<PAGE>

                                                                      EXHIBIT 13







                       COMMERCEFIRST BANCORP LOGO OMITTED


                   RAISING BANKING TO THE POWER OF BUSINESS(R)


                                  ANNUAL REPORT

                                      2004

                                1804 WEST STREET
                               ANNAPOLIS, MD 21401
                               WWW.COMMERCE1ST.COM



<PAGE>



                    [CommerceFirst Bancorp, Inc. Letterhead]

March 21, 2005

To our Fellow Shareholders:

         We are pleased to report continued progress in achieving key business
objectives in our strategic development plan. We are proud to present the
following report of accomplishments for 2004:

               o    Total assets increased to over $75.9 million by December 31,
                    2004, an increase of $24.6 million or almost 48% over
                    December 31, 2003. o Net loans outstandin g grew over 58%,
                    to $51.9 million, despite continued fierce rate competition
                    from larger lending institutions.

               o    Deposits grew by almost 62% to $65.7 million.

               o    The Bank's net interest margin remained over 4.5%, despite
                    constant pressure on margins caused by historically low
                    interest rates. CommerceFirst recorded its second
                    consecutive profitable year, as planned, with net earnings
                    in excess of $1 million. Net earnings were impacted by a
                    combination of increased profits and by recording a net
                    deferred tax benefit as required by SFAS No. 109 (Accounting
                    for Income Taxes).

               o    We opened our second office, at 4451 Parliament Place,
                    Lanham, Maryland on September 30, 2004.

         Our long term strategy included increasing our capital base in order to
support our continued development. We are very pleased to have successfully
completed a common stock offering during the first quarter of 2005. The fully
subscribed offering raised in excess of $9.5 million in new capital, net of
expenses and will be used to fund further growth and expansion of our
organization in the central Maryland business corridor. We thank our existing
shareholders for their continued support and warmly welcome our new
shareholders.

         As always we appreciate your support in terms of referrals and
patronage. We look forward to sharing our successes in achieving more
development milestones as we focus on implementing our 2005 Strategic Plan.

Very truly yours,


Milton D. Jernigan II                                Richard J. Morgan
Chairman of the Board                                President and CEO


<PAGE>


                      SELECTED CONSOLIDATED FINANCIAL DATA

         The following table shows selected historical consolidated financial
data for CommerceFirst Bancorp, Inc. You should read it in conjunction with the
historical consolidated financial information contained in the Consolidated
Financial Statements for the year ended December 31, 2004 included with this
Annual Report. Data for the years ended December 31, 2004, 2003, 2002, 2001 and
2000 is derived from the audited consolidated financial statements. The results
shown for the year ended December 31, 2000 reflect only approximately six months
of operations, as during the period from January 1, 2000 through June 28, 2000
CommerceFirst Bancorp was engaged in organizational activity only.

<TABLE>
<CAPTION>
(Dollars in thousands, except per share data.)                                YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------------------------------
                                                          2004         2003           2002           2001            2000
                                                        ---------    ---------     -----------     ----------     -----------
<S>                                                      <C>          <C>               <C>              <C>             <C>
INCOME STATEMENT DATA:
Net interest income                                      $ 3,000      $ 1,958           1,333            871             360
Provision for loan losses                                    590          270             430            180              90
Noninterest income                                           584          327             175             76              10
Noninterest expense                                        2,179        1,873           1,721          1,583           1,167
Federal and state income tax (expense) benefit               862            -               -              -               -
Net income (loss)                                          1,090          143           (643)          (817)           (888)

PER SHARE DATA AND SHARES OUTSTANDING:
Net income (loss) per share, basic and diluted             $1.33        $0.17         $(0.78)        $(0.99)         $(1.82)
Book value at period end                                   $8.24        $6.99           $6.84          $7.56           $8.55
Average weighted shares outstanding
   at period end: Basic and Diluted                      822,250      822,250         822,250        822,250         487,763
Shares outstanding at period end                         822,250      822,250         822,250        822,250         822,250

BALANCE SHEET DATA:
Total assets                                             $75,953      $51,295         $46,068        $27,149         $19,790
Loans receivable (net)                                    51,776       32,688          29,831         20,398           6,128
Allowance for loan losses                                  1,154          604             655            270              90
Other interest-earning assets                             19,180       15,865          14,022          5,191          12,380
Total deposits                                            65,729       40,613          34,926         18,097          12,637
Borrowings                                                 3,086        4,694           5,326          2,751              52
Stockholders' equity                                       6,774        5,751           5,626          6,212           7,029

SELECTED PERFORMANCE RATIOS:
Return on average earning assets                           2.05%        0.33%          -1.90%         -3.93%         -13.59%
Return on average equity                                  18.02%        2.48%         -10.78%        -12.66%         -23.79%
Net interest margin(1)                                     4.58%        4.52%           3.95%          4.19%           5.49%
Net interest spread(2)                                     4.11%        4.11%           3.30%          2.51%           1.02%
Efficiency ratio(3)                                       60.79%       81.97%         114.12%        167.16%         315.41%

ASSET QUALITY RATIOS:
Nonperforming loans to gross loans(4)                      2.00%        1.18%           0.25%            n/a             n/a
Allowance for loan losses to loans                         2.18%        1.81%           2.15%          1.30%           1.47%
Allowance for loan losses to nonperforming
loans                                                      1.09X        1.54x           8.73x            n/a             n/a
Nonperforming assets to loans and other real
estate(4)                                                  2.00%        1.18%           0.25%            n/a             n/a
Net loan charge-offs to average gross loans(4)             0.10%        0.97%           0.17%            n/a             n/a

CAPITAL RATIOS:
Total risk-based capital ratio                            13.52%       18.59%          18.93%         33.79%          58.68%
Tier I risk-based capital ratio                           12.26%       17.34%          17.67%         32.54%          57.94%
Leverage ratio                                            10.58%       12.70%          12.33%         24.24%          52.97%
Average equity to average assets                          10.97%       12.73%          16.79%         29.74%          53.24%
</TABLE>

(1) Net interest margin is net interest income divided by average earning
assets.
(2) Net interest spread is the difference between the average yield on interest
earning assets and the average cost of interest bearuing liabilities.
(3) Efficiency ratio is noninterest expense divided by the sum of net interest
income and noninterest income.
(4) CommerceFirst Bank did not have any nonperforming loans, other real estate
owned, or charged off loans during 2001 or 2000.


<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

         Forward Looking Statements. Certain information contained in this
discussion may include "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are generally identified by phrases such as "the Company expects," "the Company
believes" or words of similar import. Such forward-looking statements involve
known and unknown risks including, but not limited to, changes in general
economic and business conditions, interest rate fluctuations, competition within
and from outside the banking industry, new products and services in the banking
industry, risk inherent in making loans such as repayment risks and fluctuating
collateral values, problems with technology utilized by the Company, changing
trends in customer profiles and changes in laws and regulations applicable to
the Company. Although the Company believes that its expectations with respect to
the forward-looking statements are based upon reliable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results, performance or achievements of the Company will
not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Readers are cautioned
against placing undue reliance on any such forward-looking statements. The
Company does not undertake to update any forward-looking statements to reflect
occurrences or events that may not have been anticipated as of the date of such
statements.

         This discussion and analysis provides an overview of the financial
condition and results of operations of CommerceFirst Bancorp, Inc. (the
"Company") and CommerceFirst Bank (the "Bank") for the years 2004 and 2003. It
is intended that this discussion and analysis help the readers in their analysis
of the accompanying audited Consolidated Financial Statements. You should read
this discussion in conjunction with the Consolidated Financial Statements and
Notes thereto provided elsewhere in this report.

GENERAL

         CommerceFirst Bancorp, Inc. is the bank holding company for
CommerceFirst Bank, a Maryland chartered commercial bank headquartered in
Annapolis, Maryland. The Bank was capitalized, became a wholly owned subsidiary
of the Company and commenced operations on June 29, 2000.

OVERVIEW

         The Company's assets at December 31, 2004 were $75.9 million, an
increase of $24.6 million or 48.0%, from December 31, 2003, principally due to
increases in the loan portfolio, funded primarily by increases in the core
funding portfolio. Total assets stood at $46.1 million at December 31, 2002. At
December 31, 2004, gross loans totaled $53.0 million, exclusively commercial
term loans and lines of credit ($30.7 million) and real estate secured term
loans ($22.3 million). By comparison, at December 31, 2003, gross loans totaled
$33.3 million, exclusively commercial term loans and lines of credit ($20.9
million) and real estate secured term loans ($12.4 million). Gross loans were
$30.5 million at December 31, 2002, primarily commercial term loans and lines of
credit ($20.0 million) and real estate secured term loans ($10.5 million).

         At December 31, 2004, deposits totaled $65.7 million, principally money
market deposit accounts ($13.6 million), certificates of deposit ($28.8 million)
and demand deposits ($20.7 million). By comparison, deposits at December 31,
2003 totaled $40.6 million, primarily money market deposit accounts ($16.2
million), certificates of deposits ($13.2 million) and demand deposits ($9.4
million). Deposits were $34.9 million at December 31, 2002, mostly money market
deposit accounts ($15.2 million), certificates of deposit ($12.8 million) and
demand deposits ($5.6 million). A significant additional funding source is
provided by the securities sold under agreement to repurchase program. At
December 31, 2004, balances in this program totaled $3.1 million in comparison
to $4.7 million at December 31, 2003 and $5.3 million at December 31, 2002. At
December 31, 2004 and December 31, 2003, respectively, nonperforming assets of
approximately $1.1 million and $391 thousand were in nonaccrual status.
Nonperforming assets were $75 thousand at December 31, 2002.

RESULTS OF OPERATIONS

         The Company reported a net profit of $1.1 million for the year ended
December 31, 2004 as compared to a net profit of $143 thousand for the year
ended December 31, 2003 and a net loss of $643 thousand for the year ended
December 31, 2002. The substantial increase in the earnings for the year ended
December 31, 2004 is attributable to the recognition of the net deferred tax
benefit and to the results of operations of the Bank. At September 30, 2004, in
compliance with SFAS No. 109, Accounting for Income Taxes, the Bank eliminated
the valuation allowance for the deferred tax asset, thereby recognizing $945
thousand in income tax benefits in income. See Note 2 to the Consolidated
Financial Statements appearing elsewhere in this report for additional
information. This increase in income was partially offset by a provision for
credit losses of $350 thousand related to one borrower, as described below under
ASSET QUALITY. In future periods the Company will recognize income tax expense
based upon earnings in each period. Exclusive of the remaining tax benefit of
$862 thousand related to the capitalization of the deferred tax asset, the
Company had net income of $228 thousand for the year ended December 31, 2004.

                                       2
<PAGE>

         One a per share basis, the Company had earnings of $1.33 per basic and
diluted share for the year ended December 31, 2004, as compared to earnings per
basic and diluted share of $0.17 for the year ended December 31, 2003 and a loss
per basic and diluted share of $0.78 in 2002. During the years ended December
31, 2004, 2003 and 2002, the Company had return on equity, return on assets and
equity to asset ratios as follows:

<TABLE>
<CAPTION>
                                                  RETURN ON AVERAGE ASSETS AND AVERAGE EQUITY
                                                  -------------------------------------------
                                                                 Years ended
                                                  -------------------------------------------
    (Dollars is thousands)                                       December 31,
                                                  -------------------------------------------
                                                      2004           2003              2002
                                                  -------------------------------------------
<S>                                                  <C>             <C>               <C>
Return on Average Equtiy                             18.02%          2.48%            -10.78%
Return on Average Earning Assets                      2.05%          0.33%             -1.90%
Ratio of Average Equity
    to Average Assets                                10.96%         12.73%             16.79%
</TABLE>


         Total loans outstanding at December 31, 2004 reached $53.0 million, in
comparison to $33.3 million in total loans outstanding at December 31, 2003. The
Company ended the year 2004 with deposits and repurchase agreements of $68.8
million as compared to $45.3 million at December 31, 2003. The business
development/lending staff remains very active in contacting new prospects and
continues its efforts to increase the Bank's profile and recognition within the
community. Management believes that this will translate into continued growth of
a portfolio of quality loans and ongoing deposit relationships, although there
can be no assurance of this.

NET INTEREST INCOME AND NET INTEREST MARGIN

         Net interest income is the difference between income on assets and the
cost of funds supporting those assets. Earning assets are composed primarily of
loans and investments; the expense associated with interest bearing deposits and
customer repurchase agreements and other borrowings is the cost of funds.
Non-interest bearing deposits and capital are other components representing
funding sources. Changes in the volume and mix of assets and funding sources,
along with the changes in yields earned and rates paid, determine changes in net
interest income.

         Net interest income was $2.4 million in 2004 as compared to $2.0
million in 2003 and $1.3 million in 2002. Total interest income for the year
ended December 31, 2004 was $3.0 million as compared to $2.5 million for the
same period in 2003 and $2.1 million for the same period in 2002. Total interest
expenses for the years ended December 31, 2004, 2003 and 2002 were $588
thousand, $530 thousand and $737 thousand, respectively. The increase in
interest income is primarily the result of increased balances of earning assets.
The increase in net interest income is jointly the result of increased balances
of earning assets and decreased average rates paid for deposits and other
funding, which largely offset declines in rates on loans and other earning
assets.

         The following table provides information for the designated periods
with respect to average balances, income and expense and annualized yields and
costs associated with various categories of interest earning assets and interest
bearing liabilities for the past three years. Non-accrual loans have been
included in the preparation of the table. The table includes a measurement of
spread and margin. Interest spread is the mathematical difference between the
average interest yield on interest earning assets and average interest paid on
interest bearing liabilities. Interest margin is the net interest yield on
interest earning assets and is derived by dividing net interest income by
average interest earning assets. Management believes that the interest margin is
a better indicator of asset earning results when compared to peer groups or
industry standards, particularly in a mature financial institution.

