The following discussion provides information about the results of operations, and financial condition, liquidity, and capital resources of the Company and its subsidiaries as of the dates and periods indicated. This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report and the Management Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

This report contains forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward looking statements can be identified by use of such words as "may", "will", "anticipate", "believes", "expects", "plans", "estimates", "potential", "continue", "should", and similar words or phases. 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 uncertainty. Because of these uncertainties and the assumptions on which this discussion and the forward looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward looking statements.

The Company is a growth oriented, one-bank holding company headquartered in Bethesda, Maryland. The Company provides general commercial and consumer banking services through the Bank, its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System. The Company was organized in October 1997, to be the holding company for the Bank. The Bank was organized as an independent, community oriented, full service banking alternative to the super regional financial institutions, which dominate the primary market area. The Company's philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services, becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has seven offices serving Montgomery County, five offices in the District of Columbia and one office in Fairfax County, Virginia.

The Company offers a broad range of commercial banking services to its business and professional clients as well as full service consumer banking services to individuals living and/or working primarily in the service area. The Company emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, partnerships, corporations, non-profit organizations and associations, and investors living and working in and near the primary service area. A full range of retail banking services are offered to accommodate the individual needs of both corporate customers as well as the community the Company serves. These services include the usual deposit functions of commercial banks, including business and personal checking accounts, "NOW" accounts and money market and savings accounts, business, construction, and commercial loans, residential mortgages and consumer loans and cash management services. The Company has developed significant expertise and commitment as an SBA lender, and has been designated a Preferred Lender by the Small Business Administration ("SBA").

The slowing economy, declines in housing construction and the related impact on contractors and other small and medium sized businesses, has impacted the Company's business. There can be no assurance that the steps taken to stimulate the economy and stabilize the financial system will prove successful, or that they will improve the financial condition of the Company's customers or the Company.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and follow general practices within the banking industry. 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 consolidated financial statements; accordingly, as this information changes, the consolidated 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 a 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 investment securities available for sale are based either on quoted market prices or are provided by other third-party sources, when available. The Company's investment portfolio is categorized as available for sale with unrealized gains and losses net of tax being a component of stockholders' equity and comprehensive income.

Three components comprise our allowance for credit losses: a specific allowance, a formula allowance and a nonspecific or environmental factors allowance. Each component is determined based on estimates that can and do change when actual events occur.

The specific allowance allocates a reserve to identified impaired loans. Loans identified in the risk rating evaluation as substandard, doubtful and loss, (classified loans) are segregated from non-classified loans. Classified loans are assigned specific reserves based on an impairment analysis. Under SFAS 114, a loan for which reserves are individually allocated may show deficiencies in the borrower's overall financial condition, payment record, support available from financial guarantors and for the fair market value of collateral. When a loan is identified as impaired, a specific reserve is established based on the Company's assessment of the loss that may be associated with the individual loan.

The formula allowance is used to estimate the loss on internally risk rated loans, exclusive of those identified as requiring specific reserves. The portfolio of unimpaired loans is stratified by loan type and risk assessment. Allowance factors relate to the type of loan and level of the internal risk rating, with loans exhibiting higher risk and loss experience receiving a higher allowance factor.

The environmental allowance is also used to estimate the loss associated with pools of non-classified loans. These unclassified loans are also stratified by loan type, and environmental allowance factors are assigned by management based upon a number of conditions, including delinquencies, loss history, changes in lending policy and procedures, changes in business and economic conditions, changes in the nature and volume of the portfolio, management expertise, concentrations within the portfolio, quality of internal and external loan review systems, competition, and legal and regulatory requirements.

The allowance captures losses inherent in the portfolio which have not yet been recognized. Allowance factors and the overall size of the allowance may change from period to period based upon management's assessment of the above described factors, the relative weights given to each factor, and portfolio composition.

Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for credit losses, including, in connection with the valuation of collateral, a borrower's prospects of repayment, and in establishing allowance factors on the formula allowance and environmental allowance components of the allowance. The establishment of allowance factors involves a continuing evaluation, based on management's ongoing assessment of the global factors discussed above and their impact on the portfolio. The allowance factors may change from period to period, resulting in an increase or decrease in the amount of the provision or allowance, based upon the same volume and classification of loans. Changes in allowance factors can have a direct impact on the amount of the provision, and a related after tax effect on net income. Errors in management's perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs. Alternatively, errors in management's perception and assessment of the global factors and their impact on the portfolio could result in the allowance being in excess of amounts necessary to cover losses in the portfolio, and may result in lower provisions in the future. For additional information regarding the provision for credit losses, refer to the discussion under the caption "Provision for Credit Losses" below.

