Table of Contents

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2009

 

¨	Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from              to             

Commission file number 000-50557

 

 

MARCO COMMUNITY BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Florida		84-1620092
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1770 San Marco Road

Marco Island, Florida 34145

(Address of Principal Executive Offices)

(239) 389-5200

(Issuer’s Telephone Number, Including Area Code)

 

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    YES  ¨    NO  ¨ * The registrant has not yet been phased into the interactive data requirements.

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

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date;

 

Common stock, par value $.01 per share		3,328,608 shares
(class)		Outstanding at October 31, 2009

 

 

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

INDEX

 

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets – At September 30, 2009 (unaudited) and at December  31, 2008		2
Condensed Consolidated Statements of Operations – Three and Nine Months ended September  30, 2009 and 2008 (unaudited)		3-4
Condensed Consolidated Statements of Changes in Stockholders’ Equity – Nine Months ended September 30, 2009 and 2008 (unaudited)		5
Condensed Consolidated Statements of Cash Flows – Nine Months ended September  30, 2009 and 2008 (unaudited)		6-7
Notes to Condensed Consolidated Financial Statements (unaudited)		8-15
Review by Independent Registered Public Accounting Firm		16
Report of Independent Registered Public Accounting Firm		17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18-25
Item 4. Controls and Procedures		26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 5. Other Information		27
Item 6. Exhibits		28
SIGNATURES		29

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except per share amounts)

 

		September 30, 2009				December 31, 2008
		(Unaudited)
Assets
Cash and due from banks		$	3,305			1,587
Federal funds sold			—			7,237
Interest-bearing deposits			7,431			387
Total cash and cash equivalents			10,736			9,211
Securities available for sale			13,925			—
Securities held to maturity (fair value of $8,256 at December 31, 2008)			—			8,147
Loans held for sale			1,548			—
Loans, net of allowance for loan losses of $1,877 in 2009 and $6,154 in 2008			99,915			106,554
Other real estate owned			3,958			3,202
Premises and equipment, net			3,241			3,357
Federal Reserve Bank stock, at cost			368			452
Federal Home Loan Bank stock, at cost			238			262
Accrued interest receivable			427			413
Deferred income taxes			7,551			5,005
Other assets			212			146
Total assets		$	142,119			136,749
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits			4,944			4,353
Savings, NOW and money-market deposits			68,162			34,776
Time deposits			51,360			76,971
Total deposits			124,466			116,100
Repurchase agreements			117			931
Official checks			1,667			332
Dividends payable			—			120
Accrued interest payable and other liabilities			584			651
Total liabilities			126,834			118,134
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, 200 and 145 shares outstanding, net of discount of $398 and $354			1,102			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			21,546			21,024
Accumulated deficit			(12,381	)		(8,071	)
Accumulated other comprehensive income			89			—
Total stockholders’ equity			15,285			18,615
Total liabilities and stockholders’ equity		$	142,119			136,749

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share amounts)

 

		Three Months Ended September 30,							Nine Months Ended September 30,
		2009				2008			2009			2008
Interest income:
Loans		$	1,415			1,648			4,578			5,497
Securities			90			133			253			334
Other interest-earning assets			8			67			23			339
Total interest income			1,513			1,848			4,854			6,170
Interest expense:
Deposits			710			951			2,331			3,342
Other borrowings			1			7			5			23
Total interest expense			711			958			2,336			3,365
Net interest income			802			890			2,518			2,805
Provision for loan losses			49			150			4,300			3,155
Net interest income (expense) after provision for loan losses			753			740			(1,782	)		(350	)
Noninterest income:
Service charges on deposit accounts			9			7			26			19
CLCC loan brokerage fees			—			22			—			22
Gain on sale of securities			—			—			82			—
Gain on sale of residential mortgage loans			88			—			376			—
Rental income			2			—			9			—
Other service charges and fees			8			46			107			124
Total noninterest income			107			75			600			165
Noninterest expenses:
Salaries and employee benefits			745			753			1,883			1,998
Occupancy and equipment			124			148			370			461
Advertising			15			23			59			100
Insurance			12			11			30			53
Data processing			60			63			195			194
Regulatory assessments			140			101			494			300
Telephone			19			16			55			53
Professional fees			145			156			317			411
Stationery and supplies			6			11			24			29
Writedown on other real estate owned			1,662			226			1,742			482
Loss on sale of other real estate owned			164			—			336			—
Other			48			101			223			352
Total noninterest expenses			3,140			1,609			5,728			4,433
Loss before income taxes			(2,280	)		(794	)		(6,910	)		(4,618	)
Income tax benefit			(858	)		(299	)		(2,600	)		(1,738	)
Net loss			(1,422	)		(495	)		(4,310	)		(2,880	)
Preferred stock dividends requirements and amortization of preferred stock discount			17			69			78			205
Net loss available to common shareholders		$	(1,439	)		(564	)		(4,388	)		(3,085	)

(continued)

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited), Continued

(In thousands, except per share amounts)

