**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, DC  20549**

** **

### **FORM 10-Q**

### ** **

**(MARKONE)**

** **
| **x**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d)** |       |
|------------|------------|------------------------------------------------------------|------------|
| ** ** | ** ** | **OF  THE SECURITIES EXCHANGE ACT OF 1934**                | ** ** |

###### ** **

**Forthe Quarterly Period Ended March 31, 2008**

 

**OR**

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

###### ** **

**For thetransition period from                  to                  **

 

**CommissionFile Number:  000-50407**

 

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

(Exactname of registrant as specified in its charter)

 

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

 

#### **9North Market Street**

**Frederick,Maryland 21701**

(Address ofregistrant’s principal executive offices)

 

**301.620.1400**

(Registrant’stelephone number, including area code)

 

**N/A**

(Formername, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  xYes     oNo

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).   oYes  xNo

 

State the number of shares of each of the issuer’s classes of commonequity, as of the latest practical date. There were 1,460,602 shares of Common Stock outstanding as of April 18,2008.

 

 

----

 

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

**TABLE OFCONTENTS**

 
| **PART I**  | ** ** | **FINANCIAL INFORMATION**                                                                                          |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                                         |
| Item 1.          |       | Financial Statements (Unaudited)                                                                                   |
|             |       |                                                                                                               |
|             |       | Consolidated****Balance Sheets, March 31, 2008 and  December 31, 2007                                    |
|             |       |                                                                                                               |
|             |       | Consolidated  Statements of Income, Three Months Ended March 31, 2008 and 2007                                |
|             |       |                                                                                                               |
|             |       | Consolidated  Statements of Changes in Shareholders’ Equity, Three Months Ended  March 31, 2008 and 2007 |
|             |       |                                                                                                               |
|             |       | Consolidated  Statements of Cash Flows, Three Months Ended March 31, 2008 and 2007                            |
|             |       |                                                                                                               |
|             |       | Notes to Unaudited Consolidated Financial Statements                                                               |
|             |       |                                                                                                               |
| Item 2.          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                        |
|             |       |                                                                                                               |
| Item 3.          |       | Quantitative  and Qualitative Disclosures about Market Risk                                                        |
|             |       |                                                                                                               |
| Item 4.          |       | Controls and Procedures                                                                                            |
|             |       |                                                                                                               |
| **PART II** | ** ** | **OTHER INFORMATION**                                                                                              |
| ** **       | ** ** | ** **                                                                                                         |
| Item 1.          |       | Legal Proceedings                                                                                                  |
|             |       |                                                                                                               |
| Item  1A.        |       |  Risk Factors                                                                                                 |
|             |       |                                                                                                               |
| 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

----

 

**Frederick County Bancorp, Inc. andSubsidiaries**

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(dollars  in thousands)**                                                                                                                 | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                  | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                                      |       |               |       |                  |       |
| Cash and due  from banks                                                                                                                    |       | $                  | 4,282      |                  | $          | 3,828 |   |
| Federal funds  sold                                                                                                                         |       | 11,518             |       | 6,864                 |       |
| Interest-bearing  deposits in other banks                                                                                                   |       | 5,368              |       | 1,674                 |       |
| Cash and cash  equivalents                                                                                                                  |       | 21,168             |       | 12,366                |       |
| Investment  securities available-for-sale at fair value                                                                                     |       | 24,936             |       | 27,512                |       |
| Restricted stock                                                                                                                            |       | 1,479              |       | 1,440                 |       |
| Loans                                                                                                                                       |       | 210,279            |       | 209,011               |       |
| Less: Allowance  for loan losses                                                                                                            |       | (2,470             | )          | (2,640                | )          |
| Net loans                                                                                                                                   |       | 207,809            |       | 206,371               |       |
| Bank premises  and equipment                                                                                                                |       | 5,447              |       | 5,512                 |       |
| Other assets                                                                                                                                |       | 2,396              |       | 2,790                 |       |
| Total assets                                                                                                                                |       | $                  | 263,235    |                  | $          | 255,991 |   |
|                                                                                                                                        |       |               |       |                  |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                                  |       |               |       |                  |       |
|                                                                                                                                        |       |               |       |                  |       |
| **Liabilities**                                                                                                                             |       |               |       |                  |       |
| Deposits:                                                                                                                                   |       |               |       |                  |       |
| Noninterest-bearing  deposits                                                                                                               |       | $                  | 33,240     |                  | $          | 33,357 |   |
| Interest-bearing  deposits                                                                                                                  |       | 191,156            |       | 185,871               |       |
| Total deposits                                                                                                                              |       | 224,396            |       | 219,228               |       |
| Long-term  borrowings                                                                                                                       |       | 10,000             |       | 10,000                |       |
| Junior  subordinated debentures                                                                                                             |       | 6,186              |       | 6,186                 |       |
| Accrued interest  and other liabilities                                                                                                     |       | 2,544              |       | 997                   |       |
| Total  liabilities                                                                                                                          |       | 243,126            |       | 236,411               |       |
|                                                                                                                                        |       |               |       |                  |       |
| **Shareholders’  Equity**                                                                                                              |       |               |       |                  |       |
| Common stock,  per share par value $.01; 10,000,000 shares authorized; 1,460,602 and  1,460,602 shares issued and outstanding, respectively |       | 15                 |       | 15                    |       |
| Additional  paid-in capital                                                                                                                 |       | 14,687             |       | 14,687                |       |
| Retained  earnings                                                                                                                          |       | 5,201              |       | 4,901                 |       |
| Accumulated  other comprehensive income (loss)                                                                                              |       | 206                |       | (23                   | )          |
| Total  shareholders’ equity                                                                                                            |       | 20,109             |       | 19,580                |       |
| Total  liabilities and shareholders’ equity                                                                                            |       | $                  | 263,235    |                  | $          | 255,991 |   |

 

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

 

3

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**Frederick County Bancorp, Inc. andSubsidiaries**

**Consolidated Statements of Income(Unaudited)**

 
| ** **                                                                         | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| **(dollars in thousands, except per share amounts)** | ** ** | **2008**                                                       | ** ** | **2007** | ** ** |
| Interest income:                                                                   |       |                                                           |       |   |   |
| Interest and  fees on loans                                                        |       | $                                                              | 3,610      |   | $ | 3,207 |   |
| Interest and  dividends on investment securities:                                  |       |                                                           |       |   |   |
| Interest –  taxable                                                           |       | 198                                                            |       | 236 |   |
| Interest – tax  exempt                                                        |       | 99                                                             |       | 99 |   |
| Dividends                                                                          |       | 22                                                             |       | 17 |   |
| Interest on  federal funds sold                                                    |       | 77                                                             |       | 107 |   |
| Other interest  income                                                             |       | 10                                                             |       | 59 |   |
| Total interest  income                                                             |       | 4,016                                                          |       | 3,725 |   |
| Interest  expense:                                                                 |       |                                                           |       |   |   |
| Interest on deposits                                                               |       | 1,774                                                          |       | 1,674 |   |
| Interest on  other short-term borrowings                                           |       | —                                                         |       | 2 |   |
| Interest on  long-term borrowings                                                  |       | 115                                                            |       | — |   |
| Interest on  junior subordinated debentures                                        |       | 101                                                            |       | 101 |   |
| Total interest  expense                                                            |       | 1,990                                                          |       | 1,777 |   |
| Net interest  income                                                               |       | 2,026                                                          |       | 1,948 |   |
| Provision for  loan losses                                                         |       | 120                                                            |       | 66 |   |
| Net interest  income after provision for loan losses                               |       | 1,906                                                          |       | 1,882 |   |
| Noninterest  income:                                                               |       |                                                           |       |   |   |
| Gain on sale of  foreclosed properties                                             |       | 15                                                             |       | — |   |
| Service fees                                                                       |       | 59                                                             |       | 46 |   |
| Other operating  income                                                            |       | 78                                                             |       | 40 |   |
| Total noninterest  income                                                          |       | 152                                                            |       | 86 |   |
| Noninterest  expense:                                                              |       |                                                           |       |   |   |
| Salaries and  employee benefits                                                    |       | 959                                                            |       | 905 |   |
| Occupancy and  equipment expenses                                                  |       | 299                                                            |       | 260 |   |
| Other operating  expenses                                                          |       | 388                                                            |       | 339 |   |
| Total  noninterest expense                                                         |       | 1,646                                                          |       | 1,504 |   |
| Income before  provision for income taxes                                          |       | 412                                                            |       | 464 |   |
| Provision for  income taxes                                                        |       | 112                                                            |       | 141 |   |
| Net income                                                                         |       | $                                                              | 300        |   | $ | 323 |   |
| Basic earnings  per share                                                          |       | $                                                              | 0.21       |   | $ | 0.22 |   |
| Diluted earnings  per share                                                        |       | $                                                              | 0.20       |   | $ | 0.21 |   |
| Basic weighted  average number of shares outstanding                               |       | 1,460,602                                                      |       | 1,458,669 |   |
| Diluted weighted  average number of shares outstanding                             |       | 1,509,048                                                      |       | 1,523,749 |   |

 

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

 

4

----

 

**Frederick County Bancorp, Inc.and Subsidiaries**

## **ConsolidatedStatement of Changes in Shareholders’ Equity**(Unaudited)

 

