----

----

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

| Large      accelerated filer                       | [   ] | Accelerated      filer         | [   ] |
|----------------------------------------------------|----------------------|--------------------------------|----------------------|
| Non-accelerated      filer                         | [   ] | Smaller      reporting company | [X]                  |
| (Do      not check if a smaller reporting company) |                 |                           |

| Common stock, par value $.01 per      share |   | 3,222,608 shares                  |
|---------------------------------------------|--------|-----------------------------------|
| (class)                                     |   | Outstanding      at July 31, 2008 |

----

D

| PART I. FINANCIAL INFORMATION                                                                                                  |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                |   |
| Item 1. Financial Statements                                                                                                   | Page   |
|                                                                                                                                |   |
| Condensed Consolidated Balance Sheets -At June 30, 2008      (unaudited) and at December 31, 2007                                   | 2      |
|                                                                                                                                |   |
| Condensed Consolidated Statements of Operations - Three and Six      Months ended June 30, 2008 and 2007 (unaudited)                | 3-4    |
|                                                                                                                                |   |
| Condensed Consolidated Statements of Changes in Stockholders'      Equity -Six Months ended June 30, 2008 and 2007      (unaudited) | 5      |
|                                                                                                                                |   |
| Condensed Consolidated Statements of Cash Flows – Six Months      ended June 30, 2008 and 2007 (unaudited)                    | 6-7    |
|                                                                                                                                |   |
| Notes to Condensed Consolidated Financial Statements      (unaudited)                                                               | 8-14   |
|                                                                                                                                |   |
| Review by Independent Registered Public Accounting      Firm                                                                        | 15     |
|                                                                                                                                |   |
| Report of Independent Registered Public Accounting      Firm                                                                        | 16     |
|                                                                                                                                |   |
| Item 2.  Management's Discussion and Analysis of      Financial Condition and Results of Operations                       | 17-22  |
|                                                                                                                                |   |
| Item 4T.  Controls and Procedures                                                                                              | 23     |
|                                                                                                                                |   |
| PART II. OTHER INFORMATION                                                                                                     |   |
|                                                                                                                                |   |
| Item 1.  Legal Proceedings                                                                                                | 24     |
|                                                                                                                                |   |
| Item 4.  Submission of Matters to a Vote of Security      Holders                                                         | 24     |
|                                                                                                                                |   |
| Item 5.  Other Information                                                                                                | 25     |
|                                                                                                                                |   |
| Item 6.  Exhibits                                                                                                         | 26     |
|                                                                                                                                |   |
| SIGNATURES                                                                                                                          | 27     |

