**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC  20549**

** **

### **FORM 10-QSB**

 

**(MARKONE)**

 
| ** ** | **ý** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d)**    | ** ** |
|------------|------------|---------------------------------------------------------|------------|
| ** ** | ** ** | **OF  THE SECURITIES EXCHANGE ACT OF 1934**             | ** ** |
| ** ** | ** ** | ** **                                              | ** ** |
| ** ** | ** ** | **For  the Quarterly Period Ended March 31, 2005** | ** ** |
| ** ** | ** ** | ** **                                              | ** ** |
| ** ** | ** ** | **OR**                                                  | ** ** |
| ** ** | ** ** | ** **                                              | ** ** |
| ** ** | **o**      | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d)**   |       |
| ** ** | ** ** | **OF  THE SECURITIES EXCHANGE ACT OF 1934**             | ** ** |

 

**For thetransition period from          to          **

 

**Commission File Number:  000-50407**

 

#### **FREDERICK COUNTY BANCORP, INC.**

(Exact name of issuer as specified in its charter)

 
| **Maryland**                                                     | ** ** | **20-0049496**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State of other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**30 WestPatrick Street**

**Frederick,Maryland 21701**

(Address ofprincipal executive offices)

 

**301.620.1400**

(Issuer’s telephone number)

 

**N/A**

(Former name, former address and former fiscal year, ifchanged since last report)

 

Check whether the issuer (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 day.              Yesý    No o

 

State the number ofshares outstanding of each of the issuer’s classes of common equity, as of the latestpractical date.  There were 1,458,602shares of Common Stock outstanding as of April 29, 2005.

 

Transitional Small Business Disclosure Format (check one)        Yeso    No ý

 

 

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#### **FREDERICK COUNTY BANCORP, INC.**

**TABLE OFCONTENTS**

 
| **PART I**  | **FINANCIAL  INFORMATION**                                                                                                     | ** ** |
|------------------|--------------------------------------------------------------------------------------------------------------------------------|------------|
|             |                                                                                                                           |       |
| Item 1           | Financial Statements                                                                                                           |       |
|             |                                                                                                                           |       |
|             | Consolidated** **Balance Sheets, March 31, 2005  (Unaudited) and December 31, 2004                              |       |
|             |                                                                                                                           |       |
|             | Consolidated  Statements of Income (Unaudited), Three Months Ended March 31, 2005 and  2004                               |       |
|             |                                                                                                                           |       |
|             | Consolidated  Statements of Changes in Shareholders’ Equity (Unaudited), Three Months Ended  March 31, 2005 and 2004 |       |
|             |                                                                                                                           |       |
|             | Consolidated  Statements of Cash Flows (Unaudited), Three Months Ended March 31, 2005  and 2004                           |       |
|             |                                                                                                                           |       |
|             | Notes to  Consolidated Financial Statements (Unaudited)                                                                        |       |
|             |                                                                                                                           |       |
| Item  2          | Management’s  Discussion and Analysis or Plan of Operations                                                               |       |
|             |                                                                                                                           |       |
| Item 3           | Controls and  Procedures                                                                                                       |       |
| ** **       | ** **                                                                                                                     | ** ** |
| **PART II** | **OTHER INFORMATION**                                                                                                          | ** ** |
| ** **       | ** **                                                                                                                     | ** ** |
| Item 1           | Legal Proceedings                                                                                                              |       |
|             |                                                                                                                           |       |
| Item 2           | Unregistered Sales of Equity Securities and Use  of Proceeds                                                                   |       |
|             |                                                                                                                           |       |
| Item 3           | Defaults upon Senior Securities                                                                                                |       |
|             |                                                                                                                           |       |
| Item 4           | Submission of Matters to a Vote of Security  Holders                                                                           |       |
|             |                                                                                                                           |       |
| Item  5          | Other  Information                                                                                                             |       |
|             |                                                                                                                           |       |
| Item 6           | Exhibits                                                                                                                       |       |
|             |                                                                                                                           |       |
|             | Signatures                                                                                                                     |       |

 

2

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**FrederickCounty Bancorp, Inc.**

**Consolidated Balance Sheets(Unaudited)**

 
| ** **                                                                                                                                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(dollars in thousands)**                                                                                                                   | ** ** | **2005**           | ** ** | **2004**              | ** ** |
|                                                                                                                                         |       |               |       |                  |       |
| ASSETS                                                                                                                                       |       |               |       |                  |       |
| Cash and due  from banks                                                                                                                     |       | $                  | 5,772      |                  | $          | 3,524 |   |
| Federal funds  sold                                                                                                                          |       | 12,701             |       | 12,334                |       |
| Interest-bearing  deposits in other banks                                                                                                    |       | 6,644              |       | 781                   |       |
| Cash and cash  equivalents                                                                                                                   |       | 25,117             |       | 16,639                |       |
| Investment  securities available for sale-at fair value                                                                                      |       | 17,011             |       | 16,734                |       |
| Investment  securities held-to-maturity - fair value of $293 and $299                                                                        |       | 299                |       | 299                   |       |
| Restricted stock                                                                                                                             |       | 810                |       | 715                   |       |
| Loans                                                                                                                                        |       | 140,029            |       | 135,668               |       |
| Less: Allowance  for loan losses                                                                                                             |       | (1,653             | )          | (1,503                | )          |
| Net loans                                                                                                                                    |       | 138,376            |       | 134,165               |       |
| Bank premises and  equipment                                                                                                                 |       | 1,515              |       | 1,481                 |       |
| Other assets                                                                                                                                 |       | 1,430              |       | 1,144                 |       |
| Total assets                                                                                                                                 |       | $                  | 184,558    |                  | $          | 171,177 |   |
|                                                                                                                                         |       |               |       |                  |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                    |       |               |       |                  |       |
|                                                                                                                                         |       |               |       |                  |       |
| **Liabilities**                                                                                                                              |       |               |       |                  |       |
| Deposits:                                                                                                                                    |       |               |       |                  |       |
| Noninterest-bearing  deposits                                                                                                                |       | $                  | 24,465     |                  | $          | 23,749 |   |
| Interest-bearing  deposits                                                                                                                   |       | 144,391            |       | 131,842               |       |
| Total deposits                                                                                                                               |       | 168,856            |       | 155,591               |       |
| Short-term  borrowings                                                                                                                       |       | 450                |       | 450                   |       |
| Accrued interest  and other liabilities                                                                                                      |       | 606                |       | 923                   |       |
| Total  liabilities                                                                                                                           |       | 169,912            |       | 156,964               |       |
|                                                                                                                                         |       |               |       |                  |       |
| **Shareholders’  Equity**                                                                                                               |       |               |       |                  |       |
| Common stock,  per share par value $.01;  10,000,000 shares authorized; 1,458,602 and  1,457,402 shares issued and outstanding, respectively |       | 15                 |       | 15                    |       |
| Additional paid-in  capital                                                                                                                  |       | 14,644             |       | 14,632                |       |
| Retained  earnings (deficit)                                                                                                                 |       | 105                |       | (411                  | )          |
| Accumulated  other comprehensive income (loss)                                                                                               |       | (118               | )          | (23                   | )          |
| Total  shareholders’ equity                                                                                                             |       | 14,646             |       | 14,213                |       |
| Total  liabilities and shareholders’ equity                                                                                             |       | $                  | 184,558    |                  | $          | 171,177 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

3

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**Frederick County Bancorp, Inc.**

**Consolidated Statements of Income(Unaudited)**

 
| ** **                                                 | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------------|------------|
| **(dollars in thousands, except per share amounts)**       | ** ** | **2005**                                        | ** ** | **2004** | ** ** |
| Interest income:                                           |       |                                            |       |   |   |
| Interest and  fees on loans                                |       | $                                               | 2,129      |   | $ | 1,473 |   |
| Interest and  dividends on investment securities:          |       |                                            |       |   |   |
| Interest –  taxable                                   |       | 155                                             |       | 138 |   |
| Interest – tax  exempt                                |       | 2                                               |       | — |   |
| Dividends                                                  |       | 9                                               |       | 9 |   |
| Interest on  federal funds sold                            |       | 56                                              |       | 25 |   |
| Other interest  income                                     |       | 2                                               |       | 1 |   |
| Total interest  income                                     |       | 2,353                                           |       | 1,646 |   |
| Interest  expense:                                         |       |                                            |       |   |   |
| Interest on  deposits                                      |       | 618                                             |       | 379 |   |
| Interest on  other short-term borrowings                   |       | 6                                               |       | 3 |   |
| Total interest  expense                                    |       | 624                                             |       | 382 |   |
| Net interest  income                                       |       | 1,729                                           |       | 1,264 |   |
| Provision for  loan losses                                 |       | 150                                             |       | 105 |   |
| Net interest  income after provision for loan losses       |       | 1,579                                           |       | 1,159 |   |
| Noninterest  income:                                       |       |                                            |       |   |   |
| Service fees                                               |       | 35                                              |       | 35 |   |
| Other operating  income                                    |       | 27                                              |       | 24 |   |
| Total  noninterest income                                  |       | 62                                              |       | 59 |   |
| Noninterest  expenses:                                     |       |                                            |       |   |   |
| Salaries and  employee benefits                            |       | 636                                             |       | 554 |   |
| Occupancy and  equipment expenses                          |       | 156                                             |       | 150 |   |
| Other operating  expenses                                  |       | 273                                             |       | 225 |   |
| Total  noninterest expenses                                |       | 1,065                                           |       | 929 |   |
| Income before  provision for income taxes                  |       | 576                                             |       | 289 |   |
| Provision for  income taxes                                |       | 60                                              |       | — |   |
| Net income                                                 |       | $                                               | 516        |   | $ | 289 |   |
| Basic earnings  per share (1)                              |       | $                                               | 0.35       |   | $ | 0.20 |   |
| Diluted earnings  per share (1)                            |       | $                                               | 0.34       |   | $ | 0.19 |   |
| Basic weighted  average number of shares outstanding (1)   |       | 1,457,626                                       |       | 1,455,152 |   |
| Diluted weighted  average number of shares outstanding (1) |       | 1,524,731                                       |       | 1,494,162 |   |

 

----

(1) The amounts shown have been restated for the effects of atwo-for-one stock split effected in the form of a 100% stock dividend declaredin August 2004 and paid in September 2004.

