SECURITIES ANDTable EXCHANGEof COMMISSIONContents

~~Washington,~~SECURITIES AND EXCHANGE ~~D.C. 20549~~COMMISSION

~~_____________________~~Washington, D.C. 20549

FORM 10-K

~~_____________________~~Annual Report Pursuant to Section 13 or 15(d)

~~Annual Report~~of ~~Pursuant~~the toSecurities ~~Section~~Exchange 13Act orof ~~15(d)~~1934

ofFor the ~~Securities~~Fiscal ~~Exchange~~Year ~~Act~~Ended ~~of 1934~~December 31, 2009

~~For the~~Commission ~~Fiscal~~File ~~Year~~Number ~~Ended~~000-50557 ~~December 31, 2008~~

~~Commission~~MARCO ~~File~~COMMUNITY ~~Number~~BANCORP, ~~000-50557~~INC.

~~_____________________~~A Florida Corporation

~~MARCO COMMUNITY~~IRS ~~BANCORP,~~Employer ~~INC~~Identification No. 84-1620092

~~A Florida~~1770 ~~Corporation~~San Marco Road

~~IRS Employer~~Marco ~~Identification~~Island, ~~No.~~Florida ~~84-1620092~~34145

~~_____________________~~(239) 389-5200

~~1770 San~~Securities ~~Marco~~Registered ~~Road~~Pursuant to Section 12(b)

~~Marco Island,~~of ~~Florida 34145~~the Securities Exchange Act of 1934: NONE

Securities Registered Pursuant to Section 12(~~239~~g) ~~389-5200~~ of the Securities Exchange

~~Securities Registered~~Act ~~Pursuant~~of to1934: ~~Section~~Common ~~12(b)~~Stock, $0.01 par value

of Indicate by check mark if the ~~Securities~~registrant ~~Exchange~~is ~~Act~~a well-known seasoned issuer, as defined in Rule 405 of ~~1934:~~the ~~NONE~~Securities Act. Yes ¨ No x

~~Securities Registered~~Indicate ~~Pursuant~~by check mark if the registrant is not required to file reports pursuant to Section 13 12or 15(gD) of the ~~Securities~~ Exchange Act. Yes ¨ No x

~~Act of~~Note ~~1934:~~– ~~Common~~Checking ~~Stock,~~the ~~$0.01~~box ~~par~~above ~~value~~will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the exchange Act.

Indicate by check mark ifwhether the ~~registrant~~Registrant is(1) has afiled ~~well-known~~all ~~seasoned~~reports ~~issuer,~~required asto ~~defined~~be infiled by ~~Rule~~Section 13 ~~405~~or 15(d) of the Securities Exchange Act~~. Yes~~ of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark if ~~the~~disclosure ~~registrant~~of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not ~~required~~be contained, to ~~file~~the ~~reports~~best ~~pursuant~~of ~~to Section~~registrant’s 13knowledge, in definitive proxy or ~~15(D)~~information statements incorporated by reference in Part III of ~~the~~this ~~Exchange~~Form ~~Act. Yes ¨ No~~10-K x

~~Note~~Indicate ~~– Checking~~by check mark whether the ~~box~~registrant ~~above~~is ~~will~~a ~~not~~large ~~relieve~~accelerated ~~any~~filer, ~~registrant~~an ~~required~~accelerated tofiler, ~~file~~a ~~reports~~non-accelerated filer or a small ~~pursuant~~reporting tocompany. ~~Section~~See 13the ordefinitions ~~15(d)~~of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the ~~exchange~~Exchange Act.

~~Indicate by~~Large ~~check~~accelerated ~~mark~~filer ~~whether~~¨ ~~the~~Accelerated ~~Registrant~~filer ~~(1)~~¨ ~~has~~Non-accelerated ~~filed~~filer ~~all~~¨ ~~reports~~Smaller ~~required~~reporting tocompany be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ~~No ¨~~

Indicate by check mark ifwhether ~~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,~~is ina ~~definitive~~shell ~~proxy~~company ~~or information~~(as ~~statements~~defined ~~incorporated by reference~~ in ~~Part~~Rule ~~III~~12b-2 of ~~this Form~~the ~~10-K~~Act). Yes ¨ No x

~~Indicate by~~The ~~check~~aggregate ~~mark~~market ~~whether~~value of the ~~registrant~~Registrant’s iscommon astock ~~large~~held ~~accelerated~~by ~~filer~~non-affiliates of the Registrant, anbased upon the closing price ~~accelerated~~of ~~filer~~$3.90, aas ~~non~~quoted on the Over-~~accelerated~~the-Counter-Bulletin-Board, ~~filer~~on orJune 30, a2009, ~~small~~was ~~reporting company~~approximately $7,932,830. ~~See~~ For the ~~definitions~~purposes of ~~“large~~this ~~accelerated filer~~response,~~” “accelerated~~ ~~filer,”~~directors and ~~“smaller~~officers ~~reporting~~of ~~company”~~the inRegistrant ~~Rule~~are ~~12b-2~~considered the affiliates of the ~~Exchange~~ ~~Act~~Registrant at that date.

~~Large~~(APPLICABLE ~~accelerated~~ONLY ~~filer~~TO ¨CORPORATE ~~Accelerated~~REGISTRANTS) ~~filer¨ Non-accelerated filer ¨ Smaller reporting company x~~

~~Indicate by~~The ~~check~~number ~~mark~~of ~~whether~~shares ~~the~~outstanding ~~registrant~~of isthe aRegistrant’s ~~shell~~common ~~company~~stock, (as ~~defined~~of inJune 30, ~~Rule 12b-2~~2010: of3,328,608 ~~the~~shares ~~Act)~~of $0.01 ~~Yes~~par ~~¨ No~~value xcommon stock.

~~The aggregate~~DOCUMENTS ~~market~~INCORPORATED ~~value~~BY ofREFERENCE the Registrant’s common stock held by non-affiliates of the Registrant, based upon the closing price of $5.55, as quoted on the Over-the-Counter-Bulletin-Board, on June 30, 2008 was approximately $11,006,138. For the purposes of this response, directors and officers of the Registrant are considered the affiliates of the Registrant at that date.

~~The number~~Certain ofexhibits ~~shares~~as ~~outstanding~~noted ofin ~~the~~Part ~~Registrant’s~~IV, ~~common stock~~Item 15, as of ~~February 28,~~the ~~2009:~~Annual ~~3,222,608~~report ~~shares~~on ofForm ~~$0.01~~10-K ~~par~~are ~~value~~incorporated ~~common~~by ~~stock~~reference.

Portions ofTable the Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held in May 2009 are incorporated by reference into Part III of this report.Contents

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Table of Contents

			~~Page~~	Page
PART I
Item 1.	~~Description of Business~~	Description of Business	3	3
Item 1A.	~~Risk Factors~~	Risk Factors	11	15
Item 1B.	~~Unresolved Staff Comments~~	Unresolved Staff Comments	11	15
Item 2.	~~Properties~~	Properties	12	15
Item 3.	~~Legal Proceedings~~	Legal Proceedings	12	15
Item 4.	~~Submission of Matters to a Vote of Security Holders~~	Removed and Reserved	12	15
PART II
Item 5.	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases~~	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities		16
	of Equity Securities		13
Item 6.		Selected Financial Data		17
Item 6.	Selected Financial Data		14
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operation		18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		15
Item 8.		Financial Statements and Supplementary Data		31
Item 8.	Financial Statements and Supplementary Data		29
Item 9.		Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		65
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		29
Item 9A.		Controls and Procedures		65
Item 9A.	Controls and Procedures		30
Item 9B.		Other information		66
Item 9B.	Other information		30
PART III
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		66
Item 10.	Directors, Executive Officers and Corporate Governance		31
Item 11.		Executive Compensation		69
Item 11.	Executive Compensation		31
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		72
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		31
Item 13.		Certain Relationships and Related Transactions and Director Independence		73
Item 13.	Certain Relationships and Related Transactions and Director Independence		31
Item 14.		Principal Accountant Fees and Services		74
Item 14.	Principal Accountant Fees and Services		31
PART IV
PART IV
Item 15.		Exhibits and Financial Statement Schedules		75
Item 15.	Exhibits and Financial Statement Schedules		32
		Signatures		77
	Signatures		63

PART I

ITEM 1. DESCRIPTION OF BUSINESS

~~Forward~~FORWARD-~~Looking Statements~~LOOKING STATEMENTS

~~Some~~Marco ~~of the~~Community ~~statements~~Bancorp, inInc., ~~this~~and ~~Form~~our 10wholly-Kowned ~~discuss~~banking ~~future~~subsidiary, ~~expectations.~~Marco ~~There~~Community Bank, may ~~also~~from betime to time make written or oral statements, including statements ~~regarding~~contained ~~projections~~in this report that may constitute forward-looking statements within the meaning of ~~results~~Section 21E of ~~operations~~the orSecurities ~~financial~~Exchange ~~condition~~Act of 1934 (the “Exchange Act”). The words “expect,” or“anticipate,” ~~state~~“intend,” ~~other~~“consider,” “plan,” “believe,” “seek,” “should,” “estimate,” and similar expressions are intended to identify such forward-looking” ~~information~~statements, but other statements may constitute forward-looking statements. ~~Those~~These statements ~~are~~should be considered subject to ~~known~~ ~~and~~various ~~unknown~~ risks, and uncertainties. ~~and~~Such ~~other~~forward-looking ~~factors~~statements ~~that~~are ~~could~~made ~~cause~~based ~~the~~upon management’s belief as well as assumptions ~~actual~~made ~~results~~by, and information currently available to, ~~differ~~management ~~materially~~pursuant ~~from~~to ~~those~~“safe ~~contemplated~~harbor” byprovisions of the ~~statements~~Private Securities Litigation Reform Act of 1995. We ~~based~~Our actual results may differ materially from the results anticipated in forward-looking ~~information~~statements ondue ~~various~~to ~~factors~~a ~~and~~variety ~~numerous assumptions,~~of ~~which~~factors. ~~may~~Such orfactors ~~may~~are ~~not~~described ~~turn~~below ~~out~~and toinclude, bewithout ~~correct.~~limitation:

~~Important factors~~• ~~that~~Losses ~~may~~in ~~cause~~our ~~actual~~loan ~~results~~portfolio toare ~~differ~~greater ~~from~~than ~~those~~estimated ~~contemplated~~or ~~by forward-looking statements include, for example:~~expected;

§• ~~The~~Unanticipated ~~success~~deterioration orin ~~failure~~the financial condition of ~~our~~borrowers ~~efforts~~may toresult ~~implement~~in ~~our~~significant ~~business~~increases ~~strategy~~in loan losses and provisions for those losses;

§• ~~The~~If ~~effect~~real ofestate ~~changing~~values ~~economic~~in ~~conditions~~our target markets continue to decline, ~~both~~our ~~nationally~~loan portfolio could become impaired and inlosses from loan defaults may exceed our ~~local~~allowance ~~community~~for loan and lease losses established for that purpose;

§• ~~Changes~~Economic inconditions ~~government~~affecting ~~regulations,~~real ~~tax~~estate values and ~~interest~~transactions ~~rates~~in ~~applicable~~Marco toCommunity ~~our~~Bancorp’s ~~business~~market and/or ~~similar~~general ~~matters~~economic conditions, either nationally or regionally, that are less favorable or take longer to recover than expected;

§• ~~Our~~An ~~ability~~inability to ~~attract~~raise ~~and~~additional ~~retain~~capital ~~quality~~on ~~employees;~~terms and conditions that are satisfactory;

§• ~~Other~~The ~~risks~~impact ~~which~~of ~~may~~current beeconomic ~~described~~conditions inand the impact of our ~~future~~results ~~filings~~of ~~with~~operations ~~the~~on ~~SEC.~~our ability to borrow additional funds to meet our liquidity needs;

We• doChanges ~~not promise~~in tothe ~~update~~interest ~~forward-looking~~rate ~~information~~environment tothat ~~reflect~~expand ~~actual~~or ~~results~~reduce margins or ~~changes~~ inadversely ~~assumptions~~affect orcritical ~~other~~estimates ~~factors~~as ~~that~~applied ~~could~~and ~~affect~~projected ~~those~~returns ~~statements~~on ~~other than~~investments ~~material~~and ~~changes~~fair tovalues ~~such~~of ~~information.~~assets;

~~General~~• Deposit attrition, customer loss or revenue loss in the ordinary course of business;

~~Marco Community~~• ~~Bancorp,~~Increased ~~Inc.~~competition ~~(“MCBI”)~~with ~~was~~other ~~incorporated~~financial ~~under~~institutions ~~the~~may ~~laws~~affect ofour ~~the~~results ~~State~~ of ~~Florida~~ onoperations ~~January 28, 2003, for the purpose of organizing Marco Community Bank (“Bank”) (MCBI~~ and the Bank are collectively referred to as the “Company”) and purchasing 100% of the to-be-issued capital stock of the Bank. The Company was formed by a group of Marco Island business leaders, bank executives and community leaders who believed that there was a significant demand for a locally-owned community bank.liquidity;

~~Under Federal~~• ~~Reserve~~If ~~Board~~our ~~regulations,~~securities ~~MCBI~~portfolio isfails ~~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 maintainedperform, ~~MCBI~~our securities may ~~borrow~~lose ~~funds,~~substantial 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.value;

~~The~~• ~~Bank commenced~~Changes ~~business operations on August 18, 2003~~ in athe ~~temporary~~legislative ~~facility~~and ~~located at~~regulatory ~~1770~~environment ~~San~~may ~~Marco~~increase ~~Road, Marco Island, Florida 34145, Marco Island, Florida. Our permanent office condominium facility was completed at~~ the ~~same~~cost ~~site~~of ~~and~~operations ~~we commenced~~or ~~occupancy~~limit inour ~~the third quarter of 2004.~~growth;

~~MCBI’s other~~• ~~wholly-owned~~Our ~~subsidiary,~~common ~~Commercial~~stock ~~Lending~~is ~~Capital~~not ~~Corp.~~an ~~(“CLCC”) (formerly~~insured ~~MCB~~bank ~~Commercial~~deposit ~~Lending Corp.) was incorporated on October 22, 2004,~~ and ~~commenced~~is asubject ~~commercial lending brokerage business on November 8, 2004. CLCC was incorporated~~ to provide commercial loans to customers that would otherwise seek financing elsewhere because of credit limit constraints. Effective December 31, 2008 CLCC’s operations were suspended due to economic market ~~conditions.~~risk;

~~The Company’s~~• ~~fiscal~~Although ~~year~~publicly ~~ends~~traded, ~~December~~our ~~31.~~common ~~This~~stock ~~Form~~has ~~10-K~~substantially isless ~~also~~liquidity ~~being~~than ~~used as~~ the ~~Bank’s~~ ~~Annual~~average ~~Disclosure~~trading ~~Statement~~market ~~under~~for ~~Federal~~a ~~Deposit~~stock ~~Insurance~~quoted ~~Corporation (“FDIC”)~~on ~~Regulations.~~the ~~This Form 10~~Over-Kthe-Counter-Bulletin-Board, ~~has~~and ~~not~~our ~~been~~stock ~~reviewed~~price orcan ~~confirmed~~be ~~for accuracy or relevance by the FDIC.~~volatile;

3• The inability of Marco Community Bancorp to realize elements of its strategic and operating plans for 2010 and beyond;

~~Table~~ • Natural disasters in Marco Community Bancorp’s primary market areas result in prolonged business disruption or materially impair the value of ~~Contents~~collateral securing loans;

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

~~Marco Island~~• isThe ~~the~~impact ~~primary residential and commercial center located in the southeast part~~ of ~~Collier County, Florida. Collier County maintains a steady tourist, industrial and agricultural base, which has been expanding in~~ recent years. The largest employers in the County include: Collier County School Board; Naples Community Hospital, Inc.; Publix Supermarket, Inc.; Collier County Board of County Commissioners; Marriott Corporation; Winn-Dixie Stores, Inc.; and ~~Ritz~~future ~~Carlton~~federal ~~Hotel. Agricultural activities in the county center around the cattle, produce~~ and ~~saltwater~~state ~~fishing~~regulatory ~~industries. Numerous resorts, hotels and other tourist facilities are located in Marco Island, as well as a number of winter residences mixed with a large number of permanent residences.~~changes;

We• ~~offer a~~Current ~~full~~or ~~range~~future ~~of interest bearing and non-interest bearing deposit accounts~~litigation, ~~including~~ ~~commercial~~regulatory ~~and retail checking accounts~~investigations, ~~money market accounts~~proceedings, ~~individual~~ ~~retirement and Keogh accounts~~inquiries, ~~regular~~or ~~interest bearing savings accounts and certificates of deposit with fixed and variable rates and a range of maturity date options. The sources of deposits are residents~~requirements, ~~businesses~~including ~~and employees of businesses within our market area, obtained through~~ the ~~personal solicitation~~possible closure of ~~our officers and directors, direct mail solicitation and advertisements published in~~ the ~~local~~Subsidiary media. We pay competitive interest rates on time and savings deposits. In addition, we have a service charge fee schedule competitive with other financial institutions in our market area covering such matters as maintenance fees on checking accounts, per item processing fees on checking accounts and returned check charges.Bank;

~~Over~~• ~~the past~~Strategies ~~year~~ to 24manage months, economic conditions have deteriorated in our primary market area. We believe the challenging market conditions found in its market area are primarily attributable to a regional softening in demand for real estate assets, as well as an oversupply of residential and commercial properties, particularly in the Collier County Florida market. Residential inventories have increased, as has commercial space already in construction and now nearing completion. The decline in residential real estate prices and falling commercial lease rates, uncertainty as to the direction of interest ~~rates,~~rate ~~lack~~risk ~~of availability of financing and an inability to sell currently owned properties all add to an air of economic uncertainty in the Southwest Florida region. In addition, global economic issues~~ may ~~also~~yield ~~affect~~results ~~our~~other ~~market~~than ~~area. These economic~~those factors have also contributed to the number and severity of problem assets within the Bank’s own portfolio as total classified loans as of December 31, 2008 totaled $17.4 million or 12.7% of total assets, compared to $19.1 million or 12.8% at December 31, 2007. The Bank has brought its reserves in line with its expected exposure to these problem assets.anticipated;

~~Loan Portfolio~~• A significant rate of inflation (deflation);

~~General~~• -Unanticipated Welitigation ~~consider the~~or maintenance of a well-underwritten and diversified loan portfolio a prudent and profitable method of employing funds raised through deposits. The Bank’s objective is to maintain a high quality, diversified credit portfolio consisting of commercial, consumer and mortgage loans.claims;

~~The Bank’s~~• ~~loan~~Changes ~~policy~~in ~~provides~~ the ~~Bank’s~~securities lenders with the discretion necessary to accomplish our lending objectives, while assuring compliance with banking regulations. The Bank Board’s Loan Committee is responsible for overseeing the soundness of the Bank’s credit policy, adherence to lending policies and compliance with applicable laws, rules and regulations. To fulfill these responsibilities, the Loan Committee reviews the adequacy of the Bank’s credit policy on at least a quarterly basis, reviews all large loans and monitors the performance of the loan portfolio on an ongoing basis. At December 31, 2008, net loans comprised 78% of our total assets.markets;

~~Commercial~~• ~~Loans~~Acts -of ~~We provide~~terrorism commercial loans to the business community to provide funds for such purposes as financing business equipment and commercial real estate. Our emphasis is on loans secured by commercial real estate, rather than riskier receivables or ~~business~~war; ~~inventory loans. Risks associated with these types of loans include the general business conditions found in the local economy~~ and borrowers’ ability to conduct their businesses in a fashion which generates sufficient profits to repay their loans under agreed upon terms and conditions. Personal guarantees may 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~~• ~~are~~Details ~~either~~of ~~short~~the ~~term~~Emergency ~~(one~~Economic ~~year~~Stabilization orAct ~~less)~~of or2008; ~~intermediate~~the ~~term~~American inRecovery ~~nature~~ and ~~may~~Reinvestment beAct ~~secured,~~of ~~unsecured~~2009; orthe ~~partially~~Hiring ~~secured.~~Incentives ~~Maturities are structured in relation~~ to ~~the~~Restore ~~economic~~Employment ~~purpose~~Act; of the ~~loan~~Worker, ~~conforming~~Homeownership, toand ~~the~~Business ~~anticipated source~~Assistance Act of ~~repayment.~~2009; ~~Interest~~and ~~rates~~other ~~are~~recent ~~typically~~tax ~~originated~~acts; onand avarious ~~floating~~announced ~~rate basis,~~and ~~tied~~unannounced toprograms ~~prime~~and ~~rate.~~regulations ~~The~~from ~~basis~~Congress, ~~upon~~the ~~which~~U.S. weTreasury ~~set~~Department, ~~rates~~and ~~over~~bank ~~prime~~regulators isto ~~based upon~~address ~~the~~capital ~~risk~~and ofliquidity ~~the~~concerns ~~credit~~in ~~facility.~~the Webanking ~~attempt to place interest rate~~system, ~~floors and~~are ~~pre-payment~~still ~~penalties~~being ~~whenever~~implemented ~~possible.~~or Infinalized ~~addition,~~and wemay ~~attempt~~have ~~to originate~~a ~~fee~~significant ~~income~~effect on ~~each~~the ~~loan~~financial ~~closed~~services ~~through~~industry ~~the~~and ~~Bank~~Marco Community Bancorp.

~~Term loans~~3 are those having an anticipated final maturity of more than one year from the initial funding date. Generally, loans extending more than two years are made pursuant to formal written loan agreements between the borrower and the Bank. Amortization schedules on term loans secured by collateral other than real estate typically reflect a complete payout within

4Table of Contents

~~Table~~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 ~~Contents~~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.

~~seven~~Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Marco ~~years~~Community ofBancorp,” “Holding Company,” “MCBI,” “the ~~funding~~Company,” ~~date.~~“Marco ~~Loans~~Community ~~secured~~Bank,” byor” ~~commercial~~the ~~real~~Bank” ~~estate~~as ~~are~~used ~~generally~~herein refer collectively to Marco Community Bancorp, Inc. and our subsidiary Marco ~~amortized~~Community ~~over~~Bank, 20which ~~years~~we sometimes refer to as “Marco Community Bank,” ~~with~~“the ~~five~~Bank,” “our bank subsidiary,” or “our bank.” References herein to ~~seven~~the ~~year~~fiscal ~~maturities~~years 2008 and 2009 mean our fiscal years ended December 31, 2008 and 2009, respectively.

~~Demand notes~~4 are utilized in connection with certain secured commercial loan transactions where the nature of the transactions suggest that such structure is clearly preferable; however, time notes are utilized as a matter of routine.

The followingTable types of credit are also considered by the Bank, subject to adequate available resources to monitor and service such credit:Contents

~~· real estate~~General ~~development loans secured by a first lien on the property where the Bank is also providing construction and/or permanent financing;~~

~~· term loans~~Marco ~~secured~~Community byBancorp, ~~machinery~~Inc. ~~and~~(“MCBI”) ~~equipment~~was ~~(terms~~incorporated under the laws of ~~such~~the ~~loans~~State ~~will~~of beFlorida ~~consistent with~~on January 28, 2003, for the purpose, ~~cash~~of organizing ~~flow~~Marco ~~capacity,~~Community Bank (the “Bank”) (MCBI and ~~economic~~the ~~life~~Bank ofare ~~collateral~~collectively referred to as the “Company”); and purchasing 100% of the to-be-issued capital stock of the Bank. The Company was formed by a group of Marco Island business leaders, bank executives and community leaders who believed that there was a significant demand for a locally-owned community bank.

~~· credit~~Under Federal Reserve Board regulations, MCBI is expected to be a source of financial strength to the Bank. Banking regulations require that the Bank ~~lines~~maintain ~~for~~a ~~short-term~~minimum ~~working~~ratio of capital ~~requirements~~to assets. ~~All~~In ~~credit~~the ~~lines~~event ~~are~~that the Bank’s growth is such that this minimum ratio is not maintained, MCBI may borrow funds, subject to the capital adequacy guidelines of the Federal Reserve, and contribute them to ~~review~~the atcapital ~~least~~of ~~annually~~the Bank and ~~will~~otherwise ~~generally~~raise ~~carry~~capital in a ~~requirement~~manner ~~for~~that ais ~~minimum 30~~unavailable ~~consecutive~~to ~~day~~the ~~annual~~Bank ~~out-of-debt~~under ~~period~~existing banking regulations.

~~Mortgage~~The Bank ~~Loans~~commenced –business ~~We do~~operations ~~not~~on ~~actively~~August 18, ~~engage~~2003 in ~~conventional~~a 15temporary tofacility 30located ~~year~~at ~~fixed~~1770 ~~rate~~San ~~residential~~Marco Road, Marco Island, Florida 34145, Marco Island, Florida. Our permanent office condominium facility was completed at the same site and we ~~mortgage~~commenced ~~lending~~occupancy in the third quarter of 2004.

~~Consumer~~MCBI’s ~~Loans~~other wholly- ~~Consumer~~owned ~~loans~~subsidiary, ~~are~~Commercial ~~being~~Lending ~~provided~~Capital toCorp. (“CLCC”) ~~individuals~~(formerly ~~for~~MCB ~~household,~~Commercial ~~family~~Lending ~~and personal expenditures~~Corp. ~~Consumer~~) ~~loans~~was ~~generally~~incorporated ~~involve~~on ~~more~~October 22, ~~risk than~~2004, ~~mortgage~~and ~~loans~~commenced ~~because the collateral for~~ a ~~defaulted~~commercial ~~loan~~lending ~~may~~brokerage ~~not~~business ~~provide an~~on ~~adequate~~November 8, ~~source of repayment of the principal~~2004. ~~This~~CLCC ~~risk~~was isincorporated ~~due~~ to ~~the potential~~provide ~~for~~commercial ~~damage~~loans to ~~the~~customers ~~collateral or other loss of value, and the fact~~ that ~~any~~would ~~remaining~~otherwise ~~deficiency~~seek ~~often~~financing ~~does~~elsewhere ~~not~~because ~~warrant~~of ~~further~~credit ~~collection~~limit ~~efforts~~constraints. ~~In addition~~Effective December 31, ~~consumer~~2008, ~~loan performance depends on the borrower~~CLCC’s ~~continued financial~~operations ~~stability~~were ~~and~~suspended ~~is,~~due ~~therefore, more likely~~ to beeconomic ~~adversely~~market ~~affected by job loss, divorce, illness or personal bankruptcy~~conditions. ~~Generally, consumer loans have a maturity of not longer than six years. The primary type of consumer lending will be for the financing of boats and automobiles, home improvements and education.~~

~~Loan Loss~~Regulatory ~~Allowance~~Action

~~As of~~On ~~December 31~~February 19, ~~2008~~2010, ~~approximately~~the ~~27.9%~~Bank was closed by the Florida Office of ~~outstanding~~Financial ~~loans~~Regulation ~~are~~(“OFR”) inand the ~~commercial~~ ~~real~~Federal ~~estate~~Deposit ~~loan~~Insurance ~~category~~Corporation ~~compared~~(the to“FDIC”) ~~25.8%~~was atappointed ~~December~~as ~~31, 2007. At~~receiver ~~December~~of ~~31,~~the ~~2008,~~Bank. ~~commercial~~Subsequent ~~loans~~to ~~represented~~the ~~29.9%~~closure, Mutual of ~~our loan~~Omaha ~~portfolio~~Bank, ~~compared~~Omaha, toNebraska ~~33.0%~~(“Mutual atof ~~December 31~~Omaha”), ~~2007.~~assumed ~~Commercial~~all ~~loans~~of ~~are generally~~the ~~considered~~deposits byof ~~management~~the asBank, ~~having~~and ~~greater~~purchased ~~risk~~essentially ~~than~~all ~~other categories~~ of ~~loans~~the inBank’s ~~our~~assets ~~loan~~in ~~portfolio.~~a Wetransaction ~~believe~~facilitated ~~that~~by the ~~real~~FDIC. ~~estate~~On ~~collateral securing~~February 20, ~~our~~2010, ~~commercial~~the ~~real~~one ~~estate~~office ~~loans~~of ~~reduces~~ the Bank ~~risk~~reopened ofas ~~loss~~a ~~inherently present~~branch inof ~~commercial~~Mutual ~~loans~~of Omaha.

AtThe Company’s principal asset is the capital stock that it owns in the Bank at ~~December~~February 19, 312010, ~~2008~~and, ~~our~~as ~~consumer~~a ~~loan~~result ~~portfolio~~of ~~consisted~~the ~~primarily~~closure of ~~lines~~the Bank, the Company has minimal remaining tangible assets. The Company did not realize any recovery following the closing of ~~credit~~ the Bank and ~~installment~~sale ~~loans~~of ~~secured~~its assets by ~~automobiles~~the FDIC, ~~boats~~nor ~~and~~is ~~other consumer~~any ~~goods~~recovery expected. WeSince ~~believe~~the ~~that~~closing of the ~~risk~~Bank, ~~associated~~the ~~with~~principal ~~these~~assets ~~types~~ of ~~loans~~the ~~has~~Company ~~been adequately~~are ~~provided~~its ~~for~~office condominium, a participation in ~~the~~a loan ~~loss~~receivable, ~~allowance~~and cash.

The ~~Bank’s~~ ~~Board~~Company ofis ~~Directors~~exploring ~~monitors~~methods ~~the~~of ~~loan~~winding ~~portfolio~~down ~~monthly~~its inoperations. ~~order~~Any ~~to evaluate~~ultimate ~~the~~distribution ~~adequacy~~ of ~~the~~assets ~~allowance~~will ~~for~~occur ~~loan~~in ~~losses.~~accordance Inwith ~~addition~~Florida ~~to reviews by regulatory agencies~~law, the Company’s ~~Bank~~Articles ~~engages the services~~ of ~~outside~~Incorporation ~~consultants~~and ~~to assist in~~ the ~~evaluation~~terms of ~~credit quality and loan administration. These professionals complement our internal system, which identifies potential problem credits as quickly as possible, categorizes~~ the ~~credit~~Company’s ~~portfolio~~outstanding asseries ~~to risk and includes a reporting process to monitor the progress~~ of ~~any~~Preferred ~~troubled credits~~Stock.

The ~~allowance~~ ~~for~~Company’s ~~loan losses is established through a provision for loan losses~~fiscal ~~charged~~year toends ~~expenses~~December 31. ~~Loans~~This ~~are~~Form ~~charged~~10-K ~~off against the allowance when management believes the collectibility of principal~~ is ~~unlikely.~~also ~~The~~being ~~monthly~~used ~~provision~~as ~~for loan losses is based on management’s judgment, after considering known and inherent risks in~~ the ~~portfolio, our past loss experience, adverse situations that may affect a borrower~~Bank’s ~~ability~~Annual toDisclosure ~~repay,~~Statement ~~assumed~~under ~~values~~FDIC ofRegulations. ~~the~~This ~~underlying collateral~~Form ~~securing~~10-K ~~the~~has ~~loans,~~not ~~the~~been ~~current~~reviewed ~~and~~or ~~prospective~~confirmed ~~financial~~for ~~condition of~~accuracy ~~the~~or ~~borrower,~~relevance ~~and~~by the ~~prevailing and anticipated economic conditions within the local market~~FDIC.

AsThe disclosures contained in this annual report contemplate the Bank and the Company operating with a going concern opinion from its external auditors ~~other~~(see ~~banks~~the ~~which~~Report ~~have~~of ~~regional~~the ~~exposure~~Independent Registered Public Accounting Firm and Note 1 of Notes to Consolidated Financial Statements). The amounts and disclosures as of and for the ~~real~~years ~~estate~~ended ~~markets~~December 31, ~~Marco Community~~2009 ~~Bank~~and ~~has~~2008 have not been restated ~~immune~~ to reflect the ~~general~~closure ~~downturn~~of inthe Bank by the ~~real~~FDIC ~~estate markets~~on ~~and~~February 19, ~~its~~2010. ~~generalized~~Accordingly, ~~effects~~the ~~upon~~reader of this Form 10-K should understand that this annual report was prepared to comply with the ~~regional~~disclosures typically presented by a ~~economy. Subsequently,~~publicly-held asbank and not be misled by the ~~downturn~~use ~~has~~of ~~progressed,~~present ~~this~~tense ~~has placed~~language adescribing ~~strain~~the ~~upon~~operations ~~asset~~of ~~quality~~the Bank.

~~This process~~Market ofArea ~~provision calculation has evolved as the Bank has responded to the change in its local~~ and ~~regional~~Competition market conditions. This has necessitated a revision in the process of calculating such provisions so as to ensure that the Bank maintains an appropriate level of reserves in response to the changing market conditions within which the Bank operates.

5Marco Island is the primary residential and commercial center located in the southeast part of Collier County, Florida. Collier County maintains a steady tourist, industrial and agricultural base, which has been expanding in recent years. The largest employers in the County include: Collier County School Board; Naples Community Hospital, Inc.; Publix Supermarket, Inc.; Collier County Board of County Commissioners; Wal-Mart; Marriott Corporation; Winn-Dixie Stores, Inc.; Ritz Carlton Hotel; and Naples Grande Resort. Agricultural activities in the county center around the cattle, produce and saltwater fishing industries. Numerous resorts, hotels and other tourist facilities are located in Marco Island, as well as a number of winter residences mixed with a large number of permanent residences.