In accounting for the acquisition of Fidelity, the Company followed the provisions of SFAS No. 141 "Business Combinations", which mandates the use of the purchase method of accounting and AICPA Statement of Position 03-3 ("SOP 03-3"), "Accounting for Certain Loans or Debt Securities Acquired in a Transfer". Accordingly, the tangible assets and liabilities and identifiable intangibles acquired were recorded at their respective fair values on the date of acquisition, with any impaired loans acquired being recorded at fair value outside the allowance for credit losses. The valuation of the loan and time deposit portfolios acquired were made by independent analysis for the difference between the instruments stated interest rates and the instruments current origination interest rate, with premiums and discounts being amortized to interest income and interest expense to achieve an effective market interest rate. An identified intangible asset related to core deposits was recorded based on independent valuation. Deferred tax assets were recorded for the future value of a net operating loss and for the tax effect of timing differences between the accounting and tax basis of assets and liabilities. The Company recorded an unidentified intangible (goodwill) for the excess of the purchase price of the acquisition (including direct acquisition costs) over the fair value of net tangible and identifiable intangible assets acquired.

RESULTS OF OPERATIONS

Summary

On August 31, 2008 the Company completed the acquisition of Fidelity & Trust Financial Corporation ("Fidelity") and its subsidiary Fidelity & Trust Bank ("F&T Bank"), which added approximately $360 million in loans, $100 million in investments, $385 million in deposits, $47 million in customer repurchase agreements and $13 million in equity capital. The combined organization is reflected in the balance sheet and results of operations at March 31, 2009 and for the three months ended March 31, 2009 but is not reflected at March 31, 2008 and for the three months ended March 31, 2008.

The Company reported net income of $2.1 million for the three months ended March 31, 2009. Net income available to common shareholders, after accrual of preferred stock dividends, was $1.5 million for the three months ended March 31, 2009 ($0.12 per basic and diluted common share), compared to $1.7 million ($0.15 per basic and diluted common share) for 2008.

The Company had an annualized return on average assets of 0.56% and an annualized return on average common equity of 5.87% for the first three months of 2009, as compared to returns on average assets and average common equity of 0.77% and 7.98%, respectively, for the same three months of 2008.

For the three months ended March 31, 2009, net interest income showed an increase of 57% as compared to the same period in 2008 on growth in average earning assets of 76%. For the three months ended March 31, 2009 as compared to the same period in 2008, the Company experienced a decline in its net interest margin from 4.19% to 3.76% or 43 basis points. This change was primarily due to margin compression, reflecting declines in market interest rates on earning assets resulting from Federal Reserve activities which have not been matched by comparable declines in rates on interest bearing liabilities and by a lesser benefit of noninterest funding sources in a much lower interest rate environment.

For the three months ended March 31, 2009 and 2008, average interest bearing liabilities funding average earning assets was 78% and 77%, respectively. Additionally, while the average rate on earning assets for the three months ended March 31, 2009, as compared to the same period in 2008 has declined by 123 basis points from 6.83% to 5.60%, the cost of interest bearing liabilities has decreased by 107 basis points from 3.43% to 2.36%, resulting in a slight decline in the net interest spread of 16 basis points from 3.40% for the three months ended March 31, 2008 to 3.24% for the three months ended March 31, 2009. The net interest margin decreased 43 basis points from 4.19% for the three months ended March 31, 2008 to 3.76% for the three months ended March 31, 2009, a larger decline than in the net interest spread as the benefit of average noninterest sources funding earning assets declined from 79 basis points for the three months ended March 31, 2008 to 52 basis points for the three months ended March 31, 2009. This decline was due to the lower level of interest rates in the quarter ended March 31, 2009 as compared to 2008.

In terms of the average balance sheet composition or mix, loans, which generally have higher yields than securities and other earning assets, decreased from 89% of average earning assets in the first three months of 2008 to 88% of average earning assets for the same period of 2009. Investment securities for the first three months of 2009 amounted to 11% of average earning assets, an increase of 1% from an average of 10% for the same period in 2008. Federal funds sold averaged 0.6% in the first three months of 2009 versus 0.7% of average earning assets for the same period of 2008.

The provision for credit losses was $1.6 million for the first three months of 2009 as compared to $720 thousand for the same period in 2008. The higher provisioning in the first quarter of 2009 as compared to 2008 is attributable to risk migration within the portfolio and increased reserves for problem loans.

In total, the ratio of net charge-offs to average loans was 0.29% for the first three months of 2009 as compared to 0.01% for the first three months of 2008. The continued management of a quality loan portfolio remains a key objective of the Company.

Total noninterest income was $1.4 million for the first three months of 2009 as compared to $940 thousand for the same period in 2008, a 52% increase. This increase was due primarily to the Fidelity acquisition which added approximately $385 million in deposits resulting in higher service charges on deposit accounts and to gains realized on the investment securities portfolio.

Total noninterest expenses increased from $6.2 million in the first three months of 2008 to $10.3 million for the first three months of 2009, an increase of 66%. The primary reasons for this increase was the Fidelity acquisition which increased the size of the organization resulting in higher staff levels and related personnel costs, increased occupancy costs, higher internet and license agreement fees, and higher loan collection costs. In addition, higher costs were incurred for marketing, sponsorships, broker fees and legal, accounting and professional fees. The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 69.10% for the three months ended March 31, 2009, as compared to 65.07% for the three months ended March 31, 2008. The Company is placing additional emphasis in 2009 on noninterest expense management.