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

4

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**Frederick County Bancorp, Inc.**

## **Consolidated Statement ofChanges in Shareholders’ Equity**(Unaudited)

## ** **

| **(dollars in thousands)**                                                                    | ** ** | **Shares  Outstanding** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings  (Deficit)** | ** ** | **Accumulatd   Other  Comprehensive  Income  (Loss)** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------|------------|
|                                                                                          |       |                    |       |              |       |                             |       |                              |       |                                                  |       |                                  |       |
| Balance,  January 1, 2004                                                                |       | 727,576                 |       | $                 | 7          |                             | $          | 14,617                            |       | $                                                     | (1,929     | )                                     | $          | 13 |   | $ | 12,708 |   |
| Comprehensive  income:                                                                        |       |                    |       |              |       |                             |       |                              |       |                                                  |       |                                  |       |
| Net income                                                                                    |       |                    |       |              |       |                             |       | 289                               |       |                                                  |       | 289                                   |       |
| Changes in net  unrealized gains on securities available for sale, net of income tax effects  |       |                    |       |              |       |                             |       |                              |       | 71                                                    |       | 71                                    |       |
| Comprehensive  income                                                                         |       |                    |       |              |       |                             |       |                              |       |                                                  |       | 360                                   |       |
| Balance,  March 31, 2004                                                                 |       | 727,576                 |       | $                 | 7          |                             | $          | 14,617                            |       | $                                                     | (1,640     | )                                     | $          | 84 |   | $ | 13,068 |   |
| Balance,  January 1, 2005                                                                |       | 1,457,402               |       | $                 | 15         |                             | $          | 14,632                            |       | $                                                     | (411       | )                                     | $          | (23 | ) | $ | 14,213 |   |
| Comprehensive  income:                                                                        |       |                    |       |              |       |                             |       |                              |       |                                                  |       |                                  |       |
| Net income                                                                                    |       |                    |       |              |       |                             |       | 516                               |       |                                                  |       | 516                                   |       |
|                                                                                          |       |                    |       |              |       |                             |       |                              |       |                                                  |       |                                  |       |
| Changes in net  unrealized losses on securities available for sale, net of income tax effects |       |                    |       |              |       |                             |       |                              |       | (95                                                   | )          | (95                                   | )          |
| Comprehensive  income                                                                         |       |                    |       |              |       |                             |       |                              |       |                                                  |       | 421                                   |       |
| Shares issued  under stock option transactions                                                |       | 1,200                   |       | —            |       | 12                               |       | —                            |       | —                                                |       | 12                                    |       |
| Balance,  March 31, 2005                                                                 |       | 1,458,602               |       | $                 | 15         |                             | $          | 14,644                            |       | $                                                     | 105        |                                  | $          | (118 | ) | $ | 14,646 |   |

** **

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

5

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**Frederick County Bancorp, Inc.**

**ConsolidatedStatements of Cash Flows (Unaudited)**

 
| ** **                                                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| **(dollars in thousands)**                                                                     | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Cash flows from operating activities:                                                          |       |                                  |       |   |   |
| Net income                                                                                     |       | $                                     | 516        |   | $ | 289 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:             |       |                                  |       |   |   |
| Depreciation and amortization                                                                  |       | 38                                    |       | 46 |   |
| Provision for loan losses                                                                      |       | 150                                   |       | 105 |   |
| Net premium amortization on investment securities                                              |       | 24                                    |       | 27 |   |
| Increase in other assets                                                                       |       | (239                                  | )          | (196 | ) |
| Decrease in accrued interest and other liabilities                                             |       | (304                                  | )          | (53 | ) |
| Net cash provided by operating activities                                                      |       | 185                                   |       | 218 |   |
| Cash flows from investing activities:                                                          |       |                                  |       |   |   |
| Purchases of investment securities available for sale                                          |       | (1,513                                | )          | (1,925 | ) |
| Proceeds from maturities of investment securities available for sale                           |       | 1,057                                 |       | 786 |   |
| Purchases of restricted stock                                                                  |       | (95                                   | )          | (134 | ) |
| Net increase in loans                                                                          |       | (4,361                                | )          | (7,894 | ) |
| Purchases of bank premises and equipment                                                       |       | (72                                   | )          | (33 | ) |
| Net cash used in investing activities                                                          |       | (4,984                                | )          | (9,200 | ) |
| Cash flows from financing activities:                                                          |       |                                  |       |   |   |
| Net increase in NOW, money market accounts, savings accounts and noninterest-bearing  deposits |       | 6,063                                 |       | 16,135 |   |
| Net increase in time deposits                                                                  |       | 7,202                                 |       | 2,867 |   |
| Net increase in short-term borrowings                                                          |       | —                                |       | 230 |   |
| Proceeds from issuance of common stock                                                         |       | 12                                    |       | — |   |
| Net cash provided by financing activities                                                      |       | 13,277                                |       | 19,232 |   |
| Net increase in cash and cash equivalents                                                      |       | 8,478                                 |       | 10,250 |   |
| Cash and cash equivalents – beginning of period                                           |       | 16,639                                |       | 17,549 |   |
| Cash and cash equivalents – end of period                                                 |       | $                                     | 25,117     |   | $ | 27,799 |   |
| Supplemental cash flow disclosures:                                                            |       |                                  |       |   |   |
| Interest paid                                                                                  |       | $                                     | 609        |   | $ | 377 |   |
| Income taxes paid                                                                              |       | $                                     | 230        |   | $ | — |   |

** **

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

6

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#### **FREDERICKCOUNTY BANCORP, INC.**

 

Notes to FinancialStatements (Unaudited)

 

**Note 1. General:**

 

On August 30, 2000, the Bank was incorporated and in 2001, becameengaged in the developmental activities needed to obtain a commercial bankcharter in the State of Maryland.  The Bankreceived regulatory approval to commence banking operations on October 18,2001 and, accordingly, became operational during the year ended December 31,2001.  The Bank provides its customerswith various banking services.  The Bankoffers various loan and deposit products to their customers.

 

The accompanying consolidated financialstatements of the Company have been prepared in accordance with accounting principles generally accepted inthe United States of America for interim financial information.  Accordingly, they do not include all of theinformation and disclosures required by generally accepted accountingprinciples for complete financial statements. These statements should be read in conjunction with the financialstatements and accompanying footnotes included in the Company’s 2004 AnnualReport to Shareholders.  In the opinionof management, all adjustments, consisting of normal recurring adjustments,considered necessary for a fair presentation have been included.  The results shown in this interim report arenot necessarily indicative of results to be expected for any other period orfor the full year ended December 31, 2005.

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. These estimatesand assumptions are based on information available as of the date of thefinancial statements and could differ from actual results.

 

**Note 2. Earnings Per Share:**

** **

Earnings per share (“EPS”) are disclosed as basic and diluted.  Basic EPS is generally computed by dividingnet income by the weighted-average number of common shares outstanding for theperiod, whereas diluted EPS essentially reflects the potential dilution inbasic EPS that could occur if other contracts to issue common stock wereexercised.

 
| ** **                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------|------------|
| **(dollars in thousands, except per share amounts)**   | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Net income                                             |       | $                                      | 516        |   | $ | 289 |   |
| Basic earnings  per share                              |       | $                                      | 0.35       |   | $ | 0.20 |   |
| Diluted earnings  per share                            |       | $                                      | 0.34       |   | $ | 0.19 |   |
| Basic weighted  average number of shares outstanding   |       | 1,457,626                              |       | 1,455,152 |   |
| Effect of  dilutive securities – stock options    |       | 67,105                                 |       | 39,010 |   |
| Diluted weighted  average number of shares outstanding |       | 1,524,731                              |       | 1,494,162 |   |

 

**Note 3.  Employee Stock Option Plan:**

** **

The Company maintains an Employee Stock Option Planthat provides for grants of incentive and non-incentive stock options.  This plan has been presented to and approvedby the Company’s shareholders.  TheCompany accounts for this plan under the recognition and measurement principlesof Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees,*andrelated interpretations.  Accordingly, nostock-based employee compensation cost has been recognized, as all optionsgranted under this plan had an exercise price equal to the market value of theunderlying common stock on the date of grant. There were no stock options granted nor vested during the first threemonths of 2005 or 2004 and, accordingly, net income and earnings per sharewould not have been effected if compensation cost for the stock-basedcompensation plan had been determined on the grant date fair values of awards(the method described in Statement of Financial Accounting Standards No. 123*Accounting for Stock-Based Compensation*).

