UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2009

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

Commission File Number 333-141191

PRO FINANCIAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Florida	20-4625845
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

536 North Monroe St. Tallahassee, Florida	32301
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (850) 383-8107

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

x Yes o No

Note–Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No * This registrant has not yet been phased into the interactive data requirements

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

o Yes x No

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $7,001,288 at June 30, 2009.

Note – If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Common stock, par value $.01 per share, 1,396,116 shares outstanding as of March 31, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

		Page
PART I			1

Item 1.	Business		1
	Forward-Looking Statements		1
	General		2
	Critical Accounting Policies		3
	Lending Activities		3
	Loan Loss Allowance		4
	Deposit Activities		4
	Investments		5
	Correspondent Banking		5
	Effect of Governmental Policies		5
	Interest and Usury		5
	Supervision and Regulation		5
	USA Patriot Act		11
	Other Laws		11
	Liquidity		12
	Competition		12
	Employees		12

Item 1A. Risk Factors			12

Item 1B. Unresolved Staff Comments			12

Item 2. Description of Properties			12

Item 3. Legal Proceedings			13

Item 4. (Removed and Reserved)			13

PART II			14

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters
	and Issuer Purchases of Liquidity Securities		14

Item 6.	Selected Financial Data		14

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
	General		16
	Lending Activities		17
	Liquidity		17
	Capital Resources, Commitments and Capital Requirements		18
	Loan Portfolio		19
	Loan Quality		20
	Classification of Assets and Potential Problem Loans		21
	Investment Securities		24
	Deposit Activities		24
	Results of Consolidated Operations		26
	Asset/Liability Management		30
	Impact of Inflation and Changing Prices		32

Item 7A. Quantitative and Qualitative Discussion About Market Risk			33

Item 8. Financial Statements and Supplementary Data			33

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			33

Item 9A. Controls and Procedures			33

Item 9B. Other Information			34

PART III			34

Item 10. Directors, Executive Officers, and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act			34
Code of Ethics			38
Director Independence			38
Nominating Committee			39
Financial Experts			39

Item 11. Executive Compensation			39

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters			40

Item 13. Certain Relationships and Related Transactions, and Director Independence			41

Item 14. Principal Accounting Fees and Services			42

Item 15. Exhibits, Financial Statement Schedules			43

SIGNATURES			44

EXHIBIT INDEX			46

PART I

Item 1. Business

Forward-Looking Statements

Some of the statements in this Form 10-K discuss future expectations. There may also be statements regarding projections of results of operations or financial condition or state other “forward-looking” information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. We based the forward-looking information on various factors and numerous assumptions, which may or may not turn out to be correct.

Our actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Such factors are described below and include, without limitation:

·	Losses in our loan portfolio are greater than estimated or expected;

·	Unanticipated deterioration in the financial condition of borrowers may result in significant increases in loan losses and provisions for those losses.


·	If real estate values in our target markets continue to decline, our loan portfolio could become impaired and losses from loan defaults may exceed our allowance for loan and lease losses established for that purpose.


·	Economic conditions affecting real estate values and transactions in Pro Financial’s market and/or general economic conditions, either nationally or regionally, that are less favorable or take longer to recover than expected;


·	An inability to raise additional capital on terms and conditions that are satisfactory;


·	The impact of current economic conditions and the impact of our results of operations on our ability to borrow additional funds to meet our liquidity needs;


·	Changes in the interest rate environment which expand or reduce margins or adversely affect critical estimates as applied and projected returns on investments and fair values of assets;


·	Deposit attrition, customer loss or revenue loss in the ordinary course of business;


·	Increased competition with other financial institutions may affect our results of operations and liquidity.


·	If our securities portfolio fails to perform, our securities may lose value.


·	Changes in the legislative and regulatory environment may increase the cost of operations or limit our growth.


·	Our common stock is not an insured bank deposit and is subject to market risk.


·	Although publicly traded, our common stock has substantially less liquidity than the average trading market for a stock quoted on the NASDAQ Capital Market, and our stock price can be volatile.


·	The inability of Pro Financial to realize elements of its strategic and operating plans for 2009 and beyond;


·	Natural disasters in Pro Financial’s primary market areas result in prolonged business disruption or materially impair the value of collateral securing loans;


·	Management’s assumptions and estimates underlying critical accounting policies prove to be inadequate or materially incorrect or are not borne out by subsequent events;


·	The impact of recent and future federal and state regulatory changes;


·	Current or future litigation, regulatory investigations, proceedings or inquiries;


·	Strategies to manage interest rate risk may yield results other than those anticipated;


·	A significant rate of inflation (deflation);


·	Unanticipated litigation or claims;


·	Changes in the securities markets;


·	Acts of terrorism or war; and

Details of the recently enacted Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009 and various announced and unannounced programs implemented by the U.S. Treasury Department and bank regulators to address capital and liquidity concerns in the banking system, are still being finalized and may have a significant effect on the financial services industry and Pro Financial.

Many of such factors are beyond our ability to control or predict. Readers should not place undue reliance on any such forward-looking statements, which speak only as to the date made. Readers are advised that the factors listed above could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

We do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements other than material changes to such information.

General

Pro Financial Holdings, Inc. (“Pro Financial”) was incorporated by the organizers of Pro Bank under the laws of the State of Florida on March 29, 2006, for the purpose of becoming a bank holding company by acquiring ProBank (the “Bank”) (Pro Financial and the Bank are collectively referred to as the “Company”). The Bank is a Florida state chartered commercial bank and is a full service commercial bank, providing a wide range of business and consumer financial services in our target marketplace, which is comprised primarily of Leon, Gadsden, Wakulla and Jefferson Counties in Florida. The Bank was formed by a group of business leaders, who believed that there was a significant demand for a locally-owned community bank.

Under Federal Reserve Board regulations, Pro Financial is expected to be a source of financial strength to the Bank. Banking regulations require that the Bank maintain a minimum ratio of capital to assets. In the event that the Bank’s growth is such that this minimum ratio is not maintained, Pro Financial may borrow funds, subject to the capital adequacy guidelines of the Federal Reserve, and contribute them to the capital of the Bank and otherwise raise capital in a manner which is unavailable to the Bank under existing banking regulations.

The Bank commenced business operations on September 5, 2007 in Tallahassee, Florida. The Bank opened a branch office at 1812 North Martin Luther King Blvd., in Tallahassee on October 25, 2007, and a second branch office on Killearn Plaza Circle in the Killearn Lakes Plaza, in Tallahassee on June 1, 2009.

The Bank's deposits are insured by the Federal Deposit Insurance Corporation up to applicable limits. The operations of the Bank are subject to the supervision and regulation of the FDIC and the Florida Office of Financial Regulation ("Florida Office").

The Bank provides a range of consumer and commercial banking services to individuals, businesses and industries. The basic services offered by the Bank include: demand interest-bearing and non-interest-bearing accounts, money market deposit accounts, NOW accounts, time deposits, credit cards, direct deposits, notary services, night depository, cashier’s checks, savings bonds, bank drafts, automated teller services, bill pay, internet banking and drive-in tellers. In addition, the Bank makes secured and unsecured commercial, consumer, and real estate loans and issues stand-by letters of credit. The Bank provides automated teller machine (ATM) cards and is a member of the Plus, Presto, Pulse, and Star ATM networks, thereby permitting customers to utilize the convenience of larger ATM networks. In addition to the foregoing services, the offices of the Bank provide customers with extended banking hours. The Bank does not have trust powers and, accordingly, no trust services are provided.

The revenues of the Bank are primarily derived from interest on, and fees received in connection with, real estate and other loans, and from interest and dividends from investment and mortgage-backed securities, and short-term investments. The principal sources of funds for the Bank’s lending activities are its deposits, repayment of loans, and the sale and maturity of investment securities. The principal expenses of the Bank are the interest paid on deposits, and operating and general administrative expenses.

As is the case with banking institutions generally, the Bank’s operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (“FDIC”). Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. The Bank faces strong competition in the attraction of deposits (its primary source of lendable funds) and in the origination of loans. See “Competition.”

The Company’s fiscal year ends December 31. This Form 10-K is also being used as the Bank’s Annual Disclosure Statement under Federal Deposit Insurance Corporation (“FDIC”) Regulations. This Form 10-K has not been reviewed or confirmed for accuracy or relevance by the FDIC or the Securities and Exchange Commission.

Critical Accounting Policies

The Company’s financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When applying accounting policies in areas that are subjective in nature, the Company must use its best judgment to arrive at the carrying value of certain assets. The most critical accounting policy applied is related to the valuation of the loan portfolio.

A variety of estimates impact carrying value of the loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.

The allowance for loan losses is the most difficult and subjective judgment. The allowance is established and maintained at a level that the Company believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of regulators, changes in the size and composition of the loan portfolio and peer comparisons. The analysis also requires consideration of the economic climate and direction, change in the interest rate environment, which may impact a borrower’s ability to pay, legislation impacting the banking industry and economic conditions specific to its service area. Because the calculation of the allowance for loan losses relies on estimates and judgments relating to inherently uncertain events, results may differ from the Company’s estimates.

The allowance for loan losses is also discussed as part of “Management's Discussion and Analysis – Classification of Assets & Potential Loan Problems” and in Note 3 to the consolidated financial statements.

Lending Activities

The Bank offers a range of lending services, including real estate, consumer and commercial loans, to individuals and small businesses and other organizations that are located in or conduct a substantial portion of their business in the Bank’s market area. The Bank’s net loans at December 31, 2009 were $47.0 million, or 59.87% of total assets compared to $27.1 million or 57.91% of total assets at December 31, 2008. The interest rates charged on loans vary with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, money market rates, availability of funds, and government regulations. The Bank has no foreign loans or loans for highly leveraged transactions.

The Bank’s loans are concentrated in five major areas: commercial real estate loans, residential real estate loans, construction, commercial loans (for equipment purchases, working capital and various other business purposes) and consumer loans. A majority of the Bank’s loans are made on a secured basis. As of December 31, 2009, approximately 83.79% of the Bank’s loan portfolio consisted of loans secured by real estate, of which approximately 72.21% of the total loan portfolio is secured by commercial properties compared to December 31, 2008 where approximately 77.1% of the Bank’s loan portfolio consisted of loans secured by real estate, of which approximately 59.08% of the total loan portfolio was secured by commercial properties. Risks of these types of loans include the general business conditions of the local economy and borrowers’ ability to conduct their businesses to generate sufficient profits to repay their loans under the agreed upon terms and conditions. Personal guarantees will be obtained from the principals of business borrowers and third parties to support the borrowers’ ability to service the debt and reduce the risk of non-payment. Commercial loans may be made at variable or fixed rates of interest. Commercial lines of credit are typically granted on a one-year basis, with loan covenants and monetary thresholds. Other commercial loans with terms or amortization schedules of longer than one year may carry interest rates which vary with the prime lending rate and will become payable in full and are generally refinanced in five years. Commercial loans not secured by real estate amounted to approximately 11.36% of the Bank’s total loan portfolio as of December 31, 2009 compared to approximately 14.63% of total loans at December 31, 2008.

The Bank’s real estate loans are secured by mortgages and consist primarily of loans to individuals and businesses for the purchase, improvement of or investment in real estate and for the construction of single-family residential units or the development of single-family residential building lots. These real estate loans may be made at fixed or variable interest rates. The Bank generally does not make fixed-rate commercial real estate loans for terms exceeding five years.

The Bank’s consumer loan portfolio consists primarily of loans to individuals for various consumer purposes, but includes some business purpose loans which are payable on an interest only or installment basis. Consumer loans generally involve more risk than mortgage loans because the collateral for a defaulted loan may not provide an adequate source of repayment of the principal. This risk is due to the potential for damage to the collateral or other loss of value, and the fact that any remaining deficiency often does not warrant further collection efforts. The majority of these loans is for terms of less than five years and is secured by liens on various personal assets of the borrowers, but consumer loans may also be made on an unsecured basis. Consumer loans are made at fixed and variable interest rates, and are rarely based on more than a five-year amortization schedule.

Loan originations are derived from a number of sources. Loan originations can be attributed to direct solicitation by the Bank’s board of directors referrals, loan officers, existing customers and borrowers, advertising, walk-in customers and, in some instances, referrals from brokers.

Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. In particular, longer maturities increase the risk that economic conditions will change and adversely affect collectibility. The Bank attempts to minimize credit losses through various means. In particular, on larger credits, the Bank relies on the cash flow of a debtor as the primary source of repayment and secondarily on the value of the underlying collateral and cash flow of the guarantors. In addition, the Bank attempts to utilize shorter loan terms, between three to five years, in order to reduce the risk of a decline in the value of such collateral.

Loan Loss Allowance

In considering the adequacy of our allowance for loan losses, the Bank has considered that as of December 31, 2009, approximately 72.21% of outstanding loans are in the commercial real estate loan category. At December 31, 2009, commercial loans including commercial real estate represented 83.58% of our loan portfolio. We believe that the real estate collateral securing our commercial real estate loans reduces the risk of loss inherently present in commercial loans.

At December 31, 2009, our consumer loan portfolio consisted primarily of lines of credit and installment loans secured by automobiles and other consumer goods. We believe that the risk associated with these types of loans has been adequately provided for in the loan loss allowance.

The Bank’s Board of Directors monitors the loan portfolio monthly in order to evaluate the adequacy of the allowance for loan losses. In addition to reviews by regulatory agencies, the Bank engages the services of outside consultants to assist in the evaluation of credit quality and loan administration. These professionals complement our internal system, which identifies potential problem credits as early as possible, categorizes the credits as to risk and includes a reporting process to monitor the progress of the credits.

The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are to be charged off against the allowance when management believes the collectibility of principal is unlikely. The monthly provision for loan losses is based on the Bank’s historical losses, past due numbers, peer group comparison, and any amounts reserved for specific loans. During the year ended December 31, 2009, a net amount of $830,000 was charged off against the allowance for loan losses compared to a net amount of $20,000 for the year ended December 31, 2008.

Deposit Activities

Deposits are the major source of the Bank’s funds for lending and other investment activities. The Bank considers the majority of its regular savings, demand, NOW, certificates of deposit less than $100,000 and money market deposit accounts to be core deposits. These accounts comprised approximately 50.18% of the Bank’s total deposits at December 31, 2009 compared to 59.08% at December 31, 2008. Generally, the Bank attempts to maintain the rates paid on its deposits at a competitive level. Time deposits of $100,000 and over made up approximately 49.82% of the Bank’s total deposits at December 31, 2009 compared to 40.92% at December 31, 2008. The majority of the deposits of the Bank are generated from Leon County.

Investments

The Bank invests a portion of its assets in U.S. Government agency obligations, mortgage-backed securities, and federal funds sold. The Bank’s investments are managed in relation to loan demand and deposit growth, and are generally used to provide for the investment of excess funds at minimal risks while providing liquidity to fund increases in loan demand or to offset fluctuations in deposits.

With respect to the Bank’s investment portfolio, the Bank’s total portfolio may be invested in U.S. Treasury and general obligations of its agencies and bank-qualified municipal securities because such securities generally represent a minimal investment risk. Occasionally, the Bank may purchase certificates of deposit of national and state banks. Mortgage-backed securities generally have a shorter life than the stated maturity. Federal funds sold is the excess cash the Bank has available over and above daily cash needs. This money is invested on an overnight basis with approved correspondent banks.

The Bank monitors changes in financial markets. In addition to investments for its portfolio, the Bank monitors its daily cash position to ensure that all available funds earn interest at the earliest possible date. A portion of the investment account is designated as secondary reserves and invested in liquid securities that can be readily converted to cash with minimum risk of market loss. These investments usually consist of U.S. Treasury obligations, U.S. government agencies and federal funds. The remainder of the investment account may be placed in investment securities of different type and longer maturity. Daily surplus funds are sold in the federal funds market for one business day. The Bank attempts to stagger the maturities of its securities so as to produce a steady cash-flow in the event the Bank needs cash, or economic conditions change to a more favorable rate environment.