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES
                                ---------------------------------------------------------------------------------------------

(Dollars in thousands)
                                            DECEMBER 31, 2004               December 31, 2003              December 31, 2002
                                ---------------------------------------------------------------------------------------------

                                  AVERAGE             YIELD/      Average             Yield/      Average             Yield/
                                  BALANCE  INTEREST     RATE      Balance  Interest     Rate      Balance  Interest     Rate
                                ---------- ---------  -------   ---------- ---------  -------   ---------- --------- --------
ASSETS
<S>        <C>                   <C>          <C>      <C>       <C>          <C>      <C>       <C>          <C>      <C>
Total loans(1)/                  $ 40,569     2,754    6.79%     $ 33,078     2,253    6.81%     $ 26,398     1,911    7.24%
Investment securities(2)/           6,931       180    2.59%        6,989       201    2.87%        4,060       100    2.47%
Federal funds sold                  5,541        66    1.19%        3,242        35    1.09%        3,300        58    1.75%
                                ---------- ---------  -------   ---------- ---------  -------   ---------- --------- --------
TOTAL INTEREST-
     EARNING ASSETS              $ 53,041     3,000    5.66%     $ 43,309     2,489    5.75%     $ 33,758     2,069    6.13%
                                ---------- ---------  -------   ---------- ---------  -------   ---------- --------- --------

Less allowance for credit losses     (822)                           (648)                           (346)
Cash and due from banks             2,184                           1,931                           1,657
Premises and equipment, net           120                             127                             244
Other assets                          633                             458                             236
                                ----------                      ----------                      ----------
TOTAL ASSETS                     $ 55,156                        $ 45,176                        $ 35,549
                                ==========                      ==========                      ==========

LIABILITIES AND
    STOCKHOLDERS' EQUITY
Interest-bearing demand deposits  $ 1,824         4    0.24%      $ 1,119         4    0.34%     $    764         6    0.81%
Money market deposit accounts      14,084       100    0.71%       14,114       136    0.96%       11,270       266    2.36%
Savings                               223         1    0.25%          307         2    0.52%          376         6    1.60%
Certificates of deposit            17,593       464    2.64%       12,171       356    2.93%       10,906       419    3.84%
Repurchase agreements               4,160        18    0.44%        4,644        31    0.67%        2,670        39    1.44%
Other borrowed funds                   38         1    2.08%           90         2    1.88%           42         1    1.43%
                                ---------- ---------  -------   ---------- ---------  -------   ---------- --------- --------
TOTAL INTEREST-BEARING
     LIABILITIES                 $ 37,922       588    1.55%     $ 32,445       530    1.64%     $ 26,028       737    2.83%
                                ---------- ---------  -------   ---------- ---------  -------   ---------- --------- --------

Non-interest-bearing
     demand deposits             $ 10,889                         $ 6,770                         $ 3,420
Other liabilities                     297                             211                             134
Stockholders' equity                6,049                           5,750                           5,968
                                ----------                      ----------                      ----------
TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY        $ 55,156                        $ 45,176                        $ 35,549
                                ==========                      ==========                      ==========

Net interest income                         $ 2,412                         $ 1,958                         $ 1,332
                                           =========                       =========                       =========

Net interest spread                                    4.11%                           4.11%                           3.30%
                                                      =======                         =======                        ========

Net interest margin                                    4.55%                           4.52%                           3.95%
                                                      =======                         =======                        ========
</TABLE>

(1)/ Interest income on loans includes net fees of $70 thousand in 2004, $63
thousand in 2003 and $24 thousand in 2002.
(2)/ Yields on securities available for sale have been calculated on the basis
of historical cost and do not give effect to changes in fair value of such
securities, which are reflected as a component of stockholders' equity.

         Net interest margin was 4.55% in 2004 as compared to 4.52% in 2003 and
3.95% in 2002. Interest spread was 4.11% in 2004, identical to the 4.11%
recorded in 2003, as compared to 3.30% in 2002. The increases in both spread and
margin from 2002 to 2003 reflect the redeployment of assets from relatively low
yielding short-term investment to higher yielding loans. The Bank expects that
increases in interest rates and loan growth in 2005 will have a positive impact
on net interest margin and net interest income, as the Bank has a positive gap
position out to 60 months. Accordingly, the Bank intends to maintain a
competitive posture in its deposit interest rate offerings to fund those loans.



                                       4
<PAGE>

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

         The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (i) changes in volume
(change in volume of the asset multiplied by the prior period's rate) and (ii)
changes in rates (change in rate multiplied by the current period's volume).

<TABLE>
<CAPTION>
                                   EFFECT OF RATE AND VOLUME CHANGES ON NET INTEREST INCOME
                           --------------------------------------------------------------------------
                                   YEAR ENDED DECEMBER 31,              Year ended December 31,
                           --------------------------------------------------------------------------
                                    2004 VS 2003                         2003 vs 2002
                                    -------------                        -------------
                           INCREASE        DUE TO CHANGE            Increase           Due to Change
                           ---------    -----------------        --------------     ------------------
                              OR            IN AVERAGE:               or               in Average:
                           ---------    -----------------        --------------     ------------------
                           (DECREASE)    RATE       VOLUME           (Decrease)       Rate       Volume
                           ---------    -----      --------        --------------    ------     --------
<S>                       <C>           <C>          <C>           <C>               <C>         <C>
(Dollars in thousands)
Interest earning assets
   Loans                     $ 502       $  (8)      $ 510         $ 342             $(142)      $ 484
   Investment portfolio      $ (21)        (19)         (2)        $ 101                28          72
   Federal funds sold        $  31           6          25         $ (22)              (21)         (1)
                             -----       -----       -----         -----             -----       -----
Total interest income        $ 512       $ (21)      $ 533         $ 420             $(135)      $ 555
                             =====       =====       =====         =====             =====       =====


Interest bearing
   demand deposits           $   0       $  (2)      $   2         $  (2)            $  (5)      $   3
Money market
   deposit accounts            (36)        (36)         (0)         (130)             (197)         67
Savings deposits                (1)         (1)         (0)           (4)               (3)         (1)
Certificates of deposit        108         (51)        159           (63)             (112)         49
Repurchase agreements          (13)        (10)         (3)           (8)              (36)         28
Other borrowed funds            (1)          0          (1)            1               -             1
                             -----       -----       -----         -----             -----       -----
Total interest expense       $  57       $ (99)      $ 156         $(206)            $(353)      $ 147
                             -----       -----       -----         -----             -----       -----
Net interest income          $ 454       $  77       $ 377         $ 626             $ 218       $ 408
                             -----       -----       -----         -----             -----       -----
</TABLE>


ALLOWANCE AND PROVISION FOR CREDIT LOSSES

         The provision for credit losses represents the expense recognized to
fund the allowance for credit losses. At December 31, 2004, the allowance for
credit losses stood at $1.15 million, or 2.2% of outstanding gross loans. Of
this amount, "specific" reserves were $580 thousand and "general" reserves were
$574 thousand. Specific reserves are used to individually allocate an allowance
for loans identified as impaired, or which otherwise exhibit adverse
characteristics that suggest a heightened risk of non-collection. General
reserves are those made with respect to other classified and unclassified loans
in our portfolio based upon the methodology discussed below in order to maintain
the allowance at a level which reflects our best estimate of the losses inherent
in the portfolio with respect to such loans. Whether specific or general,
amounts in the allowance for credit losses are available to absorb losses with
respect to any loan. At December 31, 2003, the allowance for credit losses stood
at $604 thousand, or 1.81% of outstanding gross loans. Of this amount, general
reserves were $299 thousand and specific reserves were $305 thousand. The
provision expense of $590 thousand for the year ended December 31, 2004
reflected an increase of $320 thousand from the year ended December 31, 2003,
primarily as a result of a specific provision for a single lending relationship
which became nonperforming in the third quarter of 2004 as a result of
unexpected reversals in the borrower's business.

                                       5
<PAGE>

         Management has devised and refined a comprehensive review methodology
to assess the adequacy of the allowance. This methodology permits several
different assessments to be made. Currently, principal consideration is accorded
the assessment based upon the risk rating assigned to individual credits.
Specific provisions reflect the amount of loss estimated to be embedded in the
loan, based upon current information about the borrower, other sources of
repayment and the realizable value of collateral. Other assessments may be made
by general categories of credits and by industry groups (at a number of levels)
based upon Standard Industrial Classification codes. The methodology has the
flexibility to permit additional evaluation criteria if so desired. Risk ratings
are assigned to all credits at inception, and are reviewed at least annually.
Consideration is given to many different factors: past credit record, capacity
to repay, character of borrower, value of collateral, industry standards and
overall economic conditions. Management considers, in addition to the above, the
growth and composition of the portfolio, the loss experience of other banks in
our peer group, the results of examinations and evaluations of the overall
portfolio by regulatory examiners and by external auditors, and the local, state
and national economic outlook. Based principally on the above factors and on
current economic conditions and perceived loan quality, the allowance is
believed to be adequate as of December 31, 2004.

         In addition to the above adequacy review, management also considers
some bulk measures of adequacy. Specifically, an analysis is made of the entire
portfolio, less the government guaranteed portion of SBA loans and those loans
secured by cash deposits within the Bank. An additional measure compares the
gross loan total without consideration of guarantees and/or collateral to the
allowance. Each quarter, management formally recommends to the Board of the Bank
the proposed amount to be allocated monthly to the allowance and accordingly
charged to the appropriate expense account.

         The activity in the allowance for credit losses is shown in the
following table. All charge-offs and recoveries relate to commercial loans.

<TABLE>
<CAPTION>
                                                   ALLOWANCE FOR CREDIT LOSSES
                                     ----------------------------------------------------

(Dollars in thousands)                 DECEMBER 31        December 31         December 31
                                          2004               2003                2002
                                     -------------       ------------        ------------
<S>                                      <C>                <C>                 <C>
Balance at beginning of year             $   604            $   655             $   270
Provision for credit losses                  590                270                 430
Loans charged off (commercial)               (73)              (333)                (47)
Recoveries (commercial)                       32                 12                   2
                                         -------            -------             -------
Net charge-offs/recoveries                   (40)              (321)                (45)
                                         -------            -------             -------
Balance at end of year                   $ 1,154            $   604             $   655
                                         =======            =======             =======

Ratio of net chargeoffs
  to average loans                          0.10%              0.97%               0.17%
</TABLE>


     During 2004, three unrelated commercial loans totaling $73 thousand were
determined to be uncollectible and were charged off. During 2003, CommerceFirst
Bank recorded charge-offs of $333 thousand, as follows:

         o     One loan, then in the amount of $747 thousand, was considered to
               be partially impaired but accruing at December 31, 2002, and
               CommerceFirst Bank provided a $250 thousand specific reserve in
               the allowance for credit losses for this loan as of December 31,
               2002. Evidence of non-compliance with the repayment terms of the
               loan during the first quarter of 2003 resulted in
               reclassification of this loan as nonaccrual and in repossession
               of collateral. During the second quarter of 2003, the amount
               previously reserved, $250 thousand, was charged off. A shortfall
               after liquidation of collateral of $40 thousand was charged off
               in the fourth quarter. Other repayments obtained from the
               borrower have reduced the outstanding balance to $85 thousand
               (excluding all prior charge-offs) at December 31, 2003, which was
               carried as a nonaccrual loan. This amount was paid in February
               2004, together with an additional $9 thousand, reflected as a
               recovery in the first quarter of 2004. To date, of the initial
               $747 thousand balance, we have charged-off $270 thousand, net of
               recoveries, with respect of this loan.

         o     Two unrelated commercial loans totaling $43 thousand were
               determined to be uncollectible during the fourth quarter of 2003
               and were charged-off.

         Charge-offs and recovery activity during 2002 related to three
commercial loans to a single borrower.

                                       6
<PAGE>

         Additionally, the Bank has established a reserve for unfunded
commitments that is recorded by a provision charged to other expenses. At
December 31, 2004, the balance of this reserve was $24 thousand, as compared to
$18 thousand and $12 thousand at December 31, 2003 and 2002, respectively. The
reserve is an amount that management believes will be adequate over time to
absorb possible losses on unfunded commitments (off-balance sheet financial
instruments) that may become uncollectible in the future.

                                  ASSET QUALITY

         In its lending activities, the Bank seeks to develop sound credits with
customers who will grow with the Bank. There has not been an effort to rapidly
build the portfolio and earnings at the expense of asset quality. At the same
time, the extension of credit inevitably carries some risk of non-payment.

         The following table shows an analysis of nonperforming assets at the
dates indicated:

<TABLE>
<CAPTION>
                                                       ANALYSIS OF NONPERFORMING ASSETS
                                             ----------------------------------------------

         (Dollars in thousands)              DECEMBER 31       December 31      December 31
                                                2004             2003             2002
                                             ------------      ----------       ----------
<S>                                              <C>              <C>              <C>
Nonaccrual loans
    Commercial                                   $1,057           $  391           $   75
Accrual loans - Past due 90 days or more            -                -                -
Restructed loans                                    -                -                -
Real estate owned                                   -                -                -
                                                 ------           ------           ------
    Total nonperforming assets                   $1,057           $  391           $   75
                                                 ======           ======           ======
</TABLE>

         At December 31, 2004, the Bank had three loans totaling $1.1 million in
non-accrual status, up from $391 thousand at December 31, 2003. Two of these
loans, totaling $908 thousand, to the same borrower, were recognized as impaired
on September 1, 2004 and placed on non-accrual status at that time; in addition,
there is an overdraft of $52 thousand on this borrower's checking account
occasioned by a draw against a Letter of Credit issued on behalf of the
borrower. Both loans are secured by real estate and by assignment of all
business assets, including accounts receivable. One of the loans, for $258
thousand, also carries a 75% Small Business Administration guarantee.
Liquidation of the real estate collateral is expected to generate approximately
$500 thousand, but the Bank is unable at this time to place a realistic
valuation on the business assets. The SBA guaranteed loan has a priority over
the other extensions of credit by the Bank in the real estate collateral, and is
expected to be repaid from the proceeds of the liquidation of the real estate
collateral, without drawing upon the guarantee. In September 2004, the Bank
recorded a charge of $350 thousand against earnings and established a specific
reserve of $369 thousand for these loans.

         The remaining loan, in the amount of $148 thousand, is guaranteed by
the Small Business Administration; the loan is in default and a claim has been
submitted to the Small Business Administration. The non-guaranteed portion of
this loan was charged off in December 2004.

         At December 31, 2004, there were no accrual loans past due thirty days
or more, no restructured loans and no real estate owned. Generally, the accrual
of interest is discontinued when a loan is specifically determined to be
impaired or when principal or interest is delinquent for ninety days or more.

         In addition, at December 31, 2004, there were two related commercial
loans totaling $283 thousand considered to be potential problem loans. One of
these loans in the amount of $123 thousand carries a 75% Small Business
Administration guarantee. Specific reserves of $138 thousand have been allocated
for these loans.

