Marco Community Bancorp 10-Q 2007 Q3 Quarterly report

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, 2007

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

For the transition period from            to            

Commission file number 333-103651

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act). check one:

Large Accelerated File  ¨    Accelerated Filer  ¨    Non-Accelerated Filer  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	3,222,421 shares
(class)	Outstanding at October 31, 2007

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - At September 30, 2007 (unaudited) and at December 31, 2006	2
Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 2007 and 2006 (unaudited)	3
Condensed Consolidated Statements of Changes in Stockholders' Equity - Nine Months ended September 30, 2007 and 2006 (unaudited)	4
Condensed Consolidated Statements of Cash Flows – Nine Months ended September 30, 2007 and 2006 (unaudited)	5
Notes to Condensed Consolidated Financial Statements (unaudited)	6-11
Review by Independent Registered Public Accounting Firm	12
Report of Independent Registered Public Accounting Firm	13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	14-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	21
Item 1.A. Risk Factors	21-22
Item 5. Other Information	23
Item 6. Exhibits	24
SIGNATURES	25

1

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, 2007			December 31, 2006
	(Unaudited)
Assets
Cash and due from banks	$	2,481		2,437
Federal funds sold		7,391		22,327
Interest-bearing deposits		2,222		2,141
Total cash and cash equivalents		12,094		26,905
Securities held to maturity (fair value of $5,842 and $2,323 in 2007 and 2006)		5,822		2,330
Loans, net of allowance for loan losses of $3,342 in 2007 and $2,047 in 2006		125,622		130,988
Other real estate owned		1,871		—
Premises and equipment, net		3,428		3,590
Federal Reserve Bank stock, at cost		424		424
Federal Home Loan Bank stock, at cost		293		345
Accrued interest receivable		703		887
Deferred income taxes		2,214		228
Other assets		893		303
Total assets	$	153,364		166,000
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits		3,821		4,002
Savings, NOW and money-market deposits		37,923		48,594
Time deposits		90,039		89,697
Total deposits		131,783		142,293
Repurchase agreements		529		—
Official checks		359		389
Accrued interest payable and other liabilities		730		640
Total liabilities		133,401		143,322
Stockholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $.01 par value; 9,000,000 shares authorized, 3,217,921 and 3,156,009 shares issued and outstanding in 2007 and 2006		32		32
Additional paid-in capital		20,857		20,165
(Accumulated deficit) retained earnings		(926	)	2,481
Total stockholders' equity		19,963		22,678
Total liabilities and stockholders' equity	$	153,364		166,000

See Accompanying Notes to Condensed Consolidated Financial Statements.

2

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,
	2007			2006	2007		2006
Interest income:
Loans	$	2,338		2,721	7,647		8,164
Securities		78		12	214		12
Other interest-earning assets		204		310	877		892
Total interest income		2,620		3,043	8,738		9,068
Interest expense:
Deposits		1,452		1,273	4,421		3,580
Other borrowings		5		—	8		—
Total interest expense		1,457		1,273	4,429		3,580
Net interest income		1,163		1,770	4,309		5,488
Provision for loan losses		455		—	5,750		348
Net interest income (expense) after provision for loan losses		708		1,770	(1,441	)	5,140
Noninterest income:
Service charges on deposit accounts		6		7	19		23
CLCC loan brokerage fees		—		—	828		164
Other service charges and fees		40		52	137		150
Total noninterest income		46		59	984		337
Noninterest expenses:
Salaries and employee benefits		749		701	2,268		1,876
Occupancy and equipment		161		119	497		388
Advertising		25		25	148		122
Insurance		13		10	43		27
Data processing		61		51	189		151
Telephone		21		12	63		34
Professional fees		169		81	310		196
Stationery and supplies		9		10	35		31
Other real estate owned		357		—	393		—
Other		126		136	392		412
Total noninterest expenses		1,691		1,145	4,338		3,237
(Loss) earnings before income taxes		(937	)	684	(4,795	)	2,240
Income tax (benefit) provision		(335	)	282	(1,766	)	879
Net (loss) earnings	$	(602	)	402	(3,029	)	1,361
Net (loss) earnings per share, basic	$	(0.19	)	0.13	(0.95	)	0.46
Weighted-average number of shares outstanding, basic		3,218		3,025	3,181		2,967
Net (loss) earnings per share, diluted	$	(0.19	)	0.13	(0.95	)	0.42
Weighted-average number of shares outstanding, diluted		3,218		3,203	3,181		3,237
Dividends per share	$	—		—	0.12		0.10

See Accompanying Notes to Condensed Consolidated Financial Statements.