----

Index

R

I

e

|                                                                  |   |        |    |   |         |   |
|-----------------------------------------------------------------------|--------|-------------|---------|--------|--------------|--------|
|                                                                  |   | June 30,    |    |   | December 31, |   |
| Assets                                                                |   | 2008        |    |   | 2007         |   |
|                                                                  |   | (Unaudited) |    |   |         |   |
|                                                                  |   |        |    |   |         |   |
| Cash      and due from banks                                          |   | $           | 2,952   |   |         |   | 2,479 |   |
| Federal      funds sold                                               |   |        | 9,286   |   |         |   | 8,695 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Total      cash and cash equivalents                                  |   |        | 12,238  |   |         |   | 11,174 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Security      available for sale                                      |   |        | 1,007   |   |         |   | 1,009 |   |
| Securities      held to maturity (fair value of $10,809 and $5,606)   |   |        | 10,923  |   |         |   | 5,561 |   |
| Loans,      net of allowance for loan losses of $6,050 in 2008        |   |        |    |   |         |   |   |   |
| and      $3,794 in 2007                                               |   |        | 110,099 |   |         |   | 119,876 |   |
| Other      real estate owned                                          |   |        | 3,218   |   |         |   | 2,857 |   |
| Premises      and equipment, net                                      |   |        | 3,237   |   |         |   | 3,360 |   |
| Federal      Reserve Bank stock, at cost                              |   |        | 527     |   |         |   | 468 |   |
| Federal      Home Loan Bank stock, at cost                            |   |        | 262     |   |         |   | 293 |   |
| Accrued      interest receivable                                      |   |        | 703     |   |         |   | 602 |   |
| Deferred      income taxes                                            |   |        | 3,452   |   |         |   | 2,020 |   |
| Other      assets                                                     |   |        | 146     |   |         |   | 2,311 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Total      assets                                                     |   | $           | 145,812 |   |         |   | 149,531 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Liabilities      and Stockholders' Equity                             |   |        |    |   |         |   |   |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Liabilities:                                                          |   |        |    |   |         |   |   |   |
| Noninterest-bearing      demand deposits                              |   |        | 3,775   |   |         |   | 4,068 |   |
| Savings,      NOW and money-market deposits                           |   |        | 38,747  |   |         |   | 38,342 |   |
| Time      deposits                                                    |   |        | 78,846  |   |         |   | 81,303 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Total      deposits                                                   |   |        | 121,368 |   |         |   | 123,713 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Repurchase      agreements                                            |   |        | 2,490   |   |         |   | 1,232 |   |
| Official      checks                                                  |   |        | 907     |   |         |   | 797 |   |
| Dividends      payable                                                |   |        | 93      |   |         |   | 35 |   |
| Accrued      interest payable and other liabilities                   |   |        | 661     |   |         |   | 936 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Total      liabilities                                                |   |        | 125,519 |   |         |   | 126,713 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Stockholders'      equity:                                            |   |        |    |   |         |   |   |   |
| Preferred      stock, no par value; 1,000,000 shares authorized,      |   |        |    |   |         |   |   |   |
| none      issued or outstanding                                       |   |        | -       |   |         |   | - |   |
| Preferred      stock, series B, $51,000 liquidation value; 125 shares |   |        |    |   |         |   |   |   |
| authorized,      96 shares outstanding                                |   |        | 4,896   |   |         |   | 4,896 |   |
| Common      stock, $.01 par value; 9,000,000 shares authorized,       |   |        |    |   |         |   |   |   |
| 3,222,608      shares issued and outstanding                          |   |        |    |   |         |   |   |   |
| in      2008 and 2007                                                 |   |        | 32      |   |         |   | 32 |   |
| Additional      paid-in capital                                       |   |        | 20,738  |   |         |   | 20,874 |   |
| Accumulated      deficit                                              |   |        | (5,378  | )      |         |   | (2,993 | ) |
| Accumulated      other comprehensive income                           |   |        | 5       |   |         |   | 9 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Total      stockholders' equity                                       |   |        | 20,293  |   |         |   | 22,818 |   |
|                                                                  |   |        |    |   |         |   |   |   |
| Total      liabilities and stockholders' equity                       |   | $           | 145,812 |   |         |   | 149,531 |   |

