Bancorp, Inc. (Form: S-4, Received: 07/15/2004 16:09:21)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

Delaware
(State or other jurisdiction
of incorporation or organization)

6712
(Primary Standard Industrial
Classification Code Number)

23-3016517
(I.R.S. Employer
Identification No.)

405 Silverside Road
Wilmington, Delaware 19809
(302) 385-5000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

Betsy Z. Cohen
Chief Executive Officer
The Bancorp, Inc.
405 Silverside Road
Wilmington, Delaware 19809
(302) 385-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

J. Baur Whittlesey, Esq.
Ledgewood Law Firm, P.C.
1521 Locust Street
Philadelphia, Pennsylvania 19102
Telephone: (215) 731-9450
Facsimile: (215) 735-2513

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective and all other conditions to the merger of The Bancorp Bank with and into a subsidiary of the Registrant pursuant to the Agreement and Plan of Merger, dated as of July 8, 2004, described in the enclosed proxy statement/prospectus, have been satisfied or waived.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

Calculation of Registration Fee


Title of each class of securities to be registered	Amount to be registered(1)	Proposed maximum offering price per unit(2)	Proposed maximum aggregate offering price(2)	Amount of registration fee


Common Stock	8,841,775	$18.39	$162,600,242	$20,601

(1)	Based upon the maximum number of shares of the Registrant’s common stock expected to be issued in connection with the merger described herein to holders of common stock of The Bancorp Bank and to holders of options to purchase common stock of The Bancorp Bank.

(2)

Estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(f) under the Securities Act of 1933, as amended, based on the average closing price of the common stock of The Bancorp Bank (the securities to be cancelled in the transaction), as reported on the Nasdaq National Market on July 12, 2004.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

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THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT ISSUE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to completion, July 15, 2004

Dear Shareholder:

I invite you to attend a special meeting of shareholders of The Bancorp Bank which will be held at ____________________ at ________ A.M. local time on ______________, 2004.

The purpose of the special meeting is to consider and vote on a proposal that would result in The Bancorp Bank (currently a 32.7%-owned subsidiary of The Bancorp, Inc.) becoming a wholly-owned subsidiary of The Bancorp, Inc. We call the proposed transaction the reorganization. The reorganization will be accomplished through a merger of The Bancorp Bank into a wholly-owned subsidiary of The Bancorp, Inc. pursuant to an Agreement and Plan of Merger. A copy of the Agreement and Plan of Merger is Exhibit A to the accompanying proxy statement/prospectus. Upon the effective date of the reorganization and merger, each share of The Bancorp Bank common stock will convert into 1.15 shares of common stock of The Bancorp, Inc. and shareholders of The Bancorp Bank will become shareholders of The Bancorp, Inc. Approval of the proposed reorganization and merger will require the vote of a majority of The Bancorp Bank’s outstanding common shares.

We describe the proposed reorganization and merger in the accompanying proxy statement/prospectus. I urge you to review this information carefully.

Your vote is important. Whether or not you plan to attend the special meeting in person, please take the time to vote your shares. You may vote your shares by completing, signing and dating the enclosed proxy card and promptly returning it in the accompanying prepaid envelope. If you attend the special meeting, you may vote in person, if you wish, even though you have previously returned your proxy. If you do not vote either in person or by proxy you will, in effect, be voting against the reorganization and merger.

Again, we strongly urge you to read and carefully consider the proxy statement/prospectus in its entirety, including the matters discussed in the section entitled “Risk Factors” beginning on page 18.

On behalf of our board of directors, I urge you to vote FOR the reorganization.

Very truly yours,


	Betsy Z. Cohen Chief Executive Officer The Bancorp Bank

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THE BANCORP BANK
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________________, 2004

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of The Bancorp Bank will be held at ________________ on _________, 2004 at _____ A.M., local time, to consider the following matters:

To consider and vote on an Agreement and Plan of Merger pursuant to which The Bancorp Bank will merge with and into a wholly-owned subsidiary of The Bancorp, Inc., thereby becoming a wholly-owned subsidiary of The Bancorp, Inc. (the “reorganization”), and


	2.	The transaction of such other business as may properly come before the meeting or any adjournment thereof.

Only those shareholders who hold common stock of record at the close of business on _______, 2004 are entitled to notice of and to vote at the meeting or any adjournment thereof.

Approval of the reorganization requires the affirmative vote of not less than a majority of the outstanding common stock of The Bancorp Bank. A failure to vote, either by not returning the enclosed proxy or by returning the enclosed proxy and checking the “Abstain” box, will have the same effect as a vote against approval of the reorganization.

By Order of the Board of Directors


	Martin F. Egan, Secretary

_______________, 2004

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.

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PROXY STATEMENT
OF
THE BANCORP BANK

Special Meeting of Shareholders to be held _____, 2004

PROSPECTUS
OF
THE BANCORP, INC.

The Bancorp Bank is furnishing this proxy statement/prospectus to its shareholders in connection with the solicitation of proxies by its board of directors for use at the special meeting of shareholders, including any adjournments, to be held __________, ______, 2004 at _____ A.M. local time at _______________, Philadelphia, Pennsylvania. At the special meeting, The Bancorp Bank’s shareholders will be asked to consider and vote upon the following:

•

an Agreement and Plan of Merger that provides for The Bancorp Bank to merge with and into TBI Acquisition Bank, a wholly-owned subsidiary of The Bancorp, Inc., thereby becoming a wholly-owned subsidiary of The Bancorp, Inc., which we refer to as the “reorganization;” and


		•	such other business as may properly come before the special meeting or any adjournments of that meeting.

In this proxy statement/prospectus, The Bancorp, Inc. is referred to as “we,” “our” or the “Bancorp,” while The Bancorp Bank is referred to as the “Bank.”

On the effective date of the reorganization, each outstanding share of Bank common stock will convert into 1.15 shares of Bancorp common stock. Cash will be paid in lieu of the issuance of any fractional share interest. The effect of the reorganization will be that Bank shareholders will become Bancorp shareholders. In order to complete the reorganization, several conditions must be satisfied including, in particular, the receipt of all necessary approvals from federal and state bank regulators. Approval of the reorganization requires the affirmative vote of holders of not less than a majority of the outstanding Bank common stock.

This proxy statement/prospectus also constitutes a prospectus of Bancorp with respect to Bancorp common stock issuable to holders of Bank common stock upon completion of the reorganization.

There is currently no public market for Bancorp common stock. We have applied to have the Bancorp common stock offered by this prospectus/proxy statement included for quotation on the Nasdaq National Market under the symbol “TBBK.” The Bank’s common stock trades on the Nasdaq National Market under the symbol “TBBK,” which will be transferred to us upon completion of the reorganization. On July 13, 2004, the last business day before the announcement of the reorganization, the last reported sale price of the Bank’s common stock was $18.68 per share.

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Neither the Federal Deposit Insurance Corporation, the Office of the State Bank Commissioner of Delaware, the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission nor any other government agency has approved or disapproved of the transactions referred to in this proxy statement/prospectus or the securities issuable pursuant to those transactions, nor have any of them passed on the accuracy or adequacy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

Shares of the Bancorp’s common stock do not represent deposits with or other obligations of a bank and are not insured by the Federal Deposit Insurance Corporation or any other insurer or government agency. Bancorp common stock is subject to investment risk and may lose value.

This proxy statement/prospectus, and the accompanying notice of special meeting of shareholders and form of proxy, are first being mailed to shareholders of the Bank on __________, 2004.

The date of this proxy statement/prospectus is ___________, 2004.

TABLE OF CONTENTS

Where You Can Find More Information	4
Summary	5
Selected Financial Data	10
Selected Pro Forma Combined Financial Information	12
Certain Unaudited Pro Forma Per Share Data	17
Risk Factors	18
The Special Meeting of the Bank’s Shareholders	30
The Reorganization	32
The Agreement and Plan of Merger	44
The Bancorp	47
Management of The Bancorp	50
Security Ownership of Management and Certain Beneficial Owners	61
The Bank	67
Description of Capital Stock of The Bancorp	94
Regulation Under Banking Law	100
Comparison of Shareholder Rights	109
Experts	111
Legal Matters	111
Shareholder Proposals and Nominations	111
Index to Financial Statements	F-1
Annex A — Agreement and Plan of Merger	A-1
Annex B — Financial Advisor Opinion	B-1
Signatures	II-4

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WHERE YOU CAN FIND MORE INFORMATION

The Bank is, and before the effective date of the reorganization will remain, subject to the information requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance therewith, files annual, quarterly and special reports, proxy statements and other information with the Federal Deposit Insurance Corporation, which we refer to as the FDIC. Such information may be inspected at the Registration and Disclosure Section of the FDIC at 550 Seventeenth Street, NW, Washington, D.C. 20429 (telephone (202) 898-8913). Copies of such material can be obtained from the FDIC at the above location at prescribed rates. The FDIC filings of the Bank are also available to the public at the Internet web site maintained by the FDIC at http://www.fdic.gov , or at the Bank’s website, http://www.thebancorp.com . The Bank posts separately on its website all filings made by persons pursuant to Section 16 of the Exchange Act.

Bancorp has filed a registration statement on Form S-4 to register with the Securities and Exchange Commission, which we refer to as the Commission, the shares of Bancorp common stock to be issued to the Bank’s shareholders in the reorganization. This proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of Bancorp as well as a proxy statement of the Bank for the Bank’s special meeting of shareholders. As allowed by the rules of the Commission, this proxy statement/prospectus does not contain all the information you can find in Bancorp’s registration statement or the exhibits to the registration statement. The registration statement is available to the public over the Internet at the Commission’s website at http://www.sec.gov . You may also read and copy any document Bancorp files at the Commission’s public reference rooms. Please call the Commission at 1-800-SEC-0330 for additional information on the public reference rooms.

You may also obtain copies of the exhibits to Bancorp’s registration statement and of the reports, proxy statements or other information filed by the Bank with the FDIC, upon written or oral request, at the following address or telephone number:

The Bancorp, Inc.
405 Silverside Road
Wilmington, DE 19809
Attention: Martin Egan, Corporate Secretary
Telephone No. (302) 385-5000

To obtain timely delivery, you must request this information no later than ______, 2004, five business days before the date of the special meeting.

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SUMMARY

This summary highlights selected information from this proxy statement/prospectus. Because it is a summary, it may not contain all of the information that is important to you. You should read the entire proxy statement/prospectus, including the “Risk Factors” section, together with the financial statements for both us and the Bank, and the notes to those financial statements, included elsewhere in this proxy statement/prospectus, to fully understand the proposed reorganization.

The Special Meeting

The special meeting of the shareholders of the Bank will be held on ______, 2004 at ____ A.M., local time, at _________________, Philadelphia, Pennsylvania. The board of directors of the Bank has fixed ______, 2004 as the record date for shareholders entitled to receive notice of, and to vote at, the special meeting. At the special meeting, Bank shareholders will consider and vote upon the proposed reorganization and any other matters that properly may be brought before the special meeting.

Each holder of Bank common stock may vote at the special meeting. At the record date, we owned approximately 32.7% of the Bank’s common stock and our directors and executive officers owned approximately 2.9% of the Bank’s common stock. We intend to vote, and anticipate that our directors and executive officers will vote, in favor of the reorganization; however, neither we nor our directors and executive officers have entered into an agreement to this effect.

Vote Required for Approval

Common shareholders of the Bank may cast one vote for each share of common stock they own. The affirmative vote of greater than 50% of the Bank’s common shares outstanding as of the record date is required to approve the reorganization. Approximately 36% of the Bank’s outstanding common shares are held by Bancorp, directors, executive officers and other affiliates of the Bank.

A failure to vote, either by not returning the enclosed proxy or by returning the enclosed proxy and checking the ABSTAIN box, will have the same effect as a vote against approval of the reorganization.

The approval of Bancorp shareholders is not required and is not being sought in connection with the reorganization.

Parties to the Reorganization

The Bank . The Bank is a Delaware-chartered, federally-insured commercial bank that was formed in 1999 and began operations in July 2000. It provides commercial and retail banking through the Internet. Its address and telephone number are:

The Bancorp Bank
405 Silverside Road
Wilmington, Delaware 19809
(302) 385-5000

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As of March 31, 2004, the Bank’s total assets were $455.4 million, its total deposits were $321.2 million and its total loans were $272.5 million.

Bancorp. We are a Delaware corporation and a registered bank holding company for the Bank. From the Bank’s formation in 1999 until the public offering of its common stock in February 2004, the Bank was our wholly-owned subsidiary. The Bank’s public offering reduced our ownership interest from 100% to 32.7%. We currently hold 3,500,000 shares of the Bank’s common stock, which is our principal asset. Under a joint management services policy between us and the Bank, we provide the Bank with management services, equipment and facilities, and the Bank reimburses us for our costs. We allocate the compensation of shared employees, including our executive officers, between us and the Bank, based upon the time those officers devote to the business of each of us. The Bank pays us a fee of 20% of the costs it reimburses to us as permitted under applicable regulations.

Our address and telephone number are the same as those for the Bank.

TBI Acquisition Bank. TBI Acquisition Bank is being organized by us solely for the purpose of facilitating the reorganization. Upon completion of the reorganization, TBI Acquisition Bank will change its name to “The Bancorp Bank” and continue the banking business of the Bank.

The Reorganization

In the proposed reorganization, pursuant to an Agreement and Plan of Merger, the Bank will merge with and into TBI Acquisition Bank. The effect of the merger will be that the Bank will become our wholly-owned subsidiary. The Agreement and Plan of Merger is set forth in Exhibit A to this proxy statement/prospectus. We urge you to read it carefully.

What You Will Receive in the Reorganization

Upon completion of the reorganization, each share of Bank common stock will convert into 1.15 shares of Bancorp common stock and the shareholders of the Bank will become shareholders of Bancorp. Each option to purchase a Bank common share will become an option to purchase 1.15 shares of Bancorp common stock. Cash will be paid in lieu of the issuance of any fractional share interest.

Conditions to Completing the Reorganization

Completion of the reorganization will depend upon the following:

•

approval of the reorganization by shareholders holding a majority of the Bank’s outstanding common shares;


	•	receipt by both us and the Bank of all necessary consents and approvals of governmental authorities and others, including the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve, the FDIC and the Delaware State Bank Commissioner;

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•

the registration statement of which this proxy statement/prospectus is a part being declared effective and no stop order, or proceeding for that purpose, having been issued, initiated or threatened by the Commission;


	•	receipt by the Bank of an opinion from its financial advisor that the exchange ratio specified in the merger agreement is fair, from a financial point of view, to the Bank’s shareholders; and


	•	receipt of an opinion from Ledgewood Law Firm, P.C. that the reorganization will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986.

Background and Reasons for the Reorganization

We were formed in 1999 to act as the holding company for the Bank, which was then our wholly-owned subsidiary. From 1999 through December 31, 2003, we completed six offerings that allowed us to contribute $30.7 million to the Bank’s capital. During 2002 and 2003, the Bank experienced rapid growth in its total assets, total loans and total deposits. To support this and future growth, the Bank completed an offering of its common stock in February 2004, obtaining $82.9 million of new capital. This offering reduced our ownership interest in the Bank from 100% to 32.7%. We continued to manage the Bank under a joint management services policy.

In April 2004, we reviewed our organizational structure with the Bank and concluded that:

•

we should elect to become a financial holding company to provide a broader platform for our future growth, and


	•	we should propose the reorganization to allow Bank shareholders to participate in the potential offered by that broader platform as well as to allow us to simplify our organizational structure with the Bank to more closely align it with industry practices.

We and the Bank observed that the proposed reorganization would also have the following collateral advantages:

•

it would facilitate acquisitions,


	•	it would facilitate raising capital,


	•	it would provide liquidity to our existing shareholders and a larger public float for all post-reorganization shareholders, and


	•	it would reduce concentration of ownership.

For a more detailed discussion of the background and reasons for the reorganization, you should read “The Reorganization — Background and Reasons for the Reorganization” at page 33 of this proxy statement/prospectus.

Recommendation of The Bank’s Board

For the reasons described in “Background and Reasons for the Reorganization,” the Bank’s board of directors believes that the reorganization is in the best interests of the Bank and its shareholders and has unanimously recommended that Bank shareholders vote “FOR” approval of the reorganization.

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Opinion of Financial Advisor

The Bank’s board of directors has received a written opinion from Cedar Hill Advisors, LLC that, as of the date of the opinion, the exchange ratio specified in the merger agreement is fair, from a financial point of view, to the Bank’s shareholders. The full text of Cedar Hill’s written opinion dated July 8, 2004, which sets forth the assumptions made, matters considered and qualifications and limitations of the review undertaken, is attached as Annex B to this prospectus/proxy statement. Bank shareholders are urged to read this opinion carefully and in its entirety. See “The Reorganization — Opinion of Bank’s Financial Advisor” for more information on the opinion.

Federal Income Tax Aspects of the Reorganization

We may not complete the reorganization unless we receive an opinion of counsel to the effect that the reorganization will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended and, accordingly, that no gain or loss will be recognized by either the Bank or us in the merger and no gain or loss will be recognized by shareholders of the Bank upon receipt of Bancorp common stock for Bank common stock, except with respect to any cash received in lieu of fractional shares. Bank shareholders electing to exercise dissenters’ rights will recognize gain or loss for federal income tax purposes. However, because some of the tax consequences of the reorganization may vary depending upon the circumstances of individual Bank shareholders, we urge Bank shareholders to consult with their tax advisors for a full understanding of the federal, state and local income and other tax consequences of the reorganization to them.

Comparison of Shareholder Rights

As a result of the reorganization, holders of Bank common stock will become holders of Bancorp common stock. There are differences between the rights of holders of Bank common stock and those of holders of Bancorp common stock, primarily with respect to payment of dividends and dissenters’ rights of appraisal in mergers and similar business combinations. We discuss these differences in “Comparison of Shareholder Rights.”

Exchange of Certificates

We have appointed American Stock Transfer & Trust Company as the exchange agent to effect the exchange of certificates of Bancorp common stock for certificates of Bank common stock following completion of the reorganization. Our exchange agent will send transmittal materials to Bank shareholders for use in effecting the exchange of their certificates representing Bank common stock for certificates representing Bancorp common stock promptly upon completion of the reorganization.

Resale of Bancorp Common Stock; Trading Market

Shares of Bancorp common stock issuable in connection with the reorganization will be freely transferable, except for persons who may be deemed to be “affiliates” of the Bank or us under applicable federal securities laws. Generally, affiliates include directors, executive officers and principal shareholders.

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We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “TBBK.”

Dissenters’ Rights

Holders of Bank common stock have the right to dissent from the reorganization under Delaware law and, subject to the completion of specified statutory procedures, to receive in cash an amount equal to the “fair value” of their shares. We summarize dissenters’ rights, and the procedures that must be followed to exercise those rights, in “The Reorganization — Dissenters’ Rights.” Failure of a dissenting shareholder to follow the applicable procedures precisely may result in a loss of dissenters’ rights.

Holders who receive cash for their shares as a result of exercising dissenters’ rights will, in general, recognize gain or loss for federal income tax purposes as we discuss in more detail in “The Reorganization — Federal Income Tax Aspects.”

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SELECTED FINANCIAL DATA

The following tables set forth selected financial data for us as of and for the years ended December 31, 2003, 2002, 2001, 2000 and for the period July 20, 1999 (date of inception of operations) through December 31, 1999, and for the three months ended March 31, 2004 and March 31, 2003. The financial data for the Bank is as of and for the years ended December 31, 2003, 2002 and 2001 and for the period July 28, 2000 (date of inception of operations) through December 31, 2000, and for the three months ended March 31, 2004 and 2003. We derived the financial data for us for the years ended December 31, 2003, 2002, 2001, 2000 and for the period July 20, 1999 through December 31, 1999 and for the Bank for the years ended December 31, 2003, 2002 and 2001 and for the period July 28, 2000 through December 31, 2000 from the respective financial statements for such periods, audited by Grant Thornton LLP, independent registered public accounting firm. We derived the financial data for the three month periods ended March 31, 2004 and 2003 from our respective unaudited financial statements for those periods. You should read the selected financial data in these tables together with, and such financial data is qualified by reference to, our respective financial statements and the notes to those financial statements included elsewhere in this proxy statement/prospectus. Operating results for the three months ended March 31, 2004 are not necessarily indicative of results that may be expected for the full year.

Selected Historical Financial Data of the Bancorp

	As of or for the three months ended						As of or for the Year Ended												For the period July 20, 1999 (date of inception) through



	March 31,			March 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2004			2003			2003			2002			2001			2000			1999(1)

	(unaudited)
Income Statement Data:							(dollars in thousands)
Interest income	$	4,683		$	3,406		$	14,797		$	12,060		$	7,474		$	2,458		$	154
Interest expense		1,393			1,300			5,423			4,590			3,566			1,295			—

Net interest income		3,290			2,106			9,374			7,470			3,908			1,163			154
Provision for loan and lease losses		332			150			685			600			435			350			—

Net interest income after provision for loan and lease losses		2,958			1,956			8,689			6,870			3,473			813			154
Non-interest income		1,884			2,235			10,487			4,342			1,719			518			13
Non-interest expense		4,584			3,821			18,355			11,703			8,706			5,673			336

Net income (loss) from continuing operations		258			370			821			(491	)		(3,514	)		(4,342	)		(169	)
Income tax benefit		—			—			(250	)		(500	)		—			—			—
Discontinued operations		—			—			—			—			(104	)		(1,877	)		—

Net income before minority interest		258			370			1,071			9			(3,618	)		(6,219	)		(169	)
Less minority interest		(265	)		—			—			—			—			—			—

Net income (loss)		(7	)		370			1,071			9			(3,618	)		(6,219	)		(169	)
Less preferred stock dividends and accretion		(223	)		(219	)		(881	)		(750	)		(278	)		—			—

Net income (loss) available to common stock	$	(230	)	$	151		$	190		$	(741	)	$	(3,896	)	$	(6,219	)	$	(169	)

Balance Sheet Data:
Total assets	$	455,300		$	227,729		$	304,161		$	233,424		$	155,006		$	84,823		$	17,216
Total loans, net of unearned costs (fees)		274,843			177,715			232,397			163,337			106,208			27,926			—
Allowance for loan and lease losses		2,323			1,528			1,991			1,379			780			350			—
Total cash and cash equivalents		43,064			12,357			42,183			30,148			5,866			51,542			16,763
Deposits		320,130			203,313			276,765			209,443			137,517			72,516			—

Shareholders’ equity		21,395			17,269			21,673			16,969			14,239			10,963			17,182
Selected Operating Ratios: (2)
Return on average assets		nm			0.64	%		0.41	%		nm			nm			nm			nm
Return on average common equity		nm			7.27	%		4.93	%		nm			nm			nm			nm
Net interest margin		3.75	%		3.78	%		3.77	%		4.05	%		3.73	%		3.13	%		4.33%

Selected Capital and Asset Quality Ratios:
Equity/assets		4.70	%		7.58	%		7.13	%		7.27	%		9.19	%		12.92	%		99.80	%
Tier 1 capital to average assets		28.78	%		9.54	%		7.13	%		9.76	%		10.19	%		14.86	%		n/a
Tier 1 capital to total risk-weighted assets		30.77	%		11.17	%		8.65	%		11.60	%		11.65	%		23.29	%		n/a
Total capital to total risk-weighted assets		31.45	%		11.94	%		9.44	%		12.33	%		12.23	%		24.10	%		n/a
Allowance for loan and lease losses to total loans		0.85	%		0.86	%		0.86	%		0.84	%		0.73	%		1.25	%		—

(1)	We were incorporated on July 20, 1999.

(2)	Certain ratios are annualized for comparative purposes.

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Selected Historical Financial Data of the Bank

	As of or for the three months ended March 31,				As of or for the Year ended December 31,									As of and for the period July 28, 2000 (date of inception) through December 31,
	2004		2003		2003			2002			2001			2000 (1)

	(unaudited)
	(dollars in thousands)
Income Statement Data:
Interest income	$	4,683	$	3,365	$	14,797		$	12,020		$	7,467		$	2,458
Interest expense		1,255		1,161		4,872			4,285			3,566			1,295

Net interest income		3,428		2,204		9,925			7,735			3,901			1,163
Provision for loan and lease losses		332		150		685			600			435			350

Net interest income after provision for loan and lease losses		3,096		2,054		9,240			7,135			3,466			813
Non-interest income		1,884		2,236		10,447			4,342			1,830			586
Non-interest expense		4,575		3,810		18,086			10,994			8,563			5,736

Net income (loss) before income tax benefit		405		480		1,601			483			(3,267	)		(4,337	)
Income tax benefit		—		—		(250	)		(500	)		—			—

Net income (loss)	$	405	$	480	$	1,851		$	983		$	(3,267	)	$	(4,337	)

Share Data:
Net income (loss) per share-basic and diluted	$	0.05	$	0.14	$	0.53		$	0.28		$	(0.93	)	$	(1.24	)
Weighted average common shares outstanding		8,050,137		3,500,000		3,500,000			3,500,000			3,500,000			3,500,000
Book value per share	$	10.18	$	5.88	$	7.36		$	5.83		$	4.23		$	3.47
Balance Sheet Data:
Total assets	$	455,375	$	227,709	$	304,297		$	233,987		$	156,128		$	86,166
Total loans, net of unearned costs (fees)		274,843		177,715		232,397			163,337			106,208			27,926
Allowance for loan and lease losses		2,323		1,528		1,991			1,379			780			350
Total cash and cash equivalents		43,064		12,357		42,183			30,148			5,866			51,552
Deposits		321,427		205,542		278,120			211,977			138,218			72,699
Shareholders’ equity		108,782		20,590		25,748			20,388			14,799			12,158
Selected Operating Ratios: (2)
Return on average assets		0.45%		0.82%		0.70%			0.50%			nm			nm
Return on average common equity		2.22%		9.44%		8.51%			5.66%			nm			nm
Net interest margin		3.92%		3.95%		3.97%			4.20%			3.72%			3.13%
Efficiency ratio		84.25%		92.83%		88.78%			91.03%			149.42%			327.96%
Selected Capital and Asset Quality Ratios:
Tier 1 capital to average assets		30.05%		8.72%		8.46%			9.04%			10.59%			14.86%
Tier 1 capital to total risk-weighted assets		32.03%		10.30%		10.26%			10.41%			12.02%			27.00%
Total capital to total risk-weighted assets		32.71%		11.06%		11.05%			11.13%			10.64%			27.77%
Shareholder’s equity to total assets		23.89%		9.04%		8.46%			8.71%			9.48%			14.11%
Asset Quality Ratios
Nonperforming loans to total loans		0.01%		0.22%		0.02%			0.02%			0.01%			—
Nonperforming assets to total assets		0.00%		0.17%		0.01%			0.02%			0.01%			—
Allowance for loan and lease losses to total loans		0.85%		0.86%		0.86%			0.84%			0.73%			1.25%

(1)	The Bank began its operations on July 28, 2000.

(2)	Certain ratios are annualized for comparative purposes.

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SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION

The following table sets forth selected unaudited pro forma combined financial information of the Bancorp giving effect to the reorganization as if it had occurred on March 31, 2004 and December 31, 2003, with respect to balance sheet data, and as of the beginning of quarter ended March 31, 2004 and the year ended December 31, 2003, with respect to operating data. The unaudited pro forma combined financial information does not purport to be indicative of the combined financial position or results of operations for future periods or indicative of the results that actually would have been realized had the entities been a single entity during these periods.

Unaudited Pro Forma Combined Balance Sheets as of March 31, 2004 and December 31, 2003

	March 31,						March 31,
	2004						2004
	(unaudited)			Adjustments			(as adjusted)

	(in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	9,129					$	9,129
Interest bearing deposits		1,108						1,108
Federal funds sold		32,827						32,827

Total cash and cash equivalents		43,064						43,064
Investments, available-for-sale		130,812						130,812
Loans, net		272,520						272,520
Premises and equipment, net		2,660						2,660
Accrued interest receivable		1,714						1,714
Other assets		4,714						4,714

Total assets	$	455,484					$	455,484

LIABILITIES
Deposits
Demand (non-interest bearing)	$	49,163						49,163
Savings, money market and interest checking		145,455						145,455
Time deposits		124,561						124,561
Time deposits, $100,000 and over		952						952

Total deposits		320,131						320,131
Securities sold under agreements to repurchase		3						3
Federal Home Loan Bank advances		20,000						20,000
Accrued interest payable		161						161
Subordinated debt		5,413						5,413
Other liabilities		5,213						5,213

Total liabilities		350,921						350,921

Minority interest		83,148			(83,148	) ⁽¹⁾		—
SHAREHOLDER’S EQUITY
Common stock — authorized, 20,000,000 shares of $1.00 par
value; issued 2,284,200 shares at March 31, 2004		2,284			8,266	⁽¹⁾		10,550
Series A Preferred stock -authorized 5,000,000 shares
issued 1,100,006 shares at March 31, 2004		11						11
Additional paid-in capital		30,592			74,882	⁽¹⁾		105,474
Accumulated deficit		(11,065	)					(11,065	)
Accumulated other comprehensive loss		(407	)					(407	)

Total shareholder’s equity		21,415						104,563
Total liabilities and shareholder’s equity	$	455,484					$	455,484

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	December 31,						December 31,
	2003						2003
	(unaudited)			Adjustments			(as adjusted)

	(in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	11,650					$	11,650
Interest bearing deposits		1,027						1,027
Federal funds sold		29,506			82,883	⁽²⁾		112,389

Total cash and cash equivalents		42,183						125,066

Investments, available-for-sale		24,387						24,387
Loans, net		230,406						230,406
Premises and equipment, net		2,377						2,377
Accrued interest receivable		1,219						1,219
Other assets		3,589						3,589

Total assets	$	304,161					$	387,044

LIABILITIES
Deposits
Demand (non-interest bearing)	$	48,006						48,006
Savings, money market and interest checking		111,438						111,438
Time deposits		104,410						104,410
Time deposits, $100,000 and over		12,911						12,911

Total deposits		276,765						276,765

Securities sold under agreements to repurchase		3						3
Accrued interest payable		218						218
Other liabilities		252						252

Guaranteed preferred interest in Company’s
subordinated debentures		5,250						5,250

Total liabilities		282,488						282,488

SHAREHOLDER’S EQUITY
Common stock — authorized, 20,000,000 shares of $1.00 par
value; issued 2,284,200 shares at December 31, 2003		2,284			8,266	⁽²⁾		10,550
Preferred stock -authorized 5,000,000 shares;
issued 1,083,753 shares at December 31, 2003		11						11
Additional paid-in capital		30,369			74,617	⁽²⁾		104,986

Accumulated deficit		(10,835	)					(10,835	)
Accumulated other comprehensive loss		(156	)					(156	)

Total shareholder’s equity		21,673						104,556

Total liabilities and shareholder’s equity	$	304,161					$	387,044

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Unaudited Pro Forma Combined Income Statement for the three months ended March 31, 2004 and the year ended December 31, 2003

	For the three months ended March 31, 2004						For the three months ended March 31, 2004
	(unaudited)			Adjustments			(as adjusted)

	(in thousands, except per share data)
Interest income
Loans, including fees	$	3,782					$	3,782
Investment securities		799						799
Federal funds sold		97						97
Interest bearing deposits		5						5

		4,683						4,683

Interest expense
Deposits		1,229						1,229
Subordinated debt		138						138
Federal Home Loan Bank advances		26						26

		1,393						1,393

Net interest income		3,290						3,290
Provision for loan and lease losses		332						332

Net interest income after provision for loan and lease losses		2,958						2,958

Non-interest income
Service fees on deposit accounts		191						191
Merchant credit card deposit fees		1,348						1,348
Gain on sales of investment securities		101						101
Leasing income		62						62
Other		182						182

Total non-interest income		1,884						1,884

Non-interest expense
Salaries and employee benefits		1,774						1,774
Occupancy expense		383						383
Merchant credit card deposit		1,176						1,176
Data processing expense		237						237
Advertising		93						93
Professional fees		92						92
Other		829						829

Total non-interest expense		4,584						4,584

Net income before minority interest		258						258
Minority interest		265			(265)	⁽³⁾		—

Net income(loss)		(7	)					258

Less preferred stock dividends and accretion		(223	)					(223	)

Net (loss) income available to common shareholders	$	(230	)				$	35

Net (loss) income per share — basic	$	(0.10	)				$	0.00

Net (loss) income per share — diluted	$	(0.10	)				$	0.00

Weighted average shares — basic		2,284,200			8,265,625	⁽¹⁾		10,549,825

Weighted average shares — diluted		2,284,200			8,265,625	⁽¹⁾
					191,121	⁽⁴⁾
					6,832	⁽⁵⁾		10,747,778

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	For the year ended December 31,						For the year ended December 31,
	2003			Adjustments			2003 (as adjusted)

				(unaudited)
	(in thousands, except per share data)
Interest income
Loans, including fees	$	12,508					$	12,508
Investment securities		1,984						1,984
Federal funds sold		297						297
Interest bearing deposits		8						8

		14,797						14,797

Interest expense
Deposits		4,857						4,857
Securities sold under agreements to repurchase		15						15
Subordinated debt		—						—
Federal Home Loan Bank advances		551						551

		5,423						5,423

Net interest income		9,374						9,374
Provision for loan and lease losses		685						685

Net interest income after provision for loan and lease losses		8,689						8,689

Non-interest income
Service fees on deposit accounts		878						878
Merchant credit card deposit fees		7,980						7,980
Gain on sales of investment securities		787						787
Leasing income		205						205
Other		637						637

Total non-interest income		10,487						10,487

Non-interest expense
Salaries and employee benefits		5,004						5,004
Occupancy expense		1,531						1,531
Merchant credit card deposit		7,410						7,410
Data processing expense		886						886
Advertising		242						242
Professional fees		230						230
Other		3,052						3,052

Total non-interest expense		18,355						18,355

Net income before income taxes		821						821
Income taxes		(250	)					(250	)
Net income		1,071						1,071

Less preferred stock dividends and accretion		(881	)					(881	)

Net (loss) income available to common shareholders	$	190					$	190

Net (loss) income per share – basic	$	0.09					$	0.02

Net (loss) income per share – diluted	$	0.09					$	0.02

Weighted average shares – basic		2,010,529			8,265,625	⁽¹⁾		10,276,154
Weighted average shares – diluted		2,076,907			8,265,625	⁽¹⁾		10,342,532

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(1)	Adjustment to convert the common stock of the Bank held by public shareholders to shares of Bancorp common stock at an exchange rate of 1.15 shares of Bancorp common stock for each share of Bank common stock:

Bank’s common shares March 31, 2004		10,687,500
Less: shares owned by Bancorp		(3,500,000	)

Shares owned by public shareholders		7,187,500
Exchange rate		1.15	X

Adjusted shares to be issued		8,265,625

Minority interest at March 31, 2004	$	83,148,000
Common stock $1.00 par value adjusted shares		8,265,625

Additional paid in capital	$	74,882,375

(2)	Adjustment to convert the common stock of the Bank held by public shareholders to shares of Bancorp common stock at an exchange rate of 1.15 shares of Bancorp common stock for each share of Bank common stock:

Bank’s common shares March 31, 2004		10,687,500
Less: shares owned by Bancorp		(3,500,000	)

Shares owned by public shareholders		7,187,500
Exchange rate		1.15	X

Adjusted shares to be issued		8,265,625

Proceeds from the issuance of Bank common stock on February 6, 2004, net of offering costs	$	82,883,000
Common stock $1.00 par value adjusted shares		8,265,625

Additional paid in capital	$	74,617,375

(3)	Reversal of minority interest as a result of conversion of Bank common stock to Bancorp common stock.

(4)	Inclusion of Bancorp stock options and warrants as a result of net income after adjustment for elimination of minority interest.

(5)	Conversion of stock options issued by the Bank into the Bancorp stock options at an exchange rate of 1.15 Bancorp common shares for each Bank common share:

Bank options (exercise price of $12.50)		501,000
Exchange rate		1.15	X

Adjusted stock options		576,150
Adjusted exercise price	$	10.87

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CERTAIN UNAUDITED PRO FORMA PER SHARE DATA

The following unaudited information sets forth historical and pro forma per common share data for us and equivalent pro forma per common share data for the Bank. The information set forth below should be read in conjunction with the historical financial statements for us and the Bank, and the notes thereto, and the pro forma financial data appearing elsewhere in this proxy statement/prospectus.

	As of or for the three months ended March 31, 2004
						Pro forma
						combined per
						share
	Bancorp			Bank		after the
	(historical)			(historical)		reorganization

Diluted book value ⁽¹⁾	$	6.33		$	10.18	$	8.98
Net income (loss) per share		(0.10	)		0.05		—
Diluted net income (loss) per share		(0.10	)		0.05		—

	As of or for the year ended December 31, 2003
					Pro forma
					combined per
					share
	Bancorp		Bank		after the
	(historical)		(historical)		reorganization

Diluted book value ⁽¹⁾	$	6.43	$	7.36	$	8.99
Net income (loss) per share		0.09		0.53		0.02
Diluted net income (loss) per share		0.09		0.53		0.02

(1)	Fully diluted book value assumes conversion of our Series A preferred shares.

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RISK FACTORS

You should carefully consider each of the risks described in this section, together with all of the other information contained in this proxy statement/prospectus, before deciding what action to take in connection with the proposed reorganization. If any of the following risks occurs, our business, financial condition and results of operations could be materially harmed. This could cause the value of our common stock to decline, and you could lose some part or all of your investment.

Risks Relating to the Proposed Reorganization

Our profitability will depend upon profitability of the Bank.

We do not conduct any operations of our own other than acting as a holding company for the Bank. Although we will seek to register with the Federal Reserve as a financial holding company, which will permit us to engage in a wide range of financial activities, we currently have formulated no plans to expand our financial activities beyond acting as a holding company for the Bank. As a result, for the foreseeable future our profitability will depend upon that of the Bank.

The reorganization cannot be considered to be independently negotiated.

The terms of the merger agreement under which we will accomplish the reorganization were determined by the boards of directors of the Bank and the Bancorp. Since the respective boards of directors are largely identical, the terms of the merger agreement cannot be considered to be the result of arms’ length negotiations between the Bank and the Bancorp.

There are differences between the rights of Bank shareholders and those of Bancorp shareholders.

Following the reorganization, shareholders of the Bank will become shareholders of the Bancorp. As shareholders of the Bancorp, the rights of the former Bank shareholders will be governed by the Bancorp’s certificate of incorporation, bylaws and the Delaware General Corporation Law. The rights of Bancorp shareholders differ in some respects from those of Bank shareholders. These differences principally involve the payment of dividends and dissenters’ rights of appraisal. We discuss the differences in these rights in more detail in “Comparison of Rights of Shareholders.”

Bancorp shareholders will not have a direct right to elect the directors of the Bank following the reorganization.

Following the reorganization, our board of directors, acting on our behalf as the sole shareholder of the Bank, will elect the directors of the Bank. Bancorp shareholders will elect our directors but will no longer directly elect the directors of the Bank.

Future issuances of Bancorp common shares could have a dilutive effect.

Our certificate of incorporation authorizes the issuance of 20 million common shares and 5 million preferred shares, of which 10,549,825 common shares and 1,100,006 Series A preferred shares will be outstanding following the reorganization. Our Series A preferred shares are convertible to common shares, with a current conversion rate of one common share for each Series A preferred share. After shares reserved for issuance in connection with our stock option plan and the Bank’s stock option plan (1,101,900 shares), exercise of outstanding warrants (2,024,769 shares) and conversion of our Series A preferred shares (1,100,006 shares), there will be 5,222,500 common shares available for issuance by our board of directors in its discretion. Moreover, our board of directors has the authority to designate the terms and conditions of any future preferred shares we may issue, including the terms of any right the preferred shares may have to convert to common shares. Any issuances of common shares or convertible preferred shares could dilute the book value per share of our then-outstanding common stock and could adversely affect the share price.

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We will depend upon dividends and management fees from the Bank to fund our on-going operations and obligations.

Our ability to fund our on-going operations and to meet our obligations, particularly those with respect to $5.0 million of outstanding trust preferred securities, will depend upon the Bank’s ability to pay management fees and dividends to us, since we will have no other significant source of income. The Bank is, however, subject to regulatory limitations on the amount of management fees and dividends it may pay, and cannot pay management fees or dividends if they would reduce the Bank’s regulatory capital ratios below required levels. We discuss the Bank’s regulatory capital ratio requirements in “The Bank – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” Moreover, the FDIC may limit or prohibit the Bank’s payment of management fees and dividends to us if it deems payment to be an unsafe or unsound banking practice. The Bank is also subject to dividend payment limitations imposed by Delaware law. We discuss these limitations in “Regulation Under Banking Laws – Delaware Regulation.” Dividend payments to us are, in any event, subject to the financial condition and needs of the Bank and at the discretion of the board of directors of the Bank.

The holders of Bancorp’s trust preferred securities have rights senior to those of Bancorp’s common shareholders.

In 2002, The Bancorp Capital Trust I, an affiliated business trust, issued $5.0 million of 10.5% trust preferred securities, which are backed by our junior subordinated debenture in the same amount and bearing the same interest rate. We contributed the proceeds of the issuance, after expenses, to the Bank’s capital. We must make debt service payments on the debenture before we can pay any dividends on our common shares. Moreover, in the event of our bankruptcy, dissolution or liquidation, the debenture must be repaid before any distributions can be made to our common shareholders. We have the right to defer payments under the debenture for up to five years, during which time no dividends may be paid to holders of our common shares. If the Bank is unable to pay management fees and dividends to us, we may be unable to pay the amounts due under the debenture and, thus, will be unable to declare and pay any dividends on our common shares.

The holders of the Bancorp’s Series A preferred shares have dividend rights which may dilute the interest of Bancorp’s common shareholders, and also have liquidation rights senior to those of Bancorp’s common shareholders.

We have 1,100,006 Series A preferred shares outstanding as of the date of this proxy statement/prospectus. Our Series A preferred shares have a non-cumulative quarterly dividend of $.15 per share. If we do not pay the dividend in cash we must pay the dividend by issuing additional shares of Series A preferred stock, priced at $10.00 per share. Through the date of this proxy statement/prospectus, we have paid all Series A preferred share dividends through such

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issuances. Future such dividend payments would dilute the interest of our common shareholders and increase the cash dividends payable on our Series A preferred shares or the number of Series A preferred shares payable in lieu of a cash dividend. The Series A preferred stock also has a liquidation preference of $10.00 per share which, upon our bankruptcy, dissolution or liquidation, must be paid before any distributions can be paid on our common shares.

If our existing stockholders exercise their registration rights, it may reduce the market price of our common stock.

Persons who purchased our securities in our 1999 and 2002 offerings have the right to demand that we register the resale of their shares of common stock upon certain events, which we describe in “Description of Capital Stock of Bancorp – Agreement with Investors in 1999 Offering” and “ – Agreement with Investor in 2002 Offering.” If these shareholders exercise their registration rights with respect to all of their shares of common stock, then there will be an additional 2,284,200 shares of common stock eligible for trading in the public market. The presence of this additional number of shares of common stock eligible for trading in the public market may reduce the market price of our common stock.

The reorganization will involve significant short-term costs.

We anticipate that the reorganization initially will require significant expenditures and professional fees, currently estimated at $500,000. These expenses will reduce our net income in 2004.

Sales of substantial amounts of Bancorp common stock in the public market after the proposed reorganization could materially adversely affect the market price of Bancorp common stock.

Holders of Bancorp common shares, options or warrants to purchase common shares and Series A convertible preferred stock have not had a public market in which to sell Bancorp common shares. Following the reorganization, Bancorp common shares will be traded in the Nasdaq National Market. The sale of substantial amounts of Bancorp common shares following the reorganization may result in fluctuations in the share price. In addition, sales of a substantial amount of Bancorp common shares within a short period of time could cause the price of Bancorp common shares to fall. The sale of these shares could also impair our ability to raise capital through sales of additional Bancorp common shares.

Failure to complete the reorganization could reduce the market price of the Bank’s common stock.

The reorganization is subject to the satisfaction or waiver of conditions which we describe in “The Merger Agreement – Conditions to the Consummation of the Merger.” If these conditions are not satisfied or waived, we may not complete the reorganization. If we do not complete the reorganization, the trading price of the Bank’s common stock may decline to the extent that the current market price reflects a market assumption that the reorganization will be completed.

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The Bancorp does not plan to pay cash dividends in the foreseeable future; its ability in the future to pay dividends is subject to restrictions.

We intend to retain any future earnings to fund the development and growth of our operations and, as a result, do not anticipate paying any cash dividends for the foreseeable future. Our ability to pay dividends is, in any event, subject to substantial regulatory restrictions and other limitations. We describe the regulatory restrictions in “Regulation Under Banking Law” and describe the other limitations in “Risk Factors – The holders of Bancorp’s trust preferred securities have rights senior to those of Bancorp’s common shareholders,” “– The holders of Bancorp’s Series A preferred stock have rights senior to those of Bancorp’s common shareholders,” and “The Bancorp, Inc. – Market and Dividend Information.”

The Bancorp’s common shares are not insured deposits.

Similar to the Bank’s common shares, our common shares are not bank deposits and, therefore, are not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common shares is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this proxy statement/prospectus. As a result, if you acquire our common shares as a result of the reorganization, you may lose some or all of your investment.

Risks Relating to the Business and Operations of the Bank and Bancorp

Because the reorganization will cause the Bank to become our wholly-owned subsidiary, our profitability will depend on the profitability of the Bank. As a result, the following risk factors relating to banking operations will directly affect our consolidated financial condition and results of operations. We discuss these risks on a consolidated basis.

We have a limited operating history, which makes it difficult to predict our future prospects and financial performance following the reorganization.

The Bancorp and the Bank were formed in 1999, and the Bank began banking operations in July 2000. Because of our limited operating histories, it may be difficult to evaluate our business prospects or performance. Our prospects are subject to the risks and uncertainties frequently encountered by companies in their early stages of development, including the risk that we will not be able to implement our business strategies. Accordingly, our financial performance to date may not be representative of our long-term future performance or indicative of whether our business strategies will be successful.

We have recognized net operating losses in earlier periods.

While we generated net income for 2002 and 2003 on a consolidated basis and, on a pro forma consolidated basis, generated net income for the first quarter of 2004, we incurred losses in 2001 and 2000, our initial years of operation. We cannot guarantee that we will be able to sustain profitability. Our losses in 2001 and 2002 were attributable in large part to start-up costs and the costs of establishing and growing our business, which were funded by equity capital. We cannot guarantee that, following the reorganization, our revenues will continue to be sufficient to cover our expenses or that capital will be available to us on acceptable terms to fund any shortfall between our costs and our revenues. If we are unable to generate profits on a consistent basis, you may experience a significant decrease in the value to your Bancorp common stock.

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We may have difficulty managing our growth which may divert resources and limit our ability to successfully expand our operations.

On a consolidated basis, we have grown substantially, from $84.8 million of total assets and $72.5 million of total deposits at December 31, 2000 to $455.3 million of total assets and $320.1 million of total deposits at March 31, 2004. We expect to continue to experience significant growth in the amount of our assets, the level of our deposits and the scale of our operations. Our future profitability will depend in part on our continued ability to grow; however, we may not be able to sustain our historical growth rate or even be able to grow at all.

In our first years of operation, we incurred substantial expenses to build our management team and personnel, develop our delivery systems and establish our infrastructure to support our future growth. Our future success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures, and manage a growing number of customer relationships. We may not implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Consequently, our continued growth may place a strain on our administrative and operational infrastructure. Any such strain could increase our costs, reduce or eliminate our profitability and reduce the price at which our common shares trade.

Changes in interest rates could reduce our income, cash flows and asset values.

Our consolidated income and cash flows and the value of our consolidated assets will depend to a great extent on the difference between the interest rates the Bank earns on interest-earning assets, such as loans and investment securities, and the interest rates it pays on interest-bearing liabilities such as deposits and borrowings. These rates are highly sensitive to many factors which are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, will influence not only the interest the Bank receives on its loans and investment securities and the amount of interest it pays on deposits, it will also affect the Bank’s ability to originate loans and obtain deposits and its costs in doing so. If the rate of interest the Bank pays on its deposits and other borrowings increases more than the rate of interest it earns on its loans and other investments, our consolidated net interest income, and therefore our consolidated earnings, could be adversely affected. These earnings could also be adversely affected if the rates on the Bank’s loans and other investments fall more quickly than those on its deposits and other borrowings.

We are subject to lending risks.

There are risks inherent in making all loans. These risks include interest rate changes over the time period in which loans may be repaid and changes in the national economy or the economy of our regional market that impact the ability of our borrowers to repay their loans or the value of the collateral securing those loans.

At March 31, 2004, the Bank’s loan portfolio contained a high percentage of commercial, construction and commercial mortgage loans in relation to its total loans and total assets. Commercial loans are generally viewed as having more risk of default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real estate loans and consumer loans. Because the Bank’s loan portfolio contains a significant number of commercial, construction and commercial mortgage loans with relatively large balances (six of the Bank’s loans aggregating approximately $33.0 million, had loan balances in excess of $3.0 million at March 31, 2004), the deterioration of one or a few of these loans would cause a significant increase in nonperforming loans. On a consolidated basis, an increase in nonperforming loans could result in an increase in our provision for loan losses or in loan charge-offs and a consequent reduction of our earnings.

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The Bank maintains an allowance for loan and lease losses based on, among other things, historical experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Its loan loss allowance was $2.3 million, or 0.85% of total loans outstanding, at March 31, 2004. Determination of the allowance inherently involves a high degree of subjectivity and requires it to make significant estimates of current credit risks and future trends, all of which may undergo material changes. State and federal regulators, in reviewing the Bank’s loan portfolio as part of a regulatory examination, may request that increases in the allowance for loan and lease losses, thereby negatively affecting our consolidated financial condition and earnings. Moreover, future additions to the allowance may be necessary based on changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our or the Bank’s control. If charge-offs in future periods exceed the allowance for loan and lease losses, our consolidated provisions for loan and lease losses will increase. Any such increase would decrease our net income and, possibly, our capital.

Lack of seasoning of the Bank’s loan portfolio may increase the risk of credit defaults in the future.

All of the loans in the Bank’s loan portfolio were originated within the past four years. In general, loans do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process referred to as “seasoning.” As a result, a portfolio of older loans will usually behave more predictably than a portfolio of recently originated loans. Because the Bank’s loan portfolio is relatively unseasoned, the current level of delinquencies and defaults may be below the level that will prevail when the portfolio becomes more seasoned.

Until the Bank’s portfolio becomes more seasoned, we must rely in part on the historical loan loss experience of other financial institutions and our management’s past experience in determining the allowance for loan and lease losses, which may result in our having inadequate reserves.

Because most of the Bank’s loans were originated relatively recently, its loan portfolio does not provide an adequate history of loan losses for management to rely upon in establishing its allowance for loan and lease losses. The Bank therefore relies to a significant extent upon other financial institutions’ histories of loan losses and their allowance for loan and lease losses, as well as management’s estimates based on their experience in the banking industry, when determining its loss allowance. The history of loan and lease losses, the reserving policies of other financial institutions and management’s judgment may not result in reserving policies that will be adequate for our consolidated business and operations.

Our operations are concentrated in the Philadelphia-Wilmington metropolitan area.

The Bank’s loan activities are largely based in the Philadelphia-Wilmington metropolitan area. To a lesser extent, its deposit base is also generated from this area. As a result, our consolidated financial performance depends largely upon economic conditions in this area. Adverse local economic conditions could cause the Bank to experience an increase in loan delinquencies, a reduction in deposits, an increase in the number of borrowers who default on their loans and a reduction in the value of the collateral securing their loans, all of which would adversely affect our consolidated profitability.

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We depend to a significant extent upon outside sources to satisfy funding needs.

The Bank has relied to a significant extent on funds provided by wholesale and brokered deposits to support the growth of its loan portfolio. These funding sources amounted to 33.7% of the Bank’s total deposits at March 31, 2004. If the Bank is not successful in obtaining wholesale funding or increasing its current deposit base to a level commensurate with its funding needs, it may be unable to continue its growth, or could experience contraction in its total assets. Moreover, to the extent that the Bank is unable to match the maturities of the interest rates it pays for wholesale and brokered funds to the maturities of the loans it makes using those funds, increases in the interest rates it pays for such funds could decrease our consolidated net interest income.

Our future success will depend on the Bank’s and our ability to compete effectively in a highly competitive market and geographic area.

We will face substantial competition in all phases of our operations from a variety of different competitors, including commercial banks and their holding companies, savings and loan associations, mutual savings banks, credit unions, consumer finance companies, factoring companies, insurance companies and money market mutual funds. Competition for financial services in the Philadelphia-Wilmington metropolitan area, which is our principal service area, is very strong. This geographic area includes offices of many of the largest financial institutions in the nation. Most of those competing institutions have much greater financial and marketing resources than we have and, because we are relatively newly-formed entities, far greater name recognition. Due to their size, many competitors can achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing structures for those products and services. Moreover, because the Bank is smaller and less well-established, it may have to pay higher rates on its deposits or offer more free or reduced-cost services in order to attract and retain customers.

Our ability to compete will also be impacted by the ease of use of the Bank’s Internet banking website. Customers may decide not to use the Bank’s services if they feel that its website is more difficult to use than that of a competitor.

We believe that our ability to compete successfully depends on a number of factors, including:

•

our ability to build upon the customer relationships developed by our senior management;


	•	our ability to expand the Bank’s affinity banking program;


	•	competitors’ interest rates and service fees;


	•	the scope of our products and services;

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•

the relevance of our products and services to customer needs and demands and the rate at which we and our competitors introduce them;


	•	satisfaction of our customers with our customer service;


	•	ease of use of the Bank’s banking website;


	•	the capacity, reliability and security of our network infrastructure; and


	•	industry and general economic trends.

If we experience difficulty in any of these areas, our competitive position could be materially adversely affected, which will affect our consolidated growth, our profitability and, possibly, our ability to continue operations.

As a result of the high costs encountered by Internet banks in acquiring customers through traditional marketing and advertising or for other reasons, several online banking operations as well as the online banking programs of conventional banks have instituted affinity group marketing strategies similar to those of the Bank. As a consequence, the Bank has encountered competition in this area and anticipates that it will continue to do so in the future. This competition may, on a consolidated basis, increase our costs, reduce our revenues or revenue growth or, because we are a relatively new banking operation without the name recognition of other, more established banking operations, make it difficult for us to compete effectively in obtaining affinity group relationships.

Some of the financial services organizations with which we compete are not subject to the same degree of regulation as federally-insured and regulated financial institutions such as ours. As a result, those competitors may be able to access funding and provide various services more easily or at less cost than we can, adversely impacting our ability to compete effectively.

The Bank’s lending limit may adversely affect our competitiveness.

The Bank’s regulatory lending limit as of March 31, 2004 to any one customer or related group of customers was $16.7 million. At that date, it had six loans, aggregating $33 million in principal amount, that had principal balances of $3.0 million or more. The Bank’s lending limit is substantially smaller than those of most financial institutions with which we compete. While we believe that the Bank’s lending limit is sufficient for our targeted market of small to mid-size businesses, individuals and affinity group members, it may affect our ability to attract or maintain customers or to compete with other financial institutions. Moreover, to the extent that we incur losses and do not obtain additional capital for the Bank, its lending limit, which depends upon the amount of its capital, will decrease.

Environmental liability associated with lending activities could result in losses.

In the course of the Bank’s business, it may foreclose on and take title to properties securing its loans. If hazardous substances were discovered on any of these properties, both of the Bank and us may be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we knew of, or were responsible for, the contamination. In addition, if either of us arranges for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site, even if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial expenses and may materially limit use of properties the Bank acquires through foreclosure, reduce their value or limit our ability to sell them in the event of a default on the loans they secure. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

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As a financial institution whose principal medium for delivery of banking services is the Internet, we are subject to risks particular to that medium.

The Bank is an independent Internet bank, as distinguished from the Internet banking service of an established conventional bank. Independent Internet banks often have found it difficult to achieve profitability and revenue growth. Several factors contribute to the unique problems that Internet banks face. These include concerns for the security of personal information, the absence of personal relationships between bankers and customers, the absence of loyalty to a conventional hometown bank, the customer’s difficulty in understanding and assessing the substance and financial strength of an Internet bank, a lack of confidence in the likelihood of success and permanence of Internet banks and many individuals’ unwillingness to trust their personal assets to a relatively new technological medium such as the Internet. As a result, many potential customers may be unwilling to establish a relationship with the Bank.

Conventional financial institutions, in growing numbers, are offering the option of Internet banking and financial services to their existing and prospective customers. The public may perceive conventional financial institutions as being safer, more responsive, more comfortable to deal with and more accountable as providers of their banking and financial services, including their Internet banking services. We may not be able to offer Internet banking and financial services and personal relationship characteristics that have sufficient advantages over the Internet banking and financial services and other characteristics of established conventional financial institutions to enable us to compete successfully.

Moreover, both the Internet and the financial services industry are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. In addition to improving the ability to serve customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to implement effectively new technology-driven products and services or be successful in marketing these products and services to our customers.

Our operations may be interrupted if our network or computer systems, or those of our providers, fail.

Because the Bank delivers its products and services over the Internet and, through us, outsources several critical functions to third parties, our operations depend on our ability, as well as that of our service providers, to protect computer systems and network infrastructure against interruptions in service due to damage from fire, power loss, telecommunications failure, physical break-ins, computer hacking or similar catastrophic events. Our operations also depend upon our ability to replace a third-party provider if it experiences difficulties that interrupt our operations or if an operationally essential third-party service terminates. Service interruptions to customers

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may adversely affect our ability to obtain or retain customers and could result in regulatory sanctions. Moreover, if a customer were unable to access his or her account or complete a financial transaction due to a service interruption, either or both of the Bank and us could be subject to a claim by the customer for his or her loss. While the Bank’s account and other agreements contain disclaimers of liability for these kinds of losses, we cannot predict the outcome of litigation if a customer were to make a claim against either or both of us.

Security concerns may adversely affect Internet banking.

A significant barrier to on-line financial transactions is the secure transmission of confidential information over public networks. The systems we use rely on encryption and authentication technology to provide secure transmission of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms used to protect customer transaction data. If we, or another provider of financial services through the Internet, were to suffer damage from a security breach, public acceptance and use of the Internet as a medium for financial transactions could suffer. Any security breach could deter potential customers or cause existing customers to leave, thereby materially adversely affecting our ability to grow and maintain profitability and, possibly, our ability to continue delivering our products and services through the Internet. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent security breaches, these measures may not be successful.

We outsource many essential services to third-party providers who may terminate their agreements with us, resulting in interruptions to our banking operations.

We obtain essential technological and customer services support for the systems used by the Bank and us from third-party providers. We outsource the Bank’s check processing, check imaging, electronic bill payment, statement rendering, internal audit and other services to third party vendors. For a description of these services, you should read “The Bank – Business-Products and Services-Third Party Service Providers.” Our agreements with each service provider are generally cancelable without cause by either party upon specified notice periods. If one of our third-party service providers terminates its agreement with us and we are unable to replace it with another service provider, our operations may be interrupted. If an interruption were to continue for a significant period of time, our consolidated operations, revenues and profitability could be materially adversely affected.

We may be adversely affected by government regulation.

We are subject to extensive federal and state banking regulation and supervision at both the Bancorp and Bank levels. The regulations are intended primarily to protect our depositors’ funds, the federal deposit insurance funds and the safety and soundness of the Bank, not our shareholders. Regulatory requirements affect lending practices, capital structure, investment practices, dividend policy and growth. The failure of either us or the Bank to meet minimum capital requirements will result in the imposition of limitations on our operations that would adversely impact our operations and could, if capital levels drop significantly, result in our being required to cease operations. Changes in governing law, regulations or regulatory practices could impose additional costs on us or adversely affect our ability to obtain deposits or make loans and, as a consequence, our consolidated revenues and profitability.

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As a Delaware-chartered bank whose depositors and financial services customers are located in several states, the Bank may be subject to additional licensure requirements or other regulation of its activities by state regulatory authorities and laws outside of Delaware. If the Bank’s compliance with licensure requirements or other regulation becomes overly burdensome, we may seek to convert its state charter to a federal charter in order to gain the benefits of federal preemption of some of those laws and regulations. Conversion of the Bank to a federal charter will require the prior approval of the relevant federal bank regulatory authorities, which we may not be able to obtain. Moreover, even if we obtain approval, there could be a significant period of time between our application and receipt of the approval, and/or any approval we do obtain may be subject to burdensome conditions or restrictions.

Our success will depend on our ability to attract and retain key personnel.

We believe that the future success of the Bancorp and the Bank will depend upon the expertise of, and customer relationships established by, our senior executive officers, principally Betsy Z. Cohen, our chief executive officer. If Mrs. Cohen, or any of these officers, were to become unavailable for any reason, or if we are unable to hire highly qualified and experienced personnel with similar relationships to replace any senior executive officers who may leave, our business and, in the event of Mrs. Cohen’s unavailability, the Bank’s ability to attract deposits or loan customers, may be materially adversely affected. We do not have employment agreements with, nor do we have key man life insurance on, any of our executive officers, although we anticipate entering into an employment agreement with Mrs. Cohen as we discuss in “Management – Employment Agreements.”

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Forward-Looking Statements

This proxy statement/prospectus contains forward-looking statements and we intend that such forward-looking statements be subject to the safe harbor provisions of the federal securities laws. When used, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions are intended to identify forward-looking statements. Statements regarding the following subjects are forward-looking by their nature:

•

our business strategy;


	•	our understanding of our competition;


	•	market trends; and


	•	projected sources and uses of funds from operations.

Forward-looking statements we make in this proxy statement/prospectus are subject to various risks and uncertainties, including those relating to:

•

credit risks, interest rate changes and loan loss allowances;


	•	prepayments by or default rates of our borrowers;


	•	the negative impact of economic slowdowns or recessions;


	•	our use of the Internet as a medium for delivery of banking services; and


	•	the effect of the competitive pressures from other lenders or suppliers of credit in our market.

Other risks, uncertainties and factors, including those discussed in this “Risk Factors” section, could cause our actual results to differ materially from those projected in any forward-looking statements we make.

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THE SPECIAL MEETING OF THE BANK’S SHAREHOLDERS

Date, Time and Place

The special meeting of the Bank’s common shareholders will be held on ____________, ________, 2004 at ____ A.M. local time at __________________.

Purpose of the Special Meeting

The purpose of the special meeting is to consider and vote on a proposal that would reorganize the Bank, which is currently a 32.7%-owned subsidiary of ours, as our wholly-owned subsidiary. The reorganization will be accomplished through a merger of the Bank into TBI Acquisition Bank, which we are forming as our wholly-owned subsidiary.

You will also be asked to authorize the persons named in the proxy to vote in their discretion on any other matters that may be properly brought before the special meeting. Neither we nor the Bank knows of any other matters to be brought before the special meeting other than the reorganization.

Board of Directors Recommendation

The Bank’s board of directors, which is making this solicitation on behalf of the Bank, has approved and adopted the reorganization and the related merger agreement, and unanimously recommends that you vote “FOR” their approval.

Record Date; Stock Entitled to Vote; Quorum

The Bank’s board of directors has fixed the close of business on ______, 2004 as the record date for the special meeting. Only holders of Bank common stock on the record date will be entitled to vote at the special meeting and any adjournments or postponements thereof. At the record date, 10,687,500 shares of Bank common stock were outstanding and entitled to vote. These shares were held by approximately nine shareholders of record.

The presence, in person or by proxy, of a majority of the shares of Bank common stock is necessary to constitute a quorum at the special meeting. Abstentions and broker non-votes will be included in the determination of shares present at the special meeting for purposes of determining a quorum. Properly executed proxies marked “abstain” will be deemed present for purposes of determining whether a quorum has been achieved. Proxies held by brokers in “street name” that are not voted on the proposals to come before the meeting shall also be deemed “present.”

Required Vote

The affirmative vote of the holders of a majority of the shares of Bank common stock outstanding on the record date is required to approve the reorganization and related merger agreement. Each holder of Bank common stock will be entitled to one vote, in person or by proxy, for each share of common stock standing in his or her name on the books of the Bank as of the record date for the special meeting on any matter submitted to the vote of the shareholders.

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At the record date, we owned approximately 32.7% of the Bank’s common stock and our directors and executive officers owned approximately 2.9% of the Bank’s common stock. We intend to vote, and anticipate that our directors and executive officers will vote, in favor of the reorganization; however, neither we nor our directors and executive officers have entered into an agreement to this effect.

Proxies: Voting and Revocation

All shares of Bank common stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified in such proxies. Shares of Bank common stock represented by properly executed proxies that do not contain voting instructions will be voted “FOR” approval of the reorganization and related merger agreement.

If your shares are held in an account at a broker or bank, you must instruct the broker or bank on how to vote your shares. If you do not provide voting instructions to your broker or bank, your shares will not be voted on the reorganization and merger agreement. This is called a “broker non-vote.” Broker non-vote shares will be considered present at the meeting for the purposes of determining the presence of a quorum.