 

7

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**Note 4. Investment Portfolio:**

** **

The following tables set forth certaininformation regarding the Company’s investment portfolio at March 31, 2005and December 31, 2004:

 

## **Available-for-saleportfolio**

** **
| **March 31,  2005  (dollars in thousands)**                    | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gain** | ** ** | **Gross  Unrealized  Loss** | ** ** | **Estimated  Fair  Value** | ** ** | **Average  Yield** | ** ** |
|---------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------|------------|--------------------|------------|
| U.S. Treasury  and other U.S. government Agencies and corporations: |       | ** **          | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **         | ** ** |
| Due after one  year through five years                              |       | $                   | 1,000      |                        | $          | —                      |       | $                          | 20         |               | $          | 980 |   | 3.25 | % |
| Mortgage-backed  debt securities                                    |       | 15,954              |       | 16                          |       | 189                         |       | 15,781                     |       | 4.13               | %          |
| Equity  Securities                                                  |       | 250                 |       | —                      |       | —                      |       | 250                        |       | —             |       |
|                                                                |       | $                   | 17,204     |                        | $          | 16                          |       | $                          | 209        |               | $          | 17,011 |   | 4.08 | % |

 
| **December 31,  2004  (dollars in thousands)**                 | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gain** | ** ** | **Gross  Unrealized  Loss** | ** ** | **Estimated  Fair  Value** | ** ** | **Average  Yield** | ** ** |
|---------------------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------|------------|--------------------|------------|
| U.S. Treasury  and other U.S. government Agencies and corporations: |       |                |       |                        |       |                        |       |                       |       |               |       |
| Due after one  year through five years                              |       | $                   | 500        |                        | $          | —                      |       | $                          | 13         |               | $          | 487 |   | 2.35 | % |
| Mortgage-backed  debt securities                                    |       | 16,022              |       | 54                          |       | 79                          |       | 15,997                     |       | 4.09               | %          |
| Equity  securities                                                  |       | 250                 |       | —                      |       | —                      |       | 250                        |       | —             |       |
|                                                                |       | $                   | 16,772     |                        | $          | 54                          |       | $                          | 92         |               | $          | 16,734 |   | 4.04 | % |

 

## **Held-to-maturityportfolio**

 
| **March 31,  2005  (dollars in thousands)** | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gain** | ** ** | **Gross  Unrealized  Loss** | ** ** | **Estimated  Fair  Value** | ** ** | **Average  Yield** | ** ** |
|--------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------|------------|--------------------|------------|
| State and  political subdivisions:               | ** ** | ** **          | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **         | ** ** |
| Due after five  years through ten years          |       | $                   | 299        |                        | $          | —                      |       | $                          | 6          |               | $          | 293 |   | 4.78 | % |
|                                                  |            |                     |            |                             |            |                             |            |                            |            |                    |            |  |  |  |  |

 
| **December 31,  2004  (dollars in thousands)** | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gain** | ** ** | **Gross  Unrealized  Loss** | ** ** | **Estimated  Fair  Value** | ** ** | **Average  Yield** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------|------------|--------------------|------------|
| State and  political subdivisions:                  | ** ** | ** **          | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **         | ** ** |
| Due after five  years through ten years             |       | $                   | 299        |                        | $          | —                      |       | $                          | —     |               | $          | 299 |   | 4.78 | % |
|                                                     |            |                     |            |                             |            |                             |            |                            |            |                    |            |  |  |  |  |

 
| **March 31, 2005  (dollars in thousands)**                    | ** **        | **Continuous unrealized  losses existing for less than  12 months** | ** **             | **Continuous unrealized  losses existing for 12  months and greater** | ** **      | **Total**  | ** **             |
|--------------------------------------------------------------------|-------------------|---------------------------------------------------------------------|------------------------|-----------------------------------------------------------------------|-----------------|------------|------------------------|
| ** **                                                         | **Fair****Value** | ** **                                                          | **Unrealized  Losses** | ** **                                                            | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| U.S. Treasury  and other U.S. government agencies and corporations |              | $                                                                   | —                 |                                                                  | $               | —     |                   | $ | 480 |   | $ | 20 |   | $ | 480 |   | $ | 20 |   |
| Mortgage-backed  debt securities                                   |              | 8,681                                                               |                   | 75                                                                    |            | 4,029      |                   | 114 |   | 12,710 |   | 189 |   |
| State and political subdivisions                                   |              | 293                                                                 |                   | 6                                                                     |            | —     |                   | — |   | 293 |   | 6 |   |
| Total  temporarily impaired securities                             |              | $                                                                   | 8,974                  |                                                                  | $               | 81         |                   | $ | 4,509 |   | $ | 134 |   | $ | 13,483 |   | $ | 215 |   |

 

8

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| ** **                                                         | ** ** | **Continuous unrealized  losses existing for less than  12 months** | ** ** | **Continuous unrealized  losses existing for 12  months and greater** | ** ** | **Total**       | ** ** | ** **             | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------|------------|------------------------|------------|
| **December 31,  2004  (dollars in thousands)**                | ** ** | **Fair****Value**                                                   | ** ** | **Unrealized  Losses**                                                | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| U.S. Treasury  and other U.S. government agencies and corporations |       | $                                                                   | —     |                                                                  | $          | —          |       | $                      | 487        |   | $ | 13 |   | $ | 487 |   | $ | 13 |   |
| Mortgage-backed  debt securities                                   |       | 5,865                                                               |       | 60                                                                    |       | 1,406           |       | 19                     |       | 7,271 |   | 79 |   |
| Total  temporarily impaired securities                             |       | $                                                                   | 5,865      |                                                                  | $          | 60              |       | $                      | 1,893      |   | $ | 32 |   | $ | 7,758 |   | $ | 92 |   |
|                                                                    |            |                                                                     |            |                                                                       |            |                 |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |

 

Because the decline in fair value was causedby interest rates and not credit quality and the Company has both the intentand ability to hold these investments for a period of time sufficient to allowfor any anticipated recovery in fair value, the Company has not recognized anyother-than-temporary impairment in connection with the unrealized lossesreflected in the preceding tables.

 

**Restricted Stock**

** **

The following table shows the amounts of restricted stock as of March 31,2005 and December 31, 2004:

 
| ** **                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(dollars  in thousands)**        | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Federal Home Loan  Bank of Atlanta |       | $                  | 342        |                  | $          | 261 |   |
| Federal Reserve  Bank              |       | 428                |       | 414                   |       |
| Atlantic Central  Bankers Bank     |       | 40                 |       | 40                    |       |
|                               |       | $                  | 810        |                  | $          | 715 |   |

** **

**Note 5. Loans and Allowance for Loan Losses:**

** **

Loans consist of the following:

 
| ** **                                                                  | ** ** | **March 31,** | ** ** | **% of**  | ** ** | **December 31,** | ** ** | **% of**  | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|-----------|------------|-----------------------|------------|-----------|------------|
| **(dollars  in thousands)**                                                 | ** ** | **2005**           | ** ** | **Loans** | ** ** | **2004**              | ** ** | **Loans** | ** ** |
| Real estate  loans:                                                         |       |               |       |      |       |                  |       |      |       |
| Construction and  land development                                          |       | $                  | 27,993     |      | 20         | %                     | $          | 21,648    |       | 16 | % |
| Mortgage loans:                                                             |       |               |       |      |       |                  |       |      |       |
| Secured by 1 to  4 family residential properties                            |       | 26,501             |       | 19        | %          | 28,066                |       | 21        | %          |
| Secured by multi-family  (5 or more) residential properties                 |       | 4,247              |       | 3         | %          | 2,083                 |       | 2         | %          |
| Secured by  commercial properties                                           |       | 50,605             |       | 36        | %          | 54,325                |       | 40        | %          |
| Secured by farm  land                                                       |       | 4,645              |       | 3         | %          | 3,145                 |       | 2         | %          |
| Total mortgage  loans                                                       |       | 85,998             |       | 61        | %          | 87,619                |       | 65        | %          |
| Loans to farmers                                                            |       | —             |       | —    | %          | 759                   |       | —    | %          |
| Commercial and  industrial loans                                            |       | 23,684             |       | 17        | %          | 22,683                |       | 17        | %          |
| Loans to  individuals for household, family and other personal expenditures |       | 2,354              |       | 2         | %          | 2,959                 |       | 2         | %          |
|                                                                        |       | 140,029            |       | 100       | %          | 135,668               |       | 100       | %          |
| Less allowance  for loan losses                                             |       | (1,653             | )          |      |       | (1,503                | )          |      |       |
| Net loans                                                                   |       | $                  | 138,376    |      |       |                  | $          | 134,165   |       |   |   |

