FREDERICK COUNTY BANCORP INC - FORM 10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K


ý		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2010
o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to

Commission File Number: 000-50407

FREDERICK COUNTY BANCORP, INC.
(Exact name of registrant as specified in its charter)


Maryland		20-0049496
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
9 North Market Street, Frederick, Maryland 21701 (Address of principal executive offices)(Zip Code)
(Registrant's telephone number, including area code): 301.620.1400
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Act: Common Stock, par value $0.01 per share

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

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

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

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

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company ý

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

The aggregate market value of the outstanding Common Stock held by nonaffiliates as of June 30, 2010 was approximately $12.9 million. As of February 1, 2011, the number of outstanding shares of the Common Stock, $0.01 par value, of Frederick County Bancorp, Inc. was 1,471,164.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement for the Annual Meeting of Shareholders, to be held on April 12, 2011 are incorporated by reference in Part III hereof.

Form 10-K Cross Reference of Material Incorporated by Reference

The following shows the location in this Annual Report on Form 10-K or the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 12, 2011, of the information required to be disclosed by the United States Securities and Exchange Commission Form 10-K. References to pages only are to pages in this report.


PART I	Item 1.	Business. See "Business" at Page 63.
	Item 1A.	Risk Factors. No disclosure required as the Company is a smaller reporting company.
	Item 1B.	Unresolved Staff Comments. None.
	Item 2.	Properties. See "Properties" at Page 66.
	Item 3.	Legal Proceedings. See "Legal Proceedings" at Page 67.
	Item 4.	[Removed and Reserved]
PART II	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. See "Market for Common Stock and Dividends" at Page 74.
	Item 6.	Selected Financial Data. See "Five-Year Summary of Financial Information" at Page 4.
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" at Page 5.
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk. See "Market Risk, Liquidity and Interest Rate Sensitivity" at page 10.
	Item 8.	Financial Statements and Supplementary Data. See Consolidated Financial Statements and Notes thereto at Page 29.
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
	Item 9A	Controls and Procedures. See "Management's Report on Internal Control over Financial Reporting" at page 27 and "Disclosure Controls and Procedures" at Page 28.
	Item 9B.	Other Information. None.


PART III	Item 10.	Directors, Executive Officers, and Corporate Governance. The information required by this Item is incorporated by reference to, the material appearing under the captions "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement.
		The Company has adopted a code of ethics that applies to its Chief Executive Officer and Chief Financial Officer. A copy of the code of ethics will be provided to any person, without charge, upon written request directed to William R. Talley, Jr., EVP, CFO & COO, Frederick County Bancorp, Inc., P.O. Box 1100, Frederick, MD 21702-0100.
		There have been no material changes in the procedures by which shareholders may recommend nominees to the Company's Board of Directors since the proxy statement for the 2010 annual meeting of shareholders.
	Item 11.	Executive Compensation. The information required by this Item is incorporated by reference to the material appearing under the captions "Executive Compensation" and "Election of Directors—Director's Compensation" in the Proxy Statement.
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. See "Securities Authorized for Issuance Under Equity Compensation Plans" under the heading "Market for Common Stock and Dividends" at Page 76. The other information required by this Item is incorporated by reference to the material appearing under the captions "Voting Securities and Principal Holders" in the Proxy Statement.
	Item 13.	Certain Relationships and Related Transactions, and Director Independence. The information required by this Item is incorporated by reference to the material appearing under the caption "Election of Directors" and "Transactions with Related Parties" in the Proxy Statement. See also Item 10 to this Annual Report on Form 10-K.
	Item 14.	Principal Accountant Fees and Services. The information required by this Item is incorporated by reference to the material appearing under the caption "Ratification of the Appointment of Independent Registered Public Accounting Firm" in the Proxy Statement.
PART IV	Item 15.	Exhibits, Financial Statement Schedules. See "Exhibits and Financial Statement Schedules" at Page 79.

Forward Looking Statements

This report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the Company's beliefs, expectations, anticipations and plans regarding, among other things, general economic trends, interest rates, product expansions and other matters. In some cases, forward looking statements can be identified by use of words such as "may," "will," "anticipates," "believes," "expects," "plans," "estimates," "potential," "continue," "could," "should," and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market, interest rates and interest rate policy, competitive factors, and other conditions which by their nature, are not susceptible to accurate forecast, and are subject to significant 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 markets 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.

FIVE-YEAR SUMMARY OF FINANCIAL INFORMATION

The following table sets forth certain selected financial data concerning the Company, and is qualified in its entirety by the detailed information and consolidated financial statements, including notes thereto, included elsewhere herein.

			Years Ended December 31,

			2010			2009			2008			2007			2006
			(dollars in thousands, except per share amounts)
Summary of Operating Results:
	Total interest income		$	14,496		$	14,001		$	15,480		$	16,247		$	13,735
	Total interest expense			3,948			5,274			7,116			7,977			5,649

	Net interest income			10,548			8,727			8,364			8,270			8,086
	Provision for loan losses			1,660			1,175			935			491			213

	Net interest income after provision for loan losses			8,888			7,552			7,429			7,779			7,873
	Securities gains			283			235			26			27			—
	(Loss) gain on sale of foreclosed properties			—			(37	)		15			—			—
	Gains from insurance proceeds			—			—			—			230			—
	Other noninterest income (excluding gains and losses)			56			577			535			410			338
	Noninterest expenses			7,956			6,791			6,526			6,172			5,229

	Income before provision for income taxes			1,781			1,536			1,479			2,274			2,982
	Provision for income taxes			626			488			441			714			1,062

	Net income			1,155			1,048			1,038			1,560			1,920
	Other comprehensive (loss) income, net of taxes			(77	)		78			(9	)		92			85

	Comprehensive income		$	1,078		$	1,126		$	1,029		$	1,652		$	2,005

Per Share Data:
	Basic earnings		$	0.79		$	0.72		$	0.71		$	1.07		$	1.32
	Diluted earnings			0.78			0.71			0.69			1.03			1.26
	Dividends declared			—			—			—			—			—
	Book value at period-end			15.79			14.88			14.11			13.41			12.27
	Shares outstanding at period-end			1,469,364			1,461,802			1,460,802			1,460,602			1,458,602
	Weighted average shares outstanding:
		Basic		1,469,100			1,461,079			1,460,670			1,460,125			1,458,602
		Diluted		1,482,350			1,475,068			1,503,372			1,518,155			1,526,911
Other Data (At Year-End):
	Assets		$	289,043		$	258,559		$	254,562		$	255,991		$	234,951
	Investments			31,699			25,643			21,639			28,952			30,112
	Loans			209,387			214,943			211,840			209,011			173,954
	Deposits			248,624			219,312			216,883			219,228			209,378
	Short-term borrowings			300			500			—			—			—
	Long-term borrowings			10,000			10,000			10,000			10,000			—
	Junior subordinated debentures			6,186			6,186			6,186			6,186			6,186
	Shareholders' equity			23,195			21,750			20,612			19,580			17,893
Performance Ratios:
	Return on average assets			0.40	%		0.40	%		0.40	%		0.63	%		0.90	%
	Return on average shareholders' equity			5.04	%		4.92	%		5.12	%		8.35	%		11.34	%
	Allowance for loan losses to total loans			1.78	%		1.45	%		1.47	%		1.26	%		1.25	%
	Nonperforming assets to total assets			1.01	%		0.56	%		0.61	%		0.12	%		0.03	%
	Ratio of net charge-offs to average loans			0.49	%		0.56	%		0.21	%		0.01	%		—
	Average equity to average assets			8.02	%		8.19	%		7.83	%		7.58	%		7.90	%
	Tier 1 capital to risk-weighted assets			12.86	%		11.81	%		11.59	%		11.14	%		12.10	%
	Total capital to risk-weighted assets			14.11	%		13.06	%		12.84	%		12.29	%		13.19	%

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Frederick County Bancorp, Inc. (the "Bancorp"), the parent company for its wholly-owned subsidiary Frederick County Bank (the "Bank" and together with Bancorp, the "Company"), was organized in September 2003. The Bank was incorporated under the laws of the state of Maryland in August 2000 and commenced banking operations in October 2001. The Bank provides its customers with various banking services. The Bank offers various loan and deposit products to their customers. The Bank's customers include individuals and commercial enterprises within its principal market area consisting of Frederick County, Maryland. The Company operates out of four banking offices located in the City of Frederick and Walkersville, Maryland. The Company also has a subsidiary trust, established to issue trust preferred securities, and two subsidiaries established to hold foreclosed properties. The two subsidiaries established to hold foreclosed properties are known as FCB Holdings, Inc (a direct subsidiary of Bancorp) and FCB Hagerstown, LLC (an indirect subsidiary of Bancorp). See Note 8 to the consolidated financial statements for the year ended December 31, 2010 (the "consolidated financial statements") for additional disclosures related to the subsidiary trust.

The preparation of financial statements 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.

Critical Accounting Policies

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 loan 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. For discussions related to the critical accounting policies of the Company, refer to the sections in this Management's Discussion and Analysis entitled "Income Taxes," "Allowance for Loan Losses" and "Investment Portfolio."

Overview

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.

During 2010, the economy in Frederick County continued to remain at a low level, as was the economy for many regions in the United States and many countries throughout the world. The unemployment rate for Frederick County remained stubbornly high at 7.4%, but compared favorably to the Maryland rate of 8.2% and the national rate of 9.8%. Businesses, as well as consumers, felt the continuing effects of the downturn as the slow improvement in the economy has produced low results in activity and job production. The effects of this downturn has had an effect on the loans that the Company has made. However, it is felt the local economy may be somewhat insulated from the full impact that may be felt in other parts of the country, because of the local presence of a federal government medical research installation that has seen government funds continue to flow into Frederick County.

Net income was $1.16 million, $1.05 million and $1.04 million for the years ended December 31, 2010, 2009 and 2008, respectively. Basic and diluted earnings per share for 2010 were $0.79 and $0.78, respectively; 2009 were $0.72 and $0.71, respectively and 2008 were $0.71 and $0.69, respectively.

Return on average assets and return on average shareholders' equity are key measures of earnings performance. Return on average assets measures the ability of a bank to utilize its assets in generating income. The Company experienced returns on average assets of 0.40% for each of the years ended December 31, 2010, 2009 and 2008. Additionally, the Company experienced a return on average shareholders' equity of 5.04%, 4.92% and 5.12% for the years ended December 31, 2010, 2009 and 2008, respectively.

During the year ended December 31, 2010, the Company experienced an increase in total assets as its customers sought the safety of the banking system and increased the Company's deposit base. At December 31, 2010, assets stood at $289.04 million as compared to $258.56 million at December 31, 2009 and $254.56 million at December 31, 2008. Gross loans decreased $5.56 million, or 2.58%, in 2010 to end the period at $209.39 million compared to $214.94 million at December 31, 2009 and $211.84 million at December 31, 2008. During 2010, certificates of deposit increased approximately $7.17 million, while total deposits increased to $248.62 million at December 31, 2010, up from $219.31 million at December 31, 2009 and from $216.88 million at December 31, 2008. During 2010, the Company continued the strategy, implemented in 2009, of utilizing some of the excess liquidity to purchase investment securities, resulting in a $6.06 million increase in the investment portfolio, to $31.70 million at December 31, 2010, a $4.00 million increase, to $25.64 million, at December 31, 2009, as compared to $21.64 million at December 31, 2008.

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

The "Comparative Statement Analysis" on the next page shows average balances of asset and liability categories, interest income and interest paid, and average yields and rates for the periods indicated.

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. The Company primarily utilizes deposits to fund loans and investments, with a small amount of additional funding from junior

subordinated debentures and short-term and long-term borrowings. In future periods it may utilize a higher level of short-term and long-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 taxable-equivalent interest income of $14.79 million earned in 2010 was $578 thousand higher than the $14.21 million earned in 2009, which was $1.50 million lower than the amount realized in 2008. The increase in interest income in 2010 was primarily due to the increased volume of investment securities and loans, as the average yield on investment securities declined from 2009 and loan yields held steady. The decrease in interest income in 2009 was primarily due to the reduced yields earned on the loan portfolio which decreased to 6.26% in 2009 from 6.64% in 2008. The primary factor in the changes in interest income was changes in the federal funds target rate discussed below.

The interest expense decreased from $7.12 million in 2008, to $5.27 million in 2009 and $3.95 million in 2010. The primary factor in the decreased interest expense in 2009 and 2010 was the reduction of the rates paid on the interest-bearing liabilities, as a result of actions of the Federal Reserve. Average interest bearing liabilities increased 10.12% in 2010, from $201.76 million in 2009 to $222.18 million in 2010, but decreased 0.6% to $201.76 million in 2009 from $202.97 million at in 2008. The average rate paid on these liabilities decreased from 3.50% to 2.61% from 2008 to 2009, and continued to decline to 1.78% during 2010, as the percentage of liabilities represented by certificates of deposit declined, and the rates paid on such deposits declined as they renewed or were replaced at current market rates. The Company feels that the rates paid on its deposit liabilities should remain stable, subject to a slight increase as a result of competitive factors, local market conditions and customer preferences.