Because approval of the reorganization and related merger agreement requires the affirmative vote of a majority of the Bank’s outstanding common shares, abstentions, failures to vote and broker non-votes will have the same effect as votes against the reorganization.

You may revoke or change your proxy at any time prior to its being voted by filing a written instrument of revocation or change with the Bank’s corporate secretary, Martin Egan. You may also revoke your proxy by filing a duly executed proxy bearing a later date or by appearing at the special meeting in person, notifying the corporate secretary and voting by ballot. If you attend the special meeting, you may vote in person whether or not you have previously given a proxy, but your presence at the special meeting, without notifying the Bank’s corporate secretary, will not revoke a previously given proxy. In addition, if you beneficially hold shares of Bank common stock that are not registered in your own name, you will need additional documentation from the record holder of such shares to attend and vote the shares personally at the special meeting.

Solicitation of Proxies

Proxies will be solicited through the mail and directly by officers, directors and employees of the Bank not specifically employed for such purpose, without additional compensation. In addition to solicitation by mail, the Bank’s directors, officers and employees may solicit proxies by telephone, fax, and telegram, via the Internet or in person. The Bank will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding these proxy materials to their principals. Bancorp will bear the costs in connection with the reorganization, as described in the “The Reorganization — Expenses of the Reorganization.”

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THE REORGANIZATION

This section of the proxy statement/prospectus and the next section entitled “The Agreement and Plan of Merger” describe the proposed reorganization. Although both we and the Bank believe that the description in this section covers the material terms of the reorganization and the related transactions, this summary may not contain all of the information that is important to you. We urge you to carefully read the entire proxy statement/prospectus and the other documents we refer to in this proxy statement/prospectus for a more complete understanding of the reorganization.

General

If the Bank’s shareholders approve the reorganization and we and the Bank satisfy all of the other conditions set forth in the merger agreement, the Bank will be merged into TBI Acquisition Bank, with TBI Acquisition Bank as the surviving entity. On the effective date of the reorganization, each share of Bank common stock that is outstanding immediately prior to the reorganization will convert into 1.15 shares of Bancorp common stock.

Each holder of Bank common shares who would otherwise be entitled to receive a fractional share of Bancorp common stock will receive cash instead of a fractional share. We will compute the cash amount by multiplying the fractional share by an amount equal to the average closing price of the Bank’s common shares on the Nasdaq National Market during the ten trading days immediately before the effective date of the merger divided by 1.15.

After the reorganization, we will own all of the outstanding shares of common stock of the bank resulting from the merger of TBI Acquisition Bank and the Bank, which we sometimes refer to as the “resulting bank;” the former holders of the Bank’s outstanding common stock will hold 71.0% of the outstanding shares of our voting stock, while the current holders of Bancorp common stock and Series A preferred stock will own 29.0% of our voting stock. On a fully-diluted basis, that is, assuming that all of our outstanding options and warrants have been exercised and paid for, the former holders of the Bank’s common stock would own 58.2% of our common stock and our current shareholders would own 41.8%.

The resulting bank will succeed to all of the property, rights, powers, duties, obligations and liabilities of the Bank and will continue the Bank’s business under the name “The Bancorp Bank” as our wholly-owned subsidiary. The articles of association and bylaws of TBI Acquisition Bank, which will be substantially the same as those of the Bank, will govern the resulting bank. The officers and directors of the Bank will be the officers and directors of the resulting bank.

If we, at any time before consummation of the reorganization, change the number of our issued and outstanding shares of common stock as a result of a stock split, stock dividend, recapitalization or similar transaction, the exchange ratio will be proportionately adjusted.

Effective Date of the Reorganization

Subject to the terms and conditions set forth in the merger agreement, which we describe in “The Agreement and Plan of Merger,” the effective date of the reorganization will occur upon the acceptance and filing of a certificate of merger with the Delaware Secretary of State which is subject to the prior approval of the Delaware State Bank Commissioner. We will publicize the effective date of the reorganization by means of a press release which will be posted on our website.

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Background and Reasons for the Reorganization

We were formed in 1999 to act as the holding company for the Bank, which was then our wholly-owned subsidiary. From 1999 through December 31, 2003, we completed six offerings of our securities, including an issuance of trust preferred securities of a trust affiliate, that raised $35.5 million after offering costs and expenses. We contributed $30.7 million of those proceeds to the Bank’s capital, retaining the balance for working capital, principally relating to start-up costs and development of the Internet and management systems used by both the Bank and us.

During 2002 and 2003, the Bank experienced rapid growth in its total assets, total deposits and total loans. While the Bank remained “well capitalized” as defined in federal banking regulations, the Bank’s board of directors concluded that the Bank would need additional capital to sustain future growth and maintain its regulatory capital ratios. Accordingly, the Bank decided to pursue a public offering of its common stock. The Bank completed the offering in February 2004, obtaining $82.9 million of new capital, after offering expenses. Following that offering, our percentage holding of the Bank’s common stock was reduced from 100% to 32.7%. We continued to manage the Bank under a joint management services policy which we describe at “The Bancorp-Management Arrangements with the Bank.”

In April 2004, we reviewed our organizational structure with the Bank and concluded that:

•

we should elect to become a financial holding company to provide a broader platform for our future growth, and


	•	we should propose the reorganization to allow Bank shareholders to participate in the potential offered by that broader platform as well as to allow us to simplify our organizational structure with the Bank to more closely align it with industry practices.

We and the Bank observed that the proposed reorganization would also have the following collateral advantages:

•

Facilitate acquisitions. A bank holding company allows us more flexibility in structuring acquisitions of other banks. Under our current structure, we believe that potential acquisition candidates would not find acquisition by the Bancorp attractive. However, under current law, the Bank may only acquire another bank through a direct bank-to-bank merger or acquisition of assets and must operate the acquired institution as a branch. A holding company structure permits us the additional option of acquiring the institution as a separate bank and operating it independently. Moreover, the bank-to-bank acquisition can present tax or corporate disadvantages as compared to an acquisition by a holding company.


	•	Facilitate raising capital. We believe that a holding company structure will facilitate our ability to raise capital for the Bank to support its growth because:


		–	we believe that raising capital through a holding company has broad market acceptance,

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–

we believe that becoming a financial holding company will be attractive to future investors because of the broader array of activities in which we may engage as compared to a bank, and


		–	issuance of certain types of securities, particularly trust preferred securities, are more advantageous for purposes of computing regulatory capital ratios if done through a holding company.


	•	Provide liquidity. Completion of the reorganization will provide existing holders of our common stock with market liquidity while increasing the size of the public float for all post-reorganization shareholders.


	•	Reduced concentration of ownership. We are currently the single largest shareholder of the Bank, having a 32.7% interest. After completion of the reorganization, we believe that we will have no individual shareholder holding more than a 10% ownership interest in our voting securities. However, Betsy Z. Cohen, our chief executive officer, D. Gideon Cohen, our chairman, and their affiliates will own, in the aggregate, approximately 7.1% of our voting securities (excluding warrants and options to purchase additional shares of our voting securities).

Regulatory Approvals

For the reorganization to occur, we must receive approvals from the Federal Reserve, the FDIC and the Delaware State Bank Commissioner.

We will file an application with the Federal Reserve to acquire the Bank and also to become a financial holding company as permitted under the Gramm Leach Bliley Act. We will also file an application with the FDIC and the Delaware State Bank Commissioner for approval of the merger of the Bank and TBI Acquisition Bank and for approval of the formation of TBI Acquisition Bank.

We believe that we will receive the required regulatory approvals. If the Federal Reserve, the FDIC and the Delaware State Bank Commissioner approve the reorganization, such approvals reflect only their respective views that the transaction does not contravene applicable law and is consistent with regulatory concerns relating to bank management and to the safety and soundness of the Bank. The approval of the Federal Reserve, the FDIC or the Delaware State Bank Commissioner should not be interpreted as an opinion that such regulator has considered the adequacy of the terms of the reorganization or that the reorganization is favorable to you from a financial point of view and will in no way constitute an endorsement of, or recommendation for, the reorganization.

Opinion of Bank’s Financial Advisor

The Bank retained Cedar Hill Advisors, LLC by letter agreement dated June 14, 2004 to act as financial advisor as to whether the exchange ratio specified in the merger agreement is fair, from a financial point of view, to the shareholders of the Bank in connection with the reorganization and merger. As part of its engagement, Cedar Hill delivered its oral opinion to the Bank’s board of directors at its June 22, 2004 meeting that, as of June 22, 2004 and based upon and subject to various considerations set forth in the opinion, the exchange ratio was fair, from a financial point of view, to the Bank’s common shareholders. Cedar Hill confirmed its opinion in

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writing based upon the final, executed merger agreement as of July 8, 2004. No limitations were imposed by the Bank’s board of directors upon Cedar Hill with respect to investigations made or the procedures followed by Cedar Hill in rendering its opinion.

The full text of Cedar Hill’s written opinion dated July 8, 2004, which sets forth the assumptions made, matters considered and qualifications and limitations of the review undertaken, is attached as Annex B to this prospectus/proxy statement. Bank shareholders are urged to read this opinion carefully and in its entirety. Cedar Hill conducted its analysis and prepared its opinion with the understanding that the merger constitutes an internal reorganization of Bancorp, the Bank and the acquisition subsidiary, rather than a sale of the business involving bids for the Bank’s stock by third parties. Cedar Hill’s opinion is directed only to the fairness of the exchange ratio to the holders of Bank common stock from a financial point of view, has been provided to the Bank’s board of directors in connection with its evaluation of the reorganization and merger, does not address the merits of the underlying decision by the Bank to engage in the reorganization and merger, and does not constitute a recommendation to any person as to how he or she should vote. The summary of Cedar Hill’s opinion set forth below is qualified in its entirety by reference to the text of the full opinion.

Cedar Hill, as part of its financial advisory business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and valuations for corporate and other purposes.

In arriving at its opinion, Cedar Hill, among other things:

•

reviewed the merger agreement, and the schedules and exhibits attached thereto;


	•	considered the pro forma financial impact of the merger on the parties to the merger agreement based on assumptions relating to fully diluted earnings projections determined by senior management of the Bank and Bancorp;


	•	reviewed Bancorp’s consolidated audited financial statements for the years ended December 31, 2003, 2002 and 2001, the March 31, 2004 and December 31, 2003 Forms Y-9C and certain other documents as filed with the Federal Reserve;


	•	reviewed the Bank’s audited financial statements for the years ended December 31, 2003, 2002 and 2001 and the Quarterly Report on Form 10-Q dated March 31, 2004, unaudited financial statements for the period ended March 31, 2004, the March 31, 2004 and December 31, 2003 Reports of Condition and certain other documents filed with the FDIC;


	•	reviewed certain internal information relating to the Bank and Bancorp provided to Cedar Hill by management of the Bank and Bancorp, including historical financial information, limited financial forecasts and profit plans;


	•	held discussions with the Bank’s and Bancorp’s management regarding the business, operations and prospects of the Bank and Bancorp;


	•	considered the current overall market and banking environments;

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•

reviewed the historical trading prices and volumes of the Bank’s common stock;


	•	reviewed certain publicly available information concerning certain other companies engaged in businesses which Cedar Hill believes to be reasonably comparable to the Bank;


	•	performed various valuation analyses as Cedar Hill deemed appropriate using generally accepted analytical methodologies; and


	•	performed such other financial studies, analyses, inquiries, examinations and investigations, as Cedar Hill deemed appropriate.

In conducting its review and analysis and in rendering its opinion, Cedar Hill assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information reviewed by it for the purposes of providing its opinion, and upon the assurances of the Bank and Bancorp that they are not aware of any information that would make the information provided to Cedar Hill incomplete or misleading. Cedar Hill was not asked to and did not independently verify the accuracy or completeness of any such information and it did not assume any responsibility or liability for the accuracy or completeness of any of such information. Cedar Hill did not make an independent evaluation or appraisal of the assets, the collateral securing assets or the liabilities, contingent or otherwise, of the Bank, Bancorp or any of their respective subsidiaries, or the collectibility of any such assets, nor was it furnished with any such evaluations or appraisals.

With respect to financial forecasts, Cedar Hill was advised by management of the Bank and Bancorp, and it assumed, without independent investigation, that they were reasonably prepared and reflect the best currently available estimates and judgments as to the expected future financial performance of the Bank and Bancorp. It also relied, without independent verification, upon the estimates and judgments of the management of the Bank and Bancorp as to the potential advantages and synergies (including the amount, timing and achievability thereof) anticipated to result from the reorganization and merger. Cedar Hill did not consider, nor did it express any opinion with respect to, the price at which Bancorp’s common stock will trade at any time, including the date of, and following the consummation of, the reorganization and merger. Cedar Hill did not assume any responsibility for making an independent evaluation of the adequacy of the Bank’s and Bancorp’s allowances for loan losses, and Cedar Hill assumed such allowances were adequate and complied fully with applicable law, regulatory policy, sound banking practice and policies of the Commission. It did not review any loan files of the Bank, Bancorp or their respective subsidiaries.

Cedar Hill’s oral opinion dated June 22, 2004, and its written opinion dated July 8, 2004, are based upon financial, economic, market and other conditions as they existed, and the information that was made available to Cedar Hill, as of June 22, 2004, and July 8, 2004, respectively. Events occurring after any such date could materially affect the assumptions and conclusions contained in Cedar Hill’s opinion. Cedar Hill disclaimed any responsibility to update its opinion to account for subsequent events.

In performing its analyses, Cedar Hill also made numerous assumptions with respect to industry performance, business, economic and market conditions and various other matters, many of which cannot be predicted and are beyond the control of Cedar Hill, the Bank or Bancorp. The analyses performed by Cedar Hill are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.

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The forecasts and projections discussed with Cedar Hill by the management of the Bank and Bancorp were prepared by the management of the Bank and Bancorp without Cedar Hill’s assistance. The Bank and Bancorp do not publicly disclose internal management projections of the type provided to Cedar Hill in connection with the review of the reorganization and merger. Such projections were not prepared with a view towards public disclosure and at the request of the Bank and Bancorp this description of the analyses undertaken by Cedar Hill will not include specific disclosure of the internal management projections used by Cedar Hill. The public disclosure of such projections could be misleading since the projections were based on numerous variables and assumptions which are inherently uncertain, including without limitation, factors relating to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projections.

Although Cedar Hill evaluated the consideration to be paid to the Bank’s shareholders in connection with the reorganization and merger, it did not recommend the specific consideration payable in the reorganization and merger, which was determined by the Bank and Bancorp. Cedar Hill also assumed, without independent investigation, that

•

the merger will be consummated in accordance with the terms, including and not limited to the representations and warranties, set forth in the merger agreement and the schedules and exhibits thereto reviewed by Cedar Hill without any amendment thereto and without waiver by any of the parties thereto of any of the conditions to their respective obligations; and


	•	all regulatory and other approvals and third party consents required for the consummation of the reorganization and merger will be obtained without material cost to the Bank or Bancorp.

Cedar Hill also assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the reorganization and merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of the Bank, Bancorp or any of their respective subsidiaries, as the case may be, or on the contemplated benefits of the reorganization and merger, including the expected synergies. It further assumed that the reorganization and merger will qualify as a tax-free reorganization for U.S. federal income tax purposes and relied upon the advice the Bank received from its legal, accounting, and tax advisors as to all legal, accounting and tax matters relating to the merger and the transactions contemplated by the merger agreement.

The following is a summary of the material analyses presented by Cedar Hill to the Bank’s board of directors at its meeting held on June 22, 2004:

Selected Peer Group Analysis. Cedar Hill reviewed certain financial, operating and stock market performance data of ten publicly traded banks and bank holding companies headquartered in the Mid-Atlantic region of the United States, each with assets between $450 million and $750 million and a return on assets for the most recent quarter between 0.50% and 1.00%, which it refers to as the Bank Peer Companies. Cedar Hill analyzed the relative

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performance and value of the Bank by comparing certainly publicly available financial data of the Bank with that of the Bank Peer Companies, including, among other ratios, the ratios of loans to deposits, and multiples of market price to earnings per share for the quarter ended March 31, 2004 (annualized), market price to estimated earnings per share in 2004 and 2005, and market price to book value. The operating data for the Bank and the Bank Peer Companies was as of or for the quarter ended March 31, 2004 and companies included in the analysis are presented as follows. All stock prices were as of the market close on June 17, 2004.

	PSB Bancorp, Inc. Comm Bancorp, Incorporated American Bank Incorporated NSD Bancorp, Inc. Long Island Financial Corporation Franklin Financial Services Corporation Penseco Financial Services Corporation Leesport Financial Corp. Republic First Bancorp, Inc. First Chester County Corporation

	Bancorp Bank		Peer Average		Peer Median

		(dollars in thousands)

Capitalization
Total assets	$	455,375	$	569,760	$	543,271
Total deposits		321,247		429,246		413,701
Total net loans		272,520		336,272		323,181
Total shareholders’ equity		108,782		48,881		50,974

Total equity / assets		23.89%		8.60%		8.80%
Tangible equity / tangible assets		23.89%		8.36%		8.09%
Tier 1 capital / risk-adjusted assets		32.03%		13.85%		13.03%
Total capital / risk-adjusted assets		32.71%		15.00%		14.22%
Total borrowings / total assets		4.39%		14.87%		19.11%

Asset Quality
Non-performing loans / loans		0.00%		0.85%		0.45%
Loan loss reserves / non-performing loans		—		210.58%		229.48%
Loan loss reserves / loans		0.85%		1.35%		1.28%
Non-performing assets / assets		0.00%		0.56%		0.32%
Non-performing assets / equity		0.00%		6.53%		3.28%
NCOs / average loans		NA		0.26%		0.20%

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	Bancorp Bank		Peer Average		Peer Median

Loan & Deposit Composition
Total loans / total assets		60.36%		57.61%		58.79%
Total loans / deposits		85.56%		76.50%		80.99%
Transaction accounts/total deposits		25.06%		16.50%		14.26%
Total CD’s / total deposits		42.15%		34.89%		35.16%

Performance
Return on Average Assets		0.45%		0.79%		0.81%
Return on Average Equity		2.22%		9.66%		9.81%
Net Interest Margin		3.92%		3.33%		3.30%
Efficiency Ratio		87.80%		70.81%		71.40%

Market Statistics
Stock price at June 17, 2004	$	19.14	$	25.25	$	23.87
Price / LTM EPS		—		19.44x		17.4x
Price / quarterly annualized EPS		93.45x		17.21x		17.31x
Price / estimated 2004 analyst estimated EPS		59.81x		14.83x		15.00x
Price / estimated 2005 analyst estimated EPS		18.76x		12.35x		13.15x
Price / book value		188.02%		160.12%		168.78%
Price / tangible book value		188.02%		165.30%		178.05%
Market capitalization (in millions)	$	199.8	$	75.3	$	76.1
Current quarterly dividend		0.00		0.15		0.15
Dividend yield		0.00%		1.97%		2.29%

Source: SNL Financial LC

Pro Forma Financial Impact Analysis. Cedar Hill estimated the impact of the proposed merger and reorganization on the Bank’s projected fully diluted estimated earnings per share and book value per share for the first two years on a pro forma basis. Cedar Hill based its analysis on estimates provided by management of the Bank and Bancorp with respect to projected future earnings of the Bank and Bancorp. Fully diluted earnings included the impact of Bancorp’s Series A preferred stock and warrants as converted to common stock, the impact of capital provided from warrants being leveraged eight times at an after tax return on assets of 0.50% and excluded one-time transaction expenses. Based on this information, and the terms of the proposed reorganization and merger, Cedar Hill concluded that, for the Bank, the reorganization and merger could have a moderately accretive effect on estimated fully diluted book value per share and estimated fully diluted earnings per share, in the first two years on a pro forma basis.

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Discounted Dividend Analysis. Cedar Hill performed an analysis to calculate a range of implied present values per share of Bank common stock assuming the Bank continued to operate as a publicly-traded entity, and a range of implied present values per share of Bancorp common stock assuming the reorganization and merger was consummated. These ranges were determined by adding

•

the present value of the estimated future dividend stream that the Bank and Bancorp could generate over the five year period beginning March 31, 2004 and ending on March 31, 2009, and


	•	the present value of the terminal value of the Bank and Bancorp common stock on March 31, 2009.

To determine a projected dividend stream, Cedar Hill assumed a 6% capital ratio for both the Bank and Bancorp. The fully diluted earnings projections used were the same described in the Pro Forma Financial Impact Analysis.

The terminal values were based upon a range of price-to-earnings multiples of 12x to 18x earnings per share and a range of discount rates of 10% to 18%. Applying the foregoing multiples, discount rates and assumptions, Cedar Hill determined that the fully diluted implied value per share of Bank common stock ranged from approximately $13.61 to $22.71, and the fully diluted implied value per share of Bancorp common stock (adjusted for the 1.15 exchange ratio and assuming consummation of the reorganization and merger) ranged from approximately $13.59 to $22.03, each based on the assumptions outline herein.

In arriving at its opinion, Cedar Hill performed a variety of financial analyses, the material portions of which are summarized above. The summary set forth above does not purport to be a complete description of the analyses performed by Cedar Hill or of Cedar Hill’s presentation to the Bank’s board of directors. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Cedar Hill did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Cedar Hill believes that its analyses must be considered as a whole and that selecting portions of such analyses and the factors considered by it, without considering all such analyses and factors, could create an incomplete view of the process underlying its analyses set forth in this opinion.

Pursuant to a letter agreement dated June 14, 2004 between Cedar Hill and the Bank, Cedar Hill agreed to act as financial advisor to the Bank in connection with the reorganization and merger. The Bank paid Cedar Hill a $20,000 retainer upon execution of the letter agreement, and $30,000 upon delivery of its fairness opinion dated July 8, 2004. The Bank has agreed to reimburse Cedar Hill for its reasonable out-of-pocket expenses, including travel, outside legal fees and related charges, and to indemnify Cedar Hill and related persons against certain liabilities, from and arising out of or based upon Cedar Hill’s engagement as financial advisor by the Bank and the rendering of its opinion.

Conclusion. Based on the whole of Cedar Hill’s various analyses, and taking into consideration the various factors which Cedar Hill believes are relevant to the circumstances surrounding the proposed transaction and subject to the limitations and qualifications enumerated above and in its written opinion letter, Cedar Hill delivered its written opinion dated July 8, 2004 to the board of directors of the Bank that the exchange ratio, as of the date of the opinion letter, is fair, from a financial point of view, to the Bank shareholders.

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United States Federal Income Tax Aspects

It is a condition to completion of the reorganization that Ledgewood Law Firm, P.C. deliver its opinion, for federal income tax purposes, under current law, assuming that Bank shareholders approve the reorganization and related merger agreement and that the transactions take place as described in the merger agreement, among other things, that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, and, in that case, the following would be the material federal income tax consequences of the reorganization:

•

No gain or loss will be recognized by the Bank or Bancorp in the reorganization.


	•	No gain or loss will be recognized by the shareholders of the Bank upon their receipt of Bancorp common stock in exchange for Bank common stock, except that shareholders who receive cash in lieu of fractional share interests in Bancorp common stock will recognize gain or loss equal to the difference between the amount of such cash and the basis allocated to such fractional share interests. Any such gain or loss will generally constitute capital gain or loss, provided the shareholder holds the Bank common stock as a capital asset on the effective date of the reorganization.


	•	The basis of Bancorp common stock, including fractional share interests, to be received by the shareholders of the Bank will be the same as the basis of the Bank common stock surrendered in exchange therefor.


	•	The holding period of Bancorp common stock to be received by a shareholder of the Bank will include the holding period of the Bank common stock exchanged therefor, provided the Bank common stock is held as a capital asset by the shareholder on the effective date of the reorganization.

The exchange of Bank common stock for cash pursuant to the exercise of dissenters’ rights of appraisal will be a taxable transaction. We urge persons who elect to exercise dissenters’ rights to consult with their own tax advisors as to the tax treatment in their particular circumstances.

THE DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE REORGANIZATION. FURTHER, THE DISCUSSION MAY NOT BE ENTIRELY APPLICABLE TO SHAREHOLDERS WHO RECEIVED THEIR BANK COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL REVENUE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING MAY CHANGE AND ANY CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. WE URGE EACH BANK SHAREHOLDER TO CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.

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Accounting Treatment of the Reorganization

We will account for the reorganization under the purchase method. Due to the common control and our ownership interest in the Bank, the minority interest will be converted at historical cost. We will include the Bank’s results of operations in our results of operations after the completion of the reorganization.

Quotation on the Nasdaq National Market

The merger agreement requires us, as a condition to consummation of the merger, to have our common stock approved for trading on the Nasdaq National Market, subject to official notice of issuance. We have applied to the Nasdaq National Market for such approval.

Resale of Bancorp Common Stock

The Bancorp common stock to be issued in the reorganization will be registered under the Securities Act. These shares will be freely transferable under the Securities Act, except for shares issued to any person who is an affiliate of the Bank or us. Persons who are affiliates include individuals or entities that control, are controlled by, or are under common control with either the Bank or us. The Bank’s affiliates may not sell their Bancorp common stock acquired in the reorganization, except pursuant to:

•

an effective registration statement under the Securities Act covering the resale of those shares;


	•	an exemption under Rule 145 under the Securities Act, or Rule 144 under the Securities Act, if these persons are or become our affiliates; or


	•	any other applicable exemption under the Securities Act.

As required by the merger agreement, the Bank will obtain a written agreement from each of its affiliates providing that he or she will not sell, pledge, transfer or otherwise dispose of any Bancorp common stock he or she receives in the reorganization except in accordance with the foregoing restrictions.

Delisting and Deregistration of Bank Common Stock

If we complete the reorganization, Bank common stock will no longer be approved for trading on the Nasdaq National Market and will cease to be registered under the Securities Exchange Act of 1934.

Expenses of the Reorganization

The expenses of the reorganization, estimated to be approximately $500,000, will be borne by the Bancorp. No commissions of any kind and no remuneration to directors, other than customary fees for attending meetings, will be paid as a result of the reorganization.

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Dissenters’ Rights of Appraisal

Under Delaware law, the owner of shares of a Delaware state bank who votes his or her shares against a merger that, like the proposed reorganization, would result in a Delaware state bank, has the right to receive the value of those shares in cash if and when the merger becomes effective. To exercise this right, the dissenting holder must make written demand to the resulting bank within 30 days after the effective date of the merger. We will publicize the effective date of the reorganization by means of a press release which will be posted on our website. The written demand must be accompanied by the surrender of the dissenter’s stock certificates.

The value of the dissenting shares will be determined by an appraisal process. The valuation date is as of the date of the shareholders’ meeting approving the merger. The appraisal will be made by three appraisers, one selected by the owners of two-thirds of the dissenting shares, one by the board of directors of the resulting bank and one by the other two appraisers. The valuation agreed upon by any two of the appraisers will be the appraised value of the dissenting shares. The statue provides that, if the appraisal is not completed within 90 days after the effective date of the merger, the Delaware State Bank Commissioner shall cause an appraisal to be made.

The resulting bank may also fix an amount which it considers to be not more than the value of its shares which it will pay dissenting shareholders for their shares. Dissenting shareholders may accept that offer or seek appraisal, as described above.

The expenses of the appraisal must be paid by the resulting bank.

In the event a Bank shareholder votes for approval of the reorganization and the related merger agreement, or delivers a proxy that does not specify a vote against or an abstention from voting on the reorganization and merger agreement, the shareholder will have waived dissenters’ rights and will have nullified any written demand the shareholder has submitted. Failure to vote or submit a proxy specifying a vote against or abstention from voting on the reorganization and merger agreement does not waive a shareholder’s rights.

In general, a dissenting shareholder who receives cash for the shareholder’s common shares in the Bank will recognize taxable gain or loss for federal income tax purposes.

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THE AGREEMENT AND PLAN OF MERGER

This section summarizes the material provisions of the merger agreement, a copy of which is attached as Exhibit A to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by this reference. The following description is not a complete description of all the terms of the merger agreement. We urge you to read to the full text of the merger agreement for details of the merger.

The Merger

The merger agreement provides that, upon the closing, the Bank will be merged with and into TBI Acquisition Bank, our wholly-owned subsidiary, which is being formed solely for that purpose. The reorganization will become effective once all regulatory approvals have been received, other conditions to the reorganization have been satisfied and a certificate of merger has been accepted and filed with the Delaware Secretary of State after approval by the Delaware State Bank Commissioner.

The Exchange and Treatment of Securities

At the effective time:

•

except for shares of Bank common stock held in the treasury of the Bank or that are owned by the Bank or Bancorp, each share of Bank common stock outstanding immediately before the effective time will cease to be outstanding and will be converted into 1.15 shares of the Bancorp’s common stock;


	•	each option to purchase a share of Bank common stock outstanding immediately before the effective time will be converted into an option to purchase 1.15 shares of the Bancorp’s common stock;


	•	shares of Bank common stock held in the treasury of the Bank or that are owned by the Bank or Bancorp will be canceled and no Bancorp common stock or other consideration will be delivered in exchange for this cancellation; and


	•	cash will be paid to shareholders in lieu of any fractional share interest they hold in an amount calculated by multiplying the fractional share interest by an amount equal to the average closing price of the Bank’s common shares on the Nasdaq National Market during the ten trading days immediately before the effective date of the merger divided by 1.15.

Exchange of Certificates

As soon as reasonably practicable after the effective time, American Stock Transfer & Trust Corporation, as exchange agent, will mail to each holder of record of the Bank common stock a letter of transmittal containing instructions for the surrender of certificates representing Bank common stock in exchange for certificates representing Bancorp common stock.

HOLDERS OF BANK COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.

Neither we, the Bank nor the exchange agent will be liable to any holder of a certificate formerly representing shares of Bank common stock for any unpaid dividends and distributions properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

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Transfer of Shares

The stock transfer books of the Bank will be closed immediately after the reorganization and no transfers of shares of Bank common stock will be made or recorded after the effective time.

Conditions to the Consummation of the Merger; Regulatory Approvals

The following must occur prior to consummation of the merger:

	•	TBI Acquisition Bank shall have been duly organized and existing as a commercial bank under the laws of the State of Delaware;

	•	the approval of the merger agreement by shareholders of the Bank and by us as the sole shareholder of TBI Acquisition Bank;


	•	the receipt of all required consents and approvals of third parties including, but not limited to, the approval of the Federal Reserve, the FDIC and the Delaware State Bank Commissioner;


	•	the registration statement of which this proxy statement/prospectus is a part having been declared effective by the Commission, without a Commission stop order suspending its effectiveness having been issued or any proceeding for that purpose initiated or threatened;


	•	approval of our common stock for trading on the Nasdaq National Market, subject to official notice of issuance;


	•	receipt by the Bank of an opinion from its financial advisor that the exchange ratio specified in the merger agreement is fair, from a financial point of view, to the Bank’s shareholders; and


	•	our receipt of the opinion of Ledgewood Law Firm, P.C. that the merger constitutes a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

Termination

The merger agreement may be terminated at any time upon the mutual written consent of the Bank, TBI Acquisition Bank and us.

Waiver, Amendment and Modification

At any time prior to the filing of the merger agreement with the Delaware State Bank Commissioner, any of the terms or conditions of the merger agreement may be waived, modified or amended by the Bank, TBI Acquisition Bank and us by action taken by or on behalf of the respective boards of directors (or organizer in the case of TBI Acquisition Bank) at any time before or after any shareholder approvals; provided, however, that after the shareholders of the Bank and TBI Acquisition Bank have approved the merger agreement, an amendment shall not alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or in conversion of all or any of the shares of any class of the Bank or TBI Acquisition Bank, alter or change any term of the articles of organization of TBI Acquisition Bank or alter or change any of the terms or conditions of the merger agreement if such alteration or change would adversely affect the holders of any stock of the Bank or TBI Acquisition Bank.

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Affiliate Agreements

The Bank has agreed to use reasonable commercial efforts to cause each person who may be deemed an affiliate of the Bank to execute an affiliate agreement, under which the affiliate will agree not to sell, transfer or otherwise dispose of Bancorp common stock except pursuant to:

•

an effective registration statement under the Securities Act covering the resale of those shares;

•

an exemption under Rule 145 or Rule 144 under the Securities Act; or

•

any other applicable exemption under the Securities Act.

In accordance with the affiliate agreement, we will be entitled to place legends evidencing the foregoing restrictions on certificates for Bancorp common stock held by affiliates.

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THE BANCORP

General

We were incorporated in July 1999 to act as the holding company for the Bank. Until completion of the Bank’s common stock offering in February, 2004, we were the sole shareholder of the Bank. Following completion of that offering, and as of the date of this proxy statement/prospectus, we held 32.7% of the Bank’s common stock.

We provide employees, facilities, equipment and management and other services to the Bank pursuant to a joint management service policy with the Bank which we describe in “The Bancorp – Management Services Arrangements with the Bank.” Providing these services is our sole business. Because we may be deemed to control the Bank, we consolidate the financial statements of the Bank with ours, showing the interest of the Bank’s shareholders as a minority interest. We describe the business of the Bank in “The Bancorp Bank – Business.”

In addition to providing employees, facilities, equipment and management and other services to the Bank, we were until the Bank’s public offering the principal source of capital for the Bank. We raised a total of $35.5 million through six offerings of our securities, including common stock, warrants, Series A preferred stock and an issuance of trust preferred securities of The Bancorp Capital Trust I supported by a junior subordinated indenture between us and The Bancorp Capital Trust. We contributed $30.7 million of the proceeds of those offerings to the Bank’s capital.

Properties

We are the lessor of seven premises, all of which are principally used by the Bank. The banking and operations facilities we provide to the Bank occupy 20,236 square feet in Wilmington, Delaware under a lease expiring in 2010. The rent is currently $35,220 per month and escalates yearly based upon scheduled increases in base rent and actual increases in taxes and premises operating costs over specified base rates. The Bank provided a letter of credit, $95,000 in outstanding principal amount as of March 31, 2004, as security under the lease. The letter of credit reduces $65,000 per year. We also hold a lease on 14,839 square feet of space in Philadelphia, Pennsylvania expiring in 2010. The rent is currently $29,060 per month and escalates yearly based upon scheduled increases in base rent and actual increases in taxes and premises operating costs over specified base rates. The Bank provided a letter of credit, $455,742 in outstanding principal amount as of March 31, 2004, as security under the lease which reduces $80,000 per year. We subleased portions of our Philadelphia space to affiliated entities, as described in “Management – Certain Transactions.” We use the Philadelphia space for the Bank’s executive offices. We pay aggregate rent of $6,729 per month for the Bank’s two Philadelphia-area loan production offices, and an aggregate of $5,044 per month for the Bank’s Maryland and Alabama automobile leasing offices. We also pay rent of $603 per month for a customer service space, principally an ATM and computer interfaces. We believe these facilities are adequate for our current needs as well as those of the Bank and for the reasonably foreseeable future.

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Management Arrangements with the Bank

We currently have, and will continue to have, extensive management and other relationships with the Bank. In particular, many of the agreements and arrangements with third party providers which are essential to the Bank’s operations, including those regarding office space, computer hardware and software and third-party services, are between the providers and us. See “The Bank – Other Operations” and “– Technology.” The Bank operates under these agreements and uses the facilities and services to which they relate by arrangement with us. In addition, our employees serve as employees of the Bank. We have established a joint management services policy with the Bank under which the Bank is entitled to all of the benefits (subject to all of the burdens) of the agreements and arrangements we have made and reimburses us for its allocable share of their costs. In addition, the Bank is responsible for an allocable portion of the compensation of employees we share based upon our joint estimate of the relative amount of time spent by the employees on our business and that of the Bank. We also provide a number of services to the Bank, including arranging for and maintaining computer services and insurance coverage, arranging for and coordinating marketing and advertising, providing internal audit and loan review services (primarily review of loan quality and loan documentation, supervision of the loan watch list and workouts in problem loans), coordinating and supervising regulatory compliance and arranging for and maintaining third-party contractual relationships. Pursuant to the joint management services policy, the Bank also pays us a fee of 20% of the costs reimbursed by the Bank to us, as permitted under applicable banking regulations. The current monthly fee (exclusive of cost reimbursements) the Bank pays us is approximately $40,000.

Employees

As of March 31, 2004, we had 90 employees, all of whom were also employed by the Bank. Thirty-one of our employees are executives, supervisors or operational personnel, 13 provide Internet, technology, development and computer services, 29 are employed in lending and leasing, seven market our products and services, three operate our cash management function and seven operate our call center.

Legal Proceedings

As of the date of this proxy statement/prospectus, there were no material legal proceedings pending or, to our knowledge, threatened against either the Bank or us.

Market and Dividend Information

There has been no public market for our common stock. We have applied to list our common stock for quotation on the Nasdaq National Market upon completion of the reorganization under the symbol “TBBK.” The Bank, whose symbol is currently “TBBK,” will transfer its interest in the symbol to us upon completion of the reorganization. As of July 1, 2004, there were approximately 130 holders of record of our common stock.

We have not paid cash dividends on our common stock since our inception, and do not plan to pay cash dividends on our common stock for the foreseeable future. We intend to retain earnings, if any, to fund the development and growth of our operations. Our board of directors will determine any changes in our dividend policy based upon its analysis of factors it deems relevant. We expect that these factors will include our earnings, financial condition, cash requirements and available investment opportunities.

Our payment of dividends is subject to restrictions which we discuss in “Regulation Under Banking Law.” Our payment of dividends is also subject to limitations imposed by our Series A preferred stock and trust preferred securities which we describe in “Risk Factors – The holders of Bancorp’s trust preferred securities have rights senior to those of Bancorp’s common shareholders” and “ – The holders of Bancorp’s Series A preferred stock have rights senior to those of Bancorp’s common shareholders.”

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Because we consolidate our financial statements with those of the Bank, our financial statements principally reflect those of the Bank, with the exception of the material items discussed below. Accordingly, for a discussion of changes and trends related to our financial condition and results of operations and quantitative and qualitative disclosures about market risk, you should read the discussion and analysis of the financial condition and results of operations of the Bank in “The Bank – Management’s Discussion Analysis of Financial Condition and Results of Operations.” The following discussion, and the discussion of the Bank’s financial condition and results of operations and quantitative and qualitative disclosures about market risk, should also be read together with our financial statements, the financial statements of the Bank and the accompanying notes.

In June 2002, we issued a $5.25 million, 10.5% fixed rate subordinated debenture to The Bancorp Capital Trust I, a Delaware statutory trust, which is our wholly-owned subsidiary. The debenture related to the issuance of a like amount of 10.5% trust preferred securities by The Bancorp Capital Trust. We may redeem the trust preferred securities on or after June 12, 2007, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier 1 capital is no longer permitted, or certain other contingencies arise. We must redeem the trust preferred securities upon maturity of the debenture in 2032. We used the net proceeds of the trust preferred securities to make a capital contribution to the Bank. The interest expense associated with the preferred securities was $138,000 for each of the quarters ended March 31, 2004 and March 31, 2003, $551,000 for fiscal 2003 and $305,000 for fiscal 2002.

Our non-interest expense included $188,000 in salary and employee benefits for fiscal 2003 for compensation paid to a former executive. In fiscal 2002, we recorded $691,000 for a litigation claim that was settled during the year. This claim arose at the time of our organization in 1999 and was continually evaluated by management over the succeeding years based upon information available. In 2002, we recorded an expense in the amount we estimated we paid to settle this claim. We subsequently settled the claim for the amount of the recorded expense.

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MANAGEMENT OF THE BANCORP

Executive Officers and Directors

The following table sets forth our executive officers and directors and their ages as of June 30, 2004:

Name	Age	Position


Betsy Z. Cohen	62	Chief Executive Officer and Director
Frank M. Mastrangelo	36	President, Chief Operating Officer and Director
Martin Egan	36	Senior Vice President, Chief Financial Officer and Secretary
D. Gideon Cohen	35	Chairman of the Board of Directors; Chairman of the Executive Committee
Arthur M. Birenbaum	46	Executive Vice President
Scott R. Megargee	51	Executive Vice President and Chief Lending Officer
Donald F. McGraw, Jr.	46	Senior Vice President and Chief Credit Officer
Walter T. Beach	37	Director
Matthew Cohn	33	Director
Linda Schaeffer	40	Director
William H. Lamb	64	Director
James J. McEntee III	46	Director
Joan Specter	69	Director
Steven Stein	48	Director
Yong Xian Xu	45	Director

Betsy Z. Cohen has been chief executive officer of both us and the Bank since September 2000 and chairman of the Bank since November 2003. She has been the chairman and chief executive officer of RAIT Investment Trust, a real estate investment trust, since its formation in 1997. From 1981 until its acquisition by Hudson United Bancorp in November 1999, she was chairman and chief executive officer of JeffBanks, Inc. and, from 1974, Jefferson Bank and, from 1988, Jefferson Bank of New Jersey, JeffBanks’ subsidiary banks. Following the acquisition of JeffBanks, she served as a director and member of the executive committee of the board of directors of Hudson United until July 2000, and as chairman of the Jefferson Bank Division of Hudson United Bank until March 2000. Mrs. Cohen is a director of Aetna Inc., an insurance holding company, and The Maine Merchant Bank LLC, and is a trustee of Corporate Office Properties Trust, a real estate investment trust. Mrs. Cohen is the mother of D. Gideon Cohen.

Frank M. Mastrangelo has been the president, chief operating officer and a director of both us and the Bank since 1999. From 1995 through 1999 he was a senior vice president and the chief technology officer for Jefferson Bank. From 1993 to 1995, he was an assistant vice president and systems specialist with PNC Bank, Family Wealth Management Division. From 1993 to 1994, he was a technical representative for ROI Computer Services, Inc. and, from 1988 to 1993, a systems manager for The Annenberg Foundation.

Martin Egan has been senior vice president and chief financial officer of both us and the Bank since 1999. From 1994 through 1999, he was controller of Jefferson Bank of New Jersey and, from 1997, vice president and controller of Jefferson Bank. From 1992 to 1994, he was a senior accountant at Hitech Communications, Inc., a telecommunications company.

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D. Gideon Cohen has been the chairman of our board of directors and chairman of the executive committee of our board of directors since our inception. From our inception to September 2000 he served as our chief executive officer. Mr. Cohen is vice chairman of the Bank’s board of directors and chairman of its executive committee. He had previously been chairman of the Bank’s board of directors from September 2000 to November 2003 and, from July 2000 to September 2000, had been the Bank’s chief executive officer. Mr. Cohen has been the chief executive officer of Cohen Brothers Financial, LLC and its subsidiary, Cohen Bros. & Company, an investment banking and securities brokerage firm, since September 2001. From 1995 until September 2000, Mr. Cohen held senior executive positions with Resource America, Inc., a publicly-held proprietary asset management company in the energy, real estate and financial services sectors, and was its president and chief operating officer from 1998. Mr. Cohen is also a director and chairman of the board of TRM Corporation, a publicly-held provider of public access ATM and copier machines. Mr. Cohen is the son of Betsy Z. Cohen.

Arthur M. Birenbaum has been executive vice president-commercial loans and before that, senior vice president-commercial loans of both us and the Bank since January 2001. From 1993 through December 2000, Mr. Birenbaum was at Jefferson Bank, ending as its senior vice president-Philadelphia business banking lending group, and serving as co-chairman of its government lending task force, coordinator of asset-based lending and member of its loan production oversight committee. From 1987 through 1993 he was a vice president of commercial lending for Meridian Bank and the Bank of Old York Road, and from 1980 through 1987 he was employed at Westinghouse Credit Corporation, General Electric Capital Corporation, Suburban Bank and First National Bank of Maryland in the Washington, D.C. metropolitan region.

Scott R. Megargee has been executive vice president and chief lending officer of both us and the Bank since March 2000. Previously, he had been an officer with JeffBanks and Jefferson Bank since 1989, and was their executive vice president – retail lending from 1995 to March 2000. He also served as a director of Jefferson Mortgage, Inc., a mortgage lending subsidiary of JeffBanks.

Donald F. McGraw, Jr. has been senior vice president and chief credit officer of both us and the Bank since 1999. From 1986 through 1998, he was a senior vice president – credit administration for Jefferson Bank. From 1977 to 1986, he was a bank examiner at the FDIC.

Walter T. Beach has been a director of both us and the Bank since 1999. Mr. Beach has been a managing director of Beach Investment Counsel, Inc., an investment management firm, since 1997. From 1993 to 1997, Mr. Beach was a Senior Analyst and Director of Research at Widmann, Siff and Co., Inc., an investment management firm, where he was, beginning in 1994, responsible for the firm’s investment decisions for its principal equity product. From 1992 to 1993, he was an associate and financial analyst at Essex Financial Group, a consulting and merchant banking firm. From 1991 to 1992 he was an analyst at Industry Analysis Group, an industry and economic consulting firm.

Matthew Cohn has been a director of both us and the Bank since 1999. Mr. Cohn is the founder, in 1994, and president of the ASI Show!, a producer of trade shows in Chicago, Las Vegas, Orlando and Dallas. In addition, since 1992, Mr. Cohn has been the president of the Medical Data Institute, a medical data base publisher, and the president and founder of ASI Transact, a company providing order management and e-commerce exchange systems for the advertising specialty industry. Mr. Cohn serves on the board of the Society of Independent Show Organizers and the Client Advisory Board for the Chicago Convention and Visitors Bureau.

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Linda Schaeffer has been a director since 1999. Ms. Schaeffer has been president of the general partner of SLS Associates, a real estate investment and management partnership, and a certified public accountant in private practice since 1997. From 1990 to 1997 she was the President of JMLS Enterprises, Inc., d/b/a Computertots, a company specializing in computer education.

William H. Lamb has been a director of both us and the Bank since January 2004. Mr. Lamb has been a senior partner in Lamb, Windle & McErlane, P.C., a law firm, since January 2004 and from January 1971 to January 2003. From January 2003 through January 2004, Mr. Lamb served as a Justice of the Pennsylvania Supreme Court. Mr. Lamb served as a director and corporate secretary of JeffBanks, Inc. and Jefferson Bank until their acquisition by Hudson United Bank in November 1999.

James J. McEntee III , has been a director of both us and the Bank since September 2000. Mr. McEntee has been the chief operating officer of Cohen Bros. & Company, an investment banking and securities brokerage firm, since March 2003. Mr. McEntee was a principal in Harron Capital, L.P., a media and communications venture capital fund, from 1999 to September 2002. From 1990 through 1999, Mr. McEntee was a shareholder at Lamb, Windle & McErlane, P.C., and from 2000 until 2004 was of counsel to Lamb, Windle & McErlane. Mr. McEntee is a director of Pegasus Communications Corporation, a publicly held provider of communications and other services, and of several other private companies.

Joan Specter has been a director of both us and the Bank since 1999. Ms. Specter is a member of the boards of directors of numerous businesses, educational and charitable organizations, including Ridgeway Philips Company, a provider of home healthcare, Chestnut Hill College, University of the Arts, Medical College of Pennsylvania, the Reading Terminal, operator of the Reading Terminal Market, the Philadelphia Cultural Fund and the Greater Philadelphia Urban Affairs Coalition. From 1980 through 1996, she was city councilwoman at-large for the City of Philadelphia.

Steven Stein has been a director of both us and the Bank since September 2000. Mr. Stein has been a principal of Financial Stocks, Inc., an investment management firm which specializes in investments in mid-size financial institutions, since 1995.

Yong Xian Xu has been a director of both us and the Bank since September 2002. Ms. Yong has been the chairman of Sun Inter-Technology Corporation, a business and international law consulting firm, since 1999. From 1990 through 1997, Ms. Yong was a managing director of Pepper International Associates, the international consulting affiliate of Pepper, Hamilton & Scheetz, a Philadelphia law firm. From 1995 to 1997, she was also the chairman of Shandong Dermik Pharmaceutical Co., Ltd., a subsidiary of Rhone-Poulenc Rohrer. Previously, Ms. Yong had been a lawyer with Pepper, Hamilton & Scheetz and other firms, a consultant to China Programs at General Electric Trading Company, New York, and a Chinese government licensed lawyer and founding member of the Legal Department of the China Machinery and Equipment Import & Export Corp., a firm owned by the Ministry of Machinery and Electronic Industries of China. Ms. Yong is a director of Heckett Multiserv Zhejiang, Ltd. (a Harco Company).

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Executive Compensation

The following table sets forth information concerning the compensation paid by us in fiscal 2003, 2002 and 2001 to our chief executive officer and each executive officer whose salary and bonus exceeded $100,000.

Summary Compensation Table

	Annual compensation ⁽¹⁾		Long term compensation awards
Name and principal position	Year	Salary($)	Bonus($)	Restricted stock award(s)	Securities underlying options(#)	All other compensation ($)

Betsy Z. Cohen ⁽²⁾	2003	—	—	—	—	—
Chief executive officer	2002	—	—	—	—	—
	2001	150,000	—	—	—	—

Frank M. Mastrangelo	2003	161,249	7,500	—	25,000	4,154
President and chief	2002	150,000	—	—	—	7,200
operating officer	2001	150,000	—	—	—	7,200

D. Gideon Cohen ⁽³⁾	2003	—	—	—	—	—
Chairman and	2002	—	—	—	—	—
chairman of the	2001	150,000	—	—	—	—
executive committee

Scott R. Megargee	2003	158,653	22,500	—	2,500	4,154
Executive Vice	2002	150,000	—	—	—	7,200
President and Chief	2001	150,000	—	—	—	7,200
Lending Officer

Arthur M. Birenbaum	2003	138,742	58,646	—	20,000	3,462
Executive Vice	2002	129,182	44,074	—	—	6,000
President-Commercial	2001	110,577	25,000	—	10,000	5,308
Loans

(1)	Total compensation includes compensation from the Bank.

(2)	Mrs. Cohen became chief executive officer in September 2000.

(3)	Mr. Cohen was our chief executive officer from our inception to September 2000.

Option Grants in Last Fiscal Year

The following table sets forth the number of options granted during fiscal 2003 to our chief executive officer and each named executive officer.

	Individual Grants				Grant Date Value
	Number of securities underlying options granted (#)	Percentage of total options granted to employees in fiscal year	Exercise price ($/sh)	Expiration date	Grant date present value($)

Betsy Z. Cohen	—	—	—	—	—
D. Gideon Cohen	—	—	—	—	—
Frank M. Mastrangelo	25,000	35.7%	11.00	9/18/2013	93,000
Scott R. Megargee	2,500	3.6%	11.00	9/18/2013	9,300
Arthur M. Birenbaum	—	—	—	—	—

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

	Common shares acquired on exercise(#)	Value realized($)	Number of securities underlying unexercised options at fiscal year end(#) Exercisable/unexercisable	Value of unexercised in-the-money options at fiscal year end($)(1) Exercisable/unexercisable

Betsy Z. Cohen	—	—	125,000/25,000	$	125,000/25,000
D. Gideon Cohen	—	—	90,000/0		90,000/0
Frank M. Mastrangelo	—	—	37,500/25,000		37,500/0
Scott R. Megargee	—	—	18,750/8,750		18,750/6,250
Arthur M. Birenbaum	—	—	7,500/22,500		7,500/22,500

(1)	Value of unexercised in-the-money options is calculated by subtracting the total exercise price ($10.00 per share) from the fair market value of the securities underlying the options as of March 31, 2004 ($11.00 per share).

Benefit Plans

We have two benefit plans: our 1999 Stock Option Plan and our 2001 Employee and Non-Employee Director Non-Cash Compensation Plan.

The 1999 Stock Option Plan, as amended in June 2003, permits the grant of options to our employees, directors or affiliates for up to 1,000,000 shares of common stock, except that no more than 75,000 shares may be issued to our non-employee directors. Options for 525,750 shares, each at an exercise price of $10.00 per share, had been granted as of March 31, 2004. The 1999 Stock Option Plan has the following principal terms:

•

The option exercise price may not be less than fair market value on the date of grant.


	•	Incentive options granted to persons owning more than 10% of the total combined voting power of all classes of our stock or of an affiliate as of the date of grant must have an exercise price of at least 110% of fair market value as of the date of grant.


	•	The term of option grants is set at the time of grant, except that incentive options can be for no longer than 10 years (five years for persons who own more than 10% of the total combined voting power of all classes of our stock or of an affiliate as of the date of grant).


	•	Option grants may provide for earlier termination following a grantee’s termination of service, except where the termination is by reason of retirement, permanent disability or death.

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•

Adjustments to the number of shares covered by the 1999 plan, or any grant under the 1999 plan, will be made upon a stock dividend, stock split or other recapitalization.


	•	Upon a merger, or sale of all or substantially all of our assets, our board of directors may take one or more of the following actions:


		•	provide that outstanding options will be assumed by the acquiror,


		•	terminate the options after notice and a period of time in which grantees may exercise their options, or


		•	in the event of a business combination, provide for cash settlement of the options at the difference between the exercise price and the value of the consideration paid in the combination.

The 1999 Stock Option Plan has a ten year term and may be amended or terminated by the board of directors at any time, but no action of the board of directors, unless approved by the shareholders, may increase the maximum number of shares of common stock which may be issued under the plan, change the class of individual eligible to participate in the plan or materially increase the benefits that may be provided under the plan.

We adopted the 2001 Employee and Non-Employee Director Non-Cash Compensation Plan in May 2001 to permit the grant of up to 50,000 shares of our Series A preferred stock to employees, directors and service providers. We had not made any grants of shares of Series A preferred stock under the plan as of March 31, 2004.

Grants are made by the board of directors upon such terms, conditions and restrictions as the board may deem appropriate. Grants may be made for consideration or for no consideration. If a grantee ceases to be employed by, or provide service to, us, the grant terminates as to all shares as to which restrictions, if any, imposed by the board have not lapsed, subject to the board’s right to provide complete or partial exemption to the grantee.

Before a “public offering,” any shares received from a grant are subject to our right of first refusal. This right provides that a holder desiring to sell his or her grant shares may do so only pursuant to a bona fide written offer, and that the holder must first offer the shares to us on the same terms as are set forth in the written offer for a period of 60 days following notice to us. We may assign some or all of our rights to our stockholders. The holder may sell any shares not repurchased for a period of 15 days following termination of the right of first refusal period. The plan deems a “public offering” to have occurred when our common stock or Series A preferred stock becomes registered under Section 12 of the Securities Exchange Act.

If we undergo a “change in control,” the restrictions and limitations on all grants outstanding under the plan terminate. After a change in control where we are not the surviving corporation, unless the Board deems otherwise, all grants are assumed by the surviving corporation. In general, the plan deems a “change in control” to have occurred when:

•

a person acquires more than 50% of the voting power of our outstanding securities (subject to certain exceptions);

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•

we merge or consolidate with another corporation where our stockholders, immediately before the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote);


	•	we sell or otherwise dispose of all or substantially all of our assets; or


	•	we liquidate or dissolve.

The 2001 Employee and Non-Employee Director Non-Cash Compensation Plan has a ten year term and may be extended or terminated by the board of directors at any time, with the approval of the shareholders. The board of directors may amend the plan at any time, but the board of directors may not amend the plan without shareholder approval is such approval is required by law.

We also maintain a health care, dental care, 401k, life insurance, short term and long term disability plans.

Director Compensation

Non-employee directors receive a retainer of $500 per month. During 2003, our directors also served as directors of the Bank, for which they were not separately compensated.

After completion of the Bank’s offering in February 2004, the Bank began to separately compensate its non-employee directors. Each receives an annual retainer of $10,000 and receives $1,000 for each meeting of the board of directors he or she attends. Each non- employee director also receives $500 for each meeting of a committee of the board of directors he or she attends; the chairman of the audit committee receives $1,500 for each committee meeting attended, while the chairmen of the other committees receives $1,000 for each committee meeting attended. Non-employee directors of the Bank also serving on our board of directors are not separately compensated by us.

The Bank pays one-half of the compensation of its non-employee directors in shares of its common stock. For these purposes, the Bank values its common stock at the closing price on the Nasdaq National Market (or on such securities exchange or interdealer quotation system as the Bank’s common stock is listed) on the first trading day in which its common stock was traded immediately preceding the meeting. If the Bank’s common stock is not traded on the Nasdaq National Market, a securities exchange or another interdealer quotation system, then the common stock will be valued at the average of the bid and ask prices in over-the-counter market in which the Bank’s common stock principally trades on the first trading day on which its common stock was traded immediately preceding the meeting date. If the Bank’s common stock is not quoted, then it will be valued at fair market value as determined by the Bank’s chief executive officer. Shares received by non-employee directors are not restricted.

Following completion of the reorganization, we will commence paying director’s fees of all joint non-employee directors which will be at the rate paid by the Bank. We will continue the Bank’s practice of paying one-half of those fees in shares of common stock. Joint directors will not be separately compensated for service on the Bank’s board of directors following the reorganization. Non-employee directors serving only on the Bank’s board of directors will continue to be paid by the Bank at the current rate, except that they will receive shares of our common stock instead of Bank common stock.

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Employment Agreements

We do not have employment agreements with any of our employees. However, we anticipate that we will enter into an employment agreement with Betsy Z. Cohen, effective upon consummation of the reorganization, under which she will serve as our chief executive officer and the chairman and chief executive officer of the Bank. This agreement will be in lieu of a previously contemplated employment agreement between Mrs. Cohen and the Bank. The agreement will require Mrs. Cohen to devote as much of her business time to us as is necessary to the fulfillment of her duties, although it permits her to have outside business interests. Under the agreement, Mrs. Cohen will receive compensation as determined by the compensation committee of our board of directors. For a discussion of Mrs. Cohen’s compensation, see “Management – Discussion of Executive Compensation.” Mrs. Cohen also will be eligible to receive stock option grants in amounts to be determined by the compensation committee and to participate in all employee benefit plans in effect during her period of employment.

The agreement will have a term of five years and, until notice to the contrary, the term will be automatically extended so that, on any day on which the agreement is in effect, it will have a then-current five year term. The agreement will be sooner terminated in the event of Mrs. Cohen’s disability extending for more than 240 days, death or retirement. Mrs. Cohen also will have the right to terminate the agreement upon a change in control or potential change in control and for cause. Otherwise, Mrs. Cohen will be able to terminate the agreement upon 180 days’ notice. The agreement will not provide for severance payments upon termination.

The agreement will require us to establish a SERP for Mrs. Cohen’s benefit. We expect that the SERP will provide for payments to Mrs. Cohen upon retirement after she has reached a defined retirement age (which we expect will be age 70) a monthly retirement benefit equal to 8.3% of her average compensation. We expect that the SERP will define average compensation to be the average of salary plus bonus that Mrs. Cohen receives in the three most highly compensated years during the previous nine years of employment before retirement. In any year that Mrs. Cohen has received salary and bonus of less than $150,000, the SERP will impute to her compensation of $150,000 for purposes of determining average compensation. We expect to fund the SERP in equal annual payments of $98,000 over eight years starting in 2004.

Information Concerning the Board of Directors and Certain Committees

Our board of directors held a total of eight meetings during fiscal 2003. No director attended less than 75% of all the meetings of the board.

We have four standing committees: the Compensation Committee (consisting of Mr. Beach, as chairman, Ms. Yong and Mr. Lamb); the Executive Committee (consisting of Mrs. Cohen and Messrs. Cohen and Mastrangelo); the Audit Committee (consisting of Ms. Yong, as chairman, and Messrs. Beach and Cohn; Mr. Beach has been designated as the committee’s financial expert); and the Nominating and Governance Committee (consisting of Mr. Lamb, as chairman, Ms. Specter and Mr. Cohn).

The Audit Committee assists the Board of Directors in monitoring the integrity of our financial statements, our compliance with legal and regulatory matters, the qualifications and independence of our independent auditors, and the performance of our internal audit function and our independent auditors. The Audit Committee has adopted a written charter. We believe that all of the members of our audit committee are independent directors within the meaning of NASD Rules 4350(d)(2)(A) and 4200(a)(15).

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The Compensation Committee establishes and monitors compensation levels for our officers and administers our option plan.

The Executive Committee has the delegated authority to act in lieu of our board of directors in between meetings of the board.

The Nominating and Governance Committee will recommend persons for nomination as directors and will monitor and make recommendations concerning our corporate practices. It will consider nominees recommended by stockholders for the 2005 annual meeting of stockholders if submitted in writing to our corporate secretary in accordance with SEC rules. The Nominating and Governance Committee has adopted a written charter.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is an employee, or former employee, of ours. None of our executive officers is a director or executive officer of any entity, other than the Bank, of which any member of the Compensation Committee is a director or executive officer.

Discussion of Executive Compensation

We and the Bank seek to offer competitive compensation to attract, motivate, retain and reward executive officers. We do this principally through base salaries and, to a significantly lesser extent, bonuses. We determine base salaries with a view to prevailing compensation trends in the industry for similarly situated persons and banking institutions. We use cash bonuses to provide incentives to executive officers and others in relation to specific projects or strategic goals, or with respect to additional responsibilities assumed. Our compensation decisions are discretionary and are based upon subjective factors. We do not use a mathematical or similar objective formula to determine any compensation package. In order to encourage decision-making that maximizes long-term shareholder value, we have adopted a stock option plan to provide long-term equity-based incentives.

During 2002, we and the Bank entered into discussions with our chief executive officer, Mrs. Cohen, concerning her compensation. In 2003, we and the Bank agreed in principle with Mrs. Cohen that, in lieu of salary for 2002 and 2003, we would establish a SERP for her benefit and, for purposes of computing her average compensation and the amounts to be contributed by us to the SERP, impute to her a salary of $150,000 for each year in which her total cash compensation is less than $150,000. For a more complete description of the SERP, see “Management – Employment Agreements.” Following the Bank’s public offering in 2004, the Compensation Committee determined to award Mrs. Cohen an annual salary of $150,000 for 2004, and made the award retroactive to January 1, 2004. Any future cash compensation awarded will be in the discretion of the board of directors or its compensation committee and will be based on its evaluation of Mrs. Cohen’s performance and our performance, particularly with respect to the growth of our assets, deposits, loans, net income and net income per share.

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Certain Transactions

The Bank maintains deposits for various affiliated companies totaling approximately $38.6 million and $34.7 million as of March 31, 2004 and December 31, 2003, respectively. The majority of these deposits are short-term in nature.

The Bank has made, and expects that it will continue to make, loans in the ordinary course of business to its and our respective directors, executive officers, principal stockholders and their affiliates. At December 31, 2003, $3.1 million in principal amount of these loans were outstanding, while at March 31, 2004 $1.9 million in principal amount of these loans were outstanding. At December 31, 2003 and March 31, 2004, all of these loans were current and, we believe, did not involve more than normal risk of collectabilty. The Bank’s policy is that loans to our respective affiliates must be on the same terms as those prevailing for comparable transactions with other borrowers. We believe that all of these loans comply with that policy.

In fiscal 2002 and 2003, the Bank purchased an aggregate of $2.0 million of collateralized debt obligations of Trapeza Funding CDO I LLC through Cohen Bros. & Company, to which it paid commissions of $40,000. Trapeza CDO I is managed by a limited liability company controlled by Steven Stein, a director of both the Bank and us, and in which persons nominated by Resource America, Inc. serve as managers. In September 2003, Resource America’s nominees were Jonathan Z. Cohen, a son of Betsy Z. Cohen, our chairman and chief executive officer and chief executive officer of the Bank, and D. Gideon Cohen, our chairman and the Bank’s vice chairman. In September 2003, Edward E. Cohen, then the chairman and chief executive officer (and currently a director) of Resource America, who is also the father of Messrs. J. Cohen and D. Cohen and spouse of Mrs. Cohen, assumed Mr. D. Cohen’s position as a manager. Entities affiliated with Mr. Stein and Resource America receive annual fees directly or indirectly from Trapeza CDO I. Also, Resource America, persons affiliated with it and persons affiliated with Messrs. Stein and Cohen were reimbursed by Trapeza CDO I and affiliated entities approximately $1.0 million for expenses incurred in connection with the formation and structuring of Trapeza CDO I. During 2003 the Bank sold its position in Trapeza CDO I. It did not realize any gain or loss on the sale.

In October 2003, the Bank purchased an aggregate of $3.0 million of collateralized debt obligations of Alesco Preferred Funding I, Ltd. through Cohen Bros. & Company, to which it paid commissions of $41,000. Alesco Funding I is managed by a limited liability company which is an affiliate of Mr. D. Cohen, and pays management fees to such company.

In fiscal 2003 and during the three months ended March 31, 2004, the Bank had paid Cohen Bros. & Company $429,000 and $10,000, respectively for securities brokerage services. We also sublease space to Cohen Bros. & Company for $6,761 a month and provide information systems support services and telephone services to it for a fee of $1,000 per month for technical services and $3,600 a month for telephone system support services. Mr. Cohen, our chairman and the Bank’s vice chairman, is the chief executive officer and principal owner of Cohen Bros. Financial, LLC, which owns 100% of Cohen Bros. & Company, of which Mr. Cohen is also chief executive officer.

In 2001, the Bank purchased a total of $2.7 million in loans from Resource America. The outstanding balance of these loans was $2.0 million at each of March 31, 2004 and December 31, 2003. Mrs. Cohen is the spouse of a director and former chief executive officer of Resource America and the mother of its current president and chief executive officer. D. Gideon Cohen, our chairman, the Bank’s vice chairman and a son of Mrs. Cohen, is a former officer and director of Resource America.