 

9

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Transactions in the allowance for loan losses are summarized asfollows:

 
| ** **                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|
| **(dollars  in thousands)**                    | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Average total  loans outstanding during period |       | $                                      | 136,935    |   | $ | 99,985 |   |
| Balance at  beginning of period                |       | $                                      | 1,503      |   | $ | 985 |   |
| Provision  charged to operating expenses       |       | 150                                    |       | 105 |   |
| Recoveries of  loans previously charged-off    |       | —                                 |       | — |   |
|                                           |       | 1,653                                  |       | 1,090 |   |
| Loans charged-off                              |       | —                                 |       | — |   |
| Balance at end  of period                      |       | $                                      | 1,653      |   | $ | 1,090 |   |

 

**Note 6. Noninterest Expenses:**

 

Noninterest expenses consist of the following:

 
| ** **                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|
| **(dollars  in thousands)**             | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                    |       |                                   |       |   |   |
| Salaries                                |       | $                                      | 525        |   | $ | 475 |   |
| Bonus                                   |       | 13                                     |       | 15 |   |
| Deferred  Personnel Costs               |       | (32                                    | )          | (29 | ) |
| Payroll Taxes                           |       | 65                                     |       | 42 |   |
| Employee  Insurance                     |       | 36                                     |       | 31 |   |
| Other Employee Benefits                 |       | 29                                     |       | 20 |   |
| Depreciation                            |       | 38                                     |       | 46 |   |
| Rent                                    |       | 51                                     |       | 50 |   |
| Utilities                               |       | 15                                     |       | 16 |   |
| Repairs and  Maintenance                |       | 24                                     |       | 18 |   |
| ATM Expense                             |       | 15                                     |       | 12 |   |
| Other Occupancy  and Equipment Expenses |       | 13                                     |       | 8 |   |
| Postage and  Supplies                   |       | 14                                     |       | 14 |   |
| Data Processing                         |       | 87                                     |       | 69 |   |
| Advertising and  Promotion              |       | 41                                     |       | 40 |   |
| Legal                                   |       | 4                                      |       | 17 |   |
| Insurance                               |       | 7                                      |       | 10 |   |
| Consulting                              |       | 10                                     |       | 10 |   |
| Courier                                 |       | 10                                     |       | 7 |   |
| Audit Fees                              |       | 33                                     |       | 20 |   |
| Shareholder  Relations                  |       | 1                                      |       | 4 |   |
| Other                                   |       | 66                                     |       | 34 |   |
|                                    |       | $                                      | 1,065      |   | $ | 929 |   |

 

**Note 7. 401(k) Profit Sharing Plan:**

** **

The Company has a Section 401(k) profitsharing plan covering employees meeting certain eligibility requirements as tominimum age and years of service. Employees may make voluntary contributions to the Plan through payrolldeductions on a pre-tax basis.  TheCompany makes discretionary contributions to the Plan based on the Company’searnings.  The Company’s contributionsare subject to a vesting schedule (20 percent per year) requiring thecompletion of five years of service with the Company before these benefits arefully vested.  A participant’s accountunder the Plan, together with investment earnings thereon, is normally distributable,following retirement, death, disability or other termination of employment, ina single lump-sum payment.

 

The Company made contributions to the Plan inthe amounts of $21,000 and $15,000 for the first three months of 2005 and 2004,respectively.

 

10

----

 

**Note 8. Shareholders’ Equity:**

** **

Capital:

 

The Company and the Bank are subject to various regulatory capitalrequirements administered by the federal banking agencies.  Failure to meet minimum capital requirementscan initiate certain mandatory - and possibly additional discretionary -actions by regulators that, if undertaken, could have a direct material effecton the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework forprompt corrective action, the Company and the Bank must meet specific capitalguidelines that involve quantitative measures of the Company’s and the Bank’sassets, liabilities, and certain off-balance-sheet items as calculated underregulatory accounting practices.  TheCompany’s and the Bank’s capital amounts and classification are also subject toqualitative judgments by the regulators about components, risk weightings, andother factors.

 

Quantitative measures established by regulation to ensure capitaladequacy require the Company and the Bank to maintain minimum amounts andratios (set forth in the following table) of total and Tier 1 capital (asdefined in the regulations) to risk-weighted assets (as defined), and Tier 1capital (as defined) to average assets (as defined).  Management believes that the Company and theBank met all capital adequacy requirements to which they are subject as of March 31,2005.

 

As of March 31, 2005, the most recent notification from theregulatory agency categorized the Bank as well capitalized under the regulatoryframework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimumtotal risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth inthe table.  There are no conditions orevents since that notification which management believes have changed the Bank’scategory.

 

11

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The Company’s and the Bank’s actual capitalamounts and ratios at March 31, 2005 and December 31, 2004 arepresented in the following tables.

 
| **March 31,  2005**    | ** ** | **Actual** | ** ** | **For Capital  Adequacy Purposes** | ** ** | **Minimum To Be Well  Capitalized Under  Prompt Corrective  Action Provisions** | ** ** |
|-----------------------------|------------|------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| **(dollars  in thousands)** | ** ** | **Amount** | ** ** | **Ratio**                          | ** ** | **Amount**                                                                      | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| Tier 1 Capital              |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| To Risk-Weighted  Assets    |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| Company                     |       | $          | 14,764     |                               | 9.42       | %                                                                               | $          | 6,272 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                        |       | $          | 14,805     |                               | 9.46       | %                                                                               | $          | 6,262 |   | 4.00 | % | $ | 9,393 |   | 6.00 | % |
|                        |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| Total Capital               |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| To Risk-Weighted Assets     |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| Company                     |       | $          | 16,417     |                               | 10.47      | %                                                                               | $          | 12,544 |   | 8.00 | % | N/A |   | N/A |   |
| Bank                        |       | $          | 16,458     |                               | 10.51      | %                                                                               | $          | 12,524 |   | 8.00 | % | $ | 15,655 |   | 10.00 | % |
|                        |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| Tier 1 Capital              |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| To Average Assets      |       |       |       |                               |       |                                                                            |       |   |   |   |   |   |   |
| Company                     |       | $          | 14,764     |                               | 8.74       | %                                                                               | $          | 6,760 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                        |       | $          | 14,805     |                               | 8.77       | %                                                                               | $          | 6,750 |   | 4.00 | % | $ | 8,437 |   | 5.00 | % |

 
| **December 31,  2004** | ** ** | **Actual** | ** **   | **For Capital  Adequacy Purposes** | ** ** | **Minimum To Be Well  Capitalized Under  Prompt Corrective  Action Provisions** | ** ** |
|-----------------------------|------------|------------|--------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| **(dollars  in thousands)** | ** ** | **Amount** | ** **   | **Ratio**                          | ** ** | **Amount**                                                                      | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| Tier 1 Capital              |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| To Risk-Weighted  Assets    |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| Company                     |       | $          | 14,236       |                               | 9.46       | %                                                                               | $          | 6,020 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                        |       | $          |  14,282 |                               | 9.51       | %                                                                               | $          |  6,000 |   | 4.00 | % | $ | 9,015 |   | 6.00 | % |
|                        |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| Total Capital               |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| To Risk-Weighted Assets     |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| Company                     |       | $          |  15,739 |                               | 10.46      | %                                                                               | $          |  12,040 |   | 8.00 | % | N/A |   | N/A |   |
| Bank                        |       | $          |  15,785 |                               | 10.51      | %                                                                               | $          |  12,020 |   | 8.00 | % | $ |  15,025 |   | 10.00 | % |
|                        |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| Tier 1 Capital              |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| To Average Assets           |       |       |         |                               |       |                                                                            |       |   |   |   |   |   |   |
| Company                     |       | $          |  14,236 |                               | 8.84       | %                                                                               | $          |  6,444 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                        |       | $          |  14,282 |                               | 8.88       | %                                                                               | $          |  6,434 |   | 4.00 | % | $ |  8,042 |   | 5.00 | % |

 

**Item 2.****    Management’sDiscussion and Analysis or Plan of Operations.**

 

**General**

 

This management’s discussion and analysiscontains forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995, including statements relating to theFrederick County Bancorp, Inc. (the “Company”) beliefs, expectations,anticipations and plans regarding, among other things, general economic trends,interest rates, product expansions and other matters.  Such forward-looking statements areidentified by terminology such as “may”, “will”, “believe”, “expect”, “estimate”,“anticipate”, “likely”, “unlikely”, “continue”, or similar terms and aresubject to numerous uncertainties, such as federal monetary policy, inflation,employment, profitability and consumer confidence levels, both nationally andin the Company’s market area, the health of the real estate and constructionmarket in the Company’s market area, the Company’s ability to develop andmarket new products and to enter new markets, competitive challenges in theCompany’s market, legislative changes and other factors, and as such, there canbe no assurance that future events will develop in accordance with theforward-looking statements contained herein. Readers are cautioned against placing undue reliance on any suchforward-looking statement.  In addition,the Company’s past results of operations do not necessarily indicate its futureresults.

