The following discussion is intended to assist readers in understanding and evaluating the financial condition and results of operations of Bankshares and the Bank on a consolidated basis. This discussion and analysis should be read in conjunction with Bankshares' Annual Report on Form 10-K for the year ended December 31, 2011, and the unaudited consolidated financial statements and accompanying notes included elsewhere in this report.

Internet Access to Corporate Documents

Information about Bankshares can be found on the Bank's website at www.alliancebankva.com. Under "Documents / SEC Filings" in the Investor Relations section of the website, Bankshares posts its annual reports, quarterly reports, current reports, definitive proxy materials and any amendments to those reports as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC). All such filings are available free of charge.

The information available on the Bank's website is not part of the Quarterly Report on Form 10-Q or any other report filed by Bankshares with the SEC.

Forward-Looking Statements

Some of the matters discussed below and elsewhere in this report include forward-looking statements. Forward-looking statements often use words such as "believe," "expect," "plan," "may," "will," "should," "project," "contemplate," "anticipate," "forecast," "intend" or other words of similar meaning. Forward-looking statements in this report may include, but are not limited to, statements regarding the proposed merger (the Merger) of Bankshares and WashingtonFirst Bankshares, Inc., profitability, liquidity, Bankshares' loan portfolio, adequacy of the allowance for loan losses and provisions for loan losses, trends regarding net charge-offs, trends regarding levels of non-performing assets, interest rates and yields, interest rate sensitivity, market risk, regulatory developments, capital requirements, business strategy, the effects of Bankshares' efforts to reposition its business and other goals or objectives.

You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. The forward-looking statements Bankshares makes in this report are subject to significant risks, assumptions and uncertainties, including among other things, the following important factors that could affect the actual outcome of future events:

• Changes in the strength of the national economy in general and the local economies in Bankshares' market areas that adversely affect Bankshares' customers and their ability to transact profitable business with us, including the ability of Bankshares' borrowers to repay their loans according to their terms or a change in the value of the related collateral;

• Retention of existing employees;

• Maintaining and developing well established and valuable client relationships and referral source relationships;

• Changing trends in customer profiles and behavior;

• Direct and substantive competition from other financial services companies targeting certain key business lines;

• Other competitive factors within the financial services industry;

• Changes in the availability of funds resulting in increased costs or reduced liquidity;

• Changes in accounting policies, rules and practices;

• Changes in market conditions, specifically declines in the residential and commercial real estate market, volatility and disruption of the capital and credit markets, and soundness of other financial institutions Bankshares does business with;

• Changes in the assumptions underlying the establishment of reserves for possible loan losses and other estimates;

• Fiscal and governmental policies of the United States federal government;

• Reactions in financial markets related to potential or actual downgrades in the sovereign credit rating of the United States and the budget deficit or national debt of the United States government;

• The impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, related regulatory rulemaking processes and other legislative and regulatory initiatives on the regulation and supervision of financial institutions, specifically depository institutions;

• The impact of changes to capital requirements that apply to financial institutions and depository institutions, including changes related to the proposed Basel III capital standards;

• Changes in the way the FDIC insurance premiums are assessed;

• Changes in interest rates and market prices, which could reduce our net interest margins, asset valuations and expense expectations;

• Timing and implementation of certain balance sheet strategies;

• Impairment concerns and risks related to Bankshares' investment portfolio, and the impact of fair value accounting, including income statement volatility;

• Assumptions used within our Asset Liability Management (ALM) process and Net Interest Income (NII) and Economic Value of Equity (EVE) models;

• Changes in tax laws and regulations;

• Bankshares' ability to recognize future tax benefits;

• Impacts of implementing various accounting standards;

• Deposit attrition, operating costs, customer losses and business disruption in connection with the Merger, including adverse effects on relationships with employees, may be greater than expected;

• The ability to complete the Merger as expected and within the expected timeframe;

• The possibility that required regulatory and shareholder approvals of the Merger may not be obtained, or one or more of the other conditions to the completion of the Merger may not be satisfied;

• The expected growth opportunities or cost savings from the Merger may not be fully realized or may take longer to realize than expected; and

• Other factors described from time to time in our SEC filings.

Because of these and other uncertainties, Bankshares' actual results and performance may be materially different from results indicated by these forward-looking statements. In addition, Bankshares' past results of operations are not necessarily indicative of future performance.