~~Table of~~5 ~~Contents~~

TheTable Bank has received and welcomed guidance from the appropriate regulatory agencies with regards to the calculation of this provision and has worked with these agencies to ensure that the allowance for lease and loan losses meets appropriate regulatory standards. This has entailed changes in how the Bank has segmented loan categories, resulting in a more appropriate and detailed division of loan categories and an improved assignment of risks specific to each category. This re-segmentation and risk re-assessment has been conducted in compliance with Financial Accounting Standards Board pronouncements FAS 114, Accounting by Creditors for Impairment of a Loan, and FAS 5, Accounting for Contingencies.Contents

AsWe offer a full range of interest bearing and non-interest bearing deposit accounts, including commercial ~~expected~~and retail checking accounts, ~~the~~money ~~revision~~market accounts, individual retirement and Keogh accounts, regular interest bearing savings accounts and certificates of ~~this~~deposit ~~calculation~~with ~~process~~fixed ~~delineated~~and ~~the~~variable ~~need~~rates toand ~~adjust~~a range of maturity date options. The sources of deposits are residents, businesses and employees of businesses within our ~~provisions~~market area, obtained through the personal solicitation of our officers and ~~overall~~directors, ~~lease~~direct mail solicitation and ~~loan~~advertisements ~~loss~~published ~~allowance~~in the local media. We pay ~~accordingly~~competitive interest rates on time and savings deposits. In addition, we have ~~responded~~a toservice ~~specific~~charge ~~guidance provided~~fee byschedule ~~the~~competitive ~~appropriate~~with ~~regulatory~~other ~~agencies~~financial ~~and~~institutions ~~have~~in ~~made~~our ~~specifically directed~~market ~~adjustments~~area incovering ~~the~~such ~~level~~matters ofas ~~this~~maintenance ~~allowance~~fees inon ~~order~~checking toaccounts, ~~conform~~per ~~to this~~item ~~guidance~~processing fees on checking accounts and returned check charges.

~~The provision~~Over ~~for~~the ~~loan~~past ~~losses~~24 ~~was~~to $636 months, economic conditions have deteriorated in our primary market area.0 ~~million~~We ~~for~~believe the ~~year~~challenging ~~ended~~market ~~December~~conditions ~~31,~~found ~~2008, compared~~in our market area are primarily attributable to ~~$8.1~~a ~~million~~regional softening in demand for ~~the~~real ~~year~~estate ~~ended~~assets, ~~December~~as 31well as an oversupply of residential and commercial properties, ~~2007. Non-accrual~~particularly ~~loans~~in ~~decreased~~the ~~$2.0~~Collier ~~million~~County orFlorida 16market.1% ~~from December~~Residential 31inventories have increased, ~~2007~~as has commercial space already in construction and now nearing completion. The ~~ratio~~decline ofin ~~non-performing~~residential ~~loans~~real toestate ~~total~~prices ~~loans was~~and ~~9.1%~~falling atcommercial ~~December~~lease 31rates, uncertainty ~~2008,~~as ~~compared~~ to ~~9.9%~~the ~~from~~direction ~~December~~of ~~31,~~interest ~~2007~~rates, ~~and~~lack ~~the ratio~~of availability of ~~non-performing~~financing ~~assets~~and an inability to ~~total~~sell ~~assets~~currently ~~was~~owned ~~9.8%~~properties ~~and~~all 10add to an air of economic uncertainty in the Southwest Florida region.~~1%,~~ ~~respectively~~In addition, global economic issues atmay ~~these~~also ~~same~~affect ~~dates~~our market area. These economic factors ~~lead~~have also contributed to the ~~Company~~number and severity of problem assets within the Bank’s ~~decreased provision~~own inportfolio ~~2008~~as total classified loans as of December 31, 2009 totaled $19.9 million or 16.8% of total assets, compared to ~~2007~~$17.4 million or 12.7% at December 31, 2008. The Bank has brought its reserves in line with its expected exposure to these problem assets.

~~For~~Loan ~~the year~~Portfolio ~~ended December 31, 2008, $3.6 million was charged off against the allowance for loan losses. For the year ended December 31, 2007 $6.4 million was charged off against the allowance.~~

~~Other~~General - We consider the maintenance of a well-underwritten and diversified loan portfolio a prudent and profitable method of employing funds ~~Real~~raised ~~Estate~~through ~~owned~~deposits. The Bank’s objective is to maintain a high quality, diversified credit portfolio consisting of commercial, consumer and mortgage loans.

~~Other real~~The ~~estate~~Bank’s ~~owned~~loan ~~(“OREO”)~~policy isprovides ~~comprised~~the ofBank’s ~~real~~lenders ~~estate~~with ~~properties~~the ~~obtained~~discretion ~~in partial~~necessary orto ~~total~~accomplish ~~satisfaction~~our oflending ~~loan~~objectives, ~~obligations. As~~while ~~of December 31,~~assuring ~~2008~~compliance ~~OREO~~with ~~totaled~~banking $3regulations.2 ~~million~~The ~~which~~Bank ~~was~~Board’s ~~comprised~~Loan ofCommittee 13is ~~residential~~responsible ~~real estate lots held~~ for anoverseeing ~~average~~the soundness of ~~9.6~~the ~~months~~Bank’s ~~and~~credit ~~six~~policy, ~~residential~~adherence ~~properties~~to ~~held~~lending ~~for an~~policies ~~average~~and ofcompliance 13with ~~months~~applicable laws, ~~all~~rules ~~recorded~~and atregulations. ~~estimated~~To fulfill ~~fair~~these ~~value~~responsibilities, ~~less~~the ~~estimated selling~~Loan ~~costs. Changes~~Committee inreviews ~~value~~the ~~subsequent~~adequacy toof ~~transfer~~the ~~are~~Bank’s ~~recorded in~~credit ~~non-interest~~policy ~~expense~~on ~~along~~at ~~with~~least ~~direct~~a ~~operating~~quarterly ~~expenses. Gains or~~basis, ~~losses~~reviews ~~not~~all ~~previously~~large ~~recognized~~loans ~~which~~and ~~result~~monitors ~~from~~ the ~~sale~~performance of ~~OREO~~the ~~is recognized~~loan inportfolio ~~non-interest expense~~ on ~~the~~an ~~date~~ongoing ~~of sale~~basis. ~~During~~ ~~the~~At ~~year ended~~ December 31, ~~2008 the Company wrote down $284~~2009,~~000,~~ ~~recorded~~net ~~$1.3 million~~loans inand ~~proceeds~~loans ~~from~~held ~~the~~for sale ofcomprised ~~four residential properties which resulted in a $257,000 loss~~83. ~~The~~2% ~~Company~~of ~~also~~our ~~recorded~~total ~~$299,000 in expenses to refurbish or maintain the properties held~~assets.

AtCommercial ~~the time~~Loans of- ~~booking~~We ~~OREO,~~provide commercial ~~the~~loans ~~Bank~~to ~~orders~~the anbusiness ~~appraisal~~community ~~and~~to ~~books~~provide ~~OREO~~funds atfor ~~a discounted~~such ~~amount~~purposes ~~based~~as ~~upon~~financing ~~the~~business ~~current~~equipment ~~appraised~~and ~~market~~commercial ~~value~~real estate. ~~OREO~~ Our emphasis is ~~actively~~on ~~marketed~~loans secured by ~~professional~~commercial real estate, ~~individuals~~rather inthan anriskier ~~attempt~~receivables toor business ~~sell~~inventory ~~parcels~~loans. atRisks ~~their~~associated ~~current~~with ~~market~~these ~~value. The~~types ~~Company~~of isloans ~~exposed~~include to the ~~weakening~~general ~~real~~business ~~estate~~ conditions found in the ~~Florida~~local ~~markets~~economy ~~including~~and ~~Orlando, Naples,~~borrowers’ ~~Fort~~ability ~~Myers~~to ~~and~~conduct ~~Tampa. With~~their ~~the~~businesses ~~general~~in ~~economic~~a ~~downturn,~~fashion ~~the Company~~which ~~may~~generates ~~not~~sufficient beprofits ~~able~~ to ~~sell~~repay ~~its~~their loans ~~OREO~~under ~~property~~agreed atupon ~~the~~terms ~~current~~and ~~market~~conditions. ~~value,~~ Personal guarantees may ~~experience~~be anobtained ~~increase~~from inthe ~~OREO~~principals of business borrowers and ~~may~~third ~~incur~~parties ~~increased~~to ~~expenses~~support ~~related~~ the borrowers’ ability to service the debt and reduce the risk of non-payment.

~~carrying~~Commercial loans are either short term (one year or less) or intermediate term in nature and may be secured, unsecured or partially secured. Maturities are structured in relation to the economic purpose of the loan, conforming to the anticipated source of repayment. Interest rates are typically originated on a floating rate basis, tied to prime rate. The basis upon which we set rates over prime is based upon the risk of the credit facility. We attempt to place interest rate, floors and ~~maintaining~~pre-payment ~~OREO~~penalties whenever possible. In addition, we attempt to originate fee income on each loan closed through the Bank.

~~Deposit~~Term loans are those having an anticipated final maturity of more than one year from the initial funding date. Generally, loans extending more than two ~~Generation~~years are made pursuant to more robust loan agreements between the borrower and the Bank. These more robust loan agreements typically include loan covenants and requirements of the borrower to provide financial and other information needed to monitor the loan relationship. Amortization schedules on term loans secured by collateral other than real estate typically reflect a complete payout within seven years of the funding date. Loans secured by commercial real estate are generally amortized over 20 years, with five to seven year maturities.

~~We compete~~Demand ~~aggressively~~notes ~~for~~are ~~deposits~~utilized in ~~the~~connection ~~Marco~~with ~~Island~~certain ~~market.~~secured ~~Among~~commercial ~~our product~~loan ~~offerings~~transactions ~~are~~where ~~online~~the ~~business~~nature ~~banking,~~of ~~checking~~the ~~accounts,~~transactions ~~cash~~suggest ~~management services,~~that ~~safe~~such ~~deposit~~structure ~~boxes,~~is ~~travelers’~~clearly ~~checks,~~preferable; ~~direct deposit of payroll and social security checks~~however, ~~wire~~time ~~transfers,~~notes ~~telephone banking and automatic drafts. We believe these accounts and products~~ are ~~profitable~~utilized ~~when~~as ~~considering~~a ~~the entire~~matter ~~potential customer relationship, which may include other deposit accounts, loans, and sources~~ of ~~fee income~~routine.

WeThe ~~also offer~~following ~~certificate~~types of ~~deposit~~credit ~~and~~are ~~savings~~also ~~account~~considered ~~promotions~~by ~~designed~~the ~~to attract customers that we intend to cross-sell other services~~Bank, ~~including~~subject ~~loan products. Our goal is~~ to ~~attract~~adequate ~~customers~~available ~~who~~resources ~~will become long-term due~~ to ~~more responsive,~~monitor ~~more personalized,~~ and ~~faster~~ service. Wesuch ~~also~~credit: ~~seek to garner low cost deposits while continuing to focus on business deposits encompassing the utilization of our new state-of- the art software programs.~~

We• ~~offer a~~real ~~tiered~~estate ~~money~~development ~~market/savings~~loans ~~product~~secured ~~whereby~~by ~~the~~a ~~Bank~~first ~~pays~~lien ~~higher rates~~ on ~~higher~~ ~~deposit~~the ~~balances.~~property Wewhere ~~believe this deposit vehicle allows~~ the Bank ~~to compete~~is ~~with~~also ~~money~~providing ~~market~~construction ~~mutual~~and/or ~~funds.~~permanent financing;

~~Investments~~6

WeTable enter into Federal Funds transactions with our principal correspondent banks and primarily act as a net seller of such funds. The sale of Federal Funds amount to a short-term loan from us to another bank, usually overnight. At December 31, 2008,Contents

6• term loans secured by machinery and equipment (terms of such loans will be consistent with the purpose, cash flow capacity and economic life of collateral); and

~~Table~~ • credit lines for short-term working capital requirements. All credit lines are subject to review at least annually and will generally carry a requirement for a minimum 30 consecutive day annual out-of-debt ~~Contents~~period.

~~Federal Funds~~Residential ~~sold~~Real ~~comprised~~Estate ~~5.3%~~and Home Equity Loans and Lines of ~~our~~Credit ~~total~~- ~~assets,~~Our ~~compared~~consumer toreal ~~5.8%~~estate aslending includes loans secured by 1-4 family residential properties under revolving and open-end loans and lines of ~~December 31,~~credit ~~2007. At~~as ~~December~~well ~~31,~~as ~~2008,~~closed-end ~~the~~loans ~~Company~~secured ~~held~~by $1first and/or junior liens.0 ~~million~~Our residential real estate loans generally are repayable in ~~Federal~~ ~~Home~~monthly ~~Loan~~installments ~~Bank~~based ~~bonds~~on ~~compared~~up to ~~$3.3~~a ~~million~~15-year ~~for~~or ~~the~~a 30-year ~~ended December~~ ~~31,~~amortization ~~2007~~schedule. ~~The~~ ~~Company~~We ~~held~~do ~~$7.1~~not ~~million~~actively engage in ~~Federal~~ ~~National~~conventional ~~Mortgage~~15 ~~Association~~to ~~Mortgage~~30-~~backed~~year ~~securities~~fixed atrate ~~December~~residential ~~31,~~mortgage lending. Home equity ~~2008~~loans and ~~$3.2~~lines ~~million~~of atcredit ~~December~~may 31include monthly amortization of principal and interest, ~~2007~~but are typically interest-only until maturity.

~~Asset/Liability~~Residential real estate typically includes loans to finance the acquisition of single-family residences, vacant lots, or lines of credit on existing ~~Management~~residences within our immediate market area of Marco Island. However, most of our loans secured by residential real estate are actually loans for a commercial purpose. Exclusive of home equity lines of credit, approximately 63% of our residential real estate loans fall into this category and the other 37% are loans for the acquisition of residential real estate. To the extent that these loans are for the acquisition of the real estate, these are first lien positions. Regarding home equity lines of credit, these may either be in first or junior lien positions depending upon the existence of any prior encumbrances on the collateral real estate. A typical portfolio mix within the classification of home equity lines of credit is approximately 38% first lien positions and 62% second lien positions, but these percentages will vary depending upon specific loan activity at each reporting date.

ItCorrespondent isLending ~~our objective~~- toThe ~~manage~~Company ~~assets~~sold fixed and ~~liabilities~~adjustable torate ~~provide~~residential amortgage ~~satisfactory,~~loans ~~consistent level~~during of2009. ~~profitability~~In ~~within~~these ~~the framework of established cash management~~sales, ~~loan,~~ ~~investment,~~the ~~borrowing~~investors ~~and~~have ~~capital policies. Designated Bank officers are~~no ~~responsible~~recourse ~~for monitoring policies and procedures that are designed~~ to ~~ensure acceptable composition of~~ the ~~asset/liability~~Company’s ~~mix,~~other ~~stability~~assets ~~and~~for ~~leverage~~failure of ~~all sources~~debtors ~~of funds while adhering~~ to ~~prudent~~pay ~~banking~~when ~~practices~~due. ItFor is the ~~overall philosophy~~year ofended ~~management~~December 31, to2009, ~~support~~the ~~asset~~Company ~~growth~~recognized ~~primarily through growth of core deposits~~$574,000 ~~which~~on ~~include~~residential ~~deposits~~mortgage ofloan ~~all categories made by individuals, partnerships and corporations~~sales.

~~Our asset/liability~~Consumer ~~mix~~Loans is- ~~monitored~~Consumer onloans aare ~~daily~~being ~~basis~~provided ~~with~~to aindividuals ~~monthly~~for ~~report reflecting~~household, ~~interest-sensitive~~family ~~assets~~ and ~~interest-sensitive~~personal ~~liabilities~~expenditures. ~~being~~Consumer loans generally ~~prepared~~involve ~~and~~more ~~presented~~risk tothan mortgage loans because the ~~Bank’s~~collateral ~~Board~~for a defaulted loan may not provide an adequate source of ~~Directors~~repayment of the principal. ~~The~~This ~~objective~~risk is due to the potential for damage to the collateral or other loss of ~~this~~value, and the fact ~~policy~~that isany toremaining ~~control~~deficiency ~~interest-sensitive~~often ~~assets~~does not warrant further collection efforts. In addition, consumer loan performance depends on the borrower’s continued financial stability and ~~liabilities~~is, sotherefore, asmore likely to ~~minimize~~be adversely affected by job loss, divorce, illness or personal bankruptcy. Generally, consumer loans have a maturity of not longer than six years. The primary type of consumer lending will be for the ~~impact~~financing of ~~substantial~~boats ~~movements~~and inautomobiles, ~~interest~~home ~~rates~~improvements onand ~~our earnings~~education.

~~Monetary Policies~~Loan Loss Allowance

~~The~~As ~~results~~ of ~~our~~December 31, ~~operations are affected by credit policies of monetary authorities~~2009, ~~particularly~~approximately ~~the Federal Reserve Board~~25.4% ~~The instruments~~ of ~~monetary policy~~outstanding ~~employed~~loans byare in the ~~Federal~~commercial ~~Reserve~~real ~~include~~estate ~~open~~loan ~~market~~category ~~operations~~compared into U27.~~S. Government~~9% ~~securities~~at December 31, ~~changes~~2008. inAt ~~the~~December 31, ~~discount rate on member bank borrowings~~2009, ~~changes~~ incommercial ~~reserve~~loans ~~requirements~~represented ~~against~~25.7% ~~member~~of ~~bank~~our ~~deposits~~loan ~~and limitations on~~portfolio, ~~interest~~compared ~~rates~~to ~~which~~29.9% ~~member~~at ~~banks~~December 31, ~~may~~2008. ~~pay~~Commercial onloans ~~time~~are ~~and~~generally ~~savings~~considered ~~deposits.~~by Inmanagement ~~the view~~as ofhaving ~~changing~~greater ~~conditions~~risk inthan ~~the~~other ~~national~~categories ~~economy~~of ~~and~~loans in ~~the~~our ~~money~~loan ~~markets,~~portfolio. ~~as well~~We asbelieve that the ~~effect~~real ofestate ~~action~~collateral bysecuring ~~monetary~~our ~~and~~commercial ~~fiscal~~real estate ~~authorities,~~loans ~~including~~reduces the ~~Federal~~ ~~Reserve,~~risk noof ~~accurate~~loss ~~prediction~~inherently ~~can~~present ~~be made as to possible future changes~~ in ~~interest~~commercial ~~rates, deposit levels, loan demand or our business and earnings~~loans.

~~Employees~~At December 31, 2009, our consumer loan portfolio consisted primarily of lines of credit and installment loans secured by automobiles, boats 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.

AsThe Bank’s Board of Directors monitors the loan portfolio monthly in order to evaluate the adequacy of the allowance for loan losses. In ~~December~~addition ~~31,~~to ~~2008~~reviews by regulatory agencies, wethe ~~employed~~Bank 37engages ~~full-time~~the ~~persons~~services of outside consultants to assist in the evaluation of credit quality and loan administration. These professionals complement our internal system, ~~including~~which ~~seven~~identifies ~~executive~~potential ~~officers.~~problem ~~Employees~~credits ~~are~~as ~~hired~~quickly as ~~needed~~possible, categorizes the credit portfolio as to ~~meet~~risk ~~company-wide~~and ~~personnel demands~~includes a reporting process to monitor the progress of any troubled credits.

~~Supervision~~The allowance for loan losses is established through a provision for loan losses charged to operations. Loans are charged off against the allowance when management believes the collectibility of principal is unlikely. The monthly provision for loan losses is based on management’s judgment, after considering known and ~~Regulation~~inherent risks in the portfolio, our past loss experience, adverse situations that may affect a borrower’s ability to repay, assumed values of the underlying collateral securing the loans, the current and prospective financial condition of the borrower, and the prevailing and anticipated economic conditions within the local market.

~~The following~~7 is a brief summary of some of the statutes, rules and regulations which affect our operations. 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 our business. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of MCBI and the Bank.

On August 14,Table 2007, the Bank entered into a Written Agreement with the Federal Reserve Bank of Atlanta (“FRB”) and the Florida Office of Financial Regulation (“OFR”). The purpose of the Written Agreement is for the Bank to address the FRB’s and OFR’s supervisory and regulatory concerns primarily related to the volume of certain loan pools which are described elsewhere in this Form 10-K, as well as other loan quality and administration issues. Pursuant to the Written Agreement, the Bank must take corrective actions within specified time frames, which may be extended with the consent of the FRB and the OFR. Failure to comply with the terms of the Written Agreement could result in the assessment of civil money penalties against the Bank and the members of its Board of Directors. The actions taken included an evaluation by the Bank’s Board of Directors of its current management and staffing to determine if any additional or replacement personnel are needed; the preparation and implementation of a strategic business plan and budget designed to improve the Bank’s financial condition and credit risk management; a review and adoption of any necessary revisions to the Bank’s loan policy and loan review/grading program; a reduction of the Bank’s volume of adversely classified assets; and the continual monitoring of the Bank’s allowance for loan and lease losses. In addition, the Bank may not make any loans to borrowers who previously had loans charged-off by the Bank (such provision is typically included in such written agreements as a proactive preventative measure); must prepare a plan to effectively manage the Bank’s capital relative to its volume of adversely classified assets, anticipated growth and risk profile; and may not pay any dividends without regulatory consent. As of December 31, 2008, the Bank has worked diligently to stay in compliance with the written agreement and considered itself to be in compliance with substantially all conditions of the Written Agreement.Contents

~~Since entering~~As ~~into~~with ~~the~~other ~~Written~~banks ~~Agreement,~~that ~~(i)~~have regional exposure to the ~~Board~~real ofestate ~~Directors~~markets, ~~has~~the ~~realigned its~~Bank ~~operating~~has ~~committee~~not ~~structure~~been immune to the ~~facilitate~~general ~~its~~downturn ~~involvement~~ in the ~~Bank; (ii)~~real ~~the~~estate ~~Bank~~markets ~~has~~and ~~added~~its ~~Richard~~generalized ~~Storm,~~effects ~~Jr.~~upon asthe ~~its~~regional ~~President~~economy. ~~& Chief Executive Officer~~Subsequently, ~~and~~as athe ~~new~~downturn ~~Chief~~has ~~Credit Officer~~progressed, ~~Chief~~ ~~Financial Officer,~~this ahas ~~new~~placed ~~Senior~~a ~~Commercial~~strain ~~Lender~~upon &asset ~~Credit~~quality. ~~Officer and an Executive~~

7This process of provision calculation has evolved as the Bank has responded to the change in its local and regional market conditions. This has necessitated a revision in the process of calculating such provisions so as to ensure that the Bank maintains an appropriate level of reserves in response to the changing market conditions within which the Bank operates.

~~Table~~The Bank has received and welcomed guidance from the appropriate regulatory agencies about the calculation of this provision and has worked with these agencies to ensure that the allowance for lease and loan losses meets appropriate regulatory standards. This has entailed changes in how the Bank has segmented loan categories, resulting in a more appropriate and detailed division of ~~Contents~~loan categories (that is, using loan categories tracked though our regulatory reporting to the federal agencies) and an improved assignment of risks specific to each category, which includes consideration of changes in historical losses resulting from trends in key qualitative factors discussed below. This re-segmentation and risk re-assessment has been conducted in compliance with Financial Accounting Standards Board pronouncements FAS 114, Accounting by Creditors for Impairment of a Loan, and FAS 5, Accounting for Contingencies.

~~Vice President~~As ofexpected, ~~Special Assets and City Executive; (iii)~~ the ~~Board~~revision ~~has completed a full review~~ of ~~all~~this ~~officers,~~calculation ~~senior~~process ~~managers,~~delineated ~~and department heads; (iv)~~ the ~~Board,~~ ~~upon~~need ~~the~~to ~~recommendation~~adjust ofour ~~the~~provisions ~~Loan Committee, has approved new~~and ~~appropriate~~overall ~~lending~~lease ~~authorities, scopes~~ and ~~limits for all~~ loan ~~officers;~~loss ~~(v) the~~allowance ~~Board~~accordingly. ~~has~~In ~~retained~~addition, anwe ~~independent~~have ~~third~~responded ~~party~~to ~~which~~specific ~~conducts~~guidance aprovided ~~quarterly loan~~by ~~review; (vi)~~ the ~~Bank~~appropriate ~~has~~regulatory ~~commenced~~agencies ~~development~~ and ~~implementation~~have ~~of various~~made ~~plans~~specifically todirected ~~reduce~~adjustments in the ~~volume~~level of ~~classified~~this ~~loans; (vii) the Bank has charged off all assets classified as “loss” and established an~~ allowance ~~for loan~~in ~~losses~~order ~~that it has determined~~ to ~~be appropriate; (viii) the Bank has~~conform ~~restricted~~to ~~transactions~~this ~~with the Company; and (ix) the Bank has prepared a formal business plan~~guidance.

~~As a registered bank holding company~~Specifically, ~~MCBI~~our iscurrent ~~subject~~methodology tofor andetermining ~~extensive body of state and federal banking laws and regulations, which impose specific requirements and restrictions on virtually all aspects of~~ our ~~operations.~~allowance Wefor ~~are~~loan ~~also affected by government monetary policy~~ and bylease ~~regulatory~~losses ~~measures~~includes: ~~affecting the banking industry in general.~~

~~Marco Community~~• ~~Bancorp~~Evaluating classified loans for impairment under FAS 114, ~~Inc~~which may result in a specific reserve to the individual loan, if warranted.

We• ~~are~~In ~~a bank~~addition ~~holding~~to ~~company within~~ the ~~meaning~~specific ofreserves ~~the~~under ~~Bank~~FAS ~~Holding~~114, ~~Company~~management ~~Act~~evaluates ofperforming ~~1956. As~~loans ~~such,~~and weloans ~~file~~individually ~~annual~~reviewed ~~reports~~for ~~and~~impairment ~~other~~but ~~information~~not ~~with~~considered ~~the~~individually ~~Federal~~impaired, ~~Reserve regarding~~by ~~our~~segmenting ~~business~~these ~~operations~~loans ~~and~~by ~~those~~loan ofclassification ~~our~~(or ~~subsidiaries.~~loan Wepools) ~~are also subject~~ to ~~the~~establish ~~supervision~~reserves ~~of,~~under ~~and~~FAS to5. ~~periodic~~A ~~inspections~~summary ~~by,~~of the ~~Federal Reserve.~~FAS 5 methodology follows:

~~The~~• ~~Bank Holding~~We ~~Company~~determine ~~Act~~our starting point for historical loss rate for each group of loans with similar risk characteristics based on our loss experience for that group. Historical net charge-off rates are generally ~~requires~~used ~~every~~for ~~bank~~the ~~holding~~past ~~company~~two toyears ~~obtain~~but are weighted such that the ~~prior~~ ~~approval~~previous five quarters account for over 80% of the ~~Federal~~historical ~~Reserve~~charge-off ~~before:~~rate used for the loan classifications. In 2009 and 2008, we were using fifteen loan pools, which generally follow the classifications used in our reporting to the federal regulators.

·• ~~acquiring~~We ~~all~~consider qualitative or ~~substantially~~environmental ~~all~~factors likely to cause estimated credit losses to differ from historical loss experience. The most significant of the ~~assets~~qualitative offactors awe ~~bank;~~consider include:

·• ~~acquiring~~Changes ~~direct~~in orinternational, ~~indirect~~national, ~~ownership~~regional, orand ~~control~~local ofeconomic ~~more~~and ~~than~~business 5%conditions ofand ~~the~~developments ~~voting~~that ~~shares~~affect the collectibility of ~~any~~the ~~bank~~portfolio, orincluding ~~bank~~the ~~holding~~condition ~~company;~~of orvarious market segments.

·• ~~merging~~Changes orin ~~consolidating~~the ~~with~~volume ~~another~~and ~~bank~~severity ~~holding~~of ~~company~~past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.

~~The~~• ~~Bank Holding~~Changes ~~Company Act and the Federal Change~~ in ~~Bank Control Act, together with regulations of~~ the ~~Federal~~value ~~Reserve, require certain steps be taken before a person or company acquires control~~ of aunderlying ~~bank~~collateral ~~holding~~for ~~company.~~collateral-dependent Depending on the particular circumstances, either the Federal Reserve’s approval must be obtained, or notice must be furnished to the Federal Reserve and not disapproved, before any person or company acquires control of a bank holding company, subject to certain exemptionsloans. Control is conclusively presumed to exist when an individual or company acquires 25% or more of any class of voting securities of a bank holding company. Control is rebuttably presumed to exist if a person acquires 10% or more, but less than 25%, of any class of voting securities, and either: (i) the bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934; or (ii) no other person owns a greater percentage of that class of securities immediately after the transaction.

~~Except~~• ~~as authorized~~The byexistence ~~the Bank Holding Company Act~~ and ~~Federal~~effect ~~Reserve regulations or orders, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control~~ of ~~more than 5% of the voting shares of~~ any ~~company~~ ~~engaged~~concentrations ~~in any business other than the business~~ of ~~banking~~credit, ~~or managing~~ and ~~controlling~~changes ~~banks.~~in ~~Some of~~ the ~~activities~~level ~~the Federal Reserve has determined by regulation to be proper incidents to the business~~ of ~~banking,~~such ~~and thus permissible for bank holding companies, include:~~concentrations.

·• ~~making~~We currently use Federal Reserve data to quantify the overall effect of qualitative factors on a loan group as an adjustment that increases or ~~servicing~~decreases ~~loans~~group’s historical loss rate. We believe the Federal Reserve data provides a directional adjustment consistent with trends in our market, which is validated through our internal and ~~certain~~external ~~types~~examinations of ~~leases;~~our loan policies and procedures and risk management. As our methodology is refined over time, our adjustment(s) for qualitative factors will be derived from our history and/or internal sources.

·While ~~engaging~~we have modified our allowance methodology and will continue to improve the process, changes in the allowance over the past few years have resulted more from changes in the economy, declining real estate collateral values, and losses from certain ~~insurance~~loan products – more so than from changing our methodology. The use of the single factor from the Federal Reserve data was used for all segments of loans because a substantial portion of our (and ~~discount~~our ~~brokerage~~peers’) ~~activities;~~loan portfolio is secured by real estate and was affected by the severe decline in real estate values, particularly in our market in Southwest Florida.

·8 ~~performing certain data processing services;~~

·Table actingof in certain circumstances as a fiduciary or investment or financial advisor;Contents

·The ~~providing~~provision ~~management~~for ~~consulting~~loan ~~services;~~losses was $9.4 million for the year ended December 31, 2009, compared to $6.0 million for the year ended December 31, 2008. Non-accrual loans decreased $520,000 from December 31, 2008. The ratio of non-performing loans to total loans was 15.8% at December 31, 2009, compared to 9.1% from December 31, 2008, and the ratio of non-performing assets to total assets was 16.0% and 9.8%, respectively, at these same dates.

·For ~~owning~~the ~~savings~~year ~~associations;~~ended December 31, ~~and~~2009, $8.6 million was charged off against the allowance for loan losses, net of recoveries. For the year ended December 31, 2008, $3.6 million was charged off against the allowance.

·Other ~~making~~Real ~~investments~~Estate inOwned ~~corporations or projects designed primarily to promote community welfare.~~

InOther real estate owned (“OREO”) is comprised of real estate properties obtained in partial or total satisfaction of loan obligations. As of ~~accordance~~December 31, ~~with~~2009, ~~Federal~~OREO ~~Reserve~~totaled ~~policy~~$2.8 million which was comprised of 38 lots, a10 ~~bank~~residential ~~holding~~properties, ~~company~~and is1 ~~expected~~commercial toparcel, all recorded at estimated fair value less estimated selling costs. Of the 49 properties, 5 have been held since ~~act~~2007, as11 asince ~~source~~2008, ofand ~~financial~~33 ~~strength~~since 2009. Changes in value subsequent to ~~its~~transfer ~~subsidiary~~are ~~banks~~recorded in non-interest expense along with direct operating expenses. InGains ~~adhering~~or tolosses not previously recognized which result from the sale of OREO are recognized in non-interest expense on the ~~Federal~~date ~~Reserve’s~~of ~~policy~~sale. During the year ended December 31, ~~MCBI~~2009, ~~may~~the beCompany ~~required~~recorded towrite-downs ~~provide~~of ~~financial~~$2.4 ~~support to~~million on other real estate owned and received $3.2 million in proceeds from the ~~Bank~~sale ~~when~~of four residential properties, which ~~absent~~resulted ~~such~~in ~~policy~~a $336,000 weloss. ~~might~~The ~~not~~Company ~~deem~~also itrecorded ~~advisable~~$327,000 in expenses to ~~provide such~~refurbish, ~~assistance~~carry or maintain other real estate owned.

~~Under the~~At ~~Bank~~the ~~Holding~~time ~~Company~~a ~~Act~~loan is transferred to OREO, the ~~Federal~~Bank ~~Reserve~~orders ~~may~~an ~~also~~appraisal ~~require~~and records OREO at a ~~bank~~discounted ~~holding company~~amount tobased ~~terminate~~upon ~~any~~the ~~activity,~~current orappraised ~~relinquish~~market ~~control~~value. ofOREO ais ~~non-bank subsidiary~~actively ~~(other~~marketed ~~than~~by aprofessional ~~non-bank~~real ~~subsidiary~~estate ofindividuals ain ~~bank)~~an ~~upon~~attempt ~~the~~to ~~Federal~~sell ~~Reserve’s~~parcels ~~determination~~at ~~that~~their ~~the~~current ~~activity~~market orvalue. ~~control~~The ~~constitutes~~Company ais ~~serious~~exposed ~~risk~~ to the ~~financial~~weakening ~~soundness~~real orestate ~~stability~~conditions ofin ~~any~~the ~~subsidiary~~Florida ~~bank~~markets ofincluding ~~the~~Orlando, ~~bank holding~~Naples, ~~company.~~Fort ~~Federal~~Myers ~~bank~~and ~~regulatory~~Tampa. ~~authorities~~With ~~also~~the ~~have~~general ~~the~~economic ~~discretion~~downturn, ~~to require~~the aCompany ~~bank~~may ~~holding~~not ~~company~~be able to ~~divest~~sell ~~itself~~its OREO ofproperty ~~any~~at ~~bank~~the orcurrent ~~non-bank subsidiary~~market ifvalue, may experience an ~~agency~~increase ~~determines~~in ~~that~~OREO ~~divestiture~~and may ~~aid~~incur ~~the~~increased ~~depository institution’s~~expenses ~~financial~~related ~~condition~~to carrying and maintaining OREO.