----

Index

S

|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |
|------------------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|--------|--------|--------|--------|--------|--------|
|                                     |   | Three      Months Ended |   |   | Six      Months Ended |   |
|                                     |   | June 30,                |   |   | June 30,              |   |
|                                     |   | 2008                    |   |   | 2007                  |   |   | 2008   |   |   | 2007   |   |
| Interest      income:                    |   |                    |   |   |                  |   |   |   |   |   |   |   |
| Loans                                    |   | $                       | 1,833  |   |                  |   | 2,633  |   |   |   | 3,849  |   |   |   | 5,309 |   |
| Securities                               |   |                    | 115    |   |                  |   | 82     |   |   |   | 201    |   |   |   | 136 |   |
| Other      interest-earning assets       |   |                    | 125    |   |                  |   | 294    |   |   |   | 272    |   |   |   | 673 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest income               |   |                    | 2,073  |   |                  |   | 3,009  |   |   |   | 4,322  |   |   |   | 6,118 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense:                   |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                 |   |                    | 1,124  |   |                  |   | 1,494  |   |   |   | 2,391  |   |   |   | 2,969 |   |
| Other      borrowings                    |   |                    | 6      |   |                  |   | 3      |   |   |   | 16     |   |   |   | 3 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest expense              |   |                    | 1,130  |   |                  |   | 1,497  |   |   |   | 2,407  |   |   |   | 2,972 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                 |   |                    | 943    |   |                  |   | 1,512  |   |   |   | 1,915  |   |   |   | 3,146 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses           |   |                    | 2,905  |   |                  |   | 5,295  |   |   |   | 3,005  |   |   |   | 5,295 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest expense after          |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| provision      for loan losses           |   |                    | (1,962 | )      |                  |   | (3,783 | )      |   |   | (1,090 | )      |   |   | (2,149 | ) |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      income:                 |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Service      charges on deposit accounts |   |                    | 6      |   |                  |   | 6      |   |   |   | 12     |   |   |   | 13 |   |
| CLCC      loan brokerage fees            |   |                    | -      |   |                  |   | 248    |   |   |   | -      |   |   |   | 828 |   |
| Other      service charges and fees      |   |                    | 37     |   |                  |   | 48     |   |   |   | 78     |   |   |   | 97 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Total      noninterest income            |   |                    | 43     |   |                  |   | 302    |   |   |   | 90     |   |   |   | 938 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      expenses:               |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Salaries      and employee benefits      |   |                    | 586    |   |                  |   | 720    |   |   |   | 1,245  |   |   |   | 1,519 |   |
| Occupancy      and equipment             |   |                    | 154    |   |                  |   | 174    |   |   |   | 313    |   |   |   | 336 |   |
| Advertising                              |   |                    | 35     |   |                  |   | 67     |   |   |   | 77     |   |   |   | 123 |   |
| Insurance                                |   |                    | 18     |   |                  |   | 15     |   |   |   | 42     |   |   |   | 30 |   |
| Data      processing                     |   |                    | 64     |   |                  |   | 61     |   |   |   | 131    |   |   |   | 128 |   |
| Regulatory      assessments              |   |                    | 101    |   |                  |   | -      |   |   |   | 199    |   |   |   | 26 |   |
| Telephone                                |   |                    | 18     |   |                  |   | 20     |   |   |   | 37     |   |   |   | 42 |   |
| Professional      fees                   |   |                    | 144    |   |                  |   | 107    |   |   |   | 255    |   |   |   | 141 |   |
| Stationary      and supplies             |   |                    | 8      |   |                  |   | 14     |   |   |   | 18     |   |   |   | 26 |   |
| Director      fees                       |   |                    | -      |   |                  |   | 32     |   |   |   | -      |   |   |   | 49 |   |
| Other      real estate expense           |   |                    | 213    |   |                  |   | -      |   |   |   | 256    |   |   |   | - |   |
| Other                                    |   |                    | 111    |   |                  |   | 135    |   |   |   | 251    |   |   |   | 227 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Total      noninterest expenses          |   |                    | 1,452  |   |                  |   | 1,345  |   |   |   | 2,824  |   |   |   | 2,647 |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss      before income taxes            |   |                    | (3,371 | )      |                  |   | (4,826 | )      |   |   | (3,824 | )      |   |   | (3,858 | ) |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Income      tax benefit                  |   |                    | (1,268 | )      |                  |   | (1,811 | )      |   |   | (1,439 | )      |   |   | (1,431 | ) |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                            |   |                    | (2,103 | )      |                  |   | (3,015 | )      |   |   | (2,385 | )      |   |   | (2,427 | ) |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      on preferred stock        |   |                    | 69     |   |                  |   | -      |   |   |   | 136    |   |   |   | - |   |
|                                     |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss available to common        |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| stockholders                             |   | $                       | (2,172 | )      |                  |   | (3,015 | )      |   |   | (2,521 | )      |   |   | (2,427 | ) |

----

Index

|                                                        |   | Three      Months Ended |   |   | Six      Months Ended |   |
|-------------------------------------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|
|                                                        |   | June 30,                |   |   | June 30,              |   |
|                                                        |   | 2008                    |   |   | 2007                  |   |   | 2008 |   |   | 2007 |   |
|                                                        |   |                    |   |   |                  |   |   |   |   |   |   |   |
| Net      loss per common share, basic and diluted           |   | $                       | (0.67  | )      |                  |   | (0.95 | ) |   |   | (0.78 | ) |   |   | (0.77 | ) |
|                                                        |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      number of common shares               |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
|     outstanding,      basic and diluted |   |                    | 3,223  |   |                  |   | 3,168 |   |   |   | 3,223 |   |   |   | 3,162 |   |
|                                                        |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      per common share                             |   | $                       | -      |   |                  |   | - |   |   |   | - |   |   |   | 0.12 |   |