 

		Three Months Ended September 30,							Nine Months Ended September 30,
		2009				2008			2009			2008
Net loss per common share, basic and diluted		$	(0.43	)		(0.17	)		(1.35	)		(0.96	)
Weighted-average number of shares outstanding, basic and diluted			3,326			3,223			3,258			3,223
Dividends per common share		$	—			—			—			—

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Nine Months Ended September 30, 2009 and 2008

(In thousands)

 

		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 (unaudited)			—		—			—		—			(2,880	)		—			(2,880	)
Net change in unrealized gain on security available for sale, net of tax effect (unaudited)			—		—			—		—			—			(8	)		(8	)
Comprehensive loss (unaudited)																			(2,888	)
Share-based compensation (unaudited)			—		—			—		44			—			—			44
Dividends declared-preferred (unaudited)			—		—			—		(205	)		—			—			(205	)
Balance at September 30, 2008 (unaudited)		$	4,896		—			32		20,713			(5,873	)		1			19,769
Balance at December 31, 2008		$	4,896		734			32		21,024			(8,071	)		—			18,615
Comprehensive loss:
Net loss (unaudited)			—		—			—		—			(4,310	)		—			(4,310	)
Net change in unrealized gain on securities available for sale, net of tax effect (unaudited)			—		—			—		—			—			89			89
Comprehensive loss (unaudited)																			(4,221	)
Exercise of stock warrants (102,000 shares) (unaudited)			—		—			1		381			—			—			382
Dividends declared-preferred (unaudited)			—		—			—		(158	)		—			—			(158	)
Reversal of dividends declared, but not paid (unaudited)			—		—			—		139			—			—			139
Share-based compensation (unaudited)			—		—			—		101			—			—			101
Issuance of preferred stock (57 shares) (unaudited)			—		324			—		103			—			—			427
Conversion of 2 shares of series C preferred stock to 4,000 shares of common stock (unaudited)			—		(15	)		—		15			—			—			—
Amortization of preferred stock discount (unaudited)			—		59			—		(59	)		—			—			—
Balance at September 30, 2009 (unaudited)		$	4,896		1,102			33		21,546			(12,381	)		89			15,285

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

		Nine Months Ended September 30,
		2009				2008
Cash flows from operating activities:
Net loss		$	(4,310	)		(2,880	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation			149			207
Share-based compensation			101			44
Provision for loan losses			4,300			3,155
Deferred income tax benefit			(2,600	)		(1,734	)
Origination of loans held for sale			(20,106	)		—
Proceeds from loans held for sale			18,981			—
Gain on loans held for sale			(423	)		—
Amortization of loan fees and costs, net			(59	)		30
Net premium amortization			37			—
Gain on sale of securities available for sale			(82	)		—
(Increase) decrease in accrued interest receivable			(14	)		79
(Increase) decrease in other assets			(66	)		2,170
Write down of other real estate owned			1,742			30
Loss on sale of other real estate owned			336			257
Increase (decrease) in official checks, accrued interest payable and other liabilities			1,268			(757	)
Net cash (used in) provided by operating activities			(746	)		601
Cash flows from investing activities:
Purchase of securities available for sale			(13,239	)		(6,007	)
Proceeds from calls and maturities of securities available for sale			1,050			957
Proceeds from sale of securities available for sale			4,283			2,330
Principal payment of securities available for sale			2,316			—
Redemption of Federal Home Loan Bank Stock			24			31
Purchase of Federal Reserve Bank Stock			(25	)		(59	)
Redemption of Federal Reserve Bank stock			109			62
Net (increase) decrease in loans			(3,042	)		12,171
Proceeds from sale of other real estate owned			2,606			1,186
Purchase of premises and equipment			(33	)		(248	)
Net cash (used in) provided by investing activities			(5,951	)		10,423
Cash flows from financing activities:
Net increase (decrease) in deposits			8,366			(11,754	)
Net (decrease) increase in repurchase agreements			(814	)		97
Net proceeds from issuance of preferred stock			427			—
Net proceeds from exercise of warrants			382			—
Preferred dividends paid			(139	)		(217	)
Net cash provided by (used in) financing activities			8,222			(11,874	)
Net increase (decrease) in cash and cash equivalents			1,525			(850	)
Cash and cash equivalents at beginning of period			9,211			11,174
Cash and cash equivalents at end of period		$	10,736			10,324

(continued)

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)

 

		Nine Months Ended September 30,
		2009			2008
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	2,434		3,489
Income taxes		$	—		(2,116	)
Noncash transactions:
Preferred dividends payable at beginning of period		$	120		35
Preferred dividends payable at end of period		$	—		23
Amortization of preferred stock discounts		$	59		—
Transfer of loans to other real estate owned		$	5,440		1,432
Net change in unrealized gain on security available for sale, net of tax effect		$	89		(8	)
Transfer of securities held to maturity to available for sale		$	8,147		—

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation

General. Marco Community 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”) (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 up to the applicable limits 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.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2009, the results of operations for the three- and nine-month periods ended September 30, 2009 and 2008 and cash flows for the nine month periods ended September 30, 2009 and 2008. The results of operations for the three- and nine- month periods ended September 30, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009.