8Deposit Generation

~~Table~~We compete aggressively for deposits in the Marco Island market. Among our product offerings are online business banking, checking accounts, cash management services, safe deposit boxes, travelers’ checks, direct deposit of ~~Contents~~payroll and social security checks, wire transfers, telephone banking and automatic drafts. We believe these accounts and products are profitable when considering the entire potential customer relationship, which may include other deposit accounts, loans, and sources of fee income.

~~The Sarbanes-Oxley~~We ~~Act~~also offer certificate of ~~2002~~deposit ~~also~~and ~~imposes~~savings ~~significant~~account ~~corporate~~promotions ~~governance~~designed to attract customers that we intend to cross-sell ~~standards~~other onservices, ~~the~~including ~~Company~~loan products. ~~The~~Our ~~primary~~goal ~~areas~~is ofto ~~such~~attract ~~regulation~~customers ~~concern~~who ~~Board oversight~~will ofbecome ~~the~~long-term ~~auditing~~due ~~process~~to more responsive, ~~certification~~more ofpersonalized, ~~periodic~~and ~~securities~~faster service. We also seek to garner low cost deposits while continuing to focus on business ~~reporting~~deposits ~~and~~encompassing ~~transactions~~the ~~between~~utilization ~~officers~~of orour ~~directors~~new ~~and~~state-of- the ~~Company~~ art software programs.

~~Marco~~We offer a tiered money market/savings product whereby ~~Community~~the Bank pays higher rates on higher deposit balances. We believe this deposit vehicle allows the Bank to compete with money market mutual funds.

AsInvestments a state-chartered Federal Reserve member bank, the Bank is subject to the supervision and regulation of the Florida Department of Financial Services (“Florida Department”) and the Federal Reserve. The Bank’s deposits are insured by the FDIC for a maximum of $250,000 per depositor. For this protection, the Bank may be required to pay a quarterly statutory assessment. The assessment, if any, levied for deposit insurance will vary, depending on the capital position of the Bank, and other supervisory factors. In 2008, the Bank was assessed and paid $304,000 for such insurance services.

~~Areas~~We enter ~~regulated~~into Federal Funds transactions with our principal correspondent banks and ~~monitored~~primarily byact ~~the~~as a net seller of such funds. The sale of Federal Funds amount to a short-term loan from us to another bank, ~~regulatory~~usually ~~authorities~~overnight. ~~include:~~At December 31, 2009, no funds were invested overnight. At December 31, 2008, Federal Funds sold comprised 5.3% of our total assets. At December 31, 2009, the Company held $5.0 million in U.S. Government Agency bonds compared to $1.0 million for the year ended December 31, 2008. The Company held $5.5 million in Federal National Mortgage Association Mortgage-backed securities at December 31, 2009 (measured at fair value), and $7.1 million at December 31, 2008 (measured at amortized cost). During 2009, all investments were either sold or reclassified from held to maturity to available for sale.

·9 ~~security devices and procedures;~~

·Table adequacy of capitalization and loss reserves;Contents

·Asset/Liability ~~loans;~~Management

·It ~~investments;~~is our objective to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash management, loan, investment, borrowing and capital policies. Designated Bank officers are responsible for monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability mix, stability and leverage of all sources of funds while adhering to prudent banking practices. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by individuals, partnerships and corporations.

·Our ~~borrowings;~~asset/liability mix is monitored on a daily basis with a monthly report reflecting interest-sensitive assets and interest-sensitive liabilities being prepared and presented to the Bank’s Board of Directors. The objective of this policy is to control interest-sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on our earnings.

·Monetary ~~deposits;~~Policies

·The ~~mergers;~~results of our operations are affected by credit policies of monetary authorities, particularly the Federal Reserve Board. The instruments of monetary policy employed by the Federal Reserve include open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, changes in reserve requirements against member bank deposits and limitations on interest rates that member banks may pay on time and savings deposits. In the view of changing conditions in the national economy and in the money markets, as well as the effect of action by monetary and fiscal authorities, including the Federal Reserve, no accurate prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or our business and earnings.

·Employees ~~issuances of securities;~~

·As ~~payment~~ of December 31, ~~dividends;~~2009, we employed 33 full-time persons, including four executive officers. Employees are hired as needed to meet company-wide personnel demands.

·Supervision ~~establishment~~and ofRegulation ~~branches;~~

·The ~~corporate~~following ~~reorganizations;~~is a brief summary of some of the statutes, rules and regulations that affect our operations. 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 our business. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of MCBI and the Bank.

·On ~~transactions~~February 2, ~~with~~2010, ~~affiliates;~~the Board of Directors of the Bank, a wholly-owned subsidiary of MCBI, consented to the issuance of a Prompt Corrective Action Directive (“Directive”) by the Board of Governors of the Federal Reserve System.

·The ~~maintenance~~Directive ofrequires ~~books~~the Bank within 45 days, in conjunction with the Company, to: (i) raise sufficient capital to return the Bank to “adequately capitalized” status; (ii) enter into and ~~records~~close a contract to have the Bank acquired by another financial institution; or (iii) take such other action as to return the Bank to “adequately capitalized” status. The Directive further prohibits the Bank from making any distributions of capital, which the Bank has never done and has no intentions of doing.

·In ~~adequacy~~addition, ofpursuant ~~staff~~to ~~training~~the toDirective, ~~carry~~the ~~out~~Bank ~~safe~~may ~~lending~~not solicit and accept new deposit ~~gathering~~accounts ~~practices~~or renew any time deposit bearing an interest rate that exceeds the prevailing effective rates on insured deposits of comparable amounts and maturities in the Bank’s market area. The Bank does not anticipate that these restrictions will affect its operations, as it has been operating under similar restrictions imposed by the Federal Deposit Insurance regulations since the end of 2009.

~~Capital~~Finally, the Directive notifies the Bank that ~~Adequacy~~Federal ~~Requirements~~law (i) prohibits it from paying bonuses or increasing compensation to senior executive officers; (ii) restricts it with respect to asset growth, acquisitions, branching and new lines of business; (iii) prohibits it from making material changes in accounting methods; and (iv) engaging in certain types of transactions with the Company. The Bank had no intentions of taking any such actions prior to the entry of the Directive.

~~The~~On ~~Bank and~~August 14, ~~MCBI~~2007, ~~are~~the ~~subject~~Bank toentered ~~regulatory~~into ~~capital~~a ~~requirements~~Written ~~imposed~~Agreement bywith the Federal Reserve. ~~Until~~Bank aof ~~bank~~Atlanta (“Federal Reserve”) and ~~its~~the ~~holding~~OFR. The ~~company’s~~purpose ~~consolidated~~of ~~assets~~the ~~reach~~Written ~~$500 million,~~Agreement ~~the~~is ~~capital~~for ~~adequacy~~the ~~guidelines~~Bank ~~issued~~to byaddress the Federal Reserve’s ~~are applied~~and toOFR’s ~~bank~~supervisory ~~holding~~and ~~companies~~regulatory onconcerns aprimarily ~~non-consolidated~~related ~~basis,~~to ~~unless~~ the ~~bank holding~~volume ~~company~~of iscertain ~~engaged~~loan ~~in non-bank activities involving significant leverage~~pools, orwhich itare ~~has~~described aelsewhere ~~significant~~in ~~amount~~this ofForm ~~outstanding~~10-K, ~~debt held by the general~~as ~~public.~~well ~~The~~as ~~Federal~~other ~~Reserve’s~~loan ~~risk-based~~quality ~~capital~~and ~~guidelines~~administration ~~apply~~issues. ~~directly~~Pursuant to ~~insured~~ ~~state~~the ~~banks~~Written Agreement, ~~regardless~~the ofBank ~~whether~~must ~~they~~take ~~are~~corrective ~~subsidiaries~~actions ofwithin aspecified ~~bank holding~~time ~~company.~~frames, ~~These~~which ~~requirements~~may ~~establish~~be ~~minimum~~extended ~~capital~~with ~~ratios~~the inconsent ~~relation to~~of ~~assets,~~the ~~both~~Federal onReserve anand ~~aggregate~~the ~~basis~~OFR. asFailure ~~adjusted~~to ~~for credit risks and~~comply ~~off-balance~~with ~~sheet~~the ~~exposures.~~terms ~~The~~of ~~risk~~the ~~weights~~Written ~~assigned~~Agreement tocould ~~assets~~result ~~are~~in ~~based primarily~~the onassessment ~~credit~~of ~~risks.~~civil ~~For~~money ~~example,~~penalties ~~securities~~against ~~with~~the anBank ~~unconditional guarantee~~and by the ~~United~~members ~~States~~of ~~government~~its ~~are~~Board ~~assigned~~of ~~to the lowest risk category~~Directors. The ~~aggregate~~actions ~~amount~~taken ofincluded ~~assets~~an ~~assigned~~evaluation toby ~~each~~the ~~risk~~Bank’s ~~category~~Board ~~is multiplied~~of byDirectors ~~the~~of ~~risk~~its ~~weight~~current management ~~assigned~~and staffing to ~~that~~determine ~~category~~if toany ~~determine~~additional ~~the weighted~~or ~~values,~~replacement ~~which~~personnel are ~~added~~needed; ~~together~~the topreparation ~~determine~~and ~~total risk-weighted assets.~~

~~Capital is~~10 then classified into two categories, Tier 1 and Tier 2. Tier 1 capital consists of common and qualifying preferred shareholders’ equity, less goodwill and other adjustments. Tier 2 capital consists of mandatory convertible, subordinated, and other qualifying term debt, preferred stock not qualifying for Tier 1 capital, and a limited amount of allowance for credit losses, up to a designated percentage of risk-weighted assets. Under the risk-based guidelines, banks must maintain a specified minimum ratio of “qualifying” capital to risk-weighted assets. At least 50% of a bank’s qualifying capital must be “core” or Tier 1 capital, and the balance may be “supplementary” or Tier 2 capital. In addition, the guidelines require banks to maintain a minimum leverage ratio standard of capital adequacy. The leverage standard requires top-rated institutions are required to maintain a Tier 1 leverage capital to assets ratio of 3%. All other institutions are required to maintain a Tier 1 leverage capital ratio of 4% or greater, based upon their particular circumstances and risk profiles.

Federal bankTable regulatory agencies have adopted regulations refining the risk-based capital guidelines to further ensure that the guidelines take adequate account of interest rate risk. Interest rate risk is the adverse effect that changes in market interest rates may have on a bank’s financial condition and is inherent to the business of banking. Under the regulations, when evaluating a bank’s capital adequacy, the revised capital standards now explicitly include a bank’s exposure to declines in the economic value of its capital due to changes in interest rates. The exposure of a bank’s economic value generally represents the change inContents

9 implementation of a strategic business plan and budget designed to improve the Bank’s financial condition and credit risk management; a review and adoption of any necessary revisions to the Bank’s loan policy and loan review/grading program; a reduction of the Bank’s volume of adversely classified assets; and the continual monitoring of the Bank’s allowance for loan and lease losses. In addition, the Bank may not make any loans to borrowers who previously had loans charged-off by the Bank (such provision is typically included in such written agreements as a proactive preventative measure); must prepare a plan to effectively manage the Bank’s capital relative to its volume of adversely classified assets, anticipated growth and risk profile; and may not pay any dividends without regulatory consent. As of December 31, 2009, the Bank has worked diligently to stay in compliance with the written agreement and considered itself to be in compliance with substantially all conditions of the Written Agreement.

~~Table~~After entering into the Written Agreement, (i) the Board of ~~Contents~~Directors realigned its operating committee structure to facilitate its involvement in the Bank; (ii) the Bank added Richard Storm, Jr. as its President & Chief Executive Officer, and a new Chief Credit Officer, Chief Financial Officer, a new Senior Commercial Lender & Credit Officer and an Executive Vice President of Special Assets and City Executive; (iii) the Board completed a full review of all officers, senior managers, and department heads; (iv) the Board, upon the recommendation of the Loan Committee, approved new appropriate lending authorities, scopes and limits for all loan officers; (v) the Board retained an independent third party to conduct a quarterly loan review; (vi) the Bank commenced development and implementation of various plans to reduce the volume of classified loans; (vii) the Bank charged off all assets classified as “loss” and established an allowance for loan losses that it has determined to be appropriate; (viii) the Bank restricted transactions with the Company; and (ix) the Bank has prepared a formal business plan.

~~the present~~As ~~value~~noted ~~of its assets~~earlier, ~~less~~ the ~~change~~Bank inwas ~~the~~closed ~~value~~by ofthe ~~its~~OFR ~~liabilities, plus~~and the ~~change~~FDIC inwas ~~the~~appointed ~~value~~as receiver of ~~its~~the ~~interest~~Bank ~~rate~~on ~~off-balance~~February 19, ~~sheet contracts~~2010.

~~Federal bank~~As ~~regulatory~~a ~~agencies~~registered ~~possess~~bank ~~broad powers to take prompt corrective action as deemed appropriate for an insured depository institution and its~~ holding company, ~~based~~MCBI onis ~~the~~subject ~~institution’s~~to ~~capital~~an ~~levels.~~extensive ~~The~~body ~~extent~~ of ~~these~~state ~~powers depends~~and ~~upon~~federal ~~whether~~banking ~~the~~laws ~~bank~~and ~~in question is considered “well-capitalized~~regulations,~~” “adequately~~ ~~capitalized,”~~which ~~“undercapitalized,”~~impose ~~“significantly undercapitalized,”~~specific orrequirements ~~“critically~~and ~~undercapitalized.”~~restrictions ~~Generally,~~on asvirtually aall ~~bank~~aspects ~~is deemed to be less than well-capitalized, the scope and severity~~ of ~~the~~our ~~agencies’ powers increase, ultimately permitting an agency to appoint a receiver for the bank~~operations. ~~Business activities~~We ~~may~~are also beaffected ~~influenced~~ by agovernment ~~bank’s~~monetary ~~capital~~policy ~~classification. For instance, only a “well-capitalized” bank may accept brokered deposits without prior regulatory approval,~~ and ~~can~~by ~~engage in various expansion activities with prior notice, rather than prior~~ regulatory ~~approval.~~measures ~~However,~~affecting ~~rapid growth, poor loan portfolio performance or poor earnings performance, or a combination of these factors, could change~~ the ~~capital~~banking ~~position~~industry ~~of the bank~~ in ~~a relatively short period of time~~general. Failure to meet these capital requirements could subject the bank to regulatory action, which may include filing with the appropriate bank regulatory authorities a plan describing the means and a schedule for achieving the minimum capital requirements. In addition, the Bank would not be able to receive regulatory approval of any application that required consideration of capital adequacy, such as a branch or merger application, unless we could demonstrate a reasonable plan to meet the capital requirement within an acceptable period of time.

~~Other Laws~~Marco Community Bancorp, Inc.

~~State usury~~We ~~and~~are ~~credit~~organized ~~laws~~as ~~limit~~a bank holding company within the ~~amount~~meaning of ~~interest~~the ~~and~~Bank ~~various~~Holding ~~other~~Company ~~charges~~Act of 1956. As such, we file annual reports and other ~~collected~~information orwith ~~contracted~~the byFederal aReserve ~~bank~~regarding onour ~~loans.~~business ~~Our~~operations ~~loans~~and those of our subsidiaries. We are also subject to ~~federal~~ ~~laws~~the ~~applicable~~supervision of, and to ~~credit~~periodic ~~transactions~~inspections by, ~~such~~the asFederal Reserve. However, subsequent to the closing of the Bank, MCBI is no longer a holding company and is no longer subject to banking regulations. The Bank Holding Company Act generally requires every bank holding company to obtain the prior approval of the Federal Reserve before:

·• ~~Federal~~acquiring ~~Truth-In-Lending~~all ~~Act,~~or ~~which~~substantially ~~governs~~all ~~disclosures~~ of ~~credit~~the ~~terms~~assets toof ~~consumer~~a ~~borrowers~~bank;

·• ~~Community~~acquiring ~~Reinvestment~~direct ~~Act,~~or ~~which~~indirect ~~requires~~ownership ~~financial~~or ~~institutions~~control toof ~~meet~~more ~~their~~than ~~obligations~~5% toof ~~provide for~~ the ~~total~~voting ~~credit~~shares ~~needs~~ of ~~the~~any ~~communities~~bank ~~they~~or ~~serve,~~bank ~~including~~holding ~~investing their assets in loans to low- and moderate-income borrowers~~company; or

·• ~~Home~~merging ~~Mortgage~~or ~~Disclosure~~consolidating ~~Act,~~with ~~which~~another ~~requires~~bank ~~financial~~holding ~~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;~~company.

·The ~~Equal~~Bank ~~Credit~~Holding ~~Opportunity~~Company Act and the Federal Change in Bank Control Act, ~~which~~together ~~prohibits~~with ~~discrimination~~regulations of the Federal Reserve, require certain steps be taken before a person or company acquires control of a bank holding company. Depending on the ~~basis~~particular circumstances, either the Federal Reserve’s approval must be obtained, or notice must be furnished to the Federal Reserve and not disapproved, before any person or company acquires control of ~~race~~a bank holding company, ~~creed~~subject to certain exemptions. Control is conclusively presumed to exist when an individual or ~~other~~company ~~prohibitive~~acquires ~~factors~~25% inor ~~extending~~more ~~credit~~of any class of voting securities of a bank holding company. Control is rebuttably presumed to exist if a person acquires 10% or more, but less than 25%, of any class of voting securities, and either: (i) the bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934; or (ii) no other person owns a greater percentage of that class of securities immediately after the transaction.

·Except ~~Real~~as ~~Estate~~authorized ~~Settlement~~by ~~Procedures~~the Bank Holding Company Act and Federal Reserve regulations or orders, ~~which~~a ~~requires~~bank ~~lenders~~holding tocompany ~~disclose~~is ~~certain~~generally ~~information~~prohibited ~~regarding~~from engaging in, or acquiring direct or indirect control of more than 5% of the ~~nature~~voting ~~and~~shares ~~cost~~of any company engaged in any business other than the business of ~~real~~banking ~~estate~~or ~~settlements,~~managing and ~~prohibits~~controlling ~~certain~~banks. ~~lending~~Some ~~practices,~~of asthe ~~well~~activities asthe ~~limits~~Federal ~~escrow~~Reserve ~~account~~has determined ~~amounts~~by inregulation ~~real~~to ~~estate~~be ~~transactions;~~proper incidents to the business of banking, and thus permissible for bank holding companies, include:

·• ~~Fair~~making ~~Credit~~or ~~Reporting~~servicing ~~Act,~~loans ~~which~~and ~~governs~~certain ~~the~~types ~~manner~~of ~~in which consumer debts may be collected by collection agencies~~leases; ~~and~~

·• ~~Rules~~engaging ~~and~~in ~~regulations~~certain ofinsurance ~~various~~and ~~federal~~discount ~~agencies~~brokerage ~~charged with the responsibility of implementing such federal laws.~~activities;

~~Our operations~~• ~~are~~performing ~~also~~certain ~~subject~~data toprocessing ~~the:~~services;

·• ~~Privacy~~acting ~~provisions~~in ofcertain ~~the~~circumstances ~~Gramm-Leach-Bliley~~as ~~Act~~a offiduciary ~~1999,~~or ~~which~~investment ~~requires~~or ~~us to maintain privacy policies intended to safeguard consumer~~ financial information, to disclose these policies to our customers, and allow customers to “opt out” of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptionsadvisor;

·• ~~Right~~providing tomanagement ~~Financial~~consulting ~~Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial record~~services; ~~and~~

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

Interstate BankingTable andof BranchingContents

~~Under~~• ~~the Riegle-Neal~~owning ~~Interstate~~savings ~~Banking~~associations; and Branching Efficiency Act of 1994, eligible bank holding companies in any state are permitted, with Federal Reserve approval, to acquire banking organizations in any other state. The Interstate Banking and Branching Efficiency Act also removed substantially all of the prohibitions on interstate branching by banks. The authority of a bank to establish and operate branches within a state, however, continues to be subject to applicable state branching laws. Under current Florida law, the Bank is permitted to establish branch offices throughout Florida, with the prior approval of the Florida Department and the Federal Reserve. In addition, with prior regulatory approval, we are able to acquire existing banking operations in other states.

10• making investments in corporations or projects designed primarily to promote community welfare.

~~Table~~ In accordance with Federal Reserve policy, a bank holding company is expected to act as a source of ~~Contents~~financial strength to its subsidiary banks. In adhering to the Federal Reserve’s policy, MCBI may be required to provide financial support to the Bank when, absent such policy, we might not deem it advisable to provide such assistance.

~~Financial~~Under the Bank Holding Company Act, the Federal Reserve may also require a bank holding company to terminate any activity, or relinquish control of a ~~Modernization~~non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve’s determination that the activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary bank of the bank holding company. Federal bank regulatory authorities also have the discretion to require a bank holding company to divest itself of any bank or non-bank subsidiary if an agency determines that divestiture may aid the depository institution’s financial condition.

The ~~Gramm~~ Sarbanes-~~Leach-Bliley~~Oxley Act of ~~1999~~2002 ~~sought~~also toimposes ~~achieve~~ significant ~~modernization~~corporate ~~of the~~governance ~~federal~~standards ~~bank~~on ~~regulatory~~the ~~framework~~Company. byThe ~~allowing~~primary ~~the~~areas ~~consolidation~~ of ~~banking~~such ~~institutions~~regulation ~~with~~concern ~~other~~Board ~~types~~oversight of ~~financial~~the ~~services~~auditing ~~firms~~process, ~~subject~~certification ~~to various restrictions and requirements. In general, the Gramm-Leach-Bliley Act repealed most~~ of ~~the~~periodic ~~federal~~securities ~~statutory~~reporting ~~barriers~~and ~~which~~transactions ~~separated~~between ~~commercial~~officers ~~banking~~or ~~firms from~~directors ~~insurance~~ and ~~securities firms and authorized~~ the ~~consolidation of such firms in a “financial services holding company~~Company.”

~~Recent Accounting~~Marco ~~Pronouncements~~Community Bank

InAs ~~December~~a ~~2007,~~state-chartered ~~the~~Federal ~~FASB~~Reserve ~~issued~~member ~~SFAS No. 141(R)~~bank, ~~Business~~the ~~Combinations~~Bank ~~(“SFAS 141(R)”). SFAS 141(R)~~ is ~~effective~~subject ~~for~~to the ~~Bank’s~~supervision ~~financial statements~~and ~~for~~regulation of the ~~year~~OFR and ~~interim~~the ~~periods~~Federal ~~within~~Reserve. ~~the~~The ~~year~~Bank’s ~~beginning~~deposits ~~January~~are ~~1, 2009. SFAS~~insured ~~141(R)~~by ~~requires~~ the ~~acquiring~~FDIC ~~entity~~for in a ~~business combination~~maximum toof ~~recognize~~$250,000 ~~all~~per ~~(and~~depositor. ~~only)~~For ~~the~~this ~~assets acquired and liabilities~~protection, ~~assumed in~~ the ~~transaction;~~Bank ~~establishes~~may ~~the~~be ~~acquisition~~required ~~date~~to ~~fair~~pay ~~value~~a asquarterly ~~the measurement~~statutory ~~objective~~assessment. ~~for~~The ~~all~~assessment, ~~assets~~if ~~acquired~~any, ~~and~~levied ~~liabilities~~for ~~assumed’~~deposit ~~and require~~insurance ~~the~~will ~~acquirer~~vary, todepending ~~disclose~~on ~~to investors and other users all of~~ the ~~information~~ ~~they~~capital ~~need~~position ~~to evaluate and understand the nature and financial effect~~ of the ~~business combination. Acquisition related costs including finder’s fees~~Bank, ~~advisory, legal, accounting valuation~~ and other ~~professional~~supervisory ~~and consulting fees are required to be expensed as incurred~~factors. ~~Management is~~ inIn ~~the~~2009, ~~process of evaluating~~ the ~~impact~~Bank ofwas ~~SFAS~~assessed ~~141(R)~~ and ~~does not~~paid ~~anticipate~~$670,000 itfor ~~will~~such ~~have~~insurance ~~a material impact on the Company’s financial condition or results of operations~~services.

~~In December~~Areas ~~2007,~~regulated ~~the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements (‘SFAS 160”). SFAS 160 provides the Company to establish accounting~~ and ~~reporting~~monitored ~~standards~~by ~~for~~ the ~~noncontrolling~~ ~~interest~~bank inregulatory aauthorities ~~subsidiary~~include: and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company’s financial statements for the year and interim periods within the year beginning January 1, 2009. The adoption of SFAS 160 did not have a material impact on the Company.

In• ~~March 2008,~~security ~~the~~devices ~~FASB issued SFAS No. 161, Disclosure about Derivative Instruments~~ and Hedging Activities (“SFAS 161”). This standard requires enhanced disclosures regarding derivative instruments and hedging activities so as to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for the Company’s financial statements for the year and interim periods within the year beginning January 1, 2009. The adoption of SFAS 160 did not have a material impact on the Company.procedures;

~~In May 2008,~~• ~~the~~adequacy ~~FASB issued SFAS No. 162, The Hierarchy~~ of ~~Generally~~capitalization ~~Accepted Accounting Principles (“SFAS 162”). This statement identifies the sources of accounting principles~~ and ~~the~~loss framework for selecting the principles to be used in the preparation of financial statement of nongovernmental entities that are presented in conformity with generally accepted accounting principles “GAAP” in the United States. This Statement is effective 60 days following the SEC approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS 162 will not have a material impact on the Company.reserves;

~~On February~~• 20, 2008 the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (“FSP140-3”). FSP 140-3 requires that an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously with, or in contemplation of, the initial transfer be evaluated together as a linked transaction under SFAS 140, unless certain criteria are met. FSP 140-3 is effective for the Company’s financial statements for the year and interim periods within the year beginning January 1, 2009. The adoption of FSP 140-3 did not have a material impact on the Company.loans;

~~ITEM 1A. RISK~~• ~~FACTORS~~investments;

~~Not applicable~~• borrowings;

~~ITEM 1B. UNRESOLVED~~• ~~STAFF COMMENTS~~deposits;

~~Not applicable.~~• mergers;

11• issuances of securities;

~~Table~~ • payment of ~~Contents~~dividends;

~~ITEM 2. PROPERTIES~~• establishment of branches;

On• ~~June 18,~~corporate 2004, we moved into our headquarters which is located at 1770 San Marco Road, Marco Island, Florida. This is a two-story 12,500 square foot office condominium building, which was custom built to meet our specifications. The Bank owns the first floor and currently conducts all of its retail operations from this location. There are four drive-through lanes, one of which has an ATM. We have five teller stations in our lobby and nine offices for customer service personnel, loan officers and private banking. There are staff facilities and a community room. MCBI owns most of the second floor where its finance, loan and executive offices are located. Approximately 1,168 square feet were sold to an unrelated third party in 2004.reorganizations;

~~In January~~• ~~2007,~~transactions ~~the~~with ~~CLCC leased space on Marco Island, Florida where they conduct their commercial lending brokerage business. At December 31, 2008, the operations of CLCC were suspended and the lease terminated.~~affiliates;

In• ~~July, 2008,~~maintenance ~~the~~of ~~Bank~~books ~~purchased~~and arecords; ~~second floor corner commercial condominium unit, on Marco Island. The loan operations department was moved to the new location.~~and

~~ITEM 3. LEGAL~~• ~~PROCEEDINGS~~adequacy of staff training to carry out safe lending and deposit gathering practices.

~~On Thursday, August 22, 2008, the Bank, instituted an action (Marco Community Bank v. Atlantic~~ Capital ~~Associates,~~Adequacy ~~Inc.,~~Requirements Florida Capital Bank N.A. and Allen C. Ewing & Co., Case No. 086362CA) in the Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida against each of Atlantic Capital Assoc., Inc.(“ACA”), Florida Capital Bank, N.A. (“FCB”) and Allen C. Ewing & Co. (“Ewing” and collectively with ACA and FCB, the “Defendants”).

~~Specifically, the~~The Bank ~~alleges~~and ~~that~~MCBI ~~ACA,~~are subject to regulatory capital requirements imposed by the ~~loan~~Federal ~~originator,~~Reserve. ~~loan~~Until ~~servicer,~~a ~~lender~~bank and ~~underwriter,~~ ~~along~~its ~~with~~holding ~~its~~company’s ~~agents~~consolidated assets ~~FCB~~reach ~~and~~$500 ~~Ewing~~million, ~~failed~~the tocapital ~~underwrite~~adequacy ~~mortgage loans~~guidelines inissued ~~conformity~~by ~~with~~the ~~their~~Federal ~~own~~Reserve ~~offering~~are ~~documents,~~applied ~~servicing~~to ~~agreements~~bank ~~and industry~~holding ~~standards. In~~companies ~~addition~~on a non-consolidated basis, unless the ~~Bank~~bank ~~alleges~~holding ~~that~~company ~~the~~is ~~Defendants~~engaged in non-bank activities involving significant ~~also~~leverage, ~~failed~~or toit ~~perform~~has asa ~~required~~significant ~~under~~amount ~~their~~of ~~agreements~~outstanding ~~with~~debt held by the ~~bank~~general ~~and~~public. ~~that all~~The ofFederal ~~these~~Reserve’s ~~failures~~risk-based ~~and~~capital ~~conflicts~~guidelines ~~led~~apply updirectly to ~~the~~insured ~~issuance~~state banks, regardless of ~~loan~~whether ~~pools,~~they ~~which were~~are ~~impaired~~subsidiaries ~~securities~~of ~~founded~~a onbank ~~material~~holding company. ~~misstatements~~These ~~and~~requirements ~~omissions~~establish minimum capital ratios in ~~the offering~~relation ~~documents~~to assets, ~~servicing~~both ~~agreements~~on an aggregate basis as adjusted for credit risks and ~~other~~off-balance ~~material~~sheet ~~documents~~exposures. ~~delivered~~The risk weights assigned to assets are based primarily on credit risks. For inexample, ~~connection~~securities with an unconditional guarantee by the ~~purchase~~United States government are assigned to the lowest risk category. The aggregate amount of ~~these~~assets ~~loan~~assigned ~~pools~~to each risk category is multiplied by the ~~Bank~~risk weight assigned to that category to determine the weighted values, which are added together to determine total risk-weighted assets.

~~The~~Capital ~~Bank~~is then classified into two ~~has~~categories, ~~instituted~~Tier ~~the~~1 ~~action~~and ~~alleging~~Tier ~~violations~~2. ofTier ~~the~~1 ~~Florida~~capital ~~Securities~~consists of common and ~~Investor~~ ~~Protection~~qualifying ~~Act,~~preferred ~~breach~~shareholders’ ofequity, ~~contract~~less goodwill and ~~negligence~~other adjustments. ~~The~~ ~~Bank is~~Tier ~~seeking~~2 tocapital ~~recover~~consists ~~damages~~of ~~sustained~~mandatory convertible, ~~pre-judgment interest~~subordinated, ~~attorney’s~~and ~~fees~~other qualifying term debt, ~~and~~preferred ~~cost~~stock innot ~~connection~~qualifying ~~with~~for ~~its~~Tier ~~purchase~~1 capital, and a limited amount of ~~more~~allowance ~~than~~for ~~$19~~credit ~~million~~losses, up to a designated percentage of ~~loan~~risk-weighted ~~pools from~~assets. Under the ~~Defendants.~~risk-based guidelines, banks must maintain a specified

~~At December~~12 ~~31, 2008, this lawsuit is ongoing and in the discovery stages. Management is updated monthly by the law firm handling this matter.~~

ITEM 4. SUBMISSIONTable OFof MATTERS TO A VOTE OF SECURITY HOLDERSContents

No ~~matters~~minimum ~~were~~ratio ~~submitted~~of “qualifying” capital to arisk-weighted ~~vote~~assets. At least 50% of ~~security~~a ~~holders,~~bank’s ~~through~~qualifying ~~the~~capital ~~solicitation of~~must ~~proxies~~be “core” or ~~otherwise~~Tier 1 capital, ~~during~~and the ~~fourth~~balance ~~quarter~~may ofbe ~~2008~~“supplementary” or Tier 2 capital. In addition, the guidelines require banks to maintain a

12minimum leverage ratio standard of capital adequacy. The leverage standard requires top-rated institutions to maintain a Tier 1 leverage capital to assets ratio of 3%. All other institutions are required to maintain a Tier 1 leverage capital ratio of 4% or greater, based upon their particular circumstances and risk profiles.

~~Table~~Federal bank regulatory agencies have adopted regulations refining the risk-based capital guidelines to further ensure that the guidelines take adequate account of ~~Contents~~interest rate risk. Interest rate risk is the adverse effect that changes in market interest rates may have on a bank’s financial condition and is inherent to the business of banking. Under the regulations, when evaluating a bank’s capital adequacy, the revised capital standards now explicitly include a bank’s exposure to declines in the economic value of its capital due to changes in interest rates. The exposure of a bank’s economic value generally represents the change in the present value of its assets, less the change in the value of its liabilities, plus the change in the value of its interest rate off-balance sheet contracts.

