Forward-Looking Statements

When used in this Form 10-Q, the words "believes" "anticipates" "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in Item 1, under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2007. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events except as required by applicable law.

In the following discussion we provide information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform with accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

We believe that the determination of our allowance for loan and lease losses involves a higher degree of judgment and complexity than our other significant accounting policies. We determine our allowance for loan and lease losses with the objective of maintaining a reserve level we believe to be sufficient to absorb our estimated probable credit losses. We base our determination of the adequacy of the allowance on periodic evaluations of our loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, the amount of loss we may incur on a defaulted loan, expected commitment usage, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on consumer loans and residential mortgages, and historical loss experience. We also evaluate economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from our estimates; we may need additional provisions for loan losses that would reduce our earnings.

We account for income taxes under the liability method whereby we determine deferred tax assets and liabilities based on the difference between the carrying values on our financial statements and the tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.

Results of Operations

Third quarter 2008 to third quarter 2007

Net Income: Net income for the third quarter of 2008 was $259,000, compared to net income of $3.9 million for the third quarter of 2007. Diluted earning per share was $0.02 in the third quarter of 2008 as compared to diluted earnings of $0.27 for the third quarter of 2007. Return on average assets was 0.06% and return on average equity was 0.60% for the third quarter of 2008, as compared to 1.11% and 9.76%, respectively for the third quarter of 2007.

Net Interest Income: Our interest income for the third quarter of 2008 decreased to $23.9 million from $27.5 million in the third quarter of 2007, our net interest income decreased to $13.5 million from $13.8 million. Our average loans increased to $1.444 billion for the third quarter of 2008 from $1.213 billion for the third quarter of 2007. The reason for the decreases in our interest income was the reductions in rates by the Federal Reserve Board, or FRB, beginning in the second half of 2007 through the second quarter of 2008. The reduction in interest income was partially offset by the interest income generated by the organic growth of our loan portfolio.

Our net interest margin for the third quarter 2008 decreased to 3.28% from 4.05% for the third quarter of 2007, a decrease of 77 basis points (.77%). The margin decline was due to the rate reductions by the FRB, as a significant portion of the interest rates on our loans varied with prime, while our ability to reprice our liabilities (principally, deposits and debt facilities) typically lags behind the reductions by the FRB and the related reductions in the rates payable by our loan assets.

For the third quarter of 2008 the average yield on our interest-earning assets decreased to 5.81% from 8.08% for the third quarter of 2007, a decrease of 227 basis points (2.27%). Cost of interest-bearing deposits decreased to 3.17% for the third quarter of 2008 from 4.79% for the third quarter of 2007, a decrease of 162 basis points (1.62%). Average interest-bearing deposits increased to $1.203 billion from $1.021 billion, an increase of $182.4 million or 17.87%. The increase in average demand deposits of $222 million is the result of our acquisition of Stored Value Solutions, or SVS, division of Marshall BankFirst and its related deposit accounts.

Average Daily Balances. The following table presents the average daily balances of assets, liabilities and stockholders' equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average rates, for the periods indicated:

                                                            Three months ended September 30,
                                                      2008                                    2007
                                         Average                   Average       Average                   Average
                                         Balance       Interest     Rate         Balance       Interest     Rate
                                                                 (dollars in thousands)
Assets:
Interest-earning assets:
Loans net of unearned discount         $ 1,444,000     $  21,971      6.09 %   $ 1,213,002     $  25,418      8.38 %
Investment securities                      115,814         1,510      5.22 %       114,361         1,647      5.76 %
Interest bearing deposits                    2,562             8      1.25 %         1,689             5      1.18 %
Federal funds sold                          82,984           406      1.96 %        30,536           400      5.24 %

Net interest-earning assets              1,645,360        23,895      5.81 %     1,359,588        27,470      8.08 %

Allowance for loan and lease losses        (14,808 )                                (9,748 )
Other assets                               162,329                                  42,179

                                       $ 1,792,881                             $ 1,392,019

Liabilities and Shareholders'
Equity:
Deposits:
Demand (non-interest bearing)          $   312,543                             $    90,463
Interest bearing deposits
Interest checking                          193,902     $   1,061      2.19 %       100,060     $     800      3.20 %
Savings and money market                   454,913         3,171      2.79 %       535,143         5,953      4.45 %
Time                                       554,142         5,289      3.82 %       385,387         5,466      5.67 %

Total interest bearing deposits          1,202,957         9,521      3.17 %     1,020,590        12,219      4.79 %

