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;

• 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;

• The timing of and value realized upon the sale of Other Real Estate Owned (OREO) property;

• 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 Bankshares' 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.

In addition, Bankshares' business and financial performance could be impacted as the financial industry restructures in the current environment, both by changes in the creditworthiness and performance of Bankshares' counterparties and by changes in the regulatory and competitive landscape. Additionally, other risks that could cause actual results to differ from predicted results are set forth in Item 1A of Bankshares' Annual Report on Form 10-K for the year ended December 31, 2011.

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 Bankshares' 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 rating, collateral position and payment history. If it is determined that it is likely that the Bank will not receive full payment in a timely manner, the loan is determined to be impaired. Each such identified loan is then evaluated to determine the amount of reserve that is appropriate based on ASC 310-10-35. This standard also requires that losses be accrued based on the differences between the value of collateral, present value of expected future cash flows or values that are observable in the secondary market and the loan balance.

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 nonvested 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 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 considered more likely than not that Bankshares will not be able to realize all its deferred tax assets. As of June 30, 2012, the net deferred tax asset was $1.4 million, compared to $1.5 million as of December 31, 2011.

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. 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.

On May 31, 2012, in contemplation of the pending merger and after consultation with Washington First Bank, Bankshares exercised its early termination clause in the lease agreement with Carr Properties on the Corporate Headquarters location in Chantilly, Virginia. This event triggered a payment of $675 thousand which is recorded on the financial statement as other asset according to the guidance outlined in ASC 805 and 420.

Notwithstanding the Merger Agreement, Bankshares' primary long-term goals continue to be maximizing earnings and deploying capital in profit driven initiatives that will enhance shareholder value in a sustainable fashion. In pursuit of these goals, Bankshares' current emphasis is on optimizing profitability in the near term and strengthening its financial performance, while also transitioning its operations to focus more closely on traditional banking activities and to reposition Bankshares for the future. Bankshares' transitional strategies include, among others, continuing the following initiatives:

• 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 aspects 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

• The net loss for the quarter ended June 30, 2012 was $919 thousand compared to net income of $394 thousand for the same period in 2011, a decrease of $1.3 million. The net loss was $1.4 million for the six months ended June 30, 2012 compared to net income of $759 thousand for the six months ended June 30, 2011, a decrease of $2.1 million. Loss per common share, basic and diluted, amounted to $0.26 for the six months ended June 30, 2012, compared to earnings per share of $0.15 for the six months ended June 30, 2011. Earnings were negatively affected by merger related expenses of $418 thousand, the fair value adjustment on the FHLB advance of $209 thousand and a reduction in interest income of $2.7 million from $11.7 million for the six months ended June 30, 2011, to $9.0 million for the six months ended June 30, 2012, offset by a reduction in the provision for loan losses of approximately $769 thousand resulting primarily from the collection in full of a previously reserved loan.

• Total assets were $507.8 million at June 30, 2012, an increase of $1.3 million from total assets of $506.5 million at December 31, 2011. The increase in total assets is directly related to a $28.9 million increase in cash and due from banks, with such increase being offset by a $13.1 million decrease in the loan portfolio related to the payoff of a number of loan relationships as well as a $20.1 million reduction in Bankshares' investment portfolio. The increase in cash relates to the cyclical nature of the business of Bankshares' title and escrow clients.

• Demand deposits were $119.6 million at June 30, 2012, or 31.3% of total deposits. This compares to the December 31, 2011 level of $112.5 million or 29.6% of total deposits.

• The composition of non-performing assets as of June 30, 2012 was $10.5 million of non-accrual loans, $4.0 million of OREO, and $900 thousand of troubled debt restructured loans for a total of $15.5 million, compared to the composition of non-performing assets as of December 31, 2011, which was $13.3 million of non-accrual loans, $3.7 million of OREO and $956 thousand of troubled debt restructured loans for a total of $18.0 million. The non-performing assets balance decreased by $2.5 million at June 30, 2012 compared to December 31, 2011. The composition of the reduction was as follows: the charge off of six loans, secured by residential real estate, totaling $838 thousand; the foreclosure and purchase into OREO of a residential property valued at $962 thousand; the full repayment of a commercial loan secured by land with a prior balance of $899 thousand; the movement back to accrual status of two loans secured by land totaling $325 thousand; and the receipt of ongoing payments from a borrower with three outstanding loans secured by land and construction equipment totaling $4.4 million that are carried in non-accrual status; such payments reduced Bankshares' carrying balance by $85 thousand during 2012.

• The investment securities portfolio totaled $103.4 million at June 30, 2012. This compares to $123.5 million of investments as of December 31, 2011, a decrease of $20.1 million. This decrease is attributable to management's strategy to reduce the investment portfolio and the maturing of certain investments in the first quarter of 2012. In addition, the investment securities portfolio contains mortgage oriented products (CMO, PCMO, and MBS) and SBA securities. When prepayments on these instruments occur at a faster rate than anticipated, principal is paid down earlier than expected. During the second quarter of 2012, the Bank experienced greater than expected prepayments on a variety of investment securities.

• The net interest margin for the quarter ended June 30, 2012 was 3.13% compared to 3.86% for the same 2011 period, a decrease of 73 basis points. For the six months ended June 30, 2012, the net interest margin of 3.08% was 74 basis points lower than the net interest margin of 3.82% for the six months ended June 30, 2011. The lower net margin is attributed to the targeted efforts to strategically restructure Bankshares' balance sheet in anticipation of the merger with Eagle Bancorp, Inc. (Eagle) during 2011, which led to shifts in the investment portfolio mix and the reduced yield in the portfolio. During the second quarter of 2012, Bankshares also experienced early prepayments on a number of CMO's and PCMO's securities. When prepayments on these instruments occur at a faster rate than anticipated, premium amortization increases which adversely impacts the portfolio yield, the Bank experienced greater than expected prepayments on a variety of investment securities.