~~PART~~Federal IIbank regulatory agencies possess broad powers to take prompt corrective action as deemed appropriate for an insured depository institution and its holding company, based on the institution’s capital levels. The extent of these powers depends upon whether the bank in question is considered “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” Generally, as a bank is deemed to be less than well-capitalized, the scope and severity of the agencies’ powers increase, ultimately permitting an agency to appoint a receiver for the bank. Business activities may also be influenced by a bank’s capital classification. For instance, only a “well-capitalized” bank may accept brokered deposits without prior regulatory approval, and can engage in various expansion activities with prior notice, rather than prior regulatory approval. However, rapid growth, poor loan portfolio performance or poor earnings performance, or a combination of these factors, could change the capital position of the Bank in a relatively short period of time. Failure to meet these capital requirements could subject the bank to regulatory action, which may include filing with the appropriate bank regulatory authorities a plan describing the means and a schedule for achieving the minimum capital requirements. In addition, the Bank would not be able to receive regulatory approval of any application that required consideration of capital adequacy, such as a branch or merger application, unless we could demonstrate a reasonable plan to meet the capital requirement within an acceptable period of time.

~~ITEM~~Other 5.Laws ~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES~~

InState ~~May~~usury and ~~2005,~~credit ~~MCBI~~laws ~~became~~limit ~~quoted on~~ the ~~Over-the-Counter-Bulletin-Board (“OTCBB”)~~ ~~under~~amount ~~the~~of ~~symbol~~interest ~~“MCBN,”~~and ~~but~~various ~~no trades~~other ~~occurred~~charges ~~until~~collected ~~October~~or ~~2005.~~contracted ~~Prior~~by toa ~~that,~~bank ~~there~~on ~~was no public market for the stock~~loans. ~~The~~Our ~~table~~loans ~~below~~are ~~shows~~also ~~the~~subject ~~high,~~to ~~low~~federal ~~and~~laws ~~closing~~applicable ~~bid~~to ~~prices~~credit ontransactions, ~~the OTCBB~~such ~~for~~as the: ~~periods indicated. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily reflect actual transactions.~~

Calendar Quarter Ended	Low	High	Close
March 31, 2007	$13.00	$14.75	$13.75
June 30, 2007	12.50	18.75	17.00
September 30, 2007	10.01	17.70	10.01
December 31, 2007	6.75	12.25	8.00
March 31, 2008	7.25	9.25	7.75
June 30, 2008	5.50	9.15	5.55
September 30, 2008	3.00	6.00	3.76
December 31, 2008	2.30	4.25	3.35

•

Federal Truth-In-Lending Act, which governs disclosures of credit terms to consumer borrowers;

As• ofCommunity ~~December~~Reinvestment 31Act, ~~2008~~which ~~MCBI~~requires ~~common stock~~financial ~~was~~institutions ~~held~~to bymeet ~~approximately~~their ~~373~~obligations ~~shareholders. During~~to provide for the ~~fourth quarter~~total credit needs of ~~2008~~the communities they serve, ~~MCBI~~including ~~repurchased~~investing ~~none~~their ofassets ~~its~~in ~~securities.~~loans to low- and moderate-income borrowers;

~~Our~~• ~~ability~~Home toMortgage ~~pay~~Disclosure ~~cash~~Act, ~~dividends depends~~which ~~almost~~requires ~~entirely~~financial ~~upon~~institutions ~~the~~to ~~amount~~provide ofinformation ~~dividends that the Bank is permitted~~ to ~~pay~~enable bypublic ~~statute~~officials ~~or regulation. Additionally, Florida law provides that we may only pay dividends if the dividend payment would not render us insolvent, or unable~~ to ~~meet~~determine ~~our~~whether ~~obligations as they come due. As~~ a ~~state-chartered~~financial ~~bank,~~institution ~~the Bank~~ is ~~subject~~fulfilling toits ~~regulatory~~obligations ~~restrictions~~to onmeet the ~~payment~~housing ofneeds ~~dividends, including a prohibition~~ of ~~payment of dividends from~~ the ~~Bank’s~~community ~~capital~~it under certain circumstances without the prior approval of the Florida Department and the Federal Reserve. Presently, the Bank’s written agreement with the Federal Reserve and the Florida Department prohibits the Bank from paying any dividends without regulatory approval. Furthermore, except with the prior approval of the Florida Department, all dividends of any Florida bank must be paid out of retained net profits from the current period and the previous two years, after deducting expenses, including losses and bad debts. No cash dividends were paid for the year ending December 31, 2008. On February 20, 2007 the Board of Directors declared a $0.12 cash dividend on all outstanding common shares of stockholders of record on March 16, 2007 which was distributed on April 16, 2007.serves;

~~The following~~• ~~table~~Equal ~~sets~~Credit ~~forth~~Opportunity ~~information~~Act, ~~about~~which prohibits discrimination on the ~~number~~basis of ~~shares~~race, ~~reserved~~creed ~~for issuance~~or ~~under~~other ~~our~~prohibitive ~~stock~~factors ~~option~~in ~~plans.~~extending credit;

Plan Category	Number of securities to be issued upon exercise of outstanding options		Weighted average exercise price of outstanding options		Number of securities remaining available for future issuance
Stock option plans approved by security holders		322,064	$	6.54		26,777
Equity compensation plans not approved by security holders		0		N/A		0
Total		322,064	$	6.54		26,777

•

Real Estate Settlement Procedures Act, which 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;

13• Fair Credit Reporting Act, which governs the manner in which consumer debts may be collected by collection agencies; and

~~Table~~ • Rules and regulations of ~~Contents~~various federal agencies charged with the responsibility of implementing such federal laws.

~~ITEM 6. SELECTED~~Our ~~FINANCIAL~~operations ~~DATA~~are also subject to the:

December 31,	2008			2007
(Dollars In Thousands, except per share data.)
Statement of Operations Data:
Total interest income	$	7,918			11,216
Total interest expense		4,276			5,789
Net interest income before provision for loan losses		3,642			5,427
Provision for loan losses		5,959			8,110
Net interest expense after provision for loan losses		(2,317	)		(2,683	)
Non interest income		207			1,026
Non interest expense		5,957			6,453
Loss before tax		(8,067	)		(8,110	)
Income tax benefit		(2,989	)		(3,015	)
Net loss	$	(5,078	)		(5,095	)
Dividends on preferred stock		299			35
Net loss available to common shareholders	$	(5,377	)		(5,130	)
Balance Sheet Data:
Total assets	$	136,749			149,531
Total cash and cash equivalents		9,211			11,174
Interest-earning assets		123,039			139,613
Investment securities		8,147			6,570
Loans, net		106,554			119,876
Allowance for loan losses		6,154			3,794
Deposits		116,100			123,713
Stockholders’ equity		18,615			22,818
Share Data:
Basic loss per common share	$	(1.67	)		(1.61	)
Diluted loss per common share		(1.67	)		(1.61	)
Book value per common share		3.92			5.56
Weighted average shares outstanding - basic		3,223			3,191
Weighted average shares outstanding – diluted		3,223			3,191
Total common shares outstanding		3,223			3,222
Performance Ratios:
Return on average assets		(3.44	)%		(3.08	)%
Return on average common stockholders’ equity		(32.14	)%		(24.12	)%
Interest-rate spread during the period		2.14	%		2.87	%
Net interest margin		2.61	%		3.43	%
Efficiency ratio1		154.77	%		100.00	%
Asset Quality Ratios:
Allowance for loan losses to period end loans		5.46	%		3.07	%
Net charge-offs to average loans		3.10	%		4.84	%
Nonperforming assets to period end total assets		9.83	%		8.16	%
Capital and Liquidity Ratios:
Average equity to average assets		14.36	%		13.53	%
Leverage (4.00% required minimum)		8.84	%		10.86	%
Risk-based capital:
Tier 1		11.03	%		13.97	%
Total		12.34	%		15.24	%
Average loans to average deposits		97.09	%		96.11	%

•

Privacy provisions of the Gramm-Leach-Bliley Act of 1999, which requires us to maintain privacy policies intended to safeguard consumer financial information, to disclose these policies to our customers, and allow customers to “opt out” of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions;

~~(1)~~13 ~~Efficiency ratio = Non-interest expense divided by the total of net interest income before provision for loan losses plus non-interest income (excluding net securities gains and losses).~~

14Table of Contents

~~Table~~ • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of ~~Contents~~consumer financial records and prescribes procedures for complying with administrative subpoenas of financial record; and

~~ITEM 7. MANAGEMENT~~• Electronic Funds Transfer Act and Regulation E, which govern automatic deposits to, and withdrawals from, deposit accounts and customers’S ~~DISCUSSION~~rights ~~AND~~and ~~ANALYSIS OF~~liabilities ~~FINANCIAL~~arising ~~CONDITION~~from ~~AND~~the ~~RESULTS~~use OFof ~~OPERATIONS~~debit cards, automated teller machines and other electronic banking services.

~~December 31,~~Interstate ~~2008~~Banking and ~~2007~~Branching ~~and the Periods then Ended~~

~~General~~Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, eligible bank holding companies in any state are permitted, with Federal Reserve approval, to acquire banking organizations in any other state. The Interstate Banking and Branching Efficiency Act also removed substantially all of the prohibitions on interstate branching by banks. The authority of a bank to establish and operate branches within a state, however, continues to be subject to applicable state branching laws. Under current Florida law, the Bank is permitted to establish branch offices throughout Florida, with the prior approval of the OFR and the Federal Reserve. In addition, with prior regulatory approval, we are able to acquire existing banking operations in other states.

~~Marco Community~~Financial ~~Bancorp,~~Modernization Inc., a Florida corporation (the “Holding Company”), was incorporated on January 28, 2003 for the purpose of operating as a one-bank holding company. The Holding Company currently owns 100% of the outstanding shares of Marco Community Bank (the "Bank") and Commercial Lending Capital Corp. (“CLCC”) (formally known as MCB Commercial Lending Corp.) (collectively, the “Company”). The Holding Company’s only business is the ownership and operation of the Bank and CLCC. The Bank is a Florida-chartered commercial bank which opened for business on August 18, 2003. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. The Bank provides community banking services to business and individuals from its banking office located in Marco Island, Florida. CLCC operated as a commercial loan brokerage business. Effective December 31, 2008, CLCC’s operations were suspended due to economic market conditions.

~~Critical~~The Gramm-Leach-Bliley Act of 1999 sought to achieve significant modernization of the federal bank regulatory framework by allowing the consolidation of ~~Accounting~~banking ~~Policies~~institutions with other types of financial services firms, subject to various restrictions and requirements. In general, the Gramm-Leach-Bliley Act repealed most of the federal statutory barriers which separated commercial banking firms from insurance and securities firms and authorized the consolidation of such firms in a “financial services holding company.”

~~Our financial~~Recent ~~condition~~Accounting ~~and~~Pronouncements 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, we must use our best judgment to arrive at the carrying value of certain assets. The most critical accounting policy we apply relates to the valuation of the loan portfolio.

AIn ~~variety of~~2009, ~~estimates~~the ~~impact~~FASB ~~carrying~~Accounting ~~value~~Standards ofCodification (“ASC”) became the ~~loan~~single ~~portfolio~~source ~~including~~of authoritative GAAP recognized by the Financial ~~calculation~~Accounting Standards Board (“FASB”) to be applied to nongovernmental entities. Rules and interpretive releases of the ~~allowance~~Securities ~~for~~and ~~loan~~Exchange ~~losses,~~Commission ~~valuation~~(“SEC”) are also sources of ~~underlying collateral,~~authoritative ~~the~~GAAP ~~timing~~for ofSEC ~~loan~~registrants. ~~charge~~The ASC superseded all existing non-~~offs~~SEC accounting literature and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the ~~amount~~ASC ~~and~~is ~~amortization~~nonauthoritative. ~~of loan~~The ~~fees~~Company’s ~~and~~policies ~~deferred~~were ~~origination~~not ~~costs~~affected by the conversion to ASC.

~~The allowance~~In ~~for~~2009, ~~loan~~the ~~losses~~FASB isissued ~~the~~Statement ~~most~~of ~~difficult~~Financial ~~and~~Accounting ~~subjective judgment~~Standards (“SFAS”) No. ~~The~~ 166, ~~allowance~~Accounting isfor ~~established~~Transfers ~~and~~of Financial ~~maintained~~Assets at- aan ~~level~~amendment ~~we believe~~of isFASB ~~adequate~~Statement toNo. 140 ~~cover~~(this ~~losses~~SFAS ~~resulting~~was ~~from~~incorporated into the ~~inability~~ASC ofon ~~borrowers~~January 1, ~~to make~~2010), ~~required~~amending ~~payments~~the onaccounting ~~loans. Estimates~~ for ~~loan~~the ~~losses~~transfers ~~are arrived~~of atfinancial byassets. ~~analyzing~~This ~~risks~~new ~~associated~~standard ~~with~~enhances ~~specific~~reporting ~~loans~~about ~~and~~transfers of ~~the~~financial ~~loan portfolio~~assets, ~~current~~including ~~trends~~loan inparticipations ~~delinquencies~~ and ~~charge-offs~~securitizations, ~~the~~and ~~views~~where ofcompanies ~~our regulators,~~have ~~changes~~continuing inexposure to the ~~size~~risks ~~and~~related ~~composition~~to oftransferred ~~the~~financial ~~loan portfolio and peer comparisons~~assets. ~~The~~It ~~analysis~~eliminates ~~also~~the ~~requires~~concept ~~consideration~~ of ~~the~~a ~~economic~~“qualifying ~~climate~~special-purpose entity” and ~~direction,~~changes ~~change~~the inrequirements ~~the~~for ~~interest~~derecognizing ~~rate~~financial ~~environment,~~assets. ~~which~~It ~~may~~also ~~impact~~requires ~~a borrower’s~~additional ~~ability~~disclosures toabout ~~pay,~~all ~~legislation~~continuing ~~impacting~~involvements ~~the~~with ~~banking~~transferred ~~industry~~financial ~~and economic~~assets ~~conditions~~including ~~specific~~information toabout ~~our~~gains ~~service~~and ~~area. Because~~losses ~~the calculation~~resulting offrom transfers during the ~~allowance~~period. ~~for~~The ~~loan~~standard ~~losses~~was ~~relies~~effective onJanuary 1, ~~estimates~~2010, and ~~judgments relating~~had tono ~~inherently~~effect ~~uncertain~~on ~~events,~~the ~~results~~Company’s ~~may~~consolidated ~~differ~~financial ~~from our estimates~~statements.

~~The~~In ~~allowance~~2009, ~~for~~the ~~loan~~FASB ~~losses~~issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (this SFAS was incorporated into the ASC on January 1, 2010), on how a company determines when an entity that is ~~also~~insufficiently ~~discussed~~capitalized asor ~~part~~is not ofcontrolled ~~"Results~~through voting (or similar rights) should be consolidated. The determination of ~~Operations"~~whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The standard requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in ~~Note~~risk 1exposure due to that involvement as well as its effect on the entity’s financial statements. The standard was effective January 1, 2010, and had no effect on the Company’s consolidated financial statements.

~~Liquidity~~In January 2010, the FASB issued new guidance that requires new disclosures about significant transfers in and/or out of Levels 1 and 2 of the fair value hierarchy and ~~Capital~~activity ~~Resources~~in Level 3 (Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements). In addition, this guidance provides clarification of existing disclosure requirements about (a) level of disaggregation and (b) inputs and valuation techniques. The update is effective for annual reporting periods beginning after December 15, 2009, and had no impact on the Company’s consolidated financial statements other than the disclosure requirements.

~~Our~~14 total assets at December 31, 2008 were $136.7 million and net loans were $106.6 million, while at December 31, 2007, total assets were $149.5 million and net loans were $ 119.9 million. Deposits totaled $116.1 million at December 31, 2008 and $123.7 million at December 31, 2007. The Company’s primary source of cash during the period ended December 31, 2008, was net proceeds from the net decrease in loans of $5.1 million and issuance of preferred stock of $1.1 million. Cash was used primarily to fund the net decrease in deposits of $7.6 million and to purchase securities for $6.0 million. In 2007, the primary source of cash was issuance of preferred stock of $4.9 million. In 2007, cash was used primarily to fund the net decrease in deposits of $18.6 million and to purchase securities for $4.9 million. At December 31, 2008, we had one outstanding letter of credit totaling $200,000, commitments to borrowers for available lines of credit and unfunded construction loans totaling $16.8 million and we had time deposits of $67.7 million maturing in the next twelve months. At December 31, 2007, we had no outstanding commitments to originate loans. Commitments to borrowers for available lines of credit and funded construction loans totaled $26.1 million and time deposits totaled $68.9 million maturing in the twelve months following December 31, 2007. We expect to fund our commitments from the sources described above and could adjust the interest-rates paid on deposits if necessary to attract or retain time deposit accounts.

15Table of Contents

~~Table~~In April 2010, the FASB issued new guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition (ASU 2010-18, Receivables (Topic 310): Effect of ~~Contents~~a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset). This guidance allows acquired assets with common risk characteristics to be accounted for in the aggregate as a pool. Upon establishment of the pool, the pool becomes the unit of accounting. When loans are accounted for as a pool, the purchase discount is not allocated to individual loans; thus, all of the loans in the pool accrete at a single pool rate (based on cash flow projections for the pool). In addition, the impairment analysis also is performed on the pool as a whole as opposed to each individual loan. The update is effective in the first annual period ending on or after July 15, 2010 and had no impact on the Company’s consolidated financial statements.

~~Regulation and~~ITEM ~~Legislation~~1A. RISK FACTORS

AsNot a state-chartered commercial bank and registered bank holding company, we are subject to extensive regulation by the Florida Department of Financial Services ("Florida DFS") and the Federal Reserve Board of Governors (“FRB”)applicable. We file reports with the Florida DFS and the FRB concerning our activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations are performed by the Florida DFS and the FRB to monitor our compliance with the various regulatory requirements. As described in “Description of Business.” The Bank currently is party to a written agreement with the Federal Reserve Bank and the Florida Office of Financial Regulation.

~~Credit Risk~~ITEM 1B. UNRESOLVED STAFF COMMENTS

~~Our~~Not ~~primary business is making commercial, business, consumer, and real estate loans~~applicable. That activity entails potential loan losses, the magnitudes of which depend on a variety of economic factors affecting borrowers which are beyond our control. While we have instituted underwriting guidelines and credit review procedures to protect the Company from avoidable credit losses, some losses will inevitably occur. At December 31, 2008, the Company had $10.2 million in non-accrual loans and no loans which were over 90 days past due and still accruing interest. At December 31, 2007, the Company had $12.2 million in non-accrual loans and no loans which were over 90 days past due and still accruing interest. During the year ended December 31, 2008 the Company charged off loan balances of $3.6 million. During the year ended December 31, 2007, the company charged off loan balances of $6.4 million.

~~We evaluate~~ITEM ~~the allowance for loan losses on a regular basis~~2. It is based upon our periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. We base the allowance for loan losses on a grading system.PROPERTIES

~~The~~On June 18, 2004, we ~~Company~~moved ~~grants~~into ~~the~~our ~~majority~~headquarters ofthat ~~its~~is ~~loans~~located toat ~~borrowers~~1770 ~~throughout~~San ~~Collier~~Marco ~~County~~Road, Marco Island, Florida. ~~Although~~ ~~the~~This ~~Company~~is ~~has~~ a ~~diversified~~two-story ~~loan portfolio~~12,500 ~~a significant~~square ~~portion~~foot ofoffice ~~its~~condominium ~~borrowers'~~building, ~~ability~~which towas ~~honor~~custom-built ~~their~~to ~~contracts~~meet ~~is dependent~~our ~~upon the economy in Florida~~specifications. The ~~Company~~Bank ~~does~~owns ~~have~~the 10first ~~loans~~floor and ~~with~~currently ~~original~~conducts ~~terms~~all of ~~one~~its ~~year,~~retail ~~aggregating~~operations $2from this location.0 ~~million~~There atare ~~December~~four ~~31,~~drive-through ~~2008~~lanes, ~~the~~ ~~primary~~one ~~source~~ of ~~repayment~~which ishas ~~the~~an ~~sale~~ATM. ofWe ~~the~~have ~~related~~five ~~collateral~~teller orstations ~~the conversion~~in ofour ~~the~~lobby ~~existing~~and ~~debt~~nine ~~into~~offices ~~debt~~for atcustomer ~~another~~service ~~financial~~personnel, ~~institution.~~loan ~~The majority~~officers ofand ~~these~~private banking. ~~loans~~There are ~~located~~staff infacilities ~~Duval,~~and ~~Hillsborough~~a ~~and~~community ~~Pinellas Counties~~room. ~~With~~MCBI ~~the~~owns ~~uncertain~~most ~~real~~of ~~estate~~the ~~market~~second infloor ~~Florida,~~where ~~obtaining refinancing~~its orfinance, ~~sale~~loan ofand ~~the~~executive ~~collateral~~offices ~~may~~are ~~be difficult or impossible~~located. ~~Management~~ isApproximately ~~closely~~1,168 ~~monitoring~~square ~~these~~feet ~~loans~~were ~~and~~sold ~~believes the~~to ~~loan~~an ~~loss~~unrelated ~~allowance~~third atparty ~~December~~in ~~31, 2008 is adequate~~2004.

16In January 2007, the CLCC leased space on Marco Island, Florida where they conducted their commercial lending brokerage business. At December 31, 2008, the operations of CLCC were suspended and the lease terminated.

~~Table~~In July, 2008, the Bank purchased a second floor corner commercial ofcondominium ~~Contents~~unit, on Marco Island. The loan operations department was moved to the new location. In 2009, the condominium unit was vacated and is being held for future expansion.

~~Summary of~~ITEM ~~Loan~~3. ~~Loss~~LEGAL ~~Experience~~PROCEEDINGS

AnOn Thursday, ~~analysis~~August 22, of2008, the Bank’s, ~~allowance~~instituted ~~for~~an ~~loan~~action ~~losses~~(Marco isCommunity ~~furnished~~Bank v. Atlantic Capital Associates, Inc., Florida Capital Bank N.A. and Allen C. Ewing & Co., Case No. 086362CA) in the ~~following~~Circuit Court of the Twentieth ~~table~~Judicial ($Circuit in ~~thousands~~and for Collier County, Florida against each of Atlantic Capital Assoc., Inc.(“ACA”):, Florida Capital Bank, N.A. (“FCB”) and Allen C. Ewing & Co. (“Ewing” and collectively with ACA and FCB, the “Defendants”).

For the period ending December 31,	2008			2007
Total loans outstanding at the end of the period:	$	112,688		$	123,587
Allowance at beginning of period:	$	3,794		$	2,047
Loans charged-off during the period:
Loans secured by real estate		(3,599	)		(6,366	)
Recoveries of loans previously charged off:		0			3
Provision charged to operations:		5,959			8,110
Allowance at end of period:	$	6,154		$	3,794
Average loans outstanding during the period:	$	116,016		$	131,524
Ratio of net charge-offs to average loans outstanding:		3.10	%		4.84	%
Allowance as a percentage of total loans:		5.46	%		3.07	%
Allowance as a percentage of non accrual loans:		60.12	%		31.1	%

Specifically, the Bank alleged that ACA, the loan originator, loan servicer, lender and underwriter, along with its agents FCB and Ewing, failed to underwrite mortgage loans in conformity with their own offering documents, servicing agreements and industry standards. In addition, the Bank alleged that the Defendants also failed to perform as required under their agreements with the bank and that all of these failures and conflicts led up to the issuance of loan pools, which were impaired securities founded on material misstatements and omissions in the offering documents, servicing agreements and other material documents delivered in connection with the purchase of these loan pools by the Bank.

At December 31, 2008 and 2007 the allowance was allocated as follows ($ in thousands):
	Amount		% of Loans in Category to Total Loans			Amount		% of Loans in Category to Total Loans
	2008					2007
Commercial real estate	$	2,198		26.1	%	$	1,414		25.8	%
Commercial		591		11.1			1,324		33.0
Residential real estate		2,352		43.9			797		19.8
Consumer		468		8.7			13		0.9
Home equity loans and lines of credit		545		10.2			246		20.5
Total	$	6,154		100.0	%	$	3,794		100.0	%

At December 31, 2009, this lawsuit was ongoing and in the discovery stages. Subsequent to December 31, 2009, the Bank was closed and the FDIC was appointed as receiver of the Bank. As a result of that process, the FDIC replaced the Bank as the Plaintiff in this case. The Company no longer has an interest in this litigation or its outcome.

~~During the~~ITEM ~~course of the fiscal year ending December 31, 2008, non-accrual loans decreased slightly as a percentage of the Bank’s loan portfolio from 9~~4.9% ~~to 9.1% while total past dues~~ (~~those~~REMOVED ~~loans~~AND ~~in excess of 30 days of delinquency~~RESERVED) grew from 3.0% of the total loan portfolio to 4.2%. Correspondingly, this decrease in non-performing assets had the effect of increasing the ratio of the allowance to non-performing assets from 25.2% to 45.3%.

~~The process~~15 by which the Bank calculates the allowance for lease and loan losses has evolved to more closely track those portions of the loan portfolio where the Bank was incurring a heightened level of impairment to asset quality. This process of modification also allowed the Bank to more accurately define segment risks and to more adequately determine an appropriate overall reserve level. This modified process was first utilized in the calculation of the provision taken at March 31, 2008 in conjunction with guidance from the appropriate regulatory agencies as to the level of reserve that the agencies felt was appropriate for the Bank to maintain at that time.

Investment ActivitiesTable of Contents

~~Investment activities~~PART ~~serve~~II to enhance overall yield on earning assets while supporting interest rate sensitivity and liquidity positions. Securities may be classified as either trading, held-to-maturity or available-for-sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities or as held-to-maturity securities.

17ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES

~~Table~~In May 2005, MCBI became quoted on the Over-the-Counter-Bulletin-Board (“OTCBB”) under the symbol “MCBN,” but no trades occurred until ofOctober ~~Contents~~2005. Prior to that, there was no public market for the stock. The table below shows the high, low and closing bid prices on the OTCBB for the periods indicated. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily reflect actual transactions.

The securities have been classified according to management’s intent. Following are summaries of the securities (in thousands):


Calendar Quarter Ended	Low		High		Close
2010
June 30, 2010	$	0.06	$	0.14	$	0.06
March 31, 2010		0.03		0.80		0.14
2009
December 31, 2009		0.51		2.25		0.61
September 30, 2009		2.06		4.25		2.07
June 30, 2009		3.90		4.50		3.90
March 31, 2009		2.60		4.20		4.10
2008
December 31, 2008		2.30		4.25		3.35
September 30, 2008		3.00		6.00		3.76
June 30, 2008		5.50		9.15		5.55
March 31, 2008		7.25		9.25		7.75

	Amortized		Fair
	Cost		Value
Securities Held to Maturity:
At December 31, 2008:
U.S. Government and Federal Agencies	$	1,000	$	1,011
Mortgage-backed securities of U.S
government agencies		7,147		7,245
	$	8,147	$	8,256
Securities Available for Sale:
At December 31, 2007-
U.S. Government and Federal Agencies	$	1,000		1,009
Securities Held to Maturity:
At December 31, 2007:
U.S. Government and Federal Agencies		2,330		2,353
Mortgage-backed securities of U.S
government agencies		3,231		3,253
	$	5,561		5,606

As of December 31, 2009, MCBI common stock was held by approximately 356 shareholders. During the fourth quarter of 2009, MCBI did not repurchase any of its securities.

~~The~~Our ability to pay cash dividends depends almost entirely upon the amount of dividends that the Bank is permitted to pay by statute or regulation. ~~following~~Additionally, ~~table~~Florida ~~indicates~~law provides that we may only pay dividends if the ~~respective~~dividend ~~maturity~~payment ~~and~~would ~~weighted~~not render us insolvent, or unable to meet our obligations as they come due. As a state-~~average~~chartered ~~yield~~bank, the Bank is subject to regulatory restrictions on the payment of dividends, including a prohibition of payment of dividends from the Bank’s capital under certain circumstances without the prior approval of the OFR and the Federal Reserve. Presently, the Bank’s written agreement with the Federal Reserve and the ~~securities~~OFR ~~held~~prohibits atthe ~~December~~Bank 31from paying any dividends without regulatory approval. Furthermore, ~~2008~~except ~~(dollars~~with inthe ~~thousands):~~prior approval of the OFR, all dividends of any Florida bank must be paid out of retained net profits from the current period and the previous two years, after deducting expenses, including losses and bad debts. No cash dividends were paid for the year ended December 31, 2009.

	After One Year to Five Years					After Five Years					Total
	Carrying Value		Average Yield			Carrying Value		Average Yield			Carrying Value		Average Yield
Securities held to maturity:
U.S. Government agency	$	1,000		4.29	%		-		-		$	1,000		4.29	%
Mortgage-backed and related instruments		-		-			7,147		3.55	%		7,147		3.55	%
Total	$	1,000		5.37	%	$	7,147		3.64	%	$	8,147		3.64	%

The following table sets forth information about the number of shares reserved for issuance under our stock option plans.


Plan Category	Number of securities to be issued upon exercise of outstanding options	Weighted average exercise price of outstanding options		Number of securities remaining available for future issuance
Stock option plans approved by security holders	288,376	$	5.33	210,915
Equity compensation plans not approved by security holders	0		N/A	0

Total	288,376	$	5.33	210,915

~~Table of~~16 ~~Contents~~

Loan PortfolioTable Compositionof Contents

~~Commercial loans~~ITEM ~~comprise the largest group of loans in our portfolio amounting to $33~~6.~~7 million~~ orSELECTED ~~29.9%~~FINANCIAL of the total loan portfolio at December 31, 2008. At December 31, 2007, commercial loans amounted to $40.8 million, or 33.0% of the total loan portfolio. At December 31, 2008, home equity loans and lines of credit were $25.2 million, loans secured by commercial real estate were $31.4 million, residential real estate loans amounted to $21.3 million and consumer loans totaled $1.1 million. At December 31, 2007, home equity loans and lines of credit were $25.3 million, loans secured by commercial real estate were $31.9 million, residential real estate loans amounted to $24.5 million and consumer loans totaled $1.1 million.DATA

The following table sets forth the composition of the loan portfolio:


December 31,	2009			2008
(Dollars In Thousands, except per share data)
Statement of Operations Data:
Total interest income	$	6,394		7,918
Total interest expense		2,827		4,276

Net interest income before provision for loan losses		3,567		3,642
Provision for loan losses		9,387		5,959

Net interest expense after provision for loan losses		(5,820	)	(2,317	)
Non interest income		833		207
Non interest expense		8,306		5,957

Loss before tax		(13,293	)	(8,067	)
Income tax expense (benefit)		5,005		(2,989	)

Net loss		(18,298	)	(5,078	)
Dividends on preferred stock		108		299

Net loss available to common shareholders	$	(18,406	)	(5,377	)

Balance Sheet Data:
Total assets	$	118,813		136,749
Total cash and cash equivalents		2,301		9,211
Interest-earning assets		110,722		123,039
Investment securities		10,493		8,147
Loans, net		98,831		106,554
Allowance for loan losses		6,978		6,154
Deposits		115,782		116,100
Stockholders’ equity		1,373		18,615
Share Data:
Basic loss per common share	$	(5.53	)	(1.67	)
Diluted loss per common share		(5.53	)	(1.67	)
Book value per common share ⁽²⁾		(1.42	)	4.03
Weighted average shares outstanding - basic		3,328		3,223
Weighted average shares outstanding - diluted		3,328		3,223
Total common shares outstanding		3,329		3,223
Performance Ratios:
Return on average assets		(12.88	)%	(3.44	)%
Return on average common stockholders’ equity		(107.75	)%	(23.99	)%
Interest-rate spread during the period		2.62	%	1.95	%
Net interest margin		2.79	%	2.61	%
Efficiency ratio¹		192.36	%	154.77	%
Asset Quality Ratios:
Allowance for loan losses to period end loans		6.80	%	5.46	%
Net charge-offs to average loans		7.64	%	3.10	%
Nonperforming assets to period end total assets		10.50	%	9.83	%
Capital and Liquidity Ratios:
Average equity to average assets		11.95	%	14.36	%
Leverage (4.00% required minimum)		N/A		8.84	%
Risk-based capital:
Tier 1		N/A		11.03	%
Total		N/A		12.34	%
Average loans to average deposits		90.44	%	97.09	%

At December 31, 2008 ($ in thousands)	Amount			% of Total
Commercial real estate	$	31,404			27.9	%
Commercial		33,714			29.9
Residential real estate		21,271			18.9
Consumer		1,099			.9
Home equity loans and lines of credit		25,200			22.4
Total loans		112,688			100.0	%
Add (subtract):
Deferred loan costs, net		20
Allowance for loan losses		(6,154	)
Loans, net	$	106,554

⁽¹⁾	Efficiency ratio = Non-interest expense divided by the total of net interest income before provision for loan losses plus non-interest income (excluding net securities gains and losses).