 

12

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The following paragraphs provide an overviewof the financial condition and results of operations of the Company.  This discussion is intended to assist thereaders in their analysis of the accompanying financial statements and notesthereto.

 

The Company was organized in May 2003 and on September 30,2003, the Agreement and Plan of Share Exchange (the “Exchange”) between theCompany and Frederick County Bank (the “Bank”), dated June 9, 2003,approved at the Special Meeting of Shareholders of the Bank held on September 22,2003, became effective.  Pursuant to theExchange, each of the outstanding shares of common stock $10.00 par value ofthe Bank was converted into one share of the common stock $0.01 par value ofthe Company.  As a result of theExchange, the Bank has become a wholly owned subsidiary of the Company.  DuringFebruary 2004, the Company received approval from the Federal Reserve Bankof Richmond to become a financial holding company.

 

The Bank was incorporated on August 30,2000 and during 2001 became actively involved in the developmental activitiesneeded to obtain a commercial bank charter in the State of Maryland.  All regulatory approvals were received, andthe Bank commenced operations on October 18, 2001.

 

The Company is continually looking for promising branch sites that willcontribute to the Company’s growth and profit expectations.  While additional branching activity isanticipated, there can be no assurance as to when or if, additional brancheswill be established, whether any such branches can be operated profitably, orwhether such expansion will result in increased assets, earnings, return onequity or shareholder value.  The Companyhas received site plan approval for the construction of two new brancheslocated at 100 Commerce Drive, Walkersville, Maryland and 6910 CrestwoodBoulevard, Frederick, Maryland and anticipates that these facilities will openin late 2005 or early 2006.

 

**Critical Accounting Policies**

 

The Company’s financial statements are prepared in accordance withaccounting principles generally accepted (“GAAP”) in the United States ofAmerica and follow general practices within the industry in which itoperates.  Application of theseprinciples requires management to make estimates, assumptions, and judgmentsthat affect the amounts reported in the financial statements and accompanyingnotes.  These estimates, assumptions, andjudgments are based on information available as of the date of the financialstatements; accordingly, as this information changes, the financial statementscould reflect different estimates, assumptions, and judgments.  Certain policies inherently have a greaterreliance on the use of estimates, assumptions, and judgments and as such have agreater possibility of producing results that could be materially differentthan originally reported.  Estimates,assumptions, and judgments are necessary when assets and liabilities are requiredto be recorded at fair value, when a decline in the value of an asset notcarried on the financial statements at fair value warrants an impairmentwrite-down or valuation reserve to be established, or when an asset orliability needs to be recorded contingent upon a future event.  Carrying assets and liabilities at fair valueinherently results in more financial statement volatility.  The fair values and the information used torecord valuation adjustments for certain assets and liabilities are basedeither on quoted market prices or are provided by other third-party sources,when available. The estimates used in management’s assessment of the adequacyof the allowance for credit losses require that management make assumptionsabout matters that are uncertain at the time of estimation.  Differences in these assumptions anddifferences between the estimated and actual losses could have a materialeffect.  Further information is locatedin the sections labeled Income Taxes and Allowance for Loan Losses, later inthis report.

 

**ThreeMonths Ended March 31, 2005 and 2003**

 

The net income was $516,000 for the three months ended March 31,2005.  This compares favorably to the$289,000 profit recorded for the same period in 2004.  The basic earnings per share for the threemonths ended March 31, 2005 and 2004 are $0.35 and $0.20, respectively,and are based on the weighted-average number of shares outstanding of 1,457,626in 2005 and 1,455,152, in 2004.  Thediluted earnings per share for the three months ended March 31, 2005 and2004 are $0.34 and $0.19, respectively, and are based on the weighted-averagenumber of shares outstanding of 1,524,731 and 1,494,162, respectively.

 

The Company experienced an annualized return on average assets of 1.22%and 0.88% for the three-month periods ended March 31, 2005 and 2004,respectively.  Additionally, the Companyexperienced an annualized return on average shareholders’ equity of 14.17% and8.94% for the three-month periods ended March 31, 2005 and 2004,respectively.

 

13

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**Distribution of Assets, Liabilities andShareholders’ Equity; Interest Rates and Interest Differential**

 

The “Comparative Statement Analysis,” shows average balances of assetand liability categories, interest income and interest paid, and average yieldsand rates for the periods indicated.

 

**FrederickCounty Bancorp, Inc.**

**ComparativeStatement Analysis**

 
| ** **                                                    | ** ** | **2005**                    | ** ** | **2004**                    | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Three months ended March 31,  (dollars in thousands)** | ** ** | **Average  Daily  Balance** | ** ** | **Interest  Income/  Paid** | ** ** | **Average  Yield/  Rate** | ** ** | **Average  Daily  Balance** | ** ** | **Interest  Income/  Paid** | ** ** | **Average  Yield/  Rate** | ** ** |
| Assets                                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Interest-earning assets:                                      |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Federal funds sold                                            |       | $                           | 8,773      |                        | $          | 56 |   | 2.59 | % | $ | 10,690 |   | $ | 25 |   | 0.94 | % |
| Interest bearing deposits in other banks                      |       | 467                         |       | 2                           |       | 1.74 |   | 350 |   | 1 |   | 1.15 |   |
| Investment securities (1):                                    |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Taxable                                                       |       | 17,442                      |       | 164                         |       | 3.81 |   | 16,327 |   | 147 |   | 3.61 |   |
| Tax-exempt (2)                                                |       | 299                         |       | 3                           |       | 4.07 |   | — |   | — |   | — |   |
| Loans (3)                                                     |       | 136,935                     |       | 2,133                       |       | 6.32 |   | 99,985 |   | 1,473 |   | 5.91 |   |
| Total interest-earning assets                                 |       | 163,916                     |       | 2,358                       |       | 5.83 |   | 127,352 |   | 1,646 |   | 5.18 |   |
| Noninterest-earning assets                                    |       | 5,074                       |       |                        |       |   |   | 4,359 |   |   |   |   |   |
| Total assets                                                  |       | $                           | 168,990    |                        |       |   |   |   | $ | 131,711 |   |   |   |   |   |
|                                                          |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity                     |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                  |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| NOW accounts                                                  |       | $                           | 15,911     |                        | 7          |   | 0.18 | % | $ | 13,888 |   | 6 |   | 0.17 | % |
| Savings accounts                                              |       | 3,040                       |       | 4                           |       | 0.53 |   | 3,307 |   | 4 |   | 0.49 |   |
| Money market accounts                                         |       | 28,605                      |       | 76                          |       | 1.08 |   | 27,958 |   | 65 |   | 0.93 |   |
| Certificates of deposit $100,000 or more                      |       | 41,373                      |       | 263                         |       | 2.58 |   | 28,108 |   | 145 |   | 2.07 |   |
| Certificates of deposit less than $100,000                    |       | 42,697                      |       | 268                         |       | 2.55 |   | 28,647 |   | 159 |   | 2.23 |   |
| Short-term borrowings                                         |       | 450                         |       | 6                           |       | 5.41 |   | 286 |   | 3 |   | 4.00 |   |
| Total interest-bearing liabilities                            |       | 132,076                     |       | 624                         |       | 1.92 |   | 102,194 |   | 382 |   | 1.50 |   |
| Noninterest-bearing deposits                                  |       | 21,747                      |       |                        |       |   |   | 16,371 |   |   |   |   |   |
| Noninterest-bearing liabilities                               |       | 604                         |       |                        |       |   |   | 215 |   |   |   |   |   |
| Total liabilities                                             |       | 154,427                     |       |                        |       |   |   | 118,780 |   |   |   |   |   |
| Total shareholders’ equity                               |       | 14,563                      |       |                        |       |   |   | 12,931 |   |   |   |   |   |
| Total liabilities and shareholders’ equity               |       | $                           | 168,990    |                        |       |   |   |   | $ | 131,711 |   |   |   |   |   |
| Net interest income                                           |       |                        |       | $                           | 1,734      |   |   |   |   |   | $ | 1,264 |   |   |   |
| Net interest spread                                           |       |                        |       |                        |       | 3.91 | % |   |   |   |   | 3.68 | % |
| Net interest margin                                           |       |                        |       |                        |       | 4.29 | % |   |   |   |   | 3.98 | % |

 

----

(1)   Yieldson securities available-for-sale have been calculated on the basis ofhistorical cost and do not give effect to changes in the fair value of thosesecurities, which is reflected as a component of shareholders’ equity.

(2)   Presentedon a taxable-equivalent basis using the statutory federal income tax rate of34%.  Taxable-equivalent adjustments of$1,000 in 2005 and none in 2004 are included in the calculation of thetax-exempt investment interest income.