         Finally, at December 31, 2004, there were three commercial loans to two
unrelated borrowers totaling $510 thousand which are not considered potential
problem loans and are generally well secured by collateral, but exhibit
characteristics that warrant closer scrutiny and attention to these credits than
would otherwise be appropriate. Specific reserves of $72 thousand have been
allocated to these credits. For these purposes, a "potential problem loan" is
defined as a loan which is not included in the past due, non-accrual or
restructured categories, but for which known information about possible credit
problems causes management to have serious doubts as to the ability of the
borrower to comply with the present loan repayment terms.

                                       7
<PAGE>

         At December 31, 2003, the Bank had no loans delinquent beyond 30 days,
and three loans totaling $391 thousand in nonaccrual status for which the Bank
had provided specific reserves of $30 thousand in the allowance for credit
losses. At December 31, 2002, the Bank had three loans totaling $365 thousand
delinquent beyond 30 but less than 90 days and three loans totaling $75 thousand
in nonaccrual status. In 2001, the Bank had no loans delinquent beyond 30 days
and no loans in nonaccrual status. Generally, the accrual of interest is
discontinued when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more. As discussed above, an
allowance for credit losses has been provided. With respect to the non-accrual
loans at December 31, 2003:

         o     One loan in the amount of $192 thousand at December 31, 2003 was
               reduced to $117 thousand by a principal curtailment of $75
               thousand on January 27, 2004 and was restored to accrual status.

         o     One loan in the amount of $114 thousand at December 31, 2003
               carried an 85% Small Business Administration guarantee. The
               liquidation process generated approximately $48 thousand that was
               applied against the loan as an offset; the Bank received
               approximately $55 thousand from the SBA under its guarantee and
               has charged off the remainder, about $10 thousand.

         o     One loan in the amount of $85 thousand at December 31, 2003 has
               been paid.

         In addition, at December 31, 2003, there were 12 commercial loans to
six unrelated borrowers totaling $1.4 million, which are not considered
potential problem loans and are generally well secured by collateral and/or SBA
guarantees but which exhibit characteristics that warrant closer scrutiny and
attention than would otherwise be appropriate. Specific reserves of $276
thousand have been allocated to these credits. For these purposes, a "potential
problem loan" is defined as a loan which is not included in the past due,
nonaccrual or restructured categories, but for which known information about
possible credit problems causes management to have serious doubts as to the
ability of the borrower to comply with the present loan repayment terms.

         The following table shows the allocation of the allowance for credit
losses at the dates indicated. The allocation of portions of the allowance to
specific categories of loans is not intended to be indicative of future losses,
and does not restrict the use of the allowance to absorb losses in any category
of loans.

<TABLE>
<CAPTION>
                                                       LOAN LOSS RESERVE PROPORTIONAL ALLOCATION
                                    ---------------------------------------------------------------------------
    (Dollars in thousands)                           December 31,
                                    -------------------------------------------------   -------------------------
                                          2004                      2003                 2002
                                    ------------------------     --------------------   -------------------------
                                      BALANCE     PERCENTAGE     Balance    Percentage    Balance     Percentage
                                                OF TOTAL LOANS            of total loans            of total loans

<S>                                   <C>             <C>        <C>          <C>          <C>         <C>
Commercial                            $  580          57.93%     $  305          62.61%    $  386      65.45%
Real estate - commercial mortgage          -          42.07%          -          37.39%         -      34.55%
Unallocated                              574              -         299              -        269          -
                                      ------         ------      ------         ------     ------      ------
Balance, end of period                $1,154         100.00%     $  604         100.00%    $  655      100.00%
                                      ======         ======      ======         ======     ======      ======
</TABLE>

LOAN PORTFOLIO

         The loan portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At December 31,
2004, total loans were $53.0 million, a 59.2% increase from the $33.3 million in
loans outstanding at December 31, 2003. At December 31, 2002, total loans were
$30.5 million. In general, loans consist of internally generated loans and
participation loans purchased from other local community banks. Lending activity
is confined to our market area. We do not engage in foreign lending activities.

                                       8
<PAGE>

         The following table sets forth information on the composition of the
loan portfolio by type:

<TABLE>
<CAPTION>
                                                                   COMPOSITION OF LOAN PORTFOLIO
                                        --------------------------------------------------------------------------------
(Dollars in thousands)                      DECEMBER 31, 2004            December 31, 2003          December 31, 2002
                                        --------------------------------------------------------------------------------
                                                       PERCENTAGE                   Percentage                Percentage
                                         BALANCE      TOTAL LOANS      Balance      total loans   Balance    total loans
                                        --------      -----------      -------      -----------   -------    -----------
<S>                                    <C>                 <C>         <C>               <C>      <C>             <C>
Commercial                             $ 30,704            57.93%      $ 20,867          62.61%   $ 19,978        65.45%
Real estate - commercial mortgage        22,301            42.07%        12,462          37.39%     10,544        34.55%
Installment loans to individuals            -                -             -               -          -              -
                                       --------           ------       --------         ------    --------     ---------
Gross loans                            $ 53,005           100.00%      $ 33,329         100.00%   $ 30,522       100.00%
Less allowance for credit losses         (1,154)                           (604)                      (655)
Less unearned fees                          (75)                            (37)                       (36)
                                       --------                        --------                   --------
Loans, net                             $ 51,776                        $ 32,688                   $ 29,831
                                       ========                        ========                   ========
</TABLE>


         The following table shows the interest rate sensitivity of the loan
portfolio at December 31, 2004. Demand loans, loans without a stated maturity
and overdrafts are reported as due in one year or less. Floating rate loans are
reported to reflect the period until repricing. At December 31, 2004, the total
amount of loans due after one year with fixed rates of interest was
approximately $18 million.

<TABLE>
<CAPTION>
                                          INTEREST RATE SENSITIVITY OF LOAN PORTFOLIO
                         ------------------------------------------------------------------------
(Dollars in thousands)
                            One Year            After One Year        After Five
                            or Less           through Five Years       Years            Total
                         ---------------     --------------------  --------------     -----------
<S>                             <C>          <C>                   <C>                <C>
Fixed (commercial)            $ 5,188           $ 4,688              $   -             $ 9,876
Fixed (real estate)             2,404            12,112                1,108            15,624

Floating (commercial)         $20,828               -                    -              20,828
Floating (real estate)          6,677               -                    -               6,677
                              -------           -------              -------           -------
                              $35,097           $16,800              $ 1,108           $53,005
                              =======           =======              =======           =======
</TABLE>

INVESTMENT SECURITIES PORTFOLIO

         At December 31, 2004, the carrying value of our investment securities
portfolio was approximately $5.0 million as compared to carrying value of $7.1
million at December 31, 2003 and $5.1 million at December 31, 2002. The
approximately $2.1 million decline in the size of the portfolio since December
31, 2003 is attributable to allowing $2 million to mature with the proceeds used
to fund loan growth.

         The Company currently classifies its entire securities portfolio as
available for sale. Increases in the portfolio will occur whenever deposit
growth outpaces loan demand and the forecast for growth is such that the
investment of excess liquidity in investment securities (as opposed to short
term investments such as Federal Funds) is warranted. In general, our investment
policy is to acquire direct U.S. Treasury securities and fully guaranteed U.S.
government agency issues with a remaining maturity of four years or less. As the
Company develops its loan portfolio, it anticipates that it will maintain the
average maturity of the securities portfolio at two years or less. In addition,
the Bank will purchase Federal Reserve stock in accordance with regulation and
expects to maintain small equity positions in stock in two banker's banks to
facilitate loan participations.

         The following table provides information regarding the composition of
CommerceFirst Bancorp's investment securities portfolio at the dates indicated.
See Note 3 to the Consolidated Financial Statements for additional information
regarding the investment securities portfolio.

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                 COMPOSITION OF THE INVESTMENT PORTFOLIO
                                  ------------------------------------------------------------------
(Dollars in thousands)
                                      DECEMBER 31, 2004    December 31, 2003    December 31, 2002
                                  ----------------------  -------------------  ---------------------

Available for Sale                            PERCENT               Percent                Percent
 (at Estimated Market Value         BALANCE   OF TOTAL    Balance   of Total     Balance   of Total
                                   --------- ----------  --------- ----------   --------- ----------
<S>                                <C>         <C>          <C>       <C>        <C>         <C>
U.S. Treasuries                    $4,978      95.07%       $7,087    97.33%     $5,093      96.65%
Federal Reserve Stock                 196       3.74%          132     1.82%        139       2.65%
Corporate equities                     62       1.18%           62     0.85%         37       0.70%
                                   ------      ------       ------   ------      ------     ------
Total                              $5,236     100.00%       $7,282   100.00%     $5,269     100.00%
                                   ======                   ======               ======
</TABLE>



         The following table sets forth the projected maturities of the U.S.
Treasury securities component of the investment securities portfolio as of
December 31, 2004 and the average yields:

<TABLE>
<CAPTION>
                                     PROJECTED MATURITIES OF THE INVESTMENT SECURITIES PORTFOLIO
                               ------------------------------------------------------------------------
(Dollars in thousands)
                                      One Year             After One Year
                                      or Less              Through Five Years              Total
                               --------------------     ----------------------   -----------------------

                               Carrying     Average     Carrying      Average     Carrying     Average
                                 Value       Yield        Value        Yield        Value       Yield
                               ----------   -------     -----------  --------     ----------   ---------

<S>                              <C>         <C>          <C>          <C>          <C>          <C>
U.S. Treasuries                  $ -         0.00%        $4,978       2.46%        $4,978       2.46%
                                 ===         ====         ======       ====         ======       ====
</TABLE>


         At December 31, 2004, there were no issuers, other than the U.S.
Government, whose securities owned by the Company or the Bank had a book or
market value exceeding ten percent of the Company's stockholders' equity.

NON-INTEREST INCOME

         Non-interest income principally is generated from two sources: deposit
account services charges and gains from the sale of the guaranteed portion of
Small Business Administration loans.

         For the year ended December 31, 2004, deposit account services charges
amounted to $311 thousand as compared to $327 thousand for the same period in
2003 and $175 thousand for 2002.

         For the year ended December 31, 2004, the gains from the sales of SBA
loans amounted to $273 thousand. Prior to 2004, there was no revenue from this
source during any period. The Bank currently intends to sell the guaranteed
portion of most additional SBA loans, resulting in a continuing stream of income
that will vary from quarter to quarter, depending in part upon the amounts
actually sold.

         As the Bank continues to develop these and additional sources of
income, it is expected that non-interest income will continue to be a
significant contributor to the overall profitability of the Company, although
there can be no assurance of this.

NON-INTEREST EXPENSE

         Non-interest expenses of $2.2 million were incurred in 2004 as compared
to $1.9 million in 2003 and $1.7 million in 2002. The most significant
non-interest expense item was salaries and benefits at $1.3 million in 2004; the
comparable amounts in 2003 and 2002 were $1.1 million and $1.0 million. The
increases in non-interest expenses are principally attributable to additional
staffing, particularly the addition in February 2004 of a senior officer to lead
the expansion in the Prince George's County market, as well as salary increases.
These amounts are in line with projections and are deemed necessary to attract
and retain qualified personnel essential to the growth and continued
profitability of the Bank and the Company. A breakdown of other non-interest
expenses is in the income statement and Note 9 to the Consolidated Financial
Statements.


                                       10
<PAGE>


INCOME TAXES

         The Company uses the liability method of accounting for income taxes as
required by SFAS No.109, Accounting for Income Taxes. Under the liability
method, deferred tax assets and liabilities are determined based on differences
between the financial statement carrying amounts and the enacted rates that will
be in effect when these differences reverse. At September 30, 2004, in
compliance with SFAS No. 109, Accounting for Income Taxes, the Bank eliminated
the valuation allowance for the deferred tax asset, thereby recognizing $945
thousand in income tax benefits in income during the quarter. In future periods
the Company will recognize income tax expense based upon earnings in each
period.

DEPOSITS AND LIQUIDITY MANAGEMENT

         Liquidity is a measure of the Bank's ability to meet the demands
required for the funding of loans and to meet depositors' requirements for use
of their funds. The Bank's principal sources of liquidity are cash balances, due
from banks, Federal funds sold and available-for-sale securities.

         At December 31, 2004, management considers the liquidity position of
the Company and Bank to be satisfactory. At December 31 2004, under the
Company's liquidity formula, it had $17.4 million of liquidity representing
22.9% of total Company assets. Continued strong growth in deposits will be
required to fund loan growth. Accordingly, the Bank intends to maintain a
competitive posture in its deposit interest rate offerings. While adequate
liquidity is imperative, excess liquidity has the effect of a lower interest
margin, as funds not invested in loans are placed in short-term investments that
generally carry a lower yield.

         The Bank's principal sources of funds are core deposits, consisting of
demand deposits, NOW accounts, money market accounts, savings accounts and
certificates of deposit from the local market area. These accounts provide the
Bank with a relatively stable source of funds and a source of fee income.
Consistent with our focus on business banking, we do not seek significant
numbers of smaller retail consumer deposit relationships, choosing instead to
target larger deposit relationships by offering interest rates on certificates
of deposit of $100,000 or more which are near the top of the local market, and
by providing significant cash management capabilities to our commercial
customers. As a result, a substantial portion of our deposits, 67.4% as of
September 30, 2004, relate to account relationships aggregating over $100,000.

         At December 31, 2004, deposits totaled $65.7 million, principally money
market deposit accounts ($13.6 million), certificates of deposit ($28.8 million)
and demand deposits ($20.7 million). By comparison, deposits at December 31,
2003 totaled $40.6 million, primarily money market deposit accounts ($16.2
million), certificates of deposits ($13.2 million) and demand deposits ($9.4
million). Deposits were $34.9 million at December 31, 2002, mainly money market
deposit accounts ($15.2 million), certificates of deposit ($12.8 million) and
demand deposits ($5.6 million), and $18.1 million at December 31, 2001, mostly
money market deposit accounts ($7.0 million), certificates of deposit ($7.3
million) and demand deposits ($3.3 million). During the September-December 2004
period, the Bank accepted approximately $6.3 million in brokered Certificates of
Deposit in anticipation of significant loan funding requirements. These
certificates mature in roughly equal amounts in one, two and three years; the
interest rates paid to attract these deposits were equal to or below the rates
paid to attract local deposits.