At December 31, 2007 ($ in thousands)	Amount			% of Total
Commercial real estate	$	31,925			25.8	%
Commercial		40,778			33.0
Residential real estate		24,503			19.8
Consumer		1,107			0.9
Home equity loans and lines of credit		25,274			20.5
Total loans	$	123,587			100.0	%
Add (subtract):
Deferred loan costs, net		83
Allowance for loan losses		(3,794	)
Loans, net	$	119,876

⁽²⁾	After liquidation preferences for preferred stockholders

N/A The ~~following~~ ~~table~~Bank ~~sets~~had ~~forth~~no ~~the~~capital ~~maturities~~at ~~of loans outstanding as of~~ December 31, ~~2008 (in thousands):~~2009

	Due in 1 Year or Less		Due After 1 Year but Before 5 Years		Due After 5 Years but Before 10 Years		Due Over 10 Years		Total
Commercial real estate	$	7,383	$	20,230	$	1,759	$	2,032	$	31,404
Commercial		9,136		16,857		7,721		-		33,714
Residential real estate		-		12,175		3,095		6,001		21,271
Consumer		49		670		380		-		1,099
Home equity loans and lines of credit		280		1,277		23,643		-		25,200
Total	$	16,848	$	51,209	$	36,598	$	8,033	$	112,688

Scheduled contractualTable principal payments of loans do not reflect the actual lives of loans. The average life of a loan is substantially less than its contractual term because of prepayments. The average life of a loan tends to increase; however,Contents

19ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Table of~~December 31, ~~Contents~~2009 and 2008 and the Periods then Ended

~~when~~General the current market rates for that particular type of loan are substantially higher than rates on an existing loan and, conversely, tend to decrease when rates on an existing loan are substantially higher than the current market rate for that particular type of loan. Prepayment penalties attempt to lessen the income impact of borrowers prepaying their loans by imposing fees for any early prepayment of the loans.

AsMarco ofCommunity ~~December~~Bancorp, 31Inc., ~~2008~~a Florida corporation (the “Holding Company”), ~~and~~was ~~2007~~incorporated on January 28, no2003, ~~concentrations~~for the purpose of ~~loans~~operating ~~exceeding~~as 10a one-bank holding company. The Holding Company currently owns 100% of ~~total~~the outstanding shares of Marco ~~loans~~Community ~~existed~~Bank ~~which~~(the ~~were~~“Bank”) ~~not~~and ~~disclosed~~Commercial Lending Capital Corp. (“CLCC”) (formally known as MCB Commercial Lending Corp.) (collectively, the “Company”). The Holding Company’s only business is the ownership and operation of the Bank and CLCC. The Bank is a ~~separate~~Florida-chartered ~~category~~commercial bank which opened for business on August 18, 2003. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance ~~loans~~Corporation. The Bank provides community banking services to business and individuals from its banking office located in Marco Island, Florida. CLCC operated as a commercial loan brokerage business. Effective December 31, 2008, CLCC’s operations were suspended due to economic market conditions.

~~Sensitivity~~As noted earlier, the Bank was closed by the OFR and the FDIC was appointed as receiver of ~~Loans~~the Bank on February 19, 2010. Subsequent to ~~Changes~~the closure, Mutual of Omaha Bank, Omaha, Nebraska (“Mutual of Omaha”), assumed all of the deposits of the Bank, and purchased essentially all of the Bank’s assets in ~~Interest~~a transaction ~~Rates~~facilitated by the FDIC. On February 20, 2010, the one office of the Bank reopened as a branch of Mutual of Omaha.

The ~~following~~Company’s ~~table~~principal asset is the capital stock that it owns in the Bank at February 19, 2010, and, as a result of ~~December~~the ~~31,~~closure ~~2008~~of the Bank, ~~sets~~the ~~forth~~Company has minimal remaining tangible assets. The Company did not realize any recovery following the ~~dollar~~closing ~~amounts~~of the Bank and sale of ~~loans due~~its ~~after~~assets ~~one~~by ~~year~~the ~~which~~FDIC, ~~had~~nor ~~predetermined~~is ~~interest~~any ~~rates~~recovery ~~and~~expected. ~~loans~~Since ~~due~~the ~~after one~~closing ~~year~~of ~~which~~the ~~had~~Bank, ~~floating~~the orprincipal ~~adjustable~~assets ~~interest~~of ~~rates~~the ~~(dollars~~Company are its office condominium, a participation in ~~thousands)~~ a loan receivable, and cash.

	Fixed		Adjustable		Total
Commercial real estate	$	18,834	$	5,187	$	24,021
Commercial		-		24,578		24,578
Residential real estate		2,141		19,130		21,271
Consumer		-		1,050		1,050
Home equity loans and lines of credit		-		24,920		24,920
Total	$	20,975	$	74,865	$	95,840

The Company is exploring methods of winding down its operations. Any ultimate distribution of assets will occur in accordance with Florida law, the Company’s Articles of Incorporation and the terms of the Company’s outstanding series of Preferred Stock.

~~Non-performing Loans~~Critical Accounting Policies

~~Non-performing loans~~Our ~~include~~financial ~~non-accrual~~condition ~~loans. Non-accrual~~and ~~loans~~results ~~represent~~of ~~loans~~operations ~~on which~~are ~~interest~~sensitive ~~accruals have been discontinued. It is our policy~~ to ~~discontinue~~ ~~interest~~accounting ~~accruals~~measurements ~~when~~and ~~principal~~estimates orof ~~interest~~matters isthat ~~due~~are ~~and~~inherently ~~has~~uncertain. ~~remained~~When ~~unpaid~~applying ~~for~~accounting 90policies ~~days or more unless the loan is both well secured and~~ in ~~the process~~areas ofthat ~~collection. When~~are asubjective ~~loan is placed~~ in ~~non-accrual status~~nature, ~~all~~ ~~unpaid~~we ~~interest~~must isuse ~~reversed. Payments~~our onbest ~~non-accrual~~judgment ~~loans are generally applied~~ to ~~either~~arrive ~~principal~~at orthe ~~interest~~carrying orvalue ~~both,~~of ~~depending~~certain ~~on management’s~~assets. ~~evaluation~~The ofmost ~~collectibility. Non-accrual~~critical ~~loans~~accounting ~~may~~policies ~~not be~~we ~~restored~~apply relate to ~~accrual~~the ~~status~~valuation ~~until~~of ~~all~~the ~~delinquent~~loan ~~principal~~portfolio and ~~interest has~~ ~~been~~foreclosed ~~paid~~assets, orand the ~~loan~~determination ~~becomes~~of ~~both~~the ~~well~~valuation ~~secured~~allowance ~~and~~for indeferred ~~the~~tax ~~process of collection~~assets.

InA ~~2008, non-accrual~~variety ~~loans~~of ~~decreased~~estimates byimpact ~~$2.0~~carrying ~~million.~~value ~~$2.0 million~~ of the ~~current~~loan ~~$10.2 million~~portfolio ~~total~~including ~~represents~~ the ~~outstanding~~calculation ~~balances~~ of the allowance for loan ~~pools~~losses, ~~discussed~~valuation ~~in detail~~of ~~later~~underlying incollateral, ~~this~~the ~~report. $5.1~~timing ~~million~~of ~~non~~loan charge-~~accrual~~offs ~~loans~~and ~~are~~ the ~~result~~ ofamount ~~non-payments~~and byamortization ~~borrowers~~of onloan ~~loans~~fees ~~made~~and ~~for~~deferred ~~commercial~~origination ~~real estate purposes~~costs.

~~Non-performing~~The allowance for loan losses is the most difficult and subjective judgment. The allowance is established and maintained at a level we believe is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan losses are ~~closely~~arrived ~~monitored~~at onby ananalyzing ~~ongoing~~risks ~~basis~~associated aswith ~~part~~specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of our regulators, changes in the size and composition of the loan ~~review~~portfolio and ~~work-out~~ ~~process~~peer comparisons. The ~~potential~~analysis ~~risk~~also requires consideration of ~~loss~~the oneconomic ~~these~~climate ~~loans~~and ~~is evaluated~~direction, bychange ~~comparing~~in the ~~loan~~interest ~~balance~~rate environment, which may impact a borrower’s ability to pay, legislation impacting the ~~fair~~banking ~~value~~industry ofand ~~any~~economic ~~underlying collateral~~conditions orspecific ~~the~~to ~~present~~our ~~value~~service area. Because the calculation of ~~projected~~the ~~future~~allowance ~~cash~~for loan losses relies on estimates and judgments relating ~~flows. Losses~~to ~~are~~inherently ~~recognized~~uncertain ~~where~~events, ~~appropriate~~results may differ from our estimates.

The ~~following~~ allowance for loan losses is aalso ~~summary~~discussed as part of “Results ~~non-performing~~of ~~loans~~Operations” ~~(dollars~~and in ~~thousands):~~ Note 1 to the consolidated financial statements.

At December 31,	2008			2007
Non-accrual loans	$	10,236		$	12,200
Restructured loans		-			-
Total	$	10,236		$	12,200
Non-performing loans as a percentage of total loans		9.08	%		9.87	%

During the year ended December 31, 2009, the Company assessed its earnings history and trend over the past year, its estimate of future earnings, and the expiration of the net operating loss carryforwards, and determined that it is more likely than not that the deferred tax assets will not be realized in the near term. Accordingly, a full valuation allowance was recorded against the deferred tax asset.

~~All~~18 loans where information exists about possible credit problems that would cause us to have serious doubts about the borrower’s ability to comply with the current terms of the loan have been reflected within the table summarizing non-performing loans.

20Table of Contents

~~Table of~~Liquidity ~~Contents~~and Capital Resources

Our total assets at December 31, 2009, were $118.8 million and net loans were $98.8 million, while at December 31, 2008, total assets were $136.7 million and net loans were $106.6 million. Deposits totaled $115.8 million at December 31, 2009, and $116.1 million at December 31, 2008. The Company’s primary source of cash during the year ended December 31, 2009, was ~~following~~net isproceeds afrom ~~table~~the ~~showing~~principal repayments on securities of $2.7 million, sales and calls of securities of $8.3 million, sales of OREO of $3.2 million and issuance of preferred stock and exercise of common stock warrants totaling $809,000. Cash was used primarily to fund the ~~amounts~~net decrease in deposits, purchase securities of ~~contractual~~$13.2 ~~interest~~million, ~~income~~loans and repurchase agreements of $1.1 million and fund the allowance for loan losses of $9.4 million. In 2008, the primary source of cash was net proceeds ~~actual~~from ~~interest~~the ~~income~~net ~~recorded~~decrease onin ~~non-accrual~~loans of $5.1 million and ~~restructured~~issuance of preferred stock of $1.1 million. At December 31, 2009, commitments to borrowers for available lines of credit and unfunded construction loans (totaled $9.8 million and we had time deposits of $36.1 million maturing in the next twelve months. At December 31, 2009, we had no outstanding commitments to originate loans. We expect to fund our commitments from the sources described above and could adjust the interest-rates ~~thousands):~~paid on deposits if necessary to attract or retain time deposit accounts.

At December 31,	2008		2007
Gross interest income that would have been recorded if the loans had been current and in accordance with their original terms	$	2,378	$	1,679
Interest income recorded during the year		55		780

Regulation and Legislation

AtAs a state-chartered commercial bank and registered bank holding company, we are subject to extensive regulation by the OFR and the Federal Reserve. We ~~December~~file 31reports with the OFR and the Federal Reserve concerning our activities and financial condition, ~~2008~~in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations are performed by the OFR and ~~2007~~the Federal Reserve to monitor our compliance with the ~~Company~~various ~~had~~regulatory norequirements. ~~loans~~As ~~which~~described ~~were~~in ~~over~~“Description 90of ~~days~~Business,” ~~past~~the Bank, as of December 31, 2009, was ~~due~~party to a prompt corrective action directive and ~~still~~written ~~accruing~~agreement ~~interest~~with the Federal Reserve and the OFR.

AsCredit ~~of December~~Risk ~~31, 2008, the Bank had $2.0 million in outstanding loans that were acquired in loan pool purchases. These short term loans were to borrowers with high credit scores~~ and ~~were used to finance the borrowers’ acquisition and~~ ~~renovation~~Loan ofLoss ~~residential~~Experience real estate primarily in Duval and Hillsborough Counties, Florida. Due to liquidity and pricing weaknesses in those markets, as well as the financial deterioration of the loans’ servicer, we have concluded that the likelihood of full repayment of those loans is unlikely. In 2008, the Bank charged-off $775,000 related to these loans. The Bank is actively engaged in attempting to mitigate additional losses and is evaluating its options, including but not limited to, selling the loan pools or accepting assignment of individual loans and pursuing refinancing or foreclosures.

~~Off~~Our primary business is making commercial, business, consumer, and real estate loans. That activity entails potential loan losses, the magnitudes of which depend on a variety of economic factors affecting borrowers which are beyond our control. While we have instituted underwriting guidelines and credit review procedures to protect the Company from avoidable credit losses, some losses will inevitably occur. At December 31, 2009, the Company had $9.7 million in non-~~Balance~~accrual loans and no loans that were over 90 days past due and still accruing interest. At December 31, 2008, the Company had $10.2 ~~Sheet~~million ~~Arrangements~~in non-accrual loans and no loans that were over 90 days past due and still accruing interest. During the year ended December 31, 2009, the Company charged off loan balances of $8.9 million. During the year ended December 31, 2008, the Company charged off loan balances of $3.6 million.

~~The Company~~We isevaluate athe ~~party~~allowance tofor ~~financial~~loan ~~instruments~~losses ~~with~~on ~~off-balance-sheet~~a ~~risk~~regular inbasis. ~~the normal~~It ~~course~~is ofbased ~~business~~upon toour periodic ~~meet~~review of the ~~financing~~collectibility ~~needs~~ of ~~its customers. These~~the ~~financial~~loans ~~instruments~~in ~~include~~light ~~commitments~~of tohistorical ~~extend credit~~experience, ~~unfunded~~the ~~construction~~nature ~~loans, unused lines of credit,~~ and ~~standby~~volume ~~letters~~ of ~~credit. These~~the ~~instruments~~loan ~~involve~~portfolio, toadverse ~~varying~~situations ~~degrees,~~that ~~elements~~may ~~of credit~~affect ~~and~~the ~~interest-rate~~borrower’s ~~risk~~ability into ~~excess~~repay, ofestimated ~~the~~value ~~amounts~~of ~~recognized~~any inunderlying ~~the~~collateral ~~consolidated~~and ~~balance~~prevailing ~~sheet~~economic conditions. ~~The~~ ~~contract~~We orbase ~~notional amounts of these instruments reflect~~ the ~~extent~~allowance ~~the~~for ~~Company’s~~loan ~~involvement~~losses inon ~~particular~~a ~~classes of~~grading ~~financial instruments~~system.

~~The Company’s~~An ~~exposure~~analysis ~~to credit loss in the event~~ of ~~nonperformance by~~ the ~~other party~~Bank’s toallowance ~~the financial instrument~~ for ~~commitments to extend credit, unfunded~~ ~~construction~~loan ~~loans,~~losses ~~unused lines of credit and standby letters of credit~~ is ~~represented~~ byfurnished ~~the~~in ~~contractual amount of those instruments. To control~~ the ~~credit~~following ~~risk~~table ~~associated~~(dollars ~~with entering into commitments and issuing letters of credit, the Company uses the same credit quality, collateral policies, and monitoring controls~~ in ~~making~~thousands): ~~commitments and letters of credit as it does with its lending activities.~~

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party.


For the period ended December 31,	2009			2008
Allowance at beginning of period:	$	6,154		$	3,794

Loans charged-off during the period:
Loans secured by real estate		(7,068	)		(2,306	)
Commercial loans		(1,480	)		(1,124	)
Consumer loans		(363	)		(169	)
Recoveries of loans previously charged off:		348			0
Provision charged to operations:		9,387			5,959

Allowance at end of period:	$	6,978		$	6,154

Average loans outstanding during the period:	$	112,121		$	116,016

Loans held for sale	$	3,199		$	—
Loans held for investment		102,687			112,688

Total loans outstanding at the end of the period:	$	105,886		$	112,688

Ratio of net charge-offs to average loans outstanding:		7.64	%		3.10	%
Allowance as a percentage of total loans held for investment:		6.80	%		5.46	%
Allowance as a percentage of non-accrual loans:		71.82	%		60.12	%

~~Standby letters~~19 of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party and to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments.

Unused linesTable of credit, unfunded construction loans and commitments to extend credit typically result in loans with a market interest rate.Contents

~~The following~~At ~~table~~December 31, is2009 aand ~~summary~~2008, of the ~~amounts~~allowance ofwas ~~the~~allocated ~~financial~~as ~~instruments,~~follows ~~with off-balance~~(dollars ~~sheet~~in ~~risk, at December 31, 2008~~thousands):

Off-Balance Sheet Arrangements:	Contract Amount (in thousands)
	Amount		% ofLoans inCategoryto TotalLoans		Amount		% ofLoans inCategoryto TotalLoans
Commitments to extend credit	$	-
	2009				2008
Unfunded construction loans		1,266
Commercial real estate	$	3,513	25.4	%	$	2,198	27.9	%
Unused lines of credit		15,536
Commercial		551	25.7			591	29.9
Standby letters of credit		200
Residential real estate		1,257	25.7			2,352	18.9
Consumer		—	1.5			468	.9
Home equity loans and lines of credit		1,657	21.7			545	22.4
Total	$	6,978	100.0	%	$	6,154	100.0	%

21During the course of the fiscal year ended December 31, 2009, non-accrual loans increased slightly as a percentage of the Bank’s loan portfolio from 9.1% to 9.5%, while total past dues (those loans in excess of 30 days of delinquency) grew from 9.8% of the total loan portfolio to 17.7%. This increase in non-performing assets was offset by the increased provisions for loan losses over net charge-offs, which resulted in an increase to the ratio of the allowance to non-performing assets, excluding restructured loans, from 45.8% to 55.9%. The following summarizes past due loans by loan type (dollars in thousands):

Table of Contents


	Loans Past Due 30-89 Days				Loans Past Due 90 Days or More and Non-accrual
	Loans Past Due 30-89 Days				Loans Past Due 90 Days or More and Non-accrual				Total Past Due Loans				Total Loans
	$		%		$		%		$		%		Total Loans
December 31, 2009
Commercial real estate	$	6,147	23.6	%	$	5,457	20.9	%	$	11,604	44.5	%	$	26,085
Commercial		929	3.5	%		2,218	8.4	%		3,147	11.9	%		26,427
Residential real estate		883	3.3	%		734	2.8	%		1,617	6.1	%		26,411
Consumer		—	0.0	%		—	0.0	%		—	0.0	%		1,583
Home equity loans and lines of credit		534	2.4	%		1,307	5.9	%		1,841	8.3	%		22,181

Total	$	8,493	8.3	%	$	9,716	9.5	%	$	18,209	17.7	%	$	102,687

December 31, 2008
Commercial real estate	$	—	0.0	%	$	8,088	25.8	%	$	8,088	25.8	%	$	31,404
Commercial		147	0.4	%		1,038	3.1	%		1,185	3.5	%		33,714
Residential real estate		—	0.0	%		162	0.8	%		162	0.8	%		21,271
Consumer		24	2.2	%		—	0.0	%		24	2.2	%		1,099
Home equity loans and lines of credit		660	2.6	%		948	3.8	%		1,608	6.4	%		25,200

Total	$	831	0.7	%	$	10,236	9.1	%	$	11,067	9.8	%	$	112,688

~~Liquidity~~% - Percentage of past due loans to total loans by loan type (rounded)

~~Liquidity represents~~No ~~the~~loans ~~ability~~were topast ~~provide~~due ~~steady~~90 ~~sources~~days of funds for loan commitments and investment activities, as well as to maintain sufficient funds to cover deposit withdrawals and payment of debt and operating obligations. The Bank’s liquidity position was initially established through the Holding Company’s purchase of $ 6.4 million of the common stock of the Bank. In 2008, the Holding Company contributed an additional $2.0 million to the Bank’s capital. In 2007, the Holding Company contributed an additional $4.5 million to the Bank’s capital. As the Bank grows, liquidity needs can be met either by converting assets to cash or bymore ~~attracting new deposits. Bank deposits were $116.1 million at December 31, 2008~~ and $still ~~123.7~~accruing ~~million at December 31, 2007. Below are the pertinent liquidity balances and ratios at December 31, 2008 and 2007 ($ in thousands).~~

At December 31,	2008			2007
Cash and cash equivalents	$	9,211		$	11,174
Time deposits over $100,000 to total deposits ratio		26.6	%		27.5	%
Loan to deposit ratio		97.1	%		99.9	%
Brokered deposits	$	25,172		$	19,728

CashTable and cash equivalents are the primary source of liquidity. At December 31, 2008, cash and cash equivalents amounted to $9.2 million, representing 6.7% of total assets. At December 31, 2007, cash and cash equivalents amounted to $11.2 million, representing 7.5 % of total assets. At December 31, 2008 and December 31, 2007, large denomination certificates accounted for 26.6% and 27.5%, respectively, of total deposits. Large denomination time deposits generally are more volatile than other deposits. As a result, management continually monitors the competitiveness of the rates it pays on its large denomination time deposits and periodically adjusts the Bank’s rates in accordance with market demands. Significant withdrawals of large denomination time deposits may have a material adverse effect on the Bank’s liquidity. Management believes that since a majority of the above certificates were obtained from bank customers residing outside of Collier County, Florida, the volatility of such deposits is higher than if such deposits were obtained from depositors residing inside of Collier County, as outside depositors are generally more likely to be interest rate sensitive. Brokered deposits are deposit instruments, such as certificates of deposit, deposit notes, bank investment contracts and certain municipal investment contracts that are issued through brokers and dealers who then offer and/or sell these deposit instruments to one or more investors. As of December 31, 2008 and 2007, the Bank had $25.2 million and $19.7 million, respectively, in brokered deposits in its portfolio. Management knows of no trends, demands, commitments, events or uncertainties that should result in or are reasonably likely to result in the Bank’s liquidity increasing or decreasing in any material way in the foreseeable future.Contents

~~Regulatory Capital~~Nonperforming ~~Requirements~~assets at December 31, 2009 and 2008, were (dollars in thousands):

The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.


December 31,	2009		2008
Non-accrual loans	$	9,716	$	10,236
Other real estate owned		2,761		3,202

Total non-performing assets	$	12,477	$	13,438

~~Quantitative measures~~Excludes ~~established~~loans byrestructured ~~regulation to ensure capital adequacy require the Bank to maintain minimum amounts~~ and ~~ratios of total and Tier 1 capital (as defined~~ in ~~the~~compliance ~~regulations)~~with tomodified ~~risk-weighted~~terms ~~assets (as defined)~~ and ~~of Tier 1 capital~~ ~~(as~~not ~~defined)~~reported ~~to average assets (~~as ~~defined). Management~~past ~~believes,~~due ~~as of~~or December 31, 2008, that the Bank met all capital adequacy requirements to which they are subject. As of December 31, 2008, the most recent notification from the regulatory authorities categorized the Bank as well capitalized. An institution must maintain certain minimum total risknon-~~based,~~accrual ~~Tier 1 risk-based and Tier 1 leverage ratios. See Note 11 to the Consolidated Financial Statements for the actual capital amounts and ratios.~~

~~Market~~The process by which the Bank calculates the allowance for lease and loan losses has evolved to more ~~Risk~~closely track those portions of the loan portfolio where the Bank was incurring a heightened level of impairment to asset quality. This process of modification also allowed the Bank to more accurately define segment risks and to more adequately determine an appropriate overall reserve level. This modified process was first utilized in the calculation of the provision taken at March 31, 2008, in conjunction with guidance from the appropriate regulatory agencies as to the level of reserve that the agencies felt was appropriate for the Bank to maintain at that time. This process, which is described under the section “Loan Loss Allowance,” beginning at page 7, has been consistently applied throughout 2008 and 2009.

~~Market risk~~Investment isActivities the risk of loss from adverse changes in market prices and rates. We do not engage in trading or hedging activities and do not invest in interest-rate derivatives or enter into interest-rate swaps. Our market risk arises primarily from interest-rate risk inherent in our lending and deposit taking activities. To that end, we actively monitor and manage our interest-rate risk exposure. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 7 of Notes to Consolidated Financial Statements.

22Investment activities serve to enhance overall yield on earning assets while supporting interest rate sensitivity and liquidity positions. Securities may be classified as either trading, held-to-maturity or available-for-sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those for which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities or as held-to-maturity securities.

~~Table~~ The securities have been classified according to management’s intent. Following are summaries of ~~Contents~~the securities (dollars in thousands):

Our primary objective in managing interest-rate risk is to minimize the adverse impact of changes in interest rates on our net interest income and capital, while adjusting our asset-liability structure to obtain the maximum yield-cost spread on that structure. We rely primarily on our asset-liability structure to control interest-rate risk. See the section below titled Asset-Liability Structure. However, a sudden and substantial increase in interest rates may adversely impact our earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis.


At December 31, 2009	Amortized Cost		Fair Value
Securities Available for Sale:
U.S. Government and Federal Agencies	$	5,031	$	5,035
Mortgage-backed securities of U.S government agencies and related instruments		5,344		5,458

Total	$	10,375	$	10,493

At December 31, 2008
Securities Held to Maturity:
U.S. Government and Federal Agencies	$	1,000	$	1,011
Mortgage-backed securities of U.S government agencies and related instruments		7,147		7,245

Total	$	8,147	$	8,256

WeThe ~~use modeling~~following ~~techniques~~table toindicates ~~simulate~~the ~~changes~~respective inmaturity ~~net interest income under various~~and ~~rate~~weighted-average ~~scenarios.~~yield ~~Important elements~~ of ~~these techniques include~~ the ~~mix~~securities ~~of floating~~held ~~versus~~at ~~fixed-rate assets and liabilities~~December 31, ~~and~~2009 ~~the~~(dollars ~~scheduled,~~in asthousands): ~~well as expected, repricing and maturing volumes and rates of the existing balance sheet.~~

Asset - Liability Structure


	After One Year to Five Years				After Five Years				Total
	Carrying Value		Average Yield		Carrying Value		Average Yield		Carrying Value		Average Yield
Securities Available for Sale:
U.S. Government agency	$	5,035	3.22	%	$	—	—		$	5,035	3.22	%
Mortgage-backed securities		1,569	4.27	%		3,889	3.47	%		5,458	3.70	%

Total	$	6,604	3.47	%	$	3,889	3.47	%	$	10,493	3.47	%

As21 part of our asset and liability structure we emphasize establishing and implementing internal asset-liability decision processes, as well as communications and control procedures to aid in managing our operations. We believe these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines which should result in tighter controls and less exposure to interest-rate risk.

The matchingTable of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest-rate sensitive” and by monitoring an institution's interest rate sensitivity “gap.” An asset or liability is said to be interest-rate sensitive within a specific time period if it will mature or reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The gap ratio is computed as rate sensitive assets/rate sensitive liabilities. A gap ratio of 1.0 represents perfect matching. A gap is considered positive when the amount of interest-rate sensitive assets exceeds 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 adversely affect net interest income, while a positive gap would result in an increase in net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.Contents

InLoan ~~order to~~Portfolio ~~minimize~~Composition ~~the~~(Loans ~~potential~~Held for adverse effects of material and prolonged increases in interest rates on the results of operations, we monitor asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. Such policies have consisted primarily of: (iInvestment) ~~emphasizing the origination of adjustable-rate loans; (ii) building a stable core deposit base; and (iii) maintaining a significant portion of liquid assets (cash and short-term securities).~~

23The following table sets forth the composition of the loan portfolio (dollars in thousands):

Table of Contents


At December 31, 2009	Amount			% of Total
Commercial real estate	$	26,085		25.4	%
Commercial		26,427		25.7
Residential real estate		26,411		25.7
Consumer		1,583		1.5
Home equity loans and lines of credit		22,181		21.7

Total loans		102,687		100.0	%

Add (subtract):
Deferred loan costs, net		(77	)
Allowance for loan losses		(6,978	)

Loans, net		95,632
Residential real estate loans held for sale		3,199

	$	98,831


At December 31, 2008
Commercial real estate	$	31,404		27.9	%
Commercial		33,714		29.9
Residential real estate		21,271		18.9
Consumer		1,099		.9
Home equity loans and lines of credit		25,200		22.4

Total loans		112,688		100.0	%

Add (subtract):
Deferred loan costs, net		20
Allowance for loan losses		(6,154	)

Loans, net	$	106,554

The following table sets forth ~~certain~~the ~~information~~maturities ~~relating~~of toloans ~~our~~outstanding ~~interest-earning assets~~(including ~~and~~loans ~~interest-bearing~~held ~~liabilities~~for atsale) ~~December~~as of December 31, ~~2008~~2009 ~~that are estimated to mature or are scheduled to reprice within the period shown~~ ($dollars in thousands):

	Three Months				More Than Three Months to One Year				More Than One Year To Five Years			More Than Five Years to Fifteen Years			Over Fifteen Years			Total
	Due in1 Yearor Less			Due After1 YearbutBefore 5Years			Due After 5Years butBefore 10Years			Due Over 10Years		Total
Loans (1):
Commercial real estate	$	6,093		$	15,049		$	3,057		$	1,886	$	26,085
Variable rate	$	8,557				3,493				9,696			-			-			21,746
Commercial		13,969			12,208			250			—		26,427
Fixed rate		47,831				34,196				8,791			124			-			90,942
Residential real estate including loans held for sale		6,168			5,048			3,424			14,970		29,610
Total loans		56,388				37,689				18,487			124			-			112,688
Consumer		522			291			319			451		1,583
Federal funds sold		7,237				-				-			-			-			7,237
Home equity loans and lines of credit		274			4,024			17,883			—		22,181
Investment securities		-				1,000				7,147			-			-			8,147
Total	$	27,026		$	36,620		$	24,933		$	17,307	$	105,886
Interest Bearing due from Banks		387														-			387
Federal Reserve and FHLB stock		-				-				-			714			-			714
Total rate-sensitive assets		64,012				38,689				25,634			838			-			129,173
Deposit accounts:
Savings, NOW and money market deposits (2)		34,776				-				-			-			-			34,776
Time deposits (2)		15,411				52,241				9,319			-			-			76,971
Repurchase Agreements		931				-				-			-			-			931
Total rate-sensitive liabilities		51,118				52,241				9,319			-			-			112,678
GAP repricing differences	$	12,894				(13,552	)			16,315			838			-			16,495
Cumulative GAP	$	12,894				(658	)			(15,657	)		16,495			16.495			16,495
Cumulative GAP/total assets		9.4	%			(0.5	%)			(11.4	%)		12.1	%		12.1	%		12.4	%

~~(1)~~22 In preparing the table above, adjustable-rate loans are 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 are scheduled, including repayment, according to their maturities.

(2)Table Money-market,of NOW, and savings deposits are regarded as ready accessible withdrawable accounts. Time deposits are scheduled through the maturity dates.Contents

24Scheduled contractual principal payments of loans do not reflect the actual lives of loans. The average life of a loan is substantially less than its contractual term because of prepayments. The average life of a loan tends to increase; however, when the current market rates for that particular type of loan are substantially higher than rates on an existing loan and, conversely, tend to decrease when rates on an existing loan are substantially higher than the current market rate for that particular type of loan. Prepayment penalties attempt to lessen the income impact of borrowers prepaying their loans by imposing fees for any early prepayment of the loans.

~~Table~~As of December 31, 2009, and 2008, no concentrations of loans exceeding 10% of ~~Contents~~total loans existed, which were not disclosed as a separate category of loans.

~~The following~~Sensitivity ~~table reflects the contractual principal repayments by period~~ of ~~the~~Loans to ~~loan~~Changes ~~portfolio~~in atInterest ~~December~~Rates ~~31,~~(Loans ~~2008~~Held ~~(in~~for ~~thousands~~Investment):

Years Ending December 31,	Commercial Real Estate		Commercial		Residential Real Estate		Consumer		Home Equity and Lines of Credit		Total
2009	$	12,103	$	9,136	$	9,341	$	3	$	-	$	30,583
2010 - 2013		17,149		21,143		5,726		610		1,496		46,124
2014 and beyond		2,152		3,435		6,204		486		23,704		35,981
Total	$	31,404	$	33,714	$	21,271	$	1,099	$	25,200	$	112,688

The following table as of December 31, 2009, sets forth the dollar amounts of loans due after one year that had predetermined interest rates and loans due after one year which had floating or adjustable interest rates (dollars in thousands).

Of the $82.1million of loans due after 2009, 78.4% of such loans have fixed-interest rates and 21.6% have adjustable interest rates.


	Fixed		Adjustable		Total
Commercial real estate	$	6,905	$	13,087	$	19,992
Commercial		9,300		3,158		12,458
Residential real estate		4,820		18,622		23,442
Consumer		196		865		1,061
Home equity loans and lines of credit		—		21,907		21,907

Total	$	21,221	$	57,639	$	78,860

~~Scheduled contractual~~Residential ~~principal~~mortgage ~~repayments~~loans oforiginated ~~loans~~and dointended ~~not~~for ~~reflect~~sale in the secondary ~~actual~~market ~~life~~are ofcarried ~~such assets. The~~at ~~average~~the ~~life~~lower of ~~loans~~cost isor ~~substantially~~estimated ~~less~~fair ~~than~~value ~~their average~~in ~~contractual~~the ~~terms~~aggregate. ~~due~~Net tounrealized ~~prepayments. In addition~~losses, ~~due-on-sale~~ ~~clauses~~if onany, ~~loans~~are ~~generally~~recognized ~~give~~through ~~us the right to declare~~ a ~~conventional~~ ~~loan~~valuation ~~immediately~~allowance ~~due~~by ~~and~~charges ~~payable~~to inearnings. ~~the~~At ~~event~~December 31, ~~among other things~~2009, ~~that~~ ~~the~~fair ~~borrower~~value ~~sells~~exceeded ~~the~~book ~~real property subject to the mortgage and the loan~~value isfor ~~not repaid. The average life of mortgage~~ loans ~~tends~~held tofor ~~increase~~sale, ~~however,~~ ~~when~~which ~~current~~totaled ~~mortgage~~$3.2 ~~loan~~million. ~~rates~~There ~~are~~were ~~substantially~~no ~~higher~~loans ~~than~~for ~~rates~~sale ~~on existing~~as ~~mortgage~~of ~~loans and~~December 31, ~~conversely, decrease when rates on existing mortgages are substantially higher than current mortgage loan rates~~2008.

