UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

(MARK ONE)

	ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarterly Period Ended June 30, 2005

		OR

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

For the transition period from to

Commission File Number: 000-50407

FREDERICK COUNTY BANCORP, INC.

(Exact name of issuer as specified in its charter)

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

9 North Market Street

Frederick, Maryland 21701

(Address of principal executive offices)

301.620.1400

(Issuer’s telephone number)

30 West Patrick Street

Frederick, Maryland 21701

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

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

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

Transitional Small Business Disclosure Format (check one) Yes o No ý

FREDERICK COUNTY BANCORP, INC.

TABLE OF CONTENTS

PART I		FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited)

	Consolidated Balance Sheets, June 30, 2005 and December 31, 2004

	Consolidated Statements of Income, Three and Six Months Ended June 30, 2005 and 2004

	Consolidated Statements of Changes in Shareholders’ Equity, Six Months Ended June 30, 2005 and 2004

	Consolidated Statements of Cash Flows, Six Months Ended June 30, 2005 and 2004

	Notes to Consolidated Financial Statements

Item 2	Management’s Discussion and Analysis or Plan of Operations

Item 3	Controls and Procedures

PART II		OTHER INFORMATION

Item 1	Legal Proceedings

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds

Item 3	Defaults upon Senior Securities

Item 4	Submission of Matters to a Vote of Security Holders

Item 5	Other Information

Item 6	Exhibits

	Signatures

Frederick County Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
(dollars in thousands)	2005			2004
ASSETS
Cash and due from banks	$	5,083		$	3,524
Federal funds sold	9,905			12,334
Interest-bearing deposits in other banks	5,097			781
Cash and cash equivalents	20,085			16,639
Investment securities available for sale-at fair value	17,909			16,734
Investment securities held-to-maturity - fair value of $850 and $299	849			299
Restricted stock	821			715
Loans	148,516			135,668
Less: Allowance for loan losses	(1,803		)	(1,503		)
Net loans	146,713			134,165
Bank premises and equipment	1,592			1,481
Other assets	2,412			1,144
Total assets	$	190,381		$	171,177

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Deposits:
Noninterest-bearing deposits	$	31,343		$	23,749
Interest-bearing deposits	143,069			131,842
Total deposits	174,412			155,591
Short-term borrowings	450			450
Accrued interest and other liabilities	400			923
Total liabilities	175,262			156,964

Shareholders’ Equity
Common stock, per share par value $.01; 10,000,000 shares authorized; 1,458,602 and 1,457,402 shares issued and outstanding, respectively	15			15
Additional paid-in capital	14,644			14,632
Retained earnings (deficit)	505			(411		)
Accumulated other comprehensive income (loss)	(45		)	(23		)
Total shareholders’ equity	15,119			14,213
Total liabilities and shareholders’ equity	$	190,381		$	171,177

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

Frederick County Bancorp, Inc.
Consolidated Statements of Income
(Unaudited)

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2005			2004		2005			2004
Interest income:
Interest and fees on loans	$	2,324		$	1,587	$	4,453		$	3,060
Interest and dividends on investment securities:
Interest – taxable	158			141		313			279
Interest – tax exempt	5			—		7			—
Dividends	11			9		20			18
Interest on federal funds sold	71			26		127			51
Other interest income	12			1		14			2
Total interest income	2,581			1,764		4,934			3,410
Interest expense:
Interest on deposits	712			397		1,330			776
Interest on other short-term borrowings	7			4		13			7
Total interest expense	719			401		1,343			783
Net interest income	1,862			1,363		3,591			2,627
Provision for loan losses	150			105		300			210
Net interest income after provision for loan losses	1,712			1,258		3,291			2,417
Noninterest income:
Securities gains (losses)	(1		)	1		(1		)	1
Service fees	38			36		73			71
Other operating income	41			25		68			49
Total noninterest income	78			62		140			121
Noninterest expenses:
Salaries and employee benefits	676			608		1,312			1,162
Occupancy and equipment expenses	180			161		336			311
Other operating expenses	279			238		552			463
Total noninterest expenses	1,135			1,007		2,200			1,936
Income before provision for income taxes	655			313		1,231			602
Provision for income taxes	255			—		315			—
Net income	$	400		$	313	$	916		$	602
Basic earnings per share (1)	$	0.27		$	0.22	$	0.63		$	0.41
Diluted earnings per share (1)	$	0.26		$	0.21	$	0.60		$	0.40
Basic weighted average number of shares outstanding (1)	1,458,602			1,455,152		1,458,117			1,455,152
Diluted weighted average number of shares outstanding (1)	1,527,663			1,500,728		1,526,296			1,497,634

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

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

Frederick County Bancorp, Inc.
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

(dollars in thousands)	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity

Balance, January 1, 2004	727,576	$	7	$	14,617	$	(1,929	)	$	13		$	12,708
Comprehensive income:
Net income						602						602
Changes in net unrealized losses on securities available for sale, net of income tax effects and reclassification adjustments									(187		)	(187		)
Comprehensive income												415
Balance, June 30, 2004	727,576	$	7	$	14,617	$	(1,327	)	$	(174	)	$	13,123
Balance, January 1, 2005	1,457,402	$	15	$	14,632	$	(411	)	$	(23	)	$	14,213
Comprehensive income:
Net income						916						916
Changes in net unrealized losses on securities available for sale, net of income tax effects and reclassification adjustments									(22		)	(22		)
Comprehensive income												894
Shares issued under stock option transactions	1,200			12								12
Balance, June 30, 2005	1,458,602	$	15	$	14,644	$	505		$	(45	)	$	15,119