----

Index

e

|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   | Accumulated |   |   |          |   |
|-------------------------------------------------|--------|-----------|--------|--------|--------|--------|--------|------------|--------|--------|--------------|--------|--------|-------------|--------|--------|---------------|--------|
|                                            |   |      |   |   |   |   |   |       |   |   | Retained     |   |   | Other       |   |   |          |   |
|                                            |   |      |   |   |   |   |   | Additional |   |   | Earnings     |   |   | Compre-     |   |   | Total         |   |
|                                            |   | Preferred |   |   | Common |   |   | Paid-In    |   |   | (Accumulated |   |   | hensive     |   |   | Stockholders' |   |
|                                            |   | Stock     |   |   | Stock  |   |   | Capital    |   |   | Deficit)     |   |   | Income      |   |   | Equity        |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |
| Balance      at December 31, 2006               |   | $         | -      |   |   |   | 32     |       |   |   | 20,165       |   |   |        | 2,481  |   |          |   | - |   |   |   | 22,678 |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Exercise      of stock options (60,600 shares), |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| including      tax benefit of $220              |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| (unaudited)                                     |   |      | -      |   |   |   | -      |       |   |   | 601          |   |   |        | -      |   |          |   | - |   |   |   | 601 |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Share-based      compensation (unaudited)       |   |      | -      |   |   |   | -      |       |   |   | 57           |   |   |        | -      |   |          |   | - |   |   |   | 57 |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Cash      dividends paid (unaudited)            |   |      | -      |   |   |   | -      |       |   |   | -            |   |   |        | (378   | )      |          |   | - |   |   |   | (378 | ) |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Net      loss (unaudited)                       |   |      | -      |   |   |   | -      |       |   |   | -            |   |   |        | (2,427 | )      |          |   | - |   |   |   | (2,427 | ) |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Balance      at June 30, 2007 (unaudited)       |   | $         | -      |   |   |   | 32     |       |   |   | 20,823       |   |   |        | (324   | )      |          |   | - |   |   |   | 20,531 |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Balance      at December 31, 2007               |   | $         | 4,896  |   |   |   | 32     |       |   |   | 20,874       |   |   |        | (2,993 | )      |          |   | 9 |   |   |   | 22,818 |   |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Comprehensive      loss:                        |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Net      loss (unaudited)                       |   |      | -      |   |   |   | -      |       |   |   | -            |   |   |        | (2,385 | )      |          |   | - |   |   |   | (2,385 | ) |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Net      change in unrealized gain              |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| on      security available for                  |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| sale,      net of tax effect                    |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| (unaudited)                                     |   |      | -      |   |   |   | -      |       |   |   | -            |   |   |        | -      |   |          |   | (4 | ) |   |   | (4 | ) |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Comprehensive      loss                         |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| (unaudited)                                     |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   | (2,389 | ) |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Dividends      declared-preferred (unaudited)   |   |      | -      |   |   |   | -      |       |   |   | (136         | )      |   |        | -      |   |          |   | - |   |   |   | (136 | ) |
|                                            |   |      |   |   |   |   |   |       |   |   |         |   |   |        |   |   |          |   |   |   |   |   |   |   |
| Balance      at June 30, 2008 (unaudited)       |   | $         | 4,896  |   |   |   | 32     |       |   |   | 20,738       |   |   |        | (5,378 | )      |          |   | 5 |   |   |   | 20,293 |   |