3

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Nine Months Ended September 30, 2007 and 2006

($ in thousands)

	Common Stock		Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)		Total Stockholders' Equity
Balance at December 31, 2005	$	28	17,420	924		18,372
Exercise of stock warrants (194,823 shares) (unaudited)		2	1,557	—		1,559
Exercise of stock options (50,773 shares), including tax benefit of $ 178 (unaudited)		1	483	—		484
Share-based compensation (unaudited)		—	109	—		109
Cash dividends paid (unaudited)		—	—	(297	)	(297	)
Net earnings (unaudited)		—	—	1,361		1,361
Balance at September 30, 2006 (unaudited)	$	31	19,569	1,988		21,588
Balance at December 31, 2006	$	32	20,165	2,481		22,678
Exercise of stock options (61,912 shares), including tax benefit of $ 220 (unaudited)		—	609	—		609
Share-based compensation (unaudited)		—	83	—		83
Cash dividends paid (unaudited)		—	—	(378	)	(378	)
Net loss (unaudited)		—	—	(3,029	)	(3,029	)
Balance at September 30, 2007 (unaudited)	$	32	20,857	(926	)	19,963

See Accompanying Notes to Condensed Consolidated Financial Statements.

4

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net (loss) earnings	$	(3,029	)	1,361
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation		210		211
Share-based compensation		83		109
Provision for loan losses		5,750		348
Deferred income tax benefit		(1,986	)	—
Amortization of loan fees and costs, net		31		(26	)
Write-down of other real estate owned		340		—
Decrease in accrued interest receivable		184		4
Increase in other assets		(590	)	(138	)
Increase in official checks, accrued interest payable and other liabilities		60		776
Net cash provided by operating activities		1,053		2,645
Cash flows from investing activities:
Purchase of securities held to maturity		(3,924	)	(2,330	)
Principal payment of securities held to maturity		432		—
Redemption of Federal Home Loan Bank Stock		52		—
Purchase of Federal Reserve Bank Stock		—		(30	)
Purchase of Federal Home Loan Bank Stock		—		(345	)
Net (increase) decrease in loans		(2,626	)	3,710
Purchase of premises and equipment		(48	)	(110	)
Net cash provided by (used in) investing activities		(6,114	)	895
Cash flows from financing activities:
Net decrease in deposits		(10,510	)	(3,843	)
Net increase in repurchase agreements		529		—
Net proceeds from exercise of common stock warrants and options		389		1,865
Cash dividends paid		(378	)	(297	)
Tax benefit from exercise of stock options		220		178
Net cash (used in) provided by financing activities		(9,750	)	(2,097	)
Net (decrease) increase in cash and cash equivalents		(14,811	)	1,443
Cash and cash equivalents at beginning of period		26,905		19,341
Cash and cash equivalents at end of period	$	12,094		20,784
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	4,224		3,257
Income taxes	$	660		1,190
Noncash transaction-Transfer of loans to other real estate owned	$	2,211		—

See Accompanying Notes to Condensed Consolidated Financial Statements.

5

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 and its loan production office in Fort Myers, 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.

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, 2007, the results of operations for the three- and nine-month periods ended September 30, 2007 and 2006 and cash flows for the nine month periods ended September 30, 2007 and 2006. The results of operations for the three- and nine- month periods ended September 30, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007.

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,
	2007		2006	2007	2006
Balance at end of period	$	13,533	741	13,533	741
Total related allowance for losses	$	1,189	63	1,189	63
Average investment in impaired loans	$	11,681	741	5,838	494
Interest income recognized on impaired loans	$	—	—	—	—
Interest income received on impaired loans	$	—	—	—	—

At September 30, 2007 the Company had $14.8 million in nonaccrual loans and no loans which were over ninety days past due and still accruing interest. At September 30, 2006, the Company had no nonaccrual loans or loans which were ninety days past due but still accruing interest.