         The following table reflects average deposits and average rates paid,
by category, for the periods indicated:

<TABLE>
<CAPTION>
                                                         AVERAGE DEPOSITS AND AVERAGE RATES PAID
                                         --------------------------------------------------------------------

(Dollars in thousands)                                         Year Ended December 31,
                                         --------------------------------------------------------------------
                                                 2004                    2003                 2002
                                         ---------------------   ---------------------   --------------------

<S>                                        <C>         <C>       <C>         <C>          <C>          <C>
Noninterest bearing demand                 $10,889     0.00%     $ 6,770     0.00%        $ 3,420      0.00%
Interest bearing demand                      1,824     0.24%       1,119     0.34%            764      0.81%
Money market                                14,084     0.71%      14,114     0.96%         11,270      2.36%
Savings                                        223     0.25%         307     0.52%            376      1.60%
Certificates of deposit of $100,000
 or more                                    15,534     2.58%      11,918     2.95%         10,698      3.86%
Other time deposits                          2,059     3.07%         253     1.64%            208      3.04%
                                           -------     ----      -------     ----         -------      ----
Balance, end of period                     $44,613     1.04%     $34,481     1.44%        $26,736      2.61%
                                           =======     ====      =======     ====         =======      ====
</TABLE>


                                       11
<PAGE>

         The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining to maturity as of December 31,
2004.

<TABLE>
<CAPTION>
                       CERTIFICATE OF DEPOSIT ($100,000 OR >) MATURITY SCHEDULE AT DECEMBER 31, 2004
                     ----------------------------------------------------------------------------------
                     (Dollars in thousands)

<S>                       <C>                                                           <C>
                          Due in 3 MONTHS OR LESS                                       $ 6,051

                                 OVER 3 MONTHS THROUGH 6 MONTHS                           3,264

                                 OVER 6 MONTHS THROUGH 12 MONTHS                          5,662

                                 OVER 12 MONTHS                                           7,819
                                                                                        -------
                                                                                        $22,796
                                                                                        =======
</TABLE>

         In addition, the Bank offers Securities Sold under Repurchase
Agreement/Sweep accounts to its commercial clientele. Although these funds are
technically not deposit liabilities, they are nonetheless an ongoing source of
core funding and contribute significantly to the Bank's liquidity management. At
December 31, 2004, the Bank had $3.1 million in such funding; by comparison, the
December 31, 2003 and 2002 totals were $4.7 million and $5.3 million
respectively.

         The following table provides information regarding the Company's
short-term borrowings for the periods indicated. See Note 7 to the Consolidated
Financial Statements for additional information regarding the Company's
borrowings.

<TABLE>
<CAPTION>
                                                             SHORT-TERM BORROWINGS(1)/
                                      --------------------------------------------------------------------

(Dollars in thousands)                   Maximum
                                          Amount                                                  Ending
                                      Outstanding at     Average     Average         Ending      Average
                                        Any Month End    Balance       Rate         Balance        Rate
                                      ---------------  -------------   ---------    ------------   ---------

<S>                                       <C>            <C>           <C>           <C>           <C>
YEAR ENDING DECEMBER 31, 2004             $ 7,284        $ 4,198       0.60%         $ 3,086       0.41%
Year Ended December 31, 2003                9,763          4,734       0.69%           4,694       0.37%
Year Ended December 31, 2002                5,326          2,711       1.44%           5,326       1.11%
Year Ended December 31, 2001                2,751            929       2.41%           2,751       1.95%
</TABLE>

(1)/ Short-term borrowings consist of customer repurchase agreements, federal
funds purchased, and Treasury Tax and Loan balances.

       The Bank may draw upon $2.2 million Federal funds borrowing facilities
from other financial institutions. At December 31, 2004, no amounts were
outstanding under these facilities. The Company believes its levels of liquidity
and capital are adequate to conduct the business of the Company and Bank.

OFF-BALANCE SHEET ARRANGEMENTS

         With the exception of the Bank's obligations in connection with its
irrevocable letters of credit, and loan commitments, the Bank has no off-balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on the Bank's financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or
capital resources, that is material to investors. For additional information on
off-balance sheet arrangements, please see "Note 10 - Commitment and
Contingencies" of the Notes to the Consolidated Financial Statements.

                          INTEREST RATE RISK MANAGEMENT

         Banks and other financial institutions are dependent upon net interest
income, the difference between interest earned on interest earning assets and
interest paid on interest bearing liabilities. Changes in interest rates
inevitably have an impact on interest income. GAP, a measure of the difference
in volume between interest bearing assets and interest bearing liabilities, is a
means of monitoring the sensitivity of a financial institution to changes in
interest rates. The chart below provides an indicator of the rate sensitivity of
the Company. A positive GAP indicates the degree to which the volume of
repriceable assets exceeds repriceable liabilities in particular time periods.
The Company has a positive GAP of 46.2% out to three months and a cumulative
positive GAP of 25.7% out to 12 months, an asset sensitive position, which would
generally indicate increased net interest income in a rising rate environment.
However, this measurement of interest rate risk sensitivity represents a static
position as of a single day and is not necessarily indicative of the interest
rate risk position at any other point in time, does not take into account the
sensitivity of yields and costs of specific assets and liabilities to changes in
market rates, and does not take into account the specific timing of when changes
to a specific asset or liability will occur.

                                       12
<PAGE>

         Management has carefully considered its strategy to maximize interest
income by reviewing interest rate levels and economic indicators. The positive
GAP positions noted above do exceed the policy limits established as part of the
Asset/Liability Policy; however, the relevant factors justifying the exceptions
have been thoroughly discussed with the Board of Directors and management
believes that existing strategies are appropriate to current economic and
interest rate trends.

<TABLE>
<CAPTION>
                                                                    GAP ANALYSIS
                                     --------------------------------------------------------------------------
(Dollars in thousands)
                                        0-3          4-12         1-3          3-5         Over
                                       Months       Months       Years        Years      5 Years       Total
                                     -----------  -----------  ----------   ----------  -----------  ----------
<S>                                   <C>           <C>          <C>          <C>          <C>          <C>
Interest-earning assets:
     Federal funds sold               $ 14,202      $      -     $      -     $      -     $      -     $ 14,202
     Investment securities                   -             -        5,020            -            -        5,020
     Loans                              33,183         1,914        4,415       12,354        1,107       52,973
                                      --------      --------     --------     --------     --------     --------
   Total interest-earning assets        47,385         1,914        9,435       12,354        1,107       72,195
                                      --------      --------     --------     --------     --------     ========

Interest-bearing liabilities:
     Money market deposit accounts      13,575             -            -            -            -       13,575
     NOW accounts                        2,212             -            -            -            -        2,212
     Savings                               480             -            -            -            -          480
     Certificates of deposit             6,051         8,926        7,818            -            -       22,795
     Other time deposits                    76         2,222        3,677            -            -        5,975
     Repurchase agreements               3,086             -            -            -            -        3,086
                                      --------      --------     --------     --------     --------     --------
    Total interest-bearing
     liabilities                        25,480        11,148       11,495            -            -     $ 48,123
                                      --------      --------     --------     --------     --------     ========

GAP                                     21,905        (9,234)      (2,060)      12,354        1,107

CUMULATIVE GAP                        $ 21,905      $ 12,671     $ 10,611     $ 22,965     $ 24,072
                                      ========      ========     ========     ========     ========

CUMULATIVE GAP TO CUMULATIVE
     INTEREST-EARNING ASSETS             46.23%        25.70%       18.07%       32.31%       33.34%
</TABLE>


                         CAPITAL RESOURCES AND ADEQUACY

         The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance, and changing competitive
conditions and economic forces. The adequacy of the Company's capital is
reviewed by management on an ongoing basis. Management seeks to maintain a
capital structure that will assure an adequate level of capital to support
anticipated asset growth and to absorb potential losses.

         The capital positions of the Company and the Bank continue to meet
regulatory requirements. The primary indicators relied on by bank regulators in
measuring the capital position are the Tier I risk-based capital, total
risk-based capital, and leverage ratios. For the Company and the Bank, Tier I
capital consists of common stockholders' equity; total risk-based capital
consists of Tier I capital and a portion of the allowance for loan losses.
Risk-based capital ratios are calculated with reference to risk-weighted assets.
The leverage ratio compares Tier I capital to total average assets. All of these
ratios are well in excess of the mandated minimum requirement of 4.00%, 8.00%,
and 3-5%, respectively. Detail of these ratios is shown in Note 11 to the
Consolidated Financial Statements.

         During the first quarter of 2005 the Company sold an aggregate of
981,333 additional shares of common stock. Of the shares sold, 175,000 were sold
on a rights offering basis to shareholders of record as of December 9, 2004 at a
price of $10.50 per share, and 806,333 shares were sold in a public offering
also at a price of $10.50 per share. The offerings raised an aggregate of
approximately $9.6 million, net of expenses of the offering, financial advisory
fees and underwriter's commission. The proceeds of the offerings will be
available for contribution to the Bank for use in its lending and investment
activities and other operations, and for general corporate purposes.

                                       13
<PAGE>

                      MARKET FOR COMMON STOCK AND DIVIDENDS

         Since March 1, 2005, the Company's Common Stock has been listed for
trading on the Nasdaq Small Cap Market under the symbol "CFMB." Prior to that
date, the Company's Common Stock was not traded on any organized exchange or on
the NASDAQ National Market or the NASDAQ Small Cap Market. As of December 31,
2004, one market maker made a market in the Common Stock in the over the counter
"bulletin board" market under the symbol "CMFB". The Common Stock has traded
only sporadically. No assurance can be given that an active or established
trading market will develop in the foreseeable future. The following table sets
forth the high and low bid prices for the Common Stock during each calendar
quarter since the first quarter of 2002. These quotations reflect inter-dealer
prices, without retail markup, markdown or commission, and may not represent
actual transactions. These quotations do not necessarily reflect the intrinsic
or market values of the Common Stock. As of December 31, 2004, there were
822,250 shares of Common Stock outstanding, held by approximately 325
shareholders of record. As of March 1, 2005, there were 1,803,583 shares of
Common Stock outstanding, held by approximately 329 shareholders of record.

<TABLE>
<CAPTION>
                                               STOCK PRICE TABLE
                      ----------------------------------------------------------------------------

                              2004                       2003                       2002
                              ----                       ----                       ----
                        HIGH         LOW           High         Low           High         Low
                        ----         ---           ----         ---           ----         ---
<S>                    <C>          <C>           <C>          <C>           <C>          <C>
First Quarter          $ 9.25       $9.00         $8.50        $8.25         $10.25       $10.00
Second Quarter         $ 9.50       $9.25         $8.75        $8.25         $10.50       $10.15
Third Quarter          $ 9.50       $9.13         $8.75        $8.25         $10.75       $ 8.56
Fourth Quarter         $13.00       $9.65         $9.25        $8.75         $ 8.75       $ 8.75
</TABLE>

         The Company has not paid any dividends to date. The payment of
dividends by the Company will depend largely upon the ability of the Bank, its
sole operating business, to declare and pay dividends to the Company.
Regulations of the Federal Reserve Board and Maryland law place limits on the
amount of dividends the Bank may pay to the Company without prior approval.
Prior regulatory approval is required to pay dividends which exceed the Bank's
net profits for the current year plus its retained net profits for the preceding
two calendar years, less required transfers to surplus. Additionally, without
prior approval, the Bank may pay dividends only out of its undivided profits.
Even if the Bank and the Company have earnings in an amount sufficient to pay
dividends, the Board of Directors may determine to retain earnings for the
purpose of funding the growth of the Company and the Bank.

                              FINANCIAL STATEMENTS

         The audited financial statements for the Company as of December 31,
2004 and 2003 and for each of the years in the three-year period ended December
31, 2004 are included herewith.



                                       14
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors
CommerceFirst Bancorp, Inc. and Subsidiary
Annapolis, Maryland

We have audited the accompanying consolidated balance sheets of CommerceFirst
Bancorp, Inc. and subsidiary as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CommerceFirst Bancorp, Inc. and subsidiary as of December 31, 2004 and 2003, and
the consolidated results of their operations and their consolidated cash flows
for each of the years in the three-year period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Trice Geary & Myers, LLC

Salisbury, Maryland
January 21, 2005



                                       15
<PAGE>


                   COMMERCEFIRST BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
December 31,                                                               2004                      2003
------------------------------------------------------------------------------------------------------------------

                                     ASSETS

<S>                                                                     <C>                        <C>
Cash and due from banks                                                 $  3,196,520               $  2,374,141
Federal funds sold                                                        14,202,382                  8,583,257
                                                                        ------------               ------------
       Cash and cash equivalents                                          17,398,902                 10,957,398
Investment securities available for sale, at fair value                    4,978,100                  7,087,190
Federal Reserve Bank stock, at cost                                          195,900                    132,450
Atlantic Central Bankers Bank stock, at cost                                  37,000                     37,000
Maryland Financial Bank stock, at cost                                        25,000                     25,000
Loans, less allowance for credit losses
      2004 $1,153,874;  2003 $604,100                                     51,017,418                 32,687,894
SBA loans held for sale, at fair value                                       759,056                          -
Premises and equipment, at cost, less
       accumulated depreciation                                              184,832                     90,625
Accrued interest receivable on loans and investment securities               233,946                    172,811
Deferred tax asset                                                           876,084                          -
Other assets                                                                 246,292                    104,706
                                                                        ------------               ------------

          TOTAL ASSETS                                                  $ 75,952,530               $ 51,295,074
                                                                        ============               ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
       Noninterest-bearing demand                                       $ 20,691,315               $  9,387,230
       Interest-bearing                                                   45,037,635                 31,226,110
                                                                        ------------               ------------
          Total deposits                                                  65,728,950                 40,613,340
Securities sold under agreements to repurchase                             3,086,450                  4,693,879
Accrued interest payable on deposits                                          36,412                     17,709
Other liabilities                                                            326,617                    219,076
                                                                        ------------               ------------
          TOTAL LIABILITIES                                               69,178,429                 45,544,004
                                                                        ------------               ------------

COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENT

Stockholders' equity:
Common stock, par value $.01, authorized 4,000,000 shares;
      822,250 shares issued and outstanding                                    8,223                      8,223
Surplus                                                                    8,099,012                  8,099,012
Accumulated deficit                                                       (1,305,795)                (2,395,590)
Accumulated other comprehensive (loss) income                                (27,339)                    39,425
                                                                                                   ------------
          TOTAL STOCKHOLDERS' EQUITY                                       6,774,101                  5,751,070
                                                                        ------------               ------------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $ 75,952,530               $ 51,295,074
                                                                        ============               ============
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.