Correspondent Banking

Correspondent banking involves one bank providing services to another bank which cannot provide that service for itself from an economic or practical standpoint. The Bank is required to purchase correspondent services offered by larger banks, including check collections, purchase of federal funds, security safekeeping, investment services, coin and currency supplies, overline and liquidity loan participations and sales of loans to or participation with correspondent banks.

The Bank sells loan participations to correspondent banks with respect to loans which exceed the Bank’s lending limit.

Effect of Governmental Policies

The earnings and business of the Bank are and will be affected by the policies of various regulatory authorities of the United States, especially the Federal Reserve. The Federal Reserve, among other things, regulates the supply of credit and deals with general economic conditions within the United States. The instruments of monetary policy employed by the Federal Reserve for these purposes influence in various ways the overall level of investments, loans, other extensions of credit and deposits, and the interest rates paid on liabilities and received on assets.

Interest and Usury

The Bank is subject to numerous state and federal statutes that affect the interest rates that may be charged on loans. These laws do not, under present market conditions, deter the Bank from continuing the process of originating loans.

Supervision and Regulation

Banks and their holding companies, and many of their affiliates, are extensively regulated under both federal and state law. The following is a brief summary of certain statutes, rules, and regulations affecting the Company and the Bank. This summary is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of the Company and the Bank. Supervision, regulation, and examination of banks by regulatory agencies are intended primarily for the protection of depositors, rather than shareholders.

Bank Holding Company Regulation. The Holding Company is a bank holding company, registered with the Federal Reserve under the BHC Act. As such, the Company is subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve. The BHC Act requires that a bank holding company obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, (ii) taking any action that causes a bank to become a subsidiary of the bank holding company, or (iii) merging or consolidating with any other bank holding company.

The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience, and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy and consideration of convenience and needs issues includes the parties’ performance under the Community Reinvestment Act of 1977 (the “CRA”), both of which are discussed below.

Banks are subject to the provisions of the CRA. Under the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess such bank’s record in meeting the credit needs of the community served by that bank, including low- and moderate-income neighborhoods. The regulatory agency’s assessment of the bank’s record is made available to the public. Further, such assessment is required of any bank which has applied to:

charter a bank,


	·	obtain deposit insurance coverage for a newly chartered institution,


	·	establish a new branch office that will accept deposits,


	·	relocate an office, or

	·	merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution.

In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the record of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application.

The BHC Act generally prohibits a bank holding company from engaging in activities other than banking, or managing or controlling banks or other permissible subsidiaries, and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. For example, factoring accounts receivable, acquiring or servicing loans, leasing personal property, conducting securities brokerage activities, performing certain data processing services, acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions, and certain insurance underwriting activities have all been determined by regulations of the Federal Reserve to be permissible activities of bank holding companies. Despite prior approval, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company.

Gramm-Leach-Bliley Act. In 1999, the Gramm-Leach-Bliley Act was enacted which reforms and modernizes certain areas of financial services regulation. The law permits the creation of new financial services holding companies that can offer a full range of financial products under a regulatory structure based on the principle of functional regulation. The legislation eliminates the legal barriers to affiliations among banks and securities firms, insurance companies, and other financial services companies. The law also provides financial organizations with the opportunity to structure these new financial affiliations through a holding company structure or a financial subsidiary. The new law reserves the role of the Federal Reserve Board as the supervisor for bank holding companies. At the same time, the law also provides a system of functional regulation which is designed to utilize the various existing federal and state regulatory bodies. The law also sets up a process for coordination between the Federal Reserve Board and the Secretary of the Treasury regarding the approval of new financial activities for both bank holding companies and national bank financial subsidiaries.

The law also includes a minimum federal standard of financial privacy. Financial institutions are required to have written privacy policies that must be disclosed to customers. The disclosure of a financial institution’s privacy policy must take place at the time a customer relationship is established and not less than annually during the continuation of the relationship. The act also provides for the functional regulation of bank securities activities. The law repeals the exemption that banks were afforded from the definition of “broker,” and replaces it with a set of limited exemptions that allow the continuation of some historical activities performed by banks. In addition, the act amends the securities laws to include banks within the general definition of dealer. Regarding new bank products, the law provides a procedure for handling products sold by banks that have securities elements. In the area of the Community Reinvestment Act activities, the law generally requires that financial institutions address the credit needs of low-to-moderate income individuals and neighborhoods in the communities in which they operate. Bank regulators are required to take the Community Reinvestment Act ratings of a bank or of the bank subsidiaries of a holding company into account when acting upon certain branch and bank merger and acquisition applications filed by the institution. Under the law, financial holding companies and banks that desire to engage in new financial activities are required to have satisfactory or better Community Reinvestment Act ratings when they commence the new activity.

Bank Regulation. The Bank is chartered under the laws of Florida and their deposits are insured by the FDIC to the extent provided by law. The Bank is subject to comprehensive regulation, examination and supervision by the FDIC and the Florida Office and to other laws and regulations applicable to banks. Such regulations include limitations on loans to a single borrower and to its directors, officers and employees; restrictions on the opening and closing of branch offices; the maintenance of required capital ratios; the granting of credit under equal and fair conditions; and the disclosure of the costs and terms of such credit. The Bank is examined periodically by the FDIC and the Florida Office, to whom it submits periodic reports regarding its financial condition and other matters. The FDIC and the Florida Office have a broad range of powers to enforce regulations under their jurisdiction, and to take discretionary actions determined to be for the protection and safety and soundness of banks, including the institution of cease and desist orders and the removal of directors and officers. The FDIC and the Florida Office also have the authority to approve or disapprove mergers, consolidations, and similar corporate actions.

There are various statutory limitations on the ability of the Bank to pay dividends. The FDIC also has the general authority to limit the dividend payment by banks if such payment may be deemed to constitute an unsafe and unsound practice.

Under federal law, federally insured banks are subject, with certain exceptions, to certain restrictions on any extension of credit to their parent holding companies or other affiliates, on investment in the stock or other securities of affiliates, and on the taking of such stock or securities as collateral from any borrower. In addition, banks are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) imposed major regulatory reforms, stronger capital standards for savings and loan associations and stronger civil and criminal enforcement provisions. FIRREA also provides that a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with:

	·	the default of a commonly controlled FDIC insured depository institution; or

	·	any assistance provided by the FDIC to a commonly controlled FDIC insured institution in danger of default

The FDIC Improvement Act of 1991 (“FDICIA”) made a number of reforms addressing the safety and soundness of deposit insurance funds, supervision, accounting, and prompt regulatory action, and also implemented other regulatory improvements. Annual full-scope, on-site examinations are required of all insured depository institutions. The cost for conducting an examination of an institution may be assessed to that institution, with special consideration given to affiliates and any penalties imposed for failure to provide information requested. Insured state banks also are precluded from engaging as principal in any type of activity that is impermissible for a national bank, including activities relating to insurance and equity investments. The Act also recodified current law restricting extensions of credit to insiders under the Federal Reserve Act.

Also important in terms of its effect on banks has been the deregulation of interest rates paid by banks on deposits and the types of deposit accounts that may be offered by banks. Most regulatory limits on permissible deposit interest rates and minimum deposit amounts expired several years ago. The effect of the deregulation of deposit interest rates generally has been to increase the costs of funds to banks and to make their costs of funds more sensitive to fluctuations in money market rates. A result of the pressure on banks interest margins due to deregulation has been a trend toward expansion of services offered by banks and an increase in the emphasis placed on fee or noninterest income.

Capital Requirements. Bank regulatory agencies require financial institutions to maintain capital at adequate levels based on a percentage of assets and off balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain (loss) on available-for-sale securities, minus certain intangible assets. Tier 2 capital consists of the general allowance for credit losses except for certain limitations. An institution’s qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based capital. Bank holding companies and banks are also required to maintain capital at a minimum level based on total assets, which is known as the leverage ratio. The minimum requirement for the leverage ratio is 3%, but all but the highest rated institutions are required to maintain ratios 100 to 200 basis points above the minimum. At December 31, 2009 the Bank met all capital requirements to which they were subject.

For additional information regarding the Company's capital ratios and requirements, see "Management's Discussion and Analysis - Capital Resources, Commitments and Capital Requirements" and notes to the consolidated financial statements.

FDICIA contains “prompt corrective action” provisions pursuant to which banks are to be classified into one of five categories based upon capital adequacy, ranging from “well capitalized” to “critically undercapitalized” and which require (subject to certain exceptions) the appropriate federal banking agency to take prompt corrective action with respect to an institution which becomes “significantly undercapitalized” or “critically undercapitalized.”

The FDIC has issued regulations to implement the “prompt corrective action” provisions of FDICIA. In general, the regulations define the five capital categories as follows:

an institution is “well capitalized” if it has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not subject to any written capital order or directive to meet and maintain a specific capital level for any capital measures;


	·	an institution is “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a leverage ratio of 4% or greater;


	·	an institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based capital ratio that is less than 4% or has a leverage ratio that is less than 4%;


	·	an institution is “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a leverage ratio that is less than 3%; and


	·	an institution is “critically undercapitalized” if its “tangible equity” is equal to or less than 2% of its total assets.

The FDIC also, after an opportunity for a hearing, has authority to downgrade an institution from “well capitalized” to “adequately capitalized” or to subject an “adequately capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower category, for supervisory concerns.

Generally, FDICIA requires that an “undercapitalized” institution must submit an acceptable capital restoration plan to the appropriate federal banking agency within 45 days after the institution becomes “undercapitalized” and the agency must take action on the plan within 60 days. The appropriate federal banking agency may not accept a capital restoration plan unless, among other requirements, each company having control of the institution has guaranteed that the institution will comply with the plan until the institution has been adequately capitalized on average during each of the three consecutive calendar quarters and has provided adequate assurances of performance. The aggregate liability under this provision of all companies having control of an institution is limited to the lesser of:

5% of the institution’s total assets at the time the institution becomes “undercapitalized” or


	·	the amount which is necessary, or would have been necessary, to bring the institution into compliance with all capital standards applicable to the institution as of the time the institution fails to comply with the plan filed pursuant to FDICIA.

An “undercapitalized” institution may not acquire an interest in any company or any other insured depository institution, establish or acquire additional branch offices or engage in any new business unless the appropriate federal banking agency has accepted its capital restoration plan, the institution is implementing the plan, and the agency determines that the proposed action is consistent with and will further the achievement of the plan, or the appropriate Federal banking agency determines the proposed action will further the purpose of the “prompt corrective action” sections of FDICIA.

If an institution is “critically undercapitalized,” it must comply with the restrictions described above. In addition, the appropriate Federal banking agency is authorized to restrict the activities of any “critically undercapitalized” institution and to prohibit such an institution, without the appropriate Federal banking agency’s prior written approval, from:

entering into any material transaction other than in the usual course of business;


	·	engaging in any covered transaction with affiliates (as defined in Section 23A(b) of the Federal Reserve Act);


	·	paying excessive compensation or bonuses; and


	·	paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average costs of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution’s normal market areas.

The “prompt corrective action” provisions of FDICIA also provide that in general no institution may make a capital distribution if it would cause the institution to become “undercapitalized.” Capital distributions include cash (but not stock) dividends, stock purchases, redemptions, and other distributions of capital to the owners of an institution.

Additionally, FDICIA requires, among other things, that:

	·	only a “well capitalized” depository institution may accept brokered deposits without prior regulatory approval and

the appropriate federal banking agency annually examine all insured depository institutions, with some exceptions for small, “well capitalized” institutions and state-chartered institutions examined by state regulators. FDICIA also contains a number of consumer banking provisions, including disclosure requirements and substantive contractual limitations with respect to deposit accounts.

As of December 31, 2009, the Bank met the capital requirements of a “well capitalized” institution. Bank holding companies are not subject to "prompt corrective action" of FDICIA.

The FDIC has proposed revising its risk-based capital requirements to ensure that such requirements provide for explicit consideration by commercial banks of interest rate risk. Under the proposed rule, a bank’s interest rate risk exposure would be quantified using either the measurement system set forth in the proposal or the bank’s internal model for measuring such exposure, if such model is determined to be adequate by the bank’s examiner. If the dollar amount of a bank’s interest rate risk exposure, as measured by either measurement system, exceeds 1% of the bank’s total assets, the bank would be required under the proposed rule to hold additional capital equal to the dollar amount of the excess. It is anticipated that the regulatory agencies will issue a revised proposed rule for further public comment. Pending issuance of such revised proposal, the Bank’s management cannot determine what effect, if any, an interest rate risk component would have on the capital of the Bank.

Enforcement Powers. Congress has provided the federal bank regulatory agencies with an array of powers to enforce laws, rules, regulations and orders. Among other things, the agencies may require that institutions cease and desist from certain activities, may preclude persons from participating in the affairs of insured depository institutions, may suspend or remove deposit insurance, and may impose civil money penalties against institution-affiliated parties for certain violations.

Maximum Legal Interest Rates. Like the laws of many states, Florida law contains provisions on interest rates that may be charged by banks and other lenders on certain types of loans. Numerous exceptions exist to the general interest limitations imposed by Florida law. The relative importance of these interest limitation laws to the financial operations of the Bank will vary from time to time, depending on a number of factors, including conditions in the money markets, the costs and availability of funds, and prevailing interest rates.

Bank Branching. Banks in Florida are permitted to branch state wide. Such branch banking, however, is subject to prior approval by the FDIC and the Florida Office. Any such approval would take into consideration several factors, including the bank’s level of capital, the prospects and economics of the proposed branch office, and other conditions deemed relevant by the FDIC and the Florida Office for purposes of determining whether approval should be granted to open a branch office.

Change of Control. Federal law restricts the amount of voting stock of a bank holding company and a bank that a person may acquire without the prior approval of banking regulators. The overall effect of such laws is to make it more difficult to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of the Bank may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies. Federal law also imposes restrictions on acquisitions of stock in a bank holding company and a state bank. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve before acquiring control of any bank holding company (such as the Company). Upon receipt of such notice, the Federal Reserve may approve or disapprove the acquisition. The Change in Bank Control Act creates a rebuttable presumption of control if a member or group acquires a certain percentage or more of a bank holding company’s or state bank’s voting stock, or if one or more other control factors set forth in the Act are present.

Interstate Banking. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1996, provides for nationwide interstate banking and branching. Under the law, interstate acquisitions of banks or bank holding companies in any state by bank holding companies in any other state will be permissible one year after enactment. Interstate branching and consolidation of existing bank subsidiaries in different states is permissible. Florida has a law that allows out-of-state bank holding companies (located in states that allow Florida bank holding companies to acquire banks and bank holding companies in that state) to acquire Florida banks and Florida bank holding companies. The law essentially provides for out-of-state entry by acquisition only (and not by interstate branching) and requires the acquired Florida bank to have been in existence for at least two years.

Sarbanes-Oxley Act of 2002. In 2002, the Sarbanes-Oxley Act of 2002 was enacted. The Securities and Exchange Commission (the “SEC”) has promulgated certain regulations pursuant to the Act that will continue to impose additional implementing or clarifying regulations as necessary in furtherance of the Act. The passage of the Act and the regulations implemented by the SEC subject publicly-traded companies to additional and more extensive reporting regulations and disclosure. Compliance with the Act and corresponding regulations will increase the Company’s expenses.