Bankshares cautions you that the above list of important factors is not exclusive. These forward-looking statements are made as of the date of this report, and Bankshares may not undertake steps to update these forward-looking statements to reflect the impact of any circumstances or events that arise after the date the forward-looking statements are made.

Critical Accounting Policies

Bankshares' financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. Bankshares uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that Bankshares uses in estimating risk. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of Bankshares' transactions would be the same, the timing of events that would impact its financial statements could change.

Allowance for Loan Losses. The allowance for loan losses is an estimate of the losses that may be sustained in Bankshares' loan portfolio. The allowance is based on two basic principles of accounting: (1) ASC 450-10-05, Contingencies which requires that losses be accrued when they are probable of occurring and estimable, and (2) ASC 310-10-35, Receivables which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The allowance for loan losses has two basic components: the general allowance and the specific allowance.

The general allowance is developed following the accounting principles contained in ASC 450-10-05, Contingencies and represents the largest component of the total allowance. It is determined by aggregating unclassified loans and unimpaired loans by loan type based on common purpose, collateral, repayment source or other credit characteristics and then applying factors which in the judgment of management represent the expected losses inherent in the portfolio. In determining these factors, Bankshares considers the following:
(1) delinquencies and overall risk ratings, (2) loss history, (3) trends in volume and terms of loans, (4) effects of changes in lending policy, (5) the experience and depth of the borrowers' management, (6) national and local economic trends, (7) concentrations of credit by individual credit size and by class of loans, (8) quality of loan review system and (9) the effect of external factors (e.g., competition and regulatory requirements).

ASC 310-10-35, Receivables is the basis upon which Bankshares determines specific reserves on individual loans which comprise the specific allowance. Specific loans to be evaluated for impairment are identified based on the borrower's loan size and the loan's risk

Share-Based Compensation. ASC 718-10, Stock Compensation, requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and non-vested shares, based on the fair value of those awards at the date of grant. Compensation cost has been measured using the Black-Scholes model to estimate fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Deferred Tax Asset. Bankshares, using a third party consultant routinely evaluates the likelihood of the recognition of deferred tax assets. The analysis is used to determine if a valuation allowance for deferred tax assets is necessary. Bankshares reviews and analyzes various forms of positive and negative evidence in determining whether a valuation allowance is necessary and if so to what degree a valuation allowance is warranted.

At December 31, 2011, Bankshares performed an analysis to determine if a valuation allowance for deferred tax assets was necessary. Its analysis reviewed various forms of positive and negative evidence in determining whether a valuation allowance is necessary and if so to what degree a valuation allowance is warranted. The three year cumulative loss position of Bankshares is considered negative evidence when determining if a valuation allowance is necessary. Bankshares considered positive evidence such as previous earnings patterns, multiyear business projections and the potential realization of net operating loss, (NOL) carry forwards within the prescribed time periods. In addition, Bankshares considered tax planning strategies that would impact the timing and extent of taxable income. Based on the analysis and the guidance in the relevant accounting literature, it was not considered more likely than not, that Bankshares will not be able to realize all its deferred tax assets. A valuation allowance of $5.3 million related to the deferred tax asset was recorded at December 31, 2011and March 31, 2012.

Overview

On May 3, 2012, WashingtonFirst Bankshares, Inc. (WFBI), Bankshares and the Bank entered into an Agreement and Plan of Reorganization (Merger Agreement), pursuant to which Bankshares will merge with and into WFBI, with WFBI being the surviving corporation (the Merger). Under the Merger Agreement, Bankshares agreed to conduct its business in the ordinary course while the Merger is pending, and, except as permitted under the Merger Agreement, to generally refrain from specific actions without the consent of WFBI. Completion of the Merger is subject to approval by the shareholders of each of Bankshares and WFBI, applicable regulatory approval and customary closing conditions.

• Diversifying the loan portfolio by increasing Bankshares' focus on commercial loans and loans secured by owner occupied commercial real estate, while continuing to be an active lender in attractive segments of the residential and commercial real estate markets.

• Reducing the investment securities portfolio and eliminating the trading assets portfolio.

• Continuing to attentively manage the level of non-performing assets by addressing problem loans on a timely basis.

• Increasing low cost deposits by local commercial and retail customers, while working to reduce Bankshares' brokered deposit portfolio.

• Reducing Bankshares' operating and funding costs.

Performance Highlights

• Net loss for the quarter ended March 31, 2012 was $433 thousand compared to net income of $365 for the same period in 2011, a decrease of $798 thousand. Earnings per common share, basic and diluted, amounted to $(0.08) at March 31, 2012, compared to $0.07 at March 31, 2011.