(3)   Presentedon a taxable-equivalent basis using the statutory federal income tax rate of34%.  Taxable-equivalent adjustments of$4,000 in 2005 and none in 2004 are included in the calculation of the loaninterest income.  Amortization of netloan origination expenses charged against interest income totaled $5,000 inboth 2005 and 2004.

 

**Net Interest Income**

 

Net interest income is generated from theCompany’s lending and investment activities, and is the most significantcomponent of the Company’s earnings.  Netinterest income is the difference between interest and rate-related fee incomeon earning assets (primarily loans and investment securities) and the interestpaid on the funds (primarily deposits) supporting them.  While the Company currently relies almostentirely on deposits to fund loans and investments, with minimal short termborrowings, in future periods it may utilize a higher level of short-termborrowings, including borrowings from the Federal Home Loan Bank, federal fundslines with correspondent banks and repurchase agreements, to fund operations,depending on economic conditions, deposit availability and

 

14

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pricing, interest rates and other factors.

 

The Bank commenced operations on October 18,2001.  Since it’s opening, management hasbeen pleased with the Bank’s asset growth. Core deposit relationships are being developed within the local marketplace, driven by competitive pricing and excellent customer service.

 

## **Three Months Ended March 31, 2005 and 2004**

 

The interest income of $2.35 million in 2005was $707,000 higher than the amount recognized in 2004.  This dramatic increase in interest income isdue to the growth in average earning assets of $36.56 million or 28.71% since March 31,2004.  The yield on earning assets in2005 increased to 5.83% from 5.18% in 2004. This increase in yield is attributable to the impact of a largerpercentage of loans to average interest-earning assets and the impact of theincrease in short-term rates by the Federal Reserve.  The Company’s net interest margin was 4.29%and 3.98% and the net interest spread was 3.91% and 3.68% for the three-monthperiods ended March 31, 2005 and 2004, respectively.  Average loans as a percentage of averageinterest-earnings assets increased to 83.54% for the three months ended March 31,2005, as compared to 78.51% for the same period in 2004.

 

The interest expense increased from $382,000in 2004 to $624,000 in 2005 due to the increase in volume of interest-bearingliabilities along with the increase in the rates paid which increased to 1.92%in 2005 from 1.50% in 2004.

 

# **Noninterest Income**

# ** **

Noninterest income was $62,000 and $59,000for the three-month periods ended March 31, 2005 and 2004, respectively,attributable primarily to service fees on deposit accounts and ATM interchangefees.

 

The Company’s management is committed todeveloping and offering innovative, market-driven products and services thatwill generate additional sources of noninterest income.  However, the future results of any of theseproducts or services cannot be predicted at this time.

 

## **Noninterest Expenses**

## ** **

Noninterest expenses amounted to $1.07million and $929,000 for the first three months of 2005 and 2004,respectively.  See Note 6 to thefinancial statements for a schedule showing a detailed breakdown of theCompany’s noninterest expenses.  Thechanges in noninterest expenses are principally related to the following: anincrease in personnel costs and the increase in data processing expenses, whichincrease as the number and volume of loans and deposit accounts increase.  Salaries expense in 2005 was $525,000 up$50,000 from the salaries expense incurred in the same period in 2004.  This increase of 10.53 is for employee payincreases and to make various employee salaries competitive with the currentemployment environment.

 

**Income Taxes**

 

During the three months ended March 31, 2005, the Companyrecognized $60,000 of income tax expense in its statement of income, whereas,no income tax expense was incurred for the same period in 2004 due to the netoperating loss carryforwards available at that time.  At December 31, 2004, the Companyrecorded a valuation allowance of $158,000 to reduce the carrying value of thenet deferred tax assets carried in the accompanying consolidated balancesheets.  Valuation allowances areprovided for deferred tax assets when in management’s judgment a portion, orall, of the deferred tax assets may not be realized.  Factors influencing management’s judgmentinclude: the existence of sustained periods of taxable income and the extenttaxes paid in prior periods are recoverable with refund claims.  As of March 31, 2005, the Company wasnot required to maintain a valuation allowance.

 

The effective tax rate for the first three months of 2005 was 10.42%,which was positively impacted by the elimination of the $158,000 valuationallowance.  Excluding the effects of thevaluation allowance, the effective tax rate would have been 37.85%.

 

**Market Risk, Liquidity and Interest RateSensitivity**

** **

Asset/liability management involves the funding and investmentstrategies necessary to maintain an appropriate balance between interestsensitive assets and liabilities.  Italso involves providing adequate liquidity while sustaining stable growth innet interest income.  Regular review andanalysis of deposit and loan trends, cash flows in various categories of loans,and monitoring of interest spread relationships are vital to this process.

 

The conduct of our banking business requires that we maintain adequateliquidity to meet changes in the composition and volume of assets andliabilities due to seasonal, cyclical or other reasons.  Liquidity describes the ability of theCompany to meet financial

 

15

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obligations that arise during the normal course of business.  Liquidity is primarily needed to meet theborrowing and deposit withdrawal requirements of the customers of the Company,as well as for meeting current and future planned expenditures.  This liquidity is typically provided by thefunds received through customer deposits, investment maturities, loanrepayments, borrowings, and income. Management considers the current liquidity position to be adequate tomeet the needs of the Company and its customers.

 

The Company seeks to limit the risks associated with interest ratefluctuations by managing the balance between interest sensitive assets andliabilities.  Managing to mitigateinterest rate risk is, however, not an exact science.  Not only does the interval until repricing ofinterest rates on assets and liabilities change from day to day as the assetsand liabilities change, but for some assets and liabilities, contractualmaturity and the actual maturity experienced are not the same.  Similarly, NOW and money market accounts, bycontract, may be withdrawn in their entirety upon demand and savings depositsmay be withdrawn on seven days notice. While these contracts are extremely short, it is the Company’s beliefthat these accounts turn over at the rate of five percent (5%) per year. TheCompany therefore treats them as having maturities staggered over allperiods.  If all of the Company’s NOW,money market, and savings accounts were treated as repricing in one year orless, the cumulative gap at one year or less would be $(28.27) million.

 

Interest rate sensitivity is an important factor in the management ofthe composition and maturity configurations of the Company’s earning assets andfunding sources.  An Asset/LiabilityCommittee manages the interest rate sensitivity position in order to maintainan appropriate balance between the maturity and repricing characteristics ofassets and liabilities that is consistent with the Company’s liquidityanalysis, growth, and capital adequacy goals. It is the objective of the Asset/Liability Committee to maximize netinterest margins during periods of both volatile and stable interest rates, toattain earnings growth, and to maintain sufficient liquidity to satisfydepositors’ requirements and meet credit needs of customers.

 

The table below, “Interest Rate Sensitivity Gap Analysis,” summarizes,as of March 31, 2005, the anticipated maturities or repricing of theCompany’s interest-earning assets and interest-bearing liabilities, the Company’sinterest rate sensitivity gap (interest-earning assets less interest-bearingliabilities), the Company’s cumulative interest rate sensitivity gap, and theCompany’s cumulative interest sensitivity gap ratio (cumulative interest ratesensitivity gap divided by total assets). A negative gap for any time period means that more interest-bearingliabilities will reprice or mature during that time period thaninterest-earning assets.  During periodsof rising interest rates, a negative gap position would generally decreaseearnings, and during periods of declining interest rates, a negative gapposition would generally increase earnings. The converse would be true for a positive gap position.  Therefore, a positive gap for any time periodmeans that more interest-earning assets will reprice or mature during that timeperiod than interest-bearing liabilities. During periods of rising interest rates, a positive gap position wouldgenerally increase earnings, and during periods of declining interest rates, apositive gap position would generally decrease earnings.

 

16

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It is important to note that the following table represents the staticgap position for interest sensitive assets and liabilities at March 31,2005.  The table does not give effect toprepayments or extensions of loans as a result of changes in general marketinterest rates.  Moreover, while thetable does indicate the opportunities to reprice assets and liabilities withincertain time frames, it does not account for timing differences that occurduring periods of repricing.  Forexample, changes to deposit rates tend to lag in a rising rate environment andlead in a falling rate environment.