Effect of Governmental Policies. The earnings and businesses of the Bank are affected by the policies of various regulatory authorities of the United States, especially the Federal Reserve. The Federal Reserve, among other things, regulates the supply of credit and deals with general economic conditions within the United States. The instruments of monetary policy employed by the Federal Reserve for those purposes influence in various ways the overall level of investments, loans, other extensions of credit, and deposits, and the interest rates paid on liabilities and received on assets.

USA Patriot Act

The terrorist attacks in September 2001, have led to the adoption of the Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, commonly known as the USA Patriot Act. Part of the USA Patriot Act is the International Money Laundering Abatement and financial Anti-Terrorism Act of 2001. This act requires the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to financial institutions. These measures include enhanced recordkeeping and reporting requirements for certain financial transactions that are of primary money laundering concern, due diligence requirements concerning the beneficial ownership of certain types of accounts, and restrictions or prohibitions on certain types of accounts with foreign financial institutions. Among its other provision, this law requires each financial institution to: (i) establish an anti-laundering program; (ii) establish due diligence policies, procedures and controls with respect to private banking accounts and correspondent banking accounts involving foreign individuals and certain foreign banks; and (iii) avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in this country. In addition, the law contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. The law expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours.

Emergency Economic Stabilization Act

In response to the financial crisis affecting the banking system and financial markets, the Emergency Economic Stabilization Act (“EESA”) was signed into law on October 3, 2008, and established the Troubled Asset Relief Program (“TARP”). As part of TARP, the U.S. Treasury established the Capital Purchase Program (“CPP”) to provide up to $700 billion of funding to eligible financial institutions through the purchase of capital stock and other financial instruments for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On January 23, 2009, AFSI issued $6.514 million in preferred stock to the U.S. Treasury. In connection with EESA, there have been numerous actions by the Federal Reserve Board, Congress, the U.S. Treasury, the FDIC, the SEC and others to further the economic and banking industry stabilization efforts under EESA. It remains unclear at this time what further legislative and regulatory measures will be implemented under EESA affecting AFSI.

American Recovery and Reinvestment Act of 2009

On February 17, 2009 President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future CPP recipients that are in addition to those previously announced by the U.S. Treasury, until the institution has repaid the U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the recipient’s appropriate regulatory agency.

Other Laws

The Bank’s loans will also be subject to federal laws applicable to credit transactions, such as the following (including the rules and regulations of various federal agencies charged with the responsibility of implementing such federal laws):

·	Federal Truth-in-Lending Act – governs disclosures of credit terms to consumer borrowers;

·	Home Mortgage Disclosure Act – requires financial institutions to provide information to enable public officials to determine whether a financial institution is fulfilling its obligations to meet the housing needs of the community it serves;

·	Equal Credit Opportunity Act – prohibits discrimination on the basis of race, creed or other prohibitive factors in extending credit;

·	Real Estate Settlement Procedures Act – requires lenders to disclose certain information regarding the nature and cost of real estate settlements, and prohibits certain lending practices, as well as limits escrow account amounts in real estate transactions; and

·	Fair Credit Reporting Act – governs the manner in which consumer debts may be collected by collection agencies.

The Company and the Bank’s operations are also subject to the:

·	Right to Financial Privacy Act – imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial record; and

·	Electronic Funds Transfer Act and Regulation E – governs automatic deposits to, and withdrawals from, deposit accounts and customer’s rights and liabilities arising from the use of debit cards, automated teller machines and other electronic banking services.

Liquidity

A Florida-chartered commercial bank is expected to maintain an adequate liquidity reserve. The liquidity reserve may consist of cash on hand, cash on demand deposit with correspondent banks and other investments and short-term marketable securities, such as federal funds sold and United States securities or securities guaranteed by the United States.

Competition

The Company encounters strong competition both in making loans and in attracting deposits. The deregulation of the banking industry and the widespread enactment of state laws which permit multi-bank holding companies as well as an increasing level of interstate banking have created a highly competitive environment for commercial banking. In one or more aspects of its business, the Company competes with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Most of these competitors, some of which are affiliated with bank holding companies, have substantially greater resources and lending limits, and may offer certain services that the Company does not currently provide. In addition, many of the Company’s non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. Recent federal and state legislation has heightened the competitive environment in which financial institutions must conduct their business, and the potential for competition among financial institutions of all types has increased significantly.

To compete, the Company relies upon specialized services, responsive handling of customer needs, and personal contacts by its officers, directors, and staff. Large multi-branch banking competitors tend to compete primarily by rate and the number and location of branches while smaller, independent financial institutions tend to compete primarily by rate and personal service.

Employees

As of December 31, 2009, the Company and the Bank collectively had 28 full-time employees (including executive officers) and 2 part-time employees. The employees are not represented by a collective bargaining unit. The Company considers relations with employees to be good.

Item 1A. Risk Factors.

Not applicable.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties

The Bank’s main office is located at 536 N. Monroe St. in an existing 20,000 sq. ft. building in Tallahassee, Florida formerly known locally as the “Moon Jewelers Building.” The Bank initially leased 5,000 sq. ft. for a term of 5-years, of which 2,500 sq. ft. is for lobby space and 2,500 sq. ft. is for office quarters and back room operations. The location has a full service lobby, walk up ATM in front of the building, and one drive-through lane located in the rear of the building. The Bank has an option to renew the lease for another 5-year term. The Bank also has an option to expand its operations into as much as 11,000 sq. ft. over the initial 5-year term, and the option to purchase the building during the third year for $2.9 million, during the fourth year for $3.2 million, and during the fifth year for $3.5 million.

The Bank opened its first branch office at 1812 North Martin Luther King Blvd. shortly after the opening of the main office. The Bank also leases this location for 5-years with options to renew the lease for two additional 5-year periods. The Bank does not have an option to buy this facility. This location includes a 1,377 sq. ft lobby and six drive-thru lanes including a drive-up ATM in one of the six drive–through lanes.

The Bank opened its second branch office on Killearn Plaza Circle in the Killearn Lakes Plaza, in Tallahassee on June 1, 2009 which is approximately 1617 square feet, with four teller stations and two drive through lanes. The Bank also leases this location for 5 years with options to renew the lease for two additional 5-year periods. This lease also has a purchase option under which the property can be purchased for $1.2 million during the 1st through 13th month of the lease; $1.3 million during the 14th through the 24th month; 1.4 million during the 25th through the 36th month of the lease; $1.5 million during the 37th through the 48th month of the lease and $1.6 million during the 49th through the 60th month of the lease. If the Company does not exercise the option to purchase within lease months 1 to 60, the purchase option expires.

Item 3. Legal Proceedings

As of December 31, 2009, neither the Company nor the Bank was a party to any legal proceedings which would have a material affect on the Company’s or Bank’s operations.

Item 4. Removed and Reserved

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no public market for the Common Stock and only isolated, privately negotiated sales of Common Stock have occurred since the Bank opened for business in September 2007, and Pro Financial became a bank holding company by acquiring the Bank on that same date. There is no established public trading market for the Common Stock and, historically, the shares of Common Stock have been inactively traded. Management of the Company is aware of certain transactions in its Common Stock, although the trading prices and number of shares transferred in all transactions are not known. The last known sale of stock occurred at $7.50 per share. On December 31 2009, Pro Financial had approximately 261 shareholders of record.

Neither the Bank nor Pro Financial has paid any cash dividends on the shares of Common Stock. Pro Financial does not intend to pay dividends for the foreseeable future. If at any time the Board of Directors of Pro Financial determines to pay dividends, such payment will depend upon several factors including Pro Financial’s earnings, financial condition and capital needs, the impact of legislation and regulations as then in effect or as may be proposed, economic conditions, and such other factors as the Board may deem relevant. Further, dividend payments by Pro Financial are restricted by statute. Pro Financial’s ability to make dividend payments also is subject to Pro Financial and the Bank meeting on a continuing basis all of their capital requirements and achieving and continuing profitable operations. There can be no assurance that future capital or earnings of the Bank will support dividend payments. No assurance can be given that dividends will be paid or, if paid, what the amount of dividends will be or whether such dividends, once paid, will continue.

The primary source of funds for payment of dividends by Pro Financial will be dividends received from the Bank. Payments by the Bank to Pro Financial are limited by law and regulations of the bank regulatory authorities. There are various statutory and contractual limitations on the ability of the Bank to pay dividends to Pro Financial. The FDIC and the Florida Office also have the general authority to limit the dividends paid by banks if such payment may be deemed to constitute an unsafe and unsound practice. Under Florida law applicable to banks and subject to certain limitations, after charging off bad debts, depreciation and other worthless assets, if any, the board of directors of a bank may declare a dividend of up to the bank’s aggregate net income for the current year combined with any retained earnings for the preceding two years as the board shall deem to be appropriate and, with the approval of the Florida Office, may declare a dividend from retained earnings for prior years. No dividends may be paid at a time when a bank’s net earnings from the preceding two years is a loss, or which would cause the capital accounts of the bank to fall below the minimum amount required by law, regulation, order, or any written agreement with the Florida Office or a federal regulatory agency.

Florida law applicable to companies (including the Company) provides that dividends may be declared and paid only if, after giving it effect, (i) the company is able to pay its debts as they become due in the usual course of business, and (ii) the company’s total assets would be greater than the sum of its total liabilities plus the amount that would be needed if the company were to be dissolved at the time of the dividend to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend.

The Bank did not repurchase any of its shares in 2009.

As of February 29, 2010:

·	200,000 shares of Company stock were reserved for issuance upon the exercise of outstanding stock options and 920,534 shares of Company stock were reserved for issuance upon the exercise of outstanding stock purchase warrants.

·	The Company had no present intention of making any public offering of Company stock.

Item 6. Selected Financial Data

The following table presents selected financial data for the Company. The data for the fiscal year 2009 and 2008 is derived from audited financial statements of the Company. The selected financial data should be read in conjunction with, and are qualified in their entirety by, the financial statements and the notes thereto and the other information included elsewhere herein.

SELECTED CONSOLIDATED FINANCIAL DATA AT DECEMBER 31,

2009, 2008 and 2007 OR FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 and 2007

($ in thousands, except per share amounts)

	2009			2008			2007
Total assets	$	79,413		$	47,889		$	24,170
Loans, net		47,487			27,593			3,810
Cash and cash equivalents		9,836			4,435			11,509
Securities		16,410			12,378			6,364
Deposits		63,001			30,457			11,620
Borrowed funds		6,342			6,055			101
Stockholders’ equity		9,947			11,275			12,399

Interest income		2,886			1,715			390
Interest expense		1,285			547			94
Net interest income		1,601			1,168			296
Provision for loan losses		(1,612	)		(794	)		(72	)
Net interest income after provision for loan losses		(11	)		374			224
Noninterest income		710			143			21
Noninterest expense		3,373			2,730			1,450
Loss before income tax benefit		(2,674	)		(2,213	)		(1,205	)
Income tax benefit		1,005			820			534
Net loss		(1,669	)		(1,393	)		(671	)
Basic and diluted loss per share		(1.25	)		(1.04	)		(0.50	)

Weighted average number of common shares outstanding, basic and diluted		1,339,105			1,334,840			1,334,840

SELECTED CONSOLIDATED FINANCIAL RATIOS

AND OTHER DATA AS OF DECEMBER 31, 2009, 2008 and 2007:

	2009			2008			2007
Return on average assets		(2.62	)%		(3.10	)%		(8.67	)%
Return on average equity		(15.73	)%		(11.92	)%		(12.78	)%
Dividend payout ratio		N/A			N/A			N/A
Average equity to total assets		16.67	%		24.64	%		67.87	%
Total equity to total assets		12.53	%		23.54	%		51.30	%
Yield on average earning assets(1)		4.98	%		5.41	%		5.52	%
Net interest margin		2.77	%		3.44	%		4.10	%
Nonperforming assets to total assets(2)		2.93	%		1.12	%		0.24	%
Nonperforming loans to total loans		4.14	%		1.88	%		0.16	%
Allowance for loan losses to gross loans		3.37	%		2.97	%		1.85	%
Noninterest expenses to average assets		5.30	%		7.54	%		18.67	%
Operating efficiency ratio(3)		145.95	%		208.24	%		464.31	%
Net interest income to noninterest expenses		47.47	%		42.78	%		19.88	%
Total shares outstanding		1,379,566			1,334,840			1,334,840
Book value per common share outstanding	$	7.21		$	8.42		$	9.29
Number of banking offices (all full-service)		3			2			2

(1)	Reflects interest income as a percent of average interest earning assets.


(2)	Non-performing loans consist of nonaccrual loans and accruing loans contractually past due ninety days or more.


(3)	Noninterest expense divided by the sum of net interest income plus noninterest income.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Pro Financial was incorporated on March 29, 2006 for the purpose of operating as a one-bank holding company. Pro Financial currently owns 100% of the outstanding shares of the Bank (collectively, the “Company”). Pro Financial’s only business is the ownership and operation of the Bank. The Bank is a Florida-chartered commercial bank which opened for business on September 5, 2007. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation. The Bank provides community banking services to business and individuals from its banking offices located in Tallahassee, Florida and the surrounding area.

The Bank's deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation up to applicable limits. The operations of the Bank are subject to the supervision and regulation of the FDIC and the Florida Office of Financial Regulation.

Historically, the Bank's market area has been served both by large banks headquartered out of state as well as a number of community banks offering a higher level of personal attention, recognition and service. The large banks have generally applied a transactional business approach, based upon volume considerations, to the market while community banks have traditionally offered a more service relationship approach. Recent mergers and acquisitions have created an opportunity for the Bank. The Bank’s strategic focus is to exploit this opportunity by catering to the “displaced bank customer” in this marketplace.

The Bank provides a range of consumer and commercial banking services to individuals, businesses and industries. The basic services offered by the Bank include: demand interest bearing and noninterest bearing accounts, money market deposit accounts, NOW accounts, time deposits, safe deposit services, credit cards, debit cards, direct deposits, notary services, night depository, cashier’s checks, savings bonds, bank drafts, automated teller services, drive-in tellers, bill pay, internet banking and the full range of consumer loans, both collateralized and uncollateralized. In addition, the Bank makes secured and unsecured commercial and real estate loans and issues stand-by letters of credit. The Bank provides automated teller machine (ATM) cards and is a member of the Plus, Presto, Pulse and Star ATM network thereby permitting customers to utilize the convenience of the Bank’s ATM network and Star member machines both nationwide and internationally. The Bank does not have trust powers and, accordingly, no trust services are provided.

The Bank’s target market is owner occupied and non owner occupied commercial real estate, small businesses, developers, consumers and professionals. The small business customer (typically a commercial entity with sales of $5 million or less) has the opportunity to generate significant revenue for banks yet is generally underserved by large bank competitors. These customers generally can afford profitability opportunities more than the average retail customer.

The Bank has actively pursued its targeted market for deposits, particularly the small businesses and professionals. In today’s environment, the product of every system itself becomes a sales tool. Recognizing that fact, the Bank endeavors to offer current technology to the marketplace. Such technology includes debit cards, internet banking and voice response account information systems. The goal is to provide a “high tech - high touch” experience.

The Bank has capitalized upon its market strategy to grow in its 28-months of operation. As of December 31, 2009, the Bank had grown to approximately $78.5 million in total assets, $63.7 million in deposits, and $47.0 million in net loans since opening in September 2007. The Bank attributes its successful growth to its location in a dynamic growth area and its focus on its targeted market.

The revenues of the Bank are primarily derived from interest on, and fees received in connection with, real estate and other loans, from interest and dividends from investment securities, service charge income generated from demand accounts and ATM fees, and other services. The principal sources of funds for the Bank’s lending activities are its deposits, loan repayments, and proceeds from investment securities. The principal expenses of the Bank are the interest paid on deposits, and operating and general administrative expenses.