----

Index

s

|                                                                  |   | Six      Months Ended |   |
|-----------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                  |   | June 30,              |   |
|                                                                  |   | 2008                  |   |   | 2007 |   |
| Cash      flows from operating activities:                            |   |                  |   |   |   |   |
| Net      loss                                                         |   | $                     | (2,385 | ) |   |   | (2,427 | ) |
| Adjustments      to reconcile net loss to net cash provided by        |   |                  |   |   |   |   |   |   |
|   operating      activities:                                |   |                  |   |   |   |   |   |   |
| Depreciation                                                          |   |                  | 147    |   |   |   | 135 |   |
| Share-based      compensation                                         |   |                  | -      |   |   |   | 57 |   |
| Provision      for loan losses                                        |   |                  | 3,005  |   |   |   | 5,295 |   |
| Deferred      income tax benefit                                      |   |                  | (1,431 | ) |   |   | (2,384 | ) |
| Amortization      of loan fees and costs, net                         |   |                  | (31    | ) |   |   | 19 |   |
| (Increase)      decrease in accrued interest receivable               |   |                  | (101   | ) |   |   | 91 |   |
| Decrease      (increase) in other assets                              |   |                  | 2,165  |   |   |   | (53 | ) |
| Write      down of other real estate owned                            |   |                  | 30     |   |   |   | - |   |
| Loss      on sale of foreclosed asset                                 |   |                  | 105    |   |   |   | - |   |
| (Decrease)      increase in official checks, accrued interest payable |   |                  |   |   |   |   |   |   |
| and      other liabilities                                            |   |                  | (165   | ) |   |   | 23 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Net      cash provided by operating activities                        |   |                  | 1,339  |   |   |   | 756 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Cash      flows from investing activities:                            |   |                  |   |   |   |   |   |   |
| Purchase      of security held to maturity                            |   |                  | (6,007 | ) |   |   | (3,924 | ) |
| Principal      payment of security held to maturity                   |   |                  | 645    |   |   |   | 170 |   |
| Redemption      of Federal Home Loan Bank Stock                       |   |                  | 31     |   |   |   | 52 |   |
| Purchase      of Federal Reserve Bank Stock                           |   |                  | (59    | ) |   |   | - |   |
| Net      decrease (increase) in loans                                 |   |                  | 5,794  |   |   |   | (4,851 | ) |
| Proceeds      from sale of other real estate owned                    |   |                  | 513    |   |   |   | - |   |
| Purchase      of premises and equipment                               |   |                  | (24    | ) |   |   | (41 | ) |
|                                                                  |   |                  |   |   |   |   |   |   |
| Net      cash provided by (used in) investing activities              |   |                  | 893    |   |   |   | (8,594 | ) |
|                                                                  |   |                  |   |   |   |   |   |   |
| Cash      flows from financing activities:                            |   |                  |   |   |   |   |   |   |
| Net      (decrease) increase in deposits                              |   |                  | (2,345 | ) |   |   | 1,650 |   |
| Net      increase in repurchase agreements                            |   |                  | 1,258  |   |   |   | 441 |   |
| Net      proceeds from exercise of common stock options               |   |                  | -      |   |   |   | 381 |   |
| Cash      dividends paid                                              |   |                  | -      |   |   |   | (378 | ) |
| Preferred      dividends paid                                         |   |                  | (81    | ) |   |   | - |   |
| Tax      benefit from exercise of stock options                       |   |                  | -      |   |   |   | 220 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Net      cash (used in) provided by financing activities              |   |                  | (1,168 | ) |   |   | 2,314 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents             |   |                  | 1,064  |   |   |   | (5,524 | ) |
|                                                                  |   |                  |   |   |   |   |   |   |
| Cash      and cash equivalents at beginning of period                 |   |                  | 11,174 |   |   |   | 26,905 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Cash      and cash equivalents at end of period                       |   | $                     | 12,238 |   |   |   | 21,381 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Supplemental      disclosure of cash flow information:                |   |                  |   |   |   |   |   |   |
| Cash      paid (received) during the period for:                      |   |                  |   |   |   |   |   |   |
| Interest                                                              |   | $                     | 2,508  |   |   |   | 2,909 |   |
|                                                                  |   |                  |   |   |   |   |   |   |
| Income      taxes                                                     |   | $                     | (2,116 | ) |   |   | 660 |   |

----

Index

|                                                                                                                    |   | Six      Months Ended |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                                                                    |   | June 30,              |   |
|                                                                                                                    |   | 2008                  |   |   | 2007 |   |
| Noncash      transactions:                                                                                              |   |                  |   |   |   |   |
|      Preferred      dividends payable at beginning of period                                   |   | $                     | 35     |   |   |   | - |   |
|                                                                                                                    |   |                  |   |   |   |   |   |   |
|      Preferred      dividends payable at end of period                                         |   | $                     | 93     |   |   |   | - |   |
|                                                                                                                    |   |                  |   |   |   |   |   |   |
|      Transfer      of loans to other real estate owned                                         |   | $                     | 1,009  |   |   |   | - |   |
|                                                                                                                    |   |                  |   |   |   |   |   |   |
|      Net      change in unrealized gain on security available for sale, net of tax      effect |   | $                     | (4     | ) |   |   | - |   |