*Three Months Ended March 31,*

** **
| **(dollars in thousands, except  shares outstanding)**                                 | ** ** | **Shares  Outstanding** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  (Loss)** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|
|                                                                                                  |       |                    |       |              |       |                             |       |                   |       |                                          |       |                                  |       |
| Balance,  January 1, 2007                                                                        |       | 1,458,602               |       | $                 | 15         |                             | $          | 14,652                 |       | $                                             | 3,341      |                                  | $          | (115 | ) | $ | 17,893 |   |
| Comprehensive  income:                                                                                |       |                    |       |              |       |                             |       |                   |       |                                          |       |                                  |       |
| Net income                                                                                            |       | —                  |       | —            |       | —                           |       | 323                    |       | —                                        |       | 323                                   |       |
| Changes in net  unrealized gains on securities available for sale, net of income tax benefits  of $36 |       | —                  |       | —            |       | —                           |       | —                 |       | 57                                            |       | 57                                    |       |
| Comprehensive  income                                                                                 |       |                    |       |              |       |                             |       |                   |       |                                          |       | 380                                   |       |
| Shares issued  under stock option transactions                                                        |       | 2,000                   |       | —            |       | 35                               |       | —                 |       | —                                        |       | 35                                    |       |
| Balance,  March 31, 2007                                                                         |       | 1,460,602               |       | $                 | 15         |                             | $          | 14,687                 |       | $                                             | 3,664      |                                  | $          | (58 | ) | $ | 18,308 |   |
| Balance,  January 1, 2008                                                                        |       | 1,460,602               |       | $                 | 15         |                             | $          | 14,687                 |       | $                                             | 4,901      |                                  | $          | (23 | ) | $ | 19,580 |   |
| Comprehensive  income:                                                                                |       |                    |       |              |       |                             |       |                   |       |                                          |       |                                  |       |
| Net income                                                                                            |       | —                  |       | —            |       | —                           |       | 300                    |       | —                                        |       | 300                                   |       |
| Changes in net  unrealized gains on securities available for sale, net of income taxes of  $149       |       | —                  |       | —            |       | —                           |       | —                 |       | 229                                           |       | 229                                   |       |
| Comprehensive  income                                                                                 |       |                    |       |              |       |                             |       |                   |       |                                          |       | 529                                   |       |
| Balance,  March 31, 2008                                                                         |       | 1,460,602               |       | $                 | 15         |                             | $          | 14,687                 |       | $                                             | 5,201      |                                  | $          | 206 |   | $ | 20,109 |   |

 

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

 

5

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**Frederick County Bancorp, Inc. and Subsidiaries**

**ConsolidatedStatements of Cash Flows (Unaudited)**

 
| ** **                                                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(dollars in thousands)**                                                                      | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                                                     |       |                                                 |       |   |   |
| Net income                                                                                                |       | $                                                    | 300        |   | $ | 323 |   |
| Adjustments to reconcile net income to net cash provided by  operating activities:                        |       |                                                 |       |   |   |
| Depreciation and amortization                                                                             |       | 83                                                   |       | 74 |   |
| Deferred income taxes (benefits)                                                                          |       | 35                                                   |       | (23 | ) |
| Provision for loan losses                                                                                 |       | 120                                                  |       | 66 |   |
| Net (discount accretion) premium amortization on investment  securities                                   |       | (6                                                   | )          | 3 |   |
| Gain on sale of foreclosed property                                                                       |       | (15                                                  | )          | — |   |
| Decrease in accrued interest and other assets                                                             |       | 345                                                  |       | — |   |
| Increase (decrease) in accrued interest and other liabilities                                             |       | 1,413                                                |       | (270 | ) |
| Net cash provided by operating activities                                                                 |       | 2,275                                                |       | 173 |   |
| Cash flows from investing activities:                                                                     |       |                                                 |       |   |   |
| Purchases of investment securities available-for-sale                                                     |       | —                                               |       | (2,124 | ) |
| Proceeds from maturities, prepayments and calls of investment  securities available-for-sale              |       | 2,959                                                |       | 966 |   |
| Purchases of restricted stock                                                                             |       | (39                                                  | )          | (7 | ) |
| Net increase in loans                                                                                     |       | (2,008                                               | )          | (9,790 | ) |
| Purchases of bank premises and equipment                                                                  |       | (18                                                  | )          | (15 | ) |
| Proceeds from sale of foreclosed property                                                                 |       | 465                                                  |       | — |   |
| Net cash provided by (used in) investing activities                                                       |       | 1,359                                                |       | (10,970 | ) |
| Cash flows from financing activities:                                                                     |       |                                                 |       |   |   |
| Net increase (decrease) in NOW, money market accounts, savings  accounts and noninterest-bearing deposits |       | 5,150                                                |       | (949 | ) |
| Net increase in time deposits                                                                             |       | 18                                                   |       | 6,752 |   |
| Repayment of short-term borrowings                                                                        |       | —                                               |       | (450 | ) |
| Proceeds from issuance of common stock                                                                    |       | —                                               |       | 35 |   |
| Net cash provided by financing activities                                                                 |       | 5,168                                                |       | 5,388 |   |
| Net increase (decrease) in cash and cash equivalents                                                      |       | 8,802                                                |       | (5,409 | ) |
| Cash and cash equivalents – beginning of period                                                      |       | 12,366                                               |       | 26,483 |   |
| Cash and cash equivalents – end of period                                                            |       | $                                                    | 21,168     |   | $ | 21,074 |   |
| Supplemental cash flow disclosures:                                                                       |       |                                                 |       |   |   |
| Interest paid                                                                                             |       | $                                                    | 1,898      |   | $ | 1,789 |   |
| Income taxes paid                                                                                         |       | $                                                    | 24         |   | $ | — |   |

 

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

 

6

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

#### ** **

Notes to UnauditedConsolidated Financial Statements

 

**Note1.  General:**

 

Frederick County Bancorp, Inc. (the “Bancorp”),the parent company for its wholly-owned subsidiary Frederick County Bank (the “Bank”and together with Bancorp, the “Company”), was organized in September 2003.The Bank was incorporated under the laws of the state of Maryland in August 2000and commenced banking operations in October 2001.  The Bank provides its customers with variousbanking services.  The Bank offersvarious loan and deposit products to their customers.  The Bank’s customers include individuals andcommercial enterprises within its principal market area consisting of FrederickCounty, Maryland.  Additionally, the Bankmaintains correspondent banking relationships and transacts daily federal fundssales on an unsecured basis with regional correspondent banks.  Note 4 discusses the types of securities theBank invests in.  Note 5 discusses thetypes of lending that the Bank engages in. The Bank does not have any significant concentrations to any oneindustry or customer.  The Company alsohas a subsidiary called FCBI Statutory Trust I. See Note 7 for additional disclosures.

 

The accompanying unaudited consolidated financialstatements of the Company have been prepared in accordance with accounting principles generally accepted inthe United States of America for interim financial information, theinstructions for Form 10-Q, regulation S-X, and general practices withinthe banking industry.  Accordingly, theydo not include all of the information and disclosures required by generallyaccepted accounting principles for complete financial statements.  These statements should be read inconjunction with the consolidated financial statements and accompanyingfootnotes included in the Company’s 2007 Annual Report on Form 10-K.  In the opinion of management, alladjustments, consisting of normal recurring adjustments, considered necessaryfor a fair presentation have been included. The results shown in this interim report are not necessarily indicativeof results to be expected for any other period or for the full year ending December 31,2008.

 

The preparation of financial statementsrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  These estimates and assumptions are based oninformation available as of the date of the consolidated financial statementsand could differ from actual results.

 

## **RecentAccounting Pronouncements**

## ** **

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)157, *Fair Value Measurements.*  SFAS 157 defines fair value, establishes aframework for measuring fair value in generally accepted accounting principles,and expands disclosures about fair value measurements.  SFAS 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007 andinterim periods within those years.  On January 1,2008, the Company adopted SFAS 157 and determined that it did not have anymaterial impact on its consolidated financial statements.

 

In February 2007, the FASB issued SFAS 159, *The**Fair Value Option forFinancial Assets and Liabilities*. This Statement permits entities tomeasure many financial instruments and certain other items at fair value.  The objective is to improve financialreporting by providing entities with the opportunity to mitigate volatility inreported earnings caused by measuring related assets and liabilitiesdifferently without having to apply complex hedge accounting provisions.  This pronouncement is effective as of thebeginning of an entity’s first fiscal year beginning after November 15,2007.  Effective January 1, 2008,the Company is able to elect the fair value option for certain assets andliabilities but has not yet elected to do so, and therefore SFAS 159 did nothave any material impact on its consolidated financial statements.

 

In December 2007, the FASB issued SFAS 141,Revised 2007 (SFAS 141R), *Business Combinations.*  SFAS 141R’s objective is to improve therelevance, representational faithfulness, and comparability of the informationthat a reporting entity provides in its financial reports about a businesscombination and its effects.  SFAS 141Rapplies prospectively to business combinations for which the acquisition dateis on or after December 31, 2008. The Company does not expect the implementation of SFAS 141R to have amaterial impact on its consolidated financial statements.

 

In December 2007, the FASB issued SFAS 160, *Noncontrolling Interests in Consolidated Financial Statements.*  SFAS 160’s objective is to improve therelevance, comparability, and transparency of the financial information that areporting entity provides in its consolidated financial statements byestablishing accounting and reporting standards for the noncontrolling interestin a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160 shall be effective for fiscal yearsand interim periods within those fiscal years, beginning on or after December 15,2008.  The Company does not expect theimplementation of SFAS 160 to have a material impact on its consolidatedfinancial statements.

 

7

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**Note2. 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 were exercised.  As of March 31, 2008 and 2007, no commonstock equivalents were excluded from the diluted EPS calculation.

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(dollars in thousands, except per share amounts)** | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Net income                                                                         |       | $                                                | 300        |   | $ | 323 |   |
| Basic earnings  per share                                                          |       | $                                                | 0.21       |   | $ | 0.22 |   |
| Diluted earnings  per share                                                        |       | $                                                | 0.20       |   | $ | 0.21 |   |
| Basic weighted  average number of shares outstanding                               |       | 1,460,602                                        |       | 1,458,669 |   |
| Effect of  dilutive securities – stock options                                |       | 48,446                                           |       | 65,080 |   |
| Diluted weighted  average number of shares outstanding                             |       | 1,509,048                                        |       | 1,523,749 |   |

 

**Note3.  Employee Stock Option Plan:**

 

The Company maintains an Employee Stock Option Plan that provides forgrants of incentive and non-incentive stock options.  This plan has been presented to and approvedby the Company’s shareholders.  TheCompany follows the guidance of the Statements of Financial AccountingStandards No. 123 *Accounting forStock-Based Compensation* and No. 123(R) *Share-Based Payment. * As of December 31,2006, all outstanding stock options were fully vested.  No stock options were granted in 2007 or 2008and, accordingly, net income and earnings per share have not been affected bystock-based compensation.   Any stock-basedemployee compensation for future grants will be determined at that time usingthe Black-Scholes or another appropriate option-pricing model.