Lending Activities

The Bank’s loans are concentrated in commercial and real estate loans. A majority of the Bank’s loans are made on a secured basis, and, as of December 31, 2009, approximately 83.79% of the loan portfolio consisted of loans secured by first or second mortgages on residential or commercial real estate compared to 77.1% as of December 31, 2008.

The Bank’s real estate loans are secured by mortgages and consist primarily of loans to individuals and businesses for the purchase, construction of, improvement of or investment in real estate, or for various other consumer and business purposes (whether or not related to the real estate securing them). The Bank also engages in lending to individuals and builders for the construction of single-family residences. These real estate loans may be made at fixed or variable interest rates. The Bank generally makes commercial real estate loans repayable in monthly installments based on up to a 20-year amortization schedule which become payable in full for terms generally five years or less. The Bank’s residential real estate loans generally are repayable in monthly installments based on up to a 30-year amortization schedule with variable interest rates. Fixed rate residential loans are available and are subsequently sold on the secondary market.

The Bank also makes non-real estate commercial loans which include loans to individuals and small-to-medium sized businesses and professionals located primarily in Leon, Gadsden, Wakulla and Jefferson Counties for working capital, equipment purchases, and various other business purposes. A majority of these commercial loans are secured by inventory, equipment or similar assets, but these loans may also be made on an unsecured basis. Commercial loans may be made at variable or fixed rates of interest; typically, those loans which will have terms or amortization schedules of longer than one year will carry interest rates which vary with the prime lending rate and are generally refinanced or become payable in full in three to five years.

The Bank’s installment loan portfolio consists primarily of loans to individuals for various consumer purposes, but includes some business purpose loans made to individuals which are payable on an interest only or installment basis. The majority of these loans are for terms of less than five years and are secured by liens on various personal assets of the borrowers, but installment loans also may be made on an unsecured basis. Installment loans are made at fixed and variable interest rates, and may be made based on up to a ten-year amortization schedule, depending on the collateral provided.

For additional information regarding the Bank’s loan portfolio, see “Page 25 Loan Portfolio” and “Page 26 Lending Activities" and footnote 3 to the consolidated financial statements.

Liquidity

Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw their funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. In the ordinary course of business, the Bank’s cash flows are generated from interest and fee income, as well as from loan repayments, the sale, repayments or maturity of securities available-for-sale. In addition to cash and due from banks, the Bank considers all securities available-for-sale and federal funds sold as primary sources of asset liquidity. Many factors affect the ability to accomplish these liquidity objectives successfully, including the economic environment, the asset/liability mix within the balance sheet, as well as the Bank’s reputation in the community. The Bank’s principal sources of funds are net increases in deposits, principal and interest payments on loans and proceeds from sales, calls and maturities of securities. The Bank used its capital resources primarily to fund existing and continuing loan commitments and to purchase securities. At December 31, 2009, the Bank had commitments to originate loans totaling $5.7 million, compared to $432,000 as of December 31, 2008 and had $100,000 of standby letters of credit. At December 31, 2009, the Bank also had commitments to extend credit under the undisbursed portion of outstanding lines of credit of $9.5 million compared to $2.7 million as of December 31, 2008. Scheduled maturities of certificates of deposit during the twelve months following December 31, 2009 totaled $36.7 million compared to $12.2 million for the twelve months following December 31, 2008. Management believes that the Bank has adequate resources to fund all its commitments, that substantially all of its existing commitments will be funded in the subsequent twelve months and, if so desired, that it can adjust the rates on certificates of deposit and other deposit accounts to retain deposits in a changing interest rate environment.

Capital Resources, Commitments and Capital Requirements

The Company’s principal sources of funds are those generated by the Bank, including net increases in deposits and other borrowings, principal and interest payments on loans, and proceeds from maturities of investment securities.

The Company uses its capital resources principally to fund existing and continuing loan commitments and to purchase investment securities. Off-balance sheet commitments to extend credit, which amounted to $15.3 at December 31, 2009, represent legally binding agreements to lend to customers with fixed expiration dates or other termination clauses. Since many commitments are expected to expire without being funded, committed amounts do not necessarily represent future cash requirements.

The following table summarizes the Company’s contractual obligations, including certain on-balance sheet and off-balance sheet obligations, at December 31, 2009 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years

Time deposit maturities	$	39,212	$	36,682	$	2,530		-0-		-0-
Other borrowings		6,342		342		6,000		-0-		-0-
Loan commitments		5,671		5,671		-0-		-0-		-0-
Standby letters of credit		100		100		-0-		-0-		-0-
Undisbursed line of credit loans		9,486		9,486		-0-		-0-		-0-

Total	$	60,811	$	52,281	$	8,530		-0-		-0-

Management believes that the Company has adequate resources to fund all its commitments, that substantially all of its existing commitments will be funded within 12 months and, if so desired, that the Company can adjust the rates and terms on time deposits and other deposit accounts to retain or obtain new deposits in a changing interest rate environment.

The Company’s stockholders’ equity was $9.9 million at December 31, 2009, representing 12.47% of total assets as compared to $11.3 million at December 31, 2008 representing 23.59% of total assets.

The federal banking regulatory authorities have adopted certain “prompt corrective action” rules with respect to depository institutions. The rules establish five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” The various federal banking regulatory agencies have adopted regulations to implement the capital rules by, among other things, defining the relevant capital measures for the five capital categories. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level. At December 31, 2009, the Bank met the capital ratios of a “well capitalized” financial institution with a total risk-based capital ratio of 17.55% Tier 1 risk-based capital ratio of 14.66%, and a Tier 1 leverage ratio of 10.42%. Depository institutions which fall below the “adequately capitalized” category generally are prohibited from making any capital distribution, are subject to growth limitations, and are required to submit a capital restoration plan. There are a number of requirements and restrictions that may be imposed on institutions treated as “significantly undercapitalized” and, if the institution is “critically undercapitalized,” the banking regulatory agencies have the right to appoint a receiver or conservator.

The following table summarizes the regulatory capital levels and ratios for the Bank:

	Actual Bank Ratios			Regulatory Requirement for Well Capitalized Bank
At December 31, 2009:
Total capital to risk-weighted assets		17.55	%		10.0	%
Tier I capital to risk-weighted assets		14.66	%		6.0	%
Tier I capital to average assets – leverage ratio		10.42	%		5.0	%

Loan Portfolio

A significant source of the Bank’s income is the interest earned on its loan portfolio. At December 31, 2009, the Bank’s total assets were $78.5 million and its net loans receivable were $47 million or 59.87% of total assets and 73.78% of total deposits. This compares to December 31, 2008, when the Bank’s total assets were $46.8 million and its net loans receivable were $27.1 million or 57.91% of total assets and 88.78% of total deposits.

The Bank’s primary market area consists of Tallahassee, Florida and the surrounding counties (consisting primarily of Leon, Gadsden, Wakulla and Jefferson Counties). The Bank’s market area’s economic base is diversified. Significant industries include 3 universities, state and city government, agribusiness and manufacturing, service enterprises, technology and information concerns. Adverse conditions in any one or more of the industries operating in such markets or a slow-down in general economic conditions could have an adverse effect on the Bank.

Lending activities are conducted pursuant to a written policy which has been adopted by the Bank. Each loan officer has defined lending authority beyond which loans, depending upon their type and size, must be reviewed and approved by a loan committee comprised of certain officers and directors of the Bank.

The composition of the Bank’s loan portfolio as of December 31, 2009, 2008 and 2007 was as follows ($ in thousands):

	Amount		% of		Amount		% of		Amount		% of
	2009		Total		2008		Total		2007		Total

Commercial Real Estate	$	35,123		72.06	$	16,258		59.04	$	2,200		64.76
Residential real estate and home equity		5,634		11.56		4,949		17.97		144		4.24
Commercial other that real estate		5,528		11.34		4,019		14.59		669		19.69
Consumer		2,459		5.04		2,312		8.40		384		11.31
Total Loans		48,744		100.00		27,538		100.00		3,397		100.00
Less allowance for loan losses		1,628		3.34		.371		1.35		.71		2.09
Less deferred loan costs		.101		.21		0.64		.23		.14		.41
Loans receivable-net		47,015		96.42		27,103		98.42		3,312		97.50

Maturities of Loans. The following table shows the contractual maturities of the Bank's loan portfolio at December 31, 2009. Loans with scheduled maturities (based on only contract term) are reported in the maturity category in which the payment is due. Demand loans with no stated maturity and overdrafts, if any, are reported in the "due one year or less" category. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The table does not include prepayment or scheduled principal repayments. ($ in thousands).

Type of Loan	Due in 1 Year or Less		Due After 1 to 5 Years		Due After 5 Years		Total

Commercial	$	3,303	$	1,640	$	586	$	5.5
Consumer		1,607		816		22		2.5
Real estate		16,633		20,952		3,185		40.7
Total	$	21,543	$	23,408	$	3,793	$	48.7

For the above loans due after one year or more, the following is a presentation of an analysis of sensitivities to changes in interest rates at December 31, 2009:

Type of Loan	Fixed Interest Rate			Floating Interest Rate			Total

Commercial		7.11	%		6.33	%		6.76	%
Consumer		7.71	%		5.24	%		6.06	%
Real estate		6.74	%		6.21	%		6.53	%
Total		6.81	%		6.15	%		6.51	%

Loan Quality

Management seeks to maintain a high quality of loans through sound underwriting and lending practices. As of December 31, 2009 approximately 83.62%, of the total loan portfolio was collateralized by commercial and residential real estate mortgages compared to 77.01% at December 31 2008. The level of non-performing loans and real estate owned also is relevant to the credit quality of a loan portfolio. As of December 31, 2009 there were $1,328 in non-performing loans (those 90 days or more past due).

The commercial real estate mortgage loans in the Bank’s portfolio consist of fixed and adjustable-interest rate loans which were originated at prevailing market interest rates. The Bank’s policy has been to originate commercial real estate mortgage loans predominantly in its primary market area. Commercial real estate mortgage loans are generally made in amounts up to 80% of the appraised value of the property securing the loan and entail significant additional risks compared to residential mortgage loans. In making commercial real estate loans, the Bank primarily considers the net operating income generated by the real estate to support the debt service, the financial resources and income level and managerial expertise of the borrower and/or guarantor, the marketability and inventory value of the collateral and the Bank’s lending experience with the borrower.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his employment and other income and which are collateralized by real property whose value tends to be more readily ascertainable, commercial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of his business and generally are collateralized by business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself, which is subject to adverse conditions in the economy. The collateral underlying the loans may depreciate over time, cannot be appraised with as much precision as residential real estate, and may fluctuate in value based on the success of the business.

The Bank makes consumer and personal loans on a collateralized and noncollateralized basis. These loans are often collateralized by automobiles, recreational vehicles and mobile homes. Consumer and personal loans also are generated by the Bank. Such loans generally have a term of 60 months or less.

Loan concentrations are defined as amounts loaned to a number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. The Bank, on a routine basis, monitors these concentrations in order to consider adjustments in its lending practices to reflect economic conditions, loan to deposit ratios, and industry trends. As of December 31, 2009 loans collateralized with mortgages on real estate represented 83.62% of the loan portfolio and were to borrowers in varying activities and businesses. This compared to 77.01% of loans collateralized with mortgages on real estate at December 31, 2008.

The Loan Committee of the Board of Directors of the Bank concentrates its efforts and resources, and that of its senior management and lending officers, on loan review and underwriting procedures. Internal controls include ongoing reviews of loans made to monitor documentation and the existence and valuations of collateral. In addition, management of the Bank has established a review process with the objective of identifying, evaluating, and initiating necessary corrective action for marginal loans. The goal of the portfolio maintenance process is to address classified and non-performing loans as early as possible.

Classification of Assets and Potential Problem Loans

Generally, interest on loans accrues and is credited to income based upon the principal balance outstanding. It is management’s policy to discontinue the accrual of interest income and classify a loan as non-accrual when principal or interest is past due 90 days or more unless, in the determination of management, the principal and interest on the loan are well collateralized and in the process of collection, or when in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation. Consumer installment loans are generally charged-off after 90 days of delinquency unless adequately collateralized and in the process of collection. Loans are not returned to accrual status until principal and interest payments are brought current and future payments appear reasonably certain. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is charged against interest income.

Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“OREO”). OREO properties are recorded at the lower of cost or fair value less estimated selling costs, and the estimated loss, if any, is charged to the allowance for credit losses at the time it is transferred to OREO. Further write-downs in OREO are recorded at the time management believes additional deterioration in value has occurred and are charged to noninterest expense. As of December 31, 2009 the Company had $315,000 in OREO.

The Bank has adopted Statements of Financial Accounting Standards No. 114 and 118. These Statements address the accounting by creditors for impairment of certain loans and generally require the Bank to identify loans, for which the Bank probably will not receive full repayment of principal and interest, as impaired loans. The Statements require that impaired loans be valued at the present value of expected future cash flows, discounted at the loan’s effective interest rate, or at the observable market price of the loan, or the fair value of the underlying collateral if the loan is collateral dependent. The Bank has implemented the Statements by including in its quarterly review of the adequacy of the allowance for credit losses, to also identify and value impaired loans in accordance with guidance in the Statements. Seventeen (17) loans, in the amount of $4,603,000 were deemed to be impaired under the Bank’s policy at December 31, 2009 compared to one loan in the amount of $35,000 which was impaired at December 31, 2008.

Classified Assets. Federal regulations and the Bank's policy require the classification of loans and other assets, such as debt and equity securities, considered to be of lesser quality as "substandard", "doubtful" or "loss" assets. An asset would be considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligator or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the institution will sustain "some loss" if the deficiencies are not corrected. Assets that would be classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full", on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets that would be classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. In addition, the Bank's policies require that assets which do not currently expose the insured institution to sufficient risk to warrant classification as substandard but possess other weaknesses are designated "special mention" by management.

If an asset is classified, the estimated fair value of the asset would be determined and if that value is loss than the then carrying value of the asset, the difference would be established as a specific reserve. If an asset is classified as loss, the amount of the asset classified as loss would be reserved. General reserves or general valuation allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities but, unlike specific reserves, are not allocated to particular assets.

At December 31, 2009, there were five loans, totaling $1,029,423, classified as "special mention" compared to one (1) loan totaling $643,000 classified “special mention” at December 31, 2008. There were thirteen (13) loans classified as “substandard” totaling $3,639,312, no loans classified "doubtful" and no classified "loss" at December 31, 2009. This compared to six (6) loans classified as “substandard” totaling $1,234,000, no loans classified "doubtful" and two (2) classified "loss" totaling $535,000 at December 31, 2008. There were no concentration of loans exceeding 10% of total loans which has not been disclosed as a category of loans.

Nonperforming Assets (dollars in thousands)

	At December 31,
	2009		2008		2007
Nonperforming loans
Nonaccrual loans	$	1,328	$	0	$	0
Loans past due 90 days still accruing		0		0		0
Total nonperforming loans	$	1,328	$	0	$	0

Other nonperforming assets Other real estate owned	$	315	$	0	$	0
Repossessed assets		0		0		0
	$	315	$	0	$	0
Total nonperforming assets	$	1,643	$	0	$	0

Highly leveraged transactions generally include loans and commitments made in connection with recapitalizations, acquisitions, and leveraged buyouts, and result in the borrower’s debt-to-total assets ratio exceeding 75%. At December 31, 2009, 2008, and 2007, there were no loans qualified as highly leveraged transactions.