During 2010, the loan yields and the rates paid on interest bearing liabilities decreased due to the decrease of the federal funds rate maintained by the Federal Reserve, and the decreased reliance on higher rate funding sources, including certificates of deposits, which dropped to 54.9% of average interest-bearing liabilities in 2010 from 60.5% in 2009 and 64.2% in 2008. The Federal Reserve eased the federal funds rate down to a range of 0% to 0.25% as of December 31, 2008 and has maintained this level through December 31, 2010.

The Company's net interest margin (net interest income as a percent of average interest-earning assets) was 3.89%, 3.51% and 3.44%, and the net interest spread (the spread between yields on average interest-earning assets and rates paid on average interest-bearing liabilities) was 3.53%, 2.98% and 2.78% for the years ended December 31, 2010, 2009 and 2008, respectively.

Comparative Statement Analysis

			Years Ended December 31,

			2010							2009							2008
			Average daily balance		Interest income/ expense		Average yield/rate			Average daily balance		Interest income/ expense		Average yield/rate			Average daily balance		Interest income/ expense		Average yield/rate
			(dollars in thousands)
Assets
Interest-earning assets:
	Federal funds sold		$	1,175	$	2		0.17	%	$	1,102	$	2		0.18	%	$	8,204	$	193		2.35	%
	Interest-bearing deposits in other banks			25,967		59		0.23	%		21,568		48		0.22	%		3,673		56		1.52	%
	Investment securities(1):
		Taxable		27,499		715		2.60	%		15,613		639		4.09	%		17,396		850		4.87	%
		Tax-exempt(2)		7,535		464		6.16	%		5,850		362		6.19	%		8,492		520		6.11	%
	Loans(3)			216,371		13,548		6.26	%		210,224		13,159		6.26	%		211,806		14,095		6.64	%

		Total interest-earning assets		278,547		14,788		5.31	%		254,357		14,210		5.59	%		249,571		15,714		6.28	%

Noninterest-earning assets				7,125							5,637							9,522

		Total assets	$	285,672						$	259,994						$	259,093

Liabilities and Shareholders' Equity
Interest-bearing liabilities
	NOW accounts		$	13,794		31		0.22	%	$	13,296		27		0.20	%	$	11,490		37		0.32	%
	Savings accounts			5,065		5		0.10	%		4,398		7		0.16	%		3,966		20		0.50	%
	Money market accounts			64,667		679		1.05	%		45,713		537		1.17	%		40,234		752		1.86	%
	Certificates of deposit $100,000 or more			49,826		996		2.00	%		50,483		1,628		3.22	%		58,214		2,440		4.18	%
	Certificates of deposit less than $100,000			72,210		1,368		1.89	%		71,497		2,201		3.08	%		72,133		2,981		4.12	%
	Short-term borrowings			430		19		4.42	%		184		8		4.35	%		749		18		2.40	%
	Long-term borrowings			10,000		446		4.46	%		10,000		462		4.62	%		10,000		464		4.63	%
	Junior subordinated debentures			6,186		404		6.53	%		6,186		404		6.53	%		6,186		404		6.51	%

Total interest-bearing liabilities				222,178		3,948		1.78	%		201,757		5,274		2.61	%		202,972		7,116		3.50	%

Noninterest-bearing deposits				39,691							36,134							35,009
Noninterest-bearing liabilities				895							804							827

		Total liabilities		262,764							238,695							238,808

Shareholders' equity				22,908							21,299							20,285

		Total liabilities and shareholders' equity	$	285,672						$	259,994						$	259,093

	Net interest income				$	10,840						$	8,936						$	8,598

	Net interest spread							3.53	%						2.98	%						2.78	%

	Net interest margin							3.89	%						3.51	%						3.44	%

(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 $158 thousand in 2010, $123 thousand in 2009 and $177 thousand in 2008 are included in the calculation of the tax-exempt investment securities interest income.
(3): Presented on a taxable-equivalent basis using the statutory federal income tax rate of 34%. Taxable-equivalent adjustments of $134 thousand in 2010, $86 thousand in 2009 and $57 thousand in 2008 are included in the calculation of the loan interest income. Loans placed on nonaccrual status are included in average balances. Net loan fees included in interest income totaled $90 thousand in 2010, $28 thousand in 2009 and $24 thousand in 2008.

Rate/Volume Analysis

The following table indicates the changes in interest income and interest expense that are attributable to changes in average volume and average rates, in comparison with the same period in the preceding year. The change in interest due to the combined rate-volume variance has been allocated entirely to the change in rate.

			2010 compared to 2009									2009 compared to 2008

			Increase (decrease) due to									Increase (decrease) due to
			Increase (decrease) due to						Net increase (decrease)			Increase (decrease) due to						Net increase (decrease)
			Volume			Rate			Net increase (decrease)			Volume			Rate			Net increase (decrease)
			(dollars in thousands)
Interest Income
Interest-earning assets:
	Federal funds sold		$	—		$	—		$	—		$	(167	)	$	(24	)	$	(191	)
	Interest-bearing deposits in other banks			10			1			11			272			(280	)		(8	)
	Investment securities:
		Taxable		486			(410	)		76			(87	)		(124	)		(211	)
		Tax-exempt		104			(2	)		102			(161	)		3			(158	)
	Loans			385			4			389			(105	)		(831	)		(936	)

		Total interest income		985			(407	)		578			(248	)		(1,256	)		(1,504	)

Interest Expense
Interest-bearing liabilities:
	NOW accounts			1			3			4			6			(16	)		(10	)
	Savings accounts			1			(3	)		(2	)		2			(15	)		(13	)
	Money market accounts			223			(81	)		142			102			(317	)		(215	)
	Certificates of deposit $100,000 or more			(21	)		(611	)		(632	)		(323	)		(489	)		(812	)
	Certificates of deposit less than $100,000			22			(855	)		(833	)		(26	)		(754	)		(780	)
	Short-term borrowings			11			—			11			(14	)		4			(10	)
	Long-term borrowings			—			(16	)		(16	)		—			(2	)		(2	)

Total interest expense				237			(1,563	)		(1,326	)		(253	)		(1,589	)		(1,842	)

Net interest income			$	748		$	1,156		$	1,904		$	5		$	333		$	338

Noninterest Income

Noninterest income was $849 thousand in 2010, $775 thousand in 2009 and $576 thousand in 2008, attributable primarily to service fees on deposit accounts and ATM interchange fees. Included in the noninterest income are securities gains of $283 thousand in 2010 and $235 thousand in 2009. Also included in noninterest income for 2009 is a loss of $37 thousand on the sale of foreclosed property, whereas no gain or loss was recognized in 2010.

Noninterest Expenses

Noninterest expenses were $7.96 million in 2010, $6.79 million in 2009 and $6.53 million in 2008. See Note 12 to the consolidated financial statements for a schedule showing a detailed breakdown of the Company's noninterest expenses. The primary increase in noninterest expense in 2010 compared to 2009 relates to increases in salaries of $782 thousand, which includes $253 thousand of stock option compensation expense in 2010, as compared to no option expense in 2009, an increase in audit fees of $100 thousand which covers external audit, internal audit, loan review, and compliance audits, an increase in 401(k) matching contributions of $93 thousand, reflecting the resumption of matching contributions in 2010, and increased advertising expenses of $53 thousand. Salaries expense was also

impacted in 2010 due to promotions at the end of 2009, additional personnel for compliance, retail lending and staffing for the anticipated new branch opening in the third quarter of 2011, along with a merit increase for all employees.

Income Taxes

The Company incurred $626 thousand, $488 thousand and $441 thousand of income tax expenses in 2010, 2009 and 2008. The effective tax rates are 35.15% for 2010, 31.77% for 2009 and 29.82% for 2008. The increase in income tax rate in 2010 is primarily due to the higher pre-tax income and the impact of the $253 thousand of stock option compensation expense with the associated tax benefit of $49 thousand being recorded as additional paid in capital and not used to reduce the current period's income tax expense. The increase in the income tax rate for 2009 was due to a lower amount of tax-exempt interest income as a percentage of pre-tax income.

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 ratably 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 Company would have a cumulative negative gap at one year or less of $(42.99) 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 the funding needs of the Company's loan production.

The following table, "Interest Rate Sensitivity Gap Analysis," summarizes, as of December 31, 2010, 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 December 31, 2010. The table does not give effect to prepayments or extensions of loans as a result of changes in general market interest rates. Moreover, it does not account for timing differences that occur during periods of repricing. For example, changes to deposit rates traditionally tend to lag in a rising rate environment and lead in a falling rate environment, although this will not always be the case. Nor does it account for the effects of competition on pricing of deposits and loans. For example, under current market conditions, market rates paid on deposits may not be able to adjust by the full amount of downward adjustments in the federal funds target rate, while rates on loans will tend to adjust by the full amount, subject to certain limitations. During 2009, the Company began to place interest rate floors on its commercial floating rate loans.

Interest Rate Sensitivity Gap Analysis
December 31, 2010

		Expected Repricing or Maturity Date

		Within One Year			One to Three Years			Three to Five Years			After Five Years			Total
		(dollars in thousands)
Assets
	Federal funds sold	$	1,128		$	—		$	—		$	—		$	1,128
	Interest-bearing deposits in other banks		39,468			—			—			—			39,468
	Investment securities(1)		1,469			6,904			9,393			12,112			29,878
	Loans		90,147			84,898			23,116			11,226			209,387

Total interest-earning assets			132,212			91,802			32,509			23,338			279,861

Liabilities
	Savings and NOW Accounts		994			1,987			1,987			14,902			19,870
	Money Market Accounts		3,566			7,132			7,132			53,486			71,316
	Certificates of Deposit		77,531			21,587			17,076			—			116,194
	Short-term borrowings		300			—			—			—			300
	Long-term borrowings		—			—			10,000			—			10,000
	Junior subordinated debentures		6,186			—			—			—			6,186

Total interest-bearing liabilities			88,577			30,706			36,195			68,388			223,866

Interest rate sensitivity gap		$	43,635		$	61,096		$	(3,686	)	$	(45,050	)	$	55,995

Cumulative interest rate sensitivity gap		$	43,635		$	104,731		$	101,045		$	55,995

Cumulative gap ratio as a percentage of total assets			15.10	%		36.23	%		34.96	%		19.37	%

(1): Excludes equity securities.

In addition to the Interest Rate Sensitivity Gap Analysis, the Company also uses an earnings simulation model on a quarterly basis to closely monitor interest sensitivity and to expose its balance sheet and income statement to different scenarios. The model is based on period end Company data and adjusted by assumptions as to growth patterns, noninterest income and noninterest expense and interest rate sensitivity, based on historical data, for both assets and liabilities projected for a one-year period. The model is then subjected to a "shock test" assuming a sudden interest rate increase of 200 basis points or a decrease of 200 basis points, but not below zero. The results show that with a 200 basis point rise in interest rates, the Company's net interest income would decline by 0.96%. However, a decrease in interest rates of 200 basis points was not considered to be feasible since this would imply that the federal funds rate would fall below zero.

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

Investment Portfolio

The investment portfolio is used as a source of interest income, credit risk diversification and liquidity, as well as to manage rate sensitivity and provide collateral for secured public funds, repurchase agreements and other short-term borrowings. Management has historically emphasized investments with a weighted-average life of seven years or less to provide greater flexibility in managing the balance sheet in changing interest rate environments. At December 31, 2010, the mortgage-backed debt securities had a weighted-average life of 6.50 years, and the municipal securities had a weighted-average life of 8.17 years, giving the total investment portfolio a weighted-average life of 5.89 years. The average tax-equivalent yield earned on the investment portfolio for 2010, 2009 and 2008 was 3.37%, 4.66% and 5.29%, respectively. The mortgage-backed securities portfolio does not include any private label, subprime or Alt-A type investments, which would carry a higher degree of risk.

The Company had $13.65 million in bonds in an unrealized loss position amounting to $271 thousand at December 31, 2010 that were temporarily impaired due to the current interest rate environment and not increased credit risk. In estimating other-than-temporary impairment losses, the Company considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near term prospects of the issuer, and (iii) the intent and the ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost. The Company had no investments that were obligations of the issuer, or payable from or secured by a source of revenue or taxing authority of the issuer, whose aggregate book value exceeded 10% of shareholders' equity at December 31, 2010.

The following tables set forth certain information regarding the Company's investment portfolio at the dates indicated.