Management has evaluated events occurring subsequent to the balance sheet date through November 13, 2009 (the financial statement issuance date), determining no events require additional disclosure in these consolidated condensed financial statements.

2. Loan Impairment and Loan Losses

Impaired collateral dependent loans were as follows (in thousands):

 

		Three Months Ended September 30,					Nine Months Ended September 30,
		2009			2008		2009		2008
Balance at end of period		$	7,989		10,925		7,989		10,925
Total related allowance for losses			—		3,821		—		3,821
Net investment in impaired loans		$	7,989		7,104		7,989		7,104
Average investment in impaired loans		$	7,975		11,118		8,263		10,655
Interest income recognized on impaired loans		$	—		—		—		102
Interest income received on impaired loans		$	—		—		—		—

At September 30, 2009, the Company had $9.2 million in nonaccrual loans and no loans which were over ninety days past due and still accruing interest. At September 30, 2008, the Company had $12.9 million in nonaccrual loans and no loans which were ninety days past due but still accruing interest.

(continued)

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

2. Loan Impairment and Loan Losses, Continued

 

The activity in the allowance for loan losses follows (in thousands):

 

		Three Months Ended September 30,							Nine Months Ended September 30,
		2009				2008			2009			2008
Beginning balance		$	6,104			6,050			6,154			3,794
Recoveries			261			—			333			—
Charge-offs			(4,537	)		(531	)		(8,910	)		(1,280	)
Provision for loan losses			49			150			4,300			3,155
Ending balance		$	1,877			5,669			1,877			5,669

At September 30, 2009 the Company has one loan pool with an original term of one year. At September 30, 2009, $16,000 was outstanding compared to $2.0 million at December 31, 2008. For the nine-months ended September 30, 2009, the Company charged-off $1.5 million of these loan pool, recognized $198,000 in proceeds from sale and recorded an additional $261,000 in loss on sale.

3. Nonperforming Assets

Nonperforming assets include nonaccrual loans and other real estate owned. Nonaccrual loans represent loans of which interest accruals have been discontinued.

The Company discontinues interest accruals when principal or interest is due and has remained unpaid for ninety days. When a loan is placed on nonaccrual status, all unpaid interest is reversed. Nonaccrual loans may not be restored to accrual status unless they have a sustained history of repayments in addition to the repayment of all delinquent principal and interest. At September 30, 2009 and 2008, the Company had no loans which were over ninety days past due and still accruing interest.

Nonperforming loans are closely monitored on an ongoing basis as part of the Company’s loan review and work-out process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses are recognized where appropriate.

Following is a summary of nonperforming assets (in thousands):

 

		September 30,
		2009			2008
Nonaccrual loans		$	9,205		12,881
Other real estate owned			3,958		2,816
Total nonperforming assets		$	13,163		15,697

 

(continued)

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

3. Nonperforming Assets, Continued

 

Asset quality ratios:

 

		September 30,
		2009			2008
Nonperforming loans as a percent of total loans		9.04	%		11.43	%
Nonperforming assets as a percent of total assets		9.31	%		11.48	%

4. Other Real Estate Owned

Other real estate owned (“OREO”) is comprised of real estate properties obtained in partial or total satisfaction of loan obligations. At September 30, 2009, OREO totaled $4.0 million which was comprised of one residential real estate lot obtained from the loan pools held for an average of ten months, thirty-eight residential real estate lots held for an average of eleven months, eleven residential properties held for an average of twelve months and one commercial property held for an average of seven months and recorded at estimated fair value less estimated selling costs. Changes in the value subsequent to transfer are recorded in noninterest expense along with direct operating expenses. Gains or losses not previously recognized resulting from the sale of OREO is recognized in noninterest expense on the date of sale. During the nine-months ended September 30, 2009, the Company, recorded $2.6 million in proceeds from sales which resulted in a $336,000 loss.

At the time of booking OREO, the Bank orders a current appraisal and books OREO at the lower of the carrying value or the fair market value less the cost to sell. OREO is actively marketed by professional real estate individuals in an attempt to sell parcels at their current market value. The Company is exposed to the weakening real estate conditions in the Florida markets including Orlando, Naples, Fort Myers and Tampa. With the general economic downturn, the Company may not be able to sell its OREO property at the current market value and may experience an increase in losses on the sale of OREO.

5. 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 three- and nine-month periods ended September 30, 2009 and 2008 due to the net losses incurred by the Company.