For the three months ended March 31, 2009 as compared to 2008, the increase in net interest income from increased volumes, offset by the combination of a higher provision for credit losses, higher levels of noninterest income, a lower net interest margin and higher levels of noninterest expenses, and the preferred stock dividend resulted in decreased net income available to common shareholders during the three month period ended March 31, 2009 as compared to 2008.

The ratio of average common equity to average assets decreased from 9.67% for the first three months of 2008 to 6.89% for the first three months of 2009, as the capital growth in the average balance sheet over the past 12 months was due largely to the preferred stock issuance in December 2008. As discussed below, the capital ratios of the Bank and Company remain above well capitalized levels.

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. Earning assets are composed primarily of loans and investment securities. The cost of funds represents interest expense on deposits, customer repurchase agreements and other borrowings. Noninterest bearing deposits and capital are other components representing funding sources (refer to discussion above under Results of Operations). Changes in the volume and mix of assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income. Net interest income for the first three months of 2009 was $13.5 million compared to $8.6 million for the first three months of 2008, an increase of 57%. This increase in net interest income for the three months ended March 31, 2009 was attributable in part to the Fidelity acquisition which contributed to an increased volume of average earning assets of 76%, offset somewhat by a 10% decline in the net interest margin from 4.19% to 3.76%. The decline in the net interest margin was due to a lower benefit of noninterest funding sources as market interest rates were substantially lower in the first three months of 2009 as compared to 2008. In an effort to combat a weaker economic climate, the Federal Reserve lowered its targeted federal funds rate from 2.25% at March 31, 2008 to between 0.0% and 0.25% during December, 2008.

The table below presents the average balances and rates of the various categories of the Company's assets and liabilities for the three months ended March 31, 2009 and 2008. Included in the table is a measurement of interest rate spread and margin. Interest spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest expense on interest bearing liabilities. While net interest spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin provides a better measurement of performance. Margin includes the effect of noninterest bearing sources in its calculation and is net interest income expressed as a percentage of average earning assets.

      Average Balances, Interest Yields and Rates, and Net Interest Margin
                             (dollars in thousands)

                                                                                          Three Months Ended March 31,
                                                                                2009                                          2008
                                                               Average                        Average        Average                       Average
                                                               Balance        Interest      Yield/Rate       Balance       Interest      Yield/Rate
ASSETS:
Interest earning assets:
Interest bearing deposits with other banks and other
short-term investments                                       $     2,763     $       19            2.72 %   $   4,093     $       43            4.23 %
Loans (1) (2) (3)                                              1,281,925         18,113            5.73 %     731,501         12,880            7.08 %
Investment securities available for sale (3)                     159,649          1,929            4.90 %      84,029          1,052            5.04 %
Federal funds sold                                                 9,166              6            0.25 %       5,840             39            2.69 %
   Total interest earning assets                               1,453,503         20,067            5.60 %     825,463         14,014            6.83 %

Total noninterest earning assets                                  62,191                                       42,709
Less: allowance for credit losses                                 18,658                                        8,142
   Total noninterest earning assets                               43,533                                       34,567
   TOTAL ASSETS                                              $ 1,497,036                                    $ 860,030

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing transaction                                 $    47,690     $       32            0.27 %   $  44,143     $       65            0.59 %
Savings and money market                                         293,551          1,088            1.50 %     185,589          1,067            2.31 %
Time deposits                                                    601,440          4,437            2.99 %     288,965          3,296            4.59 %
Customer repurchase agreements and federal funds purchased        98,582            281            1.16 %      55,014            394            2.88 %
Other short-term borrowings                                       29,333             40            0.56 %      22,000            190            3.47 %
Long-term borrowings                                              62,150            726            4.73 %      39,670            402            4.08 %
   Total interest bearing liabilities                          1,132,746          6,604            2.36 %     635,381          5,414            3.43 %

Noninterest bearing liabilities:
Noninterest bearing demand                                       214,546                                      136,409
Other liabilities                                                  8,404                                        5,040
   Total noninterest bearing liabilities                         222,950                                      141,449

Stockholders' equity                                             141,341                                       83,200
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 1,497,036                                    $ 860,030


Net interest income                                                          $   13,463                                   $    8,600
Net interest spread                                                                                3.24 %                                       3.40 %
Net interest margin                                                                                3.76 %                                       4.19 %

(1) Includes Loans held for sale.
(2) Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $433 thousand and $297 thousand for the three months ended March 31, 2009 and 2008, respectively.
(3) Interest and fees on loans and investments exclude tax equivalent adjustments.

The provision for credit losses represents the amount of expense charged to current earnings to fund the allowance for credit losses. The amount of the allowance for credit losses is based on many factors which reflect management's assessment of the risk in the loan portfolio. Those factors include economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank.

Management has developed a comprehensive analytical process to monitor the . . .