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

Frederick County Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
(dollars in thousands)	2005			2004
Cash flows from operating activities:
Net income	$	916		$	602
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	80			97
Provision for loan losses	300			210
Securities losses (gains)	1			(1		)
Net premium amortization on investment securities	49			58
Increase in other assets	(1,267		)	(150		)
Decrease in accrued interest and other liabilities	(510		)	(12		)
Net cash provided by (used in) operating activities	(431		)	804
Cash flows from investing activities:
Purchases of investment securities available for sale	(4,139		)	(3,090		)
Purchases of investment securities held to maturity	(550		)	—
Proceeds from sale of investment securities available for sale	691			695
Proceeds from maturities of investment securities available for sale	2,187			2,095
Purchases of restricted stock	(106		)	(145		)
Net increase in loans	(12,848		)	(19,952		)
Purchases of bank premises and equipment	(191		)	(102		)
Net cash used in investing activities	(14,956		)	(20,499		)
Cash flows from financing activities:
Net increase in NOW, money market accounts, savings accounts and noninterest-bearing deposits	7,925			20,245
Net increase in time deposits	10,896			5,279
Net increase in short-term borrowings	—			330
Proceeds from issuance of common stock	12			—
Net cash provided by financing activities	18,833			25,854
Net increase in cash and cash equivalents	3,446			6,159
Cash and cash equivalents – beginning of period	16,639			17,549
Cash and cash equivalents – end of period	$	20,085		$	23,708
Supplemental cash flow disclosures:
Interest paid	$	1,322		$	778
Income taxes paid	$	771		$	—

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

FREDERICK COUNTY BANCORP, INC.

Notes to Financial Statements (Unaudited)

Note 1. General:

On August 30, 2000, Frederick County Bank, the sole subsidiary of the Company, was incorporated, and in 2001, the Bank became engaged in the developmental activities needed to obtain a commercial bank charter in the State of Maryland. The Bank received regulatory approval to commence banking operations on October 18, 2001 and, accordingly, became operational during the year ended December 31, 2001. The Company was organized in May 2003 and on September 30, 2003, the Agreement and Plan of Share Exchange (the “Exchange”) between the Company and Frederick County Bank (the “Bank”), dated June 9, 2003, approved at the Special Meeting of Shareholders of the Bank held on September 22, 2003, became effective. Pursuant to the Exchange, each of the outstanding shares of common stock $10.00 par value of the Bank was converted into one share of the common stock $0.01 par value of the Company. As a result of the Exchange, the Bank has become a wholly owned subsidiary of the Company. During February 2004, the Company received approval from the Federal Reserve Bank of Richmond to become a financial holding company. The Bank provides its customers with various banking services. The Bank offers various loan and deposit products to their customers.

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

The preparation of 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on information available as of the date of the financial statements and could differ from actual results.

Note 2. Earnings Per Share:

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

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2005		2004		2005		2004
Net income	$	400	$	313	$	916	$	602
Basic earnings per share	$	0.27	$	0.22	$	0.63	$	0.41
Diluted earnings per share	$	0.26	$	0.21	$	0.60	$	0.40
Basic weighted average number of shares outstanding	1,458,602		1,455,152		1,458,117		1,455,152
Effect of dilutive securities – stock options	69,061		45,576		68,179		42,482
Diluted weighted average number of shares outstanding	1,527,663		1,500,728		1,526,296		1,497,634

Note 3. Employee Stock Option Plan:

The Company maintains an Employee Stock Option Plan that provides for grants of incentive and non-incentive stock options. This plan has been presented to and approved by the Company’s shareholders. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no stock-based employee compensation cost has been recognized, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. There were no stock options granted nor vested during the first six months of 2005 or 2004 and, accordingly, net income and earnings per share would not have been affected if compensation cost for the stock-based compensation plan had been determined on the grant date fair values of awards (the method described in Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation).

Note 4. Investment Portfolio:

The following tables set forth certain information regarding the Company’s investment portfolio at June 30, 2005 and December 31, 2004:

Available-for-sale portfolio

June 30, 2005

(dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Average Yield
U.S. Treasury and other U.S. government Agencies and corporations:
Due after one year through five years	$	1,501	$	1	$	13	$	1,489	3.14	%
Mortgage-backed debt securities	16,132		28		90		16,070		4.19	%
Equity Securities	350		—		—		350		—
	$	17,983	$	29	$	103	$	17,909	4.08	%

December 31, 2004

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

Held-to-maturity portfolio

June 30, 2005

(dollars in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Average Yield
State and political subdivisions:
Due after five years through ten years	$	549	$	1	$	—	$	550	5.04	%
Due after ten years	300		—		—		300		5.73	%
	$	849	$	1	$	—	$	850	5.28	%

December 31, 2004

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

June 30, 2005

	Continuous unrealized losses existing for less than 12 months				Continuous unrealized losses existing for 12 months and greater				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury and other U.S. government agencies and corporations	$	—	$	—	$	487	$	13	$	487	$	13
Mortgage-backed debt securities	8,975		34		3,095		56		12,070		90
Total temporarily impaired securities	$	8,975	$	34	$	3,582	$	69	$	12,557	$	103

December 31, 2004

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

Because the decline in fair value was caused by interest rates and not credit quality and the Company has both the intent and ability to hold these investments for a period of time sufficient to allow for any anticipated recovery in fair value, the Company has not recognized any other-than-temporary impairment in connection with the unrealized losses reflected in the preceding tables.

