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Virginia Business Bank is pleased to report that—despite troubling news in the financial markets during the fourth quarter of 2007 and into the current quarter—your Bank ended the year with $80.2 million in total assets. That is a major increase over the $30.0 million in total assets at the close of 2006. Loans outstanding in 2007 were $61.5 million compared with $24.2 million at the end of 2006, and deposits were $61.4 million compared with $12.8 million.

HIGHLIGHTS OF 2007

I point again to the fact that assets grew by 2.5 times in 2007. Fixed costs were carefully managed during the year and liabilities grew proportionally with assets. Of course, a major development of 2007 was the successful opening of a new office in Chesapeake, Virginia, where we have already seen growth opportunities market for our services.

We are also pleased to report that Virginia Business Bank has not been affected directly by the “sub-prime” mortgage debacle, as we did not enter into that lending arena. Additionally, we do not hold any “sub-prime” mortgage paper in our investment portfolio.

MARKET CONDITIONS

While some correction in financial markets had been anticipated, I do not believe anyone making projections at the beginning of 2007 could have predicted the drastic reductions in interest rates that the Fed began imposing in October 2007 and has continued in 2008. Despite the margin squeeze these rate actions have caused for all banks, Virginia Business Bank did better than projected in our operating losses, coming in at $1.7 million in our first full year of operations rather than the $2.0 million budgeted. By controlling fixed costs and through timely management of the assets/liabilities spread, we were actually able to reduce losses in a declining rate environment. I further remind shareholders that operating losses are a routine aspect of a bank’s financials in its early years.

The market news of 2007 and predictions for 2008—particularly with respect to residential real estate—clearly points to an economic slowdown. Recessionary conditions across the U. S. are a possibility. Virginia Business Bank is fortunate to operate in two stable markets for residential real estate—the greater Richmond/ Central Virginia area and in Southside Hampton Roads. While neither of these markets has been immune to the slowdown, the general strength of these local economies should protect our markets from the kind of difficulty seen in overbuilt areas such as Florida and the Southwest. While many homebuilders have initiated their own slowdowns in our market, your Bank does not have a disproportionate share of asset exposure in residential real estate building or development.

Commercial real estate does not seem to have experienced quite the same decline as the residential side. Our exposure in commercial real estate has involved lending for “owner-occupied” and smaller investment properties. Both of these factors have helped minimize any stresses on our business during current market conditions.

Recently, Moody’s Investor Services (see Financial Week of January 7, 2008 at www.financialweek.com) reported that five of the seven commercial real estate sectors it tracks weakened in the fourth quarter. Moody’s ranked multi-family property as the strongest sector, followed by community and neighborhood shopping centers. Larger shopping centers and large-scale hotels ranked as the weakest sectors. Important to us, Moody’s ranked Richmond in the top-five strongest markets along with New York, Los Angeles, Honolulu, and Oklahoma City. This is good news for Virginia Business Bank.

VIRGINIA BUSINESS BANK IN 2008

The continued downward adjustment in rates made by the Fed in January 2008 and expected further drops in the first half will put pressure on our margins and those of other smaller banks. There is little doubt that 2008 will be a difficult year for banks and that earnings will be down across the board. Virginia Business Bank has taken steps with our funding sources that should produce some margin relief in the second half of 2008.

While financial stock prices took a beating in 2007 and have done so thus far into 2008, Danielson Capital, a Washington, D.C. area bank merger and acquisition firm that serves the Middle Atlantic states, believes there will be growth opportunities for smaller banks as the result of mergers at the regional levels for —just as there were in the late 1980s and through the 1990s. Virginia Business Bank will be alert to opportunities of all kinds.

Our focus remains on building market share and value and on serving commercial and residential real estate businesses and private investor borrowers with needs in the $1.0-5.0 million range. Flexibility and responsiveness with respect to clients and the continued building of a quality asset base remain goals to which we are committed.

We thank you for your continued support and, as always, welcome your referrals and your business.

Sincerely,

Merlin A. Henkel

PRIVACY POLICY

VIRGINIA BUSINESS BANK MEMBER, FDIC

© 2006 VIRGINIA BUSINESS BANK