Loans restructured and in compliance with modified terms are commonly referred to as “troubled debt restructurings.” A restructuring of debt constitutes a Troubled Debt Restructuring (“TDR”) if a creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor it would not otherwise consider. A summary of loans we classified TDR at December 31 follows (dollars in thousands) to be collateral dependent:

	2009		2008		2007
Loans restructured and in compliance with modified terms	$	1,106	$	0	$	0
Loans restructured and past due 30-89 days		871		0		0
Loans restructured and in nonaccrual status		496		0		0
Total	$	2,473	$	0	$	0

Allowance for Loan Losses. We must maintain an adequate allowance for loan losses (“ALLL”) based on a comprehensive methodology that assesses the probable losses inherent in our loan portfolio. We maintain an ALLL based on a number of quantitative and qualitative factors, including levels and trends of past due and non-accrual loans, asset classifications, loan grades, change in volume and mix of loans, collateral value, historical loss experience, size and complexity of individual credits and economic conditions. Provisions for loan losses are provided on both a specific and general basis. Specific allowances are provided for impaired credits for which the expected/anticipated loss is measurable. General valuation allowances are based on a portfolio segmentation based on risk grading with a further evaluation of various quantitative and qualitative factors noted above.

We periodically review the assumptions and formulas by which additions are made to the specific and general valuation allowances for losses in an effort to refine such allowances in light of the current status of the factors described above. The methodology is presented to and approved by the Board of Directors. Future additional provisions to the loan loss reserves may be made as appropriate as new loans are identified or as existing loans may deteriorate.

All adversely classified loans are carefully evaluated for losses or potential loss exposure. The evaluation occurs at the time the loan is classified and on a regular basis thereafter (at least quarterly). This evaluation is documented in a problem asset status report relating to a specific loan or relationship. Specific allocation of reserves considers the value of the collateral, the financial condition of the borrower, and industry and current economic trends. We review the collateral value, cash flow, and tertiary support on each classified credit. Any deficiency outlined by a real estate collateral evaluation liquidation analysis, or cash flow shortfall is accounted for through a specific allocation reserve calculation for the loan.

We also perform a portfolio segmentation based on risk grading. Loans are rated into different categories, with a percentage of the portfolio, based on grade, allocated to the allowance. The loss factors for each risk grade are determined by management based on management’s overall assessment of the overall credit quality at month end taking into account various quantitative and qualitative factors such as trends of past due and non-accrual loans, asset classifications, loan grades, collateral value, historical loss experience and economic conditions.

The following table sets forth information with respect to activity in the allowance for loan losses for the years ended December 31, 2009, December 31, 2008 December 31, 2007 (dollars in thousands).

	Year Ended December 31, 2009			Year Ended December 31, 2008			Year Ended December 31, 2007
Average loans outstanding	$	37,070		$	16,224		$	651
Allowance at beginning of period		846			72			0

Provision for loan losses		1,612			794			72
Charge offs		(860	)		(35	)		(0	)
Recoveries		30			15			0
Allowance at end of period		1,628			846			72
Allowance as a percent of total loans		3.31	%		2.97	%		1.85	%
Total loans at end of period	$	49,216		$	28,503		$	3,896

While management believes our allowance for loan losses is adequate as of December 31, 2009, future adjustments to our allowance may be necessary if economic conditions differ substantially from the assumptions used in making the determination.

At December 31, 2009 the Bank's general allowance for possible loan losses by type of loan was allocated by using peer group averages and actual loss experiences of peers, as follows: (in thousands)

	Amount		% of Loans to Total Loans
At the end of year allocated to:
Commercial	$	63		9.37	%
Commercial real estate		366		72.46	%
Residential real estate		15		3.57	%
Home equity		25		5.79	%
Construction		32		4.19	%
Consumer		33		4.62	%
Total	$	534		100.00	%

[Intentionally left blank]

Investment Securities

The Bank’s investment portfolio has been classified as Available for Sale with no securities classified as Held to Maturity. The following table sets forth the book value of the Bank’s investment portfolio at December 31, 2009 ($ in thousands):

	At December 31, 2009		At December 31, 2008		At December 31, 2007
Securities available for sale
Mortgage-backed securities	$	9,295	$	10,596	$	5,366
U.S. Government agency securities		3,000		1,500		1,000
Corporate securities		4,144		0		0
Total securities available for sale	$	16,439	$	12,096	$	6,356

The Bank's mortgage-backed securities consist of 14 securities issued either by the Federal National Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation (“FHLMC”).

The book value and weighted average yields for investments at December 31, 2009 are shown below ($ in thousands):

	Corporate		Mortgage Backed		U.S. Government Agency Securities		Total		Weighted Average Yields(1)
Maturing In
After 1 through 5 years	$	4,144	$	856	$	0	$	5,000		4.39	%
After 5 through 10 years		0		0		3,000		3,000		3.33
After 10 years		0		8,439		0		8,439		3.56
Total	$	4,144	$	9,295	$	3,000	$	16,439		3.77	%

(1) All securities are listed at actual yield and not on a tax equivalent basis. No securities are tax exempt.

The Bank has adopted Statement of Financial Accounting Standards No. 115 (“FAS 115"), which requires companies to classify investments securities, including mortgage-backed securities as either held-to-maturity or available-for-sale. Securities classified as held-to-maturity are carried at amortized cost. Securities classified as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax effect, reported as a separate component of stockholders’ equity. As of December 31, 2009, none of the Bank’s securities were classified as available-for-sale.

Deposit Activities

Deposits are the major source of the Bank’s funds for lending and other investment purposes. Deposits are attracted principally from within the Bank’s primary market area through the offering of a broad variety of deposit instruments including checking accounts, money market accounts, regular savings accounts, term certificate accounts (including “jumbo” certificates in denominations of $100,000 or more) and retirement savings plans. The distribution by type of the Bank’s deposit accounts as of December 31, 2009, 2008 and 2007, was as follows ($ in thousands):

[Table follows this page]

Distribution of Deposit Accounts by Type (dollars in thousands):

	At December 31,
	2009					2008					2007
			% of					% of					% of
	Amount		Deposits			Amount		Deposits			Amount		Deposits

Demand deposits	$	8,427		13.24	%	$	6,916		22.66	%	$	3,402		29.25	%
NOW deposits		3,105		4.88			2,186		7.16			683		5.87
Money market deposits		12,509		19.65			6,093		19.96			5,423		46.63
Savings deposits		400		0.63			237		0.77			93		0.80
Subtotal	$	24,441		38.40	%	$	15,432		50.55	%	$	9,601		82.55	%

Certificates of deposit:
1.00% - 1.99%		4,154		6.52			0		0			0		0
2.00% - 2.99%		21,114		33.17			3,065		10.04			0		0
3.00% - 3.99%		11,605		18.23			11,855		38.84			0		0
4.00% - 4.99%		2,339		3.69			175		0.57			2,209		17.45
5.00% - 5.99%		0		0			0		0			0		0
Less fees on brokered deposits		9		(0.01	)		0		0			0		0
Total certificates of deposit (1)	$	39,212		61.60			15,095		49.45			2,209		17.45
Total deposits	$	63,653		100.00	%	$	30,527		100.00	%	$	11,810		100.00	%

(1)	Includes retirement accounts (in thousands) totaling $1,108,000, $82,000, and $16,000, in 2009, 2008, and 2007, respectively, all of which were in the form of certificates of deposit.

Average Deposits and Average Rates (dollars in thousands):

	At December 31,
	2009					2008					2007
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
Demand, money market and NOW deposits	$	17,181		0.83	%	$	15,104		1.32	%	$	2,366		2.20	%
Savings deposits		335		0.66			209		2.00			17		2.59
Certificates of deposit		30,248		2.70			7,439		3.86			497		4.60
Total deposits	$	47,764		2.39	%	$	22,752		2.15	%	$	2,880		2.71	%

Time deposits of $100,000 and over, public fund deposits and other large deposit accounts tend to be short-term in nature and more sensitive to changes in interest rates than other types of deposits and, therefore, may be a less stable source of funds. In the event that existing short-term deposits are not renewed, the resulting loss of the deposited funds could adversely affect the Bank’s liquidity. In a rising interest rate market, such short-term deposits may prove to be a costly source of funds because their short-term nature facilitates renewal at increasingly higher interest rates, which may adversely affect the Bank’s earnings. However, the converse is true in a falling interest-rate market where such short-term deposits are more favorable to the Bank.

Time Deposits of $100,000 or more with remaining maturities of (dollars in thousands):

	December 31,
	2009		2008		2007

Due in three months or less	$	10,916	$	4,477	$	0
Over three through twelve months		20,797		7,668		1,365
Over twelve months through three years		0		352		0
Over three years		0		0		0
	$	31,713	$	12,497	$	1,365

Maturity terms, service fees and withdrawal penalties are established by the Bank on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals and federal regulations.

FDIC regulations limit the ability of certain insured depository institutions to accept, renew, or rollover deposits by offering rates of interest which are significantly higher than the prevailing rates of interest on deposits offered by other insured depository institutions having the same type of charter in such depository institutions’ normal market area. Under these regulations, “well capitalized” depository institutions may accept, renew, or roll over deposits at such rates without restriction, “adequately capitalized” depository institutions may accept, renew or roll over deposits at such rates with a waiver from the FDIC (subject to certain restrictions on payments of rates), and “undercapitalized” depository institutions may not accept, renew or roll over deposits at such rates. The regulations contemplate that the definitions of “well capitalized,” “adequately capitalized” and “undercapitalized” will be the same as the definitions adopted by the agencies to implement the prompt corrective action provisions of applicable law. See “Supervision and Regulation -- Capital Requirements.” As of December 31, 2009, the Bank met the definition of a “well capitalized” depository institution.

The Bank does not have a concentration of deposits from any one source, the loss of which would have a material adverse effect on the Bank. Management believes that substantially all of the Bank’s depositors are residents in its primary market area.

Borrowings

During 2009, the Company entered into short-term borrowing arrangements with customers consisting of securities sold under repurchase agreements. The agreements are on a demand basis and call for the payment of interest based on the federal funds rate.

The following summarizes these borrowings as of December 31, 2009:

Balance outstanding at year-end	$	342,000
Average balance outstanding during the year	$	721,000
Maximum amount outstanding at any month-end during year	$	1,038,000

Average interest rate paid		0.31	%

The Bank also had an agreement with the Independent Bankers Bank of Florida to borrow funds under a line of credit but had not drawn any advances as of December 31, 2009.

Results of Consolidated Operations

COMPARISON OF YEARS ENDED DECEMBER 31, 2009 and 2008

Highlights. As of December 31, 2009, we had grown to approximately $79.4 million in total assets, with $49.2 million in total loans, $63 million in deposits, and $9.9 million in stockholders’ equity.

The net loss in 2009 was $1,669,000 versus net loss of $1,393,000 in 2008. The primary reasons for the change of $276,000 in 2009 over 2008 were as follows:

·	Interest and fees on loans totaled $2,373,000 in 2009 compared with $1,108,000 in 2008, an increase of $1,265,000 or 114.17%. Other interest income also decreased by $(88,000) in 2009 over 2008, or (15.49)%.


·	Our income from average interest-earning assets increased 68.28%.


·	Our total interest expense increased $738,000 or 134.92%.


·	Net interest income increased by $433,000 in 2009 from 2008.


·	Noninterest income grew $567,000, or 396.51% in 2009 over 2008.


·	Noninterest expenses grew $643,000 or 23.55%.

Interest Income. Interest income was $2,886,000 and $1,715,000 in 2009 and 2008, respectively. The increase of $1.2 million resulted from an increase in the yield on interest-earning assets in 2009, which was partially offset by growth in our most significant interest-earning asset, loans, which grew 72.1% from average levels in 2008 to 2009. Average loans accounted for 63.52% of our average interest-earning assets in 2009 versus 52.71% in 2008. Our overall yield on interest-earning assets of 4.95% was down from the 2008 level of 5.41% due to a lower interest rate environment throughout 2009.

Interest Expense. Interest expense was $1,285,000 and $547,000 in 2009 and 2008, respectively. As a result of the lower interest rate environment during 2009 which was offset by our growth in average interest-bearing liabilities of $27.5 million, or 106.59%, during this period, interest expense increased 134.92%. Our cost of funds increased to 2.41% in 2009 compared with 2.20% in 2008. Substantially all of the increase in interest expense was attributable to an increase in average certificates of deposit of $7.6 million, or 33.48%.

Net Interest Income. Net interest income (before provision for loan losses) was $1,601,000 and $1,168,000 for 2009 and 2008, respectively, an increase of 37.07% from 2008 to 2009. The average balances, interest income and expense, and the average rates earned and paid for assets and liabilities are found in the tables that follow.

Our net interest margin was lower (2.77% in 2009 compared with 3.44% in 2008), which reflects the increase in our cost of funds (21 basis points) versus the decrease in our yield on interest-earning assets (46 basis points). The increase in net interest income of $433,000 was a result of a 72.19 increase in average loans while the net interest margin was most impacted by the increase in certificates of deposit of 110.09%. Certificates of deposit account for 50.33% of all interest-bearing deposits in 2009 as compared with 49.56% in 2008.

Provision for Loan Losses. A provision for loan losses of $1,612,000 was recorded in 2009, reflecting our assessment of the needed level of the allowance for loan losses. This assessment is based on management’s evaluation of probable loan losses and considers the overall quality of the loan portfolio. The increase in the provision for loan losses in 2009 versus the 2008 level of $794,000 was due to unfavorable trends in most measures of loan portfolio quality, including the growth in impaired and nonaccrual loans and other nonperforming assets, which increased $1.8 million in 2009, or 334.14%. Net charge-offs in 2009 were $830,000 as compared with $20,000 in 2008, an increase of $810,000.

Noninterest Income. Noninterest income increased $567,000, or 396.50%, to $710,000 in 2009 from $143,000 in 2008 primarily as a result of gain on sale of available for sale securities.

Noninterest Expenses. Total noninterest expenses increased to $3,373,000 in 2009 compared to $2,730,000 for 2008, an increase of $643,000, or 23.55%. The more significant increases during 2009 over 2008 follow:

·	Expenses related to other real estate owned totaled $2,500 in 2009 versus $0 in 2008, as a result of losses and ongoing expenses on properties that ProBank obtained title in 2009.


·	Professional, legal, and audit fees were $72,000 in 2009 versus $72,000 in 2008, an increase of $0, or 0%.


·	Regulatory assessments increased by $67,000, or 352.63%, from 2008 to 2009 due to increased cost of maintaining the FDIC insurance fund.

Provision for Income Taxes. The income tax benefit was $1,005,000 for 2009, an effective rate of 37.58%. This compares with an effective rate of 37.05% for 2008.

COMPARISON OF YEARS ENDED DECEMBER 31, 2008 AND 2007

Highlights. As of December 31, 2008, we had grown to approximately $47.9 million in total assets, with $27.6 million in net loans, $30.5 million in deposits, and $11.3 million in stockholders’ equity.

The net loss in 2008 was $1,393,000 versus net loss of $671,000 in 2007. The primary reasons for the change of $722,000 in 2008 over 2007 were as follows:

·	Interest and fees on loans totaled $1,108,000 in 2008 compared with $54,000 in 2007, an increase of $1,054,000, or 1,951.85%. Other interest income also increased by $122,000 in 2008 over 2007, or 495.83%.

·	Our income from average interest-earning assets increased 107.60%.

·	Our total interest expense increased $453,000, or 441.58%.

·	Net interest income increased by $872,000 in 2008 from 2007.

·	Noninterest income grew $122,000, or 495.83% in 2008 over 2007.

·	Noninterest expenses grew $1,280,000, or 89.06%.

Interest Income. Interest income was $1,715,000 and $390,000 in 2008 and 2007, respectively. The increase of $1.3 million resulted from a decrease in the yield on interest-earning assets in 2008, which was offset by growth in our most significant interest-earning asset, loans, which grew 624.23% from average levels in 2008 to 2007. Average loans accounted for 52.71% of our average interest-earning assets in 2008 versus 14.54% in 2007. Our overall yield on interest-earning assets of 5.41% was down from the 2007 level of 5.52% due to a lower interest rate environment throughout 2007.