	(continued)
6

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,
	2007			2006	2007		2006
Beginning balance	$	2,961		2,047	2,047		1,699
Charge-offs		(74	)	—	(4,455	)	—
Provision for loan losses		455		—	5,750		348
Ending balance	$	3,342		2,047	3,342		2,047

3. Earnings (Loss) Per Share (“EPS”)

Earnings (loss) per share (“EPS”) of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options are not considered dilutive securities for the three and nine month periods ended September 30, 2007 due to the net losses incurred by the Company. Outstanding stock options and warrants are considered dilutive securities for the three and nine month periods ended September 30, 2006, for the purposes of calculating diluted EPS which is computed using the treasury stock method. The following table presents the calculations of EPS (in thousands, except for per share amounts).

	2007							2006
	Earnings			Weighted- Average Shares	Per Share Amount			Earnings		Weighted- Average Shares	Per Share Amount
Three Months Ended September 30:
Basic EPS-
Net (loss) earnings available to common stockholders	$	(602	)	3,218	$	(0.19	)	$	402	3,025	$	0.13
Effect of dilutive securities-
Incremental shares from assumed conversion of options and warrants				—						178
Diluted EPS-
Net (loss) earnings available to common stockholders and assumed conversions	$	(602	)	3,218	$	(0.19	)	$	402	3,203	$	0.13
Nine Months Ended September 30:
Basic EPS-
Net (loss) earnings available to common stockholders	$	(3,029	)	3,181	$	(0.95	)	$	1,361	2,967	$	0.46
Effect of dilutive securities-
Incremental shares from assumed conversion of options and warrants				—						270
Diluted EPS-
Net (loss) earnings available to common stockholders and assumed conversions	$	(3,029	)	3,181	$	(0.95	)	$	1,361	3,237	$	0.42

(continued)

7

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. Earnings (Loss) Per Share (“EPS”), Continued

There were no options or warrants excluded from the calculation of earnings per share for the nine month period ended September 30, 2006. For the three month period ended September 30, 2006, the following options were excluded from the calculation of earnings per share due to the exercise price exceeding the average market price for the period:

Number of Outstanding Options	Exercise Price		Expiration Date
47,000	$	16.00	2016

4. Regulatory Capital

The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2007 of the regulatory capital requirements for a well capitalized financial institution and the Bank’s actual capital on a percentage basis:

	Actual		Regulatory Requirement
Total capital to risk-weighted assets	14.02	%	10.00	%
Tier I capital to risk-weighted assets	12.77	%	6.00	%
Tier I capital to total assets-leverage ratio	9.94	%	5.00	%

5. Share-Based Compensation

Prior to January 1, 2006, the Company’s employees and directors stock option plans were accounted for under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25 (Opinion 25),Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting Standards Board (FASB) Statement No. 123,Accounting for Stock-Based Compensation (as amended by Statement of Financial Accounting Standard (SFAS) No. 148,Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company’s consolidated statements of operations through December 31, 2005, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R),Share-Based Payment(SFAS 123(R)), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The directors advisory stock option plan is being expensed over the vesting period based on the fair value of the option on the date the options become fully vested. The Company recognizes stock-based compensation expense in salaries and employee benefits in the accompanying consolidated statements of operations on an accelerated basis over the vesting period.

(continued)

8

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5. Share-Based Compensation, Continued

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.