Restricted Stock

The following table shows the amounts of restricted stock as of June 30, 2005 and December 31, 2004:

	June 30,		December 31,
(dollars in thousands)	2005		2004
Federal Home Loan Bank of Atlanta	$	342	$	261
Federal Reserve Bank	439		414
Atlantic Central Bankers Bank	40		40
	$	821	$	715

Note 5. Loans and Allowance for Loan Losses:

Loans consist of the following:

	June 30,			% of		December 31,			% of
(dollars in thousands)	2005			Loans		2004			Loans
Real estate loans:
Construction and land development	$	29,685		20	%	$	21,648		16	%
Mortgage loans:
Secured by 1 to 4 family residential properties	29,083			20	%	28,066			21	%
Secured by multi-family (5 or more) residential properties	4,837			3	%	2,083			2	%
Secured by commercial properties	54,184			36	%	54,325			40	%
Secured by farm land	4,499			3	%	3,145			2	%
Total mortgage loans	92,603			62	%	87,619			65	%
Loans to farmers	—			—	%	759			—	%
Commercial and industrial loans	23,686			16	%	22,683			17	%
Loans to individuals for household, family and other personal expenditures	2,542			2	%	2,959			2	%
	148,516			100	%	135,668			100	%
Less allowance for loan losses	(1,803		)			(1,503		)
Net loans	$	146,713				$	134,165

Transactions in the allowance for loan losses are summarized as follows:

	Six Months Ended June 30,
(dollars in thousands)	2005		2004
Average total loans outstanding during period	$	139,542	$	104,357
Balance at beginning of period	$	1,503	$	985
Provision charged to operating expenses	300		210
Recoveries of loans previously charged-off	—		—
	1,803		1,195
Loans charged-off	—		—
Balance at end of period	$	1,803	$	1,195

Note 6. Noninterest Expenses:

Noninterest expenses consist of the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2005			2004			2005			2004

Salaries	$	571		$	513		$	1,096		$	988
Bonus	40			58			53			73
Deferred Personnel Costs	(37		)	(44		)	(69		)	(73		)
Payroll Taxes	50			38			115			80
Employee Insurance	25			22			61			53
Other Employee Benefits	27			21			56			41
Depreciation	42			51			80			97
Rent	64			52			115			102
Utilities	15			13			30			29
Repairs and Maintenance	24			20			48			38
ATM Expense	15			14			30			26
Other Occupancy and Equipment Expenses	20			11			33			19
Postage and Supplies	15			13			29			27
Data Processing	98			75			185			144
Advertising and Promotion	48			33			89			73
Legal	3			3			7			20
Insurance	7			11			14			21
Consulting	9			10			19			20
Courier	10			8			20			15
Audit Fees	33			24			66			44
Shareholder Relations	5			2			6			6
Other	51			59			117			93
	$	1,135		$	1,007		$	2,200		$	1,936

Note 7. 401(k) Profit Sharing Plan:

The Company has a Section 401(k) profit sharing plan covering employees meeting certain eligibility requirements as to minimum age and years of service. Employees may make voluntary contributions to the Plan through payroll deductions on a pre-tax basis. The Company makes discretionary contributions to the Plan based on the Company’s earnings. The Company’s contributions are subject to a vesting schedule (20 percent per year) requiring the completion of five years of service with the Company before these benefits are fully vested. A participant’s account under the Plan, together with investment earnings thereon, is normally distributable, following retirement, death, disability or other termination of employment, in a single lump-sum payment.

The Company made contributions to the Plan in the amounts of $42,000 and $17,000 for the first six months of 2005 and 2004, respectively, and $21,000 and $15,000 for the three-month periods ended June 30, 2005 and 2004, respectively.

Note 8. Shareholders’ Equity:

Capital:

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

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). Management believes that the Company and the Bank met all capital adequacy requirements to which they are subject as of June 30, 2005.

As of June 30, 2005, the most recent notification from the regulatory agency 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 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification which management believes have changed the Bank’s category.

The Company’s and the Bank’s actual capital amounts and ratios at June 30, 2005 and December 31, 2004 are presented in the following tables.

June 30, 2005	Actual				For Capital Adequacy Purposes				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Capital
To Risk-Weighted Assets Company	$	15,164	9.20	%	$	6,591	4.00	%	N/A		N/A
Bank	$	15,212	9.25	%	$	6,577	4.00	%	$	9,866	6.00	%

Total Capital
To Risk-Weighted Assets Company	$	16,967	10.30	%	$	13,182	8.00	%	N/A		N/A
Bank	$	17,015	10.35	%	$	13,154	8.00	%	$	16,443	10.00	%

Tier 1 Capital
To Average Assets Company	$	15,164	8.49	%	$	7,146	4.00	%	N/A		N/A
Bank	$	15,212	8.53	%	$	7,134	4.00	%	$	8,917	5.00	%

December 31, 2004	Actual				For Capital Adequacy Purposes				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Capital
To Risk-Weighted Assets Company	$	14,236	9.46	%	$	6,020	4.00	%	N/A		N/A
Bank	$	14,282	9.51	%	$	6,000	4.00	%	$	9,015	6.00	%

Total Capital
To Risk-Weighted Assets Company	$	15,739	10.46	%	$	12,040	8.00	%	N/A		N/A
Bank	$	15,785	10.51	%	$	12,020	8.00	%	$	15,025	10.00	%

Tier 1 Capital
To Average Assets Company	$	14,236	8.84	%	$	6,444	4.00	%	N/A		N/A
Bank	$	14,282	8.88	%	$	6,434	4.00	%	$	8,042	5.00	%

Note 9. Recent Accounting Standards:

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement No. 154, (“SFAS No. 154”) “Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” This new standard replaces Accounting Principles Board (“APB”) Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement. “ The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.

In December 2004, the FASB issued Statement No. 123 (Revised 2004) (“SFAS No. 123R”) “Share-Based Payment,” which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock

Issued to Employees.” Share-based compensation arrangements include share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS No. 123R requires all share-based payments to employees be valued using a fair valued method on the date of grant and expensed based on that fair value over the applicable vesting period. SFAS No. 123R also amends SFAS No. 95 “Statement of Cash Flows,” requiring the benefits of tax deductions in excess of recognized compensation cost be reported as financing instead of operating cash flows. The Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107, (“SAB No. 107”) which expresses the SEC’s views regarding the interaction between SFAS No. 123R and certain SEC rules and regulations. Additionally, SAB No. 107 provides guidance related to share-based payment transactions for public companies. The Company will be required to apply SFAS No. 123R as of the annual reporting period that begins after June 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.

