10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number: 000-49976

ALLIANCE BANKSHARES CORPORATION

(Exact name of registrant as specified in its charter)

VIRGINIA	46-0488111
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151
(Address of principal executive offices) (Zip Code)

(703) 814-7200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $4.00 par value per share	The NASDAQ Stock Market LLC
Title of each class	Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o      No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o      No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o      No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was required to submit and post such files). o Yes       o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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

The aggregate market value of Alliance Bankshares Corporation common stock held by non-affiliates as of June 30, 2009 was $10,511,570 based on the closing sale price of $2.40 per common share.

The number of shares of common stock outstanding as of May 17, 2010 was 5,106,819.

TABLE OF CONTENTS

		Page #
PART I.
Item 1.	Business		1
Item 1A.	Risk Factors		21
Item 1B.	Unresolved Staff Comments		25
Item 2.	Properties		26
Item 3.	Legal Proceedings		26
Item 4.	Removed and Reserved		26
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		27
Item 6.	Selected Financial Data		28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		56
Item 8.	Financial Statements and Supplementary Data		58
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		109
Item 9A.	Controls and Procedures		109
Item 9B.	Other Information		110
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance		110
Item 11.	Executive Compensation		117
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		136
Item 13.	Certain Relationships and Related Transactions, and Director Independence		139
Item 14.	Principal Accounting Fees and Services		142
PART IV.
Item 15.	Exhibits and Financial Statement Schedules		142
SIGNATURES			145

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PART I.

Item 1. Business

GENERAL

     Alliance Bankshares Corporation (Bankshares) is a single-bank holding company that was incorporated under Virginia law in 2002. Bankshares conducts its primary operations through its subsidiaries. Our banking subsidiary, Alliance Bank Corporation (the Bank or Bank) is state-chartered in Virginia and is a member of the Federal Reserve System. In addition to the Bank, Bankshares has another subsidiary Alliance Virginia Capital Trust I (Trust), a Delaware statutory trust that was formed in connection with the issuance of trust preferred capital securities in June of 2003.

     The Bank is a state-chartered commercial bank that was incorporated in Virginia and opened for business on November 16, 1998 and has continuously offered banking products and services to surrounding communities since that date. The Bank has six full service banking facilities. The Bank places special emphasis on serving the needs of individuals, small and medium size businesses and professional concerns in the greater Washington, D.C. Metropolitan region. We use the internet, consistent with applicable regulatory guidelines, to augment our growth plans. We also use the internet to offer online account access, bill payment and commercial cash management. In addition, certain loan and deposit products may be offered from time to time on our website, as well as at our numerous physical locations. The Bank executes our business via three key business lines: Commercial Banking, Private Client Services and Retail Banking.

     Alliance Insurance Agency, Inc. (AIA) was formed on November 15, 2005 with the acquisition of Danaher Insurance Agency. AIA acquired two additional insurance agencies in 2006 and 2007. On December 29, 2009, the Bank sold the insurance agencies. The Board of Directors of the Bank determined that the sale of the agencies was appropriate in order to increase the Bank’s focus on core banking operations and improve our regulatory capital position.

     Alliance Home Funding, LLC (AHF) was created in 2001 to offer mortgage banking services. In December 2006, we announced that mortgage banking operations via AHF would no longer occur. The subsidiary remains open with very limited activity. The Bank previously offered mortgage banking products and services via a small team of bankers within the Bank. In late 2009, however, the Bank made a decision to stop offering secondary market mortgage products via the Alliance Bank Mortgage Division (ABMD) team, although on occasion the Bank will entertain specific client requests for mortgages. In 2010, we anticipate client mortgage banking needs to be handled within the Bank by appropriate lending personnel.

EMPLOYEES

     As of December 31, 2009, Bankshares and its subsidiaries had a total of 81 full-time employees. Bankshares considers relations with its employees to be good. None of our employees are covered by any collective bargaining agreements.

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COMPETITION

     Bankshares’ commercial and retail banking business lines face significant competition for both loans and deposits. Competition for loans comes from other commercial banks, savings and loan associations and savings banks, mortgage banking subsidiaries of regional commercial banks, subsidiaries of national mortgage bankers and other institutional lenders. With the severe economic downturn experienced over the past few years, the competition to attract depositors has become more critical. We have made a strategic decision to distinguish ourselves from our competitors by obtaining deposits from title and mortgage loan closing companies. We also emphasize customer service and technology, establishing long-term customer relationships, building customer loyalty and providing products and services designed to address the specific needs of our customers. In addition, we have implemented a strategic initiative to find new deposit market niches. One such example is our entry into the community homeowners’ association management (HOA) arena.

     Because federal regulation of financial institutions changes regularly and is the subject of constant legislative debate, we cannot foresee how federal regulation of financial institutions may change in the future. However, it is possible that current and future governmental regulatory and economic initiatives could impact the competitive landscape in the Bank’s markets.

LENDING ACTIVITIES

     Credit Risk Management. Our credit management vision is based on the belief that a sound shared credit culture within the Bank, the application of well-designed policies and procedures, and a long term view are the ingredients that will result in superior asset quality and consistent and acceptable growth. Our business model contains key assumptions that superior asset quality and consistent, acceptable profitability are significant drivers to maximizing shareholder value. We will not sacrifice asset quality to meet growth objectives, nor permit opportunities to lead to concentrations of risk that are inappropriate or contain excessive risk. The economic slowdown that has developed into a deep recession has had a negative impact on our short term performance, yet our core business values remain focused on asset quality. We employ a number of business processes to manage risk in our loan portfolio. These include the loan underwriting and approval process, our exposure management process, loan management and the independent loan review. While no set of processes or procedures can eliminate the possibility of loss, we believe that each of these processes contributes to the quality of our risk management activities.

     Loan Underwriting and Approval Process. Loan requests are developed by our relationship managers who work directly with our customers. Relationship managers are responsible for understanding the request and will make an evaluation to ensure that the request is consistent with our underwriting standards and risk tolerance. Depending on the complexity of the transaction, additional support is provided by a credit analyst who provides an independent analysis of the financial strength of the borrower and the underlying credit-worthiness of the transaction.

     We utilize both a signature system and a committee system for approving loans. Relationship managers are given credit authority commensurate with their experience and demonstrated knowledge and ability. The maximum individual authority of any relationship manager is $250,000. Loans from $250,000 to $1.0 million require an approval or a second signature of the Director of Commercial Banking, Head of the Private Client Group Chief Credit Officer, or President.

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     Loans in excess of $1.0 million are considered by our management loan committee, which consists of the senior relationship managers, the President and the Chief Credit Officer. Relationships with total requirements of $2.5 million or greater require approval by our Loan Committee of the Board of Directors. In determining the actual level of required approval, all direct and indirect extensions of credit to the borrower are considered.

     Exposure Management Process. We utilize a 10-point rating system for our commercial and real estate credit exposures. The vast majority of our loans fall into the middle range of risk ratings and carry what we consider to be ordinary and manageable business risk. A risk rating is assigned during the underwriting process and is confirmed through the approval process. This risk rating influences our decision about the overall acceptability of the loan given our overall portfolio risk and also may influence our decision regarding the sale of a participation in the loan. As part of the systematic evaluation of our loan portfolio when a loan risk rating increases to 7 or above it is considered for impairment analysis. As part of this process, our credit management team also prepares an analysis of all loans determined to be impaired. The watchlist, impaired loans, nonaccrual loans and Other Real Estate Owned (OREO) inventory is presented to our Directors at our monthly board meetings.

     Portfolio diversification and business strategy are key components of our process. On a monthly basis, our board reviews the total portfolio by lending type. Exposure ranges are established and reviewed as a percentage of risk-based capital for each lending type. Business strategies are considered and adjusted based on current portfolio amounts and our perceptions of the market. A number of factors are considered which result in strategies to expand, attract, maintain, shrink or disengage categories within our portfolio. At the present time, our business plans call for shrinking our exposure to certain construction categories and land loans. In addition, we evaluated the risk profile of certain of our residential real estate categories, in particular Home Equity or HELOC products, and determined more restrictive credit terms are appropriate.

     The recommended exposure ranges developed by us reflect our desire to build an appropriately diversified loan portfolio. We consider market opportunities, the overall risk in our existing loans, and our expectations for future economic conditions and how they together may impact our portfolio. We then establish guidelines for maximum amounts in each category of loan. The Federal Reserve Bank has suggested commercial real estate guidelines that are a function of regulatory capital. The guidelines are commonly referred to as the 100% / 300% guidelines. These guidelines encourage tight management and risk controls for real estate lending in excess of the suggested regulatory guidelines. Our current exposure ranges have been established with guidelines relating to commercial real estate lending in mind as well as our view of real estate related lending in the current economic environment.

     Participations are also a part of our risk exposure management process. We seek participants even for loans that we find acceptable and within our policy guidelines in order to spread the risk and maintain the capacity to handle future requests from the same borrower.

     Loan Management. Commercial and real estate loans require a high degree of attention to monitor changes in cash flows and collateral values. The primary responsibility for ensuring that loans are being handled in accordance with their terms and conditions rests with the relationship manager, supported by a credit analysis department and a loan operations group. We obtain and review regular financial reports from our borrowers to evaluate operating performance and identify early warning signs

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of increasing risk. Our culture encourages the early reporting of problems so that they can be addressed in a timely and manageable manner. Identification of increased risk results in an increased risk rating, more frequent management review and possible remediation to include more collateral or identification of alternate sources of repayment. When feasible, we also seek to increase the interest rates to reflect the higher risk and provide some incentive for borrowers to explore all alternative financing sources. Adversely rated credits are reviewed monthly with the Bank’s Board of Directors.

     Management of construction loans includes regular on-site inspections by bank-engaged inspectors to ensure that advances are supported by work completed. Regular title updates are obtained to protect against intervening liens. A regular evaluation is done to ensure that there is sufficient loan availability remaining to complete a project. Information regarding current sales and/or leasing is documented by relationship managers.

     Commercial real estate loans are generally managed on a monthly basis based on receipt of regular principal and interest payments. Operating statements and updated leasing information are collected at least annually. This information is analyzed to determine the ongoing soundness of the credit. Our general practice is to perform a site visit at least annually to visually inspect our collateral.

     Smaller consumer and business loans, most of which require monthly payments of principal and interest, are managed primarily based on their payment record. As long as monthly payments are made in a timely manner, we spend only a nominal amount of time to oversee the portfolio. Past due reports are reviewed on a weekly basis and appropriate action is determined based on the level of delinquency and the collateral supporting the credits.

     In late 2007 and 2008, we undertook a variety of real estate lending studies. These studies focused on products and loan types that appear to have caused risk within our lending portfolio as well as certain loan types that we view as having higher degrees of risk in the current economic environment. The results of the studies have led to suspension of credit; restriction of credit; elimination of certain loan products such as brokered higher LTV HELOC loans; tighter lending standards and a change in our credit risk appetite for certain lending products. We execute these types of studies from time to time as we see micro or macro trends that we believe could adversely impact our loan portfolio. In 2009, we continued to study our portfolio in detail and adjust our products accordingly.

     Independent Loan Review. At least annually, we employ the services of an independent company to assess our lending operations. They evaluate our underwriting processes to ensure that we are performing an appropriate level of due diligence by selecting a sample of loans for review. Each loan that is chosen as part of the sample has the bank-assigned risk rating evaluated. The quality of individual loans is evaluated to ensure that we have fairly described the risks inherent in the specific transaction. They are directed to evaluate whether we are administering loans in accordance with our policies and procedures. An evaluation is performed on our remediation plan used to identify problem loans. They evaluate the adequacy of specific reserve allocations on impaired credits and the appropriateness of the process and documentation of our overall allowance for loan losses.

     We report the results of the independent loan review activities to the Loan Committee of the Board of Directors and to the Bank’s Board of Directors. We consider any process improvement recommendations from the independent loan review team and address each recommendation with a

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suggested action plan. We are not aware of any material differences in the evaluation of individual loans between management, the Bank’s Board of Directors and the independent company regarding specific loans, loan policies or credit administration.

     Lending Limit. At December 31, 2009, our legal lending limit for loans to one borrower was $6.4 million. As part of our risk management strategy, we maintain internal “house” limits below our legal lending limit. Our current house limit is 80% of our legal lending limit. However, to minimize client concentration risk, we prefer extending credit in the $2.0 million to $3.0 million dollar range. When we receive customer requests in excess of our house or legal lending limit, we evaluate the credit risk under our normal guidelines. Approved transactions exceeding our lending limit are sold as participations and funded by other banks. This practice allows us to serve our clients’ business needs as they arise and reduces our risk exposure and operate within the regulatory requirements.

COMMERCIAL BANKING

     We categorize our loans into five general classifications: Commercial Real Estate, Real Estate Construction, Residential Real Estate, Commercial Business and Consumer.

     Loan Portfolio. As part of our normal business activities, we are engaged in making loans to a broad range of customers, including small businesses and middle market companies, professionals, home builders, commercial real estate developers, consumers and others in our market area. We generally define our market area as Northern Virginia and the surrounding jurisdictions in the Washington, D.C. metropolitan area (including areas as far south as Fredericksburg, Virginia). The loan portfolio decreased 2% during the year due to management’s strategic decision to reduce some areas of our portfolio in accordance with the market’s behavior. Our loan portfolio balance at December 31, 2009 was $359.4 million compared to $367.4 at December 31, 2008.

     Commercial Real Estate Lending. As of December 31, 2009, commercial real estate loans were $153.3 million or 42.7% of the loan portfolio, compared to $154.9 million or 42.2% of the portfolio as of December 31, 2008. The decreased loan volumes reflect the effect of the current economic condition and the lack of customer demand to participate in the commercial real estate market in the greater Washington, D.C. metropolitan area as well as further reductions due to the normal portfolio amortization. These loans are typically secured by first trusts on office, retail space, warehouse, commercial condominiums or industrial space. These loans are generally divided into two categories: loans to commercial entities that will occupy most or all of the property (described as “owner-occupied”) and loans for income producing properties held by investors.

     In the case of owner-occupied loans, the Bank is usually the primary provider of financial services for the company and/or the principals, which allows us to further monitor the quality of the ongoing cash flow available to service the loans. While these loans are real estate secured, we believe that, as a portfolio, these loans are less subject to the normal real estate cycles because the underlying businesses are owned by the borrowers who will not compete for rental space in times of market over-supply.

     Commercial real estate loans made on income producing properties are made on generally the same terms and conditions as owner-occupied loans. Underwriting guidelines generally require borrowers to contribute cash equity that results in an 80% or less loan-to-value ratio on owner-occupied

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properties and a 75% or less loan-to-value ratio on investment properties. Exceptions to these guidelines are infrequent and are justified based on other credit factors.

     Loans in this category (owner occupied and investment properties) are generally amortizing over 15-25 year periods and carry adjustable rates which reset every 1 to 5 years, indexed against like-maturity treasury instruments.

     Real Estate Construction Lending. The real estate construction category of our loan portfolio generally falls into three primary categories: commercial construction, which will convert to either commercial real estate loans or will be sold in individual commercial or residential condo units, residential construction loans to builders for single family homes and townhouses for resale, and construction loans to individuals for their own primary residences or second homes. In the aggregate, this category totaled $50.1 million or 14.0% of our portfolio as of December 31, 2009, compared to $71.8 million or 19.5% of the portfolio as of December 31, 2008. The decrease is due to management’s strategic decision to reduce lending in this area due to market conditions associated with the real estate market as well as normal construction loan maturities.

     Commercial construction loans were essentially unchanged as sales and refinancing offset completion funding on existing projects. Demand for the financing of new projects has been extremely limited as developers have delayed or cancelled projects due to market uncertainties. Our underwriting requirements in the current market include substantial pre-leasing or pre-sales, higher levels of equity and more substantial borrower liquidity levels.

     Residential construction loans and land loans to builders were down substantially year over year, as projects were completed and sold. There has been limited demand for new projects as builders have been reluctant to create new units in this environment. In addition, our underwriting standards now require more equity and greater liquidity in new projects. Residential home builders who are delivering 1 to 10 single family units per year have been one of our primary customer segments. We advance money for the purchase of lots and also provide funds for construction. When practical, we limit the number of speculative units that a builder can finance at any particular time. Our construction loan monitoring process includes a complete appraisal, periodic site inspections by a third party, regular interaction by the relationship managers and administrative oversight of the funds utilized in construction to ensure that construction is progressing as planned and that there are always sufficient funds available in the loan to complete the project. In addition to evaluating the financial capacity of the borrower, we also require equity in each transaction that puts us in a range of 70-75% loan-to-value on an “as completed” basis. We implemented this change to our previous lending guidelines in 2007 to reflect the current market conditions and manage our portfolio risk. Substantially all the loans in this category carry a floating rate of interest tied to the Wall Street Journal (WSJ) prime rate.

     The overall health of the local real estate market has a direct impact on our real estate construction loan portfolio. The substantial slowdown the real estate market experienced in 2008 continued through 2009 and has caused developers to review projects carefully. Many projects have been delayed or cancelled in the face of current market conditions. The larger volume of residential real estate on the market has made for stiffer pricing competition for developers. In general, we expect continued contraction in this category over the coming year as the market continues to adjust to a new

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reality on valuation and as inventories continue to adjust, combined with a deliberate effort on our part to reduce our land exposure.

     Residential Real Estate Lending. The residential real estate portfolio was $110.4 million or 30.7% of the portfolio as of December 31, 2009, up from $92.8 million or 25.3% of the portfolio as of December 31, 2008. The $110.4 million in this category consists of four distinct product offerings: open end home equity loans, which are loans secured by secondary financing on residential real estate (HELOCs); closed end amortizing second mortgages; portfolio first mortgage loans on primary or secondary residences; and first mortgage loans secured by single family residences, held as income properties by investors.

     The Bank has been an active HELOC lender since its inception. This historically attractive portfolio has experienced some challenges during 2008 and 2009 as a result of a combination of factors: loss of value in the property securing the loans, a lack of marketability of residential properties, and the impact of loss of income/employment of individuals in our market. We have adjusted and tightened our underwriting standards on new credits to limit loan-to-value ratios to 75% or less and to require higher credit scores and more appropriate debt service to income ratios. Substantially all of these loans are priced at or above the WSJ prime rate and float on a daily basis. It should be noted that recent originations often carry interest rate floors. While our loans generally have a revolving period of 15 years followed by a 15 year amortization (30 years total), our experience is that, similar to first mortgages, the actual expected maturity of an individual loan is much shorter. The average principal balance on a HELOC as of December 31, 2009 was approximately $91 thousand, down from $93 thousand as of December 31, 2008.

     The HELOC portfolio was a source of losses over the past few years. We had a number of customers whose personal incomes were directly impacted by the significant downturn in the economy and residential real estate market. We cannot predict when this cycle will change. However, we believe our active management risk analysis and early intervention will minimize our future losses. To compensate for the unusual economic conditions management has employed a strategy to identify customers based on our risk assessment that would warrant a short sale and in some cases foreclosure proceedings.

     We continue to experience demand for closed end amortizing second mortgages. We believe this type of product has a lower degree of risk compared to a traditional HELOC. These loans typically carry 15 to 30 year amortizations and fixed rates. We believe our underwriting standards are conservative and reflect the realities of the current real estate market.

     Residential first mortgage loans carried on the Bank’s books result from two distinct activities. We have a group of customers who are active in the acquisition and remodeling of existing single family residential property. These loans, secured by first deeds of trust, are generally made under annually reviewed lines of credit which outline the terms and conditions of each individual advance. Each advance generally has a maturity of less than 1 year and carries a floating rate of interest tied to the WSJ prime rate. Advance rates are based on the lower of cost or “as is” market value and are generally limited to 80% or less. Our customers buy these properties in the ordinary course of their business either directly from sellers or as part of a foreclosure process. They then invest their own money to restore the

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property to a fully marketable condition. These loans in many respects are similar to regular residential construction loans. This portfolio grew $13.9 million or 71% in 2009.

     The other group in this category is first trust loans secured by first trusts on primary residences. While we do not actively market this product, there are times when business circumstances justify making such a loan for our regular portfolio. These situations include loans to individuals who for one reason or another do not find mortgage products in the market to fit their needs and who maintain substantial non-lending relationships with us that make these loans attractive to us. The maximum loan-to-value ratio in these loans is generally 80%, with most at lower advance rates. These loans either have an expected maturity of 5 years or less or carry interest rates that adjust with Treasury rates or look more like a 30-year traditional mortgage loan. This portfolio also grew approximately $778 thousand from year end 2009 over 2008 balances.

     Traditional Mortgage Banking. In December 2006, we made the strategic decision to exit our stand alone mortgage banking operation (AHF). In hindsight, the timing of our change in strategy occurred just before the historically severe downturn in the mortgage banking industry. In 2009 and 2008, we offered mortgage banking products through a small team of Bank employees that formed the Alliance Bank Mortgage Division (ABMD), which was radically smaller than our former mortgage banking unit AHF.

     ABMD originated loans for Bank clients and through referrals. In 2009, we originated $14.3 million in mortgage loans compared to $14.1 million in mortgage loans in 2008. Gains on the sale of loans were $125 thousand in 2009, compared to $152 thousand in 2008. In late 2009, we made a decision to exit the mortgage banking arena, although on occasion the Bank will entertain specific client requests for mortgages. We believe this business line requires a certain level of scale, client relationship and correspondent mortgage banking arrangements. We felt the business distractions and low levels of production income were not consistent with our objectives of refocusing the core banking unit. We have redeployed the ABMD staff personnel into other core banking activities. In the future, we would consider alternative mortgage banking models if the allocation of resources is consistent with reasonable return objectives.

     Commercial Business Lending. Our commercial business lending category consists of general business credit in the form of lines of credit, revolving credit facilities, term loans, equipment loans, stand-by letters of credit and other credit needs experienced by small and medium sized businesses. These loans are written for any sound business purpose including the financing of business equipment, meeting general working capital needs, or supporting business expansion. Commercial loans generally are secured by business assets, carry the personal guarantees of the principals and have either floating rates tied to the WSJ prime rate or are fixed for 3 to 7 year periods. Our customers come from a wide variety of businesses, including government contractors, professional services, building trades and retail. Commercial business loans represented 11.3% of the loan portfolio or $40.6 million at December 31, 2009, a decrease from $44.4 million at December 31, 2008, which was 12.1% of the portfolio. The major factor in the decline is the unprecedented economic recession that continues to impact the local economy. We experienced lower borrowings by commercial customers who were also affected by the economic conditions leading to a general contraction in their needs for credit. In the long-term, we expect growth in this loan product category as the economy improves.

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     Consumer Lending. This category constitutes the smallest part of our loan portfolio. These loans are small personal lines of credit and term loans. Loans are both secured (deposit accounts, brokerage accounts, automobiles, etc.) and unsecured and carry either fixed or floating rates. Our marketing of these products is generally reactive in nature, responding to requests that come to us primarily from the principals and/or employees of our commercial customers. The balance as of December 31, 2009 was $4.9 million compared to $3.5 million as of December 31, 2008.

PRIVATE CLIENT SERVICES

Deposit and Wealth Management Services

     Deposits and repurchase agreements are the key sources of our funding. We offer a broad array of deposit products that include demand, NOW, money market, savings accounts and certificates of deposit. In addition to deposit products, we offer customer repurchase agreements (repos). We typically see repos used by commercial business customers as part of active cash management programs. We pay competitive interest rates on the interest bearing deposits to garner our share of the market. As a relationship-oriented bank, we seek generally to obtain deposit relationships with our loan clients.

     Our strategic plan is to continue our focus on specialized customer services executed via the Private Client Services team. This line of business serves high net worth individuals, entrepreneurs, professionals and small business owners that includes title and mortgage loan closing companies, which represent a substantial percentage of our non-interest bearing deposits. Through the use of proprietary software, enhanced customer service, and the most recent technology (for example, remote deposit capture), we are able to deliver an array of services that are very attractive and affordable for title insurance agencies, many of which maintain significant account balances with us. Our business strategy includes expanding the number of customers in this market segment by continuing to provide the highest quality of customer service and the latest technology devoted to this industry. Leveraging our strategic approach to client deposit services we have been developing products for the HOA business line. We believe this market is very promising and viable.

     In addition to the core deposit products offered by the Private Client Services team, we also offer investment and wealth management products to our clients. We view the ability to offer these complementary products as a key ingredient to rounding out the client advisory role. We have an arrangement with Linsco Private Ledger to offer the wealth management services.

WHOLESALE FUNDING

     As our overall asset liability management process dictates, we may become more or less competitive in our deposit terms and interest rate structure. Additionally, we use brokered deposits to augment the Bank’s funding position. The wholesale nature of brokered deposits makes gathering specific quantities or duration of deposits an efficient process. As the real estate economy declined, we used wholesale or brokered deposits more frequently. We are a member of the Federal Home Loan Bank of Atlanta (FHLB) and we utilize the short-term and long-term advances to augment our funding as well.

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RETAIL BANKING

     We offer traditional retail loan and deposit products for our clients via our six bank business center locations: Fair Lakes, Annandale, the city of Manassas Park, Reston, Ballston and Tyson’s Corner. The locations have the characteristics of a traditional retail branch, (e.g. tellers, ATM, customer service representative and a branch manager), and we view the retail operation as a tool to execute our core commercial and private client business strategies. In addition, we equip our banking facilities with tools and offices to offer commercial banking products, and wealth management products. We recognize the cost to develop and implement a large retail presence; therefore, our business strategy calls for a limited number of strategically placed business centers in the greater Washington, D.C. metropolitan area.

FDIC Insurance of Deposit Accounts

     The deposits of Alliance Bank are insured by the Federal Deposit Insurance Corporation (the FDIC) up to the limits set forth under applicable law. Pursuant to the Emergency Economic Stabilization Act of 2008 (EESA), through December 31, 2013 the maximum deposit insurance amount per depositor has been increased from $100,000 to $250,000 and, with respect to the non-interest-bearing transaction accounts, increased to an unlimited amount of coverage under the FDIC Transaction Account Guarantee Program.

INSURANCE

     AIA was formed on November 15, 2005 with the acquisition of Danaher Insurance Agency. AIA acquired two wholly owned subsidiaries subsequent to its formation: on December 14, 2006, Alliance/Battlefield Insurance Agency, LLC (Battlefield), and on April 5, 2007, the Fredericksburg Insurance Group (FIG). On December 29, 2009, the Bank entered into and closed on a Stock Purchase Agreement to sell AIA. The Board of Directors of Bankshares and the Bank determined that the sale of AIA would enhance Bankshares’ regulatory capital in a difficult economy without diluting common shareholders. We anticipate the net financial effect including the impact of intangible amortization will likely have a positive effect on Bankshares’ future financial results.

     For the year ended December 31, 2008, commission revenues were $3.1 million. At December 31, 2008, we had $3.6 million in goodwill and $2.3 million in intangible assets related to the insurance agency acquisitions.

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SUPERVISION AND REGULATION

General

     Both Bankshares and the Bank are subject to extensive state and federal banking laws and regulations that impose specific requirements or restrictions on and provide for general regulatory oversight of virtually all aspects of our operations. These laws and regulations are generally intended to protect depositors. Changes in applicable laws or regulations may have a material effect on our business and prospects. Our operations may be affected by legislative changes and the policies of various regulatory authorities. We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future.

Regulation of Bankshares

     Bankshares must file annual, quarterly and other reports with the Securities and Exchange Commission (SEC). Bankshares is directly affected by the corporate responsibility and accounting reform legislation signed into law on July 30, 2002, known as the Sarbanes-Oxley Act of 2002 (the SOX Act), and the related rules and regulations. The SOX Act includes provisions that, among other things, require that periodic reports containing financial statements that are filed with the SEC be accompanied by chief executive officer and chief financial officer certifications as to the accuracy and compliance with law; additional disclosure requirements and corporate governance and other related rules. Although we are not required to receive an opinion of our external accountants regarding our internal control over financial reporting under section 404 of the SOX Act because of our status as a smaller reporting company, our management’s report on internal control over financial reporting is contained in Item 9A herein. Bankshares has expended considerable time and money in complying with the SOX Act and expects to continue to incur additional expenses in the future.

Bank Holding Company Act

     As a bank holding company, Bankshares is subject to regulation under the Bank Holding Company Act of 1956, as amended (the BHCA), and the examination and reporting requirements of the Board of Governors of the Federal Reserve System. As a state-chartered commercial bank, the Bank and its subsidiaries are also subject to regulation, supervision and examination by the Virginia State Corporation Commission’s Bureau of Financial Institutions and regulation, supervision and examination by the Federal Reserve.

     The BHCA generally limits the activities of a bank holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity that is closely related to banking or to managing or controlling banks. Since September 1995, the BHCA has permitted bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including nationwide and state imposed concentration limits. Banks also are able to branch across state lines, provided certain conditions are met, including that applicable state laws expressly permit such interstate branching. Virginia permits branching across state lines, provided there is reciprocity with the state in which the out-of-state bank is based. Similarly, approval of the Virginia Bureau of Financial Institutions is required for certain acquisitions of other banks and bank holding companies. The Federal Reserve has jurisdiction to approve any bank or non-bank acquisition, merger or consolidation proposed by a bank holding company.

     The Federal Reserve requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect its bank subsidiaries. Bankshares would be compelled by the

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Federal Reserve to invest additional capital in the event the Bank experiences significant loan losses, earnings shortfalls or rapid balance sheet growth.

Gramm Leach Bliley Act of 1999

     The Gramm Leach Bliley Act (the GLB Act) allows a bank holding company or other company to declare and certify its status as a financial holding company, which will allow it to engage in activities that are financial in nature, that are incidental to such activities, or are complementary to such activities. The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities, and engaging in merchant banking under certain restrictions. It also authorizes the Federal Reserve to determine by regulation what other activities are financial in nature, or incidental or complementary thereto.

     In order for a bank holding company to qualify as a financial holding company, all of its depository subsidiaries must be “well capitalized” and well managed, and must meet their Community Reinvestment Act of 1977 (CRA) obligations. The bank holding company also must declare its intention to become a financial holding company to the Federal Reserve and certify that it meets the requirements.

     The GLB Act also imposes customer privacy requirements on financial institutions. Financial institutions generally are prohibited from disclosing customer information to non-affiliated third parties, unless the customer has been given the opportunity to object and has not objected to such disclosure. Financial institutions must disclose their specific privacy policies to their customers annually. Upon making such disclosure, there is no specific restriction on financial institutions disclosing customer information to affiliated parties. Financial institutions must comply with state law, however, if it protects customer privacy more fully than federal law.

     Although Bankshares could qualify to be a financial holding company, Bankshares does not currently contemplate seeking to become a financial holding company until it identifies significant specific benefits from doing so. The cumulative effect of the GLB Act and other recent bank legislation has caused us to strengthen our staff to handle the procedures required by this additional regulation. The increased staff and operational costs have impacted our profitability.

Capital Requirements

     The Federal Reserve Board and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to banking organizations they supervise. Under the risk-based capital requirements of these federal bank regulatory agencies, Bankshares and the Bank are required to maintain a minimum ratio of total capital to risk-weighted assets of at least 8% and a minimum ratio of Tier 1 capital to risk-weighted assets of at least 4%. At least half of the total capital must be Tier 1 capital, which includes common equity, retained earnings and qualifying perpetual preferred stock, less certain intangibles and other adjustments. The remainder may consist of Tier 2 capital, such as a limited amount of subordinated and other qualifying debt (including certain hybrid capital instruments), other qualifying preferred stock and a limited amount of the general loan loss allowance. At December 31, 2009, the total capital to risk-weighted asset ratio of Bankshares was 11.6% and the ratio of the Bank was 11.5%. At December 31, 2009, the Tier 1 capital to risk-weighted asset ratio was 10.4% for Bankshares and 10.2% for the Bank.

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     In addition, each of the federal regulatory agencies has established leverage capital ratio guidelines for banking organizations. These guidelines provide for a minimum Tier l leverage ratio of 4% for banks and bank holding companies. At December 31, 2009, the Tier l leverage ratio was 7.1% for Bankshares and 7.0% for the Bank. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions must maintain capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

Prompt Corrective Action

     The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” under the risk-based and leverage capital guidelines discussed above. These terms are defined under uniform regulations issued by each of the federal banking agencies regulating these institutions. An insured depository institution which is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities. As of December 31, 2009, Bankshares was considered “well capitalized.”

Payment of Dividends

     As a bank holding company, Bankshares is a separate legal entity from the Bank and AHF. Virtually all of our income results from dividends paid to us by the Bank. The Bank is subject to laws and regulations that limit the amount of dividends that it can pay. The amount of dividends that may be paid by the Bank depends upon the Bank’s earnings and capital position and is limited by federal and state law, regulations and policies. As a bank that is a member of the Federal Reserve System, the Bank must obtain prior written approval for any dividend if the total of all dividends declared in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years. In addition, the Bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts. For this purpose, bad debts are generally defined to include the principal amount of loans which are in arrears with respect to interest by six months or more unless such loans are fully secured and in the process of collection. Moreover, for purposes of this limitation, the Bank is not permitted to add the balance of its allowance for loan losses account to its undivided profits then on hand. It may, however, net the sum of its bad debts as so defined against the balance of its allowance for loan losses account and deduct from undivided profits only bad debts so defined in excess of that account. In addition, the Federal Reserve is authorized to determine under certain circumstances relating to the financial condition of a bank that the payment of dividends would be an unsafe and unsound practice and to prohibit payment thereof. The payment of dividends that deplete a bank’s capital base could be deemed to constitute such an unsafe and unsound banking practice. The Federal Reserve has indicated that banking organizations generally pay dividends only out of current operating earnings.

     In addition, under Virginia law, no dividend may be declared or paid out of a Virginia bank’s paid-in capital. The Bank may be prohibited under Virginia law from the payment of dividends if the Virginia Bureau of Financial Institutions determines that a limitation of dividends is in the public interest and is necessary to ensure the Bank’s financial soundness, and may also permit the payment of dividends not otherwise allowed by Virginia law.

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Regulation of Alliance Bank

     The Bank is a Virginia chartered commercial bank and a member of the Federal Reserve System. Its deposit accounts are insured by the Deposit Insurance Fund (DIF) of the FDIC up to the maximum legal limits of the FDIC and it is subject to regulation, supervision and regular examination by the Virginia Bureau of Financial Institutions and the Federal Reserve. The regulations of these various agencies govern most aspects of the Bank’s business, including required reserves against deposits, loans, investments, mergers and acquisitions, borrowings, dividends and location and number of branch offices. The laws and regulations governing the Bank generally have been promulgated to protect depositors and the deposit insurance funds, and not for the purpose of protecting shareholders.

Insurance of Accounts, Assessments and Regulation by the FDIC

     The Bank’s deposit accounts have been insured by the FDIC up to a maximum of $100,000 per insured depositor ($250,000 for certain retirement accounts). On October 3, 2008, the FDIC temporarily increased deposit insurance from $100,000 per depositor to $250,000. This increase is effective until December 31, 2013. On October 14, 2008, the FDIC announced the Temporary Liquidity Guarantee Program (TLG Program) to strengthen confidence and encourage liquidity in the banking system. This program consists of two components: a temporary guarantee of newly-issued senior unsecured debt (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in noninterest-bearing transaction accounts at FDIC-insured institutions (the Transaction Account Guarantee Program). The Bank is participating in the Transaction Account Guarantee Program, but opted not to participate in the Debt Guarantee Program.

     In an effort to restore capitalization levels and to ensure the DIF will adequately cover projected losses from future bank failures, the FDIC, in October 2008, proposed a rule to alter the way in which it differentiates for risk in the risk-based assessment system and to revise deposit insurance assessment rates, including base assessment rates. The FDIC also proposed to introduce three adjustments that could be made to an institution’s initial base assessment rate, as well as a uniform 7 basis point increase in rates for the first quarter of 2009. The proposal for first quarter 2009 assessment rates was adopted as a final rule in December 2008, resulting in annualized assessment rates for Risk Category 1 institutions ranging from 12 to 14 basis points. A final rule related to the rest of the proposal became effective on April 1, 2009, applying to assessments for the second quarter of 2009 and thereafter. The new rule provides for initial base assessment rates for Risk Category 1 institutions of 12 to 16 basis points, subject to various potential base-rate adjustments.

     Under the deposit insurance reform legislation which became effective in February 2006, deposit insurance coverage will be increased for inflation every five years beginning in 2011. The FDIC issues regulations, conducts periodic examinations, requires the filing of reports and generally supervises the operations of its insured banks. Any insured bank which is not operated in accordance with, or does not conform to FDIC regulations, policies and directives may be sanctioned for non-compliance. Proceedings may be instituted against any insured bank or any director, officer or employees of such bank engaging in unsafe and unsound practices including the violation of applicable laws and regulations. The FDIC has the authority to terminate insurance of accounts pursuant to procedures established for that purpose.

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     In February 2006, the Federal Deposit Insurance Reform Act of 2005 (Deposit Reform Act) was enacted. The Deposit Reform Act, among other things, consolidates the Bank Insurance Funds and Savings Association Insurance into the DIF, establishes a range for reserves levels for the DIF of 1.15% to 1.50% and creates a mechanism for raising the ceiling on deposit insurance coverage to reflect future inflation.

     On May 22, 2009, the FDIC adopted a final rule imposing a five basis point special assessment on each insured depository institution’s Customer Deposits minus Tier 1 capital as of June 30, 2009. The assessment was part of the FDIC’s efforts to rebuild the DIF and help maintain public confidence in the banking system. Bankshares was assessed $299 thousand all of which was expensed in 2009.

     On November 17, 2009, the FDIC adopted a final rule that required insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012, at the same time that institutions paid their regular deposit insurance assessments for the third quarter of 2009. The FDIC is to maintain assessment rates at their current levels through the end of 2010 and assessment rates will be increased by an annualized 3 basis points effective January 1, 2011.

     Under generally accepted accounting principles, prepaid assessments would not immediately affect a bank’s earnings. Each institution recorded the entire amount of its prepaid assessment as a prepaid expense (an asset) as of December 30, 2009, the date the payment was made. As of December 31, 2009, and each quarter thereafter, each institution records an expense (charge to earnings) for its regular quarterly assessment and an offsetting credit to the prepaid assessment until asset is exhausted. Once the asset is exhausted, the institution would resume paying and accounting for the quarterly deposit insurance assessment as currently done. The institutions would record an accrued expense payable each quarter for the assessment payment, which would be made to the FDIC at the end of the following quarter. The FDIC would also have the authority to exercise its discretion as supervisor and insurer to exempt an institution from the prepayment requirement if the FDIC determines that the prepayment would significantly impair the institution’s liquidity or would otherwise create significant hardship.

     The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the Federal Reserve. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management of the Bank is not aware of any practice, condition or violation that might lead to termination of the Bank’s deposit insurance.

Restrictions on Extensions of Credit and Investment in the Stock of Bankshares or its Subsidiaries

     Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries, or investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower. Further, a holding company and any subsidiary bank are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit. A subsidiary bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the

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consideration for any of the foregoing, on the condition that: (a) the customer obtain or provide some additional credit, property or services from or to such bank other than a loan, discount, deposit or trust service; (b) the customer obtain or provide some additional credit, property or service from or to a holding company or any other subsidiary of a holding company; or (c) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended.

Monetary and Fiscal Policy Effects on Interest Rates

     Banking is a business that depends on interest rate differentials. In general, the differences between the interest paid by the Bank on its deposits and its other borrowings and the interest received by it on loans extended to its customers and securities held in its trading or investment portfolios constitute the major portion of the Bank’s earnings. Thus, our earnings and growth are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve, which regulates the supply of money through various means including open market dealings in United States government securities. The nature and timing of changes in such policies and their impact cannot be predicted.

Branching and Interstate Banking

     The federal banking agencies are authorized to approve interstate bank merger transactions without regard to whether the transaction is prohibited by the law of any state, unless the home state of one of the banks has opted out of the interstate bank merger provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the Riegle-Neal Act) by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997, that applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Such interstate bank mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration limitations described in the Riegle-Neal Act.

     The Riegle-Neal Act authorizes the federal banking agencies to approve de novo interstate branching by national and state banks in states which specifically allow for such branching. Virginia has enacted laws which permit interstate acquisitions of banks and bank branches and permit out-of-state banks to establish de novo branches.

Regulatory Enforcement Authority

     Federal banking law grants substantial enforcement powers to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

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Transactions with Affiliates

     Transactions between banks and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a bank is any bank or entity that controls, is controlled by or is under common control with such bank. Generally, Section 23A(a) limits the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20% of such capital stock and surplus, and (b) requires that all such transactions be on terms substantially the same, or at least as favorable, to the bank as those provided to a nonaffiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions. Section 23B applies to “covered transactions” as well as sales of assets and payments of money to an affiliate. These transactions must also be conducted on terms substantially the same, or at least as favorable, to the bank as those provided to nonaffiliates.

Community Reinvestment Act

     The CRA encourages each insured depository institution covered by the act to help meet the credit needs of the communities in which it operates. The CRA requires that each federal financial supervisory agency assess the record of each covered depository institution helping to meet the credit needs of its entire community, including low-and-moderate income neighborhoods, consistent with safe and sound operations; an agency will take that record into account when deciding whether to approve an institution’s application for a deposit facility.

     The Bank has received a satisfactory CRA rating from the Federal Reserve Bank of Richmond. An institution classified in this group has a satisfactory record of ascertaining and helping to meet the credit needs of its entire delineated community, including low- and moderate-income neighborhoods, in a manner consistent with its resources and capabilities.

Loans to Insiders

     The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal shareholder of banks. Under Section 22(h) of the Federal Reserve Act, any loan to a director, an executive officer or to a principal shareholder of a bank, or to entities controlled by any of the foregoing, may not exceed, together with all outstanding loans to such persons or entities controlled by such person, the bank’s loan to one borrower limit. Loans in the aggregate to insiders of the related interest as a class may not exceed two times the bank’s unimpaired capital and unimpaired surplus until the bank’s total assets equal or exceed $100 million, at which time the aggregate is limited to the bank’s unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and principal shareholders of a bank or bank holding company, and to entities controlled by such persons, unless such loans are approved in advance by a majority of the board of directors of the bank with any “interested” director not participating in the voting. The loan amount, which includes all other outstanding loans to such person, as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus (up to $500,000). Section 22(h) requires that loans to directors, executive officers and principal shareholders be made on terms and with underwriting standards that are substantially the same as those offered in comparable transactions to other persons. Further, section 402 of the Sarbanes-Oxley Act of 2002, with certain exceptions, prohibit loans to directors and executive officers.

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Other Regulations

     Bankshares maintains a compliance department to ensure it is in compliance with consumer protection laws and regulations.

     Bank Secrecy Act (BSA). Under the Bank Secrecy Act, a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report cash transactions involving more than $10,000 to the Treasury. In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect, involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.

     USA Patriot Act. The USA Patriot Act, which became effective on October 26, 2001, amends the Bank Secrecy Act and is intended to facilitate information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering. Among other provisions, the USA Patriot Act permits financial institutions, upon providing notice to the Treasury, to share information with one another in order to better identify and report to the federal government activities that may involve money laundering or terrorists’ activities. The USA Patriot Act is considered a significant banking law in terms of information disclosure regarding certain customer transactions. Certain provisions of the USA Patriot Act impose the obligation to establish anti-money laundering programs, including the development of a customer identification program, and the screening of all customers against any government lists of known or suspected terrorists. Although it does create a reporting obligation and there is a cost of compliance, the USA Patriot Act does not materially affect the Bank’s products, services or other business activities.

     Reporting Terrorist Activities. The Federal Bureau of Investigation (FBI) has sent, and will send, banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The Bank has been requested, and will be requested, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report with the Treasury and contact the FBI.

     The Office of Foreign Assets Control (OFAC), which is a division of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC sends banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report with the Treasury and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The Bank actively checks high-risk areas such as new accounts, wire transfers and customer files. The Bank performs these checks utilizing software that is updated each time a modification is made to the lists of Specially Designated Nationals and Blocked Persons provided by OFAC and other agencies.

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Mortgage Banking Regulation. In addition to certain of the Bank’s regulations, ABMD is subject to the rules and regulations of, and examination by the Department of Housing and Urban Development (HUD), Federal Housing Administration, the Department of Veterans Affairs and state regulatory authorities with respect to originating, processing and selling mortgage loans. Those rules and regulations, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers and, in some cases, restrict certain loan features and fix maximum interest rates and fees. In addition to other federal laws, mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, and Home Ownership Equity Protection Act, and the regulations promulgated under these acts. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.

     Check Clearing for the 21^st Century Act (Check 21). Check 21 gives “substitute checks,” such as a digital image of a check and copies made from that image, the same legal standing as the original paper check. The major provisions of Check 21 include: allowing check truncation without making it mandatory; demanding that every financial institution communicate to account holders in writing a description of its substitute check processing program and their rights under the law; legalizing substitutions for and replacements of paper checks without agreement from consumers; retaining in place the previously-mandated electronic collection and return of checks between financial institutions only when individual agreements are in place; requiring that when account holders request verification, financial institutions produce the original check (or a copy that accurately represents the original) and demonstrate that the account debit was accurate and valid; and requiring recrediting of funds to an individual’s account on the next business day after a consumer proves that the financial institution has erred. This legislation has not significantly increased our capital spending.

Future Regulatory Uncertainty

     Legislative Initiatives. In light of current conditions and the market outlook for continuing weak economic conditions, regulators have increased their focus on the regulation of financial institutions. A number of government initiatives designed to respond to the current conditions have been introduced recently and proposals for legislation that could substantially intensify the regulation of financial institutions are expected to be introduced in congress and state legislatures. Such initiatives may change banking statute and the operating environment for us and the Bank in substantial and unpredictable ways. We cannot determine the ultimate effect that any potential legislation, if enacted, or implementing regulations with respect thereto, would have, upon the financial condition or results of our operations or the operations of the Bank. A change in statute, regulations or regulatory policies applicable to us or the Bank could have a material effect on the financial condition, results of operations or business of our company and the Bank.

     In June 2009, the U.S. President’s administration proposed a wide range of regulatory reforms that, if enacted, may have significant effects on the financial services industry in the United States. Significant aspects of the administration’s proposals that may affect us included, among other things, proposals: (i) to reassess and increase capital requirements for banks and bank holding companies and examine the types of instruments that qualify as regulatory capital; (ii) to expand the current eligibility

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requirements for financial holding companies so that the financial holding companies must be “well capitalized” and “well managed” on a consolidated basis; (iii) to create a federal consumer financial protection agency to be the primary federal consumer protection supervisor with broad examination, supervision and enforcement authority with respect to consumer financial products and services; and (iv) to further limit the ability of banks to engage transactions with affiliates.

     Separate comprehensive financial reform bills intended to address the proposal set forth by the administration were introduced in both houses of Congress in the second half of 2009 and remain under review by both the U.S. House of Representatives and the U.S. Senate. We cannot predict whether or in what form further legislation or regulations may be adopted or the extent to which we may be affected thereby.

     On October 22, 2009, the FRB issued a comprehensive proposal on incentive compensation policies (the Incentive Compensation Proposal) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Proposal, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. Banking organizations are instructed to begin an immediate review of their incentive compensation policies to ensure that they do not encourage excessive risk-taking and implement corrective programs as needed. Where there are deficiencies in the incentive compensation arrangements, they must be immediately addressed.

     The FRB will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as us, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

     The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees.

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

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those reports as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. All such filings are available free of charge.

Item 1A. Risk Factors

     Our credit risk management approach or processes can impact our results. We have a disciplined approach to credit allocation. In the event our risk processes indicate a business strategy towards or away from a certain loan type, we may create a concentration of credit which could be positively or negatively impacted by economic factors. Our credit risk management approach is dependent on our personnel accurately and adequately identifying current and inherent risks in loan transactions and loan products. Although we believe our credit risk management approach is appropriate, the failure to accurately identify risks in loan transactions could negatively affect our financial condition and performance.

     If we need additional capital in the future to continue our growth and maintain our targeted regulatory capital levels, we may not be able to obtain it on terms that are favorable. This could negatively affect our performance and the value of our common stock. Our business strategy calls for continued growth while maintaining an adequate capital buffer supporting our “well capitalized” status. We anticipate that we will be able to support this growth through the generation of additional deposits via our Private Client Services team and our specific industry niches. However, we may need to raise additional capital in the future to support our continued growth and to maintain desired capital levels. Our ability to raise capital through the sale of additional securities will depend primarily upon our financial condition and the condition of financial markets at that time. We may not be able to obtain additional capital in the amounts needed or on terms satisfactory to us.

     We may be required to pay significantly higher FDIC premiums or special assessments that could adversely affect our earnings. Market conditions have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserve to insured deposits. As a result, depository institutions participating in the insurance fund may be required to pay significantly higher premiums or additional special assessments that could adversely affect our earnings. It is possible that the FDIC may impose additional special assessments in the future as part of its restoration plan.

     Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, results of operations and cash flows. Liquidity is essential to our business. Our ability to implement our business strategy will depend on our ability to obtain funding for loan originations, working capital, possible acquisitions and other general corporate purposes. An inability to raise funds through deposits, borrowing, and securities sold under repurchase agreements, the sale of loans and other sources could have a substantial negative effect on our liquidity. We do not anticipate that our retail and commercial deposits will be sufficient to meet our funding needs in the foreseeable future. We therefore rely on deposits obtained through intermediaries, FHLB advances, securities sold under agreements to repurchase and other wholesale funding sources to obtain the funds necessary to implement our growth strategy.

     Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general, including a decrease in the level of our business activity as a result of a

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downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets. To the extent we are not successful in obtaining such funding, we will be unable to implement our strategy as planned which could have a material adverse effect on our financial condition, result of operations and cash flows.

     Our focus on commercial and real estate loans may increase the risk of credit losses, which would negatively affect our financial results. We offer a variety of loans including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Many of our loans are secured by real estate (both residential and commercial) in the greater Washington, D.C. metropolitan area. A continued downturn in this real estate market, such as further deterioration in the value of this collateral, or in the local or national economy and job markets, could adversely affect our customers’ ability to pay these loans, which in turn could adversely affect us. Risk of loan defaults and foreclosures are unavoidable in the banking industry, and we try to limit our exposure to this risk by monitoring our extensions of credit carefully. We cannot fully eliminate credit risk, and as a result credit losses may occur in the future.

     If our allowance for loan losses becomes inadequate, our results of operations may be adversely affected. We maintain an allowance for loan losses that we believe is adequate to absorb any potential losses in our loan portfolio. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio and performance of our customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these future losses may exceed our current estimates. Although we believe the allowance for loan losses is adequate to absorb probable losses in our loan portfolio, we cannot predict such losses or provide assurance that our allowance will be adequate in the future. Excessive loan losses could have a material adverse impact on our financial performance.

     Federal and state regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses required by these regulatory agencies could have a negative effect on our financial condition and results of operations.

     If the value of real estate in our market areas was to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on our asset quality, capital structure and profitability. As of December 31, 2009, a significant portion of our loan portfolio is comprised of loans secured by either commercial real estate or single family homes. In the majority of these loans, real estate was the primary collateral component. In some cases, and out of an abundance of caution, we take real estate as security for a loan even when it is not the primary component of collateral. The real estate collateral that provides the primary or an alternate source of repayment in the event of default may deteriorate in value during the term of the loan as a result of changes in economic conditions, fluctuations in interest rates and the availability of loans to

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potential purchasers, changes in tax and other laws and acts of nature. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, which we have seen and continue to experience, our earnings and capital could be adversely affected. We are subject to increased lending risks in the form of loan defaults as a result of the high concentration of real estate lending in our loan portfolio should the real estate market in Virginia and our market area maintain its downward turn. A continued weakening of the real estate market in our primary market areas could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans, the value of real estate and other collateral securing the loans and the value of real estate owned by us. If real estate values decline further, it is also more likely that we would be required to increase our allowance for loan losses, which could adversely affect our financial condition and results of operations.

     Deterioration in the soundness of other financial institutions could adversely affect us. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could exacerbate the market-wide liquidity crisis and could lead to losses or defaults by us or by other institutions. There is no assurance that any such losses would not materially adversely affect our results of operations.

     We have been effective in a specific market niche, which creates an industry concentration. We have made a special effort to obtain deposits from title and mortgage loan closing companies. These are monies held for short periods of time by title and mortgage loan closing companies pending the disbursement of funds in mortgage loan or mortgage loan refinancing transactions. The balances on deposit with us from these depositors tend to fluctuate greatly during any given month, depending on transaction scheduling and overall market conditions. These balances represent a substantial portion of our non-interest bearing deposits, which creates a real estate industry concentration. These deposits are subject to seasonal and cyclical market fluctuations and are particularly sensitive to slower real estate markets. In order to meet the withdrawal needs of these customers, we monitor our liquidity, investment securities and lines of credit on a constant basis. Because of this industry concentration in our deposits, we are exposed to liquidity and concentration risks attendant to changes in real estate markets, which could adversely impact our overall performance.

     Difficult market conditions have adversely affected our industry. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of real estate related loans and resulted in significant write-downs of asset values by financial institutions. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets have adversely affected our business and results of operations. Market developments may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact our

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charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry.

     We depend on the services of key personnel, and a loss of any of those personnel could disrupt our operations and result in reduced earnings. We are a customer focused and relationship driven organization. Our growth and success has been in large part driven by the personal customer relationships maintained by our executives. Although we have entered into employment contracts with our executive officers, we cannot offer any assurance that they and other key employees will remain employed by us. The loss of services of one or more of these key employees could have a material adverse effect on our operations and possibly result in reduced revenues and earnings.

     The success of our future recruiting efforts will impact our ability to grow. The implementation of our business strategy will require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services. Many experienced banking professionals employed by our competitors are covered by agreements not to compete or solicit their existing customers if they were to leave their current employment. These agreements make the recruitment of these professionals more difficult. The market for these people is competitive, and we cannot assure you that we will be successful in attracting, hiring, motivating or retaining them. In addition, we are deploying resources to attract additional relationship officers and mortgage loan originators, but cannot guarantee that this investment of money and management time will be successful. The success of our recruiting efforts may impact our ability to grow and future profitability.

     Declines in asset values may result in impairment charges and adversely affect the value of our investments, financial performance, and capital. We maintain an investment portfolio that includes, but is not limited to, government sponsored entity securities, mortgage-backed securities and municipal securities. The market value may be affected by factors other than the underlying performance of the issuer or composition of the bonds themselves, such as ratings downgrades, adverse changes in business climate, and a lack of liquidity for resales of certain investment securities. We periodically, but not less than quarterly, evaluate investments and other assets for impairment indicators. We may be required to record additional impairment charges if our investments suffer a decline in value that is considered other-than-temporary. If we determine that a significant impairment has occurred, we would be required to charge against earnings the credit-related portion on the other-than-temporary impairment, which could have a material adverse effect on our results of operations in the periods in which the write-offs occur.

     Our adoption of Fair Value Option (FVO) accounting may not achieve desired results. In 2007, we adopted the provisions of ASC 820-10 and account for certain assets and liabilities on a fair value basis. Our objective in adopting the accounting standard was to provide the reader of the financial statements a more realistic view of our balance sheet and the market values of investments and wholesale liabilities. If our matching of assets and liabilities is not precisely achieved for business or economic reasons more income statement volatility may occur.

     Unexpected losses in future reporting periods may require us to establish a valuation allowance against our deferred tax assets. We evaluate our deferred tax assets for recoverability based on all available evidence. This process involves significant management judgment about assumptions

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that are subject to change from period to period based on changes in tax laws or variances between our future projected operating performance and our actual results. We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the “more likely than not” criterion, we evaluate all positive and negative available evidence as of the end of each reporting period. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under applicable tax laws. Such a charge could have a material adverse effect on our results of operations, financial condition, and capital position.

          Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance. The majority of our assets and liabilities are monetary in nature and subject us to significant risk from changes in interest rates. Fluctuations in interest rates are not predictable or controllable. Like most financial institutions, changes in interest rates can impact our net interest income, which is the difference between interest earned from interest-earning assets, such as loans and investment securities, and interest paid on interest-bearing liabilities, such as deposits and borrowings, as well as the valuation of our assets and liabilities. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will negatively impact our earnings. Many factors impact interest rates, including governmental monetary policies, inflation, recession, changes in unemployment, the money supply, and international disorder and instability in domestic and foreign markets.

     An increase in interest rates may, among other things, reduce the demand for loans and our ability to originate loans. A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Accordingly, changes in the level of market interest rates affect our net yield on interest-earning assets, loan origination volume, loan and mortgage-backed securities portfolios, and our overall results. Although our asset liability management strategy is designed to control our risk from changes in market interest rates, it may not be able to prevent changes in interest rates from having a material adverse effect on our results of operations and financial condition.

     Our future success is dependent on our ability to compete effectively in the highly competitive banking industry. The Northern Virginia and the greater Washington, D.C. metropolitan area in which we operate is considered highly attractive from an economic and demographic viewpoint, and is therefore a highly competitive banking and financial services market. Our future growth and success will depend on our ability to compete effectively in this highly competitive financial services environment. We compete for loans, deposits, and investment dollars with numerous large, regional and national banks and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, and private lenders. Many competitors offer products and services we do not offer and many have substantially greater resources, name recognition and market presence that benefit them in attracting business. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Some of the financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured state-chartered banks, national banks and federal savings institutions. As a result, these nonbank competitors have certain advantages over us in accessing funding and in providing various services. The differences in resources and regulations may make it harder for us to compete profitably, reduce the rates that we can earn on loans and investments, increase the rates we must offer on deposits and other funds, and adversely affect our overall financial condition and earnings.

     Failure to maintain an effective system of internal control over financial reporting may not allow us to be able to accurately report our financial results or prevent fraud. The requirements of Section 404 of the SOX Act and SEC rules and regulations require an annual management report on our internal controls over financial reporting, including, among other matters, management’s assessment of the effectiveness of our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to report our financial results with the desired degree of accuracy or to prevent fraud.

Item 1B. Unresolved Staff Comments

     Bankshares has no unresolved comments from the SEC staff.

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Item 2. Properties

     We typically lease our branch and office locations. Our business model seeks to minimize the level of investment in buildings and facilities; thus we have not purchased any branch, production office or business office locations. In securing space, we are generally responsible for build out costs, furniture and fixtures, computers, telephones and bank-specific equipment such as vaults, alarms and ATMs.

     We believe a natural evolution of a community-focused bank is to expand the delivery channels via the branch network. We plan to take advantage of strategic opportunities to acquire new branch locations presented to us via mergers and consolidation occurring in our marketplace. We may lease branches that are being closed by other banks. Additionally, we will pursue key market locations for new branch facilities.

     The following table highlights our facilities:

		Current Base Lease
Address	Type of Facility	Expiration(1)
14200 Park Meadow Drive Chantilly, Virginia	Corporate Headquarters	July 2016
12735 Shoppes Lane Fairfax, Virginia	Main banking office, Full service branch, ATM	August 2013
11730 Plaza America Drive Reston, Virginia	Full service branch, ATM	August 2012
4501 North Fairfax Drive Arlington, Virginia	Full service branch, ATM	June 2013
8221 Old Courthouse Road Vienna, Virginia	Full service branch, ATM	October 2013
7023 Little River Turnpike Annandale, Virginia	Full service branch, ATM	April 2018
9113 Manassas Drive Manassas Park, Virginia	Relocation of 9150 Branch site Full service branch, ATM	April 2019
520 William Street Fredericksburg, Virginia	Loan production office Subleasing activities underway	December 2011
2525 Cowan Boulevard Fredericksburg, Virginia	Full service branch, ATM Subleasing activities underway	October 2018
Cosner’s Corner Fredericksburg, Virginia	Full service branch, ATM Subleasing activities underway	January 2019

⁽¹⁾ Office leases have one or more renewal options that may be exercised at our discretion subject to terms and conditions outlined in each specific lease. Note 17 of the Notes to Consolidated Financial Statements details the future minimum rental commitments.

     In the fall of 2008, we made a business decision due to the economic environment not to enter the Fredericksburg market. Both of our Fredericksburg full service branch locations are unoccupied and we have not expended funds for build out. We are currently seeking to sublease those two banking locations and the loan production office (LPO).

     We believe that all of our properties are maintained in good operating condition and are suitable and adequate for our operational needs, or, with respect to our Fredericksburg locations, for subleasing.