                                       16
<PAGE>

                   COMMERCEFIRST BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,                                       2004                 2003                 2002
------------------------------------------------------------------------------------------------------------------

<S>                                                         <C>                   <C>                   <C>
INTEREST INCOME ON:
       Loans, including fees                                $ 2,754,729           $ 2,252,608           $ 1,911,062
       U.S. Treasury securities                                 169,304               192,070                90,918
       Other investments                                         10,242                 8,700                 9,236
       Federal funds sold                                        66,103                35,177                57,925
                                                            -----------           -----------           -----------
            Total interest income                             3,000,378             2,488,555             2,069,141
                                                            -----------           -----------           -----------

INTEREST EXPENSE ON:
       Deposits                                                 568,954               497,640               697,340
       Securities sold under agreements to repurchase            18,141                31,044                38,517
       Short-term borrowings                                        790                 1,689                   650
                                                            -----------           -----------           -----------
            Total interest expense                              587,885               530,373               736,507
                                                            -----------           -----------           -----------

            NET INTEREST INCOME                               2,412,493             1,958,182             1,332,634

PROVISION FOR CREDIT LOSSES                                     590,000               270,000               430,000
                                                            -----------           -----------           -----------

            NET INTEREST INCOME AFTER
               PROVISION FOR CREDIT LOSSES                    1,822,493             1,688,182               902,634
                                                            -----------           -----------           -----------

OTHER INCOME:
       Service charges on deposit accounts                      310,896               327,079               175,046
       Gains on sale of SBA loans                               273,497                     -                     -
                                                            -----------           -----------           -----------
            Total other income                                  584,393               327,079               175,046
                                                            -----------           -----------           -----------

OTHER EXPENSES:
       Salaries and employee benefits                         1,321,179             1,123,714             1,006,496
       Legal and professional                                    64,754                78,760                63,153
       Loan collection expenses                                  28,713                23,160                17,297
       Rent and occupancy                                       223,892               197,488               194,139
       Marketing and business development                        44,112                28,064                31,382
       Insurance                                                 33,820                29,218                23,977
       Data processing                                           56,468                50,815                51,942
       Support services                                         131,906                96,896                75,990
       Depreciation and amortization                             79,793               100,983               133,601
       Other expenses                                           194,454               143,579               123,001
                                                            -----------           -----------           -----------
            Total other expenses                              2,179,091             1,872,677             1,720,978
                                                            -----------           -----------           -----------

INCOME (LOSS) BEFORE INCOME TAXES                               227,795               142,584              (643,298)

FEDERAL AND STATE INCOME TAX BENEFIT                            862,000                     -                     -
                                                            -----------           -----------           -----------

NET INCOME (LOSS)                                           $ 1,089,795           $   142,584           $  (643,298)
                                                            ===========           ===========           ===========

BASIC AND DILUTED EARNINGS (LOSS) PER
       SHARE OF COMMON STOCK                                $      1.33           $      0.17           $     (0.78)
                                                            ===========           ===========           ===========
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       17
<PAGE>

                   COMMERCEFIRST BANCORP, INC. AND SUBSIDIARY
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
                                 INCOME (LOSS)
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                            Accumulated
                                             Common                                            Other             Total
                                              Stock                        Accumulated      Comprehensive     Stockholders'
                                           (Par Value)      Surplus          Deficit        Income (Loss)        Equity
                                           -----------    ------------   --------------    --------------    ---------------

<S>                                          <C>          <C>            <C>                     <C>            <C>
Balances, December 31, 2001                  $  8,223     $ 8,099,012    $ (1,894,876)           $   113        $ 6,212,472

Comprehensive loss:
      Net loss                                      -               -        (643,298)                 -           (643,298)
      Other comprehensive income,
       net of tax:
        Unrealized holding gains on
        securities available for
        sale arising during the period              -               -                -            56,702             56,702

                                                                                                                -----------
Total comprehensive loss                                                                                           (586,596)
                                              -------     -----------     ------------         ---------        -----------

Balances, December 31, 2002                     8,223       8,099,012       (2,538,174)           56,815          5,625,876
                                              -------     -----------     ------------         ---------        -----------

Comprehensive income:
      Net income                                    -               -          142,584                 -            142,584
      Other comprehensive loss,
       net of tax:
        Unrealized holding losses on
        securities available for
        sale arising during the period              -               -                -           (17,390)           (17,390)

                                                                                                                -----------
Total comprehensive income                                                                                          125,194
                                              -------     -----------     ------------         ---------        -----------

BALANCES, DECEMBER 31, 2003                     8,223       8,099,012       (2,395,590)           39,425          5,751,070
                                              -------     -----------     ------------         ---------        -----------

COMPREHENSIVE INCOME:
      NET INCOME                                    -               -        1,089,795                 -          1,089,795
      OTHER COMPREHENSIVE LOSS,
       NET OF TAX:
        UNREALIZED HOLDING LOSSES ON
        SECURITIES AVAILABLE FOR SALE
        ARISING DURING THE PERIOD                   -               -                -           (66,764)           (66,764)

                                                                                                                -----------
TOTAL COMPREHENSIVE INCOME                                                                                        1,023,031
                                              -------     -----------     ------------         ---------        -----------

BALANCES, DECEMBER 31, 2004                   $ 8,223     $ 8,099,012     $ (1,305,795)        $ (27,339)       $ 6,774,101
                                              =======     ===========     ============         =========        ===========
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.



                                       18
<PAGE>

                   COMMERCEFIRST BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                          2004                 2003                2002
------------------------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss)                                                 $  1,089,795         $    142,584         $   (643,298)
      Adjustments to reconcile net income (loss) to net cash
         provided (used) by operating activities:
         Depreciation, amortization and accretion                             88,976              112,444              107,550
         Deferred income tax benefit                                        (862,000)                   -                    -
         Provision for credit losses                                         590,000              270,000              430,000
         Provision for losses on unfunded commitments                          6,000                6,000               12,000
         Change in assets and liabilities:
            Increase in accrued interest receivable                          (61,135)             (37,030)             (48,410)
            Increase in SBA loans held for sale, net                        (759,056)                   -                    -
                                                                        ------------         ------------         ------------
            Increase (decrease) in other assets                             (121,276)              89,584             (105,691)
            Increase (decrease) in accrued interest payable                   18,703               (4,536)               6,499
            Increase in other liabilities                                    101,541               53,845               54,159
                                                                        ------------         ------------         ------------

                Net cash provided (used) by operating activities              91,548              632,891             (187,191)
                                                                        ------------         ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of available for sale securities                          (3,001,250)          (2,032,500)          (8,498,590)
      Maturities of available for sale securities                          5,000,000                    -            7,500,000
      Purchases of MFB stock                                                       -              (25,000)                   -
      Purchases of FRB stock                                                 (63,450)                   -                    -
      Proceeds from sale of FRB stock                                              -                7,000               13,600
      Increase in loans, net                                             (18,919,524)          (3,127,280)          (9,862,627)
      Purchases of premises and equipment                                   (174,001)             (15,476)                   -
                                                                        ------------         ------------         ------------

               Net cash used by investing activities                     (17,158,225)          (5,193,256)         (10,847,617)
                                                                        ------------         ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Increase in noninterest-bearing deposits, net                       11,304,085            3,811,430            2,252,804
      Increase in time deposits, net                                      13,811,525            1,875,856           14,576,076
      (Decrease) increase in securities sold under agreements
          to repurchase, net                                              (1,607,429)            (632,067)           2,612,796
      Decrease in short-term borrowings, net                                       -                    -              (37,875)
                                                                        ------------         ------------         ------------

               Net cash provided by financing activities                  23,508,181            5,055,219           19,403,801
                                                                        ------------         ------------         ------------

INCREASE IN CASH AND CASH EQUIVALENTS                                      6,441,504              494,854            8,368,993

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                              10,957,398           10,462,544            2,093,551
                                                                        ------------         ------------         ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                  $ 17,398,902         $ 10,957,398         $ 10,462,544
                                                                        ============         ============         ============

SUPPLEMENTAL CASH FLOWS INFORMATION:
      Interest paid                                                     $    569,182         $    534,909         $    730,008
      Total (decrease) increase in unrealized appreciation
          on available for sale securities                                  (101,158)             (26,349)              85,913
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.



                                       19
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CommerceFirst Bancorp, Inc. (the "Company") is a bank holding company
         formed on July 9, 1999, whose principal activity is the ownership and
         management of its wholly owned subsidiary, CommerceFirst Bank (the
         "Bank"). Upon obtaining sufficient capital from the Company, the de
         novo Bank was granted final approvals by regulatory agencies and began
         its operations on June 29, 2000.

         The Bank provides financial services to individuals and corporate
         customers located in Anne Arundel County and surrounding areas of
         Central Maryland, and is subject to competition from other financial
         institutions. The Bank is also subject to the regulations of certain
         Federal and State of Maryland (the "State") agencies and undergoes
         periodic examinations by those regulatory authorities. The accounting
         policies of the Bank conform to accounting principles generally
         accepted in the United States of America and to general practices
         within the banking industry.

         Significant accounting policies not disclosed elsewhere in the
         consolidated financial statements are as follows:

         Principles of Consolidation:

         The consolidated financial statements include the accounts of
         CommerceFirst Bancorp, Inc. and its subsidiary, CommerceFirst Bank.
         Intercompany balances and transactions have been eliminated. The Parent
         Only financial statements (see Note 19) of the Company account for the
         subsidiary using the equity method of accounting.

         Use of Estimates:

         The preparation of consolidated financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the dates of the consolidated
         financial statements and the reported amounts of revenues and expenses
         during the reporting periods. Actual results could differ from those
         estimates.

         Securities Held to Maturity:

         Bonds, notes and debentures for which the Bank has the positive intent
         and ability to hold to maturity are reported at cost, adjusted for
         premiums and discounts that are recognized in interest income using the
         effective interest rate method over the period to maturity. Securities
         transferred into held to maturity from the available for sale portfolio
         are recorded at fair value at time of transfer with unrealized gains or
         losses reflected in equity and amortized over the remaining life of the
         security. The Bank has no investment securities classified as held to
         maturity as of December 31, 2004 and 2003.

         Securities Available for Sale:

         Marketable debt securities not classified as held to maturity are
         classified as available for sale. Securities available for sale may be
         sold in response to changes in interest rates, loan demand, changes in
         prepayment risk, and other factors. Changes in unrealized appreciation
         (depreciation) on securities available for sale are reported in other
         comprehensive income (loss). Realized gains (losses) on securities
         available for sale are included in other income (expense) and, when
         applicable, are reported as a reclassification adjustment, net of tax,
         in other comprehensive income (loss). The gains and losses on
         securities sold are determined by the specific identification method.
         Premiums and discounts are recognized in interest income using the
         effective interest rate method over the period to maturity.


                                       20
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Other Securities:

         Federal Reserve Bank ("FRB"), Atlantic Central Bankers Bank ("ACBB")
         and Maryland Financial Bank ("MFB") stocks are equity interests that do
         not necessarily have readily determinable fair values for purposes of
         Statement of Financial Accounting Standard ("SFAS") No. 115, Accounting
         for Certain Investments in Debt and Equity Securities, because their
         ownership is restricted and they lack a market.

         Loans and Allowance for Credit Losses:

         Loans are generally carried at the amount of unpaid principal, adjusted
         for deferred loan fees, which are amortized over the term of the loan
         using the effective interest rate method. Interest on loans is accrued
         based on the principal amounts outstanding. It is the Bank's policy to
         discontinue the accrual of interest when a loan is specifically
         determined to be impaired or when principal or interest is delinquent
         for ninety days or more. When a loan is placed on nonaccrual status,
         all interest previously accrued but not collected is reversed against
         current period interest income. Interest income generally is not
         recognized on specific impaired loans unless the likelihood of further
         loss is remote. Cash collections on such loans are applied as
         reductions of the loan principal balance and no interest income is
         recognized on those loans until the principal balance has been
         collected. Interest income on other nonaccrual loans is recognized only
         to the extent of interest payments received. The carrying value of
         impaired loans is based on the present value of the loan's expected
         future cash flows or, alternatively, the observable market price of the
         loan or the fair value of the collateral.

         The allowance for credit losses is established through a provision for
         credit losses charged to expense. Loans are charged against the
         allowance for credit losses when management believes that the
         collectibility of the principal is unlikely. The allowance, based on
         evaluations of the collectibility of loans and prior loan loss
         experience, is an amount that management believes will be adequate to
         absorb possible losses on existing loans that may become uncollectible.
         The evaluations take into consideration such factors as changes in the
         nature and volume of the loan portfolio, overall portfolio quality,
         review of specific problem loans, and current economic conditions and
         trends that may affect the borrower's ability to pay.

         While management believes it has established the allowance for credit
         losses in accordance with accounting principles generally accepted in
         the United States of America and has taken into account the views of
         its regulators and the current economic environment, there can be no
         assurance that in the future the Bank's regulators or its economic
         environment will not require further increases in the allowance.

         Loans for which the Bank has the positive intent to sell are reported
         at lower of cost or market, as determined on a specific identification
         basis.

         Unearned Discounts and Servicing Rights of SBA Loans Sold:

         The Bank sells participations representing the SBA-guaranteed portions
         of its SBA loans in the secondary market. In connection with such
         sales, the Bank receives a cash premium related to the guaranteed
         portion being sold. A portion of the cash premium received from the
         sale of the guaranteed portion of the SBA loan is deferred as an
         unearned discount based on the relative fair value of the guaranteed
         and unguaranteed portions to the total loan and the remainder is
         recognized as a gain at the time of the sale. The resulting unearned
         discount is recognized in interest income using an adjustable interest
         method.


                                       21
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         SBA loan servicing rights are initially valued by allocating the total
         cost between the loan and the servicing right based on their relative
         fair values. Since sales of SBA loans tend to occur in private
         transactions and the precise terms and conditions of the sales are
         typically not readily available, there is a limited market to refer to
         in determining the fair value of these servicing rights. As such, the
         Bank relies primarily on a discounted cash flow model to estimate the
         fair value of its servicing rights. This model calculates estimated
         fair value of these servicing rights by utilizing certain key
         characteristics such as interest rates, type of product (fixed vs.
         variable), age (new, seasoned, moderate), and other factors. The Bank
         uses assumptions in the model that it believes are comparable to those
         used by brokers and other service providers. The Bank also compares its
         estimates of fair value and assumptions to recent market activity and
         against its own experience. The resulting servicing rights are
         recognized in other non-interest expense using on adjustable interest
         method.

         Reserve for Unfunded Commitments:

         The reserve for unfunded commitments is established through a provision
         for unfunded commitments charged to other expenses. The reserve is
         calculated by utilizing the same methodology and factors as the
         allowance for credit losses. The reserve, based on evaluations of the
         collectibility of loans and prior loan loss experience, is an amount
         that management believes will be adequate to absorb possible losses on
         unfunded commitments (off-balance sheet financial instruments) that may
         become uncollectible in the future.