• Total assets were $508.7 million at March 31, 2012, an increase of $2.2 million from December 31, 2011 total assets of $506.5 million. The increase in total assets is directly related to the increase of $20.8 million in cash and due from banks, with such increase being offset by a $9.5 million decrease in net loans and a $17.7 million decrease in the investment portfolio.

• Total loans were $297.1 million at March 31, 2012, a decrease of $9.8 million, or 3.19%, from the December 31, 2011 balance of $306.9 million. This decrease in total loans was primarily attributable to several payoffs in residential and commercial real estate loans, offset by an increase in construction loans.

• Our ratio of non-performing assets to total assets was 3.37% as of March 31, 2012 compared to 3.55% as of December 31, 2011, or a decrease of 18 basis points. This decrease is due to management electing to foreclose on one loan of $963 thousand and charge off another loan in the amount of $347 thousand. Both loans were to the same borrower.

• As of March 31, 2012, the composition of non-performing assets was $11.2 million of non-accrual loans, $4.7 million of OREO, $370 thousand of loans past due 90 days and still accruing, and $904 thousand of troubled debt restructured loans for a total of $17.1 million, compared to total non-performing assets as of December 31, 2011, of $18.0 million. The non-accrual balance decreased by $2.1 million at March 31, 2012, as compared to December 31, 2011. This decrease is primarily attributable to foreclosure on a $963 thousand loan and charge off of $347 thousand. Both loans were to the same borrower.

• The investment securities portfolio totaled $105.7 million at March 31, 2012. This compares to $123.5 million of investments as of December 31, 2011, a decrease of $17.8 million. This decrease is attributable to the maturation of certain investments.

• The net interest margin for the quarter ended March 31, 2012 was 3.10% compared to 3.78% for the same period in 2011, a decrease of 68 basis points. This decrease was due to an increase in average non-accrual loans during the quarter to $12.1 million from $5.4 million in the same quarter in 2011.

• Non-interest bearing deposits were $118.1 million at March 31, 2012, or 31.0% of total deposits. This compares to the December 31, 2011 level of $112.5 million or 29.6% of total deposits.

Financial Performance Measures. Bankshares' net loss for the three month period ended March 31, 2012 was $433 thousand, a decrease of $798 thousand over the first quarter of 2011 net income of $365 thousand. The net loss of $433 thousand includes net interest income of $3.3 million compared to $4.4 million for the same period last year, a decrease of $1.1 million. The decrease is due primarily to a decrease in interest income in the amount of $1.4 million, which was primarily driven by the change in the investment portfolio mix in anticipation of the merger in 2011. This increase was partially offset by a decrease of $283 thousand in the cost of funds. For the three months ended March 31, 2012, total interest expense was $1.2 million compared to $1.5 million for the three months ended March 31, 2011. These results led to $(0.08) basic and diluted earnings per share for the quarter ended March 31, 2012, compared to $0.07 basic and diluted earnings per share for the quarter ended March 31, 2011. Weighted average basic shares outstanding were 5,109.969 for the three months ended March 31, 2012 and 5,108,048 for the three months ended March 31, 2011. Weighted average diluted shares outstanding were 5,270,878 for the three months ended March 31, 2012 and 5,123,029 for the three months ended March 31, 2011.

Net interest margin decreased to 3.10% for the three months ended March 31, 2012 compared to 3.78% for the three months ended March 31, 2011, a decrease of 68 basis points. A key contributing factor to the lower net interest margin was higher average non-accrual loans and lower yields on investment securities during 2012 was primarily driven by the change in the investment portfolio mix in anticipation of the planned merger in 2011. Total interest income reversed for the first quarter ended March 31, 2012 was $190 thousand compared to $193 thousand for the first quarter ended March 31, 2011.

Results of Operations

Net Interest Income. Net interest income (on a fully tax equivalent basis) for the three months ended March 31, 2012 was $3.3 million compared to $4.4 million for the same period in 2011. Interest income on earning assets was $1.4 million lower for the three months ended March 31, 2012, compared to the first quarter of 2011. Of the $1.4 million decrease in interest income, $297 thousand is attributable to the $300 thousand lower average balance in loans and $6.7 million higher average non-accrual loans. The reduction in the average balance in the investment securities portfolio was $22.2 million and contributed $185 thousand to the reduction in interest income. The decrease in yield from 3.89% to 1.14% in the investment securities portfolio also contributed to $810 thousand to the decrease in interest income. This decrease was primarily driven by the change in the investment portfolio mix in anticipation of the merger in 2011. The average balance of interest-bearing deposits decreased by $18.8 million and contributed $58 thousand to the decrease in interest expense. The average rate paid on deposits improved to 1.29% from 1.62%, which reduced interest expense by $272 thousand.