Available-for-Sale Portfolio

		December 31,

		2010							2009							2008
		Amortized Cost		Estimated Fair Value		Weighted Average Yield			Amortized Cost		Estimated Fair Value		Weighted Average Yield			Amortized Cost		Estimated Fair Value		Weighted Average Yield
		(dollars in thousands)
U.S. Treasury and other U.S. government agencies and corporations:
	Due within one year	$	—	$	—		—	%	$	490	$	493		4.46	%	$	—	$	—		—
	Due after one year through five years		—		—		—	%		1,391		1,415		4.03	%		2,283		2,302		4.81	%
	Due after five years through ten years		—		—		—	%		497		526		5.00	%		645		650		5.00	%
States and political subdivisions:
	Due after five years through ten years		2,094		2,085		5.36	%		910		909		5.47	%		405		392		5.25	%
	Due after ten years		7,005		6,932		5.74	%		6,935		6,942		5.90	%		5,281		5,094		5.93	%
Mortgage-backed debt securities			20,830		20,861		2.71	%		13,478		13,492		3.63	%		11,178		11,302		5.11	%
Equity securities			300		300		—	%		300		300		—	%		300		300		—	%

		$	30,229	$	30,178		3.57	%	$	24,001	$	24,077		4.38	%	$	20,092	$	20,040		5.21	%

Loan Portfolio

The Company makes real estate construction and land development, real estate mortgage, commercial and industrial, and consumer loans. The real estate mortgage loans are generally secured by the property and have a maximum loan to value ratio at origination of 75% and generally a term of one to five years. The Company does not make it a practice of establishing an interest reserve account as part of the loan funding amount. The commercial and industrial loans consist of secured and unsecured loans. The unsecured commercial loans are made based on the financial strength of the borrower and usually require personal guarantees from the principals of the business. The collateral for the secured commercial loans may be equipment, accounts receivable, marketable securities or deposits in the Bank. These loans typically have a maximum loan to value ratio at origination of 75% and a term of one to five years. The consumer loan category consists of secured and unsecured loans. The unsecured consumer loans are made based on the financial strength of the individual borrower. The collateral for secured consumer loans may be marketable securities, automobiles, recreational vehicles or deposits in the Bank. The usual term for these loans is three to five years.

The following table sets forth the distribution of the Company's loan portfolio at the dates indicated by category of loan and the percentage of loans in each category to total loans.

			December 31,

			2010					2009					2008					2007					2006
			(dollars in thousands)
Real estate—construction and land development			$	15,742		8	%	$	15,726		7	%	$	17,049		8	%	$	28,077		13	%	$	30,183		17	%

Real estate—mortgage loans:
	Commercial properties			128,998		62	%		113,373		52	%		112,384		53	%		107,490		52	%		77,884		45	%
	Residential properties			37,143		17	%		48,717		23	%		45,842		22	%		44,340		21	%		34,194		22	%

		Total real estate—mortgage loans		166,141		79	%		162,090		75	%		158,226		75	%		151,830		73	%		116,718		67	%

Commercial and industrial loans				25,778		12	%		35,397		17	%		34,827		16	%		27,331		13	%		24,806		14	%
Consumer				1,726		1	%		1,730		1	%		1,738		1	%		1,773		1	%		2,247		2	%

Total loans			$	209,387		100	%	$	214,943		100	%		211,840		100	%		209,011		100	%		173,954		100	%
Less allowance for loan losses				(3,718	)				(3,127	)				(3,120	)				(2,640	)				(2,166	)

Net loans			$	205,669				$	211,816				$	208,720				$	206,371				$	171,788

As of December 31, 2010, the real estate loan portfolio constituted 87% of the total loan portfolio. While this exceeds the 10% threshold for determining a concentration of credit risk within an industry, we do not consider this to be a concentration with adverse risk characteristics given the diversity of borrowers within the real estate portfolio and other sources of repayment. 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. The loan portfolio does not include concentrations of credit risk in loan products that permit the deferral of principal payments or payments that are smaller than normal interest accruals (negative amortization); loans with high loan-to-value ratios; and loans, such as option adjustable-rate mortgages, that may expose the borrower to future increases in repayments that are in excess of increases that would result solely from increases in market interest rates. The Company has $9.57 million and $8.66 million in outstanding balances of interest-only home equity lines of credit at December 31, 2010 and 2009, respectively.

During 2010, the balance of loans in the construction and land development category has remained constant. However, over the past three years, the Company intentionally limited the origination of real estate construction and land development loans, raising credit standards, as management believed the market for projects being financed was becoming overheated.

Under guidance by the federal banking regulators, banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) would be expected to maintain higher levels of risk management and, potentially, higher levels of capital. It is possible that we may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and commercial real estate loans, which may require us to obtain additional capital. The Company monitors the level of construction and land development, and non-owner occupied commercial real estate loans in relation to its total risk-weighted capital on at least a quarterly basis. The banking regulators have established guidance limits of 100% and 300% of total risk-weighted capital for construction and land development, and non-owner occupied commercial real estate loans, respectively. These ratios as of December 31, 2010 were 48.97% for construction and land development loans and 180.13% for non-owner occupied commercial real estate loans. While our level of loans in these areas is below the percentages established in the regulatory guidance, there can be no assurance that we will not be required to maintain higher levels of capital as a result of our concentration of loans.

Maturity and Interest Rate Sensitivity of Loans

The following table presents the maturities or repricing periods of loans outstanding at December 31, 2010.

	Maturing in

	One year or less				After 1 through 5 years				After 5 years
	Fixed Interest Rates		Variable Interest Rates		Fixed Interest Rates		Variable Interest Rates		Fixed Interest Rates		Variable Interest Rates		Total
	(dollars in thousands)
Real estate-construction and land development	$	7,649	$	1,203	$	6,773	$	—	$	117	$	—	$	15,742
Real estate-mortgage		50,390		17,305		84,521		3,609		10,316		—		166,141
Commercial and industrial loans		6,525		5,919		12,626		—		708		—		25,778
Consumer		728		428		485		—		85		—		1,726

Total	$	65,292	$	24,855	$	104,405	$	3,609	$	11,226	$	—	$	209,387

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 in 2010, 2009 and 2008 were $1.66 million, $1.18 million and $935 thousand, respectively. The increase in the provision for loan losses in 2010 compared to 2009 and 2008 is primarily due to the an increase in the amount of substandard loans, which require higher levels of reserves, along with an increase in gross charge-offs incurred in 2010 of $1.28 million as compared to $1.17 million in 2009 and $465 thousand in 2008. At December 31, 2010, the allowance for loan losses was $3.72 million or 1.78% of total loans.

The Company prepares a quarterly analysis of the allowance for loan losses, with the objective of quantifying portfolio risk into a dollar amount of inherent losses. The determination of the allowance for loan losses is based on eight qualitative factors and one quantitative factor for each category and type of loan along with any specific allowance for adversely classified loans within each category. Each factor is assigned a percentage weight and that total weight is applied to each loan category. Factors are different for each category. Qualitative factors include: levels and trends in delinquencies and nonaccrual loans; trends in volumes and terms of loans; effects of any changes in lending policies, the experience, ability and depth of management; national and local economic trends and conditions; concentrations of credit; quality of the Company's loan review system; and regulatory requirements. The total allowance required thus changes as the percentage weight assigned to each factor is increased or decreased due to the particular circumstances, as the various types and categories of loans change as a percentage of total loans and as specific allowances are required due to increases in adversely classified loans. See Note 1 to the consolidated financial statements for additional information regarding the determination of the provision and allowance for loan losses.

The Company follows the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 450 Contingencies and ASC Topic 310 Receivables. This guidance requires that losses be accrued when they are probable of occurring and estimable and requires that impaired loans, within its scope, be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. This guidance excludes smaller balance and homogeneous loans, which are collectively evaluated for impairment, from impairment reporting. Therefore, the Company has designated consumer and residential mortgage loans to be excluded for this purpose. From the remaining loan portfolio, loans rated as doubtful or worse, classified as nonaccrual, and troubled debt restructurings may be evaluated for impairment. Slow payment on a loan is considered, by the Company, to only be a minimum delay.

Loans are evaluated for nonaccrual status when principal or interest is delinquent for 90 days or more and are placed on nonaccrual status when a loan is specifically determined to be impaired. Any unpaid interest previously accrued on those loans is reversed from income. Any interest payments subsequently received are recognized as income unless, in management's opinion, a potential for loss remains. Interest payments received on loans, where management believes a potential for loss remains, are applied as a reduction of the loan principal balance.

Management believes that the allowance for loan losses is adequate. There can be no assurance, however, that adjustments to the provision for loan losses will not be required in the future. 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 are criteria that could change and make adjustments to the provision for loan losses necessary.

The following table reflects activity in the allowance for loan losses for the periods indicated.

	December 31,

	2010			2009			2008			2007			2006
	(dollars in thousands)
Average total loans outstanding during year	$	216,371		$	210,224		$	211,806		$	195,040		$	162,562

Balance at beginning of year	$	3,127		$	3,120		$	2,640		$	2,166		$	1,953

Recoveries—real estate construction		2			—			—			—			—
Recoveries—commercial real estate		4			—			—			—			—
Recoveries—commercial and industrial		4			4			10			—			—
Recoveries—consumer		1			—			—			—			—

Total recoveries		213			4			10			—			—

Charge-offs—real estate construction		(173	)		(90	)		—			—			—
Charge-offs—commercial real estate		(500	)		(596	)		(76	)		—			—
Charge-offs—residential real estate		(92	)		—			(6	)		—			—
Charge-offs—commercial and industrial		(515	)		(474	)		(378	)		—			—
Charge-offs—consumer		(2	)		(12	)		(5	)		(17	)		—

Total charge-offs		(1,282	)		(1,172	)		(465	)		(17	)		—

Net charge-offs		(1,069	)		(1,168	)		(455	)		(17	)		—

Provision charged to operating expenses		1,660			1,175			935			491			213

Balance at end of year	$	3,718		$	3,127		$	3,120		$	2,640		$	2,166

Ratios of net charge-offs to average loans		0.49	%		0.56	%		0.21	%		0.01	%		0.00	%

Problem Assets

The following table reflects the Company's problem assets at the dates indicated. Except as reflected in the tables, there were no other interest-bearing assets at December 31, 2010 classifiable as nonaccrual, 90 days past due or problem assets.

		December 31,

		2010			2009			2008			2007			2006
		(dollars in thousands)
Nonperforming loans:
	Nonaccrual—real estate construction	$	111		$	103		$	—		$	—		$	—
	Nonaccrual—real estate mortgage		1,193			840			1,103			309			—
	Nonaccrual—commercial and industrial		178			—			94			—			36
	Nonaccrual—consumer		—			—			—			1			24

Total nonperforming loans		$	2,202		$	943		$	1,197		$	310		$	60

Foreclosed properties:
Foreclosed properties—commercial real estate			231			—			—						—
Foreclosed properties—residential real estate			495			495			363			—			—

Total foreclosed properties			726			495			363			—			—

Total nonperforming assets		$	2,928		$	1,438		$	1,560		$	310		$	60

Nonperforming assets to total loans and foreclosed properties at period end			1.39	%		0.67	%		0.74	%		0.15	%		0.03	%

Nonperforming assets to total assets at period end			1.01	%		0.56	%		0.61	%		0.12	%		0.03	%
Allowance for loan losses to nonperforming loans at period end			126.98	%		331.60	%		260.65	%		851.61	%		3,610.00	%

Information concerning the Company's recorded investment in impaired loans is as follows:

			December 31, 2010		December 31, 2009

			(dollars in thousands)
Impaired loans with no allowance:
	Construction		$	2,038	$	2,125
	Commercial real estate			8,374		2,561
	Residential real estate			364		—
	Commercial and industrial			4,179		3,282

		Total impaired loans with no allowance	$	14,955	$	7,968

Impaired loans with allowance:
	Construction		$	365	$	365
	Commercial real estate			4,737		3,853
	Residential real estate			517		525
	Commercial and industrial			414		239

		Total impaired loans with allowance	$	6,033	$	4,982

Specific allocation of allowance			$	1,244	$	600

			December 31, 2010		December 31, 2009

			(dollars in thousands)
Impaired performing loans:
	Real estate—construction		$	2,403	$	2,387
	Commercial real estate			11,296		5,574
	Residential real estate			881		525
	Commercial and industrial			4,206		3,521

		Total impaired performing loans	$	18,786	$	12,007

Impaired nonperforming loans (nonaccrual):
	Real estate—construction		$	—	$	103
	Commercial real estate			1,815		840
	Commercial and industrial			387		—

		Total impaired nonperforming loans	$	2,202	$	943

Total impaired loans			$	20,988	$	12,950

At December 31, 2010, there were $14.96 million of impaired loans with no specific reserves that consisted of two (2) construction loans in the aggregate amount to $2.04 million, fourteen (14) commercial real estate loans in the aggregate amount of $8.36 million, one (1) residential mortgage loan for $364 thousand and ten (10) commercial and industrial loans totaling $4.18 million. By comparison at December 31, 2009 there were $7.97 million of impaired loans which required no specific reserves consisting of six (6) commercial real estate loans in the aggregate amount of $2.56 million, five (5) commercial and industrial loans totaling $3.28 million and three (3) construction loans for an aggregate of $2.13 million at December 31, 2009. In addition at December 31, 2010, there were $6.03 million of impaired loans, which required specific reserves totaling $1.24 million, that consisted of one (1) construction loan for $365 thousand, eleven (11) commercial real estate loans in the aggregate amount of $4.73 million, one (1) residential mortgage loan for $517 thousand and three (3) commercial and industrial loans totaling $414 thousand compared to $4.98 million of impaired loans, which required specific reserves totaling $600 thousand, that consisted of one (1) construction

loan for $365 thousand, seven (7) commercial real estate loans in the aggregate amount of $3.85 million, two (2) commercial and industrial loans totaling $239 thousand and one (1) residential mortgage loan for $525 thousand at December 31, 2009.