 

**Note 4. Investment Portfolio:**

 

The following tables set forth certaininformation regarding the Company’s investment portfolio at March 31, 2008and December 31, 2007:

 

## **Available-for-saleportfolio**

** **

*March 31, 2008*

* *
| **(dollars in thousands)**                                | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** | **Average  Yield** | ** ** |
|---------------------------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|----------------------------|------------|--------------------|------------|
| U.S. Treasury  and other U.S. government agencies and corporations: | ** ** | ** **          | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                 | ** ** | ** **         | ** ** |
| Due within one  year                                                |       | $                   | 499        |                         | $          | 7                             |       | $                          | —     |               | $          | 506 |   | 4.74 | % |
| Due after one  year through five years                              |       | 2,482               |       | 68                           |       | 5                             |       | 2,545                      |       | 4.81               | %          |
| Due after five  years through ten years                             |       | 701                 |       | —                       |       | 18                            |       | 683                        |       | 4.99               | %          |
| State and  political subdivisions:                                  |       |                |       |                         |       |                          |       |                       |       |               |       |
| Due after one  year through five years                              |       | 101                 |       | 1                            |       | —                        |       | 102                        |       | 4.51               | %          |
| Due after five  years through ten years                             |       | 2,825               |       | 44                           |       | —                        |       | 2,869                      |       | 5.53               | %          |
| Due after ten  years                                                |       | 6,894               |       | 113                          |       | 14                            |       | 6,993                      |       | 5.91               | %          |
| Mortgage-backed  debt securities                                    |       | 10,793              |       | 151                          |       | 6                             |       | 10,938                     |       | 4.91               | %          |
| Equity securities                                                   |       | 300                 |       | —                       |       | —                        |       | 300                        |       | —             | %          |
|                                                                |       | $                   | 24,595     |                         | $          | 384                           |       | $                          | 43         |               | $          | 24,936 |   | 5.19 | % |

 

8

----

 

*December 31, 2007*

 
| **(dollars in thousands)**                                | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** | **Average  Yield** | ** ** |
|---------------------------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|----------------------------|------------|--------------------|------------|
| U.S. Treasury  and other U.S. government agencies and corporations: | ** ** | ** **          | ** ** | ** **                   | ** ** | ** **                    | ** ** | ** **                 | ** ** | ** **         | ** ** |
| Due within one  year                                                |       | $                   | 1,495      |                         | $          | —                        |       | $                          | 1          |               | $          | 1,494 |   | 5.09 | % |
| Due after one  year through five years                              |       | 3,549               |       | 13                           |       | 13                            |       | 3,549                      |       | 4.96               | %          |
| Due after five  years through ten years                             |       | 718                 |       | —                       |       | 15                            |       | 703                        |       | 4.99               | %          |
| State and  political subdivisions:                                  |       |                |       |                         |       |                          |       |                       |       |               |       |
| Due within one  year through five years                             |       | 200                 |       | —                       |       | 6                             |       | 194                        |       | 4.64               | %          |
| Due after five  years through ten years                             |       | 3,186               |       | 24                           |       | 13                            |       | 3,197                      |       | 5.57               | %          |
| Due after ten  years                                                |       | 6,435               |       | 32                           |       | 61                            |       | 6,406                      |       | 5.94               | %          |
| Mortgage-backed  debt securities                                    |       | 11,666              |       | 70                           |       | 67                            |       | 11,669                     |       | 4.77               | %          |
| Equity  securities                                                  |       | 300                 |       | —                       |       | —                        |       | 300                        |       | —             | %          |
|                                                                |       | $                   | 27,549     |                         | $          | 139                           |       | $                          | 176        |               | $          | 27,512 |   | 5.13 | % |

 

*March 31, 2008*

 
| ** **                                                         | ** ** | **Continuous unrealized  losses existing for less than  12 months** | ** ** | **Continuous unrealized  losses existing for 12  months and greater** | ** ** | **Total**                  | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(dollars in thousands)**                               | ** ** | **Estimated  Fair****Value**                                                                      | ** ** | **Unrealized  Losses**                                                                              | ** ** | **Estimated  Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| U.S. Treasury  and other U.S. government agencies and corporations |       | $                                                                                                 | 1,023      |                                                                                                | $          | 5                          |       | $ | 682 |   | $ | 18 |   | $ | 1,705 |   | $ | 23 |   |
| State and  political subdivisions                                  |       | 379                                                                                               |       | 1                                                                                                   |       | 779                        |       | 5 |   | 1,158 |   | 6 |   |
| Mortgage-backed  debt securities                                   |       | 1,651                                                                                             |       | 14                                                                                                  |       | —                     |       | — |   | 1,651 |   | 14 |   |
| Total temporarily  impaired securities                             |       | $                                                                                                 | 3,053      |                                                                                                | $          | 20                         |       | $ | 1,461 |   | $ | 23 |   | $ | 4,514 |   | $ | 43 |   |

 

*December 31, 2007*

 
| ** **                                                         | ** ** | **Continuous unrealized  losses existing for less than  12 months** | ** ** | **Continuous unrealized  losses existing for 12  months and greater** | ** ** | **Total**                  | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| **(dollars in thousands)**                               | ** ** | **Estimated  Fair****Value**                                                                      | ** ** | **Unrealized  Losses**                                                                              | ** ** | **Estimated  Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
| U.S. Treasury  and other U.S. government agencies and corporations |       | $                                                                                                 | 2,547      |                                                                                                | $          | 7                          |       | $ | 1,439 |   | $ | 22 |   | $ | 3,986 |   | $ | 29 |   |
| State and  political subdivisions                                  |       | 4,748                                                                                             |       | 71                                                                                                  |       | 290                        |       | 9 |   | 5,038 |   | 80 |   |
| Mortgage-backed  debt securities                                   |       | 813                                                                                               |       | 2                                                                                                   |       | 5,382                      |       | 65 |   | 6,195 |   | 67 |   |
| Total  temporarily impaired securities                             |       | $                                                                                                 | 8,108      |                                                                                                | $          | 80                         |       | $ | 7,111 |   | $ | 96 |   | $ | 15,219 |   | $ | 176 |   |

 

Management evaluates securities for other-than-temporary impairment atleast on a quarterly basis, and more frequently when economic or marketconcerns warrant such evaluation. Consideration is given to (1) the length of time and the extent towhich the fair value has been less than cost, (2) the financial conditionand near-term prospects of the issuer, and (3) the intent and ability ofthe Company to retain its investment in the issuer for a period of timesufficient to allow for 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.  Allof these declines can be attributable to increases in interest rates and not achange in credit quality.  As Management hasthe ability and intent to hold debt securities until maturity, or until theunrealized loss is recouped, no declines are deemed to be other than temporary.

 

The estimated fair values of investment securities available-for-salehave been determined using Level 2 inputs as defined in SFAS No. 157.

## ** **

9

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**Restricted Stock**

 

The following table shows the amounts ofrestricted stock as of March 31, 2008 and December 31, 2007:

 
| ** **                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(dollars in thousands)** | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Federal Home  Loan Bank of Atlanta   |       | $                  | 910        |                  | $          | 871 |   |
| Federal Reserve  Bank                |       | 529                |       | 529                   |       |
| Atlantic Central  Bankers Bank       |       | 40                 |       | 40                    |       |
|                                 |       | $                  | 1,479      |                  | $          | 1,440 |   |

 

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

 

Loans consist of the following:

 
| ** **                                                                  | ** ** | **March 31,** | ** ** | **% of** | ** ** | **December 31,** | ** ** | **% of** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|---------------|------------|-----------------------|------------|---------------|------------|
| **(dollars in thousands)**                                        | ** ** | **2008**           | ** ** | **Loans**     | ** ** | **2007**              | ** ** | **Loans**     | ** ** |
| Real estate  loans:                                                         |       |               |       |          |       |                  |       |          |       |
| Construction and  land development                                          |       | $                  | 24,176     |          | 11         | %                     | $          | 28,077        |       | 13 | % |
| Mortgage loans:                                                             |       |               |       |          |       |                  |       |          |       |
| Secured by 1 to  4 family residential properties                            |       | 38,270             |       | 18            | %          | 38,414                |       | 18            | %          |
| Secured by  multi-family (5 or more) residential properties                 |       | 9,492              |       | 5             | %          | 5,926                 |       | 3             | %          |
| Secured by  commercial properties                                           |       | 106,140            |       | 50            | %          | 101,920               |       | 49            | %          |
| Secured by farm  land                                                       |       | 6,745              |       | 3             | %          | 5,570                 |       | 3             | %          |
| Total mortgage  loans                                                       |       | 160,647            |       | 76            | %          | 151,830               |       | 73            | %          |
| Loans to farmers                                                            |       | 49                 |       | —        | %          | 50                    |       | —        | %          |
| Commercial and  industrial loans                                            |       | 23,383             |       | 12            | %          | 27,281                |       | 13            | %          |
| Loans to  individuals for household, family and other personal expenditures |       | 2,024              |       | 1             | %          | 1,773                 |       | 1             | %          |
|                                                                        |       | $                  | 210,279    |          | 100        | %                     | $          | 209,011       |       | 100 | % |
| Less allowance  for loan losses                                             |       | (2,470             | )          |          |       | (2,640                | )          |          |       |
| Net loans                                                                   |       | $                  | 207,809    |          |       |                  | $          | 206,371       |       |   |   |

 

Transactions in the allowance for loan losses are summarized asfollows:

 
| ** **                                             | ** ** | **Three Months Ended****March 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------------------------|------------|
| **(dollars in thousands)**                   | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| Average total  loans outstanding during period         |       | $                                                  | 210,436    |   | $ | 177,404 |   |
| Balance at  beginning of period                        |       | $                                                  | 2,640      |   | $ | 2,166 |   |
| Recoveries of  loans previously charged-off (consumer) |       | 9                                                  |       | — |   |
| Loans  charged-off (commercial and industrial)         |       | (223                                               | )          | — |   |
| Loans  charged-off (commercial real estate)            |       | (76                                                | )          | — |   |
| Loans  charged-off (consumer)                          |       | —                                             |       | (6 | ) |
| Net charge-offs                                        |       | (290                                               | )          | (6 | ) |
| Provision  charged to operating expenses               |       | 120                                                |       | 66 |   |
| Balance at end  of period                              |       | $                                                  | 2,470      |   | $ | 2,226 |   |
| Ratios of net  charge-offs to average loans            |       | 0.14                                               | %          | — | % |

 

10

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**Note6.   Deposits**

 

The following table provides a summary of the Company’s deposit base atthe dates indicated.

 
| ** **                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(dollars in thousands)** | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Noninterest-bearing  demand deposits |       | $                  | 33,240     |                  | $          | 33,357 |   |
| Interest-bearing  demand deposits:   |       |               |       |                  |       |
| NOW accounts                         |       | 14,727             |       | 12,197                |       |
| Money market  accounts               |       | 40,428             |       | 38,179                |       |
| Savings accounts                     |       | 4,216              |       | 3,727                 |       |
| Certificates of  deposit:            |       |               |       |                  |       |
| $ 100,000 or  more              |       | 59,405             |       | 60,556                |       |
| Less than  $100,000                  |       | 72,380             |       | 71,212                |       |
| Total deposits                       |       | $                  | 224,396    |                  | $          | 219,228 |   |