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, 2007, an aggregate of 151,477 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, 2006	147,850		$	9.83
Options exercised	(6,600	)		6.79
Options forfeited	(19,000	)		11.58
Options outstanding at September 30, 2007	122,250		$	9.72	7.60	$	258
Options exercisable at September 30, 2007	47,150		$	8.15	7.26	$	134
The Directors' Plan:
Options outstanding at December 31, 2006	101,250			6.25
Options granted	7,500			17.70
Options exercised	(52,500	)		6.24
Options outstanding at September 30, 2007	56,250		$	7.79	6.93	$	183
Options exercisable at September 30, 2007	48,750		$	6.26	6.50	$	183

(continued)

9

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5. Share-Based Compensation, Continued

	Number of Shares		Weighted- Average Per Share Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
The Advisory Directors' Plan:
Options outstanding at December 31, 2006	16,313		$	6.00
Options granted	6,000			13.79
Options exercised	(2,812	)		6.00
Options forfeited	(375	)		6.00
Options outstanding at September 30, 2007	19,126		$	8.44	1.67	$	53
Options exercisable at September 30, 2007	8,976		$	6.00	1.00	$	36

The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $699,000 and $570,000, respectively. There was a $220,000 tax benefit relating to the stock options exercised during the nine months ended September 30, 2007 and a $178,000 tax benefit for the nine months ended September 30, 2006. At September 30, 2007, there was $166,000 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 weighted-average period of 3.4 years. The total fair value of shares vested and recognized as compensation expense was $83,000 and $109,000 for each of the nine month periods ended September 30, 2007 and 2006, and no income tax benefit was recognized.

The fair value of each option granted for the three and nine months ended September 30, 2007 and 2006 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions ($ in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
Weighted-average risk-free interest rate		4.47	%	5.04	%	4.74	%	4.79	%
Weighted-average dividend yield		0.00	%	1.23	%	1.14	%	1.14	%
Weighted-average expected stock volatility		51.96	%	31.29	%	27.31	%	23.98	%
Expected life in years		6.5 years		6.5 years		6.5 years		6.5 years
Per share weighted-average grant- date fair value of options issued during the period	$	5.78		5.91		6.11		6.26

(continued)

10

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5. Share-Based Compensation, Continued

As part of its adoption of SFAS 123(R), 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 subsequent to the adoption of SFAS 123(R). Expected volatility is based on historical volatility of the Company’s stock. 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.

6. Cancellation of Stock Purchase and Sale Agreement

After extensive negotiations, the Company and a group of investors, led by members of the Barron Collier and Lutgert families, Kevin Hale and Michael Morris (the “Group”) concluded that both parties could not reach an accord on how to proceed under their Stock Purchase and Sale Agreement (“Agreement”) dated as of May 15, 2007. Accordingly, the Company and the Group executed a Termination Agreement dated September 13, 2007, which serves to terminate the Agreement. As a result of the termination, the Company has incurred no termination penalties, but has recovered a nominal sum as reimbursement for certain Agreement-related expenses. The transactions contemplated by the Agreement were part of a proposed plan of recapitalization, which would have resulted in a change in control of the Company and a cash dividend payable to current shareholders.

7. Preferred Stock Offering

On September 28, 2007, the Company commenced a private placement of its Series B Preferred Stock. The offering is expected to be completed by November 30, 2007. The capital will be used to support growth and development of the Company and the Bank.

11

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

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, 2007, and for the three- and nine- month periods ended September 30, 2007 and 2006 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.

12

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, 2007, the related interim condensed consolidated statements of earnings for the three- and nine- month periods ended September 30, 2007 and 2006 and the related interim condensed consolidated statements of cash flows and changes in stockholders’ equity for the nine-month periods ended September 30, 2007 and 2006. 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, 2006, and the related consolidated statements of earnings, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 19, 2007, 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, 2006, 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

October 29, 2007

13

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Comparison of September 30, 2007 and December 31, 2006

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.

Liquidity and Capital Resources

The Company’s primary source of cash during the nine months ended September 30, 2007 was from net cash provided by operating activities of $1.1 million. Cash was used primarily to fund the net decrease in deposits of $10.5 million and to originate loans, net of principal repayments totaling $2.6 million and purchase securities for $3.9 million. At September 30, 2007, the Bank exceeded its regulatory liquidity requirements.

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.