 

**InterestRate Sensitivity Gap Analysis**

**March 31,2005**

 
| ** **                                            | ** ** | **Expected Repricing or Maturity Date** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------|------------|
| **(dollars  in thousands)**                           | ** ** | **Within  One Year**                    | ** ** | **One to  Three Years** | ** ** | **Three to  Five Years** | ** ** | **After  Five Years** | ** ** | **Total** | ** ** |
| Assets                                                | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal funds  sold                                   |       | $                                       | 12,701     |   | $ | — |   | $ | — |   | $ | — |   | $ | 12,701 |   |
| Interest-bearing  deposits in other banks             |       | 6,644                                   |       | — |   | — |   | — |   | 6,644 |   |
| Investment  securities(1)                             |       | 1,369                                   |       | 3,435 |   | 5,206 |   | 7,050 |   | 17,060 |   |
| Loans                                                 |       | 57,891                                  |       | 24,671 |   | 45,037 |   | 12,430 |   | 140,029 |   |
| Total interest-earning  assets                        |       | 78,605                                  |       | 28,106 |   | 50,243 |   | 19,480 |   | 176,434 |   |
| ** **                                            | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Liabilities                                           | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Savings and NOW  Accounts                             |       | 1,487                                   |       | 2,976 |   | 2,976 |   | 22,316 |   | 29,755 |   |
| Money Market  Accounts                                |       | 1,395                                   |       | 2,789 |   | 2,789 |   | 20,921 |   | 27,894 |   |
| Certificates of  Deposit                              |       | 48,777                                  |       | 28,941 |   | 9,024 |   | — |   | 86,742 |   |
| Short-term  borrowings                                |       | 450                                     |       | — |   | — |   | — |   | 450 |   |
| Total interest-bearing  liabilities                   |       | 52,109                                  |       | 34,706 |   | 14,789 |   | 43,237 |   | 144,841 |   |
| Interest rate  sensitivity gap                        |       | $                                       | 26,496     |   | $ | (6,600 | ) | $ | 35,454 |   | $ | (23,757 | ) | $ | 31,593 |   |
| Cumulative  interest rate sensitivity gap             |       | $                                       | 26,496     |   | $ | 19,896 |   | $ | 55,350 |   | $ | 31,593 |   |   |   |
| Cumulative gap  ratio as a percentage of total assets |       | 14.36                                   | %          | 10.78 | % | 29.99 | % | 17.12 | % |   |   |

 

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(1)   Excludesequity securities.

 

**Critical Accounting Policy:**

 

**Allowance for Loan Losses**

 

The Company makes provisions for loan losses in amounts deemednecessary to maintain the allowance for loan losses at an appropriatelevel.  The provision for loan losses isdetermined based upon management’s estimate of the amount required to maintainan adequate allowance for loan losses reflective of the risks in the Company’sloan portfolio.  The Company’s provisionfor loan losses for the first three months of 2005 and 2004 were $150,000 and$105,000, respectively.  The loan growthwas $4.36 million for the first three months of 2005 as compared to $7.89million for the same period in 2004.  Dueto the increased exposure to commercial and commercial real estate loans,management deemed it necessary to increase the provision for loan losses in2005 from the amount recorded for the same period in 2004, even though the loanvolume is larger in 2005.  At March 31,2005 and December 31, 2004, the allowance for loan losses was $1.65million and $1.50 million, respectively.

 

Theallowance for loan losses is an estimate of the losses in the loan portfolio.The allowance is based on two basic principles of accounting: (i) SFAS No. 5,*Accounting for Contingencies*,which requires that losses be accrued when they are probable of occurring andestimatable and (ii) SFAS No. 114, *Accountingby Creditors for Impairment of a Loan*, which requires that losses beaccrued based on the differences between the loan balance and either the valueof collateral, or the present value of future cash flows, or the loan’s valueas observable in the secondary market. The provision for loan losses included in the statements of operationsserve to maintain the allowance at a level management considers adequate.

 

TheCompany’s allowance for loan losses has three basic components: the specificallowance, the formula allowance and the pooled allowance.  Each of these components is determined basedupon estimates that can and do change when the actual events occur.  As a result of the uncertainties inherent inthe estimation process, management’s estimate of loan losses and the relatedallowance could change in the near term.

 

Thespecific allowance component is used to individually allocate an allowance forloans identified as impaired.  Impairmenttesting includes consideration of the borrower’s overall financial condition,resources and payment record, support available from financial guarantors andthe fair market value of collateral. These factors are combined to estimate theprobability and severity of inherent

 

17

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losses.When impairment is identified, then a specific reserve is established based onthe Company’s calculation of the loss embedded in the individual loan. Largegroups of smaller balance, homogeneous loans are collectively evaluated forimpairment. Accordingly, the Company does not separately identify individualconsumer and residential loans for impairment. At March 31, 2005 there were no loans deemed to be impaired.

 

Theformula allowance component is used for estimating the loss on internally riskrated loans and those loans identified for impairment testing, for which noimpairment was identified. The loans meeting the Company’s internal criteriafor classification, such as special mention, substandard, doubtful and loss, aswell as, impaired loans, are segregated from performing loans within theportfolio. These internally classified loans are then grouped by loan type(commercial, commercial real estate, commercial construction, residential realestate, residential construction or installment). Each loan type is assigned anallowance factor based on management’s estimate of the associated risk,complexity and size of the individual loans within the particular loancategory. Classified loans are assigned a higher allowance factor thannon-classified loans due to management’s concerns regarding collectability ormanagement’s knowledge of particular elements surrounding the borrower.Allowance factors increase with the worsening of the internal risk rating.

 

Thepooled formula component is used to estimate the losses inherent in the poolsof non-classified loans.  These loans arethen also segregated by loan type and allowance factors are assigned bymanagement based on delinquencies, loss history, trends in volume and terms ofloans, effects of changes in lending policy, the experience and depth ofmanagement, national and local economic trends, concentrations of credit,quality of loan review system and the effect of external factors (i.e.competition and regulatory requirements). The allowance factors assigned differ by loan type.

 

Allowancefactors and overall size of the allowance may change from period to periodbased on management’s assessment of the above-described factors and therelative weights given to each factor.

 

Management believes that the allowance for loan losses isadequate.  There can be no assurance,however, that additional provisions for loan losses will not be required in thefuture, including as a result of changes in the economic assumptions underlyingmanagement’s estimates and judgments, adverse developments in the economy, on anational basis or in the Company’s market area, or changes in the circumstancesof particular borrowers.

 

As ofMarch 31, 2005, the real estate loan portfolio constituted 81% of thetotal loan portfolio.  The Company doesnot have a concentration of loans that exceed 10% of the total loan portfolioto any one industry.  An industry forthis purpose is defined as a group of counterparties that are engaged insimilar activities and have similar economic characteristics that would causetheir ability to meet contractual obligations to be similarly affected bychanges in economic or other conditions.

 
| **(dollars  in thousands)**                    | ** ** | **2005** | ** ** | **March 31,  2004** | ** ** |
|------------------------------------------------|------------|----------|------------|--------------------------|------------|
| Average total  loans outstanding during period |       | $        | 136,935    |                     | $          | 99,985 |   |
| Balance at  beginning of period                |       | $        | 1,503      |                     | $          | 985 |   |
| Provision  charged to operating expenses       |       | 150      |       | 105                      |       |
| Recoveries of  loans previously charged-off    |       | —   |       | —                   |       |
|                                           |       | 1,653    |       | 1,090                    |       |
| Loans charged-off                              |       | —   |       | —                   |       |
| Balance at end  of period                      |       | $        | 1,653      |                     | $          | 1,090 |   |

 

The allocation of the allowance, presented in thefollowing table, is based primarily on the factors discussed above inevaluating the adequacy of the allowance as a whole.  Since all of those factors are subject tochange, the allocation is not necessarily indicative of the category ofrecognized loan losses, and does not restrict the use of the allowance toabsorb losses in any category.

 

**Allocation of Allowance for Loan Losses**

 
| **March 31,**                                                          | ** ** | **2005** | ** ** | **% of  Loans** | ** ** |
|-----------------------------------------------------------------------------|------------|----------|------------|-----------------|------------|
| Real estate-construction                                                    |       | $        | 224        |            | 20         | % |
| Real estate-mortgage                                                        |       | 907      |       | 61              | %          |
| Commercial and  industrial loans                                            |       | 449      |       | 17              | %          |
| Loans to  individuals for household, family and other personal expenditures |       | 73       |       | 2               | %          |
|                                                                        |       | $        | 1,653      |            | 100        | % |

 

18

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| ** **                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Nonaccrual loans                      |       | $                  | 101        |                  | $          | 102 |   |
| Loans 90 days  past due               |       | —             |       | —                |       |
| Total  nonperforming loans            |       | 101                |       | 102                   |       |
| Other real  estate owned              |       | —             |       | —                |       |
| Total  nonperforming assets           |       | $                  | 101        |                  | $          | 102 |   |
| Nonperforming  assets to total assets |       | 0.05               | %          | 0.06                  | %          |

 

There were no other interest-bearing assets at March 31, 2005 nor December 31,2004, classified as past due 90 days or more and still accruing, restructuredor problem assets, and no loans which were currently performing in accordancewith their terms, but as to which information known to management caused it tohave serious doubts about the ability of the borrower to comply with the loanas currently written.

 

**Off-BalanceSheet Arrangements**

** **

The Company is a party to financial instruments with off-balance sheetrisk in the normal course of business to meet the financing needs of itscustomers.  These financial instrumentsincluded commitments to extend credit, including unused portions of lines ofcredit, and standby letters of credit.  TheCompany has also entered into long-term lease obligations for some of its premisesand equipment, the terms of which generally include options to renew.  The above instruments and obligationsinvolve, to varying degrees, elements of off-balance sheet risk in excess ofthe amount recognized in the statements of financial condition.  None of these instruments or obligations haveor are reasonably likely to have a current or future effect on the Company’sfinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources that is material to investors.