The increase in impaired loans is primarily related to two (2) commercial real estate loan relationships, aggregating $6.39 million, with no missed payments as of December 31, 2010 and one (1) commercial and industrial loan relationship totaling $790 thousand, with missed payment history, which required specific reserves of $213 thousand at December 31, 2010. These credits have been experiencing some cash flow problems, which causes the Company to have concerns about the ability of the borrowers to continue to perform in accordance with the current terms of the loan.

There are no loans that had a specific allowance as of December 31, 2009 that are still in the Company's loan portfolio as of December 31, 2010 where the specific allowance has been reduced or eliminated.

Loans are placed into a nonaccruing status and classified as nonperforming when the principal or interest has been in default for a period of 90 days or more unless the obligation is well secured and in the process of collection. A debt is "well secured" if it is secured by (i) pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt, (including accrued interest), in full, or (ii) the guarantee of a financially responsible party. A debt is "in the process of collection" if collection on the debt is proceeding in due course either through legal action, including judgment enforcement procedure, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status.

Loans classified as substandard or worse are considered for impairment testing. A substandard loan shows signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. The borrower on such loans typically exhibit one or more of the following characteristics: financial ratios and profitability margins are well below industry average; a negative cash flow position exists; debt service capacity is insufficient to the service debt and an improvement in the cash flow position is unlikely within the next twelve months; secondary and tertiary means of debt repayment are weak. Loans classified as substandard are characterized by the probability that the Bank will not collect amounts due according to the contractual terms or sustain some loss if the deficiencies are not corrected.

Loss potential, while existing with respect to the aggregate amount of substandard (or worse) loans, does not have to exist in any individual assets classified as substandard. Such credits are also evaluated for nonaccrual status.

Impaired loans include loans that have been classified as substandard or worse. However, certain of such loans have been paying as agreed and have remained current, with some financial issues related to cash flow that has caused some concern as to the ability of the borrower to perform in accordance with the current loan terms, but it has not been extreme enough to require the loan be put into a nonaccruing status. At December 31, 2010, there were $18.79 million of such loans.

The Company does not have a formal modification program such as the Making Home Affordable Program, but instead uses a system whereby loans are modified on a case-by-case basis, based upon an analysis of the individual borrower's situation and the causes of the weakness in the individual loan. To date, loan modifications have primarily involved commercial real estate mortgages and commercial and industrial loans and have included reducing the interest rate on the loan to a level that is in line with current market rates for similar type loans, converting to an interest only period, usually six to twelve months, or re-amortizing the loan. During 2010, the Company has made concessions on only a few residential mortgage loans which included reducing the interest rate on two (2) residential mortgage

loans in the amount $841 thousand and an interest only period of six to twelve months for a $473 thousand residential loan.

Troubled debt restructured loans, which are included in the total of impaired loans, amounted to $10.44 million as of December 31, 2010: loans converted to interest only periods for six to twelve months in the amount of $6.18 million, reduced interest rates on loans in the amount of $629 thousand, and loans that have been re-amortized in the amount of $3.63 million. These loans have specific reserves of $1.08 million based on the collateral value.

As noted above the Company does not have a formal modification program; however, it had four (4) loan relationships as of December 31, 2010 that had been modified and then subsequently re-defaulted. The first of these loan relationships involves a $760 thousand commercial real estate loan, the second involves a $612 thousand commercial real estate loan, the third is a commercial and industrial loan in the amount of $178 thousand and the last is a $70 thousand commercial real estate loan.

Loans classified as non-performing are nonaccrual loans and loans 90 days or more past due. The Company does not have any loans 90 days or more past due that are still in an accruing status. If a loan has been modified and it is current as to principal and interest for a period of at least six months then it is classified as a performing loan, otherwise it is considered to be a non-performing loan.

The Company's charge-off policy states after all collection efforts have been exhausted and the loan is deemed to be a loss, it will be charged to the Company's established allowance for loan losses. Consumer loans subject to the Uniform Retail Credit Classification are charged-off as follows: (a) closed end loans are charged-off no later than 120 days after becoming delinquent, (b) consumer loans to borrowers who subsequently declare bankruptcy, where the Company is an unsecured creditor, are charged-off within 60 days of receipt of the notification from the bankruptcy court, (c) fraudulent loans are charged-off within 90 days of discovery and (d) death of a borrower will cause a charge-off to be incurred at such time an actual loss is determined. All other types of loans are generally evaluated for loss potential at the 90^th day past due threshold, and any loss is recognized no later than the 120^th day past due threshold; each loss is evaluated on its specific facts regarding the appropriate timing to recognize the loss.

The Company does not normally engage in partial charge-offs and has only incurred one (1) in the amount of $70,000 for a residential real estate loan for the year ended December 31, 2010.

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 future loan losses, and does not restrict the use of the allowance to absorb losses in any category.

Allocation of Allowance for Loan Losses

			December 31,

			2010		% of Loans			2009		% of Loans			2008		% of Loans			2007		% of Loans			2006		% of Loans
			(dollars in thousands)
Real estate loans:
	Construction and land development		$	273		8	%	$	195		7	%	$	333		8	%	$	240		13	%	$	218		17	%

	Mortgage loans:
		Commercial properties		2,546		61	%		1,942		58	%		2,141		58	%		1,703		55	%		1,458		47	%
		Residential properties		432		18	%		354		17	%		137		17	%		71		18	%		51		20	%

	Total mortgage loans			2,978		79	%		2,296		75	%		2,278		75	%		1,774		73	%		1,509		67	%

Commercial and industrial loans				455		12	%		617		17	%		472		16	%		532		13	%		400		14	%
Consumer				12		1	%		19		1	%		37		1	%		94		1	%		39		2	%

			$	3,718		100	%	$	3,127		100	%	$	3,120		100	%	$	2,640		100	%	$	2,166		100	%

Deposits

The principal sources of funds for the Company are core deposits (demand deposits, interest-bearing transaction accounts, money market accounts, savings deposits and certificates of deposit) from the Company's market area. The Company's deposit base includes transaction accounts, time and savings accounts and other accounts that customers use for cash management purposes and which provide the Company with a source of fee income and cross-marketing opportunities as well as a low-cost source of funds. Time and savings accounts, including money market deposit accounts, also provide a relatively stable low-cost source of funding.

Approximately 56.0% and 49.7% of the Company's deposits at December 31, 2010 and 2009 are made up of time deposits, which are generally the most expensive form of deposit because of their fixed rate and term. Time deposits in denominations of $100,000 or more can be more volatile and more expensive than time deposits of less than $100,000. However, because the Bank focuses on relationship banking, and most of these deposits are obtained from the local community, historical experience has been that large time deposits have not been more volatile or significantly more volatile or expensive than smaller denomination certificates. The Company does not have any brokered deposits as of December 31, 2010, 2009 or 2008.

The following tables provide a summary of the Company's deposit base at the dates indicated and the maturity distribution of certificates of deposit of $100,000 or more as of December 31, 2010, 2009, and 2008.

Average Deposits and Average Rate

				December 31,

				2010					2009					2008
				Average Daily Balance		Average Rate			Average Daily Balance		Average Rate			Average Daily Balance		Average Rate
				(dollars in thousands)
Noninterest-bearing demand deposits				$	39,691		—		$	36,134		—		$	35,009		—
Interest-bearing demand deposits: NOW accounts					13,794		0.22	%		13,296		0.20	%		11,490		0.32	%
	Money market accounts				64,667		1.05	%		45,713		1.17	%		40,234		1.86	%
	Savings accounts				5,065		0.10	%		4,398		0.16	%		3,966		0.50	%
	Certificates of deposit: $100,000 or more				49,826		2.00	%		50,483		3.22	%		58,214		4.18	%
		Less than $100,000			72,210		1.89	%		71,497		3.08	%		72,133		4.12	%

			Total average deposits	$	245,253		2.99	%	$	221,521		3.31	%	$	221,046		3.32	%

Maturities of Certificates of Deposit—$100,000 or More

		December 31,

		2010		2009		2008
		(dollars in thousands)
Maturing in:
	3 months or less	$	5,157	$	13,247	$	10,992
	Over 3 months through 6 months		2,980		5,049		7,989
	Over 6 months through 12 months		24,153		9,128		25,471
	Over 12 months		15,275		15,328		13,383

		$	47,565	$	42,752	$	57,835

Borrowings

For liquidity purposes and for customer convenience, the Company also utilizes short-term borrowings, which includes federal funds lines of credit to purchase overnight funds from correspondent banks and an unsecured line of credit for Bancorp. The Company also offers retail repurchase agreements, which are securities sold under an agreement to repurchase, which is considered to be a short-term borrowing. There were no retail repurchase agreements outstanding at December 31, 2010, 2009 or 2008. The following table set forth certain information regarding the Company's short-term borrowings at the dates indicated.

Short-Term Borrowings

	2010			2009			2008

	(dollars in thousands)
Total outstanding at year-end	$	300		$	500		$	—
Average amount outstanding during the year	$	430		$	184		$	749
Maximum amount outstanding at any month-end	$	500		$	500		$	4,000
Weighted-average interest rate at year-end		4.25	%		4.25	%		—
Weighted-average interest rate during the year		4.42	%		4.35	%		2.40	%

The short-term borrowings at December 31, 2010 consist of an unsecured revolving line of credit borrowing arrangement from an unaffiliated financial institution in the amount of $300 thousand at a floating interest rate equal to the Wall Street Journal prime rate plus 0.50%, subject to a minimum rate of 4.25%, that matures on July 22, 2011. The Company's unused lines of credit for short-term borrowings totaled $7.70 million and $7.50 million at December 31, 2010 and 2009, respectively. These include an unsecured line of credit from an unaffiliated financial institution for Bancorp in the amounts of $3.70 million and $3.50 million as of December 31, 2010 and 2009, respectively, and an unsecured federal funds line of credit from an unaffiliated financial institution for the Bank in the amount of $4.00 million at December 31, 2010 and 2009.

Long-Term Borrowings

At December 31, 2010 and 2009, the Company had $10.00 million in borrowings under its credit facility from the Federal Home Loan Bank of Atlanta ("FHLB"). There are two advances in the amounts of $5.00 million each, which bear interest rates of 3.29% and 3.05%, and each of which matures on November 19, 2015. Outstanding advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank's residential mortgage loan portfolio.

Trust Preferred Securities/Junior Subordinated Debentures

In December 2006, Bancorp completed the private placement of an aggregate of $6.00 million of trust preferred securities through FCBI Statutory Trust I (the "Trust"), a newly formed trust subsidiary organized under Connecticut law, of which Bancorp owns all $186 thousand of the common securities. The principal asset of the Trust is $6.186 million of Bancorp's junior subordinated debentures. The junior subordinated debentures bear interest at a fixed rate of 6.5375% until December 15, 2011, at which time the interest rate becomes a variable rate, adjusted quarterly, equal to 163 basis points over three-month LIBOR. The junior subordinated debentures mature on December 15, 2036, and may be redeemed at par, at Bancorp's option, on any interest payment date commencing December 15, 2011. The securities are redeemable prior to December 15, 2011, at a premium ranging up to 103.525% of the principal amount thereof, upon the occurrence of certain regulatory or legal events. The obligations of Bancorp with respect to the Trust's preferred securities constitute a full and unconditional guarantee by Bancorp of Trust's obligations with respect to the trust preferred securities to the extent set forth in the related guarantee. Subject to certain exceptions and limitations, Bancorp may elect from time to time to defer interest payments on the junior subordinated debentures, resulting in a deferral of distribution payments on the related trust securities. The proceeds from this issuance were used to repay a $450 thousand short-term debt obligation that matured in January 2007, capital injections of $4.50 million into the Bank, and the remaining proceeds were used to supplement the Company's capital for continued growth and other general corporate purposes. The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy purposes up to 25% of Tier 1 capital, net of goodwill, after its inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital in Tier 2 capital, subject to limitation. At December 31, 2010, all of the trust preferred securities qualified as Tier 1 capital.