 

**Note 7. Trust preferred securities/juniorsubordinated debentures and other long-term borrowings:**

 

In December 2006, Bancorp completed theprivate placement of an aggregate of $6,000,000 of trust preferred securitiesthrough FCBI Statutory Trust I (the “Trust”), a newly formed trust subsidiaryorganized under Connecticut law, of which Bancorp owns all of the commonsecurities of $186,000. The principal asset of the Trust is a similar amount ofBancorp’s junior subordinated debentures. The junior subordinated debenturesbear interest at a fixed rate of 6.5375% until December 15, 2011, at whichtime the interest rate becomes a variable rate, adjusted quarterly, equal to163 basis points over three-month LIBOR. The junior subordinated debenturesmature on December 15, 2036, and may be redeemed at par, at Bancorp’soption, on any interest payment date commencing December 15, 2011. Thesecurities are redeemable prior to December 15, 2011, at a premium rangingup to 103.525% of the principal amount thereof, upon the occurrence of certainregulatory or legal events. The obligations of Bancorp with respect to theTrust’s preferred securities constitute a full and unconditional guarantee byBancorp of Trust’s obligations with respect to the trust preferred securitiesto the extent set forth in the related guarantee. Subject to certain exceptionsand limitations, Bancorp may elect from time to time to defer interest paymentson the junior subordinated debentures, resulting in a deferral of distributionpayments on the related trust preferred securities.   If the Company defers interestpayments on the junior subordinated debentures, or otherwise is in default of theobligations, the Company would be prohibited from making dividend payments toits shareholders.  The proceeds from thisissuance were used to repay a $450,000 short-term debt obligation that maturedin January 2007 and the remaining proceeds will be used to supplement theCompany’s capital for continued growth and other general corporate purposes.

 

The trust preferred securities may be included in Tier 1 capital forregulatory capital adequacy purposes up to 25% of Tier 1 capital, net ofgoodwill after its inclusion. The portion of the trust preferred securities notqualifying as Tier 1 capital may be included as part of total qualifyingcapital in Tier 2 capital, subject to limitation.

 

At March 31, 2008 and December 31,2007, the Company had $10,000,000 in borrowings under its credit facility fromthe Federal Home Loan Bank of Atlanta (“FHLB”). There are two convertible advances in the amounts of $5,000,000 each,which are both at a rate of 4.56%, with a maturity dates of April 27, 2012and September 4, 2012, unless called on April 27, 2009 or September 4,2010, respectively, by the FHLB. Outstanding advances are secured by collateral consisting of a blanketlien on qualifying loans in the Bank’s residential mortgage loan portfolio.

 

11

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**Note8.  Noninterest Expense:**

 

Noninterest expense consists of the following:

* *
| ** **                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------|------------|
| **(dollars in thousands)**    | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                    |       |                                             |       |   |   |
| Salaries                                |       | $                                                | 812        |   | $ | 761 |   |
| Bonus                                   |       | —                                           |       | 13 |   |
| Deferred  Personnel Costs               |       | (26                                              | )          | (37 | ) |
| Payroll Taxes                           |       | 68                                               |       | 78 |   |
| Employee  Insurance                     |       | 57                                               |       | 47 |   |
| Other Employee Benefits                 |       | 48                                               |       | 43 |   |
| Depreciation                            |       | 82                                               |       | 74 |   |
| Rent                                    |       | 79                                               |       | 50 |   |
| Utilities                               |       | 26                                               |       | 27 |   |
| Repairs and  Maintenance                |       | 58                                               |       | 55 |   |
| ATM Expense                             |       | 23                                               |       | 23 |   |
| Other Occupancy  and Equipment Expenses |       | 31                                               |       | 31 |   |
| Postage and  Supplies                   |       | 17                                               |       | 22 |   |
| Data Processing                         |       | 88                                               |       | 94 |   |
| Advertising and  Promotion              |       | 81                                               |       | 56 |   |
| Legal                                   |       | 12                                               |       | 9 |   |
| Insurance                               |       | 12                                               |       | 11 |   |
| Consulting                              |       | 1                                                |       | 11 |   |
| Courier                                 |       | 5                                                |       | 12 |   |
| Audit Fees                              |       | 61                                               |       | 59 |   |
| Other                                   |       | 111                                              |       | 65 |   |
|                                    |       | $                                                | 1,646      |   | $ | 1,504 |   |

 

**Note9.  401(k) Profit Sharing Plan:**

 

The Company has a Section 401(k) profit sharing plan coveringemployees meeting certain eligibility requirements as to minimum age and yearsof service.  Employees may make voluntarycontributions to the Plan through payroll deductions on a pre-tax basis.  The Company makes matching contributions of100% of the employee’s contributions up to 4% of the employee’s salary.  A participant’s account under the Plan,together with investment earnings thereon, is normally distributable, followingretirement, death, disability or other termination of employment, in a singlelump-sum payment.

 

The Company made contributions to the Plan in the amount of $35,000 forthe each of the first three-month periods in 2008 and 2007.

 

**Note10.  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 consolidated financial statements.  Under capital adequacy guidelines and theregulatory framework for prompt corrective action, the Company, once it exceeds$500 million in assets, and the Bank must meet specific capital guidelines thatinvolve quantitative measures of the Company’s and the Bank’s assets,liabilities, and certain off-balance-sheet items as calculated under regulatoryaccounting practices.  The Company’s andthe Bank’s capital amounts and classification are also subject to qualitativejudgments by the regulators about components, risk weightings, and otherfactors.

 

Quantitative measures established by regulation toensure capital adequacy require the Company and the Bank to maintain minimumamounts and ratios (set forth in the following table) of total and Tier 1capital (as defined in the regulations) to risk-weighted assets (as defined),and Tier 1 capital (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 31,2008.

 

12

----

 

As of March 31, 2008, the most recentnotification from the regulatory agency categorized the Bank as wellcapitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized theBank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1leverage ratios as set forth in the table. There are no conditions or events since that notification whichmanagement believes have changed the Bank’s category.

 

The Company’s and the Bank’s actual capitalamounts and ratios at March 31, 2008 and December 31, 2007 arepresented in the following tables.

 

*March 31,2008*

 
| ** **                           | ** ** | **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                              |       | $          | 25,903     |                                         | 11.18      | %                                                                                                             | $          | 9,271 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                                 |       | $          | 24,209     |                                         | 10.47      | %                                                                                                             | $          | 9,251 |   | 4.00 | % | $ | 13,877 |   | 6.00 | % |
|                                 |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Total Capital                        |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| To Risk-Weighted Assets              |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Company                              |       | $          | 28,373     |                                         | 12.24      | %                                                                                                             | $          | 18,542 |   | 8.00 | % | N/A |   | N/A |   |
| Bank                                 |       | $          | 26,679     |                                         | 11.54      | %                                                                                                             | $          | 18,503 |   | 8.00 | % | $ | 23,128 |   | 10.00 | % |
|                                 |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Tier 1 Capital                       |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| To Average Assets                    |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Company                              |       | $          | 25,903     |                                         | 10.04      | %                                                                                                             | $          | 10,318 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                                 |       | $          | 24,209     |                                         | 9.40       | %                                                                                                             | $          | 10,299 |   | 4.00 | % | $ | 12,874 |   | 5.00 | % |

 

*December 31, 2007*

 
| ** **                           | ** ** | **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                              |       | $          | 25,603     |                                         | 11.14      | %                                                                                                             | $          | 9,193 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                                 |       | $          | 23,834     |                                         | 10.39      | %                                                                                                             | $          | 9,173 |   | 4.00 | % | $ | 13,760 |   | 6.00 | % |
|                                 |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Total Capital                        |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| To Risk-Weighted Assets              |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Company                              |       | $          | 28,243     |                                         | 12.29      | %                                                                                                             | $          | 18,385 |   | 8.00 | % | N/A |   | N/A |   |
| Bank                                 |       | $          | 26,474     |                                         | 11.54      | %                                                                                                             | $          | 18,347 |   | 8.00 | % | $ | 22,933 |   | 10.00 | % |
|                                 |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Tier 1 Capital                       |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| To Average Assets                    |       |       |       |                                         |       |                                                                                                          |       |   |   |   |   |   |   |
| Company                              |       | $          | 25,603     |                                         | 9.88       | %                                                                                                             | $          | 10,368 |   | 4.00 | % | N/A |   | N/A |   |
| Bank                                 |       | $          | 23,834     |                                         | 9.21       | %                                                                                                             | $          | 10,348 |   | 4.00 | % | $ | 12,935 |   | 5.00 | % |

 

On June 26, 2007, the Company authorized the repurchase of up to146,000 shares of its common stock, for an aggregate expenditure of not morethan $4.5 million, through June 30, 2012, or earlier termination of theprogram by the Board of Directors. Repurchases, if any, by the Company pursuant to this authorization areexpected to enable the Company to repurchase its shares at an attractive price,and to provide a source of liquidity for the Company’s shares.  As of March 31, 2008, there have been noshares repurchased by the Company.

 

13

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**Item 2.    Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

**Forward-LookingStatements**

 

This management’s discussion and analysis contains forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995, including statements relating to Frederick County Bancorp, Inc.’s(“Bancorp”) and Frederick County Bank’s (the “Bank” and together with Bancorp,the “Company”) beliefs, expectations, anticipations and plans regarding, amongother things, general economic trends, interest rates, product expansions andother matters.  Such forward-lookingstatements are identified by terminology such as “may”, “will”, “believe”, “expect”,“estimate”, “anticipate”, “likely”, “unlikely”, “continue”, or similar termsand are subject to numerous uncertainties, such as federal monetary policy,inflation, employment, profitability and consumer confidence levels, bothnationally and in the Company’s market area, the health of the real estate andconstruction market in the Company’s market area, the Company’s ability todevelop and market new products and to enter new markets, competitivechallenges in the Company’s market, legislative changes and other factors, andas such, there can be no assurance that future events will develop inaccordance with the forward-looking statements contained herein.  Readers are cautioned against placing unduereliance on any such forward-looking statement. In addition, the Company’s past results of operations do not necessarilyindicate its future results.