Interest Expense. Interest expense was $547,000 and $94,000 in 2008 and 2007, respectively. As a result of the lower interest rate environment during 2008 which was offset by our growth in average interest-bearing liabilities of $18.4 million, or 248.99%, during this period, interest expense increased 441.58%. Our cost of funds dropped to 2.20% in 2008 compared with 3.42% in 2007. Substantially all of the increase in interest expense was attributable to an increase in average certificates of deposit of $5.7 million, or 336.85%.

Net Interest Income. Net interest income (before provision for loan losses) was $1,168,000 and $296,000 for 2008 and 2007, respectively, an increase of 343.15% from 2008 to 2007. The average balances, interest income and expense, and the average rates earned and paid for assets and liabilities are found in the tables that follow.

Our net interest margin was lower (3.44% in 2008 compared with 4.10% in 2007), which reflects the smaller decrease in our cost of funds (122 basis points) versus the decrease in our yield on interest-earning assets (11 basis points). The increase in net interest income of $872,000 was a result of a 624.23% increase in average loans, while the net interest margin was most impacted by the increase in certificates of deposit of 336.85%. Certificates of deposit account for 49.56% of all interest-bearing deposits in 2008 as compared with 22.70% in 2007.

Provision for Loan Losses. A provision for loan losses of $794,000 was recorded in 2008, reflecting our assessment of the needed level of the allowance for loan losses. This assessment is based on management’s evaluation of probable loan losses and considers the overall quality of the loan portfolio. The increase in the provision for loan losses in 2008 versus the 2007 level of $72,000 was due to unfavorable trends in most measures of loan portfolio quality, including the growth in impaired and nonaccrual loans and other nonperforming assets, which increased $0.5 million in 2008, or 824.14%. Net charge-offs in 2008 were $20,000 as compared with $0 in 2007, an increase of $20,000.

Noninterest Income. Noninterest income increased $122,000, or 495.83%, to $143,000 in 2008 from $21,000 in 2007 primarily as a result of an extra eight months of operation.

Noninterest Expenses. Total noninterest expenses increased to $2,730,000 in 2008 compared to $1,450,000 for 2007, an increase of $1,280,000, or 89.06%. The more significant increases during 2008 over 2007 follow:

·	Expenses related to other real estate owned totaled $0 in 2008 versus $-0- in 2007, as a result of losses and ongoing expenses on properties that ProBank obtained title in 2008.


·	Professional, legal, and audit fees were $72,000 in 2008 versus $26,000 in 2007, an increase of $46,000, or 176.92%, as a result of increased costs of internal and external audit costs.


·	Regulatory assessments increased by $19,000, or 1,900.00%, from 2008 to 2007 due to increased cost of maintaining the FDIC insurance fund.

Provision for Income Taxes. The income tax benefit was $820,000 for 2008, an effective rate of 37.05%. This compares with an effective rate of 44.32% for 2007.

The following table sets forth, at December 31, 2009, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest income; (iv) interest-rate spread; and (v) net interest margin; and (vi) weighted average yields and rates at December 31, 2009. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities. There were no non-accrual loans, out of period items or tax exempt income for the period indicated. The yields and costs include fees which are considered to constitute adjustments to yields ($ in thousands):

	Month Ended December 31, 2009 Increase (Decrease) Due to
	Average Balance		Annualized Income/Expense		Annualized Yield
Interest-earning:
Loans (1)	$	37,070	$	2,373		6.40	%
Securities and other deposits		12,088		495		4.09
Other interest-earning assets(2)		9,191		18		0.20
Total interest-earning assets	$	58,349	$	2,886		4.95	%

Interest-bearing liabilities:
Deposit accounts	$	40,739	$	1,137		2.79	%
Other borrowings		5,562		148		2.66
Total Interest-bearing liabilities	$	46,301	$	1,285		2.77	%

Net interest income			$	1,601
Net interest margin						2.18	%

	Month Ended December 31, 2008 Increase (Decrease) Due to
	Average Balance		Annualized Income/Expense		Annualized Yield
Interest-earning:
Loans (1)	$	16,224	$	1,108		6.83	%
Securities and other deposits		9,258		437		4.72
Other interest-earning assets(2)		5,717		170		2.97
Total interest-earning assets	$	31,199	$	1,715		5.50	%

Interest-bearing liabilities:
Deposit accounts	$	16,820	$	467		2.78	%
Other borrowings		3,173		80		2.52
Total Interest-bearing liabilities	$	19,993	$	547		2.74	%

Net interest income			$	1,168
Net interest margin						2.76	%

	Month Ended December 31, 2007 Increase (Decrease) Due to
	Average Balance		Annualized Income/Expense		Annualized Yield
Interest-earning:
Loans (1)	$	650	$	54		8.31	%
Securities and other deposits		1,004		51		5.08
Other interest-earning assets(2)		4,578		285		6.23
Total interest-earning assets	$	6,232	$	390		6.26	%

Interest-bearing liabilities:
Deposit accounts	$	1,920	$	74		3.85	%
Other borrowings		566		20		3.53
Total Interest-bearing liabilities	$	2,486	$	94		3.78	%

Net interest income			$	296
Net interest margin						2.48	%

(1) Average loan balances include nonaccrual loans.

(2) Includes federal funds sold.

Weighted Average Yield or Rate:

	For the Years Ended December 31,
	2009			2008			2007
Interest-earning assets:
Loans, net		6.40	%		6.83	%		8.31	%
Investment securities		4.09	%		4.72	%		5.08	%
Other interest-earning assets		0.20	%		2.97	%		6.23	%
All interest-earning assets		4.95	%		5.50	%		6.26	%
Interest-bearing liabilities:
Deposit accounts		2.79	%		2.78	%		3.85	%
Other borrowings		2.66	%		2.52	%		3.53	%
All interest-bearing liabilities		2.77	%		2.74	%		3.78	%
Interest-rate spread		2.74	%		3.74	%		4.75	%
Net interest margin		2.18	%		2.76	%		2.48	%

Change in Mix of Interest-Earning Assets and Interest-Bearing Deposits and Other Borrowings (dollars in thousands):

	At December 31,
	2009					2008					2007
			Percent					Percent					Percent
	Average		to			Average		to			Average		to
	Balance		Total			Balance		Total			Balance		Total
Interest-earning assets:
Loans, net	$	37,070		63.53	%	$	16,224		52.00	%	$	650		10.43	%
Investment securities		12,088		20.72			9,258		29.67			1,004		16.11
Other		9,191		15.75			5,717		18.33			4,578		73.46
Total interest-earning assets	$	58,349		100.00	%	$	31,199		100.00	%	$	6,232		100.00	%
Interest-bearing deposits	$	40,739		76.40	%	$	16,820		65.13	%	$	1,920		57.38	%
Noninterest-bearing deposits		7,025		13.17			5,831		22.58			860		25.70
Total deposits		47,764		89.57			22,651		87.71			2,780		83.08
Other borrowings		5,562		10.43			3,173		12.29			566		16.92
Total deposits and other borrowings	$	53,326		100.00	%	$	25,824		100.00	%	$	3,346		100.00	%

Asset/Liability Management

A principal objective of the Company’s asset/liability management strategy is to minimize its exposure to changes in interest rates by matching the maturity and repricing horizons of interest-earning assets and interest-bearing liabilities. This strategy is overseen in part through the direction of the Bank's Asset and Liability Committee ("ALCO") which establishes policies and monitors results to control interest rate sensitivity.

Management evaluates interest rate risk and then formulates guidelines regarding asset generation and repricing, funding sources and pricing, and off-balance sheet commitments in order to maintain interest rate risk within target levels for the appropriate level of risk which are determined by the ALCO. The ALCO uses internally generated reports to measure the Bank’s interest rate sensitivity. From these reports, the ALCO can estimate the net earnings effect of various interest rate scenarios.

As a part of the Company’s interest rate risk management policy, the ALCO examines the extent to which its assets and liabilities are “interest rate sensitive” and monitors the Bank’s interest rate sensitivity “gap.” An asset or liability is considered to be interest rate sensitive if it will reprice or mature within the time period analyzed, usually one year or less. The interest rate sensitivity gap is the difference between interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within such time period. 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 rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If the repricing of each bank’s assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.

A simple interest rate “gap” analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Accordingly, the ALCO also evaluates how the repayment of particular assets and liabilities is impacted by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or period of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as “interest rate caps”) which limit changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment (on loans) and early withdrawal (of deposit accounts) levels also could deviate significantly from those assumed in calculating the interest rate gap. The ability of many borrowers to service their debts also may decrease in the event of an interest rate increase.

Currently the Company has not entered into any interest rate swaps or similar hedging instruments in connection with its asset/liability management and the Company does not expect to use interest rate swaps in its operations. Further discussion on off-balance-sheet arrangements can be found in Note 11 of the Notes to Consolidated Financial Statements. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, unused lines of credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. The Company also did not have any significant interest rate lock commitments at December 31, 2009.

Management’s strategy is to maintain a balanced interest rate risk position to protect its net interest margin from market fluctuations.

Principal among the Company’s asset/liability management strategies has been the emphasis on managing its interest rate sensitive liabilities in a manner designed to attempt to reduce the Company’s exposure during periods of fluctuating interest rates. Management believes that the type and amount of the Company’s interest rate sensitive liabilities may reduce the potential impact that a rise in interest rates might have on the Company’s net interest income. The Company seeks to maintain a core deposit base by providing quality services to its customers without significantly increasing its cost of funds or operating expenses. Management anticipates that these accounts will continue to comprise a significant portion of the Company’s total deposit base. The Company also maintains a portfolio of liquid assets in order to reduce its overall exposure to changes in market interest rates. The Company also maintains a “floor,” or minimum rate, on certain of its floating or prime based loans. These floors allow the Company to continue to earn a higher rate when the floating rate falls below the established floor rate. All interest rate caps and floors are clearly and closely related to the loan agreement and therefore not bifurcated and valued separately.

The following table sets forth certain information relating to the Company’s interest-earning assets and interest-bearing liabilities at December 31, 2009 that are estimated to mature or are scheduled to reprice within the period shown.

($ in thousands):

										Over
	Under 3			3 to 12				1-5		Five
	Months			Months			Years			Years			Total
Interest-earning assets:
Federal funds sold	$	9,065		$	9,065		$	9,065		$	9,065		$	9,065
Loans (1)		22,777			28,697			46,646			49,216			49,216
Securities (2)		1,109			2,975			12,355			16,439			16,439
Total rate-sensitive assets (earning assets)	$	32,951		$	40,737		$	68,066		$	74,720		$	74,720

Money market (3)
Savings and NOW deposits (3)		15,362			15,362			15,362			15,362			15,362
Time deposits (3)		12,566			37,120			39,212			39,212			39,212
Other borrowings		342			342			6,342			6,342			6,342
Total rate-sensitive liabilities	$	28,270		$	52,824		$	60,916		$	60,916		$	60,916

Gap (repricing differences)
Cumulative Gap	$	4,681		$	(12,087	)	$	7,150		$	13,804		$	13,804

Cumulative Gap/total assets		5.89	%		(15.22	)%		9.00	%		17.38	%		17.38	%

Cumulative Gap/total earning assets		6.26	%		(16.18	)%		9.57	%		18.47	%		18.47	%

Total assets													$	79,413

Total earning assets													$	74,720

(1)	In preparing the table above, adjustable-rate loans were included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans were scheduled according to their contractual maturities.


(2)	Securities were scheduled based on their remaining maturity or repricing frequency. Fixed-rate mortgage-backed securities are scheduled ratably over five years. Includes FHLB stock grouped in over five years.


(3)	Excludes noninterest-bearing deposit accounts. Money-market, NOW, and savings deposits are scheduled based on FDICIA studies on nonmaturity deposits. All other time deposits were scheduled through the maturity dates.

Impact of Inflation and Changing Prices

The financial statements and related financial data concerning the Company presented in this 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant impact on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 8. Financial Statements

The financial statements of the Company at December 31, 2009 and for the year ended December 31, 2008 are set forth in this Form 10-K as Exhibit 13.1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Changes in Company’s Certifying Accountant.

Previous Independent Accountants

On August 5, 2009 James D.A. Holley & Co. (“Holley & Co.”) resigned as the Company’s independent auditors. Holley’s decision to resign was not recommended or approved by the Company’s board of directors or any committee thereof. Holley resigned because the firm had elected to de-register with the Public Company Accounting Oversight Board (the “PCAOB”) in that the Company was its only client subject to certain Securities Exchange reporting requirements.

The reports of Holley & Co. on the Company’s consolidated financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to audit scope or accounting principles.

In connection with the audits of the Company’s financial statements for the past two fiscal years ended December 31, 2008 and in the subsequent interim periods, there were no disagreements with Holley & Co. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to Holley & Co.’s satisfaction, would have caused Holley & Co. to make reference to the matter in their report. There were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.

New Independent Accountants

On December 16, 2009, Hacker, Johnson & Smith, P.A. (“New Accountant”) was retained as the Company’s independent auditors. Hacker, Johnson & Smith, P.A. is registered with the PCAOB, and is located in Tampa, Florida.

During the Company’s two most recent fiscal years and the subsequent interim period(s) prior to engaging the New Accountant, neither the Company nor anyone acting on behalf of the Company consulted the New Accountant regarding (i) either (a) the application of accounting principles to a specified transaction, either completed or proposed, or (b) the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as described in paragraph 304(A)(1)(v) of Regulation S-K). In addition, during the Company’s two most recent fiscal years and the subsequent interim period(s) prior to engaging the New Accountant, no written report was provided by the New Accountant to the Company and no oral advice was provided that the New Accountant concluded was an important factor considered by the Corporation in reaching a decision as to any accounting, auditing, or financial reporting issue.

Item 9A. Controls And Procedures

(a) Disclosure Controls and Procedures

The Company was not required to file an annual report with the Securities and Exchange Commission pursuant to section 13(a) or 15(d) of the Exchange Act for the prior fiscal year. Therefore this annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly reporting companies.

(b) Changes in internal controls.

The Company made no changes in its internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or which is reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons;

Compliance with Section 16(a) of the Exchange Act

Directors of the Company and the Bank serve one-year terms and therefore stand for re-election each year. There are no known family relationships between any of the director nominees. Each of the following persons have been nominated to serve as directors of the Company for the fiscal year 2010. Each of our directors satisfies the criteria for director independence under the listing standards applicable to companies listed on The Nasdaq.

Kathleen B. Atkins-Gunter. Mrs. Atkins-Gunter is 64 years old, and lives in Tallahassee with her husband Bill Gunter. She has been President of Atkins Management & Consulting, Inc., Tallahassee, Florida since 1998. and is employed by Rogers, Gunter, Vaughn Insurance, Inc., Tallahassee, Florida as the Senior Consulting Specialist. Prior to forming Atkins Management & Consulting in 1998, she served as Chief Operating Officer of Gulf Atlantic Insurance Company, Gulf Premium Finance Company, and Gulf Atlantic Insurance Services, Inc., all of Tallahassee, Florida. From 1970 to 1991 she was employed by Rogers-Atkins Insurance, Inc. serving as Executive Vice President of Operations. She served on the Board of Directors of First Bank of Tallahassee from 1995 to 1999 and as Vice Chairman of the Board in 1999, She also served on the Regional Advisory Board of SouthTrust Bank, Tallahassee. She currently serves as an officer, director or member of a number of local and statewide organizations, including the Florida State University Seminole Boosters Board of Directors, the Florida State University Athletics Committee, the Westcott Lakes At SouthWood Board of Directors, the Florida Association of Insurance Agents, The Florida House on Capitol Hill in Washington, D.C. Board of Directors, Normandy Harbor Insurance Company Board of Directors and the Florida Medical Malpractice Joint Underwriting Association Board of Directors. Mrs. Atkins-Gunter’s career as a successful businesswoman, her experience and knowledge in the insurance business, her well recognized involvement in the Tallahassee community, her prior experience as a director of a local Tallahassee community bank and her leadership as a Director of ProBank has led the Board to conclude that she is valuable as a director and that she should continue to serve as a director of the Company.