 

(continued)

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

6. Regulatory Capital

The Bank is required to maintain certain minimum regulatory capital requirements. At September 30, 2009, the Bank was considered less than adequately capitalized. The following is a summary at September 30, 2009, of the regulatory capital requirements:

 

		Actual			Adequately Capitalized			Well Capitalized
Total capital to risk-weighted assets		6.90	%		8.00	%		10.00	%
Tier 1 capital to risk-weighted assets		5.68	%		4.00	%		6.00	%
Tier 1 capital to total assets - leverage ratio		3.76	%		4.00	%		5.00	%

7. Share-Based Compensation

In 2004, the Company adopted three stock option plans. The Employees’ Stock Option Plan is for the benefit of officers and other key employees of the Holding Company, the Bank and CLCC. Stock options are granted at an exercise price equal to or greater than the fair market value of the common stock on the date of grant. These options have ten year terms and vest 20% a year over a five year period.

The Directors’ Stock Option Plan is for the benefit of directors of the Holding Company, the Bank and CLCC. Stock options are granted at an exercise price equal to or greater than the fair market value of the common stock on the date of grant. These options have ten year terms and have various vesting schedules.

The Advisory Directors’ Stock Option Plan is for the benefit of advisory directors of the Company. Stock options are granted at an exercise price equal to or greater than the fair market value of the common stock on the date of grant. These options have six year terms and begin vesting one year after the date of grant at 25% a year over a four year period.

 

(continued)

 

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MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

7. Share-Based Compensation, Continued

 

The plans were amended in 2007 to increase the size of the three Company plans so that the number of shares of common stock reserved for issuance under all three Company plans is a collective amount equal to 15% of the common stock outstanding, up to a maximum of 1,500,000 shares. At September 30, 2009, an aggregate of 37,618 options remain available for grant in all three plans.

A summary of the plans is as follows (in thousands, except for share and per share information):

 

		Number of Shares			Weighted- Average Per Share Exercise Price			Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
The Employees’ Plan:
Options outstanding at December 31, 2008		219,750			$	6.01
Options granted		30,000				4.11
Options forfeited		(46,750	)			8.70
Options outstanding at September 30, 2009		203,000			$	5.11		8.53		$	—
Options exercisable at September 30, 2009		59,700			$	6.19		7.52		$	—
The Directors’ Plan:
Options outstanding at December 31, 2008		90,000				7.12
Options granted		26,250				4.18
Options forfeited		(37,500	)			5.99
Options outstanding at September 30, 2009		78,750			$	6.68		7.74		$	—
Options exercisable at September 30, 2009		28,500			$	7.23		5.52		$	—
The Advisory Directors’ Plan:
Options outstanding at December 31, 2008		20,814				8.57
Options granted		10,000				4.16
Options forfeited		(5,438	)			8.34
Options outstanding at September 30, 2009		25,376			$	6.88		3.29		$	—
Options exercisable at September 30, 2009		12,366			$	7.63		1.24		$	—

There were no options exercised during the nine-months ended September 30, 2009. At September 30, 2009, there was $296,000 of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a period of 4.7 years. The total fair value of shares vested and recognized as compensation expense was $101,000 for the nine-month period ended September 30, 2009, and a $33,500 income tax benefit was recognized.

 

(continued)

 

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

7. Share-Based Compensation, Continued

 

There were no options granted during the three-months ended September 30, 2009. The fair value of each option granted for the three- and nine-months ended September 30, 2008 and the nine-months ended September 30, 2009 are estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions ($ in thousands):

 

		Three Months Ended September 30, 2008				Nine Months Ended September 30,
						2009			2008
Weighted-average risk-free interest rate			3.82	%		4.18	%		3.91	%
Weighted-average dividend yield			—	%		—	%		—	%
Weighted-average expected stock volatility			6.42	%		10.12	%		6.42	%
Expected life in years			6.5 years			6.2 years			6.5 years
Per share weighted-average grant-date fair value of options issued during the period		$	1.53			1.11			1.53

The Company examined its historical pattern of option exercises in an effort to determine if there were any pattern based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance in Staff Accounting Bulletin No. 107 to determine the estimated life of options issued. Expected volatility is based on a peer group of the Company. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield assumption is based on the Company’s history and expectation of dividend payments.

8. Fair Value Measurements

Our listing of assets subject to fair value measurements on a recurring basis are as follows (in thousands):

 

					Fair Value Measurements at Reporting Date Using
		Fair Value as of September 30, 2009			Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities		$	13,925		—		13,925		—

 

(continued)

 

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

8. Fair Value Measurements, Continued

 

Assets measured at fair value on a nonrecurring basis are summarized below (in thousands):

 

		Net Carrying Value at September 30, 2009									Total Losses		Losses Recorded in Operations During 2009
		Total			Level 1		Level 2		Level 3
Impaired loans (1)		$	4,219		—		—		4,219		4,102		3,847
Other real estate owned		$	3,958		—		—		3,958		1,242		1,242

 

(1)	In addition, loans with a carrying value of $3.8 million were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

The estimated fair values of the Company’s financial instruments were as follows (in thousands):

 