Item 3. Legal Proceedings

      From time to time, we may be involved in litigation relating to claims arising in the normal course of our business. In the opinion of management, as of December 31, 2009, final disposition of any pending or threatened legal matters will not have a material adverse effect on our financial condition or results of operations.

Item 4. (Removed and Reserved)

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PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common stock is listed for quotation on the NASDAQ Capital Market (formerly called the NASDAQ SmallCap Market) on the NASDAQ Stock Market System under the symbol ABVA. As of April 9, 2010, we had 5,106,819 shares of common stock issued and outstanding, held by approximately 340 shareholders of record and the closing price of our common stock was $2.54.

     The high and low sales prices per share for our common stock for each quarter for the two years ended December 31, 2009, as reported by the NASDAQ Stock Market, are shown in the table below. During these periods, we did not issue any cash dividends.

	2009				2008
Quarter	High		Low		High		Low
First	$	2.90	$	1.05	$	7.09	$	4.95
Second		3.59		1.90		5.92		3.25
Third		2.99		2.20		4.16		2.32
Fourth		3.94		2.06		3.97		1.02

Dividend Policy

     Payment of dividends is at the discretion of Bankshares’ Board of Directors and is subject to various federal and state regulatory limitations. As a business strategy, we have elected to retain all earnings to support current and future growth. From time to time, we will consider a stock split in the form of a stock dividend in lieu of paying cash dividends. Our most recent stock split in the form of a 15% stock dividend was distributed to shareholders on June 30, 2006.

Issuer Purchases of Equity Securities

     No repurchases of equity securities occurred in 2009 or 2008.

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Item 6. Selected Financial Data

	Selected Financial Information
	Year Ended December 31,
	2009			2008			2007			2006			2005
	(Dollars in thousands, except per share data)
Income Statement Data:
Interest income	$	28,541		$	29,077		$	38,352		$	39,575		$	28,929
Interest expense		12,609			16,721			20,880			18,522			10,501
Net interest income		15,932			12,356			17,472			21,053			18,428
Provision for loan losses		2,995			4,724			5,824			1,020			1,142
Non-interest income		2,243			(1,818	)		(1,089	)		4,409			3,514
Non-interest expense		20,870			20,359			16,130			18,362			15,048
Income taxes (benefit)		(1,965	)		(5,084	)		(2,028	)		1,967			1,694
Net income (loss) from continued operations	$	(3,725	)	$	(9,461	)	$	(3,543	)	$	4,113		$	4,058
Net Income (loss) from discontinued operations	$	(671	)	$	441		$	699		$	366		$	—
Per Share Data and Shares Outstanding Data: (1)
Basic net income (loss)	$	(0.86	)	$	(1.77	)	$	(0.53	)	$	0.81		$	0.74
Fully diluted net income (loss)		(0.86	)		(1.77	)		(0.53	)		0.76			0.69
Net (loss) from continuing operations per common shares, basic	$	(0.73	)	$	(1.85	)	$	(0.69	)	$	0.74		$	0.74
Net (loss) from continuing operations per common shares, diluted		(0.73	)		(1.85	)		(0.69	)		0.69			0.69
Cash dividends declared		—			—			—			—			—
Book value at period end		6.49			7.28			8.96			9.84			8.79
Tangible book value at period end		6.49			6.12			7.71			8.87			8.21
Shares outstanding, period end		5,106,819			5,106,819			5,106,819			5,551,477			5,532,708
Average shares outstanding, basic		5,106,819			5,106,819			5,356,187			5,536,771			5,518,743
Average shares outstanding, diluted		5,106,819			5,106,819			5,356,187			5,922,475			5,866,785
Balance Sheet Data:
Total assets	$	576,335		$	572,849		$	541,262		$	644,371		$	611,485
Total loans, net of unearned discount		359,380			367,371			398,224			378,676			304,228
Allowance for loan loss		5,619			5,751			6,411			4,377			3,422
Total investment securities		145,031			67,998			20,338			200,819			228,791
Total trading securities		7,460			82,584			84,950			—			—
Other real estate owned		7,875			11,749			4,277			—			—
Total nonperforming assets		13,495			16,644			24,287			819			1,830
Total deposits		431,908			428,724			365,264			471,333			461,178
Stockholders’ equity		33,134			37,167			45,733			54,637			48,611
Performance Ratios:
Return on average assets	NM			NM			NM				0.72	%		0.71	%
Return on average equity	NM			NM			NM				8.75	%		8.59	%
Net interest margin (2)		2.89	%		2.52	%		3.22	%		3.64	%		3.51	%
Asset Quality Ratios: (3)
Allowance to period-end loans		1.56	%		1.57	%		1.61	%		1.16	%		1.12	%
Allowance to non-performing assets		0.42X			0.34X			0.26X			5.34X			1.87X
Non-performing assets to total assets		2.34	%		2.91	%		4.48	%		0.13	%		0.30	%
Net charge-offs to average loans		0.87	%		1.43	%		0.95	%		0.02	%		0.01	%
Capital Ratios:
Tier 1 risk-based capital		10.4	%		9.6	%		11.7	%		14.0	%		16.1	%
Total risk-based capital		11.6	%		10.9	%		12.9	%		15.0	%		17.0	%
Leverage capital ratio		7.1	%		7.6	%		9.0	%		9.7	%		10.0	%
Total equity to total assets		5.8	%		6.5	%		8.5	%		8.5	%		7.9	%

(1)	All share amounts and dollar amounts per share have been adjusted to reflect the three-for-twenty stock split in the form of a stock dividend distributed on June 30, 2006.
(2)	Net interest income divided by total average earning assets.
(3)	Non-performing assets consist of nonaccrual loans, restructured loans and foreclosed properties.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion is intended to assist in understanding and evaluating the financial condition and results of operations of Alliance Bankshares Corporation (Bankshares), Alliance Bank Corporation (Bank), Alliance Bank Mortgage Division (ABMD) and Alliance Home Funding (AHF), on a consolidated basis. This discussion and analysis should be read in conjunction with Bankshares’ consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

     Some of the matters discussed below and elsewhere in this report include forward-looking statements. These forward-looking statements include statements regarding profitability, liquidity, adequacy of the allowance for loan losses, interest rate sensitivity, market risk and financial and other goals. 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. You can also identify them by the fact that they do not relate strictly to historical or current facts. The forward-looking statements we use 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 our market areas adversely affect our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral;

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

• Changes in accounting policies, rules and practices;

• Increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios;

• 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 we do business with;

• Our ability to expand and grow our business and operations, including the establishment of additional branches and acquisition of additional branches and banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities;

• 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;

• Changes in the Temporary Liquidity Guarantee Program;

• Continued increases in FDIC insurance premiums and special assessments;

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• Loss of key production or managerial personnel;

• 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 our 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;

• Our ability to recognize future tax benefits;

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

• Our ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes;

• Changing trends in customer profiles and behavior;

• Competitive factors within the financial services industry;

• Impacts of implementing various accounting standards; and

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

     In addition, a continuation of the turbulence in significant portions of the global financial markets, particularly if it worsens, could further impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our counterparties and the economy generally. Dramatic declines in the residential and commercial real estate markets over the past two years have resulted in significant write-downs of asset values by financial institutions in the United States, and have affected our levels of nonperforming assets and OREO. Concerns about the stability of the U.S. financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction of business activity, and increased market volatility. There can be no assurance that actions taken by the federal government will stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely affect our business. In addition, our 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 our counterparties and by changes in the regulatory and competitive landscape.

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

     We caution 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 we 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.

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2009 Performance Highlights

• Assets were $576.3 million at December 31, 2009, an increase of $3.5 million from December 31, 2008.

• Total loans were $359.4 million at December 31, 2009, a decrease of $8.0 million, or 2.2% from the December 31, 2008 level of $367.4 million.

• Trading securities amounted to $7.5 million at December 31, 2009 compared to $82.6 million as of December 31, 2008. Our investment portfolio was $151.3 million at December 31, 2009. This compares to $73.3 million of investments as of December 31, 2008.

• OREO amounted to $7.9 million as of December 31, 2009, compared to $11.7 million as of December 31, 2008. We sold $5.9 million in residential OREO properties during the year.

• The net loss was $4.4 million at December 31, 2009, compared to net loss of $9.0 million in 2008. The 2009 results include a provision for loan losses of $3.0 million and OREO expenses of $2.4 million.

• Deposits were $431.9 million at December 31, 2009, an increase of $3.2 million from December 31, 2008.

• Demand deposits were $92.8 million at December 31, 2009, or 21.5% of the total deposit portfolio. This compares to the December 31, 2008 level of $75.4 million or 17.6% of the total deposit portfolio.

• Our ratio of nonperforming assets to total assets was 2.34% of total assets as of December 31, 2009 compared to 2.91% as of December 31, 2008, or a decrease of 57 basis points. The actual level of nonperforming assets decreased year over year by $3.1 million.

• As of December 31, 2009, the composition of nonperforming assets was $1.2 million of impaired loans, $4.4 million of nonaccrual loans and $7.9 million of OREO.

• On December 29, 2009, we sold AIA. We had a loss on the sale of $1.3 million. The discounted segment had a net loss of $671,000 after the related tax benefits.

Executive Overview

Balance Sheet

     December 31, 2009 compared to December 31, 2008. Total assets were $576.3 million as of December 31, 2009, an increase of $3.5 million over the December 31, 2008 level of $572.8 million. As of year end 2009, total loans were $359.4 million, loans held for sale were $2.0 million, trading securities were $7.5 million and investments were $151.3 million. The remaining balance of the earning assets was overnight federal funds sold of $3.0 million. These earning assets amounted to $523.1 million or 90.8% of total assets at year end 2009, as compared to $528.7 million or 92.3% of total assets as of year end 2008.

     The allowance for loan losses was $5.6 million or 1.56% of loans outstanding as of December 31, 2009. This compares to $5.8 million or 1.57% of loans outstanding as of December 31, 2008. (The ratios exclude loans held for sale.) Non-performing assets totaled $13.5 million as of December 31, 2009, compared to non-performing assets of $16.6 million as of December 31, 2008. Impaired loans and nonaccruals amounted to $5.6 million as of December 31, 2009; in addition the specific allocation of the allowance for loan losses related to these loans was $1.5 million as of December 31, 2009. Impaired and nonaccrual loans as of December 31, 2008 were $4.9 million; we provided a specific allocation of $1.1 million of the allowance for loan losses on these loans.

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     Total deposits amounted to $431.9 million as of December 31, 2009, an increase of $3.2 million from the December 31, 2008 level of $428.7 million. Total demand deposits were $92.8 million as of December 31, 2009 compared to $75.4 million as of year end 2008. Demand deposits represent 21.5% of total deposits as of December 31, 2009, compared to 17.6% as of December 31, 2008.

     We use customer repurchase agreements (repos) and wholesale funding from the Federal Home Loan Bank of Atlanta (FHLB) to support the asset growth of the organization. As of December 31, 2009, there were $37.7 million of customer repos outstanding or $12.4 million more than were outstanding at the end of 2008. As of December 31, 2009, the organization had $50.8 million in FHLB long term advances outstanding, compared to $51.4 million as of December 31, 2008. The longer term FHLB advances are used as part of our overall balance sheet management strategy.

     In June 2003, we issued $10.0 million in Trust Preferred Securities through a statutory business trust. As of December 31, 2009 and December 31, 2008, the full $10.0 million was considered Tier 1 regulatory capital.

     Total stockholders’ equity was $33.1 million as of December 31, 2009 and $37.2 million as of December 31, 2008. The change from the 2008 level is primarily related to the net loss of $4.4 million. Book value per share decreased to $6.49 as of December 31, 2009 from $7.28 as of December 31, 2008. Tangible book value per share increased to $6.49 as of December 31, 2009 from $6.12 as of December 31, 2008.

     On December 29, 2009, the Bank sold AIA. As of September 30, 2009, the Bank had goodwill of $3.6 million and intangibles of $2.0 million associated with AIA. The Bank recognized $455 thousand as a loss on the sale and closing costs of $816 thousand for a total loss on sale of $1.3 million. The full financial effect of the discontinued operations was a net loss of $671 thousand. The Board and management felt the sale was appropriate in light of future earnings prospects, the economy and regulatory capital needs of the Bank. The sale eliminated all of the goodwill and intangibles which are deductions from regulatory capital.

     The following table presents unaudited results of operations and related earnings per share of the discontinued insurance segment (AIA) for the period from January 1, 2009 to December 29, 2009 and for the years ended December 31, 2008 and 2007.

	2009			2008		2007
Revenues:
Insurance commissions	$	2,744		$	3,084	$	3,294
Total operating income		2,744			3,084		3,294
Expenses:
Salaries and employee benefits		1,893			1,797		1,644
Other expenses		613			616		586
Total Operating Expenses		2,506			2,413		2,230
Income before taxes on discontinued operations		238			671		1,064
Loss on the disposal of the operations		(1,267	)
Income taxes (benefit)		(358	)		230		364
Net income (loss) on the discontinued insurance operations	$	(671	)	$	441	$	699
Net income (loss) from discontinued operations, per basic share	$	(0.13	)	$	0.08	$	0.16
Net income (loss) from discontinued operations, per diluted share	$	(0.13	)	$	0.08	$	0.16

     December 31, 2008 compared to December 31, 2007. Total assets were $572.8 million as of December 31, 2008, an increase of $31.5 million over the December 31, 2007 level of $541.3 million. As of year end 2008, total loans were $367.4 million, loans held for sale were $347 thousand, trading securities were $82.6 million and investments were $73.3 million. The remaining balance of the earning assets was overnight federal funds sold of $5.1 million. These earning assets amounted to $528.7 million or 92.3% of total assets at year end 2008, as compared to $512.5 million or 94.7% of total assets as of year end 2007.

     The allowance for loan losses was $5.8 million or 1.57% of loans outstanding as of December 31, 2008. This compares to $6.4 million or 1.61% of loans outstanding as of December 31, 2007. (The ratios exclude loans held for sale.) Non-performing assets totaled $16.6 million as of December 31, 2008, compared to non-performing assets of $24.3 million as of December 31, 2007. Impaired loans and nonaccruals amounted to $4.9 million as of December 31, 2008; in addition the specific allocation of the allowance for loan losses related to these loans was $1.1 million as of December 31, 2008.

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Impaired and nonaccrual loans as of December 31, 2007 were $20.0 million; we provided a specific allocation of $2.2 million of the allowance for loan losses on these loans.

     Total deposits amounted to $428.7 million as of December 31, 2008, an increase of $63.4 million from the December 31, 2007 level of $365.3 million. Total demand deposits were $75.4 million as of December 31, 2008 compared to $66.2 million as of year end 2007.

     Total stockholders’ equity was $37.2 million as of December 31, 2008 and $45.7 million as of December 31, 2007. The change from the 2007 level is primarily related to the net loss of $9.0 million. Book value per share decreased to $7.28 as of December 31, 2008 from $8.96 as of December 31, 2007. Tangible book value per share decreased to $6.12 as of December 31, 2008 from $7.71 as of December 31, 2007.

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. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use in estimating risk. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our financial statements could change.

     Allowance for Loan Losses. The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (1) ASC 450-10-05, Contingencies (formerly SFAS No. 5, Accounting for Contingencies), which requires that losses be accrued when they are probable of occurring and estimable, and (2) ASC 310-10-35, Receivables (formerly SFAS No. 114, Accounting by Creditors for Impairment of a Loan), 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.

     Our allowance for loan losses has two basic components: the specific allowance for impaired credits and the general allowance based on relevant risk factors. Each of these components is determined based upon estimates that can and do change when the actual events occur. The specific allowance is used to individually allocate an allowance for loans identified as impaired. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent losses. When impairment is identified, a specific reserve is established based on Bankshares’ calculation of the loss embedded in the individual loan.

     The general allowance is the largest component of the total allowance and is determined by aggregating un-criticized loans and unimpaired loans by loan type based on common purpose, collateral,

33

repayment source or other credit characteristics. We then apply allowance factors which in the judgment of management represent the expected losses over the life of the loans. In determining those factors, we consider 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).

     Goodwill. Bankshares adopted ASC 350-20, Intangibles — Goodwill and Other (formerly SFAS No. 142, Goodwill and Other Intangible Assets), effective January 1, 2002. Accordingly, goodwill is no longer subject to amortization over its estimated useful life, but is subject to at least an annual assessment for impairment by applying a fair value based test. Goodwill related to the AIA acquisitions was tested for impairment on an annual basis or more frequently if events or circumstances warranted. For the year ended December 31, 2008, Bankshares tested the goodwill carrying value. Based upon the results of the testing, Bankshares concluded that there was impairment during 2008. We recorded an impairment charge of $300 thousand in 2008.

     Under ASC 350-20, acquired intangible assets are separately recognized if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over its useful life. The costs of other intangible assets, based on independent valuation and/or internal valuations, were amortized over their estimated lives.

     On December 29, 2009, the Bank entered into and closed on a stock purchase agreement to sell the insurance agencies eliminating the goodwill and intangible assets carried on our books.

     Share-Based Compensation. In December 2004, the FASB issued ASC 718-10, Stock Compensation (formerly SFAS No. 123R, Share-Based Payment). ASC 718-10 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 the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Results of Operations

     2009 compared to 2008. For the year ended December 31, 2009, net loss amounted to $(4.4) million, compared to net loss of ($9.0) million for 2008. Loss per common share, basic was $(.86) in 2009 and ($1.77) in 2008. Loss per common share, diluted was $(.86) in 2009 and ($1.77) in 2008. Return on average equity was (12.23)% in 2009 compared to (21.29)% in 2008. Return on average assets was (.74)% in 2009 compared to (1.63)% in 2008. The net interest margin was 2.89% in 2009 which compares to 2.52% in 2008. The key drivers of our net loss in 2009 relate to OREO expense in the amount of $2.4 million and provision for loan losses of $3.0 million.

     2008 compared to 2007. For the year ended December 31, 2008, net loss amounted to ($9.0) million, compared to net loss of ($2.8) million for 2007. Loss per common share, basic was ($1.77) in 2008 and ($.53) in 2007. Loss per common share, diluted was ($1.77) in 2008 and ($.53) in 2007. Return on average equity was (21.29)% in 2008 compared to (5.39)% in 2007. Return on average assets was (1.63)% in 2008 compared to (.49)% in 2007. The net interest margin was 2.52% in 2008 which compares to 3.22% in 2007. The key drivers of our net loss in 2008 relate to OREO expense in the amount of $4.0 million, fair value accounting adjustments of $2.3 million and allowance for loan losses of $4.7 million.

Interest Income and Expense

     Net interest income (on a fully taxable equivalent basis) was $15.9 million in 2009 or $3.2 million higher than the 2008 level of $12.7 million. This 25.2% increase is primarily attributable to the substantial decrease in the cost of interest-bearing liabilities.

     The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders’ 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.

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

	Year Ended December 31,
	2009								2008								2007
	Average			Income /		Yield /			Average			Income /		Yield /			Average			Income /		Yield /
	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate
									(Dollars in thousands)
Assets:
Interest earning assets:
Loans (2)	$	360,993		$	21,106		5.85	%	$	376,753		$	23,595		6.26	%	$	396,983		$	30,736		7.74	%
Trading securities		39,375			1,485		3.77	%		90,283			4,040		4.47	%		122,559			6,101		4.98	%
Investment securities		125,039			5,894		4.71	%		28,061			1,613		5.75	%		27,797			1,631		5.87	%
Federal funds sold		25,164			56		0.22	%		7,028			150		2.13	%		4,085			189		4.63	%
Total interest earning assets		550,571			28,541		5.18	%		502,125			29,398		5.85	%		551,424			38,657		7.01	%
Non-interest earning assets:
Cash and due from banks		18,902								21,064								16,014
Premises and equipment		2,010								2,016								2,306
Other Real Estate Owned (OREO)		10,234								11,899								724
Other assets		20,474								20,429								15,189
Less: allowance for loan losses		(5,350	)							(5,680	)							(4,710	)
Total non-interest earning assets		46,270								49,728								29,523
Total Assets	$	596,841							$	551,853							$	580,947
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	46,476		$	440		0.95	%	$	31,366		$	550		1.75	%	$	32,559		$	693		2.13	%
Money market deposit accounts		18,780			274		1.45	%		29,293			760		2.59	%		28,259			1,160		4.10	%
Savings accounts		3,791			14		.37	%		3,522			29		0.82	%		4,218			56		1.33	%
Time deposits(3)		286,262			9,713		3.39	%		259,280			11,864		4.58	%		208,431			10,398		4.99	%
Total interest-bearing deposits		355,309			10,441		2.94	%		323,461			13,203		4.08	%		273,467			12,307		4.50	%
FHLB advances(4)		51,054			1,158		2.27	%		56,782			1,512		2.66	%		72,524			3,179		4.38	%
Other borrowings		55,446			1,010		1.82	%		61,132			2,006		3.28	%		97,599			5,394		5.53	%
Total interest-bearing liabilities		461,809			12,609		2.73	%		441,375			16,721		3.79	%		443,590			20,880		4.71	%
																				-
Non-interest bearing liabilities:
Demand deposits		96,326								65,109								82,785
Other liabilities		2,751								2,992								1,849
Total Liabilities		560,886								509,476								528,224
Stockholders’ Equity		35,955								42,377								52,723
Total Liabilities and Stockholders’ Equity:	$	596,841							$	551,853							$	580,947
Interest Spread (5)							2.45	%							2.06	%							2.30	%
Net Interest Margin (6)				$	15,932		2.89	%				$	12,677		2.52	%				$	17,777		3.22	%

(1)	The rates and yields are on a fully tax equivalent basis assuming a 34% federal tax rate.
(2)	The Bank had average nonaccruing loans of $5.2 million, $22.9 million and $17.8 million in 2009, 2008 and 2007 respectively. The interest income excluded from the loans above was $256 thousand, $638 thousand and $705 thousand in 2009, 2008 and 2007 respectively.
(3)	Average fair value of time deposits as of 2009, 2008 and 2007 was $11.9 million, $70.6 million and $106.2 million, respectively.
(4)	Average fair value of FHLB advances as of 2009, 2008 and 2007 was $26.1 million, $35.3 million and $72.5 million, respectively.
(5)	Interest spread is the average yield earned on earning assets, less the average rate incurred on interest-bearing liabilities.
(6)	Net interest margin is net interest income, expressed as a percentage of average earning assets.

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     Our net interest margin was 2.89% for the year ended December 31, 2009, compared to 2.52% for 2008. The net interest income earned, on a fully taxable equivalent basis, was $15.9 million in 2009 compared to $12.7 million in 2008, an increase of 25.2%.

     Average loan balances were $361.0 million for the year ended December 31, 2009, compared to $376.8 million for 2008. This is a decrease of $15.8 million, or 4.2%. The related interest income from loans was $21.1 million in 2009, a decrease of $2.5 million from the 2008 level of $23.6 million. The average yield on loans decreased to 5.85% in 2009, a decrease of 41 basis points compared to the same period in 2008. The lower yield on loans for 2009 includes $256 thousand of reversed nonaccrual interest and the impacts of various market rate changes.

     Trading securities averaged $39.4 million for the year ended December 31, 2009 compared to $90.3 million for the year ended December 31, 2008. As part of our strategic management of the balance sheet, we took proactive steps to reduce the size of the trading portfolio. Specifically, we sold our entire SBA securities portfolio in 2009. Trading securities interest income for the year ended December 31, 2009 was $1.5 million compared to $4.0 million for the same period in 2008. The average yield on trading securities decreased to 3.77% in 2009, a decrease of 70 basis points compared to the same period in 2008.

     Investment securities averaged $125.0 million for the year ended December 31, 2009 compared to $28.1 million for the year ended December 31, 2008. Investment securities income was $5.9 million on a fully taxable equivalent basis for the year ended December 31, 2009 and $1.6 million for the year ended December 31, 2008. The average tax equivalent yields on investment securities for the year ended December 31, 2009 and 2008 were 4.71% and 5.75%, respectively. In 2009, we actively added investment securities to the balance sheet. The securities added to the balance sheet complement the overall deposit growth of the Bank and are an attractive alternative to the very low yields received from federal funds sold.

     A certain portion of the Bank’s excess liquidity is invested in federal funds sold. For the year ended December 31, 2009, federal funds sold contributed $56 thousand of interest income, compared to $150 thousand for the same period in 2008.

     Average interest-bearing liabilities (deposits and purchased funds) were $461.8 million in 2009, which was $20.4 million more than the 2008 level of $441.4 million. Interest expense for all interest-bearing liabilities amounted to $12.6 million for the year ended December 31, 2009, a $4.1 million decrease from the 2008 level of $16.7 million. The average cost of interest-bearing liabilities for the year ended December 31, 2009 was 2.73%, or 106 basis points lower than the 2008 level of 3.79%. Average time deposits were $286.3 million, up $27.0 million over the 2008 level. Average FHLB advances were $51.1 million in 2009 or $5.7 million lower than the 2008 average of $56.8 million. Average other borrowings were $55.4 million as of December 31, 2009, a decrease of $5.7 million from the 2008 level.

     Non-interest bearing demand deposit balances averaged $96.3 million as of the year ended December 31, 2009, or $31.2 million more than the year ended December 31, 2008. These balances are subject to seasonal changes.

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     The following table describes the impact on our interest income and expense resulting from changes in average balances and average rates for the periods indicated. The change in interest income due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

							Volume and Rate Analysis
	Years Ended December 31,									Years Ended December 31,
	2009 compared to 2008									2008 compared to 2007
	Change Due To:									Change Due To:
	Increase /									Increase /
	(Decrease)			Volume			Rate			(Decrease)			Volume			Rate
	(Dollars in thousands)
Interest Earning Assets:
Investment securities	$	4,281		$	4,517		$	(236	)	$	(18	)	$	16		$	(34	)
Trading securities		(2,555	)		(2,000	)		(555	)		(2,061	)		(1,484	)		(577	)
Loans		(2,489	)		(970	)		(1,519	)		(7,141	)		(1,503	)		(5,638	)
Federal funds sold		(94	)		(144	)		50			(39	)		(156	)		117
Total increase (decrease) in interest income		(857	)		1,403			(2,260	)		(9,259	)		(3,127	)		(6,132	)
Interest-Bearing Liabilities:
Interest-bearing deposits		(2,762	)		(935	)		(1,827	)		896			2,222			(1,326	)
Purchased funds		(1,350	)		(316	)		(1,034	)		(5,055	)		(2,215	)		(2,840	)
Total increase (decrease) in interest expense		(4,112	)		(1,251	)		(2,861	)		(4,159	)		7			(4,166	)
Increase (decrease) in net interest income	$	3,255		$	2,654		$	601		$	(5,100	)	$	(3,134	)	$	(1,966	)

     Our 2009 net interest income benefited from the lower costs of funding the Bank and the improved loan volumes.

Non-Performing Assets

     Impaired Loans (Performing Loans with a Specific Allowance Allocation). As of December 31, 2009, impaired loans amounted to $1.2 million, compared to an impaired loan balance of $1.4 million as of December 31, 2008. The majority of the $1.2 million is made up of two loans, one loan for $541 thousand which relates to building lots in Northern Virginia, and one loan for $680 thousand which relates to commercial real estate in King George, Virginia. These two loans have a specific allocation of the allowance of $151 thousand.

     Nonaccrual Loans. A loan may be placed on nonaccrual status when the loan is specifically determined to be impaired or when principal or interest is delinquent 90 days or more. We closely monitor individual loans, and relationship officers are charged with working with customers to resolve potential credit issues in a timely manner with minimum exposure to Bankshares. We maintain a policy of adding an appropriate amount to the allowance for loan losses to ensure an adequate reserve based on the portfolio composition, specific credit extended by Bankshares and general economic conditions.

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     On December 31, 2009, Alliance Bank had $4.4 million in loans that were on nonaccrual status compared to loans that were on nonaccrual status totaling $3.5 million at December 31, 2008. The $4.4 million balance consists of a loan for $765 thousand, which is secured by business assets in Northern Virginia, a loan for $655 thousand secured by building lots in Northern Virginia, a loan for $298 thousand secured by a residential condominium project in Virginia Beach, a loan for $400 thousand secured by a subordinate lien on a commercial real estate property in Winchester, Virginia and a variety of loans totaling $1.9 million to eight borrowers secured by first and second mortgages on properties in the greater Washington, D.C. metropolitan area. The specific allowance set aside for non-accrual loans as of December 31, 2009 is $1.3 million.

     Other Real Estate Owned (OREO). As of December 31, 2009, we had $7.9 million classified as OREO on the balance sheet, compared to $11.7 million as of December 31, 2008. The bulk of the OREO balance consists of $2.6 million which is residential development land in Northern Virginia, $1.7 million which relates to farmland/development acreage in the Winchester, Virginia area, $981 thousand which relates to residential building lots in Northern Virginia, and $943 thousand which relates to building lots in Northern Virginia. The remainder is made up of a variety of other properties totaling $1.7 million at December 31, 2009.

     The table below reflects the OREO activity in 2009:

Other Real Estate Owned
(dollars in thousands)

Balance as of January 1, 2009	$	11,749
Properties acquired at foreclosure		3,602
Capital improvements on foreclosed properties		55
Sales of foreclosed properties		(5,873	)
Valuation adjustments		(1,658	)
Balance as of December 31, 2009	$	7,875

     Total Non-Performing Assets. As of December 31, 2009, we had $13.5 million classified as non-performing assets on the balance sheet. The balance as of December 31, 2008 was $16.6 million. This decrease is due to the sale of several OREO properties. The ratio of nonperforming assets to total assets was 2.34% as of December 31, 2009 compared to 2.91% as of December 31, 2008. This represents a 57 basis point improvement in the ratio of nonperforming assets to total assets. The shift in non-performing asset categories reflects the migration of loans from impaired, to nonaccrual and from there to OREO as seen in the following table.

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	December 31,
	2009			2008			2007			2006			2005
Credit Quality Information	(Dollars in thousands)
Nonperforming assets:
Impaired loans (performing loans with a specific allowance)	$	1,227		$	1,428		$	2,928		$	343		$	1,627
Non-accrual loans		4,394			3,467			17,082			476			203
OREO		7,875			11,749			4,277			—			—
Total nonperforming assets & past due loans	$	13,496		$	16,644		$	24,287		$	819		$	1,830
Specific reserves associated with impaired loans	$	1,495		$	1,148		$	2,163		$	126		$	115
Nonperforming assets to total assets		2.34	%		2.91	%		4.48	%		0.13	%		0.30	%

     Specific Reserves. As of December 31, 2009, we had $1.5 million in specific reserves for non-performing Loans. As of December 31, 2008 we had $1.1 million in specific allocation of the allowance for loan losses for nonperforming Loans.

Allowance for Loan Losses and Asset Quality

     We closely monitor individual loans, and relationship officers are charged with working with customers to resolve potential credit issues in a timely manner with minimum exposure to us. We maintain a policy of adding an appropriate amount to the allowance for loan losses to ensure an adequate reserve based on the portfolio composition, specific credit extended by Alliance Bank and general economic conditions.

     The allowance for loan losses was $5.6 million at December 31, 2009, or 1.56% of loans outstanding, compared to $5.8 million or 1.57% of loans outstanding, at December 31, 2008. (These ratios exclude loans held for sale.) We have allocated $1.5 million and $1.1 million, respectively, of our allowance for loan losses at December 31, 2009 and December 31, 2008 for specific non-performing loans. In 2009, we had net charge-offs of $3.1 million compared to $5.4 million in 2008 and $3.8 million in 2007. There were no loans past due and still accruing interest as of December 31, 2009, compared to one loan of $90 thousand that was past due 90 days and still accruing interest as of December 31, 2008.

     As part of our routine credit administration process, we engage an outside consulting firm to review our loan portfolio periodically. The information from these reviews is used to monitor individual loans as well as to evaluate the overall adequacy of the allowance for loan losses.

     In reviewing the adequacy of the allowance for loan losses at each period, management takes into consideration the historical loan losses experienced by the organization, current economic conditions affecting the borrowers’ ability to repay, the volume of loans, trends in delinquent, nonaccruing, and potential problem loans, and the quality of collateral securing loans. After charging off all known losses which have been incurred in the loan portfolio, management considers the allowance for loan losses adequate to cover its estimate of probable losses.

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     The following table represents an analysis of the allowance for loan losses for the periods indicated:

	Analysis of the
	Allowance for Loan Losses
	Year Ended December 31,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Balance, beginning of period	$	5,751		$	6,411		$	4,377		$	3,422		$	2,300
Provision for loan losses		2,995			4,724			5,824			1,020			1,142
Chargeoffs:
Commercial business		390			1,124			1,054			55			—
Real estate construction		843			2,247			1,675			—			—
Residential real estate		1,619			2,372			988			—			—
Commercial real estate		321			209			84			—			—
Consumer		121			62			46			16			25
Total charge-offs		3,294			6,014			3,847			71			25
Recoveries:
Commercial business		35			219			4			—			—
Real estate construction		28			354			—			—			—
Residential real estate		39			48			48			—			—
Commercial real estate		16			2			—			—			—
Consumer		49			7			5			6			5
Total recoveries		167			630			57			6			5
Net charge-offs		3,127			5,384			3,790			65			20
Balance, end of period	$	5,619		$	5,751		$	6,411		$	4,377		$	3,422
Allowance for loan losses to total loans		1.56	%		1.57	%		1.61	%		1.16	%		1.12	%
Allowance for loan losses to nonaccrual loans		1.3	X		1.7	X		0.4	X		9.2	X		16.8	X
Non-performing assets to allowance for loan losses		240.17	%		289.41	%		378.43	%		18.71	%		53.48	%
Net-chargeoffs to average loans		0.87	%		1.43	%		0.95	%		0.01	%		0.01	%

     The following table provides a breakdown of the allocation of the allowance for loan losses by loan type. However, management does not believe that the allowance for loan losses can be fragmented by category with any precision that would be useful to investors. As such, the entire allowance is available for losses in any particular category, not withstanding this allocation. The breakdown of the allowance for loan losses is based primarily upon those factors discussed above in computing the allowance for loan losses as a whole. Because all of these factors are subject to change, the allocation and actual results are not necessarily indicative of the exact category of potential loan losses.

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	Allocation of the Allowance For Loan Losses Year Ended December 31,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Commercial business	$	1,286		$	550		$	603		$	617		$	529
Commercial real estate		1,441			2,133			1,533			1,244			1,317
Real estate construction		367			1,155			1,737			1,196			1,155
Residential real estate		2,440			1,859			2,494			1,271			349
Consumer		143			31			31			38			26
Other		(58	)		23			13			11			46
Total loans	$	5,619		$	5,751		$	6,411		$	4,377		$	3,422
	Ratio of loans to total year-end loans:
Commercial business		11	%		12	%		13	%		14	%		12	%
Commercial real estate		43	%		42	%		38	%		33	%		35	%
Real estate construction		14	%		20	%		29	%		26	%		29	%
Residential real estate		31	%		25	%		20	%		25	%		23	%
Consumer		1	%		1	%		1	%		1	%		1	%
Total loans		100	%		100	%		100	%		100	%		100	%

Loans

     We grant commercial business, commercial real estate, real estate construction, residential real estate and consumer loans in the normal course of business. The loan portfolio net of discounts and fees was $359.4 million as of December 31, 2009 or $8.0 million lower than the December 31, 2008 level of $367.4 million.

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     The following table summarizes the composition of the loan portfolio by dollar amount:

	Loan Portfolio
	December 31,
	2009		2008		2007		2006			2005
	(Dollars in thousands)
Commercial business	$	40,585	$	44,409	$	50,736	$	52,280		$	37,131
Commercial real estate		153,314		154,929		151,017		125,972			107,200
Real estate construction		50,140		71,771		114,305		99,636			87,046
Residential real estate		110,449		92,764		78,462		96,490			69,957
Consumer		4,413		3,028		3,704		4,409			2,957
Other		479		470		—		—			274
Less: unearned discount & fees		—		—		—		(111	)		(337	)
Total loans	$	359,380	$	367,371	$	398,224	$	378,676		$	304,228

     Substantially all loans are initially underwritten based on identifiable cash flows and supported by appropriate advance rates on collateral which is independently valued. Commercial loans are generally secured by accounts receivable, equipment and business assets. Commercial real estate is secured by income producing properties of all types. Construction loans are supported by projects which generally require an appropriate level of pre-sales or pre-leasing. Generally, all commercial and real estate loans have full recourse to the owners and/or sponsors. Consumer real estate is secured by first or second trusts on both owner-occupied and investor owned residential properties.

     The following table presents the maturities or repricing periods of selected loans outstanding at December 31, 2009:

	Loan Maturity Distribution
	December 31, 2009
	One Year		After One Year		After
	or Less		Through Five Years		Five Years		Total
	(Dollars in thousands)
Commercial business	$	22,778	$	13,159	$	4,648	$	40,585
Real estate construction		38,679		5,943		5,518		50,140
Total	$	61,457	$	19,102	$	10,166	$	90,725
Loans with:
Fixed rates	$	55,830	$	85,604	$	74,829	$	216,263
Variable rates		67,514		70,709		4,894		143,117
	=
Total	$	123,344	$	156,313	$	79,723	$	359,380

     Loans Held for Sale. As of December 31, 2009, $2.0 million of loans held for sale were part of our asset base compared to $347 thousand at December 31, 2008. Our business objective includes having the loans sold, shipped and funded within a 90 day period. Prior to the creation of ABMD, AHF performed these functions. As part of our business strategy to offer complementary services to clients while minimizing risk, generally loans originated by ABMD

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are presold to correspondent lenders. In 2009, ABMD originated $14.3 million of residential mortgages compared to $14.1 million in 2008.

Trading Assets

     The trading portfolio was $7.5 million as of December 31, 2009 compared to $82.6 million as of December 31, 2008. Management’s strategy to reduce the trading portfolio has been effective, as evidenced by the decrease of $75.1 million during the past year. Currently, Bankshares has four PCMO bonds left in our portfolio. The current portfolio has a variety of ratings, but all the PCMOs were rated AAA by at least one ratings agency on the purchase date. Several of the instruments have seen ratings declines yet all instruments are performing as expected.

     The following table reflects our trading assets and effective yield on the instruments as of the dated indicated:

	Trading Assets
	December 31,
	2009					2008					2007
	Fair					Fair					Fair
	Value		Yield			Value		Yield			Value		Yield
	(Dollars in thousands)
U.S. government agency securities	$	3,536		5.08	%	$	35,947		5.25	%	$	19,547		6.11	%
PCMOs (1)		3,924		5.36	%		12,251		5.42	%		20,669		5.33	%
SBA securities (2)		—		0.00	%		34,386		2.99	%		44,734		5.65	%
Total Trading Assets	$	7,460		5.23	%	$	82,584		4.37	%	$	84,950		5.68	%

(1)	All PCMOs in the FVO Portfolio were rated AAA by at least one rating agency on the purchase date. The current PCMO portfolio has a variety of ratings. All instruments are performing as expected.
(2)	SBA securities are U.S. government agency securities. For presentation purposes, they are separated out in the table above.

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     The portfolio yield increased on a year over year basis by 86 basis points, to 5.23%. The key driver of the change is the trading security mix. During the year ended December 31, 2009, all of the SBA securities were sold as part of management’s strategic plan.

     Trading Securities Classified as Level 3. Beginning in the third quarter of 2008 and continuing to the present time, the markets for these securities have behaved in a distressed and dysfunctional manner. In evaluating the fair value of instruments held in our portfolios, we determined that the typical valuation techniques for the securities that contained a LIBOR basis did not take into account the distressed and dysfunctional markets. As such, we considered other factors such as typical spreads for the instruments and requested supplemental dealer pricing to determine fair value. We believe this approach more accurately reflects the fair value of PCMO and agency securities.

Investment Securities

     The total amount of the investment securities accounted for under available-for-sale accounting was $151.3 million on December 31, 2009. Our portfolio contained callable U.S. government agency securities, U.S. government agency collateralized mortgage obligations (CMOs), U.S. government agency mortgage backed securities (MBS), PCMOs, state and municipal bonds, Federal Reserve Bank (FRB) stock, FHLB stock and other securities. U.S. government agency securities were $49.8 million, PCMOs, CMOs and MBS made up $78.2 million of the portfolio, and municipal securities were $17.1 million. We actively manage our portfolio duration and composition with changing market conditions and changes in balance sheet risk management needs. Additionally, the securities are pledged as collateral for certain borrowing transactions and repurchase agreements. The investment portfolio’s tax-equivalent yield was 4.59% as of December 31, 2009.

     Our investment securities portfolio at December 31, 2008 contained callable U.S. government agency securities, U.S. government agency CMOs, U.S. government agency MBS, PCMOs, state and municipal bonds, FRB stock, FHLB stock and other securities. The total amount of the investment securities accounted for under available-for-sale accounting was $73.3 million as of December 31, 2008. The investment portfolio’s tax-equivalent yield was 6.02% as of December 31, 2008.

     On December 31, 2007, our investment portfolio contained municipal securities, FRB stock, FHLB stock and other securities. The total amount of the investment securities available-for-sale at December 31, 2007 was $26.1 million. The effects of net unrealized losses on the portfolio were ($266) thousand and amounted to 1.0% of the investment portfolio value as of December 31, 2007.

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     The following table sets forth a summary of the investment securities portfolio as of the periods indicated:

	Investment Securities (1)
	December 31,
	2009		2008		2007
	(Dollars in thousands)
Available-For-Sale Securities
U.S. government agency securities	$	49,786	$	33,229	$	—
U.S. government agency CMOs & PCMOs		67,693		9,109		—
U.S. government agency MBS		10,462		8,621		—
Municipal securities		17,090		17,039		20,338
Total Available-For-Sale Securities (2)	$	145,031	$	67,998	$	20,338

(1)	Contractual maturities are not a reliable indicator of the expected life of investment securities, because instruments may be prepaid by the borrower or issuer.
(2)	Available-for-sale investments at market value.

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     The following table summarizes the contractual maturity of the investment securities on an amortized cost basis and their weighted average yield as of December 31, 2009:

	Contractual Maturities of Investment Securities
											December 31, 2009
											(Dollars in thousands)
						After One					After Five
	Within					Year but Within					Year but Within
	One Year					Five Years					Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Total		Yield
Available-For-Sale Securities
U.S. government agency securities	$	—		0.00	%	$	—		0.00	%	$	33,674		4.34	%	$	15,808		4.86	%	$	49,482		4.51	%
U.S. government agency CMOs & PCMOs (1)		—		0.00	%		—		0.00	%		10,683		4.93	%		56,768		4.36	%		67,451		4.45	%
U.S. government agency MBS (1)		—		0.00	%		—		0.00	%		—		0.00	%		10,251		4.49	%		10,251		4.49	%
Municipal securities (2)		—		0.00	%		321		4.23	%		1,585		5.97	%		16,111		5.86	%		18,017		5.84	%
Other securities		—		0.00	%		—		0.00	%		—		0.00	%		6,318		3.42	%		6,318		3.42	%
Total Available-For-Sale Securities (3)	$	—		0.00	%	$	321		4.23	%	$	45,942		4.53	%	$	105,256		4.62	%	$	151,519		4.59	%

(1)	Contractual maturities of CMOs, PCMOs and MBS are not reliable indicators of their expected life because mortgage borrowers have the right to prepay mortgages at any time.
(2)	Municipal securities yield is on a fully tax equivalent basis assuming a 34% federal tax rate.
(3)	We do not hold any held-to-maturity securities as of December 31, 2009.

Non-Interest Income

     The following table highlights the major components of non-interest income for the periods referenced:

	Year Ended December 31,
	2009		2008			2007			2006			2005
			(Dollars in thousands)
Deposit account service charges	$	296	$	272		$	275		$	240		$	171
Gain on loan sales		125		152			1,059			4,110			2,997
Net gain (loss) on sale of securities		1,508		(46	)		50			(140	)		(21	)
Trading activity and fair value adjustments		171		(2,328	)		(2,672	)		—			—
Other		143		132			199			199			264
Total	$	2,243	$	(1,818	)	$	(1,089	)	$	4,409		$	3,411

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     Deposit account service charges consist of routine banking fees such as account maintenance, insufficient funds, online banking, stop payment, and wire transfer fees and amounted to $296 thousand, $272 thousand and $275 thousand, for each of the years ended December 31, 2009, 2008 and 2007, respectively.

     For December 31, 2009 gains from sales of mortgage loans through our mortgage division, ABMD, were $125 thousand compared to $152 thousand for the year ended December 31, 2008. The mortgage banking operation is currently a small, customer service oriented unit which provides service to our existing customer base as compared to 2007, when we had a larger staff and production office. In 2007, gains on the sale of residential mortgage loans were $1.1 million.

     In the year ended December 31, 2009, we had a net gain of $1.5 million on the sale of investment securities. This represents an increase of $1.6 million from the 2008 level net loss of $46 thousand. The net gain on the sale of investment securities for 2007 was $50 thousand.

     Trading activity and fair value adjustments recorded for the year ended December 31, 2009 resulted in a net gain of $171 thousand, compared to a net loss of $2.3 million for the same period in 2008, an improvement of $2.5 million. This improvement is a direct result of management’s plan to reduce our exposure to trading securities and fair value adjustments. Trading activity and fair value adjustments for the year ended December 31, 2007 was $2.7 million.

     Our other non-interest income is predominately from ATM fees and investment management fees which amounted to $143 thousand, $132 thousand and $199 thousand, for each of the years ended December 31, 2009, 2008 and 2007, respectively.

Non-Interest Expense

     Non-interest expense for the year ended December 31, 2009 amounted to $20.9 million, compared to the 2008 level of $20.4 million. A key component of non-interest expense is salary and benefits expense. The expense for the year ended December 31, 2009 was $7.0 million, compared to the December 31, 2008 level of $7.2 million. Occupancy and furniture and equipment costs were $3.4 million in 2009 compared to the 2008 level of $2.8 million. These increases are attributable to the lease payments associated with the decision to exit the Fredericksburg market.

     OREO expense was $2.4 million for the year ended December 31, 2009 compared to $4.0 million for the year ended December 31, 2008. This decrease is attributed to the reduction in valuation adjustments in the current year of $1.7 compared to $3.1 million. Direct expenses for OREO in the year ended 2009 were $671 thousand. The majority of the direct OREO costs for 2009 were: repairs and maintenance, which were $228 thousand; legal fees, which were $106 thousand; and taxes, which were $116 thousand. The remaining expenses pertain to appraisal fees, insurance and utilities and basic operating expenses associated with the respective OREO properties.

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     Other operating expenses amounted to $8.1 million in 2009, compared to $6.4 million in 2008.

     Non-interest expense for 2008 amounted to $20.4 million, compared to the 2007 level of $16.1 million. Salary and benefits expenses in 2008 and 2007 were $7.2 million. Other operating expenses amounted to $2.8 million in 2008 and in 2007. OREO expenses were $4.0 million in 2008, compared to $60 thousand in 2007. The $4.0 million includes write downs on ten various OREO properties totaling $3.1 million.

     The components of other operating expenses for the periods referenced were as follows:

			Other Operating Expense
	Year Ended December 31,
	2009		2008		2007		2006		2005
			(Dollars in thousands)
Business development	$	557	$	621	$	704	$	781	$	702
Office expense		624		772		882		1,327		1,062
Bank operations expense		339		309		358		472		977
Data processing		828		796		723		567		508
Professional fees		1,775		1,832		1,748		1,503		798
FDIC insurance		2,239		605		168		84		114
OREO Expense		2,362		3,989		60		—		—
Other		1,770		1,459		1,502		1,052		737
Total Oreo and Other Operating Expense	$	10,494	$	10,383	$	6,145	$	5,786	$	4,898

     Fredericksburg Business Initiative. In 2007, the board and management made a strategic decision to pursue the Fredericksburg market. Our initial entry into the market was through the establishment of a loan production office (LPO). We had also secured leases on two prospective bank branch locations. Due to the economic environment, we have made a business decision to withdraw from the Fredericksburg initiative. We are seeking to sublease the LPO and the two banking locations. The Bank is obligated for lease payments for three leases until a sublease is signed with a third party. Bankshares has recorded a liability of $182 thousand as of December 31, 2009 for the present value of the potential differential between the contractual rental obligations and potential subleasing income.

Income Taxes

     We recorded an income tax benefit of $2.4 million in 2009 compared to an income tax benefit of $4.9 million in 2008. Our effective tax rates were 34.6% for the year ended December 31, 2009 and 35.0% for the year ended December 31, 2008.

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      Deferred Taxes. Bankshares has recorded a deferred tax asset for the period ended December 31, 2009. In accordance with ASC 740-10, Income Taxes (formerly SFAS No. 109, Accounting for Income Taxes), deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of the tax benefit generated by net operating losses depends upon the existence of sufficient taxable income within the applicable carryback and carryforward periods.

      Bankshares is in a three year cumulative loss position as of December 31, 2009. As a result of this position Bankshares hired an independent consultant to analyze our deferred tax position and to consider the need for the valuation allowance. The analysis considered 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. We considered positive evidence such as previous earnings patterns, the recent history of loan charge-offs, nonperforming assets, OREO expenses, multiyear business projections and the potential realization of net operating loss, (NOL) carry forwards within the prescribed time periods. In addition, we considered tax planning strategies that would impact the timing and extent of taxable income. The projected performance metrics over the period of NOL recognition indicates that it is more likely than not that Bankshares will have sufficient taxable income to recognize the deferred tax assets as of December 31, 2009. As part of the projected performance analysis, we stressed tested the performance in several different scenarios. In all scenarios, Bankshares generated sufficient taxable income to recognize the deferred tax asset over a reasonable time horizon. Furthermore, the NOL embedded in the deferred tax assets is expected to be fully realized by 2013. Therefore, Bankshares has concluded that a valuation allowance for deferred tax assets is not necessary as of December 31, 2009.

Deposits

     We seek deposits within our market area by offering high-quality customer service, by using technology to deliver deposit services effectively and by paying competitive interest rates. At December 31, 2009, the deposit portfolio was $431.9 million, an increase of $3.2 million compared to the December 31, 2008 level of $428.7 million. The interest-bearing deposits cost the Bank 2.94% for the year ended 2009 or 114 basis points less than the year ended 2008 average cost of 4.08%. As key interest rates declined over the past year, we repriced deposits at a lower level. In addition, the rates on time deposits have decreased substantially. As we have the opportunity to reprice time deposits, we have realized significant interest rate savings.

     Management’s strategic decision to increase the core deposits has shown positive results. At December 31, 2009, our demand deposits were $92.8 million compared to $75.4 million at December 31, 2008, an increase of $17.4 million. Average non-interest bearing demand deposits were $96.3 million at December 31, 2009 compared to average demand deposits of $65.1 million at December 31, 2008.

     We are active users of wholesale brokered deposits. We believe these types of funds offer a reliable stable source of funds for the Bank. Frequently the interest rates associated with wholesale brokered deposits are significantly lower than general customer rates in the marketplace. As of December 31, 2009, we had $137.4 million of wholesale brokered certificates of deposit which is $70.1 million lower than the December 31, 2008 level of $207.5 million. Certain wholesale brokered deposits are accounted for on a fair value basis. As of December 31, 2009, we had a single wholesale brokered deposit in the amount of $9.1 million maturing in early 2010 accounted for on a fair value basis.

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     This type of funding is a tool to support the growth of the Bank and liquidity needs. As market conditions warrant and balance sheet needs dictate, we may continue to participate in the wholesale brokered certificate of deposit market. As with any deposit product, we have potential risk for non-renewal by the customer and/or broker. Management is strategically reducing the reliance on brokered deposits for funding. Over the long term, management’s strategic goal is to lower our wholesale brokered deposits and replace them with attractively priced local commercial and retail deposits.

     At December 31, 2008, deposits were $428.7 million, an increase of $63.4 million from the December 31, 2007 level of $365.3 million. As of December 31, 2008, we had $207.5 million of wholesale brokered deposits, $24.2 million of which were accounted for at fair value. As of December 31, 2007, we had $135.3 million of wholesale brokered deposits, $110.7 million of which were accounted for at fair value.

     The following table details the average amount of, and the average rate paid on, the following primary deposit categories for the periods indicated:

					Average Deposits and Average Rates Paid
								Years Ended December 31,
			2009								2008							2007
	Average							Average							Average
	Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate
								(Dollars in thousands)
Interest-bearing liabilities:
Interest-bearing demand deposits	$	46,476	$	440		0.95	%	$	31,366	$	550		1.75	%	$	32,559	$	693		2.13	%
Money market deposit accounts		18,780		274		1.45	%		29,293		760		2.59	%		28,259		1,160		4.10	%
Savings accounts		3,791		14		0.37	%		3,522		29		0.82	%		4,218		56		1.33	%
Time deposits		286,262		9,713		3.39	%		259,280		11,864		4.58	%		208,431		10,398		4.99	%
Total interest-bearing deposits		355,309	$	10,441		2.94	%		323,461	$	13,203		4.08	%		273,467	$	12,307		4.50	%
Non-interest bearing deposits		96,326							65,109							82,785
Total deposits	$	451,635						$	388,570						$	356,252

     The following is a summary of the maturity distribution of certificates of deposit as of December 31, 2009:

	Certificates of Deposit Maturity Distribution
	December 31, 2009
	Three Months		Three Months to		Six Months to		Over
	or Less		Six Months		Twelve Months		Twelve Months		Total
					(Dollars in thousands)
Certificates of deposit:
Less than $100,000	$	33,485	$	50,466	$	67,423	$	52,484	$	203,858
Greater than or equal to $100,000		3,653		4,987		22,191		28,294		59,125
Total	$	37,138	$	55,453	$	89,614	$	80,778	$	262,983

Capital

     Both Bankshares and the Bank are considered “well capitalized” under the risk-based capital guidelines adopted by the various regulatory agencies. Total stockholders’ equity was $33.1 million as of December 31, 2009 compared to the December 31, 2008 level of $37.2 million. The change in equity is primarily attributable to our net loss for 2009 of $4.4 million. Book value per common share was $6.49 as of December 31, 2009 compared to $7.28 as of December 31, 2008. Tangible book value per share was $6.49 on December 31, 2009 compared to $6.12 on December 31, 2008. The net unrealized loss on available-for-sale securities amounted to $112 thousand, net of tax as of December 31, 2009, compared to a net unrealized loss on available-for-sale securities of $4 thousand, net of tax as of December 31, 2008.

     Payment of dividends is at the discretion of Bankshares’ Board of Directors and is subject to various federal and state regulatory limitations. It is our current policy to retain earnings to support future organizational growth; however from time to time the Board of Directors may declare stock splits in the form of stock dividends. The last stock dividend was paid on June 30, 2006 to shareholders of record at the close of business on June 9, 2006.

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     On June 30, 2003, Bankshares’ wholly-owned subsidiary business trust privately issued $10.0 million face amount of the trust’s floating rate trust preferred capital securities (Trust Preferred Securities) in a pooled trust preferred capital securities offering and issued $310 thousand in common equity to Bankshares. Simultaneously, the trust used the proceeds of that sale to purchase $10.3 million principal amount of Bankshares’ floating rate junior subordinated debentures due 2033 (Subordinated Debentures). Both the Trust Preferred Securities and the Subordinated Debentures are callable at any time. The Subordinated Debentures are an unsecured obligation of Bankshares and are junior in right of payment to all present and future senior indebtedness of Bankshares. The Trust Preferred Securities are guaranteed by Bankshares on a subordinated basis. The Trust Preferred Securities are presented in the consolidated balance sheets of Bankshares under the caption “Trust Preferred Capital Notes.” Bankshares records distributions payable on the Trust Preferred Securities as an interest expense in its consolidated statements of operations. The cost of issuance of the Trust Preferred Securities was approximately $300 thousand. This cost was amortized over a five year period from the issue date and has been fully amortized. The interest rate associated with the Trust Preferred Securities is 3 month LIBOR plus 3.15% subject to quarterly interest rate adjustments. Under the indenture governing the Trust Preferred Securities, Bankshares has the right to defer payments of interest for up to twenty consecutive quarterly periods. Bankshares elected to defer the interest payment due September 8, 2009 and December 8, 2009, as permitted under the indenture. The interest deferred under the indenture compounds quarterly at the interest rate then in effect. The base interest rate as of December 31, 2009 was 3.40% compared to 5.15% as of December 31, 2008.

     Under the current bank regulatory guidelines, Tier 1 capital may include up to 25% of stockholders’ equity excluding accumulated other comprehensive income (loss) in the form of Trust Preferred Securities. At December 31, 2009, 2008 and 2007, the entire amount was considered Tier 1 capital.

     Bankshares is considered “well capitalized” as of December 31, 2009, 2008 and 2007. The following table shows our capital categories, capital ratios and the minimum capital ratios currently required by bank regulators:

	Risk Based Capital Analysis
				December 31,
	2009			2008			2007
	(Dollars in thousands)
Tier 1 Capital:
Common stock	$	20,427		$	20,427		$	20,427
Capital surplus		25,835			25,364			25,082
Retained earnings (deficit)		(12,897	)		(8,620	)		400
Less: disallowed assets		(1,211	)		(5,900	)		(6,338	)
Add: Qualifying Trust Preferred Securities		10,000			10,000			10,000
Total Tier 1 capital		42,154			41,271			49,571
Tier 2 Capital:
Qualifying allowance for loan losses		5,071			5,359			5,246
Total Tier 2 capital		5,071			5,359			5,246
Total Risk Based Capital	$	47,225		$	46,630		$	54,817
Risk weighted assets	$	405,988		$	424,040		$	424,040
Quarterly average assets	$	596,841		$	549,454		$	549,454

				December 31,						Regulatory
Capital Ratios:	2009			2008			2007			Minimum
Tier 1 risk based capital ratio		10.4	%		9.6	%		11.7	%		4.0	%
Total risk based capital ratio		11.6	%		10.9	%		12.9	%		8.0	%
Leverage ratio		7.1	%		7.6	%		9.0	%		4.0	%

51

Purchased Funds and Other Borrowings

     Purchased funds and other borrowings include repurchase agreements (repos) (which we offer to commercial customers and affluent individuals), federal funds purchased and treasury, tax and loan balances. The bulk of purchased funds are made up from the following two categories: customer repos and outstanding federal funds sold. Customer repos amounted to $37.7 million at December 31, 2009, compared to $25.3 million at December 31, 2008 and $24.3 million at December 31, 2007. Outstanding federal funds purchased were $9.3 million, $15.0 million and $13.8 million at December 31, 2009, December 31, 2008, and December 31, 2007, respectively.

Purchased Funds Distribution

	Year Ended December 31,
	2009			2008			2007
			(Dollars in thousands)
At Period End
FHLB long-term advances, at fair value	$	25,761		$	26,361		$	76,615
FHLB long-term advances		25,000			25,000			—
Customer repos		37,716			25,255			24,255
Purchased funds and other borrowings		9,574			15,456			13,948
Total at period end	$	98,051		$	92,072		$	114,818
Average Balances
FHLB long-term advances, at fair value	$	26,054		$	35,265		$	72,524
FHLB long-term advances		25,000			21,516			—
Customer repos		33,017			26,341			31,463
Purchased funds and other borrowings		12,119			34,791			66,136
Total average balance	$	96,190		$	117,913		$	170,123
Average rate paid on all borrowed funds, end of period		1.70	%		1.82	%		4.37	%
Average rate paid on all borrowed funds, during the period		2.04	%		2.98	%		5.04	%
Maximum outstanding during period	$	107,241		$	108,827		$	164,140

     Customer repos are standard repurchase agreement transactions that involve a Bank customer instead of wholesale banks and brokers. We offer this product as an accommodation to larger retail and commercial customers that request safety for their funds beyond the FDIC deposit insurance limits or as part of a series of cash management products. We believe this product offers us a stable source of financing at a reasonable market rate of interest. We do not have any open repos with broker dealers.

     The FHLB is a key source of funding for us. During the periods presented, we have used overnight advances (daily rate credit) to support our short-term liquidity needs. On a longer term basis, we augment our funding portfolio with our two FHLB advances, one of which is accounted for on a fair value basis, and one of which is accounted for on a cost basis.

     As of December 31, 2009 and December 31, 2008, we had a FHLB long-term advance accounted for on a fair value basis of $25.8 million and $26.4 million, respectively. The advance matures in early 2021. The weighted average interest rate on the long-term FHLB advance accounted for on a fair value basis was 3.99% and 1.42% as of December 31, 2009 and December 31, 2008, respectively.