Christopher E. Diamantis. Mr. Diamantis is 41 years old and lives in Tallahassee with his wife and two children. He has served as Chairman and Chief Executive Officer of Integrated Financial Settlements, Inc. (“IFS”) since 1992. IFS generates more than $100 million in annual revenue. IFS is the holding company for four structured settlement consulting firms which collectively originate approximately $2.1 billion in annual sales representing approximately 32% of market share in the structured settlement industry. He also serves as a director of the Gabor Agency, Inc., a 62-year-old Tallahassee company specializing in retirement and insurance planning for public employers and universities. Mr. Diamantis graduated Cum Laude from Florida State University in 1990 with a B.S. degree in Finance. He is a Chartered Life Underwriter and a Certified Structured Settlement Consultant. He is a member of the Board of Governors of the FSU College of Business, a member of the Board of Directors and the Immediate Past President of the National Structured Settlements Trade Association. Mr. Diamantis’ career as a successful businessman, his experience and knowledge in the structured settlement business, his well recognized involvement in the retirement and insurance planning for public employers and universities sector, and his involvement with FSU College of Business has led the Board to conclude that he should continue to serve as a director of the Company.

Edward W. Dougherty, Jr. Mr. Dougherty is 53 years old. He has served a Chairman of the Audit Committees of Pro Bank and Pro Financial and a member of the Loan Committee for Pro Bank since its opening. He has been a resident of Tallahassee for more than thirty years. He has been married to his wife, Audrey, for more than twenty five of those years and they have three children. Mr. Dougherty has been a shareholder in the Igler & Dougherty law firm located in Tallahassee, Florida since 1992. He has represented financial institutions in complex financial transactions and regulatory matters and in the litigation of those issues arising out of those complex transactions and matters in court and in the administrative forum. He graduated from the University of Notre Dame with a Bachelor of Arts degree in 1978 and from Florida State University College of Law with a Juris Doctor degree (with honors) in 1981. He has practiced law in Tallahassee since being admitted to the Florida Bar in 1982. Mr. Dougherty’s professional legal experience, his experience dealing with financial institution matters, his service on the Board of the Company and the Bank, combined with his involvement in various community organizations led the Board to conclude that Mr. Dougherty should continue to serve as a director of the Company.

Javier I. Escobar, II, M.D. Dr. Escobar, is 41 years old, and lives in Tallahassee with his wife and four children. He has been the Medical Director Emergency Services at Tallahassee Memorial Hospital and the TMH Chest Pain Center since 2003. Prior to that he was an attending physician at the Bixler Emergency Center at the Tallahassee Memorial Hospital from 1999 to 2003. He is a Clinical Associate Professor at the Florida State University College of Medicine and the Medical Director of LifeNet Air Ambulance. He currently serves on several medical boards and committees in the state. He graduated from The University of California at Los Angeles in 1991 with a B.S. degree and from the University of Connecticut School of Medicine in 1995. He interned and completed his residency in Emergency Medicine and fellowship in Pediatric Emergency Medicine at the University of Florida Shands/Jacksonville, Florida. Dr. Escobar’s educational background, his service as the Medical Director of Emergency Services and the Chest pain Center, and his knowledge of and involvement in the medical community has led the Board to conclude that Dr. Escobar is valuable to ProBank as a director and should continue to serve as a director of the Company.

Michael W. Forsthoefel, M.D. Dr. Forsthoefel is 55 years old, and lives in Tallahassee with his wife Jana Forsthoefel, M.D. and their eight children. He currently practices Internal Medicine with Southern Medical Group, P.A. where he has been a shareholder since 1983. He is Clinical Coordinator for the Internal Medicine Clerkship for the Florida State University College of Medicine, where he received the Class of 2006 Outstanding Clinical Professor Award. He is a former member and past chairman of the Tallahassee Memorial HealthCare Board of Directors. He graduated from the University of Louisville in 1975 with Highest Distinction, and with a Bachelor of Arts in Chemistry. He received his Doctorate of Medicine, and his Master’s of Science in Biochemistry from the University of Louisville, School of Medicine in 1979. He completed his residency in Internal Medicine at the VA Medical Center, Emory University Affiliated Hospitals in Atlanta, Georgia in 1982. He received his Diplomat, Internal Medicine from the American Board of Internal Medicine in 1982, and added Qualifications in Geriatric Medicine in 2000. He has been a member of the Rotary Club of Tallahassee since 1986, where he has co-chaired the Rotary Ethics and Business Award committee for the last ten years since its inception. He has also served on several boards and committees in the Tallahassee medical community. Dr. Forsthoefel’s educational background, his involvement with the University’s College of Medicine, his activities associated with Tallahassee Memorial HealthCare Board of Directors and his knowledge of and involvement in the community with many boards and committees in the Tallahassee medical community has led the Board to conclude that Dr. Forsthoefel is valuable to ProBank as a director and should continue to serve as a director of the Company.

Roger K. Hobbs. Mr. Hobbs is 41 years old and has lived in Tallahassee since 1993 with his wife Denise and son Trevor. He has served as President and COO of The Twin Action Group since moving to Tallahassee in 1993. Twin Action owns the Cabot Lodge at Thomasville Road and a large amount of commercial and residential property in Northeast Tallahassee. He also is the President and Owner of RK Development of Tallahassee, Inc., which has and continues to play a major role in the final developments of Killearn Lakes and Golden Eagle. He enjoys working hard in all his business ventures and vacationing when his time allows for it. He is a co-owner of Twin Action Realty, Inc., a Tallahassee area real estate brokerage firm. Roger is extremely proud to be a Co-Founder and Chairman of ProBank as well as Vice Chairman of Pro Financial Holdings, Inc. He is a current member of the Board of Directors of Seminole Boosters, Inc., and graduated from The University of Utah with a B.S. Degree in Economics in 1991. Mr. Hobbs’ career as a successful businessman, his experience and knowledge in the real estate business, his well recognized involvement in the Tallahassee community and his leadership as a Director of ProBank has led the Board to conclude that he is valuable as a director of the Bank and that he should continue to serve as a director of the Company.

Joseph P. Jones Mr. Jones is 41 years old and lives with his wife and son in Tallahassee. He is a Partner in the statewide law firm of Broad and Cassel and is a member of the firm’s real estate development and finance, banking and institutional lending, and special assets practice groups. Since joining Broad and Cassel, Mr. Jones has practiced in the areas of commercial real estate development and finance, securitized financing, institutional lending, commercial leasing, real property acquisitions and dispositions and condominium development. Mr. Jones represents local, regional and national developers of office, multifamily, commercial, condominium, retail and residential projects in transactions, development projects and complex financing. In addition, Mr. Jones also represents clients in portfolio and scattered site sales involving defeasance, assumption, corporate acquisition and debt restructuring issues involving takeovers, foreclosures and workouts. Prior to joining Broad and Cassel, Mr. Jones worked as a deputy sheriff and served in the United States Marine Corps. In his spare time, Mr. Jones is enjoys spending time with his family, is active in his church and coaches youth athletics. Mr. Jones’ professional legal experience, his experience dealing with financial institution matters, his service on the Board of the Company and the Bank, combined with his involvement in various community organizations led the Board to conclude that Mr. Jones should continue to serve as a director of the Company.

Allen R. Moayad. Mr. Moayad is 47 years old and was born in Tehran, Iran. He lives in Tallahassee with his wife Patricia and their two children. Mr. Moayad left Iran when he was 12 years old to study in England. After attending boarding schools in England and graduating from Shiplake College Henley-On Thames, he came to the United States in 1981 to visit family, and decided to stay in Tallahassee to continue his education. He graduated from Tallahassee Community College with an AA degree in 1983 and from Florida State University in 1985 with a BS degree in communications. He graduated from the Thomas M. Cooley Law School, in 1989 with a Juris Doctor degree and was admitted to the Florida Bar in 1990. Mr. Moayad practiced law full time in Tallahassee from 1990 until 2002, when he elected to take sabbatical and attend to family and other personal business, which includes both real estate investments and international trading activities in the middle east. In September 2005 he formed the Genesis International Group, LLC of which he currently serves as President. He has maintained an “of counsel” relationship with the law firm of Igler & Dougherty, P.A. since June 2006. Mr. Moayad’s career as a successful lawyer, importer, and businessman, his experience and knowledge in the real estate business, his involvement in the Tallahassee sports community and his leadership as a Director of ProBank has led the Board to conclude that he is valuable as a director and that he should continue to serve as a director of the Company.

Anuj “AJ” Patel Mr. Patel is 27 years old and is a native of Tallahassee. He is the Chief Executive Officer of the PAT Group of Companies. The company manufactures tobacco products in 3 countries; imports and manufactures marble and granite for commercial use; and exports agricultural products, such as teakwood, from South America to the Middle East. Also, he and his family are in the hospitality industry and own various full-service hotels in FL, NY and NJ. He is a part of a strong business network in the North Florida and South Georgia regions. He graduated from the University of Florida in 2003, with a B.S. Degree in Accounting. He has served on the ProBank Business Advisory Board since it inception, and serves on various charitable organization boards. Mr. Patel’s career as a successful businessman, his experience and knowledge in the various companies with which he is associated, and his involvement in the Tallahassee community has led the Board to conclude that he is valuable as a director and that he should continue to serve as a director of the Company.

Peter S. Rosen. Mr. Rosen is 41 years old and has lived in Tallahassee since 1986. He has owned and operated Benchmark Construction Company since 1989. During that time the company built more than 100 homes ranging in price from $100,000 to $1.5 Million, as well as built and or renovated over 1,000,000 sq. ft. of commercial office space. He formed Cornerstone Realty in 1994 and currently serves as President and Broker of the company. He is currently the owner and developer of nine Tallahassee apartment and/or shopping center properties with a total value in excess of $75 Million. He was an organizing board member of ProBank and Pro Financial Holding Company. He is a Florida Certified Building Contractor and a Licensed Florida Real Estate Broker. He graduated from Florida State University in 1990 with a Bachelor of Science degree with a major in Real Estate and Business Administration and a minor in Finance. Mr. Rosen’s career as a successful businessman, his experience and knowledge in the real estate business, his well recognized involvement in the Tallahassee community and his leadership as a Director of ProBank has led the Board to conclude that he is valuable as a director and that he should continue to serve as a director of the Company.

James S. Sauls. Mr. Sauls is 41 years old and lives in Tallahassee with his wife Shannon and their two children. Mr. Sauls is a native of Tallahassee. He has served as the Managing Member of Benchmark Asset Management, LLC., d.b.a. Benchmark Property Management, LLC since July 2003. He previously served as a Managing Member of Benchmark Property Management, LLC from May 1999 to July 2003. He served as Vice-President and Chief Operating Officer of Coastal Property Services, Inc. in Tallahassee from 1990 to 1998. He is currently the Managing Member of SHS Maintenance, LLC, SHS Realty, LLC, and SHS Management, LLC. The main purpose of these companies is the operation of multi-family housing and real estate sales in Tallahassee, Florida. In addition, he is an owner and developer of several multi-family and other real estate projects located in the Tallahassee area. He graduated from Florida State University in 1994 with a B.S. degree in Accounting. He is a Florida Real Estate Broker, and he received his Community Association Managers License from the Florida Department of Professional Regulation in 2005. Mr. Sauls career as a successful businessman, his experience and knowledge in the real estate business, his well recognized involvement in the Tallahassee community and his leadership as a Director of ProBank has led the Board to conclude that he is valuable as a director and that he should continue serve as a director of the Company.

Josh R. Simmons, M.D. Dr. Simmons is 35 years old, and lives in Tallahassee, where he was born, with his wife Dr. Kate Simmons, M.D. and two children. He has been employed by Bixler Emergency Center as an Emergency Medicine Physician at Tallahassee Memorial Hospital since 2004, following the completion of his residency in Emergency Medicine at the Carolinas Medical Center. He also serves as a Clinical Professor of Emergency Medicine at the Florida State University College of Medicine. He graduated from Stanford University with a B.S. Degree in 1997 and the University of Virginia School of Medicine in 2001. Dr. Simmons’ educational background, his connection to the Tallahassee and surrounding area’s medical community and the University’s College of Medicine has led the Board to conclude that Dr. Simmons is valuable to ProBank as a director and should continue serve as a director of the Company.

Ernest Sims, III. Mr. Sims is 24 years old and is a resident of Tallahassee. He has served on our Board of Directors since April 2008. He is a strong-side linebacker for the Detroit Lions. Mr. Sims attended North Florida Christian High School in Tallahassee, beginning his football career there by earning a varsity letter on the high school football team while only in the eighth grade. He led his team to four state championships from 1998-2001. Coming out of North Florida Christian High School Sims was considered by most college football publications to be one of the best high school football players, and the best linebacker, in the country. Rivals.com, a high school football recruiting service named Sims the number one overall high school football player in the country ahead of Reggie Bush. Sims chose to play for Florida State over Auburn, Florida, Georgia, Miami, Michigan, Oklahoma, Oregon, Tennessee, and Southern California. In 2003, as a true freshman at Florida State, Sims played in every single game. He finished ninth on the team in tackles and was one of the team’s top special team’s performers. In 2004, his sophomore year, Sims played in all 12 games. In 2004, Sims was named to the second All-ACC team and ESPN named Sims to their first team All-American team. Sims' had a productive junior year season, starting all 13 games, including the Orange Bowl. In January of 2006, Sims announced that he would forgo his senior season in lieu of entering the professional football draft. Sims was selected as ninth overall in the first round of the 2006 NFL Draft by the Detroit Lions. Mr. Simms connection to Florida State University and his connection to members of the National Football League who attended FSU, as well as his involvement with various local sports activities has led the Board to conclude that Mr. Simms should continue to serve as a director of the Company.

David L. Tedrick, M.D. Dr. Tedrick is 63 years old, and lives in Tallahassee with his wife Margaret Tedrick. They have two children; Daniel age 34, a corporate attorney in Charlotte and Jessica age 31, a homemaker in Jupiter Florida. They also have three grandchildren. His undergraduate degree is from Ohio University where he was elected to Phi Beta Kappa and Phi Kappa Psi honorary societies and was on the golf team for 3 years. He attended medical school at the University of Cincinnati College of Medicine and was elected to the Alpha Omega Alpha honorary society. Following that, he was at Emory University as an intern and resident in internal medicine, followed by a fellowship in cardiology. He has been a practicing cardiologist in Tallahassee since 1977 and is practices with Southern Medical Group. He is a diplomat of the American Boards of Internal Medicine, Cardiovascular Diseases, and Interventional Cardiology. He also is a fellow of the American College of cardiology. He currently practices interventional Cardiology and is a member of the Tallahassee Research Institute, currently involved in multiple clinical cardiovascular research trials. Dr. Tedrick’s educational background, his connection to the Tallahassee and surrounding area’s medical community has led the Board to conclude that Dr. Tedrick is a valuable asset and should continue to serve as a director of the Company.