FHLB advances                               56,413           337      2.39 %       113,641         1,486      5.23 %
Repurchase agreements                        2,626            12      1.83 %         2,503            12      1.92 %
Trust Preferred                             13,401           235      7.01 %            -             -
Long term borrowings                        25,560           293      4.59 %            -             -

Net interest bearing liabilities         1,300,957        10,398      3.20 %     1,136,734        13,717      4.83 %

Other liabilities                            5,842                                   6,876

Total Liabilities                        1,619,342                               1,234,073

Shareholders' equity                       173,539                                 157,946

                                       $ 1,792,881                             $ 1,392,019

Net yield on average interest
earning assets                                         $  13,497      3.28 %                   $  13,753      4.05 %

In the third quarter of 2008, average interest-earning assets increased to $1.645 billion, an increase of $285.8 million, or 21.02%, from the third quarter of 2007.

Provision for Loan and Lease Losses. Our provision for loan and lease losses was $4.1 million for the third quarter of 2008 compared to $750,000 for the third quarter of 2007. For more information about our provisions and allowance for loan and lease losses and our loss experience see " - Allowance for Loan and Lease Losses" and " - Summary of Loan and Lease Loss Experience," below.

Non-Interest Income. Non-interest income was $2.7 million for the third quarter of 2008 as compared to $1.2 million for the third quarter of 2007, an increase of $1.5 million. The principal reason for the increase in our non-interest income was a result of $2.1 million of earnings of prepaid card fees as a result of growth in our stored value card programs. Leasing income decreased $497,000 from $385,000 for the third quarter of 2008. The decrease in lease income is due to the effect of rising fuel prices on the resale value of commercial vehicles in the secondary market

Non-Interest Expense. Total non-interest expense was $11.7 million for the third quarter of 2008, as compared to $7.7 million for third quarter of 2007, an increase of $4.0 million or 51.59%. Salaries and employee benefits amounted to $5.4 million for the third quarter of 2008 as compared to $3.7 million for the third quarter of 2007, an increase of $1.7 million or 45.82%. The increase in salaries and employee benefits reflects increases in staff for commercial lending and private client staffs as well as the addition of the SVS staff. Occupancy expense increased to $1.2 million from $704,000 for the second quarter of 2008, an increase of $540,000 or 76.70%. The increase is a result of two new office space leases as a result of our acquisition of SVS and an increase in depreciation and amortization as a result of $2.5 million in fixed assets. Data processing expense increased $292,000 from $747,000 during the third quarter of 2007 to $1.0 million during the third quarter of 2008. This increase is a result of growth in our account base, in particular health savings accounts in our affinity group programs, as well as upgrades to our computer system. Professional fees increased $284,000 to $700,000 as a result of increased costs of internal auditing and legal fees associated with regulatory and compliance matters. Other expense increased $902,000 to $2.9 million during the third quarter of 2008 from $2.0 million during the third quarter of 2007, or 45.95%. This is a result of increases in cost of loans, other operational expense, and travel expense. Our loan related expenses increased from $69,600 to $169,500 from September 30, 2007 as compared to September 30, 2008. The increase in loan related expenses is primarily due to the increase in costs associated with managing our loan portfolio. Travel expense increased 57.35% or $162,000, from $282,500 which is due to the addition of staff for commercial lending and private client as well as the addition of the SVS staff. Other operational expense increased $96,400 from $366,200 during the third quarter of 2007 to $462,600 during the third quarter of 2008 primarily due to an increase in costs related to expanding our retirement account line of business.

First nine months of 2008 to first nine months of 2007

Net Loss: Net loss for the first nine months of 2008 was $1.2 million, compared to net income of $11.4 million for the first nine months of 2007. Diluted loss per share was $0.08 in the first nine months of 2008 as compared to diluted earnings per share of $0.78 for the first nine months of

2007. Return on average assets was (0.09%) and return on average equity was (0.89%) for first nine months of 2008, as compared to 1.12% and 9.81%, respectively for the first nine months of 2007. The net loss for the first nine months of 2008 was the result of a $8.3 million impairment on investment securities, as management had determined that these investments had became "other than temporary impaired".

Net Interest Income: Our interest income for the first nine months of 2008 decreased to $72.7 million from $79.2 million in the first nine months of 2007, while our net interest income increased to $39.3 million from $39.1 million. Our average loans increased to $1.391 billion for first nine months of 2008 from $1.140 billion for the first nine months of 2007. As stated above, the primary reason for the decreases in our interest income was the reductions in rates by the FRB beginning in the second half of 2007 through the second quarter of 2008. The reduction in interest income was partially offset by the interest income generated by organic growth of our loan portfolio.

