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xx)         Third Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006. . 10(xxi) Fourth Amendment to the Monroe
               Bancorp Thrift Plan as Amended and Restated January 1, 2001,
               incorporated by reference to Form 10-Q filed May 9, 2006. .

10(xxii)       Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

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.


















                                       31