----

Index

S

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

|                                              |   |                    |   |   |                  |   |   |   |   |   |   |   |
|---------------------------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|--------|--------|--------|--------|--------|--------|
|                                              |   | Three      Months Ended |   |   | Six      Months Ended |   |
|                                              |   | June 30,                |   |   | June 30,              |   |
|                                              |   | 2008                    |   |   | 2007                  |   |   | 2008   |   |   | 2007   |   |
|                                              |   |                    |   |   |                  |   |   |   |   |   |   |   |
| Balance      at end of period                     |   | $                       | 9,129  |   |                  |   | 13,520 |   |   |   | 9,129  |   |   |   | 13,520 |   |
| Total      related allowance for losses           |   | $                       | 2,735  |   |                  |   | 1,119  |   |   |   | 2,735  |   |   |   | 1,119 |   |
| Average      investment in impaired loans         |   | $                       | 10,859 |   |                  |   | 3,450  |   |   |   | 10,719 |   |   |   | 2,916 |   |
| Interest      income recognized on impaired loans |   | $                       | 102    |   |                  |   | -      |   |   |   | 102    |   |   |   | - |   |
| Interest      income received on impaired loans   |   | $                       | -      |   |                  |   | -      |   |   |   | -      |   |   |   | - |   |
|                                              |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |

----

Index

|                           |   | Three      Months Ended |   |   | Six      Months Ended |   |
|--------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|
|                           |   | June 30,                |   |   | June 30,              |   |
|                           |   | 2008                    |   |   | 2007                  |   |   | 2008 |   |   | 2007 |   |
|                           |   |                    |   |   |                  |   |   |   |   |   |   |   |
| Beginning      balance         |   | $                       | 3,759  |   |                  |   | 2,047 |   |   |   | 3,794 |   |   |   | 2,047 |   |
| Charge-offs                    |   |                    | (614   | )      |                  |   | (4,381 | ) |   |   | (749 | ) |   |   | (4,381 | ) |
| Provision      for loan losses |   |                    | 2,905  |   |                  |   | 5,295 |   |   |   | 3,005 |   |   |   | 5,295 |   |
|                           |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
| Ending      balance            |   | $                       | 6,050  |   |                  |   | 2,961 |   |   |   | 6,050 |   |   |   | 2,961 |   |

----

Index

|                                                 |   |   |   |        |       |   |
|------------------------------------------------------|--------|--------|--------|-------------|------------|--------|
|                                                 |   |   |   |        | Regulatory |
|                                                 |   | Actual |   | Requirement |
|                                                 |   |   |   |        |       |   |
| Total      capital to risk-weighted assets           |   |   | 14.47  | %           |       |   | 10.00 | % |
| Tier      I capital to risk-weighted assets          |   |   | 13.18  | %           |       |   | 6.00 | % |
| Tier      I capital to total assets - leverage ratio |   |   | 10.10  | %           |       |   | 5.00 | % |