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We entered into a sublease and technical support agreement with RAIT Investment Trust commencing in October 2000. Under the sublease, RAIT pays us rent equal to 45% of the rent we pay, which is proportionate to the amount of space it leases from us, and an allocation of common area expenses. Under the technical support agreement, which commenced in January 2001, we also provide information system support services and telephone services to RAIT for a fee of $5,000 a month. Betsy Z. Cohen, our chief executive officer, is the chairman and chief executive officer of RAIT.

The Bank entered into an agreement with TRM ATM Corporation in September 2000 under which TRM installs, operates and services automated teller machines at various locations selected by the Bank. The Bank pays TRM a monthly rental fee of $195 for each machine. The Bank retains all fees and charges derived from the transactions conducted at the automated teller machine except for one automated teller machine situated with one of its affinity groups in which the Bank shares such fees and charges. The Bank currently leases seven machines under its agreement with TRM. TRM is a wholly-owned subsidiary of TRM Corporation. D. Gideon Cohen is the chairman of TRM Corporation. Edward E. Cohen, his father and spouse of our chief executive officer, Betsy Z. Cohen, is a director of TRM Corporation.

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The Bancorp

We have two classes of voting securities, common stock and Series A preferred stock which vote together as a single class on all matters except for those matters pertaining only to the specific class. The following table sets forth the number and percentage of shares of common stock and Series A preferred stock owned as of March 31, 2004 by each of our directors and executive officers, all of our directors and executive officers as a group and other persons who beneficially own more than 5% of our outstanding voting securities. This information is reported in accordance with the beneficial ownership rules of the Securities and Exchange Commission under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days. Shares issuable pursuant to options or warrants are deemed to be outstanding for purposes of computing the percentage of the person or group holding such options or warrants but are not deemed to be outstanding for purposes of computing the percentage of any other person.

Beneficial owner	Shares of common stock ⁽¹⁾			Percent of class		Shares of Series A preferred stock			Percent of class		Common stock, assuming full conversion of Series A preferred stock and exercise of options and/or warrants ⁽²⁾		Percent of class

Directors
Walter T. Beach		92,714	⁽³⁾		3.96%		33,324	⁽⁴⁾		3.07%		126,038		3.68%
Betsy Z. Cohen		828,004	⁽⁵⁾		29.79%		213,931	⁽⁶⁾		19.74%		1,041,935		26.97%
D. Gideon Cohen		120,001	⁽⁷⁾		4.99		17,322			1.60%		137,323		3.94%
Matthew Cohn		3,125	⁽⁸⁾		*		1,154			*		4,279		*
William H. Lamb		93,286	⁽⁹⁾		4.01%		23,837	⁽¹⁰⁾		2.20%		117,123		3.44%
James J. McEntee III		3,856	⁽¹¹⁾		—		2,226			*		6,082		*
Frank M. Mastrangelo		47,500	⁽¹²⁾		2.04%		2,886	⁽¹³⁾		*		50,386		1.48%
Linda Schaeffer		18,839	⁽¹⁴⁾		*		4,454			*		23,293		*
Joan Specter		1,125	⁽¹⁵⁾		*		—			—		1,125		*
Steven Stein		357,348	⁽¹⁶⁾		14.72%		82,998	⁽¹⁷⁾		7.66%		440,346		12.54%
Yong Xian Xu		26,000	⁽¹⁸⁾		1.14%		3,464			*		29,464		*

Executive Officers
Arthur Birenbaum		6,000	⁽¹⁹⁾		*		576			*		6,576		*
Martin Egan		18,625	⁽²⁰⁾		*		576			*		19,201		*
Donald F. McGraw, Jr		16,200	⁽²¹⁾		*		1,558			*		17,758		*
Scott R. Megargee		23,750	⁽²²⁾		1.03%		2,886			*		26,636		*
All executive officers and directors as a group (15 persons)		1,656,373			50.72%		391,192			36.10%		2,047,565		47.06%

Other owners of 5% or more of outstanding shares
Financial Stocks, Inc		357,348	⁽¹⁶⁾		14.72%		82,998	⁽¹⁷⁾		7.66%		440,346		12.54%
Financial Stocks Private Equity Fund 1998, L.P.		306,331	⁽²³⁾		12.74%		69,289			6.39%		375,620		10.77%
Harron Capital BBC Investment LP		319,789	⁽²⁴⁾		13.23%		77,060			7.11%		396,849		11.33%
Resource America, Inc		500,428	⁽²⁵⁾		20.00%		125,833	⁽²⁶⁾		11.61%		626,261		17.46%
Raymond Moyer		232,730	⁽²⁷⁾		9.52%		87,044			8.03%		319,774		9.06%

*	Less than 1%

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(1)	Common stock owned directly or indirectly by the named person, including shares receivable upon exercise of warrants or options which are vested or will vest within 60 days of March 31, 2004.

(2)	Includes shares receivable upon conversion of Series A preferred stock and upon exercise of warrants or options held by such person which are vested or will vest within 60 days of March 31, 2004.

(3)	Includes 25,000 shares owned directly and 50,000 shares issuable upon the exercise of warrants. Also, includes 10,000 shares held by, and 7,714 shares issuable upon the exercise of warrants held by, the Beach Foundation.

(4)	Includes 28,870 shares of Series A preferred stock held directly and 4,454 shares of Series A preferred stock held by the Beach Foundation.

(5)

Includes: (a) options to purchase 125,000 shares of common stock, and (b) 114,004 shares issuable upon the exercise of warrants. Also includes: (a) 100,000 shares owned by a Supplemental Employee Retirement Plan trust (the “RAI SERP”) of which Mrs. Cohen’s spouse is a beneficiary; (b) 77,142 shares issuable upon the exercise of warrants held by the RAI SERP; (c) 182,500 shares owned by Resource America, of which Mrs. Cohen’s spouse is chairman; (d) 140,786 shares issuable upon the exercise of warrants held by Resource America; (e) 50,000 shares owned by The Maine Merchant Bank of which she is a director; and (f) 38,572 shares issuable upon the exercise of warrants held by The Maine Merchant Bank. Mrs. Cohen disclaims beneficial ownership of the shares owned by the RAI SERP, Resource America and The Maine Merchant Bank.

(6)

Includes: (a) 65,827 shares of Series A preferred stock owned directly, (b) 44,542 shares of Series A preferred stock owned by the RAI SERP, (c) 81,291 shares of Series A preferred stock owned by Resource America, and (d) 22,271 shares of Series A preferred stock owned by The Maine Merchant Bank. Mrs. Cohen disclaims beneficial ownership of the shares owned by the trust, Resource America and The Maine Merchant Bank.

(7)	Includes: (a) 1 common share held directly, (b) options to purchase 90,000 shares, and (c) 30,000 shares issuable upon the exercise of warrants.

(8)	Includes 2,000 shares issuable upon the exercise of warrants and options to purchase 1,125 shares.

(9)

Includes: (a) 45,000 shares held directly, (b) 36,286 shares issuable upon the exercise of warrants, (c) 7,000 shares held in trust for the benefit of members of Mr. Lamb’s immediate family, and (d) 5,000 shares issuable upon the exercise of warrants held in trust for the benefit of Mr. Lamb’s immediate family.

(10)	Includes 20,951 shares of Series A preferred stock held directly and 2,886 shares of Series A preferred stock held in trust for the benefit of Mr. Lamb’s immediate family.

(11)	Consists entirely of 3,856 shares issuable upon the exercise of warrants.

(12)	Includes: (a) 5,000 shares held directly, (b) 5,000 shares issuable upon the exercise of warrants held in trust for the benefit of Mr. Mastrangelo, and (c) options to purchase 37,500 shares.

(13)	Consists of 2,886 shares of Series A preferred stock held in trust for the benefit of Mr. Mastrangelo.

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(14)	Includes: (a) 10,000 shares held directly, (b) 7,714 shares issuable upon the exercise of warrants, and (c) options to purchase 1,125 shares.

(15)	Consists entirely of options to purchase 1,125 shares.

(16)

Includes 186,331 shares held by Financial Stocks Private Equity Fund 1998, L.P. and 27,275 shares held by Financial Stocks, Inc. Also includes 120,000 shares issuable upon the exercise of warrants held by Financial Stocks Private Equity Fund and 23,742 shares issuable upon the exercise of warrants held by Financial Stocks, Inc. Mr. Stein is a principal of Financial Stocks, Inc. and an affiliate of Financial Stocks Private Equity Fund. Financial Stocks, Inc. is the general partner of Financial Stocks Private Equity Fund.

(17)	Includes 69,289 shares of Series A preferred stock owned by Financial Stocks Private Equity Fund and 13,709 shares of Series A preferred stock owned by Financial Stocks, Inc.

(18)	Includes 20,000 shares held directly and 6,000 shares issuable upon the exercise of warrants.

(19)	Includes 1,000 shares issuable upon the exercise of warrants and options to purchase 5,000 shares.

(20)	Includes: (a) 2,000 shares held directly, (b) 1,000 shares issuable upon the exercise of warrants, and (c) options to purchase 15,625 shares.

(21)	Includes: (a) 3,500 shares held directly, (b) 2,700 shares issuable upon the exercise of warrants, and (c) options to purchase 10,000 shares.

(22)	Includes 5,000 shares issuable upon the exercise of warrants and options to purchase 18,750 shares.

(23)	Includes 186,331 shares held directly and 120,000 shares issuable upon the exercise of warrants.

(24)	Includes 186,331 shares held directly and 133,458 shares issuable upon the exercise of warrants.

(25)	Includes: (a) 100,000 shares owned by the RAI SERP, (b) 77,142 shares issuable upon the exercise of warrants held by the RAI SERP; (c) 182,500 shares owned by Resource America, (d) 140,786 shares issuable upon the exercise of warrants held by Resource America.

(26)	Includes 44,542 shares of Series A preferred stock owned by the RAI SERP and 81,291 shares of Series A preferred stock owned by Resource America.

(27)	Includes 72,730 shares held directly and 160,000 shares issuable upon the exercise of warrants.

The Bank

The Bank’s common stock is its only class of voting securities outstanding. The following table sets forth the number and percentage of shares of common stock of the Bank owned as of March 31, 2004 by each of its directors and executive officers, all of its directors and executive officers as a group and other persons who beneficially own more than 5% of its outstanding voting securities. This information is reported in accordance with the beneficial ownership rules of the Securities and Exchange Commission under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days.

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Beneficial owner	Shares of common stock ⁽¹⁾			Percent of class

Directors
Walter T. Beach		50,000	⁽²⁾		*
Betsy Z. Cohen		120,000			1.12%
D. Gideon Cohen		80,000			*
Matthew Cohn		2,000			*
Leon A. Huff		3,800			*
William H. Lamb		2,400			*
Frank M. Mastrangelo		2,750	⁽³⁾		*
James J. McEntee III		2,400			*
Joan Specter		—			—
Steven Stein		25,000			*
Yong Xian Xu		900			*

Executive Officers
Arthur Birenbaum		2,000			*
Martin Egan		2,000	⁽⁴⁾		*
Donald F. McGraw, Jr.		8,250			*
Scott R. Megargee		4,200			*
All executive officers and directors as a group (15 persons)		305,700			2.86%

Other owners of 5% or more of outstanding shares
The Bancorp, Inc		3,500,000			32.7%

*	Less than 1%

(1)	As of March 31, 2004, none of the 457,500 options granted to the individuals listed above pursuant to the Bank’s stock option plan were vested or would vest within 60 days.

(2)	Includes 50,000 shares held by the Grantor Retained Annuity Trust, of which Mr. Beach is a beneficiary.

(3)	Includes 250 shares held by Mr. Mastrangelo’s wife’s IRA. Mr. Mastrangelo disclaims beneficial ownership of these shares.

(4)	Includes 500 shares held by Mr. Egan’s wife’s IRA. Mr. Egan disclaims beneficial ownership of these shares.

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Adjusted Security Ownership of Bancorp By Management and Certain Beneficial Owners

The following table sets forth the number and percentage of shares of our common stock that will be owned by each of our directors and executive officers, all of our directors and executive officers as a group and other persons who beneficially own more than 5% of our outstanding voting securities assuming that:

•

all shares of the Bank beneficially owned by such persons are exchanged for 1.15 shares of our commons stock,


	•	all shares of our Series A preferred stock is converted to common stock, and


	•	all beneficially held stock options and warrants are exercised.

This information is reported in accordance with the beneficial ownership rules of the Securities and Exchange Commission under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days.

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Beneficial owner	Common stock assuming full exchange and conversion ⁽¹⁾		Percent of class

Directors
Walter T. Beach		183,538		1.57	%
Betsy Z. Cohen		1,179,935		9.73	%
D. Gideon Cohen		229,323		1.95	%
Matthew Cohn		6,579		*
William H. Lamb		133,826		1.15	%
James J. McEntee III		8,842		*
Frank M. Mastrangelo		53,549		*
Linda Schaeffer		23,293		*
Joan Specter		1,125		*
Steven Stein		469,096		3.98	%
Yong Xian Xu		30,499		*

Executive Officers
Arthur Birenbaum		8,876		*
Martin Egan		56,001		*
Donald F. McGraw, Jr		27,246		*
Scott R. Megargee		31,466		*
All executive officers and directors as a group (15 persons)		2,443,193		19.36	%

Other owners of 5% or more of outstanding shares
Resource America, Inc		626,261		5.28	%

*	Less than 1%

(1)	Excludes 455,000 options granted to the individuals listed above pursuant to the Bank’s stock option plan, none of which are vested or will vest within 60 days.

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THE BANK

General

The Bank is a Delaware chartered, federally insured, commercial bank which was formed in 1999 and commenced operations in July 2000. The Bank’s target market is the greater Philadelphia-Wilmington metropolitan area. To serve its customers, the Bank provides a full range of retail and commercial banking services, including a variety of checking, savings and other interest-bearing accounts. It features accounts with no required minimum balance, no service fees, rebates on ATM fees, free debit MasterCard, overdraft protection plans and, on its interest-bearing accounts, competitive interest rates. The Bank’s business lending services focus on secured loans and lines of credit, construction loans and customized equipment and vehicle leasing programs. Its consumer lending services focus on home equity loans, personal and home equity lines of credit, personal installment loans and vehicle leasing.

The Bank has a continuing program of providing banking services to the members and employees of organizations or businesses, which it calls affinity group banking. It provides these services through a private label website under the affinity group’s name and offers an affinity group the ability to customize these services to respond to the needs and preferences of the affinity group’s members.

As part of the Bank’s affinity group programs, it has developed a system for processing credit and debit card transactions for independent sales organizations and their merchant members that is a source of fee income for it and, because the merchant members must maintain reserve and operating accounts with it, a source of low-cost deposits. By using the Bank’s services rather than those of other banks, independent service organizations remove potential competitors from the relationship between the independent service organization and its merchant customers, since the Bank does not offer any products comparable to those of the independent service organization. The Bank’s infrastructure allows it to process high volume transactions that permit merchant customers to access credit card associations and debit networks at a significantly lower cost than if the merchants accessed them directly. The Bank offers end-to-end services, which means that it believes it has the ability to fulfill all of its customers’ needs with respect to merchant card services and funds transfers. The Bank markets its services through a variety of sales channels that includes affinity groups, independent sales organizations and financial institutions.

The Bank’s customers access its banking services through its website, or the website of their affinity group, from any personal computer with a web browser, and obtain cash withdrawals from automated teller machines. As a result, the Bank does not maintain a branch bank system. The Bank’s web address is www.thebancorp.com. The Bank’s offices are located at 405 Silverside Road, Wilmington, Delaware 19809 and the telephone number is (302) 385-5000. The Bank also maintains executive offices at 1818 Market Street, Philadelphia, Pennsylvania 19103.

The Bank’s Strategy

The Bank’s principal growth strategies are to:

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Build upon the network of relationships developed by its senior management. The Bank seeks to build upon its senior managers’ network of relationships through a division called The Philadelphia Private Bank. This division offers banking services specifically targeted to individuals and businesses in the Philadelphia, Pennsylvania, region with which the Bank’s senior management has developed relationships. Philadelphia Private Bank seeks to offer these customers products and services that meet their banking and financing needs, and to provide them with the attention of senior management which the Bank believes is often lacking at larger financial institutions. Philadelphia Private Bank offers a staff of people experienced in dealing with, and solving, the banking and financing needs of small to mid-size businesses. The website for the Philadelphia Private Bank is www.philadelphiaprivatebank.com.

Develop relationships with affinity groups to gain sponsored access to their membership, client or customer bases to market the Bank’s banking products and services. The Bank seeks to develop relationships with organizations with established membership, client or customer bases. Through these relationships, it gains access to the affinity groups’ members, clients and customers through their pre-existing relationships with the groups, and under the groups’ sponsorship. The Bank seeks to build on these relationships by offering online banking under the name of and through the facilities of the affinity group, as described in “The Bank – Business – The Affinity Group Relationship,” referred to as “privately-labeled” banking. The Bank believes that by marketing targeted products and services to constituencies through their pre-existing relationships with affinity groups, it will lower its customer acquisition costs and build close customer relationships.

Develop Relationships with Small to Mid-Size Businesses and Their Principals. The Bank targets small to mid-size businesses and their principals. It believes that satisfactory attention to this market requires a combination of the ability to provide a high level of services, including customized financing to meet a customer’s needs, and the personal attention of senior management. Because of the significant consolidation of banking institutions in the Philadelphia-Wilmington area, the Bank believes that many of the financial institutions with which it competes may have become too large to provide those services efficiently and cost-effectively.

Use the Bank’s Existing Infrastructure as a Platform for Growth. We and the Bank have made significant investments in our banking infrastructure in order to be able to support the Bank’s growth. We both believe that this infrastructure can accommodate significant additional growth without substantial additional expenditure. The Bank also believes that this infrastructure enables it to maximize efficiencies through economies of scale as it grows without adversely affecting its relationships with its customers.

Products and Services

Deposit Products and Services. The Bank offers its depositors a wide range of products and services, including:

•

Checking accounts, featuring no required minimum balance, no service fees, competitive interest rates, rebates on automated teller machine fees, free debit MasterCard and overdraft protection plans. Premium checking accounts have free online bill paying, an enhanced debit MasterCard or an automated teller machine card.


	•	Savings accounts.


	•	Medical savings accounts.

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•

Money market accounts.


	•	Individual retirement accounts, including Roth and education IRAs as well as traditional IRAs.


	•	Commercial accounts, including general commercial checking, small business checking, business savings and business money market accounts.


	•	Certificates of deposit.


	•	Stored value and payroll cards.

Lending Activities. For the Bank’s business customers seeking financing, it offers:

•

Secured loans and lines of credit where collateral may include:


		•	commercial real estate, including multi-family dwellings;
		•	residential real estate; and
		•	deposit accounts, certificates of deposit, or marketable securities.


	•	Unsecured loans and lines of credit, subject to the personal guaranty of the customer’s principals.


	•	Lines of credit that provide automatic overdraft protection.


	•	Construction loans for both residential and commercial projects.


	•	Customized commercial vehicle and equipment leasing programs.

For the Bank’s individual customers seeking financing, it offers:

•

Home equity loans and home equity lines of credit.


	•	Personal lines of credit.


	•	Personal installment loans.


	•	Vehicle leasing.


	•	Residential mortgage loans to selected customers.

Other Operations

Account Activity. Account holders may access the Bank’s products and services through the websites of their affinity groups, or through the Bank’s website, from any personal computer with a secure web browser, regardless of its location. This access allows account holders to apply for loans, review account activity, enter transactions into an on-line account register, pay bills electronically, receive statements by mail and print bank statement reports. To open a new account, a customer must complete a simple on-line enrollment form. Customers can make deposits into an open account via direct deposit programs, by transferring funds between existing accounts, by wire transfer, by mail, at any deposit-taking automated teller machine, at any of the more than 3,400 offices of Mail Boxes Etc. throughout the United States, or in person at the Bank’s Delaware offices (although the Bank does not maintain a teller line and does not currently intend to establish a physical branch system). Customers may also make withdrawals and have access to their accounts at automated teller machines.

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Call Center. The Bank has a call center as a customer support service as well as for outbound telemarketing efforts. The call center provides account holders or potential account holders with assistance in opening accounts, applying for loans or otherwise accessing the Bank’s products and services, and in resolving any problems that may arise in the servicing of accounts, loans or other banking products. The call center operates from 8:00 a.m. to 8:00 p.m., Delaware time, on weekdays. Outside these hours, and on weekends, the Bank outsources call center operations to a third-party service provider. The Bank currently employs seven persons in its call center, including one supervisor.

Third-Party Service Providers. To reduce operating costs and to capitalize on the technical capabilities of selected vendors, we arrange for the outsourcing of specific Bank operations and systems to third-party service providers, principally the following:

•

fulfillment functions and similar operating services, including check processing, check imaging, electronic bill payment and statement rendering,


	•	issuance and servicing of debit cards,


	•	compliance and internal audit,


	•	access to automated teller machine networks,


	•	processing and temporarily funding residential mortgage loans where the Bank will not hold the loans in its portfolio,


	•	bank accounting and general ledger system, and


	•	data warehousing services.

Because we outsource these operational functions to experienced third-party service providers that have the capacity to process a high volume of transactions, we believe it allows the Bank to more readily and cost-effectively respond to growth than if we sought to develop these capabilities internally. Should any of our current relationships terminate, we believe we could secure the required services from an alternative source without material interruption of their operations. See, however, “Risk Factors – Risks Relating to the Business and Operations of the Bank and Bancorp – We outsource many essential services to third-party providers who may terminate their agreements with us, resulting in interruptions to our banking operations.”

The Affinity Group Relationship

The Bank seeks to create a unique banking website for each affinity group, enabling the affinity group to provide its members with the full banking services and products the Bank offers or just those banking services and products it believes will be of interest to its members. The Bank designs each website to carry the brand of the affinity group and carry the “look and feel” of the affinity group’s own website. Each such website, however, indicates that the Bank provides all banking services. To facilitate the creation of these individualized banking websites, the Bank has packaged its products and services into a series of modules, with each module providing a specific service, such as basic banking, electronic payment systems and loan and mortgage centers. Each affinity group selects from the Bank’s menu of service modules those services that it wants to offer its members or customers. The Bank and the affinity group also may create products and services, or modify products and services already on the Bank’s menu, that specifically relate to the needs and interests of the affinity group’s members or customers. The Bank pays fees to the affinity group based upon deposits and loans it generates through its program with the affinity group.

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As a result of the Bank’s initial investment in developing private-label banking software, the Bank has reduced the time, personnel and expense in establishing a privately-labeled banking website providing core banking products and services to an affinity group to approximately two weeks of dedicated time of one of its technical staff members, at a cost to us of approximately $9,000.

The Bank currently has 46 affinity group relationships, as follows:

•

Thirty affinity group relationships are with independent service organizations. These organizations provide operating and settlement accounts to their merchant members, enabling the merchants to service their client base from the point at which a credit or debit card transaction occurs through settlement of that transaction. For independent service organizations, the Bank has created banking products that enable those organizations to more easily process electronic payments and maintain reserve accounts as protection against chargebacks and losses from the parties with which they deal. The Bank’s services also enable independent service organizations to provide their members with access to their account balances through the Internet. By using the Bank’s services rather than those of other banks, independent service organizations remove potential competitors from the relationship between the independent service organization and its merchant customers, since the Bank does not offer any products comparable to those of the independent service organization. In addition to the fees generated by these relationships (which the Bank shares with the independent service organizations), these relationships are a source of low-cost deposits for the Bank because of the settlement and reserve checking accounts that merchants affiliated with the independent service organization must maintain with the Bank.


	•	Fourteen affinity group relationships are with businesses and a fifteenth relationship is with a university. The Bank offers these organizations, and other institutions with which it may develop relationships, privately-labeled full service retail banking or, at the organization’s option, a selection of banking services and products targeted to the needs or preferences of its members. In addition, the Bank separately markets a treasury program to these organizations, particularly university endowment funds, that provides transaction processing and maintenance services to managers of the organization.


	•	One affinity group relationship is with an employer providing its employees medical savings accounts. The Bank’s medical savings account program provides qualified entities a turnkey, low-cost way an employer may provide this benefit to its employees. Under this program, the Bank opens all of the accounts offered by an employer in a privately-labeled banking environment, and enables its employees to access account information and process payments to health care providers through the Internet.

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Sales and Marketing

Philadelphia Private Bank. The Bank’s marketing program for the Philadelphia Private Bank targets a customer base of successful individuals and business owners in the Philadelphia area and uses a personal contact/targeted media advertising approach. This program consists of:

•

direct e-mail and letter introductions of the Philadelphia Private Bank to senior management’s contacts;


	•	invitation-only, private receptions with prominent business leaders in the Philadelphia community;


	•	advertisements in local media outlets, principally newspapers and radio stations; and


	•	charitable sponsorships.

Affinity Group Marketing. The Bank pursues affinity group relationships through the contacts of its senior management. The Bank seeks to attract customers from an affinity group’s community not only by its presence on the affinity group’s website and through targeted marketing programs to the affinity group’s members, but also through the quality of its products and services.

Loan Production Offices. The Bank maintains two loan production offices in the Philadelphia metropolitan area. The Bank established these offices to serve suburban areas south (the Bank’s Exton, Pennsylvania office) and north (the Bank’s Willow Grove, Pennsylvania office) of center city Philadelphia. In addition, the Bank maintains two offices to market and administer its automobile leasing programs, one in Maryland and, in connection with a portfolio of automobile leases the Bank acquired in 2003, one in Alabama.

Marketing Staff. The Bank has a marketing department, currently consisting of seven persons, that focuses on developing marketing campaigns to particular affinity group communities and the targeted audience of the Philadelphia Private Bank

Technology

Core and Internet Banking Systems. We obtain a significant portion of the Bank’s core and Internet banking systems and operations under non-exclusive licenses between us and Metavante (previously M&I Data Services). These systems include, principally, those for general ledger, deposit and loan processing, Internet banking and processing checks and other items. The Bank has usage rights under these licenses pursuant to their terms and the Bank’s arrangements with us. See “Business – Management Arrangements with the Bancorp.”

Software. The Bank’s proprietary data assets also support its online and traditional banking products and services. The Bank has developed a series of financial services modules that are easy to deploy and that the Bank can readily adopt to serve its customers’ needs. The Bank developed these modules using an open architecture and object-oriented technologies. The Bank uses the modules to extend the functionality of its core and Internet banking systems and to personalize financial services to the constituencies it serves.

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System Architecture. The Bank provides financial products and services through a highly-secured four-tiered architecture using the Microsoft Windows 2000 operating system, Microsoft Internet Information Server web server software, Microsoft SQL 2000, Macromedia JRun, CheckPoint Systems and Cisco Systems firewalls, and its licensed and proprietary financial services software. User activity is distributed and load-balanced across multiple servers on each tier through its proprietary software and third-party equipment, which maintain replicated, local storage of underlying software and data, resulting in minimal interdependencies among servers. Each server has its own local storage, and all data and software are replicated across all servers. The system’s flexible architecture is designed to have the capacity, or to be easily expanded to add capacity, to meet future demand. In addition to built-in redundancies, the Bank continuously operates automated internal monitoring tools and independent third parties continuously monitor our websites.

Our primary website hosting facility for the Bank is in Wilmington, Delaware and connects to the Internet by Cisco routers through Internap’s New York and FastNet’s Philadelphia, Pennsylvania network operating centers. We also maintain a completely redundant standby hosting facility for the Bank at our Philadelphia offices. Internap’s Philadelphia network operating center provides Internet connectivity to the Philadelphia offices.

Intellectual Property and Other Proprietary Rights

Since a significant portion of the core and Internet banking systems and operations the Bank uses come from third-party providers, the primary proprietary intellectual property of both the Bank and us is the software for creating affinity group bank websites. We rely principally upon trade secret and trademark law to protect our intellectual property. We do not typically enter into confidentiality agreements with our employees or the Bank’s affinity group customers because the Bank maintains control over the software used to create the sites and their banking functions rather than licensing them for customers to use. Moreover, we believe that factors such as the relationships the Bank develops with its affinity group and banking customers, the quality of our banking products, the level and reliability of the service it provides, and the customization of its products and services to meet the need of its affinity group and other customers are substantially more significant to its and our ability to succeed.

Competition

The Bank believes that its principal competition is mid-Atlantic regional banks such as Citizens Bank, Sovereign Bank, Commerce Bank, Royal Bank and Republic First Bank. While the Bank also believes that it faces competition from Internet-based banks or bank divisions such as Net.B@nk and E-Trade Bank, it competes more directly with National Interbanc and Virtual Bank, Internet-based banks that provide private labeled financial services to affinity groups and communities. The Bank also competes more generally with numerous other banks and thrift institutions, mortgage brokers and other financial institutions such as finance companies, credit unions, insurance companies, money market funds, investment firms and private lenders, as well as on-line computerized services and other non-traditional competitors. While the banking industry is highly competitive, the Bank believes it can compete effectively as a result of its focus on small to mid-size businesses and their principals, a market segment it believes is under-served in our region. However, many of the Bank’s competitors have larger customer bases, greater name recognition and brand awareness, greater financial and other resources and longer operating histories which may make it difficult for it to compete effectively. See “Risk Factors – Risks Related to The Business and Operations of the Bank and Bancorp – Our future success will depend on our ability to compete effectively in a highly competitive market and geographic area.”

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Properties

The Bank obtains all of its banking and office facilities under joint management arrangements with us. We describe these facilities and arrangements in “The Bancorp – Properties” and “ – Management Arrangements with the Bank.”

Management Arrangements with the Bancorp

The Bank currently has extensive management and other relationships with us. We describe these relationships in “The Bancorp – Management Arrangements with the Bank.”

Employees

As of March 31, 2004, the Bank had 90 employees, all whom were also Bancorp employees. See “The Bancorp – Employees.”

Legal Proceedings

As of the date of this proxy statement/prospectus, there were no material legal proceedings pending or, to our knowledge, threatened against the Bank.

Market and Dividend Information

Until the Bank’s public offering in February 2004, it was our wholly-owned subsidiary. The following table sets forth the range of high and low sales prices for the indicated periods for the Bank’s common stock after the offering.

2004	High		Low

Third quarter (through July 13, 2004)	$	19.44	$	17.35
Second quarter		20.60		16.65
First quarter (beginning February 3, 2004)		18.11		15.00

As of July 13, 2004, there were nine holders of record of the Bank’s common stock.

Following its public offering, the Bank has not paid any dividends on its common stock. Before its public offering, the Bank paid inter-company dividends to us, as its then sole shareholder, and intends to resume paying inter-company dividends to us if we complete the reorganization. If we do not complete the reorganization, the Bank intends to retain earnings to fund the development and growth of its banking operations. The Bank’s board of directors would determine any changes in that policy based upon its analysis of relevant factors which Bank management anticipates would include earnings, financial position, cash requirements and available investment opportunities. The Bank’s payment of dividends is subject to limitations discussed in “Regulation Under Banking Law.”

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

In the following discussion the Bank provides information about its results of operations, financial condition, liquidity and asset quality. The Bank intends that this information facilitate your understanding and assessment of significant changes and trends related to the Bank’s financial condition and results of operations. You should read this discussion and analysis together with the Bank’s financial statements and the accompanying notes.

Overview of the Bank’s Operating Results

The Bank is a commercial bank based in the Philadelphia-Wilmington metropolitan area. It began its banking operations in July 2000. Since that date it has have grown to $304.3 million in assets as of December 31, 2003. To sustain this growth, the Bancorp, the Bank’s parent company, raised additional capital in 2001, 2002 and 2003 and invested $14.2 million in the Bank. In February 2004, following the end of the Bank’s fiscal year, it completed an offering of its common stock that resulted in its obtaining $82.9 million of additional capital, net of underwriting discounts and commissions and expenses of the offering. The Bank expects to use these proceeds to support its growth principally through expansion of its lending activities.

The Bank focuses on two markets: small to mid-size businesses and their principals and affinity groups with their established membership, client or customer bases. The Bank concentrates its lending activities in the Philadelphia-Wilmington area, while it draws its deposits from that area and from out of area, principally through its merchant card processing operation. To a lesser extent, the Bank obtains deposits from the open market as required to meet its loan funding needs. The Bank’s lending activities emphasize commercial, industrial and construction loans secured by real estate and commercial real estate loans.

The Bank’s historical financial results reflect its development in its early stages, notably in connection with initial start-up costs and the raising and retention of capital to fund its planned growth. In 1999 and 2000, the Bank incurred significant non-interest expenses for start-up and infrastructure costs, while revenue items gradually increased as it began to source and originate loans and other earning assets. In 2002 and 2003, the Bank achieved improved levels of profitability as its non-interest costs were spread over a larger asset base. In 2002, the Bank achieved profitability and recorded net income of $983,000. In 2003, the Bank was again profitable as net income increased 88.3% to $1.9 million. In the first quarter of 2004, the Bank’s net income was $405,000, a decrease of 15.6% from that of the first quarter of 2003 as gains from the sale of securities decreased $235,000, partially offset by net income from other operating sources.

Critical Accounting Policies and Estimates

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

The Bank believes that the determination of its allowance for loan and lease losses involves a higher degree of judgment and complexity than its other significant accounting policies. The Bank determines its allowance for loan and lease losses with the objective of

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maintaining a reserve level it believes to be sufficient to absorb its estimated probable credit losses. The Bank bases its determination of the adequacy of the allowance on periodic evaluations of its 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 it 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 general amounts for historical loss experience. The Bank also evaluates economic conditions and 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 its estimates, the Bank may need additional provisions for loan losses that would adversely impact its earnings.

The Bank capitalizes costs associated with internally developed and purchased software systems for new products and enhancements to existing products that have reached the application stage and meet recoverability tests. Capitalized costs include external direct costs of materials and services used in developing or obtaining internal-use software, payroll and payroll related expenses for employees who are directly associated with and devote time to the internal-use software project and interest costs incurred, if material, while developing internal-use software. Capitalization of these costs begins when the Bank completes the preliminary project stage, and ceases no later than the point at which the project is substantially complete and ready for its intended purpose.

The Bank accounts for income taxes under the liability method whereby deferred tax assets and liabilities are determined based on the difference between the carrying values on the 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

Net Interest Income: First quarter 2004 compared to first quarter 2003 . The Bank’s interest income for the first quarter of 2004 increased to $4.7 million from $3.4 million in the first quarter of 2003, while its net interest income increased to $3.4 million from $2.2 million. The Bank’s average loans increased to $245.3 million for the first quarter of 2004 from $166.3 million for the first quarter of 2003. The primary reason for the increases in interest income and net interest income was the Bank’s ability to increase its earning assets, primarily net loans, as the Bank increased its deposit base and began to deploy the $82.9 million in proceeds it received from its public offering in February 2004.

The Bank’s net interest margin (representing the spread between its cost of funds and the rates it receives on its interest-earning assets) for the first quarter of 2004 decreased to 3.92% from 3.95% for the first quarter of 2003, a decrease of 3 basis points (.03%). For the first quarter of 2004 the average yield on the Bank’s interest-earning assets decreased to 5.35% from 6.04% for fiscal 2002, a decrease of 69 basis points (.69%). The decrease in yield was the result of declines in the overall interest rate environment as well as the impact of the increase in the Bank’s investment securities position, which resulted from the deployment of the proceeds from the Bank’s public offering. Cost of interest-bearing deposits decreased to 2.12% for the first quarter of 2004 from 2.65% for the first quarter of 2003, a decrease of 53 basis points (.53%). As stated above, the decrease in the cost of interest-bearing deposits was the result of declines in the overall interest rate environment. Average interest-bearing deposits increased to $231.6 million from $174.2 million, an increase of $57.4 million or 33.0%.

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Net Interest Income: Fiscal 2003 compared to fiscal 2002 . The Bank’s interest income for fiscal 2003 increased to $14.8 million from $12.0 million in prior year, while its net interest income increased to $9.9 million from $7.7 million. The Bank’s average loans increased to $192.2 million for fiscal 2003 from $137.3 million for fiscal 2002. The primary reason for the increases in its interest income and net interest income was the Bank’s ability to increase its earning assets, primarily net loans, as the Bank increased its deposit base and deployed an additional $4.0 million of capital it received from the Bancorp during 2003.

The Bank’s net interest margin for fiscal 2003 decreased to 3.97% from 4.20% for fiscal 2002, a decrease of 23 basis points (.23%). The decrease in fiscal 2003 resulted from a timing difference between the rates the Bank obtained on its loans and rates on its deposits that it had determined to lock in on a longer-term basis.

For fiscal 2003 the average yield on the Bank’s interest-earning assets decreased to 5.92% from 6.52% for fiscal 2002, a decrease of 60 basis points (.60%). The decrease was the result of decreases in the discount rate by the Federal Reserve, which resulted in decreases in both the Bank’s prime rate and the rates it received on its federal funds sold. While the low interest rate environment in fiscal 2003 primarily resulted from rate reductions that occurred in fiscal 2001, there were a total of 50 basis points .50%) of reductions in 2002 and an additional 25 basis point (.25%) reduction in 2003.

The rate decreases by the Federal Reserve also had an impact on the costs of the Bank’s interest-bearing deposits, which decreased to 2.47% in fiscal 2003 from 2.86% in fiscal 2002. Except for immaterial amounts of securities sold under agreements to repurchase and overnight federal funds for liquidity management purposes, the Bank did not borrow funds during fiscal 2003.

Net Interest Income: Fiscal 2002 compared to fiscal 200 1. The Bank’s interest income increased to $12.0 million in fiscal 2002 from $7.5 million in fiscal 2001, while its net interest income increased to $7.7 million from $3.9 million. The Bank’s average loans increased to $137.3 million for 2002 from $59.8 million in 2001. The primary reason for the increases was the Bank’s ability to increase its earning assets, primarily net loans, as it increased its deposit base and deployed $4.0 million in new capital it received from the Bancorp.

The Bank’s net interest margin increased to 4.20% for fiscal 2002 from 3.72% for fiscal 2001, an increase of 48 basis points (.48%). The main reason for the increase in 2002 was the increased volume of its interest-earning assets, as well as a shift from investments in lower-yielding federal funds sold to investments in higher-yielding loans and debt securities.

The yields on the Bank’s interest-earning assets decreased to 6.52% for fiscal 2002 from 7.13% for fiscal 2001, a decrease of 61 basis points (.61%). The decrease was the result of decreases in the discount rate in 2001 by the Federal Reserve, and additional decreases aggregating 50 basis points (.50%) in 2002, resulting in decreases in both the Bank’s prime rate and the rates it received on its federal funds sold.

The rate decreases by the Federal Reserve also affected the costs of the Bank’s interest-bearing deposits, which decreased to 2.86% in fiscal 2002 from 4.09% in fiscal 2001. As with fiscal 2003, the Bank did not borrow funds in 2002 or 2001 except for immaterial amounts of securities sold under agreements to repurchase and overnight federal funds for liquidity management purposes.

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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 March 31,
	2004							2003
	Average					Average		Average					Average
	balance			Interest		rate		balance			Interest		rate

	(dollars in thousands)
Assets:
Interest-earning assets:
Loans net of unearned discount	$	245,261		$	3,782		6.17%	$	166,314		$	2,783		6.69%
Investment securities		62,285			799		5.13%		31,963			507		6.34%
Interest bearing deposits		2,765			5		0.72%		1,259			3		0.95%
Federal funds sold		39,481			97		0.97%		23,506			72		1.23%

Net interest-earning assets		349,792			4,683		5.35%		223,042			3,365		6.04%

Allowance for loan and lease losses		(2,037	)						(1,446	)
Other assets		14,048							9,960

	$	361,803						$	231,556

									—
Liabilities and Shareholders’ Equity:
Deposits:
Interest checking	$	22,416		$	72		1.28%	$	10,888		$	49		1.80%
Savings and money market		93,304			490		2.10%		73,472			519		2.83%
Time		115,924			667		2.30%		89,837			587		2.62%

Total deposits		231,644			1,229		2.12%		174,197			1,155		2.65%

Other borrowed funds		7,915			26		1.31%		1,010			6		2.38%

Net interest-bearing liabilities		239,559			1,255		2.10%		175,207			1,161		2.65%

Demand (non-interest bearing deposits)		49,278							35,280
Other liabilities		83							737

Shareholders’ equity		72,883							20,332

	$	361,803						$	231,556

Net yield on average interest earning assets				$	3,428		3.92%				$	2,204		3.95%

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	Year ended December 31,
	2003							2002							2001
	Average					Average		Average					Average		Average					Average
	balance			Interest		rate		balance			Interest		rate		balance			Interest		rate

	(dollars in thousands)
Assets:
Interest-earning assets:
Loans net of unearned discount	$	192,206		$	12,508		6.51%	$	137,278		$	9,469		6.90%	$	59,827		$	5,071		8.48%
Investment securities		28,612			1,984		6.93%		34,994			2,363		6.75%		15,100			1,015		6.72%
Interest bearing deposits		1,025			8		0.78%		1,103			7		0.63%		2,212			30		1.36%
Federal funds sold		28,194			297		1.05%		10,887			181		1.66%		27,655			1,351		4.89%

Net interest-earning assets		250,037			14,797		5.92%		184,262			12,020		6.52%		104,794			7,467		7.13%

Allowance for loan and lease losses		(1,640	)						(1,054	)						(419	)
Other assets		15,092							13,921							10,587

	$	263,489						$	197,129						$	114,962

Liabilities and Shareholders’ Equity:
Deposits:
Interest checking	$	14,605		$	219		1.50%	$	7,872		$	150		1.91%	$	3,561		$	90		2.53%
Savings and money market		81,158			2,082		2.57%		74,917			2,141		2.86%		62,788			2,400		3.82%
Time		101,211			2,556		2.53%		65,433			1,950		2.98%		20,521			1,063		5.18%

Total deposits		196,974			4,857		2.47%		148,222			4,241		2.86%		86,870			3,553		4.09%

Other borrowed funds		660			15		2.27%		1,556			44		2.83%		566			13		2.30%

Net interest-bearing liabilities		197,634			4,872		2.47%		149,778			4,285		2.86%		87,436			3,566		4.08%

Demand (non-interest bearing deposits)		43,515							28,132							13,029
Other liabilities		597							1,857							1,019

Shareholders’ equity		21,743							17,362							13,478

	$	263,489						$	197,129						$	114,962

Net yield on average interest-earning assets				$	9,925		3.97%				$	7,735		4.20%				$	3,901		3.72%

In the first quarter of 2004, average interest-earning assets increased to $349.8 million, an increase of $126.8 million, or 56.9%, from the first quarter of 2003. During the same period, average loan balances increased $78.9 million, or 47.5%. In fiscal 2003, average interest-earning assets increased to $250.0 million, an increase of $65.8 million, or 35.7%, from fiscal 2002. During the same period, average loan balances increased $54.9 million, or 40.0%. During fiscal 2002, average interest-earning assets increased to $184.3 million, an increase of $79.5 million, or 75.8%, from fiscal 2001. Of the $79.5 million increase in average interest-earning assets in fiscal 2002, $77.5 million, or 97.5%, resulted from increased average loan balances. Average interest-bearing deposits increased to $197.0 million for fiscal 2003 from $148.2 million for fiscal 2002, an increase of $48.8 million or 32.9%. Average interest bearing deposits increased to $148.2 million for fiscal 2002 from $86.9 million for fiscal 2001, an increase of $61.4 million or 70.5%.

Volume and Rate Analysis. The following table sets forth the changes in net interest income attributable to either changes in volume (average balances) or to changes in average rates from 2001 through 2003. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

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	2003 versus 2002									2002 versus 2001

	Due to change in:									Due to change in:

	Volume			Rate			Total			Volume			Rate			Total

	(in thousands)
Interest income:
Loans net of unearned discount	$	3,539		$	(500	)	$	3,039			$5,137		$	(739	)	$	4,398
Investment securities		(445	)		66			(379	)		1,343			5			1,348
Interest bearing deposits		—			1			1			(11	)		(12	)		(23	)
Federal funds sold		151			(35	)		116			(560	)		(610	)		(1,170	)

Total interest-earning assets		3,245			(468	)		2,777			5,909			(1,356	)		4,553

Interest expense:
Interest checking	$	92		$	(23	)		69		$	75		$	(15	)		60
Savings and money market		258			(317	)		(59	)		846			(1,105	)		(259	)
Time		841			(235	)		606			1,101			(214	)		887

Total deposit interest expense		1,191			(575	)		616			2,022			(1,334	)		688
Other borrowed funds		(22	)		(7	)		(29	)		27			4			31

Total interest expense		1,169			(582	)		587			2,049			(1,330	)		719

Net interest income	$	2,076		$	114		$	2,190		$	3,860		$	(26	)	$	3,834

Provision for Loan and Lease Losses. The Bank’s provision for loan and lease losses was $685,000 for fiscal 2003, $600,000 for 2002 and $435,000 for 2001, and was $332,000 and $150,000 for the quarters ended March 31, 2004 and 2003, respectively. At December 31, 2003, the Bank’s allowance for loan and lease losses amounted to $2.0 million or .86% of total loans while at March 31, 2004 it was $2.3 million or .85% of total loans. The Bank believes that its allowance is adequate to cover expected losses. For more information about the Bank’s provisions and allowance for loan and lease losses and its loss experience see “ – Allowance for Loan and Lease Losses” and “ – Summary of Loan and Lease Loss Experience,” below.

Non-Interest Income. Non-interest income, exclusive of gains on investment securities, was $1.8 million for the first quarter of 2004 as compared to $1.9 million for the first quarter of 2003, a decrease of $100,000 or 5.6%. The principal reasons for the decrease were a decrease in gains on sales of investment securities to $101,000 for the first quarter of 2004 as compared to $336,000 for the first quarter of 2003 and a decrease in merchant credit card fees which resulted from the termination of a high-volume, thin-spread relationship. The Bank’s merchant credit card income was $1.3 million and is substantially offset by related expenses, as discussed in “ – Non-Interest Expense,” below. The net fees generated from the merchant credit card processing support the infrastructure associated with the merchant division.

Total non-interest income for fiscal 2003 was $10.4 million, an increase of $6.1 million or 140.6% over fiscal 2002. The principal reasons for the increase were an increase in merchant credit card deposit fees to $8.0 million from $3.3 million, gains from sales of investment securities, which amounted to $747,000 for fiscal 2003 as compared to $20,000 in fiscal 2002, and an increase in our service fees on deposit accounts to $878,000 from $431,000. The increase in merchant credit card fees resulted from increased transactional volume arising out of new relationships the Bank established together with a growth in existing relationships. These fees were substantially offset by related expenses, as discussed in “ – Non-Interest Expense,” below. The Bank attributes the large increase in merchant processing volume is to its strategy of focusing on merchants who control larger deposits but might offer smaller margins on processing income. The increase in service fees on deposit accounts resulted from an overall increase in account

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relationships, in particular high activity small commercial accounts where balances do not offset fees. Total non-interest income for fiscal 2002 was $4.3 million, an increase of $2.5 million or 137.3% over fiscal 2001. The principal reason for the increase was a $2.2 million, or 189.9%, increase in the Bank’s merchant credit card deposit fees to $3.3 million for fiscal 2002 as compared to $1.1 million in fiscal 2001 resulting from volume increases that derived from new relationships with independent sales organizations and their merchant members and growth in existing relationships.

Non-Interest Expense. Total non-interest expense was $4.6 million for the first quarter of 2004, as compared to $3.8 million for first quarter of 2003, an increase of $800,000 or 21.1%. Salaries and employee benefits amounted to $1.7 million for the first quarter of 2004 as compared to $1.1 million for the first quarter of 2003. The increase reflects additional staff required for the commercial lending, call center and merchant processing areas as the Bank increased in size from $227.7 million in total assets at March 31, 2003 to $455.4 million in total assets at March 31, 2004. It also reflects annual salary increases of 3% to 5% to employees and the addition of executives who had not received salaries and/or bonuses in the first quarter of 2003, such as the chief executive officer. Merchant credit card deposit expense amounted to $1.2 million for the first quarter of 2004, a decrease of $200,000, or 14.3%, over the first quarter of 2003. As discussed above, the decrease resulted from the termination of a high-volume, thin-spread relationship. Other expense was $820,000 for the first quarter of 2004 as compared to $600,000 for the first quarter of 2003, an increase of $220,000 or 36.7%. Of the increase, $70,000 was the result of an increase in premium for directors’ and officers’ insurance after the Bank’s public offering.

Total non-interest expense was $18.1 million for fiscal 2003, as compared to $11.0 million in fiscal 2002, an increase of $7.1 million or 64.5%. Salaries and employee benefits amounted to $4.7 million for fiscal 2003 as compared to $3.5 million for fiscal 2002. The increase reflects additional staff for the commercial lending, call center and merchant processing areas as well as annual salary increases of 3% to 5%. Merchant credit card deposit expense amounted to $7.4 million for fiscal 2003, an increase of $4.5 million, or 179.8%, over fiscal 2002. As discussed above, the increase resulted from the increased transactional volume arising out of the new relationships the Bank established together with growth in existing relationships.

Total non-interest expense was $11.0 million for fiscal 2002 as compared to $8.6 million for fiscal 2001, an increase of $2.4 million or 28.3%. Merchant credit card deposit expense amounted to $2.6 million for fiscal 2002, an increase of $1.6 million, which was substantially offset by related income. Data processing expense was $704,000 for fiscal 2002, which reflected $553,000 in data processing fees to the Bank’s service providers. Advertising expense was $292,000 for fiscal 2002 as compared to $248,000 for fiscal 2001, an increase of $44,000. The increase resulted from an increase in the Bank’s affinity group marketing.

Income Tax Benefit; Net Operating Loss Carryforwards

The Bank reported a benefit for income taxes for fiscal 2003 of $250,000 and $500,000 for fiscal 2002 as a result of a reversal of the deferred tax valuation allowance. The Bank has a deferred tax asset of $2.2 million on which it has established a $1.3 million valuation allowance due to the uncertainty of the realization of the deferred tax asset. In the future, the allowance may be further reduced depending on its profitability.

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At March 31, 2004, the Bank had federal net operating loss carryforwards of approximately $6.0 million. The Bank’s use of these net operating losses to offset future taxable income is limited to the 20 years following the year in which they were incurred. In addition, because the sale of common stock in the first quarter of 2004 resulted in a more than 50% change in the Bank’s ownership, it will be subject to a limitation imposed by the Internal Revenue Code on the amount of net operating loss carryforwards it can utilize in any year. The Bank currently estimates this annual limitation to be approximately $1.9 million. Net operating loss carryforwards not used in any year may be carried forward to subsequent years, subject to the 20 year limitation referred to above. Net operating loss carryforwards are, in any event, usable only to the extent of the Bank’s earnings.

Liquidity and Capital Resources

Liquidity defines the Bank’s ability to generate funds to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. The Bank invests the funds it does not need for operation primarily in overnight federal funds.

Until its public offering in February 2004, the primary source of funds for the Bank’s investing activities had been cash inflows from net increases in deposits, which were $66.1 million in fiscal 2003, $73.7 million in 2002, $65.5 million in 2001 and $43.1 million in the quarter ended March 31, 2004. The Bank has also derived funds from capital investment by the Bancorp, which was $4.0 million in 2003, $4.0 million in 2002 and $6.2 million in 2001. In the quarter ended March 31, 2004, the Bank obtained $82.9 million in net offering proceeds from its public offering.

The Bank has used the broker certificate of deposit market as a supplemental source of funding for its loan growth. Brokered funds amounted to $102.9 million, $70.8 million and $28.6 million, at December 31, 2003, 2002 and 2001, respectively, and $108.3 million at March 31, 2004. The remaining maturity on the brokered funds as of March 31, 2004 was $58.3 million of funds maturing in one year or less, $31.0 million of funds maturing in one to two years and $19.0 million of funds maturing after two years.

Funding was directed primarily at cash outflows required for loans, which were $69.1 million in fiscal 2003, $57.1 million in fiscal 2002, $78.2 million in fiscal 2001 and $42.4 million during the quarter ended March 31, 2004. At March 31, 2004, the Bank had outstanding commitments to fund loans, including unused lines of credit, of $58.8 million. The Bank has a $5 million dollar line of credit with Atlantic Central Bankers Bank. As of March 31, 2004, no amounts were outstanding under the line of credit.

The Bank must comply with capital adequacy guidelines issued by the Federal Deposit Insurance Corporation, or FDIC. A bank must, in general, have a leverage ratio of 5.0%, a ratio of Tier 1 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 1 leverage ratio is the ratio of Tier 1 capital to average assets for the period. “Tier 1 capital” includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill. At December 31, 2003 and March 31, 2004, the Bank was “well capitalized” under banking regulations. As a result of the Bank’s public offering, its capital ratios significantly increased at March 31, 2004 as compared to December 31, 2003. The capital from the public offering will allow the Bank to grow substantially over its current asset size.

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The following table sets forth the Bank’s regulatory capital amounts and ratios at the dates indicated:


	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions

	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(dollars in thousands)
As of December 31, 2003:
Total capital (to risk-weighted assets)	$	27,895		11.05%	$	20,195		> 8.00%	$	25,244		> 10.00%
Tier 1 capital (to risk-weighted assets)		25,904		10.26%		10,098		> 4.00%		15,146		> 6.00%
Tier 1 capital (to average assets)		25,904		8.46%		12,242		> 4.00%		15,303		> 5.00%
As of March 31, 2004:
Total capital (to risk-weighted assets)		111,513		30.05%		27,270		> 8.00%		34,087		> 10.00%
Tier 1 capital (to risk-weighted assets)		109,190		32.03%		13,635		> 4.00%		20,452		> 6.00%
Tier 1 capital (to average assets)		109,190		32.71%		14,535		> 4.00%		18,169		> 5.00%

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.

The following table summarizes repricing intervals for interest-earning assets and interest-bearing liabilities as of March 31, 2004, and the gap between them on an actual and cumulative basis. 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 affect net interest income adversely.

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	At March 31, 2004
	1-90		91-364			1-3			3-5		Over 5
	Days		Days			Years			Years		Years

	(dollars in thousands)
Interest earning assets:
Loans net of unearned discount	$	110,648	$	28,987		$	72,635		$	42,265	$	20,308
Investments, available for sale		20,236		2,700			6,706			39,848		60,422
Interest bearing deposits		1,108		—			—			—		—
Federal funds sold		32,827		—			—			—		—

Total interest earning assets		164,819		31,687			79,341			82,113		80,730

Interest bearing liabilities:
Interest checking		14,504		—			14,505			—		—
Savings and money market		29,111		—			87,335			—		—
Time deposits		27,670		45,687			52,075
Securities sold under agreements
to repurchase		3		—			—			—		—
Federal Home Loan Bank advances		20,000		—			—			—		—

Total interest bearing liabilities		91,288		45,687			153,915			—		—

Gap	$	73,531	$	(14,000	)	$	(74,574	)	$	82,113	$	80,730

Cumulative gap	$	73,531	$	59,531		$	(15,043	)	$	67,070	$	147,800

Gap to assets ratio		16%		(3%)			(16%)			18%		18%
Cumulative gap to assets ratio		16%		13%			(3%)			15%		32%

The method used to analyze interest rate sensitivity in this table has a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods. The interest rates on certain assets and liabilities may change at different times than changes in market interest rates, with some changing in advance of changes in market rates and some lagging behind changes in market rates. Additionally, the actual prepayments and withdrawals we experience when interest rates change may deviate significantly from those assumed in calculating the data shown in the table.

Financial Condition

General. The Bank’s total assets at March 31, 2004 were $455.4 million, of which total loans were $274.8 million, or 60.3%, as compared to total assets of $227.7 million and total loans of $177.7 million, or 78.0%, at March 31, 2003. The Bank’s total assets at December 31, 2003 were $304.3 million, of which total loans were $232.4 million, or 76.4%, while at December 31, 2002 the Bank’s total assets were $234.0 million, of which total loans were $163.3 million, or 69.8%. At December 31, 2001 the Bank’s total assets were $156.1 million, of which its total loans were $106.2 million or 68.0%. The Bank’s portfolio of commercial, commercial mortgage and construction loans grew $43.8 million, or 60.3%, from year-end 2001 to $116.5 million at December 31, 2002 and by $55.5 million, or 47.6%, to $171.9 million at December 31, 2003. During the quarter ended March 31, 2004, the portfolio grew $41.3 million, or 24.0% to $213.2 million from the portfolio at December 31, 2003. The Bank’s total loans should increase significantly in the remainder of 2004 as a result of the increased funds it obtained through the public offering that it completed in February 2004.

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Investment portfolio. The following table presents the book value and the approximate fair value for each major category of the Bank’s investment securities portfolio. At March 31, 2004 and December 31, 2003, 2002 and 2001, all of the Bank’s investments were categorized as available for sale.

	March 31, 2004				December 31, 2003				December 31, 2002				December 31, 2001
	Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value

	(in thousands)
U.S. Government agency securities	$	80,000	$	79,556	$	—	$	—	$	—	$	—	$	1,996	$	2,023
Mortgage-backed securities ⁽¹⁾		9,746		9,406		10,604		10,251		17,567		17,854		27,813		27,448
Other securities ⁽²⁾		41,683		41,850		14,019		14,136		15,624		15,815		7,448		7,344

	$	131,429	$	130,812	$	24,623		$24,387	$	33,191		$33,669	$	37,257		$36,815

(1)	Consists of AAA-rated interests in pools of single-family mortgages guaranteed by the Federal Home Loan Mortgage Corporation.

(2)

Consists principally of trust preferred securities issued by trust affiliates of financial institution holding companies. The securities are rated A or higher or, if unrated, the Bank has independently determined that the financial institution guarantor is creditworthy under its normal credit evaluation policies.

Investment securities with a carrying value of $27.8 million at March 31, 2004, $8.5 million at December 31, 2003 and $11.0 million at December 31, 2002 were pledged as collateral for merchant processing accounts and to secure securities sold under repurchase agreements as required or permitted by law.

The following tables show the contractual maturity distribution and the weighted average yields of our investment securities portfolio as of March 31, 2004:

	Less than one year		Average yield		After one to five years		Average yield		After five to ten years		Average yield		Over ten years		Average yield		Total

	(dollars in thousands)

Available for Sale:
US Government agencies	$	—			$	39,848		3.72%	$	39,708		4.01%	$	—			$	79,556
Mortgage backed securities		—				—				4,594		4.00%		4,812		5.38%		9,406
Other securities		20,000		0.95%		—				3,220		7.67%		18,630		6.08%		41,850

Total available for sale	$	20,000			$	39,848			$	47,522			$	23,442			$	130,812

Weighted average yield				0.95%				3.72%				4.26%				5.94%

Loan Portfolio: Fiscal 2003. The Bank has developed an extensive credit policy to cover all facets of its lending activities. All of the commercial loans in the Bank’s portfolio go through its loan committee for approval. The Bank’s chief executive officer, Mrs. Cohen, who has over 25 years experience in real estate lending, chairs its loan committee. The remainder of the committee is made up of the Bank’s president, chief lending officer, head commercial lender, lenders, loan analysts and the Bank’s chief credit officer, who is present to insure adherence to both regulatory compliance and the Bank’s internal credit policy. All of the key committee members have lengthy experience and have had similar positions at substantially larger institutions.

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The Bank originates substantially all of its portfolio loans, except in certain instances the Bank purchased individual leases and lease pools. Where a proposed loan exceeds its lending limit, the Bank typically sells a participation in the loan to another financial institution. At December 31, 2003, the Bank had $31.6 million in participations sold. The Bank’s loan portfolio grew at an annual rate of 42.3% in 2003, 54.0% in 2002, 277.7% in 2001 and 100.0% in 2000, reflecting the build-up of its lending operations following commencement of business in 2000. The Bank focuses primarily on lending small to mid-size businesses and their principals. As a result, commercial, construction, and commercial mortgage loans have comprised a majority of its loan portfolio since its commenced operations, increasing from 20.2% of total loans at December 31, 2000 to 74.0% of total loans at December 31, 2003. The Bank typically requires that all commercial mortgages and construction loans be secured, generally by real estate. At December 31, 2003, commercial, construction and commercial mortgage loans made up $171.9 million or 74.0% of its total loan portfolio, of which 77.2% were secured by real estate. In general, the Bank requires that the ratio of the principal amount of a loan to the value of the collateral securing it be no greater than between 65% to 85% depending on the type of property and its use. The maturity dates on the Bank’s loans are generally short to mid-term. On a term loan, the maturity date is generally five years or less, although the loan may have a longer amortization schedule. The Bank’s lines of credit are due on demand, but require full paydowns at between twelve to eighteen months. The Bank typically seeks to structure its loans with variable rates of interest based upon either a stated prime rate or the London Inter-Bank Offered Rate, although the Bank does lend at fixed rates when appropriate for a customer. As of December 31, 2003, approximately 70.2% of the loans in the Bank’s commercial portfolio were variable rate loans.

The following table summarizes the Bank’s loan portfolio by loan category for the periods indicated:

	December 31,
	2003		2002		2001		2000

	(in thousands)
Commercial	$	53,130	$	36,037	$	30,250	$	4,172
Commercial mortgage		89,772		71,016		37,939		1,149
Construction		29,026		9,400		4,441		318

Total commercial loans		171,928		116,453		72,630		5,639
Direct financing leases, net		38,405		30,958		25,405		20,352
Residential mortgage		6,473		4,433		3,228		817
Consumer loans and others		14,989		10,815		4,336		1,149

		231,795		162,659		105,599		27,957
Unamortized (fees) costs		602		678		609		(31	)

Total loans, net of unamortized fees and costs	$	232,397	$	163,337	$	106,208	$	27,926

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The following loan table presents selected loan categories by maturity for the periods indicated:

	December 31, 2003
	Within		One to Five		After
	One Year		Years		Five Years		Total

	(in thousands)
Commercial and commercial mortgage	$	49,725	$	63,341	$	29,836	$	142,902
Construction		14,452		13,101		1,473		29,026

	$	64,177	$	76,442	$	31,309	$	171,928

Loans at fixed rates			$	37,023	$	6,751	$	43,774
Loans at variable rates				39,419		24,558		63,977

Total			$	76,442	$	31,309	$	107,751

Loan Portfolio: Quarter ended March 31, 2004. Total loans increased to $274.8 million at March 31, 2004 from $232.4 million at December 31, 2003, an increase of $42.4 million or 18.2%.

The following table summarizes the Bank’s loan portfolio by loan category for the quarter ended March 31, 2004:

	March 31,
	2004

	(in thousands)
Commercial	$	57,078
Commercial mortgage		106,534
Construction		49,624

Total commercial loans		213,236
Direct financing leases, net		38,729
Residential mortgage		6,231
Consumer loans and others		16,501

		274,697
Unamortized costs		146

Total loans, net of unamortized fees and costs	$	274,843

Allowance for Loan and Lease Losses. The Bank maintains its allowance for loan and lease losses at the amount estimated by management to be sufficient to absorb probable losses based on available information. The Bank’s estimates of loan and lease losses meet the criteria for accrual of loss contingencies in accordance with Statement of Financial Accounting Standards, or SFAS, No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” When analyzing the appropriateness of the allowance for loan and lease losses, the Bank segments its loan portfolio into as many components as practical, each of which will normally have similar characteristics, such as risk classification, delinquency statistics, type of loan or lease, industry, location of collateral property, loan-to-value ratios, or type of collateral. The process of evaluating the adequacy of the allowance for loan and lease losses has two basic elements; first, the identification of problem loans or leases based on current operating financial information and fair value of the underlying collateral property; and second, a methodology for estimating general loss reserves. For loans or leases classified as “special

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mention,” “substandard” or “doubtful,” the Bank records all estimated losses at the time it classifies the loan or lease. The Bank’s allowance for loan and lease losses is the accumulation of the allowances for loan and lease losses for the various components of its portfolio. All components of the allowance for loan and lease losses are estimates. The Bank’s analysis for each portfolio component includes the following: historical loss estimation by product type, payment (past due) status, industry concentrations, internal and external variables such as economic conditions, credit policy and underwriting changes. Because of its limited operating history, the Bank relies on management’s experience with similar loan and lease portfolios to derive the historical loss component.

When available information confirms specific loans or leases, or portions of them, to be uncollectible, the Bank charges off those amounts against the allowance for loan and lease losses. Even after the Bank charges off loans or leases, it continues reasonable collection efforts until it exhausts the potential for recovery.

While the Bank considers its allowance for loan and lease losses to be adequate based on information currently available, future additions to the allowance may be necessary due to changes in economic conditions or management’s assumptions as to future delinquencies, recoveries and losses and management’s intent with regard to the disposition of loans and leases. The Bank reviews the adequacy of the allowance on at least on a quarterly basis to ensure that the provision for loan and lease losses that has been charged against earnings is an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable estimated losses.