 

**General**

 

Thefollowing paragraphs provide an overview of the financial condition and resultsof operations of the Company.  Thisdiscussion is intended to assist the readers in their analysis of theaccompanying financial statements and notes thereto.

 

Bancorp, the parent company for the Bank,its wholly-owned subsidiary, was organized in September 2003. The Bank wasincorporated under the laws of the state of Maryland in August 2000 andcommenced banking operations in October 2001.  The Bank provides its customers with variousbanking services.  The Bank offersvarious loan and deposit products to their customers.  The Bank’s customers include individuals andcommercial enterprises within its principal market area consisting of FrederickCounty, Maryland.  Additionally, the Bankmaintains correspondent banking relationships and transacts daily federal fundssales on an unsecured basis with regional correspondent banks.  Note 4 discusses the types of securities inwhich the Bank invests.  Note 5 discussesthe types of lending in which the Bank engages. The Bank does not have any significant concentrations to any oneindustry or customer.  The Company alsohas a subsidiary called FCBI Statutory Trust I. See Note 7 for additional disclosures.

 

## **Critical Accounting Policies**

 

The Company’sconsolidated financial statements are prepared in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”) andfollow general practices within the industry in which it operates.  Application of these principles requiresmanagement to make estimates, assumptions, and judgments that affect theamounts reported in the financial statements and accompanying notes.  These estimates, assumptions, and judgmentsare based on information available as of the date of the financial statements;accordingly, as this information changes, the financial statements couldreflect 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 loan losses require that management make assumptions aboutmatters that are uncertain at the time of estimation.  Differences in these assumptions anddifferences between the estimated and actual losses could have a materialeffect.  For discussions related to thecritical accounting policies of the Company, refer to the sections in thisManagement’s Discussion and Analysis entitled “Income Taxes” and “Allowance forLoan Losses.”

 

## **Loans**

 

Loans increased by $1.27million, or 0.61%, from December 31, 2007, to a balance of $210.28 millionas of March 31, 2008, and by $26.54 million, or 14.45% from March 31,2007.  During the fourth quarter of 2007,the Company has taken on a more conservative lending approach which has slowedthe rate of loan growth due to the current uncertainty in the economy.

 

14

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## **Deposits**

 

Deposits grew by $5.17 million, or 2.36%, from December 31, 2007to a balance of $224.40 million as of March 31, 2008, and by $9.22million, or 4.28% from March 31, 2007. During the fourth quarter of 2007, the Company decided to slow itsdeposit growth in response to the slower loan growth as discussed above.  Since the deposit growth during the past yearhas mainly been in certificates of deposit, it was decided to lower these ratesto slow the rate of growth in, or to reduce the aggregate amount of thesedeposits by allowing some of the higher rate certificates of deposit to maturewithout being renewed.

 

**Three Months Ended March 31,2008**

 

Net income was $300,000 for the quarter ended March 31, 2008, ascompared to $323,000 of net income for the same period in 2007.  The decrease in earnings for this quarter in2008 is primarily related to an increase in the provision for loan losses inthe amount of $54,000, which brought the total for 2008 to $120,000 as comparedto $66,000 during the same period in 2007. Basic earnings per share for thethree months ended March 31, 2008 and 2007 were $0.21 and $0.22,respectively, and were based on weighted-average number of shares outstandingof 1,460,602 and 1,458,669, respectively. Diluted earnings per share for the three months ended March 31,2008 and 2007 were $0.20 and $0.21, respectively, and were based onweighted-average number of shares outstanding of 1,509,048 and 1,523,749,respectively.

 

TheCompany experienced an annualized return on average assets of 0.47% and 0.56%for the three-month periods ended March 31, 2008 and 2007,respectively.  Additionally, the Companyexperienced an annualized return on average shareholders’ equity of 5.99% and7.12% for the three-month periods ended March 31, 2008 and 2007,respectively.

 

15

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

 

The following tables show average balances of asset and liabilitycategories, interest income and interest expense, and average yields and ratesfor the periods indicated.

** **

*ThreeMonths Ended March 31,*

** **
| ** **                                       | ** ** | **2008**                    | ** ** | **2007**                       | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|--------------------------------|------------|
| **(dollars in thousands)**             | ** ** | **Average  daily  balance** | ** ** | **Interest  Income/  Expense** | ** ** | **Average  Yield/  rate** | ** ** | **Average  daily  balance** | ** ** | **Interest  Income/  Expense** | ** ** | **Average  Yield/  rate** | ** ** |
| Assets                                           |       |                        |       |                           |       |   |   |   |   |   |   |   |   |
| Interest-earning assets:                         |       |                        |       |                           |       |   |   |   |   |   |   |   |   |
| Federal funds sold                               |       | $                           | 9,625      |                           | $          | 77 |   | 3.21 | % | $ | 8,029 |   | $ | 107 |   | 5.40 | % |
| Interest bearing deposits in other banks         |       | 1,385                       |       | 10                             |       | 2.90 |   | 4,404 |   | 59 |   | 5.43 |   |
| Investment securities (1):                       |       |                        |       |                           |       |   |   |   |   |   |   |   |   |
| Taxable                                          |       | 17,530                      |       | 220                            |       | 5.03 |   | 21,722 |   | 253 |   | 4.72 |   |
| Tax-exempt (2)                                   |       | 9,820                       |       | 150                            |       | 6.13 |   | 9,823 |   | 150 |   | 6.19 |   |
| Loans (3)                                        |       | 210,436                     |       | 3,624                          |       | 6.91 |   | 177,404 |   | 3,217 |   | 7.35 |   |
| Total interest-earning assets                    |       | 248,796                     |       | 4,081                          |       | 6.58 |   | 221,382 |   | 3,786 |   | 6.94 |   |
| Noninterest-earning assets                       |       | 9,263                       |       |                           |       |   |   | 8,432 |   |   |   |   |   |
| Total assets                                     |       | $                           | 258,059    |                           |       |   |   |   | $ | 229,814 |   |   |   |   |   |
|                                             |       |                        |       |                           |       |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity        |       |                        |       |                           |       |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |       |                        |       |                           |       |   |   |   |   |   |   |   |   |
| NOW accounts                                     |       | $                           | 12,234     |                           | 6          |   | 0.20 | % | $ | 12,452 |   | 6 |   | 0.20 | % |
| Savings accounts                                 |       | 4,178                       |       | 5                              |       | 0.48 |   | 2,648 |   | 3 |   | 0.46 |   |
| Money market accounts                            |       | 38,768                      |       | 235                            |       | 2.43 |   | 31,177 |   | 211 |   | 2.74 |   |
| Certificates of deposit $100,000 or more         |       | 59,731                      |       | 700                            |       | 4.70 |   | 62,655 |   | 726 |   | 4.70 |   |
| Certificates of deposit less than $100,000       |       | 72,198                      |       | 828                            |       | 4.60 |   | 64,347 |   | 728 |   | 4.59 |   |
| Short-term borrowings                            |       | —                      |       | —                         |       | — |   | 125 |   | 2 |   | 6.49 |   |
| Long-term borrowings                             |       | 10,000                      |       | 115                            |       | 4.61 |   | — |   | — |   | — |   |
| Junior subordinated debentures                   |       | 6,186                       |       | 101                            |       | 6.55 |   | 6,186 |   | 101 |   | 6.62 |   |
| Total interest-bearing liabilities               |       | 203,295                     |       | 1,990                          |       | 3.93 |   | 179,590 |   | 1,777 |   | 4.01 |   |
| Noninterest-bearing deposits                     |       | 33,797                      |       |                           |       |   |   | 31,379 |   |   |   |   |   |
| Noninterest-bearing liabilities                  |       | 932                         |       |                           |       |   |   | 699 |   |   |   |   |   |
| Total liabilities                                |       | 238,024                     |       |                           |       |   |   | 211,668 |   |   |   |   |   |
| Total shareholders’ equity                  |       | 20,035                      |       |                           |       |   |   | 18,146 |   |   |   |   |   |
| Total liabilities and shareholders’  equity |       | $                           | 258,059    |                           |       |   |   |   | $ | 229,814 |   |   |   |   |   |
| Net interest income                              |       |                        |       | $                              | 2,091      |   |   |   |   |   | $ | 2,009 |   |   |   |
| Net interest spread                              |       |                        |       |                           |       | 2.65 | % |   |   |   |   | 2.93 | % |
| Net interest margin                              |       |                        |       |                           |       | 3.37 | % |   |   |   |   | 3.68 | % |

 

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(1)          Yields on securitiesavailable-for-sale have been calculated on the basis of historical cost and donot give effect to changes in the fair value of those securities, which isreflected as a component of shareholders’ equity.

(2)          Presented on ataxable-equivalent basis using the statutory federal income tax rate of34%.  Taxable-equivalent adjustments of$51,000 in 2008 and 2007 are included in the calculation of the tax-exemptinvestment interest income.

(3)          Presented on ataxable-equivalent basis using the statutory federal income tax rate of34%.  Taxable-equivalent adjustments of$14,000 in 2008 and $10,000 in 2007 are included in the calculation of the loaninterest income.  Net loan originationincome in interest income totaled $4,000 in 2008 and $10,000 in 2007.