     As of December 31, 2009 and December 31, 2008, Bankshares had a single FHLB long-term advance accounted for on a cost basis. This $25.0 million long-term advance matures in 2012 and has an effective interest rate of 0.31% and 2.21% as of December 31, 2009 and December 31, 2008, respectively.

     As of December 31, 2007 we had three long-term FHLB advances totaling $76.6 million that were accounted for on a fair value basis. The weighted average interest rate was 4.33% at December 31, 2007 with maturities at varying dates through early 2021. There were no FHLB long-term advances accounted for on a cost basis as of December 31, 2007.

     Trading Liabilities Classified as Level 3. Beginning in the third quarter of 2008 and continuing through the present time, the investment and debt markets have acted in a distressed and dysfunctional manner. In evaluating the fair value of funding instruments, we determined that the typical valuation techniques did not take into account the distressed and dysfunctional markets. As such, we considered other factors such as typical spreads for the instruments, option adjusted spreads, swap curves, discounted cashflow models, previously observable non-distressed valuations and bond issuance rates and spreads for investment and non-investment grade instruments. As of December 31, 2009 and December 31, 2008, the fair value of the long-term FHLB advance accounted for on a fair value basis was $25.8 million and $26.4 million, respectively.

Liquidity

     Our overall asset/liability strategy takes into account the need to maintain adequate liquidity to fund asset growth and deposit runoff. Our liquidity is impacted by the general growth of the Bank, title company balances, the national and local mortgage refinance market, and the trading and investment portfolios. We use a variety of tools to manage our liquidity. These include pricing on loans and deposits, purchase or sale of investments, brokered deposits, the sale or participation of loans, and rates and fees on home mortgages. In addition, we have a variety of credit facilities at our disposal. Our funding department monitors our overall position daily. We can and will draw upon federal funds lines with correspondent banks, draw upon reverse repurchase agreement lines with correspondent banks and use FHLB advances. Our deposit customers frequently have lower deposit balances in the middle of the month, and balances generally rise toward the end of each month. As such, we use wholesale funding techniques to support our overall balance sheet growth.

52

     We provide temporary funding on presold loans originated by ABMD. The liquidity requirements vary based upon market and economic conditions. The funds advanced on this line allow us to originate and hold mortgages until they are sold to third party investors. In 2009, advances for ABMD averaged $809 thousand, compared to advances averaging $822 thousand in 2008. In 2010, we do not anticipate any significant liquidity needs from the incidental mortgage banking activities.

53

Return on Average Assets and Average Equity

     The ratio of net income to average equity and average assets and certain other ratios are as follows:

Return on Average Assets and Return on Average Equity

				December 31,
	2009			2008			2007
	(Dollars in thousands)
Average total assets	$	596,841		$	551,853		$	580,947
Average stockholders’ equity	$	35,955		$	42,377		$	52,723
Net income (loss)	$	(4,396	)	$	(9,020	)	$	(2,844	)
Cash dividends declared	$	—		$	—		$	—
Return on average assets		-.74	%		-1.63	%		-0.49	%
Return on average stockholders’ equity		-12.23	%		-21.29	%		-5.39	%
Average stockholders’ equity to average total asset		6.02	%		7.68	%		9.08	%

Off-Balance Sheet Activities

     Bankshares, Bank and ABMD enter into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of customers. These off-balance sheet arrangements include commitments to extend credit, standby letters of credit and financial guarantees which would impact the overall liquidity and capital resources to the extent customers accept and or use these commitments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. See Note 20 of the Notes to Consolidated Financial Statements for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements. With the exception of these off-balance sheet arrangements, and Bankshares’ obligations in connection with its Trust Preferred Securities, we have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

     For information regarding recent accounting pronouncements and their effect on us, see “Recent Accounting Pronouncements” in Note 2 of the Notes to Consolidated Financial Statements contained herein.

54

Quarterly Financial Results

     The following tables list quarterly financial results for the years ended December 31, 2009 and 2008:

Quarterly Data

	2009
	Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter
	(Dollars in thousands, except per share data)
Interest income	$	7,038		$	7,296		$	7,084		$	7,123
Interest expense		2,738			3,186			3,224			3,461
Net interest income		4,300			4,110			3,860			3,662
Provision for loan losses		300			1,421			700			574
Net interest income after provision for loan losses		4,000			2,689			3,160			3,088
Non interest income		705			625			703			210
Non interest expense		6,942			4,743			4,765			4,420
(Loss) before income taxes		(2,237	)		(1,429	)		(902	)		(1,122	)
Provision (benefit) for income taxes		(1,090	)		(200	)		(304	)		(371	)
(Loss) from continuing operations	$	(1,147	)	$	(1,229	)	$	(598	)	$	(751	)
Net income(loss) on the discontinued operations	$	(994	)	$	21		$	72		$	230
Net loss	$	(2,141	)	$	(1,208	)	$	(526	)	$	(521	)
Net (loss) from continuing operations per share, basic	$	(.22	)	$	(0.24	)	$	(0.12	)	$	(0.15	)
Net (loss) from continuing operations, diluted	$	(.22	)	$	(0.24	)	$	(0.12	)	$	(0.15	)
Net (loss) per common share, basic	$	(.42	)	$	(0.24	)	$	(0.10	)	$	(0.10	)
Net (loss) per common share, diluted	$	(.42	)	$	(0.24	)	$	(0.10	)	$	(0.10	)

	2008
	Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter
	(Dollars in thousands, except per share data)
Interest income	$	6,921		$	7,164		$	7,297		$	7,695
Interest expense		4,099			3,954			4,142			4,526
Net interest income		2,822			3,210			3,155			3,169
Provision for loan losses		1,364			2,200			610			550
Net interest income after provision for loan losses		1,458			1,010			2,545			2,619
Non interest income		609			(109	)		114			(2,432	)
Non interest expense		7,090			4,684			4,754			3,831
(Loss) before income taxes		(5,023	)		(3,783	)		(2,095	)		(3,644	)
Provision (benefit) for income taxes		(1,842	)		(1,303	)		(717	)		(1,222	)
(Loss) from continuing operations	$	(3,181	)	$	(2,480	)	$	(1,378	)	$	(2,422	)
Net income(loss) on the discontinued operations	$	(31	)	$	80		$	108		$	284
Net loss	$	(3,212	)	$	(2,400	)	$	(1,270	)	$	(2,138	)
Net (loss) from continuing operations per share, basic	$	(0.62	)	$	(0.49	)	$	(0.27	)	$	(0.47	)
Net (loss) from continuing operations, diluted	$	(0.62	)	$	(0.49	)	$	(0.27	)	$	(0.47	)
Net (loss) per common share, basic	$	(0.63	)	$	(0.46	)	$	(0.21	)	$	(0.41	)
Net (loss) per common share, diluted	$	(0.63	)	$	(0.46	)	$	(0.21	)	$	(0.41	)

55

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     ALM Risk Management. We engage a consulting firm to model our short-term and long-term interest rate risk profile. The model includes basic business assumptions, interest rates, repricing information and other relevant market data necessary to project our interest rate risk. The Board of Directors has established interest rate risk limits for both short-term and long-term interest rate exposure. On a periodic basis, management reports to the Board of Directors on our base interest rate risk profile and expectations of changes in the profiles based on certain interest rate shocks.

     Net Interest Income Sensitivity (Short-term interest rate risk). Bankshares’ ALM process evaluates the effect of upward and downward changes in market interest rates on future net interest income. This analysis involves shocking the interest rates used in determining net interest income over the next twelve months. The resulting percentage change in net interest income in various rate scenarios is an indication of Bankshares’ shorter-term interest rate risk. This analysis is accomplished by assuming a static balance sheet over a period of time with maturing and repayment dollars being rolled back into like instruments for new terms at current market rates. Additional assumptions are applied to modify volumes and pricing under various rate scenarios. These assumptions include prepayments, the sensitivity of non-maturity deposit rates, and other factors deemed significant by Bankshares.

     The ALM model results for December 31, 2009 are shown in the table below. Assuming an immediate upward shift in market interest rates of 100 basis points, the results indicate Bankshares would expect net interest income to increase over the next twelve months by .1%. Assuming a shift downward of 100 basis points, Bankshares would expect net interest income to increase over the next twelve months by 2.1%.

     Economic Value of Equity (Long-term interest rate risk). The economic value of equity process models the cashflows of financial instruments to maturity. The model incorporates growth and pricing assumptions to develop a baseline EVE. The interest rates used in the model are then shocked for an immediate increase or decrease in interest rates. The results of the shocked model are compared to the baseline results to determine the percentage change in EVE under the various scenarios. The resulting percentage change in EVE is an indication of the longer term repricing risk and options embedded in the balance sheet.

     The table below shows as of December 31, 2009 and 2008 ALM model results under various interest rate shocks:

	December 31, 2009						December 31, 2008
Interest Rate Shocks	NII			EVE			NII			EVE
-200 bp		-2.9	%		9.9	%		-8.4	%		8.1	%
-100 bp		2.1	%		6.3	%		-2.9	%		4.6	%
+100 bp		0.1	%		-8.5	%		-0.2	%		-7.6	%
+200 bp		-3.1	%		-16.9	%		-0.5	%		-13.8	%

All results above are within Bankshares current interest rate risk policy guidelines.

     Interest Rate Gap. In addition to the NII and EVE models, management reviews our “static” gap position. The cumulative negative gap position within one year was $215.9 million, or 37.5% of total assets, at December 31, 2009. While this measurement technique is common in the financial services industry, it has limitations and is not our sole tool for measuring interest rate sensitivity. We do not believe this model accurately reflects Bankshares’ true short-term and long-term interest rate exposure. As an example, $129.7 million of the investment and trading securities at December 31, 2009 are classified as greater than five years due to the contractual maturity of the instruments. Investment and trading securities are easily marketed and can be liquidated in a short period of time. As a result, it is reasonable to consider a portion of, or perhaps all of, the $129.7 million of investment and trading securities as the “within three month” category, which further suggests a more balanced short-term interest rate position for Bankshares.

56

     The following table reflects our December 31, 2009 “static” interest rate gap position:

	December 31, 2009
	Maturing or Repricing
	Within			4 - 12			1 -5			Over
	3 Months			Months			Years			5 Years			Total
	(Dollars in thousands)
Interest earning assets:
Investment securities	$	—		$	—		$	29,098		$	122,251		$	151,349
Trading securities		—			—			—			7,460			7,460
Loans held for sale		1,983			—			—			—			1,983
Loans		70,385			49,531			155,912			79,159			354,987
Interest-bearing deposits		100			—			—			—			100
Federal funds sold		2,970			—			—			—			2,970
Total interest earning assets		75,438			49,531			185,010			208,870			518,849
Interest-bearing liabilities:
Interest-bearing demand deposits		49,906			—			—			—			49,906
Money market deposit accounts		22,462			—			—			—			22,462
Savings accounts & IRAs		3,711			—			—			—			3,711
Time deposits, at fair value		9,125			—			—			—			9,125
Time deposits		28,013			145,067			75,582			5,196			253,858
Total interest-bearing deposits		113,217			145,067			75,582			5,196			339,062
FHLB long term advances, at fair value		—			—			—			25,761			25,761
FHLB long term advances		25,000			—			—			—			25,000
Customer repurchase agreements		37,716			—			—			—			37,716
Other borrowings		9,574			—			—			—			9,574
Trust Preferred Capital Notes		10,310			—			—			—			10,310
Total interest-bearing liabilities		195,817			145,067			75,582			30,957			447,423
Period Gap	$	(120,379	)	$	(95,536	)	$	109,428		$	177,913		$	71,426
Cumulative Gap	$	(120,379	)	$	(215,915	)	$	(106,487	)	$	71,426		$	71,426
Cumulative Gap / Total Assets		-20.9	%		-37.5	%		-18.5	%		12.4	%		12.4	%

During the next twelve months $182.2 million of time deposits are due to reprice or mature. The most recent repricing of the brokered deposit reflected an interest rate savings of several hundred basis points. The impact of future repricings on interest expense will depend upon the interest rate environment at that time.

     Interest Rate Risk Management Summary. As part of our interest rate risk management, we typically use the trading and investment portfolios and our wholesale funding instruments to balance our interest rate exposure. There is no guarantee that the risk management techniques and balance sheet management strategies we employ will be effective in periods of rapid rate movements or extremely volatile periods. We believe our strategies are prudent and within our policy guidelines in the base case of our modeling efforts as of December 31, 2009.

57

Item 8. Financial Statements and Supplementary Data

Alliance Bankshares Corporation
Consolidated Financial Statements
For the Years Ended December 31, 2009, 2008 and 2007
With Report of Independent Registered Public Accounting Firm

58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Alliance Bankshares Corporation
Chantilly, Virginia

We have audited the accompanying consolidated balance sheets of Alliance Bankshares Corporation and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alliance Bankshares Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management’s assessment of the effectiveness of Alliance Bankshares Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2009, included in the accompanying Management’s Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon.

Winchester, Virginia
May 28, 2010

59

Alliance Bankshares Corporation
Consolidated Balance Sheets
December 31, 2009 and 2008

(Dollars in thousands except per share amounts)

	2009			2008
ASSETS
Cash and due from banks	$	26,671		$	12,205
Federal funds sold		2,970			5,050
Trading securites, at fair value		7,460			82,584
Investment securites available-for-sale, at fair value		145,031			67,998
Restricted stock, at cost		6318			5305
Loans held for sale		1,983			347
Loans, net of allowance for loan losses of $5,619 and $5,751		353,761			361,620
Premises and equipment, net		2,038			1,888
Other real estate owned		7,875			11,749
Intangible assets		—			2,331
Goodwill		—			3,569
Accrued interest and other assets		22,228			18,203
TOTAL ASSETS	$	576,335		$	572,849
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Non-interest bearing deposits	$	92,846		$	75,448
Savings and NOW deposits		53,617			44,821
Money market deposits		22,462			17,673
Time deposits ($9,125 and $24,180 at fair value)		262,983			290,782
Total deposits		431,908			428,724
Repurchase agreements, federal funds purchased and other borrowings		47,290			40,711
Federal Home Loan Bank advances ($25,761 and $26,361 at fair value)		50,761			51,361
Trust Preferred Capital Notes		10,310			10,310
Other liabilities		2,932			4,576
Commitments and contingent liabilities		—			—
Total liabilities		543,201			535,682
STOCKHOLDERS’ EQUITY:
Common stock, $4 par value; 15,000,000 shares authorized; 5,106,819 shares issued and outstanding at December 31, 2009 and 2008		20,427			20,427
Capital surplus		25,835			25,364
Retained (deficit)		(13,016	)		(8,620	)
Accumulated other comprehensive (loss), net		(112	)		(4	)
Total stockholders’ equity		33,134			37,167
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	576,335		$	572,849

The accompanying notes are an integral part of these consolidated financial statements.

60

Alliance Bankshares Corporation
Consolidated Statements of Operations
For the Years Ended December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

	2009			2008			2007
INTEREST INCOME:
Loans	$	21,106		$	23,595		$	30,736
Investment securities		5,894			1,292			1,326
Trading securities		1,485			4,040			6,101
Federal funds sold		56			150			189
Total interest income		28,541			29,077			38,352
INTEREST EXPENSE:
Savings and NOW deposits		454			579			749
Time deposits		9,713			11,864			10,398
Money market deposits		274			760			1,160
Repurchase agreements, federal funds purchased and other borrowings		1,010			2,006			5,394
FHLB advances		1,158			1,512			3,179
Total interest expense		12,609			16,721			20,880
Net interest income		15,932			12,356			17,472
Provision for loan losses		2,995			4,724			5,824
Net interest income after provision for loan losses		12,937			7,632			11,648
OTHER INCOME:
Deposit account service charges		296			272			275
Gain on sale of loans		125			152			1,059
Net gain (loss) on sale of available-for-sale securities		1,508			(46	)		50
Trading activity and fair value adjustments		171			(2,328	)		(2,672	)
Other operating income		143			132			199
Total other income		2,243			(1,818	)		(1,089	)
OTHER EXPENSES:
Salaries and employee benefits		7,008			7,172			7,226
Occupancy expense		2,589			1,933			1,833
Equipment expense		779			871			926
Other Real Estate Owned expense		2,362			3,989			60
Operating expenses		8,132			6,394			6,085
Total other expenses		20,870			20,359			16,130
(Loss) from continuing operations before income taxes		(5,690	)		(14,545	)		(5,571	)
Income tax (benefit)		(1,965	)		(5,084	)		(2,028	)
(Loss) from continuing operations	$	(3,725	)	$	(9,461	)	$	(3,543	)
DISCONTINUED INSURANCE OPERATIONS:
Income from the discontinued insurance operations	$	238		$	671		$	1,063
Loss on the disposal of the insurance operations		(1,267	)		—			—
Income tax expense (benefit)		(358	)		230			364
Net income (loss) on the discontinued insurance operations	$	(671	)	$	441		$	699
NET (LOSS)	$	(4,396	)	$	(9,020	)	$	(2,844	)
Net (loss) from continuing operations per common share, basic	$	(0.73	)	$	(1.85	)	$	(0.69	)
Net (loss) from continuing operations per common share, diluted	$	(0.73	)	$	(1.85	)	$	(0.69	)
Net (loss) from discontinued operations per common shares, basic		(0.13	)		.08			.16
Net (loss) from discontinued operations per common shares, diluted		(0.13	)		.08			.16
Net (loss) per common share, basic	$	(0.86	)	$	(1.77	)	$	(0.53	)
Net (loss) per common share, diluted	$	(0.86	)	$	(1.77	)	$	(0.53	)

The accompanying notes are an integral part of these consolidated financial statements.

61

Alliance Bankshares Corporation
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended December 31, 2009, 2008 and 2007

(Dollars in thousands)

										Acccumulated						Total
							Retained			Other			Comprehensive			Stock-
	Common			Capital			Earnings			Comprehensive			Income			holders’
	Stock			Surplus			(Deficit)			(Loss)			(Loss)			Equity
BALANCE, DECEMBER 31, 2006	$	22,206		$	29,126		$	5,987		$	(2,682	)				$	54,637
Comprehensive (loss):
Net loss		—			—			(2,844	)		—		$	(2,844	)		(2,844	)
Other comprehensive (loss), net of tax:
Unrealized holding (losses) on securities available-for-sale, net of tax of $(52)		—			—			—			—			(101	)		—
Less: reclassification adjustment, net income taxes of $(17)		—			—			—			—			(33	)		—
Other comprehensive (loss), net of tax		—			—			—			(134	)	$	(134	)		(134	)
Total comprehensive (loss)		—			—			—			—		$	(2,978	)		—
Cumulative effect of adoption of		—			—			—			—						—
SFAS No. 159, net of tax		—			—			(2,743	)		2,640						(103	)
Common stock repurchased		(2,220	)		(4,473	)		—			—						(6,693	)
Stock-based compensation expense		—			282			—			—						282
Issuance of common stock		441			147			—			—						588
BALANCE, DECEMBER 31, 2007	$	20,427		$	25,082		$	400		$	(176	)				$	45,733
Comprehensive (loss):
Net loss		—			—			(9,020	)		—		$	(9,020	)		(9,020	)
Other comprehensive income, net of tax:
Unrealized holding gains on securities available-for-sale, net of tax of $73		—			—			—			—			142			—
Add: reclassification adjustment, net income taxes of $16		—			—			—			—			30			—
Other comprehensive income, net of tax		—			—			—			172		$	172			172
Total comprehensive (loss)		—			—			—			—		$	(8,848	)		—
Stock-based compensation expense		—			282			—			—						282
BALANCE, DECEMBER 31, 2008	$	20,427		$	25,364		$	(8,620	)	$	(4	)				$	37,167
Comprehensive (loss):
Net loss		—			—			(4,396	)		—		$	(4,396	)		(4,396	)
Other comprehensive income, net of tax:
Unrealized holding gains on securities available-for-sale, net of tax of $457		—			—			—			—			887			—
Less: reclassification adjustment, net income taxes of ($513)		—			—			—			—			(995	)		—
Other comprehensive (loss), net of tax		—			—			—			(108	)	$	(108	)		(108	)
Total comprehensive (loss)		—			—			—			—		$	(4,504	)		—
Stock-based compensation expense		—			471			—			—						471
BALANCE, DECEMBER 31, 2009	$	20,427		$	25,835		$	(13,016	)	$	(112	)				$	33,134

The accompanying notes are an integral part of these consolidated financial statements.

62

Alliance Bankshares Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2009, 2008 and 2007

(Dollars in thousands)

	2009			2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(3,725	)	$	(9,461	)	$	(3,543	)
Net income (loss) from discontinued operations		(671	)		441			699
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion		899			1,869			1,438
Disposal of fixed assets		—			20			124
Provision for loan losses		2,995			4,724			5,824
Losses on Other Real Estate Owned		1,658			3,110			—
Origination of loans held for sale		(14,306	)		(14,112	)		(56,263	)
Proceeds from sale of loans held for sale		12,795			15,842			73,931
Gain on sale of loans		(125	)		(152	)		(1,059	)
Impairment of goodwill		—			300			—
Stock-based compensation expense		471			282			282
Loss on sale of other assets		—			—			21
Net loss (gain) on sale of securities available-for-sale		(1,508	)		46			(50	)
Trading activity and fair value adjustments		(171	)		2,328			2,672
Deferred tax expense (benefit)		311			2,637			(1,579	)
Changes in assets and liabilities affecting operations:
Accrued interest and other assets		1,622			(8,779	)		(6,994	)
Other liabilities		(1,644	)		(561	)		243
Net cash provided by (used in) operating activities		(1,399	)		(1,466	)		15,746
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold		2,080			(3,794	)		10,471
Proceeds from maturity of securities held-to-maturity		—			—			100
Purchase of securities available-for-sale		(156,840	)		(54,623	)		(4,916	)
Proceeds from sale of securities available-for-sale		61,643			7,370			9,888
Paydowns on securities available-for-sale		19,462			13			—
Net change in trading securities		73,936			621			84,239
Net change in restricted stock		(1,013	)		486			(1,062	)
Net decrease (increase) in loan portfolio		1,262			7,763			(23,338	)
Proceeds from sale of other assets		—			—			338
Proceeds from sale of Other Real Estate Owned		5,873			8,039			—
Capital improvements on Other Real Estate Owned		(55	)		(915	)		—
Purchase of premises and equipment		(675	)		(649	)		(656	)
Net cash provided by (used in) investing activities		5,673			(35,689	)		75,064
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in cash realized from (expended on):
Non-interest bearing deposits		17,398			9,296			(92,576	)
Savings and NOW deposits		8,796			2,218			(8,042	)
Money market deposits		4,789			(16,372	)		14,656
Time deposits		(27,370	)		68,305			(20,546	)
Repurchase agreements, federal funds purchased & other borrowings		6,579			2,508			(14,994	)
FHLB advances		—			(26,716	)		25,000
Proceeds from common stock issuance		—			—			588
Common stock repurchased		—			—			(6,693	)
Net cash provided by (used in) financing activities		10,192			39,239			(102,607	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		14,466			2,084			(11,797	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		12,205			10,121			21,918
CASH AND CASH EQUIVALENTS, END OF YEAR	$	26,671		$	12,205		$	10,121

The accompanying notes are an integral part of these consolidated financial statements.

63

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

(Dollars in Thousands, except per share data)

1.	NATURE OF BUSINESS
	Alliance Bankshares Corporation (Bankshares or Company) is a bank holding company that conducts substantially all its operations through its subsidiaries. Alliance Bank Corporation (the Bank) is state-chartered and a member of the Federal Reserve System. The Bank places special emphasis on serving the needs of individuals, small and medium size businesses and professional concerns in the greater Washington D.C. Metropolitan region, primarily in the Northern Virginia submarket.
	In March 2001, the Bank formed Alliance Home Funding, LLC (AHF). AHF is a wholly-owned mortgage banking subsidiary of the Bank and originated residential mortgages for subsequent sale. AHF did not maintain the servicing rights on mortgages sold. On December 27, 2006, Bankshares announced it would no longer offer mortgage banking operations via AHF. The company is now inactive. Alliance Bank Mortgage Division (ABMD) was created. ABMD is a small, self contained unit servicing bank clients and some additional third party business.
	On June 26, 2003, Alliance Virginia Capital Trust I (Trust), a Delaware statutory trust and a subsidiary of Alliance Bankshares Corporation, was formed for the purpose of issuing Bankshares’ trust preferred debt.
	On November 15, 2005, the Bank formed Alliance Insurance Agency (AIA) through the acquisition of Danaher Insurance Agency. AIA was a wholly-owned insurance subsidiary of the Bank and sold a wide array of insurance and financial products. In 2006 and 2007, AIA acquired two additional insurance agencies. The combined AIA operations offered insurance products in the Alliance trade area.
	On December 29, 2009 the Bank sold AIA and no longer offers insurance products. The effects of the discontinued business operation are shown separately in the consolidated financial statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and consolidation — The consolidated financial statements include the accounts of Alliance Bankshares Corporation, Alliance Virginia Capital Trust I, Alliance Bank Corporation, Alliance Home Funding, LLC and Alliance Bank Mortgage Division. In consolidation all significant inter-company accounts and transactions have been eliminated. The subordinated debt of the trust is reflected as a liability of Bankshares.

Discontinued operations— On December 29, 2009, AIA was sold. The results of AIA operations are reflected in the discontinued insurance operation section of the Consolidated Statements of Operations. The prior years activities have been reclassified to reflect the discontinued operations.

Business — The Bank is a state-chartered commercial bank. Our main business line is commercial banking, with a small business line of mortgage banking. We provide services and products to clients located in the greater Washington, D.C. Metropolitan region, primarily in the Northern Virginia area.

Use of estimates — In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill, fair value of

64

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

financial assets and liabilities, other-than-temporary impairment of securities, deferred income taxes and other real estate owned.

Cash and cash equivalents — For the purposes of the consolidated Statements of Cash Flows, Bankshares has defined cash and cash equivalents as those amounts included in the balance sheet caption “Cash and due from banks.”

Trading activities — Bankshares engages in trading activities for its own account. Securities that are held principally for resale in the near term are recorded in the trading securities account at fair value with changes in fair value recorded in earnings. Interest and dividends are included in net interest income.

Securities — Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of other-than-temporary impairment. This recent accounting guidance amends the recognition guidance for other-than-temporary impairment losses on debt and equity securities. The recent guidance replaced the “intent and ability” indication in prior guidance by specifying that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment should be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

Prior to the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether other-than-temporary impairment exists, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

For equity securities, when the Company has decided to sell an impaired available-for-sale security and the equity does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made.

Fair value accounting — Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant

65

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Loans Held For Sale — Loans originated by ABMD are designated as held for sale at the time of their origination. These loans are generally pre-sold with servicing released and ABMD does not retain any interest or obligation after the loans are sold. These loans consist primarily of fixed-rate, single-family residential mortgage loans which meet the underwriting characteristics of certain government-sponsored enterprises (conforming loans). In addition, ABMD requires a firm purchase commitment from a permanent investor before a loan can be committed, thus limiting interest rate risk. Loans held for sale are carried at the lower of cost or estimated fair value in the aggregate. Gains on sale of loans are recognized as loans are shipped to the investor.

Rate lock commitments —ABMD enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates. As of December 31, 2009, 2008 and 2007, the impact was not material.

Loans — The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by loans throughout the Washington, D.C. metropolitan area. The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions of the lending area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally is reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method over the life of the loan or currently upon the sale or repayment of a loan.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans are typically charged off after 90 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for loan losses — The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. Loan losses are charged against the allowance when management believes the inability to collect the loan has been confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance is evaluated on a regular basis, not less than quarterly, by management. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available.

The allowance is based on two basic principles of accounting: (1) ASC 450-10-05, Contingencies (formerly

66

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

SFAS No. 5, Accounting for Contingencies), which requires that losses be accrued when they are probable of occurring and estimable, and (2) ASC 310-10-35, Receivables (formerly SFAS No. 114, Accounting by Creditors for Impairment of a Loan), 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.

Our allowance for loan losses has two basic components: the specific allowance for impaired credits and the general allowance based on relevant risk factors. Each of these components is determined based upon estimates that can and do change when the actual events occur. The specific allowance is used to individually allocate an allowance for loans identified as impaired. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent losses. When impairment is identified, a specific reserve is established based on Bankshares’ calculation of the loss embedded in the individual loan. Bankshares does not separately identify individual consumer and residential loans for impairment testing unless loans become 60 days or more past due.

The general allowance is the largest component of the total allowance and is determined by aggregating un-criticized loans and unimpaired loans by loan type based on common purpose, collateral, repayment source or other credit characteristics. We then apply allowance factors, which in the judgment of management, represent the expected losses over the life of the loans. In determining those factors, we consider 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).

Premises and equipment — Furniture and equipment are stated at cost less accumulated depreciation and amortization and are depreciated over their estimated useful lives ranging from three to ten years. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful life of the leasehold improvement, whichever is less. Depreciation and amortization are recorded on the straight-line method.

Costs of maintenance and repairs are charged to expense as incurred. Costs of replacing structural parts of major units are considered individually and are expensed or capitalized as the facts dictate.

Foreclosed assets — Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Goodwill and intangible assets — Goodwill and identified intangible assets with indefinite useful lives are not subject to amortization. Rather these assets are subject to impairment testing on an annual basis, or more often if events or circumstances indicate there may be impairment. This test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to reporting units and comparing the fair value of each reporting unit to its carrying amount. If the fair value is less than the carrying amount, a further test is required to measure the amount of the impairment.

67

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Identified intangible assets that have a finite useful life are amortized over that life in a manner that approximates the estimated decline in the economic value of the identified intangible asset. Identified intangible assets that have a finite useful life are periodically reviewed to determine whether there have been any events or circumstances to indicate the recorded amount is not recoverable from projected undiscounted net operating cash flows. If the projected undiscounted net operating cash flows are less than the carrying amount, a loss is recognized to reduce the carrying amount to fair value, and when appropriate, the amortization period is reduced.

Unamortized intangible assets associated with disposed assets are included in the determination of gain or loss on sale of the disposed assets and for businesses sold, a portion of the goodwill, based on the relative fair value of the business sold as compared with the fair value of the applicable reporting unit, is included in the determination of gain or loss.

As a result of the sale of AIA, Bankshares at December 31, 2009 no longer has goodwill or intangible assets associated with the insurance agency acquisitions. For the year ended December 31, 2009 goodwill and intangible assets associated with AIA were considered in the calculation of the loss on the sale of the segment. The amortization of intangibles and the 2008, goodwill impairment charge were also reclassified under the discontinued operations portion of the statement of operations.

Income taxes — Bankshares uses the liability (or balance sheet) approach in financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations.

Repurchase agreements — The Bank routinely enters into repurchase agreements with customers. As part of the repurchase agreements, the Bank uses marketable investment securities from its investment portfolio as collateral for the customer agreements. The repurchase agreements bear interest at a market rate.

Stock-based compensation — ASC 718-10 Stock Compensation, requires

68

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

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 fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Included within salaries and employee benefits expense for the years ended December 31, 2009, 2008 and 2007 is $471 thousand $282 thousand and $282 thousand of stock-based compensation respectively. As of December 31, 2009 and December 31, 2008, there was $314 thousand and $612 thousand, respectively, of total unrecognized compensation expense, related to stock options, which will be recognized over the remaining requisite service period. For the year ended December 31, 2009, the weighted-average period remaining is 5.9 years.

Earnings (loss) per share — Basic earnings (loss) per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by Bankshares relate solely to outstanding stock options and are determined using the treasury method.

Off-balance-sheet instruments — In the ordinary course of business, Bankshares, through its banking subsidiary, has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, standby letters of credit and rate lock commitments. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Advertising and marketing expense — Advertising and marketing costs are expensed as incurred. Advertising and marketing costs for the years ended December 31, 2009, 2008 and 2007 were $87 thousand, $207 thousand and $235 thousand, respectively.

Reclassifications — Certain reclassifications have been made to prior period balances to conform to the current year presentation.

Recent Account Pronouncements — In June 2009, the FASB issued Accounting Standards Codification (ASC) 105, Generally Accepted Accounting Principles (formerly SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a Replacement of FASB Statement No. 162). ASC 105 establishes the FASB ASC which, upon adoption as of September 30, 2009, is the sole source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. As of September 30, 2009, the FASB ASC superseded all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the ASC will become nonauthoritative. ASC 105 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASC 105 did not have a material impact on Bankshares consolidated financial statements.

In December 2007, the FASB issued ASC 805-20, Business Combinations (formerly SFAS No. 141(R), Business Combinations). ASC 805-20 significantly changed the financial accounting and reporting of business combination transactions. ASC 805-20 establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to

69

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

evaluate the nature and financial effects of the business combination. ASC 805-20 is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. The implementation of ASC 805-20 did not have a material impact on Bankshares consolidated financial statements, at this time.

Another aspect of ASC 805-20, Business Combinations (formerly FSP FAS No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies), addresses application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805-20 is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this aspect of ASC 805-20 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued ASC 820-10-65, Fair Value Measurements and Disclosures (formerly FSP FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly). ASC 820-10-65 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. ASC 820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly. ASC 820-10-65 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Bankshares adopted ASC 820-10-65 effective for the quarter ended June 30, 2009, and the adoption did not have a material impact on its consolidated financial statements.

In April 2009, the FASB issued ASC 825-10-65, Financial Instruments (formerly FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments). ASC 825-10-65 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. In addition, ASC 825-10-65 requires those disclosures in summarized financial information at interim reporting periods. ASC 825-10-65 is effective for interim periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. Bankshares adopted ASC 825-10-65 effective for the quarter ended June 30, 2009, and the adoption did not have a material impact on its consolidated financial statements.

In April 2009, the FASB issued ASC 320-10-35, Debt and Equity Securities (formerly FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments). ASC 320-10-35 updates guidance on the presentation and disclosure of other-than-temporary impairments on debt and equity securities. ASC 320-10-35 did not change previous recognition and measurement guidance related to other-than-temporary impairments of equity securities. ASC 320-10-35 is effective for interim and annual periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. Bankshares adopted ASC 320-10-35 effective for the quarter ended June 30, 2009, and the adoption did not have a material impact on its consolidated financial statements.

In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replaces SAB Topic 5.M. in the SAB Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope.

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Bankshares adopted SAB 111 effective April 13, 2009, and the adoption did not have a material impact on its consolidated financial statements.

In May 2009, the FASB issued ASC 855-10-05, Subsequent Events (formerly SFAS No. 165, Subsequent Events). ASC 855-10-05 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855-10-05 is effective for interim and annual periods ending after June 15, 2009. Bankshares adopted ASC 855-10-05 effective for the quarter ended June 30, 2009, and the adoption did not have a material impact on its consolidated financial statements.

In June 2009, the FASB issued ASC 860, Transfers and Servicing (formerly SFAS No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140). ASC 860 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. ASC 860 is effective for interim and annual periods beginning after November 15, 2009. Bankshares does not expect the adoption of ASC 860 to have a material impact on its consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which is not yet contained in the FASB ASC. SFAS No. 167 improves financial reporting by enterprises involved with variable interest entities. SFAS No. 167 is effective for interim and annual periods beginning after November 15, 2009. Early adoption is prohibited. Bankshares does not expect the adoption of SFAS No. 167 to have a material impact on its consolidated financial statements.

In June 2009, the FASB issued ASC 470-20, Debt (formerly EITF Issue No. 09-1, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing). ASC 470-20 clarifies how an entity should account for an own-share lending arrangement that is entered into in contemplation of a convertible debt offering. ASC 470-20 is effective for arrangements entered into on or after June 15, 2009. Early adoption is prohibited. Bankshares does not expect the adoption of ASC 470-20 to have a material impact on its consolidated financial statements.

In June 2009, the SEC issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current GAAP. Bankshares does not expect the adoption of SAB 112 to have a material impact on its consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value. ASU 2009-05 amends Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. Bankshares does not expect the adoption of ASU 2009-05 to have a material impact on its consolidated financial statements.

In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Value per Share (or Its Equivalent). ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. Bankshares does not expect the adoption of ASU 2009-12 to have a material impact on its consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Bankshares does not expect the adoption of ASU 2009-15 to have a material impact on its consolidated financial statements.

In October 2009, the SEC issued Release No. 33-9072, Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers. Release No. 33-9072 delays the requirement for non-accelerated filers to include an attestation report of their independent auditor on internal control over financial reporting with their annual report until the fiscal year ending on or after June 15, 2010.

3. DISPOSTION OF AIA

On December 29, 2009, the Bank entered into and closed on a Stock Purchase Agreement (Agreement) between the Bank as the seller and a group of former AIA executives. The Agreement provides for the purchase of all of the issued and outstanding shares (Shares) of AIA, a wholly-owned insurance agency subsidiary of the Bank. Pursuant to the Agreement, AIA sold the Shares for a total purchase price of $5,025,000. At closing, the Bank received $3,750,000 in cash and closing credits, with the remainder of the purchase price payable pursuant to promissory notes that do not bear interest (Notes), as follows: (1) $650,000 pursuant to the terms of one promissory note that is due and payable in full on February 15, 2011, and (2) $625,000 pursuant to the terms of five promissory notes in the original principal amount of $125,000 each, which are due and payable on February 15, 2011, 2012, 2013, 2014 and 2015, respectively. The Notes contain usual and customary conditions and are secured by a pledge of 9,800 of the 10,000 Shares sold at closing.

The Boards of Directors of Bankshares and the Bank determined that the sale of the Agency would enhance Bankshares’ regulatory capital in a difficult economy without diluting common shareholders. The consideration for the sale was determined pursuant to arms’ length negotiations among the parties. The Boards of Directors of Bankshares and the Bank believe that the consideration is in line with valuations for similar insurance agencies. The results of operations and the loss on the sale are reported as discontinued operations in the financial statements.

4. FAIR VALUE MEASUREMENTS

Bankshares uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

• Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

• Level 2 — Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

• Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

We believe that adopting the provisions of these accounting standards and electing the fair value option (FVO) for certain financial assets and liabilities provides a more realistic view of certain segments of our balance sheet.

The following describes the valuation techniques used by Bankshares to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Trading and Available-for-Sale Securities — Trading and available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

market data (Level 2). Financial assets and liabilities that are traded infrequently have values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions and the assumptions as market participant would use in pricing the asset or liability (Level 3). As a result, some of our securities are hand priced using customary spreads over similar maturity treasury instruments.

Time Deposits and FHLB Advances — Under the fair value accounting standards, certain liabilities can be carried at fair value. The designated instruments are recorded on a fair value basis at the time of issuance. Bankshares has designated two wholesale liabilities as fair value instruments: a brokered certificate of deposit and a long-term FHLB advance.

These wholesale instruments are designated as either Level 2 or Level 3 under the ASC 820-10 fair value hierarchy. Level 2 liabilities are based on quoted markets using independent valuation techniques for similar instruments with like characteristics. This information is deemed to be observable market data. Level 3 liabilities are financial instruments that are difficult to value due to dysfunctional, distressed markets or lack of actual trading volume. Management gathers certain data to value the instrument. Data includes swap curves, option adjusted spreads and discounted cash flows. These data points are modeled to reflect the fair value of the liability.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 and 2008:

									Total
			Quoted		Significant		Significant		Changes in
			Prices in		Other		Other		Fair Value
			Active		Observable		Unobservable		Included in
	Fair		Markets		Inputs		Inputs		2009
	Value		(Level 1)		(Level 2)		(Level 3)		Results
December 31, 2009
Assets
Trading securities	$	7,460	$	—	$	—	$	7,460	$	(859	)
Available-for-sale securities		145,031		—		73,169		71,862		—
Liabilities
Time deposits (brokered certificates of deposit)		9,125		—		9,125		—		430
FHLB advances		25,761		—		—		25,761		600
									$	171

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

									Total
			Quoted		Significant		Significant		Changes in
			Prices in		Other		Other		Fair Value
			Active		Observable		Unobservable		Included in
	Fair		Markets		Inputs		Inputs		2008
	Value		(Level 1)		(Level 2)		(Level 3)		Results
December 31, 2008
Assets
Trading securities	$	82,584	$	—	$	46,637	$	35,947	$	(853	)
Available-for-sale securities		67,998		—		34,769		33,229		—
Liabilities
Time deposits (brokered certificates of deposit)		24,180		—		24,180		—		(13	)
FHLB advances		26,361		—		—		26,361		(1,462	)
									$	(2,328	)

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)

	Trading Securities			FHLB Advances			AFS Securities
Beginning balance, January 1, 2009	$	35,947		$	26,361		$	33,229
Transfers into Level 3		12,251			—			6,597
Sales, maturities or calls		(39,879	)		—			(44,890	)
Realized gains (losses) on assets		(859	)		—			1,210
Unrealized gains (losses) on assets		—			—			496
Realized (gains) losses on liabilities		—			(600	)
Purchases gains (losses) on assets		—			—			75,220
Ending balance, December 31, 2009	$	7,460		$	25,761		$	71,862

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)

	Trading Securities			FHLB Advances		AFS Securities
Beginning balance, January 1, 2008	$	—		$	—	$	—
Transfers into Level 3		47,800			24,899		—
Sales, maturities or calls		(12,000	)		—		—
Realized gains (losses) on assets		(853	)				—
Realized (gains) losses on liabilities		—			1,462		—
Purchases gains (losses) on assets		1,000			—		32,125
Unrealized gains (losses) on assets		—			—		1,104
Ending balance, December 31, 2008	$	35,947		$	26,361	$	33,229

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

For the assets and liabilities selected for fair value accounting, management obtained pricing on each instrument from independent third parties who relied upon pricing models using widely available and industry standard yield curves. The market conditions have acted in a distressed manner due to the current banking conditions. As a result, certain instruments have been valued under a Level 3 approach using additional inputs to the valuation process. These inputs reflect market prices adjusted for normalized or non-distressed spreads on the bonds. As of December 31, 2009, the agency bonds, PCMOs and FHLB advance were valued under a Level 3 approach.

Interest income and expense is accounted for using the level yield method on the accrual basis of accounting. Changes in fair values associated with fluctuations in market values reported above are reported as “Trading activity and fair value adjustments” on the Consolidated Statements of Operations.

Certain financial and nonfinancial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by Bankshares to measure certain financial and nonfinancial assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans Held For Sale — Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data, which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, Bankshares records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the years December 31, 2009 and 2008. Gains and losses on the sale of loans are recorded within gain on residential mortgage loan sales on the consolidated statements of operations.

Impaired Loans — Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of Bankshares using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered to be Level 3. Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of operations.

Other Real Estate Owned (OREO) — OREO is measured at fair value based on an appraisal conducted by an independent, licensed appraiser outside of Bankshares using observable market data (Level 2). However, if an appraisal of the real estate property is over two years old, then the fair value is considered to be Level 3.

The following table summarizes Bankshares’ financial and nonfinancial assets that were measured at fair value on a nonrecurring basis during the period ending December 31, 2009.

	Carrying Value at December 31, 2009
			Quoted		Significant		Significant
			Prices		Other		Other
			In Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
	(dollars in thousands)
Assets
Impaired loans	$	3,759	$	—	$	3,759	$	—
Other real estate owned (OREO)	$	7,875	$	—	$	7,875	$	—
Loans held for sale	$	1,983	$	—	$	1,983	$	—

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

	Carrying Value at December 31, 2008
			Quoted		Significant		Significant
			Prices		Other		Other
			In Active		Observable		Unobservable
	Carrying		Markets		Inputs		Inputs
Description	Value		(Level 1)		(Level 2)		(Level 3)
	(dollars in thousands)
Assets
Impaired loans	$	4,895	$	—	$	4,895	$	—
Other real estate owned (OREO)	$	11,749	$	—	$	11,749	$	—
Loans held for sale	$	347	$	—	$	347	$	—

The following describes the valuation techniques used by Bankshares to measure certain financial assets and liabilities not previously described in this note that are not recorded at fair value on a recurring or nonrecurring basis in the financial statements:

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Cash, Due from Banks and Federal Funds Sold — The carrying amount is a reasonable estimate of fair value.

Loans Receivable — For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Restricted Stock — The fair value is considered to be cost based on the underlying redemption provisions of the instruments

Accrued Interest — The carrying amounts of accrued interest approximate fair value.

Deposit Liabilities — The fair values disclosed for demand deposits (e.g., interest and noninterest checking, statement savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings — The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analysis based on Bankshares’ current incremental borrowing rates for similar types of borrowing arrangements.

Trust Preferred Capital Notes — The fair value of Bankshares’ Trust Preferred Capital Notes, which are discussed in Note 13, are estimated using discounted cash flow analyses based on Bankshares’ current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance-Sheet Financial Instruments — The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

	December 31, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and due from banks	$	26,671	$	26,671	$	12,205	$	12,205
Federal funds sold		2,970		2,970		5,050		5,050
Trading securities		7,460		7,460		82,584		82,584
Avalable-for-sale securities		145,031		145,031		67,998		67,998
Restricted stock		6,318		6,318		5,305		5,305
Loans, net		353,761		357,158		361,620		362,483
Loans held for sale		1,983		1,983		347		347
Accrued interest receivable		2,578		2,578		3,801		3,801
Financial liabilities:
Noninterest-bearing deposits	$	92,846	$	92,846	$	75,448	$	75,448
Interest-bearing deposits		329,937		309,279		329,096		311,724
Interest-bearing deposits, at fair value		9,125		9,125		24,180		24,180
Short-term borrowings		47,290		47,013		40,711		40,255
FHLB advances		25,000		25,000		25,000		25,000
FHLB advances, at fair value		25,761		25,761		26,361		26,361
Trust Preferred Capital Notes		10,310		10,310		10,310		10,310
Accrued interest payable		1,772		1,772		3,348		3,348

Bankshares assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of Bankshares’ financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to Bankshares. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate Bankshares’ overall interest rate risk.

81

5. TRADING SECURITIES

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

The following table reflects our trading securities and effective yield on the instruments as of the dates indicated:

	December 31, 2009					December 31, 2008
	Fair					Fair
	Value		Yield			Value		Yield
Trading securities:
U.S. government corporations and agencies	$	3,536		5.08	%	$	70,333		4.15	%
PCMOs		3,924		5.36	%		12,251		5.42	%
Total trading securities	$	7,460		5.23	%	$	82,584		4.34	%

At December 31, 2009 and 2008, trading securities with a carrying value of $4.6 million and $79.6 million, respectively, were pledged to secure repurchase agreements, Federal Home Loan Bank advances, public deposits and for other purposes required or permitted by law. Proceeds from sales and calls of trading securities were $68.3 million and $30.8 million for the years ended December 31, 2009 and 2008, respectively.

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

6.	INVESTMENT SECURITIES
	The amortized cost, unrealized holding gains and losses, and the fair value of investment securities at December 31, 2009 are summarized as follows:

	Amortized		Unrealized					Fair
	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. government corporations and agencies	$	49,482	$	536	$	(232	)	$	49,786
U.S. government agency CMOs		45,567		266		(216	)		45,617
U.S. government agency MBS		10,251		214		(3	)		10,462
PCMOs		21,884		299		(107	)		22,076
Municipal securities		18,017		113		(1,040	)		17,090
Total	$	145,201	$	1,428	$	(1,598	)	$	145,031

The amortized cost, unrealized holding gains and losses, and the fair value of investment securities at December 31, 2008 are summarized as follows:

	Amortized		Unrealized					Fair
	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. government corporations and agencies	$	32,125	$	1,104	$	—		$	33,229
U.S. government CMOs		2,155		—		(3	)		2,152
U.S. government agency MBS		8,594		42		(15	)		8,621
PCMOs		6,441		516		—			6,957
Municipal securities		18,688		19		(1,668	)		17,039
Total	$	68,003	$	1,681	$	(1,686	)	$	67,998

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Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

There were no held-to-maturity investments as of December 31, 2009 or 2008.

The amortized cost and fair value of available-for-sale securities as of December 31, 2009, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issues may have the right to call or prepay obligations without any penalties. Management expects these securities to prepay or be called prior to their contractual maturity.

	Amortized		Fair
	Cost		Value
Due after one year through five years	$	321	$	334
Due after five years through ten years		45,942		46,170
Due after ten years		98,938		98,527
Total	$	145,201	$	145,031

Proceeds from sales and calls of securities available for sale were $61.6 million, $7.4 million and $9.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. Gross gains of $1.5 million, $28 thousand and $88 thousand and gross losses of $41 thousand, $74 thousand and $38 thousand were realized on these sales during 2009, 2008 and 2007, respectively. The tax provision (benefit) applicable to the net realized gain (loss) amounted to $513 thousand, ($16) thousand and $17 thousand, respectively.

At December 31, 2009 and 2008, available-for-sale securities with a carrying value of $127.4 million and $21.8 million, respectively, were pledged to secure repurchase agreements, Federal Home Loan Bank advances, and public deposits and for other purposes required or permitted by law.

The following table is a presentation of the aggregate amount of unrealized loss in investment securities as of December 31, 2009 and 2008. The aggregate is determined by summation of all the related securities that have a continuous loss at year end, and the length of time that the loss has been unrealized is shown by terms of “less than 12 months” and “12 months or more.” The fair value is the approximate market value as of year end.

84

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

2009

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government corporations and agencies	$	28,243	$	(232	)	$	—	$	—		$	28,243	$	(232	)
U.S. government agency CMOs & PCMOs		33,650		(323	)		—		—			33,650		(323	)
U.S. government agency MBS		2,572		(3	)		—		—			2,572		(3	)
Municipal securities		7,792		(293	)		4,104		(747	)		11,896		(1,040	)
Total temporarily impaired investment securities:	$	72,257	$	(851	)	$	4,104	$	(747	)	$	76,361	$	(1,598	)

Bankshares’ security portfolio is primarily comprised of fixed rate bonds, whose prices move inversely with interest rates. At the end of any accounting period, the portfolio may have both unrealized gains and losses. Unrealized losses within Bankshares’ portfolio typically occur as market interest rates rise. Such unrealized losses are considered temporary in nature. Under ASC 320-10-35, Debt and Equity Securities (formerly FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments), an impairment is considered “other than temporary” if any of the following conditions are met: Bankshares intends to sell the security, it is more likely than not that Bankshares will be required to sell the security before recovery of its amortized cost basis, or Bankshares does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). In the event that a security would suffer impairment for a reason that was “other than temporary,” Bankshares would be expected to write down the security’s value to its new fair value, and the amount of the writedown would be included in earnings as a realized loss

There are a total of 59 investment securities totaling $76.4 million that have an unrealized loss and considered temporarily impaired as of December 31, 2009. Management believes the unrealized losses noted in the table above are a result of current market conditions, interest rates and do not reflect on the ability of the issuers to repay the obligations. Bankshares does not intend to sell the investments and it is not likely that Bankshares will be required to sell the investments before recovery of the unrealized losses.

Bankshares’ investment in Federal Home Loan Bank (FHLB) stock totaled $4.9 million at December 31, 2009. FHLB stock is generally viewed as a long term investment and as a restricted investments security which is carried at cost, because there is no market for the stock other than the FHLBs or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. Despite the FHLB’s temporary suspension of repurchases of excess capital stock in 2009, Bankshares does not consider this investment to be other-than-temporarily impaired as of December 31, 2009 and no impairment has been recognized.

85

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

2008

	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government agency CMOs & PCMOs	$	2,513	$	(3	)	$	—	$	—		$	2,513	$	(3	)
U.S. government agency MBS		2,009		(15	)		—		—			2,009		(15	)
Municipal securities		15,151		(1,240	)		1,424		(428	)		16,575		(1,668	)
Total temporarily impaired investment securities:	$	19,673	$	(1,258	)	$	1,424	$	(428	)	$	21,097	$	(1,686	)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of Bankshares to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. As of December 31, 2009 and December 31, 2008, management does not consider any of the unrealized losses to be other-than-temporarily impaired and no impairment charges have been recognized.

86

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

7. LOANS

Loans are summarized as follows at December 31:

	2009			2008
Real estate:
Residential real estate	$	110,449		$	92,764
Commercial real estate		153,314			154,929
Construction		50,140			71,771
Total real estate		313,903			319,464
Commercial		40,585			44,409
Consumer		4,892			3,498
Gross loans		359,380			367,371
Less: allowance for loan losses		(5,619	)		(5,751	)
Net loans	$	353,761		$	361,620

As of December 31, 2009 and 2008, there were $139 thousand and $102 thousand respectively in checking account overdrafts that were reclassified on the balance sheet as loans.

87

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

8. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses are summarized as follows for the year ended December 31:

	2009			2008			2007
Balance, beginning of year	$	5,751		$	6,411		$	4,377
Provision for loan losses		2,995			4,724			5,824
Loans charged off		(3,294	)		(6,014	)		(3,847	)
Recoveries of loans charged off		167			630			57
Net charge-offs		(3,127	)		(5,384	)		(3,790	)
Balance, end of year	$	5,619		$	5,751		$	6,411

Impaired loans and non-accrual loans are summarized as follows for the year ended December 31:

	2009		2008		2007
Impaired loans without a valuation allowance	$	367	$	—	$	1,310
Impaired loans with a valuation allowance		5,254		4,895		18,700
Total impaired loans	$	5,621	$	4,895	$	20,010
Valuation allowance related to impaired loans	$	1,495	$	1,148	$	2,163
Total loans past due 90 days and still accruing	$	—	$	90	$	—
Average investment in impaired loans	$	6,244	$	27,975	$	17,752
Interest income recognized on impaired loans	$	269	$	553	$	1,296
Interest income recognized on a cash basis on impaired loans	$	269	$	553	$	1,296

There were no non-accrual loans excluded from impaired loan disclosures as of December 31, 2009, 2008 and 2007. No additional funds are committed to be advanced in connection with impaired loans.

88

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

9. OTHER REAL ESTATE OWNED

The table below reflects Other Real Estate Owned (OREO) as of the periods indicated:

	Year Ended December 31,
	2009			2008
Balance of beginning of year	$	11,749		$	4,277
Properties acquired at foreclosure		3,602			17,706
Capital improvements on foreclosed properties		55			915
Sales on foreclosed properties		(5,873	)		(8,039	)
Valuation adjustments		(1,658	)		(3,110	)
Balance at end of year	$	7,875		$	11,749

Expenses applicable to OREO include the following:

	Year Ended December 31,
	2009		2008		2007
Net loss on sales of OREO	$	33	$	120	$	—
Provision for losses		1,658		3,110		—
Operating expenses		671		759		60
Total OREO related expenses	$	2,362	$	3,989	$	60

89

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

10. INTANGIBLE ASSETS AND GOODWILL

On December 29, 2009, Bankshares sold AIA, as a result of the sale Bankshares does not have any intangible assets or goodwill as of December 31, 2009.

The table below reflects the net carrying amount for the intangible assets and goodwill balances for the insurance agencies, which were Bankshares’ only intangible assets and goodwill, at December 31, 2008:

	Intangible Assets			Goodwill
	December 31,			December 31,
	2008			2008
Balance, beginning of period	$	2,667		$	3,869
Amortization expense		(336	)		—
Impairment charge		—			(300	)
Balance, end of period	$	2,331		$	3,569

Goodwill related to the AIA acquisitions was tested for impairment on an annual basis or more frequently if events or circumstances warranted. In 2008, an impairment charge of $300 thousand was recorded.

11. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows at December 31:

	2009			2008
Leasehold improvements	$	1,726		$	1,300
Furniture, fixtures and equipment		5,461			5,084
		7,187			6,384
Less: accumulated depreciation and amortization		(5,149	)		(4,496	)
Premises and equipment, net	$	2,038		$	1,888

Depreciation and amortization charged to operations in 2009, 2008 and 2007 totaled $737 thousand, $805 thousand, and $821 thousand, respectively.

90

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

12.	FEDERAL HOME LOAN BANK ADVANCES
	As of December 31, 2009, we had a credit line of $127.0 million with the Federal Home Loan Bank of Atlanta. In order to borrow under the arrangement we secure the borrowings with investment securities and loans. As of December 31, 2009, we pledged available-for-sale investment securities and trading securities with a par value of $97.5 million and loans with a value of $207.1 million to facilitate current and future transactions.
	Bankshares has two convertible advances, both of which have converted under the terms of the agreement with the FHLB. One advance is accounted for on a fair value accounting basis and one advance is accounted for on a cost basis.

At December 31, 2009 and December 31, 2008, the convertible FHLB advance accounted for on a cost basis had value of $25.0 million and matures in 2012. The weighted average interest rate on long-term FHLB advances accounted for on a cost basis was 0.31% and 2.21% as of December 31, 2009 and 2008, respectively. The advance was converted by FHLB in May 2008 from a fixed rate to a floating rate.

At December 31, 2009 and December 31, 2008, the convertible FHLB advance accounted for on a fair value accounting basis had a par value of $25.0 million and matures in 2021. The weighted average interest rate on long-term FHLB advances accounted for on a fair value basis was 3.99% and 1.42% as of December 31, 2009 and 2008, respectively. The advance was converted by the FHLB in February 2009 from a floating rate to a fixed rate.

91

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

13.	TRUST PREFERRED CAPITAL SECURITIES OF SUBSIDIARY TRUST
	On June 30, 2003, Bankshares’ wholly-owned Delaware statutory business trust privately issued $10.0 million face amount of the trust’s floating rate trust preferred capital securities (Trust Preferred Securities) in a pooled trust preferred capital securities offering. The trust issued $310 thousand in common equity to Bankshares. Simultaneously, the trust used the proceeds of the sale to purchase $10.3 million principal amount of Bankshares’ floating rate junior subordinated debentures due 2033 (Subordinated Debentures). Both the Trust Preferred Securities and the Subordinated Debentures are callable at any time since June 30, 2008. The Subordinated Debentures are an unsecured obligation of Bankshares and are junior in right of payment to all present and future senior indebtedness of Bankshares. The Trust Preferred Securities are guaranteed by Bankshares on a subordinated basis. The Trust Preferred Securities are presented in the consolidated balance sheets of Bankshares under the caption “Trust Preferred Capital Notes.” Bankshares records distributions payable on the Trust Preferred Securities as an interest expense in its consolidated statements of operations. The cost of issuance of the Trust Preferred Securities was approximately $300 thousand. This cost was amortized over a five year period from the issue date and has been fully amortized. The interest rate associated with the Trust Preferred Securities is 3 month LIBOR plus 3.15% subject to quarterly interest rate adjustments. Under the indenture governing the Trust Preferred Securities, Bankshares has the right to defer payments of interest for up to twenty consecutive quarterly periods. During the quarter ended September 30, 2009 and the quarter ended December 31, 2009, Bankshares elected to defer the interest payments due September 8, 2009 and December 8, 2009, as permitted under the indenture. The interest deferred under the indenture compounds quarterly at the interest rate then in effect. The base interest rate as of December 31, 2009 was 3.40% compared to 5.15% as of December 31, 2008.
	All or a portion of Trust Preferred Securities may be included in the regulatory computation of capital adequacy as Tier 1 capital. Under the current guidelines, Tier 1 capital may include up to 25% of stockholders’ equity excluding accumulated other comprehensive income (loss) in the form of Trust Preferred Securities. At December 31, 2009 and December 31, 2008, the entire amount was considered Tier 1 capital.

14.	INCOME TAXES
	Allocation of federal and state income taxes between current and deferred portions is as follows:

	2009			2008			2007
Current	$	(2,425	)	$	(2,457	)	$	(85	)
Deferred tax expense (benefit)		102			(2,397	)		(1,579	)
Income tax (benefit)	$	(2,323	)	$	(4,854	)	$	(1,664	)

92

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

The reasons for the differences between the statutory federal income tax rate and the effective tax rate are summarized as follows:

	2009			2008			2007
Computed at the expected statutory rate	$	(2,285	)	$	(4,717	)	$	(1,532	)
Tax exempt income, net		(239	)		(246	)		(232	)
Other		201			109			100
Income tax expense (benefit)	$	(2,323	)	$	(4,854	)	$	(1,664	)

Deferred Taxes. Bankshares has recorded a deferred tax asset for the period ended December 31, 2009. In accordance with ASC 740-10, Income Taxes (formerly SFAS No. 109, Accounting for Income Taxes), deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of the tax benefit generated by net operating losses depends upon the existence of sufficient taxable income within the applicable carryback and carryforward periods. Bankshares periodically assesses the need to establish, increase, or decrease a valuation allowance for deferred tax assets.