The following table presents an allocation of the allowance for loan and lease losses among the types of loans or leases in our portfolio at March 31, 2004, December 31, 2003, 2002 and 2001:

	March 31, 2004				December 31, 2003				December 31, 2002				December 31, 2001

			% loan				% loan				% loan				% loan
			type to				type to				type to				type to
			total				total				total				total
	Allowance		loans		Allowance		loans		Allowance		loans		Allowance		loans

	(dollars in thousands)
Commercial	$	566		20.78%	$	531		22.92%	$	400		22.15%	$	195		29.06%
Commercial mortgage		821		38.78%		673		38.73%		445		43.66%		275		35.72%
Construction		420		18.06%		261		12.52%		150		5.78%		35		4.18%
Direct financing leases, net		358		14.10%		364		16.57%		280		19.03%		220		23.92%
Consumer loans		87		2.27%		70		2.79%		45		2.73%		10		4.08%
Residential mortgage		51		6.01%		80		6.47%		45		6.65%		20		3.04%
Unallocated		20		—		12		—		14		—		25		—

	$	2,323		100.00%	$	1,991		100.00%	$	1,379		100.00%	$	780		100.00%

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Summary of Loan and Lease Loss Experience. The following table summarizes our credit loss experience for each of the periods indicated:


	March 31,				December 31,
	2004		2003		2003		2002		2001

	(dollars in thousands)

Balance in the allowance for credit losses at beginning of period	$	1,991	$	1,379	$	1,379	$	780	$	350

Loans charged-off:
Lease financing		—		—		65		1		5
Consumer		—		1		9		—		—

Total		—		1		74		1		5

Recoveries:
Lease financing		—		—		1		—		—

Total		—		—		1		—		—

Net charge-offs		—		1		73		1		5
Provision charged to operations		332		150		685		600		435

Balance in allowance for credit losses at end of period	$	2,323	$	1,528	$	1,991	$	1,379	$	780


Net charge-offs/average loans		*		*		0.04%		*		*


*	Less than 1%

Non-Performing Loans. Loans are considered to be non-performing if they are on a non-accrual basis or terms have been renegotiated to provide a reduction or deferral of interest or principal because of a weakening in the financial positions of the borrowers. A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and is in the process of collection. The Bank had no non-accrual or renegotiated loans during any of the respective periods, nor did it have any real estate owned as a result of foreclosures of delinquent or defaulted loans. Loans past due 90 days or more still accruing interest amounted to $44,000 (all of which was guaranteed by the United States government), $40,000 and $17,000 and $-0-, at December 31, 2003, 2002 and 2001, respectively, and $14,000 and $478,000 at March 31, 2004 and 2003, respectively.

Deposits: Fiscal 2003 compared to fiscal 2002 and 2001. A primary source for funding the Bank’s growth is through deposit accumulation. The Bank offers a variety of deposit accounts with a range of interest rates and terms, including savings accounts, checking accounts, money market savings accounts and certificates of deposit. For fiscal 2003, certificates of deposit constituted 42.1% of the Bank’s total average deposits, as compared to 44.1% for the year ended December 31, 2002. The terms of the Bank’s fixed-rate certificates of deposit typically vary from one month to four years. Specific terms of an individual account vary according to the type of account, the minimum balance required, the time period funds must remain on deposit and the interest rate, among other factors. The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition.

At December 31, 2003, the Bank had $51.5 million of certificate of deposit accounts maturing in one year or less. The Bank relies primarily on customer service and customer relationships to attract and retain deposits. However, market interest rates and rates offered by competing financial institutions significantly affect the Bank’s ability to attract and retain deposits. At December 31, 2003, 2002, and 2001, approximately 37.0%, 33.4% and 20.7%,

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respectively, of the Bank’s deposits consisted of brokered or wholesale deposits. The Bank’s strategy is to use brokered or wholesale deposits to match its loan funding needs as they arise. Brokered and wholesale deposits tend to be more sensitive to movements in market interest rates when compared with other types of deposits, and thus may result in the Bank’s deposit base being less stable than if it had a greater proportion of its deposits in core deposits such as savings and checking accounts. Use of brokered or wholesale deposits may also increase the Bank’s cost of deposits. The Bank believes that it will continue to have access to sufficient amounts of brokered or wholesale deposits which, together with its other funding sources, including the funds raised in its February 2004 offering, will provide it with the means of funding its loan growth.

Deposits at December 31, 2003, 2002 and 2001 were $278.1 million, $212.0 million and $138.2 million, respectively. Demand deposits increased to $49.4 million at December 31, 2003 from $36.9 million at December 31, 2002, an increase of $12.5 million. The following table presents the average balance and rates paid on deposits for the periods indicated:

	December 31, 2003				December 31, 2002				December 31, 2001
	Average balance		Average rate		Average balance		Average rate		Average balance		Average rate

	(dollars in thousands)
Demand (non-interest bearing)	$	43,515		—	$	28,132		—	$	13,029		—
Interest checking		14,605		1.50%		7,872		1.91		3,561		2.53%
Savings and money market		81,158		2.57%		74,917		2.86		62,788		3.82%
Time		101,211		2.53%		65,433		2.98		20,521		5.18%

Total deposits	$	240,489		2.02%	$	176,354		2.40	$	99,899		3.56%

The remaining maturity on certificates of deposit of $100,000 or more as of December 31, 2003 is as follows:

	Amount
	(in thousands )
Maturity:
Three months or less	$	9 560
Three to six months		1,613
Six to twelve months		1,000
Greater than twelve months		738

	$	12,911

Deposits: Quarter ended March 31, 2004 compared to quarter ended March 31, 2003. At March 31, 2004, the Bank had total deposits of $321.2 million as compared to $278.1 million at December 31, 2003, an increase of $43.1 million or 15.5%. The following table presents the average balance and rates paid on deposits for the periods indicated:

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	March 31, 2004				December 31, 2003
	Average Balance		Average Rate		Average balance		Average Rate

	(dollars in thousands)
Demand (non-interest bearing)	$	49,278		—	$	43,515		—
Interest checking		22,416		1.28%		14,605		1.50%
Savings and money market		93,304		2.10%		81,158		2.57%
Time		115,924		2.30%		101,211		2.53%

Total deposits	$	280,922		1.75%	$	240,489		2.02%

Borrowings

The Bank did not incur any material amount of debt for either loan funding or corporate purposes in 2003, 2002 or 2001. At March 31, 2004, the Bank had $20.0 million in advances from the Federal Home Loan Bank. The advances mature on a daily basis and are collateralized with investment securities. The Bank also uses federal funds market to cover short-term (generally one day or less) cash demands. To a lesser extent, the Bank has used securities sold under agreements to repurchase to fund short-term cash demands. The Bank does not have any policy prohibiting it from incurring debt. The Bank anticipates that, under current circumstances, any borrowing, other than through the federal funds market or securities sold under agreements to repurchase, will continue to be from the Federal Home Loan Bank system.

Contractual Obligations and Other Commitments

The following table sets forth the Bank’s contractual obligations and other commitments representing required and potential cash outflows as of December 31, 2003:

	Total		Less than one year		One to three years		Four to five years		After five years

	(in thousands)
Minimum annual rentals on noncancellable operating leases	$	5,577	$	914	$	2,595	$	1,675	$	393
Remaining contractual maturities of time deposits		117,321		51,456		65,865		—		—
Loan commitments		65,627		34,247		24,647		3,900		2,833
Standby letters of credit		4,117		4,117		—		—		—

Total	$	151,736	$	63,671	$	80,516	$	4,371	$	3,178

Other Liabilities

Other liabilities increased to $5.2 million at March 31, 2004 from $208,000 at December 31, 2003. The increase reflects the Bank’s purchase of an investment security of $5.0 million which settled in April 2004.

Impact of Inflation

The primary impact of inflation on the Bank’s operations is on its operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services. The Bank has not been materially affected by inflation because it is a relatively newly-formed institution. While the Bank anticipates that inflation will affect its future operating costs, it cannot predict the timing or amounts of any such effects.

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Recently Issued Accounting Standards

The Bank adopted Financial Accounting Standards Board, or FASB, Interpretation, or FIN, 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others,” on January 1, 2003. FIN 45 applies to guarantees it issue or modify after December 31, 2002. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Bank issues financial and performance letters of credit. Financial letters of credit require the Bank to make payment if its customer’s financial condition deteriorates, as defined in the agreements. Performance letters of credit require the Bank to make payments if its customers fail to perform identified non-financial contractual obligations. The Bank previously did not record an initial liability when guaranteeing obligations through these letters of credit unless it became probable that it would have to perform under the guarantee. The Bank defines the initial fair value of these letters of credit as the fee received from the customer. The maximum potential undiscounted amount of future payments on these letters of credit as of December 31, 2003 was $4.1 million and as of March 31, 2004 was $4.7 million. All of these letters of credit expire in 2004. The amounts due under these letters of credit would be reduced by any proceeds that the Bank obtains in liquidating the collateral for these loans. The adoption of FIN 45 did not have a material impact on the Bank’s financial position or results of operations.

In January 2003, the FASB issued Fin 46, “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin 51, “Consolidated Financial Statements,” for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest. FIN 46 calls these entities “variable interest entities.” Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is deemed to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both. The Bank had not identified any variable interest entities as of December 31, 2003 or March 31, 2004.

The Bancorp has advised the Bank that the Bancorp has evaluated the impact of FIN 46 on variable interest entities consolidated by it prior to the issuance of FIN 46. The Bancorp believes that The Bancorp Capital Trust I qualifies as a variable interest entity under FIN 46. The Bancorp Capital Trust I issued mandatorily redeemable preferred stock to investors and invested the proceeds in the Bank. The Bancorp Capital Trust I holds, as its sole asset, subordinated debentures issued by the Bancorp in 2002. The timing and amount of payments on the subordinated debentures are the same as the timing and amount of payments by The Bancorp Capital Trust I on the mandatorily redeemable preferred stock. The Bancorp Capital Trust I is currently included in the Bancorp’s consolidated balance sheet and statements of income. However, as additional interpretations related to entities such as The Bancorp Capital Trust I become available, the Bancorp’s management will reevaluate its conclusion that The Bancorp Capital Trust I should be included in the consolidated financial statements and its potential impact to Tier 1 capital calculations under such interpretations.

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The Bank adopted SFAS, 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” on July 1, 2003. SFAS 149 clarifies or amends SFAS 133 for implementation issues raised by constituents or includes the conclusions reached by the FASB on certain FASB Staff Implementation Issues. SFAS 149 also amends SFAS 133 to require a lender to account for loan commitments related to mortgage loans that will be held for sale as derivatives. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Bank does not enter into commitments with our customers for mortgage loans which it intends to sell in the future. As a result, the adoption of SFAS 149 did not have a material impact on the Bank’s financial position or results of operations.

In October 2003, the American Institute of Certified Public Accountants issued SOP 03-3, “Accounting for Loans or Certain Debt Securities Acquired in a Transfer.” SOP 03-3 applies to a loan that the Bank acquires where it is probable, at acquisition, that the Bank will be unable to collect all contractually required payments receivable. SOP 03-3 requires the Bank to recognize, as accretable yield, the excess of all cash flows expected at acquisition over the investor’s initial investment in the loan as interest income on a level-yield basis over the life of the loan. The amount by which the loan’s contractually required payments exceed the amount of its expected cash flows at acquisition may not be recognized as an adjustment to yield, a loss accrual or a valuation allowance for credit risk. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. Early adoption is permitted. The Bank currently is evaluating the provisions of SOP 03-3.

The Bank adopted Emerging Issues Task Force, or EITF, 03-1 “The Meaning of Other than Temporary Impairment and Its Application to Certain Investments” as of December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative and qualitative disclosures for investment securities accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. The disclosures under EITF 03-1 are required for financial statements for years ending after December 15, 2003. The Bank includes the required disclosures in the financial statements accompanying this proxy statement/prospectus.

The Commission recently released Staff Accounting Bulletin, or SAB, No. 105, “Application of Accounting Principles to Loan Commitments.” SAB 105 provides guidance about the measurement of loan commitments recognized at fair value under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. The Bank does not expect that the adoption of SAB 105 will have a material effect on its consolidated financial statements.

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DESCRIPTION OF CAPITAL STOCK OF THE BANCORP

General

We have the authority to issue 20,000,000 shares of common stock, par value $1.00 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. We had 2,284,200 shares of common stock and 1,100,106 shares of preferred stock outstanding as of March 31, 2004. There were outstanding warrants exercisable for 2,024,069 shares of common stock as of March 31, 2004.

Both our preferred stock and our common stock represent nonwithdrawable capital, are not accounts of an insurable type and are not insured by the FDIC or any other governmental authority.

Common Stock

Voting rights . Each share of common stock is entitled to one vote on all matters presented to shareholders, including the election of directors. There is no cumulative voting in the election of directors.

Dividends . We may pay dividends as declared from time to time by the board of directors out of funds legally available for that purpose. See “The Bancorp – Market and Dividend Information,” “Regulation under Banking Law – Federal Regulation – Regulatory Restrictions on Dividends” and “– Delaware Regulation.”

Liquidation . In the event we are dissolved, liquidated or wound up, common shareholders are entitled to receive a pro rata portion of our assets remaining after payment or provision for payment of all of our debts and liabilities and payment of the liquidation preference of any preferred stock.

No preemptive rights; redemption . Common shareholders are not entitled to preemptive rights, except that investors in offerings we made in 1999 and 2002 have contractual preemptive rights which we describe in “– Agreement with Investors in 1999 Offering” and “– Agreement with Investor in 2002 Offering,” below. Our common shares are not subject to call or redemption.

Preferred Stock

General . We may issue preferred stock from time to time in one or more series. Our board of directors, without further approval of the shareholders, has the authority to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking funds and any other rights, preferences, privileges and restrictions applicable to each series of preferred stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the common shareholders.

Series A Preferred Stock . Series A preferred stock is senior to our common stock with respect to the right to receive dividends and to receive payments or distributions out of our net assets if we voluntarily or involuntarily dissolve, liquidate or wind up. Series A preferred stock has an annual, non-cumulative dividend of $0.60 per share, payable quarterly, and a liquidation preference of $10.00 per share. The dividend may be paid in cash or “in kind” by issuance of

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additional shares of Series A preferred stock. In kind dividends will be paid at the rate of 0.015 of a share of Series A preferred stock for each share held. Dividends, whether in cash or in kind, are not payable on any fractional shares resulting from prior in kind dividends.

Holders of Series A preferred stock have the right to vote at all meetings of the holders of our common stock, including the right to elect directors. Series A preferred stock votes together with our common stock as a single class and has one vote per share.

Series A preferred stock may be converted into common stock at any time by a holder at the rate of one share of common stock for each share of Series A preferred stock. The conversion rate is subject to adjustment in the event of a payment of a stock dividend with respect to, or a distribution in shares of, common stock, any subdivision, combination or reclassification of our common stock or a consolidation, merger or sale of all or substantially all of our property or assets, or if we issue rights or warrants entitling the holders thereof to subscribe for or purchase shares of common stock at less than the then applicable conversion price.

Series A preferred stock automatically converts to common stock at the rate of one share of common stock for each share of preferred stock, subject to adjustment as described in the previous paragraph, at any time we complete an offering of common stock registered under the Securities Act of 1933 that results in gross offering proceeds of $15 million or more. For these purposes, gross offering proceeds means the number of shares sold multiplied by the offering price per share, before underwriting discounts and commissions and expenses of the offering.

Warrants

Each warrant entitles the holder to purchase one share of our common stock for $10.00 or $11.00 per share. The warrants will expire on the third anniversary of their issuance. Warrants with respect to 1,158,798 shares of common stock expire on July 25, 2004, while warrants with respect to 754,250 shares of common stock expire by 2005 and warrants with respect to 111,021 shares of common stock expire by 2007. The exercise price of the warrants and the number of shares issuable upon exercise of the warrants is subject to adjustment in the event of a payment of a stock dividend with respect to, or a distribution of shares of, our common stock, a combination or reclassification of our common stock, or a consolidation or merger, or if we issue rights or warrants entitling the holders thereof to subscribe for or purchase our common stock at less than the then applicable exercise price (currently $10.00 or $11.00 per share).

Transfer Agent

We have appointed American Stock Transfer & Trust Company to act as the transfer agent for our common stock. It will also act as the exchange agent with respect to the exchange of certificates representing Bank common shares for certificates representing Bancorp common shares following the reorganization. We act as our own transfer agent for our preferred stock and warrants.

Anti-Takeover Provisions

Certificate of incorporation and bylaws . Our certificate of incorporation and bylaws contain provisions that may be deemed to be “anti-takeover” in nature. These provisions are the authorization of 20,000,000 shares of common stock, the authorization of 5,000,000 shares of preferred stock and the elimination of preemptive rights except for the contractual rights of investors in our 1999 and 2002 offerings discussed in “ – Agreement with Investors in 1999 Offering” and “– Agreement with Investors in 2002 Offering,” below.

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We authorized the shares of common stock and preferred stock and the elimination of pre-emptive rights for common stock, except for the rights we describe in “– Agreement with Investors in 1999 Offering” and “– Agreement with Investor in 2002 Offering,” below, to provide our board of directors with as much flexibility as possible to issue additional shares, without further shareholder approval, for corporate purposes, including financings, acquisitions, stock dividends, stock splits, employee incentive plans and similar purposes. These additional shares, however, may also be used by the board of directors, if consistent with its fiduciary responsibilities and its contractual duties to investors in our 1999 and 2002 offerings, to deter future attempts to gain control over us. Moreover, because a shareholder does not have preemptive rights, he or she does not have a right to subscribe for a proportionate part of any such issuance.

Delaware Law . We are a Delaware corporation and consequently are also subject to certain anti-takeover provisions of the Delaware General Corporation Law. Under Section 203 of the General Corporation Law, a Delaware corporation may not engage in any business combination with any interested shareholder for a period of three years following the date such shareholder became an interested shareholder, unless:

•

before such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder;


	•	upon completion of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding:


		•	shares owned by persons who are directors and also officers, and


		•	employee stock plans, in certain instances; or


	•	on or after such date the business combination is approved by the board of directors and authorized at an annual or special meeting of shareholders by at least two-thirds of the outstanding voting stock that is not owned by the interested shareholder.

Section 203 defines an interested shareholder of a corporation to be any person (other than the corporation and any direct or indirect majority-owned subsidiary of the corporation) who:

•

owns, directly or indirectly, 15% or more of the outstanding voting stock of the corporation; or


	•	is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately before the date on which it is sought to be determined whether such person (and any affiliate or associate of such person) is an interested shareholder.

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Section 203 defines business combinations to include certain mergers, consolidations, asset sales, transfers and other transactions resulting in a financial benefit to the interested shareholder.

The restrictions imposed by Section 203 will not apply to a corporation if:

•

the corporation’s original certificate of incorporation contains a provision expressly electing not to be governed by Section 203; or


	•	the corporation, by the action of shareholders holding majority of outstanding voting stock, adopts an amendment to its certificate of incorporation or by-laws expressly electing not to be governed by Section 203.

We have not opted out of Section 203. Section 203 could under certain circumstances make it more difficult for a third party to gain control of us, deny shareholders the receipt of a premium on their common stock and may reduce the price at which the common stock may be sold.

Federal banking law . Federal law pertaining to bank holding companies and banks also may have an anti-takeover effect. See “Regulation under Banking Law – Federal Regulation – Control Acquisitions.”

Agreement with Investors in 1999 Offering

Our initial capitalization was provided by investors in our 1999 private offering of common stock. As part of that offering, we entered into an investor rights agreement that granted the 1999 investors the following rights:

Demand Registration Rights . The 1999 investors have a one-time right to require us to register some portion or all of their shares. This right may be exercised by the demand of persons holding not less than 25% of the shares subscribed in the 1999 offering. This right will terminate on September 30, 2004.

Piggy-Back Registration Rights . 1999 investors also have the right, subject to certain restrictions, to require us to include their shares in any of our future registration statements, except for registration statements relating to mergers and acquisitions, such as the registration statement of which this proxy statement/prospectus is a part, employee stock options and benefits or issuances for similar purposes. Shares included in any such registration may be reduced or eliminated if the underwriters for the offering advise us that inclusion of some or all of the shares will affect the underwriters’ ability to market our offering or that it will affect the offering price.

Pre-emptive Rights . 1999 investors have the right to maintain their proportionate equity interest in us through a right to subscribe for a proportional amount in our future offerings. The right does not include issuances in connection with mergers and acquisitions, such as the reorganization, or under employee stock option, 401(k) or other employee benefit plans. Any purchases will be on the same terms and conditions applicable to other investors in that future offering. This right terminates upon the completion of a qualified public offering of our common stock, and excludes shares issuable in that offering. A qualified public offering for purposes of

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this agreement means any public offering of our common stock pursuant to a registration statement under the Securities Act on Forms S-1, S-2 or S-3. Since this proxy statement/prospectus is part of a registration statement on Form S-4, the reorganization is not a qualified public offering for purposes of the agreement.

Tag-Along Rights . In the event that D. Gideon Cohen and Edward E. Cohen seek to sell their shares, 1999 investors will have the right to require that the number of shares being sold include a proportionate amount of their shares. This right does not apply to shares sold pursuant to a registration statement and shares transferred to related persons (although the related persons will become subject to the agreement).

Agreement with Investor in 2002 Offering

On June 12, 2002 we sold 25,000 shares of Series A preferred stock and warrants for the purchase of 200,000 shares of our common stock to a single investor. As part of that offering, we entered into an investor rights agreement that granted the investor the following rights:

Demand Registration Rights . The 2002 investor has the right to require us to register some portion or all of the common shares issuable upon conversion of its Series A preferred stock at any time after the following:

•

our consummation of a qualified public offering or


	•	June 12, 2007.

The term qualified public offering had the same meaning as in the agreement with the 1999 investors and, accordingly, the reorganization is not a qualified public offering for purposes of the agreement. The 2002 investor’s demand registration rights expire on June 12, 2008. The 2002 investor has two demand rights.

Piggy-Back Registration Rights . The 2002 investor will also have the right, subject to certain restrictions, including the right of the 1999 investors to consent to such right, to require us to include its shares in any of our future registration statements, except for registration statements relating to mergers and acquisitions, such as the registration statement of which this proxy statement/prospectus is a part, employee stock options and benefits or issuances for similar purposes. Shares included in any such registration may be reduced or eliminated if the underwriters for the offering advise us that inclusion of some or all of the shares will affect the underwriters’ ability to market our offering or that it will affect the offering price. In the event that the investor is unable to participate in a registration statement as a result of our failure to obtain the consent of the 1999 investors, the investor will be granted a further demand registration right.

Pre-emptive Rights . Subject to the preemptive rights of the 1999 investors, the 2002 investor will have the right to maintain its proportionate equity interest in us through a right to subscribe for a proportional amount in our future offerings. The right does not include issuances in connection with mergers and acquisitions, such as the reorganization, or under employee stock option, 401(k) or other employee benefit plans, if we do not issue shares under such plans in excess of the amounts currently authorized to be issued under such plans. Any purchases will be on the same terms and conditions applicable to other investors in that future offering. This right terminates upon the completion of a qualified public offering of our common stock, and excludes shares issuable in that offering.

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Tag-Along Rights . In the event that D. Gideon Cohen and Edward E. Cohen seek to sell their shares, the 2002 investor will have the right to require that the number of shares being sold include a proportionate amount of their shares, subject to the prior consent of the 1999 investors. This right does not apply to shares sold pursuant to a registration statement and shares transferred to related persons (although the related persons will become subject to the agreement).

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REGULATION UNDER BANKING LAW

We and the Bank are extensively regulated under both federal and state banking law. We are a Delaware Corporation and a registered bank holding company subject to supervision and regulation by the Federal Reserve and the Delaware Bank Commissioner. As a bank holding company, our activities and those of our banking and nonbanking subsidiaries are generally limited to the business of banking and activities closely related to banking as more fully described below. However, if we register as a financial holding company under the Gramm-Leach-Bliley Act of 1999, the businesses in which we may engage significantly expand, as further discussed below. We intend to file for registration as a financial holding company.

The Bank, as a state-chartered depository institution, is supervised by the Delaware Bank Commissioner, as well as the FDIC. The Bank is subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amount of loans that may be made and the interest that may be charged, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the Bank’s operations.

Federal Regulation

As a registered bank holding company under the Bank Holding Company Act of 1956, we must file annual reports with the Federal Reserve, provide any additional information that the Federal Reserve may request, and are subject to regular examination by it. Subject to the Gramm-Leach-Bliley Act and registration as a financial holding company which we discuss in “ – Gramm-Leach-Bliley Act,” below, the Bank Holding Company Act limits the activities in which we and our subsidiaries may engage to those of banking and the management of banking organizations, and to certain non-banking activities, including those activities which the Federal Reserve has found, by order or regulation, to be so closely related to banking or managing or controlling banks as to be proper incidents thereto. These activities include, among other things, and subject to certain limitations, operating a mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; acting as an insurance agent for certain types of credit related insurance and providing certain securities brokerage services for customers. We have no present plans to engage in any of these activities other than through the Bank.

Transactions with Affiliates. There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or otherwise obtain credit from banking subsidiaries or engage in certain other transactions with or involving those banking subsidiaries. In general, these restrictions require that any such transactions must be on terms that would ordinarily be offered to unaffiliated entities and secured by designated amounts of specified collateral. Transactions between a banking subsidiary and its holding company or any nonbank subsidiary are limited to 10% of the banking subsidiary’s capital stock and surplus and, as to the holding company and all such nonbank subsidiaries in the aggregate, up to 20% of the bank’s capital stock and surplus.

Regulatory Restrictions on Dividends. It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. See “– Holding Company Liability,” below. Federal Reserve policies also affect the ability of a bank holding company to pay in kind dividends.

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Various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval. The Bank is also subject to limitations under state law regarding the payment of dividends, including the requirement that dividends may be paid only out of net profits. See “– Delaware Regulation.” In addition to these explicit limitations, federal and state regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

Because we are a legal entity separate and distinct from the Bank, our right to participate in the distribution of assets of the Bank, or any other subsidiary, upon the Bank’s or the subsidiary’s liquidation or reorganization will be subject to the prior claims of the Bank’s or subsidiary’s creditors. In the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors have priority of payment over the claims of holders of any obligation of the institution’s holding company or any of its shareholders or creditors.

Holding Company Liability. Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support. Such support may be required at times when, absent this Federal Reserve policy, a holding company may not be inclined to provide it. As discussed below under “– Prompt Corrective Action,” a bank holding company in certain circumstances could be required to guarantee the capital plan of an undercapitalized banking subsidiary.

In the event of a bank holding company’s bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed, and is required to cure immediately, any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such obligation will generally have priority over most other unsecured claims.

Capital Adequacy. The Federal Reserve and FDIC have issued standards for measuring capital adequacy for bank holding companies and banks. These standards are designed to provide risk-based capital guidelines and to incorporate a consistent framework. The risk- based guidelines are used by the agencies in their examination and supervisory process, as well as in the analysis of any applications to them to obtain approvals, including our applications for approval of the reorganization and for registration as a financial holding company. As discussed under “– Prompt Corrective Action,” a failure to meet minimum capital requirements could subject us or the Bank to a variety of enforcement remedies available to federal regulatory authorities, including, in the most severe cases, termination of deposit insurance by the FDIC and placing the Bank into conservatorship or receivership.

In general, the risk-related standards require banks and bank holding companies to maintain capital based on “risk-adjusted” assets so that the categories of assets with potentially higher credit risk will require more capital backing than categories with lower credit risk. In addition, banks and bank holding companies are required to maintain capital to support off-balance sheet activities such as loan commitments.

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The standards classify total capital for this risk-based measure into two tiers referred to as Tier 1 and Tier 2. Tier 1 capital consists of common stockholders’ equity, certain non-cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less certain adjustments. Tier 2 capital consists of the allowance for loan and lease losses (within certain limits), perpetual preferred stock not included in Tier 1, hybrid capital instruments, term subordinate debt, and intermediate-term preferred stock, less certain adjustments. Together, these two categories of capital comprise a bank’s or bank holding company’s “qualifying total capital.” However, capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital in testing compliance with the total risk-based capital minimum standards. Banks and bank holding companies must have a minimum ratio of 8% of qualifying total capital to risk-adjusted assets, and a minimum ratio of 4% of qualifying Tier 1 capital to risk-adjusted assets. At March 31, 2004, we and the Bank had a total capital to risk-adjusted assets ratio of 31.45% and 32.71% and a Tier 1 capital to risk-adjusted assets ratio of 30.77% and 32.03%, respectively.

In addition, the Federal Reserve and the FDIC have established minimum leverage ratio guidelines. The principal objective of these guidelines is to constrain the maximum degree to which a financial institution can leverage its equity capital base. It is intended to be used as a supplement to the risk-based capital guidelines. These guidelines provide for a minimum ratio of Tier 1 capital to adjusted average total assets of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. Other financial institutions generally must maintain a leverage ratio of at least 3% plus 100 to 200 basis points. The guidelines also provide that financial institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the banking agencies have indicated that they may consider other indicia of capital strength in evaluating proposals for expansion or new activities.

The federal banking agencies’ standards provide that concentration of credit risk and certain risks arising from nontraditional activities, as well as an institution’s ability to manage these risks, are important factors to be taken into account by them in assessing a financial institution’s overall capital adequacy. The risk-based capital standards also provide for the consideration of interest rate risk in the agency’s determination of a financial institution’s capital adequacy. The standards require financial institutions to effectively measure and monitor their interest rate risk and to maintain capital adequate for that risk.

These standards can be expected to be amended from time to time.

Prompt Corrective Action. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, federal banking agencies must take prompt supervisory and regulatory actions against undercapitalized depository institutions. Depository institutions are assigned one of five capital categories – “well capitalized ,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized” – and subjected to differential regulation corresponding to the capital category within which the institution falls. Under certain circumstances, a well capitalized, adequately capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category. As we describe in “The Bank – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” an institution is deemed to be well capitalized if it has a total risk-based capital ratio of at least 10.0%, a Tier 1 risk-based capital ratio of at least 6.0% and a leverage ratio of at least 5.0%. An institution is adequately capitalized if it has a total risk-based capital ratio of at least 8.0%, a Tier 1 risk-based capital ratio of at least 4.0% and a leverage ratio of at least 4.0%. At March 31, 2004, our total risk-based capital ratio was 31.43%, our Tier 1

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risk-based capital ratio was 30.77% and our leverage ratio was 28.78%. A depository institution is generally prohibited from making capital distributions (including paying dividends) or paying management fees to a holding company if the institution would thereafter be undercapitalized. Adequately capitalized institutions cannot accept, renew or roll over brokered deposits except with a waiver from the FDIC, and are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew, or roll over brokered deposits. As of March 31, 2004, both we and the Bank were “well capitalized” within the meaning of the regulatory categories.

Banking regulatory agencies are permitted or, in certain cases, required to take action with respect to institutions falling within one of the three undercapitalized categories. Depending on the level of an institution’s capital, the agency’s corrective powers include, among other things:

•

prohibiting the payment of principal and interest on subordinated debt;


	•	prohibiting the holding company from making distributions without prior regulatory approval;


	•	placing limits on asset growth and restrictions on activities;


	•	placing additional restrictions on transactions with affiliates;


	•	restricting the interest rate the institution may pay on deposits;


	•	prohibiting the institution from accepting deposits from correspondent banks; and


	•	in the most severe cases, appointing a conservator or receiver for the institution.

A banking institution that is undercapitalized must submit a capital restoration plan. This plan will not be accepted unless, among other things, the banking institution’s holding company guarantees the plan up to an agreed upon amount. Any guarantee by a depository institution’s holding company is entitled to a priority of payment in bankruptcy. Failure to implement a capital plan, or failure to have a capital restoration plan accepted, may result in a conservatorship or receivership.

Community Reinvestment Act. Under the Community Reinvestment Act of 1977, which we refer to as the CRA, a federally-insured institution has a continuing and affirmative obligation to help meet the credit needs of its community, including low-and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. The CRA requires the board of directors of federally-insured institutions, such as the Bank, to adopt a CRA statement for its assessment area that, among other things, describes its efforts to help meet community credit needs and the specific types of credit that the institution is willing to extend. The CRA further requires that a record be kept of whether a financial institution meets its community’s credit needs, which record will be taken into account when evaluating applications for, among other things, domestic branches and mergers and acquisitions. The regulations promulgated pursuant to the CRA contain three evaluation tests:

•

a lending test which compares the institution’s market share of loans in low- and moderate-income areas to its market share of loans in its entire service area and the percentage of the institution’s outstanding loans to low- and moderate-income areas or individuals;

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•

a services test, which evaluates the provision of services that promote the availability of credit to low- and moderate-income areas; and


	•	an investment test, which evaluates an institution’s record of investments in organizations designed to foster community development, small- and minority-owned businesses and affordable housing lending, including state and local government housing or revenue bonds.

The Bank was examined for CRA compliance in 2002 and received a “satisfactory” rating.

Control Acquisitions. The Change in Bank Control Act, which we refer to as the CBCA, prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of any class of voting securities of a bank holding company is presumed to be an acquisition of control of the holding company if:

•

the bank holding company has a class of securities registered under Section 12 of the Securities Exchange Act of 1934 or


	•	no other person will own or control a greater percentage of that class of voting securities immediately after the transaction.

An acquisition of 25% or more of the outstanding shares of any class of voting securities of a bank holding company is conclusively deemed to be the acquisition of control. In determining percentage ownership for a person, Federal Reserve policy is to count securities obtainable by that person through option or warrant exercise, even if the options or warrants have not then vested.

Insurance of Deposit Accounts. The Bank’s deposits are insured to the maximum extent permitted by the Bank Insurance Fund, or BIF. As the insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against banks. The FDIC has implemented a risk-based assessment system under which FDIC-insured depository institutions pay annual premiums at rates based on their risk classification. A bank’s risk classification is based on its capital levels and the level of supervisory concern the bank poses to the regulators. Institutions assigned to higher risk classifications (that is, institutions that pose a greater risk of loss to the BIF) pay assessments at higher rates than institutions that pose a lower risk. A decrease in a bank’s capital ratios or the occurrence of events that have an adverse effect on a bank’s asset quality, management, earnings or liquidity could result in a substantial increase in deposit insurance premiums paid by a bank, which would adversely affect earnings. In addition, the FDIC can impose special assessments in certain instances. The range of assessments in the risk-based system is a function of the reserve ratio in the BIF. The current range of BIF assessments is between 0% and 0.27% of deposits because the BIF reserve ratio was greater than 1.25% when the ratios were set. In 2002, the BIF reserve ratio fell below 1.25%, creating the possibility that the FDIC would raise assessment rates, but in 2003 the ratio was slightly above 1.25%. At December 31, 2003 and March 31, 2004, the Bank’s BIF assessment rate was 0%. If the BIF reserve ratio were to fall below 1.25% again, the FDIC would consider whether to levy higher assessments. Congress has also recently considered proposals that would increase assessments on certain types of rapidly growing institutions.

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Loans-to-One Borrower. Generally, a bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by specified collateral, generally readily marketable collateral (which is defined to include certain financial instruments and bullion) and real estate. At March 31, 2004, the Bank’s limit on loans-to-one borrower was $16.7 million ($27.9 million for secured loans). At March 31, 2004, the Bank’s largest aggregate outstanding balance of loans-to-one borrower was $8.0 million, which was secured. As a general policy, the Bank seeks to limit secured loans-to-one borrower to a maximum of $10.0 million.

Transactions with Related Parties. The Bank’s authority to engage in transactions with related parties or “affiliates” (that is, any company that controls or is under common control with an institution, including us and our non-bank subsidiaries) is limited by Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated thereunder. Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the Bank’s capital and surplus. At March 31, 2004, we owed the Bank $549,000, which was approximately 0.50% of its capital and surplus. The aggregate amount of covered transactions with all affiliates is limited to 20% of the Bank’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B generally provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies.

Enforcement. Under the Federal Deposit Insurance Act, the FDIC has the authority to bring actions against a bank and all affiliated parties, including stockholders, attorneys, appraisers and accountants, who knowingly or recklessly participate in wrongful action likely to have an adverse effect on the bank. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. Federal law also establishes criminal penalties for certain violations.

Standards for Safety and Soundness. The Federal Deposit Insurance Act requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, and compensation, fees, benefits and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have adopted final regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement these safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

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Federal Reserve System. Federal Reserve regulations require banks to maintain non-interest bearing reserves against their transaction accounts (primarily NOW and regular checking accounts). Federal Reserve regulations generally require for 2004 that reserves be maintained against aggregate transaction accounts as follows: for accounts aggregating $45.4 million or less (subject to adjustment by the Federal Reserve), the reserve requirement is 3%; and, for accounts aggregating greater than $45.4 million, the reserve requirement is $1.164 million plus 10% (subject to adjustment by the Federal Reserve between 8% and 14%) of that portion of total transaction accounts in excess of $45.4 million. The first $6.6 million of otherwise reservable balances (subject to adjustments by the Federal Reserve) are exempt from the reserve requirements. At March 31, 2004, the Bank met these requirements.

Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, or GLBA, made extensive changes in the rules governing the financial services industry, particularly banking. It eliminated many of the restrictions placed upon the activities of bank holding companies and established a new type of bank holding company called a financial holding company. Financial holding companies are granted the authority to engage in “financial activities” that are beyond those of conventional bank holding companies and to affiliate with entities engaged in financial activities. While the Federal Reserve (together with the Treasury Secretary) is authorized to determine what a financial activity is, the GLBA provides that financial activities include:

•

lending, investing for others or safeguarding money or securities;


	•	underwriting insurance and annuities as principal, agent or broker;


	•	providing financial, investment or economic advisory services;


	•	issuing or selling interests in pools of assets permissible for a bank to hold directly;


	•	engaging in any activity that the Federal Reserve found before the act to be a proper incident to banking; and


	•	insurance portfolio investing.

The GLBA directs the Federal Reserve to define the following activities as financial in nature and the extent to which they are financial in nature:

•

lending, exchanging, transferring, investing for others or safeguarding financial assets other than money or securities; and


	•	arranging financial transactions for the account of third parties.

A bank holding company may elect to become a financial holding company if all of its subsidiary banks are “well capitalized” and “well managed” and it has filed a declaration of its election with the Federal Reserve together with a certification that it is well capitalized and well managed. The election to become a financial holding company will not become effective, however, if any of the banking subsidiaries of the electing holding company have not achieved a “satisfactory” rating under the CRA. The Bank was rated “satisfactory” in its most recent CRA examination.

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The banking and nonfinancial subsidiaries of a financial holding company may not cross sell each other’s products and services where the financial holding company owns the non-financial subsidiary through the financial holding company’s merchant banking authority or through its insurance subsidiary under its investment portfolio authority. However, insurance products or services may be marketed by Internet websites or statement inserts with Federal Reserve approval if there is no illegal tying arrangement. A bank also may not engage in a “covered transaction” with a controlled affiliate of a financial holding company. A “covered transaction” includes loans to, investments in, purchases of assets from or guaranteeing loans of the affiliate, or accepting securities of the affiliate as collateral for a loan.

USA Patriot Act. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act was intended to detect, and prevent, the use of the United States’ financial system for money laundering and terrorist financing activities. The Act requests financial institutions, such as banks, to prohibit correspondent accounts with foreign shell banks, to establish an anti-money laundering program that includes employee training and an independent audit, to follow minimum standards for identifying customers and maintaining records of the identification information, and to make regular comparisons of customers against agency lists of suspected terrorists, terrorist organizations and money launderers.

Delaware Regulation

General. As a Delaware bank holding company, we are subject to the supervision of and periodic examination by the Delaware State Bank Commissioner and must comply with the reporting requirements of the Delaware State Bank Commissioner. The Bank, as a banking corporation chartered under Delaware law, is subject to comprehensive regulation by the Delaware State Bank Commissioner, including regulation of the conduct of its internal affairs, the extent and exercise of its banking powers, the issuance of capital notes or debentures, any mergers, consolidations or conversions, its lending and investment practices and its revolving and closed-end credit practices. The Bank also is subject to periodic examination by the Delaware State Bank Commissioner and must comply with the reporting requirements of the Delaware State Bank Commissioner. The Delaware State Bank Commissioner has the power to issue cease and desist orders prohibiting unsafe and unsound practices in the conduct of a banking business.

Limitation on Dividends. Under Delaware banking law, the Bank’s directors may declare dividends on common or preferred stock of so much of its net profits as they judge expedient, but the Bank must, before the declaration of a dividend on common stock from net profits, carry 50% of its net profits of the preceding period for which the dividend is paid to its surplus fund until its surplus fund amounts to 50% of its capital stock and thereafter must carry 25% of its net profits for the preceding period for which the dividend is paid to its surplus fund until its surplus fund amounts to 100% of its capital stock.

Pending Legislation

Deposit Insurance Reform. On April 2, 2003, the U.S. House of Representatives passed H.R. 522, the Federal Deposit Insurance Reform Act of 2003. This proposed legislation would reform the deposit insurance system by:

•

merging the BIF and the Savings Association Insurance Fund;

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•

ending the 23 basis point premium “rate cliff” that occurs when the reserve ratio of deposits insured to premiums held falls beneath 1.25% for more than one year;


	•	creating a reserve range within which a bank’s reserve ratio can float;


	•	increasing insurance coverage limits for municipal deposits;


	•	increasing insurance coverage limits for individual accounts to $130,000 and indexing future coverage limits to inflation; and


	•	doubling insurance coverage limits for certain types of IRAs and 401(k) plans.

As of the date of this proxy statement/prospectus, this legislation was being considered by the U.S. Senate Banking, Housing and Urban Affairs Committee.

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COMPARISON OF SHAREHOLDER RIGHTS

As a Delaware corporation, we are governed by the Delaware General Corporation Law, or DGCL, and by our certificate of incorporation and bylaws. The Bank is a Delaware-chartered commercial bank governed by the Delaware Banking Code, which incorporates some provisions of the DGCL. The Bank’s articles of association and bylaws differ in some material respects from ours, and the DGCL differs in some material respects from the banking law.

The following comparison of rights of holders of our common stock and Bank common stock is necessarily a summary, is not intended to be complete or to identify all differences that may, under given situations, be material to shareholders and is subject to and qualified by all respects by reference to our certificate of incorporation and bylaws which we have filed as exhibits to the registration statement of which this proxy statement/prospectus forms a part. We urge all shareholders to read those documents.


	Bank Shareholder Rights	Bancorp Shareholder Rights

Size of board of directors	The Bank’s articles of association, by-laws and the Delaware banking laws provide that the board of directors shall consist of not less than five persons and further provide that the exact number of directors shall be fixed by the board of directors. The Bank’s board of directors currently consists of 11 members	Our by-laws provide that the number of directors shall be fixed by our board of directors. The DGCL provides that the board of directors must consist of one (1) or more members. Our board of directors currently consists of 11 members.

Annual meetings of shareholders for the election of directors	The Bank’s by-laws provide that annual meetings of shareholders for the election of directors must be held at least once every 13 months.	Our by-laws provide that annual meetings of shareholders for the election of directors must be held at least once every year.

Special meeting of the shareholders	The Bank’s by-laws provide that special meetings of the shareholders for any purpose may be called by the directors or the chief executive officer.	Our by-laws provide that special meetings of shareholders may be called at any time by the chairman of the board, by our chief executive officer, by our president or directors or by the holders of a majority of our outstanding voting shares.

Dividends	The Bank’s directors may declare dividends on common stock out of the net profits of the Bank, but the Bank must, before the declaration of a dividend, carry 50% of its net profits of the preceding period for which the dividend is paid to its surplus fund until the same shall amount to 50% of its capital stock; and thereafter shall carry 25% of its net profits of the preceding period for which the dividend is paid to its surplus fund until the same shall amount to 100% of its capital stock. In addition, under the Financial Institutions Supervisory Act of 1966, as amended, the FDIC has the authority and general enforcement powers to prohibit a bank from engaging in practices which the FDIC considers to be unsafe or unsound. It is possible, depending upon the financial condition of the Bank and other factors, that the FDIC could assert that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice and thereby prohibit such payment. The Federal Deposit Insurance Corporation Improvement Act of 1991 further prohibits a bank from paying a dividend if the dividend payment would result in the bank failing to meet any of its minimum capital requirements.	Our directors may declare and pay dividends upon the shares of our capital stock, either out of our surplus, as defined and computed in accordance with 11154 and 244 of the DGCL, or in case there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If our capital, computed in accordance with 11 154 and 244, shall have been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, our directors may not declare and pay out of such net profits any dividends upon any shares of any classes of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.

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Dissenters’ rights	Delaware banking law provides that the owner of shares of a state bank who votes against a merger which results in a Delaware state bank shall be entitled to receive their value in cash, if and when the merger becomes effective, upon written demand, made to the resulting bank at any time within 30 days after the effective date of the merger accompanied by the surrender of the stock certificates. The value of such shares shall be determined, as of the date of the stockholders’ meeting approving the merger, by three appraisers, one to be selected by the owners of two thirds of the shares involved, one by the board of directors of the resulting bank, and the third by the two appraisers so chosen. The valuation agreed upon by any two appraisers shall govern. If the appraisal is not completed within 90 days after the merger becomes effective the Delaware State Bank Commissioner shall cause an appraisal to be made. The expenses of appraisal shall be paid by the resulting bank. The resulting bank may also fix an amount which it considers to be not more than the value of its shares which it will pay dissenting shareholders for their shares. Dissenting shareholders may accept that offer or seek appraisal, as described above.	The DGCL provides shareholders of a corporation involved in a merger the right to demand and receive payment of the fair value of their stock in certain mergers. However, appraisal rights are not available to holders of shares: • listed on a national securities exchange, • designated as a national market system security on an interdealer quotation system operated by the National Association of Securities Dealers, Inc., or • held of record by more than 2,000 shareholders unless they are required to accept in the merger anything other than any combination of: • shares of stock or depository receipts of the surviving corporation in the merger, • shares of stock or depository receipts of another corporation that, at the effective date of the merger, will be • listed on a national securities exchange, • designated as a national market system security on an interdealer quotation system operated by the National Association of Securities Dealers, Inc., or held of record by more than 2,000 holders; or • cash instead of partial shares of the stock or depository receipts received.

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EXPERTS

The financial statements of the Bank as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 appearing in this proxy statement/prospectus have been audited by Grant Thornton LLP, independent registered public accounting firm, whose report is included in this proxy statement/prospectus and given upon their authority as experts in accounting and auditing.

The consolidated financial statements of The Bancorp, Inc. and its subsidiaries as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 appearing in this proxy statement/prospectus, have been audited by Grant Thornton LLP, independent registered public accounting firm, whose report is included in this proxy statement/prospectus and given upon their authority as experts in accounting and auditing.

Cedar Hill Advisors, LLC has consented to the use of its name and its opinion included as Annex B to this proxy statement/prospectus.

LEGAL MATTERS

The validity of the Bancorp common stock and the United States federal income tax consequences of the reorganization will be passed upon for us by Ledgewood Law Firm, P.C., Philadelphia, Pennsylvania.

SHAREHOLDER PROPOSALS AND NOMINATIONS

Following completion of the reorganization, and under the Commission’s rules, holders of our common stock who desire to submit proposals for inclusion in our proxy statement for our 2005 annual meeting of shareholders, subject to compliance with the eligibility standards specified in such rules, must submit such proposals to our corporate secretary by _____________. The proxy for the 2005 annual meeting of shareholders may confer discretionary authority to vote on any matters brought before that meeting where:

•

we receive notice of the proposal before ____________, 2005 and advise shareholders in the 2005 proxy statement about the nature of the proposal and how management intends to vote on the proposal, or


	•	we have not received notice of the matter by ____________, 2005.

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According to our by-laws, the only persons eligible for election as directors are those persons who have been duly nominated by:

•

the incumbent directors or


	•	by a shareholder who is entitled to vote at the annual meeting of shareholders and who has filed his nominations with our corporate secretary at least twenty days before the time scheduled for said meeting.

A shareholder who wishes to submit his or her recommendations for director candidates to the Nomination and Governance Committee should send the written recommendation to our Delaware offices, attention: Nominating and Governance Committee Chairman. The shareholder must represent that he or she is a shareholder of ours and will remain so through the date of the relevant annual meeting of shareholders and include the written consent of the person or persons so recommended to serve as directors if nominated and elected. All shareholder recommendations received by the Nominating and Governance Committee will be reviewed at the first meeting of the Nominating and Governance Committee held after receipt of the recommendation. The Nominating and Governance Committee will consider nominees recommended by shareholders for the 2005 annual meeting if submitted as described above at least one month before the meeting of the Nominating and Governance Committee scheduled for _________ 2005.

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INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of The Bancorp, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statement of Changes in Shareholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

Unaudited Consolidated Financial Statements of The Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets	F-30
Consolidated Statements of Operations	F-31
Consolidated Statement of Changes in Shareholders’ Equity	F-32
Consolidated Statements of Cash Flows	F-33
Notes to Consolidated Financial Statements	F-34

Financial Statements of The Bancorp Bank
Report of Independent Registered Public Accounting Firm	F-40
Balance Sheets	F-41
Statements of Operations	F-42
Statement of Changes in Shareholder’s Equity	F-43
Statements of Cash Flows	F-44
Notes to Financial Statements	F-45

Unaudited Financial Statements of The Bancorp Bank
Balance Sheets	F-67
Statements of Operations	F-68
Statements of Changes in Shareholder’s Equity	F-69
Statements of Cash Flows	F-70
Notes to Financial Statements	F-71

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Report of Independent Registered Public Accounting Firm

Board of Directors
The Bancorp, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of The Bancorp, Inc. and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 consolidated financial position of The Bancorp, Inc. and its subsidiaries as of December 31, 2003 and 2002, and their consolidated results of operations and their consolidated cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
February 18, 2004

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2003			2002

	(in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	11,650		$	4,671
Interest bearing deposits		1,027			1,021
Federal funds sold		29,506			24,456

Total cash and cash equivalents		42,183			30,148

Investment securities, available-for-sale		24,387			33,629
Loans, net		230,406			161,958
Premises and equipment, net		2,377			2,723
Accrued interest receivable		1,219			937
Other assets		3,589			4,029

Total assets	$	304,161		$	233,424


LIABILITIES
Deposits
Demand (non-interest bearing)	$	48,006		$	34,405
Savings, money market and interest checking		111,438			90,518
Time deposits		104,410			76,333
Time deposits, $100,000 and over		12,911			8,187

Total deposits		276,765			209,443

Securities sold under agreements to repurchase		3			1,008
Accrued interest payable		218			418
Other liabilities		252			336
Guaranteed preferred beneficial interests in Company’s		5,250			5,250

Total liabilities		282,488			216,455


SHAREHOLDERS’ EQUITY
Common stock – authorized, 20,000,000 shares of $1.00 par value; issued and outstanding, 2,284,200 and 1,883,594 shares for 2003 and 2002, respectively		2,284			1,884
Series A preferred stock – authorized, 5,000,000 shares of $0.01 par value; issued and outstanding, 1,083,829 and 1,021,197 shares for 2003 and 2002 with a liquidation value of $10.00 per share		11			10
Additional paid-in capital		30,369			25,785
Accumulated deficit		(10,835	)		(11,025	)
Accumulated other comprehensive income (loss)		(156	)		315

Total shareholders’ equity		21,673			16,969

Total liabilities and shareholders’ equity	$	304,161		$	233,424

The accompanying notes are an integral part of these statements.

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2003			2002			2001

	(in thousands)
Interest income
Loans, including fees	$	12,508		$	9,469		$	5,071
Investment securities		1,984			2,403			1,015
Federal funds sold		297			181			1,351
Interest bearing deposits		8			7			37

		14,797			12,060			7,474

Interest expense
Deposits		4,857			4,241			3,553
Securities sold under agreements to repurchase		15			44			13
Trust preferred securities		551			305			—

		5,423			4,590			3,566

Net interest income		9,374			7,470			3,908

Provision for loan and lease losses		685			600			435

Net interest income after provision for loan and lease losses		8,689			6,870			3,473

Non-interest income
Service fees on deposit accounts		878			431			92
Merchant credit card deposit fees		7,980			3,273			1,129
Gains on sales of investment securities		787			20			82
Leasing income		205			256			397
Other		637			362			19

Total non-interest income		10,487			4,342			1,719

Non-interest expense
Salaries and employee benefits		5,004			3,663			3,460
Occupancy expense		1,531			1,675			1,472
Merchant credit card deposit		7,410			2,648			1,061
Data processing expense		886			704			521
Advertising		242			292			337
Professional fees		230			262			405
Other		3,052			1,768			1,450
Litigation settlement expense		—			691			—

Total non-interest expense		18,355			11,703			8,706

Net income (loss) from continuing operations		821			(491	)		(3,514	)

Discontinued operations
Loss from discontinued operations of FinancialMuse.com, Inc.		—			—			(639	)
Gain on disposal of FinancialMuse.com, Inc.		—			—			535

		—			—			(104	)

Net income (loss) before income tax benefit		821			(491	)		(3,618	)

Income tax benefit		(250	)		(500	)		—

Net income (loss)		1,071			9			(3,618	)

Less preferred stock dividends and accretion		(881	)		(750	)		(278	)

Net income (loss) available to common shareholders	$	190		$	(741	)	$	(3,896	)

Net income (loss) per share – basic	$	0.09		$	(0.39	)	$	(2.07	)

Net income (loss) per share – diluted	$	0.09		$	(0.39	)	$	(2.07	)

The accompanying notes are an integral part of these statements.

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Years ended December 31, 2003, 2002 and 2001

	Common stock		Series A preferred stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive income (loss)			Comprehensive income (loss)			Total

	(in thousands)

Balance at January 1, 2001	$	1,884	$	—	$	15,467	$	(6,388	)	$	—					$	10,963
Net loss		—		—		—		(3,618	)				$	(3,618	)		(3,618	)
Issuance of Series A preferred stock		—		7		5,886		—			—						5,893
Stock dividends on Series A preferred stock		—		—		98		(98)			—						—
Issuance of common stock warrants		—		—		1,292		—			—						1,292
Accretion of Series A preferred stock		—		—		180		(180)			—						—
Other comprehensive loss, net of reclassification adjustments and tax		—		—		—		—			(291	)		(291	)		(291	)

Total other comprehensive loss													$	(3,909	)

Balance at December 31, 2001	$	1,884	$	7	$	22,923	$	(10,284	)	$	(291	)				$	14,239
Net income		—		—		—		9			—		$	9			9
Issuance of Series A preferred stock		—		2		1,521		—			—						1,523
Stock dividends on Series A
preferred stock		—		1		237		(238)			—						—
Issuance of common stock warrants		—		—		592		—			—						592
Accretion of Series A preferred stock		—		—		512		(512)			—						—
Other comprehensive income, net of
reclassification adjustments and tax		—		—		—		—			606			606			606

Total other comprehensive income													$	615

Balance at December 31, 2002		1,884		10		25,785		(11,025	)		315						16,969
Net income		—		—		—		1,071			—		$	1,071			1,071
Issuance of Series A preferred stock		400		—		3,704		—			—			—			4,104
Stock dividends on Series A
preferred stock		—		1		252		(253)			—			—			—
Issuance of common stock warrants		—		—		—		—			—			—			—
Accretion of Series A preferred stock		—		—		628		(628)			—			—			—
Other comprehensive income, net of reclassification adjustments and tax				—							(471	)		(471	)		(471	)

Total other comprehensive income													$	600

Balance at December 31, 2003	$	2,284	$	11	$	30,369	$	(10,835	)	$	(156	)				$	21,673

The accompanying notes are an integral part of this statement.

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2003			2002			2001

Operating activities
Net income (loss)	$	1,071		$	9		$	(3,618	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		777			1,151			752
Provision for loan and lease losses		685			600			435
Net amortization (accretions) of premium (discount)		16			(80	)		—
Net gain on sales of investment securities		(787	)		(20	)		(82	)
Net gain on disposal of business		—			—			(535	)
Deferred income tax benefit		(250	)		(500	)		—
Net change in net assets of discontinued operations		—			—			(284	)
Increase in accrued interest receivable		(282	)		(394	)		(688	)
(Decrease) increase in interest payable		(200	)		179			(46	)
(Increase) decrease in other assets		932			(952	)		(1,011	)
Increase (decrease) in other liabilities		(84	)		(167	)		(556	)

Net cash provided by (used in) operating activities		1,878			(174	)		(5,633	)

Investing activities
Purchase of investment securities		(25,218	)		(8,551	)		(41,046	)
Proceeds from sales of investment securities		22,623			2,121			1,529
Proceeds from maturity of investment securities		11,895			10,594			2,337
Cash received on disposition of FinancialMuse.com, Inc.		—			—			1,300
Net increase in loans		(69,133	)		(57,130	)		(78,287	)
Purchases of premises and equipment		(431	)		(369	)		(570	)

Net cash used in investing activities		(60,264	)		(53,335	)		(114,737	)

Financing activities
Net increase in deposits		67,322			71,926			65,001
Net decrease in securities sold under agreements to repurchase		(1,005	)		(1,500	)		2,508
Proceeds from issuance of common stock, net		4,104			—			—
Proceeds from issuance of Series A preferred stock, net		—			2,115			7,185
Proceeds from issuance of beneficial interest in the Company’s subordinated debentures		—			5,250			—

Net cash provided by financing activities		70,421			77,791			74,694

Net increase (decrease) in cash and cash equivalents		12,035			24,282			(45,676	)
Cash and cash equivalents, beginning of year		30,148			5,866			51,552

Cash and cash equivalents, end of year	$	42,183		$	30,148		$	5,866

The accompanying notes are an integral part of these statements.

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THE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A — FORMATION AND STRUCTURE OF COMPANY

The Bancorp, Inc. (the Company) was incorporated in the state of Delaware and is a registered bank holding company under the Bank Holding Company Act of 1956. The Company operates as a bank holding company with a wholly owned subsidiary bank, The Bancorp Bank (the Bank). In 2002, the Company changed its name to The Bancorp, Inc. The Bank is a Delaware chartered commercial bank located in Wilmington, Delaware and is FDIC insured institution. The Company provides retail and commercial banking services in the Philadelphia, Pennsylvania and Wilmington, Delaware areas. The Company offers an affinity group the ability to customize the banking services through the affinity group website. The Company commenced operations on July 28, 2000.

The financial service industry is highly competitive in general. Many of the Bank’s principal competitors, including traditional banks and thrifts, other Internet banks and other financial service providers, such as brokerage and insurance companies, have greater financial and other resources than the Bank does and may offer services, such as trust services, that the Bank does not provide or will not be authorized to provide. Because there are few barriers to on-line market entry for existing chartered financial institutions, the Bank’s potential competitors could implement Internet banking operations with relative ease. Furthermore, brokerage companies and other financial service providers may not be subject to the same degree of regulation as is the Bank.

The Company and the Bank are subject to regulation by certain state and federal agencies and, accordingly, they will be periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company’s and the Bank’s businesses will be susceptible to being affected by state and federal legislation and regulations.

NOTE B — SUMMARY OF ACCOUNTING POLICIES


	1. Basis of Presentation

The accounting and reporting policies of the Bank conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry. . The consolidated financial statements include the accounts of the Company, the Bank, the Company’s majority owned subsidiary FinancialMuse.com, Inc. (FinancialMuse) and its wholly-owned subsidiary FinancialMuse Securities (FMSC). The Company sold its interest in FinancialMuse on September 30, 2001. Although FinancialMuse only became a majority-owned subsidiary in September 2000, the Company has had significant influence over its management and results of its operations since inception and the Company has funded FinancialMuse’s operations since its inception. Accordingly, the Company has included the results of FinancialMuse’s operations for the period January 1, 2001 through September 30, 2001 (date of disposal).

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. Actual results could differ from those revenues.

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

The principal estimate that is particularly susceptible to significant change in the near term relates to the allowance for loan and lease losses. The evaluation of the adequacy of the allowance for loan and lease losses includes, among other factors considered, an analysis of historical loss rates, by category, applied to current loan totals. However, actual losses may be higher or lower than historical trends, which vary. Actual losses on specified problem loans, which also are provided for in the evaluation, may vary from those estimated loss percentages, which are established based upon a limited number of potential loss classifications.

2. Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and amounts due from banks with an original maturity of three months or less and federal funds sold. Cash paid for interest was approximately $5,623,000, $4,411,000 and $3,612,00 for the years ended December 31, 2003, 2002 and 2001, respectively.

3. Investment Securities

The Company accounts for its investment securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Investments in debt and equity securities which management has both the ability and intent to hold to maturity are carried at cost, adjusted for the amortization of premiums and accretion of discounts computed by the level interest method. Investments in debt and equity securities, which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements, or other factors, are classified as available for sale. Net unrealized gains and losses for such securities, net of tax effect, are reported as other comprehensive income and excluded from the determination of net income. The Bank does not engage in securities trading. Gains or losses on disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended, requires that entities recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. Depending upon the effectiveness of the hedge and/or the transaction being hedged, any changes in the fair value of the derivative instrument is either recognized in earnings in the current year, deferred to future periods, or recognized in other comprehensive income. Changes in the fair value of all derivative instruments not recognized as hedge accounting are recognized in current year earnings. The Bank did not engage in hedging as of December 31, 2003 and 2002.

The Bank adopted EITF 03-1 “The Meaning of Other than Temporary Impairment and Its Application to Certain Investments” as of December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative and qualitative disclosures for investment securities accounted for under FAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. The disclosures under EITF 03-1 are required for financial statements for years ending after December 15, 2003. The Bank includes the required disclosures in these financial statements.

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued


	4. Loans and Allowance for Loan and Lease Losses

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal and are net of unearned discount, unearned loan fees and an allowance for loan and lease losses. The allowance for loan and lease losses is established through a provision for loan and lease losses charged to expense. Loan principal considered to be uncollectible by management is charged against the allowance for loan and lease losses. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based upon an evaluation of known and inherent risks in the loan portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the loan portfolio, overall portfolio quality, specific problem loans, and current economic conditions which may affect the borrowers’ ability to pay. The evaluation also details historical losses by loan category, the resulting loss rates for which are projected at current loan total amounts. Loss estimates for specified problem loans are also detailed.

Interest income is accrued as earned on a simple interest basis. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. When a loan is placed on non-accrual status, all accumulated accrued interest receivable applicable to periods prior to the current year is charged off to the allowance for loan and lease losses. Interest that had accrued in the current year is reversed out of current period income. Loans 90 days or more past due and still accruing interest must have both principal and accruing interest adequately secured and must be in the process of collection. As of December 31, 2003, and 2002, the Company did not have any non-accrual loans.

The Company accounts for impaired loans in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan , as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures. This standard requires that a creditor measure impairment 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. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.

SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , revised the standards for accounting for the securitization and other transfers of financial assets and collateral.

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45) requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company previously did not record an initial liability when guaranteeing obligations, except for fees received at issuance, unless it became probable that the Company would have to perform under the guarantee. FIN No. 45 applies prospectively to guarantees the Company issues or modifies subsequent to December 31, 2002. The required disclosures are included in the financial statements.

In October 2003, the AICPA issued SOP 03-3, Accounting for Loans or Certain Debt Securities Acquired in a Transfer. SOP 03-3 applies to a loan with the evidence of deterioration of credit quality since origination acquired by completion of a transfer for which it is probable at acquisition, that the Company will be unable to collect all contractually required payments receivable. SOP 03-3 requires that the Company recognize the excess of all cash flows expected at acquisition over the investor’s initial investment in the loan as interest income on a level-yield basis over the life of the loan as the accretable yield. The loan’s contractual required payments receivable in excess of the amount of its cash flows excepted at acquisition (nonaccretable difference) should not be recognized as an adjustment to yield, a loss accrual or a valuation allowance for credit risk. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. Early adoption is permitted. Management is currently evaluating the provisions of SOP 03-3.

5. Premises and Equipment

Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation expense is computed on the straight-line method over the useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the improvements or the terms of the related leases.

The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets on January 1, 2002. SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. The adoption of this statement did not have a material impact on the financial condition or results of operations of the Company.

6. Internal Use Software

Under the provisions of Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use , the Company capitalizes costs associated with internally developed and/or purchased software systems for new products and enhancements to existing products that have reached the application stage and meet recoverability tests. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software, payroll and payroll related expenses for employees who are directly associated with and devote time to the internal-use software project and interest costs incurred, if material, while developing internal-use software. Capitalization of such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its intended purpose.

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

The carrying value of the software is periodically reviewed and a loss is recognized if the value of the estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost. Amortization is provided using the straight-line method over the estimated useful life of the related software, which is generally three to seven years. As December 31, 2003 and 2002, the Company has capitalized total software costs of approximately $1,210,000 and $1,012,000, respectively. The Company has recorded amortization expense of approximately $278,000, $173,000 and $58,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

7. Income Taxes

The Company accounts for income taxes under the liability method whereby deferred tax assets and liabilities are determined based on the difference between the carrying values on the 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.

8. Stock-Based Compensation

The Company accounts for its stock options under SFAS No. 123, Accounting for Stock-Based Compensation , which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Alternatively, the standard permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied.

At December 31, 2002, the Parent had a stock-based compensation plan, which is more fully described in note L. The Parent accounts for that plan under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees , and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. FASB Interpretation No. 44 provides an exception that allows a subsidiary to account for stock options granted to subsidiary employees to purchase Parent common stock under APB No. 25 if the Parent accounts for those stock options under APB No. 25. The following table illustrates the effect on net income (loss) and income (loss) per share if the Bank had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation , to stock-based employee compensation (in thousands).