M. Stephen Turner. Mr. Turner is 68 years old, and lives with his wife in Tallahassee. He is the Managing Partner in the Tallahassee office of Broad and Cassel and has served on the Firm’s Executive Committee for 20 years. He serves on the Firm’s Appellate Practice and Governmental Relations Practice Groups. He graduated from Duke University in 1963 and from the University of Florida, College of Law in 1965. Before entering private practice, Mr. Turner served as a federal district court law clerk, an Air Force JAG officer, a Florida Special Assistant Attorney General, and an agency general counsel. Since entering private practice in 1972, Mr. Turner has represented corporate and local clients in state and federal trial courts, administrative proceedings, appellate courts, and arbitrations, and is a Master member of the Stafford American Inns of Court and the First District Court of Appeal Inns of Court. As appellate counsel, Mr. Turner has made numerous appearances before the Florida Supreme Court, Florida’s District Courts of Appeal, and the Eleventh Circuit U.S. Court of Appeals. Mr. Turner’s professional legal experience, his experience through service on the Board of the Company and Bank combined with his involvement in various community organizations led the Board to conclude that Mr. Turner is valuable to ProBank as a director and should continue to serve as a director of the Company.

Stephen R. Winn. Mr. Winn is 63 years old and lives in Tallahassee with his wife. He has three children and six grandchildren. He currently serves as Executive Director of the Florida Osteopathic Medical Association, a position he has held since 1984. He is President of Stephen R. Winn & Associates, a Tallahassee-based governmental and public relations company. He currently serves as a legislative and governmental consultant to the Florida Society of Hearing & Healthcare Professionals, GlaxoSmithKline Pharmaceutical Company, KeProSouth, and University Community Health Systems. He is a member of the Florida Health Insurance Study Advisory Council, the Republican Presidential Task Force, the Board of Governors for the Florida Medical Malpractice Joint Underwriting Association, the American Osteopathic Association and the Association of Osteopathic State Executive Directors. He is also a member of the University Club, FSU Golden Chiefs, and the FSU Alumni Association. He was one of the founding members of the First Bank of Tallahassee, and served as Chairman of the Board of Directors from 1993-1994. He is a Past Chairman of the Board of Directors of the Tallahassee Community College Foundation. He graduated from Florida State University in 1967 with a B.S. Degree in Hotel and Restaurant Management. He served in the U.S. Army as a First Lieutenant. Mr. Winn’s professional experience, his years of banking experience through service on the Boards of other financial institutions, as well as the Company and ProBank, combined with his involvement in various community organizations led the Board to conclude that Mr. Wiinn is a valuable asset to ProBank as a director and he should continue to serve as a director of the Company.

Non-Director Executive Officer

B. Bryan Robinson. Mr. Robinson is 54 years old, and lives in Tallahassee with his youngest son Brody. Mr. Robinson has served in various positions in the banking industry during the past 30 years and from 2005 to 2006 he served as Senior Vice President and Chief Financial Officer of First Capital Bank in Marianna, Florida. Prior to that, he served as Executive Vice President and Chief Financial Officer of Premier Bank in Tallahassee, Florida from 1995 to 2005. He currently serves as the President and Chief Executive Officer of Pro Financial Holdings, Inc. as well as the President and Chief Executive Officer of ProBank. He is a graduate of Florida State University and holds a Bachelor of Science degree with a major in Accounting. He also received his Masters Degree in Banking from the LSU Masters School of Banking in November 2004. He has been a past member of the Tallahassee Builders Association and the Tallahassee Lions Club. Currently he is a member of the Tallahassee Elks Club, NEBA the North East Business Association in Tallahassee and the Chamber of Commerce of Tallahassee.

Erin B. Sjostrom. Mrs. Sjostrom is 44 years old, and lives in Tallahassee with her husband and two sons. She has been in the banking and the financial services fields for 17 years. Her experience has ranged from commercial and corporate lending to Credit Administration and Risk Management. She currently serves as the Executive Vice President for ProBank as the Senior Lender and Credit Administrator, where she is responsible for all aspects of lending and asset quality within the Bank. She previously served as the Director of the Florida Retirement System in the Department of Management Services, where she was responsible for the administration of the $100 billion trust fund and the fourth largest public pension plan in the United States. She earned her bachelor’s degree in management with a concentration in finance from Tulane University. She has been appointed by both Governors Jeb Bush and Charlie Crist for terms on the Florida Prepaid College Board, where she served until June 30, 2009. She is also a member of Leadership Tallahassee and Sunrise Rotary.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

The Company does not have securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Therefore its directors, officers and beneficial owners of 10% or more of the Company’s securities were not required to file Section 16(a) forms.

Code of Ethics

The Company has a Code of Ethics that applies to its principal executive officer and principal financial officer, a copy of which is included with this Form 10-K as Exhibit 14.1.

Director Independence

The Board of Directors has determined that each member of the Board is an “independent director” within the meaning of the Nasdaq Marketplace Rule 4200(a)(15).

Nominating Committee

The Board of Directors as a whole serves as the Nominating Committee. The Board has not adopted any procedures by which security holders may recommend nominees to the Company’s Board of Directors.

Financial Expert

The Company does not have an audit committee financial expert serving on its Audit Committee.

Item 11. Executive Compensation

2009 Summary Compensation Table

Name and						Option		All Other(1)
Principal Position	Year	Salary		Bonus		Awards		Compensation		Total

B. Bryan Robinson	2009	$	130,000		-0-	None		$	14,966	$	143,966
Pro Financial/Bank	2008	$	129,808		-0-	$	59,000	$	16,737	$	205,545
CEO/President	2007	$	120,069		-0-	None		$	18,359	$	138,428

Erin B. Sjostrom (2)	2009	$	115,000		-0-	None		$	14,966	$	129,967
Pro Financial/ Bank EVP	2008	$	114,231		-0-	$	23,600	$	19,119	$	156,950
	2007	$	88,846		-0-	None		$	14,587	$	103,433

(1) Includes club dues, health and dental insurance, and car allowance.

(2) Mrs. Sjostrom joined Pro Financial and the Bank organizers in March, 2007, therefore the compensation reported is only for a portion of 2007.

Outstanding Equity Awards at 2009 Fiscal Year-End

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date
B. Bryan Robinson		10,000		15,000		—	$	10.00	10/16/18
Erin B. Sjostrom		5,000		5,000		—	$	10.00	10/16/18

There are no Stock Awards outstanding.

Director Compensation

The Company did not pay its directors any cash or other compensation or grant stock options to directors during the 2009 fiscal year, except that Director Joseph Jones was granted an option to purchase common stock shares which option was valued at $13,920.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Name	Number of Shares(1)		Right to Acquire(2)		Percent of Ownership(3)

Kathleen B. Atkins-Gunter		5,500		13,500		1.36
Christopher E. Diamantis		40,000		41,000		5.70
Edward W. Dougherty, Jr.		23,000		31,000		3.83
Javier I. Escobar, II M.D.		51,000		59,000		7.65
Michael W. Forsthoefel, M.D.		22,500		25,500		3.42
Roger K. Hobbs		25,000		35,000		4.24
Allen R. Moayad		34,267		42,267		5.38
Joseph P. Jones		11,300		19,300		2.19
Anuj P. Patel		25,000		25,000		3.56
B. Bryan Robinson		10,000		35,000		3.18
Peter S. Rosen		45,840		55,840		7.08
James S. Sauls		50,000		58,000		7.51
Erin Sjostrom		3,250		39,500		3.01
Joshua R. Simmons, M.D.		31,500		26,000		4.09
Ernest Sims, III		25,000		25,000		3.56
David L. Tedrick, M.D.		25,000		28,000		3.77
M. Stephen Turner		20,000		12,012		2.30
Steven Winn		20,454		11,750		2.32
Total (18 people)		468,611		582,669		53.58	%

(1) Includes shares for which the named person:


·	Has sole voting and investment power;


·	Has shared voting and investment power; or


·	Holds in an IRA or other retirement plan.

(2) Includes warrants issued in the initial stock offering and stock options which may be exercised within 90 days of December 31, 2009.

(3) Based on 1,379,566 shares outstanding and only the listed beneficial owner exercising his or her warrants and/or options.

[Intentionally left blank]

Item 13. Certain Relationships and Related Transactions and Director Independence

The Bank had the following outstanding loans to Pro Financial’s and the Bank’s directors and executive officers in amounts in excess of $60,000 in the aggregate for each director or executive officer:

Borrower	Date Matures	Largest Amount in 2009		Amount Outstanding 12/31/2009		Loan Type	Interest Rate
AFN Mahan, LLC(1)	6/26/2010	$	299,981	$	299,981	Coml	P+1, fl 6.25%
Forsthoefel and Williams	10/6/2011	$	10,978	$	7,221	Coml Term	P, fl 6.0%
Michael and Jana Forsthoefel	9/13/2010	$	100,438	$	100,406	PLOC	P, fl 6.0%
	Total	$	411,397	$	407,608

Aerie Holdings, LLC(2)	10/3/2010	$	100,000	$	100,000	Coml LOC		5.92%
Waterbrook, LLC(2)	10/6/2014	$	562,500	$	138,750	Coml		6.5%
Waterbrook, LLC(2)	5/6/2010	$	448,000	$	348,470	Construction	P+!, fl 6.25%
	Total	$	1,110,500	$	587,220

Villa Lucia LLC(3)	3/7/2010	$	125,000	$	124,521	Coml LOC	P, fl 6.0%
James Sauls	3/7/2010	$	45,103	$	0	PLOC	P, fl 6.0%
	Total	$	170,103	$	124,521

Ernie Sims, III	7/2/2014	$	139,900	$	129,995	Cons Term		7%

Fat Orange Cat LLC(4)	12/27/2010	$	171,748	$	170,398	Coml LOC	MMA+2%

Javier Escobar	3/14/2010	$	55,049	$	55,049	PLOC	P, fl 6.0%
JEM Properties(5)	3/14/2010	$	129,211	$	69,211	Coml LOC	P, fl 6.5%
	Total	$	184,260	$	124,259

Josh and Kate Simmons	11/10/2018	$	140,857	$	137,483	HELOC	P, fl 6.0%
Josh Simmons	7/9/2010	$	75,199	$	50,763	PLOC	P, fl 6.0%
	Total	$	216,056	$	188,247

Peter Rosen	4/25/2010	$	99,605	$	99,526	PLOC	P, fl 6.0%
Peter Rosen	10/31/2013	$	25,860	$	21,915	Cons Term		7%
	Total	$	125,465	$	121,441

(1) Dr. Forsthoefel

(2) Mr. Hobbs

(3) Mr. Sauls

(4) Mr. Turner

(5) Dr. Escobar

Item 14. Principal Accounting Fees and Services

James D.A. Holley & Co. P.A., audited the Company’s financial statements from inception to December 31, 2006 and for the fiscal year ended December 31, 2007. They also performed the reviews for the quarters ended June 30, and September 30, 2007 as well as for the fiscal year ended December 31, 2008. Hacker, Johnson, Smith P.A., audited the Company’s financial statements for the fiscal year ended December 31, 2009.

Fees related to services performed by James D.A. Holley & Co. in 2008 and 2007 were as follows:

	2009		2008		2007
Audit Fees (1)	$	27,500	$	22,000	$	7,355
Audit-Related Fees		-0-		-0-		-0-
Tax Fees (2)		3,000		3,000		-0-
Total	$	30,500	$	25,000	$	7,355

Fees related to services performed by Hacker, Johnson, Smith PA in 2009 were as follows: (3)

	2009
Audit Fees (1)		-0-
Audit-Related Fees		-0-
Tax Fees (2)		-0-
Total	$	-0-

(1)	Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements. The Audit Committee must pre-approve audit related and non-audit services not prohibited by law to be performed by the Companies independent auditors. The Audit Committee pre-approved all audit related and non-audit services in 2008 and 2009.

	The Audit Committee has reviewed Pro Financial’s audited financial statements as of, and for, the fiscal years ended December 31, 2008 and 2009, and met with management to discuss those financial statements. Management has represented to the Audit Committee that the financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.

	The Audit Committee has received from, and discussed with James D.A. Holley & Co. P.A., the written disclosure and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). These items relate to that firm’s independence from Pro Financial. The Audit Committee has also discussed with James D.A. Holley & Co. P.A., any matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).

	The Pro Financial Audit Committee has received from Hacker, Johnson & Smith, P.A. the written disclosure and the letter required by Independence Standards Board Standard No. I (Independence Discussions with Audit Committees). These items relate to the auditing firm's independence from Pro Financial and the Bank. The Chairman of Pro Financial's Audit Committee was advised by Hacker Johnson & Smith that there were no matters required to be discussed by the Statement on Auditing Standards No. 114 at present and this information was presented to the Audit Committee. (Communication with Audit Committees).

	Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that Pro Financial’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal years ended December 31, 2008 and 2009, and filed with the Securities and Exchange Commission.

(2)	Tax fees principally included tax advice, tax planning and tax return preparation.

(3)	There were no audit fees billed or accrued for Hacker, Johnson & Smith during 2009. Such fees were billed and paid in 2010.

Item 15. Exhibits

Exhibits marked with an (a) were filed with the Form SB-2 filed with the Securities and Exchange Commission March 9, 2007 File No. 333-141191. Exhibits marked with an (b) were filed with Amendment No. 2 to Form S-1 (formerly Form SB-2) filed with the Securities and Exchange Commission September 16, 2009

(a)	3.1	Articles of Incorporation

(a)	3.2	Bylaws

(a)	4.1	Specimen Common Stock Certificate

(a)	4.2	Warrant Plan

(a)	4.3	Warrant Certificates

(a)	10.1	Employment Agreement with B. Bryan Robinson

(a)	10.2	Employee Stock Option Plan

(a)	10.3	Director Stock Option Plan

(a)	10.4	Lease for Main Office

(a)	10.5	Escrow Agreement

(b)	10.6	Employment Agreement with Erin B. Sjostrom

	13.1	Financial Statements

	14.1	Code of Ethics

(a)	21.1	Schedule of Subsidiaries

	31.1	Certification of Chief Executive and Principal Accounting Officer required by Rule 13a- 14(a)/15d-14(a) under the Exchange Act

	32.1	Certification of Chief Executive and Principal Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be duly signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tallahassee, State of Florida, on the 13th day of April, 2010.

		PRO FINANCIAL HOLDING, INC.

		/s/ B. Bryan Robinson
		B. Bryan Robinson
		President and Chief Executive and
		Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in their capacities on April 13th, 2010.

Signature


/s/ Stephen R. Winn		Chairman & Director
Stephen R. Winn

		Director
Christopher E. Diamantis


/s/ Edward W. Dougherty Jr.		Director
Edward W. Dougherty, Jr.


/s/ Kathleen B. Atkins-Gunter		Director
Kathleen B. Atkins-Gunter

		Director
Javier I. Escobar, II MD


/s/ Michael W. Forsthoefel, MD		Director
Michael W. Forsthoefel, MD


/s/ Roger K. Hobbs		Director
Roger K. Hobbs

		Director
Joseph P. Jones


/s/ Allen R. Moayad		Director
Allen R. Moayad


/s/ Anuj P. Patel		Director
Anuj P. Patel


/s/ Peter S. Rosen		Director
Peter S. Rosen


		Director
James S. Sauls


/s/ Joshua R. Simmons, MD		Director
Joshua R. Simmons, MD


		Director
Ernest Sims, III

		Director
David L. Tedrick, M.D.

		Director
M. Stephen Turner

Pro Financial Services, Inc.

Form 10-K

For Fiscal Year Ending December 31, 2009

EXHIBIT INDEX

Exhibit No.		Exhibit
13.1		Financial Statements

14.1		Code of Ethics

21.1		Schedule of Subsidiaries

31.1		Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act

32.1		Certification of Chief Executive and Principal Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Pro Financial Holdings Inc 10-K