In November 2004, the Emerging Issues Task Force (“EITF”) published Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The Task Force discussed the meaning of other-than-temporary impairment and its application to certain investments carried at cost. The Task Force requested that the FASB staff consider other impairment models within U.S. Generally Accepted Accounting Principles (“GAAP”) when developing its views. The Task Force also requested that the scope of the impairment issue be expanded to include equity investments and investments subject to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and that the issue be addressed by the Task Force as a separate EITF issue. At the EITF meeting, the Task Force reached a consensus on one issue that certain quantitative and qualitative disclosures should be required for securities accounted for under Statement 115 that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The Board ratified the consensus on that one issue at its November 25, 2004 meeting. In September 2004, the Financial Accounting Standards Board (“FASB”) directed the FASB staff to issue two proposed FASB Staff Positions (“FSP”): Proposed FSP EITF Issue 03-1-a, which provides guidance for the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which delays the effective date of Issue 03-1 for debt securities that are impaired because of interest rate and/or sector spread increases. In June 2005, the FASB reached a decision whereby they declined to provide additional guidance on the meaning of other-than-temporary impairment. The Board directed the FASB staff to issue EITF 03-1a as final and to draft a new FSP that will replace EITF 03-01. The final FSP (retitled FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and it Application to Certain Investments”) would be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements.

Item 2. Management’s Discussion and Analysis or Plan of Operations.

Forward-Looking Statements

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

General

The following paragraphs provide an overview of the financial condition and results of operations of the Company. This discussion is intended to assist the readers in their analysis of the accompanying financial statements and notes thereto.

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

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

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

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. The estimates used in management’s assessment of the adequacy of the allowance for credit losses require that management make assumptions about matters that are uncertain at the time of estimation. Differences in these assumptions and differences between the estimated and actual losses could have a material effect. Further information is located in the sections labeled Income Taxes and Allowance for Loan Losses, later in this report.

Six Months Ended June 30, 2005 and 2004

The net income was $916,000 for the six months ended June 30, 2005, which compares very favorably to the $602,000 profit recorded for the same period in 2004. It should be noted that the Company recognized $315,000 of income tax expense in 2005, whereas, no income tax expense was incurred for the same period in 2004 due to the net operating loss carryforwards available at that time. The basic earnings per share for the six months ended June 30, 2005 and 2004 are $0.63 and $0.41, respectively, and are based on the weighted-average number of shares outstanding of 1,458,117 in 2005 and 1,455,152, in 2004. The diluted earnings per share for the six months ended June 30, 2005 and 2004 are $0.60 and $0.40, respectively, and are based on the weighted-average number of shares outstanding of 1,526,296 and 1,497,634 respectively.

The Company experienced an annualized return on average assets of 1.05% and 0.88% for the six-month periods ended June 30, 2005 and 2004, respectively. Additionally, the Company experienced an annualized return on average shareholders’ equity of 12.39% and 9.23% for the six-month periods ended June 30, 2005 and 2004, respectively.

Three Months Ended June 30, 2005 and 2004

The net income was $400,000 for the three months ended June 30, 2005 as compared to the $313,000 net earnings recorded for the same period in 2004. Again, it should be noted that the Company recognized $255,000 of income tax expense during this period in 2005, whereas, no income tax expense was incurred for the same period in 2004 due to the net operating loss carryforwards available at that time. The basic earnings per share for the three months ended June 30, 2005 and 2004 are $0.27 and $0.22, respectively, and are based on the weighted-average number of shares outstanding of 1,458,602 in 2005 and 1,455,152, in 2004. The diluted earnings per share for the three months ended June 30, 2005 and 2004 are $0.26 and $0.21, respectively, and are based on the weighted-average number of shares outstanding of 1,527,663 and 1,500,728, respectively.

The Company experienced an annualized return on average assets of 0.90% and 0.88% for the three-month periods ended June 30, 2005 and 2004, respectively. Additionally, the Company experienced an annualized return on average shareholders’ equity of 10.66% and 9.52% for the three-month periods ended June 30, 2005 and 2004, respectively.

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

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

Frederick County Bancorp, Inc.

Comparative Statement Analysis

Six months ended June 30,

	2005						2004
(dollars in thousands)	Average daily balance		Interest Income/ Paid		Average Yield/ rate		Average daily balance		Interest Income/ Paid		Average Yield/ rate
Assets
Interest-earning assets:
Federal funds sold	$	9,318	$	127	2.75	%	$	10,548	$	51	0.97	%
Interest bearing deposits in other banks	1,107		14		2.55		417		2		0.96
Investment securities (1):
Taxable	17,821		333		3.77		16,922		297		3.52
Tax-exempt (2)	382		11		5.81		—		—		—
Loans (3)	139,542		4,460		6.45		104,357		3,060		5.88
Total interest-earning assets	168,170		4,945		5.93		132,244		3,410		5.17
Noninterest-earning assets	5,673						4,640
Total assets	$	173,843					$	136,884

Liabilities and Shareholders’ Equity
Interest-bearing liabilities
NOW accounts	$	17,220	15		0.18	%	$	15,072	13		0.17	%
Savings accounts	3,071		8		0.53		3,327		9		0.54
Money market accounts	27,688		173		1.26		28,224		131		0.93
Certificates of deposit $100,000 or more	41,918		554		2.67		28,037		290		2.07
Certificates of deposit less than $100,000	44,274		580		2.64		29,986		333		2.23
Short-term borrowings	450		13		5.83		357		7		3.93
Total interest-bearing liabilities	134,621		1,343		2.01		105,003		783		1.50
Noninterest-bearing deposits	23,889						18,589
Noninterest-bearing liabilities	547						250
Total liabilities	159,057						123,842
Total shareholders’ equity	14,786						13,042
Total liabilities and shareholders’ equity	$	173,843					$	136,884
Net interest income			$	3,602					$	2,627
Net interest spread					3.92	%					3.67	%
Net interest margin					4.32	%					3.98	%

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

(2) Presented on a taxable-equivalent basis using the statutory federal income tax rate of 34%. Taxable-equivalent adjustments of $4,000 in 2005 and none in 2004 are included in the calculation of the tax-exempt investment interest income.