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

	Year ended December 31,
	2003			2002			2001

	(in thousands except share data)
Net income (loss), as reported	$	1,071		$	9		$	(3,618	)
Less stock-based compensation costs under fair value based method for all awards		(534	)		(524	)		(512	)

Pro forma net income (loss)		537			(515	)		(4,130	)

Less preferred stock dividends and accretion		(881	)		(750	)		(278	)

Net income (loss) available to common shareholders	$	(344	)	$	(1,265	)	$	(4,408	)

Pro forma basic earnings per share	$	(0.17	)	$	(0.67	)	$	(2.67	)

Pro forma diluted earnings per share	$	(0.17	)	$	(0.67	)	$	(2.67	)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2003, 2002 and 2001: dividend yield of 0%; 4.25% and 5.85% risk-free interest rate, respectively; and expected lives of ten years. There were no grants in 2001.

9. Advertising Costs

The Company expenses advertising cost as incurred.

10. Earnings per Share

The Company calculates earnings per share under the provisions of SFAS No. 128, Earnings Per Share . Basic earnings per share exclude dilution and are computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share take into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

	Year ended December 31, 2003
	Income (numerator)		Shares (denominator)		Per share Amount

	(in thousands)
Basic earnings per share
Net income available to common shareholders	$	190		2,010,529	$	0.09
Effect of dilutive securities
Options		—		14,390		—
Warrants		—		51,988		—

Diluted earnings per share
Net income available to common stockholders plus assumed conversions	$	190		2,076,907	$	0.09

Convertible Series A Preferred Stock of 1,083,529 were outstanding at December 31, 2003 were not included in the computation of diluted earnings per share because upon conversion to common stock they were anti-dilutive to diluted earnings per share.

The weighted average shares for December 31, 2002 were 1,883,594. Stock options and warrants of 464,750 and 1,946,579, respectively, for $10.00 per share were outstanding at

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

December 31, 2002 but were not included in the weighted average shares because the exercise price equaled the market price.

Convertible Series A Preferred Stock of 1,021,197 were outstanding at December 31, 2002 were not included in the computation of diluted earnings per share because upon conversion to common stock they were anti-dilutive to diluted earnings per share.

The weighted average shares for December 31, 2001 were 1,883,594. Stock options and warrants of 428,500 and 1,453,058, respectively, for $10.00 per share were outstanding at December 31, 2001 but were not included in the weighted average shares because the exercise price equaled the market price.

The Convertible Series A Preferred Stock of 793,947 were outstanding at December 31, 2001 were not included in the computation of diluted earnings per share because upon conversion to common stock they were anti-dilutive to diluted earnings per share.

11. Comprehensive Income

Comprehensive income consists of net income or loss for the current period and income, expenses, gains, and losses that bypass the statement of operations and are reported directly in a separate component of equity.

The income tax effects allocated to comprehensive income (loss) are as follows (in thousands):

	December 31, 2003
	Before tax amount			Tax benefit (expense)			Net of tax amount

Unrealized losses on investment securities
Unrealized holding losses arising during period	$	33		$	11		$	22
Less reclassification adjustment for gains realized in net loss		747			(254	)		493

Other comprehensive loss, net	$	(714	)	$	(243	)	$	(471	)


		December 31, 2003

		Before tax amount			Tax benefit (expense)			Net of tax amount

Unrealized losses on investment securities
Unrealized holding losses arising during period	$	940		$	(321	)	$	619
Less reclassification adjustment for gains realized in net loss		20			(7	)		13

Other comprehensive gain, net	$	920		$	(314	)	$	606

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

	December 31, 2001
	Before			Tax			Net of
	tax			benefit			tax
	amount			(expense)			amount

Unrealized losses on investment securities
Unrealized holding losses arising during period	$	(382	)	$	128		$	(254	)
Less reclassification adjustment for gains realized in net loss		61			(24	)		37

Other comprehensive loss, net	$	(443	)	$	152		$	(291	)

12. Restrictions on Cash and Due From Banks

The Bank is required to maintain reserves against customer demand deposits by keeping cash on hand or balances with the Federal Reserve Bank in a non-interest bearing account. The amount of those reserves and cash balances at December 31, 2003 and 2002 were approximately $3,203,000 and $1,023,000, respectively.

13. Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities . FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements , to certain entities in which voting rights are not effective in identifying the investor with the controlling financial interest. An entity is subject to consolidation under FIN 46 if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities, or are not exposed to the entity’s losses or entitled to its residual returns (“variable interest entities”). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both.

Management has determined that The Bancorp Capital Trust (the Trust) qualifies as a variable interest entity under FIN 46. The Trust issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trust holds, as its sole asset, subordinated debentures issued by the Company in 2002. The Trust is currently included in the Company’s consolidated balance sheet and statements of income. The Company has evaluated the impact of FIN 46 and concluded it should continue to consolidate The Trust as of December 31, 2003, in part due to its ability to call the preferred stock prior to the mandatory redemption date and thereby benefit from a decline in required dividend yields.

Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities by March 31, 2004. The Company plans to adopt the provisions under the revised interpretation in the first quarter of 2004. FIN 46(R) will require the Company to deconsolidate The Trust as of January 1, 2005. FIN 46(R) precludes consideration of the call option embedded in the preferred stock when determining if the Company has the right to a majority of The Trust’s expected residual returns. Accordingly, the Company will deconsolidate The Trust at the end of the first quarter, which will result in an increase in outstanding debt by $163,000. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for the trust-preferred securities issued

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

by The Trust based on the adoption of FIN 46(R). However, as additional interpretations from the banking regulators related to entities such as The Trust become available, management will reevaluate its potential impact to its Tier 1 capital calculation under such interpretations.

14. Deferred Financing Costs

Deferred financing costs related to the issuance of subordinated debt are being amortized over fifteen years and are included in other assets. The unamortized balance at December 31, 2003 and 2002 is $504,000 and $542,000. The Company recognized amortization expense of $38,000 and $18,000 for the years ended December 31, 2003 and 2002.

15. Reclassifications

Certain reclassifications have been made to the 2002 and 2001 financial statements to conform to the 2003 presentation.

NOTE C — INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities available-for-sale are summarized as follows (in thousands):

	December 31, 2003
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value

Mortgage-backed securities	$	10,604	$	10	$	(363	)	$	10,251
Other securities		14,019		266		(149	)		14,136

	$	24,623	$	276	$	(512	)	$	24,387

	December 31, 2002

			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value

Mortgage-backed securities	$	17,567	$	346	$	(59	)	$	17,854
Other securities		15,584		480		(289	)		15,775

	$	33,151	$	826	$	(348	)	$	33,629

The amortized cost and fair value of the Bank’s investment securities available-for-sale at December 31, 2003 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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NOTE C — INVESTMENT SECURITIES — Continued

	December 31, 2003
	Amortized		Fair
	cost		value

Investment securities available-for-sale
Due after 5 years through 10 years	$	7,932	$	7,895
Due after 10 years		16,489		16,290
Federal Home Loan and Atlantic Central Bankers Stock		202		202

	$	24,623	$	24,387

At December 31, 2003 and 2002, investment securities with a book value of approximately $8,538,000 and $11,052,000, respectively, were pledged to secure deposits as required or permitted by law. Gross gains on sales were $747,000, $20,000 and $20,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Gross losses were not material for the years ended December 31, 2003, 2002 and 2001.

The table below indicates the length of time individual securities have been in continuous unrealized loss position at December 31, 2003:

	Number		Less than 12 months					12 months or longer					Total
	of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	securities		value		losses			value		losses			value		losses

			(in thousands)
Mortgage-backed securities		13	$	5,663	$	(84	)	$	4,508	$	(279	)	$	10,171	$	(363	)
Other securities		8		7,086		(148	)		31		(1	)		7,117		(149	)

Total temporarily impaired investment securities		21	$	12,749	$	(232	)	$	4,539	$	(280	)	$	17,288	$	(512	)

Management has evaluated the securities in the above table and has concluded that none of these securities have impairments that are other-than temporary. In its evaluation, management considered the types of securities and what the credit rating was on the securities. Most of the securities that are in an unrealized loss position are in a loss position because of changes in interest rates since the securities were purchased. The securities that have been in an unrealized loss position for 12 months or longer include mortgage backed securities whose market values are sensitive to interest rates.

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NOTE D — LOANS

Major classifications of loans are as follows:

	December 31,
	2003			2002

	(in thousands)
Commercial	$	53,130		$	36,037
Commercial mortgage		89,772			71,016
Construction		29,026			9,400
Direct financing leases, net		38,405			30,958
Residential mortgage		6,473			4,433
Consumer loans and other		14,989			10,815

		231,795			162,659
Less
Allowance for loan and lease losses		(1,991	)		(1,379	)
Deferred costs, net		602			678

	$	230,406		$	161,958

Loan balances past due 90 days or more and still accruing interest, but which management expects will eventually be paid in full, amounted $44,000, $40,000 and $17,000 at December 31, 2003, 2002 and 2001, respectively. The Bank did not have any non-accrual or impaired loans at December 31, 2003 or 2002.

Changes in the allowance for loan and lease losses are as follows:

	December 31,
	2003			2002			2001

	(in thousands)
Balance at beginning of year	$	1,379		$	780		$	350
Charge-offs		(74	)		(1	)		(5	)
Recoveries		1			—			—
Provision charged to operations		685			600			435

Balance at end of year	$	1,991		$	1,379		$	780

NOTE E — PREMISES AND EQUIPMENT

Premises and equipment are as follows:

	Estimated		December 31,
	useful lives		2003			2002

			(in thousands)
Furniture, fixtures and equipment		3 to 12 years	$	4,450		$	4,040
Leasehold improvements		4 to 20 years		706			679

				5,156			4,719
Accumulated depreciation				(2,779	)		(1,996	)

			$	2,377		$	2,723

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NOTE F — DEPOSITS

At December 31, 2003, the scheduled maturities of certificates of deposit are as follows (in thousands):

2004	$	51,456
2005		52,957
2006		12,908

	$	117,321

NOTE G — DEBT


	1. Line of Credit

The Bank entered into a $5,000,000 unsecured line of credit during 2002 that bears interest at a variable rate and is renewed annually. As of December 31, 2003, no funds were outstanding under this line.

2. Guaranteed Preferred Beneficiary Interest in Company’s Subordinated Debt

In June 2002, the Company issued $5.25 million of 10.5% fixed rate subordinated debentures (the Debentures) due June 12, 2007 to The Bancorp Capital Trust (the Trust), a Delaware business trust, which is a wholly-owned subsidiary of the Company. The Debentures are the sole asset of the Trust. The Trust issued 5,250,000 shares of trust-preferred securities, $10 face value, for total proceeds of $5,250,000. The Company’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are redeemable by the Company on or after June 12, 2007, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier 1 capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2032. The ability of the Company’s banking subsidiary to pay dividends or extend credit to the Company is subject to legal and regulatory limitations.

NOTE H — SHAREHOLDERS’ EQUITY

In August 2003, the Company sold 389,242 shares of common stock at a price of $11.00 per share in a private placement. The proceeds of the offering were approximately $3,980,000, net of offering costs of approximately $302,000, which included $214,000 paid to an affiliate.

In May 2001, the Company amended its Certificate of Incorporation whereby the number of authorized preferred shares was 5,000,000 shares at $0.01 per value.

The Company also issued warrants to purchase 92,282 of common stock, at a price of $10.00 per share, to Hudson United Bancorp (HUB Warrants), an owner of 92,282 shares or 4.9% of the Company’s outstanding stock at December 31, 2002 and 2001. The HUB Warrants expired unexercised on October 29, 2002.

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NOTE I — SERIES A PREFERRED STOCK

The Company paid its 6% annual dividend in 2003 in the form of a stock dividend on the Preferred Stock. These stock dividends were paid quarterly and resulted in the issuance of 62,232 shares of preferred stock.

In July 2002, the Company sold 225,000, units at a price of $10.00 per unit in a private placement. A unit consists of one share of Series A Preferred Stock (2002 Preferred Stock) and two detachable warrants. The proceeds of the offering were approximately $2,155,000 net of offering costs of approximately $135,000.

In connection with the issuance of the Preferred Stock, the Company also issued 493,521 detachable warrants to the holders of the Preferred Stock to purchase shares of Common Stock at $10.00 per share, $1.00 par value. The fair value of the warrants at the date of issuance approximated $592,000 and is reflected as a discount to the Preferred Stock and is being amortized over the life of the warrants. 93,521 of these warrants expire on June 12, 2006 and the remaining 400,000 warrants expire on July 19, 2005.

In September 2002, the Company declared a 1% stock dividend on the 2002 Preferred Stock which was paid on October 15, 2002 for Preferred Stockholders on September 30, 2002. In December 2002, the Company declared a 1.5% stock dividend on the 2002 Preferred Stock which was paid on January 15, 2003 for Preferred Stockholders on December 31, 2002. A total of 5,675 shares of preferred stock were issued for stock dividends on the 2002 preferred stock.

In July 2001, the Company sold 726,529, units at a price of $10.00 per unit in a private placement. A unit consists of one share of Series A Preferred Stock (2001 Preferred Stock) and two detachable warrants. The proceeds of the offering were approximately $7,185,000 net of offering costs of approximately $80,000.

The Company paid its 6% annual dividend in 2002 in the form of a stock dividend on the 2001 Preferred Stock. These stock dividends were paid quarterly and resulted in the issuance of 45,690 shares of preferred stock.

In connection with the issuance of the 2001 Preferred Stock, the Company also issued 1,453,058 detachable warrants to the holders of the Preferred Stock to purchase shares of Common Stock at $10.00 per share, $1.00 par value. The fair value of the warrants at the date of issuance approximated $1.3 million and is reflected as a discount to the Preferred Stock and is being amortized over the life of the warrants. On July 25, 2004, 1,282,802 warrants expire and on August 14, 2004 170,256 warrants expire.

In September 2001, the Company declared a 1% stock dividend on the 2001 Preferred Stock which was paid on October 15, 2001 for Preferred Stockholders on September 30, 2001. In December 2001, the Company declared a 1.5% stock dividend on the 2001 Preferred Stock which was paid on January 15, 2002 for Preferred Stockholders on December 31, 2001.

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NOTE I — SERIES A PREFERRED STOCK

Holders of the Preferred Stock are entitled to one vote for each share, a liquidation preference at $10.00 per share, a noncumulative preferred dividend of $0.60 per share in either cash or additional shares of Preferred Stock and a right to convert to common stock on a one-for-one basis at any time at the option of the holder. Each share of Preferred Stock has the number of votes equal to the number of shares of common stock.

NOTE J — BENEFIT PLANS

The Company maintains a 401(k) savings plan covering substantially all employees of the Company and the Bank. Under the plan, the Company matches 50% of the employee contributions for all participants not to exceed 6% of their salary. Contributions made by the Bank were approximately $106,000, $90,000 and $81,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

In July 2000, FinancialMuse formed a 401(k) savings plan covering substantially all employees of FinancialMuse and its subsidiary. Under the plan, FinancialMuse matches 50% of employee contributions for all participants, not to exceed 3% of their salary. Contributions made by FinancialMuse were approximately $10,000 for the year ended December 31, 2001.

NOTE K — INCOME TAXES

The components of the income tax benefit included in the statements of operations are as follows:

	For the year ended December 31,
	2003			2002			2001

Income tax benefit
Current	$	—			—		$	—
Deferred benefit		(250,000	)		(500,000	)		—

Applicable income tax benefit	$	(250,000	)	$	(500,000	)	$	—

The differences between applicable income tax expense and the amounts computed by applying the statutory federal income tax rate of 34% are as follows:

	For the year ended December 31,
	2003			2002			2001

Computed tax expense (benefit) at statutory rate	$	279,000		$	(167,000	)	$	(1,230,000	)
Change in valuation allowance		(250,000	)		(500,000)			—
Previously unrecognized NOL		(295,000)			—			—
Unrecognized benefit of net operating loss carryovers		—			161,000			1,209,000
Other		16,000			6,000			21,000

Applicable tax benefit	$	(250,000	)	$	(500,000	)	$	—

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NOTE K — INCOME TAXES — Continued

Deferred income taxes are provided for the temporary difference between the financial reporting basis and the tax basis of the Bank’s assets and liabilities. Cumulative temporary differences are as follows:

	December 31,
	2003			2002

Allowance for loan and lease losses	$	(63,000	)	$	(295,000	)
Capitalized costs		4,000			8,000
Depreciation and amortization		(160,000	)		(175,000	)
Net operating loss carryforwards		2,302,000			3,104,000
Unrealized (gains) losses on investment securities available for sale		81,000			(162,000	)

		2,164,000			2,480,000
Less valuation allowance		(1,333,000	)		(2,142,000	)

Net deferred tax asset (included in other assets)	$	831,000		$	338,000

A valuation allowance has been recognized for the Bank’s net operating loss carryforwards and future deductible items as cumulative losses create uncertainty about realization of the tax benefits in future years.

At December 31, 2003, the Bank had net operating loss carryforwards of approximately $6,770,000, expiring through 2022, available to reduce future taxable income.

NOTE L — STOCK-BASED COMPENSATION

In December 2003, the Bank adopted a stock option plan (the 2003 plan). Employees and directors of the Bank are eligible to receive options under the 2003 plan. An aggregate of 760,000 shares of common stock for the Bank has been reserved. Options expire on the tenth anniversary. There have been no options granted under the 2003 plan.

In October 1999, the Parent adopted a stock option plan (the 1999 Plan). Employees and directors of the Parent and the Company are eligible to receive options under the 1999 Plan. An aggregate of 1,000,000 shares of common stock have been reserved under the 1999 Plan, with no more than 75,000 shares being issued to non-employee directors. Options vest over four years and expire on the tenth anniversary of the grant.

A summary of the status of the Company’s stock option plan, and the change during the year is presented below.

	2003				2002					2001
			Weighted					Weighted					Weighted
			average					average					average
			exercise					exercise					exercise
	Shares		price		Shares			price		Shares			price

Outstanding, beginning of year		464,750	$	10.00		428,500		$	10.00		444,000		$	10.00
Granted		70,000		10.99		46,000			10.00		—			—
Cancelled/forfeited		9,000		10.00		(9,750	)		10.00		(15,500	)		10.00

Outstanding, end of year		525,750		10.13		464,750			10.00		428,500			10.00

Options exercisable at year end		380,188				269,000					107,125

Weighted average fair value of options granted during the year	$	3.72			$	4.43				$	—

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NOTE L — STOCK-BASED COMPENSATION — Continued

The following table summarizes information about options outstanding at December 31, 2003:

	Options outstanding						Options exercisable

Range of exercise prices	Number outstanding at December 31, 2003		Weighted average remaining contractual life		Weighted average exercise price		Number outstanding at December 31, 2003		Weighted average exercise price

$10.00 — $11.00		525,750		6.88 years	$	10.13		372,563	$	10.00

In May 2001, the Company’s shareholder approved an Employee and Non-Employee Director Non-Cash Compensation Plan (2001 Non-Cash Compensation Plan). The 2001 Non-Cash Compensation Plan allows the Company to grant up to 50,000 shares of Series A preferred stock to employees, directors or consultants who provide services to the Company or its subsidiaries. Grants must be approved by the board of directors and based upon terms designated by the board. As of December 31, 2003 and 2002, no shares had been granted under the 2001 Non-Cash Compensation Plan.

NOTE M — TRANSACTIONS WITH AFFILIATES

In connection with the Company’s 2001 Series A preferred stock rights offering, Resource America, Inc. (RAI) acquired 9.69% of the Company’s Series A Preferred stock. The Chairman and the Chief Executive Officer of the Company are the son and spouse, respectively, of the Chairman and CEO of RAI. The Chairman of the Company is also a director of RAI through October 2002. The President and Chief Operating Officer of RAI is the son of the CEO of the Company. RAI also owns 9.69% of the Company’s common stock.

The Company purchased $2,000,000 of collateralized debt obligations of Trapeza Funding CDO I (Trapeza CDO I), an issuer of collateralized debt obligations. The Company purchased the collateralized debt obligations through Cohen Bros. & Company. The equity owner of Trapeza CDO I is Trapeza Partners, L.P. (Trapeza Partners), a limited partnership whose general partner is Trapeza Funding LLC (Trapeza Funding), a limited liability company owned by Financial Stocks, Inc. and Resource America, Inc. Financial Stocks and Resource America also own 20% of the limited partnership interest in Trapeza Partners. The Chairman and the Chief Executive Officer of the Company are the son and spouse, respectively, of the Chairman and Chief Executive Officer of Resource America. The Chairman and Chief Executive Officer of Financial Stocks, Inc. is a director of the Parent. This security was sold in 2003 with no realized gain.

In October 2003 the Bank purchased an aggregate of $3.0 million of collateralized debt obligations of Alesco Preferred Funding I, Ltd. through Cohen Bros. & Company. Cohen Bros. received $41,000 of underwriting compensation in connection with the purchase. Alesco Funding I is managed by a limited liability company which is an affiliate of the Company’s Chairman, and pays management fees to such company. This security was sold in 2003 with no realized gain.

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NOTE M — TRANSACTIONS WITH AFFILIATES — Continued

The Bank purchased a total of $2,654,000 in loans from Resource America in 2001. The outstanding balance of the loans purchased from Resource America was $1,969,000, for the December 31, 2003 and 2002, respectively.

The Bank paid $429,000, $188,000 and $463,000 to Cohen Bros. & Company (Cohen Bros.) for investment securities brokerage services performed for the years ended December 31, 2003, 2002 and 2001. The Chairman of the Company is a member of Cohen Bros. Financial LLC which owns 100% of Cohen Bros. & Company. A member of the Company’s Board of Directors is an executive of Cohen Bros.

The Company paid $214,000 for investment advisory services related to the 2003 Common Stock offering and $345,000 to Cohen Bros. for investment advisory services related to the 2002 Preferred Stock and Trust Preferred offerings.

The Company entered into a sublease for office space in Philadelphia, Pennsylvania and a technical support agreement with RAIT Investment Trust (RAIT) commencing in October 2000. The Chief Executive Officer of RAIT is the Chairman and Chief Executive Officer of the Bank and the Chief Executive Officer of the Parent. Under the sublease, RAIT pays the Bank rent equal to 45% of the rent paid by the Bank and an allocation of common area expenses. Under the technical support agreements, which commenced in January 2001, the Bank also provides technical support for RAIT for a fee of $5,000 a month. RAIT paid $60,000 for the years ended December 31, 2003, 2002 and 2001. In addition, RAIT reimbursed the Bank for assistance in other technical support totaling $33,000. During the course of 2001, the Bank purchased a total of $1,485,000 in loans from RAIT loans were repaid during 2001.

The Company also has a sublease with Cohen Bros. commencing in July 2002 at a rate of $6,761 per month. Prior to 2002, the Bank subleased the office space for $1,000 per month.

In July 2002, Cohen Bros. also entered into an agreement with the Company for fees of $1,000 per month for technical support and $3,600 per month for telephone system support services. Technical and telephone support fees for Cohen Bros. were $52,000 and $55,000 for the year ended December 31, 2003 and 2002.

The Bank maintains deposits for various affiliated companies totaling approximately $34,708,000 and $48,419,000 as of December 31, 2003 and, 2002, respectively. The majority of these deposits are short-term in nature and rates are consistent with market rates.

The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on the same terms as those prevailing for comparable transactions with other borrowers. At December 31, 2002, these loans were current as to principal and interest payments, and do not involve more than normal risk of collectibility. At December 31, 2003, loans to these related parties amounted to $3,085,000. An analysis of activity in loans to related parties at December 31, 2003, resulted in new loans of $1,375,000 and repayments of $1,429,000.

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NOTE M — TRANSACTIONS WITH AFFILIATES — Continued

The Bank entered into an ATM Agreement with TRM ATM Corporation in September 2000. Under this agreement, TRM ATM installs, operates and services automated teller machines at various locations of our choosing. The Company pays TRM a monthly rental fee of $195 for each machine. The Company retains all fees and charges derived from the transactions conducted at the ATM (except for one ATM situated with one of our affinity groups in which we share such fees and charges). The Company currently leases seven machines under our agreement with TRM. TRM ATM Corporation is a wholly-owned subsidiary of TRM Corporation. The Chairman of TRM ATM is the Company’s Chairman. A director of TRM ATM is the spouse of the Company’s Chief Executive Officer and the father of the Chairman. Fees paid to TRM ATM were $15,405, $17,160 and $8,385 for the years ended December 31, 2003, 2002 and 2001, respectively.

In February 2003, the Company entered into a lending relationship with The Richardson Group Inc., which is owned by entities with whom our CEO and her spouse have controlling interests. The outstanding balance was $1,770,000 at December 31, 2003.

NOTE N — COMMITMENTS AND CONTINGENCY

1. Operating leases

The Company entered into a lease for its operations facility, which expires on March 31, 2010. The Company entered into a lease for its executive offices, which expires in 2010. These leases require payment by the Company of the real estate taxes and insurance on the leased property. Approximate future minimum annual rental payments are as follows (in thousands):

Year ending December 31,
2004	$	914
2005		880
2006		858
2007		857
2008		862
Thereafter		1,206

	$	5,577

We have provided letters of credit on two of our leases that total $616,000 at December 31, 2003. These letters reduce annually based upon rental payments made.

Rent expense for the years ended December 31, 2003, 2002 and 2001 was approximately $520,000, $569,000 and $570,000 net of rental payments from RAIT and Cohen Bros., of approximately $325,000, $183,000 and $46,000, respectively.

2. Litigation Settlement

The Company recorded a one-time expense of $691,000 for a claim that was settled during 2002. This claim arose at the time of the Company’s organization in 1999 and was continually evaluated by management over the preceding years based upon information available. In 2002, the Company recorded an expense in the amount estimated to be paid out to settle this litigation and subsequently settled this claim.

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NOTE O — FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk. The approximate contract amounts are as follows:

	December 31,
	2003		2002

	(in thousands)
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit	$	65,627	$	20,715
Standby letters of credit		4,117		1,351

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds residential or commercial real estate, accounts receivable, inventory and equipment as collateral supporting those commitments for which collateral is deemed necessary. These letters of credit expire in 2004. The extent of collateral held for those commitments at December 31, 2003 and 2002 varies up to 100%.

The Bank grants loans primarily to customers in Philadelphia and its immediately adjacent suburban Pennsylvania counties which include Chester, Delaware and Montgomery and northern Delaware.

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NOTE P — FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107 requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments. However, many such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Also, it is the Company’s general practice and intent to hold its financial instruments to maturity whether or not categorized as “available-for-sale” and not to engage in trading or sales activities, except for certain loans. Therefore, the Company has used significant estimations and present value calculations in estimating the fair value of the financial instruments.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 2002 and 2001, are outlined below.

For cash and cash equivalents, including cash and due from banks and federal funds sold the recorded book values of $42,183,000 and $30,148,000 as of December 31, 2003 and 2002, respectively, approximate fair values. The estimated fair values of investment securities are based on quoted market prices, if available. Estimated fair values are based on quoted market prices of comparable instruments if quoted market prices are not available.

The net loan portfolio at December 31, 2003 and 2002, has been valued using a present value discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The carrying value of accrued interest approximates fair value.

The estimated fair values of demand deposits (i.e., interest- and noninterest-bearing checking accounts, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly time deposit maturities. Based upon the current time deposit maturities, the carrying value approximates their fair value. The carrying amount of accrued interest payable approximates its fair value.

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NOTE P — FAIR VALUE OF FINANCIAL INSTRUMENTS — Continued

	2003				2002
	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value

	(in thousands)
Investment securities available-for-sale	$	24,387	$	24,387	$	33,629	$	33,629
Loans receivable, net		230,406		229,883		161,958		160,982
Certificates of deposits		117,321		117,737		84,520		84,553
Securities sold under agreements to repurchase		3		3		1,008		1,008
Guaranteed preferred beneficial interests in the Company’s subordinated debentures		5,250		3,811		5,250		5,250

The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are considered immaterial.

NOTE Q — REGULATORY MATTERS

Under Delaware banking law, the Bank may declare dividends on common or preferred stock of so much of the Bank’s net profits as they judge expedient, but before the declaration of a dividend on common stock from net profits, the Bank must carry 50% of the Bank’s net profits of the preceding period for which the dividend is paid to the Bank’s surplus fund until the surplus fund amounts to 50% of common stock and thereafter must carry 25% of the Bank’s net profits for the preceding period for which the dividend is paid to the Bank’s surplus fund until the surplus fund amounts to 100% of the Bank’s common stock.

The Bank and Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible 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 Banks’ assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2003, that the Bank meets all capital adequacy requirements to which they are subject.

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NOTE Q — REGULATORY MATTERS — Continued

As of December 31, 2003, the Bank met all regulatory requirements for classification 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.

As of December 31, 2003 and 2002, the Company and the Bank have the following capital ratios:

	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(dollars in thousands)
As of December 31, 2003
Total capital
(to risk-weighted assets)
Company	$	23,820		9.44%	$	12,242		> 8.00%		N/A		N/A
Bank		27,895		11.05		20,207		8.00		25,244		> 10.00%
Tier 1 capital
(to risk-weighted assets)
Company		21,829		8.65%		10,092		> 4.00		N/A		N/A
Bank		25,904		10.26%		10,098		4.00		15,146		> 6.00%
Tier 1 capital
(to average assets)
Company		21,829		7.13%		20,184		> 4.00		N/A		N/A
Bank		25,904		8.46%		12,242		4.00		15,303		> 5.00%
As of December 31, 2002
Total capital
(to risk-weighted assets)
Company	$	23,243		12.33%	$	15,076		> 8.00%		N/A		N/A
Bank		21,452		11.13		15,421		8.00		19,276		> 10.00%
Tier 1 capital
(to risk-weighted assets)
Company		21,864		11.60		7,538		> 4.00		N/A		N/A
Bank		20,073		10.41		7,711		4.00		11,566		> 6.00%
Tier 1 capital
(to average assets)
Company		21,864		9.76		8,965		> 4.00		N/A		N/A
Bank		20,073		9.04		8,884		4.00		11,106		> 5.00%

In addition, pursuant to the order of the FDIC approving the Bank’s charter, for its first three years of operation the Bank is required to maintain a Tier 1 Leverage Ratio of at least 8.00%. As of December 31, 2003 and 2002, the Bank’s Tier 1 Leverage Ratio was 8.46% and 9.04%, respectively.

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NOTE R — BUSINESS SEGMENTS


	1. Discontinued Segments

On October 2, 2001, FinancialMuse.com completed the sale of its wholly owned subsidiary, FMSC for $1,300,000 and simultaneously redeemed its 2,742,000 shares of Series A Preferred Stock held by TheBancorp.com with the proceeds from the sale. Prior to the sale and redemption, TheBancorp.com recorded losses from discontinued operations of $639,000 for the period January 1, 2001 through September 30, 2001. As a result of the redemption and the previously recorded losses, TheBancorp.com recorded a gain on disposal of approximately, $535,000 and reflected this segment as a discontinued operation.

2. Reportable Segments

The Company operated in two principal industry segments: banking and securities brokerage in 2001. The Company only has one reportable segment in 2003 and 2002, Community Banking. SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way business enterprises report information about operating segments in annual financial statements. The Company has one operating segment, and accordingly, one reportable segment, “Community Banking”. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the other. For example, commercial lending is dependent upon the ability of the Company to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential and commercial mortgage lending. All significant operating decisions are based upon analysis of the Company as one operating segment or unit. As of and for the year ended December 31, 2001, segment information and the reconciliation of reported net income for each of the reportable segments are as follows (in thousands):

	The Bancorp Bank			FinancialMuse.com		The Bancorp Inc.		Eliminating entries			Consolidated

Interest income	$	7,474		$	—	$	—	$	—		$	7,474
Interest expense		3,566			—		—		—			3,566
Provision for loan losses		435			—		—		—			435
Other non-interest income		1,719			—		144		(144	)		1,719
Non-interest expense		8,417			—		433		(144	)		8,706
Discontinued operations —
income (expense)		—			117		535		(756	)		(104	)

Net (loss) income	$	(3,225	)	$	117	$	246	$	(756	)	$	(3,618	)

Total loans, net	$	105,428		$	—	$	—	$	—		$	105,428
Total deposits		138,218			—		—		(701	)		137,517
Total assets		155,156			—		15,353		(15,493	)		155,016

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UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2004			2003

	(unaudited)
	(in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	9,129		$	11,650
Interest bearing deposits		1,108			1,027
Federal funds sold		32,827			29,506

Total cash and cash equivalents		43,064			42,183

Investment securities, available-for-sale		130,812			24,387
Loans, net		272,520			230,406
Premises and equipment, net		2,660			2,377
Accrued interest receivable		1,714			1,219
Other assets		4,714			3,589

Total assets	$	455,484		$	304,161

LIABILITIES
Deposits
Demand (non-interest bearing)	$	49,163		$	48,006
Savings, money market and interest checking		145,455			111,438
Time deposits		124,561			104,410
Time deposits, $100,000 and over		952			12,911

Total deposits		320,131			276,765

Securities sold under agreements to repurchase		3			3
Federal Home Loan Bank advances		20,000			—
Accrued interest payable		161			218
Subordinated debt		5,413			—
Guaranteed preferred interests in Company’s
subordinated debentures		—			5,250
Other liabilities		5,213			252

Total liabilities		350,921			282,488


Minority interest		83,148			—

SHAREHOLDER’S EQUITY
Preferred stock -authorized 5,000,000 shares of $0.01 par value; issued and outstanding, 1,100,006 and 1,083,829 shares for March 31, 2004 and December 31, 2003, respectively		11			11
Common stock — authorized, 20,000,000 shares of $1.00 par
value; issued shares 2,284,200 at March 31, 2004
and December 31, 2003		2,284			2,284
Additional paid-in capital		30,592			30,369
Accumulated deficit		(11,065	)		(10,835	)
Accumulated other comprehensive loss		(407	)		(156	)

Total shareholder’s equity		21,415			21,673

Total liabilities and shareholder’s equity	$	455,484		$	304,161

The accompanying notes are an integral part of these statements.

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three months ended March 31,
	2004			2003

	(unaudited)
	(in thousands, except per share data)
Interest income
Loans, including fees	$	3,782		$	2,783
Investment securities		799			548
Federal funds sold		97			72
Interest bearing deposits		5			3

		4,683			3,406

Interest expense
Deposits		1,229			1,156
Securities sold under agreements to repurchase		—			6
Federal Home Loan Bank advances		26			—
Subordinated debt		138			138

		1,393			1,300


Net interest income		3,290			2,106
Provision for loan and lease losses		332			150

Net interest income after provision for loan and lease losses		2,958			1,956

Non-interest income
Service fees on deposit accounts		191			185
Merchant credit card deposit fees		1,348			1,599
Gain on sales of investment securities		101			336
Leasing income		62			9
Other		182			106

Total non-interest income		1,884			2,235

Non-interest expense
Salaries and employee benefits		1,774			1,119
Occupancy expense		383			392
Merchant credit card deposit		1,176			1,402
Data processing expense		237			185
Advertising		93			60
Professional fees		92			51
Other		829			612

Total non-interest expense		4,584			3,821


Net income before minority interest		258			370
Minority interest		265			—

Net income (loss)		(7	)	$	370

Less preferred stock dividends and accretion		(223	)		(219	)

Net (loss) income available to common shareholders	$	(230	)	$	151


Net (loss) income per share – basic	$	(0.10	)	$	0.08

Net (loss) income per share – diluted	$	(0.10	)	$	0.08

The accompanying notes are an integral part of these statements.

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

	Common stock		Preferred stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Comprehensive loss			Total

	(in thousands)

Balance at December 31, 2002		1,884		10		25,785		(11,025	)		315						16,969
Net income		—		—		—		1,071						1,071			1,071
Issuance of common stock		400				3,704											4,104
Stock dividends on Series A preferred stock				1		252		(253	)
Accretion of Series A preferred stock		—		—		628		(628	)								—
Other comprehensive gain, net of reclassification adjustments and tax		—		—		—		—			(471	)		(471	)		(471	)

Total comprehensive income										$	600

Balance at December 31, 2003		2,284		11		30,369		(10,835	)		(156	)					21,673

Net income		—		—		—		(7	)					(7	)		(7	)
Stock dividends on Series A preferred stock				—		66		(66	)
Accretion of Series A preferred stock		—		—		157		(157	)								—
Other comprehensive loss, net of reclassification adjustments and tax		—		—		—		—			(251	)		(251	)		(251	)

Total comprehensive loss													$	(258	)

Balance at March 31, 2004 (unaudited)	$	2,284	$	11	$	30,592	$	(11,065	)	$	(407	)				$	21,415

The accompanying notes are an integral part of these statements.

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THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended March 31,
	2004			2003

	(dollars in thousands)
Operating activities
Net (loss) income	$	(7	)	$	370
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		180			213
Provision for loan and lease losses		332			150
Net amortization (accretions) of premium (discount)		(9	)		31
Net gain on sales of investment securities		(101	)		(336	)
Increase in accrued interest receivable		(495	)		(311	)
Decrease in interest payable		(57	)		(23	)
(Increase) decrease in other assets		(832	)		503
Increase in other liabilities		4,961			152

Net cash provided by operating activities		3,972			749


Investing activities
Purchase of investment securities		(109,015	)		(6,783	)
Proceeds from sales of investment securities		1,270			4,997
Proceeds from maturity of investment securities		1,049			3,773
Net increase in loans		(42,446	)		(14,378	)
Purchases of premises and equipment		(463	)		(24	)

Net cash used in investing activities		(149,605	)		(12,415	)


Financing activities
Net increase (decrease) in deposits		43,366			(6,131	)
Net increase in securities sold under agreements to Repurchase		—			6
Federal Home Loan Bank advances		20,000			—
Net increase in minority interest		83,148			—

Net cash provided by (used in) financing activities		146,514			(6,125	)


Net increase (decrease) in cash and cash equivalents		881			(17,791	)

Cash and cash equivalents, beginning of year		42,183			30,148

Cash and cash equivalents, end of period	$	43,064		$	12,357

The accompanying notes are an integral part of these statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of The Bancorp, Inc. (Company) as of March 31, 2004 and for the three month periods ended March 31, 2004 and 2003 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. However, in the opinion of management, these interim financial statements include all necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report for the year ended December 31, 2003. The results of operations for the three month period ended March 31, 2004 may not necessarily be indicative of the results of operations for the full year ending December 31, 2004.

The consolidated financial statements include the accounts of the Company and The Bancorp Bank (Bank). The Bank was a wholly owned subsidiary of Company at December 31, 2003. On February 2, 2004, the Bank sold 7,187,500 shares to outside investors reducing the Company’s ownership percentage to 32.7%. The Company consolidated the Bank as of March 31, 2004 as it still maintains control over the Bank. All significant intercompany balances and transactions have been eliminated. The Board members and management of the Company are primarily the same individuals as the members of the Board of Directors of the Bank. Accordingly, the Bank is consolidated into the Company.

NOTE 2 — STOCK-BASED COMPENSATION

The Company accounts for its stock options under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation , which contains a fair value-based method for valuing stock-based compensation that entities may use that measures compensation cost at the grant date based on the fair value of the award. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees . Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied.

At March 31, 2004, the Company had one stock-based compensation plan, which is more fully described in its annual report. The Company accounts for that plan under the recognition and measurement principles of APB No. 25 and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Employees of Bank also have options to purchase common stock of the Company. Financial Accounting Standards Board (FASB) Interpretation No. 44 provides an exception that allows a subsidiary to account for stock options granted to subsidiary employees to purchase parent common stock under APB No. 25 if the parent accounts for those stock options under APB No. 25. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 for the Company plan to stock-based employee compensation (in thousands).

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NOTE 2 — STOCK-BASED COMPENSATION — Continued

	For the three months ended March 31,
	2004			2003

	(in thousands, except per share data)
Net (loss) income, as reported	$	(7	)	$	370
Less stock-based compensation costs under fair value based method for all awards		(58	)		(130	)

Pro forma net (loss) income		(65	)		240
Less preferred stock dividends and accretion		(223	)	$	(130	)

Net (loss) income available to common shareholders	$	(288	)	$	110


Net (loss) income per share basic, as reported	$	(0.10	)	$	0.08

Net (loss) income per share basic, pro forma	$	(0.13	)	$	0.06

Net (loss) income per share diluted, as reported	$	(0.10	)	$	0.08

Net (loss) income per share diluted, pro forma	$	(0.13	)	$	0.06

On March 31, 2004, the FASB issued a proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 95 , that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Under the FASB’s proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25. The Company is currently evaluating this proposed statement and the effects it would have on its results of operations.

NOTE 3 — EARNINGS PER SHARE

Basic earnings per share for a particular period of time is calculated by dividing net income by the weighted average number of common shares outstanding during that period.

Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares and common share equivalents. Our only outstanding “common share equivalents” are options to purchase our common stock.

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NOTE 3 — EARNINGS PER SHARE — Continued

The following schedule shows our earnings per share for the periods presented:

	Three months ended March 31, 2004
	Income (numerator)			Shares (denominator)		Per share Amount

	(in thousands, except per share data)
Basic earnings per share
Net income available to common shareholders	$	(230	)		2,284,200	$	(0.10	)
Effect of dilutive securities
Options		—			41,432		—
Warrants		—			149,689		—

Diluted earnings per share
Net income available to common stockholders plus assumed conversions	$	(230	)		2,475,321	$	(0.09	)

Convertible Preferred Stock of 1,100,006 were outstanding at March 31, 2004 were not included in the computation of diluted earnings per share because upon conversion to common stock they were anti-dilutive to diluted earnings per share.

The weighted average shares for March 31, 2003 were 1,883,594. Stock options and warrants of 455,750 and 1,946,579, respectively, for $10.00 per share were outstanding at March 31, 2003 but were not included in the weighted average shares because the exercise price equaled the market price. Convertible Preferred Stock of 1,036,428 were outstanding at March 31, 2003 were not included in the computation of diluted earnings per share because upon conversion to common stock they were anti-dilutive.

NOTE 4 — INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities available-for-sale are summarized as follows (in thousands):

	March 31, 2004
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

	(unaudited)
U.S. Government agency securities	$	80,000	$	—	$	(444	)	$	79,556
Mortgage backed securities		9,746		10		(350	)		9,406
Other securities		41,683		285		(118	)		41,850

	$	131,429	$	295	$	(912	)	$	130,812


		December 31, 2004

		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

U.S. Government agency securities	$	—	$	—	$	—		$	—
Mortgage backed securities		10,604		10		(363	)		10,251
Other securities		14,019		266		(149	)		14,136

	$	24,623	$	276	$	(512	)	$	24,387

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NOTE 4 — INVESTMENT SECURITIES — Continued

The amortized cost and fair value of the Company’s investment securities available-for-sale at March 31, 2004, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair

Due in one year or less	$	20,000	$	20,000
Due after one year through five years		40,000		39,848
Due after five years through ten years		47,749		47,522
Due after ten years		22,544		22,306
Federal Home Loan and Atlantic Central Bankers Bank stock		1,136		1,136

	$	131,429	$	130,812

NOTE 5 — LOANS

Major classifications of loans are as follows (in thousands):

	March 31, 2004		December 31, 2003

	(unaudited)
Commercial	$	57,078	$	53,130
Commercial mortgage		106,534		89,772
Construction		49,624		29,026

Total commercial loans		213,236		171,928
Direct financing leases, net		38,729		38,405
Residential mortgage		6,231		6,473
Consumer loans and others		16,501		14,989

		274,697		231,795
Unamortized costs		146		602

Total loans, net of unamortized fees and costs	$	274,843	$	232,397

NOTE 6 — TRANSACTION WITH AFFILIATES

The Bank purchased a total of $2,654,000 in loans from Resource America, Inc. in 2001. The outstanding balance of the loans purchased from Resource America was $1,969,000 at each of March 31, 2004 and December 31, 2003. The Chairman and Chief Executive Officer of Resource America is the spouse of the Bank’s Chairman and Chief Executive Officer and the father of the Bank’s Vice Chairman. The President and Chief Operating Officer of Resource America is the son of the Bank’s Chairman and Chief Executive Officer.

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NOTE 6 — TRANSACTION WITH AFFILIATES — Continued

The Bank paid $10,000 and $429,000 to Cohen Bros. & Company (Cohen Bros.) for investment securities brokerage services performed for the periods ended March 31, 2004 and December 31, 2003. The Vice Chairman of the Bank is the principal of Cohen Bros. Financial LLC which owns 100% of Cohen Bros. & Company. A member of the Board of Directors is the Chief Operating Officer of Cohen Bros. & Company.

The Company entered into a sublease for office space in Philadelphia, Pennsylvania and a technical support agreement with RAIT Investment Trust (RAIT) commencing in October 2000. The Chief Executive Officer of RAIT is the Chairman and Chief Executive Officer of the Bank and the Chief Executive Officer of the Parent. Under the sublease, RAIT pays the Bank rent equal to 45% of the rent paid by the Bank and an allocation of common area expenses. Under the technical support agreements, which commenced in January 2001, the Bank also provides technical support for RAIT for a fee of $5,000 a month. RAIT paid $15,000 for the three months ended March 31, 2004 and 2003.

The Company also has a sublease for office space in Philadelphia, Pennsylvania with Cohen Bros. commencing in July 2002 under which Cohen Bros. pays rent of $6,761 per month. Prior to 2002, the Bank subleased the office space for $1,000 per month. Cohen Bros. paid $20,284 in rent for the three months ended March 31, 2004 and 2003.

In July 2002, Cohen Bros. also entered into an agreement with the Bank under which Cohen Bros. pays fees of $1,000 per month for technical support and $3,600 per month for telephone system support services. Technical and telephone support fees for Cohen Bros. were $11,000 for the periods ended March 31, 2004 and 2003.

The Bank maintains deposits for various affiliated companies totaling approximately $38,607,000 and $34,708,000 as of March 31, 2004 and December 31, 2003, respectively. The majority of these deposits are short-term in nature and rates are consistent with market rates.

The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on the same terms as those prevailing for comparable transactions with other borrowers. At March 31, 2004, these loans were current as to principal and interest payments and, in the opinion of management, do not involve more than normal risk of collectibility. At March 31, 2004, loans to these related parties amounted to $1,885,000.

As of March 31, 2004 and December 31, 2003, respectively, the Company was obligated to the Bank for $549,000 and $607,000, respectively, of reimbursements to the Bank for expenses paid by the Bank on behalf of the Parent. In addition, the Bank pays a management fee to the Company of $12,000 per month under the joint management services policy between the Bank and the Company. Management fees were $36,000 for March 31, 2004 and 2003. There were no receivable balances related to these management fees as of any of the stated periods. The Bank also maintains a deposit account for the Company. Deposit balances were $1,117,000 and $1,355,000 as of March 31, 2004 and December 31, 2003, respectively.

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NOTE 7 — SIGNIFICANT ACCOUNTING PRONOUNCEMENTS

The SEC recently released Staff Accounting Bulletin, or SAB, No. 105, “Application of Accounting Principles to Loan Commitments”. SAB 105 provides guidance about the measurement of loan commitments recognized at fair value under Financial Accounting Standards Board Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. We do not expect that the adoption of SAB 105 will have a material effect on our consolidated financial statements.

NOTE 8 — INITIAL PUBLIC OFFERING

In February 2004, The Bank completed a public offering for 7,187,500 shares of Bank common stock at $12.50 per share. Proceeds from the offering were $82.9 million, net of offering costs of $6.9 million. As a result of this offering, the ownership of the Company was reduced to 32.7%. Total shares of common stock outstanding after this offering were 10,687,500.

NOTE 9 — VARIABLE INTEREST ENTITIES

Management has determined that The Bancorp Capital Trust I (Trust) qualifies as variable interest entity under FASB Interpretation 46, as revised. The Trust issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trust are included in the Company’s consolidated balance sheets and statements of income as of and for the year ended December 31, 2003. Subsequent to the issuance of FIN 46 in January 2003, the FASB issued a revised interpretation, FIN 46I “Consolidation of Variable Interest Entities,” the provisions of which must be applied to certain variable interest entities by March 31, 2004.

The Company adopted the provisions under the revised interpretation in the first quarter of 2004. Accordingly, the Company no longer consolidates the Trusts as of March 31, 2004. FIN 46I precludes consideration of the call option embedded in the preferred stock when determining if the Company has the right to a majority of the Trusts’ expected residual returns. The deconsolidation results in the investment in the common stock of the Trust to be included in other assets as of March 31, 2004 and the corresponding increase in subordinated debentures of $163,000. In addition, the income received on the Company’s common stock investment is included in other income. The adoption of FIN 46I did not have a material impact on the financial position or results of operations of the Company. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for trust-preferred securities issued by the Trusts based on the adoption of FIN 46I. However, as additional interpretations from the banking regulators related to an entity such as the Trust become available, management will have to reevaluate its potential impact to its Tier 1 capital calculation under such interpretations.

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Report of Independent Registered Public Accounting Firm

Board of Directors
The Bancorp Bank

We have audited the accompanying balance sheets of The Bancorp Bank (a wholly owned subsidiary of The Bancorp, Inc.) as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in shareholder’s equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 financial statements referred to above present fairly, in all material respects, the financial position of The Bancorp Bank as of December 31, 2003 and 2002, and their results of operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
February 18, 2004

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THE BANCORP BANK
(a wholly owned subsidiary of The Bancorp, Inc.)

BALANCE SHEETS

	December
	2003			2002

	(in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	11,650		$	4,671
Interest bearing deposits		1,027			1,021
Federal funds sold		29,506			24,456

Total cash and cash equivalents		42,183			30,148

Investments, available-for-sale		24,387			33,669
Loans, net		230,406			161,958
Premises and equipment, net		2,377			2,723
Accrued interest receivable		1,219			1,137
Other assets		3,725			4,352

Total assets	$	304,297		$	233,987

LIABILITIES
Deposits
Demand (non-interest bearing)	$	49,361		$	36,939
Savings, money market and interest checking		111,438			90,518
Time deposits		104,410			76,333
Time deposits, $100,000 and over		12,911			8,187

Total deposits		278,120			211,977

Securities sold under agreements to repurchase		3			1,008
Accrued interest payable		218			418
Other liabilities		208			196

Total liabilities		278,549			213,599

SHAREHOLDER’S EQUITY
Preferred stock – authorized 5,000,000 shares, none issued		—			—
Common stock – authorized, 30,000,000 shares of $0.15 par value; issued and outstanding, 3,500,000 shares		525			500
Additional paid-in capital		30,149			26,194
Accumulated deficit		(4,770	)		(6,621	)
Accumulated other comprehensive (loss) income		(156	)		315

Total shareholder’s equity		25,748			20,388

Total liabilities and shareholder’s equity	$	304,297		$	233,987

The accompanying notes are an integral part of these statements.

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THE BANCORP BANK
(a wholly owned subsidiary of The Bancorp, Inc.)

STATEMENTS OF OPERATIONS

	Year ended December 31,

	2003			2002			2001

	(in thousands)
Interest income
Loans, including fees	$	12,508		$	9,469		$	5,071
Investment securities		1,984			2,363			1,015
Federal funds sold		297			181			1,351
Interest bearing deposits		8			7			30

		14,797			12,020			7,467

Interest expense
Deposits		4,857			4,241			3,553
Securities sold under agreements to repurchase		15			44			13

		4,872			4,285			3,566

Net interest income		9,925			7,735			3,901
Provision for loan and lease losses		685			600			435

Net interest income after provision for loan and lease losses		9,240			7,135			3,466

Non-interest income
Service fees on deposit accounts		878			431			92
Merchant credit card deposit fees		7,980			3,273			1,129
Gain on sales of investment securities		747			20			61
Leasing income		205			256			454
Other		637			362			94

Total non-interest income		10,447			4,342			1,830

Non-interest expense
Salaries and employee benefits		4,673			3,519			3,307
Occupancy expense		1,531			1,675			1,472
Merchant credit card deposit		7,410			2,648			1,061
Data processing expense		886			704			518
Management fee		144			144			144
Advertising		242			292			248
Professional fees		230			189			339
Other		2,970			1,823			1,474

Total non-interest expense		18,086			10,994			8,563

Net income (loss) before income tax benefit		1,601			483			(3,267	)
Income tax benefit		(250	)		(500	)		—

Net income (loss)	$	1,851		$	983		$	(3,267	)

Net income (loss) per share – basic and diluted	$	0.53		$	0.28		$	(0.93	)

The accompanying notes are an integral part of these statements.

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THE BANCORP BANK
(a wholly owned subsidiary of The Bancorp, Inc.)

STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY
For the years ended December 31, 2003 and 2002

	Common stock		Additional pain-in capital			Accumulated deficit			Accumulated other comprehensive income (loss)			Comprehensive income (loss)			Total

	(in thousands)
Balance at January 1, 2001	$	500	$	15,994		$	(4,337	)	$	—		$	—		$	12,157
Net loss		—		—			(3,267	)		—			(3,267	)		(3,267	)
Capital contribution from parent		—		6,200			—			—			—			6,200
Other comprehensive loss, net of reclassification adjustments and tax		—		—			—			(291	)		(291	)		(291	)

Total other comprehensive income									$	(3,558	)

Balance at December 31, 2001		500		22,194			(7,604	)		(291	)		—			14,799
Net income		—		—			983			—			983			983
Capital contribution from parent		—		4,000			—			—			—			4,000
Other comprehensive income, net of reclassification adjustments and tax		—		—			—			606			606			606

Total other comprehensive income									$	1,589

Balance at December 31, 2002		500		26,194			(6,621	)		315			—			20,388
Net income		—		—			1,851			—		$	1,851			1,851
Capital contribution from parent		—		3,980			—			—			—			3,980
Reclassification due to change in par value		25		(25	)		—			—			—			—
Other comprehensive loss, net of reclassification adjustments and tax		—		—			—			(471	)		(471	)		(471	)

Total other comprehensive income									$	1,380

Balance at December 31, 2003	$	525	$	30,149		$	(4,770	)	$	(156	)				$	25,748

The accompanying notes are an integral part of this statement

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THE BANCORP BANK
(a wholly owned subsidiary of The Bancorp, Inc.)

STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2003			2002			2001

	(in thousands)
Operating activities
Net income (loss)	$	1,851		$	983		$	(3,267	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		777			909			752
Provision for loan and lease losses		685			600			435
Net amortization (accretions) of premium (discount)		16			(80	)		—
Net gain on sales of investment securities		(747	)		(20	)		(61	)
Deferred income tax benefit		(250	)		(500	)		—
Increase in accrued interest receivable		(82	)		(394	)		(688	)
(Decrease) increase in interest payable		(200	)		179			(46	)
(Increase) decrease in other assets		1,119			(151	)		(320	)
Increase (decrease) in other liabilities		12			(168	)		(659	)

Net cash provided by (used in) operating activities		3,181			1,358			(3,854	)

Investing activities
Purchase of investment securities		(25,218	)		(8,551	)		(41,067	)
Proceeds from sales of investment securities		22,623			2,121			1,529
Proceeds from maturity of investment securities		11,895			10,594			2,337
Net increase in loans		(69,133	)		(57,130	)		(78,282	)
Purchases of premises and equipment		(431	)		(369	)		(576	)

Net cash used in investing activities		(60,264	)		(53,335	)		(116,059	)

Financing activities
Net increase in deposits		66,143			73,759			65,519
Net decrease in securities sold under agreements to repurchase		(1,005	)		(1,500	)		2,508
Capital contributions from Parent		3,980			4,000			6,200

Net cash provided by financing activities		69,118			76,259			74,227

Net increase (decrease) in cash and cash equivalents		12,035			24,282			(45,686	)
Cash and cash equivalents, beginning of year		30,148			5,866			51,552

Cash and cash equivalents, end of year	$	42,183		$	30,148		$	5,866

The accompanying notes are an integral part of these statements.

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THE BANCORP BANK
(a wholly owned subsidiary of The Bancorp, Inc.)

Notes to Financial Statements

December 31, 2003 and 2002

NOTE A — FORMATION AND STRUCTURE OF COMPANY

The Bancorp Bank (the Bank) is a Delaware chartered commercial bank located in Wilmington, Delaware and is insured by the Federal Deposit Insurance Corporation (the FDIC). The Bank is a wholly owned subsidiary of The Bancorp, Inc. (the Parent). On February 2, 2004, the Bank sold 7,187,500 shares to outside investors reducing the Parent’s ownership percentage to 32.7%. The Bank provides retail and commercial banking services in the Philadelphia, Pennsylvania and Wilmington, Delaware areas. The Bank offers an affinity group the ability to customize the banking services through the affinity group website. The Bank commenced operations on July 28, 2000.

The Bank is subject to regulation by certain state and federal agencies and, accordingly, they will be periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Bank’s businesses will be susceptible to being affected by state and federal legislation and regulations.

NOTE B — SUMMARY OF ACCOUNTING POLICIES

1. Basis of Presentation

The accounting and reporting policies of the Bank conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry.

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

2. Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and amounts due from banks with an original maturity of three months or less and federal funds sold. Cash paid for interest was approximately $5,072,000, $4,106,000 and $3,612,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

3. Investment Securities

The Bank accounts for its investment securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities . Investments in debt and equity securities which management has both the ability and intent to hold to maturity are carried at cost, adjusted for the amortization of premiums and accretion of discounts computed by the level interest method. Investments in debt and equity securities, which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements, or other factors, are classified as available for sale. Net unrealized gains and losses for such securities, net of tax effect, are reported as other comprehensive income and excluded from the determination of net income. The Bank does not engage in securities trading. Gains or losses on disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

The Bank adopted EITF 03-1 “The Meaning of Other than Temporary Impairment and Its Application to Certain Investments” as of December 31, 2003. EITF 03-1 includes NOTE B – certain disclosures regarding quantitative and qualitative disclosures for investment securities accounted for under FAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. The disclosures under EITF 03-1 are required for financial statements for years ending after December 15, 2003. The Bank includes the required disclosures in these financial statements.

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SUMMARY OF ACCOUNTING POLICIES — Continued

4. Loans and Allowance for Loan and Lease Losses

The Bank accounts for impaired loans in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan , as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures . This standard requires that a creditor measure impairment 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. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.

SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” clarifies or amends SFAS 133 for implementation issues raised by constituents or includes the conclusions reached by the FASB on certain FASB Staff Implementation Issues. SFAS 149 also amends SFAS 133 to require a lender to account for loan commitments related to mortgage loans that will be held for sale as derivatives. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Bank does not enter into commitments with

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

its customers for mortgage loans which they intend to sell in the future. As a result, the adoption of SFAS 149 does not have a material impact on the Bank’s financial position or results of operations.

Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45) requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Bank previously did not record an initial liability when guaranteeing obligations, except for fees received at issuance, unless it became probable that the Bank would have to perform under the guarantee. FIN No. 45 applies prospectively to guarantees the Bank issues or modifies subsequent to December 31, 2002. The required disclosures are included in the financial statements.

In October 2003, the AICPA issued SOP 03-3, Accounting for Loans or Certain Debt Securities Acquired in a Transfer . SOP 03-3 applies to a loan with the evidence of deterioration of credit quality since origination acquired by completion of a transfer for which it is probable at acquisition, that the Bank will be unable to collect all contractually required payments receivable. SOP 03-3 requires that the Bank recognize the excess of all cash flows expected at acquisition over the investor’s initial investment in the loan as interest income on a level-yield basis over the life of the loan as the accretable yield. The loan’s contractual required payments receivable in excess of the amount of its cash flows excepted at acquisition (nonaccretable difference) should not be recognized as an adjustment to yield, a loss accrual or a valuation allowance for credit risk. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. Early adoption is permitted. Management is currently evaluating the provisions of SOP 03-3.

5. Premises and Equipment

The Bank adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets on January 1, 2002. SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. The adoption of this statement did not have a material impact on the financial condition or results of operations of the Bank.

6. Internal Use Software

Under the provisions of Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use , the Bank capitalizes costs associated with internally developed and/or purchased software systems for new products and enhancements to existing products that have reached the application stage and meet recoverability tests. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software, payroll and payroll related expenses for employees who are directly associated with and devote time to the internal-use software

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

project and interest costs incurred, if material, while developing internal-use software. Capitalization of such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its intended purpose.

The carrying value of the software is periodically reviewed and a loss is recognized if the value of the estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost. Amortization is provided using the straight-line method over the estimated useful life of the related software, which is generally three to seven years. As December 31, 2003 and 2002, the Bank has capitalized total software costs of approximately $1,210,000 and $1,012,000, respectively. The Bank has recorded amortization expense of approximately $278,000, $173,000 and $58,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

7. Income Taxes

The Bank is included in the consolidated return of the Parent. The Bank accounts for income taxes under the liability method whereby deferred tax assets and liabilities are determined based on the difference between the carrying values on the 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.

8. Stock-Based Compensation

The Parent accounts for its stock options under SFAS No. 123, Accounting for Stock-Based Compensation , which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Alternatively, the standard permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees . Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied.

At December 31, 2003, the Parent had a stock-based compensation plan, which is more fully described in note K. The Parent accounts for that plan under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees , and related interpretations. The Bank adopted a stock based compensation plan in February 2004. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. FASB Interpretation No. 44 provides an exception that allows a subsidiary to account for stock options granted to subsidiary employees to purchase Parent common stock under APB No. 25 if the Parent accounts for those stock options under APB No. 25. The following table illustrates the effect on net income (loss) if the Bank had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation , to stock-based employee compensation (in thousands).

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

	Year ended December 31,
	2003			2002			2001

Net income (loss), as reported	$	1,851		$	983		$	(3,267	)
Less stock-based compensation costs under fair value based method for all awards		(534	)		(524	)		(512	)

Pro forma net income (loss)	$	1,317		$	459		$	(3,779	)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2003 and 2002: dividend yield of 0%; 4.25%; and 5.85% risk-free interest rate, respectively; and expected lives of ten years. There were no grants in 2001.

9. Advertising Costs

The Company expenses advertising cost as incurred.

10. Earnings per Share

The Bank calculates earnings per share under the provisions of SFAS No. 128, Earnings Per Share. Basic earnings per share exclude dilution and are computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share take into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. All weighted average, actual shares or per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and splits. The Bank’s weighted average shares for the years ended December 31, 2003, 2002 and 2001 were 3,500,000. The Bank did not have any common stock equivalents outstanding in 2003, 2002 and 2001.

11. Comprehensive Income

The income tax effects allocated to comprehensive income (loss) are as follows (in thousands):

	December 31, 2003
	Before			Tax			Net of
	tax			benefit			tax
	amount			(expense)			amount

Unrealized gains on investment securities
Unrealized holding gains arising during period	$	33		$	(11	)	$	22
Less reclassification adjustment for gains realized in net income		747			(254	)		493

Other comprehensive loss, net	$	(714	)	$	243		$	(471	)

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NOTE B — SUMMARY OF ACCOUNTING POLICIES — Continued

	December 31, 2002
	Before		Tax			Net of
	tax		benefit			tax
	amount		(expense)			amount

Unrealized losses on investment securities
Unrealized holding losses arising during period	$	940	$	(321	)	$	619
Less reclassification adjustment for gains realized in net income		20		(7	)		13

Other comprehensive gain, net	$	920	$	(314	)	$	606

	December 31, 2001
	Before			Tax			Net of
	tax			benefit			tax
	amount			(expense)			amount

Unrealized losses on investment securities
Unrealized holding losses arising during period	$	(382	)	$	128		$	(254	)
Less reclassification adjustment for gains realized in net loss		61			(24	)		37

Other comprehensive loss, net	$	(443	)	$	152		$	(291	)

12. Restrictions on Cash and Due From Banks

13. Segment Reporting

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way business enterprises report information about operating segments in annual financial statements. The Bank has one operating segment, and accordingly, one reportable segment, “Community Banking”. All of the Bank’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Bank supports the other. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential and commercial mortgage lending. All significant operating decisions are based upon analysis of the Bank as one operating segment or unit.

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NOTE C — INVESTMENT SECURITIES

14. Reclassifications

Certain reclassifications have been made to the 2002 and 2001 financial statements to conform to the 2003 presentation.

The amortized cost, gross unrealized gains and losses, and fair values of the Bank’s investment securities available-for-sale are summarized as follows (in thousands):

	December 31, 2003
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value

Mortgage-backed securities	$	10,604	$	10	$	(363	)	$	10,251
Other securities		14,019		266		(149	)		14,136

	$	24,623	$	276	$	(512	)	$	24,387

	December 31, 2002
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value

Mortgage-backed securities	$	17,567	$	346	$	(59	)	$	17,854
Other securities		15,624		480		(289	)		15,815

	$	33,191	$	826	$	(348	)	$	33,669

The amortized cost and fair value of the Bank’s investment securities available-for-sale at December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

	2003
	Amortized		Fair
	cost		value

Investment securities available-for-sale
Due after 5 years through 10 years	$	7,932	$	7,895
Due after 10 years		16,489		16,290
Federal Home Loan and Atlantic Central Bankers Stock		202		202

	$	24,623	$	24,387

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NOTE C — INVESTMENT SECURITIES — Continued

At December 31, 2003 and 2002, investment securities with a book value of approximately $8,538,000 and $11,008,000, respectively, were pledged to secure deposits as required or permitted by law. Gross gains on sales were $747,000, $20,000 and $20,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Gross losses were not material for the years ended December 31, 2003, 2002 and 2001.