~~Deposit and~~Non-performing ~~Other~~Loans ~~Source of Funds~~

~~General~~Non-performing loans include non-accrual Inloans. ~~addition~~ Non-accrual loans represent loans on which interest accruals have been discontinued. It is our policy to discontinue ~~deposits,~~interest ~~the~~accruals ~~sources~~when ofprincipal ~~funds~~or ~~available~~interest ~~for~~is ~~lending~~due and ~~other~~has ~~business purposes~~remained ~~include~~unpaid for 90 days or more unless the loan ~~repayments. Loan~~is ~~repayments~~both ~~are~~well asecured ~~relatively stable~~and ~~source~~in the process of ~~funds~~collection. When a loan is placed in non-accrual status, ~~while~~all ~~deposit~~unpaid ~~inflows~~interest ~~and~~is reversed. ~~outflows~~Payments on non-accrual loans are ~~influenced significantly~~generally byapplied ~~general~~to either principal or interest ~~rates~~or ~~and~~both, ~~money-market conditions~~depending on management’s evaluation of collectibility. ~~Borrowings~~ Non-accrual loans may not be ~~used~~restored onto aaccrual ~~short-term~~status ~~basis~~until toall delinquent ~~compensate~~principal ~~for~~and ~~reductions~~interest inhas ~~other~~been ~~sources,~~paid ~~such~~or asthe ~~deposits~~loan atbecomes ~~less~~both ~~than projected~~well ~~levels~~secured and in the process of collection.

~~Deposits~~In 2009, non-accrual ~~Deposits~~loans ~~are~~decreased ~~attracted~~by ~~principally~~$520,000. ~~from~~Non-accrual ~~our~~loans ~~primary~~totaling ~~geographic~~$9.7 ~~market~~million ~~area~~are inthe ~~Marco Island~~result ,of ~~Florida.~~non-payments Weby ~~offer~~borrowers aon ~~variety~~loans ofmade ~~deposit~~for ~~instruments~~commercial ~~including~~real ~~demand deposit~~estate ~~accounts,~~purposes. ~~NOW~~In ~~accounts~~2008, ~~money-~~$2.0 ~~market~~million ~~accounts,~~of ~~regular~~the ~~savings accounts,~~$10.2 ~~term~~million ~~certificate~~of ~~accounts~~non-accrual ~~and~~loans ~~retirement~~was ~~savings~~related ~~plans~~to ~~(such~~loan ~~as IRA~~pool ~~accounts)~~purchases. ~~Certificate~~These ofpurchased ~~deposit~~short ~~rates~~term ~~are~~loans ~~set~~were to ~~encourage~~borrowers ~~longer~~with ~~maturities as~~high ~~cost~~credit scores and ~~market~~were ~~conditions~~used ~~will~~to ~~allow.~~finance ~~Deposit~~the ~~account~~borrowers’ ~~terms~~acquisition ~~vary,~~and ~~with~~renovation ~~the primary~~of ~~differences~~residential ~~being~~real ~~the~~estate ~~minimum~~primarily ~~balance~~in ~~required,~~Duval ~~the~~and ~~time~~Hillsborough ~~period~~Counties, ~~the~~Florida. Due to ~~funds~~liquidity ~~must~~and ~~remain~~pricing onweaknesses ~~deposit~~in ~~and~~those ~~the~~markets, ~~interest~~as ~~rate.~~well Weas ~~set~~the financial deterioration of the ~~deposit~~loans’ ~~interest rates~~servicer, ~~weekly~~we ~~based~~concluded onthat athe ~~review~~likelihood of ~~deposit~~full ~~flows~~repayment ~~for~~of ~~the~~those ~~previous~~loans ~~week,~~was aunlikely. ~~survey of~~During ~~rates~~2009, ~~among~~all ~~competitors~~of ~~and~~the ~~other~~loan ~~financial~~pools ~~institutions in~~were ~~Florida~~liquidated.

WeNon-performing ~~have emphasized~~loans ~~commercial~~are ~~banking~~closely ~~relationships~~monitored inon an ~~effort~~ongoing tobasis ~~increase~~as ~~demand~~part of our loan review and work-out process. The potential ~~deposits~~risk asof aloss ~~percentage~~on these loans is evaluated by comparing the loan balance to the fair value of ~~total~~any ~~deposits~~underlying collateral or the present value of projected future cash flows. Losses are recognized where appropriate.

25The following is a summary of nonperforming loans and restructured loans (dollars in thousands):

Table of Contents


At December 31,	2009			2008
Non-accrual loans	$	9,716		$	10,236
Restructured loans		6,506			—

Total	$	16,222		$	10,236

Non-performing loans and restructured loans as a percentage of total loans		15.80	%		9.08	%

~~The~~All loans where information exists about ~~following~~possible ~~table~~credit ~~shows~~problems ~~the~~that ~~distribution~~would ~~of,~~cause ~~and~~us ~~certain~~to ~~other~~have ~~information relating~~serious doubts about the borrower’s ability to, ~~our~~comply ~~deposit~~with ~~accounts~~the bycurrent ~~type~~terms ~~(dollars~~of inthe ~~thousands):~~loan have been reflected within the table summarizing non-performing loans.

At December 31,	2008					2007
	Amount		% of Deposits			Amount		% of Deposits
Non-interest-bearing deposits	$	4,353		3.8	%	$	4,068		3.3	%
Savings		6,398		5.5			10,501		8.5
NOW and money market deposits		28,378		24.4			27,841		22.5
Subtotal		39,129		33.7			42,410		34.3
Certificates of deposits:
0.00% - 2.99%		8,391		7.2			3		.0
3.00% - 3.99%		41,678		35.9			3,892		3.2
4.00% - 4.99%		22,600		19.5			28,279		22.8
5.00% - 5.99%		4,302		3.7			49,088		39.7
6.00% - 6.49%		-		-			41		.0
Total certificates of deposit		76,971		66.3			81,303		65.7
Total deposits	$	116,100		100.0	%	$	123,713		100.0	%

Jumbo certificatesTable accounted for $30.9 million of our deposits at December 31, 2008 and $34.1 million of our deposits at December 31, 2007. The Company held $25.2 million in brokered deposits at December 31, 2008 and $19.7 million at December 31, 2007.Contents

~~Maturity terms,~~The ~~service~~following ~~fees,~~is ~~and~~a ~~withdrawal~~table ~~penalties~~showing ~~are established by~~ the ~~Company~~amounts ~~on a~~of ~~periodic~~contractual ~~basis. The~~interest ~~determination~~income ~~of rates~~ and ~~terms~~actual isinterest ~~predicated~~income recorded on ~~funds~~non-accrual ~~acquisition~~ and ~~liquidity~~restructured ~~requirements,~~loans ~~rates~~(dollars ~~paid~~in bythousands): ~~competitors, growth goals and federal regulations.~~

Average Deposit Balance and Rates


At December 31,	2009		2008
Gross interest income that would have been recorded if the loans had been current and in accordance with their original terms	$	1,939	$	2,378
Interest income recorded during the year		69		55

~~The following~~At ~~table~~December 31, ~~sets~~2009 ~~forth~~and 2008, the Company ~~average~~had ~~balance~~no ~~and~~loans ~~weighted~~that ~~average~~were ~~rates~~over ~~for the~~90 ~~period~~days ~~indicated~~past ~~(dollars~~due inand ~~thousands)~~still accruing interest.

At December 31,	2008								2007
	Average Balance		Average Rate			% of Deposits			Average Balance		Average Rate			% of Deposit
Noninterest bearing demand deposits	$	5,995		-	%		5.0	%	$	4,212		-	%		3.0	%
NOW accounts		11,070		1.64			9.3			13,909		1.50			10.2
Money market accounts		13,327		2.78			11.1			11,839		4.09			8.7
Regular savings		8,678		1.98			7.3			13,904		2.45			10.2
Time deposits		80,429		4.37			67.3			92,983		5.10			67.9
Total average deposits	$	119,499		3.55	%		100.0	%	$	136,847		4.22	%		100.0	%

Off-Balance Sheet Arrangements

~~Jumbo~~The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs ~~certificates~~of ~~($100~~its customers. These financial instruments include commitments to extend credit,~~000~~ unfunded construction loans, unused lines of credit, and ~~over)~~standby ~~mature~~letters asof ~~follows~~credit. (These instruments involve, to varying degrees, elements of credit and interest-rate risk in ~~thousands):~~excess of the amounts recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent the Company’s involvement in particular classes of financial instruments.

At December 31, 2008
Due in three months or less	$	6,504
Due in more than three to twelve months		20,717
Due in more than one year to three years		3,301
Due in more than three years		346
Total	$	30,868

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, unfunded construction loans, unused lines of credit and standby letters of credit is represented by the contractual amount of those instruments. To control the credit risk associated with entering into commitments and issuing letters of credit, the Company uses the same credit quality, collateral policies, and monitoring controls in making commitments and letters of credit as it does with its lending activities.

26Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party.

~~Table~~Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of ~~Contents~~a customer to a third party and to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments.

~~Results~~ Unused lines of ~~Operations~~credit, unfunded construction loans and commitments to extend credit typically result in loans with a market interest rate.

~~Our operating~~The ~~results~~following ~~depend~~table ~~primarily on our net interest income, which~~ is ~~the difference~~a ~~between~~summary ~~interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily~~ of ~~deposits. Net~~ ~~interest income is determined by~~ the ~~difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and the relative~~ amounts of ~~interest-earning~~ assets and interest-bearing liabilities. Our interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flows. In addition, our net earnings are also affected by the ~~level~~financial ~~of nonperforming loans and foreclosed real estate~~instruments, aswith ~~well~~off-balance assheet ~~the level of noninterest income~~risk, ~~and~~at ~~noninterest expenses~~December 31, ~~such~~2009 as(dollars ~~salaries and employee benefits, occupancy and equipment costs~~in ~~and~~thousands): ~~income taxes.~~

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income from interest-earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest rate spread; (v) net interest margin (in thousands).


	Contract Amount
Off-Balance Sheet Arrangements:
Commitments to extend credit	$	—
Unfunded construction loans		8
Unused lines of credit		9,794
Standby letters of credit		—

For the Year Ended December 31,			2008							2007
	Average Balance		Interest and Dividends		Average Yield/ Cost			Average Balance		Interest and Dividends		Average Yield/ Cost
Interest-earning assets:
Loans	$	116,016		7,125		6.14	%	$	131,524		9,843		7.48	%
Investment Securities		8,706		436		5.01			5,688		300		5.27
Other interest-earning assets (1)		14,758		357		2.41			21,054		1,073		5.10
Total interest-earning assets		139,480		7,918		5.68			158,266		11,216		7.09
Noninterest-earning assets		7,977							6,988
Total assets	$	147,457						$	165,254
Interest-bearing liabilities:
Savings		8,678		172		1.98			13,904		340		2.45
Money market and NOW deposits		30,392		552		1.82			29,960		693		2.31
Time deposits		80,429		3,516		4.37			92,983		4,744		5.10
Total interest-bearing deposits		119,499		4,240		3.55			136,847		5,777		4.22
Repurchase agreements		1,212		36		2.97			298		12		4.03
Total interest-bearing liabilities		120,711		4,276		3.54			137,145		5,789		4.22
Noninterest-bearing liabilities		5,576							5,749
Stockholders’ equity		21,170							22,360
Total liabilities and stockholders’ equity	$	147,457						$	165,254
Net interest/dividend income			$	3,642						$	5,427
Interest-rate spread (2)						2.14	%						2.87	%
Net interest margin (3)						2.61	%						3.43	%
Ratio of average interest-earning assets to average interest-bearing liabilities						1.17							1.15

Liquidity

~~______________________________~~Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities, as well as to maintain sufficient funds to cover deposit withdrawals and payment of debt and operating obligations. The Bank’s liquidity position was initially established through the Holding Company’s purchase of $ 6.4 million of the common stock of the Bank. In 2009, the Holding Company contributed an additional $1.8 million to the Bank’s capital. In 2008, the Holding Company contributed an additional $2.3 million to the Bank’s capital. As the Bank grows, liquidity needs can be met either by converting assets to cash or by attracting new deposits. Bank deposits were $115.8 million at December 31, 2009, and $ 116.1 million at December 31, 2008. Below are the pertinent liquidity balances and ratios at December 31, 2009 and 2008 (dollars in thousands).

~~(1)~~24 ~~Includes interest-bearing deposits, federal funds sold, Federal Reserve Bank stock and Federal Home Loan Bank stock.~~

(2)Table Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.Contents

(3) Net interest margin is net interest income dividend by average interest-earning assets.


At December 31,	2009			2008
Cash and cash equivalents	$	2,301		$	9,211
Time deposits over $100,000 to total deposits ratio		15.3	%		26.6	%
Loan to deposit ratio		91.5	%		97.1	%
Brokered deposits	$	3,034		$	25,172

27Cash and cash equivalents are the primary source of liquidity. At December 31, 2009, cash and cash equivalents amounted to $2.3 million, representing 1.9 % of total assets. At December 31, 2008, cash and cash equivalents amounted to $9.2 million, representing 6.7% of total assets. At December 31, 2009 and 2008, large denomination certificates accounted for 15.3% and 26.6%, respectively, of total deposits. Large denomination time deposits generally are more volatile than other deposits. As a result, management continually monitors the competitiveness of the rates it pays on its large denomination time deposits and periodically adjusts the Bank’s rates in accordance with market demands. Significant withdrawals of large denomination time deposits may have a material adverse effect on the Bank’s liquidity. Management believes that since a majority of the above certificates were obtained from Bank customers residing outside of Collier County, Florida, the volatility of such deposits is higher than if such deposits were obtained from depositors residing inside of Collier County, as outside depositors are generally more likely to be interest rate sensitive. Brokered deposits are deposit instruments, such as certificates of deposit, deposit notes, bank investment contracts and certain municipal investment contracts that are issued through brokers and dealers who then offer and/or sell these deposit instruments to one or more investors. As of December 31, 2009 and 2008, the Bank had $3.0 million and $25.2 million, respectively, in brokered deposits in its portfolio. At December 31, 2009, management knew of no trends, demands, commitments, events or uncertainties that (at that time) might result in or are reasonably expected to result in the Bank’s liquidity increasing or decreasing in any material way in the foreseeable future.

~~Table of~~Regulatory ~~Contents~~Capital Requirements

~~Rate/Volume~~The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital ~~Analysis~~requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

~~The following~~Quantitative ~~table~~measures ~~sets~~established ~~forth~~by ~~certain~~regulation ~~information~~to ~~regarding~~ensure ~~changes~~capital inadequacy ~~interest income~~require ~~and~~the ~~interest~~Bank ~~expense~~to ~~for~~maintain ~~the~~minimum ~~periods~~amounts ~~indicated.~~and ~~For~~ratios ~~each category~~ of ~~interest-earning~~ ~~assets~~total and ~~interest-bearing~~Tier ~~liabilities, information is~~1 ~~provided~~capital on(as ~~changes~~defined ~~attributable~~in ~~to:~~the (1regulations) ~~changes~~to inrisk-weighted ~~rate~~assets (~~change~~as indefined) ~~rate multiplied~~and byof ~~prior~~Tier ~~volume);~~1 capital (2as defined) ~~changes~~to inaverage ~~volume~~assets (~~change~~as indefined). ~~volume~~As ~~multiplied by~~of ~~prior~~December 31, ~~rate);~~2009, ~~and~~the ~~(3)~~Bank ~~changes~~had inno ~~rate-volume~~capital; ~~(change~~accordingly, inrisk-based ~~rate~~capital ~~multiplied~~computations byare ~~change~~not ~~in volume)~~meaningful.

	Increase (Decrease) Due to
	Rate			Volume			Rate/Volume			Total
	(In thousands)
Year Ended December 31, 2008 vs. 2007:
Interest-earning assets:
Loans	$	(1,789	)	$	(1,140	)	$	211		$	(2,718	)
Investment securities		(15	)		159			(8	)		136
Other interest-earning assets		(566	)		(319	)		169			(716	)
Total		(2,370	)		(1,300	)		372			(3,298	)
Interest-bearing liabilities:
Deposits:
Savings, demand, money-market and
NOW deposits		(225	)		(101	)		24			(302	)
Time deposits		(688	)		(640	)		93			(1,235	)
Repurchase agreements		(3	)		37			(10	)		24
Total		(916	)		(704	)		107			(1,513	)
Net change in net interest income	$	(1,454	)	$	(596	)	$	(265	)	$	(1,785	)

Market Risk

~~Non~~Market risk is the risk of loss from adverse changes in market prices and rates. We do not engage in trading or hedging activities and do not invest in interest-~~Interest~~rate derivatives or enter into interest-rate swaps. Our market risk arises primarily from interest-rate risk inherent in our lending and deposit taking activities. To that end, we actively monitor and manage our interest-rate risk exposure. ~~Expense~~The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Notes 1, 8, and 9 of Notes to Consolidated Financial Statements.

~~Non-~~Our primary objective in managing interest ~~expense~~-rate ~~for~~risk is to minimize the ~~year~~adverse ~~ended~~impact ~~December~~of 31changes in interest rates on our net interest income and capital, ~~2008~~while ~~was~~adjusting $5our asset-liability structure to obtain the maximum yield-cost spread on that structure.9 ~~million~~We ~~and~~rely $6primarily on our asset-liability structure to control interest-rate risk.5 ~~million at~~See ~~December~~the ~~31,~~section ~~2007~~below titled Asset-Liability Structure. AsHowever, a ~~percent~~sudden ofand ~~total~~substantial ~~average~~increase ~~assets,~~in ~~non-~~interest ~~expense amounted~~rates tomay ~~4.0%~~adversely atimpact ~~December~~our 31earnings, ~~2008~~to the extent that the interest rates borne by assets and ~~3.9%~~liabilities do not change at ~~December~~the 31same speed, to the same extent, or on the same ~~2007~~basis.

~~The~~We use modeling techniques to simulate changes in net interest income under various rate scenarios. Important elements of these ~~components~~techniques include the mix of ~~non~~floating versus fixed-~~interest~~rate ~~expense~~assets ~~for~~and liabilities, and the ~~periods~~scheduled, ~~indicated~~as ~~are~~well ~~set~~as ~~forth~~expected, ~~below (in~~repricing ~~thousands):~~and maturing volumes and rates of the existing balance sheet.

	2008		2007
Salaries and benefits	$	2,758	$	3,007
Occupancy and equipment		671		648
Data processing		270		251
Advertising		129		192
Professional fees		637		474
Director Fees		-		15
Other Real Estate owned		556		872
General operating expenses		936		994
Total non-interest expense	$	5,957	$	6,453

28Table of Contents

~~Table of~~Asset ~~Contents~~- Liability Structure

~~Comparison~~ As part of ~~the~~our ~~Years~~asset ~~Ended~~and ~~December~~liability 31structure we emphasize establishing and implementing internal asset-liability decision processes, ~~2008~~as well as communications and ~~2007~~control procedures to aid in managing our operations. We believe these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines which should result in tighter controls and less exposure to interest-rate risk.

~~General~~The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest-rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest-rate sensitive within a ~~Net~~specific ~~losses~~time ~~for~~period ~~the~~if ~~year~~it ~~ended~~will ~~December~~mature ~~31,~~or ~~2008~~reprice ~~were~~within $5that time period.1 ~~million~~The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a ~~net~~given ~~loss~~time period. The gap ratio is computed as rate sensitive assets/rate sensitive liabilities. A gap ratio of $1.670 ~~per~~represents ~~basic~~perfect ~~and~~matching. ~~diluted~~A ~~common~~gap ~~share~~is ~~compared~~considered topositive ~~net~~when ~~loss~~the amount of ~~$5.1~~interest-rate ~~million~~sensitive assets exceeds interest-rate sensitive orliabilities. 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 adversely affect net ~~loss~~interest $1income, while a positive gap would result in an increase in net interest income.61 ~~per~~During ~~basic~~a ~~and~~period ~~diluted~~of ~~common~~falling ~~share~~interest ~~for~~rates, ~~2007~~a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.

~~Interest Income.~~In ~~Interest~~order ~~income decreased~~ to ~~$7.9~~minimize ~~million~~the potential for ~~the~~adverse ~~year~~effects ~~ended December~~of ~~31,~~material ~~2008~~and ~~from~~prolonged ~~$11.2~~increases ~~million for~~in ~~the~~interest ~~year~~rates ~~ended~~on ~~December~~the 31results of operations, we ~~2007. Interest~~monitor ~~income~~asset ~~decreased~~and ~~primarily~~liability ~~due~~management policies to ~~lower~~better ~~yields~~match in the ~~portfolio~~ maturities and arepricing ~~decrease~~terms inof ~~the~~our ~~average loans outstanding. Interest on other~~ interest-earning assets ~~decreased~~and ~~from~~interest-bearing $1liabilities.1 ~~million~~Such ~~for~~policies ~~the~~have ~~year~~consisted ~~ended December~~primarily ~~31,~~of: ~~2007~~(i) emphasizing tothe ~~$357,000~~origination ~~for~~of adjustable-rate ~~the~~loans; ~~year~~(ii) building ~~ended~~a ~~December~~stable ~~31,~~core ~~2008~~deposit ~~due~~base; toand (iii) maintaining a ~~decrease~~ insignificant ~~the~~portion ~~average~~of ~~yield~~liquid ~~and~~assets ~~average~~(cash ~~balance~~and inshort-term ~~2008~~securities).

~~Interest Expense.~~The ~~Interest~~following ~~expense~~table onsets ~~deposits~~forth ~~decreased~~certain information relating to ~~$4.3~~our ~~million,~~interest-earning ~~for~~assets ~~the year~~and ~~ended~~interest-bearing ~~December~~liabilities at December 31, ~~2008~~2009, that ~~from~~are ~~$5.8~~estimated ~~million~~to inmature ~~2007.~~or ~~Interest~~are ~~expense decreased~~scheduled ~~due~~ to areprice ~~decrease~~within in the ~~average~~period ~~balances~~shown (dollars in ~~2008.~~thousands):

Provision for Loan Losses. The provision for loan losses is charged against earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending we conduct, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to our market areas, and other factors related to the collectibility of our loan portfolio. The provision for loan losses was $6.0 million for the year ended December 31, 2008 compared to $8.1 million for 2007. The allowance for loan losses is $6.2 million at December 31, 2008. While management believes its allowance for loan losses is adequate as of December 31, 2008, future adjustments to our allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the determination.


	Three Months			More Than Three Months to One Year			More Than One Year To Five Years			More Than Five Years to Fifteen Years			Over Fifteen Years			Total
Loans (1):
Variable rate	$	44,370		$	23,537		$	554		$	377		$	—		$	68,838
Fixed rate		3,089			12,738			17,409			250			3,562			37,048

Total loans		47,459			36,275			17,963			627			3,562			105,886
Investment securities		—			—			5,035			5,458			—			10,493
Interest Bearing due from Banks		792			—			—			—			—			792
Federal Reserve and FHLB stock		—			—			—			—			606			606

Total rate-sensitive assets		48,251			36,275			22,998			6,085			4,168			117,777

Deposit accounts:
Savings, NOW and money market deposits (2)		63,287			—			—			—			—			63,287
Time deposits (2)		10,334			25,812			8,068			—			—			44,214
Repurchase Agreements		118			—			—			—			—			118

Total rate-sensitive liabilities		73,739			25,812			8,068			—			—			107,619

GAP repricing differences	$	(25,488	)	$	10,463		$	14,930		$	6,085		$	4,168		$	10,158

Cumulative GAP	$	(25,488	)	$	(15,025	)	$	(95	)	$	5,990		$	10,158		$	10,158

Cumulative GAP/total assets		(21.5	)%		(12.6	)%		(0.1	)%		5.0	%		8.5	%		8.5	%

~~Non-interest Income.~~(1) ~~Non~~In preparing the table above, adjustable-~~interest~~rate ~~income~~loans ~~decreased~~are ~~from~~included ~~$1.0~~in ~~million~~the ~~for~~period in which the ~~year ended~~interest ~~December~~rates ~~31,~~are ~~2007~~next scheduled to ~~$207,000~~adjust ~~for~~rather than in the ~~year~~period ~~ended~~in ~~December~~which ~~31, 2008. The~~the ~~decrease~~loans ~~was~~mature. ~~mainly~~Fixed-rate ~~due~~loans toare ascheduled, ~~decrease~~including inrepayment, ~~loan~~according ~~brokerage fees~~to ~~from~~their ~~CLCC~~maturities.

~~Non-interest Expense.~~(2) ~~Total non~~Money-~~interest~~market, ~~expense~~NOW, ~~decreased~~and tosavings ~~$6.0~~deposits ~~million~~are ~~for~~regarded ~~the year~~as ~~ended~~ready ~~December~~accessible ~~31,~~withdrawable ~~2008 from $6~~accounts.5 ~~million~~Time ~~for~~deposits ~~2007.~~are ~~Non-interest~~scheduled ~~expense decreased~~through ~~primarily~~the ~~due~~maturity ~~to a decrease in other real estate owned expenses in addition to salaries and expenses~~dates.

~~Income Taxes.~~26 The Company recorded an income tax benefit of $3.0 million for the year-end December 31, 2008 (an effective rate of 37.1%) compared to an income tax benefit of $3.0 million for the year ended December 31, 2007 (an effective rate of 37.2%).

Impact Table of Inflation and Changing PricesContents

The ~~financial~~ ~~statements~~following ~~and~~table ~~related~~reflects ~~data presented herein have been prepared in accordance with accounting principles generally accepted in~~ the ~~United~~contractual ~~States~~principal ofrepayments ~~America,~~by ~~which~~period ~~requires the measurement~~ of ~~financial~~ ~~position and operating results in terms of historical dollars, without considering changes in~~ the ~~relative~~loan ~~purchasing~~portfolio ~~power of money over time due to~~at ~~inflation. Unlike most industrial companies~~December 31, ~~substantially~~2009 ~~all~~(dollars ~~of our assets and liabilities are monetary~~ in ~~nature.~~thousands): As a result, interest rates have a more significant impact on the Bank's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Years Ending December 31,	Commercial Real Estate		Commercial		Residential Real Estate		Consumer		Home Equity and Lines of Credit		Total
2010	$	6,093	$	13,969	$	6,168	$	522	$	274	$	27,026
2011 - 2014		15,050		12,208		5,048		291		4,024		36,621
2015 and beyond		4,942		250		18,394		770		17,883		42,239

Total	$	26,085	$	26,427	$	29,610	$	1,583	$	22,181	$	105,886

~~Certain information~~Of ~~required~~the by$78.9 ~~this~~million ~~item~~of isloans ~~included~~due inafter ~~Item~~2010, 626.9% of ~~Part~~such IIloans ~~of this~~have ~~report~~fixed-interest ~~under~~rates ~~the heading “Selected Financial Data”~~ and ~~is incorporated by reference~~73. ~~All~~1% ~~other~~have ~~information~~adjustable ~~required~~interest ~~by this item is included in Item 15 of Part IV of this report and is incorporated into this item by reference~~rates.

~~ITEM~~Scheduled contractual principal repayments of loans do not reflect the actual 9life of such assets. ~~CHANGES~~ INThe ~~AND~~average ~~DISAGREEMENTS~~life ~~WITH~~of ~~ACCOUNTANTS~~loans ONis substantially less than their average contractual terms due to prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a conventional loan immediately due and ~~ACCOUNTING~~payable ~~AND~~in ~~FINANCIAL~~the ~~DISCLOSURE~~event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase; however, when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgages are substantially higher than current mortgage loan rates.

~~Marco Community~~Deposit ~~Bancorp, Inc. did not have any disagreements with accountants on accounting~~ and ~~financial~~Other ~~disclosures~~Source ~~during~~of ~~2008~~Funds ~~or 2007.~~

29General - In addition to deposits, the sources of funds available for lending and other business purposes include loan repayments. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money-market conditions. Borrowings may be used on a short-term basis to compensate for reductions in other sources, such as deposits at less than projected levels.

~~Table~~Deposits - Deposits are attracted principally from our primary geographic market area in Marco Island, Florida. We offer a variety of ~~Contents~~deposit instruments including demand deposit accounts, NOW accounts, money- market accounts, regular savings accounts, term certificate accounts and retirement savings plans (such as IRA accounts). Certificate of deposit rates are set to encourage longer maturities as cost and market conditions will allow. Deposit account terms vary, with the primary differences being the minimum balance required, the time period the funds must remain on deposit and the interest rate. We set the deposit interest rates weekly based on a review of deposit flows for the previous week, a survey of rates among competitors and other financial institutions in Florida.

~~ITEM 9A. CONTROLS~~We ~~AND~~have ~~PROCEDURES~~emphasized commercial banking relationships in an effort to increase demand deposits as a percentage of total deposits.

~~(a) Evaluation~~27 ~~of Disclosure Controls and Procedures~~

We maintainTable controls and procedures designed to ensure that information required to be disclosed in the reports that MCBI files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon management’s evaluation of those controls and procedures performed within the 90 days preceding the filing of this Report, our Chief Executive Officer and Chief Financial Officer concluded that, subject to the limitations noted below, MCBI’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.Contents

~~(b) Management’s~~The ~~Report~~following ontable ~~Internal~~shows ~~Control~~the ~~over~~distribution ~~Financial~~of, ~~Reporting~~and certain other information relating to, our deposit accounts by type (dollars in thousands):

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Such internal controls over financial reporting were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.


For the Year Ended December 31,	2009				2008
For the Year Ended December 31,	Amount		% of Deposits		Amount		% of Deposits
Non-interest-bearing deposits	$	8,281	7.1	%	$	4,353	3.8	%
Savings		18,299	15.8			6,398	5.5
NOW and money market deposits		44,988	38.9			28,378	24.4

Subtotal		71,568	61.8			39,129	33.7

Certificates of deposits:
0.00% - 2.99%		33,321	28.8			8,391	7.2
3.00% - 3.99%		5,339	4.6			41,678	35.9
4.00% - 4.99%		2,627	2.3			22,600	19.5
5.00% - 5.99%		2,927	2.5			4,302	3.7

Total certificates of deposit		44,214	38.2			76,971	66.3

Total deposits	$	115,782	100.0	%	$	116,100	100.0	%

~~The Company’s~~Jumbo ~~management~~certificates ~~assessed~~accounted ~~the~~for ~~effectiveness~~$17.7 million of ~~the~~our ~~Company’s~~deposits ~~internal control~~at ~~over financial reporting as of~~ December 31, ~~2008. In making this assessment~~2009, ~~the~~and ~~Company~~$30.9 ~~used~~million ~~the criteria set forth in Internal Control-Integrated Framework issued by the Committee~~ of ~~Sponsoring~~our ~~Organizations~~deposits ofat ~~the~~December 31, ~~Treadway Commission (“COSO”)~~2008. ~~Based~~The ~~upon~~Company ~~our~~held ~~evaluation~~$3.0 ~~under~~million ~~the framework~~ in ~~Internal~~brokered ~~Control-Integrated~~deposits ~~Framework~~at December 31, ~~our~~2009, ~~management~~and ~~concluded that~~$25.2 ~~our~~million ~~internal~~at ~~control over financial reporting was effective as of~~ December 31, 2008.

~~This annual~~Maturity ~~report~~terms, ~~does~~service ~~not~~fees, ~~include~~and anwithdrawal ~~attestation~~penalties ~~report~~are ofestablished by the Company’s ~~registered public~~on ~~accounting~~a ~~firm~~periodic ~~regarding internal control over financial reporting~~basis. ~~Management’s~~ ~~report~~The ~~was~~determination ~~not~~of ~~subject~~rates toand ~~attestation~~terms ~~by the Company’s registered~~is ~~public~~predicated ~~accounting~~on ~~firm~~funds ~~pursuant~~acquisition ~~to temporary rules of the Securities~~ and ~~Exchange~~ ~~Commission~~liquidity ~~that~~requirements, ~~permit~~rates ~~the~~paid ~~Company~~by tocompetitors, ~~provide~~growth ~~only~~goals ~~management’s~~and ~~report in~~federal ~~this annual report~~regulations.

~~(c) Changes~~Average inDeposit ~~Internal~~Balance ~~Controls~~and Rates

WeThe ~~have made~~following notable ~~significant~~sets ~~changes~~forth ~~in its internal controls over financial reporting during~~ the ~~quarter~~average ~~ended~~balance ~~December 31,~~and ~~2008~~weighted ~~that~~average ~~have~~rates ~~materially~~for ~~affected~~the ~~or are~~period ~~reasonably~~indicated ~~likely~~(dollars toin ~~materially affect our internal control over financial reporting~~thousands).

(d) Limitations on the Effectiveness of Controls


For the Year Ended December 31,	2009						2008
For the Year Ended December 31,	Average Balance		Average Rate		% of Deposits		Average Balance		Average Rate		% of Deposits
Noninterest bearing demand deposits	$	6,223	—	%	5.1	%	$	5,995	—	%	5.0	%
NOW deposits		16,878	0.50		13.6			11,070	1.64		9.3
Money market deposits		21,258	1.73		17.1			13,327	2.78		11.1
Savings		18,196	1.57		14.7			8,678	1.98		7.3
Time deposits		61,419	3.39		49.5			80,429	4.37		67.3

Total average deposits	$	123,974	2.27	%	100.0	%	$	119,499	3.55	%	100.0	%

~~Our management,~~Jumbo ~~including~~certificates ~~our Chief Executive Officer and Chief Financial Officer~~($100, ~~does~~000 ~~not expect that our disclosure controls~~ and ~~internal~~over) ~~controls~~mature ~~will~~as ~~prevent all~~follows ~~error~~(dollars and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in ~~all~~thousands): control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within MCBI have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.