14

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations, Continued

Off-Balance Sheet Arrangements, Continued

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

A summary of the Company’s financial instruments with off-balance sheet risk at September 30, 2007 follows (in thousands):

	Contract Amount
Unused lines of credit	$	30,024

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

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

	Nine Months Ended September 30, 2007		Year Ended December 31, 2006		Nine Months Ended September 30, 2006
Average equity as a percentage of average assets	13.09	%	12.65	%	12.32	%
Total equity to total assets at end of period	13.02	%	13.66	%	13.70	%
Return on average assets (1)	(2.42	)%	1.14	%	1.12	%
Return on average equity (1)	(18.46	)%	8.98	%	9.07	%
Noninterest expense to average assets (1)	3.46	%	2.61	%	2.66	%

(1) Annualized for the nine months ended September 30, 2007 and 2006.

15

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

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,
	2007						2006
	Average Balance		Interest and Dividends		Average Yield/ Cost		Average Balance		Interest and Dividends		Average Yield/ Cost
	($ in thousands)
Interest-earning assets:
Loans	$	130,736		2,338	7.10	%	$	128,358		2,721	8.41	%
Investment securities		5,982		78	5.17			—		—	—
Other interest-earning assets (1)		15,483		204	5.23			26,476		322	4.83
Total interest-earning assets		152,201		2,620	6.83			154,834		3,043	7.80
Noninterest-earning assets		8,163						3,239
Total assets	$	160,364					$	158,073
Interest-bearing liabilities:
Savings		13,494		84	2.47			22,795		139	2.42
Money market and NOW deposits		27,330		153	2.22			23,834		114	1.90
Time deposits		93,580		1,215	5.15			84,410		1,020	4.79
Total interest-bearing deposits		134,404		1,452	4.29			131,039		1,273	3.85
Repurchase agreements		522		5	3.80			—		—	—
Total interest-bearing liabilities		134,926		1,457	4.28			131,039		1,273	3.85
Noninterest-bearing liabilities		5,187						5,952
Stockholders' equity		20,251						21,082
Total liabilities and stockholders' equity	$	160,364					$	158,073
Net interest income			$	1,163					$	1,770
Interest-rate spread (2)					2.55	%					3.95	%
Net interest-earning assets, net margin (3)	$	17,275			3.03	%	$	23,795			4.54	%
Ratio of interest-earning assets to interest-bearing liabilities		1.13						1.18

(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.

16

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

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,
	2007						2006
	Average Balance		Interest and Dividends		Average Yield/ Cost		Average Balance		Interest and Dividends		Average Yield/ Cost
	($ in thousands)
Interest-earning assets:
Loans	$	133,364		7,647	7.67	%	$	132,350		8,164	8.25	%
Investment securities		5,379		214	5.32			—		—	—
Other interest-earning assets (1)		22,449		877	5.22			27,187		904	4.45
Total interest-earning assets		161,192		8,738	7.25			159,537		9,068	7.60
Noninterest-earning assets		6,457						3,301
Total assets	$	167,649					$	162,838
Interest-bearing liabilities:
Savings		14,459		268	2.48			28,355		504	2.38
Money market and NOW deposits		31,057		558	2.40			25,074		277	1.48
Time deposits		93,994		3,595	5.11			81,877		2,799	4.57
Total interest-bearing deposits		139,510		4,421	4.24			135,306		3,580	3.54
Repurchase agreements		279		8	3.83			—		—	—
Total interest-bearing liabilities		139,789		4,429	4.24			135,306		3,580	3.54
Noninterest-bearing liabilities		5,922						7,475
Stockholders' equity		21,938						20,057
Total liabilities and stockholders' equity	$	167,649					$	162,838
Net interest income			$	4,309					$	5,488
Interest-rate spread (2)					3.01	%					4.06	%
Net interest-earning assets, net margin (3)	$	21,403			3.57	%	$	24,231			4.60	%
Ratio of interest-earning assets to interest-bearing liabilities		1.15						1.18

(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.

17

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Comparison of the Three-Month Periods Ended September 30, 2007 and 2006

General. Net losses for the three months ended September 30, 2007 were $602,000 or a net loss of $0.19 basic and diluted earnings per share compared to net earnings of $402,000 or $0.13 basic and diluted earnings per share for the three months ended September 30, 2006. The net loss is primarily due to the addition of $455,000 million to the Company’s allowance for loan loss and $357,000 in expenses related to other real estate owned.