		At September 30, 2009					At December 31, 2008
		Carrying Amount			Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents		$	10,736		10,736		9,211		9,211
Security available for sale		$	13,925		13,925		—		—
Securities held to maturity		$	—		—		8,147		8,256
Loans held for sale		$	1,548		1,605		—		—
Loans, net		$	99,915		102,107		106,554		107,777
Accrued interest receivable		$	427		427		413		413
Federal Reserve Bank stock		$	368		368		452		452
Federal Home Loan Bank Stock		$	238		238		262		262
Financial liabilities:
Deposits		$	124,466		124,762		116,100		116,794
Repurchase agreements		$	117		117		931		931
Off-balance sheet financial instruments		$	—		—		—		—

9. Preferred Stock

On February 28, 2009, Marco Community Bancorp, Inc. (the “Company”) completed an offering of its Series C Preferred Stock (“Preferred Stock”) and warrants to purchase 290,000 shares of common stock (“Warrants”) by issuing 202 shares of the Preferred Stock and Warrants (the “Units”). These warrants have an exercise price of $3.75, $4.50 and $5.25 on or before December 31, 2009, 2010 and 2011, respectively. The offering raised $1,515,000 in gross proceeds, at an offering price of $7,500 per Unit. Directors of the Company and/or its subsidiaries purchased in excess of 53% of the shares sold.

 

(continued)

 

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Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

 

9. Preferred Stock, Continued

 

In 2007, the Company issued ninety-six shares of Series B Preferred Stock (“Preferred Stock”). The shares have no voting rights, but have a liquidation preference value of $51,000 per share. Cash dividends are payable in arrears within the first ten days of each March and September. The dividends are not cumulative, are payable semiannually at an annual rate of $2,900 per share and are prorated for any partial period. At the Company’s discretion, on any dividend payment date occurring at least two years after issuance, each share of Preferred Stock is mandatorily convertible into 6,000 shares of common stock; provided, however, that the Company may also convert the Preferred Stock upon any change in control.

10. Deferred Tax Asset

The Company has recorded a deferred tax asset to recognize the future income tax benefit of operating losses incurred for tax years 2009, 2008 and 2007. Management believes that the tax benefits on the net operating loss carry forwards will be utilized when the Company returns to profitability. The net operating losses can be carried forward for up to 20 years and do not begin to expire until 2027. Management believes that based on its realistic forecast and five year budget, the Company will return to profitability beginning in 2010.

Management considered the cumulative losses in 2009, 2008 and 2007 when determining whether or not to place a valuation allowance on the deferred tax asset. The economic conditions and the Company’s level of nonperforming assets were taken into consideration as well.

However, management believed that the negative evidence was outweighed by certain positive evidence. The Company has a prior history of earnings outside of the recent losses and believes that changes have been made to allow the Company to return to an earnings position: payroll has been reduced; operating costs have been reduced for a substantial savings; and loan pools that were the direct cause of a substantial amount of the cumulative losses experienced over the last three years have been isolated and for the most part have been written-off. Based on the above analysis, management believes it is more likely than not that the Company would realize the deferred tax asset through future operating income.

11. Written Agreement

On August 14, 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-Q, as well as other loan quality issues. Since entering into the Written Agreement, the Company has made certain material changes to its operations. These changes include: confining its lending activities to Collier County; increasing the level of detail and analysis contained in its loan underwriting files; restructuring its loan policy and methodology for determining its allowance for loan losses; broadening marketing efforts to utilize more forms of media and to emphasize increased community involvement; cross-training employees to increase their skill sets and better serve the Company’s customers; and increasing lobby hours for the convenience of customers.

 

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Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith PA, the Company’s independent registered public accounting firm, have made a limited review of the financial data as of September 30, 2009, and for the three- and nine-month periods ended September 30, 2009 and 2008 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.

 

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Report of Independent Registered Public Accounting Firm

Marco Community Bancorp, Inc.

Marco Island, Florida:

We have reviewed the accompanying interim condensed consolidated balance sheet of Marco Community Bancorp, Inc. and Subsidiaries (the “Company”) as of September 30, 2009, the related interim condensed consolidated statements of operations for the three- and nine-month periods ended September 30, 2009 and 2008 and the related interim condensed consolidated statements of cash flows and changes in stockholders’ equity for the nine-month periods ended September 30, 2009 and 2008. These interim condensed financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2008, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 26, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA

Tampa, Florida

November 13, 2009

 

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Item 2.

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

Comparison of September 30, 2009 and December 31, 2008

General

Marco Community 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”) (collectively the “Company”). The Holding Company’s only business is the ownership and operation of the Bank and CLCC. The Bank is a Florida state-chartered commercial bank and its deposits are insured up to the applicable limits 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.

The Company’s operating and capital requirements, the losses due to recent increases in nonperforming loans and declining net interest margin are factors management considered when evaluating the Company’s ability to continue as a going concern.

Management is evaluating all potential sources of capital to meet the Company’s capital requirements, including entering into other financing arrangements and/or strategic alliances, and seeking recapitalization opportunities. There can be no assurance, however, that additional financing or recapitalization plans will be available or forthcoming and, if available, can be obtained or undertaken on terms favorable to the Company or its existing shareholders. Further there is no assurance that any acceptable financing alternative or recapitalization plan would be successfully implemented, or receive regulatory approval. However, even if no additional capital is obtained, management expects the Company to be adequately capitalized at September 30, 2010, based on detailed financial projections.