(3) Presented on a taxable-equivalent basis using the statutory federal income tax rate of 34%. Taxable-equivalent adjustments of $7,000 in 2005 and none in 2004 are included in the calculation of the loan interest income. Net loan origination expenses charged against interest income totaled $8,000 in 2004 and in 2005 the fee income and expenses netted to zero.

Frederick County Bancorp, Inc.

Comparative Statement Analysis

Three months ended June 30,

	2005						2004
(dollars in thousands)	Average Daily Balance		Interest Income/ Paid		Average Yield/ Rate		Average Daily Balance		Interest Income/ Paid		Average Yield/ Rate
Assets
Interest-earning assets:
Federal funds sold	$	9,928	$	71	2.87	%	$	10,361	$	26	1.01	%
Interest bearing deposits in other banks	1,740		12		2.77		484		1		0.83
Investment securities (1):
Taxable	18,195		169		3.73		17,515		150		3.44
Tax-exempt (2)	465		8		6.90		—		—		—
Loans (3)	142,120		2,328		6.57		108,729		1,587		5.85
Total interest-earning assets	172,448		2,588		6.02		137,089		1,764		5.16
Noninterest-earning assets	6,194						4,968
Total assets	$	178,642					$	142,057

Liabilities and Shareholders’ Equity
Interest-bearing liabilities
NOW accounts	$	18,514	8		0.17	%	$	16,256	7		0.17	%
Savings accounts	3,102		4		0.52		3,347		4		0.48
Money market accounts	26,781		98		1.47		28,488		66		0.93
Certificates of deposit $100,000 or more	42,457		291		2.75		27,965		146		2.09
Certificates of deposit less than $100,000	45,832		311		2.72		31,325		174		2.23
Short-term borrowings	450		7		6.24		428		4		3.75
Total interest-bearing liabilities	137,136		719		2.10		107,809		401		1.49
Noninterest-bearing deposits	26,007						20,807
Noninterest-bearing liabilities	489						284
Total liabilities	163,632						128,900
Total shareholders’ equity	15,010						13,157
Total liabilities and shareholders’ equity	$	178,642					$	142,057
Net interest income			$	1,869					$	1,363
Net interest spread					3.92	%					3.67	%
Net interest margin					4.35	%					3.99	%

(2) Presented on a taxable-equivalent basis using the statutory federal income tax rate of 34%. Taxable-equivalent adjustments of $3,000 in 2005 and none in 2004 are included in the calculation of the tax-exempt investment interest income.

(3) Presented on a taxable-equivalent basis using the statutory federal income tax rate of 34%. Taxable-equivalent adjustments of $4,000 in 2005 and none in 2004 are included in the calculation of the loan interest income. Net loan origination expenses charged against interest income totaled $3,000 in 2004 and net loans fee income of $5,000 in 2005.

Net Interest Income

Net interest income is generated from the Company’s lending and investment activities, and is the most significant component of the Company’s earnings. Net interest income is the difference between interest and rate-related fee income on earning assets (primarily loans and investment securities) and the interest paid on the funds (primarily deposits) supporting them. While the Company currently relies almost entirely on deposits to fund loans and investments, with minimal short term borrowings, in future periods it may utilize a higher level of short-term borrowings, including borrowings from the Federal Home Loan Bank, federal funds lines with correspondent banks and repurchase agreements, to fund operations, depending on economic conditions, deposit availability and pricing, interest rates and other factors.

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

Six Months Ended June 30, 2005 and 2004

The interest income (on a taxable-equivalent basis) of $4.95 million in 2005 was $1.54 million, or 45.01%, higher than the amount recognized in 2004. This dramatic increase in interest income is due to the growth in average earning assets and increased yield on earning assets. Average earning assets increased by $35.93 million, or 27.17%, since June 30, 2004. The yield on earning assets in 2005 increased to 5.93% from 5.17% in 2004. This increase in yield is attributable to the impact of a larger percentage of loans to average interest-earning assets and the impact of the increase in short-term rates by the Federal Reserve. The Company’s net interest margin was 4.32% and 3.98% and the net interest spread was 3.92% and 3.67% for the six-month periods ended June 30, 2005 and 2004, respectively. Average loans as a percentage of average interest-earnings assets increased to 82.98% for the six months ended June 30, 2005, as compared to 78.91% for the same period in 2004.

The interest expense increased 71.52% from $783,000 in 2004 to $1.34 million in 2005 due to the 28.21% increase in volume of interest-bearing liabilities, along with the increase in the related rates paid on such interest-bearing liabilities, which increased to 2.01% in 2005 from 1.50% in 2004.

Three Months Ended June 30, 2005 and 2004

The interest income (on a taxable-equivalent basis) of $2.59 million in 2005 was $824,000, or 46.71% higher than the amount recognized in 2004. As with the six- month period, this increase in interest income is due to the growth in average earning assets and increased yields on earning assets. Average earning assets increased by $35.36 million, or 25.79%, since June 30, 2004. The yield on earning assets in 2005 increased to 6.02% from 5.16% in 2004. This increase in yield is attributable to the impact of a larger percentage of loans to average interest-earning assets and the impact of the increase in short-term rates by the Federal Reserve. The Company’s net interest margin was 4.35% and 3.99% and the net interest spread was 3.92% and 3.67% for the three-month periods ended June 30, 2005 and 2004, respectively. Average loans as a percentage of average interest-earnings assets increased to 82.41% for the three months ended June 30, 2005, as compared to 79.31% for the same period in 2004.