         Bank Premises and Equipment:

         Bank premises and equipment are stated at cost less accumulated
         depreciation. The provision for depreciation is computed using the
         straight-line method over the estimated useful lives of the assets.
         Leasehold improvements are depreciated over the lesser of the terms of
         the leases or their estimated useful lives. Expenditures for
         improvements that extend the life of an asset are capitalized and
         depreciated over the asset's remaining useful life. Any gains or losses
         realized on the disposition of premises and equipment are reflected in
         the consolidated statements of operations. Expenditures for repairs and
         maintenance are charged to other expenses as incurred. Computer
         software is recorded at cost and amortized over three years.

         Long-Lived Assets:

         The carrying value of long-lived assets and certain identifiable
         intangibles is reviewed by the Bank for impairment whenever events or
         changes in circumstances indicate that the carrying amount of an asset
         may not be recoverable, as prescribed in SFAS No. 144, Accounting for
         the Impairment or Disposal of Long-Lived Assets. As of December 31,
         2004 and 2003, certain loans existed in which management considered
         impaired (see Note 4).

         Income Taxes:

         The provision for Federal and State income taxes is based upon the
         results of operations, adjusted for tax-exempt income. Deferred income
         taxes are provided by applying enacted statutory tax rates to temporary
         differences between financial and taxable bases.

         Temporary differences, which give rise to deferred tax assets, relate
         principally to the allowance for credit losses, operating loss
         carryovers and unrealized losses on securities available for sale.

         Temporary differences, which give rise to deferred tax liabilities,
         relate principally to accumulated depreciation and unrealized gains on
         securities available for sale.


                                       22
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Securities Sold Under Agreements to Repurchase:

         Securities sold under agreements to repurchase are comprised of
         customer deposit agreements with daily maturities. These obligations
         are not federally insured, but are collateralized by a security
         interest in various investment securities. These pledged securities are
         segregated and maintained by a third-party institution. The amortized
         cost of these securities at December 31, 2004 and 2003 was $5,019,523
         and $4,024,930, respectively. The fair value of these securities at
         December 31, 2004 and 2003 was $4,978,100 and $4,057,190, respectively.
         The securities sold under agreements to repurchase were fully
         collateralized as of December 31, 2004 and under-collateralized by
         approximately $670,000 as of December 31, 2003.

         Credit Risk:

         The Bank and Company have deposits in other financial institutions in
         excess of amounts insured by the Federal Deposit Insurance Corporation
         ("FDIC"). The Bank and Company had deposits and Federal funds sold of
         approximately $17,079,000 and $9,858,000 with three financial
         institutions as of December 31, 2004 and 2003, respectively.

         Cash and Cash Equivalents:

         The Bank has included cash and due from banks and Federal funds sold as
         cash and cash equivalents for the purpose of reporting cash flows.

         Earnings (loss) per common share:

         Basic earnings (loss) per common share is determined by dividing net
         income (loss) by the weighted average number of shares of common stock
         outstanding. Diluted earnings (loss) per share is calculated including
         the average dilutive common stock equivalents outstanding during the
         period, using the treasury stock method, unless they are anti-dilutive.
         Potential future dilutive common equivalent shares consist of stock
         options and warrants.

         Financial Statement Presentation:

         Certain amounts in the prior years' consolidated financial statements
         have been reclassified to conform to the current year's presentation.

NOTE 2.  DEVELOPMENT STAGE OPERATIONS

         Through June 30, 2000, the Company devoted substantially all of its
         efforts towards establishing a new banking business and raising
         capital, and accordingly, the Company met the criteria defined by SFAS
         No. 7, Accounting and Reporting by Development Stage Enterprises. The
         Bank was fully funded and commenced lending and banking operations at
         the end of the second quarter of 2000 and was no longer considered in
         the development stage. The Company had a deficit accumulated during the
         development stage of $432,547 through June 30, 2000; the remaining
         deficit was accumulated through December 31, 2002, as the Bank was not
         yet profitable.

                                       23
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INVESTMENT SECURITIES


Investment securities are summarized as follows:
<TABLE>
<CAPTION>
                                                                   Gross            Gross
                                                Amortized        Unrealized       Unrealized          Fair
                                                  Cost              Gains           Losses           Value
                                             ----------------  ---------------  ---------------  ---------------
<S>                                             <C>              <C>              <C>              <C>
DECEMBER 31, 2004

AVAILABLE FOR SALE:
U.S. TREASURY (DUE OVER ONE
       TO FOUR YEARS)                           $ 5,019,523      $         -      $   (41,423)     $ 4,978,100
                                                ===========      ===========      ===========      ===========

December 31, 2003

Available for sale:
    U.S. Treasury (due within one year)         $ 5,001,527      $    43,163      $         -      $ 5,044,690
    U.S. Treasury (due over one
       to four years)                             2,025,928           16,572                -        2,042,500
                                                -----------      -----------      -----------      -----------

                                                $ 7,027,455      $    59,735      $         -      $ 7,087,190
                                                ===========      ===========      ===========      ===========
</TABLE>



The gross unrealized losses and fair value, aggregated by investment category
and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2004 are as follows:


                                                   Less than 12 months
                                             ---------------------------------
                                                  Fair           Unrealized
                                                  Value             Loss
                                             ----------------  ---------------

U.S. Treasury                                  $ 4,978,100        $ 41,423
                                               ===========        ========


For individual securities classified as either available for sale or held to
maturity, the Bank must determine whether a decline in fair value below the
amortized cost basis is other than temporary. If the decline in fair value is
considered to be other than temporary, the cost basis of the individual security
shall be written down to fair value as a new cost basis and the amount of the
write-down shall be included in earnings (that is, accounted for as a realized
loss). Management has determined that all unrealized loss positions as of
December 31, 2004 are temporary unrealized losses that will not be realized upon
maturities of the securities.



                                       24
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS

        Major categories of loans are as follows:
<TABLE>
<CAPTION>
                                                                             2004                 2003
                                                                       ------------------   -----------------

<S>                                                                      <C>                  <C>
Commercial mortgages                                                     $ 22,301,254         $ 12,461,615
Commercial demand and time                                                 29,945,099           20,867,558
                                                                         ------------         ------------
                                                                           52,246,353           33,329,173
Unearned income on loans                                                      (75,061)             (37,179)
                                                                         ------------         ------------
                                                                           52,171,292           33,291,994
Allowance for credit losses                                                (1,153,874)            (604,100)
                                                                         ------------         ------------

                                                                         $ 51,017,418         $ 32,687,894
                                                                         ============         ============
</TABLE>


        The Bank makes business loans to customers located primarily in Anne
        Arundel County and surrounding areas of Central Maryland. Although the
        loan portfolio will be diversified, its performance will be influenced
        by the economy of the region.

        Executive officers, directors, and their affiliated interests enter into
        business loan transactions with the Bank in the ordinary course of
        business. These loans are made on the same terms, including interest
        rates and collateral, as those prevailing at the time for comparable
        loans with unrelated borrowers. They do not involve more than normal
        risk of collectibility or present other unfavorable terms. At December
        31, 2004 and 2003, such loans outstanding totaled $6,316,028 and
        $4,193,424, respectively. During 2004 and 2003, loan additions were
        $3,737,381 and $369,950, respectively. During 2004 and 2003, loan
        repayments were $1,614,777 and $635,459, respectively.

        The allowance for credit losses is as follows:
<TABLE>
<CAPTION>
                                                          2004               2003                 2002
                                                     ----------------  ------------------   -----------------

<S>                                                   <C>                <C>                  <C>
Balance, beginning of year                            $   604,100        $   655,359          $   270,000
Provision for credit losses                               590,000            270,000              430,000
Recoveries                                                 32,458             11,500                2,000
Loans charged off                                         (72,684)          (332,759)             (46,641)
                                                      -----------        -----------          -----------

Balance, end of year                                  $ 1,153,874        $   604,100          $   655,359
                                                      ===========        ===========          ===========
</TABLE>

        Loans on which the accrual of interest has been discontinued amounted to
        $1,057,150 and $391,429 at December 31, 2004 and 2003, respectively.
        Interest that would have been accrued under the terms of these loans
        totaled $48,543 and $13,456 for the years ended December 31, 2004 and
        2003, respectively. The Bank has no commitments to loan additional funds
        to the borrowers of impaired or non-accrual loans.

        Information regarding loans classified by the Bank as impaired is
        summarized as follows:

<TABLE>
<CAPTION>
                                                                             2004                 2003
                                                                       ------------------   -----------------

<S>                                                                        <C>                 <C>
Loans classified as impaired, with a valuation allowance                   $1,057,150          $  391,429
Allowance for credit losses on impaired loans                                 369,451              29,693
Average balance of impaired loans during year                                 724,290             735,794
</TABLE>

        According to management, the Bank has no investments in troubled debt
        restructurings as of December 31, 2004 and 2003.



                                       25
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5.  PREMISES AND EQUIPMENT

         A summary of premises and equipment is as follows:

<TABLE>
<CAPTION>
                                                       Useful lives          2004                 2003
                                                     ----------------  ------------------   -----------------

<S>                                                     <C>                    <C>                 <C>
Equipment                                               3-5 years              $ 271,868           $ 228,496
Furniture and fixtures                                   5 years                 119,436              96,163
Leasehold improvements                                  4-5 years                120,845              38,351
Software                                                 3 years                 169,991             148,852
                                                                               ---------           ---------
                                                                                 682,140             511,862
Accumulated depreciation and amortization                                       (497,308)           (421,237)
                                                                               ---------           ---------
                                                                               $ 184,832           $  90,625
                                                                               =========           =========
</TABLE>

Depreciation expense was $66,779, $70,074 and $83,984 for the years ended
December 31, 2004, 2003 and 2002, respectively. Amortization of software was
$13,014, $30,909, and $49,617 for the years ended December 31, 2004, 2003 and
2002, respectively.

The Company leases a facility to serve as the executive offices for the Company
and as the main banking office for the Bank. The facility, which is
approximately 8,100 square feet and located in Annapolis, Maryland, is leased by
the Company through April 2005, with three five year renewal options, with
annual increases of 3%. In 2004, the Company entered into a lease agreement for
a facility to serve as a branch banking office. The facility, which is
approximately 2,100 square feet and located in Lanham, Maryland, is leased by
the Company through August 2014, with a five year early termination option, with
annual increases of 3%. Total rent expense, including pro-rata portions of
property taxes and maintenance expenses, relating to these agreements, was
$199,113, $178,008, and $172,612 for the years ended December 31, 2004, 2003 and
2002, respectively.

NOTE 6.  SBA LOAN SERVICING RIGHTS

Information regarding changes in SBA loan servicing rights, included in other
assets, is summarized as follows:
                                                                 2004
                                                           -----------------

Balance, beginning of year                                      $      -
Addition of SBA loan servicing rights                             44,149
Amortization                                                      (2,876)
                                                                --------

Balance, end of year                                            $ 41,273
                                                                ========

The total balance of loans being serviced by the Bank was $2,414,571 at December
31, 2004.

                                       26
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7.  DEPOSITS

         Major classifications of interest-bearing deposits are as follows:
<TABLE>
<CAPTION>
                                                                             2004                2003
                                                                        ----------------    ----------------

<S>                                                                       <C>                  <C>
NOW                                                                       $ 2,211,906          $ 1,272,138
Money Market                                                               13,575,039           16,210,283
Savings                                                                       479,752              520,134
Certificates of Deposit, $100,000 or more                                  22,795,721           12,938,343
Other time deposits                                                         5,975,217              285,212
                                                                          -----------          -----------
                                                                          $45,037,635          $31,226,110
                                                                          ===========          ===========
</TABLE>


         Interest expense on interest-bearing deposits, by category, is as
         follows:

<TABLE>
<CAPTION>
                                                         2004                2003                2002
                                                    ----------------    ----------------    ----------------

<S>                                                   <C>                    <C>                <C>
NOW                                                   $  4,294               $  3,762           $  6,197
Money Market                                            99,648                136,068            266,294
Savings                                                    556                  1,587              5,978
Certificates of Deposit, $100,000 or more              401,172                352,085            412,541
Other time deposits                                     63,284                  4,138              6,330
                                                      --------               --------           --------

                                                      $568,954               $497,640           $697,340
                                                      ========               ========           ========
</TABLE>

         At December 31, 2004, the scheduled maturities of time deposits are
         approximately as follows:

                                                                      2004
                                                                  ------------

                       2005                                       $ 17,275,646
                       2006                                          6,740,469
                       2007                                          4,754,823
                                                                  ------------
                                                                  $ 28,770,938
                                                                  ============

         Deposit and repurchase agreement balances of executive officers and
         directors and their affiliated interests totaled approximately
         $9,380,000 and $8,540,000 at December 31, 2004 and 2003, respectively.

         Included in Certificates of Deposit, $100,000 or more and other time
         deposits are $6,335,357 of brokered certificates as of December 31,
         2004 with a weighted average interest rate of 3.43%. The Bank had no
         brokered deposits at December 31, 2003.

NOTE 8.  SHORT-TERM BORROWINGS

         The Bank has received approval of secured and unsecured credit
         facilities for short-term liquidity needs from financial institutions
         of $1,250,000 and $2,200,000, and $3,000,000 and $2,200,000,
         respectively, at December 31, 2004 and 2003, respectively. There were
         no borrowings outstanding under these credit arrangements at December
         31, 2004 and 2003.