The Company is exposed to the weakened real estate conditions in the Florida markets of Naples and Fort Myers. The Company believes the challenging market conditions are primarily attributable to a regional softening in demand for real estate assets as well as an oversupply of residential and commercial properties, particularly within the Company’s local markets. However, existing home sales by area Realtors have increased substantially during the last two quarters, and this decrement in existing real estate inventories, if sustained, may drive improvement in the regional economy during the coming year.

The September 2009 report by the Regional Economic Research Institute of Florida Gulf Coast University (http://www.fgcu.edu/cob/reri/indicators/indicators200909.pdf) noted that its regional economic indicators continue to show the impact of the slowdown in the local economy in the form of low retail sales, high unemployment rates, low permitting levels, and low inflation rates. Unemployment in the Southwest Florida region reached 13.1 percent in July, up from 13.0 percent in June. Tourism revenues, an important component of the regional economy, were down nearly 10 percent from the prior year throughout the region. Previous reports noted that unemployment rates for the region have continued to rise and it is expected that unemployment levels will remain relatively high through 2010.

 

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Item 2.

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

 

There are some positive indications for the regional economy in that existing home sales are continuing at higher levels reflecting more affordable price levels, and sales have increased substantially during the last two quarters. Single-family home permits issued have increased over that of the same quarter in the previous year, but as noted in the report, remained historically low for the region as a result of the economic recession and a large inventory of lower-priced existing homes which are selling below replacement costs.

In response to the general economic down turn, the Company has focused its lending resources upon nominal loan growth, while specifically addressing any asset challenges presented by its existing loan portfolios. Pricing of loans remains competitive with current lending initiatives focused primarily upon Marco Island opportunities.

Liquidity and Capital Resources

Liquidity

Liquidity management involves monitoring sources and uses of funds in order to meet day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Asset liquidity is provided by cash and assets which are readily marketable, which can be pledged, or which will mature in the near future.

In addition to deposits, within its geographic market place, the sources of funds available to the Banks for lending and other business purposes include loan repayments, sales of loans and securities, and contributions from the Holding Company. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by competition, 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 and may be used to fund the origination of mortgage loans designated to be sold in the secondary market.

At September 30, 2009, the Company had no outstanding borrowings from any correspondent Bank and there was $7.0 million in other available lines from correspondents.

Management regularly reviews the Bank’s liquidity position and has implemented internal policies that establish guidelines for sources of asset-backed liquidity and limit the total amount of purchased funds used to support the balance sheet and funding from non-core sources.

 

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Item 2.

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

 

Capital

The Federal Reserve Bank and other bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. Under the risk-based standard, capital is classified into two tiers. Tier 1 capital consists of common stockholders’ equity, excluding the unrealized gain (loss) on available for sale securities, minus certain intangible assets. Tier 2 capital consists of the general allowance for credit losses subject to certain limitations. An institution’s qualifying capital base for purposes of its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital. Bank holding companies and banks are also required to maintain capital at a minimum level based on total average assets as defined by a leverage ratio.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include unused lines of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for unused lines of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total 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 counterparty.

Unused lines of credit typically result in loans with a market interest rate when funded.

 

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Item 2.

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

 

A summary of the Company’s financial instruments with off-balance sheet risk at September 30, 2009, follows (in thousands):

 

		Contract Amount
Unused lines of credit		$	12,474
Performance standby letters of credit			—
		$	12,474

Management believes that the Company has adequate resources to fund all of its commitments.

Selected Ratios

The following table shows selected ratios for the periods ended or at the dates indicated:

 

		Nine Months Ended September 30, 2009			Year Ended December 31, 2008			Nine Months Ended September 30, 2008
Average equity as a percentage of average assets		12.36	%		14.36	%		14.27	%
Total equity to total assets at end of period		10.76	%		13.61	%		14.75	%
Return on average assets (1)		(4.00	)%		(3.44	)%		(2.53	)%
Return on average common stockholders equity (1)		(52.26	)%		(32.14	)%		(23.00	)%
Noninterest expense to average assets (1)		5.31	%		3.59	%		3.89	%

 

(1)	Annualized for the nine-months ended September 30, 2009 and 2008.

 

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Results of Operations

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown.