 

16

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**Rate/VolumeAnalysis**

 

The followingtables indicate the changes in interest income and interest expense that areattributable to changes in average volume and average rates, in comparison withthe same period in the preceding year on a fully taxable equivalent basis.  The change in interest due to the combinedrate-volume variance has been allocated entirely to the change in rate.

 
| ** **                                  | ** ** | **Three Months Ended March 31,  2008 compared to 2007** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **Increase (decrease)  Due to**                                                  | ** ** | **Net  Increase** | ** ** |
| **(dollars in thousands)**        | ** ** | **Volume**                                                                                 | ** ** | **Rate(1)** | ** ** | **(Decrease)** | ** ** |
| Interest income                             |       |                                                                                       |       |   |   |   |   |
| Interest-earning  assets:                   |       |                                                                                       |       |   |   |   |   |
| Federal funds  sold                         |       | $                                                                                          | 22         |   | $ | (52 | ) | $ | (30 | ) |
| Interest-bearing  deposits in other banks   |       | (41                                                                                        | )          | (8 | ) | (49 | ) |
| Investment  securities:                     |       |                                                                                       |       |   |   |   |   |
| Taxable                                     |       | (50                                                                                        | )          | 17 |   | (33 | ) |
| Tax-exempt                                  |       | —                                                                                     |       | — |   | — |   |
| Loans                                       |       | 607                                                                                        |       | (200 | ) | 407 |   |
| Total interest  income                      |       | 538                                                                                        |       | (243 | ) | 295 |   |
|                                        |       |                                                                                       |       |   |   |   |   |
| Interest expense                            |       |                                                                                       |       |   |   |   |   |
| Interest-bearing  liabilities:              |       |                                                                                       |       |   |   |   |   |
| NOW accounts                                |       | —                                                                                     |       | — |   | — |   |
| Savings accounts                            |       | 2                                                                                          |       | — |   | 2 |   |
| Money market  accounts                      |       | 52                                                                                         |       | (28 | ) | 24 |   |
| Certificates of  deposit $100,000 or more   |       | (34                                                                                        | )          | 8 |   | (26 | ) |
| Certificates of  deposit less than $100,000 |       | 90                                                                                         |       | 10 |   | 100 |   |
| Short-term  borrowings                      |       | (2                                                                                         | )          | — |   | (2 | ) |
| Long-term  borrowings                       |       | 115                                                                                        |       | — |   | 115 |   |
| Junior  subordinated debentures             |       | —                                                                                     |       | — |   | — |   |
| Total interest  expense                     |       | 223                                                                                        |       | (10 | ) | 213 |   |
| Net interest  income                        |       | $                                                                                          | 315        |   | $ | (233 | ) | $ | 82 |   |

 

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(1) Thevolume/rate variance is allocated entirely to change in rates.

 

**Net Interest Income**

 

Net interest income is generated from theCompany’s lending and investment activities, and is the most significant componentof the Company’s earnings.  Net interestincome is the difference between interest and rate-related fee income onearning assets (primarily loans and investment securities) and the interestpaid on the funds (primarily deposits) supporting them.  The Company primarily utilizes deposits tofund loans and investments, with a small amount of additional funding fromjunior subordinated debentures and minimal short-term and long-term borrowings,in future periods it may utilize a higher level of short-term and long-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 pricing, interestrates and other factors.

 

Netinterest income (on a taxable-equivalent basis) was $2.09 million in 2008 and$2.01 million in 2007.  The increase ininterest income was primarily driven by the volume of loans in the loanportfolio.  Average earning assetsincreased by $27.41 million, or 12.38%, since March 31, 2007.  The yield on earning assets in 2008 decreasedto 6.58% from 6.94% in 2007, primarily as a result of the Federal Reserve’sdecrease in the federal funds rate of 300 bps since September 2007.  The decrease of 8 basis points in the ratepaid on interest-bearing liabilities primarily is the result of the higheraverage balances in the money market accounts, along with less reliance onjumbo certificates of deposit.  TheCompany’s net interest margin was 3.37% and 3.68%, and the net interest spreadwas 2.65% and 2.93%, for the three-month periods ended March 31, 2008 and2007, respectively.  This decreaserelates primarily to the reduced yields earned on the loan portfolio andfederal funds sold.

 

17

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Interestexpense increased 11.99% from $1.78 million in 2007 to $1.99 million in 2008due to the 13.20% increase in volume of average interest-bearing liabilities,which was partially offset by a decrease in the related rates paid on suchinterest-bearing liabilities, which decreased to 3.93% in 2008 from 4.01% in2007.

 

**NoninterestIncome**

 

## **Noninterest income was $152,000 and $86,000 for thethree-month periods ended March 31, 2008 and 2007, respectively.  Included in the 2008 noninterest income is a$15,000 gain from the sale of a foreclosed property.  The most significant increase relates tosweep management fees, ATM interchange fees, NSF fees and mortgage fee income,which increased $10,000, $8,000, $7,000 and $7,000, respectively.**

 

## **Noninterest Expense**

 

See Note 8 to the unaudited consolidatedfinancial statements for a schedule showing a detailed breakdown of the Company’snoninterest expense.

 

Noninterestexpense amounted to $1.65 million and $1.50 million for the three-month periodsin 2008 and 2007, respectively.  Thechanges in noninterest expense are principally related to an increase inpersonnel costs, rent and advertising. Salaries expense in 2008 was $812,000, up $51,000 from the salariesexpense incurred in the same period in 2007. This increase of 6.70% is for the additional costs of adding four (4) newemployees along with moderate employee pay increases.  The major reason for the increase in rentexpense is due to the new Antietam Office which relocated to a larger facilityafter the fire destroyed the previous location in February 2007.

 

**IncomeTaxes**

 

During the three months ended March 31, 2008, the Company incurred$112,000 of income tax expense compared to $141,000 during the same period in2007.  The effective tax rates for thesethree-month periods in 2008 and 2007 were 27.18% and 30.39%.  The decline in income tax expense is due tothe lower pre-tax income in 2008 along with an income tax benefit of $19,000the Company recognized on $2.36 million of deferred tax assets as a result ofthe change in the Maryland income tax rate from 7.0% to 8.25% which becameeffective January 1, 2008.

 

 **Market Risk,Liquidity and Interest Rate Sensitivity**

 

Asset/liabilitymanagement involves the funding and investment strategies necessary to maintainan appropriate balance between interest sensitive assets and liabilities.  It also involves providing adequate liquiditywhile sustaining stable growth in net interest income.  Regular review and analysis of deposit andloan trends, cash flows in various categories of loans, and monitoring ofinterest spread relationships are vital to this process.

 

The conduct of ourbanking business requires that we maintain adequate liquidity to meet changesin the composition and volume of assets and liabilities due to seasonal,cyclical or other reasons.  Liquiditydescribes the ability of the Company to meet financial obligations that ariseduring the normal course of business. Liquidity is primarily needed to meet the borrowing and depositwithdrawal requirements of the customers of the Company, as well as for meetingcurrent and future planned expenditures. This liquidity is typically provided by the funds received throughcustomer deposits, investment maturities, loan repayments, borrowings, andincome.  Management considers the currentliquidity position to be adequate to meet the needs of the Company and itscustomers.

 

The Company seeksto limit the risks associated with interest rate fluctuations by managing thebalance between interest sensitive assets and liabilities.  Managing to mitigate interest rate risk is,however, not an exact science.  Not onlydoes the interval until repricing of interest rates on assets and liabilitieschange from day to day as the assets and liabilities change, but for someassets and liabilities, contractual maturity and the actual maturityexperienced are not the same.  Similarly,NOW and money market accounts, by contract, may be withdrawn in their entiretyupon demand and savings deposits may be withdrawn on seven days notice.  While these contracts are extremely short, itis the Company’s belief that these accounts turn over at the rate of fivepercent (5%) per year. The Company therefore treats them as having maturitiesstaggered over all periods.  If all ofthe Company’s NOW, money market, and savings accounts were treated as repricingin one year or less, the cumulative gap at one year or less would be $(50.54)million.

 

Interest ratesensitivity is an important factor in the management of the composition andmaturity configurations of the Company’s earning assets and fundingsources.  An Asset/Liability Committeemanages the interest rate sensitivity position in order to maintain anappropriate 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 

 

18

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margins duringperiods of both volatile and stable interest rates, to attain earnings growth,and to maintain sufficient liquidity to satisfy depositors’ requirements andmeet credit needs of customers.

 

The table below, “InterestRate Sensitivity Gap Analysis,” summarizes, as of March 31, 2008, theanticipated maturities or repricing of the Company’s interest-earning assetsand interest-bearing liabilities, the Company’s interest rate sensitivity gap(interest-earning assets less interest-bearing liabilities), the Company’scumulative interest rate sensitivity gap, and the Company’s cumulative interestsensitivity gap ratio (cumulative interest rate sensitivity gap divided bytotal assets).  A negative gap for anytime period means that more interest-bearing liabilities will reprice or matureduring that time period than interest-earning assets.  During periods of rising interest rates, anegative gap position would generally decrease earnings, and during periods ofdeclining interest rates, a negative gap position would generally increaseearnings.  The converse would be true fora positive gap position.  Therefore, apositive gap for any time period means that more interest-earning assets willreprice or mature during that time period than interest-bearingliabilities.  During periods of risinginterest rates, a positive gap position would generally increase earnings, andduring periods of declining interest rates, a positive gap position wouldgenerally decrease earnings.

 

It is important tonote that the following table represents the static gap position for interestsensitive assets and liabilities at March 31, 2008.  The table does not give effect to prepaymentsor extensions of loans as a result of changes in general market interestrates.  Moreover, while the table doesindicate the opportunities to reprice assets and liabilities within certaintime frames, it does not account for timing differences that occur duringperiods of repricing.  For example, changesto deposit rates tend to lag in a rising rate environment and lead in a fallingrate environment, although this will not always be the case.  Nor does it account for the effects ofcompetition on pricing of deposits and loans. For example, under current market conditions, market rates paid ondeposits may not be able to adjust by the full amount of downward adjustmentsin the federal funds target rate, while rates on loans will tend to adjust bythe full amount, subject to certain limitations.

 

**InterestRate Sensitivity Gap Analysis**

**March 31,2008**

 
| ** **                                            | ** ** | **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                                   |       | $                                                           | 11,518     |   | $ | — |   | $ | — |   | $ | — |   | $ | 11,518 |   |
| Interest-bearing  deposits in other banks             |       | 5,368                                                       |       | — |   | — |   | — |   | 5,368 |   |
| Investment  securities(1)                             |       | 2,275                                                       |       | 3,693 |   | 3,371 |   | 15,297 |   | 24,636 |   |
| Loans                                                 |       | 77,612                                                      |       | 48,733 |   | 60,771 |   | 23,163 |   | 210,279 |   |
| Total  interest-earning assets                        |       | 96,773                                                      |       | 52,426 |   | 64,142 |   | 38,460 |   | 251,801 |   |
|                                                  | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Liabilities                                           |       |                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Savings and NOW  accounts                             |       | 948                                                         |       | 1,894 |   | 1,894 |   | 14,207 |   | 18,943 |   |
| Money Market  accounts                                |       | 2,021                                                       |       | 4,043 |   | 4,043 |   | 30,322 |   | 40,429 |   |
| Certificates of  deposit                              |       | 87,938                                                      |       | 43,236 |   | 610 |   | — |   | 131,784 |   |
| Long-term  borrowings                                 |       | —                                                      |       | 10,000 |   | — |   | — |   | 10,000 |   |
| Junior  subordinated debentures                       |       | —                                                      |       | — |   | 6,186 |   | — |   | 6,186 |   |
| Total  interest-bearing liabilities                   |       | 90,907                                                      |       | 59,173 |   | 12,733 |   | 44,529 |   | 207,342 |   |
| Interest rate  sensitivity gap                        |       | $                                                           | 5,866      |   | $ | (6,747 | ) | $ | 51,409 |   | $ | (6,069 | ) | $ | 44,459 |   |
| Cumulative  interest rate sensitivity gap             |       | $                                                           | 5,866      |   | $ | (881 | ) | $ | 50,528 |   | $ | 44,459 |   |   |   |
| Cumulative gap  ratio as a percentage of total assets |       | 2.23                                                        | %          | (0.33 | )% | 19.20 | % | 16.89 | % |   |   |

 

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(1) Excludes equity securities.