Interest Income and Expense. Interest income totaled $2.6 million for the three months ended September 30, 2007 compared to $3.0 million for the three months ended September 30, 2006. Interest income on loans decreased to $383,000 due to lower yields in the portfolio as a result of higher levels of impaired loans.

Interest expense increased to $1.5 million for the three months ended September 30, 2007 compared to $1.3 million, for the three months ended September 30, 2006. Interest expense increased primarily due to an increase in the weighted interest rate paid on deposits and movement from lower yielding deposit products to higher yielding deposit products.

Provision for Loan Losses. The provision for loan losses was $455,000 for the three months ended September 30, 2007. The allowance for loan losses is $3.3 million at September 30, 2007. While management believes that its allowance for loan losses is adequate as of September 30, 2007, 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 was $46,000 during the three month period ended September 30, 2007 compared to $59,000 for the same period in 2006.

Noninterest Expenses. Noninterest expenses increased to $1.7 million during the three-month period ended September 30, 2007 compared to $1.1 million for the same period in 2006. Noninterest expense increased primarily due to an increase in other real estate owned expenses and in increase in professional fees, salaries and occupancy expense.

Income Taxes. The Company recorded an income tax benefit of $335,000 for the three-month period ended September 30, 2007 (an effective rate of 35.8%) compared to a provision for income tax of $282,000 for the 2006 period (an effective rate of 41.2%).

18

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006

General. Net losses for the nine months ended September 30, 2007 were $3.0 million or a net loss of $0.95 basic and diluted earnings per share compared to net earnings of $1.4 million or $0.46 basic and $0.42 diluted earnings per share for the nine months ended September 30, 2006. The Company’s net loss was primarily due to the addition of $5.8 million in the allowance for loan loss.

The provision for loan loss of $5.8 million was a result of recent regulatory examinations by the Florida Office of Financial Regulation and Federal Reserve Bank of Atlanta, following which the Bank agreed to take certain actions primarily related to certain loan pools it had purchased. Such pools consisted of short term loans to borrowers with high credit scores, which were used to finance the borrowers’ acquisition and renovation of residential 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, the Bank has further concluded that the likelihood of full repayment of those loans is unlikely. The Bank has $7.9 million of loans in those pools remaining after charging off $3.2 million from those pools. The Bank set up an additional allowance of $746,000 related to these loan pools. In addition, the Bank charged off $1.3 million in other loans classified as “loss.” The Bank believes that its Allowance for Loan and Lease Losses is sufficient to cover any additional charge offs in those loan pools. The Bank, however, is actively engaged in trying to mitigate any losses and to reduce the amount of adversely classified loans. The Bank is evaluating its options, including, but not limited to, selling the loan pools or accepting assignment of individual loans and pursuing refinancing or foreclosures.

Interest Income and Expense. Interest income decreased to $8.7 million for the nine months ended September 30, 2007 from $9.1 million for the nine months ended September 30, 2006. Interest income decreased primarily due to lower yields in the portfolio as a result of higher levels of impaired loans.

Interest expense increased to $4.4 million for the nine months ended September 30, 2007 compared to $3.6 million, for the nine months ended September 30, 2006. Interest expense increased due to an increase in the average balance in 2007 combined with an increase in the weighted-average interest rate paid on deposits.

Provision for Loan Losses. The provision for loan losses was $5.8 million for the nine months ended September 30, 2007 compared to $348,000 for the nine months ended September 30, 2006. The allowance for loan losses is $3.3 million at September 30, 2007. While management believes that its allowance for loan losses is adequate as of September 30, 2007, 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.

19

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006

Noninterest Income.Noninterest income increased to $984,000 during the nine month period ended September 30, 2007 compared $337,000 for the same period in 2006. An increase in loan brokerage fees from CLCC transactions accounted for the increase.

Noninterest Expenses. Noninterest expenses increased to $4.3 million during the nine-month period ended September 30, 2007 compared to $3.2 million for the same period in 2006. Noninterest expense increased primarily due to an increase in other real estate owned expenses in addition to salaries, occupancy and professional fees.

Income Taxes. The Company recorded an income tax benefit of $1.8 million for the nine-month period ended September 30, 2007 (an effective rate of 36.8%) compared to an income tax provision of $879,000 for the 2006 period (an effective rate of 39.2%).