Bankshares is in a three year cumulative loss position as of December 31, 2009. As a result of this position Bankshares hired an independent consultant to analyze our deferred tax position and to consider the need for the valuation allowance. The analysis considered 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. We considered positive evidence such as previous earnings patterns, the recent history of loan charge-offs, nonperforming assets, OREO expenses, multiyear business projections and the potential realization of net operating loss, (NOL) carry forwards within the prescribed time periods. In addition, we considered tax planning strategies that would impact the timing and extent of taxable income. The projected performance metrics over the period of NOL recognition indicates that it is more likely than not that Bankshares will have sufficient taxable income to recognize the deferred tax assets as of December 31, 2009. As part of the projected performance analysis, we stressed tested the performance in several different scenarios. In all scenarios, Bankshares generated sufficient taxable income to recognize the deferred tax asset over a reasonable time horizon. Furthermore, the NOL embedded in the deferred tax assets is expected to be fully realized by 2013. Therefore, Bankshares has concluded that a valuation allowance for deferred tax assets is not necessary as of December 31, 2009.

93

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

The components of the net deferred tax assets and liabilities are as follows:

	2009		2008
Deferred tax assets:
Bad debt expense	$	1,911	$	1,955
Deferred rent		25		32
Unrealized loss on available for sale securities		58		—
Depreciation and amortization		11		107
Other real estate owned		1,478		1,137
Net operating loss carryforward		1,625		1,405
Other		111		339
Fair value adjustment		532		1,017
		5,751		5,993
Deferred tax liabilities:
Deferred loan costs, net		116		126
Other		41		228
		157		354
Net deferred tax assets	$	5,594	$	5,638

On November 6, 2009, a new law was enacted that changes the rules and regulations for NOL carrybacks for large corporations (as defined by the Internal Revenue Service (IRS)). The new rules allow for a carryback period of five years. Bankshares has filed the appropriate tax forms seeking a refund of $3.9 million. In early 2010, Bankshares received approximately $3.4 million of the refund the remaining amounts due are related to alternative minimum taxes and we anticipate a full refund of the alternative minimum taxes paid.

Bankshares files income tax returns in the U.S. federal jurisdiction and the state of Virginia. With few exceptions, Bankshares is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2006.

94

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

15.	OPERATING EXPENSES
	The components of other operating expenses for the years ended December 31, were as follows:

	2009		2008		2007
Business development	$	557	$	621	$	704
Office expense		624		772		882
Bank operations expense		339		309		358
Data processing		828		796		723
Professional fees		1,775		1,832		1,748
FDIC insurance		2,239		605		168
Other		1,770		1,459		1,502
Total	$	8,132	$	6,394	$	6,085

16. RELATED PARTY TRANSACTIONS AND LETTERS OF CREDIT

Bankshares grants loans and letters of credit to its executive officers, directors and their affiliated entities. These loans are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons, and, in the opinion of management, do not involve more than normal risk or present other unfavorable features. The aggregate amount of such loans outstanding at December 31, 2009 and 2008 was approximately $2.5 million and $1.9 million, respectively. During 2009, new loans and line of credit advances to such related parties amounted to $1.3 million in the aggregate and payments amounted to $743 thousand in the aggregate.

Bankshares also maintains deposit accounts with some of its executive officers, directors and their affiliated entities. The aggregate amount of these deposit accounts at December 31, 2009 and 2008 amounted to $2.1 million and $2.5 million, respectively.

17. COMMITMENTS AND CONTINGENCIES

As a member of the Federal Reserve System, Bankshares is required to maintain certain average reserve balances. For the final weekly reporting period in the years ended December 31, 2009 and 2008, the aggregate amounts of daily average required balances were $11.2 million and $5.1 million, respectively.

In the normal course of business, there are outstanding various commitments and contingent liabilities, such as guarantees, commitments to extend credit, etc., which are not reflected in the accompanying consolidated financial statements. Bankshares does not anticipate losses as a result of these transactions. See Note 20 with respect to financial instruments with off-balance-sheet risk. Bankshares is obligated under several operating leases, with initial terms of three to ten years, for its office locations and branch sites.

Total rental expense for the occupancy leases for the years ended December 31, 2009, 2008 and 2007 was $2.0 million, $1.5 million, and $1.5 million, respectively. Bankshares also leases office equipment and vehicles pursuant to operating leases with various expiration dates. Total rental expense for office equipment and vehicles for the years ended December 31, 2009, 2008 and 2007 was $105 thousand, $183 thousand and $174 thousand, respectively.

95

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Bankshares leases office space for nine of its branch locations and corporate headquarters location. These non-cancelable agreements, which expire through March 2019, in some instances require payment of certain operating charges. At December 31, 2009, minimum annual rental commitments under these leases (in thousands) are as follows:

2010	$	1,927
2011		1,984
2012		1,902
2013		1,658
2014		1,358
Thereafter		3,609
Total	$	12,438

Bankshares has made a decision to exit the Fredericksburg, Virginia market place and is actively attempting to sublease the facilities under various lease agreements in the Fredericksburg, Virginia market. Bankshares has recorded a liability of $182 thousand as of December 31, 2009 for the present value of the potential differential between the contractual rental obligations and potential subleasing income.

18. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the year ended December 31:

	2009			2008		2007
Supplemental Disclosures of Cash Flow Information:
Interest paid during the year	$	14,357		$	16,082	$	21,097
Income taxes paid during the year	$	—		$	—	$	1,575
Supplemental Disclosures of Noncash Activities:
Fair value adjustment for securities	$	(164	)	$	261	$	3,798
Transfer of loans to foreclosed assets	$	3,602		$	17,706	$	4,901

19. DEPOSITS

The aggregate amount of time deposits in denominations of $100 thousand or more at December 31, 2009 and 2008 was $59.1 million and $36.3 million, respectively. Brokered deposits totaled $137.4 million and $207.5 million at December 31, 2009 and 2008, respectively.

At December 31, 2009, the scheduled maturities of time deposits are as follows:

2010	$	182,205
2011		69,731
2012		5,851
2013		1,547
2014		3,649
Total	$	262,983

Bankshares has made a special effort to obtain deposits from title and mortgage loan closing companies.

96

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

These balances represent a substantial portion of our non-interest bearing deposits, which creates a real estate industry concentration.

Certificates of deposit with a face value of $9.1 million and $23.7 million are carried at fair value of $9.1 million and $24.2 million as of December 31, 2009 and 2008, respectively.

20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

Bankshares, through its banking subsidiary, is party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

Bankshares’ exposure to credit loss is represented by the contractual amount of these commitments. Bankshares follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At December 31, 2009 and 2008, the following financial instruments were outstanding whose contract amounts represent credit risk (in thousands):

	2009		2008
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	44,854	$	44,794
Standby letters of credit		2,630		3,608

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bankshares evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Bankshares, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which Bankshares is committed.

Standby letters of credit are conditional commitments issued by Bankshares to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Bankshares generally holds collateral supporting those commitments if deemed necessary.

97

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

At December 31, 2009, Bankshares had no rate lock commitments to originate mortgage loans and loans held for sale of $2.0 million. It is management’s intent to enter into corresponding commitments, on a best-efforts basis, to sell these loans to third-party investors.

From time to time Bankshares will enter into forward purchase agreements for investment securities. These purchases generally will settle within 90 days of the end of the reporting period. As of December 31, 2009, Bankshares had no forward purchase commitments.

Bankshares maintains cash accounts and Federal funds sold in other commercial banks. The amount on deposit with correspondent institutions, including Federal funds sold at December 31, 2009, exceeded the insurance limits of the Federal Deposit Insurance Corporation by $3.0 million.

21. SIGNIFICANT CONCENTRATIONS

Substantially all of Bankshares’ loans, commitments and standby letters of credit have been granted to customers located in the greater Washington, D.C. Metropolitan region, primarily in the Northern Virginia area. Bankshares’ overall business includes a significant focus on real estate activities, including real estate lending, title companies and real estate settlement businesses. Commercial real estate loans are 42.7% of the total gross loan portfolio as of December 31, 2009 and total real estate loans are 87.3% of the total gross loan portfolio as of December 31, 2009. The impact of this concentration can create more volatility in our funding mix, especially during periods of declines in the real estate market, which can have an impact on organizational profitability.

22. EMPLOYEE BENEFITS

Bankshares has a 401(k) defined contribution plan covering substantially all full-time employees and provides that an employee becomes eligible to participate immediately on employment provided they are age 21 or older. Under the plan, a participant may contribute up to 15% of his or her covered compensation for the year, subject to certain limitations. Bankshares currently matches 50% of the first 2% of employee contributions up to 1%. In 2008 and 2007, Bankshares matched 50% of the first 6% of employee contributions up to 3%. Matching contributions totaled $45 thousand, $115 thousand and $146 thousand, for the years ended December 31, 2009, 2008 and 2007, respectively. Bankshares may also make, but is not required to make, a discretionary contribution for each participant. The amount of contribution, if any, is determined on an annual basis by the Board of Directors. No discretionary contributions were made by Bankshares during the years ended December 31, 2009, 2008 and 2007.

23. REGULATORY MATTERS

Federal and state banking regulations place certain restrictions on cash dividends paid and loans or advances made by the Bank to Bankshares. The total amount of dividends which may be paid at any date is generally limited to a portion of retained earnings as defined. As of December 31, 2009, no funds were available to be transferred from the banking subsidiary to the Parent Company, without prior regulatory approval. As of December 31, 2009, 2008 and 2007, no cash dividends were declared.

As a member of the Federal Reserve Bank system, the Bank is required to subscribe to shares of $100 par value Federal Reserve Bank stock equal to 6% of the Bank’s capital and surplus. The Bank is only required to pay for one-half of the subscription. The remaining amount is subject to call when deemed necessary by the Board of Governors of the Federal Reserve.

98

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

Bankshares (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Bankshares’ financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bankshares and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt correction action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require Bankshares and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2009 and 2008, that Bankshares and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2009, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Bankshares’ and the Bank’s actual capital amounts and ratios as of December 31, 2009 and 2008 are also presented in the table.

99

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

											Minimum
											To Be Well
											Capitalized Under
						Minimum Capital					Prompt Corrective
	Actual					Requirement					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2009:
Total Capital (to Risk Weighted Assets)
Consolidated	$	47,225		11.6	%	$	32,479		8.0	%		N/A		N/A
Alliance Bank Corporation	$	46,463		11.5	%	$	32,408		8.0	%	$	40,510		10.0	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	42,154		10.4	%	$	16,240		4.0	%		N/A		N/A
Alliance Bank Corporation	$	41,392		10.2	%	$	16,204		4.0	%	$	24,306		6.0	%
Tier 1 Capital (to Average Assets)
Consolidated	$	42,154		7.1	%	$	23,874		4.0	%		N/A		N/A
Alliance Bank Corporation	$	41,392		7.0	%	$	23,661		4.0	%	$	29,576		5.0	%
As of December 31, 2008:
Total Capital (to Risk Weighted Assets)
Consolidated	$	46,630		10.9	%	$	34,326		8.0	%		N/A		N/A
Alliance Bank Corporation	$	45,987		10.7	%	$	34,266		8.0	%	$	42,833		10.0	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	41,271		9.6	%	$	17,163		4.0	%		N/A		N/A
Alliance Bank Corporation	$	40,628		9.5	%	$	17,133		4.0	%	$	25,700		6.0	%
Tier 1 Capital (to Average Assets)
Consolidated	$	41,271		7.6	%	$	22,172		4.0	%		N/A		N/A
Alliance Bank Corporation	$	40,628		7.4	%	$	21,906		4.0	%	$	27,382		5.0	%

100

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

24. STOCK OPTION PLAN

Effective June 30, 1999, as amended on May 28, 2003 and June 22, 2005, Bankshares established an incentive and non-qualified stock option plan called Alliance Bankshares Corporation 1999 Stock Option Plan (1999 Plan). The 1999 Plan is administered by the Board of Directors of Bankshares acting upon recommendations made by the Compensation Committee appointed by the Board. The 1999 Plan is currently authorized to grant a maximum of 1,143,675 shares to directors, key employees and consultants. The options are granted at the fair market value of Bankshares common stock at the date of grant. The term of the options shall not exceed ten years from the date of grant. The options vest on a schedule determined by the Compensation Committee based on financial performance criteria.

Effective June 13, 2007, Bankshares established a new incentive stock option plan called Alliance Bankshares Corporation 2007 Incentive Stock Plan (2007 Plan). The 2007 Plan is administered by the Compensation Committee appointed by the Board. The maximum number of shares authorized is 200,000 common shares. The 2007 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and stock awards to employees, non-employee directors and non-employee service providers. The options are granted at the fair market value of Bankshares common stock at the date of grant. The term of the options shall not exceed ten years from the date of grant. The options vest on a schedule determined by the Compensation Committee based on financial performance criteria.

The 1999 Plan and the 2007 Plan are summarized in the following tables.

The fair value of each grant is estimated at the grant date using the Black-Scholes Option-Pricing Model with the following weighted average assumptions:

	December 31,
	2009			2008			2007
Dividend yield		0.00	%		0.00	%		0.00	%
Expected life	5.00 years			5.00 years			6.69 years
Expected volatility		55.86	%		25.27	%		21.92	%
Risk-free interest rate		2.00	%		3.33	%		4.42	%

The expected volatility is based on historical volatility. The risk-free interest rates for the periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on Bankshares’ history and expectation of dividend payouts.

101

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

A summary of the status of Bankshares stock option plan is presented below:

	2009							2008					2007
				Weighted							Weighted					Weighted
				Average		Average					Average					Average
	Number of			Exercise		Intrinsic*		Number of			Exercise		Number of			Exercise
	Shares			Price		Value		Shares			Price		Shares			Price
Outstanding at January 1		898,998		$	9.57				932,667		$	9.80		858,281		$	8.96
Granted		31,000			2.21				9,000			2.99		207,000			11.47
Forfeited		(1,725	)		13.04				(42,669	)		13.12		(36,223	)		14.50
Exercised		—			—				—			—		(96,391	)		4.18
Expired		(241,681	)		3.87				—			—		—			—
Outstanding at December 31		684,005		$	11.27	$	—		898,998		$	9.57		932,667		$	9.80
Exercisable at end of year		515,235		$	11.89	$	—		680,570		$	8.94		650,958		$	8.76
Weighted-average fair value per option of options granted during the year	$	0.89						$	0.87				$	3.99

* The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31, 2009. This amount changes based on changes in the market value of Bankshares’ stock. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.

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\

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

The status of the options outstanding at December 31, 2009 is as follows:

Options Outstanding				Options Exercisable
	Weighted
	Average	Weighted				Weighted
	Remaining	Average				Average
Number	Contractual	Exercise		Number		Exercise
Outstanding	Life	Price		Exercisable		Price
10,350	2 years	$	4.25		10,350	$	4.25
53,389	3 years	$	4.61		53,389	$	4.61
139,581	4 years	$	9.56		139,581	$	9.56
136,275	5 years	$	16.39		136,275	$	16.39
102,235	6 years	$	13.94		102,235	$	13.94
5,175	7 years	$	16.28		3,105	$	16.28
197,000	8 years	$	11.36		68,950	$	11.36
9,000	9 years	$	2.99		1,350	$	2.99
31,000	10 years	$	2.21		—	$	—
684,005	5.9 years	$	11.27		515,235	$	11.89

25.	EARNINGS (LOSS) PER SHARE
	The earnings per share, basic and diluted for the years ended December 31, 2009, 2008 and 2007 were based on average shares of 5,106,819, 5,106,819 and 5,386,187. Average shares of 782,736, 915,558 and 459,240 have been excluded from the earnings (loss) per share calculation for 2009, 2008 and 2007, respectively, because their effects were anti-dilutive.

103

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

26. PARENT ONLY FINANCIAL INFORMATION

ALLIANCE BANKSHARES CORPORATION
(Parent Corporation Only)

Balance Sheets
December 31, 2009 and 2008

	2009			2008
Assets
Cash	$	424		$	301
Investment in subsidiaries		42,372			46,525
Other assets		878			746
Total assets	$	43,674		$	47,572
Liabilities
Trust preferred capital notes	$	10,310		$	10,310
Other liabilities		230			95
Total liabilities	$	10,540		$	10,405
Stockholders’ Equity
Common stock	$	20,427		$	20,427
Capital surplus		25,835			25,364
Retained earnings (deficit)		(13,016	)		(8,620	)
Accumulated other comprehensive (loss), net		(112	)		(4	)
Total stockholders’ equity	$	33,134		$	37,167
Total liabilities and stockholders’ equity	$	43,674		$	47,572

104

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

ALLIANCE BANKSHARES CORPORATION
(Parent Corporation Only)

Statements of Operations
For the Years Ended December 31, 2009, 2008 and 2007

	2009			2008			2007
Interest Income	$	13		$	—		$	—
Expenses
Interest expense	$	415		$	671		$	929
Professional fees		54			51			195
Other expense		76			98			108
Total expense	$	545		$	820		$	1,232
Loss before income tax (benefit) and undistributed (loss) of subsidiaries	$	(532	)	$	(820	)	$	(1,232	)
Income tax (benefit)		(181	)		(278	)		(419	)
Loss before undistributed (loss) of subsidiaries	$	(351	)	$	(542	)	$	(813	)
Undistributed (loss) of subsidiaries		(4,045	)		(8,478	)		(2,031	)
Net (loss)	$	(4,396	)	$	(9,020	)	$	(2,844	)

105

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

ALLIANCE BANKSHARES CORPORATION
(Parent Corporation Only)

Statements of Cash Flows
For the Years Ended December 31, 2009, 2008 and 2007

	2008			2008			2007
Cash Flows from Operating Activities
Net (loss)	$	(3,725	)	$	(9,461	)	$	(3,543	)
Net income (loss) from discontinued operations		(671	)		441			699
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Undistributed (income) loss of subsidiaries		4,045			8,478			2,031
Stock-based compensation expense		471			282			282
Increase in other assets		(132	)		(15	)		(132	)
Increase in accrued expenses		135			7			498
Net cash provided by (used in) operating activities		123			(268	)		(165	)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock		—			—			588
Common stock repurchased		—			—			(6,693	)
Net cash (used in) financing activities		—			—			(6,105	)
Cash and Cash Equivalents
Net increase (decrease) in Cash and Cash Equivalents		123			(268	)		(6,270	)
Beginning of Year		301			569			6,839
End of Year	$	424		$	301		$	569

106

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

27. SEGMENT REPORTING

On December 29, 2009, Bankshares sold AIA, thus discontinuing our insurance agency segment. Thus Bankshares had no reportable segments compared to multiple reportable segments in 2008 and 2007.

Revenues from commercial banking operations consist primarily of interest earned on loans, investment securities, trading account assets and fees from deposit services. Mortgage banking operating revenues consist principally of interest earned on mortgage loans held for sale, gains on sales of loans in the secondary mortgage market and loan origination fee income. Insurance agency revenues consist of property and casualty commissions, contingency commissions and employee benefits commissions.

The commercial banking segment provides the mortgage banking segment with the short term funds needed to originate mortgage loans through a warehouse line of credit and charges the mortgage banking segment interest based on a premium over its cost to borrow funds. These transactions were eliminated in the consolidation process in 2007.

On December 27, 2006, Bankshares announced it would no longer offer mortgage banking operations via AHF mortgage banking unit. Alliance Bank Mortgage Division (ABMD) was created as a small team of bankers servicing clients and some additional third party business within the Bank. As the business of AHF winds down the volume of loans originated was reduced. Management made the strategic decision to incorporate mortgage activities into the bank’s overall loan department. The 2009 and 2008 results are included in the Bank results as this is a small component of the overall bank results.

The following table present segment information for the year ended December 31, 2007:

107

Alliance Bankshares Corporation
Notes To Consolidated Financial Statements

	2007
	Commercial			Mortgage						Consolidated
	Banking			Banking			Eliminations			Totals
Revenues:
Interest income	$	38,330		$	441		$	(419	)	$	38,352
Gain on sale of loans		—			1,059			—			1,059
Insurance commissions		—			—			—
Net loss on trading activities		(2,672	)		—			—			(2,672	)
Other		524			—			—			524
Total operating income		36,182			1,500			(419	)		37,263
Expenses:
Interest expense		20,880			419			(419	)		20,880
Provision for loan loss		5,824			—			—			5,824
Salaries and employee benefits		6,489			737			—			7,226
Other		8,435			469			—			8,904
Total operating expenses		41,628			1,625			(419	)		42,834
Income (loss) before income taxes	$	(5,446	)	$	(125	)	$	—		$	(5,571	)
Total assets	$	541,198		$	2,621		$	(4,514	)	$	539,305
Capital expenditures	$	546		$	—		$	—		$	546

28. SUBSEQUENT EVENTS

Bankshares evaluated subsequent events that occurred after the balance sheet date, but before the financial statements are issued. There are two types of subsequent events (1) recognized, or those that provide additional evidence about conditions that existed at the date of the balance sheet, including estimates inherent in the process of preparing financial statements, and (2) nonrecognized, or those that provided evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

On January 28, 2010, the Board of Directors named a new Interim President and Chief Executive Officer. On May 4, 2010, the Board of Directors named the Interim President and Chief Executive Officer to the permanent position of President and Chief Executive Officer. The Bank is responsible for the remaining portion of the prior President and Chief Executive Officer’s employment contract. It is anticipated that the Bank will owe the prior President and Chief Executive Officer compensation of approximately $364 thousand or 15 months of compensation.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

     Disclosure Controls and Procedures. Bankshares has disclosure controls and procedures to ensure that the information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and regulations, and that such information is accumulated and communicated to Bankshares’ management, including Bankshares’ Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Bankshares’ management evaluated, with the participation of its Chief Executive Officer and the Chief Financial Officer, the effectiveness of Bankshares’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that Bankshares’ disclosure controls and procedures were not effective as of December 31, 2009 solely because Bankshares did not file this Annual Report on Form 10-K on a timely basis as a result of requiring additional time to research and complete certain disclosures contained in this Annual Report.

     Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that Bankshares’ disclosure controls and procedures will detect or uncover every situation involving the failure of persons within Bankshares or its subsidiary to disclose material information required to be set forth in Bankshares’ periodic reports.

     Management’s Report on Internal Control over Financial Reporting. Bankshares’ management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

     Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of Bankshares’ internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, management believes that, as of December 31, 2009, Bankshares’ internal control over financial reporting was effective based on those criteria.

     This annual report does not include an attestation report of Bankshares’ registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by Bankshares’ registered public accounting firm pursuant to temporary rules of the SEC that permit Bankshares to provide only management’s report in this annual report.

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     Changes in Internal Controls. There were no changes in Bankshares’ internal control over financial reporting during Bankshares’ quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, Bankshares’ internal control over financial reporting.

Item 9B. Other Information

     None.

PART III.

     For purposes of this Part III, unless the context indicates otherwise, references to “we,” “us”, “our” and “Alliance” refer to Bankshares and Alliance Bank Corporation (the Bank) collectively, and references to the “Board of Directors” or “Board” refer to the Board of Directors of Bankshares.

Item 10. Directors, Executive Officers and Corporate Governance

Information About Directors

     The table below shows the current members of the Board of Directors of Bankshares, their ages as of May 15, 2010, the year they first became a director and their business experience during the past five years. In addition, the table below also shows the specific experience, qualifications, attributes and skills that led the Board of Directors of Bankshares to conclude that each person should serve as a director of Bankshares.

	Director		Principal Occupation
Name (Age)	Since(1)		During Past Five Years
Oliver T. Carr, III (45)		2007	Mr. Carr has served as President and CEO of Carr Properties, which is the operating group owned by the Commingled Pension Trust Fund of JPMorgan Chase Bank, N.A. since 2007. Carr Properties manages 3.6 million net rental square feet of commercial office properties in the metropolitan Washington, D.C. area. Mr. Carr was also the founder, President and CEO of Columbia Equity Trust, a publicly traded REIT, and served as Chairman of the Board from 2005 to 2007. Mr. Carr has a long history of community service in the Washington, D.C. area. He holds a Masters degree in Real Estate Development from MIT and a Bachelors degree from Trinity College and resides in Potomac, Maryland. He serves on the nominating committee. Mr. Carr serves as a Class B director, with a term expiring at the 2010 Annual Meeting of Shareholders. As a result of Mr. Carr’s extensive real estate and business experience, Mr. Carr provides the Board of Directors with invaluable insights on local business and commercial property trends. Mr. Carr also leverages his management experience to enhance the Board’s decision-making and oversight processes.
William E. Doyle, Jr. (56)		2010	Mr. Doyle became the President and Chief Executive Officer of Bankshares and the Bank in May 2010, after serving as Interim President and

110

	Director		Principal Occupation
Name (Age)	Since(1)		During Past Five Years
			Chief Executive Officer of Bankshares and the Bank since January 2010. Mr. Doyle served as President, Chief Executive Officer and an organizing director of Monument Financial Services, LLC from 2008 through 2009, where he led an organizing group in efforts to form a new community bank in the Richmond, Virginia area. Mr. Doyle also served as President, Chief Executive Officer and an organizing director of Frontier Community Bank (In Organization) in Augusta County, Virginia during 2006 and 2007, as Interim President, Chief Executive Officer and as a director of Citizens Bancorp of Virginia, Inc. in 2004 and 2005, and as President, Chief Executive Officer and Director of Guaranty Financial Corporation and Guaranty Bank from 2001 to 2004. Prior to 2001, Mr. Doyle served as Senior Vice President of Retail Banking and Mortgage Banking of the Middleburg Bank and as Corporate Senior Vice President and Director of Marketing of the Consumer Finance Group of Crestar Bank. Mr. Doyle has served on the boards of directors of the Virginia Bankers Association Management Services Corporation, the Virginia Bankers Association Benefits Corporation and Bankers Insurance LLC. Mr. Doyle holds a Masters degree in Business Administration from Duke University and earned a Bachelor of Science in Business Administration degree from Old Dominion University. Mr. Doyle serves as a Class B director, with a term expiring at the 2010 Annual Meeting of Shareholders. Drawing from his extensive banking and bank organization experience, Mr. Doyle brings comprehensive knowledge of banking operations and the regulation of depositary institutions to the Board of Directors. Mr. Doyle also contributes his significant corporate governance experience which he has developed serving both banking and nonprofit organizations.
William M. Drohan (54)		1997	Mr. Drohan is a resident of Great Falls, Virginia, and is the President of the Drohan Management Group, an association management and consulting firm. In April 2009, Mr. Drohan was appointed Chairman of the Board of Directors. In addition, he chairs the ALCO committee and serves on the audit and nominating committees. Mr. Drohan formerly served as Executive Director of the National Association of State

111

	Director		Principal Occupation
Name (Age)	Since(1)		During Past Five Years
			Credit Union Supervisors. He also serves on the board of directors of the Consultants Section of American Society of Association Executives and formerly served on the Board of Advisors to the George Washington University School of Business Mr. Drohan holds BS and MBA degrees. Mr. Drohan serves as a Class B director, with a term expiring at the 2010 Annual Meeting of Shareholders. Mr. Drohan has an extensive understanding of the financial services industry and provides the Board of Directors key insights for assessing and managing risks and formulating corporate strategy. Mr. Drohan’s consulting experience offers the Board unique and valuable analytical and problem-solving techniques.
Donald W. Fisher, PhD (64)		2009	Dr. Fisher has served as the President and Chief Executive Officer of the American Medical Group Association (AMGA) since October 1980. Dr. Fisher also serves as Chairman of the Board of AMGA’s subsidiary Anceta, LLC. Dr. Fisher’s other AMGA-related offices include Secretary/Treasurer of the American Medical Group Foundation, Treasurer of the American Medical Group Association Political Action Committee, and President and Chief Executive Officer of the American Medical Group Corporation. Prior to joining the AMGA, Dr. Fisher served as the Executive Director of the American Academy of Physician Assistants in Alexandria, Virginia. Dr. Fisher serves on the Boards of Directors for the Disease Management Association of America, the Council of Accountable Physician Practices and the American International Health Alliance. Dr. Fisher earned a BS degree from Millsaps College, MS and PhD degrees from the University of Mississippi School of Medicine, and completed the Group Practice Executive Manager’s Institute at the Wharton School of Business. Dr. Fisher resides in Alexandria, Virginia. Dr. Fisher serves as a Class A Director with a term expiring at the 2012 Annual Meeting of Shareholders. Through over 30 years of experience with AMGA, Dr. Fisher has developed extensive executive management knowledge that provides the Board of Directors with a unique perspective on corporate governance and corporate strategy.

112

	Director		Principal Occupation
Name (Age)	Since(1)		During Past Five Years
Lawrence N. Grant, CLUR, CPCU (70)		1996	Mr. Grant founded the Independent Insurance Center, Inc., which writes property and casualty, bonding, life and health coverage for commercial and personal clients, specializing in contractors, restaurants, auto services, and high tech companies, with offices in Leesburg and Winchester, Virginia. Mr. Grant is also President of Fire Mark Insurance Associates, Inc. and is the Vice-President of Associated Risk Managers of Virginia, Inc. Mr. Grant resides in Leesburg, Virginia. Mr. Grant serves as a Class C director, with a term expiring at the 2011 Annual Meeting of Shareholders. Mr. Grant has developed extensive risk assessment and risk management expertise that contributes a vital perspective to the Board’s oversight and risk management processes. Mr. Grant has served on the Board of Directors for 14 years and possesses a strong understanding of Bankshares’ history, business, organization and challenges in the current economic environment.
Serina Moy (53)		1997	Ms. Moy is a resident of Silver Spring, Maryland and is a principal in Moy, Cheung & Company, a local accounting firm. She became an NTPI Master in Taxation in 2002. Ms. Moy is the chairperson of the audit committee. She also serves on the compensation and nominating committees. She has been determined to be the Board of Directors’ audit committee financial expert. She is a member of an IRS Focus Group working on improving IRS programs and services, a member of the advisory council to the SBA, a member of the AICPA and NAEA Task Force and was an advisor to the Federal Government Single Web Site on the Internet. Ms. Moy serves as advisory counsel for a number of Chinese trade and non-profit organizations in the United States. Ms. Moy serves as a Class C director, with a term expiring at the 2011 Annual Meeting of Shareholders. Ms. Moy brings to the Board of Directors broad experience and expertise in accounting and auditing matters. Through her experience with IRS programs, Ms. Moy has also developed specialized tax knowledge that serves a critical role in the Board’s financial decision making process.
George S. Webb (68)		1997	Mr. Webb is a resident of Fairfax, Virginia and is the managing member of Airston East, a home building a real estate development company

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	Director		Principal Occupation
Name (Age)	Since(1)		During Past Five Years
			based in Easton, Maryland. Mr. Webb also is the former owner and former President of the Airston Group, a home building company dedicated to construction of quality homes and personal attention to their homeowners in Fairfax and Prince William Counties and the City of Alexandria. He chairs the loan committee and serves on the compensation and nominating committees. The Airston Group, which Mr. Webb started in 1976, has won several awards for quality, design and innovation. Mr. Webb is very active in Northern Virginia real estate and is a member of the Northern Virginia Building Association and the National Association of Home Builders. Mr. Webb serves as a Class B director, with a term expiring at the 2010 Annual Meeting of Shareholders. Through his leadership of the Airston Group, Mr. Webb has developed extensive knowledge of development and financing activities in the Northern Virginia real estate market, a market of critical importance to Bankshares. Mr. Webb also contributes extensive relationships and contacts in the real estate business in Bankshares’ principal market areas.
Robert G. Weyers (75)		1996	Mr. Weyers is the former owner and former President of KBR Corporation, a commercial and industrial renovation company doing business in the Washington, D.C. metropolitan area, which he sold in 2003. He chairs the compensation committee and serves on the nominating and audit committees. Mr. Weyers resides in Fairfax Station, Virginia. Mr. Weyers serves as a Class A director, with a term expiring at the 2012 Annual Meeting of Shareholders. Through managing KBR Corporation, Mr. Weyers has developed extensive executive management and entrepreneurial experience that contributes to the Board’s strategic business analysis and decision-making.

⁽¹⁾ Dates prior to 2003 refer to the year in which the director was first elected to the Board of Directors of Alliance Bank Corporation (a predecessor corporation to Bankshares).

114

Information About Executive Officers

     Information regarding Mr. Doyle, President and Chief Executive Officer is presented in the table above. The table below shows the other current executive officers of Bankshares, their ages as of May 15, 2010, and their business experience during the past five years.

     Paul M. Harbolick, Jr., CPA (50), is the Executive Vice President and Chief Financial Officer. Mr. Harbolick has 28 years of financial management experience. He served as Senior Vice President and Chief Financial Officer of Alliance Bank Corporation from October 1999, and of Alliance Bankshares Corporation since it was formed in May 2003, until September 2003, when he became Executive Vice President and Chief Financial Officer of both companies. He served as an Accounting Manager for Freddie Mac from March 1997 to October 1999. He was a Vice President with George Mason Bank from 1995 to 1997. Mr. Harbolick currently serves on the Board of Directors of INOVA Health System and on various committees of INOVA Health System.

     Frank H. Grace, III (51), is an Executive Vice President. He oversees the Private Client Services offered by Alliance Bank Corporation. Mr. Grace joined Alliance Bank Corporation in December 1999 to oversee the bank’s wealth management program. He has served as Senior Vice President of Alliance Bank Corporation from December 1999 and of Alliance Bankshares Corporation since it was formed in May 2003 until his promotion in 2007. He was appointed President of Alliance Home Funding in February 2005 and served in that role until December 2006, when the operations of the company were restructured. Mr. Grace has over 30 years of banking experience. Prior to joining Alliance, he spent 15 years with Wachovia Corporation and its predecessor organizations as a Vice President and Principal working in wealth management, cash management and retail programs. Mr. Grace is licensed under a Series 24, 63, 66 and 7 arrangement to offer securities and brokerage advice to customers under a dual employment agreement with Linsco Private Ledger. He serves as a trustee of the Fairfax County Uniformed Retirement Board. In addition, he is active in a number of civic and nonprofit organizations.

     Craig W. Sacknoff (60) is an Executive Vice President in charge of Residential Real Estate Finance. He has worked for Alliance Bank Corporation since July 1998. He became a Senior Vice President of Alliance Bank Corporation when it opened in November 1998 and of Alliance Bankshares Corporation when it was formed in May 2003 and served in that capacity until his promotion in 2007. Mr. Sacknoff served as Vice President/Commercial Lending of Patriot National Bank from 1991 to 1998. Mr. Sacknoff has over 38 years of experience in banking including commercial, real estate, construction, mortgage and retail positions.

     John B. McKenney, III (56), is a Senior Vice President and Chief Credit Officer. He joined Alliance Bank Corporation in February 2004. Prior to joining Alliance Bankshares Corporation, Mr. McKenney served as Executive Vice President and officer in charge of the Specialized Corporate Banking Division at Signet Bank in Virginia. Mr. McKenney also served as President and CEO of Signet Bank for the Washington, D.C. regional area. In addition, he is active in a number of nonprofit organizations and serves as an advisory board member. Mr. McKenney has over 30 years of corporate banking experience.

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Legal Proceedings and Family Relationships

     The Board of Directors is not aware of any involvement in legal proceedings that would be material to an evaluation of the ability or integrity of any director or executive officer. The Board of Directors is not aware of any family relationship between any director or executive officer.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Exchange Act requires directors, executive officers, and any 10% or greater beneficial owners of Bankshares’ common stock to file reports concerning their ownership of and transactions in Bankshares’ common stock. Based on a review of the reports of changes in beneficial ownership of common stock and written representations made to Bankshares, Bankshares believes that its directors and executive officers complied with all filing requirements under Section 16(a) of the Exchange Act with respect to 2009, with the following exceptions: Dr. Fisher filed his Form 3 relating to his appointment to Bankshares’ Board of Directors late; Mr. Grace reported one transaction late on a Form 5; Mr. Webb filed two late Forms 4 reporting three transactions late; and Mr. Young, Bankshares’ former President and Chief Executive Officer, filed one late Form 4 during the year to report two transactions late.

Code of Ethics

     Bankshares has adopted a Code of Ethics (Code) that applies to its directors, executives and employees including the principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. This Code is posted on the homepage of our Internet website at http://www.alliancebankva.com under “Code of Ethics.” We will provide a copy of the Code to any person without charge upon written request to Alliance Bankshares Corporation, c/o Corporate Secretary, 14200 Park Meadow Drive, Suite 200S, Chantilly, Virginia 20151. We intend to provide any required disclosure of any amendment to or waiver from the Code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on http://www.alliancebankva.com under “Code of Ethics” promptly following the amendment or waiver. We may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our Internet website is not incorporated by reference in this report and should not be considered part of this or any other report that we file or furnish to the SEC.

Audit Committee

     Bankshares has a separately designated standing Audit Committee established in accordance with the rules and regulations promulgated under the Exchange Act. Current members of the Audit Committee are Messrs. Drohan and Weyers and Ms. Moy. The Board of Directors has determined that all of the members of the Audit Committee satisfy the independence and financial literacy requirements for audit committee members under the NASDAQ Stock Market (“Nasdaq”) listing standards and applicable SEC regulations. In addition, at least one member of the Audit Committee has past employment experience in

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finance or accounting or comparable experience which results in the individual’s financial sophistication. The Board of Directors has also determined that Ms. Moy, chairperson of the Audit Committee, qualifies as an “audit committee financial expert” within the meaning of applicable regulations of the SEC, promulgated pursuant to the Sarbanes-Oxley Act of 2002.

Item 11. Executive Compensation

EXECUTIVE COMPENSATION

     In this discussion, we give an overview and analysis of our compensation program and policies. Included in this discussion are certain tables containing specific information about the compensation earned or paid in 2008 and 2009 to the following named executive officers: (i) the individual who served as Chief Executive Officer of Bankshares during 2009, (ii) the individual who served as Chief Financial Officer during 2009, (iii) the next three most highly compensated executive officers of Bankshares who received total compensation of $100,000 or more during the fiscal year ended December 31, 2009, and (iv) one former executive officer who would have been included in (iii) if he had been employed by Bankshares at the end of the fiscal year.

     During 2009, Thomas A. Young, Jr. served as President and Chief Executive Officer of Bankshares, and references in the following discussion to actions of the Chief Executive Officer during 2009 were performed by Mr. Young. Mr. Young ceased to serve as President and Chief Executive Officer effective January 29, 2010. Mr. Doyle became Interim President and Chief Executive Officer effective January 28, 2010, and President and Chief Executive Officer of Bankshares and the Bank effective May 4, 2010.

Compensation Objectives

     The primary objective of the Compensation Committee of the Board of Directors with respect to executive compensation is to evaluate and reward senior executives for performance consistent with improving long-term shareholder value. The committee evaluates each executive’s individual performance along with his contribution to the overall organization. The CEO provides specific information to the committee relative to the performance of the other members of the senior management team. The core compensation philosophy maintained by the committee and the full Board of Directors is a reward system for achievement. Executives that achieve individual goals are eligible for certain financial rewards. Corporate achievement of organizational goals such as profitability, growth and market expansion warrant additional rewards.

     In setting compensation, the Compensation Committee reviews performance metrics (ROE, ROA, stock price, growth and other relevant financial metrics) and compensation practices (base salary, bonus, stock options, perquisites and employment agreements) of local community banking organizations in Virginia and Maryland. The Compensation Committee considers the information gathered during its committee meetings.

     In light of Alliance’s organizational growth and maturity, the Compensation Committee decided to recommend beginning in 2007 that cash incentive compensation have a more formal

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link to performance. As a result, for 2008 and 2009 each senior executive had a portion of his cash incentive compensation tied directly to corporate performance.

Compensation Components and Committee Process

     The key components of our executive compensation program consist of base salary, annual cash bonus program, stock option awards, perquisites and employee benefits.

     The Compensation Committee recommends the level of compensation for each executive officer of Bankshares, the Bank and, until it was sold on December 29, 2009, Alliance Insurance Agency, Inc. (Alliance Insurance), the granting of stock options, employment agreements and other remuneration plans for approval by the Board of Directors. The Compensation Committee is supported by members of management (Human Resources Director, Chief Financial Officer and Chief Executive Officer). These executive officers provide supporting information requested by the Compensation Committee. The Chief Executive Officer regularly attends the Compensation Committee meetings as an invited attendee. The Chief Executive Officer is always excused from the Compensation Committee meetings when his compensation or employment is discussed.

Base Salary

     The Compensation Committee believes that base salary for senior executive officers should be targeted at market competitive levels. Base salaries are reviewed annually and adjusted from time to time, based on our review of market data and assessment of Bankshares and individual senior executive performance. In light of Bankshares’ performance and the difficult conditions in the financial services industry during 2009, the Compensation Committee determined not award any raises to the executive officers for 2009 or 2010. The base salaries of the current named executive officers during 2008, 2009 and continuing in 2010 are as follows: Mr. Harbolick $190,800, Mr. Grace $195,517, Mr. Sacknoff $172,963 and Mr. McKenney $139,120. During 2008 and 2009, Mr. Young’s base salary was $291,500 and Mr. Danaher’s was $192,975.

Annual Cash Bonus Program

     The goal of the annual cash program in 2009 was to align annual cash bonus incentives with organizational performance. The 2009 annual cash bonus program had three key factors for each senior executive. The primary factor that affected the annual cash bonus awards for all senior executives was formal corporate performance. The core factor measures return on equity (ROE) of Bankshares. The executives were eligible for the performance portion of the annual cash incentive based on a sliding scale of ROE results. A second portion of the annual cash bonus program was based on individual performance. The senior executives were measured on achievement of non financial, individual and department goals. Each senior executive’s annual cash bonus was affected by the two factors listed above. In addition, certain senior executives have individual production based incentive factors. In 2009, Bankshares’ performance was impacted by the economy, business cycle, credit losses, OREO impacts, deposit declines and the

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negative impacts of fair value accounting. Mr. Grace received a cash bonus of $10,000 for his contributions to the sales management efforts but no other cash bonuses were awarded to senior executives for the 2009 performance period.

Perquisites

     The Compensation Committee and the Board of Directors believe that reasonable perquisites are necessary to attract and retain talented executives. These perquisites include use of a company-provided automobile or a car allowance, dining club dues, country club dues and supplemental insurance as dictated by the employment agreements.

General Employee Benefits

     Bankshares offers competitive health, dental, disability and life insurance for all employees. The senior executives are eligible to participate in all of the above programs. In addition, the senior executives are eligible to receive matching 401(k) plan contributions on the same basis as other employees.

Summary Compensation Table for 2009 ⁽¹⁾

      The following table sets forth the compensation paid to or earned by Bankshares’ named executive officers for 2009 and 2008.

Name and							Option		All Other
Principal Position	Year		Salary		Bonus(2)		Awards(3)		Compensation			Total
			($)		($)		($)		($)			($)
Paul M. Harbolick, Jr. Executive
Vice President and CFO		2009	$	190,800	$	—	$	—	$	11,022	(4)	$	201,822
		2008	$	193,232	$	—	$	—	$	14,547		$	207,779
Frank H. Grace, III
Executive Vice President		2009	$	195,517	$	10,000	$	—	$	20,428	(5)	$	225,945
		2008	$	201,189	$	—	$	—	$	27,464		$	228,653
Craig W. Sacknoff
Executive Vice President		2009	$	172,963	$	—	$	—	$	10,904	(6)	$	183,867
		2008	$	172,357	$	—	$	—	$	14,117		$	186,474
John B. McKenney, III
Senior Vice President and CCO		2009	$	139,120	$	—	$	—	$	—	(7)	$	139,120
		2008	$	140,819	$	—	$	—	$	—		$	140,819
Former Officers
Thomas A. Young, Jr. (8)
Former President and CEO		2009	$	291,500	$	—	$	—	$	26,589	(9)	$	318,089
		2008	$	298,116	$	—	$	—	$	24,256		$	322,372

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Name and							Option		All Other
Principal Position	Year		Salary		Bonus(2)		Awards(3)		Compensation			Total
			($)		($)		($)		($)			($)
Thomas Patrick Danaher (10)
Former President, Alliance Insurance Agency, Inc.		2009	$	192,975	$	—	$	—	$	302,180		$	495,155
		2008	$	192,742	$	—	$	—	$	14,789	(9)	$	207,531

(1)	Bankshares’ named executive officers are not eligible for non-equity incentive compensation, pension plan benefits or deferred compensation. As a result, there is no reported compensation for Non-Equity Incentive Plan Compensation or Nonqualified Deferred Compensation Earnings.
(2)	Reflects amounts earned under the Annual Cash Bonus Plan.
(3)	No options were granted to any of the named executive officers during 2008 or 2009.
(4)	Represents $4,471 in automobile expenses(12), $5,964 in club dues and $587 in 401(k) matching contributions.
(5)	Represents $20,220 in club dues and $208 in supplemental insurance cost related to Mr. Grace’s golf club membership.
(6)	Represents $9,063 in automobile expenses (12) and $1,841 in 401(k) matching contributions.
(7)	Mr. McKenney did not receive any perquisites in 2008 or 2009.
(8)	Mr. Young ceased to serve as President and Chief Executive Officer of Bankshares and the Bank effective January 29, 2010.
(9)	Represents $19,233 in automobile expenses(12), $2,520 in club dues, $3,108 in supplemental insurance costs and $1,728 in 401(k) matching contributions.
(10)	On December 29, 2009, Mr. Danaher and another investor purchased all of the issued and outstanding shares of Alliance Insurance from the Bank. As a result, Mr. Danaher ceased to serve as an executive officer of Bankshares effective December 29, 2009.
(11)	Represents $10,787 in automobile expenses (12) , $1,930 in 401(k) matching contributions and a closing credit in the amount of $289,463 that Mr. Danaher received in connection with the purchase of Alliance Insurance and the release of any amounts otherwise due under the change of control provisions of his employment agreement.
(12)	Automobile expenses reflect either the amount of the automobile allowance provided to the named executive officer or the aggregate incremental cost to Bankshares of providing an automobile to the named executive officer. The aggregate incremental cost to Bankshares of a named executive officer’s use of a company-provided automobile was determined based upon the vehicle’s lease cost.

Stock Option Awards

     The Compensation Committee, the Board of Directors and senior management believe aligning the long term interests of key employees, directors and senior management with shareholders is a key ingredient in the formula for organizational success. Over the years the Board of Directors and/or the Compensation Committee have granted stock option awards under the 1999 Stock Option Plan and the 2007 Incentive Stock Plan to align the long-term interests of key employees, directors and senior management with shareholders. The Compensation

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Committee has also delegated to the President and CEO authority to issue stock option awards to non-senior manager employees of Bankshares to align their respective interests with shareholders. The CEO may grant options to employees as necessary to recruit potential employees or to retain existing employees. Although the CEO has authority to grant the options as necessary, grants of more than 10,000 options are reviewed with the Compensation Committee prior to the grant issuance.

     Stock option awards have traditionally been granted to employees with terms of ten years and a vesting schedule of four years. The typical vesting schedule is 15% vesting after the first year, 20% vesting after the second year, 25% vesting after the third year and the final 40% vesting after the fourth year. Stock option awards are granted at fair market value on the date of grant, which has been determined by the Compensation Committee as the closing market price on the date of grant. With the exception of option awards granted to new hires and any stock options granted to non-senior manager employees by the CEO, stock option grants by the Compensation Committee have traditionally been made at the committee’s periodic meetings. The committee’s schedule is determined in advance, and the proximity of any equity awards to the release of earnings announcements or other material news events is coincidental.

Outstanding Equity Awards at 2009 Fiscal Year-End

     The following table provides information with respect to outstanding option awards held by the named executive officers at December 31, 2009. Bankshares has not issued any restricted stock.

	Option Awards
	Number of		Number of
	Securities		Securities
	Underlying		Underlying
	Unexercised		Unexercised		Option		Option
	Options		Options		Exercise		Expiration
Name	Exercisable (#)		Unexercisable (#)		Price ($)		Date(1)
Paul M. Harbolick, Jr.		10,350		—	$	4.25		3/29/2011
		8,625		—	$	4.64		6/26/2012
		17,250		—	$	9.66		5/28/2013
		2,588		—	$	6.48		1/31/2013
		27,600		—	$	16.49		1/2/2014
		9,200		—	$	14.00		12/30/2015
		2,450		4,550	$	15.38		3/26/2017
		4,375		8,125	$	9.80		9/26/2017
Frank H. Grace, III		17,250		—	$	9.66		5/28/2013
		3,450		—	$	13.16		8/29/2013
		21,275		—	$	16.49		1/2/2014
		4,600		—	$	14.00		12/30/2015
		2,450		4,550	$	15.38		3/26/2017
		4,375		8,125	$	9.80		9/26/2017
Craig W. Sacknoff		8,625		—	$	4.64		6/26/2012
		17,250		—	$	9.66		5/28/2013

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	Option Awards
	Number of		Number of
	Securities		Securities
	Underlying		Underlying
	Unexercised		Unexercised		Option		Option
	Options		Options		Exercise		Expiration
Name	Exercisable (#)		Unexercisable (#)		Price ($)		Date(1)
		2,588		—	$	6.48		1/31/2013
		21,275		—	$	16.49		1/2/2014
		4,600		—	$	14.00		12/30/2015
		2,450		4,550	$	15.38		3/26/2017
		4,375		8,125	$	9.80		9/26/2017
John B. McKenney, III		11,500		—	$	16.13		2/24/2014
		5,750		—	$	13.07		1/4/2015
		7,475		—	$	14.00		12/30/2015
		2,450		4,550	$	15.38		3/26/2017
		4,375		8,125	$	9.80		9/26/2017
Former Officers
Thomas A. Young, Jr. (2)		17,250		—	$	4.64		6/26/2012
		34,500		—	$	9.66		5/28/2013
		5,175		—	$	6.48		1/31/2013
		41,400		—	$	16.49		1/2/2014
		13,800		—	$	14.00		12/30/2015
		3,500		6,500	$	15.38		3/26/2017
		8,750		16,250	$	9.80		9/26/2017
Thomas Patrick Danaher (3)		2,450		4,550	$	15.38		3/26/2017
		4,375		8,125	$	9.80		9/26/2017

(1)	Each of these options expires ten years after the date of grant. The unexercisable options vest on a four year schedule from the date of grant, 15% vesting after first year, 20% after the second year, 25% after the third year and the remaining 40% after the fourth year.
(2)	All of Mr. Young’s unexercised options terminated three months after January 29, 2010.
(3)	All of Mr. Danaher’s unexercised options terminated three months after December 29, 2009.

Employment and Change of Control Agreements

     We have entered into employment agreements with each of the named executive officers. We believe employment agreements, including providing for reasonable severance in the event a named executive officer’s employment is terminated by us without cause, are necessary to allow us to be competitive in recruiting and retaining talented executive officers in our industry. In addition, we believe employment agreements with the named executive officers are appropriate because they clarify the terms of the executives’ employment and ensure that Bankshares and its subsidiaries are protected by non-compete, non-solicitation and non-disclosure provisions in the event the executives leave the organization.

     Our senior management has contributed significantly to our organization, and we believe that it is important to protect them in the event of a change of control. Further, it is Bankshares’ belief that the interests of shareholders will be best served if the interests of senior executives are aligned with the interests of shareholders, and providing change of control benefits should eliminate or substantially reduce any reluctance on the part of executive officers,

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because of the risk of losing their employment, to pursue potential change of control transactions that may be in the best interests of shareholders. Such arrangements also should keep executive officers focused on operating the business during any period of uncertainty associated with transaction that would result in a change of control. Each of the employment agreements for the named executive officers contains change of control provisions. Unlike the accelerated vesting of equity awards under the 1999 Stock Option Plan and the 2007 Incentive Stock Plan, these change of control benefits have a “double trigger,” which means that the benefits under these provisions are payable only if employment is terminated after consummation of a transaction that constitutes a change of control.

     Paul M. Harbolick, Jr., Executive Vice President & CFO of Bankshares and the Bank, is employed under an amended and restated employment agreement with the Bank, originally effective March 1, 2003, and currently in effect until March 1, 2011. The agreement provides for an automatic one-year renewal each March 1 subject to a requirement of 60 days’ prior notice in the event of nonrenewal by either party. The agreement provides for an initial annual base salary with an opportunity for base salary increases and bonuses at the discretion of the Board of Directors. Mr. Harbolick’s current annual base salary is $190,800. Mr. Harbolick is eligible for the usual and customary employee benefits from the company including life and disability insurance. In addition, the agreement provides that the company will provide a country club allowance of up to $457 per month (as subsequently increased by the Board), and will provide an automobile allowance of $350 per month. If Mr. Harbolick’s employment is terminated by the company other than for cause (as defined in the agreement) or is terminated by Mr. Harbolick for good reason (as defined in the agreement), Mr. Harbolick will be entitled to continue receiving his then current base salary for the greater of the remainder of his contract term or twelve months. If within one year after a change of control (as defined in the agreement), Mr. Harbolick’s employment is terminated by the company other than for cause or is terminated by Mr. Harbolick for good reason, Mr. Harbolick will receive an amount equal to two years’ compensation (defined as annual base salary plus the average of his last three years’ bonuses) payable in equal monthly installments over twenty-four months. Additionally, Mr. Harbolick is subject to non-disclosure commitments and to non-compete commitments within a defined geographic area and non-solicitation commitments for a period of twelve months following termination of his employment. If Mr. Harbolick dies while employed, the company will pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurs. No other termination events result in termination payments under the agreement.

     Frank H. Grace, III, Executive Vice President of the Bank, is employed under an amended and restated employment agreement, originally effective January 13, 2004, and currently in effect until March 1, 2011. The agreement provides for an automatic one-year renewal each March 1 subject to a requirement of 60 days’ prior notice in the event of nonrenewal by either party. The agreement provides for an initial annual base salary with an opportunity for base salary increases and bonuses at the discretion of the Board of Directors. Mr. Grace’s current annual base salary is $195,517. Mr. Grace is eligible for the usual and customary employee benefits from the company including life and disability insurance. In addition, the agreement provides that the company will lease a car for Mr. Grace with a lease payment of up to $786.40 per month and will pay or reimburse Mr. Grace for all maintenance,

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insurance, fuel and taxes on such car. The agreement further provides that the company will provide monthly dues for Mr. Grace for membership in a dining club and a golf club. If Mr. Grace’s employment is terminated by the company other than for cause (as defined in the agreement) or is terminated by Mr. Grace for good reason (as defined in the agreement), Mr. Grace will be entitled to continue receiving his then current base salary for the greater of the remainder of his contract term or twelve months. If within one year after a change of control (as defined in the agreement), Mr. Grace’s employment is terminated by the company other than for cause or is terminated by Mr. Grace for good reason, Mr. Grace will receive 1.5 times his average taxable income from the company for the five calendar years immediately preceding the calendar year of the change of control (with compensation for any partial year of employment annualized) (the “5-year average taxable compensation”), payable in equal monthly installments over twenty-four months. Additionally, Mr. Grace is subject to non-disclosure commitments and to non-compete commitments within a defined geographic area and non-solicitation commitments for a period of twelve months following termination of his employment. If Mr. Grace dies while employed, the company will pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurs. No other termination events result in termination payments under the agreement. The agreement also contains provisions regarding the repayment of the loan that Mr. Grace entered into in connection with his golf club membership; as of December 31, 2008, the entire balance of the loan was repaid.

     Craig W. Sacknoff, Executive Vice President of the Bank, is employed under an amended and restated employment agreement, originally effective March 1, 2003, and currently in effect until March 1, 2011. The agreement provides for an automatic one-year renewal each March 1 subject to a requirement of 60 days’ prior notice in the event of nonrenewal by either party. The agreement provides for an initial annual base salary with an opportunity for base salary increases and bonuses at the discretion of the Board of Directors. Mr. Sacknoff’s current annual base salary is $172,963. Mr. Sacknoff is eligible for the usual and customary employee benefits from the company including life and disability insurance. In addition, the agreement provides that the company will lease a car for Mr. Sacknoff with a lease payment of up to $734.05 per month (as subsequently increased by the Board) and will pay or reimburse Mr. Sacknoff for all maintenance, insurance, fuel and taxes on such car. If Mr. Sacknoff’s employment is terminated by the company other than for cause (as defined in the agreement) or is terminated by Mr. Sacknoff for good reason (as defined in the agreement), Mr. Sacknoff will be entitled to continue receiving his then current base salary for the greater of the remainder of his contract term or twelve months. If within one year after a change of control (as defined in the agreement), Mr. Sacknoff’s employment is terminated by the company other than for cause or is terminated by Mr. Sacknoff for good reason, Mr. Sacknoff will receive 1.5 times his 5-year average taxable compensation, payable in equal monthly installments over eighteen months. Additionally, Mr. Sacknoff is subject to non-disclosure commitments and to non-compete commitments within a defined geographic area and non-solicitation commitments for a period of twelve months following termination of his employment. If Mr. Sacknoff dies while employed, the company will pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurs. No other termination events result in termination payments under the agreement.

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     John B. McKenney, III, Senior Vice President and Chief Credit Officer of the Bank, is employed under a one-year employment agreement, effective March 1, 2007, and currently in effect until March 1, 2011. The agreement provides for an automatic one-year renewal each March 1 subject to a requirement of 60 days’ prior notice in the event of nonrenewal by either party. The agreement provides for an initial annual base salary with an opportunity for base salary increases and bonuses at the discretion of the Board of Directors. Mr. McKenney’s current annual base salary is $139,120. Mr. McKenney is eligible for the usual and customary employee benefits from the company including life and disability insurance. If Mr. McKenney’s employment is terminated by the company other than for cause (as defined in the agreement) or is terminated by Mr. McKenney for good reason (as defined in the agreement), Mr. McKenney will be entitled to continue receiving his then current base salary for the greater of the remainder of his contract term or twelve months. If within one year after a change of control (as defined in the agreement), Mr. McKenney’s employment is terminated by the company other than for cause or is terminated by Mr. McKenney for good reason, Mr. McKenney will receive 1.5 times his 5-year average taxable compensation, payable in equal monthly installments over eighteen months. Additionally, Mr. McKenney is subject to non-disclosure commitments and to non-compete commitments within a defined geographic area and non-solicitation commitments for a period of twelve months following termination of his employment. If Mr. McKenney dies while employed, the company will pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurs. No other termination events result in termination payments under the agreement.

     Thomas A. Young, Jr., Former President & CEO of Bankshares and the Bank, was employed under a three-year employment agreement effective as of May 1, 2008, with an initial term ending May 1, 2011. The agreement terminated on January 29, 2010. The agreement provided for an automatic one-year renewal at the end of the initial term and each May 1 thereafter subject to a requirement of 60 days’ prior notice in the event of nonrenewal by either party. The agreement provided for an initial annual base salary with an opportunity for base salary increases and bonuses at the discretion of the Board of Directors. Effective as of May 1, 2008 and continuing through January 29, 2010, Mr. Young’s annual base salary was $291,500. Under the agreement, Mr. Young was eligible for the usual and customary employee benefits from the company including life and disability insurance, plus payment by the company of premiums on two additional life insurance policies owned by Mr. Young in the amount of $300,000 each. In addition, under the agreement the company provided him an allowance of up to $1,400 per month for the lease of a car for Mr. Young and paid or reimbursed Mr. Young for all maintenance, insurance, fuel and taxes on such car. The agreement provided that if Mr. Young’s employment were terminated by the company other than for cause (as defined in the agreement) or were terminated by Mr. Young for good reason (as defined in the agreement), Mr. Young was entitled to continue receiving his then current base salary for the greater of the remainder of his contract term or twelve months. If within one year after a change of control (as defined in the agreement), Mr. Young’s employment were terminated by the company other than for cause or were terminated by Mr. Young for good reason, Mr. Young was entitled receive up to 2.99 times his 5-year average taxable compensation, payable in equal monthly installments over thirty-six months, limited in any event to the maximum payment which could be made without any payment being considered an excess parachute payment under Section 280G of the

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Internal Revenue Code. Additionally, Mr. Young’s agreement contained non-disclosure commitments and non-compete commitments within a defined geographic area and non-solicitation commitments for a period of twelve months following termination of his employment. The agreement also provided that if Mr. Young died while employed, the company would pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurred. No other termination events would have resulted in termination payments under his agreement.