At December 31, 2009
Due in three months or less	$	1,827
Due in more than three to twelve months		11,212
Due in more than one year to three years		4,676

Total	$	17,715

~~ITEM 9B. OTHER~~28 ~~INFORMATION~~

TheTable Company did not fail to file any Form 8-K or to disclose any information required to be disclosed therein during the fourth quarter of 2008.Contents

30Results of Operations

~~Table~~Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily of ~~Contents~~deposits. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities. Our interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flows. In addition, our net losses are also affected by the level of nonperforming loans and foreclosed real estate, as well as the level of noninterest income, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment costs and income taxes.

~~PART~~The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of ~~III~~interest and dividend income from interest-earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest rate spread; (v) net interest margin (dollars in thousands).

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


For the Year Ended December 31,	2009						2008
For the Year Ended December 31,	Average Balance		Interest and Dividends		Average Yield/ Cost		Average Balance		Interest and Dividends		Average Yield/ Cost
Interest-earning assets:
Loans	$	112,121	$	6,013	5.36	%	$	116,016	$	7,125	6.14	%
Investment securities		10,482		349	3.33			8,706		436	5.01
Other interest-earning assets (1)		5,095		32	0.63			14,758		357	2.42

Total interest-earning assets		127,698		6,394	5.01			139,480		7,918	5.68

Noninterest-earning assets		14,467						7,977

Total assets	$	142,165					$	147,457

Interest-bearing liabilities:
Savings	$	18,196		285	1.57		$	8,678		172	1.98
Money market and NOW deposits		38,136		452	1.19			24,397		552	2.26
Time deposits		61,419		2,082	3.39			80,429		3,516	4.37

Total interest-bearing deposits		117,751		2,819	2.39			113,504		4,240	3.74

Repurchase agreements		504		8	1.59			1,212		36	2.97

Total interest-bearing liabilities		118,255		2,827	2.39			114,716		4,276	3.73

Noninterest-bearing liabilities		6,928						11,571
Stockholders’ equity		16,982						21,170

Total liabilities and stockholders’ equity	$	142,165					$	147,457

Net interest/dividend income			$	3,567					$	3,642

Interest-rate spread (2)					2.62	%					1.95	%

Net interest margin (3)					2.79	%					2.61	%

Ratio of average interest-earning assets to average interest-bearing liabilities					1.08	%					1.22	%

~~The~~(1) ~~Company~~Includes ~~hereby~~interest-bearing ~~incorporates~~deposits, ~~by reference~~federal ~~the~~funds ~~sections entitled “General Information~~sold,” ~~“Election~~Federal ofReserve ~~Directors” and~~Bank ~~“Board~~stock ~~of Directors” contained in our Proxy Statement filed electronically with the Securities~~ and ~~Exchange~~Federal ~~Commission~~Home ~~within~~Loan ~~the~~Bank ~~first 120 days of 2009~~stock.

~~ITEM 11. EXECUTIVE~~(2) ~~COMPENSATION~~Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

~~The~~(3) ~~Company~~Net ~~hereby~~interest ~~incorporates~~margin ~~by reference~~is ~~the~~net ~~section~~interest ~~entitled~~income ~~“Executive~~dividend ~~and~~by ~~Board~~average ~~Compensation”~~interest-earning ~~contained in our Proxy Statement filed electronically with the Securities and Exchange Commission within the first 120 days of 2009~~assets.

~~ITEM 12. SECURITY~~29 ~~OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~

Security OwnershipTable of Certain Beneficial OwnersContents

~~The~~Rate/Volume ~~Company~~Analysis hereby incorporates by reference the section entitled “Beneficial Stock Ownership of Directors and Executive Officers” contained in our Proxy Statement filed electronically with the Securities and Exchange Commission within the first 120 days of 2009.

~~Changes~~The following table sets forth certain information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) changes in ~~Control~~rate (change in rate multiplied by prior volume); (2) changes in volume (change in volume multiplied by prior rate); and (3) changes in rate-volume (change in rate multiplied by change in volume) (dollars in thousands).

At December 31, 2008, the Company was not aware of any arrangements that may result in a change in control.


	Increase (Decrease) Due to
	Rate			Volume			Rate/Volume			Total
Year Ended December 31, 2009 vs. 2008:
Interest-earning assets:
Loans	$	(905	)	$	(239	)	$	32		$	(1,112	)
Investment securities		(146	)		89			(30	)		(87	)
Other interest-earning assets		(263	)		(233	)		171			(325	)

Total		(1,314	)		(383	)		173			(1,524	)

Interest-bearing liabilities:
Deposits:
Savings, demand, money-market and NOW deposits		(215	)		321			(93	)		13
Time deposits		(788	)		(831	)		185			(1,434	)
Repurchase agreements		(22	)		(21	)		15			(28	)

Total		(1,025	)		(531	)		107			(1,449	)

Net change in net interest income	$	(289	)	$	148		$	66		$	(75	)

~~Securities Authorized~~Non-Interest ~~for~~Expense ~~Issuance Under Equity Compensation Plans~~

~~The~~Non-interest ~~Company~~expense ~~hereby~~for ~~incorporates~~the byyear ended December 31, 2009 was $8.3 million and $6.0 million at December 31, 2008. As a percent of total average ~~reference~~assets, ~~Item~~non-interest expense amounted to 5.8% ofat ~~this~~December 31, ~~Report~~2009 and 4.0% at December 31, 2008.

~~ITEM 13. CERTAIN~~The ~~RELATIONSHIPS~~components ~~AND~~of ~~RELATED~~non-interest ~~TRANSACTIONS~~expense ~~AND~~for ~~DIRECTOR~~the ~~INDEPENDENCE~~periods indicated are set forth below (dollars in thousands):

Information required by this item appears in the Company’s Proxy Statement for the 2009 Annual Meeting of Shareholders under the captions, “Director Independence” and “Certain Transactions”, and is hereby incorporated by reference.


	2009		2008
Salaries and benefits	$	2,522	$	2,758
Occupancy and equipment		494		671
Data processing		255		270
Advertising		80		129
Professional fees		552		637
Regulatory assessments		670		304
Other real estate owned		3,165		556
General operating expenses		568		632

Total non-interest expense	$	8,306	$	5,957

~~ITEM 14. PRINCIPAL~~30 ~~ACCOUNTANT FEES AND SERVICES~~

TheTable Company hereby incorporates by reference the section entitled “Ratification of the Appointment of the Independent Auditors for the Fiscal Year Ending December 31, 2008” contained in our Proxy Statement filed electronically with the Securities and Exchange Commission within the first 120 days of 2009.Contents

Comparison of the Years Ended December 31, 2009 and 2008

~~Table~~General. The net loss for the year ended December 31, 2009, was $18.3 million or a net loss of $5.53 per basic and diluted common share compared to net loss of ~~Contents~~$5.1 million or a net loss $1.67 per basic and diluted common share for 2008.

~~ITEM~~Interest Income. Interest 15income decreased to $6. ~~EXHIBITS~~4 ~~AND~~million ~~FINANCIAL~~for ~~STATEMENT~~the ~~SCHEDULES~~year ended December 31, 2009 from $7.9 million for the year ended December 31, 2008. Interest income decreased primarily due to lower yields in the portfolio and a decrease in the average loans outstanding. Interest on other interest-earning assets decreased from $357,000 for the year ended December 31, 2008 to $32,000 for the year ended December 31, 2009, due to a decrease in the average yield and average balance in 2009.

~~The following~~Interest ~~documents~~Expense. ~~are~~Interest ~~filed~~expense ason ~~part~~deposits ofdecreased ~~this~~to ~~report~~$2.8 atmillion, ~~pages~~for 33the ~~through~~year ended December 31, 2009 from $4.3 63million in 2008. Interest expense in 2009 decreased due to a decrease in the average yields, which was partially offset by a small increase in average balances.

·Provision ~~Consolidated~~for ~~Financial~~Loan ~~Statements~~Losses. The provision for loan losses is charged against earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of ~~Marco~~lending ~~Community~~we ~~Bancorp~~conduct, ~~Inc~~industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to our market areas, and other factors related to the collectibility of our loan portfolio. ~~(including~~The ~~all~~provision ~~required~~for ~~schedules):~~loan losses was $9.4 million for the year ended December 31, 2009 compared to $6.0 million for 2008. The allowance for loan losses is $7.0 million at December 31, 2009. While management believes its allowance for loan losses is adequate as of December 31, 2009, future adjustments to our allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the determination.

1Non-interest Income. ~~Independent~~Non-interest ~~Auditor’s~~income ~~Report;~~increased from $207,000 for the year ended December 31, 2008 to $833,000 for the year ended December 31, 2009. The increase was mainly due to the addition of correspondent lending activity generating a gain on sale of loans held for sale of $574,000 and the sale of securities, which generated a gain of $82,000.

2Non-interest Expense. ~~Consolidated~~Total ~~Balance~~non-interest ~~Sheets~~expense atincreased ~~December~~to $8.3 million for the year ended December 31, 2009 from $6.0 million for 2008. Non-interest expense increased primarily due to an increase in other real estate owned expenses and ~~2007;~~write downs totaling $3.2 million in 2009 compared with $600,000 in 2008. Also, regulatory assessments increased $366,000 in 2009 over 2008.

3Income Taxes. ~~Consolidated~~During ~~Statements~~the ofyear ~~Operations~~ended December 31, ~~Stockholders’~~2009, ~~Equity~~the Company assessed its earnings history and trend over the past year, ~~Comprehensive~~its ~~Income~~estimate ~~(Loss)~~of future earnings, and ~~Statements~~the expiration of ~~Cash~~the ~~Flows~~net ~~for~~operating ~~years~~loss ~~ended~~carryforwards, ~~December~~and 31determined that it is more likely than not that the deferred tax assets will not be realized in the near term. Accordingly, ~~2008~~a ~~and~~full ~~2007~~valuation allowance was recorded against the deferred tax assets resulting in a net charge to earnings of $5.0 million. The Company recorded an income tax benefit of $3.0 million for the year-end December 31, 2008.

4.Impact ~~Notes~~of toInflation ~~Consolidated~~and ~~Financial~~Changing ~~Statements~~Prices

·The ~~Exhibits~~financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires 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. Unlike most industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on the Bank’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

~~The exhibits~~ITEM ~~denominated~~8. ~~with~~FINANCIAL ~~(a)~~STATEMENTS ~~were~~AND ~~filed~~SUPPLEMENTARY with the Company’s Form SB-2, which was filed with the Securities and Exchange Commission on March 7, 2003; those denominated with (b) were filed with the Company’s Form 10-Q, which was filed with the Securities and Exchange Commission on August 14, 2007; those denominated with (c) were filed with the Company’s Form 10K, which was filed with the Securities and Exchange Commission on March 19, 2008; those denominated with (d) were field with the Company’s, Definitive Schedules 14-A which was filed with the Securities and Exchange Commission on March 21, 2007 and March 20, 2008, and those denominated with an (e) were filed with the Company’s Form 10-Q which was filed with the Securities and Exchange Commission on November 13, 2008.DATA

Exhibit No.	Description of Exhibit
(a) 3.1	Articles of Incorporation of Marco Community Bancorp, Inc. as filed with the Florida Department of State
(a) 3.2	Bylaws of Marco Community Bancorp, Inc.
(e) 3.3	Articles of Amendment to the Articles of Incorporation
(e) 3.4	Articles of Amendment to the Articles of Incorporation
(a) 4.1	Specimen Common Stock Certificate
(d) 10.1	Employee’s Stock Option Plan
(d) 10.2	Directors’ Stock Option Plan
(d) 10.3	Advisory Directors’ Stock Option Plan
(c) 10.5	Employee Severance Agreement with Anthony Iannotta
(b) 10.8	Written Agreement with the Federal Reserve Bank of Atlanta and the Florida Office of Financial Regulation
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
32. 1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

Certain information required by this item is included in Item 6 of Part II of this report under the heading “Selected Financial Data” and is incorporated by reference. All other information required by this item is included in the following Report of Independent Registered Public Accounting Firm.

3231

~~MARCO COMMUNITY~~Report ~~BANCORP,~~of ~~INC.~~Independent ~~AND~~Registered ~~SUBSIDIARIES~~Public Accounting Firm

Marco ~~Island~~ Community Bancorp, ~~Florida~~Inc.

~~Audited~~Marco Island, ~~Consolidated~~Florida: ~~Financial Statements~~

AtWe have audited the accompanying consolidated balance sheets of Marco Community Bancorp, Inc. and Subsidiaries (the ~~December~~“Company”) as of December 31, 2009 and 2008, and ~~2007~~the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the ~~Years~~years ~~Then~~then ~~Ended~~ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

~~(Together~~ We conducted our audits in accordance with ~~Report~~the standards of ~~Independent~~the ~~Registered~~ Public Company Accounting ~~Firm~~Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

33In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

~~Table~~The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the closing of ~~Contents~~Marco Community Bank in February 19, 2010 raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Report of~~HACKER, ~~Independent~~JOHNSON & ~~Registered~~SMITH ~~Public~~PA ~~Accounting Firm~~

~~Marco Community Bancorp~~Tampa, ~~Inc.~~Florida

~~Marco Island~~August 23, ~~Florida:~~2010

WeTable have audited the accompanying consolidated balance sheets of Marco Community Bancorp, Inc. and Subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.Contents

~~We conducted~~MARCO ~~our~~COMMUNITY audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examiningBANCORP, ~~on a test basis, evidence supporting the amounts and disclosures in the financial statements~~INC. AnAND ~~audit~~SUBSIDIARIES also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

InConsolidated ~~our opinion,~~Balance ~~the~~Sheets consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

~~HACKER~~($ in thousands, ~~JOHNSON~~ &except ~~SMITH~~per PAshare amounts)

Tampa, Florida


	At December 31,
	2009			2008
Assets
Cash and due from banks	$	1,509		1,587
Federal funds sold		—		7,237
Interest-bearing deposits		792		387

Total cash and cash equivalents		2,301		9,211
Securities available for sale		10,493		—
Securities held to maturity (fair value of $8,256 at December 31, 2008)		—		8,147
Loans held for sale		3,199		—
Loans, net of allowance for loan losses of $6,978 in 2009 and $6,154 in 2008		95,632		106,554
Other real estate owned		2,761		3,202
Premises and equipment, net		3,203		3,357
Federal Reserve Bank stock, at cost		368		452
Federal Home Loan Bank stock, at cost		238		262
Accrued interest receivable		453		413
Deferred income taxes		—		5,005
Other assets		165		146

Total assets	$	118,813		136,749

Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits		8,281		4,353
Savings, NOW and money-market deposits		63,287		34,776
Time deposits		44,214		76,971

Total deposits		115,782		116,100
Repurchase agreements		118		931
Official checks		1,000		332
Dividends payable		—		120
Accrued interest payable and other liabilities		540		651

Total liabilities		117,440		118,134

Commitments (Notes 1, 5 and 8)
Stockholders’ equity:
Preferred stock, no par value; 1,000,000 shares authorized, 296 shares outstanding		—		—
Preferred stock, series B, $51,000 liquidation value; 125 shares authorized, 96 shares outstanding		4,896		4,896
Preferred stock, series C, $7,500 liquidation value, 750 shares authorized, 143 shares and 145 shares outstanding in 2009 and 2008		1,191		734
Common stock, $.01 par value; 9,000,000 shares authorized, 3,328,608 and 3,222,608 shares issued and outstanding in 2009 and 2008		33		32
Additional paid-in capital		21,504		21,024
Accumulated deficit		(26,369	)	(8,071	)
Accumulated other comprehensive income		118		—

Total stockholders’ equity		1,373		18,615

Total liabilities and stockholders’ equity	$	118,813		136,749

~~March~~See ~~26, 2009~~Accompanying Notes to Consolidated Financial Statements.

3433

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Consolidated ~~Balance~~ ~~Sheets~~Statements of Operations

($ in thousands, except per share amounts)

	At December 31,
	Year Ended December 31,
	2008			2007
	2009			2008
Assets
Interest income:
Cash and due from banks	$	1,587			2,479
Loans	$	6,013		7,125
Federal funds sold		7,237			8,695
Securities		349		436
Interest-bearing deposits		387			-
Other interest-earning assets		32		357
Total cash and cash equivalents		9,211			11,174
Total interest income		6,394		7,918
Security available for sale		-			1,009
Interest expense:
Securities held to maturity (fair value of $8,256 and $5,606)		8,147			5,561
Deposits		2,819		4,240
Loans, net of allowance for loan losses of $6,154 in 2008
Other borrowings		8		36
and $3,794 in 2007		106,554			119,876
Total interest expense		2,827		4,276
Other real estate owned		3,202			2,857
Net interest income		3,567		3,642
Premises and equipment, net		3,357			3,360
Provision for loan losses		9,387		5,959
Federal Reserve Bank stock, at cost		452			468
Net interest expense after provision for loan losses		(5,820	)	(2,317	)
Federal Home Loan Bank stock, at cost		262			293
Noninterest income:
Accrued interest receivable		413			602
Service charges on deposit accounts		55		26
Deferred income taxes		5,005			2,020
CLCC loan brokerage fees		—		22
Other assets		146			2,311
Gain on sale of securities		82		—
Total assets	$	136,749			149,531
Gain on sale of loans held for sale		574		—
Liabilities and Stockholders' Equity
Rental income		15		—
Liabilities:
Other service charges and fees		107		159
Noninterest-bearing demand deposits		4,353			4,068
Total noninterest income		833		207
Savings, NOW and money-market deposits		34,776			38,342
Noninterest expenses:
Time deposits		76,971			81,303
Salaries and employee benefits		2,522		2,758
Total deposits		116,100			123,713
Occupancy and equipment		494		671
Repurchase agreements		931			1,232
Advertising		80		129
Official checks		332			797
Insurance		33		64
Dividends payable		120			35
Data processing		255		270
Accrued interest payable and other liabilities		651			936
Regulatory assessments		670		304
Total liabilities		118,134			126,713
Telephone		75		73
Commitments (Notes 4 and 7)
Professional fees		552		637
Stockholders' equity:
Stationary and supplies		30		43
Preferred stock, no par value; 1,000,000 shares authorized,
Write-down on other real estate owned		2,443		299
241 outstanding		-			-
Loss on sale of other real estate owned		336		257
Preferred stock, series B, $51,000 liquidation value; 125 shares
Other		816		452
authorized, 96 shares outstanding		4,896			4,896
Total noninterest expenses		8,306		5,957
Preferred stock, series C, $7,500 liquidation value, 750 shares
Loss before income tax expense (benefit)		(13,293	)	(8,067	)
authorized, 145 shares outstanding		734			-
Income tax expense (benefit)		5,005		(2,989	)
Common stock, $.01 par value; 9,000,000 shares authorized,
Net loss		(18,298	)	(5,078	)
3,222,608 and 3,222,421 shares issued and outstanding
Preferred stock dividends and amortization of preferred stock discount		108		299
in 2008 and 2007		32			32
Net loss available to common shareholders	$	(18,406	)	(5,377	)
Additional paid-in capital		21,024			20,874
Accumulated deficit		(8,071	)		(2,993	)
Accumulated other comprehensive income		-			9
Total stockholders' equity		18,615			22,818
Total liabilities and stockholders' equity	$	136,749			149,531

~~See Accompanying~~(continued) ~~Notes to Consolidated Financial Statements.~~

3534

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations, Continued

($ in thousands, except per share amounts)

	Year Ended December 31,
	2008			2007
	2009			2008
Interest income:
Net loss per common share, basic and diluted	$	(5.53	)	(1,67	)
Loans	$	7,125			9,843
Weighted-average number of common shares outstanding, basic and diluted		3,328		3,223
Securities		436			300
Dividends per common share	$	—		—
Other interest-earning assets		357			1,073
Total interest income		7,918			11,216
Interest expense:
Deposits		4,240			5,777
Other borrowings		36			12
Total interest expense		4,276			5,789
Net interest income		3,642			5,427
Provision for loan losses		5,959			8,110
Net interest expense after provision for loan losses		(2,317	)		(2,683	)
Noninterest income:
Service charges on deposit accounts		26			25
CLCC loan brokerage fees		22			827
Other service charges and fees		159			174
Total noninterest income		207			1,026
Noninterest expenses:
Salaries and employee benefits		2,758			3,007
Occupancy and equipment		671			648
Data processing		270			251
Advertising		129			192
Professional fees		637			474
Telephone		73			84
Insurance		64			60
Director fees		-			15
Stationary and supplies		43			46
Other real estate owned		556			872
Other		756			804
Total noninterest expenses		5,957			6,453
Loss before income taxes		(8,067	)		(8,110	)
Income tax benefit		(2,989	)		(3,015	)
Net loss		(5,078	)		(5,095	)
Dividends on preferred stock		299			35
Net loss available to common shareholders	$	(5,377	)		(5,130	)

~~(continued)~~See Accompanying Notes to Consolidated Financial Statements.

3635

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of ~~Operations,~~Changes ~~Continued~~in Stockholders’ Equity

~~($ in~~Years ~~thousands~~Ended December 31, ~~except~~2009 ~~per~~and ~~share~~2008 ~~amounts)~~

	Year Ended December 31,
	2008			2007
Net loss per common share, basic and diluted	$	(1,67	)		(1.61	)
Weighted-average number of common shares outstanding, basic
and diluted		3,223			3,191
Dividends per common share	$	-			0.12

($ in thousands)

See Accompanying Notes to Consolidated Financial Statements.


	Series B Preferred Stock		Series C Preferred Stock		Common Stock	Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at December 31, 2007	$	4,896	—		32	20,874		(2,993	)	9		22,818

Comprehensive loss:
Net loss		—	—		—	—		(5,078	)	—		(5,078	)
Other comprehensive income, change in unrealized gain on security available for sale, net of tax effect		—	—		—	—		—		(9	)	(9	)

Comprehensive income												(5,087	)

Issuance of Series C preferred stock (145 shares)		—	734		—	354		—		—		1,088
Share-based compensation		—	—		—	95		—		—		95
Dividends declared - preferred		—	—		—	(299	)	—		—		(299	)

Balance at December 31, 2008		4,896	734		32	21,024		(8,071	)	—		18,615

Comprehensive loss:
Net loss		—	—		—	—		(18,298	)	—		(18,298	)
Net change in unrealized gain on securities available for sale		—	—		—	—		—		118		118

Comprehensive loss												(18,180	)

Exercise of common stock warrants (102,000 shares)		—	—		1	381		—		—		382
Dividends declared-preferred		—	—		—	(158	)	—		—		(158	)
Reversal of preferred dividends declared, but not paid		—	—		—	139		—		—		139
Share-based compensation		—	—		—	148		—		—		148
Issuance of Series C preferred stock (57 shares)		—	383		—	44		—		—		427
Conversion of 2 shares of series C preferred stock to 4,000 shares of common stock		—	(15	)	—	15		—		—		—
Amortization of preferred stock discount		—	89		—	(89	)	—		—		—

Balance at December 31, 2009	$	4,896	1,191		33	21,504		(26,369	)	118		1,373

37See Accompanying Notes to Consolidated Financial Statements.

~~Table of~~36 ~~Contents~~

MARCO COMMUNITYTable BANCORP,of INC. AND SUBSIDIARIESContents

~~Consolidated Statements~~MARCO ofCOMMUNITY ~~Changes~~BANCORP, inINC. ~~Stockholders'~~AND ~~Equity~~SUBSIDIARIES

~~Years Ended~~Consolidated ~~December~~Statements ~~31,~~of ~~2008~~Cash ~~and~~Flows ~~2007~~

(~~$ in~~In thousands)

														Accumulated
	Year Ended December 31,
											Retained			Other
	2009			2008
	Series B			Series C				Additional			Earnings			Compre-			Total
Cash flows from operating activities:
	Preferred			Preferred		Common		Paid-In			(Accumulated			hensive			Stockholders'
Net loss	$	(18,298	)	(5,078	)
	Stock			Stock		Stock		Capital			Deficit)			Income			Equity
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Balance at December 31, 2006	$	-			-		32		20,165			2,481			-			22,678
Depreciation		213		270
Comprehensive income:
Share-based compensation		148		95
Net loss		-			-		-		-			(5,095	)		-			(5,095	)
Provision for loan losses		9,387		5,959
Other comprehensive income,
Deferred income tax expense (benefit)		5,005		(2,985	)
change in unrealized gain
Origination of loans held for sale		(28,083	)	—
on security available for
Proceeds from loans held for sale		25,458		—
sale, net of tax effect		-			-		-		-			-			9			9
Gain on sale of loans held for sale		(574	)	—
Comprehensive income																		(5,086	)
Amortization of loan fees and costs, net		(84	)	17
Exercise of stock options
Gain on sale of securities		(82	)	—
(66,412 shares) including
Net premium amortization on securities available for sale		51		—
tax benefit of $220		-			-		-		636			-			-			636
(Increase) decrease in accrued interest receivable		(40	)	189
Issuance of preferred stock		4,896			-		-		-			-			-			4,896
(Increase) decrease in other assets		(19	)	2,165
Share-based compensation		-			-		-		108			-			-			108
Write-down of other real estate owned		2,443		284
Dividends paid - common		-			-		-		-			(379	)		-			(379	)
Loss on sale of other real estate owned		336		257
Dividends accrued - preferred		-			-		-		(35	)		-			-			(35	)
Increase (decrease) in official checks, accrued interest payable and other liabilities		557		(750	)
Balance at December 31, 2007		4,896			-		32		20,874			(2,993	)		9			22,818
Net cash (used in) provided by operating activities		(3,582	)	423
Comprehensive loss:
Cash flows from investing activities:
Net loss		-			-		-		-			(5,078	)		-			(5,078	)
Purchase of securities available for sale		(13,239	)	—
Other comprehensive income,
Proceeds from calls and maturities of securities available for sale		3,050		1,000
change in unrealized gain
Proceeds from sale of securities available for sale		5,283		—
on security available for
Purchases of securities held to maturity		—		(6,007	)
sale, net of tax effect		-			-		-		-			-			(9	)		(9	)
Proceeds from calls and maturities of securities held to maturity		—		2,330
Comprehensive income																		(5,087	)
Principal payments on securities available for sale		2,709		1,091
Issuance of preferred stock		-			734		-		354			-			-			1,088
Purchase of Federal Reserve Bank stock		(25	)	(59	)
Share-based compensation		-			-		-		95			-			-			95
Redemption of Federal Reserve Bank stock		109		75
Dividends declared - preferred		-			-		-		(299	)		-			-			(299	)
Redemption of Federal Home Loan Bank stock		24		31
Balance at December 31, 2008	$	4,896			734		32		21,024			(8,071	)		-			18,615
Net (increase) decrease in loans		(3,875	)	5,130
Proceeds from sale of other real estate owned		3,156		1,330
Purchase of premises and equipment		(59	)	(267	)
Net cash (used in) provided by investing activities		(2,867	)	4,654
Cash flows from financing activities:
Net decrease in deposits		(318	)	(7,613	)
Net decrease in repurchase agreements		(813	)	(301	)
Net proceeds from issuance of preferred stock		427		1,088
Net proceeds from exercise of common stock warrants		382		—
Preferred dividends paid		(139	)	(214	)
Net cash used in financing activities		(461	)	(7,040	)
Net decrease in cash and cash equivalents		(6,910	)	(1,963	)
Cash and cash equivalents at beginning of year		9,211		11,174
Cash and cash equivalents at end of year	$	2,301		9,211

~~See Accompanying~~(continued) ~~Notes to Consolidated Financial Statements.~~

3837

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

(In thousands)

	Year Ended December 31,
	2008			2007
	2009			2008
Cash flows from operating activities:
Supplemental disclosure of cash flow information:
Net loss	$	(5,078	)		(5,095	)
Cash paid (received) during the year for:
Adjustments to reconcile net loss to net cash
Interest	$	3,136		3,370
provided by operating activities:
Income taxes	$	—		(2,116	)
Depreciation		270			283
Noncash transactions:
Share-based compensation		95			108
Preferred dividends payable at beginning of period	$	120		35
Provision for loan losses		5,959			8,110
Preferred dividends declared	$	158		299
Deferred income tax benefit		(2,985	)		(1,792	)
Reversal of preferred dividends declared	$	(139	)	—
Amortization of loan fees and costs, net		17			37
Preferred dividends payable at end of period	$	—		120
Amortization of securities held to maturity		-			2
Amortization of preferred stock discounts	$	89		—
Decrease in accrued interest receivable		189			285
Transfer of loans to other real estate owned	$	5,494		2,216
Decrease (increase) in other assets		2,165			(2,008	)
Net change in unrealized gain on security available for sale, net of tax effect in 2008	$	118		(9	)
Write down of other real estate owned		284			758
Transfer of securities held to maturity to available for sale	$	8,147		—
Loss on sale of other real estate owned		257			15
(Decrease) increase in official checks, accrued interest
payable and other liabilities		(750	)		704
Net cash provided by operating activities		423			1,407
Cash flows from investing activities:
Purchase of security available for sale		-			(1,000	)
Proceeds from maturity of securities available for sale		1,000			-
Purchases of securities held to maturity		(6,007	)		(3,924	)
Proceeds from maturity of securities held to maturity		2,330			-
Principal payments on securities held to maturity		1,091			691
Purchase of Federal Reserve Bank stock		(59	)		(44	)
Redemption of Federal Reserve Bank stock		75			-
Redemption of Federal Home Loan Bank stock		31			52
Net decrease (increase) in loans		5,130			(1,934	)
Proceeds from sale of other real estate owned		1,330			1,269
Purchase of premises and equipment		(267	)		(53	)
Net cash provided by (used in) investing activities		4,654			(4,943	)
Cash flows from financing activities:
Net decrease in deposits		(7,613	)		(18,580	)
Net (decrease) increase in repurchase agreements		(301	)		1,232
Proceeds from exercise of common stock options		-			416
Net proceeds from issuance of preferred stock		1,088			4,896
Tax benefit from exercise of stock options		-			220
Common dividends paid		-			(379	)
Preferred dividends paid		(214	)		-
Net cash used in financing activities		(7,040	)		(12,195	)
Net decrease in cash and cash equivalents		(1,963	)		(15,731	)
Cash and cash equivalents at beginning of year		11,174			26,905
Cash and cash equivalents at end of year	$	9,211			11,174

~~(continued)~~See Accompanying Notes to Consolidated Financial Statements.

3938

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

~~Consolidated Statements~~Notes ofto ~~Cash~~Consolidated ~~Flows,~~Financial ~~Continued~~Statements

~~(In thousands)~~At December 31, 2009 and 2008 and for the Years Then Ended

	Year Ended December 31,
	2008			2007
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest	$	3,370			5,756
Income taxes	$	(2,116	)		660
Noncash transactions:
Change in accumulated other comprehensive income,
net change in unrealized gain on security available
for sale, net of tax	$	(9	)		9
Loans reclassified to foreclosed assets	$	2,216			4,899
Preferred dividends payable	$	120			35

(1) Summary of Significant Accounting Policies

~~See~~Organization. Marco Community Bancorp, Inc. (the “Holding Company”) owns 100% of the outstanding common stock of ~~Accompanying~~Marco ~~Notes~~Community Bank (the “Bank”) and Commercial Lending Capital Corp. (“CLCC”) (formerly MCB Commercial Lending Corp.) (collectively, the “Company”). The Holding Company’s only business activities were the operation of the Bank and CLCC. The Bank was a state (Florida) chartered commercial bank. The Bank offered a variety of community banking services to ~~Consolidated~~individual ~~Financial~~and ~~Statements~~corporate customers through its banking office located in Marco Island, Florida. The deposits of the Bank were insured by the Federal Deposit Insurance Corporation. CLCC was incorporated to provide commercial loans to customers that would otherwise seek financing elsewhere because of credit limit constraints. Effective December 31, 2008, CLCC’s operations were suspended due to economic conditions.

40Subsequent Events. On February 19, 2010, the Bank was closed by the Florida Office of Financial Regulation (“OFR”) and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver of the Bank. Subsequent to the closure, Mutual of Omaha Bank, Nebraska (“Mutual of Omaha”) assumed all of the deposits of the Bank and purchased essentially all of the Bank’s assets in a transaction facilitated by the FDIC. On February 20, 2010, the one office of the Bank reopened as a branch of Mutual of Omaha.

~~Table~~The Company’s principal asset is the capital stock that it owns in the Bank, and, as a result of ~~Contents~~the closure of the Bank, the Company has minimal remaining tangible assets. As the owner of all of the capital stock of the Bank, the Company would be entitled to the net recoveries, if any, following the liquidation or sale of the Bank or its assets by the FDIC. However, at this time, the Company does not believe that any recovery will be realized.

~~MARCO~~Going Concern. The closing of the Bank on February 19, 2010 was due to continuing increases in nonperforming assets, ~~COMMUNITY~~declining ~~BANCORP~~net interest margin, ~~INC~~continuing high levels of operating expenses related to the credit problems and eroding regulatory capital. ~~AND~~The ~~SUBSIDIARIES~~closing raises substantial doubt about the Company’s ability to continue as a going concern. Management evaluated and was involved in on-going negotiations for all potential alternative sources of capital to meet the Bank’s capital requirements, including equity investors, a sale or merger of the Company or Bank and recapitalization opportunities but was unable to obtain capital to meet the Bank’s capital requirements resulting in the closure of the Bank.