The table below indicates the length of time individual securities have been in continuous unrealized loss position at December 31, 2003:

	Number		Less than 12 months					12 months or longer					Total
	of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	securities		value		losses			value		Losses			value		losses

	(in thousands)
Mortgage-backed securities		13	$	5,663	$	(84	)	$	4,508	$	(279	)	$	10,171	$	(363	)
Other securities		8		7,086		(148	)		31		(1	)		7,117		(149	)

Total temporarily impaired investment securities		21	$	12,749	$	(232	)	$	4,539	$	(280	)	$	17,288	$	(512	)

NOTE D — LOANS

Major classifications of loans are as follows (in thousands):

	December 31,
	2003			2002

Commercial	$	53,130		$	36,037
Commercial mortgage		89,772			71,016
Construction		29,026			9,400
Direct financing leases, net		38,405			30,958
Residential mortgage		6,473			4,433
Consumer loans and other		14,989			10,815

		231,795			162,659
Less
Allowance for loan and lease losses		(1,991	)		(1,379	)
Deferred costs, net		602			678

	$	230,406		$	161,958

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NOTE D — LOANS — continued

Changes in the allowance for loan and lease losses are as follows (in thousands):

	For the year ended December 31,
	2003			2002			2001

Balance at beginning of year	$	1,379		$	780		$	350
Charge-offs		(74	)		(1	)		(5	)
Recoveries		1			—			—
Provision charged to operations		685			600			435

Balance at end of year	$	1,991		$	1,379		$	780

NOTE E — PREMISES AND EQUIPMENT

Premises and equipment are as follows:

	Estimated		December 31,
	useful lives		2002			2001

			(in thousands)
Furniture, fixtures and equipment		3 to 12 years	$	4,450		$	4,040
Leasehold improvements		4 to 20 years		706			679

				5,156			4,719
Accumulated depreciation				(2,779	)		(1,996	)

			$	2,377		$	2,723

NOTE F — DEPOSITS

At December 31, 2003, the scheduled maturities of certificates of deposit are as follows (in thousands):

2004			$51,456
2005			52,957
2006			12,908

			$117,321

NOTE G — DEBT


	Line of Credit

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NOTE H — SHAREHOLDER’S EQUITY

On December 23, 2003, the Bank declared a 3.5 for 1 stock split where the par value was reduced to $0.15 from $0.50. A reclassification adjustment of $25,000 was recorded from additional paid in capital to common stock for the change in par value. All share information has been restated to reflect such stock split.

In December 23, 2003, the Bank amended its Articles of Association whereby the number of authorized common shares was increased to 30,000,000 shares at $0.15 per value.

NOTE I — BENEFIT PLANS

The Bank maintains a 401(k) savings plan covering substantially all employees of the Bank. Under the plan, the Bank matches 50% of the employee contributions for all participants not to exceed 6% of their salary. Contributions made by the Bank were approximately $106,000, $90,000 and $81,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

NOTE J — INCOME TAXES

The components of the income tax benefit included in the statements of operations are as follows:

	For the year ended December 31,
	2003			2002			2001

Income tax benefit
Current	$	—		$	—		$	—
Deferred benefit		(250,000	)		(500,000	)		—

Applicable income tax benefit	$	(250,000	)	$	(500,000	)	$	—

The differences between applicable income tax expense and the amounts computed by applying the statutory federal income tax rate of 34% are as follows:

	For the year ended December 31,
	2003			2002			2001

Computed tax expense (benefit) at statutory rate	$	544,000		$	164,000		$	(1,111,000	)
Change in valuation allowance		(250,000	)		(500,000)			—
Previously unrecognized NOL		(560,000	)		(170,000)			—
Unrecognized benefit of net operating loss carryovers		—			—			1,090,000
Other		16,000			6,000			21,000

Applicable tax benefit	$	(250,000	)	$	(500,000	)	$	—

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NOTE J — INCOME TAXES — Continued

	December 31,
	2003			2002

Allowance for loan and lease losses	$	(63,000	)	$	(295,000	)
Capitalized costs		4,000			8,000
Depreciation and amortization		(160,000	)		(175,000	)
Net operating loss carryforwards		2,302,000			3,104,000
Unrealized (gains) losses on investment securities available for sale		81,000			(162,000	)

		2,164,000			2,480,000
Less valuation allowance		(1,333,000	)		(2,142,000	)

Net deferred tax asset (included in other assets)	$	831,000		$	338,000

At December 31, 2003, the Bank had net operating loss carryforwards of approximately $6,770,000, expiring through 2022, available to reduce future taxable income.

NOTE K — STOCK-BASED COMPENSATION

In December 2003, the Bank adopted a stock option plan (the 2003 Plan). Employees and directors of the Bank are eligible to receive options under the 2003 Bank Plan. An aggregate of 760,000 shares of common stock of the Bank has been reserved. Options expire on the tenth anniversary. As of December 31, 2003, there have been no options granted under the 2003 Bank Plan.

In October 1999, the Parent adopted a stock option plan (the 1999 Parent Plan). Employees and directors of the Parent and the Bank are eligible to receive options under the 1999 Parent Plan. An aggregate of 1,000,000 shares of common stock of the Parent have been reserved under the 1999 Parent Plan, with no more than 75,000 shares being issued to non-employee directors. Options vest over four years and expire on the tenth anniversary of the grant.

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NOTE K — STOCK-BASED COMPENSATION — Continued

A summary of the status of the Parent’s stock option plan, and the change during the year is presented below.

	2003				2002					2001
	Shares		Weighted average exercise price		Shares			Weighted average exercise price		Shares			Weighted average exercise price

Outstanding, beginning of year		464,750	$	10.00		428,500		$	10.00		444,000		$	10.00
Granted		70,000		10.99		46,000			10.00		—			—
Cancelled/forfeited		9,000		10.00		(9,750	)		10.00		(15,500	)		10.00

Outstanding, end of year		525,750		10.13		464,750			10.00		428,500			10.00

Options exercisable at year end		372,563				269,000					107,125

Weighted average fair value of options granted during the year			$	3.72				$	4.43				$	—

The following table summarizes information about options outstanding at December 31, 2003 (unaudited):

	Options outstanding						Options exercisable
Range of exercise prices	Number outstanding at December 31, 2003		Weighted average remaining contractual life		Weighted average exercise price		Number outstanding at December 31, 2003		Weighted average exercise price

$ 10.00 — $11.00		525,750		6.88 years	$	10.13		372,563	$	10.00

In May 2001, the Parent’s shareholders approved an Employee and Non-Employee Director Non-Cash Compensation Plan (2001 Non-Cash Compensation Plan). The 2001 Non-Cash Compensation Plan allows the Parent to grant up to 50,000 shares of Series A preferred stock to employees, directors or consultants who provide services to the Parent or its subsidiaries. Grants must be approved by the board of directors and based upon terms designated by the board. As of December 31, 2003 and 2002, no shares had been granted under the 2001 Non-Cash Compensation Plan.

NOTE L — TRANSACTIONS WITH AFFILIATES

The Bank purchased $2,000,000 of collateralized debt obligations of Trapeza Funding CDO I (Trapeza CDO I), an issuer of collateralized debt obligations. The Bank purchased the collateralized debt obligations through Cohen Bros. & Company. The equity owner of Trapeza CDO I is Trapeza Partners, L.P. (Trapeza Partners), a limited partnership whose general partner is Trapeza Funding LLC (Trapeza Funding), a limited liability company owned by Financial Stocks, Inc. and Resource America, Inc. Financial Stocks and Resource

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NOTE L — TRANSACTIONS WITH AFFILIATES — Continued

America also own 20% of the limited partnership interest in Trapeza Partners. The Vice Chairman and the Chief Executive Officer of the Bank are the son and spouse, respectively, of the Chairman and Chief Executive Officer of Resource America. The Chairman and Chief Executive Officer of Financial Stocks, Inc. is a director of the Parent. This security was sold in 2003 with no realized gain.

In October 2003 the Bank purchased an aggregate of $3.0 million of collateralized debt obligations of Alesco Preferred Funding I, Ltd. through Cohen Bros. & Company. Cohen Bros. received $41,000 of underwriting compensation in connection with the purchase. Alesco Funding I is managed by a limited liability company which is an affiliate of the Bank’s Chairman, and pays management fees to such company.

The Bank paid $429,000, $188,000 and $463,000 to Cohen Bros. & Company (Cohen Bros.) for investment securities brokerage services performed for the years ended December 31, 2003, 2002 and 2001. The Vice Chairman of the Bank is a member of Cohen Bros. Financial LLC which owns 100% of Cohen Bros. & Company. A member of the Parent’s Board of Directors is an executive of Cohen Bros.

The Bank, through its Parent, entered into a sublease for office space in Philadelphia, Pennsylvania and a technical support agreement with RAIT Investment Trust (RAIT) commencing in October 2000. The Chief Executive Officer of RAIT is the Chairman and Chief Executive Officer of the Bank and the Chief Executive Officer of the Parent. Under the sublease, RAIT pays the Bank rent equal to 45% of the rent paid by the Bank and an allocation of common area expenses. Under the technical support agreements, which commenced in January 2001, the Bank also provides technical support for RAIT for a fee of $5,000 a month. RAIT paid $60,000 for the years ended December 31, 2003, 2002 and 2001. In addition, RAIT reimbursed the Bank for assistance in other technical support totaling $33,000.

The Bank, through its Parent, also has a sublease for office space in Philadelphia, Pennsylvania with Cohen Bros. commencing in July 2002 at a rate of $6,761 per month. Prior to 2002, the Bank subleased the office space for $1,000 per month.

In July 2002, Cohen Bros. also entered into an agreement with the Bank for fees of $1,000 per month for technical support and $3,600 per month for telephone system support services. Technical and telephone support fees for Cohen Bros. were $52,000 and $55,000 for the years ended December 31, 2003 and 2002, respectively.

The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on the same terms as those prevailing for comparable transactions with other borrowers. At December 31, 2003, these loans were current as to principal and interest payments, and do not involve more than normal risk of collectibility. At December 31, 2003, loans to these related parties amounted to $3,085,000. An analysis of activity in loans to related parties at December 31, 2003, resulted in new loans of $1,375,000 and repayments of $1,429,000.

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NOTE L — TRANSACTIONS WITH AFFILIATES — Continued

The Bank entered into an ATM Agreement with TRM ATM Corporation in September 2000. Under this agreement, TRM ATM installs, operates and services automated teller machines at various locations of our choosing. The Bank pays TRM a monthly rental fee of $195 for each machine. The Bank retains all fees and charges derived from the transactions conducted at the ATM (except for one ATM situated with one of our affinity groups in which we share such fees and charges). The Bank currently leases seven machines under our agreement with TRM. TRM ATM Corporation is a wholly-owned subsidiary of TRM Corporation. The Chairman of TRM ATM is the Bank’s Vice Chairman. A director of TRM ATM is the spouse of the Bank’s Chairman and Chief Executive Officer and the father of the Vice Chairman. Fees paid to TRM ATM were $15,405, $17,160 and $8,385 for the years ended December 31, 2003, 2002 and 2001, respectively.

The Bank has a due from Parent as of December 31, 2003 and 2002 of $607,000 and $1,215,000 related to reimbursement of certain expenses paid by the Bank on behalf of the Parent. In addition, the Bank pays a management fee to the Parent of $12,000 per month for allocation of shared employee salaries. Management fees were $144,000 and for the years ended December 31, 2003, 2002 and 2001. There were no receivable balances related to these management fees as of December 31, 2003 and 2002, respectively. The Bank also maintains a deposit account for the Parent, deposit balances were $1,355,000 and $2,534,000 as of December 31, 2003 and 2002, respectively.

In 2003, the Bank entered into a lending relationship with The Richardson Group Inc., which is owned by entities in which the Bank’s CEO and her spouse have controlling interests. The outstanding balance was $1,770,000 at December 31, 2003.

NOTE M — COMMITMENTS AND CONTINGENCIES


	1. Operating leases

The Bank, through its Parent, entered into a lease for its operations facility, which expires on March 31, 2010. The Company entered into a lease for its executive offices, which expires in 2010. These leases require payment by the Company of the real estate taxes and insurance on the leased property. Approximate future minimum annual rental payments are as follows (in thousands):

Year ending December 31,
2004	$	914
2005		880
2006		858
2007		857
2008		862
Thereafter		1,206

	$	5,577

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NOTE M — COMMITMENTS AND CONTINGENCIES — Continued

The Bank provided letters of credit on the leases that total $616,000 at December 31, 2003. These letters reduce annually based upon rental payments made.

Rent expense for the years ended December 31, 2003 and 2002 was approximately $520,000, $569,000 and $570,000 net of rental payments from RAIT and Cohen Bros., of approximately $325,000, $183,000 and $46,000, respectively.

2. Guaranteed Preferred Beneficiary Interest in Company’s Subordinated Debt

In June 2002, the Parent issued $5.25 million of 10.5% fixed rate subordinated debentures (the Debentures) due June 12, 2007 to The Bancorp Capital Trust (the Trust), a Delaware business trust, which is a wholly-owned subsidiary of the Parent. The Debentures are the sole asset of the Trust. The Trust issued 5,250,000 shares of trust-preferred securities, $10 face value, for total proceeds of $5,250,000. The Parent’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Parent of the Trust’s obligations under the preferred securities. The preferred securities are redeemable by the Parent on or after June 12, 2007, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier 1 capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2032. The ability of the Bank to pay dividends or extend credit to the Parent is subject to legal and regulatory limitations.

The Parent has evaluated the impact of FIN No. 46 on variable interest entities entered into by the Parent prior to the issuance of FIN No. 46. Management has determined that The Bancorp Capital Trust I qualifies as a variable interest entity under FIN No. 46. The Bancorp Capital Trust I is currently included in the Parent’s consolidated balance sheet and statements of operations. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities by March 31, 2004. The Bancorp plans to adopt the provisions under the revised interpretation in the first quarter of 2004. FIN 46(R) will require the Bancorp to deconsolidate The Bancorp Capital Trust I as of January 1, 2005. FIN 46(R) precludes consideration of the call option embedded in the preferred stock when determining if the Parent has the right to a majority of The Bancorp Capital Trust I’s expected residual returns. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for the trust-preferred securities issued by The Bancorp Capital Trust I based on the adoption of FIN 46(R). However, as additional interpretations from the banking regulators related to entities such as The Bancorp Capital Trust I become available, management will reevaluate its potential impact to its Tier 1 capital calculation under such interpretations.

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NOTE N — FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk. The approximate contract amounts are as follows (in thousands):

	December 31,
	2003		2002

Financial instruments whose contract amounts represent credit risk
Commitments to extend credit	$	65,627	$	20,715
Standby letters of credit		4,117		1,351

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds residential or commercial real estate, accounts receivable, inventory and equipment as collateral supporting those commitments for which collateral is deemed necessary. These letters of credit expire through 2004. The extent of collateral held for those commitments at December 31, 2003 and 2002 varies up to 100%.

The Bank grants loans primarily to customers in Philadelphia and its immediately adjacent suburban Pennsylvania counties which include Chester, Delaware and Montgomery and northern Delaware.

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NOTE O — FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107 requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For the Bank, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments. However, many such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Also, it is the Bank’s general practice and intent to hold its financial instruments to maturity whether or not categorized as “available- for-sale” and not to engage in trading or sales activities, except for certain loans. Therefore, the Bank has used significant estimations and present value calculations in estimating the fair value of the financial instruments.

Estimated fair values have been determined by the Bank using the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 2003 and 2002, are outlined below.

The estimated fair values of demand deposits ( i.e. , interest- and noninterest-bearing checking accounts, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly time deposit maturities. Based upon the current time deposit maturities, the carrying value approximates their fair value. The carrying amount of accrued interest payable approximates its fair value.

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NOTE O — FAIR VALUE OF FINANCIAL INSTRUMENTS — Continued

	2003				2002
	Carrying amount		Estimated fair value		Carrying amount		Estimated fair value

	(in thousands)
Investment securities available-for-sale	$	24,387	$	24,387	$	33,669	$	33,669
Loans receivable, net		230,406		229,883		161,958		160,982
Certificates of deposits		117,321		117,737		84,520		84,553
Securities sold under agreements to repurchase		3		3		1,008		1,008

NOTE P — REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’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 regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2003, that the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2003, the Bank met all regulatory requirements for classification 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.

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NOTE P — REGULATORY MATTERS — Continued

As of December 31, 2003 and 2002, the Bank had the following capital ratios:


	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provision
	Amount		Ratio		Amount		Ratio		Amount		Ratio

	(dollars in thousands)
As of December 31, 2003
Total capital
(to risk-weighted assets)
Bank	$	27,895		11.05%	$	20,195		8.00%	$	25,244		> 10.00%
Tier 1 capital
(to risk-weighted assets)
Bank		25,904		10.26%		10,098		4.00%		15,146		> 6.00%
Tier 1 capital
(to average assets)
Bank		25,904		8.46%		12,242		4.00%		15,303		> 5.00%

As of December 31, 2002
Total capital
(to risk-weighted assets)
Bank		21,452		11.13%		15,421		8.00%		19,276		> 10.00%
Tier 1 capital
(to risk-weighted assets)
Bank		20,073		10.41%		7,711		4.00%		11,566		> 6.00%
Tier 1 capital
(to average assets)
Bank		20,073		9.04%		8,884		4.00%		11,106		> 5.00%

In addition, pursuant to the order of the FDIC approving the Bank’s charter, for its first three years of operation the Bank was required to maintain a Tier 1 Leverage Ratio of at least 8.0%. The Bank completed its third year of operations on July 31, 2003. As of December 31, 2003 and 2002, the Bank’s Tier 1 Leverage Ratio was 8.46% and 9.04%, respectively.

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NOTE Q — QUARTERLY FINANCIAL DATA (UNAUDITED)

The following represents summarized quarterly financial data of the Bank, which, in the opinion of management, reflects all adjustments (comprising only normal recurring accruals) necessary for a fair presentation.

	Three months ended
	March 31		June 30		September30			December 31

2003	(in thousands)
Interest income	$	3,365	$	3,483	$	3,724		$	4,225
Interest expense		1,161		1,192		1,203			1,316

Net interest income		2,204		2,291		2,521			2,909
Provision for loan and lease losses		150		150		150			235

Net interest income after provision for loan and lease losses		2,054		2,141		2,371			2,674
Non-interest income		2,236		2,378		2,708			3,125
Non-interest expense		3,810		4,252		4,626			5,398

Net income before income tax benefit		480		267		453			401
Income tax benefit		—		—		(125	)		(125	)

Net income	$	480	$	267	$	578		$	526

Net income per share — basic and diluted	$	0.14	$	0.08	$	0.16		$	0.15

	Three months ended
	March 31		June 30		September30		December 31

2002	(in thousands)
Interest income	$	2,636	$	2,907	$	3,200	$	3,277
Interest expense		931		1,059		1,115		1,180

Net interest income		1,705		1,848		2,085		2,097
Provision for loan and lease losses		150		150		150		150

Net interest income after provision for loan and lease losses		1,555		1,698		1,935		1,947
Non-interest income		652		808		859		2,023
Non-interest expense		2,169		2,605		3,741

Net income before income tax benefit		38		27		189		229
Income tax benefit		—		—		—		(500	)

Net income	$	38	$	27	$	189	$	729

Net income per share — basic and diluted	$	0.01	$	0.01	$	0.05	$	0.21

NOTE R — SUBSEQUENT EVENTS

In February 2004, The Bank completed a public offering for 7,187,500 shares of Bank common stock at $12.50 per share. Proceeds from the offering were $82.9 million, net of offering costs of $6.9 million. As a result of this offering, the ownership of the Parent was reduced to 32.7%. Total shares of common stock outstanding after this offering were 10,687,500. The bank granted stock options to purchase 501,000 shares of the Bank’s common stock out of the 2003 Bank Plan.

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NOTE R — SUBSEQUENT EVENTS — continued

The following represents the condensed balance sheet as if the transaction was completed as of December 31, 2003:

	December 31, 2003			Adjustments			December 31, 2003 (as adjusted)

Cash and cash equivalents	$	42,183		$	83,010	(1)	$	125,193
Other assets		262,114			(133)	(2)		261,981

	$	304,297		$	82,877		$	387,174

Liabilities	$	278,549					$	278,549
Shareholder’s equity
Common stock		525		$	1,078	(1)		1,603
Additional paid-in capital		30,149			81,932	(1)		—

					(133)	(2)		111,948
Accumulated deficit		(4,770	)		(4,770	)
Accumulated other comprehensive loss		(156	)		—			(156	)

Total shareholder’s equity		25,748			82,877			108,625

Total liabilities and shareholder’s equity	$	304,297		$	82,877		$	387,174

(1)	Proceeds from the issuance of 7,187,500 shares of common stock at a $0.15 par value, net of offering costs of $6,877,000.

(2)	Offering costs incurred prior to December 31, 2003 that were reclassed to shareholder’s equity after the completion of the offering.

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THE BANCORP BANK

BALANCE SHEETS

	March 31, 2004			December 31, 2003

	(unaudited) (in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	9,129		$	11,650
Interest bearing deposits		1,108			1,027
Federal funds sold		32,827			29,506

Total cash and cash equivalents		43,064			42,183

Investment securities, available-for-sale		130,812			24,387
Loans, net		272,520			230,406
Premises and equipment, net		2,660			2,377
Accrued interest receivable		1,714			1,219
Other assets		4,605			3,725

Total assets	$	455,375		$	304,297


LIABILITIES
Deposits
Demand (non-interest bearing)	$	50,279		$	49,361
Savings, money market and interest checking		145,455			111,438
Time deposits		124,561			104,410
Time deposits, $100,000 and over		952			12,911

Total deposits		321,247			278,120

Securities sold under agreements to repurchase		3			3
Federal Home Loan Bank advances		20,000			—
Accrued interest payable		161			218
Other liabilities		5,182			208

Total liabilities		346,593			278,549


SHAREHOLDER’S EQUITY
Preferred stock -authorized 5,000,000 shares, none issued		—			—
Common stock — authorized, 30,000,000 shares of $0.15 par value; issued shares 10,687,500 at March 31, 2004 and 3,500,000 at December 31, 2003		1,603			525
Additional paid-in capital		111,951			30,149
Accumulated deficit		(4,365	)		(4,770	)
Accumulated other comprehensive loss		(407	)		(156	)

Total shareholder’s equity		108,782			25,748

Total liabilities and shareholder’s equity	$	455,375		$	304,297

The accompanying notes are an integral part of these statements.

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THE BANCORP BANK

STATEMENTS OF OPERATIONS

	For the three months ended March 31,
	2004		2003

	(unaudited) (in thousands, except per share data)
Interest income
Loans, including fees	$	3,782	$	2,783
Investment securities		799		507
Federal funds sold		97		72
Interest bearing deposits		5		3

		4,683		3,365

Interest expense
Deposits		1,229		1,155
Securities sold under agreements to repurchase		—		6
Federal Home Loan Bank advances		26		—

		1,255		1,161

Net interest income		3,428		2,204
Provision for loan and lease losses		332		150

Net interest income after provision for loan and lease losses		3,096		2,054

Non-interest income
Service fees on deposit accounts		191		185
Merchant credit card deposit fees		1,348		1,599
Gain on sales of investment securities		101		336
Leasing income		62		9
Other		182		107

Total non-interest income		1,884		2,236

Non-interest expense
Salaries and employee benefits		1,738		1,083
Occupancy expense		383		393
Merchant credit card processing		1,176		1,402
Data processing expense		237		185
Management fee		36		36
Advertising		93		60
Professional fees		92		51
Other		820		600

Total non-interest expense		4,575		3,810

Net income before income taxes		405		480
Income taxes		—		—

Net income	$	405	$	480

Net income per share — basic	$	0.05	$	0.14

Net income per share — diluted	$	0.05	$	0.14

The accompanying notes are an integral part of these statements.

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THE BANCORP BANK

STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
For the three months ended March 31, 2004 (unaudited) and for the year ended December 31, 2003

											Accumulated
	Common				Additional						other
	shares		Common		paid-in			Accumulated			comprehensive			Comprehensive
	outstanding		stock		capital			Deficit			loss			income			Total

	(in thousands except share data)
Balance at December 31, 2002		3,500,000	$	500	$	26,194		$	(6,621	)	$	315		$	20,388
Net Income									1,851		$	1,851			1,851
Capital contribution from parent		—		—		3,980			—			—						3,980
Reclassification due to change in par value		—		25		(25	)		—			—						—
Other comprehensive loss, net of reclassification adjustments and tax		—		—		—			—			(471	)		(471	)		(471	)

Total other comprehensive income														$	1,380

Balance at December 31, 2003		3,500,000		525		30,149			(4,770	)		(156	)					25,748
Net Income												405		$	405			405
Net proceeds from the issuance of common stock		7,187,500		1,078		81,802			—			—						82,880
Other comprehensive loss, net of reclassification adjustments and tax		—		—		—			—			(251	)		(251	)		(251	)

Total other comprehensive income														$	154

Balance at March 31, 2004 (unaudited)		10,687,500	$	1,603	$	111,951		$	(4,365	)	$	(407	)				$	108,782

The accompanying notes are an integral part of these statements.

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THE BANCORP BANK

STATEMENTS OF CASH FLOWS

	For the three months ended March 31,
	2004			2003

	(unaudited)
	(in thousands)
Operating activities
Net income	$	405		$	480
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		180			213
Provision for loan and lease losses		332			150
Net amortization (accretions) of premium (discount)		(9	)		31
Net gains on sales of investment securities		(101	)		(336	)
Increase in accrued interest receivable		(495	)		(111	)
Decrease in interest payable		(57	)		(23	)
(Increase) decrease in other assets		(750	)		677
Increase (decrease) in other liabilities		4,974			(28	)

Net cash provided by operating activities		4,479			1,053

Investing activities
Purchase of investment securities		(109,015	)		(6,783	)
Proceeds from sales of investment securities		1,270			4,997
Proceeds from maturity of investment securities		1,049			3,773
Net increase in loans		(42,446	)		(14,378	)
Purchases of premises and equipment		(463	)		(24	)

Net cash used in investing activities		(149,605	)		(12,415	)

Financing activities
Net increase (decrease) in deposits		43,127			(6,435	)
Net increase in securities sold under agreements to Repurchase		—			6
Proceeds from Federal Home Loan Bank advances		20,000			—
Net proceeds from sale of common stock		82,880			—
Net cash provided by (used in) financing activities		146,007			(6,429	)

Net increase (decrease) in cash and cash equivalents		881			(17,791	)
Cash and cash equivalents, beginning of year		42,183			30,148

Cash and cash equivalents, end of period	$	43,064		$	12,357

The accompanying notes are an integral part of these statements.

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NOTES TO FINANCIAL STATEMENTS

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of The Bancorp Bank (Bank) as of March 31, 2004 and for the three month periods ended March 31, 2004 and 2003 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. However, in the opinion of management, these interim financial statements include all necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the three month period ended March 31, 2004 may not necessarily be indicative of the results of operations for the full year ending December 31, 2004.

NOTE 2 — STOCK-BASED COMPENSATION

The Bank accounts for its stock options under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which contains a fair value-based method for valuing stock-based compensation that entities may use that measures compensation cost at the grant date based on the fair value of the award. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied.

At March 31, 2004, the Bank had one stock-based compensation plan, which is more fully described in its Form 10-K report. The Bank accounts for that plan under the recognition and measurement principles of APB No. 25 and related interpretations. The Bank adopted a stock based compensation plan in February 2004. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Employees of the Bank also have options to purchase common stock of its parent, The Bancorp, Inc. Financial Accounting Standards Board (FASB) Interpretation No. 44 provides an exception that allows a subsidiary to account for stock options granted to subsidiary employees to purchase parent common stock under APB No. 25 if the parent accounts for those stock options under APB No. 25. The following table illustrates the effect on net income and earnings per share if the Bank had applied the fair value recognition provisions of SFAS No. 123 for the Bank plan to stock-based employee compensation (in thousands).

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NOTE 2 — STOCK-BASED COMPENSATION — Continued

	For the three months ended March 31,
	2004			2003

Net income, as reported	$	405			480
Less stock-based compensation costs under fair value based method for all awards		(700	)		—

Pro forma net (loss) income	$	(295	)	$	480

Net income per share basic, as reported	$	0.05		$	0.14

Net (loss) income per share basic, pro forma	$	(0.03	)	$	0.14

Net income per share diluted, as reported	$	0.05		$	0.14

Net (loss) income per share diluted, pro forma	$	(0.03	)	$	0.14

On March 31, 2004, the FASB issued a proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 95, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Under the FASB’s proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25. The Bank is currently evaluating this proposed statement and the effects it would have on its results of operations.

NOTE 3 — EARNINGS PER SHARE

Basic earnings per share for a particular period of time is calculated by dividing net income by the weighted average number of common shares outstanding during that period.

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NOTE 3 — EARNINGS PER SHARE — Continued

The following schedule shows our earnings per share for the periods presented in thousands:

	For the three months ended March 31,
(in thousands except per share data)		2004		2003

Income applicable to common stock	$	405	$	480
Weighted average number of common shares outstanding — basic		8,050,137		3,500,000
Options issued		72,418		—

Weighted average number of common shares and common share equivalents — diluted		8,122,555		3,500,000
Basic earnings per share	$	0.05	$	0.14

Diluted earnings per share	$	0.05	$	0.14

NOTE 4 — INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair values of the Bank’s investment securities available-for-sale are summarized as follows (in thousands):

	March 31, 2004
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value

	(unaudited)
U.S. Government agency securities	$	80,000	$	—	$	(444	)	$	79,556
Mortgage backed securities		9,746		10		(350	)		9,406
Other securities		41,683		285		(118	)		41,850

	$	131,429	$	295	$	(912	)	$	130,812

	December 31, 2003

			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value

U.S. Government agency securities	$	—	$	—	$	—		$	—
Mortgage backed securities		10,604		10		(363	)		10,251
Other securities		14,019		266		(149	)		14,136

	$	24,623	$	276	$	(512	)	$	24,387

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NOTE 4 — INVESTMENT SECURITIES — Continued

The amortized cost and fair value of the Bank’s investment securities available-for-sale at March 31, 2004, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	cost		value

	(in thousands)
Due in one year or less	$	20,000	$	20,000
Due after one year through five years		40,000		39,848
Due after five years through ten years		47,749		47,522
Due after ten years		22,544		22,306
Federal Home Loan and Atlantic
Central Bankers Bank stock		1,136		1,136

	$	131,429		$130,812

NOTE 5 — LOANS

Major classifications of loans are as follows (in thousands):

	March 31,		December 31,
	2004		2003

	(unaudited)
Commercial	$	57,078	$	53,130
Commercial mortgage		106,534		89,772
Construction		49,624		29,026

Total commercial loans		213,236		171,928
Direct financing leases, net		38,729		38,405
Residential mortgage		6,231		6,473
Consumer loans and others		16,501		14,989

		274,697		231,795
Unamortized costs		146		602

Total loans, net of unamortized fees and costs	$	274,843	$	232,397

NOTE 6 — TRANSACTION WITH AFFILIATES

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NOTE 6 — TRANSACTION WITH AFFILIATES — Continued

The Bank, through its Parent, entered into a sublease for office space in Philadelphia, Pennsylvania and a technical support agreement with RAIT Investment Trust (RAIT) commencing in October 2000. The Chief Executive Officer of RAIT is the Chairman and Chief Executive Officer of the Bank and the Chief Executive Officer of the Parent. Under the sublease, RAIT pays the Bank rent equal to 45% of the rent paid by the Bank and an allocation of common area expenses. Under the technical support agreements, which commenced in January 2001, the Bank also provides technical support for RAIT for a fee of $5,000 a month. RAIT paid $15,000 for the three months ended March 31, 2004 and 2003.

The Bank, through its Parent, also has a sublease for office space in Philadelphia, Pennsylvania with Cohen Bros. commencing in July 2002 under which Cohen Bros. pays rent of $6,761 per month. Prior to 2002, the Bank subleased the office space for $1,000 per month. Cohen Bros. paid $20,284 in rent for the three months ended March 31, 2004 and 2003.

The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on the same terms as those prevailing for comparable transactions with other borrowers. At March 31, 2004, these loans were current as to principal and interest payments and, in the opinion of management, do not involve more than normal risk of collectibility. At March 31, 2004, loans to these related parties amounted to $1,885,000.

As of March 31, 2004 and December 31, 2003, respectively, the Parent was obligated to the Bank for $549,000 and $607,000, respectively, of reimbursements to the Bank for expenses paid by the Bank on behalf of the Parent. In addition, the Bank pays a management fee to the Parent of $12,000 per month under the joint management services policy between the Bank and the Parent. Management fees were $36,000 for March 31, 2004 and 2003. There were no receivable balances related to these management fees as of any of the stated periods. The Bank also maintains a deposit account for the Parent. Deposit balances were $1,117,000 and $1,355,000 as of March 31, 2004 and December 31, 2003, respectively.

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NOTE 7 — SIGNIFICANT ACCOUNTING PRONOUNCEMENTS

NOTE 8 — INITIAL PUBLIC OFFERING

In February 2004, The Bank completed a public offering for 7,187,500 shares of Bank common stock at $12.50 per share. Proceeds from the offering were $82.9 million, net of offering costs of $6.9 million. As a result of this offering, the ownership of the Parent was reduced to 32.7%. Total shares of common stock outstanding after this offering were 10,687,500.

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ANNEX A

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the “ Agreement ”), is entered into as of the 8th day of July, 2004, by and among THE BANCORP BANK (the “ Bank ”), THE BANCORP, INC. (the “ Company ”) and, upon its formation, TBI ACQUISITION BANK (the “ Acquisition Bank ”).

WITNESSETH:

WHEREAS, the Bank is a commercial bank duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices located at 405 Silverside Road, Wilmington, Delaware 19809, and no additional banking offices, that has authorized capital stock consisting of 30,000,000 shares of common stock, $0.15 par value (the “ Bank Common Stock ”); and

WHEREAS, the Company is a bank holding company duly organized and validly existing under the laws of the State of Delaware, with its principal executive offices located at 405 Silverside Road, Wilmington, Delaware 19809, that has authorized capital stock consisting of 20,000,000 shares of common stock, $1.00 par value (the “ Company Common Stock ”), and 5,000,000 shares of preferred stock, $0.01 par value; and

WHEREAS, the Company has filed an application to establish the Acquisition Bank as a de novo commercial bank under the laws of the State of Delaware which will have its principal executive offices located at 405 Silverside Road, Wilmington, Delaware 19809, and no additional banking offices, and which, as of the Effective Time (as defined in Section 1.07 below), will be duly organized and existing as a commercial bank under the laws of the State of Delaware that has authorized capital stock consisting of 2,000,000 shares of common stock, $.50 par value, of which 1,000,000 shares will be issued and outstanding (all of which will be owned by the Company); and

WHEREAS, the respective Boards of Directors of the Bank and the Company and the organizer and prospective Board of Directors of the Acquisition Bank each have determined that it is in the best interests of their respective companies and the shareholders of their respective companies to combine the Acquisition Bank and the Bank into a single company through the merger of the Bank with and into the Acquisition Bank (the “ Merger ”), on the terms and conditions set forth herein, and each has agreed to recommend approval of the transactions contemplated hereby to their respective shareholders, to the extent required by applicable law; and

WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the “ Code ”); and

WHEREAS, as and when required by the provisions of this Agreement, all such action as may be necessary or appropriate shall be taken by the Bank, the Acquisition Bank and the Company in order to consummate the Merger.

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NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein set forth, the parties hereto, intending to be legally bound, do hereby agree as follows:

ARTICLE I
THE MERGER

Section 1.01 Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Date, and in accordance with Section 781 et seq. of the Delaware Banking Code, 5 Del. C. §§ 101 et seq. (the “ Delaware Banking Code ”), the Bank shall be merged with and into the Acquisition Bank. As a result of the Merger, the Acquisition Bank shall be the surviving entity (the “ Surviving Bank ”), the separate existence of the Bank shall cease and the existence of the Acquisition Bank, as the Surviving Bank, shall continue with all the rights, privileges, immunities, powers and franchises and subject to all the duties, restrictions and liabilities of a banking corporation organized under the laws of the State of Delaware.

Section 1.02 Assets and Liabilities. The Merger shall in all respects have the effects provided for by the Delaware Banking Code and the Delaware General Corporation Law, 8 Del. C. §§ 101 et seq. (the “DGCL” ), including, without limitation, that, at the Effective Date, all rights, privileges, immunities, powers, franchises and interests of the Bank in and to every type of property (real, personal and mixed) shall be vested in the Acquisition Bank by virtue of such Merger without any deed or other transfer, and the Surviving Bank, without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, privileges, immunities, powers, franchises and interests, including, without limitation, appointments, designations and nominations, all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver and committee of estates of incompetence and in every other fiduciary capacity, in the same manner and to the same extent as such rights, privileges, immunities, powers, franchises and interests are held or enjoyed by the Bank. The Surviving Bank shall be liable for all liabilities of the Bank, all deposits, debts, liabilities, obligations and contracts of the Bank, matured or unmatured, whether accrued, absolute, contingent or otherwise and whether or not reflected or reserved against on balance sheets, books of account or records of the Bank, shall be those of the Surviving Bank and shall not be released or impaired by the Merger. All rights of creditors and other obligees and all liens on property of the Bank shall be preserved and unimpaired.

Section 1.03 Name. The name of the Surviving Bank shall be “The Bancorp Bank.”

Section 1.04 Articles of Organization and Bylaws.

A. At the Effective Date, the Articles of Association of the Acquisition Bank attached as Exhibit 1 to the Articles of Organization of the Acquisition Bank, as in effect immediately prior to the Effective Date, shall be amended as set forth below and the Articles of Organization as so amended shall thereafter continue in full force and effect as the Articles of Organization of the Surviving Bank until thereafter amended in accordance with the provisions thereof and of applicable law.

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(i) Article First of the Articles of Association of the Acquisition Bank attached as Exhibit 1 to the Articles of Organization of the Acquisition Bank shall be amended to read in its entirety as follows:


				“ FIRST : The name of the corporation is The Bancorp Bank (hereinafter referred to as the “Bank”).”


	B. The Bylaws of the Acquisition Bank, as in effect immediately prior to the Effective Date, shall continue to be the bylaws of the Surviving Bank until thereafter amended or restated, as provided therein and by applicable law.

Section 1.05 Directors and Officers.

A. The Directors of the Bank immediately prior to the Effective Date shall serve as the Board of Directors of the Surviving Bank at the Effective Date, and shall serve until the next annual meeting of shareholders of the Surviving Bank or until their successors are elected and have qualified or until their earlier death, resignation or removal in accordance with the Surviving Bank’s Articles of Organization and Bylaws. Any vacancy on the Board of Directors at the Effective Date shall be filled in the manner provided in the Articles of Organization and Bylaws of the Surviving Bank. The name and residence address of each such Director are set forth on Exhibit A attached hereto.


	B. The officers of the Bank immediately prior to the Effective Date shall continue as officers of the Surviving Bank, subject to the review and approval of the Board of Directors of Surviving Bank. The name, title and residence address of each such officer are set forth on Exhibit B attached hereto.

Section 1.06 Closing. Upon the terms and subject to the conditions set forth in the Agreement, the closing of the transaction contemplated by this Agreement (the “Closing” ) shall take place in the offices of the Company at 10:00 a.m. on the first business day (any day on which banks are not required or authorized to close in Wilmington, Delaware) following receipt of all necessary regulatory approvals and expiration of all mandatory waiting periods, or on such other day or at such other time or place as may be mutually agreed upon by the parties.

Section 1.07 Effective Date. Promptly following the Closing, the Merger shall become effective upon the filing of a copy of a Certificate of Merger substantially in the form of Exhibit C attached hereto, which Certificate of Merger shall have been endorsed by the State Bank Commissioner of Delaware, with the Secretary of State of the State of Delaware (the “ Effective Date ”).

Section 1.08 Conversion of the Bank Common Stock and Stock Options. At the Effective Date, by virtue of the Merger and without any action on the part of the Company, the Bank, the Acquisition Bank or any shareholder thereof:

A. Except as provided in Section 1.08(D) hereof, each share of the Bank Common Stock issued and outstanding immediately prior to the Effective Date shall cease to be outstanding and shall be converted automatically into and become the right to receive 1.15 validly issued, fully paid and nonassessable shares of Company Common Stock (as the same may be changed pursuant to Section 1.08(E), the “ Exchange Ratio ”).

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B. No certificates representing a fractional share shall be issued by the Company. In lieu of any fractional share, each shareholder entitled to a fractional share, upon surrender of such shares of Bank Common Stock, shall be entitled to receive from the Company an amount in cash (without interest), payable by check, rounded to the nearest cent, determined by multiplying the fractional share by an amount equal to the average closing price of a share of Bank Common Stock on the Nasdaq National Market during the ten trading days immediately before the Effective Date divided by 1.15. The shares of Company Common Stock into which shares of Bank Common Stock are converted pursuant to Section 1.08(A) and any cash to be issued in lieu of fractional shares is referred to herein as the “Merger Consideration.”

C. All shares of Bank Common Stock to be converted into Company Common Stock pursuant to Section 1.08(A) shall cease to exist, and each holder of a certificate, which immediately prior to the Effective Date represented any such shares of Bank Common Stock (such certificate or other evidence of ownership, a “ Certificate ”) shall thereafter cease to have any rights with respect to such shares of Bank Common Stock, except the right to receive the applicable number of shares of Company Common Stock with respect thereto to be issued in consideration therefor, cash in lieu of fractional shares and any dividends or other distributions to which holders of Bank Common Stock become entitled upon the surrender of such Certificate.


	D. Any shares of Bank Common Stock that are owned immediately prior to the Effective Date by the Bank as treasury stock or by the Company or the Acquisition Bank shall be canceled and extinguished without any conversion thereof or consideration therefor.

E. If, between the date of this Agreement and the Effective Date, the outstanding shares of Company Common Stock or the outstanding shares of Bank Common Stock shall have been increased, decreased, changed into or exchanged for a different number of shares or different class, in each case, by reason of any reclassification, recapitalization, stock split, split-up, combination or exchange of shares or a stock dividend or dividend payable in any other securities shall be declared with a record date within such period, or any similar event shall have occurred, the Exchange Ratio shall be appropriately adjusted to provide to the holders of Bank Common Stock the same economic effect as contemplated by this Agreement prior to such event.


	F. Each share of common stock of the Acquisition Bank outstanding prior to the Effective Date shall remain outstanding as a share of common stock of the Surviving Bank.

G. Pursuant to the Bank’s stock option plan and grants thereunder, any valid options to purchase shares of Bank Common Stock (a “ Bank Option ”), outstanding and unexercised immediately prior to the Merger shall, by virtue of the Merger, automatically and without any action on the part of the holder thereof, become and be converted into options (“ Company Options ”) to purchase that number of shares of Company Common Stock as shall equal the Exchange Ratio multiplied by that number of shares of Bank Common Stock which such option shall entitle the holder thereof to purchase (rounded to the nearest whole share), at an exercise price equal to the exercise price per share of the Bank Option divided by the Exchange Ratio (rounded to the nearest cent). The Company shall perform each such Company Option in accordance with the terms of any grant, plan or agreement by which it is evidenced or by which it is governed, subject to the foregoing.

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Section 1.09 Transfer Agent. Promptly following the Effective Date, the Company will cause American Stock Transfer & Trust Co., or another qualified transfer agent selected by the Company (the “ Transfer Agent ”), to send to each shareholder of the Bank a letter of transmittal for use in exchanging such shareholders’ Certificates representing shares of Bank Common Stock for certificates representing the number of shares of Company Common Stock to which they are entitled pursuant to this Agreement. Each shareholder of the Bank shall be entitled to receive shares of Company Common Stock for such shareholder’s Bank Common Stock only upon surrender of the Certificates representing such shares of Bank Common Stock, or after providing an appropriate affidavit of lost certificate and indemnity agreement and/or bond as reasonably may be required in each case by the Transfer Agent. Until so surrendered, each Certificate formerly representing shares of Bank Common Stock will be deemed for all corporate purposes to represent and evidence solely the right to receive the Merger Consideration.

Section 1.10 Distributions with Respect to Unexchanged Shares. No dividends or other distributions with a record date after the Effective Date shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Company Common Stock that such holder would be entitled to receive upon surrender of such Certificate, until such holder shall surrender such Certificate in accordance with Section 1.09. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder thereof without interest: (a) promptly after the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Date theretofore paid with respect to such whole shares of Company Common Stock, and (b) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Date and a payment date subsequent to such surrender payable with respect to such shares of Company Common Stock.

Section 1.11 No Further Ownership Rights in Bank Common Stock. All shares of Company Common Stock issued upon conversion of shares of Bank Common Stock in accordance with the terms of this Article I shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to the shares of Bank Common Stock.

Section 1.12 No Liability. None of the Bank, the Company or the Acquisition Bank shall be liable to any an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in the Securities Exchange Act of 1934, as amended) (each a “ Person ”) in respect of any Merger Consideration properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Section 1.13 Withholding Rights. The Company shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Bank Common Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, the regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Company, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by the Company.

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Section 1.14 Further Assurances. At and after the Effective Date, the officers and directors of the Company shall be authorized to execute and deliver, in the name and on behalf of the Bank, the Company and the Acquisition Bank, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Bank, the Company and the Acquisition Bank, any other actions and things to vest, perfect or confirm of record or otherwise in the Bank, the Company and the Acquisition Bank, any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the Bank, the Company and the Acquisition Bank, as a result of, or in connection with, the Merger.

Section 1.15 Dissenting Shareholders. Any holder of shares of Bank Common Stock who perfects his dissenters’ rights of appraisal in accordance with and as contemplated by Section 788 of the Delaware Banking Code shall be entitled to receive the value of such shares in cash as determined pursuant to such provisions of law, upon written demand, made to the Surviving Bank at any time within thirty (30) days after the Effective Date accompanied by surrender of their stock certificates.

Section 1.16 Bank Shareholders’ Meeting. This Agreement shall be submitted to the shareholders of the Bank at a meeting called to be held as promptly as practicable and, upon the formation of the Acquisition Bank and the issuance of its capital stock to the Company, to the Company as the sole shareholder of the Acquisition Bank for its written consent. Upon approval by the requisite vote of the shareholders of the Bank and the approval of the Company as the sole shareholder of the Acquisition Bank, the Merger shall be made effective as soon as practicable thereafter as provided in Section 1.07 hereof.

Section 1.17 Preferred Stock. No preferred stock is being issued as a result of, or in connection with, the Merger.

ARTICLE II
COVENANTS

Section 2.01 Proxy Statement/Prospectus. As soon as practicable following the date of this Agreement, the Company and the Bank shall cooperate in preparing mutually acceptable proxy materials, which shall constitute the proxy statement, and any amendments or supplements thereto, to be filed by the Bank with the Federal Deposit Insurance Corporation in connection with the meeting of the Bank’s shareholders with respect to the Merger, and which shall be the same as a proxy statement/prospectus (each such proxy statement/prospectus and any amendments or supplements thereto, collectively referred to herein as the “ Proxy Statement/Prospectus ”) to be contained in the registration statement on Form S-4 to be filed by the Company with the Securities and Exchange Commission (the “ Commission ”) in connection with the registration of the Company Common Stock issuable upon conversion of the Bank Common Stock in the Merger, and any amendments thereto (the “ Form S-4 ”), and the Company shall prepare and file the Form S-4 with the Commission. Each of the Company and the Bank shall use its commercially reasonable efforts to have the Proxy Statement/Prospectus cleared by the Federal Deposit Insurance Corporation and the Form S-4 declared effective by the Commission as soon after such filing as practicable and to keep the Form S-4 effective as long as is necessary to consummate the Merger and the transactions contemplated hereby. The Bank will use commercially reasonable efforts to cause the Proxy Statement/Prospectus to be mailed to the shareholders of the Bank as promptly as practicable after the Form S-4 is declared effective under the Securities Act.

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Section 2.02 Regulatory Approvals. As soon as practicable following the date of this Agreement, each of the Company and the Bank shall (i) file or cause to be filed applications for all regulatory approvals required to be obtained by such parties in connection with this Agreement and any other agreements contemplated hereby; (ii) diligently seek all other required approvals or consents; and (iii) take any and all further action as may be necessary or appropriate to permit the timely consummation of the Merger provided for in this Agreement.

Section 2.03 Legal Requirements. Each of the Company and the Bank will, and will cause their respective subsidiaries to, take all commercially reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement and will promptly cooperate with and furnish information to any party hereto necessary in connection with any such requirements imposed upon such other party in connection with the consummation of the transactions contemplated by this Agreement.

Section 2.04 Blue Sky Laws. The Company shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Company Common Stock in connection with the Merger. The Bank shall use its commercially reasonable efforts to assist the Company as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of Company Common Stock in connection with the Merger.

Section 2.05 Affiliate Agreements. Within thirty (30) days following the execution and delivery of this Agreement, the Bank will use commercially reasonable efforts to obtain an executed Affiliate Agreement substantially in the form of attached hereto as Exhibit D (each an “ Affiliate Agreement ”) from any Person who, to the knowledge of the Bank, may be deemed to have become an “ Affiliate ” (as such term is defined in Rule 405 promulgated under the Securities Act) of the Bank. Each person who signs an Affiliate Agreement will agree not to sell, transfer or otherwise dispose of Company Common Stock except pursuant to: (i) an effective registration statement under the Securities Act covering the resale of those shares; (ii) an exemption under Rule 145 or Rule 144 under the Securities Act; or (iii) any other applicable exemption under the Securities Act. In accordance with the Affiliate Agreements, the Company will be entitled to place legends evidencing the foregoing restrictions on certificates for the Company Common Stock held by Affiliates.

Section 2.06 Best Efforts. Each of the Company and the Bank shall use its best efforts to take, or cause to be taken, all actions or do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, subject, however, to the requisite vote of the shareholders of the Bank in accordance with the requirements of the DGCL.

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Section 2.07 Nasdaq National Market. The Company shall take all necessary action to list the currently outstanding shares of Company Common Stock and the shares of Company Common Stock issuable hereunder for trading on the Nasdaq National Market.

ARTICLE III
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES

The respective obligations of each party to this Agreement to consummate and effect the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Date of each of the following conditions:

Section 3.01 Shareholder Approvals. The shareholders of the Bank entitled to vote on the Merger and this Agreement shall have approved this Agreement. The Company, as the sole shareholder of Acquisition Bank, shall have approved this Agreement.

Section 3.02 Government and Other Approvals. The Acquisition Bank shall have been duly organized and existing as a commercial bank under the laws of the State of Delaware. Each of the Company, the Bank and the Acquisition Bank shall have received approvals of, or acquiescence or consent to, the transactions contemplated by this Agreement from all necessary governmental agencies and authorities and other third parties, including but not limited to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Delaware State Bank Commissioner, and all applicable waiting periods shall have expired, and the approvals and consents of all third parties required to consummate this Agreement and the other agreements contemplated hereby, and the transactions contemplated hereby and thereby. Such approvals and the transactions contemplated hereby shall not have been contested or threatened to be contested by any federal, state or local governmental authority or by any other third party by formal proceedings and shall not have imposed, in the sole judgment of the Company, any material requirements upon the Company.

Section 3.03 Registration Statement. The Commission shall have declared the Form S-4 effective. No stop order suspending the effectiveness of the Form S-4 or any part thereof shall have been issued and no proceeding for that purpose, and no similar proceeding in respect of the Proxy Statement/Prospectus shall have been initiated or threatened in writing by the Commission or any other governmental authority; and all requests for additional information on the part of the Commission or any other governmental authority shall have been complied with to the reasonable satisfaction of the parties hereto.

Section 3.04 Nasdaq Listing. The currently outstanding shares of Company Common Stock and the shares of Company Common Stock issuable hereunder shall have been approved for listing on the Nasdaq National Market.

Section 3.05 Tax Opinion. The Company and the Bank shall have received an opinion of Ledgewood Law Firm, P.C., in form and substance satisfactory to the Company and the Bank, to the effect that the Merger of the Bank with and into the Acquisition Bank and the exchange of shares of Bank Common Stock for shares of Company Common Stock, as provided for herein, will be considered a tax free reorganization within the meaning of Section 368(a) of the Code.

Section 3.06 Fairness Opinion. The Bank shall have received an opinion of Cedar Hill Advisors, LLC that the Exchange Ratio is fair to the Bank’s shareholders from a financial point of view in connection with the reorganization of the Bank, the Acquisition Bank and the Company that is represented by the Merger and the other transactions contemplated by this Agreement.

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ARTICLE IV
TERMINATION, WAIVER, AMENDMENT AND MODIFICATION

Section 4.01 Termination. This Agreement may be terminated and abandoned at any time prior to or at the Effective Date, whether before or after action thereon by the shareholders of the Bank or the Acquisition Bank, by the mutual written consent of the Bank, the Acquisition Bank and the Company with the approval of the Board of Directors of each of the Bank and the Company and the organizer or the Board of Directors, as applicable, of the Acquisition Bank.

Section 4.02 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to the provisions of Section 4.01, the same shall be of no further force or effect and there shall be no liability by reason of this Agreement or the termination thereof on the part of either the Bank, the Acquisition Bank, the Company or the organizer, directors, officers, employees, agents or shareholders of any of them.

Section 4.03 Waiver, Amendment and Modification. At any time prior to the Effective Date, any of the terms or conditions of this Agreement may be waived, modified or amended by the Bank, the Acquisition Bank and the Company by action taken by or on behalf of the respective Boards of Directors (or organizer in the case of the Acquisition Bank) at any time before or after any shareholder approvals; provided , however , that after the shareholders of the Bank and the Acquisition Bank have approved this Agreement, an amendment shall not alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or in conversion of all or any of the shares of any class of the Bank or the Acquisition Bank, alter or change any term of the Articles of the Organization of the Surviving Bank or alter or change any of the terms or conditions of this Agreement if such alteration or change would adversely affect the holders of any stock of the Bank or the Acquisition Bank.

ARTICLE V
EXPENSES

Section 5.01 General. The Company shall pay all of the expenses incurred in connection with this Agreement, whether or not the transactions contemplated herein are effected.

ARTICLE VI
MISCELLANEOUS

Section 6.01 Multiple Counterparts. For the convenience of the parties hereto, this Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. A telecopy or facsimile transmission of a signed counterpart of this Agreement shall be sufficient to bind the party or parties whose signature(s) appear thereon.

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Section 6.02 Governing Law. This agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware without giving effect to the conflicts of laws provisions thereof.

Section 6.03 Jurisdiction. The parties hereby agree that any action, suit, arbitration or other proceeding arising out of or related to this Agreement shall be conducted only in Delaware. Each party hereby irrevocably consents and submits to the exclusive personal jurisdiction of and venue in the Federal and state courts located in Delaware.

Section 6.04 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, but no party to this Agreement shall assign this Agreement, by operation of law or otherwise, in whole or in part, without the prior written consent of the other parties.

Section 6.05 Severability. In the event that any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, then (a) such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision were not a part hereof; (b) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by such illegal, invalid or unenforceable provision or by its severance from this Agreement; and (c) there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and still be legal, valid and enforceable.

Section 6.06 Specific Performance. Each of the parties hereto acknowledges that the other parties would be irreparably damaged and would not have an adequate remedy at law for money damages in the event that any of the covenants contained in this Agreement were not performed in accordance with its terms or otherwise were materially breached. Each of the parties hereto therefore agrees that, without the necessity of proving actual damages or posting bond or other security, the other party shall be entitled to temporary and/or permanent injunction or injunctions to prevent breaches of such performance and to specific enforcement of such covenants in addition to any other remedy to which they may be entitled, at law or in equity.

Section 6.07 Headings. Descriptive headings as to the contents of particular sections are for convenience only and shall not control or affect the meaning, construction or interpretation of any provision of this Agreement.

Section 6.08 Entire Agreement. This Agreement represents the entire agreement between the parties relating to the subject matter hereof. This Agreement alone fully and completely expresses the agreement of the parties relating to the subject matter hereof. There are no other courses of dealing, understandings, agreements, representations or warranties, written or oral, except as set forth herein.

Section 6.09 Binding Effect. All of the terms, covenants, representations, warranties and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto and their respective successors, representatives and permitted assigns. Nothing expressed or referred to herein is intended or shall be construed to give any Person other than the parties hereto any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provision herein contained, it being the intention of the parties hereto that this Agreement, the assumption of obligations and statements of responsibilities hereunder, and all other conditions and provisions hereof are for the sole benefit of the parties to this Agreement and for the benefit of no other Person. Nothing in this Agreement shall act to relieve or discharge the obligation or liability of any third party to any party to this Agreement, nor shall any provision give any third party any right of subrogation or action over or against any party to this Agreement.

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officer all as of the day and year first above written.

	*BANK:*

	THE BANCORP BANK

	By:	/s/ Martin F. Egan

		Name: Martin F. Egan
		Title: Chief Financial Officer, Senior Vice
		President and Secretary


	*ACQUISITION BANK:*

	TBI ACQUISITION BANK

	By:	/s/ Martin F. Egan

		Name: Martin F. Egan
		Title: Chief Financial Officer, Senior Vice
		President and Secretary

	*COMPANY:*

	THE BANCORP, INC.

	By:	/s/ Martin F. Egan

		Name: Martin F. Egan
		Title: Chief Financial Officer, Senior Vice
		President and Secretary

APPROVAL OF THE STATE BANK COMMISSIONER OF DELAWARE

The foregoing Agreement and Plan of Merger is hereby approved.


	Robert A. Glen
	State Bank Commissioner

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ANNEX B

FINANCIAL ADVISOR OPINION

Cedar Hill Advisors, LLC

105 Stream Court Chalfont, Pennsylvania 18914 Work 215-997-9624, Fax 215-997-9625, Cell 215-206-6617

PERSONAL AND CONFIDENTIAL

July 8, 2004

To The Board of Directors of
The Bancorp Bank
405 Silverside Road
Wilmington, DE 19809

Ladies and Gentlemen:

Cedar Hill Advisors, LLC (“Cedar Hill”) understands that The Bancorp, Inc. (the “Holding Company”), The Bancorp Bank, a 32.7% owned subsidiary of the Holding Company (the “Bank”), and TBI Acquisition Bank, a wholly-owned subsidiary of the Holding Company (“Acquisition Bank”) are contemplating a reorganization in the form of a merger (the “Merger”) pursuant to which (i) the Bank will be merged with and into Acquisition Bank, with the surviving entity being Acquisition Bank (which will be renamed “The Bancorp Bank”), and (ii) each issued and outstanding share of the Bank’s common stock (excluding stock held in treasury, stock held by the Holding Company or Acquisition Bank, and stock as to which dissenters’ rights have been perfected) will be converted into the right to receive 1.15 (the “Exchange Ratio”) shares of the Holding Company’s common stock, par value $1.00. The terms and conditions of the Merger are more fully described in the Agreement and Plan of Merger dated as of July 8, 2004 among the Bank, Acquisition Bank and the Holding Company (the “Agreement”).

In connection with your review and analysis of the Merger, you have requested Cedar Hill’s opinion, as financial advisor, as to whether the Exchange Ratio specified in the Agreement is fair, from a financial point of view, to the shareholders of the Bank in connection with the merger and reorganization of the Bank as described in the Agreement.

Cedar Hill has been retained by the Board of Directors of the Bank, as an independent contractor, to act as financial advisor to the Bank with respect to the Merger. Cedar Hill will receive customary fees for its services. In addition, the Bank has agreed to indemnify Cedar Hill against certain liabilities that could arise from rendering financial advice and expressing this opinion. Cedar Hill, as part of its financial advisory business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and valuations for corporate and other purposes.

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In conducting our analysis and arriving at our opinion as expressed herein, we have, among other things:

•

Reviewed the Agreement, dated as of July 8, 2004, and the schedules and exhibits attached thereto;


	•	Considered the pro forma financial impact of the Merger on the parties to the Agreement, based on assumptions relating to fully diluted earnings projections determined by senior management of the Bank and Holding Company;


	•	Reviewed the Holding Company’s consolidated audited financial statements for the year ended December 31, 2003, 2002, 2001, the March 31, 2004 and December 31, 2003 Forms Y-9C and certain other documents as filed with the Board of Governors Federal Reserve;


	•	Reviewed the Bank’s audited financial statements for the years ended December 31, 2003, 2002 and 2001, and the Quarterly Report on Form 10-Q dated March 31, 2004, the March 31, 2004 and December 31, 2003 Reports of Condition and certain other documents filed with the Federal Deposit Insurance Corporation;


	•	Reviewed certain internal information relating to the Bank and Holding Company provided to Cedar Hill by management of the Bank and Holding Company, including historical financial information, limited financial forecasts and profit plans;


	•	Held discussions with the Bank’s and Holding Company’s management regarding the business, operations and prospects of the Bank and Holding Company;


	•	Considered the current overall market and banking environments;


	•	Reviewed the historical trading prices and volumes of the Bank’s common stock;


	•	Performed various valuation analyses as it deemed appropriate using generally accepted analytical methodologies; and


	•	Performed such other financial studies, analyses, inquiries, examinations and investigations, as it deemed appropriate.

In conducting its review and analyses and in rendering its opinion, Cedar Hill has assumed and relied upon the accuracy and completeness of the financial and other information used by Cedar Hill in arriving at its opinion, and upon the assurances of the Bank and Holding Company that they are not aware of any information that would make the information provided to Cedar Hill incomplete or misleading. Cedar Hill was not asked to and did not independently verify the accuracy or completeness of any such information and it did not assume any responsibility or liability for the accuracy or completeness of any of such information. Cedar Hill did not make an independent evaluation or appraisal of the assets, the collateral securing assets or the liabilities, contingent or otherwise, of the Bank, the Holding Company, or any of their respective subsidiaries, or the collectibility of any such assets, nor was it furnished with any such evaluations or appraisals. With respect to financial forecasts, it was advised by the management of the Bank and Holding Company, and it has assumed, without independent investigation, that they were reasonably prepared and reflect the best currently available estimates and judgments as to the expected

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future financial performance of the Bank and Holding Company. It has also relied, without independent verification, upon the estimates and judgments of the management of the Bank and Holding Company as to the potential advantages and synergies (including the amount, timing and achievability thereof) anticipated to result from the Merger. Cedar Hill is not an expert in evaluating loan and lease portfolios for purposes of assessing the adequacy of the allowances for losses for the Bank and Holding Company. As a result, Cedar Hill has not assumed any responsibility for making an independent evaluation of the adequacy of the allowance for loan losses, and Cedar Hill assumed such allowances were adequate and complied fully with applicable law, regulatory policy, sound banking practice and policies of the Securities and Exchange Commission. It has not reviewed any loan files of the Bank, Holding Company or their respective subsidiaries.

Cedar Hill’s opinion is made as of the date hereof and is necessarily based upon financial, economic, market and other conditions as they exist, and the information made available to Cedar Hill, as of the date hereof. Cedar Hill disclaims any undertaking or obligation to update this opinion to reflect any developments after the date hereof.

Although Cedar Hill evaluated the consideration to be paid to shareholders of the Bank in connection with the Merger, it did not recommend the specific consideration payable in the Merger, which was determined by the Bank and Holding Company. Cedar Hill has also assumed, with your permission and without independent investigation, that (i) the Merger will be consummated in accordance with the terms, including and not limited to the representations and warranties, set forth in the Agreement and the schedules and exhibits thereto reviewed by Cedar Hill without any amendment thereto and without waiver by any of the parties thereto of any of the conditions to their respective obligations, and (ii) all regulatory and other approvals and third party consents required for the consummation of the Merger will be obtained without material cost to the Bank or Holding Company. Cedar Hill also assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the Merger, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of the Bank, Holding Company, or any of their respective subsidiaries, as the case may be, or on the contemplated benefits of the Merger, including the expected synergies. It has further assumed that the Merger will qualify as a tax-free reorganization for U.S. federal income tax purposes and has relied upon, with the Bank’s consent, the advice the Bank received from its legal, accounting, and tax advisors as to all legal, accounting and tax matters relating to the Merger and the transactions contemplated by the Agreement.

This opinion has been prepared at the request of, and for the information of, the Board of Directors of the Bank for its use in evaluating whether the Exchange Ratio specified in the Agreement is fair, from a financial point of view, to the shareholders of the Bank in connection with the merger and reorganization of the Bank described in the Agreement. Cedar Hill expresses no opinion herein as to the structure, terms or effect of any other aspect of the Merger, the merits of the underlying decision of the Bank to consummate the Merger, any other actions taken or proposed to be taken by the Bank or any other party in connection with the Merger, or any other transactions or business strategies discussed by the Board of Directors of the Bank as alternatives to the Merger. Cedar Hill has conducted its analysis and prepared this opinion with the understanding that the Merger constitutes an internal reorganization of the Bank, Acquisition Bank and the Holding Company, rather than a sale of the business involving bids for the Bank’s stock by third parties.