     Thomas P. Danaher, Former President of Alliance Insurance, was employed under an employment agreement, effective November 15, 2005, with a term ending September 30, 2010. The agreement terminated on December 29, 2009. The agreement provided for an automatic one-year renewal each September 30 subject to a requirement of 90 days’ prior notice in the event of nonrenewal by either party. The agreement provided for an initial annual base salary with an opportunity for base salary increases and bonuses at the discretion of the Board of Directors. Mr. Danaher’s annual base salary during 2009 was $192,975. Mr. Danaher was eligible for the usual and customary employee benefits from the company including disability insurance. In addition, under the agreement the company provided Mr. Danaher with an automobile allowance of up to $750 per month and paid or reimbursed him for all maintenance, insurance, fuel and taxes on such car. The agreement provided that if Mr. Danaher’s employment were terminated by the company other than for cause (as defined in the agreement) or were terminated by Mr. Danaher for good reason (as defined in the agreement), Mr. Danaher was entitled to continue receiving his then current base salary for the greater of the remainder of his contract term or twelve months. If within one year after a change of control (as defined in the agreement), Mr. Danaher’s employment were terminated by the company other than for cause or were terminated by Mr. Danaher for good reason, Mr. Danaher was entitled to receive eighteen months’ salary based on his then current base salary, payable in equal monthly installments over eighteen months. Additionally, Mr. Danaher’s agreement contained non-compete commitments within a defined geographic area for a period of twelve months following termination of his employment if and only if employment were terminated by the company other than for cause or were terminated by Mr. Danaher for good reason within one year after a change of control (as defined in the agreement), or for a period of three years following termination of his employment if employment were terminated for any other reason. The agreement also provided that if Mr. Danaher died while employed, the company would pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurred. No other termination events would have resulted in termination payments under his agreement.

     William E. Doyle, Jr., was appointed Interim President & CEO of Bankshares and the Bank effective January 28, 2010, and appointed President & CEO of Bankshares and the Bank effective May 4, 2010. Mr. Doyle is employed under an agreement with Bankshares and the Bank, dated as of May 4, 2010. The agreement is similar to the agreements described above provides for Mr. Doyle’s employment as President and Chief Executive Officer of Bankshares and the Bank for an initial term through May 4, 2012. On May 4, 2012, and on each May 4 thereafter, the agreement will automatically renew for an additional one year term, unless a party provides at least 90 days’ prior notice of nonrenewal. Under the agreement, Mr. Doyle will receive an annual base salary of $299,500, subject to increase (but not decrease) in the discretion of Bankshares’ Board of Directors. Under the agreement, Mr. Doyle will receive such bonuses as

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the Board of Directors of the Company decides to pay in its discretion. Mr. Doyle will be eligible to participate in any employee benefit plans maintained by the Company for the benefit of its senior executives and for which he is or will become eligible, such as medical, dental and optical insurance, group term life insurance, long term and short term disability insurance, and a 401(k) retirement plan. Mr. Doyle will also be provided with a company-owned automobile for business and reasonable personal use during his employment. Mr. Doyle will also receive a grant of 50,000 stock options pursuant to the terms of the 2007 Incentive Stock Plan within 30 days of the effective date of the agreement. In recognition that Mr. Doyle will relocate his personal residence from Charlottesville, Virginia to Bankshares’ geographic location, we have agreed to reimburse Mr. Doyle for the reasonable rent and utilities incurred while living in temporary housing in the vicinity of the company for up to six months, limited to a maximum of $2,300 per month. We have also agreed to reimburse Mr. Doyle for necessary and reasonable moving costs, subject to approval by Bankshares’ Board of Directors. If Mr. Doyle is terminated for any reason, he is entitled to payment of any vested but not yet paid benefits provided under the agreement. If Mr. Doyle is terminated other than for cause (as defined in the agreement), or if Mr. Doyle resigns for good reason (as defined in the agreement), Mr. Doyle will continue to receive his then monthly base salary for twelve months following termination, subject to reduction in the event Mr. Doyle receives other income during that period. If Mr. Doyle is terminated other than for cause or if he resigns for good reason within one year after a change of control (as defined in the agreement), he will receive 2.99 times his 5-year average taxable compensation, paid in equal monthly installments over twelve months following the date of termination, but limited to the maximum payment which could be made without any payment being considered an excess parachute payment under Section 280G of the Internal Revenue Code. The agreement includes noncompetition and nonsolicitation provisions that are in effect during the term of the agreement and for a period of twelve months following the termination of Mr. Doyle’s employment. The agreement also provides for confidentiality obligations during and following Mr. Doyle’s employment. If Mr. Doyle dies while employed, the company will pay his estate within 60 days of his death all salary and accrued bonus through the end of the month during which his death occurs. No other termination events result in termination payments under the agreement.

     In most cases, payment of the termination payments described above (other than the payments following death) for each executive will be delayed for six months following the executive’s termination date to comply with the requirements of Section 409A of the Internal Revenue Code. Any payments required to be delayed will be paid at the end of the six-month period in one lump sum. Any payments due after the end of the six-month period will be paid at the normal payment date provided for under the applicable employment agreement.

     The definitions of “cause,” “good reason” and “change of control” under these employment agreements are discussed under “Potential Payments Upon Termination or Change of Control” below.

Potential Payments Upon Termination or Change of Control

     Pursuant to the terms of their employment agreements and the terms of their outstanding stock options under Bankshares’ stock option plans, the named executive officers are (or were)

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entitled to certain payments or benefits upon a change of control or in connection with certain termination events.

Employment Agreements

Compensation to be Paid Upon Termination For Cause

     Under the employment agreements, in the event the company terminates the executive’s employment for cause, the executive is not entitled to any compensation from the company following the date of termination. Termination for cause would require purposeful and/or serious wrongdoing on the part of the executive which reflected poorly on his integrity or moral character or which resulted in a breach of certain commitments he had made to the company.

Compensation to be Paid Upon Death

     Under the employment agreements, if the executive dies while he is employed by the company, his employment agreement will terminate but the company pays to his estate that portion of his salary which he would have earned through the end of the month in which his death occurs, as well as that portion of his annual cash bonus, if any, which he had accrued through the end of the month in which his death occurs. In addition, the company currently pays the premiums on a group life insurance policy which will entitle the executive’s beneficiaries to a death benefit equal to twice the executive’s base salary. Until January 29, 2010, in the case of Mr. Young, the company also paid the premiums on two additional life insurance policies owned by Mr. Young providing a death benefit equal to $300,000 each.

Compensation to be Paid Upon Disability or Termination Without Cause or for Good Reason

     Under certain circumstances, either the executive or the company may desire to end his employment for a reason which is not set forth above. Among other events in this category, the company may terminate the executive’s employment even if he has done nothing wrong, the executive may resign from the company based on a “good reason,” or the company may determine that an executive is unable to continue working for the company due to disability. Under the employment agreements, if the executive is disabled (as defined in the agreement), the company will terminate his employment 90 days after notice of termination is provided to the executive. No additional compensation is payable under the agreements in the case of termination due to disability. Under the employment agreements, termination of an executive for any reason other than for cause, for disability or as a result of the executive’s death will entitle the executive to receive termination compensation from the company. If the executive decides to terminate his employment, then he is only entitled to receive termination compensation payments if he does so for “good reason,” which means the company has changed certain aspects of his employment in a significant way that is not acceptable to him or otherwise fails to fulfill a commitment the company had made to him. In each of these circumstances, for each month until the end of the term of the executive’s employment agreement, or for twelve months following the date of termination if longer, the company will pay to the executive an amount equal to one-twelfth of the annual salary which he was earning immediately before the termination. In the event that the executive breaches the confidentiality, non-disclosure or non-competition

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commitments which he made to the company in his employment agreement, then the company will no longer be required to make these payments. These commitments generally last for twelve months after termination of employment.

Compensation to be Paid upon Change of Control

     Under the employment agreements, a change of control is a significant change of the company’s business or management that fits into one of these categories: (1) another party becomes the owner of enough of the company’s securities to control at least 50% of the voting power under certain circumstances; or (2) as a result of certain transactions, and within two years of the occurrence of such transactions, the people who formerly constituted a majority of the Board no longer constitute a majority of the Board. The executive’s employment agreements provide that any successor to the company, including an entity that becomes a successor as a result of a change of control, must assume and agree to perform the company’s obligations to the executives under the individual employment agreements. If a successor does not assume and agree to perform the company’s obligations under the individual employment agreements, then the executives will be entitled to terminate their employment for good reason and to receive the termination compensation described above. In the case of Mr. Harbolick, if within one year after a change of control he is terminated without cause or he resigns for good reason, he will be entitled to an amount equal to two times his “compensation” (defined in the agreement as current base salary plus the average of the last three years’ bonus payments), payable in equal monthly installments over twenty-four months. In the case of Messrs. Grace, Sacknoff and McKenney, if within one year after a change of control, the executive officer is terminated without cause or he resigns for good reason, he will be entitled to an amount equal to 1.5 times his 5-year average taxable compensation, payable in equal monthly installments over twenty-four months for Mr. Grace and eighteen months for Messrs. Sacknoff and McKenney. In the case of Mr. Young’s former employment agreement, if within one year after a change of control (as defined in the agreement) his employment had been terminated by the company other than for cause or he resigned for good reason, Mr. Young would have received up to 2.99 times his 5-year average taxable compensation, payable in equal monthly installments over thirty-six months, limited in any event to the maximum payment which could be made without any payment being considered an excess parachute payment under Section 280G of the Internal Revenue Code. In the case of Mr. Danaher’s former employment agreement, if within one year after a change of control, his employment had been terminated without cause or he resigned for good reason, he would have been entitled to an amount equal to eighteen months’ salary based on his then current base salary, payable in equal monthly installments over eighteen months. In connection with his purchase of Alliance Insurance from the company on December 29, 2009, Mr. Danaher received a closing credit in the amount of eighteen months’ salary toward the purchase price for the release of any amounts otherwise due under the change of control provisions of his employment agreement.

Stock Options

     The 1999 Stock Option Plan provides for the grant of stock options to directors, consultants and key employees of Alliance. The 2007 Incentive Stock Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and stock awards to key employees, non-employee directors and non-employee service providers of

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Alliance. As of May 15, 2010, only stock options have been granted under the 2007 Incentive Stock Plan.

     Once granted under either the 1999 Stock Option Plan or the 2007 Incentive Stock Plan, options can be exercised to purchase Bankshares’ common stock only in accordance with a vesting schedule stated in each option award agreement and with the other terms of the individual grant. The following summarizes the treatment of stock options upon certain events under the 1999 Stock Option Plan and the 2007 Incentive Stock Plan.

Treatment of Stock Options Upon Termination For Cause

     Under both the 1999 Stock Option Plan and the 2007 Incentive Stock Plan, if a person’s employment or service is terminated by Alliance for cause, all of his stock options which have not been exercised will immediately be forfeited. The definition of “cause” under the 1999 Stock Option Plan is substantially similar to the definition of “cause” in the employment agreements described above. The definition of “cause” under the 2007 Incentive Stock Plan is substantially the same as the definition of “cause” in the 1999 Stock Option Plan, with the exception that the definition of “cause” under the 2007 Incentive Stock Plan expressly refers to Bankshares’ subsidiaries.

Treatment of Stock Options Upon Death or Incapacity

     Under both the 1999 Stock Option Plan and the 2007 Incentive Stock Plan, if a participant who has received stock options dies while he is working for or providing services to the company or one of its subsidiaries, his legal representative (usually his executor or administrator) has twelve months to exercise those vested options which the deceased person could have exercised as of the date of his death. Under both the 1999 Stock Option Plan and the 2007 Incentive Stock Plan, if a participant who has received stock options becomes incapacitated while he is working for or providing services to the company or one of its subsidiaries, his guardian or legal representative also has twelve months following the date of incapacity to exercise those vested options which the incapacitated person could have exercised as of the date of his incapacitation. After the 12-month period, any options that have not been exercised will be forfeited.

Treatment of Stock Options Upon Termination for Any Other Reason

     The employment or service of a person may end for a reason other than those set forth above. Under both the 1999 Stock Option Plan and the 2007 Incentive Stock Plan, if termination occurs for any other reason, such as retirement or resignation, a participant who has received stock options has three months to exercise those vested options which he could have exercised as of the date his employment or service ended. After the three-month period, any options which have not been exercised will be forfeited.

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Treatment of Stock Options Upon Change of Control

     Under the 1999 Stock Option Plan, a change of control is a significant change of the Bankshares’ business that fits into one of these categories: (1) Bankshares transfers all or almost all of its assets to another party; (2) another party becomes the owner of more than 50% of the Bankshares’ stock; or (3) Bankshares is involved in a reorganization, a consolidation, or a merger with another party. If a change of control occurs, then, regardless of the usual vesting schedule, an employee who has received stock options may exercise all of his options, as long as the parties who own Bankshares’ common stock immediately before the change of control are not the same parties who hold, either directly or indirectly, a majority of the common stock of the acquiring party involved in the change of control. If a change of control occurs, the committee appointed by the Board to administer the 1999 Stock Option Plan may also take steps to protect those people who have received options, including (i) changing the exercise dates or termination dates of the options so that a person may exercise his options before the change of control; (ii) canceling the options a person has received and instead paying him cash in an amount equal to the fair market value of the stock on the day the change of control occurs, minus the exercise price he would have had to pay to exercise the options; or (iii) canceling the options a person has received and arranging for him to receive equivalent options to purchase the stock of the acquiring party involved in the change of control, so long as he receives substantially the same treatment under the substituted options that he would have received under the original options. The Board may also take other steps in addition to or instead of the steps set forth above to protect those people who have received options under the 1999 Stock Option Plan.

     Under the 2007 Incentive Stock Plan, a change of control is a significant change of Bankshares’ business that fits into one of these categories: (1) another party becomes the owner of 25% or more of Bankshares’ stock; (2) within any two-year period, the composition of the Board changes so that the directors who formerly constituted the Board no longer constitute a majority of the Board and the new directors were not approved by a sufficient number of former directors; (3) as a result of a merger or consolidation, Bankshares ceases to exist or Bankshares’ stock is converted into other property; (4) as a result of a merger or consolidation, Alliance continues to exist but the holders of Bankshares’ stock immediately prior to the transaction do not own at least 51% of Bankshares’ stock immediately following the transaction; (5) Bankshares transfers all or almost all of its assets to another party; or (6) Bankshares’ shareholders approve the liquidation or dissolution of the company. If a change of control occurs, then, regardless of the usual vesting schedule, a participant who has received stock options may exercise all of his options. If a change of control occurs, the committee appointed by the Board to administer the 2007 Incentive Stock Plan may also take steps to protect those people who have received options, including (i) changing the exercise dates or termination dates of the options so that a person may exercise his options before the change of control; (ii) canceling the options a person has received and instead paying him cash in an amount which could have been obtained upon the exercise of the option, had the option been currently exercisable; (iii) adjusting the option in an appropriate way to reflect the change of control; or (iv) causing the outstanding options to be assumed, or new rights substituted for those options, by the acquiring or surviving party involved in the change of control.

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     Except in the case of Mr. Danaher, the table below reflects potential payments to each of our named executive officers in the event of a termination of the named executive officer’s employment with us, whether due to retirement, death, disability, termination for cause, termination with good reason, or termination in connection with a change of control. The amounts shown assume in each case that the change of control or termination occurred on December 31, 2009, and that the relevant stock price was $2.85, which was the closing price of Bankshares’ common stock on December 31, 2009. Because Mr. Danaher was no longer serving as an executive officer of the company on December 31, 2009, the information provided in the table below for Mr. Danaher reflects the actual payments he received in connection with his purchase of Alliance Insurance on December 29, 2009.

					Involuntary
					Termination
		Involuntary			Without
		Termination			Cause or				Involuntary
		Without			Voluntary				Termination
		Cause or			Termination				for Cause or
		Voluntary			for Good				Voluntary
		Termination			Reason after				Termination
		for Good			Change of		Normal		without
Name	Benefit	Reason			Control		Retirement		Good Reason		Death			Disability
Paul M. Harbolick, Jr.	Severance Payments	$	222,600	(1)	$	381,600	$	—	$	—	$	—	(2)	$	—
	Stock Option Vesting(3)	$	—		$	—	$	—	$	—	$	—		$	—
	Total Value	$	222,600		$	381,600	$	—	$	—	$	—		$	—
Frank H. Grace, III	Severance Payments	$	228,103	(1)	$	293,276	$	—	$	—	$	—	(2)	$	—
	Stock Option Vesting(3)	$	—		$	—	$	—	$	—	$	—		$	—
	Total Value	$	228,103		$	293,276	$	—	$	—	$	—		$	—
Craig W. Sacknoff	Severance Payments	$	201,790	(1)	$	259,445	$	—	$	—	$	—	(2)	$	—
	Stock Option Vesting(3)	$	—		$	—	$	—	$	—	$	—		$	—
	Total Value	$	201,790		$	259,445	$	—	$	—	$	—		$	—
John B. McKenney, III	Severance Payments	$	173,133	(1)	$	208,680	$	—	$	—	$	—	(2)	$	—
	Stock Option Vesting(3)	$	—		$	—	$	—	$	—	$	—		$	—
	Total Value	$	173,133		$	208,680	$	—	$	—	$	—		$	—

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					Involuntary
					Termination
		Involuntary			Without
		Termination			Cause or					Involuntary
		Without			Voluntary					Termination
		Cause or			Termination					for Cause or
		Voluntary			for Good					Voluntary
		Termination			Reason after					Termination
		for Good			Change of			Normal		without
Name	Benefit	Reason			Control			Retirement		Good Reason		Death			Disability
Former Officers
Thomas A. Young, Jr.	Severance Payments	$	388,667	(1)(4)	$	935,880	(4)(5)	$	—	$	—	$	—	(2)	$	—
	Stock Option Vesting(3)	$	—		$	—		$	—	$	—	$	—		$	—
	Supplemental Life
	Insurance	$	—		$	—		$	—	$	—	$	600,000	(6)	$	—
	Total Value	$	388,667	(4)	$	935,880	(4)(5)	$	—	$	—	$	600,000		$	—
Thomas Patrick Danaher	Severance Payments				$	289,463	(7)
	Stock Option Vesting				$	—	(3)
	Total Value				$	289,463

(1)	The continuation of monthly salary payments for the remainder of the named executive officer’s employment agreement term is reflected as a lump sum payment.
(2)	Because the table assumes termination as of December 31, 2009, no amounts are reflected for payment of base salary earned through the end of the month in which death occurs.
(3)	No amounts are reflected related to the accelerated vesting of unvested stock options because all unvested stock options were “out of the money” as of December 31, 2009, and as of December 29, 2009, in the case of Mr. Danaher.
(4)	Mr. Young ceased to serve as President and Chief Executive Officer of Bankshares and the Bank effective January 29, 2010. In accordance with the terms of his employment agreement, in connection with his departure without cause, Mr. Young will continue to receive his current base salary through May 1, 2011, subject to a 6-month payment delay as required by Section 409A of the Internal Revenue Code. Mr. Young is receiving no other severance in connection with his departure.
(5)	These amounts may be reduced in order to avoid excess parachute payments under Section 280G of the Internal Revenue Code, in accordance with the named executive officer’s employment agreement.
(6)	Reflects life insurance proceeds payable to the named executive officer’s estate.
(7)	Reflects the closing credit equal to eighteen months’ salary that Mr. Danaher received toward the purchase price, in connection with his purchase of Alliance Insurance and the release of any amounts otherwise due under the change of control provisions of his employment agreement.

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     The above table does not include benefits to which all salaried employees are entitled (such as life insurance) or the company’s 401(k) Plan benefits that would be paid to a named executive officer, except to the extent that the named executive officer is entitled to an additional or accelerated benefit as a result of the termination or change of control. In addition, the table does not include the value of vested but unexercised stock options as of December 31, 2009. The footnotes to the table describe the assumptions used in estimating the amounts set forth in the table. Because the payments to be made to a named executive officer depend on several factors, the actual amounts to be paid out upon a named executive officer’s termination of employment can only be determined at the time of the executive’s separation from Alliance.

DIRECTOR COMPENSATION

     The Budget Committee annually recommends to the full Board of Directors the compensation to be paid to Bankshares’ non-employee directors. Employee directors do not receive additional compensation for their board service.

     During 2009, each non-employee director received an annual retainer of $9,000, with the Chairman of the Board receiving an additional annual retainer of $9,000 and the Chairman of each of the Audit Committee, Loan Committee, ALCO Committee and Compensation Committee receiving an additional annual retainer of $3,500. The annual retainer fees are paid on an annual basis in January of the year to which the fee is applicable. Each non-employee director also received a monthly fee of $1,000.

     In light of the economic conditions and corporate performance the board of directors decided to reduce the annual retainer and monthly compensation for 2010 to a level which represents 85% of the standard compensation. Therefore, during 2010, each non-employee director will receive an annual retainer of $7,650, with the Chairman of the Board receiving an additional annual retainer of $7,650 and the Chairman of each of the Audit Committee, Loan Committee, ALCO Committee and Compensation Committee receiving an additional annual retainer of $2,975. Each non-employee director will also receive a monthly fee of $850.

     Each non-employee director is also eligible to receive non-qualified stock option awards pursuant to the Alliance Bankshares Corporation 2007 Incentive Stock Plan in the discretion of the Compensation Committee. No stock options were granted to the non-employee directors during 2009.

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Director Compensation Table for 2009 ⁽¹⁾

     The following table provides compensation information for 2009, for each member of the Board of Directors.

	Fees Earned
	or	Option	All Other
Name	Paid in Cash	Awards(2)	Compensation	Total
	($)	($)	($)	($)
Oliver T. Carr, III	$21,000	$—	$—	$21,000
William M. Drohan	$31,250	$—	$—	$31,250
Donald W. Fisher	$  6,000	$—	$—	$  6,000
Lawrence N. Grant	$21,000	$—	$—	$21,000
Harvey E. Johnson, Jr. (3)	$22,750	$—	$—	$22,750
Serina Moy	$22,750	$—	$—	$22,750
George S. Webb	$24,500	$—	$—	$24,500
Robert G. Weyers	$24,500	$—	$—	$24,500
Thomas P. Danaher (4)	$      —	$—	$  2,500	$  2,500
Thomas A. Young, Jr. Former Employee Director	Not eligible for compensation as a director.	Not eligible for compensation as a director.	Not eligible for compensation as a director.	Not eligible for compensation as a director.

(1)	Bankshares’ non-employee directors are not eligible for non-equity incentive compensation, pension plan benefits or deferred compensation. As a result there is no reported compensation for Non-Equity Incentive Plan Compensation or Nonqualified Deferred Compensation Earnings.
(2)	No options were granted to any of the non-employee directors during 2009. As of December 31, 2009, the non-employee directors held the following options to purchase shares of common stock: Mr. Carr: 12,500, of which 4,375 were vested; Mr. Drohan: 18,541, of which 15,291 were vested; Dr. Fisher: none; Mr. Grant: 18,541, of which 15,291 were vested; Ms. Moy: 18,541, of which 15,291 were vested; Mr. Webb: 18,541, of which 15,291 were vested; and Mr. Weyers: 18,541, of which 15,291 were vested.
(3)	Mr. Johnson passed away on March 12, 2009.
(4)	Thomas P. Danaher retired from the Board of Directors on January 26, 2006, and served as Chairman Emeritus until he passed away on September 24, 2009. As Chairman Emeritus, he was available for advice and counsel to members of the Board of Directors and the Senior Management Team and was compensated $250 per month for these services.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management

     The following table shows as of May 15, 2010, the beneficial ownership of Bankshares’ common stock of the shareholders known to Bankshares to be the beneficial owners of more than 5% of Bankshares’ common stock and who are not also directors or executive officers of Bankshares.

Name and Address of	Amount and Nature of
Beneficial Owner	Beneficial Ownership			Percent of Class(1)
John W. Edgemond (2)		372,787	(2)		7.30	%
Wellington Management Company, LLP (3)		365,305	(3)		7.15	%
Grace & White, Inc. (4)		351,306	(4)		6.88	%

(1)	For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934 under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within sixty days.
(2)	Based on Schedule 13D filed with the SEC on January 14, 2009 by John W. Edgemond. According to this Schedule 13D, as of January 7, 2009, Mr. Edgemond has sole voting power with respect to all 372,787 of these shares and sole investment power with respect to all 372,787 of these shares. Mr. Edgemond’s business address is 42660 John Mosby Highway, Chantilly, Virginia 20152.
(3)	Based on Schedule 13G/A filed with the SEC on February 17, 2009 by Wellington Management Company, LLP (“Wellington”). According to this Schedule 13G/A, as of December 31, 2008, in its capacity as investment advisor, Wellington has shared voting power with respect to 292,215 of these shares and shared investment power with respect to all 365,305 of these shares. The business address of Wellington is 75 State Street, Boston, Massachusetts 02109.
(4)	Based on Schedule 13G/A filed with the SEC on February 1, 2010 by Grace & White, Inc. According to this Schedule 13G/A, as of December 31, 2009, in its capacity as investment advisor, Grace & White, Inc. has sole voting power with respect to 31,800 of these shares and shared investment power with respect to all 351,306 of these shares. The business address of Grace & White, Inc. is 515 Madison Ave. Suite 1700, New York, New York 10022.

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     The following table shows as of May 15, 2010 the beneficial ownership of Bankshares’ common stock of each director, each named executive officer and of all directors and executive officers of Bankshares as a group.

Amount and Nature of Beneficial Ownership

Name of			Options Exercisable by		Percent
Beneficial Owner	Shares(1)		July 14, 2010		of Class (2)
Oliver T. Carr, III		550		4,375		.10	%
Thomas Patrick Danaher (3)		83,001		—		1.63	%
William E. Doyle, Jr.		2,300		—		.05	%
William M. Drohan (4)		25,993		15,291		.81	%
Donald W. Fisher		1,000		—		.02	%
Frank H. Grace, III		3,000		55,150		1.13	%
Lawrence N. Grant (5)		49,268		15,291		1.26	%
Paul M. Harbolick, Jr.		3,806		84,188		1.70	%
John B. McKenney, III		13,000		33,300		.90	%
Serina Moy (6)		71,277		15,291		1.69	%
Craig W. Sacknoff (7)		22,724		62,913		1.66	%
George S. Webb (8)		234,150		15,291		4.87	%
Robert G. Weyers (9)		69,000		15,291		1.65	%
Thomas A. Young, Jr. (10)		72,004		—		1.41	%
All directors & executive officers as a group (12)		496,068		316,381		14.98	%

⁽¹⁾ For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934 under which, in general, a person is deemed to be the

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	beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within sixty days. Beneficial ownership also includes any shares held in the name of an individual’s spouse, minor children or other relatives living in the individual’s home. Except as otherwise indicated, each director, director nominee, or executive officer has sole voting and investment power with respect to the shares shown.
(2)	The ownership percentage of each individual is calculated based on the total of 5,106,819 shares of common stock that were outstanding as of May 15, 2010, plus the number of shares that can be issued to the individual within sixty days of May 15, 2010 upon the exercise of stock options held by the individual, whether or not such options are “in the money.” Shares of common stock that are subject to exercisable stock options are deemed to be outstanding for the purpose of computing the percentage of outstanding common stock owned by any person or group but are not deemed outstanding for the purpose of computing the percentage of common stock owned by any other person or group.
(3)	Mr. Danaher ceased to serve as an executive officer of Bankshares effective December 29, 2009.
(4)	Includes 880 shares held by Mr. Drohan’s spouse.
(5)	Includes 6,469 shares Mr. Grant holds jointly with his spouse; 8,810 shares held by Mr. Grant’s spouse; 738 shares held by the Grant Revocable Family Trust with respect to which Mr. Grant has shared voting and shared investment power; and 1,294 shares held by Independent Insurance Center, Inc. with respect to which Mr. Grant has shared voting and shared investment power.
(6)	Includes 11,954 shares Ms. Moy holds jointly with her spouse, 1,800 shares held by Ms. Moy’s spouse and 1,187 shares held as custodian on behalf of or by Ms. Moy’s children.
(7)	Includes 1,150 shares Mr. Sacknoff holds jointly with his spouse, 58 shares held jointly with Mr. Sacknoff’s children and 29 shares held as custodian for Mr. Sacknoff’s son.
(8)	Includes 67,000 shares held by Mr. Webb’s spouse; and 25,875 shares held by Laurkel Investment Partners LP with respect to which Mr. Webb has shared voting and shared investment power.
(9)	Includes 67,706 shares Mr. Weyers holds jointly with his spouse.
(10)	Includes 173 shares Mr. Young holds jointly with his spouse. Mr. Young ceased to serve as President and Chief Executive Officer effective January 29, 2010.

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Securities Authorized for Issuance Under Equity Compensation Plans

     The following table sets forth information as of December 31, 2009 about the shares that may be issued under all of our existing equity compensation plans.

Equity Compensation Plan Information
			Weighted-average		Number of securities remaining
	Number of securities to		exercise price of		available for future issuance
	be issued upon exercise		outstanding		under equity compensation plans
	of outstanding options,		options, warrants		(excluding securities reflected in
Plan category	warrants and rights (a)		and rights (b)		column (a)) (c)
Equity compensation plans approved by security holders (1)		684,005	$	11.27		336,961
Equity compensation plans not approved by security holders		—		—		—
Total		684,005	$	11.27		336,961

(1) All shares relate to the 1999 Stock Option Plan and the 2007 Incentive Stock Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Director Independence

     The Board of Directors is comprised of a majority of “independent” directors, as defined by the listing standards of the Nasdaq as currently in effect and applicable to Bankshares. Independent directors do not receive consulting, legal or other fees from Bankshares or the Bank, other than Board and committee compensation. Although companies affiliated with certain of these directors provide goods and services to Bankshares and the Bank, the Board of Directors has determined in accordance with the Nasdaq listing standards that these independent directors have no relationships with Bankshares or the Bank that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director. The Board has determined that all current directors are independent with the exception of Mr. Doyle. In determining each director’s independence, the Board considered the fact that Carr Properties, of which Mr. Carr serves as President and CEO, leases the corporate headquarters to Bankshares under a lease that expires in July 2016, but determined that this relationship does not interfere with Mr. Carr’s ability to exercise independent judgment as a director of Bankshares.

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Interest of Management in Certain Transactions

     The Bank grants loans and letters of credit to its executive officers, directors and their affiliated entities. These loans are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons, and, in the opinion of management, do not involve more than normal risk of collectability or present other unfavorable features. The aggregate amount of such loans outstanding at December 31, 2009 and 2008 was approximately $2.5 million and $1.9 million, respectively. During 2009, new loans and line of credit advances to such related parties amounted to $1.3 million in the aggregate and payments amounted to $645,000 in the aggregate.

     The Bank also maintains deposit accounts with some of its executive officers, directors and their affiliated entities. The aggregate amount of these deposit accounts at December 31, 2009 and 2008 amounted to $2.1 million and $2.5 million, respectively.

     On December 29, 2009, the Bank entered into and closed on a Stock Purchase Agreement (the Agreement) between the Bank as the seller and Thomas Patrick Danaher and Oswald H. Skewes as purchasers, both executives of Alliance Insurance, a wholly-owned insurance agency subsidiary of the Bank. The Agreement provided for the purchase by Mr. Danaher and Mr. Skewes of all of the issued and outstanding shares, consisting of 10,000 shares (the Shares), of Alliance Insurance. Until the sale, Mr. Danaher had been President of Alliance Insurance, and Mr. Skewes was responsible for managing the operations of Alliance Insurance in Manassas, Virginia. Pursuant to the Agreement, Mr. Danaher and Mr. Skewes purchased the Shares from the Bank for a total purchase price of $5,025,000. Of the total purchase price, Mr. Danaher contributed $4,975,000 to purchase 9,800 of the Shares and Mr. Skewes contributed $50,000 to purchase 200 of the Shares. A portion of the purchase price was payable at closing, with the balance payable pursuant to promissory notes, as described further below. Because this transaction constituted a related person transaction with respect to Mr. Danaher, the details with respect to Mr. Danaher are described further below.

     Of the $3,750,000 payable at closing, Mr. Danaher contributed $3,700,000, subject to application of a closing credit in the amount of $289,463, equal to the amount of the change of control payment (Danaher Change of Control Payment) to which Mr. Danaher may have been

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entitled under his employment agreement. In connection with the closing and application of the closing credit, Mr. Danaher released the Bank from any and all claims relating to payment of the Danaher Change of Control Payment and relinquished any other sums due under his employment agreement.

     At closing, Mr. Danaher delivered to the Bank promissory notes that do not bear interest (the Notes) evidencing his obligation to pay the $1,275,000 balance of the purchase price as follows: (1) $650,000 pursuant to the terms of one promissory note that is due and payable in full on February 15, 2011, and (2) $625,000 pursuant to the terms of five promissory notes in the original principal amount of $125,000 each, which are due and payable on February 15, 2011, 2012, 2013, 2014 and 2015, respectively. Each of these five notes is subject to reduction in the principal to be repaid if the employee benefits business line of Alliance Insurance does not satisfy certain revenue thresholds for that note’s relevant measuring period. The Notes contain usual and customary conditions and are secured by Mr. Danaher’s pledge to the Bank of the 9,800 Shares he purchased at closing.

     The boards of directors of Bankshares and the Bank determined that the sale of Alliance Insurance would enhance Bankshares’ regulatory capital in a difficult economy without diluting common shareholders. The consideration for the sale was determined pursuant to arms’ length negotiations among the parties, and the boards of directors of Bankshares and the Bank believe that the consideration is in line with valuations for similar insurance agencies.

     Under Bankshares’ Code of Ethics, all directors and employees (including the executive officers) are prohibited from having any direct or indirect financial or other participation in any business that competes with, supplies goods or services to, or is a customer of Bankshares. Bankshares’ President, Chief Financial Officer and Chairman of the Audit Committee are the Compliance Officers as identified in the Code of Ethics and are responsible for overseeing compliance with the Code of Ethics. These kinds of transactions are sometimes referred to as “related person transactions.”

     In addition, the Audit Committee is responsible for reviewing, approving and/or ratifying all related person transactions, other than related person transactions with respect to routine banking matters, which are reviewed in accordance with Regulation O and are not reviewed by the Audit Committee. The Audit Committee’s decision whether or not to approve or ratify a related person transaction will be made in light of the committee’s determination as to whether the transaction is or is not in the best interests of Bankshares. Where such transactions involve a director, the committee may also take into account the effect of the transaction on the director’s status as an independent member of the Board and eligibility to serve on Board committees under SEC and Nasdaq rules and regulations.

     The term “related person” generally means any of Bankshares’ directors or executive officers, nominees for director, persons known to own 5% or more of Bankshares’ common stock, and any member of the “immediate family” of such person.

     A “related person transaction” is generally an existing or proposed transaction in which Bankshares was or is to be a participant and the amount involved exceeds $120,000, and in

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which the related person had or will have a direct or indirect material interest. A related person transaction does not include:

• the payment of compensation by Bankshares to its executive officers, directors or nominees for director; or

• a transaction if the interest of the related person arises solely from the ownership of Bankshares’ common stock and all shareholders receive the same benefit on a pro-rata basis.

Item 14. Principal Accounting Fees and Services

Principal Accountant Fees and Services

          The following table presents the fees for professional audit services rendered by Yount, Hyde & Barbour, P.C. for the audit of Bankshares’ consolidated financial statements for the fiscal years ended December 31, 2009 and 2008, and fees billed for other services rendered by Yount, Hyde & Barbour, P.C. during those periods. All services reflected in the following table for 2009 and 2008 were pre-approved in accordance with the policy of the Audit Committee of the Board of Directors.

Year Ended December 31,	2009		2008
Audit Fees (1)	$	110,000	$	103,295
Audit Related Fees (2)		5,893		9,340
Tax Fees (3)		12,850		8,200
All Other Fees		—		—
Total	$	128,743	$	120,835

(1)	Audit fees consist of audit and review services, and review of documents filed with the SEC.
(2)	Audit related fees consist of pre-approved consultation concerning financial accounting and reporting standards, Public Funds agreed upon procedures and agreed upon procedures for ACH compliance.
(3)	Tax fees consist of preparation of Federal and State income tax returns and consultation regarding tax compliance issues.

     The Audit Committee has determined that the provision by Yount, Hyde & Barbour, P.C. of the non-audit services referred to above is compatible with the maintenance of that firm’s independence.

Pre-Approval Policies

     Pursuant to the terms of its charter, the Audit Committee is responsible for the appointment, compensation and oversight of the work performed by Bankshares’ independent accountants. The Audit Committee, or a designated member of the Audit Committee, must pre-approve all audit (including audit-related) and non-audit services performed by the independent accountants in order to ensure that the provisions of such services does not impair the accountants’ independence. The Audit Committee has delegated interim pre-approval authority to Ms. Moy, chairperson of the Audit Committee. Any interim pre-approval of permitted non-audit services is required to be reported to the Audit Committee at its next scheduled meeting. In addition, pre-approved research and consultation fees requested by management may be performed throughout the engagement year not to exceed $5,000.

PART IV.

Item 15. Exhibits, Financial Statement Schedules

(a) Exhibits

2.1	Agreement and Plan of Reorganization between Alliance Bankshares Corporation and Alliance Bank Corporation, dated as of May 22, 2002 (incorporated by reference to Exhibit 2.0 to Form 8-K12g-3 filed August 21, 2002).
2.4	Stock Purchase Agreement between Alliance Bank Corporation, as the seller, and Thomas P. Danaher and Oswald H. Skewes, as the purchasers, dated as of December 29, 2009.

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3.1	Articles of Incorporation of Alliance Bankshares Corporation (as amended July 6, 2006) (incorporated by reference to Exhibit 3.1 to Form 10-Q filed August 14, 2006).
3.2	Bylaws of Alliance Bankshares Corporation (amended and restated as of December 19, 2007) (incorporated by reference to Exhibit 3.2 to Form 8-K filed December 27, 2007).

Certain instruments relating to trust preferred capital securities not being registered have been omitted in accordance with Item 601(b)(4)(iii) of Regulation S-K. The registrant will furnish a copy of any such instrument to the Securities and Exchange Commission upon its request.

10.1	*	Alliance Bankshares Corporation Stock Option Plan, as restated effective March 25, 2003, and further amended April 27, 2005 (incorporated by reference to Appendix A to the definitive proxy statement filed May 2, 2005).
10.1.1	*	Form of Stock Option Agreement for Alliance Bankshares Corporation Stock Option Plan (incorporated by reference to Exhibit 10.1.1 to Form 10-K filed March 31, 2006).
10.2	*	Employment Agreement between Alliance Bankshares Corporation, Alliance Bank Corporation, and Thomas A. Young, Jr., dated as of May 1, 2008 (incorporated by reference to Exhibit 10.2 to Form 8-K filed April 29, 2008).
10.2.1	*	Amendment to the Employment Agreement between Alliance Bankshares Corporation, Alliance Bank Corporation, and Thomas A. Young, Jr., dated as of December 30, 2008 (incorporated by reference to Exhibit 10.2.1 to Form 10-K filed April 15, 2009).
10.3	*	Amended and Restated Employment Agreement between Alliance Bank and Paul M. Harbolick, Jr. dated March 1, 2007 (incorporated by reference to Exhibit 10.3 to Form 10-Q filed May 10, 2007).
10.3.1	*	Amendment to the Employment Agreement between Alliance Bank and Paul M. Harbolick, Jr. dated as of December 30, 2008 (incorporated by reference to Exhibit 10.3.1 to Form 10-K filed April 15, 2009).
10.4	*	Amended and Restated Employment Agreement between Alliance Bank and Craig W. Sacknoff dated March 1, 2007 (incorporated by reference to Exhibit 10.4 to Form 10-Q filed May 10, 2007).
10.4.1	*	Amendment to the Employment Agreement between Alliance Bank and Craig W. Sacknoff, dated as of December 30, 2008 (incorporated by reference to Exhibit 10.4.1 to Form 10-K filed April 15, 2009).

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10.6	*	Amended and Restated Employment Agreement between Alliance Bank and Frank H. Grace, III dated March 1, 2007 (incorporated by reference to Exhibit 10.6 to Form 10-Q filed May 10, 2007).
10.6.1	*	Amendment to the Amended and Restated Employment Agreement between Alliance Bank and Frank H. Grace, III, dated as of December 30, 2008 (incorporated by reference to Exhibit 10.6.1 to Form 10-K filed April 15, 2009).
10.6.2	*	Employment Agreement between Alliance Bank and Frank H. Grace, III, dated as of January 13, 2004, as amended on February 27, 2004 (incorporated by reference to Exhibit 10.34 to Form 10-KSB filed April 1, 2004).
10.7	*	Base Salaries of Named Executive Officers.
10.8	*	Non-Employee Director Compensation.
10.10	*	Employment Agreement between Alliance Bank and John B. McKenney, III, dated as of March 1, 2007 (incorporated by reference to Exhibit 10.10 to Form 10-Q filed May 10, 2007).
10.10.1	*	Amendment to the Employment Agreement between Alliance Bank and John B. McKenney, III, dated as of December 30, 2008 (incorporated by reference to Exhibit 10.10.1 to Form 10-K filed April 15, 2009).
10.11	*	Alliance Bankshares Corporation 2007 Incentive Stock Plan, effective as of June 13, 2007 (incorporated by reference to Appendix A to definitive proxy statement filed April 30, 2007).
10.12	*	Form of Stock Option Agreement for Alliance Bankshares Corporation 2007 Incentive Stock Plan (incorporated by reference to Exhibit 10.12 to Form 8-K filed November 9, 2007).
21		Subsidiaries of the Registrant.
23.1		Consent of Yount, Hyde & Barbour, P.C.
31.1		Certification of CEO pursuant to Rule 13a-14(a).
31.2		Certification of CFO pursuant to Rule 13a-14(a).
32		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.

* Management Contracts

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

ALLIANCE BANKSHARES CORPORATION
(Registrant)

5/26/10  Date	/s/ William E. Doyle, Jr. William E. Doyle, Jr.
	President & Chief Executive Officer
	(principal executive officer)
5/26/10  Date	/s/ Paul M. Harbolick, Jr. Paul M. Harbolick, Jr.
	Executive Vice President & Chief Financial
	Officer
	(principal financial and accounting officer)

145

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

5/26/10  Date	/s/ William M. Drohan William M. Drohan
	Director
5/26/10	/s/ Donald W. Fisher, PhD
Date	Donald W. Fisher
	Director
5/26/10	/s/ Lawrence N. Grant
Date	Lawrence N. Grant
	Director
5/26/10	/s/ Serina Moy
Date	Serina Moy
	Director
5/26/10	/s/ George S. Webb
Date	George S. Webb
	Director
5/26/10	/s/ Robert G. Weyers
Date	Robert G. Weyers
	Director
5/26/10	/s/ Oliver T. Carr, III
Date	Oliver T. Carr, III
	Director
5/26/10	/s/ William E. Doyle, Jr.
Date	William E. Doyle, Jr.
	President, Chief Executive Officer & Director
	(principal executive officer)
5/26/10	/s/ Paul M. Harbolick, Jr.
Date	Paul M. Harbolick, Jr.
	Executive Vice President & Chief Financial
	Officer
	(principal financial and accounting officer)

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EX-2.4

Exhibit 2.4

STOCK PURCHASE AGREEMENT

by and between

ALLIANCE BANK CORPORATION,
a Virginia banking corporation
(“Seller”)

and

THOMAS P. DANAHER and OSWALD H. SKEWES
(together the “Buyer”)

December 29, 2009

STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of December 29, 2009 (the “Effective Date”), is made by and between ALLIANCE BANK CORPORATION, a Virginia banking corporation (the “Seller”), and THOMAS P. DANAHER (individually “Danaher”) and OSWALD H. SKEWES (individually “Skewes”, and with Danaher and Skewes together, as the “Buyer”). The Seller and the Buyer are referred to collectively herein as the “Parties” and individually as a “Party”.

     WHEREAS, ALLIANCE INSURANCE AGENCY, INC., a Virginia corporation (the “Company”), is currently actively engaged in the Business; and

     WHEREAS, the Company is authorized to issue Fifteen Thousand (15,000) shares of common stock (the “Authorized Stock”); and

     WHEREAS, the Company, prior to its acquisition by Seller, was knows as the Thomas P. Danaher and Company, Inc. (the “Danaher Agency”); and

     WHEREAS, of the Authorized Stock, the Company has issued and the Seller now owns Ten Thousand (10,000) shares of common stock in the Company, which represents One Hundred percent (100%) of the issued and outstanding capital stock of the Company (the “Stock”); and

     WHEREAS, the Company is engaged in and operates the Business from various locations to include 4200 Evergreen Lane, Annandale, Virginia 22003 (the “Annandale Location”) and 125 Olde Greenwich Drive, Suite 200, Fredericksburg, Virginia 22408 (the “Fredericksburg Location”); and

     WHEREAS, the Company is the sole owner of ALLIANCE/BATTLEFIELD INSURANCE AGENCY, LLC, a Virginia limited liability company (the “Battlefield Agency”), which entity is engaged in the business of insurance sales from its location at 10611 Balls Ford Road, Suite 140, Manassas, Virginia 21019 (the “Manassas Location”); and

     WHEREAS, Danaher: (i) was the sole owner of the Danaher Agency prior to its sale and acquisition by Seller, (ii) is currently employed by the Seller as the President of the Company, (iii) is solely responsible for the day to day management and operation of the Company and its Business, and (iv) is intimately familiar with the Company’s operations and finances; and

     WHEREAS, Skewes: (i) was the sole owner of the Battlefield Agency prior to its sale and acquisition by Company, (ii) is currently employed by the Battlefield Agency as its Manager, (iii) is solely responsible for the day to day management and operation of the Battlefield Agency and its Business, (iv) and is intimately familiar with the Battlefield Agency’s operations and finances; and

     WHEREAS, the Buyer desires to purchase (with Danaher acquiring 9,800 shares and Skewes acquiring 200 shares) and the Seller desires to sell, all of the Stock in the Company on the terms set forth herein.

     NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties, intending to be legally bound, agree as follows:

Alliance Bank/Danaher-Skewes Stock Purchase Agreement

Page 1

     1. Definitions. Capitalized terms used, but not otherwise defined in the body of this Agreement, shall have the meanings ascribed to such terms as set forth in Exhibit A hereto.

     2. Basic Transaction.

          (a) Purchase and Sale of Stock. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of the Stock at Closing, free and clear of any Encumbrance, for the consideration specified in this Agreement.

          (b) Purchase Price. The Buyer agrees to pay to the Seller at the Closing for the Stock the sum of Five Million Twenty Five Thousand and 00/100 Dollars ($5,025,000.00) (the “Purchase Price”; which is understood by the parties to consist of $4,975,000.00 from Danaher and $50,000.00 from Skewes). Subject to adjustment required to be made post Closing pursuant to Section 2(e) below, the Purchase Price shall be paid at Closing by Buyer as follows:

               (i) Cash Payment. The sum of Three Million Seven Hundred Fifty Thousand and 00/100 Dollars ($3,750,000.00) (the “Cash Payment”; which is understood by the parties to consist of $3,700,000.00 from Danaher and $50,000.00 from Skewes), in cash by wire transfer or delivery of other immediately available funds to the Escrow Agent (hereinafter defined) on or before 5:00 p.m. on or before the Closing Date. The Buyer shall be entitled to apply against the Cash Payment a credit equal to the Closing Credit, as the term is hereinafter defined in Section 2(c) below. If for any reason settlement does not occur on the Closing Date for reasons other than Buyer’s default, the amount of Cash Payment delivered to the Escrow Agent Seller shall be immediately refunded to Buyer; and

               (ii) Seller Take-back Note. A purchase money deferred note from Danaher to Seller in the sum of Six Hundred Fifty Thousand and 00/100 Dollars ($650,000.00) in the form attached hereto as Schedule 2(b)(ii) (the “Note”). The Note shall be due and payable in full on February 15, 2011 (the “Maturity Date”). Provided the Note is paid on or before the Maturity Date, privilege is reserved to pay the Note without interest. In the event the Note, or any portion thereof, is paid after the Maturity Date, the unpaid principal balance shall bear interest at the rate of twelve percent (12%) per annum from the date of the Note, until paid. Danaher, at its option, shall be entitled to prepay the Note in whole or in part without penalty; and

               (iii) Deferred Revenue Payment. By deferred revenue payments from Danaher to Seller totaling Six Hundred Twenty Five Thousand and 00/100 Dollars ($625,000.00) (the “Deferred Revenue Payment”), as the same is more fully defined in Section 2(d) below. Subject to credits for the Deferred Revenue Credit, as the term is hereinafter defined in Section 2(d)(ii) below, as the term is hereinafter defined in Section 2(d)(iii) below, the Deferred Revenue Payment shall be paid annually over a period of Five (5) years at the rate of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00) per year, with the first payment being due and payable on February 15, 2011, and on the same date annually thereafter, until paid in full. To evidence the obligation to pay the Deferred Revenue Payment, Danaher shall provide Seller with five (5) separate notes, each in the sum of One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00) in the form attached hereto as Schedule 2(b)(iii) (individually each a “Deferred Revenue Note” and collectively the “Deferred Revenue Notes”). The first of the Deferred Revenue Notes shall be due and payable on February 15, 2011 and on the 15^th of February of each year thereafter, until all five (5) of the Deferred Revenue Notes have been paid in full. Danaher, at its option, shall be entitled to prepay the Deferred Revenue Notes in whole or in part without penalty.

Alliance Bank/Danaher-Skewes Stock Purchase Agreement

Page 2

          (c) Closing Credit Defined.

               (i) Danaher Change of Control Credit. Pursuant to the terms of that certain Employment Agreement dated November 15, 2005 and entered into by and between Company and Danaher (the “Danaher Employment Agreement”), Danaher, upon sale of the Company and satisfaction of certain conditions, may be entitled to a change of control payment up to a maximum of eighteen (18) months base salary (the “Danaher Change of Control Payment”). For the sole purpose of this Agreement only and for no other purpose, the Parties hereto have agreed that as a result of Buyer’s purchase of the Company, Danaher shall be provided with the Danaher Change of Control Payment in the sum of Two Hundred Eighty Nine Thousand Four Hundred Sixty Three and 00/100 Dollars ($289,463.00) to be applied at Closing against the Cash Payment portion of the Purchase Price (the “Danaher Change of Control Credit”). Upon Closing and the application of the Danaher Change of Control Credit against the Purchase Price, Danaher shall forever release Seller from any and all claims or causes of action which Danaher may have for payment of the Danaher Change of Control Payment or any other sums due under the Danaher Employment Agreement. Notwithstanding the foregoing, nothing herein shall be construed to be an admission by Seller that Danaher is otherwise entitle under the terms of the Danaher Employment Agreement to the Danaher Change of Control Payment.

               (ii) Skewes Change of Control Credit. Pursuant to the terms of that certain Employment Agreement dated December 15, 2006 and entered into by and between Company and Skewes (the “Skewes Employment Agreement”), Skewes, upon sale of the Company and satisfaction of certain conditions, may be entitled to a change of control payment up to a maximum of twelve (12) months base salary or One Hundred Forty Thousand and 00/100 Dollars ($140,000.00) (the “Skewes Change of Control Payment”). For the sole purpose of this Agreement only and for no other purpose, the Parties hereto have agreed that as a result of Buyer’s purchase of the Company, Skewes shall be provided with a portion of the Skewes Change of Control Payment in the sum of Fifty Thousand and 00/100 Dollars ($50,000.00) to be applied at Closing against the Cash Payment portion of the Purchase Price (the “Skewes Change of Control Credit”). The remaining balance due on the Skewes Change of Control Payment in the sum of Ninety Thousand and 00/100 Dollars ($90,000.00) (the “Skewes Change of Control Cash-Out Payment”), shall be paid directly by Seller to Skewes at Closing. Upon Closing and the application of the Skewes Change of Control Credit against the Purchase Price and the payment of the Skews Change of Control Cash-Out Payment, Skewes shall forever release Seller from any and all claims or causes of action which Skewes may have for payment of the Skewes Change of Control Payment or any other sums due under the Skewes Employment Agreement (the “Change of Control Payment Release”). The provisions governing the Change of Control Payment Release by Skewes shall indefinitely survive Closing and shall be self operative as of the Closing Date and the application of the Skewes Change of Control Credit and the payment of the Skewes Change of Control Cash-Out payment, all as if again made on the Closing Date by Skewes. Notwithstanding the foregoing, nothing herein shall be construed to be an admission by Seller that that Skewes is otherwise entitled under the terms of the Skewes Employment Agreement to the Skewes Change of Control Payment.

               (iii) Closing Credit Calculation. The sum total of the Danaher Change of Control Credit and the Skewes Change of Control Credit (totaling $339,463.00) shall be deemed to be a credit against the Cash Payment portion of the Purchase Price (collectively the “Closing Credit”), as the same is reflected on Schedule 2(c)(iv) attached hereto.

          (d) Deferred Revenue Payment. A portion of the Business and revenue of the Company (to include that of the Battlefield Agency), is derived from the sale of employee benefit related insurance policies and services, which policies and services include, but are not limited to, health care

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insurance, dental insurance, AD&D coverage, group life insurance policies, retirement plans and 401(k) related activities (collectively the “Employee Benefits Business Line”). In the event:

               (i) Employee Revenue Line Greater Then $425,000.00. The Employee Benefits Business Line in any given calendar year (starting from January 1, 2010 and being measured annually from January 1 to December 31 of each year) grosses in excess of Four Hundred Twenty Five Thousand and 00/100 Dollars ($425,000.00), Danaher shall be obligated to pay and/or cause the Company to pay the corresponding Revenue Note for that year in full without deduction or offset. Upon receipt of payment, the Seller shall return the corresponding Revenue Note for that year back to Danaher marked as paid and satisfied.

               (ii) Employee Revenue Line Less Then $425,000.00. The Employee Benefits Business Line in any given year (starting from January 1, 2010 and being measured annually from January 1 to December 31 of each year) grosses less than Four Hundred Twenty Five Thousand and 00/100 Dollars ($425,000.00), Danaher shall nevertheless be obligate to pay Seller (or cause the company to pay Seller) for that year a sum equal to thirty percent (30%) of the gross revenues generated from the Employee Benefits Business Line (the “Percentage Payment”). The difference between the Percentage Payment, obligated to be made and in fact made by Danaher (or the Company. as the case may be) and the corresponding Revenue Note for that year, shall be deemed to be a credit against the corresponding Revenue Note for that year (the “Deferred Revenue Credit”). In exchange for the Percentage payment made and the corresponding Deferred Revenue Credit applied, the Seller shall return the corresponding Revenue Note for that year back to Danaher marked as paid and satisfied.

               (iii) Deferred Revenue Schedule. In the event that a Deferred Revenue Payment to Seller in any given year is less then One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00), Danaher shall provide or cause the Company to provide Seller, along with the reduced Deferred Revenue Payment, an itemized statement breaking down Company’s gross revenues and sources of income with respect to the Employee Benefits Business Line for the previous calendar year (the “Deferred Revenue Schedule”). A sample form of the Deferred Revenue Schedule to be used by Danaher is attached hereto and incorporated herein as Schedule 2(d)(iii). The Deferred Revenue Schedule shall breakdown and itemize each source of income derived by the Company with respect to its Employee Benefits Business Line during the course of the past calendar year. Along with the Deferred Revenue Schedule, Danaher shall also further provide or cause the Company to provide supporting documentation, to include, but not limited to, all applicable carrier/provider payment statements, to support and justify the amount of reduced Deferred Revenue Payment made by Danaher and/or the Company to Seller for the past calendar year.

               (iv) Right to Inspect. In the event that a Deferred Revenue Payment to Seller in any given year is less then One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000.00), Seller, or its duly authorized representatives, may, upon thirty (30) days written request, during business hours, inspect and/or audit any or all of Danaher’s and/or Company’s books and records concerning the calculation of all revenues derived by Danaher and/or the Company from its Employee Benefits Business Line, their respective calculation of both the Percentage Payment and the Deferred Revenue Credit (together the “Deferred Revenue Calculations”), which books and records Danaher agrees to maintain, and to cause the Company to maintain, for so long as the any portion of the Deferred Revenue Payment remains outstanding. Such audit shall be conducted at the Annandale Location. If Seller makes an audit for any period or year, and if the Deferred Revenue Calculations provided by Danaher and or Company for any period or year are found to be understated by three (3%) percent or more, then Danaher shall pay to Seller the reasonable cost for such audit, in addition to a prompt payment of the underpaid Deferred Revenue Payment amount, which sum shall be paid not later than thirty (30)

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days after notice thereof to Danaher. The report of the findings of an independent certified public account or other independent qualified consultant reasonably selected by Seller shall be binding and conclusive upon Seller and Danaher.

               (v) Due on Sale. Notwithstanding any other term or provision contained in this Agreement, in the event Danaher sells or otherwise transfers a majority interest in the Company to a Target Entity (hereinafter defined) prior to full payoff of the Note or prior to full payoff of the Deferred Revenue Payment in accordance with the provisions of this Section 2(d), the principal balance due on the Note, the Deferred Revenue Payment and each outstanding Deferred Revenue Note representing the same, shall be accelerated and Danaher shall immediately pay to Seller the accelerated principal balance due on both the Note and each of the Deferred Revenue Notes and without application of the Deferred Revenue Credit. As the balance owing may fluctuate on the payment of the Deferred Revenue Notes, the total possible amount owing shall be paid to and held by the Escrow Agent and released to the Seller only after the time due and calculations of the actual amount due have been made, pursuant to the terms of the Notes. For the purposes of this Section 2(d)(v) the term “Target Entity” shall mean any publically traded company or any entity with annual gross revenues in excess of $25,000,000.00. Notwithstanding the foregoing and any subsequent sale or transfer of the Company, Danaher shall continue to be obligated to be bound to and make the payments under the Note and the Deferred Revenue Notes as provided for herein.

          (e) Post Closing Adjustment, Procedure and Amount.

               (i) Closing Date Balance Sheet. Within thirty (30) days of the Closing Date, the Seller will prepare and deliver to Buyer a balance sheet of the Company as of the Closing Date (“Closing Date Balance Sheet”). The Closing Date Balance Sheet shall be in form and account for items as set forth in Schedule 2(e)(i) attached hereto. The Closing Date Balance Sheet will be used in computing Seller’s equity in the Company (the “Equity Adjustment Amount”). If the Equity Adjustment Amount is greater than zero (a positive number), said sum shall be paid by Buyer to Seller on or before the tenth (10^th) business day after the Closing Balance Sheet Approval Date (hereinafter defined). If the Equity Adjustment Amount is less than zero (a negative number), said sum will be paid by Seller to Buyer on or before the tenth (10^th) business day after the Closing Balance Sheet Approval Date. The Equity Adjustment Amount, if any, will be paid in immediately available funds by wire transfer or cashier’s check to an account specified in writing by Party to receive the same.

               (ii) Dispute Resolution. If within, fifteen (15) days following delivery of the Closing Date Balance Sheet, Buyer has not given Seller notice of its objection to the Closing Date Balance Sheet (such notice must contain a statement of the basis of Buyer’s objection), the Closing Date Balance Sheet will be used in computing the Equity Adjustment Amount. If Buyer gives such notice of objection, and the items in dispute cannot be resolved by agreement between Seller and Buyer prior to the thirtieth (30^th) day after the Closing Date Balance Sheet is originally delivered pursuant hereto, the issues in dispute will be submitted to neutral certified public accountant, as selected by Seller and Buyer (the “Accountant”), for resolution. If issues in dispute are submitted to the Accountant for resolution, (1) the Accountant shall use the accounting methods and principles used in preparation of Company’s existing balance sheets; (2) each Party will furnish to the Accountant such work papers and other documents and information relating to the disputed issues as the Accountant may request and are available to that Party or its Subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountant any material relating to the determination and to discuss the determination with the Accountant; (3) the determination by the Accountant, as set forth in a notice delivered to both Parties by the Accountant, will be binding and conclusive on the Parties, and the Closing Date Balance Sheet as finally determined by the Accountant shall be used in computing the Equity Adjustment Amount; and (4) Buyer and Seller will each bear 50% of the fees of the Accountant for such determination. The date on

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which the Buyer approves the Closing Date Balance Sheet by its affirmative action or its failure to respond within fifteen (15) days as required by Section 2(e)(ii) above, or the date on which the Closing Date Balance Sheet is finally determined by the Accountant, whichever first occurs, shall be the “Closing Balance Sheet Approval Date”.