The interest expense increased 79.30% from $401,000 in 2004 to $719,000 in 2005 due to the 27.20% increase in volume of interest-bearing liabilities, along with the increase in the related rates paid on such interest-bearing liabilities, which increased to 2.10% in 2005 from 1.49% in 2004.

Noninterest Income

Noninterest income was $140,000 and $121,000 for the six-month periods ended June 30, 2005 and 2004, respectively, attributable primarily to service fees on deposit accounts and ATM interchange fees.

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

Noninterest Expenses

See Note 6 to the financial statements for a schedule showing a detailed breakdown of the Company’s noninterest expenses.

Six Months Ended June 30, 2005 and 2004

Noninterest expenses amounted to $2.20 million and $1.94 million for the first six months of 2005 and 2004, respectively. The changes in noninterest expenses are principally related to the following: an increase in personnel costs and the increase in data processing expenses, which increase as the number and volume of loans and deposit accounts increase. Salaries expense in 2005 was $1.10 million up $108,000 from the salaries expense incurred in the same period in 2004. This increase of 10.93% reflects employee periodic pay increases and increases to make various employee salaries competitive with the current employment environment.

Three Months Ended June 30, 2005 and 2004

Noninterest expenses amounted to $1.14 million and $1.01 million for these three-month periods in 2005 and 2004, respectively. The changes in noninterest expenses are principally related to the following: an increase in personnel costs and the increase in data

processing expenses, which increase as the number and volume of loans and deposit accounts increase. Salaries expense in 2005 was $571,000 up $58,000 from the salaries expense incurred in the same period in 2004. This increase of 10.16% is for employee pay increases and to make various employee salaries competitive with the current employment environment.

Income Taxes

During the six months ended June 30, 2005, the Company recognized $315,000 of income tax expense, whereas, no income tax expense was incurred for the same period in 2004 due to the net operating loss carryforwards available at that time. At December 31, 2004, the Company recorded a valuation allowance of $158,000 to reduce the carrying value of the net deferred tax assets carried in the accompanying consolidated balance sheets. Valuation allowances are provided for deferred tax assets when in management’s judgment a portion, or all, of the deferred tax assets may not be realized. Factors influencing management’s judgment include: the existence of sustained periods of taxable income and the extent taxes paid in prior periods are recoverable with refund claims. As of June 30, 2005, the Company was not required to maintain a valuation allowance.

The effective tax rate for the first six months of 2005 was 25.59%, which was positively impacted by the elimination of the $158,000 valuation allowance. Excluding the effects of the valuation allowance, the effective tax rate would have been 38.42%.

Market Risk, Liquidity and Interest Rate Sensitivity

Asset/liability management involves the funding and investment strategies necessary to maintain an appropriate balance between interest sensitive assets and liabilities. It also involves providing adequate liquidity while sustaining stable growth in net interest income. Regular review and analysis of deposit and loan trends, cash flows in various categories of loans, and monitoring of interest spread relationships are vital to this process.

The conduct of our banking business requires that we maintain adequate liquidity to meet changes in the composition and volume of assets and liabilities due to seasonal, cyclical or other reasons. Liquidity describes the ability of the Company to meet financial obligations that arise during the normal course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the customers of the Company, as well as for meeting current and future planned expenditures. This liquidity is typically provided by the funds received through customer deposits, investment maturities, loan repayments, borrowings, and income. Management considers the current liquidity position to be adequate to meet the needs of the Company and its customers.

The Company seeks to limit the risks associated with interest rate fluctuations by managing the balance between interest sensitive assets and liabilities. Managing to mitigate interest rate risk is, however, not an exact science. Not only does the interval until repricing of interest rates on assets and liabilities change from day to day as the assets and liabilities change, but for some assets and liabilities, contractual maturity and the actual maturity experienced are not the same. Similarly, NOW and money market accounts, by contract, may be withdrawn in their entirety upon demand and savings deposits may be withdrawn on seven days notice. While these contracts are extremely short, it is the Company’s belief that these accounts turn over at the rate of five percent (5%) per year. The Company therefore treats them as having maturities staggered over all periods. If all of the Company’s NOW, money market, and savings accounts were treated as repricing in one year or less, the cumulative gap at one year or less would be $(30.61) million.

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

The table below, “Interest Rate Sensitivity Gap Analysis,” summarizes, as of June 30, 2005, the anticipated maturities or repricing of the Company’s interest-earning assets and interest-bearing liabilities, the Company’s interest rate sensitivity gap (interest-earning assets less interest-bearing liabilities), the Company’s cumulative interest rate sensitivity gap, and the Company’s cumulative interest sensitivity gap ratio (cumulative interest rate sensitivity gap divided by total assets). A negative gap for any time period means that more interest-bearing liabilities will reprice or mature during that time period than interest-earning assets. During periods of rising interest rates, a negative gap position would generally decrease earnings, and during periods of declining interest rates, a negative gap position would generally increase earnings. The converse would be true for a positive gap position. Therefore, a positive gap for any time period means that more interest-earning assets will reprice or mature during that time period than interest-bearing liabilities. During periods of rising interest rates, a positive gap position would generally increase earnings, and during periods of declining interest rates, a positive gap position would generally decrease earnings.

It is important to note that the following table represents the static gap position for interest sensitive assets and liabilities at June 30, 2005. The table does not give effect to prepayments or extensions of loans as a result of changes in general market interest rates. Moreover, while the table does indicate the opportunities to reprice assets and liabilities within certain time frames, it does not account for timing differences that occur during periods of repricing. For example, changes to deposit rates tend to lag in a rising rate environment and lead in a falling rate environment.