Capital Resources

The ability of the Company to grow is dependent on the availability of capital with which to meet regulatory capital 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, subordinated debt or other qualifying capital instruments. There can be no assurance that additional capital will be available to the Company on a timely basis or on attractive terms. On December 15, 2006, the Company completed the issuance of $6.00 million of trust preferred securities, as discussed above that can be recognized as capital for regulatory purposes. The Company has an unsecured revolving line of credit borrowing arrangement with an unaffiliated financial institution in

the amount of $4.00 million with outstanding balances of $300 thousand and $500 thousand as of December 31, 2010 and 2009, respectively. This facility matures on July 22, 2011, has a floating interest rate equal to the Wall Street Journal prime rate plus 0.50%, subject to a minimum rate of 4.25%, and requires monthly interest payments only. The purpose of this facility is to provide capital to the Bank, as needed. The Company does not anticipate any issues with the renewal of this credit facility.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. The Company will be subject to additional requirements when its assets exceed $500 million, it has publicly issued debt or it engages in certain highly leveraged activities. 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. 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 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 Bank met all capital adequacy requirements to which it is subject as of December 31, 2010 and that the Company would meet such requirements if applicable. See Note 13 to the consolidated financial statements for a table depicting compliance with regulatory capital requirements.

As of December 31, 2010, 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 13 to the consolidated financial statements. There are no conditions or events since that notification which management believes have changed the Bank's category.

On June 26, 2007, the Company authorized the repurchase of up to 146,000 shares of its common stock, for an aggregate expenditure of not more than $4.50 million, through June 30, 2012, or earlier termination of the program by the Board of Directors. Repurchases, if any, by the Company pursuant to this authorization are expected to enable the Company to repurchase its shares at an attractive price, and to provide a source of liquidity for the Company's shares. As of December 31, 2010, 5,118 shares have been repurchased by the Company.

The Bank's capital ratios significantly exceed the regulatory requirements for well capitalized banks, with its ratios of 13.81% and 12.56% for Total Risk-Based Capital and Tier 1 Capital, respectively, compared to the regulatory minimums to be well capitalized of 10.00% and 6.00%, and compared to ratios of 12.80% and 11.55% at December 31, 2009. The increase in the Bank's capital ratios over the course of 2010 resulted primarily from retained earnings of $1.44 million and the shifting of risk-weighted assets to lower weighted categories. Management of the Company believes that its level of existing capital is adequate to support continued successful implementation of the Company's business plan without the need for government capital assistance. In light of regulatory pressures on substantially all banks, and the Company's desire, to maintain capital levels in excess of the minimum requirements for well capitalized status, the Company has relatively little room for asset growth without an additional capital infusion, through borrowing or through the issuance of additional capital stock.

Inflation

The effect of changing prices on financial institutions is typically different than on non-banking companies since virtually all of a bank'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.

Off-Balance Sheet Arrangements

With the exception of the Company's obligations in connection with its trust preferred securities and in connection with its irrevocable letters of credit and loan commitments, the Company has no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company'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 1—Nature of Operations and Significant Accounting Policies—Recent Accounting Pronouncements," "Note 9—Leasing Arrangements," "Note 16—Transactions with Related Parties—Lease Agreement" and "Note 17—Commitment and Contingencies" to the consolidated financial statements.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Frederick County Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with the authorizations of Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material impact on the financial statements. The internal control system contains monitoring mechanisms, and appropriate actions taken to correct identified deficiencies. The Audit Committee of the Board of Directors (the "Committee"), is comprised entirely of outside directors who are independent of management. The Committee is responsible for the appointment and compensation of the independent auditors and makes decisions regarding the appointment or removal of members of the internal audit function. The Committee meets periodically with management, the independent registered public accounting firm, and the internal auditors to ensure that they are carrying out their responsibilities. The Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting, and auditing procedures of the Company in addition to reviewing the Company's financial reports. The independent registered public accounting firm and the internal auditors have full and unlimited access to the Audit Committee, with or without the presence of management, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Audit Committee.

There are inherent limitations in the effectiveness of any internal control system, including the possibility of human error and the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. In addition, because of changes in conditions and circumstances, the effectiveness of internal control over financial reporting may vary over time and controls may become inadequate, and the degree of compliance with the policies and procedures may deteriorate, over time.

Under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in "Internal Control-Integrated Framework" promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the "COSO" criteria. Based on this evaluation under the "COSO" criteria, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2010. Management's assessment concluded that there were no material weaknesses within the Company's internal control over financial reporting.

There was no change in the Company's internal control over financial reporting that occurred during the fourth quarter of 2010 that has materially affected or is likely to materially affect, the Company's internal control over financial reporting.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. As the Company is a smaller reporting company, management's report is not required to be attested to by the Company's registered public accounting firm.

DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the 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 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 effective.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Frederick County Bancorp, Inc.
Frederick, Maryland

We have audited the accompanying consolidated balance sheets of Frederick County Bancorp, Inc. and Subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended. 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Frederick County Bancorp, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Baltimore, Maryland
February 15, 2011

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

			December 31,

			2010			2009
			(dollars in thousands)
Assets
Cash and due from banks			$	1,469		$	1,447
Federal funds sold				1,128			938
Interest-bearing deposits in other banks				39,468			9,729

	Cash and cash equivalents			42,065			12,114

Investment securities available-for-sale—at fair value				30,178			24,077
Restricted stock				1,521			1,566
Loans				209,387			214,943
Less: Allowance for loan losses				(3,718	)		(3,127	)

	Net loans			205,669			211,816

Bank premises and equipment				4,968			4,997
Accrued interest and other assets				4,642			3,989

	Total assets		$	289,043		$	258,559

Liabilities and Shareholders' Equity
Liabilities
Deposits:
	Noninterest-bearing deposits		$	41,244		$	38,199
	Interest-bearing deposits			207,380			181,113

		Total deposits		248,624			219,312

Short-term borrowings				300			500
Long-term borrowings				10,000			10,000
Junior subordinated debentures				6,186			6,186
Accrued interest and other liabilities				738			811

	Total liabilities			265,848			236,809

Commitments and Contingencies (Notes 9, 16, and 17)
Shareholders' Equity
Common stock, per share par value $0.01; 10,000,000 shares authorized; 1,469,364 and 1,460,802 shares issued and outstanding, respectively				15			15
Additional paid-in capital				15,069			14,702
Retained earnings				8,142			6,987
Accumulated other comprehensive (loss) income				(31	)		46

	Total shareholders' equity			23,195			21,750

	Total liabilities and shareholders' equity		$	289,043		$	258,559

See Notes to Consolidated Financial Statements.

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

			Years Ended December 31,

			2010		2009
			(dollars in thousands, except per share amounts)
Interest income:
	Interest and fees on loans		$	13,414	$	13,073
	Interest and dividends on investment securities:
		Taxable		665		590
		Tax exempt		306		239
		Dividends		50		49
	Interest on federal funds sold			2		2
	Other interest income			59		48

		Total interest income		14,496		14,001

Interest expense:
	Interest on deposits			3,079		4,400
	Interest on short-term borrowings			19		8
	Interest on long-term borrowings			446		462
	Interest on junior subordinated debentures			404		404

		Total interest expense		3,948		5,274

Net interest income				10,548		8,727
Provision for loan losses				1,660		1,175

Net interest income after provision for loan losses				8,888		7,552

Noninterest income:
	Securities gains			283		235
	(Loss) gain on sale of foreclosed properties			—		(37	)
	Service fees			368		371
	Other operating income			198		206

		Total noninterest income		849		775

Noninterest expenses:
	Salaries and employee benefits			4,703		3,729
	Occupancy and equipment expenses			1,242		1,288
	Other operating expenses			2,011		1,774

		Total noninterest expenses		7,956		6,791

Income before provision for income taxes				1,781		1,536
Provision for income taxes				626		488

Net income			$	1,155	$	1,048

Basic earnings per share			$	0.79	$	0.72

Diluted earnings per share			$	0.78	$	0.71

Basic weighted average number of shares outstanding				1,469,100		1,461,079

Diluted weighted average number of shares outstanding				1,482,350		1,475,068

See Notes to Consolidated Financial Statements.

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

		Years Ended December 31, 2010 and 2009

		Shares Outstanding			Common Stock		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
		(dollars in thousands)
Balance, January 1, 2009			1,460,802		$	15	$	14,690		$	5,939	$	(32	)	$	20,612
Comprehensive income: Net income											1,048					1,048
Reclassification adjustment for (gains) losses realized, net of income taxes of $93													(142	)		(142	)
Changes in net unrealized gains (losses) on securities available for sale, net of income taxes of $144													220			220

	Total comprehensive income															1,126
Shares issued under stock option transactions			1,000					10								10
Compensation expense from stock option transactions								2								2

Balance, December 31, 2009			1,461,802			15		14,702			6,987		46			21,750
Comprehensive income: Net income											1,155					1,155
Reclassification adjustment for (gains) losses realized, net of income taxes of $112													(172	)		(172	)
Changes in net unrealized gains (losses) on securities available for sale, net of income tax benefits of $61													95			95

	Total comprehensive income															1,078
Shares repurchased			(5,118	)				(62	)							(62	)
Shares issued under stock option transactions			12,680					127								127
Compensation expense from stock option transactions								253								253
Excess tax benefit from equity- based awards								49								49

Balance, December 31, 2010			1,469,364		$	15	$	15,069		$	8,142	$	(31	)	$	23,195

See Notes to Consolidated Financial Statements.

Frederick County Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

				Years Ended December 31

				2010			2009
				(dollars in thousands)
Cash flows from operating activities:
	Net income			$	1,155		$	1,048
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization		294			320
			Deferred income taxes (benefits)		(256	)		58
			Provision for loan losses		1,660			1,175
			Securities gains		(283	)		(235	)
			Net premium amortization on investment securities		372			55
			Loss on sale of foreclosed property		—			37
			Stock-based compensation expense		253			2
			Provision for foreclosed properties		17			—
			Excess tax benefit from equity-based awards		(49	)		—
			Increase in accrued interest and other assets		(105	)		(1,007	)
			Decrease in accrued interest and other liabilities		(43	)		(100	)

			Net cash provided by operating activities		3,015			1,353

Cash flows from investing activities:
	Purchases of investment securities available-for-sale				(26,881	)		(16,802	)
	Proceeds from sales of investment securities available-for-sale				13,348			8,453
	Proceeds from maturities, prepayments and calls of investment securities available-for-sale				7,216			4,620
	Redemptions of restricted stock				45			33
	Net decrease (increase) in loans				4,247			(4,925	)
	Purchases of bank premises and equipment				(265	)		(96	)
	Proceeds from sale of foreclosed properties				—			484

			Net cash used in investing activities		(2,290	)		(8,233	)

Cash flows from financing activities:
	Net increase in NOW, money market accounts, savings accounts and noninterest-bearing deposits				22,145			23,585
	Net increase (decrease) in time deposits				7,167			(21,156	)
	Proceeds from short-term borrowings				—			500
	Repayment of short-term borrowings				(200	)		—
	Proceeds from issuance of common stock				127			10
	Repurchase of common stock				(62	)		—
	Excess tax benefit from equity-based awards				49			—

			Net cash provided by financing activities		29,226			2,939

Net increase (decrease) in cash and cash equivalents					29,951			(3,941	)
Cash and cash equivalents—beginning of year					12,114			16,055

Cash and cash equivalents—end of year				$	42,065		$	12,114

Supplemental cash flow disclosure:
	Interest paid			$	4,002		$	5,370

	Income taxes paid			$	884		$	380

	Transfer of loans to foreclosed properties			$	240		$	654

See Notes to Consolidated Financial Statements.

FREDERICK COUNTY BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 1. Nature of Operations and Significant Accounting Policies:

Frederick County Bancorp, Inc. (the "Bancorp"), the parent company for its wholly-owned subsidiary Frederick County Bank (the "Bank" and together with Bancorp, the "Company"), was organized in September 2003. The Bank was incorporated under the laws of the State of Maryland in August 2000 and commenced banking operations in October 2001. The Bank provides its customers with various banking services. The Bank offers various loan and deposit products to their customers. The Bank's customers include individuals and commercial enterprises within its principal market area consisting of Frederick County, Maryland. The Company also has a subsidiary trust, established to issue trust preferred securities, and two subsidiaries established to hold foreclosed properties. The two subsidiaries established to hold foreclosed properties are known as FCB Holdings, Inc (a direct subsidiary of Bancorp) and FCB Hagerstown, LLC (an indirect subsidiary of Bancorp). See Note 8 for additional disclosures for the subsidiary trust.