          (f) Security for Payment. At Closing, the Stock will be transferred on the books of the Company to Buyer, with Danaher receiving 9,800 shares (the “Danaher Stock”) and Skewes receiving 200 shares, and the Company will issue certificate(s) to Buyer representing the Stock transferred hereunder. Danaher will thereupon execute a Security, Pledge and Escrow Agreement in the form attached as Schedule 2(f) (the “Pledge Agreement”), granting to Sellers a security interest in the Danaher Stock in order to assure to Seller payment in full of the Note and the Deferred Revenue Notes representing the Deferred Revenue Payment. Pursuant to the Pledge Agreement, Danaher will deliver the outstanding certificate(s) representing the pledged Stock, together with appropriate assignments separate from certificates, to the Sellers, who will immediately thereafter deliver such certificates and assignments to Vanderpool, Frostick & Nishanian, P.C., as escrow agent (the “Escrow Agent”), who shall hold such certificates and assignments in accordance with the Pledge Agreement.

          (g) The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place in the offices of Vanderpool, Frostick & Nishanian, P.C., 9200 Church Street, Suite 400, Manassas, Virginia commencing at 5:00 p.m. local time on December 29, 2009, or at such other place and time as may be agreed to by the Parties (the “Closing Date”). Buyer and Sellers shall cause their duly authorized representatives to be present at Closing and in possession of such attestations and certificates as are necessary to authorize them to execute documents on behalf of their principals.

          (h) Deliveries at the Closing. At the Closing, the Seller and the Buyer shall deliver the documents and take the actions set forth in the remainder of this Section 2(h). All documents that the Seller delivers at the Closing shall be reasonably satisfactory in form and substance to the Buyer and its counsel. All documents that the Buyer delivers at the Closing shall be reasonably satisfactory in form and substance to the Seller and its counsel.

               (i) Closing Deliveries by the Seller. In addition to any other document to be delivered under any other provision of this Agreement, the Seller shall deliver or cause to be delivered at the Closing:

                    (1) Certificate(s) representing the Stock duly executed so as to transfer and assign the Stock to Buyer;

                    (2) True copies of the Articles of Incorporation and By-laws of the Company;

                    (3) The minute book (if separate from the minute book of Seller) and corporate seal for the Company (if in Seller’s position);

                    (4) Resignations of each of the Company’s directors dated as of Closing Date;

                    (5) A certificate of the Seller certifying as to the fulfillment of the conditions specified in Sections 8(a)(i) and 8(a)(ii); and

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                    (6) Such other documents as the Buyer may reasonably request for the purpose of facilitating or evidencing the consummation of the Transactions.

               (ii) Closing Deliveries by the Buyer. In addition to any other document to be delivered under any other provision of this Agreement, the Buyer shall deliver or cause to be delivered at the Closing:

                    (1) Immediately available funds in payment of the Cash Portion of the Purchase Price, less the Closing Credit;

                    (2) The Note and each of the five (5) Deferred Revenue Notes;

                    (3) The Pledge Agreement;

                    (4) Assignments separate from the Stock certificates transferring the Stock in blank, to be held by the Escrow Agent, pursuant to the Pledge Agreement; and

                    (5) Such other documents as the Seller may reasonably request for the purpose of facilitating or evidencing the consummation of the Transactions.

     3. Representations and Warranties of the Company and the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 3 are, to Seller’s actual knowledge, but without additional investigation, correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the Schedules attached hereto or as otherwise known to Buyer, as a result of Buyer knowledge gained during the course of Buyer’s employment with Seller, that such representations and warranties are inaccurate as made by Seller. When referring to “Seller’s knowledge”, “Seller’s actual knowledge” or terms to that effect, it shall be deemed to be referring to the actual knowledge of Seller’s Executive Vice President and Chief Financial Officer, Mr. Paul M. Harbolick, Jr. and no other Person.

          (a) Organization, Qualification, and Corporate Power. The Company is a corporation duly organized, validly existing, and in good standing under the jurisdiction of its incorporation. The Company is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. The Company has full corporate power and authority and all licenses, permits, and authorizations necessary to carry on the Business and to own and use the Assets.

          (b) Authorization of Transaction. The Seller has full power and capacity to execute and deliver this Agreement and to perform his obligations herein. This Agreement and the documents referenced herein to which the Seller is a party constitute the valid and legally binding obligations of the Seller, enforceable in accordance with their terms and conditions.

          (c) Non-contravention. Neither the execution and the delivery of this Agreement and the documents referenced herein, nor the consummation of the transactions contemplated hereby (the “Transactions”), will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which the Seller is subject, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any Contract, Permit or other arrangement to which the Seller or the Company is a party or by which it or he is bound or

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to which any of the Assets is subject (or result in the imposition of any Encumbrance upon any of the Assets). Unless otherwise specifically provided in this Agreement, the Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order for the Parties to consummate the Transactions or continue the effectiveness of any Permits relating to the Business following the Closing.

          (d) Capitalization. The authorized capital stock of Company consists of only 15,000 shares of common stock, no par value, of which only 10,000 shares are outstanding. The Seller is the record holder and beneficial owner of the Stock, free and clear of all Encumbrances. There are no outstanding (1) securities of Company other than the Stock, (2) options, warrants or other rights to acquire any capital stock or other securities of Company, or (3) securities that are convertible into or exchangeable for any capital stock or other securities of Company. Except for this Agreement, there are no Contracts or commitments relating to the issuance, sale or transfer of the Stock or any other capital stock or other securities of Company. The Stock has been duly authorized and validly issued and is fully paid and non-assessable.

          (e) Title to Assets. The Company has good and marketable title to, or a valid leasehold interest in, the Assets and the Leased Premises, free and clear of all Encumbrances. The Assets and the Leased Premises constitute all of the assets that are used in, or necessary to the operation of, the Business.

          (f) Subsidiaries. With the exception of the Battlefield Agency, the Company has no interest in any other entity or Subsidiary. The Company does not control, directly or indirectly, or have any direct or indirect equity participation in any Person.

          (g) Financial Statements. The Company has heretofore made available to the Buyer and the Buyer acknowledges having received and reviewed the following financial statements (collectively the “Financial Statements”): (i) most recent internal monthly statement of Income; and (ii) most recent year end statement of income.

          (h) Contracts. The attached Schedule 3(h), as prepared by Buyer and Seller and certified to by the Seller, is a list of all contracts to which the Company is bound. The Seller has disclosed to the Buyer all material agreements to which the Company is a party or by which it is bound (each a “Contract” and collectively the “Contracts”). Except as otherwise set forth in Schedule 3(h) or previously known to Buyer as a result of Buyers past employment relationship with the Seller, (i) there are no outstanding powers of attorney executed on behalf of the Company and (ii) the Company is not a guarantor or otherwise liable for any Liability or obligation (including indebtedness of any kind or nature) of any other Person.

          (i) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent Fiscal Year End, the Business of the Company has been operated in the Ordinary Course of Business and there has not been any adverse change in the business, financial condition, operations, results of operations, or future prospects of the Company or the Business. Without limiting the generality of the foregoing, except as disclosed in writing herein or to the extent known to Buyer as a result of Buyers past employment relationship with the Seller, since that date:

               (i) the Company has not sold, pledged, leased, transferred, or assigned any of the Assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

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               (ii) the Company has not imposed or permitted any Encumbrance upon any of the Assets;

               (iii) the Company has not issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation;

               (iv) there has been no change made or authorized in the charter or bylaws of the Company;

               (v) the Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, preemptive or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock;

               (vi) the Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, employees, or stockholders;

               (vii) the Company has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; and

               (viii) the Company has not committed to any of the foregoing.

          (j) Undisclosed Liabilities. The Company does not have, and on the Closing Date the Company will not have, any Liabilities, except for: (i) Liabilities set forth on the Financial Statements; (ii) Liabilities incurred in the Ordinary Course of Business; (iii) liabilities specifically indentified in the body of this Agreement; and (iv) such other liabilities as may be set forth in Schedule 3(j) attached hereto, which Schedule is prepared by Buyer and Seller and certified to by Seller.

          (k) Legal Compliance. The Company has complied in all material respects with all applicable Laws relating to the operation of the Business, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. The Company possesses, and is in compliance with, the terms and conditions of, all franchises, consents, approvals, licenses, permits, certificates, and other authorizations (“Permits”) from any Governmental Authority that are necessary for the ownership of its assets and the conduct of the Business as presently conducted in the Ordinary Course of Business. With respect to each such Permit: (i) the Permit is in full force and effect; (ii) the Company and/or the Seller is not in breach or default, and no event has occurred which, with notice or lapse of time, or both, would constitute a breach or default, or permit termination or modification of the Permit; and (iii) to the extent assignable, the Permit will continue in full force and effect on identical terms for the benefit of the Buyer following the consummation of the Transactions.

          (l) Tax Matters.

               (i) Past Taxes Prior to 2009. The Company has filed all Tax Returns with the IRS that it was required to file for all years prior to and including 2008 (the “Prior Returns”). To the actual knowledge of the Seller, the Prior Returns were correct and complete in all respects. The Prior Returns, as they relate to the Company, are not currently subject to an audit by the IRS, nor is there any dispute or claim with the IRS concerning any Liability with respect to any Prior Returns as they relate to the Company.

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               (ii) Current Taxes for 2009. The Tax Returns for tax year 2009 are not yet due and payable and have not been filed (the “2009 Tax Returns”). It is anticipated that the Company will owe Taxes for calendar year 2009 for income earned during the same period (the “2009 Tax Liability”). The 2009 Tax Liability of the Company through the Closing Date will be reflected on the Closing Date Balance Sheet and Seller shall receive credit therefore. The Seller shall pay for and prepare the 2009 tax returns for the Company to the Closing Date. Buyer shall be responsible for paying and preparing all tax returns for the Company from and after the Closing Date.

          (m) Real Property. The Company does not own any real property. The Company does not lease any real property except pursuant to the Leases (the “Leased Premises”). With respect to each Lease: (i) the Lease is legal, valid, binding, enforceable, and in full force and effect in all material respects; (ii) no party to the Lease is in material breach or default, and no event has occurred which, with notice or lapse of time, would constitute a material breach or default or permit termination, modification, or acceleration thereunder; (iii) no party to the Lease has repudiated any material provision thereof; (iv) there are no material disputes, oral agreements, or forbearance programs in effect as to the Lease; (v) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the Lease; (vi) the Leased Premises have received all approvals of Governmental Authorities (including material licenses and permits) required in connection with the operation thereof; and (vii) there are no leases, subleases or similar agreements granting any Person other than the Company the right of use or occupancy of any portion of the Leased Premises.

          (n) Intellectual Property. The Company is not, and has not received written notice or complaint that it is, infringing upon the intellectual property rights of any third party with respect to the Company’s use of any such Intellectual Property.

          (o) Tangible Assets. The Company owns or leases all buildings, machinery, equipment, and other tangible assets used in the conduct of the Business as presently conducted. Schedule 3(o) lists all material items of personal property owned by the Company which are included in the Assets and each such item not owned by the Company but used in the Business and subject to rental or lease payments therefor. With respect to any such property leased by the Company (the “Leased Personal Property”), Schedule 3(o) lists any agreement (a “Personal Property Lease”) relating to the use of such item of Leased Personal Property. The Company has delivered to the Buyer a correct and complete copy of each such Personal Property Lease (as amended to date).

          (p) Insurance. Schedule 3(p) sets forth each insurance policy (including policies providing property, casualty, liability, and workers’ compensation coverage and bond and surety arrangements) to which the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past three (3) years. Except as set forth in Schedule 3(p) prepared by Buyer and certified to by Seller (i) there are no claims pending under any of said policies or bonds or disputes with underwriters, and all premiums due and payable have been paid and (ii) there are no pending or threatened terminations with respect to any of such policies and bonds and the Company is in compliance with all conditions contained therein. All such policies and bonds are in full force and effect. True, correct, and complete copies of each such insurance policy have been delivered to the Buyer. Schedule 3(p) describes any self-insurance arrangements affecting the Company.

          (q) Litigation. The Company (i) is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge and (ii) is not a party and has not been threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. The

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Company and the Seller have no any reason to believe that any such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Company.

          (r) Employees. To the Seller’s actual knowledge, the Company has not, and neither the Seller nor the Company has received any notice or complaint that the Company has, committed any unfair labor practice or failed to comply with the Immigration and Nationality Act, as amended from time to time, and the rules and regulations promulgated thereunder.

          (s) Employee Benefits. The Company has delivered to the Buyer and the Buyer acknowledges having received summary descriptions of all Employee Benefit Plans maintained (or previously maintained) by the Company (the “Employee Plans”), together with complete and accurate copies of all Employee Benefit Plan documents for each of the Employee Plans.

          (t) Environmental, Health, and Safety Matters. To the Seller’s knowledge the Company has complied, and neither the Seller nor the Company has received any notice or complaint alleging that the Company has failed to comply, with all Environmental, Health, and Safety Requirements.

          (u) Brokers’ Fees. Neither the Company nor the Seller has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the Transactions.

          (v) Disclosure. The representations and warranties contained in this Section 3 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 3 not misleading.

     4. Representations and Warranties of the Buyer. The Buyer represents and warrants to the Seller that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4).

          (a) Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order to consummate the Transactions.

          (b) Non-contravention. Neither the execution and the delivery of this Agreement, nor the consummation of the Transactions, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which the Buyer is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject.

          (c) Securities Legal Requirements. The Buyer is acquiring the Stock for its own account for investment purposes and not with a view to the distribution of the Stock, as contemplated in Section 2(11) of the Securities Act, in breach of applicable Law relating to the offer and sale of securities. The Buyer acknowledges, understands and agrees that the Stock has not been registered under the

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Securities Act or applicable state securities laws and will be subject to certain restrictions on its transferability in order to comply with applicable Laws relating to the offer and sale of securities.

          (d) Brokers’ Fees. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the Transactions.

     5. Access to Properties and Records. From and after the date of this Agreement until Closing, Sellers shall, and shall cause their accountants, counsel, employees and agents to, afford to Buyer and their attorneys, accountants and other authorized representatives full and free access to the facilities, properties, books and records of the Company in order that Buyers may have full opportunity to make whatever investigation they shall deem necessary of the Company and its affairs, provided that all such access and investigation shall be upon reasonable prior notice to Sellers, shall be conducted outside normal business hours of the Company (8:30 am to 6:00 pm, Monday through Friday), and shall not otherwise unreasonably interfere with the operations of the Company.

     6. Operation of the Business of the Company. Between the date of this Agreement and the Closing Date, the Seller and the Buyer will cause the Company to: (i) conduct the Business only in the Ordinary Course of Business in a good and diligent manner; (ii) use their respective reasonable best efforts to keep available the services of the current employees of the Business, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Business; (iii) confer with one another concerning operational matters of a material nature; and (iv) otherwise report periodically to one another concerning the status of the Business, operations and finances of the Business. The Seller and the Buyer shall not cause the Company to (x) make any dividend or distributions to the Seller or the Buyer outside the Ordinary Course of Business or (y) sell, assign, convey, gift or otherwise transfer any material Assets to the Company, in each case without the prior written consent of the Buyer. Notwithstanding the foregoing, Buyer and Seller have agreed that up to five (5) employees of the Company shall be terminated by Seller on or prior to the Closing Date. The identity of each employee to be terminated shall be agreed to by and between the Buyer and Seller prior to Closing.

     7. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing.

          (a) General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party may reasonably request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 9 below). The Buyer agrees to provide the Seller reasonable access to all documents, books, and records of the Company for the purpose of the preparation of any tax returns by the Seller after the Closing.

          (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, each of the other Parties will cooperate with the Party actively contesting or defending the foregoing and the Party’s counsel in such contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at no cost to

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the defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 9 below).

          (c) Confidentiality. Between the date of this Agreement and the Closing Date, the Parties will, and will cause their respective representatives to, maintain in confidence, and not use to the detriment of another Party any Confidential Information obtained in confidence from another Party in connection with this Agreement or the Transactions, unless (i) such information is or becomes generally available to the public other than as a result of a disclosure by such other Party, (ii) such information was or becomes available to such other Party on a non-confidential basis from a source other than the disclosing Party, provided that such source is not bound by an obligation of confidentiality, (iii) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Transactions or (iv) the furnishing or use of such information is required by or necessary or appropriate in connection with any proceeding or pursuant to any Law. If the Transactions are not consummated, each Party will return or destroy as much of such written Confidential Information as the other Party may reasonably request.

          (d) Transfer Taxes. Except as otherwise provided in this Agreement, each stamp, transfer, documentary, sales, use, registration, real property transfer, and other such Tax or fee (including any penalties and interest) incurred in connection with this Agreement and the Transactions (a “Transfer Tax”) shall be borne and paid by the one-half by Seller and one-half by Buyer. Seller shall properly file on a timely basis all necessary tax returns and other documentation with respect to any Transfer Tax, provided that where such return or other documentation is required to be filed on a joint basis, the Parties shall cooperate in the timely preparation and filing thereof. The Parties hereto shall cooperate in providing the information required by any returns or other documentation relating to the foregoing Transfer Taxes.

          (e) Good Faith Operation. Buyer covenants and agrees with Seller that for so long as any portion of the Note, the Deferred Revenue Payment and the Deferred Revenue Notes are outstanding (collectively the “Obligations”), the Buyer shall in good faith and with all commercial reasonableness, operate and maintain the Business of the Company, to include most particularly, the Employee Benefits Business Line portion of the Business. This covenant shall survive Closing for so long as any portion of Buyer’s Obligations remain outstanding.

          (f) Rent Credit. For so long as the Buyer is not otherwise in default of this Agreement or its payment obligations under the Note, the Deferred Revenue Payment, or any one or more of the Deferred Revenue Notes representing the Deferred revenue Payment, the Seller shall pay to Buyer or Company, as the case may be, a rent subsidy for the Manassas Lease (the “Rent Subsidy”). The Rent Subsidy shall be payable to Buyer on a quarterly basis starting on March 31, 2010. The annual Rent Subsidy payable by Seller shall be equal to: (i) the sum total of the Annual Base Rent and Additional Rent payable under the Manassas Lease by the Company; less (ii) the sum of Thirty Six Thousand and 00/100 Dollars ($36,000.00). The Rent Subsidy shall be payable for the balance of the primary Term of the Manassas Lease which is due to expire on or about October 1, September 30, 2013 (the “Rent subsidy Period”)and shall not be applicable for any renewal option periods provided under the Manassas Lease to Company. Notwithstanding the foregoing or any other term or provision contained in this Agreement, in the event the Buyer during the Rent Subsidy Period sells or otherwise transfers a majority interest in the Company to a Target Entity, Seller’s obligation to make Rent Subsidy payments shall terminate effective as of such transfer of the Company to the Target Entity.

          (g) Lease Renewal. It shall be Buyer’s sole responsibility and obligation to renew or renegotiate the terms, and/or otherwise to terminate, the Fredericksburg Lease and the Annandale

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Lease, both of which are currently on a month to month basis. It shall be Buyer’s sole responsibility and obligation to renew and/or renegotiate the term of the Manassas Lease when it expires after its primary Term on or about September 30, 2013. Buyer shall not under any condition exercise the option to renew the Manassas Lease, as provided therein, unless and until the Buyer causes the Landlord to terminate Seller’s Lease Guaranty. Buyer shall at all time indemnify, defend and hold harmless the Seller for any claims or causes of action brought against the Seller under the Lease Guaranty, which claim or cause of action is caused by Buyer default under the Manassas Lease after the Closing Date. This indemnity provision shall indefinitely survive Closing.

          (h) Non-competition Period.

               (i) The Seller covenants and agrees that it shall not, for a period of four (4) years after the Closing Date (the “Non-Compete Period”), either for its own account or as an agent, partner, manager or other representative of any Person, directly or indirectly, through one or more intermediaries, (1) engage in competition anywhere within a thirty five (35) mile radius of Seller’s current headquarters located at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151 or thirty five (35) mile radius of Seller’s Fredericksburg Location (together the “Restricted Territory”) with the operation of the Buyer or its successors or assigns of the business of an insurance agency, including, without limitation, marketing and sales of risk management, insurance and bond products and services, policies and other substantially similar agreements (collectively, the “Restricted Business”); or (ii), own, manage, operate, control or participate in the ownership (other than as the owner of equity securities representing two percent (2%) or less of the outstanding equity securities of any entity, the equity securities of which are publicly held or traded), management, operation, membership or control of any Person that competes with the Buyer in the Restricted Business or provides or offers to provide to any Person products or services provided by the Buyer in the Restricted Business or products or services substantially similar to those provided by the Buyer in the Restricted Business, anywhere in the Restricted Territory.

               (ii) Each of the covenants and agreements of the Seller set forth in this Section 7(h) shall be deemed to be and construed as a covenant and agreement independent of any other provision of this Agreement, and the existence of any claim or cause of action by such Person against the Buyer shall not constitute a defense to the enforcement of any such covenant or agreement. The Seller hereby acknowledges and agrees that the Buyer will sustain irreparable injury in the event of a breach or threatened breach by it of any of the covenants and agreements set forth in this Section and that the Buyer does not and will not have an adequate remedy at law for such breach or threatened breach. Accordingly, the Seller hereby consents and agrees that if it breaches or threatens to breach any such covenant or agreement, the Buyer shall be entitled to immediate injunctive relief and to specific performance. The foregoing shall not, however, be deemed to limit the remedies of the Buyer at law or in equity of any such breach or threatened breach.

               (iii) The Seller hereby acknowledges: (i) that its covenants and agreements in this Section are reasonably necessary for the protection of the Buyer’s legitimate business interests; (ii) that these covenants and agreements pose no undue hardship on such person and are reasonably limited as to duration and scope; and (iii) that these covenants and agreements are in addition to any covenants or agreements such person may make in other agreements executed or to be executed with the Buyer. Further, the covenants contained in this Section shall be presumed to be enforceable, and any reading causing unenforceability shall yield to a construction permitting enforcement. If any provision, term, phrase, or word in such covenants shall be found unenforceable, it shall be severed and the remaining covenants enforced in accordance with the tenor of such Section to the greatest extent permitted by law. In the event a court should determine not to enforce such a covenant a written due to overbreadth, the

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parties specifically agree that the court shall enforce the covenant to the extent reasonable as determined by the court, whether said revision be in time, territory, or scope of prohibited activities.

               (iv) Due to the ongoing relationship between the Seller and the Buyer, it is estimated that this relationship is worth approximately Fifty Thousand and 00/100 Dollars ($50,000.00) per year to the Buyer (a total of Two Hundred Thousand and 00/100 Dollars ($200,000.00) over four (4) years). In the event Seller violates this Agreement, Seller agrees to pay Buyer, as liquidated damages and not as a penalty, the sum of Two Hundred Thousand and 00/100 Dollars ($200,000.00) pro-rated from the date of the violation until four (4) years from the Closing Date.

               (v) Notwithstanding anything to the contrary contained in this Section 7(h), the Seller shall be permitted to continue to do business and participate in, as in the past, with and through “LINSCO Private ledger” (hereinafter “LPL”). Any and all activity by Seller through the LPL channel shall be excluded from the covenants contained in this Section 7(h) and shall not be deemed as a violation thereof.

          (i) Retention of Alliance Name. Notwithstanding any other term or provision contained in this Agreement to the contrary, Buyer acknowledges that the name “Alliance” is proprietary to the Seller and that continued use of the name has the potential of creating confusion and conflict with the general public. Buyer and the Company shall be entitled to use the name “Alliance” as part of its formal name for a period of four (4) years from the date of this Agreement. Thereafter, Buyer shall immediately take all steps necessary with the Virginia State Corporation Commissions and with all other regulatory entities with authority over the Company, to legally change and publically removing the “Alliance” name from the name of the Company and from all of its letterheads, correspondence and business documents. This covenant shall indefinitely survive Closing. Seller shall be entitled to enforce this provision through all available legal or equitable mean, to include specific performance.

     8. Conditions to Obligation to Close.

          (a) Condition to Obligation of Buyer. It shall be a condition to the Buyer’s obligation to close hereunder, which condition it may waive in its sole discretion, that:

               (i) the representations and warranties of the Seller and the Company shall be true and correct in all respects at and as of the Closing Date, and the Company and the Seller shall have delivered to the Buyer a certificate to the effect that such condition is satisfied in all respects;

               (ii) the Seller shall have performed and complied with all of his covenants herein in all respects through the Closing;

               (iii) all actions to be taken by the Company or the Seller in connection with consummation of the Transactions and all certificates, opinions, instruments, and other documents required to effect the Transactions will be reasonably satisfactory in form and substance to the Buyer.

The Buyer may waive any condition specified in this Section 8(a) if it executes a written instrument so stating at or prior to the Closing.

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          (b) Conditions to Obligations of Seller.

               (i) Performance by Buyer. In addition to the conditions set forth elsewhere herein, the obligations of Seller under this Agreement are, at the option of Seller, subject to the condition that at or prior to the Closing the conditions of this Section 8(b) shall have been met;

               (ii) Execution. This Agreement shall have been signed by Buyer obligating and committing Buyer to purchase the Stock from Sellers;

               (iii) Compliance. All of the terms, covenants, and conditions of this Agreement to be complied with or performed by Buyer at or before the Closing shall have been duly complied with and performed;

               (iv) In Effect at Closing. The representations and warranties of Buyer set forth herein shall be true, accurate and complete on and as of the Closing. The provisions of this paragraph shall be self-executing, and Buyer, by having closed the sale hereunder, shall be deemed conclusively to have certified at Closing that all such representations and warranties are true, accurate and complete on and as of the Closing;

               (v) No Adverse Proceeding. No action shall have been instituted and remain pending before a grand jury or court or other governmental entity (a) for the purpose of enjoining or preventing the consummation of this Agreement or any of the transactions contemplated hereby or (b) which claims that this Agreement, such transactions, or their consummation, is illegal.

The Seller may waive any condition specified in this Section 8(a) if it executes a written instrument so stating at or prior to the Closing.

     9. Survival; Indemnification.

          (a) Survival of Representations and Warranties. Unless it is expressly otherwise indicated elsewhere in this Agreement and with the exception of Danaher’s obligation under the Note, the Deferred Revenue Payment and the corresponding Deferred Revenue Notes, all of the representations, warranties and covenants of the Parties contained in this Agreement shall survive the Closing and continue in full force and effect for a period of four (4) years from the Closing Date, and no longer.

          (b) Indemnification Provisions for Benefit of the Buyer. The Seller agrees to indemnify the Buyer for, and will pay to the Buyer the amount of, any loss, liability, claim, damage (including incidental, consequential, punitive and special damages), expense (including reasonable costs of investigation and defense and reasonable attorneys’ fees), whether or not involving a third-party claim (collectively, “Damages”) arising, directly or indirectly, from or in connection with:

               (i) any breach by the Seller of any of its representations, warranties, and covenants contained in this Agreement;

               (ii) any claim made against the Buyer pursuant to or under a Lease or the Lease Guaranty, for payments or damages owed prior to the Closing Date; and

               (iii) any claim brought against Buyer after the Closing Date resulting materially from Seller’s pre Closing actions or activities with respect to the Business.

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          (c) Indemnification Provisions for Benefit of the Seller.

               (i) The Buyer agrees to indemnify the Seller for, and will pay to the Seller the amount of, any Damages arising, directly or indirectly, from or in connection with:

                    (1) any breach by the Buyer of any of its representations, warranties, and covenants contained in this Agreement;

                    (2) any claim made against the Seller pursuant to or under a Lease or the Lease Guaranty; or

                    (3) any claim brought against Seller after the Closing Date resulting from Buyer’s post Closing actions or activities with respect to the Business.

               (ii) Danaher agrees to indemnify the Seller for, and will pay to the Seller the amount of, any Damages arising, directly or indirectly, from or in connection with failure of Danaher to timely pay the Note, the Deferred Revenue Payment as represented by the Deferred Revenue Notes, or any other sums due Seller under this Agreement.

          (d) Matters Involving Third Parties.

               (i) If any third party shall notify any Party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against any other Party (the “Indemnifying Party”) under this Section 9, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation herein unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced.

               (ii) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within 15 days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any Damages the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations herein, (C) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party (it being understood that any Third Party Claim involving a Person or entity which is a customer, subcontractor or supplier of the Buyer following the Closing will be deemed to involve the possibility of such a precedential custom or practice), and (E) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently.

               (iii) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 9(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld

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unreasonably), and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld unreasonably).

               (iv) In the event any of the conditions in Section 9(d)(ii) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (B) the Indemnifying Parties will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys’ fees and expenses), and (C) the Indemnifying Parties will remain responsible for any Damages the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 9.

     10. General Provisions.

          (a) Remedies. The Parties shall each have and retain all other rights and remedies existing in their favor at law or equity, including, without limitation, any actions for specific performance and/or injunctive or other equitable relief to enforce or prevent any violations of the provisions of this Agreement.

          (b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

          (c) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior letter(s) of intent, understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.

          (d) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of their rights, interests, or obligations hereunder without the prior written approval of the other Party.

          (e) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

          (f) Headings. The section headings contained in this Agreement (including the documents referred to herein) are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

          (g) Notices. All notices, requests, demands, claims, and other communications shall be in writing. Any notice, request, demand, claim, or other communication shall be deemed duly given if (i) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (ii) sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below or (ii) sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment to the facsimile number set forth below:

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If to the Seller:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr.,	Attention: V. Rick Nishanian, Esq.
EVP & CFO
If to the Buyer:	Copy to:
c/o Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley
	and to Skewes at:
	Oswald H. Skewes
	9261 Sumner Lake Blvd.
	Manassas, VA 20110

Any Party may change the address or facsimile number to which notices, requests, demands, claims, and other communications are to be delivered by giving the other Parties notice in the manner herein set forth.

          (h) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the Commonwealth of Virginia without giving effect to any choice or conflict of law provision or rule (whether of the Commonwealth of Virginia or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Virginia.

          (i) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant herein, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant herein or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

          (j) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

          (k) Expenses. Each of the Parties will bear his or its own costs and expenses (including attorney fees and expenses) incurred in connection with this Agreement and the Transactions.

          (l) Further Assurances. The Parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other Party(ies) may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

          (m) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this

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Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state or local statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation. Whenever the context of this Agreement requires, the masculine gender includes the feminine or neuter and vice versa, and the singular number includes the plural. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there has been an investigation by the other Party or the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. Nothing in the Schedules attached hereto shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless the applicable Schedule identifies the exception with particularity and describes the relevant facts in detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself).

          (n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

          (o) Nonreliance. Each Party represents and warrants to the others that: (i) it has conducted its own independent investigation of the Company, the Buyer, and the assets to be conveyed and the consideration to be exchanged pursuant to this Agreement, relying only upon the express representations, warranties, and covenants of the Parties set forth herein, and the documents produced in compliance herewith; (ii) it has reviewed this Agreement and its incorporated exhibits, schedules, and documents with the advice of his or its own legal counsel and other advisors; and (iii) except as expressly set forth herein, no additional representations or warranties are made by any Party and each Party has entered into this Agreement without reliance upon any other inducement or consideration not otherwise provided for herein. No Party has made any representation to any other Party regarding the tax consequences of any portion of this transaction and each Party represents to the other Parties that it has consulted with its own tax advisor and is satisfied with the tax consequences of this transaction.

          (p) Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(q) below), in addition to any other remedy to which they may be entitled, at law or in equity. The Parties hereby waive the requirement that a bond be posted in connection with the exercise of this specific performance remedy.

          (q) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Fairfax County, Virginia, in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Each Party agrees that a final judgment in any

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action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or at equity.

          (r) Waiver of Jury Trial. NO PARTY TO THIS AGREEMENT OR ANY ASSIGNEE, SUCCESSOR, HEIR, OR PERSONAL REPRESENTATIVE OF A PARTY SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER AGREEMENTS OR THE DEALINGS OR THE RELATIONSHIP BETWEEN THE PARTIES. NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.

     11. Other Miscellaneous Provisions.

          (a) Skewes Earn-out Payment. Pursuant to the terms of that certain Asset Purchase Agreement dated September 13, 2006 entered into by and between the Battlefield Agency, as the buyer, and Battlefield Insurance Agency, Inc., Northern Virginia Insurance Agency, Inc. and Skewes, collectively as the selling parties (the “Asset Purchase Agreement”), the Battlefield Agency is obligated, under certain conditions, to make payments to Skewes, which payments may include those defined in Section 2.3(a) of the Asset Purchase Agreement as a “Deferred Payment” and in Section 2.7(a)(iii) of the Asset Purchase Agreement as the “Third Earn-out Payment” (collectively the “Skewes Asset Purchase Payment”). For the sole purpose of this Agreement only and for no other purpose, the Parties hereto have agreed that as a result of and expressly subject to Buyer’s purchase of the Company, Seller shall pay to Skewes the Skewes Asset Purchase Payment, which Seller and Skewes have mutually agreed to be the sum of Three Hundred Thousand and 00/100 Dollars ($300,000.00). Upon Closing and the payment of the Skewes Asset Purchase Payment, Skewes shall forever release Seller and the Battlefield Agency from any and all claims or causes of action which Skewes may have for payment of the Skewes Asset Purchase Payment or any other sums due under the Asset Purchase Agreement (the “Asset Purchase Agreement/Payment Release”). The provisions governing the Asset Purchase Agreement/Payment release by Skewes shall indefinitely survive Closing and shall be self operative as of the Closing Date upon payment of the Skewes Asset Purchase Payment, all as if again made on the Closing Date by Skewes. Notwithstanding the foregoing, nothing herein shall be construed to be an admission by Seller that Skewes is otherwise entitled under the terms of the Asset Purchase Agreement to the Skewes Asset Purchase Payment.

          (b) Limitation on the Liability and Obligations of Skewes. Notwithstanding any other term, provision, covenant or warranty contained in this Agreement or any one of the Schedules attached hereto and made by or applicable to the Buyer, the liability and obligations of Skewes hereunder (including, without limitation, in connection with Sections 2(e) and 9) and thereunder to Seller, except in the event of gross negligence, intentional fraud or willful misconduct on the part of Skewes, shall not at any one time exceed the sum of two percent (2%) (or, the actual percentage of Skewe’s ownership interest in the Company) of the total amount of the claim made by Seller; provided that Skewes shall have no obligations or liability (whether through the indemnification contained in Section 9 or otherwise) in connection with the payment of the Note, the Deferred Revenue Payment or the Deferred Revenue Notes referred to in Section2(b). The provisions contained in this Section 11(b) is for the sole benefit of Skewes

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and nothing contained herein shall be deemed to enure to benefit of Danaher or to otherwise extinguish, limit or otherwise compromise the liability of Danaher to Seller under this Agreement.

[Signatures contained on separate page immediately following]

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above written.

SELLER:
ALLIANCE BANK CORPORATION,
A Virginia banking corporation
By:		(Seal)
	Name:
	Title:
BUYER:
		(Seal)
Thomas P. Danaher
		(Seal)
Oswald H. Skewes

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LIST OF EXHIBITS ATTACHED:

Exhibit Number	Description
Exhibit A	Definitions

LIST OF SCHEDULES ATTACHED:

Schedule Number	Description
Schedule 2(b)(ii)	Note
Schedule 2(b)(iii)	Deferred Revenue Notes
Schedule 2(c)(iv)	Closing Credit Calculation
Schedule 2(d)(iii)	Deferred Revenue Schedule
Schedule 2(e)(i)	Closing Date Balance Sheet
Schedule 2(f)	Pledge Agreement
Schedule 3(h)	Schedule of Contracts
Schedule 3(j)	Schedule of Liabilities
Schedule 3(o)	Schedule of Tangible Assets
Schedule 3(p)	Schedule of Insurance Policies & Claims

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EXHIBIT A
DEFINITIONS

      To the extend used in the Agreement, the following terms shall have the respective meanings set forth below:

     “Agreement” has the meaning set forth in the preface above.

     “Assets” all of the assets of the Company of every kind and nature including, but not limited to all tangible assets (including Inventory and cash) and all Intellectual Property.

     “Business” means the operation of a insurance agency business wherein the company sells various lines of commercial and consumer insurance policies and related services.

     “Buyer” has the meaning set forth in the preface above.

     “Closing” has the meaning set forth in Section 2(f) above.

     “Closing Date” has the meaning set forth in Section 2(f) above.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Company” has the meaning set forth in the preface above.

     “Confidential Information” means any information regarding the Business, the Company, or the Buyer which is or should reasonably be understood to be proprietary or confidential to the Buyer, including but not limited to information concerning Company’s and Buyer’s business, products, services, content, finances, marketing, vendors, customers, plans, designs, codes, protocols, price lists, business projections, historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training, techniques and materials, and Trade Secrets, acquired both prior to and after the date of this Agreement.

     “Contracts” means all contracts and agreements, written or oral, including all amendments and supplements thereto, to which the Company is a party or by which any of its assets or the Business are bound or which are otherwise material to the Company (including, without limitation, any Contract concerning confidentiality or non-competition or limiting Company’s ability to do business in any line of business or geographical area).

     “Damages” has the meaning set forth in Section 9(b) above.

     “Employee Benefit Plan” means any (a) Employee Pension Benefit Plan (as defined in ERISA Sec. 3(2), and including any Multiemployer Plan), (b) Employee Welfare Benefit Plan (as defined in ERISA Sec. 3(1)), or (c) fringe benefit plan or program whether written or oral.

     “Employee Plan” has the meaning set forth in Section 3(s) above.

     “Encumbrance” means any adverse claim, mortgage, pledge, lien, encumbrance, option, restriction on transfer, easement, right of way, matter of survey, charge, or other security interest.

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     “Environmental, Health, and Safety Requirements” shall mean all federal, state and local statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Financial Statements” has the meaning set forth in Section 3(g) above.

     “GAAP” means United States Generally Accepted Accounting Principles.

     “Governmental Authority” means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court of the United States of America or any political subdivision thereof, or of any other country.

     “Indemnified Party” has the meaning set forth in Section 9(d) above.

     “Indemnifying Party” has the meaning set forth in Section 9(d) above.

     “Intellectual Property” means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice) all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith; (d) all master works and all applications, registrations, and renewals in connection therewith; (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, diagrams, specifications, customer and supplier lists, client databases and mailing lists, catalogs, pricing and cost information, and business and marketing plans and proposals); (f) all e-mail addresses, websites, domain names, URLs, and computer software (including data and related documentation) (whether purchased or internally developed); (g) all other proprietary rights; (h) all information systems and management procedures; and (i) all copies and tangible embodiments thereof (in whatever form or medium).

     “Inventory” means all inventories of goods, materials and supplies owned or held by the Company for resale by the Business and usable or salable in the ordinary course of the Business.

     “IRS” shall mean and refer to the Internal Revenue Service.

     “Law” means any law, rules, regulation, code, plan, injunction, judgment, order, decree or ruling, and charges thereunder, of any Governmental Authority.

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     “Landlord” with respect to the Annandale Location shall mean Danaher Family, LLC; with respect to the Manassas Location shall mean Ballsford Office Campus One, L.L.C.; and with respect to the Fredericksburg Location it shall mean Thomas Agency, Inc.

     “Lease” with respect to the Annandale Location shall mean that certain office lease dated November 15, 2005, by and between the Company and Landlord, as the same has been amended through the date hereof, which Lease is currently on a month-to-month basis (the “Annandale Lease”); with respect to the Manassas Location shall mean that certain office lease dated September 15, 2006, by and between Battlefield Agency and Landlord, as the same has been amended through the date hereof, which Lease is currently in the fourth (4^th) term of a seven (7) year term (the “Manassas Lease”); and with respect to the Fredericksburg Location it shall mean that certain office lease dated April 5, 2007, by and between the Company and Landlord, as the same has been amended through the date hereof, which Lease is currently on a month-to-month basis (the “Fredericksburg Lease”).

     “Lease Guaranty” with respect to the Manassas Location shall meant that certain Lease Guaranty Agreement dated as of September 15, 2006 and provided by the Seller on behalf of the Company and for the benefit of the Manassas Location Landlord.

     “Leased Personal Property” has the meaning set forth in Section 3(o) above.

     “Leased Premises” has the meaning set forth in Section 3(m) above.

     “Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for debts, leases of real or personal property, Taxes, trade accounts payable or any other payable.

     “Multiemployer Plan” has the meaning set forth in ERISA Sec. 3(37).

     “Non-Competition Period” has the meaning set forth in Section 7(d) above.

     “Ordinary Course of Business” means the ordinary course of business consistent with the past custom and practice of the Company (including with respect to quantity and frequency).

     “Parties” has the meaning set forth in the preface above.

     “Party” has the meaning set forth in the preface above.

     “Permits” has the meaning set forth in Section 3(k) above.

     “Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a limited liability company, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).

     “Personal Property Lease” has the meaning set forth in Section 3(o) above.

     “Premises” shall mean the Company’s management offices and principal premises, located at 4200 Evergreen lane, Suite 322, Annandale, Virginia 22003.

     “Purchase Price” has the meaning set forth in Section 2(b) above.

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     “Securities Act” means the Securities Act of 1933, as amended.

     “Seller” has the meaning set forth in the preface above.

     “Stock” has the meaning set forth in the preface above.

     “Subsidiary” means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.

     “Tax(s)” means any federal, state, local, or foreign income, capital gains, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales and use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

     “Tax Liability” shall mean any liability which the Company may have for unpaid Taxes due and/or unpaid.

     “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

     “Third Party Claim” has the meaning set forth in Section 9(e) above.

     “Trade Secrets” have the meaning provided by the Uniform Trade Secrets Act, §§ 59.1-336 to 59.1-343, of the Code of Virginia (1950, as amended).

     “Transactions” has the meaning set forth in Section 3(c) above.

     “Transfer Tax” has the meaning set forth in Section 7(d) above.

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Schedule 2(b)(ii)

NOTE

[See Attached]

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Schedule 2(b)(iii)

DEFERRED REVENUE NOTE(s)

[See Attached]

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Schedule 2(c)(iv)

CLOSING CREDIT CALCULATION

[See Attached]

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Schedule 2(d)(iii)

DEFERRED REVENUE SCHEDULE

[See Attached]

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Schedule 2(e)(i)

CLOSING DATE BALANCE SHEET

[See Attached]

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Schedule 2(f)

PLEDGE AGREEMENT

[See Attached]

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Schedule 2(j)

SCHEDULE OF LIABILITIES

A) Normal, customary and ordinary trade payables to the following insurance carriers:

1) Travelers Insurance
2) Hartford Insurance
3) CNA Insurance
4) EMC Insurance
5) Zurich Insurance
6) Capitol Indemnity Group
7) Harleysville Insurance
8) Harford Mutual insurance
9) Greater New York Insurance
10)Ohio Casualty insurance
11)Southern Insurance
12)General Casualty Insurance
13)Allied Insurance Group
14)Builders Mutual Insurance
15)Accident Fund Insurance
16)State Auto
17)Emc Insurance
18)Auto Owners Insurance
19)Companion Insurance
20)Berkley Insurance
21)Hanover insurance
22)Met Life Insurance
23)Philadelphia Insurance
24)Utica Insurance

B)	Employment Agreement by and between Jesse R. Thomas, Jr. and Alliance Insurance Agency, Inc.
C)	Various copier leases with De Lage Landen.
D)	Various postage meter leases with Pitney Bowes.
E)	Various data line arrangements with Verizon.
F)	Various telephone arrangements with Verizon.
G)	Various telephone arrangements with AT&T.
H)	Various software and maintenance agreements with Applied.
I)	Employees to be terminated: Sandra Adams, Cheryl Webster, Teresa Lowery and Juan Holquin

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Schedule 3(o)

SCHEDULE OF TANGIBLE ASSETS

-NONE-

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Schedule 3(o)

SCHEDULE OF CONTRACTS

A) Contracts with Carriers consisting of the following insurance carriers:

1) Travelers Insurance
2) Hartford Insurance
3) CNA Insurance
4) EMC Insurance
5) Zurich Insurance
6) Capitol Indemnity Group
7) Harleysville Insurance
8) Harford Mutual insurance
9) Greater New York Insurance
10)Ohio Casualty insurance
11)Southern Insurance
12)General Casualty Insurance
13)Allied Insurance Group
14)Builders Mutual Insurance
15)Accident Fund Insurance
16)State Auto
17)Emc Insurance
18)Auto Owners Insurance
19)Companion Insurance
20)Berkley Insurance
21)Hanover insurance
22)Met Life Insurance
23)Philadelphia Insurance
24)Utica Insurance

B)	Employment Agreement by and between Jesse R. Thomas, Jr. and Alliance Insurance Agency, Inc.
C)	Various copier leases with De Lage Landen.
D)	Various postage meter leases with Pitney Bowes.
E)	Various data line arrangements with Verizon.
F)	Various telephone arrangements with Verizon.
G)	Various telephone arrangements with AT&T.
H)	Various software and maintenance agreements with Applied.

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SCHEDULE 3(P)

SCHEDULE OF INSURANCE POLICIES AND CLAIMS

1)	Insurance Policies: See Attached marked as “Schedule of Insurance Policies”
2)	Claims: None

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VIRGINIA STATUTORY NOTICE UNDER SECTION 8.01-433.1

“IMPORTANT NOTICE — THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.”

TERM NOTE

$650,000.00 December 29, 2009

     FOR VALUE RECEIVED, the undersigned, THOMAS P. DANAHER (the “Borrower”), promises to pay to the order of ALLIANCE BANK CORPORATION, a Virginia banking corporation, its successors and assigns (the “Lender”) with offices at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151, or at such other address as the Lender shall specify in writing, in lawful money of the United States of America, the principal sum of SIX HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($650,000.00) together with interest on the unpaid principal balance advanced at the rate and on the terms hereinafter provided, all without offset or deduction (including all modifications, amendments, substitutions, renewals or extensions hereof and allonges hereto, the “Note”).

     1. Definitions. The specified terms, as they may be used in this Note and unless otherwise defined herein, shall have the same meaning as defined in the Pledge Agreement (defined below):

          “Control” of a Person means (i) ownership, control, or power to vote 51% or more of any class of voting securities of such Person, directly or indirectly or acting through one or more other Persons; (ii) control in any manner over the election or appointment of a majority of the directors, trustees, managers or general partners (or individuals exercising similar functions) of such Person; (iii) the direct or indirect power to exercise a controlling influence over the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise; or (iv) conditioning in any manner the transfer of 51% or more of any class of voting securities of such Person upon the transfer of 51% or more of any class of voting securities of another Person.

          “Party” shall mean and refer to the Borrower and any endorser or guarantor of this Note, any grantor or debtor giving security for this Note.

          “Person” shall mean and refer to an individual, a corporation, a partnership, an association, a limited liability company, a trust or any other entity or organization.

          “Pledge Agreement” shall mean that certain Security, Pledge and Escrow Agreement, dated as of the date hereof, by and between the Borrower and the Lender.

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the date hereof, by and between the Borrower, Oswald H. Skewes and the Lender and the other parties thereto.

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     2. Interest Rate. During the term of this Note and up to and including the Maturity Date (hereinafter defined), privilege is reserved to repay this Note without interest. The entire principal balance shall be due and payable on the Maturity Date.

     3. Payment and Maturity.

          (a) The entire principal balance of this Note, and all fees and costs reserved hereunder, shall be due and payable in full on February 15, 2011 (the “Maturity Date”).

          (b) All payments due under this Note shall be payable in immediately available funds in lawful money of the United States which shall be legal tender for public and private debts at the time of payment. The making of any payment in other than immediately available funds, which the Lender, at its option elects to accept, shall be subject to collection, and interest shall continue to accrue until the funds by which payment is made are available to the Lender for its use.

     4. Prepayment. The Borrower may prepay the whole or any part of the outstanding indebtedness evidenced by this Note at any time prior to the Maturity Date without penalty or expense. Any partial prepayment shall be applied against the interest and costs due on this Note and then to the principal sum then outstanding.

     5. Application of Payments. For the purposes of computing interest on the debt evidenced by this Note, the principal sum outstanding shall be calculated on the basis of three hundred sixty (360) day calendar year with actual number of days elapsed in each month. Payments on this Note shall be applied first to late charges, reasonable costs of collection and enforcement, then to pay or to reimburse the Lender for any costs incurred or advances made by the Lender under a security or pledge agreement securing this Note, then to pay accrued and unpaid interest, and the remainder to pay principal then due and payable hereunder. Except in the case of manifest error, the Lender’s books and records shall be presumed correct as to the sums outstanding under this Note.

     6. Late Charge. In the event that this Note is not paid as scheduled on or before the Maturity Date, the Lender shall be entitled to collect a “late charge” in an amount equal to five percent (5.0% ) of the outstanding principal balance of this Note.

     7. Default and Acceleration.

          (a) Default. Each of the following events or conditions shall constitute an event of default under this Note (hereinafter “Default” or an “Event of Default”): (i) the failure to make any payment of principal or any other amount due under this Note when such payment is due; (ii) any default under the terms of the Pledge Agreement given by the Borrower to secure this Note; (iii) the merger, consolidation, reorganization, dissolution of any Party; or the pledge, lease or other disposition of all or substantially all of the assets of any Party; (iv) any change, or any transaction which results or could result in a change in the Control of any Party; (v) any agreement or other document granting the Lender security for the payment of this Note shall cease for any reason to be in full force and effect as such security with the priority stated to be created thereby, or the grantor of such security shall contest the validity or enforceability of the security or deny that it has any further liability or obligation under such agreement or other document; (vi) any endorsement or guaranty of the payment of this Note shall cease for any reason to be in full force and effect or any endorser or guarantor shall contest the validity or enforceability of the endorsement or guaranty or deny that it has any further liability or obligation under the endorsement or guaranty; (vii) the legal or equitable title to the collateral securing this Note becomes vested in anyone or anything other than the

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Borrower without the Lender’s prior written consent; (viii) the filing of any inferior lien or secondary financing against the collateral securing this Note without the prior written consent of Lender; or (ix) if any Party dies or is incarcerated, or is adjudicated legally incompetent, unless within ninety (90) days of such Party’s death, incarceration or legal incompetency a substitute obligor or guarantor with a comparable or greater net worth (as in effect as of the date of this Note), or otherwise satisfactory to the Lender, assumes the obligations of such deceased, incarcerated or legally incompetent Party.

          (b) Acceleration Upon Default.

               (i) If Default be made under this Note, at the option of the Lender, the full amount remaining unpaid on this Note shall become immediately due and payable without presentment, demand or notice of any kind, and the Lender may exercise any or all remedies available to it under applicable law.

               (ii) Failure to exercise any of the options aforementioned or the failure to exercise any other option herein provided shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Acceleration of maturity, once claimed by the Lender, may at its option be rescinded by an instrument in writing to that effect; however, the tender and acceptance of a partial payment or partial performance shall not, by itself, affect or rescind such acceleration of maturity.

          (c) Default Rate. In the event any payment due hereunder, including all payments due on the Maturity Date, is not paid when due (whether upon acceleration or otherwise), the entire principal balance shall start to bear interest from the date of this Note, until paid, at the rate of Twelve percent (12%) (the “Default Rate”). The Default Rate shall apply regardless of whether the Lender elects to accelerate the unpaid principal balance as a result of such Default. If judgment is entered against the Borrower on this Note, the amount of such judgment entered (which may include principal, interest, fees and costs) shall bear interest at such Default Rate as set forth above.

     8. Expenses of Collection, etc. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security hereof, the Borrower shall pay to the Lender its reasonable attorney’s fees incurred, whether suit be brought or not, and all other costs and expenses reasonably connected with collection, the protection of the security, the defense of any counterclaim, the enforcement (including without limitation, as a part of any proceeding brought under the Bankruptcy Reform Act of 1978, as amended) of any remedies herein provided for, or provided for in this Note, the Pledge Agreement and the enforcement of any guaranty.

     9. Acceptance of Partial Payment. The acceptance by the Lender of a partial payment of any sum due under this Note, whether occurring before or after an Event of Default, shall not be deemed to cure the Borrower’s failure to pay such sum in full or to waive any of the Lender’s rights or remedies available on account of such Default. In addition, after the Lender has accelerated payment of this Note upon the occurrence of an Event of Default, the tender of payment of less than the entire principal amount of this Note, all interest thereon, late charges and other sums due hereunder, or the acceptance by the Lender of less than full payment thereof, shall not be deemed to have cured the Event of Default, to constitute a reinstatement of this Note or to waive any of the Lender’s rights and remedies reserved by this Note or provided by applicable law.

     10. Waivers, etc. The Borrower and each endorser, surety and guarantor hereof jointly and severally (i) waive presentment, demand, protest notice of dishonor and any and all other notices and demands whatsoever, (ii) waive, to the extent permitted by law, all exemptions, whether homestead or

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otherwise, as to the obligation evidenced by this Note, (iii) waive any right which they may have to require the Lender to proceed against any other Party or foreclose on any collateral given to secure the payment of this Note, (iv) agree that, without notice to any Party and without affecting any such party’s liability, the Lender, at any time or times, may grant extensions of the time for any payment due on this Note, release any such party from its obligation to make payments on this Note, permit the renewal of this Note or permit the substitution, exchange or release of any security or collateral for this Note, (v) waive any right they may have to require reinstatement of this Note after the occurrence of an Event of Default and (vi) waive, to the extent permitted by law, any right they may have to a trial by jury in any action or proceeding to enforce or collect this Note, whether such action or proceeding is instituted by the Lender, the Borrower or any other party.

     11. Confession of Judgment.

          (a) Upon the occurrence of an Event of Default, the Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record, or the below designated attorney-in-fact or any successor named therefor to appear for the Borrower, or any of them, in any court of record and confess judgment against the Borrower, or any of them, without prior hearing, in favor of the Lender for, and in the amount of, the balance then due under the Note, all accrued and unpaid interest thereon, all other amounts payable by the Borrower to the Lender under the terms of this Note, costs of suit, and attorneys’ fees of twenty-five percent (25%) [of the principal amount of this Note]; provided however, that the Lender may not recover and collect from the Borrower attorneys’ fees in excess of its actual and reasonable attorneys’ fees finally incurred in acquiring judgment and collecting all sums due under this Note.

          (b) In the event that such judgment is to be confessed in the Commonwealth of Virginia, the Borrower, pursuant to Section 8.01-435 of the Code of Virginia, as amended, hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) V. Rick Nishanian of Fairfax, Virginia, and/or Randolph D. Frostick of Fauquier, Virginia, either of whom may individually act, as its duly constituted agent and attorney-in-fact (hereinafter referred to as the “Attorney-In-Fact”), which appointment shall be deemed to be coupled with an interest and shall not terminate upon the disability, insolvency or dissolution of the Borrower, to confess judgment against the Borrower (including all costs and reasonable attorney fees as set forth above), pursuant to the provisions hereof and the applicable provisions of the Code of Virginia, as amended, which judgment shall be confessed in the Clerk’s Office of the Circuit Court of Fairfax County, Virginia.

          (c) In addition to the foregoing and in the event the above referenced Attorney-In-Fact is unable to act, refuses to act or is disqualified from acting, the Borrower hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) the Lender, as the Borrower’s duly appointed agent and Attorney-In-Fact, with full right, power, privilege and authority to act on behalf of the Borrower, which power may be used from time to time by the Lender to designate such additional, substitute or alternate person(s) who may act as additional or substitute Attorney-in-Fact (the “Substitute Attorney-In-Fact”) or to designate such additional courts in Virginia or in other states, territories or jurisdictions in which by law judgment may be confessed against the Borrower. The Substitute Attorney-in-Fact shall have full power to confess judgment against the Borrower in accordance with the terms hereof, which designation shall be binding on the Borrower as if the said Substitute Attorney-In-Fact was originally designated herein by the Borrower. This power of attorney and appointment of the Substitute Attorney-In-Fact is

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irrevocable and coupled with an interest, and shall not terminate upon the disability, insolvency or dissolution of the Borrower.

          (d) The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant; provided that such multiple actions shall not, in the aggregate, result in any judgment for an amount in excess of the full amount due by the Borrower hereunder.

     12. Cross Default. The Borrower hereby understands, acknowledges and agrees that any default hereunder, or under the terms and provisions of the Pledge Agreement provided to secure this Note, shall be deemed to constitute a default under the terms and provisions of any other then existing and outstanding loan indebtedness owing from the Borrower, and/or guarantors thereof, to the Lender (the “Other Affiliated Debt”); and a default under the terms and provisions of the Other Affiliated Debt shall be deemed by the Lender to constitute a default hereunder.

     13. Borrower Acknowledgements and Warranties. The Borrower represents, acknowledges, and warrants that the obligations evidenced by this Note are exclusively incurred for the purpose of carrying on a business, professional, investment or other commercial enterprise or activity, and that no part of the proceeds of the loan evidenced by this Note will be used for personal, family or household purposes. This Note provides for the making of a loan by Lender, in its capacity as a lender, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to Lender. The relationship between Lender and the Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand. Nothing contained in this Note shall be construed as permitting or obligating Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating the Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Lender to Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Note. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Note, and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for credit and to execute and deliver this Note.

     14. Usury. It is the intention of the Borrower and the Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws the Commonwealth of Virginia and the laws of the United States of America) then, in that event, notwithstanding anything to the contrary in any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the Lender (or, if this Note shall have been paid in full, refunded to the Borrower) and (ii) in the event that maturity of this Note is accelerated by reason of an election by the Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount allowed by applicable law, and excess interest, if any, provided for in this Note or otherwise shall be canceled automatically as of the date of such

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acceleration or prepayment and, if therefore prepaid, shall be credited on this Note (or if this Note shall have been paid in full, refunded to the Borrower).

     15. Set-Off. The Lender will have the right, in addition to all other remedies permitted by law (including, without limitation, other rights of set-off), to set off the amount now or hereafter due under this Note or due under any other obligation of the Borrower to the Lender against any and all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower, without notice to or consent by the Borrower. In addition to the right of set-off, to secure the payment of this Note the Borrower assigns and grants to the Lender a security interest in all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower.

     16. Waiver of Jury Trial. The Borrower hereby (i) covenants and agrees not to elect a trial by jury of any issue triable of right by a jury, and (ii) waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily, by the Borrower, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. The Lender is hereby authorized and requested to submit this Note to any court having jurisdiction over the subject matter and the parties hereto, so as to serve as conclusive evidence of the Borrower’s waiver of the right to jury trial. Further, the Borrower hereby certifies that no representative or agent of the Lender (including the Lender’s counsel) has represented, expressly or otherwise, to the Borrower that the Lender will not seek to enforce this waiver of right to jury trial provision.

     17. Due on Sale and on Encumbrance. NOTICE – THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE, CONVEYANCE OR FURTHER ENCUMBRANCE OF THE PROPERTY SECURED BY THE PLEDGE AGREEMENT. Lender may, at its option, declare immediately due and payable all sums due under this Note upon the sale, transfer or further encumbrance, without the Lender’s prior written consent, all of any part of the collateral securing this Note. A “sale, transfer or encumbrance” means the conveyance of collateral securing this Note or any right, title, or interest therein; whether legal, beneficial, or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, assignment, or transfer of any beneficial interest, mortgage or its equivalent, or by any other method of conveyance. If any grantor of collateral securing this Note is a corporation, partnership, or limited liability company, the term transfer shall also include the transfer of any partnership or limited liability company interest.

     18. Account Record. The Lender shall maintain records of the dates and amounts of payments of principal and interest, the date to which interest has been paid, accrued interest, the unpaid principal balance, and any other account information. Such records shall be maintained unilaterally by the Lender without notice to the Borrower and shall be presumed to be correct, provided, however, any failure of the Lender to maintain such records or any error therein or in any notice hereunder shall not in any manner affect the obligation of the Borrower to pay this Note in accordance with the terms hereof.

     19. Notice. All notices, demands, requests and other communications required pursuant to the provisions of this Note shall be in writing and shall be deemed to have been properly given or served for all purposes when presented personally or sent by United States Registered or Certified Mail – Return Receipt Requested, postage prepaid as follows:

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If to the Lender:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.
If to the Borrower:	Copy to:
Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley

     20. Applicable Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

     21. Jurisdiction; Venue. The Borrower (a) submits to personal jurisdiction in the Commonwealth of Virginia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Note, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the Commonwealth of Virginia for the purpose of litigation to enforce this Note, and (c) agrees that service of process may be made upon the Borrower as provided below or in any manner prescribed by applicable federal rules of civil procedure or by applicable local rules or laws of civil procedure for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction.

     22. Service of Process. The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at the address set forth herein, or at such other address as the Borrower may furnish in writing to the Lender. The Borrower irrevocably agrees that such service shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrower. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law and nothing in this Section will limit the right of the Lender otherwise to bring proceedings against the Borrower, or any of them, in the courts of any other appropriate jurisdiction or jurisdictions.

     23. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns.