                                       27
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9.  OTHER OPERATING EXPENSES

         Other operating expenses include the following:

<TABLE>
<CAPTION>
                                                         2004                2003                2002
                                                    ----------------    ----------------    ----------------

<S>                                                     <C>                 <C>                <C>
Correspondent service charges                           $ 28,414            $ 21,433           $ 10,575
Courier                                                    4,515               2,209             10,650
Internet charges                                           9,580               9,400              8,335
Loan fees - SBA                                           14,347              17,196             12,661
Office supplies                                           38,286              24,593             15,291
Postage                                                   16,409              13,337             10,314
Repairs and maintenance                                    8,622               4,577              3,783
Provision for losses on unfunded commitments               6,000               6,000             12,000
Telephone                                                 11,053              10,392             10,115
Other                                                     57,228              34,442             29,277
                                                        --------            --------           --------

                                                        $194,454            $143,579           $123,001
                                                        ========            ========           ========
</TABLE>

NOTE 10. INCOME TAXES

         Income tax (benefit) expense components are as follows:

<TABLE>
<CAPTION>
                                                                                                2004
                                                                                           ----------------
<S>                                                                                            <C>
Deferred income (benefits) taxes:
     Federal                                                                                   $  67,181
     State                                                                                        14,873
     Decrease in valuation allowance                                                            (944,054)
                                                                                               ---------

        Total deferred                                                                          (862,000)
                                                                                               ---------

           Income tax benefit                                                                  $(862,000)
                                                                                               =========
</TABLE>

         A reconciliation of income tax benefit computed at the statutory rate
         of 34% to the actual income tax benefit is as follows:
<TABLE>
<CAPTION>
                                                                                                2004
                                                                                           ----------------

<S>                                                                                            <C>
Income before income tax benefits                                                              $ 227,795
                                                                                               =========

Tax computed at Federal income tax rate                                                        $  77,450
Increase (decrease) resulting from:
     State income taxes, net of Federal income tax benefit                                        25,073
     Decrease in valuation allowance                                                            (944,054)
     Other                                                                                       (20,469)
                                                                                               ---------

         Income tax benefit                                                                    $(862,000)
                                                                                               =========
</TABLE>


                                       28
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10. INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                            2004                2003
                                                                       ----------------    ----------------
<S>                                                                       <C>                 <C>
Deferred tax assets:
     Accumulated depreciation                                             $       -           $   3,310
     Allowance for credit losses                                            445,626             233,303
     Charitable contributions                                                   975                 570
     Net operating loss carryforwards                                       428,697             699,919
     Net unrealized losses on securities available for sale                  14,084                   -
     Reserve for unfunded commitments                                         9,269               6,952
                                                                          ---------           ---------
                                                                            898,651             944,054
                                                                          ---------           ---------

Deferred tax liabilities:
     Accumulated depreciation                                                22,567                   -
     Net unrealized gains on securities available for sale                        -              20,310
                                                                          ---------           ---------
                                                                             22,567              20,310
                                                                          ---------           ---------
Net deferred tax asset                                                      876,084             923,744
Valuation allowance                                                               -            (944,054)
                                                                          ---------           ---------

Net deferred tax assets (liability)                                       $ 876,084           $ (20,310)
                                                                          =========           =========
</TABLE>

         During the third quarter 2004, management removed the valuation
         allowance established in 2003 for net deferred tax assets relating to
         all amounts other than unrealized gains/losses on securities available
         for sale, as it is now more likely than not that the net deferred
         income tax assets will be fully realizable in future years. Operating
         losses of approximately $1,136,000 are available to offset future
         taxable income through 2020.

NOTE 11. COMMITMENTS AND CONTINGENCIES

         Financial instruments:

         The Bank is a party to financial instruments in the normal course of
         business to meet the financing needs of its customers. These financial
         instruments include commitments to extend credit and standby letters of
         credit, which involve, to varying degrees, elements of credit and
         interest rate risk in excess of the amounts recognized in the
         consolidated financial statements.

         Outstanding loan commitments, unused lines of credit and letters of
         credit are approximately as follows:

<TABLE>
<CAPTION>
                                                         2004                2003
                                                    ----------------    ----------------
<S>                                                    <C>                 <C>
Loan commitments:
   Commercial                                          $10,153,000         $ 6,114,000
                                                       ===========         ===========

Unused lines of credit:
  Commercial lines                                     $11,727,000         $ 7,690,000
                                                       ===========         ===========

Letters of credit:                                     $   397,000         $    25,000
                                                       ===========         ===========
</TABLE>


                                       29
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

         Loan commitments and lines of credit are agreements to lend to
         customers as long as there is no violation of any conditions of the
         contracts. Loan commitments generally have interest rates reflecting
         current market conditions, fixed expiration dates, and may require
         payment of a fee. Lines of credit generally have variable interest
         rates. Some of the loan commitments and lines of credit are expected to
         expire without being drawn upon; accordingly, the total commitment
         amounts do not necessarily represent future cash requirements. The Bank
         evaluates each customer's creditworthiness on a case-by-case basis. The
         amount of collateral or other security obtained, if deemed necessary by
         the Bank upon extension of credit, is based on the Bank's credit
         evaluation. Collateral held varies but may include deposits held in
         financial institutions, U.S. Treasury securities, other marketable
         securities, accounts receivable, inventory, property and equipment,
         personal residences, income-producing commercial properties, and land
         under development. Personal guarantees are normally obtained to provide
         added security for certain commitments.

         Letters of credit are conditional commitments issued by the Bank to
         guarantee the performance of a customer to a third party. Those
         guarantees are primarily issued to guarantee the installation of real
         property improvements and similar transactions. The credit risk
         involved in issuing letters of credit is essentially the same as that
         involved in extending loan facilities to customers. The Bank holds
         collateral and obtains personal guarantees supporting those commitments
         for which collateral or other securities is deemed necessary.

         The Bank's exposure to credit loss in the event of nonperformance by
         the customer is the contractual amount of the commitment. Loan
         commitments and lines of credit are made on the same terms, including
         collateral, as outstanding loans. As of December 31, 2004 and 2003, the
         Bank has accrued $24,000 and $18,000, respectively, for unfunded
         commitments related to these financial instruments with off balance
         sheet risk, which is included in other liabilities

         Employment agreements:

         The Company has employment agreements with the Chairman of the Board of
         Directors, President, and Executive Vice President, which expire in
         2009, and with a Senior Vice President, which expires in 2007.

NOTE 12. STOCKHOLDERS' EQUITY

         Restrictions on dividends:

         Banking regulations limit the amount of dividends that may be paid
         without prior approval of the Bank's regulatory agencies. Regulatory
         approval is required to pay dividends that exceed the Bank's net
         profits for the current year plus its retained net profits for the
         preceding two years.

         Regulatory capital requirements:

         The Company and Bank are subject to various regulatory capital
         requirements administered by Federal and State banking agencies.
         Failure to meet minimum capital requirements can initiate certain
         mandatory, and possibly additional discretionary actions by regulators
         that, if undertaken, could have a direct material effect on the
         Company's financial statements. The Company and Bank must meet specific
         capital guidelines that involve quantitative measures of the Company's
         and Bank's assets, liabilities, and certain off-balance sheet items as
         calculated under regulatory accounting principles. The Company's and
         Bank's capital amounts and classification are also subject to
         qualitative judgments by the regulators about components, risk
         weightings, and other factors.



                                       30
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12. STOCKHOLDERS' EQUITY (CONTINUED)

         Quantitative measures established by regulation to ensure capital
         adequacy require the Company and Bank to maintain minimum amounts and
         ratios (as defined in the regulations) of total and Tier I capital to
         risk-weighted assets and of Tier I capital to average assets.
         Management believes, as of December 31, 2004 and 2003 the Company and
         Bank meet all capital adequacy requirements to which it is subject.

         As of December 31, 2004, the most recent notification from the FDIC
         categorized the Bank as well capitalized under the regulatory framework
         for prompt corrective action. To be categorized as well capitalized the
         Bank must maintain minimum total risk-based, Tier I risk-based, and
         Tier I leverage ratios. There are no conditions or events since that
         notification that management believes have changed the Bank's category.

         A comparison of capital as of December 31, 2004 and 2003 with minimum
         requirements is approximately as follows:

<TABLE>
<CAPTION>
                                                                                         To Be Well Capitalized
                                                                                              Under Prompt
                                                                   For Capital              Corrective Action
                                              Actual             Adequacy Purposes               Provisions
                                        Amount      Ratio        Amount       Ratio        Amount         Ratio
                                      ----------  --------  --------------- ---------  --------------  ----------
<S>                                   <C>            <C>         <C>             <C>       <C>              <C>
AS OF DECEMBER 31, 2004
   TOTAL CAPITAL
     (TO RISK WEIGHTED ASSETS)
     COMPANY                          $7,500,266     13.5%       $4,437,000      8.0%        N/A
     BANK                              7,368,874     13.3%        4,434,000      8.0%      $5,543,000       10.0%

   TIER I CAPITAL
     (TO RISK WEIGHTED ASSETS)
     COMPANY                           6,801,438     12.3%        2,219,000      4.0%        N/A
     BANK                              6,670,046     12.0%        2,217,000      4.0%       3,326,000        6.0%

   TIER I CAPITAL
     (TO AVERAGE ASSETS)
     COMPANY                           6,801,438     10.6%        2,571,000      4.0%        N/A
     BANK                              6,670,046     10.4%        2,570,000      4.0%       3,212,000        5.0%

As of December 31, 2003
   Total Capital
     (to Risk Weighted Assets)
     Company                          $6,126,067     18.6%       $2,636,000      8.0%        N/A
     Bank                              4,942,416     15.0%        2,636,000      8.0%      $3,296,000       10.0%

   Tier I Capital
     (to Risk Weighted Assets)
     Company                           5,711,643     17.3%        1,318,000      4.0%        N/A
     Bank                              4,527,993     13.7%        1,318,000      4.0%       1,977,000        6.0%

   Tier I Capital
     (to Average Assets)
     Company                           5,711,643     12.7%        1,800,000      4.0%        N/A
     Bank                              4,527,993     10.1%        1,799,000      4.0%       1,647,000        5.0%
</TABLE>


                                       31
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13. WARRANT AND OPTION PLANS

         At December 31, 2004, vested warrants totaled 123,337 of which no
         warrants had been exercised. The exercise price of each warrant is $10
         per share and must be exercised, unless earlier called by the Company,
         not later than 10 years from August 18, 2000. Generally, vested
         warrants also expire one year following the date that the organizer
         ceases to be a director of the Bank. Warrants may be called by the
         Company in the event that a merger, sale, acquisition, share exchange
         or other similar extraordinary event is approved by the Board of
         Directors of the Company. Upon call by the Company, warrant holders
         have 90 days in which to exercise their warrants. If they are not
         exercised, the Company will pay the warrant holder the difference
         between the exercise price of the warrant and the fair market value of
         the stock of the Company at the time of the closing of the transaction.
         In the event that an applicable Federal or state regulatory authority
         determine that the Bank's capital fails to meet minimum capital
         requirements, such regulatory authority may direct the Company to call
         all outstanding warrants. Any warrants not exercised will be thereafter
         forfeited.

         The Board of Directors of the Company also adopted a stock option plan
         as a performance incentive for the Bank's officers and key employees.
         The employment contracts, signed by the Chairman of the Board,
         President, and Executive Vice President, obligated the Company to issue
         non-transferable stock options in the amount of 2,500, 10,000, and
         7,500, respectively, at an exercise price of $10 per share. At December
         31, 2004, all stock options had been issued by the Company of which no
         options had been exercised.

         The Company currently applies Accounting Principles Board Opinion (APB)
         No. 25 and related Interpretations in accounting for these plans. Under
         APB No. 25, recognition of compensation expense for warrants and
         contractually committed options is not required when they are granted
         at an exercise price equal to or exceeding the fair market value of the
         Company's common stock on the grant date. Accordingly, no compensation
         cost has been recognized in the accompanying Consolidated Financial
         Statements for these plans. SFAS No. 123, Accounting for Stock-Based
         Compensation, establishes accounting and reporting standards for
         stock-based compensation plans. SFAS No. 123 defines a fair value base
         method of accounting for measuring compensation expense for stock-based
         plans to be recognized in the statement of income or disclosed in the
         notes to the financial statements. If compensation cost for the
         Company's stock-based compensation plan had been determined based on
         the fair value at the grant date for awards under this plan consistent
         with the methods outlined in SFAS No. 123 Accounting for Stock-Based
         Compensation, there would be no material change in reported net income.

NOTE 14. EMPLOYEE BENEFIT PLANS

         The Bank has employee benefit programs that include health and dental
         insurance, life and long-term and short-term disability insurance and a
         401(k) retirement plan. Under the 401(k) plan, the Bank made a 50%
         match of eligible employee contributions up to 6% of base salary in
         2004 and 2003. The Bank's contributions to the plan, included in
         salaries and employee benefits, totaled $23,171 and $21,642, for the
         years ended December 31, 2004 and 2003, respectively.

NOTE 15. INCOME (LOSS) PER COMMON SHARE

         Income (losses) per common share are calculated as follows:
<TABLE>
<CAPTION>
                                                            2004             2003             2002
                                                       ----------------  --------------   --------------
<S>                                                       <C>              <C>              <C>
Basic:
    Net income (loss)                                     $1,089,795       $  142,584       $ (643,298)
    Weighted average common shares outstanding               822,250          822,250          822,250
    Basic net income (loss) per share                     $     1.33       $     0.17       $    (0.78)
</TABLE>

         Diluted per share calculations were not applicable for 2004, 2003 and
         2002, since consideration of outstanding warrants and options would
         have been anti-dilutive.


                                       32
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16. RELATED PARTY TRANSACTIONS

         The Bank paid $57,403, $29,606, and $4,831 during the years ended
         December 31, 2004, 2003 and 2002 respectively, to a computer consulting
         firm of which a Director is also a principal. Expenditures included
         computer hardware, software, installation, training, and support
         services.

         The Bank paid $113,710, $94,469, and $82,749 during the years ended
         December 31, 2004, 2003 and 2002 respectively, for various group
         insurance benefits for which a Director will ultimately receive
         commission compensation.

         Expenses of approximately $6,313, $22,946, and $21,267 were paid for
         legal services with a law firm, of which the Chairman of the Board of
         the Company is a principal, for the years ended December 31, 2004, 2003
         and 2002, respectively.

         All of the above transactions appear to have been consummated on terms
         equivalent to those that prevail in arms length transactions.

NOTE 17. FAIR VALUES OF FINANCIAL INSTRUMENTS

         In accordance with the disclosure requirements of SFAS No. 107, the
         estimated fair value and the related carrying values of the Company's
         financial instruments are as follows:

<TABLE>
<CAPTION>
                                                   2004                                2003
                                              ---------------------------------   ---------------------------------
                                                 CARRYING            FAIR            Carrying            Fair
                                                  AMOUNT             VALUE            Amount             Value
                                              ---------------------------------   ---------------------------------

<S>                                             <C>               <C>               <C>               <C>
FINANCIAL ASSETS
    Cash and due from banks                     $ 3,196,520       $ 3,196,520       $ 2,374,141       $ 2,374,141
    Federal funds sold                           14,202,382        14,202,382         8,583,257         8,583,257
    Investment securities available for
      sale, at fair value                         4,978,100         4,978,100         7,087,190         7,087,190
    FRB stock, at cost                              195,900           195,900           132,450           132,450
    Other equity investments, at cost                62,000            62,000            62,000            62,000
    Loans, less allowance for credit losses      51,017,418        51,017,418        32,687,894        32,687,894
    Loans held for sale, at fair value              759,056           759,056                 -                 -
    Accrued interest receivable                     233,946           233,946           172,811           172,811

FINANCIAL LIABILITIES
    Noninterest-bearing demand                   20,691,315        20,691,315         9,387,230         9,387,230
    Interest-bearing                             45,037,635        45,037,635        31,226,110        31,226,110
    Securities sold under agreements to
      repurchase                                  3,086,450         3,086,450         4,693,879         4,693,879
    Accrued interest payable on deposits             36,412            36,412            17,709            17,709
</TABLE>

         For purposes of the disclosures of estimated fair value, the following
         assumptions were used.