Additionally, the Bank maintains correspondent banking relationships and transacts daily federal funds sales on an unsecured basis with regional correspondent banks. Note 3 discusses the types of securities the Bank invests in. Note 4 discusses the types of lending that the Bank engages in. The Bank does not have any significant concentrations to any one industry or customer.

The accounting and reporting policies and practices of the Company conform with accounting principles generally accepted in the United States of America. The following is a summary of the Company's significant accounting policies:

Principles of consolidation:

The accompanying consolidated financial statements include the accounts of the Company and the Bank.

In consolidation, all significant intercompany balances and transactions have been eliminated.

The Company also has an investment in FCBI Statutory Trust I, a statutory trust that is not consolidated in accordance with Accounting Standards Codification ("ASC") Topic 810 Consolidation. See Note 8.

Use of estimates:

Comprehensive income:

Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.

Presentation of cash flows:

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing) and interest-bearing deposits in banks with

an original maturity of 90 days or less, and federal funds sold. Generally, federal funds are sold for one-day periods.

Investment securities:

Securities classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost, adjusted for amortization of premium and accretion of discount, computed using the interest method, over their contractual lives.

Securities classified as available-for-sale are equity securities with readily determinable fair values and those debt securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movement in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. These securities are carried at estimated fair value based on information provided by a third party pricing service with any unrealized gains or losses excluded from net income and reported in accumulated other comprehensive income (loss), which is reported as a separate component of shareholders' equity, net of the related deferred tax effect.

Dividend and interest income, including amortization of premium and accretion of discount arising at acquisition, from all categories of investment securities are included in interest income in the consolidated statements of income.

Gains and losses realized on sales of investment securities, determined using the adjusted cost basis of the specific securities sold, are included in noninterest income in the consolidated statements of income. Additionally, declines in the estimated fair value of individual investment securities below their cost that are other-than-temporary are reflected as realized losses in the statements of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include a downgrading of the security by a rating agency, a significant deterioration in the financial condition of the issuer, or that management would not have the intent and ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value.

Restricted stock is stock from the Federal Home Loan Bank ("FHLB") of Atlanta, the Federal Reserve Bank and the Atlantic Central Banker's Bank, which are restricted as to their marketability. Because no ready market exists for these investments and they have no quoted market value, the Bank's investment in these stocks are carried at cost.

Loans and allowance for loan losses:

Loans are carried at the amount of unpaid principal, adjusted for deferred loan fees and origination costs. Interest on loans is accrued based on the principal amounts outstanding. Nonrefundable loan fees and related direct costs are deferred and the net amount is amortized to income as a yield adjustment over the life of the loan using the interest method. When principal or interest is delinquent for ninety days or more, the Company evaluates the loan for nonaccrual status. After a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Subsequent collections of interest payments on nonaccrual loans are recognized as interest income unless ultimate collectability of the loan is in doubt. Cash collections on loans where ultimate collectability remains in doubt are applied as reductions of the loan principal balance and no interest income is recognized until the principal balance has been collected.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any,

are credited to the allowance. The allowance is based on two basic principles of accounting: (i) ASC Topic 450 Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC Topic 310 Receivables, which requires that losses be accrued based on the differences between the loan balance and either the value of collateral, if such loans are considered to be collateral dependent and in the process of collection, or the present value of future cash flows, or the loan's value as observable in the secondary market. A loan is considered impaired when, based on current information and events, the Company has concerns about the ability to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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 establish an allowance for loans identified for impairment testing. When impairment is identified, a specific reserve may be established based on the Company's calculation of the estimated loss embedded in the individual loan. 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. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately evaluate individual consumer and residential loans for impairment.

The formula allowance component is used for estimating the loss on internally risk rated loans exclusive of those identified as impaired. 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, results of the 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.

In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Bank to make additions to the allowance for loan losses based on their judgments of collectibility based on information available to them at the time of their examination.

The Company's charge-off policy states after all collection efforts have been exhausted and the loan is deemed to be a loss, it will be charged to the Company's established allowance for loan losses. Consumer loans subject to the Uniform Retail Credit Classification are charged-off as follows (a) closed end loans are charged-off no later than 120 days after becoming delinquent, (b) consumer loans to borrowers who subsequently declare bankruptcy, where the Company is an unsecured creditor, are charged-off within 60 days of receipt of the notification from the bankruptcy court, (c) fraudulent loans are charged-off within 90 days of discovery and (d) death of a borrower will cause a charge-off to be incurred at such time an actual loss is determined. All other types of loans are generally evaluated for loss potential at the 90^th day past due threshold, and any loss is recognized no later than the 120^th day past due threshold; each loss is evaluated on its specific facts regarding the appropriate timing to recognize the loss.

Bank premises and equipment:

Bank premises and equipment are stated at cost less accumulated depreciation and amortization. The provision for depreciation is computed using straight-line and accelerated methods based on the estimated useful lives of the assets, which range from 5 to 10 years for bank equipment and 39 years for bank buildings. Leasehold improvements are amortized over the lesser of the terms of the leases or their estimated useful lives. Expenditures for improvements, which extend the life of an asset, are

capitalized and depreciated over the asset's remaining useful life. Gains or losses realized on the disposition of properties and equipment are reflected in the statements of income. Expenditures for repairs and maintenance are charged to operating expenses as incurred.

Foreclosed properties:

Foreclosed properties include properties that have been acquired in complete or partial satisfaction of a debt. These properties are initially recorded at fair value on the date of acquisition. Any write-downs at the time of acquisition are charged to the allowance for loan losses. Subsequent to acquisition, a valuation allowance is established, if necessary, to report these assets at the lower of (a) fair value minus estimated costs to sell or (b) cost. Gains and losses realized on the sale, and any adjustments resulting from periodic re-evaluation of this property are included in noninterest income or expense, as appropriate. Net costs of maintaining and operating the properties are expensed as incurred.

Stock-based compensation plan:

The Company maintains an Employee Stock Option Plan, which is described more fully in Note 10, and provides for grants of incentive and non-incentive stock options. This plan has been presented to and approved by the Company's shareholders.

Compensation cost for all stock-based awards is measured at fair value on date of grant and recognized over the service period for awards expected to vest. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Income taxes:

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. In addition, deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We recognize interest and penalties related to income tax matters in income tax expense.

Fair value measurements:

The Company follows the guidance of ASC Topic 825 Financial Instruments and ASC Topic 820 Fair Value Measurements and Disclosures. This guidance permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell and asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair

value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Per share amounts:

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, determined using the treasury stock method, that could occur if other contracts to issue common stock were exercised.

	Years Ended December 31,

	2010		2009
	(dollars in thousands, except per share amounts)
Net income	$	1,155	$	1,048

Basic earnings per share	$	0.79	$	0.72

Diluted earnings per share	$	0.78	$	0.71

Basic weighted average number of shares outstanding		1,469,100		1,461,079
Effect of dilutive securities—stock options		13,250		13,989

Diluted weighted average number of shares outstanding		1,482,530		1,475,068

Anti-dilutive securities outstanding		88,468		—

Transfers of financial assets:

The Company accounts for transfers and servicing of financial assets in accordance with ASC Topic 860 Transfers and Servicing. Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Valuation of long-lived assets:

The Company accounts for the valuation of long-lived assets under ASC Topic 360 Property, Plant and Equipment. This guidance requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount or fair value, less costs to sell.

Segment reporting:

ASC Topic 280 Segment Reporting, requires that an enterprise report selected information about operating segments in its financial reports issued to its shareholders. Based on the analysis performed by the Company, management has determined that the Company only has one operating segment, which is commercial banking. The chief operating decision-makers use consolidated results to make

operating and strategic decisions, and therefore, are not required to disclose any additional segment information.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board ("FASB") issued new guidance under ASC Topic 860 Transfers and Servicing, also known as Accounting Standards Update ("ASU") 2009-16, for guidance on the transfer and servicing of financial assets. This guidance eliminates the concept of a "qualifying special-purpose entity" from the original accounting guidance and removes the exception from applying FASB guidance on consolidation of variable interest entities, to qualifying special-purpose entities. This guidance is effective at the beginning of a reporting entity's first fiscal year that begins after November 15, 2009. The Company adopted this guidance on January 1, 2010 and it did not have a material impact on the Company's consolidated financial condition or results of operations.

In June 2009, the FASB issued new guidance under ASC Topic 810 Consolidation, also known as ASU 2009-17, for guidance on the consolidation of variable interest entities. This amends the original guidance, to require an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity (VIE). This analysis identifies the primary beneficiary of a VIE as the enterprise that has both (a) the power to direct the activities of a VIE that most significantly impact the entity's economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the VIE. Additionally, this new guidance requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining it has the power to direct the activities of the VIE that most significantly impact the entity's economic performance. It is effective at the beginning of a company's first fiscal year that begins after November 15, 2009. The Company adopted this guidance on January 1, 2010 and it did not have a material impact on the Company's consolidated financial condition or results of operations.

In January 2010, the FASB issued new guidance under ASC Topic 820 Fair Value Measurements and Disclosures, also known as ASU 2010-06, to improve disclosures about fair value measurements. The guidance requires entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the same. It also requires Level 3 reconciliation to be presented on a gross basis disclosing purchases, sales, issuances and settlements separately. The guidance is effective for interim and annual financial periods beginning after December 15, 2009 except for gross basis presentation for Level 3 reconciliation, which is effective for interim and annual periods beginning after December 15, 2010. The disclosure requirements effective for interim and annual financial periods beginning after December 15, 2009 have been adopted for the interim period ended March 31, 2010.

In July 2010, the FASB issued new guidance under ASC Topic 310 Receivables—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses" also known as ASU 2010-20. The guidance requires entities to provide disclosures designed to facilitate financial statement users' evaluation of (i) the nature of credit risk inherent in the entity's portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a roll forward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 will be effective for the Company's financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company's financial statements that include periods beginning on or after January 1, 2011.

Note 2. Compensating Balances:

Compensating balance arrangements exist with various correspondent banks. These noninterest-bearing deposits are maintained in lieu of cash payments for standard bank services. The required balances amounted to $750 thousand at each of December 31, 2010 and 2009. In addition, for the reserve maintenance period in effect at December 31, 2010 and 2009, the Company was required to maintain balances of $350 thousand with the Federal Reserve Bank.

Note 3. Investments:

The amortized cost and estimated fair value of securities classified as available-for-sale at December 31, 2010 and 2009 are as follows:

Available-for-sale

December 31, 2010		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

		(dollars in thousands)
States and political subdivisions:
	Due after five years through ten years	$	2,094	$	12	$	21	$	2,085
	Due after ten years		7,005		50		123		6,932

			9,099		62		144		9,017

Mortgage-backed debt securities			20,830		158		127		20,861
Equity securities			300		—		—		300

		$	30,229	$	220	$	271	$	30,178

December 31, 2009		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

		(dollars in thousands)
U.S. Treasury and other U.S. government agencies and corporations:
	Due within one year	$	490	$	3	$	—	$	493
	Due after one year through five years		1,391		29		5		1,415
	Due after five years through ten years		497		29		—		526

			2,378		61		5		2,434

States and political subdivisions:
	Due after five years through ten years		910		2		3		909
	Due after ten years		6,935		35		28		6,942

			7,845		37		31		7,851

Mortgage-backed debt securities			13,478		83		69		13,492
Equity securities			300		—		—		300

		$	24,001	$	181	$	105	$	24,077

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

	Continuous unrealized losses existing for less than 12 months				Continuous unrealized losses existing for 12 months and greater				Total

December 31, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
State and political subdivisions	$	4,253	$	144	$	—	$	—	$	4,253	$	144
Mortgage-backed debt securities		9,398		127		—		—		9,398		127

Total temporarily impaired securities	$	13,651	$	271	$	—	$	—	$	13,651	$	271

	Continuous unrealized losses existing for less than 12 months				Continuous unrealized losses existing for 12 months and greater				Total

December 31, 2009	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(dollars in thousands)
U.S. Treasury and other U.S. government agencies and corporations	$	870	$	5	$	—	$	—	$	870	$	5
State and political subdivisions		4,112		28		152		3		4,264		31
Mortgage-backed debt securities		7,233		69		—		—		7,233		69

Total temporarily impaired securities	$	12,215	$	102	$	152	$	3	$	12,367	$	105

The bonds in an unrealized loss position at December 31, 2010 were temporarily impaired due to the current interest rate environment and not increased credit risk. In estimating other-than-temporary impairment losses, the Company considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near term prospects of the issuer, and (iii) the intent and the ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost. All securities owned by the Company are payable at par at maturity. Of the temporarily impaired securities, eight (8) are government sponsored enterprise issued bonds (Federal National Mortgage Association, Government National Mortgage Association and Federal Home Loan Mortgage Corporation) rated AAA by Standard and Poor's, and nine (9) municipal bonds rated by Standard and Poor's or Moody's are as follows: four (4) rated AA+, one (1) rated AA-, one (1) rated A+, one (1) rated A2 and two (2) rated Aa2.