     24. Amendments. This Note may only be amended, modified or supplemented by a writing signed by all the parties hereto. No modification or waiver of any provision of this Note shall be effective as against the Lender unless it is in writing and signed by the Lender, and any such waiver shall be effective only in the specific instance and for the specific purpose for which it is given.

     25. Severability. If any provision of this Note, or the application thereof in any circumstance, is deemed to be unenforceable, the remainder of this Note shall not be affected thereby and shall remain enforceable and in full force and effect.

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     26. Collateral. This Note is secured by a Pledge Agreement of even date herewith encumbering all of Borrower’s interest in stock or shares in Alliance Insurance Agency, Inc.

     27. Time of The Essence. Time is of the essence with respect to all provisions of this Note.

     28. Miscellaneous. The nouns, pronouns, and verbs used in this Note shall be construed as being of such number and gender as the context may require. The headings used in this document are for ease of identification purposes only and are not to be construed to amend, modify or define any of its terms or provisions.

[Signature(s) and notary attestations on following page; remainder
of this page is being left intentionally blank]

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     WITNESS the following signature(s) made under seal this 29^th day of December, 2009.

BORROWER:
	(Seal)
Thomas P. Danaher

COMMONWEALTH OF VIRGINIA
CITY OF MANASSAS, to-wit:

     I HEREBY CERTIFY, that on this 29^th day of December, 2009, before me, a Notary Public of said jurisdiction, personally appeared Thomas P. Danaher, in his individual capacity, known to me (or satisfactorily proven) to be the person whose name is subscribed to the foregoing instrument and acknowledged that he has executed the same for the purposes therein contained.

     WITNESS my hand and notarial seal.

Notary Public

My Commission Expires:                                         
Notary Registration No.:                                         

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VIRGINIA STATUTORY NOTICE UNDER SECTION 8.01-433.1

“IMPORTANT NOTICE — THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.”

TERM NOTE

$125,000.00 December 29, 2009

     FOR VALUE RECEIVED, the undersigned, THOMAS P. DANAHER (the “Borrower”), promises to pay to the order of ALLIANCE BANK CORPORATION, a Virginia banking corporation, its successors and assigns (the “Lender”) with offices at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151, or at such other address as the Lender shall specify in writing, in lawful money of the United States of America, the principal sum of ONE HUNDRED TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($125,000.00) together with interest on the unpaid principal balance advanced at the rate and on the terms hereinafter provided, all without offset or deduction (including all modifications, amendments, substitutions, renewals or extensions hereof and allonges hereto, the “Note”).

     1. Definitions. The specified terms, as they may be used in this Note and unless otherwise defined herein, shall have the same meaning as defined in the Pledge Agreement (defined below):

          “Control” of a Person means (i) ownership, control, or power to vote 51% or more of any class of voting securities of such Person, directly or indirectly or acting through one or more other Persons; (ii) control in any manner over the election or appointment of a majority of the directors, trustees, managers or general partners (or individuals exercising similar functions) of such Person; (iii) the direct or indirect power to exercise a controlling influence over the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise; or (iv) conditioning in any manner the transfer of 51% or more of any class of voting securities of such Person upon the transfer of 51% or more of any class of voting securities of another Person.

          “Party” shall mean and refer to the Borrower and any endorser or guarantor of this Note, any grantor or debtor giving security for this Note.

          “Person” shall mean and refer to an individual, a corporation, a partnership, an association, a limited liability company, a trust or any other entity or organization.

          “Pledge Agreement” shall mean that certain Security, Pledge and Escrow Agreement, dated as of the date hereof, by and between the Borrower and the Lender.

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the date hereof, by and between the Borrower, Oswald H. Skewes and the Lender and the other parties thereto.

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     2. Interest Rate. During the term of this Note and up to and including the Maturity Date (hereinafter defined), privilege is reserved to repay this Note without interest. The entire principal balance shall be due and payable on the Maturity Date.

     3. Payment and Maturity.

          (a) The entire principal balance of this Note (as such may be reduced in accordance with the terms of Section 2 the Stock Purchase Agreement), and all fees and costs reserved hereunder, shall be due and payable in full on February 15, 2011 (the “Maturity Date”).

          (b) All payments due under this Note shall be payable in immediately available funds in lawful money of the United States which shall be legal tender for public and private debts at the time of payment. The making of any payment in other than immediately available funds, which the Lender, at its option elects to accept, shall be subject to collection, and interest shall continue to accrue until the funds by which payment is made are available to the Lender for its use.

     4. Prepayment. The Borrower may prepay the whole or any part of the outstanding indebtedness evidenced by this Note at any time prior to the Maturity Date without penalty or expense. Any partial prepayment shall be applied against the interest and costs due on this Note and then to the principal sum then outstanding.

     5. Application of Payments. For the purposes of computing interest on the debt evidenced by this Note, the principal sum outstanding shall be calculated on the basis of three hundred sixty (360) day calendar year with actual number of days elapsed in each month. Payments on this Note shall be applied first to late charges, reasonable costs of collection and enforcement, then to pay or to reimburse the Lender for any costs incurred or advances made by the Lender under a security or pledge agreement securing this Note, then to pay accrued and unpaid interest, and the remainder to pay principal then due and payable hereunder. Except in the case of manifest error, the Lender’s books and records shall be presumed correct as to the sums outstanding under this Note.

     6. Late Charge. In the event that this Note is not paid as scheduled on or before the Maturity Date, the Lender shall be entitled to collect a “late charge” in an amount equal to five percent (5.0% ) of the outstanding principal balance of this Note.

     7. Default and Acceleration.

          (a) Default. Each of the following events or conditions shall constitute an event of default under this Note (hereinafter “Default” or an “Event of Default”): (i) the failure to make any payment of principal or any other amount due under this Note when such payment is due; (ii) any default under the terms of the Pledge Agreement given by the Borrower to secure this Note; (iii) the merger, consolidation, reorganization, dissolution, of any Party; or the pledge, lease or other disposition of all or substantially all of the assets of any Party; (iv) any change, or any transaction which results or could result in a change in the Control of any Party; (v) any agreement or other document granting the Lender security for the payment of this Note shall cease for any reason to be in full force and effect as such security with the priority stated to be created thereby, or the grantor of such security shall contest the validity or enforceability of the security or deny that it has any further liability or obligation under such agreement or other document; (vi) any endorsement or guaranty of the payment of this Note shall cease for any reason to be in full force and effect or any endorser or guarantor shall contest the validity or enforceability of the endorsement or guaranty or deny that it has any further liability or obligation under the endorsement or guaranty; (vii) the legal or

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equitable title to the collateral securing this Note becomes vested in anyone or anything other than the Borrower without the Lender’s prior written consent; (viii) the filing of any inferior lien or secondary financing against the collateral securing this Note without the prior written consent of Lender; or (ix) if any Party dies or is incarcerated, or is adjudicated legally incompetent, unless within ninety (90) days of such Party’s death, incarceration or legal incompetency a substitute obligor or guarantor with a comparable or greater net worth (as in effect as of the date of this Note), or otherwise satisfactory to the Lender, assumes the obligations of such deceased, incarcerated or legally incompetent Party.

          (b) Acceleration Upon Default.

               (i) If Default be made under this Note, at the option of the Lender, the full amount remaining unpaid on this Note shall become immediately due and payable without presentment, demand or notice of any kind, and the Lender may exercise any or all remedies available to it under applicable law.

               (ii) Failure to exercise any of the options aforementioned or the failure to exercise any other option herein provided shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Acceleration of maturity, once claimed by the Lender, may at its option be rescinded by an instrument in writing to that effect; however, the tender and acceptance of a partial payment or partial performance shall not, by itself, affect or rescind such acceleration of maturity.

          (c) Default Rate. In the event any payment due hereunder, including all payments due on the Maturity Date, is not paid when due (whether upon acceleration or otherwise), the entire principal balance shall start to bear interest from the date of this Note, until paid, at the rate of Twelve percent (12%) (the “Default Rate”). The Default Rate shall apply regardless of whether the Lender elects to accelerate the unpaid principal balance as a result of such Default. If judgment is entered against the Borrower on this Note, the amount of such judgment entered (which may include principal, interest, fees and costs) shall bear interest at such Default Rate as set forth above.

     8. Expenses of Collection, etc. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security hereof, the Borrower shall pay to the Lender its reasonable attorney’s fees incurred, whether suit be brought or not, and all other costs and expenses reasonably connected with collection, the protection of the security, the defense of any counterclaim, the enforcement (including without limitation, as a part of any proceeding brought under the Bankruptcy Reform Act of 1978, as amended) of any remedies herein provided for, or provided for in this Note, the Pledge Agreement and the enforcement of any guaranty.

     9. Acceptance of Partial Payment. The acceptance by the Lender of a partial payment of any sum due under this Note, whether occurring before or after an Event of Default, shall not be deemed to cure the Borrower’s failure to pay such sum in full or to waive any of the Lender’s rights or remedies available on account of such Default. In addition, after the Lender has accelerated payment of this Note upon the occurrence of an Event of Default, the tender of payment of less than the entire principal amount of this Note, all interest thereon, late charges and other sums due hereunder, or the acceptance by the Lender of less than full payment thereof, shall not be deemed to have cured the Event of Default, to constitute a reinstatement of this Note or to waive any of the Lender’s rights and remedies reserved by this Note or provided by applicable law.

     10. Waivers, etc. The Borrower and each endorser, surety and guarantor hereof jointly and severally (i) waive presentment, demand, protest notice of dishonor and any and all other notices and

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demands whatsoever, (ii) waive, to the extent permitted by law, all exemptions, whether homestead or otherwise, as to the obligation evidenced by this Note, (iii) waive any right which they may have to require the Lender to proceed against any other Party or foreclose on any collateral given to secure the payment of this Note, (iv) agree that, without notice to any Party and without affecting any such party’s liability, the Lender, at any time or times, may grant extensions of the time for any payment due on this Note, release any such party from its obligation to make payments on this Note, permit the renewal of this Note or permit the substitution, exchange or release of any security or collateral for this Note, (v) waive any right they may have to require reinstatement of this Note after the occurrence of an Event of Default and (vi) waive, to the extent permitted by law, any right they may have to a trial by jury in any action or proceeding to enforce or collect this Note, whether such action or proceeding is instituted by the Lender, the Borrower or any other party.

     11. Confession of Judgment.

          (a) Upon the occurrence of an Event of Default, the Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record, or the below designated attorney-in-fact or any successor named therefor to appear for the Borrower, or any of them, in any court of record and confess judgment against the Borrower, or any of them, without prior hearing, in favor of the Lender for, and in the amount of, the balance then due under the Note, all accrued and unpaid interest thereon, all other amounts payable by the Borrower to the Lender under the terms of this Note, costs of suit, and attorneys’ fees of twenty-five percent (25%) [of the principal amount of this Note]; provided however, that the Lender may not recover and collect from the Borrower attorneys’ fees in excess of its actual and reasonable attorneys’ fees finally incurred in acquiring judgment and collecting all sums due under this Note.

          (b) In the event that such judgment is to be confessed in the Commonwealth of Virginia, the Borrower, pursuant to Section 8.01-435 of the Code of Virginia, as amended, hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) V. Rick Nishanian of Fairfax, Virginia, and/or Randolph D. Frostick of Fauquier, Virginia, either of whom may individually act, as its duly constituted agent and attorney-in-fact (hereinafter referred to as the “Attorney-In-Fact”), which appointment shall be deemed to be coupled with an interest and shall not terminate upon the disability, insolvency or dissolution of the Borrower, to confess judgment against the Borrower (including all costs and reasonable attorney fees as set forth above), pursuant to the provisions hereof and the applicable provisions of the Code of Virginia, as amended, which judgment shall be confessed in the Clerk’s Office of the Circuit Court of Fairfax County, Virginia.

          (c) In addition to the foregoing and in the event the above referenced Attorney-In-Fact is unable to act, refuses to act or is disqualified from acting, the Borrower hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) the Lender, as the Borrower’s duly appointed agent and Attorney-In-Fact, with full right,power, privilege and authority to act on behalf of the Borrower, which power may be used from time to time by the Lender to designate such additional, substitute or alternate person(s) who may act as additional or substitute Attorney-in-Fact (the “Substitute Attorney-In-Fact”) or to designate such additional courts in Virginia or in other states, territories or jurisdictions in which by law judgment may be confessed against the Borrower. The Substitute Attorney-in-Fact shall have full power to confess judgment against the Borrower in accordance with the terms hereof, which designation shall be binding on the Borrower as if the said Substitute Attorney-In-Fact was originally designated herein by

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the Borrower. This power of attorney and appointment of the Substitute Attorney-In-Fact is irrevocable and coupled with an interest, and shall not terminate upon the disability, insolvency or dissolution of the Borrower.

          (d) The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant; provided that such multiple actions shall not, in the aggregate, result in any judgment for an amount in excess of the full amount due by the Borrower hereunder.

     12. Cross Default. The Borrower hereby understands, acknowledges and agrees that any default hereunder, or under the terms and provisions of the Pledge Agreement provided to secure this Note, shall be deemed to constitute a default under the terms and provisions of any other then existing and outstanding loan indebtedness owing from the Borrower, and/or guarantors thereof, to the Lender (the “Other Affiliated Debt”); and a default under the terms and provisions of the Other Affiliated Debt shall be deemed by the Lender to constitute a default hereunder.

     13. Borrower Acknowledgements and Warranties. The Borrower represents, acknowledges, and warrants that the obligations evidenced by this Note are exclusively incurred for the purpose of carrying on a business, professional, investment or other commercial enterprise or activity, and that no part of the proceeds of the loan evidenced by this Note will be used for personal, family or household purposes. This Note provides for the making of a loan by Lender, in its capacity as a lender, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to Lender. The relationship between Lender and the Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand. Nothing contained in this Note shall be construed as permitting or obligating Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating the Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Lender to Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Note. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Note, and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for credit and to execute and deliver this Note.

     14. Usury. It is the intention of the Borrower and the Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws the Commonwealth of Virginia and the laws of the United States of America) then, in that event, notwithstanding anything to the contrary in any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the Lender (or, if this Note shall have been paid in full, refunded to the Borrower) and (ii) in the event that maturity of this Note is accelerated by reason of an election by the Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount allowed by applicable law, and excess

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interest, if any, provided for in this Note or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if therefore prepaid, shall be credited on this Note (or if this Note shall have been paid in full, refunded to the Borrower).

     15. Set-Off. The Lender will have the right, in addition to all other remedies permitted by law (including, without limitation, other rights of set-off), to set off the amount now or hereafter due under this Note or due under any other obligation of the Borrower to the Lender against any and all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower, without notice to or consent by the Borrower. In addition to the right of set-off, to secure the payment of this Note the Borrower assigns and grants to the Lender a security interest in all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower.

     16. Waiver of Jury Trial. The Borrower hereby (i) covenants and agrees not to elect a trial by jury of any issue triable of right by a jury, and (ii) waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily, by the Borrower, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. The Lender is hereby authorized and requested to submit this Note to any court having jurisdiction over the subject matter and the parties hereto, so as to serve as conclusive evidence of the Borrower’s waiver of the right to jury trial. Further, the Borrower hereby certifies that no representative or agent of the Lender (including the Lender’s counsel) has represented, expressly or otherwise, to the Borrower that the Lender will not seek to enforce this waiver of right to jury trial provision.

     17. Due on Sale and on Encumbrance. NOTICE — THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE, CONVEYANCE OR FURTHER ENCUMBRANCE OF THE PROPERTY SECURED BY THE PLEDGE AGREEMENT. Lender may, at its option, declare immediately due and payable all sums due under this Note upon the sale, transfer or further encumbrance, without the Lender’s prior written consent, all of any part of the collateral securing this Note. A “sale, transfer or encumbrance” means the conveyance of collateral securing this Note or any right, title, or interest therein; whether legal, beneficial, or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, assignment, or transfer of any beneficial interest, mortgage or its equivalent, or by any other method of conveyance. If any grantor of collateral securing this Note is a corporation, partnership, or limited liability company, the term transfer shall also include the transfer of any partnership or limited liability company interest.

     18. Account Record. The Lender shall maintain records of the dates and amounts of payments of principal and interest, the date to which interest has been paid, accrued interest, the unpaid principal balance, and any other account information. Such records shall be maintained unilaterally by the Lender without notice to the Borrower and shall be presumed to be correct, provided, however, any failure of the Lender to maintain such records or any error therein or in any notice hereunder shall not in any manner affect the obligation of the Borrower to pay this Note in accordance with the terms hereof.

     19. Notice. All notices, demands, requests and other communications required pursuant to the provisions of this Note shall be in writing and shall be deemed to have been properly given or served for all purposes when presented personally or sent by United States Registered or Certified Mail — Return Receipt Requested, postage prepaid as follows:

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If to the Lender:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.
If to the Borrower:	Copy to:
Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley

     20. Applicable Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

     21. Jurisdiction; Venue. The Borrower (a) submits to personal jurisdiction in the Commonwealth of Virginia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Note, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the Commonwealth of Virginia for the purpose of litigation to enforce this Note, and (c) agrees that service of process may be made upon the Borrower as provided below or in any manner prescribed by applicable federal rules of civil procedure or by applicable local rules or laws of civil procedure for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction.

     22. Service of Process. The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at the address set forth herein, or at such other address as the Borrower may furnish in writing to the Lender. The Borrower irrevocably agrees that such service shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrower. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law and nothing in this Section will limit the right of the Lender otherwise to bring proceedings against the Borrower, or any of them, in the courts of any other appropriate jurisdiction or jurisdictions.

     23. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns.

     24. Amendments. This Note may only be amended, modified or supplemented by a writing signed by all the parties hereto. No modification or waiver of any provision of this Note shall be effective as against the Lender unless it is in writing and signed by the Lender, and any such waiver shall be effective only in the specific instance and for the specific purpose for which it is given.

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     25. Severability. If any provision of this Note, or the application thereof in any circumstance, is deemed to be unenforceable, the remainder of this Note shall not be affected thereby and shall remain enforceable and in full force and effect.

     26. Collateral. This Note is secured by a Pledge Agreement of even date herewith encumbering all of Borrower’s interest in stock or shares in Alliance Insurance Agency, Inc.

     27. Time of The Essence. Time is of the essence with respect to all provisions of this Note.

     28. Miscellaneous. The nouns, pronouns, and verbs used in this Note shall be construed as being of such number and gender as the context may require. The headings used in this document are for ease of identification purposes only and are not to be construed to amend, modify or define any of its terms or provisions.

[Signature(s) and notary attestations on following page; remainder
of this page is being left intentionally blank]

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     WITNESS the following signature(s) made under seal this 29^th day of December, 2009.

BORROWER:
	(Seal)
Thomas P. Danaher

COMMONWEALTH OF VIRGINIA
CITY OF MANASSAS, to-wit:

     I HEREBY CERTIFY, that on this 29^th day of December, 2009, before me, a Notary Public of said jurisdiction, personally appeared Thomas P. Danaher, in his individual capacity, known to me (or satisfactorily proven) to be the person whose name is subscribed to the foregoing instrument and acknowledged that he has executed the same for the purposes therein contained.

     WITNESS my hand and notarial seal.

Notary Public

My Commission Expires:                                         
Notary Registration No.:                                         

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VIRGINIA STATUTORY NOTICE UNDER SECTION 8.01-433.1

“IMPORTANT NOTICE — THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.”

TERM NOTE

$125,000.00 December 29, 2009

     FOR VALUE RECEIVED, the undersigned, THOMAS P. DANAHER (the “Borrower”), promises to pay to the order of ALLIANCE BANK CORPORATION, a Virginia banking corporation, its successors and assigns (the “Lender”) with offices at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151, or at such other address as the Lender shall specify in writing, in lawful money of the United States of America, the principal sum of ONE HUNDRED TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($125,000.00) together with interest on the unpaid principal balance advanced at the rate and on the terms hereinafter provided, all without offset or deduction (including all modifications, amendments, substitutions, renewals or extensions hereof and allonges hereto, the “Note”).

     1. Definitions. The specified terms, as they may be used in this Note and unless otherwise defined herein, shall have the same meaning as defined in the Pledge Agreement (defined below):

          “Control” of a Person means (i) ownership, control, or power to vote 51% or more of any class of voting securities of such Person, directly or indirectly or acting through one or more other Persons; (ii) control in any manner over the election or appointment of a majority of the directors, trustees, managers or general partners (or individuals exercising similar functions) of such Person; (iii) the direct or indirect power to exercise a controlling influence over the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise; or (iv) conditioning in any manner the transfer of 51% or more of any class of voting securities of such Person upon the transfer of 51% or more of any class of voting securities of another Person.

          “Party” shall mean and refer to the Borrower and any endorser or guarantor of this Note, any grantor or debtor giving security for this Note.

          “Person” shall mean and refer to an individual, a corporation, a partnership, an association, a limited liability company, a trust or any other entity or organization.

          “Pledge Agreement” shall mean that certain Security, Pledge and Escrow Agreement, dated as of the date hereof, by and between the Borrower and the Lender.

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the date hereof, by and between the Borrower, Oswald H. Skewes and the Lender and the other parties thereto.

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     2. Interest Rate. During the term of this Note and up to and including the Maturity Date (hereinafter defined), privilege is reserved to repay this Note without interest. The entire principal balance shall be due and payable on the Maturity Date.

     3. Payment and Maturity.

          (a) The entire principal balance of this Note (as such may be reduced in accordance with the terms of Section 2 the Stock Purchase Agreement), and all fees and costs reserved hereunder, shall be due and payable in full on February 15, 2012 (the “Maturity Date”).

          (b) All payments due under this Note shall be payable in immediately available funds in lawful money of the United States which shall be legal tender for public and private debts at the time of payment. The making of any payment in other than immediately available funds, which the Lender, at its option elects to accept, shall be subject to collection, and interest shall continue to accrue until the funds by which payment is made are available to the Lender for its use.

     4. Prepayment. The Borrower may prepay the whole or any part of the outstanding indebtedness evidenced by this Note at any time prior to the Maturity Date without penalty or expense. Any partial prepayment shall be applied against the interest and costs due on this Note and then to the principal sum then outstanding.

     5. Application of Payments. For the purposes of computing interest on the debt evidenced by this Note, the principal sum outstanding shall be calculated on the basis of three hundred sixty (360) day calendar year with actual number of days elapsed in each month. Payments on this Note shall be applied first to late charges, reasonable costs of collection and enforcement, then to pay or to reimburse the Lender for any costs incurred or advances made by the Lender under a security or pledge agreement securing this Note, then to pay accrued and unpaid interest, and the remainder to pay principal then due and payable hereunder. Except in the case of manifest error, the Lender’s books and records shall be presumed correct as to the sums outstanding under this Note.

     6. Late Charge. In the event that this Note is not paid as scheduled on or before the Maturity Date, the Lender shall be entitled to collect a “late charge” in an amount equal to five percent (5.0% ) of the outstanding principal balance of this Note.

     7. Default and Acceleration.

          (a) Default. Each of the following events or conditions shall constitute an event of default under this Note (hereinafter “Default” or an “Event of Default”): (i) the failure to make any payment of principal or any other amount due under this Note when such payment is due; (ii) any default under the terms of the Pledge Agreement given by the Borrower to secure this Note; (iii) the merger, consolidation, reorganization, dissolution, of any Party; or the pledge, lease or other disposition of all or substantially all of the assets of any Party; (iv) any change, or any transaction which results or could result in a change in the Control of any Party; (v) any agreement or other document granting the Lender security for the payment of this Note shall cease for any reason to be in full force and effect as such security with the priority stated to be created thereby, or the grantor of such security shall contest the validity or enforceability of the security or deny that it has any further liability or obligation under such agreement or other document; (vi) any endorsement or guaranty of the payment of this Note shall cease for any reason to be in full force and effect or any endorser or guarantor shall contest the validity or enforceability of the endorsement or guaranty or deny that it has any further liability or obligation under the endorsement or guaranty; (vii) the legal or

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equitable title to the collateral securing this Note becomes vested in anyone or anything other than the Borrower without the Lender’s prior written consent; (viii) the filing of any inferior lien or secondary financing against the collateral securing this Note without the prior written consent of Lender; or (ix) if any Party dies or is incarcerated, or is adjudicated legally incompetent, unless within ninety (90) days of such Party’s death, incarceration or legal incompetency a substitute obligor or guarantor with a comparable or greater net worth (as in effect as of the date of this Note), or otherwise satisfactory to the Lender, assumes the obligations of such deceased, incarcerated or legally incompetent Party.

          (b) Acceleration Upon Default.

               (i) If Default be made under this Note, at the option of the Lender, the full amount remaining unpaid on this Note shall become immediately due and payable without presentment, demand or notice of any kind, and the Lender may exercise any or all remedies available to it under applicable law.

               (ii) Failure to exercise any of the options aforementioned or the failure to exercise any other option herein provided shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Acceleration of maturity, once claimed by the Lender, may at its option be rescinded by an instrument in writing to that effect; however, the tender and acceptance of a partial payment or partial performance shall not, by itself, affect or rescind such acceleration of maturity.

          (c) Default Rate. In the event any payment due hereunder, including all payments due on the Maturity Date, is not paid when due (whether upon acceleration or otherwise), the entire principal balance shall start to bear interest from the date of this Note, until paid, at the rate of Twelve percent (12%) (the “Default Rate”). The Default Rate shall apply regardless of whether the Lender elects to accelerate the unpaid principal balance as a result of such Default. If judgment is entered against the Borrower on this Note, the amount of such judgment entered (which may include principal, interest, fees and costs) shall bear interest at such Default Rate as set forth above.

     8. Expenses of Collection, etc. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security hereof, the Borrower shall pay to the Lender its reasonable attorney’s fees incurred, whether suit be brought or not, and all other costs and expenses reasonably connected with collection, the protection of the security, the defense of any counterclaim, the enforcement (including without limitation, as a part of any proceeding brought under the Bankruptcy Reform Act of 1978, as amended) of any remedies herein provided for, or provided for in this Note, the Pledge Agreement and the enforcement of any guaranty.

     9. Acceptance of Partial Payment. The acceptance by the Lender of a partial payment of any sum due under this Note, whether occurring before or after an Event of Default, shall not be deemed to cure the Borrower’s failure to pay such sum in full or to waive any of the Lender’s rights or remedies available on account of such Default. In addition, after the Lender has accelerated payment of this Note upon the occurrence of an Event of Default, the tender of payment of less than the entire principal amount of this Note, all interest thereon, late charges and other sums due hereunder, or the acceptance by the Lender of less than full payment thereof, shall not be deemed to have cured the Event of Default, to constitute a reinstatement of this Note or to waive any of the Lender’s rights and remedies reserved by this Note or provided by applicable law.

     10. Waivers, etc. The Borrower and each endorser, surety and guarantor hereof jointly and severally (i) waive presentment, demand, protest notice of dishonor and any and all other notices and

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demands whatsoever, (ii) waive, to the extent permitted by law, all exemptions, whether homestead or otherwise, as to the obligation evidenced by this Note, (iii) waive any right which they may have to require the Lender to proceed against any other Party or foreclose on any collateral given to secure the payment of this Note, (iv) agree that, without notice to any Party and without affecting any such party’s liability, the Lender, at any time or times, may grant extensions of the time for any payment due on this Note, release any such party from its obligation to make payments on this Note, permit the renewal of this Note or permit the substitution, exchange or release of any security or collateral for this Note, (v) waive any right they may have to require reinstatement of this Note after the occurrence of an Event of Default and (vi) waive, to the extent permitted by law, any right they may have to a trial by jury in any action or proceeding to enforce or collect this Note, whether such action or proceeding is instituted by the Lender, the Borrower or any other party.

     11. Confession of Judgment.

          (a) Upon the occurrence of an Event of Default, the Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record, or the below designated attorney-in-fact or any successor named therefor to appear for the Borrower, or any of them, in any court of record and confess judgment against the Borrower, or any of them, without prior hearing, in favor of the Lender for, and in the amount of, the balance then due under the Note, all accrued and unpaid interest thereon, all other amounts payable by the Borrower to the Lender under the terms of this Note, costs of suit, and attorneys’ fees of twenty-five percent (25%) [of the principal amount of this Note]; provided however, that the Lender may not recover and collect from the Borrower attorneys’ fees in excess of its actual and reasonable attorneys’ fees finally incurred in acquiring judgment and collecting all sums due under this Note.

          (b) In the event that such judgment is to be confessed in the Commonwealth of Virginia, the Borrower, pursuant to Section 8.01-435 of the Code of Virginia, as amended, hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) V. Rick Nishanian of Fairfax, Virginia, and/or Randolph D. Frostick of Fauquier, Virginia, either of whom may individually act, as its duly constituted agent and attorney-in-fact (hereinafter referred to as the “Attorney-In-Fact”), which appointment shall be deemed to be coupled with an interest and shall not terminate upon the disability, insolvency or dissolution of the Borrower, to confess judgment against the Borrower (including all costs and reasonable attorney fees as set forth above), pursuant to the provisions hereof and the applicable provisions of the Code of Virginia, as amended, which judgment shall be confessed in the Clerk’s Office of the Circuit Court of Fairfax County, Virginia.

          (c) In addition to the foregoing and in the event the above referenced Attorney-In-Fact is unable to act, refuses to act or is disqualified from acting, the Borrower hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) the Lender, as the Borrower’s duly appointed agent and Attorney-In-Fact, with full right, power, privilege and authority to act on behalf of the Borrower, which power may be used from time to time by the Lender to designate such additional, substitute or alternate person(s) who may act as additional or substitute Attorney-in-Fact (the “Substitute Attorney-In-Fact”) or to designate such additional courts in Virginia or in other states, territories or jurisdictions in which by law judgment may be confessed against the Borrower. The Substitute Attorney-in-Fact shall have full power to confess judgment against the Borrower in accordance with the terms hereof, which designation shall be binding on the Borrower as if the said Substitute Attorney-In-Fact was originally designated herein by

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the Borrower. This power of attorney and appointment of the Substitute Attorney-In-Fact is irrevocable and coupled with an interest, and shall not terminate upon the disability, insolvency or dissolution of the Borrower.

          (d) The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant; provided that such multiple actions shall not, in the aggregate, result in any judgment for an amount in excess of the full amount due by the Borrower hereunder.

     12. Cross Default. The Borrower hereby understands, acknowledges and agrees that any default hereunder, or under the terms and provisions of the Pledge Agreement provided to secure this Note, shall be deemed to constitute a default under the terms and provisions of any other then existing and outstanding loan indebtedness owing from the Borrower, and/or guarantors thereof, to the Lender (the “Other Affiliated Debt”); and a default under the terms and provisions of the Other Affiliated Debt shall be deemed by the Lender to constitute a default hereunder.

     13. Borrower Acknowledgements and Warranties. The Borrower represents, acknowledges, and warrants that the obligations evidenced by this Note are exclusively incurred for the purpose of carrying on a business, professional, investment or other commercial enterprise or activity, and that no part of the proceeds of the loan evidenced by this Note will be used for personal, family or household purposes. This Note provides for the making of a loan by Lender, in its capacity as a lender, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to Lender. The relationship between Lender and the Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand. Nothing contained in this Note shall be construed as permitting or obligating Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating the Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Lender to Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Note. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Note, and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for credit and to execute and deliver this Note.

     14. Usury. It is the intention of the Borrower and the Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws the Commonwealth of Virginia and the laws of the United States of America) then, in that event, notwithstanding anything to the contrary in any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the Lender (or, if this Note shall have been paid in full, refunded to the Borrower) and (ii) in the event that maturity of this Note is accelerated by reason of an election by the Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount allowed by applicable law, and excess

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interest, if any, provided for in this Note or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if therefore prepaid, shall be credited on this Note (or if this Note shall have been paid in full, refunded to the Borrower).

     15. Set-Off. The Lender will have the right, in addition to all other remedies permitted by law (including, without limitation, other rights of set-off), to set off the amount now or hereafter due under this Note or due under any other obligation of the Borrower to the Lender against any and all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower, without notice to or consent by the Borrower. In addition to the right of set-off, to secure the payment of this Note the Borrower assigns and grants to the Lender a security interest in all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower.

     16. Waiver of Jury Trial. The Borrower hereby (i) covenants and agrees not to elect a trial by jury of any issue triable of right by a jury, and (ii) waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily, by the Borrower, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. The Lender is hereby authorized and requested to submit this Note to any court having jurisdiction over the subject matter and the parties hereto, so as to serve as conclusive evidence of the Borrower’s waiver of the right to jury trial. Further, the Borrower hereby certifies that no representative or agent of the Lender (including the Lender’s counsel) has represented, expressly or otherwise, to the Borrower that the Lender will not seek to enforce this waiver of right to jury trial provision.

     17. Due on Sale and on Encumbrance. NOTICE – THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE, CONVEYANCE OR FURTHER ENCUMBRANCE OF THE PROPERTY SECURED BY THE PLEDGE AGREEMENT. Lender may, at its option, declare immediately due and payable all sums due under this Note upon the sale, transfer or further encumbrance, without the Lender’s prior written consent, all of any part of the collateral securing this Note. A “sale, transfer or encumbrance” means the conveyance of collateral securing this Note or any right, title, or interest therein; whether legal, beneficial, or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, assignment, or transfer of any beneficial interest, mortgage or its equivalent, or by any other method of conveyance. If any grantor of collateral securing this Note is a corporation, partnership, or limited liability company, the term transfer shall also include the transfer of any partnership or limited liability company interest.

     18. Account Record. The Lender shall maintain records of the dates and amounts of payments of principal and interest, the date to which interest has been paid, accrued interest, the unpaid principal balance, and any other account information. Such records shall be maintained unilaterally by the Lender without notice to the Borrower and shall be presumed to be correct, provided, however, any failure of the Lender to maintain such records or any error therein or in any notice hereunder shall not in any manner affect the obligation of the Borrower to pay this Note in accordance with the terms hereof.

     19. Notice. All notices, demands, requests and other communications required pursuant to the provisions of this Note shall be in writing and shall be deemed to have been properly given or served for all purposes when presented personally or sent by United States Registered or Certified Mail – Return Receipt Requested, postage prepaid as follows:

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If to the Lender:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.
If to the Borrower:	Copy to:
Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley

     20. Applicable Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

     21. Jurisdiction; Venue. The Borrower (a) submits to personal jurisdiction in the Commonwealth of Virginia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Note, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the Commonwealth of Virginia for the purpose of litigation to enforce this Note, and (c) agrees that service of process may be made upon the Borrower as provided below or in any manner prescribed by applicable federal rules of civil procedure or by applicable local rules or laws of civil procedure for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction.

     22. Service of Process. The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at the address set forth herein, or at such other address as the Borrower may furnish in writing to the Lender. The Borrower irrevocably agrees that such service shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrower. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law and nothing in this Section will limit the right of the Lender otherwise to bring proceedings against the Borrower, or any of them, in the courts of any other appropriate jurisdiction or jurisdictions.

     23. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns.

     24. Amendments. This Note may only be amended, modified or supplemented by a writing signed by all the parties hereto. No modification or waiver of any provision of this Note shall be effective as against the Lender unless it is in writing and signed by the Lender, and any such waiver shall be effective only in the specific instance and for the specific purpose for which it is given.

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     25. Severability. If any provision of this Note, or the application thereof in any circumstance, is deemed to be unenforceable, the remainder of this Note shall not be affected thereby and shall remain enforceable and in full force and effect.

     26. Collateral. This Note is secured by a Pledge Agreement of even date herewith encumbering all of Borrower’s interest in stock or shares in Alliance Insurance Agency, Inc.

     27. Time of The Essence. Time is of the essence with respect to all provisions of this Note.

     28. Miscellaneous. The nouns, pronouns, and verbs used in this Note shall be construed as being of such number and gender as the context may require. The headings used in this document are for ease of identification purposes only and are not to be construed to amend, modify or define any of its terms or provisions.

[Signature(s) and notary attestations on following page; remainder
of this page is being left intentionally blank]

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     WITNESS the following signature(s) made under seal this 29^th day of December, 2009.

BORROWER:
	(Seal)
Thomas P. Danaher

COMMONWEALTH OF VIRGINIA
CITY OF MANASSAS, to-wit:

     I HEREBY CERTIFY, that on this 29^th day of December, 2009, before me, a Notary Public of said jurisdiction, personally appeared Thomas P. Danaher, in his individual capacity, known to me (or satisfactorily proven) to be the person whose name is subscribed to the foregoing instrument and acknowledged that he has executed the same for the purposes therein contained.

     WITNESS my hand and notarial seal.

Notary Public

My Commission Expires:                                         
Notary Registration No.:                                         

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VIRGINIA STATUTORY NOTICE UNDER SECTION 8.01-433.1

“IMPORTANT NOTICE — THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.”

TERM NOTE

$125,000.00 December 29, 2009

     FOR VALUE RECEIVED, the undersigned, THOMAS P. DANAHER (the “Borrower”), promises to pay to the order of ALLIANCE BANK CORPORATION, a Virginia banking corporation, its successors and assigns (the “Lender”) with offices at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151, or at such other address as the Lender shall specify in writing, in lawful money of the United States of America, the principal sum of ONE HUNDRED TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($125,000.00) together with interest on the unpaid principal balance advanced at the rate and on the terms hereinafter provided, all without offset or deduction (including all modifications, amendments, substitutions, renewals or extensions hereof and allonges hereto, the “Note”).

     1. Definitions. The specified terms, as they may be used in this Note and unless otherwise defined herein, shall have the same meaning as defined in the Pledge Agreement (defined below):

          “Control” of a Person means (i) ownership, control, or power to vote 51% or more of any class of voting securities of such Person, directly or indirectly or acting through one or more other Persons; (ii) control in any manner over the election or appointment of a majority of the directors, trustees, managers or general partners (or individuals exercising similar functions) of such Person; (iii) the direct or indirect power to exercise a controlling influence over the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise; or (iv) conditioning in any manner the transfer of 51% or more of any class of voting securities of such Person upon the transfer of 51% or more of any class of voting securities of another Person.

          “Party” shall mean and refer to the Borrower and any endorser or guarantor of this Note, any grantor or debtor giving security for this Note.

          “Person” shall mean and refer to an individual, a corporation, a partnership, an association, a limited liability company, a trust or any other entity or organization.

          “Pledge Agreement” shall mean that certain Security, Pledge and Escrow Agreement, dated as of the date hereof, by and between the Borrower and the Lender.

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the date hereof, by and between the Borrower, Oswald H. Skewes and the Lender and the other parties thereto.

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     2. Interest Rate. During the term of this Note and up to and including the Maturity Date (hereinafter defined), privilege is reserved to repay this Note without interest. The entire principal balance shall be due and payable on the Maturity Date.

     3. Payment and Maturity.

          (a) The entire principal balance of this Note (as such may be reduced in accordance with the terms of Section 2 the Stock Purchase Agreement), and all fees and costs reserved hereunder, shall be due and payable in full on February 15, 2013 (the “Maturity Date”).

          (b) All payments due under this Note shall be payable in immediately available funds in lawful money of the United States which shall be legal tender for public and private debts at the time of payment. The making of any payment in other than immediately available funds, which the Lender, at its option elects to accept, shall be subject to collection, and interest shall continue to accrue until the funds by which payment is made are available to the Lender for its use.

     4. Prepayment. The Borrower may prepay the whole or any part of the outstanding indebtedness evidenced by this Note at any time prior to the Maturity Date without penalty or expense. Any partial prepayment shall be applied against the interest and costs due on this Note and then to the principal sum then outstanding.

     5. Application of Payments. For the purposes of computing interest on the debt evidenced by this Note, the principal sum outstanding shall be calculated on the basis of three hundred sixty (360) day calendar year with actual number of days elapsed in each month. Payments on this Note shall be applied first to late charges, reasonable costs of collection and enforcement, then to pay or to reimburse the Lender for any costs incurred or advances made by the Lender under a security or pledge agreement securing this Note, then to pay accrued and unpaid interest, and the remainder to pay principal then due and payable hereunder. Except in the case of manifest error, the Lender’s books and records shall be presumed correct as to the sums outstanding under this Note.

     6. Late Charge. In the event that this Note is not paid as scheduled on or before the Maturity Date, the Lender shall be entitled to collect a “late charge” in an amount equal to five percent (5.0% ) of the outstanding principal balance of this Note.

     7. Default and Acceleration.

          (a) Default. Each of the following events or conditions shall constitute an event of default under this Note (hereinafter “Default” or an “Event of Default”): (i) the failure to make any payment of principal or any other amount due under this Note when such payment is due; (ii) any default under the terms of the Pledge Agreement given by the Borrower to secure this Note; (iii) the merger, consolidation, reorganization, dissolution, of any Party; or the pledge, lease or other disposition of all or substantially all of the assets of any Party; (iv) any change, or any transaction which results or could result in a change in the Control of any Party; (v) any agreement or other document granting the Lender security for the payment of this Note shall cease for any reason to be in full force and effect as such security with the priority stated to be created thereby, or the grantor of such security shall contest the validity or enforceability of the security or deny that it has any further liability or obligation under such agreement or other document; (vi) any endorsement or guaranty of the payment of this Note shall cease for any reason to be in full force and effect or any endorser or guarantor shall contest the validity or enforceability of the endorsement or guaranty or deny that it has any further liability or obligation under the endorsement or guaranty; (vii) the legal or

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equitable title to the collateral securing this Note becomes vested in anyone or anything other than the Borrower without the Lender’s prior written consent; (viii) the filing of any inferior lien or secondary financing against the collateral securing this Note without the prior written consent of Lender; or (ix) if any Party dies or is incarcerated, or is adjudicated legally incompetent, unless within ninety (90) days of such Party’s death, incarceration or legal incompetency a substitute obligor or guarantor with a comparable or greater net worth (as in effect as of the date of this Note), or otherwise satisfactory to the Lender, assumes the obligations of such deceased, incarcerated or legally incompetent Party.

          (b) Acceleration Upon Default.

               (i) If Default be made under this Note, at the option of the Lender, the full amount remaining unpaid on this Note shall become immediately due and payable without presentment, demand or notice of any kind, and the Lender may exercise any or all remedies available to it under applicable law.

               (ii) Failure to exercise any of the options aforementioned or the failure to exercise any other option herein provided shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Acceleration of maturity, once claimed by the Lender, may at its option be rescinded by an instrument in writing to that effect; however, the tender and acceptance of a partial payment or partial performance shall not, by itself, affect or rescind such acceleration of maturity.

          (c) Default Rate. In the event any payment due hereunder, including all payments due on the Maturity Date, is not paid when due (whether upon acceleration or otherwise), the entire principal balance shall start to bear interest from the date of this Note, until paid, at the rate of Twelve percent (12%) (the “Default Rate”). The Default Rate shall apply regardless of whether the Lender elects to accelerate the unpaid principal balance as a result of such Default. If judgment is entered against the Borrower on this Note, the amount of such judgment entered (which may include principal, interest, fees and costs) shall bear interest at such Default Rate as set forth above.

     8. Expenses of Collection, etc. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security hereof, the Borrower shall pay to the Lender its reasonable attorney’s fees incurred, whether suit be brought or not, and all other costs and expenses reasonably connected with collection, the protection of the security, the defense of any counterclaim, the enforcement (including without limitation, as a part of any proceeding brought under the Bankruptcy Reform Act of 1978, as amended) of any remedies herein provided for, or provided for in this Note, the Pledge Agreement and the enforcement of any guaranty.

     9. Acceptance of Partial Payment. The acceptance by the Lender of a partial payment of any sum due under this Note, whether occurring before or after an Event of Default, shall not be deemed to cure the Borrower’s failure to pay such sum in full or to waive any of the Lender’s rights or remedies available on account of such Default. In addition, after the Lender has accelerated payment of this Note upon the occurrence of an Event of Default, the tender of payment of less than the entire principal amount of this Note, all interest thereon, late charges and other sums due hereunder, or the acceptance by the Lender of less than full payment thereof, shall not be deemed to have cured the Event of Default, to constitute a reinstatement of this Note or to waive any of the Lender’s rights and remedies reserved by this Note or provided by applicable law.

     10. Waivers, etc. The Borrower and each endorser, surety and guarantor hereof jointly and severally (i) waive presentment, demand, protest notice of dishonor and any and all other notices and

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demands whatsoever, (ii) waive, to the extent permitted by law, all exemptions, whether homestead or otherwise, as to the obligation evidenced by this Note, (iii) waive any right which they may have to require the Lender to proceed against any other Party or foreclose on any collateral given to secure the payment of this Note, (iv) agree that, without notice to any Party and without affecting any such party’s liability, the Lender, at any time or times, may grant extensions of the time for any payment due on this Note, release any such party from its obligation to make payments on this Note, permit the renewal of this Note or permit the substitution, exchange or release of any security or collateral for this Note, (v) waive any right they may have to require reinstatement of this Note after the occurrence of an Event of Default and (vi) waive, to the extent permitted by law, any right they may have to a trial by jury in any action or proceeding to enforce or collect this Note, whether such action or proceeding is instituted by the Lender, the Borrower or any other party.

     11. Confession of Judgment.

          (a) Upon the occurrence of an Event of Default, the Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record, or the below designated attorney-in-fact or any successor named therefor to appear for the Borrower, or any of them, in any court of record and confess judgment against the Borrower, or any of them, without prior hearing, in favor of the Lender for, and in the amount of, the balance then due under the Note, all accrued and unpaid interest thereon, all other amounts payable by the Borrower to the Lender under the terms of this Note, costs of suit, and attorneys’ fees of twenty-five percent (25%) [of the principal amount of this Note]; provided however, that the Lender may not recover and collect from the Borrower attorneys’ fees in excess of its actual and reasonable attorneys’ fees finally incurred in acquiring judgment and collecting all sums due under this Note.

          (b) In the event that such judgment is to be confessed in the Commonwealth of Virginia, the Borrower, pursuant to Section 8.01-435 of the Code of Virginia, as amended, hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) V. Rick Nishanian of Fairfax, Virginia, and/or Randolph D. Frostick of Fauquier, Virginia, either of whom may individually act, as its duly constituted agent and attorney-in-fact (hereinafter referred to as the “Attorney-In-Fact”), which appointment shall be deemed to be coupled with an interest and shall not terminate upon the disability, insolvency or dissolution of the Borrower, to confess judgment against the Borrower (including all costs and reasonable attorney fees as set forth above), pursuant to the provisions hereof and the applicable provisions of the Code of Virginia, as amended, which judgment shall be confessed in the Clerk’s Office of the Circuit Court of Fairfax County, Virginia.

          (c) In addition to the foregoing and in the event the above referenced Attorney-In-Fact is unable to act, refuses to act or is disqualified from acting, the Borrower hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) the Lender, as the Borrower’s duly appointed agent and Attorney-In-Fact, with full right, power, privilege and authority to act on behalf of the Borrower, which power may be used from time to time by the Lender to designate such additional, substitute or alternate person(s) who may act as additional or substitute Attorney-in-Fact (the “Substitute Attorney-In-Fact”) or to designate such additional courts in Virginia or in other states, territories or jurisdictions in which by law judgment may be confessed against the Borrower. The Substitute Attorney-in-Fact shall have full power to confess judgment against the Borrower in accordance with the terms hereof, which designation shall be binding on the Borrower as if the said Substitute Attorney-In-Fact was originally designated herein by

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the Borrower. This power of attorney and appointment of the Substitute Attorney-In-Fact is irrevocable and coupled with an interest, and shall not terminate upon the disability, insolvency or dissolution of the Borrower.

          (d) The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant; provided that such multiple actions shall not, in the aggregate, result in any judgment for an amount in excess of the full amount due by the Borrower hereunder.

     12. Cross Default. The Borrower hereby understands, acknowledges and agrees that any default hereunder, or under the terms and provisions of the Pledge Agreement provided to secure this Note, shall be deemed to constitute a default under the terms and provisions of any other then existing and outstanding loan indebtedness owing from the Borrower, and/or guarantors thereof, to the Lender (the “Other Affiliated Debt”); and a default under the terms and provisions of the Other Affiliated Debt shall be deemed by the Lender to constitute a default hereunder.

     13. Borrower Acknowledgements and Warranties. The Borrower represents, acknowledges, and warrants that the obligations evidenced by this Note are exclusively incurred for the purpose of carrying on a business, professional, investment or other commercial enterprise or activity, and that no part of the proceeds of the loan evidenced by this Note will be used for personal, family or household purposes. This Note provides for the making of a loan by Lender, in its capacity as a lender, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to Lender. The relationship between Lender and the Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand. Nothing contained in this Note shall be construed as permitting or obligating Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating the Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Lender to Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Note. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Note, and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for credit and to execute and deliver this Note.

     14. Usury. It is the intention of the Borrower and the Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws the Commonwealth of Virginia and the laws of the United States of America) then, in that event, notwithstanding anything to the contrary in any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the Lender (or, if this Note shall have been paid in full, refunded to the Borrower) and (ii) in the event that maturity of this Note is accelerated by reason of an election by the Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount allowed by applicable law, and excess

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interest, if any, provided for in this Note or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if therefore prepaid, shall be credited on this Note (or if this Note shall have been paid in full, refunded to the Borrower).

     15. Set-Off. The Lender will have the right, in addition to all other remedies permitted by law (including, without limitation, other rights of set-off), to set off the amount now or hereafter due under this Note or due under any other obligation of the Borrower to the Lender against any and all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower, without notice to or consent by the Borrower. In addition to the right of set-off, to secure the payment of this Note the Borrower assigns and grants to the Lender a security interest in all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower.

     16. Waiver of Jury Trial. The Borrower hereby (i) covenants and agrees not to elect a trial by jury of any issue triable of right by a jury, and (ii) waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily, by the Borrower, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. The Lender is hereby authorized and requested to submit this Note to any court having jurisdiction over the subject matter and the parties hereto, so as to serve as conclusive evidence of the Borrower’s waiver of the right to jury trial. Further, the Borrower hereby certifies that no representative or agent of the Lender (including the Lender’s counsel) has represented, expressly or otherwise, to the Borrower that the Lender will not seek to enforce this waiver of right to jury trial provision.

     17. Due on Sale and on Encumbrance. NOTICE – THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE, CONVEYANCE OR FURTHER ENCUMBRANCE OF THE PROPERTY SECURED BY THE PLEDGE AGREEMENT. Lender may, at its option, declare immediately due and payable all sums due under this Note upon the sale, transfer or further encumbrance, without the Lender’s prior written consent, all of any part of the collateral securing this Note. A “sale, transfer or encumbrance” means the conveyance of collateral securing this Note or any right, title, or interest therein; whether legal, beneficial, or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, assignment, or transfer of any beneficial interest, mortgage or its equivalent, or by any other method of conveyance. If any grantor of collateral securing this Note is a corporation, partnership, or limited liability company, the term transfer shall also include the transfer of any partnership or limited liability company interest.

     18. Account Record. The Lender shall maintain records of the dates and amounts of payments of principal and interest, the date to which interest has been paid, accrued interest, the unpaid principal balance, and any other account information. Such records shall be maintained unilaterally by the Lender without notice to the Borrower and shall be presumed to be correct, provided, however, any failure of the Lender to maintain such records or any error therein or in any notice hereunder shall not in any manner affect the obligation of the Borrower to pay this Note in accordance with the terms hereof.

     19. Notice. All notices, demands, requests and other communications required pursuant to the provisions of this Note shall be in writing and shall be deemed to have been properly given or served for all purposes when presented personally or sent by United States Registered or Certified Mail – Return Receipt Requested, postage prepaid as follows:

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If to the Lender:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.

If to the Borrower:	Copy to:
Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley

     20. Applicable Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

     21. Jurisdiction; Venue. The Borrower (a) submits to personal jurisdiction in the Commonwealth of Virginia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Note, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the Commonwealth of Virginia for the purpose of litigation to enforce this Note, and (c) agrees that service of process may be made upon the Borrower as provided below or in any manner prescribed by applicable federal rules of civil procedure or by applicable local rules or laws of civil procedure for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction.

     22. Service of Process. The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at the address set forth herein, or at such other address as the Borrower may furnish in writing to the Lender. The Borrower irrevocably agrees that such service shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrower. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law and nothing in this Section will limit the right of the Lender otherwise to bring proceedings against the Borrower, or any of them, in the courts of any other appropriate jurisdiction or jurisdictions.

     23. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns.

     24. Amendments. This Note may only be amended, modified or supplemented by a writing signed by all the parties hereto. No modification or waiver of any provision of this Note shall be effective as against the Lender unless it is in writing and signed by the Lender, and any such waiver shall be effective only in the specific instance and for the specific purpose for which it is given.

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     25. Severability. If any provision of this Note, or the application thereof in any circumstance, is deemed to be unenforceable, the remainder of this Note shall not be affected thereby and shall remain enforceable and in full force and effect.

     26. Collateral. This Note is secured by a Pledge Agreement of even date herewith encumbering all of Borrower’s interest in stock or shares in Alliance Insurance Agency, Inc.

     27. Time of The Essence. Time is of the essence with respect to all provisions of this Note.

     28. Miscellaneous. The nouns, pronouns, and verbs used in this Note shall be construed as being of such number and gender as the context may require. The headings used in this document are for ease of identification purposes only and are not to be construed to amend, modify or define any of its terms or provisions.

[Signature(s) and notary attestations on following page; remainder
of this page is being left intentionally blank]

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     WITNESS the following signature(s) made under seal this 29^th day of December, 2009.

BORROWER:
	(Seal)
Thomas P. Danaher

COMMONWEALTH OF VIRGINIA
CITY OF MANASSAS, to-wit:

     I HEREBY CERTIFY, that on this 29^th day of December, 2009, before me, a Notary Public of said jurisdiction, personally appeared Thomas P. Danaher, in his individual capacity, known to me (or satisfactorily proven) to be the person whose name is subscribed to the foregoing instrument and acknowledged that he has executed the same for the purposes therein contained.

     WITNESS my hand and notarial seal.

Notary Public

My Commission Expires:                                         
Notary Registration No.:                                         

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VIRGINIA STATUTORY NOTICE UNDER SECTION 8.01-433.1

“IMPORTANT NOTICE — THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.”

TERM NOTE

$125,000.00 December 29, 2009

     FOR VALUE RECEIVED, the undersigned, THOMAS P. DANAHER (the “Borrower”), promises to pay to the order of ALLIANCE BANK CORPORATION, a Virginia banking corporation, its successors and assigns (the “Lender”) with offices at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151, or at such other address as the Lender shall specify in writing, in lawful money of the United States of America, the principal sum of ONE HUNDRED TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($125,000.00) together with interest on the unpaid principal balance advanced at the rate and on the terms hereinafter provided, all without offset or deduction (including all modifications, amendments, substitutions, renewals or extensions hereof and allonges hereto, the “Note”).

     1. Definitions. The specified terms, as they may be used in this Note and unless otherwise defined herein, shall have the same meaning as defined in the Pledge Agreement (defined below):

          “Control” of a Person means (i) ownership, control, or power to vote 51% or more of any class of voting securities of such Person, directly or indirectly or acting through one or more other Persons; (ii) control in any manner over the election or appointment of a majority of the directors, trustees, managers or general partners (or individuals exercising similar functions) of such Person; (iii) the direct or indirect power to exercise a controlling influence over the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise; or (iv) conditioning in any manner the transfer of 51% or more of any class of voting securities of such Person upon the transfer of 51% or more of any class of voting securities of another Person.

          “Party” shall mean and refer to the Borrower and any endorser or guarantor of this Note, any grantor or debtor giving security for this Note.

          “Person” shall mean and refer to an individual, a corporation, a partnership, an association, a limited liability company, a trust or any other entity or organization.

          “Pledge Agreement” shall mean that certain Security, Pledge and Escrow Agreement, dated as of the date hereof, by and between the Borrower and the Lender.

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the date hereof, by and between the Borrower, Oswald H. Skewes and the Lender and the other parties thereto.

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     2. Interest Rate. During the term of this Note and up to and including the Maturity Date (hereinafter defined), privilege is reserved to repay this Note without interest. The entire principal balance shall be due and payable on the Maturity Date.

     3. Payment and Maturity.

          (a) The entire principal balance of this Note (as such may be reduced in accordance with the terms of Section 2 the Stock Purchase Agreement), and all fees and costs reserved hereunder, shall be due and payable in full on February 15, 2014 (the “Maturity Date”).

          (b) All payments due under this Note shall be payable in immediately available funds in lawful money of the United States which shall be legal tender for public and private debts at the time of payment. The making of any payment in other than immediately available funds, which the Lender, at its option elects to accept, shall be subject to collection, and interest shall continue to accrue until the funds by which payment is made are available to the Lender for its use.

     4. Prepayment. The Borrower may prepay the whole or any part of the outstanding indebtedness evidenced by this Note at any time prior to the Maturity Date without penalty or expense. Any partial prepayment shall be applied against the interest and costs due on this Note and then to the principal sum then outstanding.

     5. Application of Payments. For the purposes of computing interest on the debt evidenced by this Note, the principal sum outstanding shall be calculated on the basis of three hundred sixty (360) day calendar year with actual number of days elapsed in each month. Payments on this Note shall be applied first to late charges, reasonable costs of collection and enforcement, then to pay or to reimburse the Lender for any costs incurred or advances made by the Lender under a security or pledge agreement securing this Note, then to pay accrued and unpaid interest, and the remainder to pay principal then due and payable hereunder. Except in the case of manifest error, the Lender’s books and records shall be presumed correct as to the sums outstanding under this Note.

     6. Late Charge. In the event that this Note is not paid as scheduled on or before the Maturity Date, the Lender shall be entitled to collect a “late charge” in an amount equal to five percent (5.0% ) of the outstanding principal balance of this Note.

     7. Default and Acceleration.

          (a) Default. Each of the following events or conditions shall constitute an event of default under this Note (hereinafter “Default” or an “Event of Default”): (i) the failure to make any payment of principal or any other amount due under this Note when such payment is due; (ii) any default under the terms of the Pledge Agreement given by the Borrower to secure this Note; (iii) the merger, consolidation, reorganization, dissolution, of any Party; or the pledge, lease or other disposition of all or substantially all of the assets of any Party; (iv) any change, or any transaction which results or could result in a change in the Control of any Party; (v) any agreement or other document granting the Lender security for the payment of this Note shall cease for any reason to be in full force and effect as such security with the priority stated to be created thereby, or the grantor of such security shall contest the validity or enforceability of the security or deny that it has any further liability or obligation under such agreement or other document; (vi) any endorsement or guaranty of the payment of this Note shall cease for any reason to be in full force and effect or any endorser or guarantor shall contest the validity or enforceability of the endorsement or guaranty or deny that it has any further liability or obligation under the endorsement or guaranty; (vii) the legal or

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equitable title to the collateral securing this Note becomes vested in anyone or anything other than the Borrower without the Lender’s prior written consent; (viii) the filing of any inferior lien or secondary financing against the collateral securing this Note without the prior written consent of Lender; or (ix) if any Party dies or is incarcerated, or is adjudicated legally incompetent, unless within ninety (90) days of such Party’s death, incarceration or legal incompetency a substitute obligor or guarantor with a comparable or greater net worth (as in effect as of the date of this Note), or otherwise satisfactory to the Lender, assumes the obligations of such deceased, incarcerated or legally incompetent Party.

          (b) Acceleration Upon Default.

               (i) If Default be made under this Note, at the option of the Lender, the full amount remaining unpaid on this Note shall become immediately due and payable without presentment, demand or notice of any kind, and the Lender may exercise any or all remedies available to it under applicable law.

               (ii) Failure to exercise any of the options aforementioned or the failure to exercise any other option herein provided shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Acceleration of maturity, once claimed by the Lender, may at its option be rescinded by an instrument in writing to that effect; however, the tender and acceptance of a partial payment or partial performance shall not, by itself, affect or rescind such acceleration of maturity.

          (c) Default Rate. In the event any payment due hereunder, including all payments due on the Maturity Date, is not paid when due (whether upon acceleration or otherwise), the entire principal balance shall start to bear interest from the date of this Note, until paid, at the rate of Twelve percent (12%) (the “Default Rate”). The Default Rate shall apply regardless of whether the Lender elects to accelerate the unpaid principal balance as a result of such Default. If judgment is entered against the Borrower on this Note, the amount of such judgment entered (which may include principal, interest, fees and costs) shall bear interest at such Default Rate as set forth above.