 

In addition to theInterest Rate Sensitivity Gap Analysis, the Company also uses an earningssimulation model on a quarterly basis to closely monitor interest sensitivityand to expose its balance sheet and income statement to different scenarios.  The model is based on current Company dataand adjusted by assumptions as to growth patterns, noninterest income andnoninterest expense and interest rate sensitivity, based on historical data,for both assets and liabilities projected for a one-year period.  The model is then subjected to a “shock test”assuming a sudden interest rate increase of 200 basis points or a decrease of200 basis points, but not below zero. The results show that with a 200 basis point rise in interest rates theCompany’s net interest income would decline by 0.67%.  With a decrease in interest rates of 200basis points the Company’s net interest income would increase by 1.30%.

 

19

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Certainshortcomings are inherent in this method of analysis.  For example, although certain assets andliabilities may have similar maturities or repricing periods, they may react indifferent degrees to changes in market interest rates.  Also, the interest rates on certain types ofassets and liabilities may fluctuate in advance of changes in market interestrates, while interest rates on other types may lag behind changes in marketrates.  Additionally, certain assets,such as adjustable-rate mortgage loans, have features that restrict changes ininterest rates on a short-term basis and over the life of the loan.  Further, in the event of a change in interestrates, prepayment and early withdrawal levels could deviate significantly fromthose assumed.  Finally, the ability ofmany borrowers to service their debt may decrease in the event of a significantinterest rate increase.

 

**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 Company’s provision for loanlosses for the three months ended March 31, 2008 and 2007 was $120,000 and$66,000, respectively.  The loan growthwas $1.27 million since December 31, 2007 and $26.54 million since March 31,2007.  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.  At March 31, 2008and December 31, 2007, the allowance for loan losses was $2.47 million and$2.64 million, respectively.  The declinein the allowance from December 31, 2007, reflects net charge-offs of$290,000, as compared to net charge-offs of $6,000 in the same period of2007.  The increase in charge-offs is aresult of one unsecured relationship in the amount of $223,000 and thewrite-down on the foreclosed property in the amount of $76,000 when it wastransfer to other real estate owned.

 

TheCompany prepares a quarterly analysis of the allowance for loan losses, with theobjective of quantifying portfolio risk into a dollar amount of inherentlosses.  The determination of theallowance for loan losses is based on eight qualitative factors and onequantitative factor for each category and type of loan along with any specificallowance for adversely classified loans within each category.  Each factor is assigned a percentage weightand that total weight is applied to each loan category.  Factors are different for each category.  Qualitative factors include: levels and trendsin delinquencies and nonaccrual loans; trends in volumes and terms of loans;effects of any changes in lending policies, the experience, ability and depthof management; national and local economic trends and conditions;concentrations of credit; quality of the Company’s loan review system; andregulatory requirements.  The totalallowance required thus changes as the percentage weight assigned to eachfactor increased or decreased due to the particular circumstances, as thevarious types and categories of loans change as a percentage of total loans andas specific allowances are required due to increases in adversely classifiedloans.

 

Theallowance for loan losses is established as losses are estimated to haveoccurred through a provision for loan losses charged to earnings.  The allowance is based on two basicprinciples of accounting: (i) SFAS No. 5, *Accounting for Contingencies*, which requires that losses beaccrued when they are probable of occurring and estimable and (ii) SFAS No. 114,*Accounting by Creditors for Impairment of aLoan*, which requires that losses be accrued based on the differencesbetween the loan balance and either the value of collateral, or the presentvalue of future cash flows, or the loan’s value as observable in the secondarymarket.  A loan is considered impairedwhen, based on current information and events, it is probable that the Bankwill be unable to collect the scheduled payments of principal or interest whendue according to the contractual terms of the loan agreement.  Factors considered by Management indetermining impairment include payment status, collateral value, and theprobability of collecting scheduled principal and interest payments whendue.  Loans that experience insignificantpayment delays and payment shortfalls generally are not classified asimpaired.  Management determines thesignificance of payment delays and payment shortfalls on a case-by-case basis,taking into consideration all of the circumstances surrounding the loan andborrower, including the length of the delay, the reason for the delay, theborrower’s prior payment record, and the amount of the shortfall in relation tothe principal and interest owed.  Theprovision for loan losses included in the statements of operations serves tomaintain 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 establish an allowance forloans identified for impairment testing. When impairment is identified, a specific reserve may be establishedbased on the Company’s calculation of the estimated loss embedded in theindividual loan.  Impairment testingincludes consideration of the borrower’s overall financial condition, resourcesand payment record, support available from financial guarantors and the fairmarket value of collateral. These factors are combined to estimate theprobability and severity of inherent losses. Large groups of smaller balance, homogeneous loans are collectivelyevaluated for impairment. Accordingly, the Company does not separately identifyindividual consumer and residential mortgage loans for impairment.   At March 31, 2008 there were $1.86million of loans deemed to be impaired, which had specific reserves of$275,000.  This included $1.63 million innonaccrual loans and a $232,000 performing loan that is considered to beimpaired.  These loans 

 

20

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amountto $1.58 million in commercial real estate for three relationships and $307,000in commercial and industrial loans for two relationships.

 

Theformula allowance component is used for estimating the loss on internally riskrated loans and those loans identified for impairment testing.  The loans meeting the Company’s internalcriteria for classification, such as special mention, substandard, doubtful andloss are segregated from performing loans within the portfolio. Theseinternally classified loans are then grouped by loan type (commercial,commercial real estate, commercial construction, residential real estate,residential construction or installment). Each loan type is assigned an allowance factor based on Management’sestimate of the associated risk, complexity and size of the individual loanswithin the particular loan category. Classified loans are assigned a higherallowance factor than non-classified loans due to Management’s concernsregarding collectability or Management’s knowledge of particular elementssurrounding the borrower. Allowance factors increase with the worsening of theinternal 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. In addition, various regulatory agencies periodically review theallowance for loan losses.  Theseagencies may require the Bank to make additions to the allowance for loanlosses based on their judgments of collectibility based on informationavailable to them at the time of their examination.

 

Managementbelieves that the allowance for loan losses is adequate.  There can be no assurance, however, thatadditional provisions for loan losses will not be required in the future,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, 2008, the real estate loan portfolio constituted 87% of thetotal loan portfolio.  While this exceedsthe 10% threshold for determining a concentration of credit risk within anindustry, we do not consider this to be a concentration with adverse riskcharacteristics given the diversity of borrowers within the real estateportfolio and other sources of repayment. An industry for this purpose is defined as a group of counterpartiesthat are engaged in similar activities and have similar economiccharacteristics that would cause their ability to meet contractual obligationsto be similarly affected by changes in economic or other conditions.  Additionally, the loan portfolio does notinclude concentrations of credit risk in loan products that permit the deferralof principal payments that are smaller than normal interest accruals (negativeamortization); loans with high loan-to-value ratios; or loans, such as optionadjustable-rate mortgages, that may expose the borrower to future increases inrepayments that are in excess of increases that would result solely fromincreases in market interest rates.  TheCompany has interest only home equity lines of credit with outstanding balancesof $6.71 million of at March 31, 2008.

** **
| ** **                                     | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|
| **(dollars in thousands)**           | ** ** | **March 31,  2008**         | ** ** | **March 31,****2007** | ** ** |
| Average total  loans outstanding during period |       | $                                | 210,436    |   | $ | 177,404 |   |
| Balance at  beginning of period                |       | $                                | 2,640      |   | $ | 2,166 |   |
| Recoveries of  loans previously charged-off    |       | 9                                |       | — |   |
| Loans  charged-off (commercial and industrial) |       | (223                             | )          | — |   |
| Loans  charged-off (commercial real estate)    |       | (76                              | )          | — |   |
| Loans  charged-off (consumer)                  |       | —                           |       | (6 | ) |
| Net charge-offs                                |       | (290                             | )          | (6 | ) |
| Provision  charged to operating expenses       |       | 120                              |       | 66 |   |
| Balance at end  of period                      |       | $                                | 2,470      |   | $ | 2,226 |   |
| Ratios of net  charge-offs to average loans    |       | 0.14                             | %          | — | % |

 

21

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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 to change,the allocation is not necessarily indicative of the category of recognized loanlosses, and does not restrict the use of the allowance to absorb losses in anycategory.

 

**Allocation of Allowance for Loan Losses**

 
| ** **                                                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                  | ** ** | **2008**           | ** ** | **% of  Loans**  | ** ** | **2007** | ** ** | **% of  Loans** | ** ** |
| Real estate-construction                                                    |       | $                  | 238        |                  | 11         | % | $ | 240 |   | 13 | % |
| Real  estate-mortgage                                                       |       | 1,711              |       | 76                    | %          | 1,774 |   | 73 | % |
| Commercial and  industrial loans                                            |       | 486                |       | 12                    | %          | 532 |   | 13 | % |
| Loans to  individuals for household, family and other personal expenditures |       | 35                 |       | 1                     | %          | 94 |   | 1 | % |
|                                                                        |       | $                  | 2,470      |                  | 100        | % | $ | 2,640 |   | 100 | % |

** **
| ** **                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Nonaccrual loans                           |       | $                  | 1,628      |                  | $          | 310 |   |
| Loans 90 days  past due and still accruing |       | —             |       | —                |       |
| Total  nonperforming loans                 |       | 1,628              |       | 310                   |       |
| Other real  estate owned                   |       | —             |       | —                |       |
| Total  nonperforming assets                |       | $                  | 1,628      |                  | $          | 310 |   |
| Nonperforming  assets to total assets      |       | 0.62               | %          | 0.12                  | %          |

 

There were noother interest-bearing assets at March 31, 2008 or December 31, 2007classified as past due 90 days or more and still accruing, restructured orproblem assets, and no loans which were currently performing in accordance withtheir terms, but as to which information known to Management caused it to haveserious doubts about the ability of the borrower to comply with the loan ascurrently 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 instrumentsinclude commitments to extend credit, including unused portions of lines ofcredit, and standby letters of credit. The Company has also entered into long-term lease obligations for someof its premises and equipment, the terms of which generally include options torenew.  The above instruments andobligations involve, to varying degrees, elements of off-balance sheet risk inexcess of the amount recognized in the consolidated statements of financialcondition.  With the exception of theseinstruments and the Company’s obligations relating to its trust preferredsecurities, the Company does not have any off balance sheet arrangements thathave or 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, 2008 were asfollows:

 
| ** **                                                                       | ** ** | **March 31,**      | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                       | ** ** | **2008**                | ** ** |
| **(dollars in thousands)**                                             | ** ** | **Contractual  Amount** | ** ** |
| Financial  instruments whose notional or contract amounts represent credit risk: |       |                    |       |   |
| Commitments to  extend credit                                                    |       | $                       | 32,166     |   |
| Standby letters  of credit                                                       |       | 3,178                   |       |
| Total                                                                            |       | $                       | 35,344     |   |

 

See Note 9 to the Notes to the ConsolidatedFinancial Statements included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007 for additional information regardingthe Company’s long-term lease obligations.