                                                                     Three Months Ended March 31,
                                                            2012                                     2011
                                              Average       Income/      Yield/        Average       Income/      Yield/
                                              Balance       Expense      Rate 1        Balance       Expense       Rate1
                                                                        (Dollars in thousands)
Assets
Interest-earning assets:
Loans(2)                                     $ 301,600      $  4,183        5.58 %    $ 325,151      $  4,545        5.67 %
Trading securities                                 567            10        7.09 %        1,828            33        7.32 %
Investment securities                          118,587           336        1.14 %      140,745         1,350        3.89 %
Federal funds sold                               8,842            15        0.68 %        6,567            10        0.62 %

Total interest earning assets                  429,596         4,544        4.25 %      474,291         5,938        5.08 %

Non-interest earning assets:
Cash and due from banks                         25,532                                   19,296
Premises and equipment                           1,373                                    1,603
Other real estate owned (OREO)                   3,865                                    4,501
Other assets                                     8,254                                   18,578
Less: allowance for loan losses                 (5,069 )                                 (5,479 )

Total non-interest earning assets               33,955                                   38,499

Total Assets                                 $ 463,551                                $ 512,790

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits             $  41,084      $     28        0.27 %    $  41,879      $     25        0.24 %
Money market deposit accounts                   15,747            30        0.77 %       25,533            49        0.78 %
Savings accounts                                 3,963             1        0.10 %        3,819             7        0.74 %
Time deposits                                  189,721           747        1.58 %      198,045           997        2.04 %

Total interest-bearing deposits                250,515           806        1.29 %      269,276         1,078        1.62 %
FHLB advances(3)                                46,543           268        2.32 %       41,206           259        2.55 %
Other borrowings                                48,627           160        1.32 %       78,448           180        0.93 %

Total interest-bearing liabilities             345,685         1,234        1.44 %      388,930         1,517        1.58 %

Non-interest bearing liabilities:
Demand deposits                                 87,197                                   87,960
Other liabilities                                2,576                                    2,281

Total liabilities                              435,458                                  479,171
Shareholders' Equity                            28,093                                   33,619

Total Liabilities and Shareholders' Equity   $ 463,551                                $ 512,790

Interest Spread(4)                                                          2.81 %                                   3.51 %

Net Interest Margin(5)                                      $  3,310        3.10 %                   $  4,421        3.78 %

(1) The rates and yields are on a fully tax equivalent basis assuming a 34% federal tax rate.

(2) The Bank had average non-accrual loans of $12.1 million and $5.4 million in the first quarter of 2012 and 2011, respectively. The 2012 and 2011 interest income on non-accrual loans excluded from the loans above was $190 thousand and $193 thousand, respectively.

(3) Average fair value of FHLB advances for the first quarter of 2012 and 2011 was $29.3 million and $26.1 million, respectively.

(4) Interest spread is the average yield earned on earning assets, less the average rate incurred on interest-bearing liabilities.

(5) Net interest margin is net interest income expressed as a percentage of average earning assets.

At the three months ended March 31, 2012, we held one security in our trading portfolio with an average balance of $567 thousand, compared to $1.8 million for the three months ended March 31, 2011. The trading security interest income for the three months ended March 31, 2012 was $10 thousand compared to $33 thousand for the three months ended March 31, 2011. The reduction in average trading securities reflects management's business strategy to eliminate the trading securities portfolio as we reposition the balance sheet and led to the reduction in associated interest income. At March 31, 2012, the carrying value of the security was $454 thousand.

Investment securities averaged $118.6 million for the quarter ended March 31, 2012 compared to $140.7 million for the same quarter in 2011. Investment securities income was $336 thousand for the three months ended March 31, 2012 compared to $1.4 million for the three months ended March 31, 2011. The average tax equivalent yields on investment securities for the three months ended March 31, 2012 and 2011 were 1.14% and 3.89% respectively. The reduction in average investment securities from the sale of securities reflects management's business strategy to reduce the investment securities portfolio.

. . .