Interest Rate Sensitivity Gap Analysis

June 30, 2005

	Expected Repricing or Maturity Date
(dollars in thousands)	Within One Year			One to Three Years			Three to Five Years			After Five Years			Total
Assets
Federal funds sold	$	9,905		$	—		$	—		$	—		$	9,905
Interest-bearing deposits in other banks	5,097			—			—			—			5,097
Investment securities(1)	468			3,799			6,689			7,452			18,408
Loans	56,508			26,933			52,936			12,139			148,516
Total interest-earning assets	71,978			30,732			59,625			19,591			181,926

Liabilities
Savings and NOW Accounts	1,365			2,731			2,731			20,480			27,307
Money Market Accounts	1,266			2,533			2,533			18,993			25,325
Certificates of Deposit	49,508			32,913			8,016			—			90,437
Short-term borrowings	450			—			—			—			450
Total interest-bearing liabilities	52,589			38,177			13,280			39,473			143,519
Interest rate sensitivity gap	$	19,389		$	(7,445	)	$	46,345		$	(19,882	)	$	38,407
Cumulative interest rate sensitivity gap	$	19,389		$	11,944		$	58,289		$	38,407
Cumulative gap ratio as a percentage of total assets	10.18		%	6.27		%	30.62		%	20.17		%

(1) Excludes equity securities.

Critical Accounting Policy:

Allowance for Loan Losses

The Company makes provisions for loan losses in amounts deemed necessary to maintain the allowance for loan losses at an appropriate level. The provision for loan losses is determined based upon management’s estimate of the amount required to maintain an adequate allowance for loan losses reflective of the risks in the Company’s loan portfolio. The Company’s provision for loan losses for the first six months of 2005 and 2004 were $300,000 and $210,000, respectively. The loan growth was $12.85 million for the first six months of 2005 as compared to $19.95 million for the same period in 2004. Due to the increased exposure to commercial and commercial real estate loans, management deemed it necessary to increase the provision for loan losses in 2005 from the amount recorded for the same period in 2004, even though the loan volume is larger in 2004. At June 30, 2005 and December 31, 2004, the allowance for loan losses was $1.80 million and $1.50 million, respectively.

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

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

The specific allowance component is used to individually allocate an allowance for loans identified as impaired. Impairment testing includes consideration of the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the fair market value of collateral. These factors are combined to estimate the probability and severity of inherent

losses. When impairment is identified, then a specific reserve is established based on the Company’s calculation of the loss embedded in the individual loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment. At June 30,2005 there were no loans deemed to be impaired.

The formula allowance component is used for estimating the loss on internally risk rated loans and those loans identified for impairment testing, for which no impairment was identified. The loans meeting the Company’s internal criteria for classification, such as special mention, substandard, doubtful and loss, as well as, impaired loans, are segregated from performing loans within the portfolio. These internally classified loans are then grouped by loan type (commercial, commercial real estate, commercial construction, residential real estate, residential construction or installment). Each loan type is assigned an allowance factor based on management’s estimate of the associated risk, complexity and size of the individual loans within the particular loan category. Classified loans are assigned a higher allowance factor than non-classified loans due to management’s concerns regarding collectability or management’s knowledge of particular elements surrounding the borrower. Allowance factors increase with the worsening of the internal risk rating.

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

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

Management believes that the allowance for loan losses is adequate. There can be no assurance, however, that additional provisions for loan losses will not be required in the future, including as a result of changes in the economic assumptions underlying management’s estimates and judgments, adverse developments in the economy, on a national basis or in the Company’s market area, or changes in the circumstances of particular borrowers.

As of June 30, 2005, the real estate loan portfolio constituted 82% of the total loan portfolio. The Company does not have a concentration of loans that exceed 10% of the total loan portfolio to any one industry. An industry for this purpose is defined as a group of counterparties that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

	June 30,
(dollars in thousands)	2005		2004
Average total loans outstanding during period	$	139,542	$	104,357
Balance at beginning of period	$	1,503	$	985
Provision charged to operating expenses	300		210
Recoveries of loans previously charged-off	—		—
	1,803		1,195
Loans charged-off	—		—
Balance at end of period	$	1,803	$	1,195

The allocation of the allowance, presented in the following table, is based primarily on the factors discussed above in evaluating the adequacy of the allowance as a whole. Since all of those factors are subject to change, the allocation is not necessarily indicative of the category of recognized loan losses, and does not restrict the use of the allowance to absorb losses in any category.

Allocation of Allowance for Loan Losses

	June 30,				December 31,
	2005		% of Loans		2004		% of Loans
Real estate-construction	$	240	20	%	$	186	16	%
Real estate-mortgage	1,110		62	%	865		65	%
Commercial and industrial loans	413		16	%	377		17	%
Loans to individuals for household, family and other personal expenditures	40		2	%	75		2	%
	$	1,803	100	%	$	1,503	100	%

	June 30,			December 31,
	2005			2004
Nonaccrual loans	$	10		$	102
Loans 90 days past due	—			—
Total nonperforming loans	10			102
Other real estate owned	—			—
Total nonperforming assets	$	10		$	102
Nonperforming assets to total assets	0.01		%	0.06		%

There were no other interest-bearing assets at June 30, 2005 or December 31, 2004 classified as past due 90 days or more and still accruing, restructured or problem assets, and no loans which were currently performing in accordance with their terms, but as to which information known to management caused it to have serious doubts about the ability of the borrower to comply with the loan as currently written.

Off-Balance Sheet Arrangements

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

Commitments to extend credit and standby letters of credit as of June 30, 2005 were as follows:

	June 30,
	2005
(dollars in thousands)	Contractual Amount
Financial instruments whose notional or contract amounts represent credit risk:
Commitments to extend credit	$	28,979
Standby letters of credit	2,393
Total	$	31,372

See Note 8 to the Notes to the Financial Statements included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004 for additional information regarding the Company’s long-term lease obligations.