 

22

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**CapitalResources**

 

The ability of the Company to grow isdependent on the availability of capital with which to meet regulatory capitalrequirements, discussed below.  To theextent the Company is successful it may need to acquire additional capitalthrough the sale of additional common stock, other qualifying equityinstruments or subordinated debt.  Therecan be no assurance that additional capital will be available to the Company ona timely basis or on attractive terms. On December 15, 2006, the Company completed the issuance of $6.00million of trust preferred securities, as discussed above, that can berecognized as capital for regulatory purposes. The Companyhas an unsecured revolving line of credit borrowing arrangement with anunaffiliated financial institution in the amount of $2.00 million with nooutstanding balance as of March 31, 2008 or December 31, 2007.  This facility matures on May 1, 2009,has a floating interest rate equal to the Wall Street Journal prime rate andrequires monthly interest payments only. The purpose of this facility is to provide capital to the Bank, asneeded.  The Bank expects to have thiscredit facility renewed.

 

The Bank is subject to various regulatory capitalrequirements administered by the federal banking agencies.  The Company will be subject to suchrequirements when its assets exceed $500 million, it has publicly issued debtor it engages in certain highly leveraged activities.  Failure to meet minimum capital requirementscan initiate certain mandatory - and possibly additional discretionary - actionsby regulators that, if undertaken, could have a direct material effect on theCompany’s consolidated financial statements.

 

Under capital adequacy guidelines and the regulatoryframework for prompt corrective action, the Bank must meet specific capitalguidelines that involve quantitative measures of the Bank’s assets,liabilities, and certain off-balance-sheet items as calculated under regulatoryaccounting practices.  The Bank’s capitalamounts and classification are also subject to qualitative judgments by theregulators about components, risk weightings, and other factors.

 

Quantitative measuresestablished by regulation to ensure capital adequacy require the Bank tomaintain minimum amounts and ratios of total and Tier 1 capital (as defined inthe regulations) to risk-weighted assets (as defined), and Tier 1 capital (asdefined) to average assets (as defined). Management believes that the Bank met all capital adequacy requirementsto which it is subject as of March 31, 2008 and that the Company wouldmeet such requirements if applicable. See Note 10 to the consolidated financial statements for a tabledepicting compliance with regulatory capital requirements.

 

As of March 31, 2008, 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 10.  There are noconditions or events since that notification which management believes havechanged the Bank’s category.

 

On June 26, 2007, the Company authorized the repurchase of up to146,000 shares of its common stock, for an aggregate expenditure of not morethan $4.5 million, through June 30, 2012, or earlier termination of theprogram by the Board of Directors. Repurchases, if any, by the Company pursuant to this authorization areexpected to enable the Company to repurchase its shares at an attractive price,and to provide a source of liquidity for the Company’s shares.  As of March 31, 2008, there have been noshares repurchased by the Company.

 

## **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.  Quantitative and Qualitative DisclosuresAbout Market Risk**

###### ** **

See “Market Risk, Liquidity and Interest Rate Sensitivity” at Page 18.

 

23

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###### **Item 4.**           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 wereeffective.  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, 2008that has materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.**

## ** **

## **PART II– Other Information**

## ** **

Item 1.             Legal Proceedings.  None

 

Item1A.  Risk Factors  There have been no material changes to the risk factors as of March 31,2008 from those disclosed in the Company’s 2007 Annual Report on Form 10-K.

 

Item 2   Unregistered Sales of Equity Securities and Use ofProceeds

 

(a)          *Sales ofUnregistered Securities. *None

 

(b)         *Use ofProceeds.**      *Not Applicable.

 

(c)          *Registrant**Purchasesof Securities*

 

The following table provides information on the Company’s purchases ofits common stock during the quarter ended March 31, 2008.

 
| **Period**              | ** ** | **Total Number of  Shares Purchased** | ** ** | **Average Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs(1)** | ** ** | **Maximum Number of  Shares that may yet be  Purchased Under the  Plans or Programs** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1-31, 2008 |       |                                                 | 0          |                                             | N/A        |                                                                                                                                | 0          |                                                                                                                                    | 0          |   |
| February 29, 2008  |       |                                                 | 0          |                                             | N/A        |                                                                                                                                | 0          |                                                                                                                                    | 0          |   |
| March 31, 2008     |       |                                                 | 0          |                                             | N/A        |                                                                                                                                | 0          |                                                                                                                                    | 146,000    | (2) |

 

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(1)          On June 26,2007, the Company’s Board of Directors approved a share repurchase program thatauthorizes the repurchase of up to 146,000 shares of the Company’s outstandingcommon stock, subject to a maximum expenditure of $4.5 million.  Repurchases under the program may be made onthe open market and in privately negotiated transactions from time to timeuntil June 30, 2012, or earlier termination of the program by the Board.

 

(2)          Subject to a maximumexpenditure of $4.5 million.  Number ofshares indicated is the remaining number of shares authorized for repurchase asof the end of the indicated period.

 

Item3.             Defaults upon SeniorSecurities.  None

 

Item 4.             Submission of Matters to a Vote of Security Holder.    None.

 

Item5.             Other Information

 

(a)          Information whichshould have been reported on Form 8-K. None

 

(b)         Material Changes toProcedures for Director Nomination by Shareholders.   None

 

24

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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)                                                                                                                                                                                                                            |
| 4(a)                 |       | Indenture, dated as of December 15, 2006 between  Frederick County Bancorp, Inc. and U.S. Bank National Association, as  trustee(3)                                                                                                       |
| 4(b)                 |       | Amended and Restated Declaration of Trust, dated as  December 15, 2006 between Frederick County Bancorp, Inc. and U.S.  Bank National Association, as trustee, and Martin S. Lapera and William R.  Talley, Jr. as Administrators(3) |
| 4(c)                 |       | Guarantee Agreement dated as of December 15,  2006 between Frederick County Bancorp, Inc. and U.S. Bank National  Association, as Guarantee Trustee(3)                                                                                    |
| 10(a)                |       | 2001 Stock Option Plan(4)                                                                                                                                                                                                                           |
| 10(b)                |       | Employment Agreement between the Bank and Martin S.  Lapera(5)                                                                                                                                                                                      |
| 10(c)                |       | Employment Agreement between the Bank and William R.  Talley, Jr. (6)                                                                                                                                                                          |
| 10 (d)               |       | Amendment to Employment Agreement between the Bank  and Martin S. Lapera (7)                                                                                                                                                                        |
| 10 (e)               |       | Amendment to Employment Agreement between the Bank  and William R. Talley, Jr. (8)                                                                                                                                                             |
| 10(f)                |       | 2002 Executive and Director Deferred Compensation  Plan, as amended(9)                                                                                                                                                                              |
| 10(g)                |       | Amendment No. 1 to the 2002 Executive and  Director Deferred Compensation Plan(9)                                                                                                                                                              |
| 10(h)                |       | Loan Agreement with Atlantic Central Bankers Bank  (10)                                                                                                                                                                                             |
| 10(i)                |       | Promissory Note with Atlantic Central Bankers Bank  (10)                                                                                                                                                                                            |
| 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)  |   | Incorporated by reference to exhibit of the same  number to the Company’s Quarterly Report on Form 10-QSB for the quarter  ended March 31, 2004, as filed with the Securities and Exchange  Commission.      |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Incorporated by reference to exhibit of the same  number to the Company’s Quarterly Report on Form 10-QSB for the quarter  ended September 30, 2003, as filed with the Securities and Exchange  Commission.  |
| (3)  |   | Not filed in accordance with the provision of Item  601(b)(4)(v) of Regulation SK. The Company agrees to provide a copy of  these documents to the Commission upon request.                                            |
| (4)  |   | Incorporated by reference to exhibit 4 to the  Company’s Registration Statement on Form S-8 (No. 333-111761).                                                                                                |
| (5)  |   | Incorporated by reference to Exhibit 10.1 to  the Company’s Current Report on Form 8-K filed on May 24, 2005.                                                                                           |
| (6)  |   | Incorporated by reference to Exhibit 10.2 to  the Company’s Current Report on Form 8-K filed on May 24, 2005.                                                                                           |
| (7)  |   | Incorporated by reference to Exhibit 99.1 to  the Company’s Current Report on Form 8-K filed on December 12,  2007.                                                                                     |
| (8)  |   | Incorporated by reference to Exhibit 99.2 to  the Company’s Current Report on Form 8-K filed on December 12,  2007.                                                                                     |
| (9)  |   | Incorporated by reference to Exhibit of the  same number to the Company’s Annual Report on Form 10-KSB for the year  ended December 31, 2004, as filed with the Securities and Exchange  Commission.    |
| (10) |   | Incorporated by reference to Exhibit of the  same number to the Company’s Quarterly Report on Form 10-QSB for the  quarter ended March 31, 2005, as filed with the Securities and Exchange  Commission. |

 

25

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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 8, 2008 | By:                            | /s/ Martin S. Lapera |
|   |             |                           | Martin S. Lapera |
|   |             |                           | President and Chief Executive Officer |
|   |             |                           |   |
|   |             |                           |   |
| Date:  | May 8, 2008 | By:                            | /s/ William R. Talley, Jr. |
|   |             |                           | William R. Talley, Jr. |
|   |             |                           | Executive Vice President and Chief Financial Officer |

 

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