~~Notes~~ Subsequent to ~~Consolidated~~the ~~Financial~~Bank’s ~~Statements~~closure, the Company began exploring methods of winding down its operations. Any ultimate distribution of assets will occur in accordance with Florida law, the Company’s Articles of Incorporation and the terms of the Company’s outstanding series of Preferred Stock.

~~At December~~(continued) ~~31, 2008 and 2007 and for the Years Then Ended~~

~~(1) Summary of~~39 ~~Significant Accounting Policies~~

Organization. Marco CommunityTable Bancorp, Inc. (the "Holding Company") which was incorporated on January 28, 2003 owns 100% of the outstanding common stock of Marco Community Bank (the "Bank") and Commercial Lending Capital Corp. ("CLCC") (formerly MCB Commercial Lending Corp.) (collectively, the "Company"). The Holding Company's only business activity is the operation of the Bank and CLCC. The Bank is a state (Florida) chartered commercial bank. The Bank offers a variety of community banking services to individual and corporate customers through its banking office located in Marco Island, Florida. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation. CLCC was incorporated to provide commercial loans to customers that would otherwise seek financing elsewhere because of credit limit constraints. Effective December 31, 2008, CLCC's operations were suspended due to economic conditions.Contents

~~Basis~~MARCO ~~of Presentation. The~~COMMUNITY ~~accompanying consolidated financial statements include the accounts of the Holding Company~~BANCORP, ~~the Bank and CLCC~~INC. ~~All~~ ~~significant~~AND ~~intercompany~~SUBSIDIARIES ~~accounts and transactions have been eliminated in consolidation.~~

~~The following~~Notes isto aConsolidated ~~description~~Financial ~~of the significant accounting policies and practices followed by the Company~~Statements, ~~which~~Continued ~~conform to U.S. generally accepted accounting principles and prevailing practices within the banking industry.~~

~~Use~~(1) Summary of ~~Estimates. In~~ ~~preparing~~Significant ~~consolidated~~Accounting ~~financial statements in conformity with U.S. generally accepted accounting principles~~Policies, ~~management~~Continued is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred tax assets.

~~Cash~~Basis ~~and~~of ~~Cash Equivalents~~Presentation. ~~For~~ ~~purposes~~The ofaccompanying ~~the~~ consolidated ~~statements~~financial ofstatements ~~cash~~include ~~flows,~~the ~~cash~~accounts ~~and~~of ~~cash~~the ~~equivalents~~Holding ~~include~~Company, ~~cash~~the Bank and ~~balances~~CLCC. ~~due~~All ~~from~~significant ~~banks, federal~~intercompany ~~funds~~accounts ~~sold~~ and ~~interest-bearing~~transactions ~~deposits,~~have ~~all~~been ofeliminated ~~which~~in ~~mature within ninety days~~consolidation.

The ~~Bank~~following is ~~required~~a bydescription ~~law~~of orthe ~~regulation~~significant toaccounting ~~maintain~~policies ~~cash~~and ~~reserves,~~practices infollowed ~~accounts~~by ~~with other banks or in~~ the ~~vault. At December 31~~Company, ~~2008~~which ~~and~~conform ~~2007, the Bank was required~~ to ~~maintain~~U.S. generally ~~cash~~accepted ~~reserves~~accounting inprinciples ~~the~~(“GAAP”) ~~amount of $255,000~~ and ~~$353,000,~~prevailing ~~respectively,~~practices ~~with~~within the ~~Federal~~banking ~~Reserve~~industry.

~~(continued)~~Use of Estimates. In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.

41Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold and interest-bearing deposits, all of which mature within ninety days.

~~Table~~The Bank is required by law or regulation to maintain cash reserves, in accounts with other banks or in the vault. At December 31, 2009 and 2008, the Bank was required to maintain cash reserves in the amount of ~~Contents~~$216,000 and $255,000, respectively, with the Federal Reserve.

~~MARCO~~Securities. Securities may be classified as either trading, ~~COMMUNITY~~held-to-maturity ~~BANCORP~~or available-for-sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, ~~INC~~net of tax, on available-for-sale securities are excluded from operations and reported in comprehensive loss. ~~AND~~Gains ~~SUBSIDIARIES~~and losses on the sale of available-for-sale securities are recorded on the trade date and are determined using the specific-identification method. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in operations as realized losses.

~~Notes~~Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to ~~Consolidated~~(1) the ~~Financial~~length ~~Statements~~of time and the extent to which the fair value has been less than cost, ~~Continued~~(2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

(1continued) ~~Summary of~~ ~~Significant Accounting Policies, Continued~~

~~Securities. Securities may~~40 be classified as either trading, held-to-maturity or available-for-sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are excluded from operations and reported in comprehensive income. Gains and losses on the sale of available-for-sale securities are recorded on the trade date and are determined using the specific-identification method. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in operations as realized losses. Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans.Table Loansof that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.Contents

~~Loan origination~~MARCO ~~fees~~COMMUNITY ~~are~~BANCORP, ~~deferred~~INC. ~~and~~AND ~~certain~~SUBSIDIARIES ~~direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.~~

~~The~~Notes ~~accrual~~to ofConsolidated ~~interest~~Financial ~~on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of collection. In all cases~~Statements, ~~loans~~Continued ~~are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.~~

~~All interest~~(1) ~~accrued~~Summary ~~but~~of ~~not~~Significant ~~collected~~Accounting ~~for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method~~Policies, ~~until qualifying~~Continued ~~for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.~~

~~Allowance~~Loans Held for ~~Loan~~ ~~Losses~~Sale. ~~The~~ ~~allowance~~Loans ~~for~~originated ~~loan~~and ~~losses~~intended isfor ~~established~~sale asin the ~~losses~~secondary market are carried at the lower of cost or estimated tofair ~~have~~value ~~occurred~~in the aggregate. Net unrealized losses, if any, are recognized through a ~~provision~~valuation ~~for~~allowance ~~loan~~by ~~losses charged~~charges to operations. ~~Loan~~ ~~losses~~At ~~are~~December 31, ~~charged~~2009, ~~against~~fair ~~the~~value ~~allowance~~exceeded book ~~when~~value ~~management~~for ~~believes~~loans ~~the~~held ~~uncollectibility~~for ofsale. aThere ~~loan~~were ~~balance~~no ~~is confirmed. Subsequent~~loans ~~recoveries,~~held iffor ~~any,~~sale ~~are~~as ~~credited~~of toDecember 31, ~~the allowance~~2008.

~~(continued)~~Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.

42Loan origination fees are deferred and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan.

~~Table~~The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of ~~Contents~~collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

~~MARCO~~All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The ~~COMMUNITY~~interest ~~BANCORP~~on these loans is accounted for on the cash-basis or cost-recovery method, ~~INC~~until qualifying for return to accrual. ~~AND~~Loans ~~SUBSIDIARIES~~are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

~~Notes~~Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to ~~Consolidated~~have ~~Financial~~occurred ~~Statements~~through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, ~~Continued~~if any, are credited to the allowance.

~~(1) Summary~~The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of ~~Significant~~the ~~Accounting~~collectability ~~Policies~~of the loans in light of historical experience, ~~Continued~~the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

~~Allowance~~The ~~for Loan~~allowance ~~Losses,~~consists ~~Continued. The~~of ~~allowance~~specific ~~for~~and ~~loan~~general ~~losses~~components. ~~is evaluated~~The onspecific acomponent ~~regular~~relates ~~basis~~to byloans ~~management~~that ~~and~~are isclassified ~~based~~as ~~upon~~impaired. ~~management's~~For ~~periodic~~such ~~review~~loans, ofan ~~the~~allowance ~~collectibility~~is ofestablished when the ~~loans~~discounted incash ~~light~~flows of(or ~~historical experience,~~collateral ~~the~~value ~~nature~~or ~~and~~observable ~~volume~~market price) of the impaired loan ~~portfolio,~~is ~~adverse~~lower ~~situations~~than ~~that may affect~~ the ~~borrower's~~carrying ~~ability to repay, estimated~~ value of ~~any~~that ~~underlying collateral and prevailing economic conditions~~loan. ~~This~~The ~~evaluation~~general iscomponent ~~inherently subjective~~covers asall itother ~~requires~~loans ~~estimates~~and ~~that~~is ~~are~~based ~~susceptible~~on industry tohistorical ~~significant~~loss ~~revision as~~experience ~~more~~adjusted ~~information~~for ~~becomes~~qualitative ~~available~~factors.

The allowance consists of specific and general components. The specific components relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (~~or collateral value or observable market price~~continued) ~~of the impaired loan is lower than the carrying value of that loan. The general component covers all other loans and is based on industry historical loss experience adjusted for qualitative factors.~~

A41 loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, commercial real estate and investor real estate loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

LargeTable groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, residential, home equity loans, and lines of credit for impairment disclosures.Contents

~~Other~~MARCO ~~Real~~COMMUNITY ~~Estate Owned. Assets acquired through~~BANCORP, ~~or in lieu of, loan foreclosure are to be sold and are initially recorded at the lower of the related loan balance or the fair value at the date of foreclosure establishing a new cost basis~~INC. ~~After~~ ~~foreclosure,~~AND ~~valuations~~SUBSIDIARIES are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations are included in the consolidated statements of operations.

~~Premises~~Notes ~~and Equipment. Land~~to isConsolidated ~~stated~~Financial ~~at cost. Premises and equipment are stated at cost~~Statements, ~~less~~Continued ~~accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful life of each type of asset.~~

(~~continued~~1) Summary of Significant Accounting Policies, Continued

43Allowance for Loan Losses, Continued. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, commercial real estate and investor real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

~~Table~~Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, residential, home equity loans, and lines of ~~Contents~~credit for impairment disclosures.

~~MARCO~~Other Real Estate Owned. Assets acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded ~~COMMUNITY~~at ~~BANCORP~~the lower of the related loan balance or the fair value at the date of foreclosure less cost to sell establishing a new cost basis. After foreclosure, ~~INC~~valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. ~~AND~~Revenue ~~SUBSIDIARIES~~and expenses from operations are included in the consolidated statements of operations.

~~Notes to~~Premises ~~Consolidated~~and ~~Financial~~Equipment. ~~Statements~~Land is stated at cost. Premises and equipment are stated at cost, ~~Continued~~less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful life of each type of asset.

~~(1)~~ Impairment of Long-Lived Assets. Long-lived assets, such as premises and equipment, are reviewed for impairment whenever ~~Summary~~events or changes in circumstances indicate that the carrying amount of ~~Significant~~the ~~Accounting~~assets ~~Policies~~may not be recoverable. The Company assesses the recoverability of long-lived assets by determining whether the assets can be recovered from undiscounted future cash flows. Recoverability of long-lived assets is dependent upon, ~~Continued~~among other things, the Company’s ability to maintain profitability, so as to be able to meet its obligations when they become due. In the opinion of management, based upon current information and projections, long-lived assets will be recovered over the period of benefit.

Transfer of Financial Assets. Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1continued) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

~~Income Taxes.~~42 Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled.

Off-Balance-Sheet FinancialTable Instruments. In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of unused lines of credit, unfunded construction loans and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.Contents

~~Advertising. The Company~~MARCO ~~expenses~~COMMUNITY ~~all~~BANCORP, ~~media~~INC. ~~advertising~~AND asSUBSIDIARIES ~~incurred.~~

~~Fair~~Notes ~~Value Measurements. Effective~~to ~~January 1,~~Consolidated ~~2008, the Company adopted Statement of~~ Financial ~~Accounting Standards ("SFAS") No. 157~~Statements, ~~Fair~~Continued ~~Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.~~

~~SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability~~ (~~an exit price~~1) inSummary the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of ~~observable~~Significant ~~inputs~~Accounting ~~and~~Policies, ~~minimize~~Continued ~~the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:~~

~~Level~~Transfer 1:of ~~Observable~~Financial ~~inputs~~Assets. ~~such~~Transfers of financial assets are accounted for as ~~quoted~~sales, ~~prices~~when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (~~unadjusted~~1) the inassets ~~active~~have ~~markets~~been ~~for~~isolated ~~identical~~from ~~assets~~the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or ~~liabilities~~exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

~~Level~~Income 2:Taxes. ~~Inputs~~On ~~other~~January 1, ~~than~~2009, ~~quoted prices that are observable for~~ the ~~asset~~Company oradopted ~~liability,~~recent ~~either~~accounting ~~directly~~guidance orrelating ~~indirectly.~~to accounting ~~These include quoted prices~~ for ~~similar~~uncertainty ~~assets or liabilities~~ in ~~active~~income ~~markets;~~taxes, ~~quoted~~which ~~prices~~sets ~~for~~out ~~identical~~a orconsistent ~~similar~~framework ~~assets~~to ordetermine ~~liabilities~~the ~~that~~appropriate ~~are~~level ~~not~~of ~~active;~~tax ~~and~~reserves ~~model-driven~~to ~~valuations~~maintain ~~whose~~for ~~inputs~~uncertain ~~are~~tax ~~observable or whose significant value drivers are observable~~positions. ~~Valuations may be obtained from, or corroborated by, third-party pricing services.~~

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (~~continued~~or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

44Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. As of December 31, 2009, management is not aware of any uncertain tax positions that would have a material effect on the Company’s consolidated financial statements.

~~Table~~The Company recognizes interest and penalties on income taxes as a component of ~~Contents~~income tax expense.

~~MARCO COMMUNITY~~The ~~BANCORP,~~Holding ~~INC~~Company and the Bank file consolidated income tax returns. ~~AND~~Income ~~SUBSIDIARIES~~taxes are allocated proportionately to the Holding Company and the Bank as though separate income tax returns were filed.

~~Notes to~~(continued) ~~Consolidated Financial Statements, Continued~~

~~(1) Summary of~~43 ~~Significant Accounting Policies, Continued~~

FairTable Value Measurements, Continued. Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.Contents

~~The~~MARCO ~~following~~COMMUNITY ~~describes~~BANCORP, ~~valuation~~INC. ~~methodologies~~AND ~~used~~SUBSIDIARIES ~~for assets and liabilities measured at fair value:~~

~~Impaired~~Notes Loans. Nearly all of the Company's loans are evaluated individually for impairment. Estimates of fair value is determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Bank's management related to ~~values~~Consolidated ofFinancial ~~properties in the Company's market areas. Management takes into consideration the type~~Statements, ~~location~~Continued and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans are classified as Level 3.

~~Fair~~(1) ~~Values~~Summary of ~~Financial~~ ~~Instruments. The~~Significant ~~following~~Accounting ~~methods~~Policies, ~~and~~Continued ~~assumptions were used by the Company in estimating fair values of financial instruments:~~

~~Cash~~Off-Balance-Sheet ~~and~~Financial ~~Cash Equivalents~~Instruments. ~~The~~ ~~carrying~~In ~~amounts~~the ordinary course of business ~~cash~~the Company has entered into off-balance-sheet financial instruments consisting of unused lines of credit and ~~cash~~unfunded ~~equivalents approximates~~construction ~~their~~loans. ~~fair~~Such ~~value~~financial instruments are recorded in the consolidated financial statements when they are funded.

~~Securities~~Comprehensive Loss. ~~Fair~~ Accounting principles generally require that recognized revenue, expenses, gains and ~~value~~losses ~~for~~be ~~the~~included in net losses. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are ~~based~~reported onas a ~~quoted~~separate ~~market~~component ~~price~~of the equity section of the consolidated balance sheet, such items, along with net losses, are components of comprehensive loss. The components of other comprehensive loss and related tax effects are as follows (in thousands):

Loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.


	Year Ended December 31,
	2009			2008
Unrealized holding gains (losses) on available for sale securities	$	200		(9	)
Reclassification adjustment for gains realized in operations		(82	)	—

Net change in unrealized gains		118		(9	)
Income tax effect		—		—

Net amount	$	118		(9	)

~~Federal~~Advertising. ~~Reserve Bank~~The ~~Stock~~Company ~~and~~expenses ~~Federal~~all ~~Home~~media ~~Loan~~advertising ~~Bank~~as ~~Stock~~incurred. ~~The~~ ~~carrying amounts approximates fair value.~~

~~Accrued~~Fair ~~Interest Receivable~~Value Measurements. ~~The~~ ~~carrying~~GAAP ~~amount~~defines ~~approximates~~fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

~~Deposit Liabilities. The~~Fair ~~fair~~value ~~values~~is ~~disclosed~~defined ~~for~~as ~~demand,~~the ~~savings, NOW~~exchange ~~and~~price ~~money~~that ~~market~~would ~~deposits~~be ~~are,~~received byfor ~~definition,~~an ~~equal~~asset or paid to transfer ~~the~~a ~~amount~~liability ~~payable~~(an ~~on demand~~exit atprice) in the ~~reporting~~principal ~~date~~or ~~(that~~most ~~is,~~advantageous ~~their~~market ~~carrying~~for ~~amounts). Fair values~~the ~~for~~asset ~~fixed-rate~~or ~~time~~liability ~~deposits~~in ~~are~~an ~~estimated~~orderly ~~using~~transaction abetween ~~discounted~~market ~~cash~~participants ~~flow calculation~~on ~~that~~the ~~applies~~measurement ~~interest~~date. ~~rates~~GAAP ~~currently~~also ~~being~~establishes ~~offered~~a onfair ~~certificates~~value hierarchy which requires an entity to amaximize ~~schedule~~the use of ~~aggregate~~observable ~~expected~~inputs ~~monthly~~and ~~maturities~~minimize the use of ~~time deposits~~unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (~~continued~~unadjusted) in active markets for identical assets or liabilities.

45Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

~~Table of~~(continued) ~~Contents~~

~~MARCO COMMUNITY~~44 ~~BANCORP, INC. AND SUBSIDIARIES~~

Notes toTable Consolidatedof Financial Statements, ContinuedContents

~~(1) Summary of~~MARCO ~~Significant~~COMMUNITY ~~Accounting Policies~~BANCORP, ~~Continued~~INC. AND SUBSIDIARIES

~~Fair~~Notes ~~Values~~to of Consolidated Financial ~~Instruments~~Statements, Continued.

~~Repurchase Agreements. The~~(1) ~~carrying~~Summary ~~amounts~~ of ~~repurchase~~Significant ~~agreements approximate~~Accounting ~~their~~Policies, ~~fair~~Continued ~~values.~~

~~Off-Balance-Sheet Instruments.~~ Fair ~~values~~Value ~~for~~Measurements, ~~off-balance-sheet~~Continued. ~~lending~~Level 3: Unobservable inputs to ~~commitments~~measure ~~are~~fair ~~based~~value onof ~~fees~~assets ~~currently~~and ~~charged~~liabilities tofor ~~enter~~which ~~into~~there ~~similar agreements~~is little, ~~taking~~if ~~into~~any ~~account~~market activity at the ~~remaining~~measurement ~~terms~~date, ofusing ~~the~~reasonable ~~agreements~~inputs and assumptions based upon the best information at the time, to the extent that inputs are available ~~counterparties'~~without ~~credit~~undue ~~standing~~cost and effort.

~~Loss~~The ~~Per~~following ~~Common Share.~~describes ~~Loss~~valuation ~~per~~methodologies ~~share~~used of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options and convertible preferred stock are not considered dilutive securities for ~~the~~assets ~~twelve months ended December 31, 2008~~ and ~~2007~~liabilities ~~due~~measured ~~to the net~~at ~~losses~~fair ~~incurred~~value: ~~by the Company.~~

~~Share-Based Compensation. Effective~~Securities ~~January~~Available 1,for ~~2006,~~Sale. ~~the~~Where ~~Company~~quoted ~~adopted the~~prices ~~fair~~are ~~value~~available ~~recognition~~in ~~provisions~~an ofactive ~~FASB~~market, ~~Statement~~securities ~~No.~~are classified ~~123(R),~~within ~~Share-Based~~Level ~~Payment~~1 ~~("SFAS 123(R)"),~~of ~~using~~ the ~~modified-prospective-transition~~ ~~method~~valuation hierarchy. ~~Under~~ ~~that~~Level ~~transition~~1 ~~method, compensation~~securities ~~cost~~include ~~recognized~~highly ~~includes:~~liquid ~~(a)~~government ~~compensation~~bonds, ~~cost~~certain ~~for~~mortgage ~~all~~products ~~share~~and exchange-~~based payments~~traded ~~granted~~equities. ~~prior~~If ~~to,~~quoted ~~but~~market prices are not ~~yet~~available, ~~vested~~then asfair ofvalues ~~January~~are 1,estimated ~~2006~~by using pricing models, ~~based~~quoted ~~on the~~prices ~~grant~~of ~~date~~securities ~~fair~~with ~~value~~similar ~~calculated~~characteristics, inor ~~accordance~~discounted ~~with~~cash ~~the~~flows. ~~original~~Examples ~~provisions~~ of ~~SFAS~~such ~~123~~instruments, ~~Accounting~~which ~~for Stock-Based~~would ~~Compensation~~generally ~~(as~~be ~~amended~~classified bywithin ~~SFAS~~Level ~~No.~~2 ~~148~~of the valuation hierarchy, ~~Accounting~~include ~~for~~certain ~~Stock-Based~~collateralized ~~Compensation~~mortgage ~~Transition~~and debt obligations and ~~Disclosure)~~certain ~~(collectively,~~high-yield ~~"SFAS~~debt ~~123")~~securities. ~~and (b)~~In ~~compensation~~certain ~~cost~~cases ~~for~~where ~~all~~there ~~share-based~~is ~~payments~~limited ~~granted~~activity ~~subsequent~~or ~~to December~~less ~~31,~~transparency ~~2005,~~around ~~based~~inputs onto the ~~grant-date~~valuation, ~~fair~~securities ~~value~~are ~~estimated~~classified inwithin ~~accordance with~~Level ~~the~~3 ~~provisions~~ of ~~SFAS~~the ~~123(R)~~valuation hierarchy. ~~The~~ Securities ~~expense~~classified iswithin ~~recognized~~Level in3 ~~the statement~~include ofcertain ~~operations~~residual oninterests anin ~~accelerated~~securitizations ~~basis~~and ~~over~~other ~~the~~less ~~vesting period~~liquid securities.

~~Recent~~Impaired ~~Accounting Pronouncements~~Loans. InThe ~~December~~Company’s ~~2007,~~impaired ~~the~~loans ~~FASB~~are ~~issued~~normally ~~SFAS~~collateral ~~No.~~dependent ~~141(R)~~and, ~~Business~~as ~~Combinations~~such, ~~("SFAS 141(R)"). SFAS~~are ~~141(R)~~carried isat ~~effective~~the ~~for~~lower ~~the~~of the Company'’s ~~financial statements~~net ~~for~~recorded ~~the~~investment ~~year~~in ~~and~~the ~~interim~~loan ~~periods~~or ~~within~~ the ~~year~~fair ~~beginning~~market ~~January~~value ~~1, 2009. SFAS~~of ~~141(R)~~the ~~requires~~collateral ~~the~~less ~~acquiring~~estimated ~~entity~~selling incosts. aEstimates ~~business combination~~of tofair ~~recognize~~value ~~all~~are ~~(and~~determined ~~only)~~based ~~the~~on ~~assets~~a ~~acquired~~variety ~~and~~of ~~liabilities assumed~~information, inincluding the ~~transaction;~~use ~~establishes~~of ~~the~~available ~~acquisition~~appraisals, estimates ~~date~~of ~~fair~~market value asby ~~the measurement~~licensed ~~objective~~appraisers ~~for~~or ~~all~~local ~~assets~~real ~~acquired~~estate ~~and~~brokers ~~liabilities assumed;~~ and ~~requires~~ the ~~acquirer~~knowledge ~~to disclose to investors~~ and ~~other~~experience ~~users all~~ of the ~~information~~ ~~they~~Company’s ~~need~~management related to ~~evaluate~~values ~~and~~of ~~understand~~properties ~~the~~in ~~nature and financial effect of~~ the ~~business~~Company’s ~~combination~~market areas. ~~Acquisition~~ ~~related~~Management ~~costs~~takes ~~including~~into consideration ~~finder's~~the ~~fees~~type, ~~advisory,~~location ~~legal, accounting valuation~~ and ~~other~~occupancy ~~professional~~of ~~and consulting~~the ~~fees~~property ~~are~~as ~~required~~well toas becurrent ~~expensed~~economic asconditions ~~incurred. Management is~~ in the ~~process~~area ~~of evaluating~~ the ~~impact~~property ofis ~~SFAS~~located ~~141(R)~~in ~~and~~assessing ~~does~~estimates ~~not anticipate~~of itfair ~~will~~value. ~~have~~Accordingly, afair ~~material~~value ~~impact~~estimates onfor ~~the~~impaired ~~Company's~~loans ~~financial~~are ~~condition or~~classified ~~results~~as ofLevel ~~operations~~3.

~~(continued)~~Other Real Estate Owned. The Company’s other real estate owned is recorded at the lower of cost or fair market value less estimated costs to sell. Estimates of fair values are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related to values of properties in the Company’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, the fair values estimates for other real estate owned are classified as Level 3.

46(continued)

~~Table of~~45 ~~Contents~~

MARCO COMMUNITYTable BANCORP,of INC. AND SUBSIDIARIESContents

~~Notes to~~MARCO ~~Consolidated~~COMMUNITY ~~Financial Statements~~BANCORP, ~~Continued~~INC. AND SUBSIDIARIES

~~(1) Summary of~~Notes ~~Significant~~to ~~Accounting~~Consolidated ~~Policies~~Financial Statements, Continued

~~Recent Accounting Pronouncements, Continued. In December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements~~ (~~"SFAS 160"~~1)~~. SFAS~~ ~~160~~Summary ~~provides the Company to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation~~ of aSignificant ~~subsidiary. SFAS~~Accounting ~~160 is effective for the Company's financial statements for the year and interim periods within the year beginning January 1~~Policies, ~~2009.~~Continued ~~The adoption of SFAS 160 did not have a material impact on the Company.~~

InFair ~~March~~Values ~~2008,~~of ~~the~~Financial ~~FASB issued SFAS No. 161, Disclosures about Derivative~~ Instruments ~~and Hedging Activities ("SFAS 161")~~. ~~This~~The ~~standard~~following ~~requires~~methods ~~enhanced disclosures regarding derivative instruments~~ and assumptions ~~hedging~~were ~~activities~~used soby ~~as to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for~~ the Company's ~~financial~~in ~~statements~~estimating ~~for~~fair ~~the~~values ~~year and interim periods within the year beginning January 1, 2009. The adoption~~ of ~~SFAS~~financial ~~161~~instruments: ~~did not have a material impact on the Company.~~

InCash ~~May~~and ~~2008, the FASB issued SFAS No~~Cash Equivalents. ~~162,~~ The ~~Hierarchy~~carrying ofamounts ~~Generally Accepted Accounting Principles ("SFAS 162"). This statement identifies the sources~~ of ~~accounting~~cash ~~principles~~ and ~~the~~cash ~~framework~~equivalents ~~for~~approximates ~~selecting~~their ~~the~~fair ~~principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles "GAAP" in the United States~~value. This Statement is effective 60 days following the SEC approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS 162 will not have a material impact on the Company.

~~On February 20, 2008, the FASB issued FSP No~~Securities. ~~FAS~~The ~~140-3,~~fair ~~Accounting~~value ~~for Transfers~~ of ~~Financial~~securities ~~Assets~~are ~~and~~based ~~Repurchase~~on ~~Financing Transactions ("FSP 140-3"). FSP 140-3 requires that an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously with, or in contemplation of,~~ the ~~initial~~framework ~~transfer~~established ~~be evaluated together as a linked transaction~~ under ~~SFAS~~GAAP ~~140, unless certain criteria are met. FSP 140-3 is effective~~ for ~~the~~measuring ~~Company's~~fair ~~financial statements for the year and interim periods within the year beginning January 1, 2009~~value. ~~The adoption of FSP 140-3 did not have a material impact on the Company.~~

Loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate mortgage (~~continued~~e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are based on the framework established under GAAP for measuring fair value.

47Loans Held for Sale. Fair values for loans held for sale are based on the framework established under GAAP for measuring fair value.

~~Table~~Federal Reserve Bank Stock and Federal Home Loan Bank Stock. The carrying amounts approximate fair ofvalue. ~~Contents~~

~~MARCO COMMUNITY~~Accrued ~~BANCORP,~~Interest ~~INC~~Receivable. ~~AND~~The ~~SUBSIDIARIES~~carrying amount approximates fair value.

~~Notes~~Deposit Liabilities. The fair values disclosed for demand, savings, NOW and money market deposits are, by definition, equal to ~~Consolidated~~the ~~Financial~~amount ~~Statements~~payable on demand at the reporting date (that is, ~~Continued~~their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities of time deposits.

~~(2) Securities~~Repurchase Agreements. The carrying amounts of repurchase agreements approximate their fair values.

~~The~~Off-Balance-Sheet ~~securities~~Instruments. ~~have~~Fair values ~~been~~for ~~classified~~off-balance-sheet ~~according~~lending commitments are based on fees currently charged to ~~management's~~enter ~~intent.~~into ~~Following~~similar ~~are~~agreements, ~~summaries~~taking into account the remaining terms of the ~~securities~~agreements ~~(in~~and ~~thousands):~~the counterparties’ credit standing.

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Securities Held to Maturity:
At December 31, 2008:
U.S. Government and Federal Agencies	$	1,000		11		-		1,011
Mortgage-backed securities of U.S
government agencies		7,147		98		-		7,245
	$	8,147		109		-		8,256
Security Available for Sale:
At December 31, 2007-
U.S. Government and Federal Agencies	$	1,000		9		-		1,009
Securities Held to Maturity:
At December 31, 2007:
U.S. Government and Federal Agencies		2,330		23		-		2,353
Mortgage-backed securities of U.S
government agencies		3,231		22		-		3,253
	$	5,561		45		-		5,606

Loss Per Common Share. Loss per share of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options and convertible preferred stock are not considered dilutive securities for the years ended December 31, 2009 and 2008 due to the net losses incurred by the Company.

At(continued) December 31, 2008 and 2007 securities with a par value of $3.4 million and $1.8 million, respectively, were pledged to secure repurchase agreements. Securities with a par value of $1.0 million were pledged to the Federal Reserve Bank Discount Window. No securities were sold during the years ended December 31, 2008 and 2007.

As46 ~~of December 31, 2008, the amortized cost and fair value of securities, by contractual maturities, were as follows (in thousands):~~

	Held to Maturity
	Amortized		Fair
	Cost		Value
Due from one to five years	$	1,000		1,011
Mortgage-backed securities		7,147		7,245
	$	8,147		8,256

~~(continued)~~MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

48Notes to Consolidated Financial Statements, Continued

~~Table~~ (1) Summary of ~~Contents~~Significant Accounting Policies, Continued

~~MARCO~~Stock Compensation Plans. The Company measures the fair value of stock ~~COMMUNITY~~compensation ~~BANCORP~~based on the framework for measuring fair value and expenses the fair value of all stock options granted. The measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options is based on estimated fair values. Under the fair value recognition provisions, ~~INC~~the Company recognizes stock-based compensation in the statement of operations. ~~AND~~The ~~SUBSIDIARIES~~expense is recognized on a straight-line basis over the vesting period.

~~Notes~~Recent Pronouncements. In 2009, the FASB Accounting Standards Codification (“ASC”) became the single source of toauthoritative ~~Consolidated~~GAAP recognized by the Financial ~~Statements,~~Accounting ~~Continued~~Standards Board (“FASB”) to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) are also sources of authoritative GAAP for SEC registrants. The ASC superseded all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the ASC is nonauthoritative. The Company’s policies were not affected by the conversion to ASC.

In 2009, the FASB issued Statement of Financial Accounting Standards (3“SFAS”) No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140, (“SFAS No. 166”) (this SFAS was incorporated into the ASC on January 1, 2010) amending the accounting for the transfers of financial assets. This new standard enhances reporting about transfers of financial assets, including loan participations and securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. It also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The standard was effective January ~~Loans~~1, 2010 and had no effect on the Company’s consolidated financial statements.

~~The components of loans are as follows~~ (~~in thousands~~continued):

	At December 31,
	2008			2007
Commercial real estate	$	31,404			31,925
Commercial		33,714			40,778
Residential real estate		21,271			24,503
Consumer		1,099			1,107
Home equity loans and lines of credit		25,200			25,274
		112,688			123,587
Add (subtract):
Deferred loan costs, net		20			83
Allowance for loan losses		(6,154	)		(3,794	)
Loans, net	$	106,554			119,876

An analysisTable of the change in the allowance for loan losses follows (in thousands):Contents

	Year Ended December 31,
	2008			2007
Beginning balance	$	3,794			2,047
Recoveries		-			3
Charge-offs		(3,599	)		(6,366	)
Provision for loan losses		5,959			8,110
Ending balance	$	6,154			3,794

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

~~Impaired~~Notes ~~collateral~~to ~~dependent~~Consolidated ~~loans~~Financial inStatements, ~~2008~~Continued ~~and 2007 were as follows (in thousands):~~

	At December 31,
	2008			2007
Impaired loans without a valuation allowance	$	3,810			-
Impaired loans with a valuation allowance		5,316			11,480
Total impaired loans		9,126			11,480
Total related allowance for losses at end of year		(2,463	)		(1,397	)
Net investment in impaired loans	$	6,663			10,083
Average investment in impaired loans	$	10,356

Filing Compare · MARCO COMMUNITY BANCORP INC