Capital Resources

The ability of the Company to grow is dependent on the availability of capital with which to meet regulatory requirements, discussed below. To the extent the Company is successful it may need to acquire additional capital through the sale of additional common stock, other qualifying equity instruments or subordinated debt, or through incurrence of debt which does not qualify as holding company capital, but which can be contributed as capital to the Bank or utilized for other corporate purposes. There can be no assurance that additional capital will be available to the Company on a timely basis or on attractive terms. At June 30, 2005, the Company had an outstanding unsecured loan from an unaffiliated third party in the amount of $450,000 with a variable interest rate, which is tied to the Wall Street Journal Prime Rate, and matures on January 27, 2006. In addition, the Company has an unsecured revolving line of credit borrowing arrangement with the Atlantic Central Bankers Bank in the amount of $2.00 million with no outstanding balance as of June 30, 2005. This facility matures on May 1, 2007, has a floating interest rate equal to the Wall Street Journal Prime Rate and requires monthly interest payments only. The purpose of this facility is to provide capital to the Bank, as needed.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). Management believes that the Company and the Bank met all capital adequacy requirements to which they are subject as of June 30, 2005. See Note 8 to the unaudited consolidated financial statements for a table depicting compliance with regulatory capital requirements.

As of June 30, 2005, the most recent notification from the regulatory agency 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 1 risk-based, and Tier 1 leverage ratios as set forth in the table in Note 8. There are no conditions or events since that notification which management believes have changed the Bank’s category.

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

Inflation

The effect of changing prices on financial institutions is typically different than on non-banking companies since virtually all of a Company’s assets and liabilities are monetary in nature. In particular, interest rates are significantly affected by inflation, but neither the timing nor magnitude of the changes are directly related to price level indices; therefore, the Company can best counter inflation over the long term by managing net interest income and controlling net increases in noninterest income and expenses.

Item. 3 Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated, as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were adequate. There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – Other Information

Item 1.	Legal Proceedings			None

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Sales of Unregistered Securities.				None

(b)	Use of Proceeds.		Not Applicable.

(c)	Small Business Issuer Purchases of Securities						None

Item 3.	Defaults upon Senior Securities					None

Item 4.	Submission of Matters to a Vote of Security Holders

	(a)	The annual meeting of shareholders of Frederick County Bancorp, Inc. was held on April 19, 2005.

	(b)	There were 1,457,402 shares of Common Stock entitled to vote at the meeting and a total of 1,185,884 shares, or 81.0%, were represented at the meeting.

	(1)	Election of Directors – The following Directors, comprising the entire Board of Directors, were elected to serve a one-year term until the 2006 Annual Meeting of Shareholders:

DIRECTOR	FOR	WITHHOLD	BROKER NON-VOTES
Emil D. Bennett	1,181,684	4,200	0
John N. Burdette	1,182,684	3,200	0
John Denham Crum	1,184,184	1,700	0
George E. Dredden, Jr.	1,184,184	1,700	0
William S. Fout	1,184,184	1,700	0
Helen G. Hahn	1,183,984	1,900	0
William J. Kissner	1,182,820	3,064	0
Martin S. Lapera	1,184,184	1,700	0
Kenneth G. McCombs	1,184,184	1,700	0
Farhad Memarsadeghi	1,181,668	4,216	0
Raymond Raedy	1,182,684	3,200	0

Item 5.	Other Information

(a)	Information which should have been Reported on Form 8-K.	None

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

Item 6.	Exhibits

Exhibit No.		Description of Exhibits

3(a)		Articles of Incorporation of the Company, as amended(1)
3(b)		Bylaws of the Company(2)
10(a)		2001 Stock Option Plan(3)
10(b)		Employment Agreement between the Bank and Martin S. Lapera(4)
10(c)		Employment Agreement between the Bank and William R. Talley, Jr. (5)
10(d)		Consulting Agreement between the Bank and Raymond Raedy (6)
10(e)		2002 Executive and Director Deferred Compensation Plan (7)
10(f)		Amendment No. 1 to the 2002 Executive and Director Deferred Compensation Plan (7)
10(g)		Loan Agreement with Atlantic Central Bankers Bank(8)
10(h)		Promissory Note with Atlantic Central Bankers Bank (8)

11		Statement Regarding Computation of Per Share Income – Please refer to Note 2 to the unaudited consolidated financial statements included herein
31(a)		Certification of Martin S. Lapera, President and Chief Executive Officer
31(b)		Certification of William R. Talley, Jr., Executive Vice President and Chief Financial Officer
32(a)		Certification of Martin S. Lapera, President and Chief Executive Officer
32(b)		Certification of William R. Talley, Jr., Executive Vice President and Chief Financial Officer

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

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

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

(4) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 24, 2005.

(5) Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 24, 2005.

(6) Incorporated by reference to exhibit of the same number to the Bank’s Registration Statement on Form 10-SB as filed with the Board of Governors of the Federal Reserve System.

(7) Incorporated by reference to exhibit of the same number to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004, as filed with the Securities and Exchange Commission.

(8) Incorporated by reference to exhibit of the same number to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005, as filed with the Securities and Exchange Commission

SIGNATURES

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

	FREDERICK COUNTY BANCORP, INC.


Date: August 2, 2005	By:	/s/ Martin S. Lapera
		Martin S. Lapera
		President and Chief Executive Officer


Date: August 2, 2005	By:	/s/ William R. Talley, Jr.
		William R. Talley, Jr.
		Executive Vice President and Chief Financial Officer

FORM 10-QSB

OF THE SECURITIES EXCHANGE ACT OF 1934

OF THE SECURITIES EXCHANGE ACT OF 1934

FREDERICK COUNTY BANCORP, INC.

FREDERICK COUNTY BANCORP, INC.

FREDERICK COUNTY BANCORP, INC. Notes to Financial Statements (Unaudited)

Noninterest Income

Item. 3 Controls and Procedures

FREDERICK COUNTY BANCORP, INC.

Notes to Financial Statements (Unaudited)