Our net interest margin for the first nine months of 2008 decreased to 3.36% from 3.93% for the first nine months of 2007, a decrease of 57 basis points (.57%). The margin decline, as stated above, was due to the rate reductions by the FRB, as a significant portion of the interest rates on the loans varied with prime, while our ability to reprice our liabilities (principally, deposits and debt facilities) typically lags behind the reductions by the FRB and the related reductions in the rates payable by our loan assets.

In the first nine months of 2008 the average yield on our interest-earning assets decreased to 6.21% from 7.94% for first nine months of 2007, a decrease of 173 basis points (1.73%). The decrease in yields is the result of the FRB rate reductions. As stated above, a significant portion of our loans are tied to prime which has decreased 303 basis points since the third quarter of 2007. Cost of interest-bearing deposits decreased to 3.45% for the first nine months of 2008 from 4.78% for the first nine months of 2007, a decrease of 133 basis points (1.33%). Average interest-bearing deposits increased to $1.155 billion from $1.040 billion, an increase of $115 million or 11.02%, due principally to the acquisition of SVS and its related deposits.

Average Daily Balances. The following table presents the average daily balances of assets, liabilities and stockholders' equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average rates, for the periods indicated:

                                                             Nine months ended September 30,
                                                      2008                                    2007
                                         Average                   Average       Average                   Average
                                         Balance       Interest     Rate         Balance       Interest     Rate
                                                                 (dollars in thousands)
Assets:

Interest-earning assets:
Loans net of unearned discount         $ 1,390,525     $  67,202      6.44 %   $ 1,139,842     $  71,529      8.37 %
Investment securities                      121,776         4,548      4.98 %       113,997         4,924      5.76 %
Interest bearing deposits                    2,551            38      1.96 %         1,689            16      1.26 %
Federal funds sold                          44,560           858      2.57 %        73,208         2,702      4.92 %

Net interest-earning assets              1,559,412        72,646      6.21 %     1,328,736        79,171      7.94 %

Allowance for loan and lease losses        (12,553 )                                (9,242 )
Other assets                               132,811                                  37,521

                                       $ 1,679,670                             $ 1,357,015

Liabilities and Shareholders'
Equity:
Deposits:
Demand (non-interest bearing)          $   202,567                             $    77,441
Interest bearing deposits
Interest checking                          168,478     $   2,952      2.34 %        91,292     $   2,085      3.05 %
Savings and money market                   511,777        11,246      2.93 %       524,298        17,878      4.55 %
Time                                       474,692        15,693      4.41 %       424,729        17,302      5.43 %

Total interest bearing deposits          1,154,947        29,891      3.45 %     1,040,319        37,265      4.78 %

Short term borrowings                      110,112         2,226      2.70 %        72,751         2,747      5.03 %
Repurchase agreements                        2,556            38      1.99 %         3,003            40      1.78 %
Subordinated debt                           13,269           720      7.24 %            -             -
Long term borrowings                        13,637           457      4.47 %            -             -

Net interest bearing liabilities         1,294,521        33,332      3.43 %     1,116,073        40,052      4.78 %

Other liabilities                            4,799                                   9,177

Total Liabilities                        1,501,887                               1,202,691

Shareholders' equity                       177,783                                 154,324

                                       $ 1,679,670                             $ 1,357,015

Net yield on average interest
earning assets                                         $  39,314      3.36 %                   $  39,119      3.93 %

Provision for Loan and Lease Losses. Our provision for loan and lease losses was $8.8 million for the first nine months of 2008 compared to $2.3 million for the first nine months of 2007. For more information about our provisions and allowance for loan and lease losses and our loss experience see " - Allowance for Loan and Lease Losses" and " - Summary of Loan and Lease Loss Experience," below.

Non-Interest Income. Non-interest income was $9.2 million before an impairment loss of $8.3 million for the first nine months of 2008 as compared to $4.3 million for the first nine months of 2007, an increase $4.9 million. The primary reason for the increase in our core non-interest income was a result of $6.6 million of earnings for prepaid card fees as the result of our acquisition of SVS. The $8.3 million impairment on securities was attributable to an other than temporary impairment charge against two structured finance securities. Sharp declines in the market valuations of the securities, which were purchased in 2004 and 2005, coupled with uncertainty about market conditions, led management to determine that these investments had become "other than temporarily impaired" under GAAP. Lease income decreased $1.7M to $178,000 for the nine months ended September 30, 2008. The decrease in income is due to the effect of rising fuel prices on the resale value of commercial vehicles in the secondary market, and a gain on sale of lease assets at the end of a lease with a large leasing relationship in 2007.