     8. Expenses of Collection, etc. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security hereof, the Borrower shall pay to the Lender its reasonable attorney’s fees incurred, whether suit be brought or not, and all other costs and expenses reasonably connected with collection, the protection of the security, the defense of any counterclaim, the enforcement (including without limitation, as a part of any proceeding brought under the Bankruptcy Reform Act of 1978, as amended) of any remedies herein provided for, or provided for in this Note, the Pledge Agreement and the enforcement of any guaranty.

     9. Acceptance of Partial Payment. The acceptance by the Lender of a partial payment of any sum due under this Note, whether occurring before or after an Event of Default, shall not be deemed to cure the Borrower’s failure to pay such sum in full or to waive any of the Lender’s rights or remedies available on account of such Default. In addition, after the Lender has accelerated payment of this Note upon the occurrence of an Event of Default, the tender of payment of less than the entire principal amount of this Note,all interest thereon, late charges and other sums due hereunder, or the acceptance by the Lender of less than full payment thereof, shall not be deemed to have cured the Event of Default, to constitute a reinstatement of this Note or to waive any of the Lender’s rights and remedies reserved by this Note or provided by applicable law.

     10. Waivers, etc. The Borrower and each endorser, surety and guarantor hereof jointly and severally (i) waive presentment, demand, protest notice of dishonor and any and all other notices and

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demands whatsoever, (ii) waive, to the extent permitted by law, all exemptions, whether homestead or otherwise, as to the obligation evidenced by this Note, (iii) waive any right which they may have to require the Lender to proceed against any other Party or foreclose on any collateral given to secure the payment of this Note, (iv) agree that, without notice to any Party and without affecting any such party’s liability, the Lender, at any time or times, may grant extensions of the time for any payment due on this Note, release any such party from its obligation to make payments on this Note, permit the renewal of this Note or permit the substitution, exchange or release of any security or collateral for this Note, (v) waive any right they may have to require reinstatement of this Note after the occurrence of an Event of Default and (vi) waive, to the extent permitted by law, any right they may have to a trial by jury in any action or proceeding to enforce or collect this Note, whether such action or proceeding is instituted by the Lender, the Borrower or any other party.

     11. Confession of Judgment.

          (a) Upon the occurrence of an Event of Default, the Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record, or the below designated attorney-in-fact or any successor named therefor to appear for the Borrower, or any of them, in any court of record and confess judgment against the Borrower, or any of them, without prior hearing, in favor of the Lender for, and in the amount of, the balance then due under the Note, all accrued and unpaid interest thereon, all other amounts payable by the Borrower to the Lender under the terms of this Note, costs of suit, and attorneys’ fees of twenty-five percent (25%) [of the principal amount of this Note]; provided however, that the Lender may not recover and collect from the Borrower attorneys’ fees in excess of its actual and reasonable attorneys’ fees finally incurred in acquiring judgment and collecting all sums due under this Note.

          (b) In the event that such judgment is to be confessed in the Commonwealth of Virginia, the Borrower, pursuant to Section 8.01-435 of the Code of Virginia, as amended, hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) V. Rick Nishanian of Fairfax, Virginia, and/or Randolph D. Frostick of Fauquier, Virginia, either of whom may individually act, as its duly constituted agent and attorney-in-fact (hereinafter referred to as the “Attorney-In-Fact”), which appointment shall be deemed to be coupled with an interest and shall not terminate upon the disability, insolvency or dissolution of the Borrower, to confess judgment against the Borrower (including all costs and reasonable attorney fees as set forth above), pursuant to the provisions hereof and the applicable provisions of the Code of Virginia, as amended, which judgment shall be confessed in the Clerk’s Office of the Circuit Court of Fairfax County, Virginia.

          (c) In addition to the foregoing and in the event the above referenced Attorney-In-Fact is unable to act, refuses to act or is disqualified from acting, the Borrower hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) the Lender, as the Borrower’s duly appointed agent and Attorney-In-Fact, with full right, power, privilege and authority to act on behalf of the Borrower, which power may be used from time to time by the Lender to designate such additional, substitute or alternate person(s) who may act as additional or substitute Attorney-in-Fact (the "Substitute Attorney-In-Fact”) or to designate such additional courts in Virginia or in other states, territories or jurisdictions in which by law judgment may be confessed against the Borrower. The Substitute Attorney-in-Fact shall have full power to confess judgment against the Borrower in accordance with the terms hereof, which designation shall be binding on the Borrower as if the said Substitute Attorney-In-Fact was originally designated herein by

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the Borrower. This power of attorney and appointment of the Substitute Attorney-In-Fact is irrevocable and coupled with an interest, and shall not terminate upon the disability, insolvency or dissolution of the Borrower.

          (d) The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant; provided that such multiple actions shall not, in the aggregate, result in any judgment for an amount in excess of the full amount due by the Borrower hereunder.

     12. Cross Default. The Borrower hereby understands, acknowledges and agrees that any default hereunder, or under the terms and provisions of the Pledge Agreement provided to secure this Note, shall be deemed to constitute a default under the terms and provisions of any other then existing and outstanding loan indebtedness owing from the Borrower, and/or guarantors thereof, to the Lender (the “Other Affiliated Debt”); and a default under the terms and provisions of the Other Affiliated Debt shall be deemed by the Lender to constitute a default hereunder.

     13. Borrower Acknowledgements and Warranties. The Borrower represents, acknowledges, and warrants that the obligations evidenced by this Note are exclusively incurred for the purpose of carrying on a business, professional, investment or other commercial enterprise or activity, and that no part of the proceeds of the loan evidenced by this Note will be used for personal, family or household purposes. This Note provides for the making of a loan by Lender, in its capacity as a lender, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to Lender. The relationship between Lender and the Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand. Nothing contained in this Note shall be construed as permitting or obligating Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating the Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Lender to Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Note. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Note, and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for credit and to execute and deliver this Note.

     14. Usury. It is the intention of the Borrower and the Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws the Commonwealth of Virginia and the laws of the United States of America) then, in that event, notwithstanding anything to the contrary in any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the Lender (or, if this Note shall have been paid in full, refunded to the Borrower) and (ii) in the event that maturity of this Note is accelerated by reason of an election by the Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount allowed by applicable law, and excess

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interest, if any, provided for in this Note or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if therefore prepaid, shall be credited on this Note (or if this Note shall have been paid in full, refunded to the Borrower).

     15. Set-Off. The Lender will have the right, in addition to all other remedies permitted by law (including, without limitation, other rights of set-off), to set off the amount now or hereafter due under this Note or due under any other obligation of the Borrower to the Lender against any and all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower, without notice to or consent by the Borrower. In addition to the right of set-off, to secure the payment of this Note the Borrower assigns and grants to the Lender a security interest in all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower.

     16. Waiver of Jury Trial. The Borrower hereby (i) covenants and agrees not to elect a trial by jury of any issue triable of right by a jury, and (ii) waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily, by the Borrower, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. The Lender is hereby authorized and requested to submit this Note to any court having jurisdiction over the subject matter and the parties hereto, so as to serve as conclusive evidence of the Borrower’s waiver of the right to jury trial. Further, the Borrower hereby certifies that no representative or agent of the Lender (including the Lender’s counsel) has represented, expressly or otherwise, to the Borrower that the Lender will not seek to enforce this waiver of right to jury trial provision.

     17. Due on Sale and on Encumbrance. NOTICE — THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE, CONVEYANCE OR FURTHER ENCUMBRANCE OF THE PROPERTY SECURED BY THE PLEDGE AGREEMENT. Lender may, at its option, declare immediately due and payable all sums due under this Note upon the sale, transfer or further encumbrance, without the Lender’s prior written consent, all of any part of the collateral securing this Note. A “sale, transfer or encumbrance” means the conveyance of collateral securing this Note or any right, title, or interest therein; whether legal, beneficial, or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, assignment, or transfer of any beneficial interest, mortgage or its equivalent, or by any other method of conveyance. If any grantor of collateral securing this Note is a corporation, partnership, or limited liability company, the term transfer shall also include the transfer of any partnership or limited liability company interest.

     18. Account Record. The Lender shall maintain records of the dates and amounts of payments of principal and interest, the date to which interest has been paid, accrued interest, the unpaid principal balance, and any other account information. Such records shall be maintained unilaterally by the Lender without notice to the Borrower and shall be presumed to be correct, provided, however, any failure of the Lender to maintain such records or any error therein or in any notice hereunder shall not in any manner affect the obligation of the Borrower to pay this Note in accordance with the terms hereof.

     19. Notice. All notices, demands, requests and other communications required pursuant to the provisions of this Note shall be in writing and shall be deemed to have been properly given or served for all purposes when presented personally or sent by United States Registered or Certified Mail — Return Receipt Requested, postage prepaid as follows:

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If to the Lender:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.
If to the Borrower:	Copy to:
Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley

     20. Applicable Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

     21. Jurisdiction; Venue. The Borrower (a) submits to personal jurisdiction in the Commonwealth of Virginia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Note, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the Commonwealth of Virginia for the purpose of litigation to enforce this Note, and (c) agrees that service of process may be made upon the Borrower as provided below or in any manner prescribed by applicable federal rules of civil procedure or by applicable local rules or laws of civil procedure for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction.

     22. Service of Process. The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at the address set forth herein, or at such other address as the Borrower may furnish in writing to the Lender. The Borrower irrevocably agrees that such service shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrower. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law and nothing in this Section will limit the right of the Lender otherwise to bring proceedings against the Borrower, or any of them, in the courts of any other appropriate jurisdiction or jurisdictions.

     23. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns.

     24. Amendments. This Note may only be amended, modified or supplemented by a writing signed by all the parties hereto. No modification or waiver of any provision of this Note shall be effective as against the Lender unless it is in writing and signed by the Lender, and any such waiver shall be effective only in the specific instance and for the specific purpose for which it is given.

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     25. Severability. If any provision of this Note, or the application thereof in any circumstance, is deemed to be unenforceable, the remainder of this Note shall not be affected thereby and shall remain enforceable and in full force and effect.

     26. Collateral. This Note is secured by a Pledge Agreement of even date herewith encumbering all of Borrower’s interest in stock or shares in Alliance Insurance Agency, Inc.

     27. Time of The Essence. Time is of the essence with respect to all provisions of this Note.

     28. Miscellaneous. The nouns, pronouns, and verbs used in this Note shall be construed as being of such number and gender as the context may require. The headings used in this document are for ease of identification purposes only and are not to be construed to amend, modify or define any of its terms or provisions.

[Signature(s) and notary attestations on following page; remainder
of this page is being left intentionally blank]

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     WITNESS the following signature(s) made under seal this 29^th day of December, 2009.

BORROWER:
	(Seal)
Thomas P. Danaher

COMMONWEALTH OF VIRGINIA
CITY OF MANASSAS, to-wit:

     I HEREBY CERTIFY, that on this 29^th day of December, 2009, before me, a Notary Public of said jurisdiction, personally appeared Thomas P. Danaher, in his individual capacity, known to me (or satisfactorily proven) to be the person whose name is subscribed to the foregoing instrument and acknowledged that he has executed the same for the purposes therein contained.

     WITNESS my hand and notarial seal.

Notary Public

My Commission Expires:

Notary Registration No.:

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VIRGINIA STATUTORY NOTICE UNDER SECTION 8.01-433.1

“IMPORTANT NOTICE — THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.”

TERM NOTE

$125,000.00 December 29, 2009

     FOR VALUE RECEIVED, the undersigned, THOMAS P. DANAHER (the “Borrower”), promises to pay to the order of ALLIANCE BANK CORPORATION, a Virginia banking corporation, its successors and assigns (the “Lender”) with offices at 14200 Park Meadow Drive, Suite 200 South, Chantilly, Virginia 20151, or at such other address as the Lender shall specify in writing, in lawful money of the United States of America, the principal sum of ONE HUNDRED TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($125,000.00) together with interest on the unpaid principal balance advanced at the rate and on the terms hereinafter provided, all without offset or deduction (including all modifications, amendments, substitutions, renewals or extensions hereof and allonges hereto, the “Note”).

     1. Definitions. The specified terms, as they may be used in this Note and unless otherwise defined herein, shall have the same meaning as defined in the Pledge Agreement (defined below):

          “Control” of a Person means (i) ownership, control, or power to vote 51% or more of any class of voting securities of such Person, directly or indirectly or acting through one or more other Persons; (ii) control in any manner over the election or appointment of a majority of the directors, trustees, managers or general partners (or individuals exercising similar functions) of such Person; (iii) the direct or indirect power to exercise a controlling influence over the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise; or (iv) conditioning in any manner the transfer of 51% or more of any class of voting securities of such Person upon the transfer of 51% or more of any class of voting securities of another Person.

          “Party” shall mean and refer to the Borrower and any endorser or guarantor of this Note, any grantor or debtor giving security for this Note.

          “Person” shall mean and refer to an individual, a corporation, a partnership, an association, a limited liability company, a trust or any other entity or organization.

          “Pledge Agreement” shall mean that certain Security, Pledge and Escrow Agreement, dated as of the date hereof, by and between the Borrower and the Lender.

          “Stock Purchase Agreement” shall mean that certain Stock Purchase Agreement, dated as of the date hereof, by and between the Borrower, Oswald H. Skewes and the Lender and the other parties thereto.

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     2. Interest Rate. During the term of this Note and up to and including the Maturity Date (hereinafter defined), privilege is reserved to repay this Note without interest. The entire principal balance shall be due and payable on the Maturity Date.

     3. Payment and Maturity.

          (a) The entire principal balance of this Note (as such may be reduced in accordance with the terms of Section 2 the Stock Purchase Agreement), and all fees and costs reserved hereunder, shall be due and payable in full on February 15, 2015 (the “Maturity Date”).

          (b) All payments due under this Note shall be payable in immediately available funds in lawful money of the United States which shall be legal tender for public and private debts at the time of payment. The making of any payment in other than immediately available funds, which the Lender, at its option elects to accept, shall be subject to collection, and interest shall continue to accrue until the funds by which payment is made are available to the Lender for its use.

     4. Prepayment. The Borrower may prepay the whole or any part of the outstanding indebtedness evidenced by this Note at any time prior to the Maturity Date without penalty or expense. Any partial prepayment shall be applied against the interest and costs due on this Note and then to the principal sum then outstanding.

     5. Application of Payments. For the purposes of computing interest on the debt evidenced by this Note, the principal sum outstanding shall be calculated on the basis of three hundred sixty (360) day calendar year with actual number of days elapsed in each month. Payments on this Note shall be applied first to late charges, reasonable costs of collection and enforcement, then to pay or to reimburse the Lender for any costs incurred or advances made by the Lender under a security or pledge agreement securing this Note, then to pay accrued and unpaid interest, and the remainder to pay principal then due and payable hereunder. Except in the case of manifest error, the Lender’s books and records shall be presumed correct as to the sums outstanding under this Note.

     6. Late Charge. In the event that this Note is not paid as scheduled on or before the Maturity Date, the Lender shall be entitled to collect a “late charge” in an amount equal to five percent (5.0% ) of the outstanding principal balance of this Note.

     7. Default and Acceleration.

          (a) Default. Each of the following events or conditions shall constitute an event of default under this Note (hereinafter “Default” or an “Event of Default”): (i) the failure to make any payment of principal or any other amount due under this Note when such payment is due; (ii) any default under the terms of the Pledge Agreement given by the Borrower to secure this Note; (iii) the merger, consolidation, reorganization, dissolution, of any Party; or the pledge, lease or other disposition of all or substantially all of the assets of any Party; (iv) any change, or any transaction which results or could result in a change in the Control of any Party; (v) any agreement or other document granting the Lender security for the payment of this Note shall cease for any reason to be in full force and effect as such security with the priority stated to be created thereby, or the grantor of such security shall contest the validity or enforceability of the security or deny that it has any further liability or obligation under such agreement or other document; (vi) any endorsement or guaranty of the payment of this Note shall cease for any reason to be in full force and effect or any endorser or guarantor shall contest the validity or enforceability of the endorsement or guaranty or deny that it has any further liability or obligation under the endorsement or guaranty; (vii) the legal or

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equitable title to the collateral securing this Note becomes vested in anyone or anything other than the Borrower without the Lender’s prior written consent; (viii) the filing of any inferior lien or secondary financing against the collateral securing this Note without the prior written consent of Lender; or (ix) if any Party dies or is incarcerated, or is adjudicated legally incompetent, unless within ninety (90) days of such Party’s death, incarceration or legal incompetency a substitute obligor or guarantor with a comparable or greater net worth (as in effect as of the date of this Note), or otherwise satisfactory to the Lender, assumes the obligations of such deceased, incarcerated or legally incompetent Party.

          (b) Acceleration Upon Default.

               (i) If Default be made under this Note, at the option of the Lender, the full amount remaining unpaid on this Note shall become immediately due and payable without presentment, demand or notice of any kind, and the Lender may exercise any or all remedies available to it under applicable law.

               (ii) Failure to exercise any of the options aforementioned or the failure to exercise any other option herein provided shall not constitute a waiver of the right to exercise the same in the event of any subsequent Event of Default. Acceleration of maturity, once claimed by the Lender, may at its option be rescinded by an instrument in writing to that effect; however, the tender and acceptance of a partial payment or partial performance shall not, by itself, affect or rescind such acceleration of maturity.

          (c) Default Rate. In the event any payment due hereunder, including all payments due on the Maturity Date, is not paid when due (whether upon acceleration or otherwise), the entire principal balance shall start to bear interest from the date of this Note, until paid, at the rate of Twelve percent (12%) (the “Default Rate”). The Default Rate shall apply regardless of whether the Lender elects to accelerate the unpaid principal balance as a result of such Default. If judgment is entered against the Borrower on this Note, the amount of such judgment entered (which may include principal, interest, fees and costs) shall bear interest at such Default Rate as set forth above.

     8. Expenses of Collection, etc. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security hereof, the Borrower shall pay to the Lender its reasonable attorney’s fees incurred, whether suit be brought or not, and all other costs and expenses reasonably connected with collection, the protection of the security, the defense of any counterclaim, the enforcement (including without limitation, as a part of any proceeding brought under the Bankruptcy Reform Act of 1978, as amended) of any remedies herein provided for, or provided for in this Note, the Pledge Agreement and the enforcement of any guaranty.

     9. Acceptance of Partial Payment. The acceptance by the Lender of a partial payment of any sum due under this Note, whether occurring before or after an Event of Default, shall not be deemed to cure the Borrower’s failure to pay such sum in full or to waive any of the Lender’s rights or remedies available on account of such Default. In addition, after the Lender has accelerated payment of this Note upon the occurrence of an Event of Default, the tender of payment of less than the entire principal amount of this Note, all interest thereon, late charges and other sums due hereunder, or the acceptance by the Lender of less than full payment thereof, shall not be deemed to have cured the Event of Default, to constitute a reinstatement of this Note or to waive any of the Lender’s rights and remedies reserved by this Note or provided by applicable law.

     10. Waivers, etc. The Borrower and each endorser, surety and guarantor hereof jointly and severally (i) waive presentment, demand, protest notice of dishonor and any and all other notices and

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demands whatsoever, (ii) waive, to the extent permitted by law, all exemptions, whether homestead or otherwise, as to the obligation evidenced by this Note, (iii) waive any right which they may have to require the Lender to proceed against any other Party or foreclose on any collateral given to secure the payment of this Note, (iv) agree that, without notice to any Party and without affecting any such party’s liability, the Lender, at any time or times, may grant extensions of the time for any payment due on this Note, release any such party from its obligation to make payments on this Note, permit the renewal of this Note or permit the substitution, exchange or release of any security or collateral for this Note, (v) waive any right they may have to require reinstatement of this Note after the occurrence of an Event of Default and (vi) waive, to the extent permitted by law, any right they may have to a trial by jury in any action or proceeding to enforce or collect this Note, whether such action or proceeding is instituted by the Lender, the Borrower or any other party.

     11. Confession of Judgment.

          (a) Upon the occurrence of an Event of Default, the Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record, or the below designated attorney-in-fact or any successor named therefor to appear for the Borrower, or any of them, in any court of record and confess judgment against the Borrower, or any of them, without prior hearing, in favor of the Lender for, and in the amount of, the balance then due under the Note, all accrued and unpaid interest thereon, all other amounts payable by the Borrower to the Lender under the terms of this Note, costs of suit, and attorneys’ fees of twenty-five percent (25%) [of the principal amount of this Note]; provided however, that the Lender may not recover and collect from the Borrower attorneys’ fees in excess of its actual and reasonable attorneys’ fees finally incurred in acquiring judgment and collecting all sums due under this Note.

          (b) In the event that such judgment is to be confessed in the Commonwealth of Virginia, the Borrower, pursuant to Section 8.01-435 of the Code of Virginia, as amended, hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) V. Rick Nishanian of Fairfax, Virginia, and/or Randolph D. Frostick of Fauquier, Virginia, either of whom may individually act, as its duly constituted agent and attorney-in-fact (hereinafter referred to as the “Attorney-In-Fact”), which appointment shall be deemed to be coupled with an interest and shall not terminate upon the disability, insolvency or dissolution of the Borrower, to confess judgment against the Borrower (including all costs and reasonable attorney fees as set forth above), pursuant to the provisions hereof and the applicable provisions of the Code of Virginia, as amended, which judgment shall be confessed in the Clerk’s Office of the Circuit Court of Fairfax County, Virginia.

          (c) In addition to the foregoing and in the event the above referenced Attorney-In-Fact is unable to act, refuses to act or is disqualified from acting, the Borrower hereby irrevocably makes, constitutes, appoints and designates (and if the Borrower is an entity other than a natural person(s), hereby certifies that a duly authorized resolution is in effect making, constituting and appointing) the Lender, as the Borrower’s duly appointed agent and Attorney-In-Fact, with full right, power, privilege and authority to act on behalf of the Borrower, which power may be used from time to time by the Lender to designate such additional, substitute or alternate person(s) who may act as additional or substitute Attorney-in-Fact (the “Substitute Attorney-In-Fact”) or to designate such additional courts in Virginia or in other states, territories or jurisdictions in which by law judgment may be confessed against the Borrower. The Substitute Attorney-in-Fact shall have full power to confess judgment against the Borrower in accordance with the terms hereof, which designation shall be binding on the Borrower as if the said Substitute Attorney-In-Fact was originally designated herein by

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the Borrower. This power of attorney and appointment of the Substitute Attorney-In-Fact is irrevocable and coupled with an interest, and shall not terminate upon the disability, insolvency or dissolution of the Borrower.

          (d) The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant; provided that such multiple actions shall not, in the aggregate, result in any judgment for an amount in excess of the full amount due by the Borrower hereunder.

     12. Cross Default. The Borrower hereby understands, acknowledges and agrees that any default hereunder, or under the terms and provisions of the Pledge Agreement provided to secure this Note, shall be deemed to constitute a default under the terms and provisions of any other then existing and outstanding loan indebtedness owing from the Borrower, and/or guarantors thereof, to the Lender (the “Other Affiliated Debt”); and a default under the terms and provisions of the Other Affiliated Debt shall be deemed by the Lender to constitute a default hereunder.

     13. Borrower Acknowledgements and Warranties. The Borrower represents, acknowledges, and warrants that the obligations evidenced by this Note are exclusively incurred for the purpose of carrying on a business, professional, investment or other commercial enterprise or activity, and that no part of the proceeds of the loan evidenced by this Note will be used for personal, family or household purposes. This Note provides for the making of a loan by Lender, in its capacity as a lender, to the Borrower, in its capacity as a borrower, and for the payment of interest and repayment of principal by the Borrower to Lender. The relationship between Lender and the Borrower is limited to that of creditor/secured party, on the one hand, and debtor, on the other hand. Nothing contained in this Note shall be construed as permitting or obligating Lender to act as a financial or business advisor or consultant to Borrower, as permitting or obligating the Lender to control Borrower or to conduct Borrower’s operations, as creating any fiduciary obligation on the part of Lender to Borrower, or as creating any joint venture, agency, or other relationship between the parties other than as explicitly and specifically stated in this Note. The Borrower acknowledges that it has had the opportunity to obtain the advice of experienced counsel of its own choosing in connection with the negotiation and execution of this Note, and to obtain the advice of such counsel with respect to all matters contained herein, including, without limitation, the provision for waiver of trial by jury. The Borrower further acknowledges that it is experienced with respect to financial and credit matters and has made its own independent decision to apply to Lender for credit and to execute and deliver this Note.

     14. Usury. It is the intention of the Borrower and the Lender to conform strictly to applicable usury laws. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws the Commonwealth of Virginia and the laws of the United States of America) then, in that event, notwithstanding anything to the contrary in any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Note or under any of the other aforesaid agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the Lender (or, if this Note shall have been paid in full, refunded to the Borrower) and (ii) in the event that maturity of this Note is accelerated by reason of an election by the Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount allowed by applicable law, and excess

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interest, if any, provided for in this Note or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if therefore prepaid, shall be credited on this Note (or if this Note shall have been paid in full, refunded to the Borrower).

     15. Set-Off. The Lender will have the right, in addition to all other remedies permitted by law (including, without limitation, other rights of set-off), to set off the amount now or hereafter due under this Note or due under any other obligation of the Borrower to the Lender against any and all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower, without notice to or consent by the Borrower. In addition to the right of set-off, to secure the payment of this Note the Borrower assigns and grants to the Lender a security interest in all accounts, credits, money, securities, or other property now or hereafter on deposit with, held by, or in the possession of the Lender to the credit or for the account of the Borrower.

     16. Waiver of Jury Trial. The Borrower hereby (i) covenants and agrees not to elect a trial by jury of any issue triable of right by a jury, and (ii) waives any right to trial by jury fully to the extent that any such right shall now or hereafter exist. This waiver of right to trial by jury is separately given, knowingly and voluntarily, by the Borrower, and this waiver is intended to encompass individually each instance and each issue as to which the right to a jury trial would otherwise accrue. The Lender is hereby authorized and requested to submit this Note to any court having jurisdiction over the subject matter and the parties hereto, so as to serve as conclusive evidence of the Borrower’s waiver of the right to jury trial. Further, the Borrower hereby certifies that no representative or agent of the Lender (including the Lender’s counsel) has represented, expressly or otherwise, to the Borrower that the Lender will not seek to enforce this waiver of right to jury trial provision.

     17. Due on Sale and on Encumbrance. NOTICE — THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE, CONVEYANCE OR FURTHER ENCUMBRANCE OF THE PROPERTY SECURED BY THE PLEDGE AGREEMENT. Lender may, at its option, declare immediately due and payable all sums due under this Note upon the sale, transfer or further encumbrance, without the Lender’s prior written consent, all of any part of the collateral securing this Note. A “sale, transfer or encumbrance” means the conveyance of collateral securing this Note or any right, title, or interest therein; whether legal, beneficial, or equitable; whether voluntary or involuntary; whether by outright sale, deed, installment sale contract, assignment, or transfer of any beneficial interest, mortgage or its equivalent, or by any other method of conveyance. If any grantor of collateral securing this Note is a corporation, partnership, or limited liability company, the term transfer shall also include the transfer of any partnership or limited liability company interest.

     18. Account Record. The Lender shall maintain records of the dates and amounts of payments of principal and interest, the date to which interest has been paid, accrued interest, the unpaid principal balance, and any other account information. Such records shall be maintained unilaterally by the Lender without notice to the Borrower and shall be presumed to be correct, provided, however, any failure of the Lender to maintain such records or any error therein or in any notice hereunder shall not in any manner affect the obligation of the Borrower to pay this Note in accordance with the terms hereof.

     19. Notice. All notices, demands, requests and other communications required pursuant to the provisions of this Note shall be in writing and shall be deemed to have been properly given or served for all purposes when presented personally or sent by United States Registered or Certified Mail — Return Receipt Requested, postage prepaid as follows:

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If to the Lender:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.
If to the Borrower:	Copy to:
Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley

     20. Applicable Law. This Note shall be governed by the laws of the Commonwealth of Virginia.

     21. Jurisdiction; Venue. The Borrower (a) submits to personal jurisdiction in the Commonwealth of Virginia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Note, (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within the Commonwealth of Virginia for the purpose of litigation to enforce this Note, and (c) agrees that service of process may be made upon the Borrower as provided below or in any manner prescribed by applicable federal rules of civil procedure or by applicable local rules or laws of civil procedure for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Lender from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction.

     22. Service of Process. The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to such Borrower at the address set forth herein, or at such other address as the Borrower may furnish in writing to the Lender. The Borrower irrevocably agrees that such service shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrower. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law and nothing in this Section will limit the right of the Lender otherwise to bring proceedings against the Borrower, or any of them, in the courts of any other appropriate jurisdiction or jurisdictions.

     23. Successors and Assigns. This Note shall inure to the benefit of and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns.

     24. Amendments. This Note may only be amended, modified or supplemented by a writing signed by all the parties hereto. No modification or waiver of any provision of this Note shall be effective as against the Lender unless it is in writing and signed by the Lender, and any such waiver shall be effective only in the specific instance and for the specific purpose for which it is given.

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     25. Severability. If any provision of this Note, or the application thereof in any circumstance, is deemed to be unenforceable, the remainder of this Note shall not be affected thereby and shall remain enforceable and in full force and effect.

     26. Collateral. This Note is secured by a Pledge Agreement of even date herewith encumbering all of Borrower’s interest in stock or shares in Alliance Insurance Agency, Inc.

     27. Time of The Essence. Time is of the essence with respect to all provisions of this Note.

     28. Miscellaneous. The nouns, pronouns, and verbs used in this Note shall be construed as being of such number and gender as the context may require. The headings used in this document are for ease of identification purposes only and are not to be construed to amend, modify or define any of its terms or provisions.

[Signature(s) and notary attestations on following page; remainder
of this page is being left intentionally blank]

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     WITNESS the following signature(s) made under seal this 29^th day of December, 2009.

BORROWER:
	(Seal)
Thomas P. Danaher

COMMONWEALTH OF VIRGINIA
CITY OF MANASSAS, to-wit:

     I HEREBY CERTIFY, that on this 29^th day of December, 2009, before me, a Notary Public of said jurisdiction, personally appeared Thomas P. Danaher, in his individual capacity, known to me (or satisfactorily proven) to be the person whose name is subscribed to the foregoing instrument and acknowledged that he has executed the same for the purposes therein contained.

     WITNESS my hand and notarial seal.

Notary Public

My Commission Expires: _____________________

Notary Registration No.: _____________________

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SECURITY, PLEDGE AND ESCROW AGREEMENT

     THIS SECURITY, PLEDGE AND ESCROW AGREEMENT (this “Agreement”) is made and entered into on December 29, 2009, by and between THOMAS P. DANAHER (the “Debtor”), ALLIANCE INSURANCE AGENCY, INC., a Virginia corporation (the “Company”), ALLIANCE BANK CORPORATION, a Virginia banking corporation (“Secured Party”), and VANDERPOOL, FROSTICK & NISHANIAN, P.C. (the “Custodian”).

RECITALS:

     WHEREAS, on the date of this Agreement, Debtor is purchasing or has purchased 9,800 of the outstanding shares of capital stock of the Company pursuant to the Stock Purchase Agreement dated as of December 29, 2009, among the Secured Party, as seller, and the Debtor and Oswald H. Skewes (“Skewes”), together as purchaser (the “Stock Purchase Agreement”); and

     WHEREAS, this Agreement is being made to secure Debtor’s obligations to Secured Party under the Note described in Section 2(b)(ii) of the Stock Purchase Agreement and five (5) separate Deferred Revenue Notes described in Section 2(b)(iii) of the Stock Purchase Agreement; and

     WHEREAS, pursuant to Section 2(f) of the Stock Purchase Agreement, as an integral part of the transactions between the Debtor and the Secured Party, and for certain good and valuable consideration, the receipt, adequacy, and legal sufficiency of which are hereby acknowledged, Debtor, the Company and Secured Party, intending to be legally bound, hereby agree as follows:

     1. Capitalized Terms. All capitalized terms used in this Agreement that are not defined herein shall have the meanings given to them in the Stock Purchase Agreement.

     2. Pledge and Grant of Security Interest. As collateral security for all of the Obligations (as defined in Section 3 hereof), Debtor hereby pledges and assigns to Secured Party, and grants to Secured Party a continuing purchase money security interest in, the following (the “Pledged Collateral”):

          (a) Nine thousand Eight Hundred (9,800) shares of the common capital stock of the Company (the “Pledged Shares”), which Debtor purchased from Secured Party pursuant to the Stock Purchase Agreement (which Pledged Shares, along with 200 shares purchased by Skewes and not being pledged hereby, constitute all the issued and outstanding shares of capital stock of the Company), the certificates representing the Pledged Shares (as identified on Exhibit “A” hereto attached), together with the stock power attached thereto and executed in blank in the form attached hereto as Exhibit “B”, all options and other rights, contractual or otherwise, with respect thereto, and all dividends, cash, instruments and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares;

          (b) All other shares or other equity securities of the Company, or any options, warrants or other instruments of any kind or nature creating or evidencing any right to acquire equity securities of the Company, issued after the date hereof; and

          (c) All proceeds of any and all of the foregoing;

in each case, whether now owned or hereafter acquired by Debtor and howsoever its interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

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     3. Security for Obligations. The security interest created hereby in the Pledged Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (collectively the “Obligations”):

          (a) The prompt payment, as and when due and payable, of all amounts from time to time owing under or pursuant to the terms of that certain Term Note dated December 29, 2009, in the principal sum of Six Hundred Fifty Thousand and 00/100 Dollars ($625,000.00), executed by Debtor to the order of Secured Party (the “Term Note”), or under and pursuant to any and all renewals, modifications, or extensions of the Term Note, in whole or in part;

          (b) The prompt payment, as and when due and payable, of all amounts from time to time owing under or pursuant to the terms of that certain five (5) separate Term Notes, each dated as of December 29, 2009, in the principal sum of One Hundred Twenty Five Thousand and00/100 Dollars ($125,000.00) each, executed by Debtor to the order of Secured Party (each a “Deferred Revenue Note” and together hereinafter the “Deferred Revenue Notes”), or under and pursuant to any and all renewals, modifications, or extensions of the Note, in whole or in part; and

          (c) The due performance and observance by Debtor of all of its respective obligations and undertakings under or pursuant to this Agreement.

The Term Note and the Deferred Revenue Notes are hereinafter collectively referred to as the “Notes”.

     4. Delivery of the Pledged Collateral.

          (a) Upon the execution and delivery of this Agreement, all certificates representing the Pledged Shares shall be delivered to the Custodian, acting as custodian for the Secured Party, to hold said certificates in escrow for the benefit of Secured Party in accordance with the terms herein. All other certificates and instruments constituting Pledged Collateral from time to time, shall be delivered promptly upon receipt thereof by or on behalf of Debtor, to the Custodian, to hold same in escrow for the benefit of the Secured Party in accordance with the terms hereof. All such certificates and instruments shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party and Custodian.

          (b) Upon receipt, Custodian shall immediately deposit and hold the certificates representing the Pledged Shares, together with any other certificates or instruments constituting Pledged Collateral from time to time received by Custodian, as custodian for Secured Creditor pursuant to Section 4(a), in a safe deposit box maintained at a financial institution located in and dully licensed by the Commonwealth of Virginia (the “Custodian Deposit Box”).

          (c) Until such time as the Pledged Collateral is to be released by Custodian in accordance with the terms hereof, Custodian shall at all times maintain the Pledged Collateral in the Custodian Deposit Box, or at another office or location in the Commonwealth of Virginia, at a location and with a custodian reasonable acceptable to both Secured Party and Debtor.

          (d) Custodian acknowledges that with respect to the Pledged Collateral, it is not acting as a securities intermediary as that term is defined in Va. Code §8.8A-102(14).

     5. Representations and Warranties. Debtor represents and warrants as follows:

          (a) The Pledged Shares are as duly authorized and validly issued and fully paid and

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 2 of 12

non-assessable as they were in the hands of Secured Party.

          (b) Debtor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest or other charge or encumbrance created by or in the right of Debtor except for the security interest created by this Agreement.

          (c) The exercise by Secured Party of its rights and remedies hereunder will not contravene any legal requirement or any contract binding on or affecting Debtor or any of its properties and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties.

          (d) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required either (i) for the pledge hereunder by Debtor of, or the grant by Debtor of the security interest created hereby in, the Pledged Collateral or (ii) except as may be required by laws affecting the offering and sale of securities generally, for the exercise by Secured Party of its rights and remedies hereunder.

          (e) This Agreement creates a valid security interest in favor of Secured Party in the Pledged Collateral, and Debtor has not and will not grant in favor of any other person or entity a lien upon or a security interest in the Pledged Collateral;

     6. Covenants as to the Pledged Collateral. So long as any of the Obligations shall remain outstanding, Debtor and the Company will, and Debtor will cause the Company to, unless Secured Party shall otherwise consent in writing:

          (a) at Debtor’s expense, defend Secured Party’s right, title and security interest in and to the Pledged Collateral against any person or entity claiming pursuant to any lien, security interest or other charge or encumbrance created by or in the right of Debtor;

          (b) at Debtor’s expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that Secured Party may request in order to (i) perfect and protect the security interest created or purported to be created hereby; (ii) enable Secured Party to exercise and enforce its rights and remedies hereunder in respect of the Pledged Collateral; or (iii) otherwise effect the purposes of this Agreement;

          (c) not sell, assign, exchange or otherwise dispose of any of the Pledged Collateral, or any interest therein;

          (d) not create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any Pledged Collateral created by or in the right of Debtor except for the pledge hereunder and the security interest created hereby;

          (e) not sell, assign, exchange or otherwise transfer any material assets of the Company, other than in the Ordinary Course of Business and for value;

          (f) not make any payment of dividends or other distribution in respect of the Pledged Collateral;

          (g) not enter into any Contract with Debtor or any Person related to Debtor other than in the Ordinary Course of Business and on terms which are no less favorable to the Company than

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 3 of 12

would be obtained in a comparable arms-length transaction with an unrelated third party;

          (h) not issue any additional shares or other equity securities of the Company, or any options, warrants or other instruments of any kind or nature creating or evidencing any right to acquire equity securities of the Company, or otherwise alter the capital structure of the Company, except to the extent that such additional shares, securities or instruments creating any right to acquire such shares or securities are included among the Pledged Collateral (such that at all times hereafter, until the Notes have been paid in full, the Pledged Collateral shall include 100% of the equity interests of the Company);

          (i) not cause or permit the Company to become a guarantor of the indebtedness of any other Person;

          (j) not cause or permit the Company to incur any indebtedness other than indebtedness of the Company outstanding as of the Closing (“Existing Indebtedness”), other than (i) in the Ordinary Course of Business, (ii) in connection with the acquisition of material assets or (iii) any refinancing of Existing Indebtedness;

          (k) not cause or permit the Company to merge or consolidate with any other Person;

          (l) not cause or suffer the Company to otherwise end its corporate existence;

          (m) amend the Company’s articles of incorporation, bylaws or other governing documents to amend in any manner the rights and privileges of the Pledged Shares;

          (n) not commence any Proceeding relating to the Company under or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors (a “Bankruptcy Law”); and

          (o) not take or fail to take any action which would in any manner impair the value or enforceability of Secured Party’s security interest in any Pledged Collateral.

          In addition, so long as any of the Obligations shall remain outstanding, Debtor and the Company will, and Debtor will cause the Company to, give Secured Party prior written notice and a reasonable opportunity to confer with Debtor and the Company before taking any other action that will, or would reasonably be expected to, have a material adverse effect on the Company or its business, assets, properties, personnel, operations, performance, financial condition or prospects; provided, the Secured Party acknowledges and agrees that it shall have no right to approve or disapprove any such action except to the extent expressly set forth above.

     7. Voting Rights, Dividends, Etc. in Respect of the Pledged Collateral.

          (a) Prior to the occurrence of an Event of Default (as defined in Section 9 hereof):

               (i) Debtor may exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement;

               (ii) Debtor may receive and retain any and all dividends (to the extent permitted to be paid pursuant to Section 6(f) hereof) or interest paid in respect of the Pledged Collateral; provided, however, that any and all:

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 4 of 12

                    (1) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Collateral,

                    (2) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral, and

                    (3) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral shall be, and shall forthwith be delivered to Custodian to hold in escrow as Pledged Collateral for the benefit of Secured Party, and shall be forthwith delivered to Custodian in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Custodian in escrow for the benefit of Secured Party as Pledged Collateral and as further collateral security for the Obligations; and

               (iii) Secured Party will execute and deliver (or cause to be executed and delivered) to Debtor all such proxies and other instruments as Debtor may reasonably request for the purpose of enabling Debtor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) of this Section 7(a).

          (b) Upon the occurrence of an Event of Default (as defined in Section 9 hereof):

               (i) all rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection (a) of this Section 7 shall cease, and all such rights shall thereupon become vested in Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights, and to receive such dividend payments (and Debtor covenants and agrees thereupon, if requested by Secured Party, to deliver to Secured Party irrevocable proxies with respect to the Pledged Collateral);

               (ii) without limiting the generality of the foregoing, (A) any or all of the Pledged Collateral held by Custodian in escrow for the benefit of Secured Party hereunder, at the option of Secured Party, may be registered in the name of Secured Party or its nominee, and (B) Secured Party at its option may exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Shares upon the merger, consolidation, reorganization, recapitalization or other adjustment of Company, or upon the exercise by Company of any right, privilege or option pertaining to any Pledged Collateral, and, in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine.

     8. Additional Provisions Concerning the Pledged Collateral. Debtor hereby agrees to take any action and to execute any instruments which may be necessary or advisable to accomplish the purposes of this Agreement.

     9. Events of Default. The occurrence of any one or more of the following events with respect to Debtor shall constitute an event of default hereunder (an “Event of Default”):

          (a) Any default in the full and prompt payment of the Notes, when due, or any part of any indebtedness or obligation constituting part of the Obligations hereunder if such default is not cured within the applicable cure period; or

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 5 of 12

          (b) Any default by Debtor in the full, faithful and prompt payment or performance of any covenant, agreement, liability, obligation, condition or undertaking on its part to be paid, met, kept, observed or performed pursuant to the provisions hereof or of any other instrument or document now or hereafter securing all or any part of the Obligations hereunder if such default is not cured within the applicable cure period; or

          (c) Any representation or warranty by Debtor set out herein shall prove to be false or misleading in any material respect as of the time made.

          (d) If, pursuant to or within the meaning of any bankruptcy law, Debtor or the Company (A) commences a voluntary bankruptcy proceeding, (B) consents to the entry of an order for relief against it in an involuntary bankruptcy proceeding, (C) consents to the appointment of a trustee, receiver, assignee, liquidator or similar official, (D) makes an assignment for the benefit of its creditors, or (E) admits in writing its inability to pay its debts as they become due; or

          (e) If a court of competent jurisdiction enters an order under any bankruptcy law that (A) is for relief against Debtor or the Company in an involuntary bankruptcy proceeding, (B) appoints a trustee, receiver, assignee, liquidator or similar official for Debtor or substantially all of Debtor’s or the Company’s properties, or (C) orders the liquidation of Debtor or the Company, and in each case the order is not dismissed within fifty business days.

     10. Notice Upon Default. Debtor shall notify Secured Party and Custodian in writing within five (5) Business Days after the occurrence of any Event of Default of which Debtor acquires actual knowledge.

     11. Remedies Upon Default. Upon the occurrence of an Event of Default, Custodian shall be authorized to deliver the Pledged Collateral to Secured Party within five (5) Business Days after receiving a written request therefor from Secured Party (which request shall state that an Event of Default has occurred as defined in this Agreement, and that Secured Party has given a copy of such request to Debtor):

          (a) Secured Party may (i) exercise in respect of the Pledged Collateral, in addition to any and all rights available to it under any applicable legal requirement, all of the rights and remedies available to it under any document securing or guaranteeing the Obligations; and (ii) without limiting the generality of the foregoing and upon reasonable notification to Debtor, sell the Pledged Collateral or any part thereof at public or private sale at such price or prices and on such other terms as Secured Party may deem commercially reasonable.

          (b) All cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to Secured Party pursuant to Section 11 hereof) in whole or in part by Secured Party against, all or any part of the Obligations in such order as Secured Party shall elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of all of the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus as determined by a court of competent jurisdiction.

     12. Notices, Etc. All notices, consents, waivers, and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a party when (1) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid);

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 6 of 12

(2) sent by facsimile or e-mail with confirmation by telephone call; or (3) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses, facsimile numbers or e-mail addresses and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number, e-mail address or person as a party may designate by notice to the other parties):

If to the Secured Party:	Copy to:
14200 Park Meadow Drive	Vanderpool, Frostick & Nishanian, P.C.
Suite 200 South	9200 Church Street, Suite 400
Chantilly, Virginia 20151	Manassas, Virginia 20110
Attention: Paul M. Harbolick, Jr., EVP & CFO	Attention: V. Rick Nishanian, Esq.
If to the Debtor or the Company:	Copy to:
c/o Thomas P. Danaher	Kevin J. Kelley, P.C.
503 North Quaker Lane	4200 Evergreen Lane, Suite 313
Alexandria, Virginia 22304	Annandale, Virginia, 22003
	Attention: Kevin J. Kelley
If to Custodian:
Vanderpool, Frostick & Nishanian, P.C.
9200 Church Street, Suite 400
Manassas, Virginia 20110
Attention: V. Rick Nishanian, Esq.

     13. Duties, Rights and Protections of Custodian.

          (a) Neither Secured Party nor Custodian shall be under any duty to give the Pledged Collateral any greater degree of care than it gives its own similar property and shall not be required to invest any of the Pledged Collateral except as directed in this Agreement.

          (b) Neither Secured Party nor Custodian shall be liable for any actions or omissions of the other with respect to their duties as set forth herein. Neither Secured Party nor Custodian shall be liable for its own actions or omissions hereunder, except for its own gross negligence or willful misconduct. Without limiting the foregoing, Custodian in no event shall be liable in connection with its investment or reinvestment of the Pledged Collateral in good faith and in accordance with the terms hereof, including, without limitation, any liability for any delay (not resulting from its gross negligence or willful misconduct) in the investment or reinvestment of the Pledged Collateral or any loss of interest incident to any such delay.

          (c) Except with respect to claims based upon gross negligence or willful misconduct that are successfully asserted against Custodian, both Debtor and Secured Party shall jointly and severally indemnify and hold harmless Custodian from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorneys’ fees, expenses and disbursements, arising from this Agreement. Debtor and Secured Party shall bear equally the costs of any such indemnification of Custodian.

          (d) Custodian shall be entitled to rely upon any writ, order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 7 of 12

the authenticity or the correctness of any fact stated therein or the propriety or validity of the service thereof. Custodian may act in reliance upon any instrument or signature believed by it to be genuine and may assume that the person purporting to give receipt or advice, make any statement, or execute any document in connection with the provisions of this Agreement has been duly authorized to do so. Custodian may conclusively presume that the undersigned representative of any party hereto which is an entity other than a natural person has full power and authority to instruct Custodian on behalf of that party, unless written notice to the contrary is delivered to Custodian.

          (e) Custodian may act pursuant to the advice of counsel with respect to any matter relating to this Agreement and shall not be liable for any action taken or omitted by it in good faith in accordance with such advice.

          (f) Custodian makes any representation as to the validity, value, genuineness or collectability of any securities or other property held by or delivered to it hereunder.

          (g) In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Pledged Collateral, or in the event that Custodian (if Custodian has physical possession of Pledged Collateral) is in doubt as to what action it should take hereunder, Custodian (if Custodian has physical possession of Pledged Collateral) shall be entitled to retain the Pledged Collateral until Custodian (if it has physical possession of Pledged Collateral) shall have received (1) a final, nonappealable order of a court of competent jurisdiction directing payment of the Pledged Collateral (or portion thereof), accompanied by a legal opinion by counsel for the presenting party satisfactory to Custodian (if Custodian has physical possession of Pledged Collateral), as applicable, to the effect that such order is final and nonappealable, (2) an arbitration award issued pursuant to an American Arbitration Association (“A.A.A.”) arbitration, naming Debtor and Secured Party as parties thereto, directing delivery of the Pledged Collateral (or portion thereof) accompanied by a certified copy of a court order confirming such award, or (3) a written agreement executed by the other parties hereto directing delivery of the Pledged Collateral (or portion thereof), in which event Custodian (if Custodian has physical possession of Pledged Collateral) shall deliver the Pledged Collateral (or portion thereof) in accordance with such order or agreement. Custodian shall act on any such court order and legal opinion or any such agreement without further question.

          (h) Notwithstanding any other term or provision contained herein, in the event of a dispute between the Debtor and the Secured Party with respect to the Pledged Collateral, the Custodian may, by means of an interpleader action or any other appropriate method, interplead and deposit the Pledged Collateral with the Circuit Court of Fairfax County, Virginia, for holding and disposition in accordance with the instructions of such court. Upon deposit of the Pledged Collateral with the court, the Custodian shall be relieved of any further obligation and duty under this Agreement.

          (i) No printed or other matter (including, without limitation, prospectuses, notices, reports and promotional material) that mentions Custodian’s name or the rights, powers or duties of Custodian shall be issued by the other parties hereto or on such parties’ behalf unless Custodian shall first have given its specific written consent thereto.

          (j) No party to this Agreement shall be liable to any other party for losses arising out of, or the inability to perform its obligation under the terms of this Agreement due to, acts of God, which shall include, but not be limited to, fire, floods, strikes, mechanical failure, war, riot, nuclear accident, earthquake, terror attack, computer piracy, cyber-terrorism, or any other act beyond the control of the parties hereto.

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 8 of 12

          (k) Custodian shall have the right, in its sole discretion, not to accept appointment as escrow agent and to reject funds and collateral from any party in the event that Custodian has reason to believe that such funds or collateral violate applicable banking practices or applicable legal requirements, including, but not limited to, the Patriot Act. In the event of suspicious or illegal activity and pursuant to all legal requirements, the other parties to this Agreement shall assist Custodian and comply with any reviews, investigations and examinations directed against the Pledged Collateral.

          (l) This Agreement expressly sets forth all the duties of Custodian with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Agreement against Custodian. Custodian shall be bound by the provisions of any agreement between the other parties hereto except this Agreement.

          (m) The provisions of this Section 13 shall survive any termination of the escrow created pursuant to this Agreement or the resignation of Custodian.

          (n) By executing this Agreement, Custodian acknowledge that it shall hold possession of the Pledged Collateral for the Secured Party’s benefit.

     14. Compensation of Custodian. Secured Party shall pay Custodian compensation (as payment in full) for the services to be rendered by Custodian hereunder in accordance with separate agreement entered into by and between the Custodian and the Secured Party. Secured Party also shall reimburse Custodian for all reasonable out-of-pocket expenses incurred by Custodian in the performance of its duties hereunder, including reasonable attorney’s fees and expenses.

     15. Miscellaneous.

          (a) Entire Agreement. This Agreement supersedes all prior negotiations, understandings, agreements, representations, warranties, and courses of conduct and dealing, whether written or oral, between the parties with respect to its subject matter. This Agreement constitutes a complete and exclusive statement of the terms and conditions of the agreement between the parties with respect to its subject matter.

          (b) Remedies Cumulative. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither any failure nor any delay by any party in exercising any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege.

          (c) Waiver. To the maximum extent permitted by applicable Legal Requirements, no claim or right arising from this Agreement can be discharged by a party, in whole or in part, by a waiver of the claim or right unless such waiver is in writing and is signed by the waiving party, and no waiver that may be given by a party shall be applicable except in the specific instance for which it is given.

          (d) Amendment. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by all of the parties.

          (e) Assignment; Successors. This Agreement shall be binding on Debtor and its heirs, successors and permitted assigns and shall inure, together with all rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 9 of 12

limiting the generality of the foregoing, Secured Party may assign or otherwise transfer all or part of its rights to all or any part of the Obligations to any other person or entity, and such other person or entity shall thereupon become vested with all of the benefits in respect thereof granted to Secured Party herein or otherwise. None of the rights or obligations of Debtor hereunder may be assigned or otherwise transferred without the prior written consent of Secured Party.

          (f) Severability. If a court of competent jurisdiction holds that any provision of this Agreement or portion thereof is illegal, invalid or unenforceable, then such provision shall be modified automatically to the extent necessary to make such provision fully legal, valid or enforceable. If such court does not modify any such provision or portion thereof as contemplated herein, but instead declares it to be wholly illegal, invalid or unenforceable, then such provision or portion thereof shall be severed from this Agreement, this Agreement and the rights and obligations of the parties shall be construed as if this Agreement did not contain such severed provision or portion thereof, and this Agreement otherwise shall remain in full force and effect.

          (g) Construction. The headings of sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation.

          (h) Governing Law. This Agreement and any Proceeding arising from this Agreement shall be governed by, construed under, and enforced in accordance with the laws of the Commonwealth of Virginia in effect from time to time without regard to conflicts-of-laws principles that would require the application of any other law.

          (i) Arbitration. Except where the relief sought is equitable in whole or in part (including, without limitation, specific performance and injunctive relief), all disputes, claims and controversies between the parties arising from this Agreement that are not resolved by mutual agreement between the parties shall be resolved solely and exclusively by binding arbitration before the A.A.A.

          (j) Execution of Agreement. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

          (k) Satisfaction of Obligations. Upon payment and satisfaction in full of the Obligations, this Agreement and the security interest created hereby shall terminate and all rights to the Pledged Collateral shall revert to Debtor. Secured Party will thereupon, at Debtor’s request, (i) return, or direct Custodian to return, to Debtor such of the Pledged Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof; and (ii) execute and deliver to Debtor such documents as Debtor shall reasonably request to evidence such termination.

          (l) Secured Party’s Representative. Paul M. Harbolick, Jr., the Sellers’ Executive Vice President and Chief Financial Officer, is so designated and authorized to act hereunder.

          (m) Custodian’s Rights to Serve as Legal Counsel. The parties hereto expressly acknowledge and agree that (i) Custodian acts hereunder as custodian of the Pledged Collateral on behalf of the parties solely for the purpose of accommodating the Secured Party, and (ii) nothing herein is intended to, nor shall anything here be construed to, disqualify Custodian from serving as legal counsel to

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 10 of 12

Secured Party or representing Secured Party as legal counsel, in any matter or proceeding. The foregoing shall not be deemed, however, to permit Custodian to breach any of its express contractual duties that are set forth herein.

     IN WITNESS WHEREOF, Debtor, Custodian, the Company, and Secured Party have executed this Security and Pledge Agreement as of the day and year first above written.

PLEDGOR:
By:		(Seal)
	Thomas P. Danaher
COMPANY: ALLIANCE INSURANCE AGENCY, INC.
By:		(Seal)
	Name:
	Title:
SECURED PARTY: ALLIANCE BANK CORPORATION
By:		(Seal)
	Name:
	Title:
CUSTODIAN: VANDERPOOL, FROSTICK & NISHANIAN, P.C.
By:		(Seal)
	Name:
	Title:

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 11 of 12

[THIS PAGE INTENTIONALLY LEFT BLANK]

Creditor: Alliance Bank	Security, Pledge & Security Agreement
Debtor: Danaher

Page 12 of 12

EXHIBIT “A”
TO SECURITY AND PLEDGE AGREEMENT

(Identification of Pledged Collateral)

Stock Certificate No. Six (6), issued by Alliance Insurance Agency, Inc., to Thomas P. Danaher, dated December 29, 2009, representing 9,800 shares of common capital stock of Alliance Insurance Agency, Inc., accompanied by an Irrevocable Stock Power for such stock certificate, endorsed in blank by Thomas P. Danaher.

Creditor: Alliance Bank	Exhibits to- Security, Pledge & Security Agreement
Debtor: Danaher/Skewes

Exhibit Page — i

EXHIBIT “B”
TO SECURITY AND PLEDGE AGREEMENT

(Form of Standby Stock Powers)

IRREVOCABLE STOCK POWER

(Stock Assignment Separate from Certificate)

     FOR VALUE RECEIVED, the undersigned does hereby sells, assigns and transfers to                                                                                   , Nine thousand Eight Hundred (9,800) shares of the common capital stock of ALLIANCE INSURANCE AGENCY, INC., a Virginia corporation (the “Corporation”), represented by Certificate No.                     , standing in the name of the undersigned on the books of the Corporation, and does hereby irrevocably constitute and appoint Paul M. Harbolcik, Jr. or any officer of the Secured Party under the terms of that certain Security, Pledge and Escrow Agreement dated December                     , 2009 and entered into by and between the undersigned and Alliance Bank Corporation, as the undersigned’s attorney-in-fact to transfer said stock on the books of the Corporation, with full power of substitution in the premises.

Dated: December                      , 2009

	(Seal)
Thomas P. Danaher

Creditor: Alliance Bank	Exhibits to- Security, Pledge & Security Agreement
Debtor: Danaher/Skewes

Exhibit Page — ii

EX-10.7

Exhibit 10.7: Base Salaries of Named Executive Officers

     Effective January 2, 2010, the following are the base salaries (on an annual basis) of the executive officers of Alliance Bankshares Corporation.

William E. Doyle, Jr.*/**      Interim President & Chief Executive Officer	$291,500 *
Thomas A. Young, Jr.***	$291,500
President & Chief Executive Officer
Paul M. Harbolick, Jr.	$190,800
Executive Vice President & Chief Financial Officer
Frank H. Grace, III	$195,517
Executive Vice President
Craig W. Sacknoff	$172,963
Executive Vice President
John B. McKenney, III	$139,120
Senior Vice President & Chief Credit Officer

*	Mr. Doyle joined the organization on January 28, 2010; amount shown above is based on a 90 day contract with extensions.
**	Mr. Doyle Became President & Chief Executive officer on May 4, 2010.
***	Mr. Young left the organization on January 29, 2010.

EX-10.8

Exhibit 10.8: Non-Employee Director Compensation for 2010

Cash Compensation

Annual Retainer

Each non-employee director is entitled to receive the annual retainer compensation listed below. In light of the economic conditions and corporate performance, the Board of Directors determined to reduce the annual retainer compensation for 2010 to a level which amounts to 85% of the 2009 annual retainer compensation.

	2009 Level	2010 Level
Service as Director	$9,000	$7,650
Service as Chairman of the Board*	$9,000	$7,650
Service as Audit Committee Chairman*	$3,500	$2,975
Service as Loan Committee Chairman*	$3,500	$2,975
Service as ALCO Committee Chairman*	$3,500	$2,975
Service as Compensation Committee Chairman*	$3,500	$2,975

* Chairman fees are in addition to the annual retainer and monthly fees received by all non-employee directors.

The annual retainer fees and chairman fees are paid on an annual basis in January of the year to which the fee applies.

Monthly Fees

Each non-employee director is entitled to receive monthly compensation of $850. In light of the economic conditions and corporate performance, effective February 1, 2010, the Board of Directors reduced the monthly compensation for 2010 to a level which amounts to 85% of the 2009 monthly compensation of $1,000 per director.

Equity Compensation

Each non-employee director is also eligible to receive non-qualified stock option awards pursuant to the Alliance Bankshares Corporation 2007 Incentive Stock Plan in the discretion of the Compensation Committee.

EX-21

Exhibit 21: Subsidiaries of the Registrant

     Alliance Bankshares Corporation, a Virginia corporation, is the parent company.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement (No. 333-106264) on Form S-8 of Alliance Bankshares Corporation of our report dated May 28, 2010 relating to our audit of the consolidated financial statements, which appear in this Annual Report on Form 10-K for the year ended December 31, 2009.

Winchester, Virginia
May 28, 2010

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, William E. Doyle, Jr., certify that:

1.	I have reviewed this annual report on Form 10-K of Alliance Bankshares Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 5/26/10	/s/ William E. Doyle, Jr.
	William E. Doyle, Jr.
	President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Paul M. Harbolick, Jr., certify that:

1.	I have reviewed this annual report on Form 10-K of Alliance Bankshares Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 26, 2010	/s/ Paul M. Harbolick, Jr.
	Paul M. Harbolick, Jr.
	Executive Vice President & Chief Financial Officer

EX-32

Exhibit 32

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

     The undersigned, as the Chief Executive Officer and Chief Financial Officer of Alliance Bankshares Corporation, respectively, certify that, to the best of their knowledge and belief, the Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which accompanies this certification fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Alliance Bankshares Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), and no purchaser or seller of securities or any other person shall be entitled to rely upon the foregoing certification for any purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.

5/26/10	/s/ William E. Doyle, Jr.
Date	William E. Doyle, Jr.
	President & Chief Executive Officer
5/26/10	/s/ Paul M. Harbolick, Jr.
Date	Paul M. Harbolick, Jr.
	Executive Vice President & Chief Financial Officer