Included in the investment portfolio at December 31, 2010 and 2009 are securities carried at $5.89 million and $939 thousand, respectively, which are pledged for public fund deposits, to secure repurchase agreements and for other purposes as required and permitted by law.

Gross gains of $283 thousand and $235 thousand in 2010 and 2009, respectively, were realized from sales of investment securities available-for-sale.

Restricted Stock

The following table shows the amounts of restricted stock as of December 31, 2010 and 2009:

	2010		2009

	(dollars in thousands)
Federal Home Loan Bank of Atlanta	$	907	$	952
Federal Reserve Bank		574		574
Atlantic Central Bankers Bank		40		40

	$	1,521	$	1,566

Note 4. Loans and Allowance for Loan Losses:

Loans consist of the following at December 31, 2010 and 2009:

		2010			2009

		(dollars in thousands)
Real estate—construction and land development		$	15,742		$	15,726

Real estate—mortgage loans:
	Commercial properties		128,998			113,373
	Residential properties		37,143			48,717

Total real estate—mortgage loans			166,141			162,090

Commercial and industrial loans			25,778			35,397
Loans to individuals for household, family and other personal expenditures			1,726			1,730

Total loans			209,387			214,943
Less allowance for loan losses			(3,718	)		(3,127	)

Net loans		$	205,669		$	211,816

Allowance for loan losses and recorded investment in loans for the years ended December 31, 2010 is summarized as follows:

		Construction			Commercial Real Estate			Residential Real Estate			Commercial			Consumer			Total

		(dollars in thousands)
Allowance for loan losses:
Beginning balance		$	195		$	2,202		$	94		$	617		$	19		$	3,127
	Charge-offs		(173	)		(500	)		(92	)		(515	)		(2	)		(1,282	)
	Recoveries		2			4			—			206			1			213
	Provisions		249			840			430			147			(6	)		1,660

Ending balance		$	273		$	2,546		$	432		$	455		$	12		$	3,718

Ending balance: individually evaluated for impairment		$	155		$	968		$	11		$	110		$	—		$	1,244

Ending balance: collectively evaluated for impairment		$	118		$	1,578		$	421		$	345		$	12		$	2,474

Loans:
Ending balance		$	15,742		$	128,998		$	37,143		$	25,778		$	1,726		$	209,387

Ending balance: individually evaluated for impairment		$	2,403		$	13,111		$	881		$	4,593		$	—		$	20,988

Ending balance: collectively evaluated for impairment		$	13,339		$	115,887		$	36,262		$	21,185		$	1,726		$	188,399

Credit quality indicators as of December 31, 2010 are as follows:

Internally assigned grade:

Pass—loans in this category have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention—loans in this category are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard—loans in this category show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Commercial credit exposure—Credit risk profile by internally assigned grade

	Construction		Commercial Real Estate		Commercial

	(dollars in thousands)
Pass	$	9,874	$	102,524	$	14,813
Special mention		3,719		12,031		7,038
Substandard		2,149		14,443		3,927

Total	$	15,742	$	128,998	$	25,778

Consumer credit exposure—Credit risk profile by internally assigned grade

	Residential Real Estate		Consumer

	(dollars in thousands)
Pass	$	31,723	$	1,631
Special mention		3,466		—
Substandard		1,954		95

Total	$	37,143	$	1,726

Information on impaired loans for the year ended December 31, 2010 is as follows:

		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

		(dollars in thousands)
With no related allowance recorded:
	Construction	$	2,038	$	2,038	$	—	$	2,091	$	254
	Commercial real estate		8,374		8,374		—		5,500		423
	Residential real estate		364		364		—		183		24
	Commercial		4,179		4,179		—		3,666		201
With an allowance recorded:
	Construction	$	365	$	365	$	155	$	365	$	19
	Commercial real estate		4,737		4,737		968		3,916		259
	Residential real estate		517		517		11		522		27
	Commercial		414		414		110		337		17
Total
	Construction	$	2,403	$	2,403	$	155	$	2,456	$	273
	Commercial real estate		13,111		13,111		968		9,416		682
	Residential real estate		811		881		11		705		51
	Commercial		4,593		4,593		110		4,003		218

At December 31, 2010 and 2009, nonaccrual loans are $2.20 million and $943 thousand, respectively.

An age analysis of past due loans as of December 31, 2010 is as follows:

		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total		Greater than 90 Days and Still Accruing

		(dollars in thousands)
Construction		$	—	$	—	$	111	$	111	$	15,631	$	15,742	$	—
Commercial real estate			—		—		1,913		1,913		127,085		128,998		—
Residential real estate			567		105		—		672		36,471		37,143		—
Commercial			—		—		178		178		25,600		25,778		—
Consumer			—		—		—		—		1,726		1,726		—

	Total	$	567	$	105	$	2,202	$	2,874	$	206,513	$	209,387	$	—

Note 5. Bank Premises and Equipment:

Bank premises and equipment consisted of the following at December 31, 2010 and 2009:

		2010			2009

		(dollars in thousands)
Land		$	1,924		$	1,924
Buildings			2,459			2,277
Furniture and equipment			2,089			2,025
Leasehold improvements			464			446

			6,936			6,672
	Less accumulated depreciation and amortization		(1,968	)		(1,675	)

		$	4,968		$	4,997

Depreciation and amortization charged to operations amounted to $294 thousand in 2010 and $320 thousand in 2009.

Note 6. Deposits:

Certificates of deposit and other time deposits issued in denominations of $100 thousand or more totaled $47.57 million and $42.75 million at December 31, 2010 and 2009, respectively, and are included in interest-bearing deposits in the consolidated balance sheet.

At December 31, 2010, the maturity distribution of certificates of deposit are as follows:

Maturing in:	Certificates of Deposit

	(dollars in thousands)
2011	$	77,530
2012		19,710
2013		1,878
2014		6,156
2015		10,920

	$	116,194

Interest on deposits for the years ended December 31, 2010 and 2009 consists of the following:

	2010		2009

	(dollars in thousands)
NOW accounts	$	31	$	27
Savings accounts		5		7
Money market accounts		679		537
Certificates of deposit $100,000 and over		996		2,201
Certificates of deposit under $100,000		1,368		1,628

	$	3,079	$	4,400

Note 7. Borrowings:

During 2010 and 2009, the Company had no sales of securities under agreements to repurchase the same securities.

Short-term borrowings:

	2010			2009

	(dollars in thousands)
Total outstanding at year-end	$	300		$	500
Average amount outstanding during the year	$	430		$	184
Maximum amount outstanding at any month-end	$	500		$	500
Weighted-average interest rate at year-end		4.25	%		4.25	%
Weighted-average interest rate during the year		4.42	%		4.35	%

The Company's unused lines of credit for short-term borrowings totaled $7.70 million and $7.50 million at December 31, 2010 and 2009, respectively. These include an unsecured line of credit from an unaffiliated financial institution for Bancorp in the amounts of $3.70 million and $3.50 million as of December 31, 2010 and 2009, respectively, and an unsecured federal funds line of credit from an unaffiliated financial institution for the Bank in the amount of $4.00 million at December 31, 2010 and 2009.

Long-Term Borrowings

The Company has a secured line of credit with the Federal Home Loan Bank of Atlanta ("FHLB") in the amount of $19.48 million, which is secured by a blanket lien on its 1-4 family residential mortgage loan portfolio and certain commercial real estate loans. At December 31, 2010 and 2009, the Company had $10.00 million in borrowings under this credit facility from the FHLB. As of December 31, 2009, there were two convertible advances in the amounts of $5.00 million each, which are both at a rate of 4.56%, with maturity dates of April 27, 2012 and September 4, 2012, unless called earlier on September 4, 2010, by the FHLB. During 2010, these advances were converted to fixed rates of 3.29% and 3.05%, with a maturity of November 19, 2015.

Note 8. Trust preferred securities/junior subordinated debentures:

In December 2006, Bancorp completed the private placement of an aggregate of $6.00 million of trust preferred securities through FCBI Statutory Trust I (the "Trust"), a newly formed trust subsidiary organized under Connecticut law, of which Bancorp owns all of the common securities of $186 thousand. The principal asset of the Trust is a similar amount of Bancorp's junior subordinated debentures. The junior subordinated debentures bear interest at a fixed rate of 6.5375% until December 15, 2011, at which time the interest rate becomes a variable rate, adjusted quarterly, equal to 163 basis points over three-month LIBOR. The junior subordinated debentures mature on December 15, 2036, and may be redeemed at par, at Bancorp's option, on any interest payment date commencing December 15, 2011. The securities are redeemable prior to December 15, 2011, at a premium ranging up to 103.525% of the principal amount thereof, upon the occurrence of certain regulatory or legal events. The obligations of Bancorp with respect to the Trust's preferred securities constitute a full and unconditional guarantee by Bancorp of Trust's obligations with respect to the trust preferred securities to the extent set forth in the related guarantee. Subject to certain exceptions and limitations, Bancorp may elect from time to time to defer interest payments on the junior subordinated debentures, resulting in a deferral of distribution payments on the related trust preferred securities. If the Company defers interest payments on the junior subordinated debentures, or otherwise is in default of the obligations, the Company would be prohibited from making dividend payments to its shareholders.

The trust preferred securities may be included in Tier 1 capital for regulatory capital adequacy purposes up to 25% of Tier 1 capital, net of goodwill after its inclusion. The portion of the trust preferred securities not qualifying as Tier 1 capital may be included as part of total qualifying capital in Tier 2 capital, subject to limitation.

Note 9. Leasing Arrangements:

The Company leases branch and administrative office facilities under noncancellable operating lease arrangements whose maturity dates extend to July 2016. These leases contain options, which enable the Company to renew the leases at fair rental value for periods of 5 to 10 years. In addition to minimum rentals, certain leases have escalation clauses based upon various price indices and include provisions for additional payments to cover taxes, insurance and maintenance. See Note 16 for a discussion of the terms of a lease agreement with related parties. The total minimum rental commitment, including renewal periods under these leases at December 31, 2010 is outlined below:

Years ending December 31	Total

	(dollars in thousands)
2011	$	309
2012		294
2013		267
2014		276
2015		284
Later years		1,207

	$	2,637

Rent expense included in occupancy and equipment expenses amounted to $390 thousand in 2010 and $387 thousand in 2009.

Note 10. Employee Benefit Plans:

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 has the discretion to make matching contributions of 100% of the employee's contributions up to 4% of the employee's salary. In 2010 and 2009, the Company made matching contributions of 100%. In April 2009, the Company suspended the matching contribution for the remainder of 2009. 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 expensed contributions to the Plan in the amounts of $123 thousand in 2010 and $30 thousand in 2009.

Deferred compensation plan:

On January 28, 2002, the Board of Directors of the Bank approved the Frederick County Bank Executive and Director Deferred Compensation Plan (the "Plan"). The Plan was effective January 1, 2002 for certain executive employees and directors of the Bank. The purpose of the Plan is to (1) allow participants an opportunity to elect to defer the receipt of compensation ("Participant Compensation Deferral"), and (2) provide a vehicle for the Bank to credit amounts on a tax deferred basis for employee participants ("Employer Contribution Credit"). The Employer Contribution Credits are subject to various vesting restrictions and are available solely to Plan participants who are employees of the Bank. The Plan is intended to be a "top hat" plan under various provisions of the Employee Retirement Income Security Act of 1974, as amended.

Each Plan participant's account will be adjusted for credited interest or increases or decreases in the realizable net asset value, as applicable, of the designated deemed Plan investments. Benefit payments under the Plan, which in the aggregate equal the participant's vested account balance, will be paid in a lump sum or in five or ten substantially equal, annual installments, commencing on the date or dates selected by the Plan's participants.

No amounts have been deferred or were expensed under this Plan in the accompanying consolidated statements of income for 2010 or 2009.

Stock-based compensation plan:

The Company's 2001 Stock Option Plan ("2001 Plan") provides that 260,000 shares of the Company's common stock will be reserved for the granting of both incentive stock options ("ISO") and non-incentive stock options ("NQSO") to purchase these shares. At December 31, 2010, there are 5,240 shares remaining that are reserved for future grants under this plan. The exercise price per share shall not be less than the fair market value of a share of common stock on the date on which such options were granted, subject to adjustments for the effects of any stock splits or stock dividends, and may be exercised not later than ten years after the grant date.