Non-Interest Expense. Total non-interest expense was $33.2 million for the first nine months of 2008, as compared to $22.4 million for the first nine months of 2007, an increase of $10.8 million or 48.16%. Salaries and employee benefits amounted to $15.5 million for the first nine months of 2008 as compared to $10.6 million for the first nine months of 2007. The increase in salaries and employee benefits resulted from an increase in commercial lending and private client staffs as well as the addition of the SVS staff. Occupancy expense increased to $3.5 million from $2.2 million for the nine months ended September 30, 2008, an increase of $1.3 million or 61.81% from the same time period in 2007. The increase is a result of two new office space leases as a result of our acquisition of SVS and an increase in depreciation and amortization as a result of $2.5 million in fixed assets. Data processing expense increased to $3.1 million for the nine months ended September 30, 2008 from $2.1 million for the same period in 2007. This increase of approximately $978,000 is a result of growth in our account base, in particular health savings accounts in our affinity group programs, as well as upgrades to our computer system. Professional fees increased $444,000 to $2.0 million as a result of increased costs of internal auditing and legal fees associated with regulatory and compliance matters. Other expense increased to $7.8 million from $5.4 million, an increase of $2.4 million. This is a result of increases in the loan process costs, other operational expense, and FDIC insurance. Our loan related expenses increased from $235,700 to $477,200 from September 30, 2007 as compared to September 30, 2008. The increase in loan related expenses is primarily due to the increase in costs associated with managing our loan portfolio. FDIC insurance increased 119.8% or $311,900, from $260,300 as a result of increased insurance assessments. Other operational expense increased $344,000 from $1.0 million for the nine months ended September 30, 2007 to $1.4 million for the same period in 2008 primarily due to an increase in cost related to expanding our retirement account line of business.

Liquidity and Capital Resources

Liquidity defines our ability to generate funds to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. We invest the funds we do not need for operation primarily in overnight federal funds.

The primary source of funds for our financing activities has been cash inflows from net increases in deposits, which were $180.8 million in the first nine months of 2008. We have also used sources outside of our core deposit products to fund our loan growth, including Federal Home Loan Bank advances and repurchase agreements. As of September 30, 2008, we had $100.0 million of outstanding Federal Home Loan Bank advances and $3.2 million in repurchase agreements. We also had $28.3 million outstanding on the bank stock loan included in long-term borrowings.

Funding was directed primarily at cash outflows required for loans, which were $186.4 million in the first nine months of 2008. At September 30, 2008, we had outstanding commitments to fund loans, including unused lines of credit, of $388.4 million.

Our subsidiary bank must comply with capital adequacy guidelines issued by the FDIC. A bank must, in general, have a Tier 1 leverage ratio of 5.0%, a ratio of Tier I capital to risk-weighted assets of 6.0% and a ratio of total capital to risk-weighted assets of 10.0% in order to be considered "well capitalized." A Tier I leverage ratio is the ratio of Tier 1 capital to average assets for the period. "Tier I capital" includes common shareholders' equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill. At September 30, 2008 the bank was "well capitalized" under banking regulations.

The following table sets forth our regulatory capital amounts and ratios for the periods indicated:

                                          Tier 1 capital         Tier 1 capital          Total capital
                                            to average          to risk-weighted        to risk-weighted
                                           assets ratio           assets ratio            assets ratio
AS OF SEPTEMBER 30, 2008:
The Company                                         7.48 %                  8.55 %                  9.57 %
The Bancorp Bank                                    8.86 %                 10.13 %                 11.16 %
"Well capitalized" institution
(under FDIC regulations)                            5.00 %                  6.00 %                 10.00 %

AS OF DECEMBER 31, 2007:
The Company                                         9.18 %                 10.15 %                 10.95 %
The Bancorp Bank                                    8.86 %                  9.81 %                 10.61 %
"Well capitalized" institution
(under FDIC regulations)                            5.00 %                  6.00 %                 10.00 %

Asset and Liability Management

The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. Interest rate sensitivity measures the relative volatility of a bank's interest margin resulting from changes in market interest rates.

We monitor and control interest rate risk through a variety of techniques, including use of traditional interest rate sensitivity analysis (also known as "gap analysis"). Traditional gap analysis involves arranging our interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference (or "interest rate sensitivity gap") between the assets and liabilities that are estimated to reprice during each time period and cumulatively through the end of each time period.

Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income, while a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to . . .