• Deposits were $382.2 million at June 30, 2012, an increase of $1.8 million from the December 31, 2011 balance of $380.4 million. Savings and NOW accounts increased by

• Non-interest expense for the three months ended June 30, 2012 amounted to $3.7 million compared to $3.8 million for the same period in 2011. The non-interest expenses include merger related expenses of $410 thousand, consultant expenses related to contract employees of $226 thousand and OREO expenses of $94 thousand.

Financial Performance Measures. Bankshares' net loss for the three month period ended June 30, 2012 was $919 thousand, a decrease of $1.3 million over the second quarter of 2011 net income of $394 thousand. The net loss of $919 thousand includes net interest income of $3.3 million compared to $4.3 million for the same period last year, a decrease of $1.0 million. The decrease is due primarily to a decrease in interest income in the amount of $1.3 million attributed to the lower average yield on the investment portfolio and the lower balance on the loan portfolio, which was partially offset by a decrease of $245 thousand in the cost of funds. For the three months ended June 30, 2012, total interest expense was $1.2 million compared to $1.4 million for the three months ended June 30, 2011. These results led to $0.18 basic and diluted loss per share for the quarter ended June 30, 2012, compared to $0.08 basic and diluted earnings per share for the quarter ended June 30, 2011. Weighted average basic shares outstanding were 5,109,969 for the three months ended June 30, 2012 and 5,108,821 for the three months ended June 30, 2011. Weighted average diluted shares outstanding were 5,109,969 for the three months ended June 30, 2012 and 5,134,153 for the three months ended June 30, 2011.

For the six month period ended June 30, 2012, Bankshares had net loss of $1.4 million compared to net income of $759 thousand for the same period in the prior year, a decline of $2.1 million. The net loss of $1.4 million includes net interest income of $6.6 million compared to $8.7 million for the same period last year, a decrease of $2.1 million. The decrease is due primarily to a decrease in interest income in the amount of $2.7 million, from $11.7 million for the six months ended June 30, 2011, to $9.0 million for the same period in 2012, and the lower average yield on the investment portfolio and the lower average balances on the loan portfolio. The decrease was partially offset by a decrease of $530 thousand in the cost of funds. For the six months ended June 30, 2012, total interest expense was $2.4 million compared to $3.0 million for the six months ended June 30, 2011. These results led to a $0.26 basic and diluted loss per share for the six months ended June 30, 2012. The basic and diluted earnings per share for the six months ended June 30, 2011 was $0.15. Weighted average basic shares outstanding were 5,109,969 for the six months ended June 30, 2012 and 5,108,436 for the six months ended June 30, 2011. Weighted average diluted shares outstanding were 5,109,969 and 5,125,151 for the six months ended June 30, 2012 and June 30, 2011, respectively.

The net interest margin decreased to 3.13% for the three months ended June 30, 2012 compared to 3.86% for the three months ended June 30, 2011, a decrease of 73 basis points. The net interest margin was 3.08% for the six months ended June 30, 2012 compared to 3.82% for the six months ended June 30, 2011, a decrease of 74 basis points. For the first six months, the net interest margin continues to be negatively affected by the decrease in the yield on interest

earning assets. Targeted efforts to strategically restructure Bankshares' balance sheet in anticipation of the merger with Eagle during 2011, led to shifts in Bankshares' investment portfolio mix and the overall reduced balance and yield on the portfolio. Total interest income reversal relating to non-accrual loans for the six months ended June 30, 2012 was $355 thousand compared to $311 thousand for the six months ended June 30, 2011.

Results of Operations

Net Interest Income. Net interest income (on a fully tax equivalent basis) for the three months ended June 30, 2012 was $3.3 million compared to $4.3 million for the same period in 2011. Interest income on earning assets was $1.3 million lower for the three months ended June 30, 2012, compared to the second quarter of 2011, while interest expense decreased $245 thousand during the same time period.

Net interest income (on a fully tax equivalent basis) for the six months ended June 30, 2011 was $6.6 million compared to $8.7 million for the same period in 2011. Interest income on earning assets was $2.7 million lower for the six months ended June 30, 2012, compared to the first six months of 2011. Of the $2.7 million decrease in interest income, $154 thousand is attributable to the $25.4 million lower average balance in loans. The reduction in the average balance in the investment securities portfolio was $16.5 million and contributed $257 thousand to the reduction in interest income. This was offset by the decrease in interest expense of $530 thousand. The average balance of interest bearing deposits decreased by $20.0 million and contributed $82 thousand to the reduction in interest expense.

The following table illustrates average balances of total interest-earning and non-interest earning assets as well as total interest-bearing and non-interest bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, shareholders' equity and related income, expense and corresponding weighted average yields and rates. The average balances used in these tables and other statistical data were calculated using daily average balances.

  Average Balances, Interest Income and Expense and Average Yield and Rates(1)



                                                                         Three Months Ended June 30,
                                                              2012                                         2011
                                              Average        Income /       Yield /        Average        Income /       Yield /
                                              Balance        Expense        Rate 1         Balance        Expense        Rate 1
                                                                            (Dollars in thousands)
. . .