20

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s market risk from December 31, 2006. For information regarding the Company’s market risk, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 4. Controls and Procedures

a. Evaluation of disclosure controls and procedures. The Company maintains 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 their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive and Chief Financial officers of the Company concluded that the Company’s disclosure controls and procedures were adequate.

b. Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial officers.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings to which Marco Community Bancorp, Inc. or its Subsidiaries is a party or to which any property is subject.

Item 1A. Risk Factors

Investing in our common stock involves risk. In addition to the other information set forth elsewhere in this Report and the Risk Factors contained in our Form 10-K for the year ended December 31, 2006, the following factors relating to us and our common stock should be carefully considered in deciding whether to invest in our common stock:

We have invested a significant amount in certain loan pools, which have deteriorated in quality since we purchased them.

We currently have $7.9 million in outstanding loans that were acquired in loan pool purchases. These short term loans are to borrowers with high credit scores and were used to finance the borrowers’ acquisition and renovation of residential 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. The Bank is actively engaged in trying to mitigate any 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. We may experience significant losses from loans in these pools.

21

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Item 1A. Risk Factors, Continued

We may not be able to comply with the Written Agreement.

Our wholly-owned subsidiary, Marco Community Bank, has entered into a Written Agreement with the Federal Reserve Bank of Atlanta and the Florida Office of Financial Regulation. Pursuant to this Written Agreement, we must address those regulatory agencies’ supervisory and regulatory concerns. If we can not satisfactorily do so, Marco Community Bank and its directors could be subject to civil money penalties.

Marco Community Bank is limited in its ability to pay dividends to the Company.

The Written Agreement also prohibits Marco Community Bank from paying dividends to the Company, without regulatory approval. Dividends from Marco Community Bank (and our other subsidiary, Commercial Lending Capital Corp.) are our primary potential sources of income. Therefore, the dividend restriction on Marco Community Bank may limit the amount of funds available to the Company with which it can pay dividends.

The slowing real estate market may adversely affect our business.

A significant portion of our loan portfolio consists of mortgages secured by real estate located in Collier County, Florida. Real estate values have recently decreased and real estate markets have recently slowed and may be further affected by, among other things, changes in national, regional or local economic conditions; fluctuations in interest rates and the availability of loans to potential purchasers; changes in the tax laws and other governmental statutes, regulations and policies; and acts of nature. If real estate prices continue to decline in any of these markets, the value of the real estate collateral securing our loans could be further reduced. Such a reduction in the value of our collateral could increase the number of non-performing loans and adversely affect our financial performance.

22

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

Item 5. Other Information

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. 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 its Board of Directors. The actions to be taken include 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; 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.

23

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

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 SB-2 SEC No. 333-117877 which was filed with the Securities and Exchange Commission on August 2, 2004, those denominated with (d) were filed with the Company’s Definitive Schedule 14-A which was filed with the Securities and Exchange Commission on March 21, 2007, those denominated with (e) were filed with the Company’s Form 8-K which was filed with the Securities and Exchange Commission on July 27, 2006 and those denominated with (f) were filed with the Company’s Form 10-Q which was filed with the Securities and Exchange Commission on August 14, 2007.

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.
(a) 4.1	Specimen Common Stock Certificate
(a) 4.2	2003 Warrant Plan
(e) 10.1	Employment Agreement with Howard B. Montgomery
(c) 10.2	Letter Agreement with Thomas M. Whelan
(d) 10.3	Employees’ Stock Option Plan, as amended
(d) 10.4	Directors’ Stock Option Plan, as amended
(d) 10.5	Advisory Directors’ Stock Option Plan, as amended
(e) 10.6	2006 Stock Repurchase Plan
(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

24

MARCO COMMUNITY BANCORP, INC. AND SUBSIDIARIES

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 13, 2007	By:	/s/ Richard Storm, Jr.
		Richard Storm, Jr., Chief Executive Officer
Date: November 13, 2007	By:	/s/ Thomas M. Whelan
		Thomas M. Whelan, Senior Vice President and Chief Financial Officer

25