 

		Three Months Ended September 30,
		2009									2008
		Average Balance			Interest and Dividends			Average Yield/ Cost			Average Balance			Interest And Dividends			Average Yield/ Cost
		($ in thousands)
Interest-earning assets:
Loans		$	109,465			1,415		5.13	%		$	110,609			1,648		5.91	%
Investment securities			11,486			90		3.11				10,823			133		4.88
Other interest-earning assets (1)			12,217			8		0.26				11,613			67		2.29
Total interest-earning assets			133,168			1,513		4.51				133,045			1,848		5.51
Noninterest-earning assets			9,685									6,515
Total assets		$	142,853								$	139,560
Interest-bearing liabilities:
Savings			27,742			127		1.82				7,854			40		2.02
Money market and NOW deposits			38,299			117		1.21				29,251			132		1.79
Time deposits			55,890			466		3.31				76,440			779		4.04
Total interest-bearing deposits			121,931			710		2.31				113,545			951		3.32
Repurchase agreements			147			1		2.70				1,050			7		2.64
Total interest-bearing liabilities			122,078			711		2.31				114,595			958		3.32
Noninterest-bearing liabilities			5,902									4,625
Stockholders’ equity			14,873									20,340
Total liabilities and stockholders’ equity		$	142,853								$	139,560
Net interest income					$	802								$	890
Interest-rate spread (2)								2.20	%								2.19	%
Net interest-earning assets, net margin (3)		$	11,090					2.39	%		$	18,450					2.65	%
Ratio of interest-earning assets to interest-bearing liabilities			1.09									1.16

 

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

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

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

 

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The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown.

 

		Nine Months Ended September 30,
		2009									2008
		Average Balance			Interest and Dividends			Average Yield/ Cost			Average Balance			Interest And Dividends			Average Yield/ Cost
		($ in thousands)
Interest-earning assets:
Loans		$	115,247			4,578		5.31	%		$	116,996			5,497		6.26	%
Investment securities			9,525			253		3.55				8,832			334		5.04
Other interest-earning assets (1)			7,273			23		0.42				17,518			339		2.58
Total interest-earning assets			132,045			4,854		4.91				143,346			6,170		5.73
Noninterest-earning assets			11,537									8,202
Total assets		$	143,582								$	151,548
Interest-bearing liabilities:
Savings			16,488			221		1.79				9,278			139		2.00
Money market and NOW deposits			36,137			344		1.27				30,730			412		1.79
Time deposits			66,702			1,766		3.54				83,407			2,791		4.46
Total interest-bearing deposits			119,327			2,331		2.61				123,415			3,342		3.61
Repurchase agreements			426			5		1.57				986			23		3.11
Total interest-bearing liabilities			119,753			2,336		2.61				124,401			3,365		3.60
Noninterest-bearing liabilities			6,605									5,522
Stockholders’ equity			17,224									21,625
Total liabilities and stockholders’ equity		$	143,582								$	151,548
Net interest income					$	2,518								$	2,805
Interest-rate spread (2)								2.30	%								2.13	%
Net interest-earning assets, net margin (3)		$	12,292					2.55	%		$	18,945					2.61	%
Ratio of interest-earning assets to interest-bearing liabilities			1.10									1.15

 

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

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

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

 

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Comparison of the Three-Month Periods Ended September 30, 2009 and 2008

General. Net losses for the three-months ended September 30, 2009 were $1.4 million or a net loss of $0.43 per basic and diluted common share compared to a net loss of $564,000 or a net loss of $0.17 per basic and diluted common share for the three-months ended September 30, 2008. The increase in net loss is primarily due to the writedowns on real estate owned of $1,662,000 and losses on the sale of real estate owned of $164,000.

Interest Income and Expense. Interest income totaled $1.5 million for the three-months ended September 30, 2009 compared to $1.8 million for the three-months ended September 30, 2008. Interest income on loans decreased $233,000 due to lower yields in the portfolio and a lower balance of interest-earning assets.

Interest expense decreased to $711,000 for the three-months ended September 30, 2009 compared to $958,000, for the three-months ended September 30, 2008. Interest expense decreased primarily due to a decrease in the weighted average interest rate paid on deposits, which was somewhat offset by an increase in the balance of interest bearing liabilities.

Provision for Loan Losses. The provision for loan losses is determined based on management’s estimates of the appropriate level of allowance for loan losses needed to absorb probable losses inherent in the existing loan portfolio, after giving consideration to charge-offs and recoveries for the period.

The provision for loan losses was $49,000 for the three-months ended September 30, 2009 compared to $150,000 for the nine-months ended September 30, 2008. The allowance for loan losses is $1.9 million at September 30, 2009.

Real estate loans continue to be the primary source of loan charge-offs. The Company charged-off $4.5 million during the three-month period ended September 30, 2009, compared to $531,000 during the comparable 2008 period.

While management believes that its allowance for loan losses is adequate as of September 30, 2009, future adjustments to the Company’s allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.

Noninterest Income. Noninterest income increased to $107,000 during the three-month period ended September 30, 2009 compared to $75,000 for the same period in 2008 primarily due to an increase in the gain on sale of residential mortgage loans.

Noninterest Expenses. Noninterest expenses increased to $3.1 million during the three-month period ended September 30, 2009 compared to $1.6 million for the same period in 2008. Noninterest expense increased primarily due to an increase in writedowns on other real estate owned, losses on sale of other real estate and regulatory assessments.