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Cedar Hill’s opinion does not constitute a recommendation as to any action the Board of Directors or any shareholder of the Bank should take in connection with the Merger or any aspect thereof and is not a recommendation to any person on how such person should vote in his or her consideration of the Merger. Cedar Hill has not considered, nor does it express any opinion herein with respect to, the price at which the Holding Company’s common stock will trade at any time, including the date of, and following the consummation of, the Merger.

This opinion may not be used for any other purpose, published, reproduced, summarized, described or referred to or given to any other person or otherwise made public without Cedar Hill’s prior written consent.

Based upon and subject to the foregoing, it is Cedar Hill’s opinion, as financial advisor, that as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to the shareholders of the Bank.

			Very truly yours,
			/s/ Cedar Hill Advisors, LLC
			Cedar Hill Advisors, LLC

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20.

Indemnification of Directors and Officers.

Under the provisions of Section 145 of the Delaware General Corporation Law, the registrant is required to indemnify any present or former officer or director against expenses arising out of legal proceedings in which the director or officer becomes involved by reason of being a director or officer if the director or officer is successful in the defense of such proceedings. Section 145 also provides that the registrant may indemnify a director or officer in connection with a proceeding in which he is not successful in defending if it is determined that he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the registrant or, in the case of a criminal action, if it is determined that he had no reasonable cause to believe his conduct was unlawful. Liabilities for which a director or officer may be indemnified include amounts paid in satisfaction of settlements, judgments, fines and other expenses (including attorneys’ fees incurred in connection with such proceedings).

The registrant’s Certificate of Incorporation provides for indemnification of directors and officers of the registrant to the full extent permitted by applicable law. Under the provisions of the registrant’s Bylaws, the registrant is required to indemnify officers or directors to the same extent as under the current provisions of Section 145 of the Delaware General Corporation Law.

The foregoing standards also apply with respect to the indemnification of expenses incurred in a stockholder derivative suit. However, a director or officer may only be indemnified for settlement amounts or judgments incurred in a derivative suit to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

In accordance with the Delaware General Corporation Law, the registrant’s Certificate of Incorporation contains a provision to limit the personal liability of the directors of the registrant for violations of their fiduciary duty. This provision eliminates each director’s liability to the registrant or its stockholders for monetary damages except (i) for breach of the director’s duty of loyalty to the registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions or (iv) for any transaction from which a director derived an improper personal benefit. The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach of their fiduciary duty.

The registrant maintains directors’ and officers’ liability insurance against any actual or alleged error, misstatement, misleading statement, act, omission, neglect or breach of duty by any director or officer of itself or any direct or indirect subsidiary, excluding certain matters including fraudulent, dishonest or criminal acts or self-dealing.

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Item 21.

Exhibits and Financial Statement Schedules.


		(a)	Exhibits.

	Exhibit No.		Description
	2.1		Form of Agreement and Plan of Merger (included as Annex A to proxy statement/prospectus)
	3.1		Certificate of Incorporation
	3.2		Bylaws
	4.1		Specimen stock certificate*
	4.2		Investor Rights Agreement (1999)
	4.3		Investor Rights Agreement (2002)
	5.1		Opinion re: legality*
	8.1		Opinion re: tax matters*
	10.1		1999 Stock Option Plan.
	10.2		Employee and Non-employee Director Non-cash Compensation Plan
	10.3		Sublease and Technical Support Agreement with RAIT Investment Trust
	10.4		Sublease and Technical Support Agreement with Cohen Bros.
	10.5		TRM and The Bancorp ATM Agreement
	21.1		Subsidiaries of registrant
	23.1		Consent of Grant Thornton LLP – The Bancorp Bank
	23.2		Consent of Grant Thornton LLP – The Bancorp, Inc. and subsidiaries
	23.3		Consent of Cedar Hill Advisors, LLC
	23.4		Consent of Ledgewood Law Firm, P.C. as to legality opinion (included in Exhibit 5.1)*
	23.5		Consent of Ledgewood Law Firm, P.C. as to tax opinion (included in Exhibit 8.1)*
	24.1		Power of Attorney (included on signature pages).

To be supplied by amendment.


	(b)	Financial Statement Schedules.

All schedules are omitted since the required information is not present, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

Item 22.

Undertakings.

(a)(1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.

(2) The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registrant statement when it became effective.

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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on July 15, 2004.

	THE BANCORP, INC.

	By:	/s/ Betsy Z. Cohen

		Betsy Z. Cohen Chief Executive Officer and President

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

POWER OF ATTORNEY

Each person whose signature appears below in so signing also makes, constitutes and appoints D. Gideon Cohen, Betsy Z. Cohen and Martin Egan, and each of them acting alone, his or her true and lawful attorney-in-fact, with full power of substitution, for him or her in any and all capacities to execute and cause to be filed with the Securities and Exchange Commission any and all amendments and post-effective amendments to this registration statement with exhibits thereto and other documents in connection therewith, and hereby ratifies and confirms all that any or all of said attorneys-in-fact or substitute or substitutes for any or all of them may do or cause to be done by virtue hereof.

/s/ D. Gideon. Cohen		July 15, 2004

D. Gideon. Cohen
Chairman of the Board of Directors

/s/ Betsy Z. Cohen		July 15, 2004

Betsy Z. Cohen
Chief Executive Officer and Director
(principal executive officer)

/s/ Martin Egan		July 15, 2004

Martin Egan
Senior Vice President, Chief Financial Officer and Secretary
(principal financial and accounting officer)

/s/ Walter T. Beach		July 15, 2004

Walter T. Beach, Director

/s/ Matthew Cohn		July 15, 2004

Matthew Cohn, Director

/s/ Linda Schaeffer		July 15, 2004

Linda Schaeffer, Director

/s/ William H. Lamb		July 15, 2004

William H. Lamb, Director

/s/ Frank M. Mastrangelo		July 15, 2004

Frank M. Mastrangelo, President,
Chief Operating Officer and Director

/s/ James J. McEntee III		July 15, 2004

James J. McEntee III, Director

/s/ Joan Spector		July 15, 2004

Joan Spector, Director

/s/ Steven Stein		July 15, 2004

Steven Stein, Director

/s/ Yong Xian Xu		July 15, 2004

Yong Xian Xu, Director

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Exhibit 3.1

CERTIFICATE OF INCORPORATION

TBC FINANCIAL, INC.

FIRST. The name of this corporation is TBC FINANCIAL, INC.

SECOND. Its registered office and place of business in the State of Delaware is to be located at 49 Bancroft Mills, Unit P15, New Castle County, Wilmington, Delaware 19806. The Registered Agent in charge thereof is Andrew M. Lubin.

THIRD. The nature of the business and, the objects and purposes proposed to be transacted, promoted and carried on, are to do any or all the things herein mentioned, as fully and to the same extent as natural persons might or could do, and in any part of the world, viz:

The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

FOURTH. The corporation shall be authorized to issue One Thousand Shares (1,000) Shares at $0.01 Par Value.

FIFTH. The name and address of the incorporator is as follows:
Lisa D. Schumm, 1521 Locust Street, 8th Floor, Philadelphia, PA 19102.

SIXTH. The Directors shall have power to make and to alter or amend the By-laws; to fix the amount to be reserved as working capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount, upon the property and franchise of this Corporation.

With the consent in writing, and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the directors shall have authority to dispose, in any manner, of the whole property of this corporation.

The By-laws shall determine whether and to what extent the accounts and books of this corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholders shall have any right of inspecting any account, or book, or document of this Corporation, except as conferred by the law or the By-laws, or by resolution of the stockholders.

The stockholders and directors shall have power to hold their meetings and keep the books, documents and papers of the corporation outside of the State of Delaware, at such places as may be from time to time designated by the By-laws or by resolution of the stockholders or directors, except as otherwise required by the laws of Delaware.

It is the intention that the objects, purposes and powers specified in the third paragraph hereof shall, except where otherwise specified in said paragraph, be nowise limited or restricted by reference to or inference from the terms of any other clause or paragraph in this Certificate of Incorporation, but that the objects, purposes and powers specified in the third paragraph and in each of the clauses or paragraphs of this charter shall be regarded as independent objects, purposes and powers.

SEVENTH. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal benefit.

IN WITNESS WHEREOF, I have hereunto set my hand and seal this July 20, 1999.

  /s/ Lisa D. Schumm
-------------------------------------
LISA D. SCHUMM             (Seal)
INCORPORATOR

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TBC FINANCIAL, INC.

TBC FINANCIAL, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), DOES HEREBY CERTIFY:

FIRST:    That by written consent of the incorporator, a resolution was
          duly adopted setting forth a proposed amendment to the
          Certificate of Incorporation of the Company. The resolution
          setting forth the amendment is as follows:

       RESOLVED, that Article FIRST of the Certificate of
       Incorporation of the Company be amended so that the same as
       amended would read as follows:

          FIRST. The name of the corporation is The Bancorp.com, Inc.

       RESOLVED, that Article FOURTH of the Certificate of
       Incorporation of the Company be amended so that the same as
       amended would read as follows:

          FOURTH. The corporation shall be authorized to issue
                  Twenty Million (20,000,000) Shares of common stock at
                  $0.01 Par Value.

SECOND:  That the Company has not received any payment for any of its
         stock.


THIRD:   That said amendment was duly adopted in accordance with the
         provisions of Section 241 of the General Corporation Law of
         the State of Delaware.

IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by Lisa D. Schumm, its incorporator, this 27th day of July, 1999.

TBC FINANCIAL, INC.

By:  /s/ Lisa D. Schumm
   ---------------------------------
     Lisa D. Schumm, Incorporator

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE BANCORP.COM, INC.

THE BANCORP.COM, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify:

FIRST: That by written consent of the board of directors dated May 10, 2001, a resolution was duly adopted setting forth a proposed amendment to the Certificate of Incorporation of the Company, declaring said amendment to be advisable and calling for consideration of said proposed amendment by the stockholders of the Company. The resolution setting forth the amendment is as follows:

RESOLVED, that Article FOURTH of the Certificate of Incorporation of the Company be amended so that the same, as amended, reads as follows:

FOURTH: The Corporation shall be authorized to issue Twenty Million (20,000,000) shares of Common Stock at $.01 par value, and Five Million (5,000,000) shares of Preferred Stock at $.01 par value. The board of Directors of the Corporation is hereby expressly vested with the authority, by resolution, from time to time to divide the Preferred Stock of the Corporation into one or more classes, series, or series within a class, to fix and determine the variable rights or preferences of any class or series so established and to change redeemed or reacquired shares of any one series within a class thereof into shares of another series.

SECOND: That thereafter, pursuant to the resolution of the board of directors, the proposed amendment was submitted to and approved by the stockholders of the Company at a meeting of the stockholders held May 23, 2001.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by Betsy Z. Cohen, its Chief Executive Officer, this 7th day of June, 2001.

THE BANCORP.COM, INC.

By:  /s/ Betsy Z. Cohen
  -----------------------------------
     Betsy Z. Cohen

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE BANCORP.COM, INC.

THE BANCORP.COM, INC. corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify:

FIRST: That by written consent of the board of directors dated September 25th, 2002, a resolution was duly adopted setting forth a proposed amendment to the Certificate of Incorporation of the Company, declaring said amendment to be advisable and calling for consideration of said proposed amendment by the stockholders of the Company. The resolution setting forth the amendment is as follows:

RESOLVED, that Article FIRST of the Certificate of Incorporation of the Company be amended so that the same, as amended, reads as follows:

FIRST. The name of this corporation is THE BANCORP, INC.

SECOND: That thereafter, pursuant to the resolution of the board of directors, the proposed amendment was approved by the stockholders of the Company on September 25, 2002.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by Frank Mastrangelo, its President, this 7th day of October, 2002.

THE BANCORP.COM, INC.

By:  /s/ Frank Mastrangelo
   ---------------------------------
     Frank Mastrangelo


     President

Exhibit 3.2

BYLAWS

THE BANCORP.COM, INC.

ARTICLE I

STOCKHOLDERS' MEETING

1.1 PLACE. Meetings of the stockholders shall be held at such place as may be designated by the board of directors.

1.2 ANNUAL MEETING. An annual meeting of the stockholders for the election of directors and for other business shall be held once each year on such date and at such time as may be fixed by the board of directors.

1.3 SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by the chairman of the board of directors, the chief executive officer, the president, the board of directors or the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote at the meeting. At any time, upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the secretary to fix the date of the meeting, to be held not more than sixty days after receipt of the request, and to give due notice thereof. If the secretary shall neglect or refuse to fix the date of the meeting and give notice of the meeting, the person or persons calling the meeting may do so. Business transacted at all special meetings shall be confined to the objects stated in the call and matters germane thereto, unless all stockholders entitled to vote are present and consent.

1.4 NOTICE OF MEETINGS. Written notice of an annual or a special meeting of stockholders stating the time and place and object thereof, shall be given to each stockholder entitled to vote thereat not less than ten nor more than sixty days before such meeting, unless a greater period of notice is required by statute in a particular case.

1.5 QUORUM. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote on a particular matter shall constitute a quorum for the purpose of considering such matter. If less than a majority of the outstanding shares entitled to vote is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

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1.6 VOTING RIGHTS. Except as otherwise provided herein, in the certificate of incorporation or by law, every stockholder shall have the right at every meeting of stockholders to one vote for every share standing in the name of such stockholder on the books of the Corporation which is entitled to vote at such meeting. Every stockholder may vote either in person or by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.

1.7 CONSENT IN LIEU OF MEETINGS. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting of less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE II

DIRECTORS

2.1 NUMBER AND TERM. The board of directors shall have authority to (i) determine the number of directors to constitute the board and (ii) fix the terms of office of the directors.

2.2 MEETINGS.

2.2.1 PLACE. Meetings of the board of directors shall be held at such place as may be designated by the board of directors or in the notice of the meeting.

2.2.2 REGULAR MEETINGS. Regular meetings of the board of directors shall be held at such times as the board may designate. Notice of regular meetings need not be given.

2.2.3 SPECIAL MEETINGS. Special meetings of the board of directors may be called by direction of the chairman, the chief executive officer or the president, or by a majority of the members of the board of directors, on three days' notice to each director, either personally or by mail, telegram or facsimile transmission.

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2.2.5 CONSENT IN LIEU OF MEETING. Any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.

2.2.6 CONFERENCE TELEPHONE. One or more directors may participate in a meeting of the board, of a committee of the board or of the stockholders, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other; participation in this manner shall constitute presence in person at such meeting.

2.2.7 QUORUM. A majority of all the directors in office shall constitute a quorum for the transaction of business at any meeting.

2.2.8 VOTING. Except as otherwise provided herein, in the certificate of incorporation or by law, the vote of a majority of the directors present at any meeting at which a quorum is present shall constitute the act of the board of directors.

2.2.4 COMMITTEES. The board of directors may, by resolution adopted by a majority of the whole board, designate one or more committees, each committee to consist of one or more directors and such alternate members (also directors) as may be designated by the board. Unless otherwise provided herein, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Except as otherwise provided herein, in the certificate of incorporation or by law, any such committee shall have and may exercise the powers of the full board of directors to the extent provided in the resolution of the board designating the committee.

ARTICLE III

OFFICERS

3.1 ELECTION. At its first meeting after each annual meeting of the stockholders, the board of directors shall elect a chairman, chief executive officer, president, chief financial officer, secretary and such other officers as it deems advisable. Any number of offices may be held by the same person, except as otherwise provided by law.

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3.2 AUTHORITY, DUTIES AND COMPENSATION. The officers shall have such authority, perform such duties and serve for such compensation as may be determined by resolution of the board of directors. Except as otherwise provided by board resolution, (i) the chairman or, in his absence, the chief executive officer, shall preside at all meetings of the board and stockholders, (ii) the chief executive officer shall have general supervision over the business and operations of the Corporation, and may perform any act and execute any instrument for the conduct of such business and operations, (iii) the other officers shall have the duties customarily related to their respective offices, and (iv) the president or, in his or her absence, any vice president or vice presidents in the order determined by the board, shall in the absence of the chief executive officer have the authority and perform the duties of the chief executive officer.

3.3 TERM OF OFFICE. The officers of the Corporation shall hold office for one year and until their successors are chosen and have qualified. Any officer elected or appointed by the board of directors may be removed by the board with or without cause.

ARTICLE IV

VACANCIES

4.1 VACANCIES. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the board of directors. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than quorum, or by a sole remaining director. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of these Bylaws.

4.2 RESIGNATIONS EFFECTIVE AT FUTURE DATE. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

ARTICLE V

CORPORATE RECORDS

5.1 CORPORATE RECORDS. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's ledger, a list at its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in this state or at its principal place of business.

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ARTICLE VI

STOCK CERTIFICATES, DIVIDENDS, ETC.

6.1 CERTIFICATES. The stock certificates of the Corporation shall be numbered and registered in the share ledger and transfer books of the Corporation as they are issued. They shall bear the corporate seal and shall be signed by the president and secretary or such other officers as the board of directors may designate.

6.2 TRANSFERS. Transfers of shares shall be made on the books of the Corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by attorney, lawfully constituted in writing. No transfer shall be made which is inconsistent with law.

6.3 LOST CERTIFICATE. The Corporation may issue a new certificate of stock in the place of any certificate theretofore signed by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

6.4 RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.

If no record date is fixed:
(A) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(B) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed.

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(C) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

(D) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

6.5 DIVIDENDS. The board of directors may declare and pay dividends upon the outstanding shares of the Corporation, from time to time and to such extent as they deem advisable, in the manner and upon the terms and conditions provided by statute and the Certificate of Incorporation.

6.6 RESERVES. Before payment of any dividend there may be set aside out of the net profits of the Corporation such sum or sums as the directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may abolish any such reserve in the manner in which it was created.

ARTICLE VII

INDEMNIFICATION

7.1 RIGHT TO INDEMNIFICATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or a constituent corporation absorbed in a consolidation or merger, or is or was serving at the request of the Corporation or a constituent corporation absorbed in a consolidation or merger, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or is or was a director, officer, employee or agent of the Corporation serving at its request as an administrator, trustee or other fiduciary of one or more of the employee benefit plans of the Corporation or other enterprise, against expenses (including attorneys' fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred or suffered by such person in connection with such proceeding, to the full extent permissible under law.

7.2 ADVANCE OF EXPENSES. Reasonable expenses incurred by a director, officer, employee or agent of the Corporation in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation.

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7.3 PROCEDURE FOR DETERMINING PERMISSIBILITY. To determine whether any indemnification or advance of expenses under this Article IV is permissible, the board of directors by a majority vote of a quorum consisting of directors not parties to such proceeding may, and on request of any person seeking indemnification or advance of expenses shall be required to, determine in each case whether the applicable standards in any applicable statute have been met, or such determination shall be made by independent legal counsel if such quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so directs, provided that, if there has been a change in control of the Corporation between the time of the action or failure to act giving rise to the claim for indemnification or advance of expenses and the time such claim is made, at the option of the person seeking indemnification or advance of expenses, the permissibility of indemnification or advance of expenses shall be determined by independent legal counsel. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification or advance of expenses, shall be borne by the Corporation.

7.4 CONTRACTUAL OBLIGATION. The obligations of the Corporation to indemnify a director or officer under this Article IV, including the duty to advance expenses, shall be considered a contract between the Corporation and such director or officer, and no modification or repeal of any provision of this Article IV shall affect, to the detriment of the director or officer, such obligations of the Corporation in connection with a claim based on any act or failure to act occurring before such modification or repeal.

7.5 INDEMNIFICATION NOT EXCLUSIVE; INURING OF BENEFIT. The indemnification and advance of expenses provided by this Article IV shall not be deemed exclusive of any other rights to which one indemnified may be entitled under any insurance or other agreements, statute, provision of the certificate of incorporation, these bylaws, vote of stockholders or directors or otherwise, both as to actions in such person's official capacity and as to actions in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of any such person.

7.6 INSURANCE AND OTHER INDEMNIFICATION. The board of directors shall have the power to (i) authorize the Corporation to purchase and maintain, at the Corporation's expense, insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under its bylaws to the extent that power to do so has not been prohibited by statute, (ii) create any fund of any nature, whether or not under the control of a trustee, to pay or otherwise secure any of its indemnification obligations, and (iii) give other indemnification to the extent permitted by statute.

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7.7 MONETARY DAMAGES. A director or officer of the Corporation shall not be personally liable for monetary damages for any action taken, or any failure to take any action, as a director or officer except to the extent that by law a director's or officer's liability for monetary damages may not be limited.

ARTICLE VIII

AMENDMENTS

These bylaws may be amended or repealed at any regular or special meeting of the board of directors by vote of a majority of all directors in office or at any annual or special meeting of stockholders by vote of holders of a majority of the outstanding stock entitled to vote. Notice of any such annual or special meeting of stockholders shall set forth the proposed change or a summary thereof.

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Exhibit 4.2

INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement, dated as of October 13, 1999 (this "Agreement"), is entered into by and among THE BANCORP.COM, INC., a Delaware corporation (the "Company"), and those persons listed from time to time on Schedule A to this Agreement (the "Investors").

W I T N E S S E T H:

WHEREAS, the Company has commenced an offering (the "Offering") of a minimum of 1,000,000 and a maximum of 2,500,000 shares of its Common Stock, par value $.01 per share (the "Common Stock"), all as more particularly set forth in the Company's Confidential Private Placement Memorandum dated August 2, 1999, as supplemented by a Supplement dated September 28, 1999 (the "Memorandum"); and

WHEREAS, the Company and the Investors desire to set forth certain agreements with respect to the Common Stock purchased by Investors in the Offering (the "Investor Shares").

NOW, THEREFORE, in consideration of the premises, and the mutual covenants and agreements herein contained, and intending to be legally bound, it is hereby agreed as follows:

ARTICLE 1.

DEFINITIONS

1.1. Definitions. For purposes of this Agreement:

"Common Stock" is defined in the Preamble.

"Company" is defined in the Preamble.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be from time to time amended and in effect.

"Investor Shares" is defined in the Preamble.

"Material Adverse Effect" means a material adverse effect upon the business, assets, financial condition, income or prospects of the Company.

"Management Shareholder" means Edward E. Cohen or Daniel G. Cohen.

"Members of the Immediate Family" as applied to any individual, means each parent, spouse, child, brother, sister or the spouse of a child, brother or sister of the individual, and each trust created for the benefit of one or more of such persons and each custodian of a property of one or more such persons.

"Offered Shares" means any Common Stock, or securities convertible into or options, warrants or other rights to purchase Common Stock, proposed to be issued by the Company prior to the consummation of a Qualified Public Offering.

"Person" means an individual, partnership, corporation, company, association, trust, joint venture, unincorporated organization and any governmental department or agency or political subdivision.

"Proportionate Percentage" means, for any holder of Investor Shares, a percentage of Offered Shares covered by a Proposal under Article 5 equal to (i) the number of Investor Shares held by such Person (together with any shares theretofore purchased by such Investor pursuant to Article 5) divided by (ii) the total number of shares of Common Stock outstanding at the time of delivery of the Proposal (assuming the conversion and exercise of options, warrants, rights and shares of capital stock that are convertible into or exercisable for Common Stock).

"Proposal" is defined in Section 5.1.

"Proposed Buyer" means a Person to whom a Management Shareholder desires to sell any of his Investor Shares, as set forth in Section 4.1.

"Proposed Sales" means a proposed transaction between a Management Shareholder and a Proposed Buyer.

"Qualified Public Offering" means a public offering of the Company's Common Stock pursuant to an effective registration statement under the Securities Act on Forms S-1, S-2 or S-3, or any successors to such forms, following which the Company becomes subject to the reporting requirements of Sections 13 or 15 of the Exchange Act.

"Register," "registered," and "registration" mean a registration effected by preparing and filing a Registration Statement, and the declaration or ordering of effectiveness of such registration statement or document.

"Registrable Securities" means (1) the Investor Shares and (2) any other shares of capital stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the Investor Shares, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Agreement are not assigned.

"Registration Statement" means a registration statement or similar document filed in compliance with the Securities Act, together with any amendment or supplement thereto and any preliminary prospectus or prospectus included as a part thereof.

"SEC" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act, the Exchange Act or both.

"Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be from time to time amended and in effect.

"Selling Shareholder" means a Management Shareholder selling Shares under Article 4.

"Subscription Agreement" means the agreement between the Company and an Investor under which the Investor subscribes for Investor Shares.

"Tag-Along Notice" means a notice from a Selling Shareholder to Investors as set forth in Section 4.2.

ARTICLE 2.

RESTRICTIVE LEGEND

2.1. Restrictive Legend. Each certificate representing Investor Shares shall, except as otherwise provided in this Article 2 or in Article 3, be stamped or otherwise imprinted with a legend substantially in the following form:

"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY BE OFFERED, PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT AND SUCH LAWS, OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

A certificate shall not bear such legend if in the opinion of counsel satisfactory to the Company the securities being sold thereby may be publicly sold without registration under the Securities Act and applicable state securities laws.

ARTICLE 3.

REGISTRATION RIGHTS

3.1. Piggy-Back Registration.

If the Company shall seek to register under the Securities Act or qualify any of the Common Stock of the Company or any of its stockholders (except in connection with any stock option plan, stock purchase plan, savings or similar plan or an acquisition, merger or exchange of stock) and if the form of Registration Statement proposed to be used may be used for the registration of the Registrable Shares, then, on each such occasion, the Company shall furnish the Investors with at least 30 days prior written notice thereof. At the written request of one or more Investors, given within 20 days after the receipt of such notice, the Company will use its best efforts to cause all or any of the Registrable Shares for which registration shall have been requested by Investors to be included in such Registration Statement. In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of Common Stock of the Company, and the managing underwriter determines that the inclusion of all or any portion of the Registrable Shares proposed to be included in the underwritten public offering and other issued and outstanding shares of Common Stock proposed to be included therein by persons other than holders of Registrable Shares (the "Other Shares") would interfere with the marketing (including pricing) of the Company's Common Stock, then the number of Registrable Shares and Other Shares to be included in such underwritten public offering shall be, at the request of the managing underwriter, excluded from the offering or reduced ("cutback") pro rata among the holders of Registrable Shares and Other Shares, based upon the number of shares requested by holders thereof to be registered in such underwritten public offering. The Company shall have the right to terminate an offering under this Section 3.1 at any time in its discretion.

3.2. Demand Registration.

(a) If (i) at any time after the date hereof the Company has consummated a Qualified Public Offering, or (ii) on or before September 30, 2003, the Company has not consummated a Qualified Public Offering and the Company shall thereafter receive a written request from Investors that the Company file a Registration Statement covering the registration of at least thirty-three and one-third percent (331/3%) (in the case of a request pursuant to clause (i), above), or twenty-five percent (25%) (in the case of a request pursuant to clause (ii), above) of the Registrable Securities then outstanding, then the Company shall use its best efforts to: (x) subject to the limitations of Section 3.2(b), file with the SEC within sixty (60) days of the receipt of such request a Registration Statement on the appropriate form, and (y) cause as promptly as practicable the registration under the Securities Act of all Registrable Securities which Investors request to be registered. Neither the Company nor any person other than Investors shall be entitled to include shares of Common Stock in the registrations made under this Section 3.2 without the consent of Investors holding a majority of the Registrable Shares included in the registration.

(b) If the Investors intend to distribute the Registrable Securities covered by their request by means of an underwriting as permitted by
Section 3.4(c), they shall so advise the Company as a part of their request made pursuant to Section 3.2(a) and shall (together with the Company as provided in
Section 3.2(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Investors which underwriters shall include a regional or national underwriting firm which is a member in good standing of the National Association of Securities Dealers, Inc.

(c) The Company is obligated to effect only three registrations pursuant to Section 3.2(a)(i) and only one registration pursuant to Section 3.2(a)(ii).

(d) The rights granted by Section 3.2(a)(i) expire September 30, 2002 and the rights granted by Section 3.2(a)(ii) expire September 30, 2004.

3.3. Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective, and, upon the request of a majority of the Investors whose Registrable Securities are registered thereunder, keep such Registration Statement effective for up to ninety (90) days.

(b) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement.

(c) Furnish to each Investor such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as he may reasonably request in order to facilitate the disposition of Registrable Securities owned by him.

(d) Use its best efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws as shall be reasonably requested by the Investors, provided that the Company shall not be required (i) qualify to do business in any jurisdiction, (ii) subject itself to general taxation in such jurisdiction,
(iii) provide any undertakings that cause more than nominal expense or burden to the Company, or (iv) make any change to its certificate of incorporation or bylaws.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Investor shall also enter into and perform his obligations under such an agreement.

(f) Notify Investors whose Registrable Securities are covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request.

(g) In the case of an underwritten public offering, furnish, at the request of the Investors, on the date that such Registrable Securities are delivered to the underwriters, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (ii) a letter, dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters.

(h) The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities, and shall provide CUSIP numbers for the Registrable Securities, not later than the effective date of the Registration Statement.

3.4. Obligations of the Investors. In connection with the registration of their Registrable Securities, each Investor whose Registrable Securities are being registered shall:

(a) Furnish to the Company such information regarding himself, the Registrable Securities held by him and the intended method of disposition of the Registrable Securities held by him as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

(b) Cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder.

(c) In the event Investors determine to engage the services of an underwriter (which such determination shall be made by the written consent or approval of Investors holding a majority of the Registrable Securities being registered) or in the event of a registration pursuant to Section 3.1(a) where the Company has selected underwriters and determines that the Registrable Securities shall be included in the securities being offered by the underwriters, enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities.

(d) Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.3(f), immediately discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.3(f) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

(e) No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements under Section 3.4(c), (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay his pro rata share of all underwriting discounts and commissions.

3.5. Expenses of Registration. All expenses, incurred in connection with registrations, filings or qualifications pursuant to this Agreement, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company shall be borne by Company. The Investors shall bear the cost of any underwriters' or brokers' commissions and fees and fees and disbursements of the Investors; provided, however, the Company shall permit a single firm of counsel, designated as Investors' counsel by Investors who hold a majority of the Registrable Securities being sold, to represent the Investors in connection with any registration pursuant to this Agreement and shall pay the reasonable fees and disbursements of such counsel.

3.6. Delay of Registration. No Investor shall have a right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.

3.7. Indemnification.

(a) The Company agrees to indemnify and hold harmless the Investors against any losses, claims, damages or liabilities to which the Investors may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, or (ii) the omission or alleged omission to state therein a material fact required to

be stated in such a Registration Statement or necessary to make the statements therein not misleading, and will reimburse the Investors for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by any Investor or underwriter for such Investor specifically for use in the preparation thereof. This indemnity will be in addition to any liability which the Company may otherwise have.

(b) Each Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed a Registration Statement and each person, if any, who controls the Company, against any losses, claims, damages or liabilities to which the Company or any such director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such Registration Statement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Investor will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in such Registration Statement in reliance upon and in conformity with written information furnished by the Investor specifically for use in the preparation thereof; and provided further that indemnification by any Investor under this Section 3.7 shall be limited in amount to his share of the proceeds of the offering. This indemnity will be in addition to any liability which the Investor may otherwise have. Nothing contained in this Section 3.7(b) or in Sections 3.7(a) and 3.7(d) shall limit the liability of the Investor, if any, for his acts in his capacity as an officer or director of the Company in connection with the Registration Statement.

(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 3.7, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 3.7(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 3.7(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution under Section 3.7(d) hereof or otherwise than on account of the provisions of Section 3.7(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the

commencement thereof, the indemnifying party shall retain counsel reasonably satisfactory to the indemnified party to defend the indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. The indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has failed to assume the defense of such proceeding or shall have failed to retain counsel reasonably satisfactory to the indemnified party, or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel, under applicable rules of professional conduct, would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (and appropriate local counsel) for all such indemnified parties. Such firm shall be designated in writing by indemnified parties holding a majority of the Registrable Securities included in the proceeding in the case of parties indemnified pursuant to Section 3.7(a) and by the Company in the case of parties indemnified pursuant to Section 3.7(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment.

proceeds from the offering (before deducting expenses) received by the Company or the Investors bears to the total net proceeds from the offering, in each case as set forth in the Registration Statement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Investors on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company further agrees that, in connection with any underwritten public offering, it also will enter into customary contribution arrangements with the Investors selling Registrable Securities pursuant thereto and the underwriters or broker-dealers through whom the Registrable Securities may be sold, with respect to situations in which indemnification is potentially unavailable.

The Company and the Investors agree that it would not be just and equitable if contributions pursuant to this Section 3.7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section
3.7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 3.7(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (ii) contribution from any Investor under this Section 3.7 shall be limited in amount to his share of the proceeds of the offering.

(e) In any proceeding relating to the Registration Statement, each party against whom contribution may sought under this Section 3.7 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that processing issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party.

ARTICLE 4.

TAG-ALONG RIGHTS

4.1. General. In the event a Management Shareholder shall desire to sell any of his Investor Shares to a Proposed Buyer, he may do so only if he complies with the provisions of this Article 4, except that this Article 4 shall not apply to (i) a sale by a Management Shareholder of his shares in a registered public offering or (ii) a transfer by a Management Shareholder to Members of the Immediate Family of the Management Shareholder, to another Management Shareholder or to a trust of which the Management Shareholder, individually or together with one or more Members of the Immediate Family of the Management Shareholder, are the sole trustees; provided, however, that any transferee under clause (ii), above shall be subject to the terms of this Agreement as though he or it were a Management Shareholder, but only to the extent of the shares so transferred.

4.2. Offer. A Tag-Along Notice shall be delivered by the Selling Shareholder to the Investors at least 30 days prior to the date of any Proposed Sale. The Tag-Along Notice shall include:

(a) A copy of a bona fide offer from the Proposed Buyer, which shall set forth the complete terms of the Proposed Sale, including the number of Shares proposed to be purchased, the purchase price, the name and address of the Proposed Buyer and the other principal terms of the Proposed Sale.

(b) An offer by the Selling Shareholder to include in the Proposed Sale to the Proposed Buyer, at the Investor's option, that number of the Investor's Investor Shares as is determined in accordance with Section 4.3, on the same terms and conditions as the Selling Shareholder shall sell his Shares; and

(c) An agreement from the Proposed Buyer to purchase such number of the of the Investor's Investor Shares as shall be includable in such Proposed Sale pursuant to Section 4.3.

4.3. Time and Manner of Exercise. If any of the Investors desires to accept the offer contained in the Tag-Along Notice, such Investor shall notify the Selling Shareholder in writing within 20 days after receipt of the Tag-Along Notice. If an Investor has not accepted such offer in writing, the Investor shall be deemed to have waived all of his rights with respect to the Proposed Sale. Any acceptance by an Investor of the offer contained in the Tag-Along Notice shall be irrevocable except as hereinafter provided. Each Investor who has elected to participate in such Proposed Sale shall be entitled to sell in the Proposed Sale, on the same terms and conditions as the Selling Shareholder, such number or amount of his Investor Shares as shall equal the number (rounded to the nearest whole share) of all Shares to be included in the Proposed Sale times a fraction, the numerator of which is the total number of Investor Shares held by such Investor immediately before the Proposed Sale and the denominator of which is the sum of the total number of Investor Shares.

4.4. Time and Manner of Closing. Each of the Investors participating in any Proposed Sale shall take such actions and execute such documents and instruments as shall be reasonably necessary in order to consummate the Proposed Sale expeditiously on the same terms as the Selling Shareholder. If at the end of 90 days following the date on which the Tag-Along Notice was given the Selling Shareholder has not completed the Proposed Sale in accordance with the terms hereof, the Investors shall be released from their obligations hereunder. At the closing of any sale under this Section 4.4, each Investor shall deliver certificates representing the Investor Shares to be sold by him, duly endorsed for transfer and (if requested in writing by the Proposed Buyer) with signature guaranteed, and with any stock transfer tax stamps affixed, against delivery of the applicable purchase price. Any shares sold to the Proposed Buyer in accordance with this Section 4.4 shall no longer be subject to this Agreement.

ARTICLE 5.

RIGHT OF FIRST REFUSAL

5.1. Right of First Refusal. Until the consummation of a Qualified Public Offering, the Company shall not issue or sell any Offered Shares without first providing each holder of Investor Shares the right to subscribe for its Proportionate Percentage of the Offered Shares at a price and on such other terms which are at least as favorable as the Company shall have offered or proposes to offer and which the Company shall have specified in a notice delivered to each holder of Investor Shares (the "Proposal"). The Proposal by its terms shall remain open and irrevocable for a period of 30 days from the date it is delivered by the Company to each holder of Investor Shares (the "Exercise Period")

5.2. Notice. Notice of the intention of each Investor to accept the Proposal shall be evidenced by a writing signed by such Investor and delivered to the Company prior to the end of the Exercise Period (the "Notice of Purchase") setting forth that portion of the Offered Shares such Investor elects to purchase (the "Accepted Shares").

5.3. Full Acceptance. In the event that the Investors elect to purchase all of the Offered Shares, the Company shall sell to the Investors the number of Accepted Shares set forth in their respective Notices of Purchase.

5.4. Partial Acceptance. In the event that one or more Investors do not elect to purchase all of the Offered Shares, the Company shall sell to each Investor that has so elected to purchase the number of Accepted Shares, if any, set forth in such Investor's Notice of Purchase. Investors may, in their Notice of Purchase, offer to purchase and purchase any remaining Offered Shares not purchased by the other Investors pro rata based on their respective Proportionate Percentages, or as they may otherwise agree with the Company.

5.5. Sale of Shares. No later than 30 days after the expiration of the Exercise Period, the Company shall deliver to each Investor who has submitted a Notice of Purchase to the Company a notice indicating the number of Offered Shares which the Company shall sell to such Investor pursuant to this Article 5 and the terms and conditions of such sale, which shall be in all respects (including, without limitation, unit price and interest rates) the same as specified in the Proposal. The sale to such holders of such Offered Shares shall take place not later than 10 days after receipt of such notice.

Any sale of Offered Shares that were not selected for purchase by the Investors as provided above shall take place not later than 90 days after the expiration of the Exercise Period. Such sale shall be upon terms and conditions in all respects (including, without limitation, unit price and interest rates) which are not less favorable to the Company than those set forth in the Proposal. Any refused Offered Shares not purchased as contemplated by the Proposal within the 90-day period specified above shall remain subject to this Article 5.

5.6. Exclusion of Certain Shares. Offered Shares shall not include (i) shares of Common Stock issuable pursuant to plans, options, warrants or rights outstanding on the date hereof or contemplated by this Agreement or the Memorandum, (ii) shares of capital stock issued pursuant to an effective Registration Statement, (ii) shares of capital stock issued in connection with the acquisition by the Company of another corporation or other entity by merger, purchase of all or substantially all of the assets or otherwise, or (iv) shares of capital stock issued other than for cash in connection with a strategic business transaction.

ARTICLE 6.

DISSOLUTION AND WINDING UP

6.1. Dissolution in Certain Events. In the event that the Company shall not form or acquire a commercial bank and obtain all regulatory approvals required for the operation of a commercial banking business by such bank on or before October 31, 2000, the Company shall dissolve in accordance with Section 274 of the Delaware General Corporation Law (or any successor provision thereto) or, if the provisions of such Section are not available, shall propose dissolution of the Company to the stockholders of the Company in accordance with
Section 2875, et seq., of the Delaware General Corporation law (or any successor provisions thereto).

6.2. Winding Up of Affairs; Distribution to Stockholders. Upon dissolution of the Company pursuant to Section 6.1, the Company shall proceed promptly to wind up its affairs, include payment or the provision for payment or other discharge of all of its expenses, liabilities and obligations. Any remaining assets shall be distributed to the stockholders.

ARTICLE 7.

REPRESENTATIONS AND WARRANTIES
BY THE COMPANY

The Company represents and warrants to the Investors that, as of the date hereof and as of the date an Investor purchases his Investor Shares:

7.1. Due Incorporation and Qualification. The Company has been duly incorporated, chartered or organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, and has full corporate or other power and authority to own or lease, as the case may be, its properties and, except as set forth in the Memorandum, to conduct its business as described in the Memorandum. The Company (i) has filed a notice of intent with the State Bank Commissioner of the State Delaware to obtain a certificate of public convenience and advantage in connection with the formation and organization of a wholly-owned subsidiary to be qualified as a Delaware state chartered commercial bank (the "Bank") and (ii) will use its best efforts to qualify the Company as a registered bank holding company under the Bank Holding Company At of 1956, as amended, and the Delaware Banking Act and to qualify the Bank as a Delaware state chartered commercial bank. The Company has no subsidiaries as of the date hereof. The Company is duly qualified to do business as a foreign entity and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases properties or conducts business except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.

7.2. Authorization and Validity of Agreements. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the Subscription Agreements and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly authorized, executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by the Investors, constitutes the legal, valid and binding and enforceable instrument of the Company (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity).

7.3. No Conflict. Neither the execution and delivery of this Agreement or, the Subscription Agreements nor the consummation of the transactions contemplated hereby, thereby or in the Memorandum nor the fulfillment of the terms hereof and thereof will (i) conflict with or result in a violation of the charter or by-laws of the Company or (ii) except as would not, individually or in the aggregate, have a Material Adverse Effect, conflict with or result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to (A) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company is a party or by which it is or may be bound or to which any of its assets may be subject or (B) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or the Bank of any governmental or regulatory authority.

7.4. Capitalization and Other Capital Stock Matters. Upon consummation of the offering contemplated by the Memorandum, the capitalization of the Company will conform in all material respects to the description thereof contained in the Memorandum under the caption "Pro Forma Capitalization." None of the Investor Shares will have been issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those described in or contemplated by the Memorandum or this Agreement.

7.5. Absence of Litigation. Except as disclosed in the Memorandum, there is no action, suit, proceeding, inquiry or investigation before or by any governmental or regulatory authority pending, or to the knowledge of the Company, threatened against or affecting the Company or any of its directors or officers or proposed directors or officers in their capacities as such that is reasonably likely to have a Material Adverse Effect.

7.6. No Violation. The Company is not in violation of its charter or by-laws. The Company is not in violation of: (i) any indenture, mortgage, deed of trust, note or other agreement or instrument to which the Company is a party or by which it is or may be bound or to which any of its assets may be subject;
(ii) any statute, law, rule or regulation applicable to the Company; or (iii) any judgment, decree or order applicable to the Company, which violation or violations individually, or in the aggregate, might result in any Material Adverse Effect.

7.7. Year 2000 Prepareness. There are no issues related to the Company's preparedness for the Year 2000 that (i) are of a character required to be described or referred to in the Memorandum by the Securities Act or by the Exchange Act which have not been accurately described or (ii) might reasonably be expected to have a Material Adverse Effect.

ARTICLE 8.

GENERAL

8.1. Notices. All notices or other communications required or permitted to be delivered hereunder shall be in writing and shall be delivered to each of the parties at their respective addresses as set forth in Schedule A.

Any party to this Agreement may at any time change the address to which notice to such party shall be delivered by giving notice of such change to the other parties and such notice shall be deemed given when received by the other parties. Notices shall be deemed effectively given when personally delivered or sent to the recipient at the address set forth above by telex or facsimile transmission, one business day after having been delivered to a receipted, nationally recognized courier, properly addressed, or five business days after having been deposited into the United States mail, postage prepaid, provided, that any notice to any party outside of the United States shall be sent by telecopy and confirmed by overnight or two-day courier.

8.2. Amendments, Waivers and Consents. Any provision in this Agreement to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if the Company (a) shall obtain consent thereto in writing from Investors holding a majority of the Investor Shares then outstanding (provided that such change, addition or waiver shall affect all holders of Investor Shares equally) and (b) shall, in each such case, deliver copies of such consent in writing to any parties who did not execute the same.

8.3. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the personal representatives, successors and assigns of the respective parties hereto. The Company shall not have the right to assign its rights or obligations hereunder or any interest herein without obtaining the prior written consent of Investors holding a majority of the Investor Shares then outstanding.

8.4. Severability. If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all of the other provisions hereof continuing in full force and effect.

8.5. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous understandings, whether written or oral.

8.6. Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument.

8.7. Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

8.8. Choice of Law. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the Commonwealth of Pennsylvania.

IN WITNESS WHEREOF, the parties hereof have caused this Investor Rights Agreement to be executed on their behalf on the date first above written.

THE BANCORP.COM, INC.

By: /s/ Martin F. Egan, CFO
   ------------------------

INVESTORS

Each of the Investors has executed
this Agreement by execution of a
counterpart acknowledgement on file
in the offices of The Bankcorp.com,
Inc.

INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement, dated as of June 12, 2002 (this "Agreement"), is entered into by and between THE BANCORP.COM, INC., a Delaware corporation (the "Company"), and COMMERCE BANCORP, INC., a New Jersey corporation ("Investor").

W I T N E S S E T H:

WHEREAS, the Company and Investor have entered into a Securities Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), pursuant to which the Company sold and issued to Investor, and Investor purchased, (i) 25,000 shares of the Company's Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), and (ii) warrants (the "Investor Warrants") to purchase 200,000 shares of the Company's Common Stock, par value $0.01 per share (the "Common Stock"); and

WHEREAS, the Company and Investor desire to set forth certain agreements with respect to the Series A Preferred Stock and the Investor Warrants purchased by Investor.

NOW, THEREFORE, in consideration of the premises, and the mutual covenants and agreements herein contained, and intending to be legally bound, it is hereby agreed as follows:

ARTICLE I
DEFINITIONS

1.1 Definitions. For purposes of this Agreement:

"1999 IRA" means the Company's Investor Rights Agreement entered into among the Company and certain investors in October 1999.

"1999 Investors" means the investors party to the 1999 IRA.

"Common Stock" is defined in the Recitals.

"Company" is defined in the Preamble.

"Investor Warrants" is defined in the Recitals.

"Investor" is defined in the Preamble.

"Management Shareholder" means Edward E. Cohen or Daniel G. Cohen.

"Members of the Immediate Family" as applied to any individual, means each parent, spouse, child, brother, sister or the spouse of a child, brother or sister of the individual, and each trust created for the benefit of one or more of such Persons and each custodian of a property of one or more such Persons.

"Material Adverse Effect" means a material adverse effect upon the business, assets, financial condition, income or prospects of the Company.

"Memorandum" means that certain Private Placement Memorandum, dated as of the date hereof, delivered to Investor by the Company in connection with the offer and sale of the Series A Preferred Stock and the Investor Warrants.

"Person" means an individual, partnership, corporation, company, association, trust, joint venture, unincorporated organization and any governmental department or agency or political subdivision.

"Proportionate Percentage" means a percentage of Offered Shares covered by a Proposal under Article 5 equal to (i) the number of shares of Common Stock then held by Investor (including any shares of Common Stock issuable upon conversion of shares of Series A Preferred Stock then held by Investor) (together with any shares theretofore purchased by Investor pursuant to Article 5) divided by (ii) the total number of shares of Common Stock outstanding at the time of delivery of the Proposal (assuming the conversion and exercise of options, warrants, rights and shares of capital stock that are convertible into or exercisable for Common Stock).

"Proposal" is defined in Section 5.1.

"Proposed Buyer" means a Person to whom a Management Shareholder desires to sell any shares of Common Stock, as set forth in
Section 4.1.

"Proposed Sales" means a proposed transaction between a Management Shareholder and a Proposed Buyer.

"Purchase Agreement" is defined in the Recitals.

"Registrable Securities" means (1) Common Stock issued or issuable upon conversion of the Series A Preferred Stock held by Investor; (2) Common Stock issued or issuable upon exercise of the Investor Warrant; and (3) Common Stock issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued) as a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities, excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which his rights under this Agreement are not assigned.

"SEC" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act, the Exchange Act or both.

"Selling Shareholder" means a Management Shareholder selling Shares under Article 4.

"Tag-Along Notice" means a notice from a Selling Shareholder to Investors as set forth in Section 4.2.

ARTICLE II
RESTRICTIVE LEGEND

2.1 Restrictive Legend. Each certificate representing Series A Preferred Stock, the Investor Warrant and shares of Common Stock issuable upon conversion or exercise thereof shall, except as otherwise provided in this Article 2 or in Article 3, be stamped or otherwise imprinted with a legend substantially in the following form:

ARTICLE III
REGISTRATION RIGHTS

3.1 Piggy-Back Registration.

Subject to the prior consent of the 1999 Investors, as required under Section 3.2(a) of the 1999 IRA, if the Company shall seek to register under the Securities Act or qualify any of the Common Stock of the Company or any of its stockholders (except in connection with any stock option plan, stock purchase plan, savings or similar plan or an acquisition, merger or exchange of stock) and if the form of Registration Statement proposed to be used may be used for the registration of the Registrable Securities, then, on each such occasion, the Company shall furnish Investor with at least 30 days prior written notice thereof. At the written request of Investor, given within 20 days after the receipt of such notice, the Company will use its best efforts to cause all or any of the Registrable Securities for which registration shall have been requested by Investor to be included in such Registration Statement. In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of Common Stock of the Company, and the managing underwriter determines that the inclusion of all or any portion of the Registrable Securities proposed to be included in the underwritten public offering and other issued and outstanding shares of Common Stock proposed to be included therein by Persons other than holders of Registrable Securities (the "Other Shares") would interfere with the marketing (including pricing) of the Company's Common Stock, then the number of Registrable Shares and Other Shares to be included in such underwritten public offering shall be, at the request of the managing underwriter, excluded from the offering or reduced ("cutback") pro rata among the holders of Registrable Shares and Other Shares, based upon the number of shares requested by holders thereof to be registered in such underwritten public offerings. The Company shall have the right to terminate an offering under this Section 3.1 at any time in its discretion.

3.2 Demand Registration.

(a) If (i) at any time after the date hereof the Company has consummated a Qualified Public Offering, or (ii) on or before June 12, 2007, the Company has not consummated a Qualified Public Offering and the Company shall thereafter receive a written request from Investor that the Company file a Registration Statement covering the registration of the Registrable Securities, then the Company shall use its best efforts to: (x) subject to the limitations of Section 3.2(c), file with the SEC within sixty (60) days of the receipt of such request a Registration Statement on the appropriate form, and (y) cause as promptly as practicable the registration under the Securities Act of all Registrable Securities.

(b) If Investor intends to distribute the Registrable Securities covered by its request by means of an underwriting as permitted by
Section 3.4(c), Investor shall so advise the Company as a part of its request made pursuant to Section 3.2(a) and shall (together with the Company as provided in Section 3.2(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Investor which underwriters shall include a regional or national underwriting firm which is a member in good standing of the National Association of Securities Dealers, Inc.

(c) The Company is obligated to effect only one registration pursuant to this Section 3.2; provided that, in the event that the Company fails to obtain the consent required under Section 3.2(a) of the 1999 IRA within 180 days of the date hereof, the Investor shall have the right to request, and Company shall be obligated to effect, two registrations pursuant to this Section 3.2, in each case subject to the provisions of this Section 3.2.

(d) The rights granted by Sections 3.2(a)(i) and (ii) expire June 12, 2008.

3.3 Obligations of the Company. Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective, and, upon the request of Investor, keep such Registration Statement effective for up to ninety (90) days.

(c) Furnish to Investor such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of Registrable Securities owned by Investor.

(d) Use its best efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws as shall be reasonably requested by Investor, provided that the Company shall not be required (i) qualify to do business in any jurisdiction,
(ii) subject itself to general taxation in such jurisdiction, (iii) provide any undertakings that cause more than nominal expense or burden to the Company, or
(iv) make any change to its certificate of incorporation or bylaws.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Investor shall also enter into and perform his obligations under such an agreement.

(f) Notify Investor at any time when a prospectus is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to Investor as it may reasonably request.

(g) In the case of an underwritten public offering, furnish, at the request of Investor, on the date that such Registrable Securities are delivered to the underwriters, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (ii) a letter, dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters.

3.4 Obligations of Investor. In connection with the registration of Registrable Securities, Investor shall:

(a) Furnish to the Company such information regarding Investor, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

(b) Cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder.

(c) In the event Investor determines to engage the services of an underwriter or in the event of a registration pursuant to Section 3.1(a) where the Company has selected underwriters and determines that the Registrable Securities shall be included in the securities being offered by the underwriters, enter into and perform Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities.

(d) Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.3(f), immediately discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.3(f) and, if so directed by the Company, Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

(e) Investor may not participate in any underwritten registration hereunder unless Investor (i) agrees to sell Registrable Securities on the basis provided in any underwriting arrangements under Section 3.4(c),
(ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay Investor's pro rata share of all underwriting discounts and commissions.

3.5 Expenses of Registration. All expenses, incurred in connection with registrations, filings or qualifications pursuant to this Agreement, including, without limitation, all registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company shall be borne by Company. Investor shall bear the cost of any underwriters' or brokers' commissions and fees, and fees and disbursements of Investor and its own legal costs, unless the Company shall, as provided in Section 3.5 of the 1999 IRA, have permitted a single firm of counsel, designated by the 1999 Investors, to represent such investors in connection with a registration under the 1999 IRA in which the Investor is participating or a registration under this agreement in which the 1999 Investors are participating, in which case the Investor may utilize the services of such firm under the conditions applicable to all participating 1999 Investors.

3.6 Delay of Registration. Investor shall not have a right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.

3.7 Indemnification.

(a) The Company agrees to indemnify and hold harmless Investor, its affiliates and each of their respective officers, directors, stockholders and agents, against any losses, claims, damages or liabilities to which Investor, its affiliates and each of their respective officers, directors, stockholders and agents may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, or (ii) the omission or alleged omission to state therein a material fact required to be stated in such a Registration Statement or necessary to make the statements therein not misleading, and will reimburse Investor for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by Investor or any underwriter for Investor specifically for use in the preparation thereof. This indemnity will be in addition to any liability which the Company may otherwise have.

(b) Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed a Registration Statement and each Person, if any, who controls the Company, against any losses, claims, damages or liabilities to which the Company or any such director, officer, or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such Registration Statement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that Investor will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in such Registration Statement in reliance upon and in conformity with written information furnished by Investor specifically for use in the preparation thereof; and provided further that indemnification by Investor under this Section 3.7 shall be limited in amount to its share of the proceeds of the offering. This indemnity will be in addition to any liability which Investor may otherwise have.

(c) In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Section 3.7, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 3.7(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 3.7(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution under Section 3.7(d) hereof or otherwise than on account of the provisions of Section 3.7(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall retain counsel reasonably satisfactory to the indemnified party to defend the indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. The indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as

incurred the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has failed to assume the defense of such proceeding or shall have failed to retain counsel reasonably satisfactory to the indemnified party, or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel, under applicable rules of professional conduct, would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (and appropriate local counsel) for all such indemnified parties. Such firm shall be designated in writing by indemnified parties holding a majority of the Registrable Securities included in the proceeding in the case of parties indemnified pursuant to Section 3.7(a) and by the Company in the case of parties indemnified pursuant to Section 3.7(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment.

(d) If the indemnification provided for in this Section 3.7 is unavailable (other than by reason of the exception contained in the second sentence of Section 3.7(c) hereof) to or insufficient to hold harmless an indemnified party under Section 3.7(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and Investor on the other from the offering of the Registrable Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 3.7(c), then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and Investor, on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and Investor on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company or Investor bears to the total net proceeds from the offering, in each case as set forth in the Registration Statement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or Investor on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company further agrees that, in connection with any underwritten public offering, it also will enter into customary contribution arrangements with Investor selling Registrable Securities pursuant thereto and the underwriters or broker-dealers through whom the Registrable Securities may be sold, with respect to situations in which indemnification is potentially unavailable.

The Company and Investor agree that it would not be just and equitable if contributions pursuant to this Section 3.7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section
3.7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 3.7(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation, and (ii) contribution from Investor under this Section 3.7 shall be limited in amount to its share of the proceeds of the offering.

3.8 Limitation on Subsequent Registration Rights. After the date hereof, the Company shall not, without Investor's prior written consent, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights senior to the rights granted to Investor hereunder.

3.9 Rule 144 Reporting. With a view to making available to Investor the benefits of certain rules and regulations of the SEC which may permit the sale of Registrable Securities to the public without registration, the Company agrees to use its best efforts, until the Rule 144(k) period has passed, to:

(a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;

(b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

(c) So long as Investor owns any Registrable Securities, furnish to Investor forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 under the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as Investor may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

ARTICLE IV
TAG ALONG RIGHTS

4.1 General. In the event a Management Shareholder shall desire to sell any shares of Common Stock to a Proposed Buyer, he may do so only if he complies with the provisions of this Article 4, except that this Article 4 shall not apply to (i) a sale by a Management Shareholder of his shares in a registered public offering or (ii) a transfer by a Management Shareholder to Members of the Immediate Family of the Management Shareholder, to another Management Shareholder or to a trust of which the Management Shareholder, individually or together with one or more Members of the Immediate Family of the Management Shareholder, are the sole trustees; provided, however, that any transferee under clause (ii), above shall be subject to the terms of this Agreement as though he or it were a Management Shareholder, but only to the extent of the shares so transferred.

4.2 Offer. A Tag-Along Notice shall be delivered by the Selling Shareholder to Investor at least 30 days prior to the date of any Proposed Sale. The Tag-Along Notice shall include:

(b) Subject to the consent of the 1999 Investors, an offer by the Selling Shareholder to include in the Proposed Sale to the Proposed Buyer, at Investor's option, that number of Registrable Securities as is determined in accordance with Section 4.3, on the same terms and conditions as the Selling Shareholder shall sell his Shares; and

(c) An agreement from the Proposed Buyer to purchase such number of the of Registrable Securities as shall be includable in such Proposed Sale pursuant to Section 4.3.

4.3 Time and Manner of Exercise. If Investor desires to accept the offer contained in the Tag-Along Notice, Investor shall notify the Selling Shareholder in writing within 20 days after receipt of the Tag-Along Notice. If Investor has not accepted such offer in writing, Investor shall be deemed to have waived all of its rights with respect to the Proposed Sale. Any acceptance by Investor of the offer contained in the Tag-Along Notice shall be irrevocable except as hereinafter provided.

4.4 Time and Manner of Closing. Investor shall take such actions and execute such documents and instruments as shall be reasonably necessary in order to consummate the Proposed Sale expeditiously on the same terms as the Selling Shareholder. If at the end of 90 days following the date on which the Tag-Along Notice was given the Selling Shareholder has not completed the Proposed Sale in accordance with the terms hereof, Investor shall be released from its obligations hereunder. At the closing of any sale under this Section 4.4, Investor shall deliver certificates representing the Registrable Securities to be sold by Investor, duly endorsed for transfer and (if requested in writing by the Proposed Buyer) with signature guaranteed, and with any stock transfer tax stamps affixed, against delivery of the applicable purchase price. Any shares sold to the Proposed Buyer in accordance with this Section 4.4 shall no longer be subject to this Agreement.

ARTICLE V
RIGHT OF FIRST REFUSAL

5.1 Right of First Refusal. Until the consummation of a Qualified Public Offering, the Company shall not issue or sell any Offered Shares without first providing Investor the right to subscribe for its Proportionate Percentage of the Offered Shares at a price and on such other terms which are at least as favorable as the Company shall have offered or proposes to offer and which the Company shall have specified in a notice delivered to Investor (the "Proposal"). The Proposal by its terms shall remain open and irrevocable for a period of 30 days from the date it is delivered by the Company to Investor (the "Exercise Period").

5.2 Notice. Notice of the intention of Investor to accept the Proposal shall be evidenced by a writing signed by Investor and delivered to the Company prior to the end of the Exercise Period (the "Notice of Purchase") setting forth that portion of the Offered Shares Investor elects to purchase (the "Accepted Shares").

5.3 Full Acceptance. In the event that Investor elects to purchase all of the Offered Shares, the Company shall sell to Investor the number of Accepted Shares set forth in the Notices of Purchase.

5.4 Partial Acceptance. In the event that Investor elects not to purchase all of the Offered Shares, the Company shall sell to Investor the number of Accepted Shares, if any, set forth in the Notice of Purchase.

5.5 Sale of Shares. No later than 30 days after the expiration of the Exercise Period, the Company shall deliver to Investor a notice indicating the number of Offered Shares which the Company shall sell to Investor pursuant to this Article 5 and the terms and conditions of such sale, which shall be in all respects (including, without limitation, unit price and interest rates) the same as specified in the Proposal. The sale to such holders of such Offered Shares shall take place not later than 10 days after receipt of such notice.

Any sale of Offered Shares that were not selected for purchase by Investor as provided above shall take place not later than 90 days after the expiration of the Exercise Period. Such sale shall be upon terms and conditions in all respects (including, without limitation, unit price and interest rates) which are not less favorable to the Company than those set forth in the Proposal. Any refused Offered Shares not purchased as contemplated by the Proposal within the 90-day period specified above shall remain subject to this Article 5.

5.6 Exclusion of Certain Shares. Offered Shares shall not include (i) shares of Common Stock issuable pursuant to plans, options, warrants or rights outstanding on the date hereof or contemplated by this Agreement or the Memorandum, (ii) shares of capital stock issued pursuant to an effective Registration Statement, (ii) shares of capital stock issued in connection with the acquisition by the Company of another corporation or other entity by merger, purchase of all or substantially all of the assets or otherwise, or (iv) shares of capital stock issued other than for cash in connection with a strategic business transaction.

5.7 Waiver. Investor hereby waives its rights under this Article 5 in connection with the offering by the Company of up to an aggregate of 200,000 shares of Series A Preferred Stock, Common Stock or warrants, or any combination thereof, within ninety (90) days of the date of this Agreement on terms substantially similar to (including, without limitation, at a per share purchase price not less than) the securities purchased pursuant to the Purchase Agreement.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES
BY THE COMPANY

The Company represents and warrants to Investor that, as of the date hereof:

6.1 Due Incorporation and Qualification. The Company has been duly incorporated, chartered or organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, and has full corporate or other power and authority to own or lease, as the case may be, its properties and to conduct its business as described in the Memorandum. The Company is duly qualified to do business as a foreign entity and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases properties or conducts business except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.

6.2 Authorization and Validity of Agreements. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the Purchase Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly authorized, executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by Investor, constitutes the legal, valid and binding and enforceable instrument of the Company (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity).

6.3 No Conflict. Neither the execution and delivery of this Agreement or the Purchase Agreement nor the consummation of the transactions contemplated hereby, thereby or in the Memorandum nor the fulfillment of the terms hereof and thereof will (i) conflict with or result in a violation of the charter or bylaws of the Company or (ii) except as would not, individually or in the aggregate, have a Material Adverse Effect, conflict with or result in a breach or violation of, or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to (A) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company is a party or by which it is or may be bound or to which any of its assets may be subject or (B) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or the Bank of any governmental or regulatory authority.

ARTICLE VII
GENERAL

7.1 Notices. All notices or other communications required or permitted to be delivered hereunder shall be in writing and shall be delivered to each of the parties at their respective addresses as set forth on the signature page hereto.

Any party to this Agreement may at any time change the address to which notice to such party shall be delivered by giving notice of such change to the other party and such notice shall be deemed given when received by the other party. Notices shall be deemed effectively given when personally delivered or sent to the recipient at the address set forth above by telex or facsimile transmission, one business day after having been delivered to a receipted, nationally recognized courier, properly addressed, or five business days after having been deposited into the United States mail, postage prepaid, provided, that any notice to any party outside of the United States shall be sent by telecopy and confirmed by overnight or two-day courier.

7.2 Amendments, Waivers and Consents. Any provision in this Agreement to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, only upon the prior written consent of the Company and Investor.

7.3 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the personal representatives, successors and assigns of the respective parties hereto. The Company shall not have the right to assign its rights or obligations hereunder or any interest herein without obtaining the prior written consent of Investor.

7.4 Severability. If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all of the other provisions hereof continuing in full force and effect.

7.5 Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous understandings, whether written or oral.

7.6 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one and the same instrument.

7.7 Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

7.8 Choice of Law. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of Delaware.

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IN WITNESS WHEREOF, the parties hereof have caused this Investor Rights Agreement to be executed on their behalf on the date first above written.

THE BANCORP.COM, INC.

By: /s/ Martin F. Egan
    -------------------------------------
    Name:  Martin F. Egan
    Title: Chief Financial Officer

Address: 405 Silverside Road Wilmington, DE 19809 Attention: Martin F. Egan Fax Number: (302) 385-5117

COMMERCE BANCORP, INC.

By: /s/ Phillip Fox
    -------------------------------------
    Name:  Phillip Fox
    Title: Senior Vice President

Address: 1701 Route 70 East Cherry Hill, NJ 08034-5400 Fax Number: 856.424.8599

THE BANCORP.COM, INC.
1999 STOCK OPTION PLAN

This 1999 Stock Option Plan of The Bancorp.com, Inc. was adopted by the Company's Board of Directors on December 15, 1999.

1. DEFINITIONS

1.1. "ADMINISTRATOR" means the Committee.

1.2. "AFFILIATE" means any "subsidiary" or "parent" corporation (within the meaning of Section 424 of the Code) of the Company.

1.3. "AGREEMENT" means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an award of Options granted to such Participant.

1.4. "BANK" means TB.com Bank.

1.5. "BOARD" means the Board of Directors of the Company.