 

Commitments toextend credit and standby letters of credit as of March 31, 2005 were asfollows:

 
| **(dollars in thousands)**                                                       | ** ** | **March 31,  2004  Contractual  Amount** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| Financial  instruments whose notional or contract amounts represent credit risk: |       |                                          |       |
| Commitments to  extend credit                                                    |       | $                                             | 29,414     |   |
| Standby letters  of credit                                                       |       | 2,526                                         |       |
| Total                                                                            |       | $                                             | 31,940     |   |

 

See Note 8 to the Notes to the FinancialStatements included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2004 for additional information regarding theCompany’s long-term lease obligations.

 

**Capital Resources**

 

The ability of the Company to grow is dependent on the availability ofcapital with which to meet regulatory requirements, discussed below.  To the extent the Company is successful itmay need to acquire additional capital through the sale of additional commonstock, other qualifying equity instruments or subordinated debt, or throughincurrence of debt which does not qualify as holding company capital, but whichcan be contributed as capital to the Bank or utilized for other corporatepurposes.  There can be no assurance thatadditional capital will be available to the Company on a timely basis or onattractive terms.  At March 31,2005, the Company had an outstanding unsecured loan from an unaffiliated thirdparty in the amount of $450,000 with a variable interest rate, which is tied tothe Wall Street Journal Prime Rate, and matures on January 27, 2006.  Subsequent to March 31, 2005, theCompany entered into an unsecured revolving line of credit borrowingarrangement with the Atlantic Central Bankers Bank in the amount of $2.00million.  This facility matures on May 1,2007, has a floating interest rate equal to the Wall Street Journal Prime Rate,which is currently 6.00% and requires monthly interest payments only.  The purpose of this facility is to providecapital to the Bank, as needed.

 

The Company and the Bank are subject to various regulatory capitalrequirements administered by the federal banking agencies.  Failure to meet minimum capital requirementscan initiate certain mandatory - and possibly additional discretionary -actions by regulators that, if undertaken, could have a direct material effecton the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework forprompt corrective action, the Company and the Bank must meet specific capitalguidelines that involve quantitative measures of the Company’s and the Bank’sassets, liabilities, and certain off-balance-sheet items as calculated underregulatory accounting practices.  TheCompany’s and the Bank’s capital amounts and classification are also subject toqualitative judgments by the regulators about components, risk weightings, andother factors.

 

19

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Quantitative measures established by regulation to ensure capitaladequacy require the Company and the Bank to maintain minimum amounts andratios of total and Tier 1 capital (as defined in the regulations) torisk-weighted assets (as defined), and Tier 1 capital (as defined) to averageassets (as defined).  Management believesthat the Company and the Bank met all capital adequacy requirements to whichthey are subject as of March 31, 2005. See Note 8 to the consolidatedfinancial statements for a table depicting compliance with regulatory capitalrequirements.

 

As of March 31, 2005, the most recent notification from theregulatory agency categorized the Bank as well capitalized under the regulatoryframework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimumtotal risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth inthe table in Note 8.  There are noconditions or events since that notification which management believes havechanged the Bank’s category.

 

Additionally, the Company has not repurchased any outstanding shares ofits common stock, nor does it have an approved repurchase program at this time.

 

## **Inflation**

## ** **

The effect of changingprices on financial institutions is typically different than on non-bankingcompanies since virtually all of a Company’s assets and liabilities aremonetary in nature. In particular, interest rates are significantly affected byinflation, but neither the timing nor magnitude of the changes are directlyrelated to price level indices; therefore, the Company can best counterinflation over the long term by managing net interest income and controllingnet increases in noninterest income and expenses.

 

###### **Item. 3 Controls and Procedures**

###### ** **

## **The Company’s management, under the supervision and withthe participation of the Company’s Chief Executive Officer and Chief FinancialOfficer, evaluated, as of the last day of the period covered by this report,the effectiveness of the design and operation of the Company’s disclosurecontrols and procedures, as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934.  Basedon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures wereadequate.  There were no changes in theCompany’s internal control over financial reporting (as defined in Rule 13a-15under the Securities Act of 1934) during the quarter ended March 31, 2005that has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.**

 

20

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## **PART II – Other Information**

 
| Item 1. |     | Legal Proceedings*  *None                                                        |
|---------|----------|--------------------------------------------------------------------------------------------|
|    |     |                                                                                       |
| Item 2  |     | Unregistered Sales of  Equity Securities and Use of Proceeds                               |
|    |     |                                                                                       |
| (a)     | * * | *Sales of Unregistered  Securities.  *None                                       |
|    |     |                                                                                       |
| (b)     | * * | *Use of Proceeds. *Not Applicable.                                                    |
|    |     |                                                                                       |
| (c)     | * * | *Small Business Issuer Purchases  of Securities  *None                           |
|    |     |                                                                                       |
| Item 3. |     | Defaults upon Senior  Securities*  *None                                         |
|    |     |                                                                                       |
| Item 4. |     | Submission of Matters  to a Vote of Security Holders*  *None                     |
|    |     |                                                                                       |
| Item 5. |     | Other Information*  *None                                                        |
|    |     |                                                                                       |
| (a)     |     | Information which  should have been Reported on Form 8-K.*  *None           |
|    |     |                                                                                       |
| (b)     |     | Material Changes to  Procedures for Director Nomination by Shareholders.*  *None |

 

Item 6.  Exhibits

 
|   | Exhibit No. |   Description  of Exhibits                                                                                                                   |
|--------|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |             |
|   | 3(a)             | Articles of  Incorporation of the Company, as amended(1)                                                                                               |
|   | 3(b)             | Bylaws of the Company(2)                                                                                                                               |
|   | 10(a)            | 2001 Stock Option Plan(3)                                                                                                                              |
|   | 10(b)            | Employment Agreement between the Bank and Martin S.  Lapera (4)                                                                                        |
|   | 10(c)            | Employment Agreement between the Bank and William R.  Talley, Jr. (4)                                                                             |
|   | 10(d)            | Consulting Agreement between the Bank and Raymond  Raedy (4)                                                                                           |
|   | 10(e)            | 2002 Executive and  Director Deferred Compensation Plan (5)                                                                                            |
|   | 10(f)            | Amendment No. 1 to  the 2002 Executive and Director Deferred Compensation Plan (5)                                                                |
|   | 10(g)            | Loan Agreement with  Atlantic Central Bankers Bank, filed herewith                                                                                     |
|   | 10(h)            | Promissory Note with  Atlantic Central Bankers Bank, filed herewith                                                                                    |
|   | 11               | Statement Regarding  Computation of Per Share Income – Please refer to Note 2 to the unaudited  consolidated financial statements included herein |
|   | 31(a)            | Certification of Martin S. Lapera, President and  Chief Executive Officer                                                                              |
|   | 31(b)            | Certification of William R. Talley, Jr.,  Executive Vice President and Chief Financial Officer                                                    |
|   | 32(a)            | Certification of Martin S. Lapera, President and  Chief Executive Officer                                                                              |
|   | 32(b)            | Certification of William R. Talley, Jr.,  Executive Vice President and Chief Financial Officer                                                    |
|        |                  |                                                                                                                                                        |  |

 

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(1)   Incorporatedby reference to exhibit of the same number to the Company’s Quarterly Report onForm 10-QSB for the quarter ended March 31, 2004, as filed with theSecurities and Exchange Commission.

 

(2)   Incorporatedby reference to exhibit of the same number to the Company’s Quarterly Report onForm 10-QSB for the quarter ended September 30, 2003, as filed withthe Securities and Exchange Commission.

 

(3)   Incorporated byreference to exhibit 4 to the Company’s Registration Statement on Form S-8(No. 333-111761).

 

(4)   Incorporated byreference to exhibit of the same number to the Bank’s Registration Statement onForm 10-SB as filed with the Board of Governors of the Federal ReserveSystem.

 

(5)   Incorporatedby reference to exhibit of the same number to the Company’s Annual Report on Form 10-KSBfor the year ended December 31, 2004, as filed with the Securities andExchange Commission.

 

21

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**SIGNATURES**

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                                                         |   | FREDERICK COUNTY  BANCORP, INC.  |
|--------------------------------------------------------------|--------|----------------------------------|
|                                                         |   |                             |   |
|                                                         |   |                             |   |
| Date:       May 10,  2005 | By:    | /s/ Martin S. Lapera             |   |
|                                                         |   |                             | Martin S. Lapera |
|                                                         |   |                             | President and Chief  Executive Officer |
|                                                         |   |                             |   |
|                                                         |   |                             |   |
| Date:       May 10,  2005 | By:    | /s/ William R.  Talley, Jr. |   |
|                                                         |   |                             | William R.  Talley, Jr. |
|                                                         |   |                             | Executive Vice  President and Chief Financial |
|                                                         |   |                             | Officer |

 

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