         Loans:

         The fair value of loans is considered to approximate carrying value
         because of the ability to re-price at short-term intervals.

         Investment securities:

         Estimated fair values are based on quoted market prices.



                                       33
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

         Deposits:

         The estimated fair value of deposits with no stated maturity, such as
         noninterest-bearing demand deposits, savings, NOW accounts and money
         market accounts, is equal to the amount payable on demand at the
         reporting date (that is, their carrying amounts).

         Other assets and liabilities:

         The estimated fair values for cash and due from banks, Federal funds
         sold and accrued interest receivable and payable are considered to
         approximate cost because of their short-term nature.

         Other assets and liabilities of the Bank that are not defined as
         financial instruments are not included in the above disclosures, such
         as property and equipment. In addition, non-financial instruments
         typically not recognized in the financial statements nevertheless may
         have value but are not included in the above disclosures. These
         include, among other items, the estimated earnings power of core
         deposit accounts, the trained work force, customer goodwill, and
         similar items.

NOTE 18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In January 2003, the FASB issued FASB Interpretation No. 45,
         Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Other. This statement
         establishes standards for recognizing a liability for the fair value of
         an obligation undertaken in issuing a guarantee.

         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
         on Derivative Instruments and Hedging Activities. This statement amends
         and clarifies financial accounting and reporting for derivative
         instruments, including certain derivative instruments embedded in other
         contracts and for hedging activities under Statement No. 133.

         In May 2003, the FASB also issued SFAS No. 150, Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity. This statement establishes standards for how an issuer
         classifies and measures certain financial instruments with
         characteristics of both liabilities and equity.

         In management's opinion, these statements have little applicability to
         the Company and Bank at this time and believe they are in compliance
         with all applicable provisions of these statements. Management believes
         that these statements may become more applicable in the future as the
         Bank continues to grow.

         In November 2003, the FASB also issued Emerging Issues Task Force Issue
         No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
         Application to Certain Investments. This statement establishes
         standards for accounting for and disclosure of declines in fair value
         below cost basis of available for sale and held to maturity investment
         securities. The recognition and measurement provisions were initially
         effective for other-than-temporary impairment evaluations in reporting
         periods beginning after June 15, 2004. However, in September 2004, the
         effective date of these provisions was delayed until the finalization
         of a FASB Staff Position to provide additional implementation guidance.

         In December 2004, the FASB issued SFAS No. 123, "Share-Based Payment
         (Revised 2004)." SFAS 123R establishes standards for the accounting for
         transactions in which an entity (i) exchanges its equity instruments
         for goods or services, or (ii) incurs liabilities in exchange for goods
         or services that are based on the fair value of the entity's equity
         instruments or that may be settled by the issuance of the equity
         instruments. SFAS 123R eliminates the ability to account for
         stock-based compensation using APB 25 and requires that such
         transactions be recognized as compensation cost in the income statement
         based on their fair values on the date of the grant. SFAS 123R is
         effective for the Company on January 1, 2006. The Company will
         transition to fair value based accounting for stock-based compensation



                                       34
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

         using a modified version of prospective application (modified
         prospective application"). Under modified prospective application, as
         it is applicable to the Company, SFAS 123R applies to new awards and to
         awards modified, repurchased, or cancelled after January 1, 2006.
         Additionally, compensation cost for the portion of awards for which the
         requisite service has not been rendered (generally referring to
         non-vested awards) that are outstanding as of January 1, 2006 must be
         recognized as the remaining requisite service is rendered during the
         period of and/or the periods after the adoption of SFAS 123R. The
         attribution of compensation cost for those earlier awards will be based
         on the same method and on the same grant-date fair values previously
         determined for the pro forma disclosures required for companies that
         did not adopt the fair value accounting method for stock-based employee
         compensation. The Company expects to recognize additional pre-tax,
         quarterly compensation costs beginning in the first quarter of 2006 as
         a result of the adoption of SFAS 123R. Future levels of compensation
         cost recognized related to stock-based compensation awards (including
         the aforementioned expected costs during the period of adoption) may be
         impacted by new awards and/or modifications, repurchases and
         cancellations of existing awards before and after the adoption of this
         standard.

NOTE 19. PARENT COMPANY FINANCIAL INFORMATION

         The Balance Sheets, Statements of Operations and Statements of Cash
         Flows for CommerceFirst Bancorp, Inc. (Parent Only) are presented
         below:

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31,                                                         2004             2003
------------------------------------------------------------------------------------------------
                                          ASSETS

<S>                                                            <C>                 <C>
Cash                                                           $    75,612         $ 1,178,651
Investment in CommerceFirst Bank                                 6,642,709           4,567,419
Other assets                                                        55,780               5,000
                                                               -----------         -----------

         TOTAL ASSETS                                          $ 6,774,101         $ 5,751,070
                                                               ===========         ===========

                                    STOCKHOLDERS' EQUITY


Common stock                                                   $     8,223         $     8,223
Surplus                                                          8,099,012           8,099,012
Accumulated deficit                                             (1,305,795)         (2,395,590)
Accumulated other comprehensive (loss) income                      (27,339)             39,425
                                                               -----------         -----------

         TOTAL STOCKHOLDERS' EQUITY                            $ 6,774,101         $ 5,751,070
                                                               ===========         ===========
</TABLE>



                            STATEMENTS OF OPERATIONS
                  Years Ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                     2004             2003              2002
------------------------------------------------------------------------------------------------------------------

<S>                                                               <C>               <C>              <C>
Income                                                            $         -       $     1,079      $     3,588
Expenses                                                              (52,259)          (53,176)         (43,972)
                                                                  -----------       -----------      -----------
(Loss) income before equity in income (loss) of subsidiary            (52,259)          (52,097)         (40,384)
Net income (loss) of subsidiary                                     1,142,054           194,681         (602,914)
                                                                  -----------       -----------      -----------

         NET INCOME (LOSS)                                        $ 1,089,795       $   142,584      $  (643,298)
                                                                  ===========       ===========      ===========
</TABLE>


                                       35
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                     2004             2003              2002
------------------------------------------------------------------------------------------------------------------

<S>                                                               <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                             $ 1,089,795       $   142,584       $  (643,298)
    Adjustments to reconcile net income (loss) to net
       cash used by operating activities:
         (Increase) decrease in other assets                          (50,780)              248             1,752
         Net (income) loss of subsidiary                           (1,142,054)         (194,681)          602,914
                                                                  -----------       -----------       -----------

       Net cash used by operating activities                         (103,039)          (51,849)          (38,632)
                                                                  -----------       -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Investment in subsidiary                                       (1,000,000)                -                 -
                                                                  -----------       -----------       -----------

DECREASE IN CASH                                                   (1,103,039)          (51,849)          (38,632)

CASH, BEGINNING OF YEAR                                             1,178,651         1,230,500         1,269,132
                                                                  -----------       -----------       -----------
CASH, END OF YEAR                                                 $    75,612       $ 1,178,651       $ 1,230,500
                                                                  ===========       ===========       ===========
</TABLE>

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


The following is a summary of the Consolidated unaudited quarterly results of
operations:

<TABLE>
<CAPTION>

                   2004                                                     THREE MONTHS ENDED,
          (Dollars in thousands,                       --------------------------------------------------------
         except per share amounts)                     December 31      September 30    June 30        March 31
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>             <C>
Interest income                                           $  939         $  759         $  680          $ 623
Interest expense                                             205            133            131            119
Net interest income                                          734            626            549            503
Provision for credit losses                                   90            410             45             45
Net income                                                   134            758            124             74
Net income per share (basic and diluted)                  $ 0.17         $ 0.92         $ 0.15          $0.09

</TABLE>


<TABLE>
<CAPTION>

                   2003                                                     Three months ended,
          (Dollars in thousands,                       --------------------------------------------------------
         except per share amounts)                     December 31      September 30    June 30        March 31
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>
Interest income                                           $  627         $  628         $  633         $  601
Interest expense                                             118            116            146            150
Net interest income                                          509            512            487            451
Provision for credit losses                                   75             75             75             45
Net income                                                    42             62             14             25
Net income per share (basic and diluted)                  $ 0.05          $0.07         $ 0.02         $ 0.03

</TABLE>


<TABLE>
<CAPTION>
                   2002                                                     Three months ended,
          (Dollars in thousands,                       --------------------------------------------------------
         except per share amounts)                     December 31      September 30    June 30        March 31
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>
Interest income                                           $  603         $  567         $  481         $  417
Interest expense                                             210            200            168            158
Net interest income                                          394            367            313            259
Provision for credit losses                                  295             45             45             45
Net loss                                                     266             60            142            175
Net loss per share (basic and diluted)                    $(0.33)        $(0.07)        $(0.17)        $(0.21)

</TABLE>

NOTE 21. SUBSEQUENT EVENT

In January 2005, the Company obtained SEC approval for an offering of 700,000
shares of its common stock in a best efforts public offering. Of the 700,000
shares of common stock, 175,000 shares are being offered in a rights offering to
shareholders of record on December 9, 2004 at $10.50 per share. Any of the
175,000 shares that are being offered in the rights offering that are not
subscribed for, plus an additional 525,000 shares, are being offered to the
public. Currently, the estimated public offering will be between $10.50 and
$11.50 per share, although it could be higher or lower. The Company expects this
offering to begin in late February 2005.



                                       37
<PAGE>


                              DIRECTORS & OFFICERS
                                       OF
               COMMERCEFIRST BANCORP, INC. AND COMMERCEFIRST BANK

                         MILTON D. JERNIGAN II, ESQUIRE*
                              CHAIRMAN OF THE BOARD
                                MANAGING PARTNER
              MCNAMEE, HOSEA, JERNIGAN, KIM, GREENAN & WALKER, P.A.

                                 ALVIN R. MAIER*
                           VICE CHAIRMAN OF THE BOARD
                      PRIVATE INVESTOR AND FORMER PRESIDENT
                               ERNEST MAIER, INC.

RICHARD J. MORGAN*                              LAMONT THOMAS*
PRESIDENT &                                     EXECUTIVE VICE PRESIDENT &
CHIEF EXECUTIVE OFFICER                         CHIEF OPERATING OFFICER

WILFRED T. AZAR, III                            NICHOLAS J. MARINO
PRESIDENT                                       PRESIDENT
EMPIRE MANAGEMENT SERVICES                      MARINO TRANSPORTATION
                                                SERVICES, LLC

JOHN J. BARRON*                                 MICHAEL J. MILLER
PRESIDENT                                       VICE PRESIDENT
O'NEIL POOLS & SPAS                             CONCRETE GENERAL, INC. &
                                                TRI M LEASING CORP

WILLIAM F. CHESLEY                              ROBERT R. MITCHELL*
PRESIDENT                                       PRIVATE INVESTOR AND
W. F. CHESLEY REAL ESTATE, INC.                 FORMER PRESIDENT,
                                                MITCHELL BUSINESS
                                                EQUIPMENT, INC.

CHARLES F. DELAVAN, ESQUIRE                     JOHN A. RICHARDSON, SR.*
PRINCIPAL                                       PRESIDENT, CROFTON
BLUMENTHAL, DELAVAN & WILLIAMS, P.A.            BOWLING CENTER
                                                FORMER PRESIDENT, BRANCH
                                                ELECTRIC SUPPLY CO., INC.

GREGORY A. GRAY                                 DON E. RIDDLE, JR.
PRESIDENT                                       CHAIRMAN & CHIEF
EASTERN WATERPROOFING &                         EXECUTIVE OFFICER
RESTORATION CO., INC.                           HOMESTEAD GARDENS, INC.


EDWARD B. HOWLIN, JR.*                          GEORGE C. SHENK, JR.
PRESIDENT                                       PRESIDENT
HOWLIN REALTY MANAGEMENT, INC.                  WHITMORE PRINT & IMAGING, INC.

CHARLES L. HURTT, JR., CPA*                     DALE R. WATSON
PRESIDENT                                       PRESIDENT
CHARLES L. HURTT, JR., PA                       ALPHA ENGINEERING
                                                ASSOCIATES, INC.

MILTON D. JERNIGAN, SR.                         JEROME A. WATTS
PRIVATE INVESTOR AND RETIRED FORMER FOUNDER,    OWNER
CHAIRMAN & PRESIDENT                            PLAN MANAGEMENT
AAA RENTALS, INC. AND AAA TOOLS, INC.

* Director of CommerceFirst Bancorp, Inc.



                                       38
<PAGE>


                                    OFFICERS
                                       OF
                               COMMERCEFIRST BANK



                               THOMAS L. BOLANDER
                              SENIOR VICE PRESIDENT

                                 GEORGE KAPUSTA
                              SENIOR VICE PRESIDENT

                              CANDACE M. SPRINGMANN

                      VICE PRESIDENT & CORPORATE SECRETARY

                                PENNY L. CANTWELL
                                 VICE PRESIDENT

                                 DAVID STEINHOFF
                                 VICE PRESIDENT

                              MELONEE FLEMING, CCE
                            ASSISTANT VICE PRESIDENT

                                 JEAN J. BARNES
                            ASSISTANT VICE PRESIDENT

                                  IRMA R. BERN
                               ASSISTANT TREASURER

                                  ANN BRUNDIGE
                          COMMUNITY DEVELOPMENT OFFICER


THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY SHAREHOLDER OF RECORD OR ANY
BENEFICIAL OWNER OF COMMON STOCK, A COPY OF ITS 2004 ANNUAL REPORT ON FORM
10-KSB FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, UPON THE WRITTEN
REQUEST. REQUESTS SHOULD BE DIRECTED TO CANDACE M. SPRINGMANN, CORPORATE
SECRETARY, AT THE COMPANY'S EXECUTIVE OFFICES AT 1804 WEST STREET, SUITE 200,
ANNAPOLIS MD 21401.



                                       39