1.6. "CODE" means the United States Internal Revenue Code of 1986, as amended.

1.7. "COMMITTEE" means the Compensation Committee of the Board.

1.8. "COMMON STOCK" means the common stock of the Company.

1.9. "COMPANY" means The Bancorp.com, Inc.

1.10. "FAIR MARKET VALUE" means, if the shares of Common Stock are then listed and traded on a registered national or regional securities exchange, or quoted on The National Association of Securities Dealers' Automated Quotation System (including The Nasdaq National Market), the average closing price of a share of Common Stock on such exchange or quotation system for the five trading days immediately preceding the date of grant of an Option, or, if Fair Market Value is used herein in connection with any event other than the grant of an Option, then such average closing price for the five trading days immediately preceding the date of such event. If the shares of Common Stock are not traded on a registered securities exchange or quoted in such a quotation system, the Committee shall determine the Fair Market Value of a share.

1.11. "OPTION" means a stock option that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement.

1.12. "PARTICIPANT" means an employee of the Company, an Affiliate or a member of the Board, who satisfies the requirements of Article 4 and is selected by the Administrator to receive an Option.

1.13. "PLAN" means this 1999 Stock Option Plan.

1.14. "TEN PERCENT SHAREHOLDER" means any individual owning more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of an Affiliate. An individual shall be considered to own any voting stock owned (directly or indirectly) by or for such individual's brothers, sisters, spouses, ancestors or lineal descendants and shall be considered to own proportionately any voting stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust of which such individual is a shareholder, partner or beneficiary.

2. PURPOSES

The Plan is intended to assist the Company and its Affiliates in recruiting and retaining individuals with ability and initiative by enabling such persons to participate in the future success of the Company and its shareholders. The Plan is intended to permit the grant of both Options qualifying under Section 422 of the Code ("incentive stock options") and Options not so qualifying, and the grant of Performance Shares. No Option that is intended to be an incentive stock option shall be invalid for failure to qualify as an incentive stock option. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes.

3. ADMINISTRATION

The Plan shall be administered by the Administrator in a manner consistent with the express language and intent of the Plan and in a manner consistent with the intent of the Federal Deposit Insurance Corporation's ("FDIC") Statement of Policy on Applications for Deposit Insurance. The Administrator shall have authority to grant Options upon such terms which are consistent with the provisions of this Plan. Such terms may include conditions (in addition to those contained in this Plan) on the vesting or exercisability of all or any part of an Option or on the transferability or forfeitability of any award. In addition, the Administrator shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; to redesignate Options granted as incentive stock options as non-statutory stock options and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator. Any decision made, or action taken, by the Administrator or in connection with the administration of this Plan shall be final and conclusive. Neither the Administrator nor any member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement or award. All expense of administering this Plan shall be borne by the Company.

4. ELIGIBILITY

Any employee of the Company or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan) is eligible to participate in this Plan, if the Administrator determines that such person has or can be expected to contribute significantly to the growth or profitability of the Company or an Affiliate. Members of the Board are also eligible to participate in this Plan.

5. STOCK SUBJECT TO PLAN

5.1. Shares Issued. Upon the exercise of an Option, the Company may deliver to the Participant shares of Common Stock from its authorized but unissued Common Stock.

5.2. Aggregate Limit. The maximum aggregate number of shares of Common Stock that may be issued under this Plan is 282,539 shares, subject to adjustment as provided in Article 8. No more than 75,000 shares shall be issued to non-employee directors of the Company.

5.3. Reallocation of Shares. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or portion thereof may be reallocated to other awards to be granted under this Plan.

6. OPTIONS

6.1. Award. The Administrator will designate each individual to whom an Option is to be granted and will specify the number of shares of Common Stock covered by such award.

6.2. Option Price. The price per share for Common Stock purchased on the exercise of an Option shall be determined by the Administrator on the date of grant; provided, however, that the price per share for Common Stock purchased on the exercise of any Option shall not be less than the Fair Market Value on the date of grant Notwithstanding the preceding sentence, the price per share for Common Stock purchased on the exercise of any Option that is an incentive stock option shall not be less than the Fair Market Value on the date the Option is granted or, in the case of an incentive stock option granted to an individual who is a Ten Percent Shareholder on the date such option is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date the Option is granted.

6.3. Maximum Option Period. The maximum period in which an Option may be exercised shall be determined by the Administrator on the date of grant, except that no Option that is an incentive stock option shall be exercisable after the expiration of ten years from the date such Option was granted. In the case of an incentive stock option that is granted to a Participant who is a Ten Percent Shareholder on the date of grant, such option shall not be exercisable after the expiration of five years from the date of grant. The terms of any Option that is an incentive stock option may provide that it is exercisable for a period less than such maximum period.

6.4. Nontransferability. Except as provided in Section 6.5, each Option granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. During the lifetime of the Participant to whom the Option is granted, the Option may be exercised only by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant.

6.5. Employee Status. For purposes of determining the applicability of
Section 422 of the Code (relating to incentive stock options), or in the event that the terms of any Option provide that it may be exercised only during employment or within a specified period of time after termination of employment, the Administrator may decide to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment.

6.6. Exercise.

6.6.1. Installment Exercise.

Subject to such further limitations as are provided herein, the Option shall become exercisable in four (4) installments, the Participant having the right hereunder to purchase from the Company the following number of Options upon exercise of the Option, on and after the following dates, in cumulative fashion:

(i) on and after the first anniversary of the date of grant, up to 25% (ignoring fractional shares) of the total number of Options;

(ii) on and after the second anniversary of the date of grant, up to an additional 25% (ignoring fractional shares) of the total number of Options; and

(iii) on and after the third anniversary of the date of grant, up to an additional 25% (ignoring fractional shares) of the total number of Options; and

(iv) on and after the fourth anniversary of the date of grant, the remaining Options.

6.6.2. Termination of Option.

(a)(i) Upon the termination of Participant's employment by the Company for any reason, the Options, to the extent not previously exercised, shall immediately terminate and become null and void, except to the extent provided in paragraph (ii) of this subsection (a) where the termination of the Participant's employment is by reason of retirement, permanent disability or death.

(ii) Upon a termination of the Participant's employment by reason of retirement, disability or death, the Options may be exercised during the following periods but only to the extent the Options were outstanding and exercisable upon such termination of the Participant's employment: (A) the six-month period following the date of such termination of the Participant's employment; (B) the one year period following the date of death, in the case of Participant's death during his employment by the Company; and (C) the three-month period following the date of such termination in the case of retirement on or after the attainment of age 65, or in the case of permanent disability.

(b) In the event of the death, the Options may be exercised by the Participant's legal representative(s), but only to the extent that the Options would otherwise have been exercisable by the Participant.

(c) Notwithstanding any other provisions set forth herein or in the Plan, if the Participant shall (i) commit any act of malfeasance or wrongdoing affecting the Company or any subsidiary of Company,
(ii) breach any covenant not to compete, or employment contract, with Company or any subsidiary of Company, or (iii) engage in conduct that would warrant the Participant's discharge for cause (excluding general dissatisfaction with the performance of the Participant's duties, but including any act of disloyalty or any conduct clearly tending to bring discredit upon the Company or any subsidiary of the Company), any unexercised portion of the Options shall immediately terminate and become null and void.

(d) During the period of twelve (12) months immediately following the date upon which the Grantee receives a "hardship" withdrawal from a retirement plan qualifying under ss.401(k) of the Code, all rights of the Participant to exercise the Options shall be suspended.

6.6.3. Subject to the provisions of this Plan and the applicable Agreement, an Option may be exercised in whole at any time or in part from time to time at such times and in compliance with such requirements as the Administrator shall determine; provided, however, that incentive stock options (granted under the Plan and all plans of the Company and its Affiliates) may not be first exercisable in a calendar year for stock having a Fair Market Value (determined as of the date an Option is granted) exceeding $100,000. To the extent an Award of an incentive stock option exceeds this $100,000 limit, the portion of the Award in excess of such limit shall be deemed a non-statutory stock option. An Option granted under this Plan may be exercised with respect to any number of whole shares less than the full number for which the Option could be exercised. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Agreement with respect to the remaining shares subject to the Option.

6.7. Payment. Unless otherwise provided by the Agreement, payment of the Option price shall be made in cash or a cash equivalent acceptable to the Administrator.

6.8. Shareholder Rights. No Participant shall have any rights as a shareholder with respect to shares subject to the Participant's Option until the date of exercise of such Option.

6.9. Disposition of Stock. A Participant shall notify the Company of any sale or other disposition of Common Stock acquired pursuant to an Option that was an incentive stock option if such sale or disposition occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of the Common Stock to the Participant. Such notice shall be in writing and directed to the Secretary of the Company.

6.10. Payment of Taxes. Unless the Administrator permits otherwise, the Participant shall pay the Company in cash, promptly when the amount of such obligations becomes determinable, all applicable local, state and federal withholding taxes applicable, in the Administrator's absolute discretion, to (i) the exercise of any Option or (ii) the transfer or other disposition of shares of Common Stock acquired upon exercise of any Option.

7. ADJUSTMENT UPON CHANGE IN COMMON STOCK

7.1. Adjustments. The maximum number of shares as to which awards may be granted under this Plan, the terms of outstanding awards and the per individual limitations on the number of shares for which Options and Performance Shares may be granted, shall be adjusted as the Committee shall determine to be equitably required in the event that (a) the Company (i) effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or
(ii) engages in a transaction to which Section 424 of the Code applies or (b) there occurs any other event which, in the judgment of the Committee, necessitates such action. Any determination made under this Article 8 by the Committee shall be final and conclusive.

The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the maximum number of shares as to which awards may be granted, the per individual limitations on the number of shares for which Options and Performance Shares may be granted or the terms of outstanding awards.

7.2. Mergers or Other Corporate Transactions. Upon consummation of a consolidation or merger or sale of all or substantially all of the assets of the Company in which outstanding shares of Common Stock are exchanged for securities, cash or other property of an unrelated corporation or business entity or in the event of a liquidation of the Company (in each case, a "TRANSACTION"), the Board, or the board of directors of any corporation assuming the obligations of the Company, may, in its discretion, take any one or more of the following actions, as to outstanding Options: (i) provide that such Options shall be assumed or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to the optionees, provide that all unexercised Options will terminate immediately prior to the consummation of the Transaction unless exercised by the optionee within a specified period following the date of such notice, and/or (iii) in the event of a business combination under the terms of which holders of the Common Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the business combination, make or provide for a cash payment to the optionees equal to the difference between (A) the value (as determined by the Committee) of the consideration payable per share of Common Stock pursuant to the business combination (the "MERGER PRICE") times the number of shares of Common Stock subject to such outstanding Options (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such outstanding Options in exchange for the termination of such Options. In the event Options will terminate upon the consummation of the Transaction, each optionee shall be permitted, within a specified period determined by the Committee, to exercise all non-vested Options, subject to the consummation of the Transaction.

8. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES

8.1. No Option shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Company is a party, and the rules of all domestic stock exchanges on which the Company's shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to evidence Common Stock for which an Option is exercised or a Performance Share settled may bear such legends and statements as the Administrator may deem advisable to assure compliance with federal and state laws and regulations. No Option shall be exercisable, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Administrator may deem advisable from regulatory bodies having jurisdiction over such matters.

8.2. Every Option shall contain a provision that the Federal Reserve Board or the FDIC, individually or in conjunction with one other, may require Plan Participants to exercise or forfeit their Options if the Company or the Bank's capital falls below minimum requirements, as determined by federal or state regulators.

9. GENERAL PROVISIONS

9.1. Effect on Employment and Service. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any individual any right to continue in the employ or service of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate to terminate the employment or service of any individual at any time with or without assigning a reason therefor.

9.2. Unfunded Plan. The Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.

9.3. Rules of Construction. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law.

9.4. Governing Law. The Plan shall be administered in accordance with the laws of the State of Delaware and applicable federal law.

9.5. Effective Date of Plan. The Plan shall be effective upon its adoption by the Board and its approval by the Company's shareholders. Any Options or Performance Shares awarded under the Plan prior to the date of approval by the shareholders shall be void if such approval is not obtained within one year of the approval of the Board.

9.6. Duration of Plan. Options may be granted under the Plan at any time on or prior to the date which is ten years after the date the Plan is adopted by the Board.

10. AMENDMENT

The Board may amend or terminate this Plan from time to time; provided, however, that no amendment may become effective until shareholder approval is obtained if (i) the amendment increases the aggregate number of shares of Common Stock that may be issued under the Plan, (ii) the amendment changes the class of individuals eligible to become Participants or (iii) the amendment materially increases the benefits that may be provided under the Plan. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any award outstanding at the time such amendment is made.

EMPLOYEE AND NON-EMPLOYEE DIRECTOR NON-CASH COMPENSATION PLAN

The purpose of The Bancorp.com, Inc. Employee and Non-Employee Director Non-Cash Compensation Plan (the "PLAN") is to provide (i) designated employees of The Bancorp.com, Inc. (the "COMPANY") and its subsidiaries, (ii) certain consultants and advisors who perform services for the Company or its subsidiaries and (iii) non-employee members of the Board of Directors of the Company (the "BOARD") with the opportunity to receive stock awards. The Company believes that the Plan will encourage the participants to contribute materially to the growth of the Company, thereby benefiting the Company's stockholders, and will align the economic interests of the participants with those of the stockholders.

1. ADMINISTRATION

(a) Committee. The Plan shall be administered and interpreted by the Board or by a committee or individual appointed by the Board. After an initial public offering of the Company's common stock or Series A preferred stock as described in Section 16(b) (a "PUBLIC OFFERING"), the Plan shall be administered by a committee, which may consist of "outside directors" as defined under section 162(m) of the Internal Revenue Code of 1986, as amended (the "CODE"), and related Treasury regulations and "non-employee directors" as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") if required by the rules, regulations or policies (the "RULES") of any securities exchange on which the Company's common or preferred stock is listed, or of any automated inter-dealer quotation system on which the Company's common or preferred stock is quoted. However, the Board may ratify or approve any grants as it deems appropriate. If a committee or individual administers the Plan, references in the Plan to the "Board," as they relate to Plan administration, shall be deemed to refer to the committee or individual.

(b) Board Authority. The Board shall have the sole authority to (i) determine the individuals to whom grants shall be made under the Plan,
(ii) determine the type, size and terms of the grants to be made to each such individual, (iii) determine the time when the grants will be made and the duration of any applicable restriction period, (iv) amend the terms of any previously issued grant, and (v) deal with any other matters arising under the Plan.

(c) Board Determinations. The Board shall have full power and authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Board's interpretations of the Plan and all determinations made by the Board pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Board shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.

2. GRANTS

All awards of preferred stock hereunder ("GRANTS") shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with this Plan as the Board deems appropriate and as are specified in writing by the Board to the individual in a grant instrument or an amendment to the grant instrument (the "GRANT INSTRUMENT"). The Board shall approve the form and provisions of each Grant Instrument. Grants need not be uniform as among the grantees.

3. SHARES SUBJECT TO THE PLAN

(a) Shares Authorized. Subject to adjustment as described below, the Company may issue up to 50,000 shares of its Series A preferred stock pursuant to this Plan, subject to adjustment as described below. After a Public Offering, the maximum aggregate number of shares of Company Stock that shall be subject to Grants made under the Plan to any individual during any calendar year shall be subject to any limitations imposed by the Rules. The shares may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent any stock awards are forfeited, the shares subject to such Grants shall again be available for purposes of the Plan.

(b) Adjustments. If there is any change in the number or kind of shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split, or combination or exchange of shares,
(ii) by reason of a merger, reorganization or consolidation, (iii) by reason of a classification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Company Stock as a class without the Company's receipt of consideration, or if the value of outstanding shares of Company Stock is substantially reduced as a result of a spinoff or the Company's payment of an extraordinary dividend or distribution, the maximum number of shares of Company Stock available for Grants, the number of shares covered by outstanding Grants, the kind of shares issued under the Plan, and the price per share (if any shall be specified) of such Grants may be appropriately adjusted by the Board to reflect any increase or decrease in the number of, or change in the kind of value of, issued shares of Company Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. Any adjustments determined by the Board shall be final, binding and conclusive.

4. ELIGIBILITY FOR PARTICIPATION

(a) Eligible Persons. All employees of the Company and its subsidiaries ("EMPLOYEES"), including Employees who are officers or members of the Board, and members of the Board who are not Employees ("NON-EMPLOYEE DIRECTORS") shall be eligible to participate in the Plan. Consultants and advisors who perform services for the Company or any of its subsidiaries ("KEY ADVISORS") shall be eligible to participate in the Plan if the Key Advisors render bona fide services to the Company or its subsidiaries, the services are not in connection with the offer and sale of securities in a capital-raising transaction, and the Key Advisors do not directly or indirectly promote or maintain a market for the Company's securities.

(b) Selection of Grantees. The Board shall select the Employees, Non-Employee Directors and Key Advisors to receive Grants and shall determine the number of shares of Company Stock subject to a particular Grant in such manner as the Board determines. Employees, Non-Employee Directors and Key Advisors who receive Grants under this Plan shall hereinafter be referred to as "GRANTEES."

5. STOCK GRANTS

The Board may Grant shares of Company Stock to an Employee, Non-Employee Director or Key Advisor upon such terms as the Board deems appropriate. The following provisions are applicable to these Grants:

(a) General Requirements. Shares of Company Stock issued or transferred pursuant to Grants may be issued or transferred for consideration or for no consideration, and subject to restrictions or no restrictions as determined by the Board. The Board may establish conditions under which restrictions on Grants shall lapse over a period of time or according to such other criteria as the Board deems appropriate. The period of time during which the Grants will remain subject to restrictions will be designated in the Grant Instrument as the "RESTRICTION PERIOD."

(b) Number of Shares. The Board shall determine the number of shares of Company Stock to be issued or transferred pursuant to a Grant.

(c) Requirement of Employment or Service. If the Grantee ceases to be employed by, or provide service to, the Company during a period designated in the General Instrument as the Restriction Period, or if other specified conditions are not met, the Grant shall terminate as to all shares covered by the award as to which the restrictions have not lapsed, and those shares of Company Stock must be immediately returned to the Company. The Board may, however, provide for complete or partial exceptions to this requirement as it deems appropriate.

(d) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares underlying the Grant except (i) by will or by the laws of descent and distribution or (ii) if permitted in any specific case by the Board, pursuant to a domestic relations order or (iii) otherwise as may be permitted by the Board. Each certificate for Company Stock issued or transferred by a Grant shall contain a legend giving appropriate notice to the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Board may determine that the Company will not issue certificates for Grants until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for Grants until all restrictions on such shares have lapsed.

(e) Right to Vote and to Receive Dividends. During the Restriction Period, the Grantee shall have the right to vote shares subject to Grants and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Board.

(f) Lapse of Restrictions. All restrictions imposed on Grants shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions imposed by the Board. The Board may determine, as to any or all Grants, that the restrictions shall lapse without regard to any Restriction Period.

6. WITHHOLDING OF TAXES

(a) Required Withholding. All Grants under the Plan shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Company may require that the Grantee or other person receiving Grants pay to the Company the amount of any federal, state or local taxes that the Company is required to withhold with respect to such Grants, or the Company may deduct from other wages paid by the Company the amount of any withholding taxes due with respect to such Grants.

(b) Election to Withhold Shares. If the Board so permits, a Grantee may elect to satisfy the Company's income tax withholding obligation with respect to a Grant by having shares withheld up to an amount that does not exceed the Grantee's minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities. The election must be in a form and manner prescribed by the Board and may be subject to the prior approval of the Board.

7. RIGHT OF FIRST REFUSAL; REPURCHASE RIGHT

(a) Offer. Prior to a Public Offering, if at any time an individual desires to sell, encumber, or otherwise dispose of shares of Company Stock that were distributed to him or her under this Plan and that are transferable, the individual may do so only pursuant to a bona fide written offer, and the individual shall first offer the shares to the Company by giving the Company written notice disclosing: (a) the name of the proposed transferee of the Company Stock; (b) the certificate number and number of shares of Company Stock proposed to be transferred or encumbered; (c) the proposed price; (d) all other terms of the proposed transfer; and (e) a written copy of the proposed offer. Within 60 days after receipt of such notice, the Company shall have the option to purchase all or part of such Company Stock on the same terms and conditions of the offer or at the then current fair market value as determined by the Board and may pay such price in installments over a period not to exceed four years, at the discretion of the Board.

(b) Sale. In the event the Company (or a stockholder, as described below) does not exercise the option to purchase Company Stock, as provided above, the individual shall have the right to sell, encumber, or otherwise dispose of the shares of Company Stock described in subsection (a) at the price and on the terms of the transfer set forth in the written notice to the Company, provided such transfer is effected within 15 days after the expiration of the option period. If the transfer is not effected within such period, the Company must again be given an option to purchase, as provided above.

(c) Assignment of Rights. The Board, in its sole discretion, may waive the Company's right of first refusal and repurchase right under this
Section 7. If the Company's right of first refusal or repurchase right is so waived, the Board may, in its sole discretion, assign such right to the remaining preferred stockholders or to the common stockholders of the Company in the same proportion that each stockholder's stock ownership bears to the stock ownership of all the stockholders of the class, as determined by the Board. To the extent that a stockholder has been given such right and does not purchase his or her allotment, and the Board so determines in its discretion, the other stockholders shall have the right to purchase such allotment on the same basis.

(d) Purchase by the Company. Prior to a Public Offering, if a Grantee ceases to be employed by, or provide services to, the Company, the Company shall have the right to purchase all or part of any Company Stock distributed to him or her under this Plan at its then current fair market value (as determined by the Board) or at such other price as may be established in the Grant Instrument; provided, however, that such repurchase shall be made in accordance with applicable accounting rules to avoid adverse accounting treatment.

(e) Public Offering. On and after a Public Offering, the Company shall have no further right to purchase shares of Company Stock under this Section 7.

(f) Stockholder's Agreement. Notwithstanding the provisions of this Section 7, if the Board requires that a Grantee execute a stockholder's agreement with respect to any Company Stock distributed pursuant to this Plan, which contains a right of first refusal or repurchase right, the provisions of this Section 7 shall not apply to such Company Stock, unless the Board determines otherwise.

8. CHANGE OF CONTROL OF THE COMPANY

As used herein, a "Change of Control" shall be deemed to have occurred if:

(a) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) (other than persons who are stockholders on the effective date of the Plan) becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the voting power of the then outstanding voting securities of the Company; provided that a Change in Control shall not be deemed to occur as a result of a change of ownership resulting from the death of a stockholder, and a Change of Control shall not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation and in which the stockholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote); or

(b) The consummation of (i) a merger or consolidation of the Company with another corporation where the stockholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote), (ii) a sale or other disposition of all or substantially all of the assets of the Company, or (iii) a liquidation or dissolution of the Company.

9. CONSEQUENCES OF A CHANGE OF CONTROL

(a) Notice and Acceleration. Upon a Change of Control, unless the Board determines otherwise, (i) the Company shall provide each Grantee with outstanding Grants written notice of such Change of Control and (ii) the restrictions and conditions on all outstanding Grants shall immediately lapse.

(b) Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Board determines otherwise, all outstanding Grants shall be converted to Grants of the surviving corporation (or a parent or subsidiary of the surviving corporation).

(c) Limitations. Notwithstanding anything in this Plan to the contrary, in the event of a Change of Control, the Board shall not have the right to take any actions described in this Plan (including without limitation actions described in subsection (b) above) that would make the Change of Control ineligible for pooling of interests accounting treatment, if such treatment would otherwise be available, or that would make the Change of Control ineligible for desired tax treatment if, in the absence of such right, the Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control.

10. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES

(a) Stockholder's Agreement. The Board my require that a Grantee execute a stockholder's agreement, with such terms as the Board deems appropriate, with respect to any Company Stock issued or distributed pursuant to this Plan.

(b) Limitations on Issuance or Transfer of Shares. No Company Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Company Stock have been complied with to the satisfaction of the Board. The Board shall have the right to condition any Grant made to any Grantee hereunder on such Grantee's undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Board shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Company Stock issued or transferred under this Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.

(c) Lock-Up Period. If so requested by the Company or any representative of the underwriters (the "MANAGING UNDERWRITER") in connection with any underwritten offering of securities of the Company under the Securities Act of 1933, as amended (the "SECURITIES ACT"), a Grantee (including any successor or assigns) shall not sell or otherwise transfer any shares or other securities of the Company during the 30-day period preceding and the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act for such underwriting (or such shorter period as may be requested by the Managing Underwriter and agreed to by the Company) (the "MARKET STANDOFF PERIOD"). The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period.

11. AMENDMENT AND TERMINATION OF THE PLAN

(a) Amendment. The Board may amend or terminate this Plan at any time; provided, however, that the Board shall not amend this Plan without stockholder approval if such approval is required in order to comply with the Code or other applicable laws, or to comply with applicable Rules.

(b) Termination of Plan. This Plan shall terminate on the day immediately preceding the tenth anniversary of its effective date, unless this Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders.

(c) Termination and Amendment of Outstanding Grants. A termination or amendment of this Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or unless the Board acts under Section 17(b). The termination of the Plan shall not impair the power and authority of the Board with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 17(b) or may be amended by agreement of the Company and the Grantee consistent with the Plan.

(d) Governing Document. The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.

12. FUNDING OF THE PLAN

This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants.

13. RIGHTS OF PARTICIPANTS

Nothing in this Plan shall entitle any Employee, Non-Employee Director, Key Advisor or other person to any claim or right to be awarded a Grant under this Plan. Neither this Plan or any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Company or any other employment rights.

14. NO FRACTIONAL SHARES

No fractional shares of Company Stock shall be issued or delivered pursuant to this Plan or any Grant. The Board shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

15. HEADINGS

Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the
Section shall control.

16. EFFECTIVE DATE OF THE PLAN

(a) Effective Date. This Plan shall be effective on the later of the date it is approved by the stockholders or the date upon which the Company Stock is established as part of the Company's authorized capital.

(b) Public Offering. The provisions of this Plan that refer to a Public Offering, or that refer to, or are applicable to persons subject to,
Section 16 of the Exchange Act or Section 162(m) of the Code, shall be effective, if at all, upon the initial registration of the Company Stock or the Company's common stock under Section 12 of the Exchange Act, and shall remain effective thereafter for so long as such stock is so registered.

17. MISCELLANEOUS

(a) Grants in Connection with Corporate Transactions and Otherwise. Nothing contained in this Plan shall be construed to (i) limit the right of the Board to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees of the Company, or for other proper corporate purposes, or (ii) limit the right of the Company to make awards outside of this Plan. Without limiting the foregoing, the Board may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or any of its subsidiaries in substitution for a grant made or stock option granted to such person by such corporation. The terms and conditions of the substitute grants may vary from the terms and conditions required by this Plan and from those of the substituted stock incentives. The Board shall prescribe the provisions of the substitute Grants.

(b) Compliance with Law. This Plan and the obligations of the Company to issue or transfer shares of Company Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. With respect to persons subject to Section 16 of the Exchange Act, after a Public Offering it is the intent of the Company that this Plan and all transactions under this Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that this Plan and applicable Grants under this Plan comply with the applicable provisions of Section 162(m) or 422 of the Code. To the extent that any legal requirement of Section 16 of the Exchange Act or
Section 162(m) or 422 of the Code as set forth in this Plan ceases to be required under Section 16 of the Exchange Act or Section 162(m) or 422 of the Code, that Plan provision shall cease to apply. The Board may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation. The Board may also adopt rules regarding the withholding of taxes on payments to Grantees. The Board may, in its sole discretion, agree to limit its authority under this Section.

(c) Employees Subject to Taxation Outside the United States. With respect to Grantees who are subject to taxation in countries other than the United States, the Board may make Grants on such terms and conditions as the Board deems appropriate to comply with the laws of the applicable countries, and the Board may create such procedures, addenda and subplans and make such modifications as may be necessary or advisable to comply with such laws.

(d) Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof.

SUBLEASE AND TECHNICAL SUPPORT AGREEMENT

THIS SUBLEASE AND TECHNICAL SUPPORT AGREEMENT (the "Agreement"), executed this 6th day of December 2001, but effective as of October 1, 2001 (the "Effective Date") is by and between RAIT INVESTMENT TRUST, a Maryland real estate investment trust ("RAIT" or "Sublessee") and THE BANCORP.COM, INC., a Delaware corporation ("Bancorp" or "Sublessor").

BACKGROUND

A. Bancorp is "Tenant" and 1818 Market-VEF II, LLC is "Landlord" pursuant to a lease dated as of June 16, 2000 (the "Master Lease"), pursuant to which Master Lease, Bancorp has leased 14,839 Rentable Square Feet (as defined in the Master Lease) on the twenty-eighth floor (the "Leased Space") of the property located at 1818 Market Street, Philadelphia, Pennsylvania (the "Building"). A true and correct copy of the Master Lease is attached hereto as Exhibit "A".

B. RAIT desires to lease approximately 6,678 square feet of the Leased Space from Bancorp subject to the terms and conditions hereof.

C. Bancorp has the ability to provide to RAIT certain technical support services that RAIT desires to use subject to the terms and conditions hereof.

TERMS

Based upon the foregoing recitals, each of which has been acknowledged as true and correct by the parties hereto and made a part hereof, the parties, in consideration of the promises contained herein and intending to be legally bound hereby, agree as follows:

1. SUBLEASE. Sublessor hereby agrees to lease to Sublessee, and Sublessee agrees to lease from Sublessor, a portion of the Leased Space located on the twenty-eighth floor of the Building consisting of approximately 6,678 square feet (the "Premises"), as so marked on attached Exhibit "B" hereto. Sublessee shall have the exclusive right to use that portion of Premises consisting of the offices as so marked on Exhibit "B" hereto. Sublessor shall also have the non-exclusive right to utilize copying, bathroom and other facilities with respect to the Leased Space, as so marked on Exhibit "B" hereto.

2. RENT. Sublessee shall pay to Sublessor rent in an amount equal to forty-five percent (45%) of the Minimum Rent payable by Sublessor under the Master Lease in equal monthly installments on or before the tenth day of each calendar month in advance. Sublessee shall also pay to Sublessor, within ten
(10) days of written demand therefor, its Allocable Share (as defined later in this Section 2) of any additional costs, pass through, or other payments due from Sublessor under the Master Lease. As used in this Agreement, the term "Allocable Share" shall mean forty-five percent (45%), being the percentage produced by dividing the 6,678 square feet of the Premises by the 14,839 square feet of the Leased Space.

3. TERM. The term of this Agreement shall commence on the Effective Date and shall continue until termination of the Master Lease, unless earlier

terminated pursuant hereto. Sublessee may terminate this Agreement on not less than sixty (60) days' prior written notice to Sublessor of its intention to do so, but shall nonetheless be bound to pay rent through the actual date of termination. Sublessor may terminate this Agreement on not less than one hundred twenty (120) days' written notice to Sublessee.

4. REIMBURSEMENT OF TENANT IMPROVEMENTS. Simultaneously with execution hereof, Sublessee will reimburse Sublessor the sum of $303,750, representing the Allocable Portion of tenant improvements paid for by Sublessor and relating to the Premises. Tenant also agrees to reimburse Sublessor for their allocated portion of the security system, furniture, electricity, office cleaning, heating and air conditioning, water, Use and Occupancy Tax, insurance and any other expense incurred on its behalf by Sublessor necessary to its operations.

5. ADHERENCE TO MASTER LEASE TERMS. Sublessee hereby agrees that it will follow, adhere to and respect all terms of the Master Lease with respect to the Building and the Leased Space. Sublessee will not take any action, or fail to take any action, if such act or failure to act would result in a breach of the Master Lease.

6. TELEPHONE EXPENSE. Sublessor has installed and operates a phone system that shall be used by Sublessee. Sublessee shall pay to Sublessor within ten (10) days of being billed therefor by Sublessor its actual "as used" phone expense.

7. TECHNICAL SUPPORT. Sublessor shall provide to Sublessee technical support to include, but not be limited to, the following (collectively, the "Technical Support Services"):

(a) Internet Conductivity with 2 meg smds line, security firewall, maintenance and upgrades to such internet systems;

(b) an on site network specialist no less than once weekly;

(d) corporate email including delivery, maintenance and upgrades;

(e) network storage space on local server and shared space for organization;

(f) phone support including range of numbers, maintenance, troubleshooting and upgrades; and

(g) full customer support.

Sublessee shall pay to Sublessor, as consideration for its provision of the Technical Support Services, a fee of $5,000 per month on or before the first day of each calendar month in advance.

8. CONFIDENTIALITY. In the course of occupying space that will have shared access and certain common facilities, employees and agents of Sublessor and Sublessee may be exposed to each other's proprietary and confidential documents and information. Each of Sublessor and Sublessee hereby agrees that it will hold all such information in strict confidence and will not divulge any information about the other.

9. LATE PAYMENTS. All late payments made after the tenth of the month and any reimbursements made more than ten days after demand therefor has been made by Sublessor will be subject to interest at the prime rate plus 2%. Sublessee will pay attorneys' fees and any other costs of collection related to delinquencies not cured within (30) days.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be executed by their duly authorized officers the day and year first above stated.

RAIT INVESTMENT TRUST
A Maryland real estate investment trust

By:  /s/ Ellen Distefano
     -------------------------------------
     Ellen Distefano, Vice President & CFO

THE BANCORP.COM, INC.,
A Delaware corporation

By:  /s/ Martin Egan
     -------------------------------------


     Martin Egan, CFO

SUBLEASE AND TECHNICAL SUPPORT AGREEMENT

THIS SUBLEASE AND TECHNICAL SUPPORT AGREEMENT (the "Agreement"), executed this 1st day of July 2002, is by and between COHEN BROS. ("Cohen" or "Sublease") and THE BANCORP.COM, INC., a Delaware corporation ("Bancorp" or "Sublessor").

BACKGROUND

B. COHEN desires to lease approximately 3,081 square feet of the Leased Space from Bancorp subject to the terms and conditions hereof.

C. Bancorp has the ability to provide to COHEN certain technical support services that COHEN desires to use subject to the terms and conditions hereof.

TERMS

1. SUBLEASE. Sublessor hereby agrees to lease to Sublessee, and Sublessee agrees to lease from Sublessor, a portion of the Leased Space located on the twenty-eighth floor of the Building consisting of approximately 3,081 square feet (the "Premises"), as so marked on attached Exhibit "B" hereto. Sublessee shall have the exclusive right to use that portion of Premises consisting of the offices as so marked on Exhibit "B" hereto. Sublessor shall also have the non-exclusive right to utilize copying, bathroom and other facilities with respect to the Leased Space, as so marked on Exhibit "B" hereto.

2. RENT. Sublessee shall pay to Sublessor rent in an amount equal to twenty-one percent (21%) of the Minimum Rent payable by Sublessor under the Master Lease in equal monthly installments on or before the tenth day of each calendar month in advance. Sublessee shall also pay to Sublessor, within ten
(10) days of written demand therefor, its Allocable Share (as defined later in this Section 2) of any additional costs, pass through, or other payments due from Sublessor under the Master Lease. As used in this Agreement, the term "Allocable Share" shall mean twenty-one percent (21%), being the percentage produced by dividing the 3,081 square feet of the Premises by the 14,839 square feet of the Leased Space.

3. TERM. The term of this Agreement shall commence on the Effective Date and shall continue until termination of the Master Lease, unless earlier terminated pursuant hereto. Sublessee may terminate this Agreement on not less

than sixty (60) days' prior written notice to Sublessor of its intention to do so, but shall nonetheless be bound to pay rent through the actual date of termination. Sublessor may terminate this Agreement on not less than one hundred twenty (120) days' written notice to Sublessee.

4. REIMBURSEMENT OF TENANT IMPROVEMENTS. Tenant agrees to reimburse Sublessor for their allocated portion of the security system, furniture, electricity, office cleaning, heating and air conditioning, water, Use and Occupancy Tax, insurance and any other expense incurred on its behalf by Sublessor necessary to its operations.

7. TECHNICAL SUPPORT. Sublessor shall provide to Sublessee technical support to include, but not be limited to, the following (collectively, the "Technical Support Services"):

(a) Internet Conductivity with 2 meg smds line, security firewall, maintenance and upgrades to such internet systems;

(b) an on site network specialist no less than once weekly;

(d) corporate email including delivery, maintenance and upgrades;

(e) network storage space on local server and shared space for organization;

(f) phone support including range of numbers, maintenance, troubleshooting and upgrades; and

(g) full customer support.

Sublessee shall pay to Sublessor, as consideration for its provision of the Technical Support Services, a fee of $1,000 per month plus $35 per hour for on site technical support on or before the first day of each calendar month in advance.

9. LATE PAYMENTS. All late payments made after the tenth of the month and any reimbursements made more than ten days after demand therefor has been

made by Sublessor will be subject to interest at the prime rate plus 2%. Sublessee will pay attorneys' fees and any other costs of collection related to delinquencies not cured within (30) days.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be executed by their duly authorized officers the day and year first above stated.

COHEN BROS.

By: /s/ Daniel Cohen
    --------------------------------
    Daniel Cohen, Chairman

THE BANCORP.COM, INC.,
A Delaware corporation

By: /s/ Frank Mastrangelo
    --------------------------------


    Frank Mastrangelo, President

EXHIBIT 10.5

[GRAPHIC OMITTED]

TRM AND THE BANCORP.COM ATM AGREEMENT

TRM ATM CORPORATION
5208 N.E. 122nd Avenue
Portland, Oregon 97230-1074
1-800-877-8762

TABLE OF CONTENTS

Clause                                                                      Page

1.  Definitions and Interpretation ............................                1

2.  TRM Services ..............................................                1

3.  Retailer Services .........................................                2

4.  ATM Deployment and Location Selection .....................                3

5.  Functions of ATM ..........................................                3

6.  Branding of ATMs and Merchandising ........................                3

7.  Convenience Fees ..........................................                4

8.  Liability .................................................                4

9.  Insurance .................................................                4

10. Term ......................................................                4

11. Termination ...............................................                5

12. Consequences of Termination ...............................                5

13. Force Majeure .............................................                6

14. Applicable Laws ...........................................                6

15. General ...................................................                6

16. Assignment and Subcontracting .............................                6

17. Notices ...................................................                6

18. Governing Law and Jurisdiction ............................                7

19. Counterparts ..............................................                7

Schedule 1 ATM DEPLOYMENT .....................................                8

Schedule 2 COMMISSIONS ........................................                9

Schedule 3 ACH AUTHORIZATION RELEASE ..........................               10

Schedule 4 ATM MERCHANDISING ..................................               11

TRM and The Bancorp.Com ATM Agreement 9/7/00

This ATM Agreement (the "Agreement") is made this 11th day of September 2000 (the "Effective Date"),

BETWEEN:

(1) TRM ATM CORPORATION, an Oregon corporation, being referred to herein as "TRM," whose corporate office is located at 5208 N.E. 122nd Avenue, Portland, OR 97230-1074.

(2) The Bancorp.com, Inc., a Delaware corporation, being referred to herein as the "Retailer", whose corporate office is located 405 Silverside Road, Wilmington, Delaware 19809

WHEREAS:

(A) TRM is interested in installing and operating ATMs at locations occupied by the Retailer

(B) Each of TRM and Retailer has agreed to provide certain services to the other.

THE PARTIES AGREE:

1. DEFINITIONS AND INTERPRETATION

1.1 In this Agreement:

"ATM" means an automated teller machine subject to this Agreement, which has been installed at a Location;

"ATM TRANSACTIONS" means a cash withdrawal from an ATM generating a Convenience Fee;

"CONVENIENCE FEE" means a fee charged by TRM to a cardholder in respect of a cash withdrawal from an ATM, which is due to TRM and in which the Retailer may share pursuant to Schedule 2;

"LOCATION" means premises in the USA where an ATM is, or is to be, installed and operated pursuant to this Agreement;

"LOCATION OWNER" means the owner or lessee of a Location who is entitled to grant the right to TRM to install and maintain an ATM at that Location;

"MERCHANDISING" means all material displaying the TRM Trade Mark as defined in this Section and includes, but is not limited to all signs, mobiles, banners, displays, decals and toppers.

"OPENING HOURS" means the hours during which the Location is open for business;

"QUARTER" means a three month period ending March 31, June 30, September 30 and December 31;

"RETAILER SERVICES" means the services specified in clause 3;

"TRADE MARKS" means any trade marks or trade names, service marks, logos or other identifiers owned, controlled or licensed by a person;

"TRM SERVICES" means the services specified in clause 2;

"YEAR" means the period of twelve months beginning on the date hereof and each subsequent consecutive period of twelve months.

1.2 In this Agreement, reference to:

1.2.1   a document in the "agreed form" is a reference to a
        document in the form approved and for the purposes of
        identification signed by or on behalf of each party.

1.2.2   a person includes a reference to a body corporate,
        association or partnership.

1.2.3   a person includes a reference to that person's legal
        personal representatives, successors and lawful assigns;
        and


1.2.4   a clause or schedule, unless the context otherwise
        requires, is a reference to a clause or schedule to this
        Agreement.

1.3 The headings in this Agreement do not affect its interpretation.

2. TRM SERVICES

TRM shall:

2.1 provide to Retailer the TRM Services, at TRM's own expense, unless otherwise indicated, with all reasonable care and skill, in accordance with the terms of this Agreement.

2.2 ensure that, on installation, an ATM shall be of satisfactory quality, be fit for its purpose and that the ATM (TRM has no responsibility for the security of the location) shall meet any reasonable minimum security.

TRM and The Bancorp.Com ATM Agreement 1 of 11 9/7/00

2.3 install ATMs with Retailer in accordance with the provisions set out in Schedule 1 and as otherwise specified in this Agreement.

2.4 At Retailer's expense procure the installation of a dedicated telephone line for the exclusive use of each ATM, (which line shall be owned by TRM) the co-ordination of which will be the responsibility of and in the control of TRM.

2.5 At Retailer's expense provide the fully-operational, dedicated electrical circuits (110 volts) necessary for the operation of each ATM at a Location (the specific location of such circuits within each store to be determined by TRM and Retailer).

2.6 at its sole cost, choose, deliver, install (including bolting to the floor), operate and maintain in good operating condition, the ATMs.

2.7 pay for continuing monthly phone service related to the phone line dedicated to the ATMs.

2.8 provide for all necessary servicing, with the exception of 3.3, and maintenance of the ATMs, provide all necessary supplies.

2.9 Provide cash management services.

2.10 provide Retailer with detailed monthly transaction volume reports for each ATM installed at a Location, such reports to be mailed to Retailer no later than the 25th date of the month following that month covered by such report.

2.11 make payments required by this agreement to Retailer on or before the 25th day of the month following that month to which payment is attributable, such payment to be forwarded to the bank account of the Retailer.

2.12 display on each ATM a toll free telephone number for ATM customer assistance and provide customer assistance, including resolving customer complaints respecting ATM service.

2.13 as the retailer's expense, apply for all permits required by governmental or regulatory authorities for the installation and operation of the ATMs within Stores.

2.14 indemnify, hold harmless and defend Retailer for any damage to a Location caused by the installation of an ATM and claims relating to the malfunctioning of any ATM.

3. RETAILER SERVICES

Retailer shall:

3.1 provide to TRM the Retailer Services with all reasonable care and skill and in accordance with the terms of this Agreement.

3.2 pay for the on-going power necessary to promote and operate the
ATM.

3.3 provide first line maintenance (replacement of printer paper, undoing paper and cash jams, etc.) on an as needed basis such that ATM uptime is maximized.

3.4 provide an appropriate and sufficient location within a highly visible location (which locations shall be normally agreed upon by the parties) for the installation and operation of each ATM.

3.5 provide public access to each ATM during Opening Hours.

3.6 provide adequate amounts of "ATM Fit" money and secure cash while ATM is being serviced.

3.7 at its sole cost, choose and procure cash delivery services (cash in-transit company) which will be managed by TRM.

3.8 provide TRM, its employees and its authorized agents free and unobstructed access to each ATM during Opening Hours for the purpose of site inspection, maintenance, repair, and installation or removal of ATMs; but, except as required under Clause 3.3 or 3.11, at no time shall Retailer authorise or permit its personnel or any other person not authorized by TRM to make repairs, alteration, modifications or attachments to the ATMs. In the event that TRM is not able to secure such access in respect of any Location on more than 3 occasions in any 3 month period, TRM shall be entitled to discontinue providing the TRM Services in respect of any AMTs situated on that Location in accordance with Clauses 11 and 12. Repair of the ATM by TRM or its agents could require Retailer to pay for a "meet and greet" by Retailer's cash in-transit company.

TRM and The Bancorp.Com ATM Agreement 2 of 11 9/7/00

3.9 use its best efforts to ensure that no liens, encumbrances or security interests in favor of Retailer's creditors attach to the ATMs, and, upon request by TRM, use its best efforts to obtain a waiver, in recordable form, from all persons with an interest in the Location where any ATM may be located, waiving any potential claim or priority over TRM or its assignee with respect thereto.

3.10 promptly notify TRM (by calling a toll free telephone number provided by TRM), when, to Retailer's actual knowledge, any condition exists which renders an ATM inoperative.

3.11 carry out timely performance of minor "housekeeping-type" cleaning of the exterior of the ATMs.

3.12 assume responsibility for the cost of replacement and repairs to the ATMs which are necessary due to misuse, vandalism or damage caused by Retailer's employees.

3.13 provide security against theft, or other loss due to crime, of each ATM, to the same extent such security is provided with respect of the Location to other third-party/vendors of Retailer who own property located within such Stores.

3.14 allow and facilitate the placement of merchandising, per Schedule 4, as outlined in clause 6.

3.15 provide a list of Locations approved by the Retailer for ATM installation by TRM. Additional approved Locations shall be added to Schedule 1 as amendments to the Schedule.

3.16 not provide "cash back" at the register in any amount during the term of the ATM placement.

3.17 Pay TRM, via ACH Authorization, a monthly rental fee of $225.00, plus sales tax as appropriate, per ATM. TRM may offset rental fees then payable against Retailer's share of the Convenience Fee revenue. Rental fee for the first month is due prior to ATM installation.

4. ATM DEPLOYMENT AND LOCATION SELECTION

4.1 Initial Locations identified for ATM placement are listed in Schedule 1.

4.2 Retailer acknowledges and declares that in all events, each of the ATMs and associated ATM merchandising shall remain the sole and exclusive property of TRM and Retailer will not obtain any right, title or interest to the ATMs, the contents of the ATMs and/or any ATM merchandising under this Agreement.

4.3 For the avoidance of doubt, nothing in this Agreement shall prevent TRM from financing the acquisition, leasing or otherwise dealing with the ATMs in the ordinary course of business.

4.4 In the event of the sale of a Location where an ATM is located (whether one or more or all locations), to a third party, Retailer will provide TRM with the name of the proposed purchaser to the extent not prohibited by an obligation of confidentiality. Retailer shall use its best efforts to cause the purchaser to assume Retailer rights and obligations as to the affected ATM in the store location.

5. FUNCTIONS OF ATM

Each ATM shall be capable of providing a range of electronic fund transfer services, including, but not limited to, cash withdrawals, the transfer of funds between accounts and account balance inquiries.

6. BRANDING OF ATMS AND MERCHANDISING

6.1 Retailer acknowledges that TRM shall advertise the ATMs, and Retailer authorizes TRM to advertise the existence and Location of the ATMs and the service offered in such media and in such manner as TRM deems appropriate. Retailer grants TRM a revocable, non-exclusive, non-transferable, world-wide, royalty-free license to use Retailers Trade Marks in connection with the ATMs. TRM acknowledges that except as set forth herein, it has no right, title or interest in Retailer's Trade Marks. Any other use of Retailer's name or logo without the prior written approval of Retailer is prohibited. TRM may disclose the existence of its relationship with Retailer to third parties.

TRM and The Bancorp.Com ATM Agreement 3 of 11 9/7/00

6.2 The parties agree that TRM (at its own expense) shall, at its option, upon installation of an ATM at a Store, install at the Store appropriate signs and promotional banners to be located at the Store premises with the consent of Retailer which consent shall not be unreasonably withheld. Retailer will allow TRM to place signage, with the prior consent of Retailer, both in and outside the Store plus on exterior pylons if they exist and placement is consistent with local regulations and lease restrictions.

6.3 Retailer shall not, without the prior written consent of TRM, alter, deface or remove in any manner any TRM Trade Marks on the ATMs or the screens of the ATMs.

6.4 Retailer shall not, at any time while TRM or other party retains any right to any TRM Trade Marks, adopt, use or register without the prior written consent of such relevant owner or licensor (as appropriate) any word or symbol or combination of words and symbols which is confusingly similar to any TRM Trade Marks for goods or services for which any TRM Trade Marks are used by TRM or the relevant owner or licensor.

6.5 Retailer and TRM acknowledge that this Agreement does not operate to vest any right, title or interest in any other party's Trade Marks and that all goodwill resulting from the use of any Trade Marks pursuant to this Agreement shall accrue to the relevant owner.

7. CONVENIENCE FEES

The parties acknowledge that the amount of the Convenience Fee at the date of this Agreement for non Retailer customers is a minimum of $1.00. All Convenience Fees shall be determined by the Retailer. The Retailer's customers will have no transaction fee assessed when using the ATM. TRM shall charge and collect the Convenience Fee on behalf of both TRM and Retailer in order for the parties to share the Convenience Fee as specified in Schedule 2.

8. LIABILITY

8.1 Each party ("the Indemnifying Party") shall be responsible for and shall indemnify and keep indemnified the other party, its employees and agents ("the Indemnified Party") from and against any liability, loss and claim whatsoever and out of pocket costs expenses (including, without limitation, legal costs and expenses) reasonably incurred in relation thereto which arise as a result of the Indemnifying Party's breach of its obligations under this Agreement and/or any statutory duty related to its performance under this agreement provided that, save for death and personal injury, the total liability in respect of such indemnity by Retailer shall in no event excised $500,000 in respect of any one event, or $1 million in the aggregate and the total liability in respect of such indemnity by TRM shall in no event exceed $500,000 in respect of any one event, or $1 million in the aggregate.

8.2 Notwithstanding the provisions of clause 8.1, neither party shall in any circumstances be liable to the other for any incidental, indirect, special or consequential damages or loss of any kind, including, but not limited to loss of anticipated profits, loss of use of equipment or services, cost of substitution goods or damages to business, goodwill or reputation arising from the performance or non performance of any aspect of this Agreement, whether in contract or tort or otherwise.

9. INSURANCE

9.1 Without prejudice to the obligations under Clause 8 of this Agreement, the parties shall maintain public liability insurance with a reputable insurer or insurers, in a sum not less than $500,000. Such insurance shall be maintained in force during the term of this Agreement.

9.2 TRM will maintain insurance on equipment and merchandising only.

10. TERM

The term of this Agreement shall be sixty (60) months commencing from the date of installation for each individual ATM. Installation being defined as the date of the first transaction. The initial sixty (60) month term shall automatically be renewed for an additional 12 month period, unless, prior to ninety (90) days before the expiration of the then-existing term, TRM or Retailer notifies the other in writing of its intent to terminate this Agreement.

TRM and The Bancorp.Com ATM Agreement 4 of 11 9/7/00

11. TERMINATION

11.1 A party (the "Initiating Party") may terminate this Agreement with immediate effect by notice to the other party (the

"Breaching Party") on or at any time after the occurrence of an event specified in Clause 11.2.

11.2 The events are:

11.2.1  the Breaching Party being in material breach of a
        material obligation under this Agreement and, if the
        breach is capable of remedy, failing to remedy the
        breach within thirty (30) days starting on the day after
        receipt by the Breaching Party of written notice from
        the Initiating Party giving full details of the breach
        and requiring the Breaching Party to remedy the breach.

11.2.2  the Breaching Party passing a resolution for its winding
        up or a court of competent jurisdiction making an order
        for the Breaching Party winding up or dissolution of the
        Breaching Party.

11.2.3  the appointment of a receiver of any part of its
        premises, or any proceeding for the relief of debtors is
        filed by or against the Breaching Party, or Breaching
        Party should make a general assignment for the benefit
        of creditors, suspend business, become insolvent, or an
        attachment or execution  is levied or taxed or other
        lien is filed against Breaching Party's property.

11.2.4  the Breaching Party making an arrangement or composition
        with its creditors generally or making an application to

        a court of competent jurisdiction for protection from
        its creditors under any Chapter of the U.S. Bankruptcy


        Code act.

11.3 Notwithstanding any other term of this Agreement, TRM shall be entitled to terminate this Agreement:

11.3.1  if retailer fails to make the rental payment to TRM per
        Clause 3.17, TRM may terminate this agreement with
        immediate effect by notice to the retailer and remove
        the ATM at the earliest possible opportunity, 11.3.2 if
        (i) the condition of Retailer's affairs shall change so
        as to, in TRM's opinion in its sole discretion, increase
        the business risk involved in connection with this
        Agreement, (ii) TRM network agreements change, (iii) any
        statute, regulation or law is passed which, in TRM's
        opinion in its sole discretion, makes TRM's performance
        hereunder unprofitable to TRM or impossible, or such
        performance would violate any such statute, regulation
        or law, or (iv) Retailer in any way materially breaches
        this Agreement, per Clause 11.2.1,


11.3.2  if the number on Convenience Fee transactions fall below
        200 per month any time after 90 days from first
        transaction date

TRM may, it is option, with ninety (90) days written notice, terminate this Agreement as to any or all the Stores. In the event of termination, TRM has the right to remove all ATM's, related equipment and signs, at TRM's expense. Any damages resulting in required repairs to the Retailer's Locations as a result of removal of the ATM or related merchandising will be paid for by TRM.

11.4 Retailer shall be entitled to terminate this Agreement with respect to any or all of the ATMs upon thirty (30) days notice to TRM, in which event Retailer shall pay TRM an amount equal to present value at 50% of remaining term for each such ATM.

12. CONSEQUENCES OF TERMINATION

12.1 Each party's further rights and obligations cease immediately on termination of this Agreement, but termination does not affect a party's accrued rights, obligations and remedies at the date of termination.

TRM and The Bancorp.Com ATM Agreement 5 of 11 9/7/00

12.2 Notwithstanding the termination of this Agreement, Clauses 1, 8, 11, 12, 14 and 15 of this Agreement, together with such clauses survival of which is necessary for the interpretation or enforcement of this Agreement, shall remain in full force and effect.

12.3 On termination of this Agreement, TRM shall remove all ATMs and merchandising from the Locations.

12.4 On termination of this Agreement, Retailer shall:

               12.4.1  permit TRM to remove ATMs and merchandising from the
                       Locations.

               12.4.2  deliver up to TRM or, at the option of TRM, destroy, any
                       documents or other materials containing the Confidential

                       Information of TRM in the possession or control of
                       Retailer as at the date of termination of this
                       Agreement.

13.     FORCE MAJEURE

13.1 If a party (the "AFFECTED PARTY") is prevented, hindered or delayed from or in performing any of its obligations under this Agreement by a Force Majeure Event (as defined in Clause 13.2), the Affected Party's obligations under this Agreement are suspended while the Force Majeure Event continues and to the extent that it is prevented, hindered or delayed provided that if the relevant event continues for more than 60 days, the non Affected Party may terminate this Agreement by giving 5 days written notice of termination.

13.2 In this Clause 13, "Force Majeure Event" means an event beyond the reasonable control of the Affected Party and unknown to the Affected Party at the date of this Agreement including, without limitation, strike, lock-out, labour dispute, (but excluding strikes, lockouts and labour disputes involving employees of the Affected Party or its subcontractors) act of God, war, riot, civil commotion, malicious damage (but excluding malicious damage involving the employees of the Affected Party or its subcontractors) accident, fire, flood and storm.

14. APPLICABLE LAWS AND DATA PROTECTION

Both parties shall comply with all applicable laws, rules, regulations, by-laws and codes of practice in performing their respective obligations under this Agreement.

15. GENERAL

15.1 This Agreement and any document referred to in this Agreement constitute the entire agreement, and this Agreement supersedes any previous agreement between the parties relating to the subject matter of this Agreement.

15.2 An Amendment of this Agreement is valid only if it is in writing and signed by or on behalf of each party.

15.3 The failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy.

15.4 Except where this Agreement provides otherwise, the rights and remedies contained in this Agreement are cumulative and not exclusive of rights or remedies provided by law.

16. ASSIGNMENT AND SUBCONTRACTING

16.1 No assignment may be made without the express written consent of the other party, which consent shall not be unreasonably withheld.

16.2 For the avoidance of doubt, TRM shall be entitled to sub- contract any part of its obligations under this Agreement provided that TRM shall remain liable for all acts or omissions of its sub-contractors.

17. NOTICES

17.1 A notice or other communication under or in connection with this Agreement shall be in writing in the English language and may be delivered personally or sent by first class mail pre-

paid recorded delivery (and pre-paid recorded delivery air mail), overnight carrier or by fax as follows:

TRM and The Bancorp.Com ATM Agreement 6 of 11 9/7/00

17.1.1 if to TRM, to:

TRM ATM Corporation

Attn: Sr. VP Sales & Marketing 5208 N.E. 122nd Avenue
Portland OR 97230-1074

(Fax: 1-800-998-3721)

        17.1.2 if to Retailer, per Schedule 4.

        or to another person, address of fax number as may be specified by a
        party by written notice to the other.

17.2    In the absence of evidence of earlier receipt, a notice is deemed
        given:

        17.2.1 if delivered personally, when left at the address referred to
               in Clause 17.1.1.

        17.2.2 if sent by mail, air mail, the date of delivery as recorded;
               and

        17.2.3 if sent by fax, on such date is evidenced on a fax transmission
               confirmation report.

        provided that if such notice would, in accordance with the provisions
        of this Clause 17.2 be deemed received outside working hours, it shall
        be deemed received on the next business day.

18.     GOVERNING LAW AND JURISDICTION


        This Agreement shall be governed by the laws of the State of Oregon.

19.     COUNTERPARTS

        This Agreement may be executed in any number of counterparts.

As witness the duly authorized representatives of the parties the day and year first before written:

TRM ATM CORPORATION

      /s/ Danial Tierny
By: ________________________
      MAY, 29 2001

THE BANCORP.COM.INC.

      /s/ Frank M. Mastrangelo
By: __________________________
      Frank M. Mastrangelo
      President, COO

TRM and The Bancorp.Com ATM Agreement 7 of 11 9/7/00

TRM & THE BANCORP
AMENDMENT TO ATM AGREEMENT DATED SEPTEMBER 11, 2000

Conditions & Penalties for Failure to Install by Scheduled Installation Date or Failures Causing Downtime of the ATM after Install:

1) The Bancorp must provide TRM with 6 weeks lead time to install any single or multiple (up to 5) new ATM placements. In the event that 6 or more new sites are requested, TRM will provide The Bancorp with an install schedule as close to the six week lead time as possible.

2) Once complete location information has been received by TRM Key Accounts or Sales, scheduling will occur.

3) In the event that the ICL (Initial Cash Load) is unable to be completed due to equipment failure or installation issues as a direct result of TRM or its sub-contractors within 1 business day (Monday - Friday) from the date of install (date ATM is scheduled to "go live"), TRM will credit The Bancorp a full month's rental fee of $195.00, plus 100% of the surcharge for the period of time the ATM is unable to transact. (Surcharge penalty will be based on the average daily transaction volume of all TRM/The Bancorp locations for the month that the location is unable to transact)

4) In the event that the ATM is unable to transact after the ICL has been completed and the cause of the failure is a direct result of TRM or its sub- contractors, TRM will have 48 hours from the time notified to rectify the problem or TRM will credit The Bancorp with a full month's rental fee of $195.00, plus 100% of the surcharge for the period of time the ATM is unable to transact (Surcharge penalty will be based on the prior 30-day average, or whatever the actual days available since install if less then 30 days, daily transaction volume of the site).

TRM CORPORATION

/s/ Danial Tierny
--------------------------------------------------------------------------------
Signature

DANIAL J. TIERNY SR VP CUSTOMER DEVELOPMENT

Name & Title

MAY 17, 2001

Date

The BANCORP.COM

/s/ Jill Kelly
--------------------------------------------------------------------------------
Signature

Jill E Kelly Senior Vice President

Name & Title

5.22.01

Date

TRM & THE BANCORP
AMENDMENT II TO ATM AGREEMENT DATED SEPTEMBER 11, 2000

Revision to Articles 2.9 & 3.17

Based on agreement by both parties, Article 2.9 will be deleted from said agreement effective with the April, 2001 billing. TRM will no longer be providing cash management services to the Bancorp on any of the ATM's covered under this agreement, i.e., management of funds in vault, ordering of cash.

Based on this revision and change in services rendered, Article 3.17 shall read:

3.17 Pay TRM, via ACH authorization, a monthly rental fee of $195.00 plus sales tax, as appropriate, per ATM covered under this agreement. TRM may offset rental fees then payable against Retailer's share of the Convenience Fee revenue. Rental fee for the first month is due prior to ATM installation.

TRM CORPORATION

/s/ Danial Tierny
-------------------------------------------------------------------------------
Signature
DAN TIERNY SR. V.P. ORGANIZATIONAL DEVELOPMENT
-------------------------------------------------------------------------------
Name & Title
May 17, 2001
-------------------------------------------------------------------------------
Date

THE BANCORP.COM

/s/ Jill Kelly
-------------------------------------------------------------------------------
Signature
Jill E. Kelly Senior Vice President
-------------------------------------------------------------------------------
Name & Title
5.22.01
-------------------------------------------------------------------------------
Date

TRM & THE BANCORP.COM
AMENDMENT III TO ATM AGREEMENT DATED SEPTEMBER 11, 2000

Revision to Articles 2.8, 3.3 & 3.17 & Commissions

Based on agreement by both parties, the following changes will apply to the following articles contained within the Agreement dated September 11, 2000 between TRM and The Bancorp.com.

Article

2.8 shall be amended to read as follows:

"TRM will provide for all necessary servicing (1st and 2nd line) and maintenance of the ATMs and provide all necessary supplies on an as needed basis such that ATM uptime is maximized."

1st & 2nd line service commitment:

7 days a week 8AM - 5 PM 4 hours response time

3.3 will be deleted from said agreement effective with the March 2002 billing.

3.17 Pay TRM, via ACH authorization, a monthly rental fee of $190.00 plus sales tax, as appropriate, per ATM covered under this agreement. TRM may offset rental fees then payable against Retailer's share of the Convenience Fee revenue. Rental fee for the first month is due prior to ATM installation.

COMMISSIONS

TRM will pay The Bancorp.com 100% of the Convenience Fee revenue for all Convenience fee based transactions at locations where a TRM ATM is installed.

TRM CORPORATION

/s/ Danial Tierny
--------------------------------------------------------------------------------
Signature
--------------------------------------------------------------------------------
Name & Title Danial Tierny Sr. V.P. Organizational Development
--------------------------------------------------------------------------------
Date
--------------------------------------------------------------------------------

THE BANCORP.COM

/s/ Jill Kelly
--------------------------------------------------------------------------------
Signature
Jill Kelly SVP OPS
--------------------------------------------------------------------------------
Name & Title
2.27.02


--------------------------------------------------------------------------------
Date

Subsidiaries of The Bancorp, Inc.

The Bancorp Bank, a Delaware banking corporation - 32.7%

The Bancorp Capital Trust I, a Delaware statutory trust - 100%

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We have issued our report dated February 18, 2004 accompanying the consolidated financial statements of The Bancorp Bank (a wholly owned subsidiary of The Bancorp, Inc.) appearing in the 2003 Annual Report of The Bancorp Bank to its shareholders and included in the Annual Report on Form 10-K for the year ended December 31, 2003, which is included in this Registration Statement, Proxy and Prospectus. We consent to the incorporation by reference in the Registration Statement, Proxy and Prospectus of the aforementioned reports and to the use of our name as it appears under the caption "Experts."

/s/ Grant Thornton LLP



Philadelphia, Pennsylvania
July 9, 2004

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

We have issued our report dated February 18, 2004 accompanying the consolidated financial statements of The Bancorp, Inc. and its subsidiaries contained in this Registration Statement, Proxy and Prospectus. We consent to the use of the aforementioned report in the Registration Statement, Proxy and Prospectus, and to the use of our name as it appears under the caption "Experts."

/s/ Grant Thornton LLP



Philadelphia, Pennsylvania
July 9, 2004

Exhibit 23.3

CONSENT OF CEDAR HILL ADVISORS, LLC

We hereby consent to the inclusion of our opinion letter to the Board of Directors of The Bancorp Bank (the "Company") as Annex B to the Prospectus/Proxy Statement relating to the proposed reorganization and merger of the Company with and into TBI Acquisition Bank, a wholly-owned subsidiary of The Bancorp, Inc., thereby becoming a wholly-owned subsidiary of The Bancorp, Inc., as contained in the Registration Statement on Form S-4 of The Bancorp Inc., and to the references to our firm and such opinion in such Prospectus/Proxy Statement. In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended (the "Act"), or the rules and regulations of the Securities and Exchange Commission thereunder (the "Regulations"), nor do we admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "experts" as used in the Act or the Regulations.

                                    /s/ Cedar Hill Advisors, LLC

July 14, 2004