The following is a summary of transactions in the 2001 Plan during the years ended December 31, 2010 and 2009.

		Weighted-Average Exercise Price

Balance at December 31, 2008	127,810	$	10.00

Exercised	1,000		10.00
Terminated	—		—
Granted	3,000		10.75

Balance at December 31, 2009	129,810	$	10.02

Exercised	12,680		10.00
Terminated	400		11.35
Granted	118,700		11.35

Balance at December 31, 2010	235,430	$	10.69

Exercisable at December 31, 2010	151,420	$	10.33

As noted in the table above, there were 118,700 and 3,000 options granted in 2010 and 2009, respectively. The Company recognizes the cost of employee services received in exchange for an award of equity investment based on the grant-date fair value of the award. That cost will be recognized over the vesting period of the award. Stock-based compensation expense related to stock options for the years ended December 31, 2010 and 2009 was $253 thousand and $3 thousand. As of December 31, 2010, there was $130 thousand of total unrecognized compensation cost related to non-vested stock options, respectively, that will be expensed over the next two years.

The weighted-average fair value of options granted in the year ended December 31, 2010 and 2009 was $3.17 and $2.97, respectively, and was estimated at the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions.

December 31,

Risk free interest rate of return	3.80	%	3.85	%
Expected option life (months)	60		120
Expected volatility	25	%	25	%
Expected dividends	—	%	2.50	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected lives are based on the "simplified" method allowed by ASC Topic 718 Compensation, whereby the expected term is equal to the midpoint between the vesting date and the end of the contractual term of the award. The expected volatility is based on the Company's estimated level of volatility. The dividend yield assumption is based on the Company's expectation of dividend payouts.

The 235,430 and 129,810 options outstanding as of December 31, 2010 and 2009, respectively, have an aggregate intrinsic value, which is the amount that the market value of the underlying stock exceeds the exercise price of the option, of $269 thousand and $97 thousand, respectively. The aggregate intrinsic value of the options exercised in 2010 and 2009 amounted to $16 thousand and $1 thousand, respectively.

At December 31, 2010 and 2009, the 235,430 and 129,810 options issued and outstanding, respectively, had exercise prices and weighted-average remaining contractual lives as follows:

December 31,		2010		2009

Exercisable options:
	Options outstanding		151,420		127,710
	Weighted-average exercise price	$	10.33	$	10.01
	Weighted-average remaining contractual life (months)		35		23
Unexercisable options:
	Options outstanding		84,010		2,100
	Weighted-average exercise price	$	11.34	$	10.75
	Weighted-average remaining contractual life (months)		111		120

Significant components of the Company's deferred tax assets and liabilities at December 31, 2010 and 2009 were as follows:

A reconciliation of the statutory income tax to the provision for income taxes included in the consolidated statements of income for the years ended December 31, 2010 and 2009 is as follows:

		2010			2009

		(dollars in thousands)
Deferred tax assets:
	Allowance for loan losses	$	1,277		$	1,115
	Unrealized loss on securities available-for-sale		20			—
	Stock-based compensation		43			—
	Nonaccrual interest		35			31
Other			24			15

Total deferred tax assets			1,399			1,161

Deferred tax liabilities:
	Unrealized gain on securities available-for-sale		—			(30	)
Depreciation			(54	)		(92	)

Total deferred tax liabilities			(54	)		(122	)

Net deferred tax assets		$	1,345		$	1,039

		Actual					For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions

As of December 31, 2010		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
	Company	$	32,079		14.11	%	$	18,188		8.00	%		N/A		N/A
	Bank	$	31,271		13.81	%	$	18,110		8.00	%	$	22,637		10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
	Company	$	29,226		12.86	%	$	9,094		4.00	%		N/A		N/A
	Bank	$	28,430		12.56	%	$	9,055		4.00	%	$	13,582		6.00	%
Tier 1 Capital (to Average Assets):
	Company	$	29,226		10.03	%	$	11,652		4.00	%		N/A		N/A
	Bank	$	28,430		9.78	%	$	11,625		4.00	%	$	14,531		5.00	%

		Actual					For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions

As of December 31, 2009		Amount		Ratio			Amount		Ratio			Amount		Ratio
		(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
	Company	$	30,636		13.06	%	$	18,767		8.00	%		N/A		N/A
	Bank	$	29,907		12.80	%	$	18,688		8.00	%	$	23,360		10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
	Company	$	27,704		11.81	%	$	9,384		4.00	%		N/A		N/A
	Bank	$	26,987		11.55	%	$	9,344		4.00	%	$	14,016		6.00	%
Tier 1 Capital (to Average Assets):
	Company	$	27,704		10.53	%	$	10,522		4.00	%		N/A		N/A
	Bank	$	26,987		10.24	%	$	10,545		4.00	%	$	13,181		5.00	%

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FREDERICK COUNTY BANCORP INC Reports

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		2010			2009

		(dollars in thousands)
Income before income tax		$	1,781		$	1,536
Tax rate			34	%		34	%

Income tax at statutory rate			606			522
Increases (decreases) in tax resulting from:
	Tax exempt interest income		(182	)		(126	)
	State income taxes, net of federal income tax benefit		110			92
	Stock-based compensation		49			—
Other			43			—

Provision for income taxes		$	626		$	488

		2010			2009

		(dollars in thousands)
Taxes currently payable:
	Federal	$	658		$	306
	State		224			125

			882			431

Deferred tax (benefit) expense:
	Federal		(203	)		45
	State		(53	)		12

			(256	)		57

Total		$	626		$	488

	2010			2009

	(dollars in thousands)
Salaries	$	4,042		$	3,260
Deferred personnel costs		(67	)		(74	)
Payroll taxes		278			233
Employee insurance		287			239
Other employee benefits		163			71
Depreciation		294			321
Rent		390			387
Utilities		101			104
Repairs and maintenance		217			234
ATM expenses		89			104
Other occupancy and equipment expenses		151			138
Postage and supplies		62			64
Data processing		378			411
Advertising and promotion		228			175
Provision for foreclosed properties		17			—
FDIC insurance		371			486
Legal		83			31
Insurance		59			48
Consulting		19			30
Courier		18			16
Audit fees		176			76
Other		600			437

	$	7,956		$	6,791


Level 1		Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2		Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

		Carrying Value (Fair Value)		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

		(dollars in thousands)
Securities available for sale:
	Mortgaged-backed debt	$	20,861	$	—	$	20,861	$	—
	State and political subdivisions		9,017		—		9,017		—
	Equity securities		300		—		300		—

Total		$	30,178	$	—	$	30,178	$	—

	Carrying Value (Fair Value)		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	(dollars in thousands)
Foreclosed properties	$	726	$	—	$	—	$	726
Impaired loans	$	19,744	$	—	$	—	$	19,744

		December 31, 2010				December 31, 2009

		Carrying Amount		Fair Value		Carrying Amount		Fair Value
		(dollars in thousands)
Financial Assets
	Cash and cash equivalents	$	42,065	$	42,065	$	12,114	$	12,114
	Investment securities available-for-sale		30,178		30,178		24,077		24,077
	Restricted stock		1,521		1,521		1,566		1,566
	Net loans		205,669		205,878		211,816		212,777
	Accrued interest receivable		850		850		871		871
Financial Liabilities
	Deposits	$	248,624	$	257,805	$	219,312	$	224,694
	Short-term borrowings		300		300		500		500
	Long-term borrowings		10,000		10,438		10,000		10,695
	Junior subordinated debentures		6,186		6,058		6,186		5,960
	Accrued interest payable		140		140		194		194

		(dollars in thousands)

Balance, December 31, 2008		$	1,923

	New loans		1,684
	Repayments		(207	)

Balance, December 31, 2009			3,400

	New loans		124
	Repayments		(784	)

Balance, December 31, 2010		$	2,740

		2010		2009

		Contractual Amount		Contractual Amount
		(dollars in thousands)
Financial instruments whose notional or contract amounts represent credit risk:
	Commitments to extend credit	$	27,826	$	32,123
	Standby letters of credit		2,969		2,732

Total		$	30,795	$	34,855

Sector

Construction	10.4	%
Manufacturing	6.0	%
Trade, Transportation and Utilities	17.3	%
Financial Activities	7.5	%
Services (includes business, health, hospitality and education)	42.6	%
Government	16.2	%



Initial Base Assessment Rate	12 - 16	22	32	45
Unsecured Debt Adjustment (added)	(5) to 0	(5) to 0	(5) to 0	(5) to 0
Secured Liability Adjustment (added)	0 to 8	0 to 11	0 to 16	0 to 22.5
Brokered Deposit Adjustment (added)	N/A	0 to 10	0 to 10	0 to 10
Total Base Assessment Rate	7 to 24.0	17 to 43.0	27 to 58.0	43 to 77.5

	2010				2009

Quarter	High Bid		Low Bid		High Bid		Low Bid
First	$	12.00	$	10.00	$	16.00	$	10.25
Second	$	12.50	$	10.25	$	12.00	$	11.75
Third	$	12.50	$	11.90	$	12.00	$	9.00
Fourth	$	12.10	$	11.85	$	13.75	$	10.00

Period		Average Price Paid per Share

October 1-31, 2010	—	N/A	—	—
November 1-30, 2010	—	N/A	—	—
December 1-31, 2010	—	N/A	—	140,882	(2)

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders(1)		235,430	$	10.69		5,240
Equity compensation plans not approved by security holders		0		N/A		0
Total		235,430	$	10.69		5,240

	December 31, 2010

	Assets				Liabilities and Equity
	(Dollars in thousands)
Frederick County Bank	Cash and due from banks	$	1,469		Total deposits	$	248,897
9 North Market Street	Earning assets		281,382		Long-term borrowings		10,000
Frederick, MD 21701 301-620-1400	Allowance for loan losses		(3,718	)	Accrued interest and other liabilities		783
Four Offices	Other assets		8,946		Shareholders' equity		28,399

	Total assets	$	288,079		Total liabilities and shareholders' equity	$	288,079

	Net income	$	1,443

Exhibit No.		Description of Exhibits

3(a)		Articles of Incorporation of the Company, as amended(1)
3(b)		Bylaws of the Company(2)
4(a)		Indenture, dated as of December 15, 2006 between Frederick County Bancorp, Inc. and U.S. Bank National Association, as trustee(3)
4(b)		Amended and Restated Declaration of Trust, dated as December 15, 2006 between Frederick County Bancorp, Inc. and U.S. Bank National Association, as trustee, and Martin S. Lapera and William R. Talley, Jr. as Administrators(3)
4(c)		Guarantee Agreement dated as of dated as December 15, 2006 between Frederick County Bancorp, Inc. and U.S. Bank National Association, as Guarantee Trustee(3)
10(a)		2001 Stock Option Plan(4)
10(b)		Employment Agreement between the Bank and Martin S. Lapera(5)
10(c)		Employment Agreement between the Bank and William R. Talley, Jr.(6)
10(f)		2002 Executive and Director Deferred Compensation Plan, as amended(7)
10(g)		Amendment No. 1 to the 2002 Executive and Director Deferred Compensation Plan(7)
10(h)		Promissory Note with Atlantic Central Bankers Bank(8)
10(i)		Amendment to Loan Documents(9)
11		Statement Regarding Computation of Per Share Income—Please refer to Note 1 to the consolidated financial statements for the year ended December 31, 2010.
21		Subsidiaries of the Registrant
23(a)		Consent of Stegman & Company
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


	FREDERICK COUNTY BANCORP, INC.
DATE: February 18, 2011	By:	/s/ MARTIN S. LAPERA Martin S. Lapera President and Chief Executive Officer

Name	Position	Signature


Emil D. Bennett	Director	/s/ EMIL D. BENNETT
John N. Burdette	Chairman of the Board of Directors	/s/ JOHN N. BURDETTE
J. Denham Crum	Director	/s/ J. DENHAM CRUM
William S. Fout	Director	/s/ WILLIAM S. FOUT
Helen G. Hahn	Director	/s/ HELEN G. HAHN
William J. Kissner	Director	/s/ WILLIAM J. KISSNER
Martin S. Lapera	President, Chief Executive Officer and Director (Principal Executive Officer)	/s/ MARTIN S. LAPERA
Kenneth G. McCombs	Director	/s/ KENNETH G. MCCOMBS
Farhad Memarsadeghi	Director	/s/ FARHAD MEMARSADEGHI
Raymond Raedy	Vice Chairman of the Board of Directors	/s/ RAYMOND RAEDY
William R. Talley, Jr.	Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)	/s/ WILLIAM R. TALLEY, JR.