Income Taxes. The Company recorded an income tax benefit of $858,000 for the three-month period ended September 30, 2009 (an effective rate of 37.6%) compared to an income tax benefit of $299,000 for the 2008 period (an effective rate of 37.7%).

 

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Comparison of the Nine-Month Periods Ended September 30, 2009 and 2008

General. Net losses for the nine-months ended September 30, 2009 were $4.3 million or a net loss of $1.35 per basic and diluted common share compared to a net loss of $3.1 million or a net loss of $0.96 per basic and diluted common share for the nine-months ended September 30, 2008.

Interest Income and Expense. Interest income decreased to $4.9 million for the nine-months ended September 30, 2009 from $6.2 million for the nine-months ended September 30, 2008. Interest income decreased primarily due to lower yields and a lower balance of interest-earning assets.

Interest expense decreased to $2.3 million for the nine-months ended September 30, 2009 compared to $3.4 million, for the nine-months ended September 30, 2008. Interest expense decreased due to a decrease in the average balance of deposits in 2009 and a decrease in the weighted average interest rate paid on deposits.

Provision for Loan Losses. The provision for loan losses is determined based upon management’s estimates of the appropriate level of allowance for loan losses needed to absorb probable losses inherent in the existing loan portfolio, after giving consideration to charge-offs and recoveries during the period.

The provision for loan losses was $4.3 million for the nine-months ended September 30, 2009, compared to $3.2 million for the nine-months ended September 30, 2008. The Company wrote down $4.3 million in impaired loans reducing the balance of allowance for loan losses to $1.9 million at September 30, 2009. The primary reason for the increase in provision and the decrease in allowance resulted from a review of the collectability of nonperforming loans in the Bank’s portfolio, and the subsequent decision to write-off as losses certain assets for which there existed a diminished probability of collection.

Real estate loans continue to be the primary source of loan charge-offs. The Company charged-off $8.9 million for the nine-month period ended September 30, 2009, compared to $1.3 million for the comparable 2008 period.

While management believes that its allowance for loan losses is adequate as of September 30, 2009, future adjustments to the Company’s allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.

Noninterest Income. Noninterest income increased to $600,000 during the nine-month period ended September 30, 2009 compared to $165,000 for the same period in 2008 primarily due to an increase in the gain on sale of residential mortgage loans.

Noninterest Expenses. Noninterest expenses increased to $5.7 million during the nine-month period ended September 30, 2009 compared to $4.4 million for the same period in 2008. Noninterest expense increased primarily due to an increase in writedowns on other real estate owned, losses on sale of other real estate owned and the increased regulatory assessments which was somewhat offset by a decrease in salaries and employee benefits, professional fees and other real estate owned expense.

Income Taxes. The Company recorded an income tax benefit of $2.6 million for the nine-month period ended September 30, 2009 (an effective rate of 37.6%) compared to an income tax benefit of $1.7 million for the 2008 period (an effective rate of 37.6%).

 

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Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that the Company 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 Principal Executive Officer and Principal Financial Officer concluded that, subject to the limitations noted below, the Company’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.

(b) Changes in Internal Controls

We have made no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2009, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

(c) Limitations on the Effectiveness of Controls

Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error 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 control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company 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.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

On Thursday, August 22,2008, Marco Community Bancorp, Inc’s (the “Company”) wholly owned subsidiary, Marco Community Bank (the “Bank”), instituted an action (Marco Community Bank v. Atlantic Capital Associates, Inc., Florida Capital Bank N.A. and Allen C. Ewing & Co., Case No. 08-6362 CA) 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 Bank alleges 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 alleges 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 purchases by the Bank of these loan pools.

The Bank has instituted the action alleging violations of the Florida Securities and Investor Protection Act, breach of contract and negligence. The Bank is seeking to recover damages sustained, pre-judgment interest, attorney’s fees and costs in connection with its purchase of more than $19 million of loan pools from the Defendants.

The court recently ruled that the lawsuit against Florida Capital Bank may not be maintained and entered an order dismissing the case. Marco Community Bank is considering whether to appeal that order. As to the remaining two defendants, the case continues to proceed.

 

Item 5.

Other Information

None.

 

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Item 6.

Exhibits

(a) Exhibits

The exhibits denominated with (a) were filed 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 10-K which was filed with the Securities and Exchange Commission on March 19, 2008, those denominated with (d) were filed 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 (e) were file with the Company’s Form 10-K which was filed with the Securities and Exchange Commission on March 31, 2009.

 

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		Employees’ Stock Option Plan, as amended
(d) 10.2		Directors’ Stock Option Plan, as amended
(d) 10.3		Advisory Directors’ Stock Option Plan, as amended
(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 Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				MARCO COMMUNITY BANCORP, INC.
				(Registrant)
Date: November 10, 2009				By:		/S/    RICHARD STORM, JR.
						Richard Storm, Jr., Principal Executive Officer
Date: November 10, 2009				By:		/S/    THOMAS J. MITCHUSSON
						Thomas J. Mitchusson, Senior Vice President and Principal Financial Officer

 

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