|   | (continued) |
|--------|-------------|

----

Index

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

|                                                             |   |   |    |   | Weighted-        |   |   | Weighted-   |   |   |      |   |
|------------------------------------------------------------------|--------|--------|---------|--------|------------------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                             |   |   |    |   | Average      Per |   |   | Average     |   |   |      |   |
|                                                             |   | Number |    |   | Share            |   |   | Remaining   |   |   | Aggregate |   |
|                                                             |   | of     |    |   | Exercise         |   |   | Contractual |   |   | Intrinsic |   |
|                                                             |   | Shares |    |   | Price            |   |   | Term        |   |   | Value     |   |
| The      Employees' Plan:                                        |   |   |    |   |             |   |   |        |   |   |      |   |
| Options      outstanding at December 31, 2007                    |   |   | 188,200 |   |             | $      | 9.35   |        |   |   |      |   |   |   |
| Options      granted                                             |   |   | 12,000  |   |             |   | 7.97   |        |   |   |      |   |   |   |
| Options      forfeited                                           |   |   | (64,750 | )      |             |   | 11.03  |        |   |   |      |   |   |   |
|                                                             |   |   |    |   |             |   |   |        |   |   |      |   |   |   |
| Options      outstanding at June 30, 2008                        |   |   | 135,450 |   |             | $      | 8.42   |        |   |   | 8.60      |   |   | $ | - |   |
| Options      exercisable at June 30, 2008                        |   |   | 34,250  |   |             | $      | 7.21   |        |   |   | 6.88      |   |   | $ | - |   |
|                                                             |   |   |    |   |             |   |   |        |   |   |      |   |   |   |   |   |
| The      Directors' Plan:                                        |   |   |    |   |             |   |   |        |   |   |      |   |   |   |   |   |
| Options      outstanding at December 31, 2007                    |   |   | 56,250  |   |             |   | 7.78   |        |   |   |      |   |   |   |   |   |
| Options      granted                                             |   |   | 33,750  |   |             |   | 7.24   |        |   |   |      |   |   |   |   |   |
|                                                             |   |   |    |   |             |   |   |        |   |   |      |   |   |   |   |   |
| Options      outstanding at June 30, 2008                        |   |   | 90,000  |   |             | $      | 7.63   |        |   |   | 4.61      |   |   | $ | - |   |
| Options      exercisable at June 30, 2008                        |   |   | 50,250  |   |             | $      | 6.60   |        |   |   | 5.82      |   |   | $ | - |   |
| The      Advisory Directors' Plan:                               |   |   |    |   |             |   |   |        |   |   |      |   |   |   |   |   |
| Options      outstanding at December 31, 2007                    |   |   |    |   |             |   |   |        |   |   |      |   |   |   |   |   |
|        and      June 30, 2008 |   |   | 20,251  |   |             | $      | 8.78   |        |   |   | 2.50      |   |   | $ | - |   |
| Options      exercisable at June 30, 2008                        |   |   | 8,228   |   |             | $      | 6.00   |        |   |   | .50       |   |   | $ | - |   |

|   | (continued) |
|--------|-------------|

----

Index

| 6. | Share-Based      Compensation, Continued |
|----|------------------------------------------|

|                                                                 |   | Three      Months Ended |   |   | Six      Months Ended |   |
|----------------------------------------------------------------------|--------|-------------------------|--------|--------|-----------------------|--------|
|                                                                 |   | June 30,                |   |   | June 30,              |   |
|                                                                 |   | 2008                    |   |   | 2007                  |   |   | 2008 |   |   | 2007 |   |
| Weighted-average      risk-free                                      |   |                    |   |   |                  |   |   |   |   |   |   |   |
|      interest      rate                     |   |                    | 4.53   | %      |                  |   | 4.82 | % |   |   | 3.93 | % |   |   | 4.80 | % |
| Weighted-average      dividend yield                                 |   |                    | -      | %      |                  |   | 1.36 | % |   |   | - | % |   |   | 1.37 | % |
| Weighted-average      expected                                       |   |                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |
|      stock      volatility                  |   |                    | 68.18  | %      |                  |   | 32.33 | % |   |   | 33.72 | % |   |   | 32.33 | % |
| 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                 |   | $                       | 1.53   |   |                  |   | 6.44 |   |   |   | 1.53 |   |   |   | 6.17 |   |

----

Index

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

|   | - | Level      2:  Inputs other than quoted prices that are observable for the      asset or liability, either directly or indirectly.  These      include quoted prices for similar assets or liabilities in active markets      and quoted prices for identical or similar assets or liabilities that are      not active.  Such inputs may include interest rates and yield      curves, volatilities, prepayment speeds, credit risks, and default      rates. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (continued) |
|--------|-------------|

----

Index

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

|                             |   | Fair Value Measurements at Reporting Date      Using |   |
|----------------------------------|--------|------------------------------------------------------|--------|
|                             |   |                                                 |   |   | Quoted      Prices |   |   |   |   |   |   |   |
|                             |   |                                                 |   |   | In      Active |   |   | Significant |   |   |   |   |
|                             |   | Fair      Value                                      |   |   | Markets      for |   |   | Other |   |   | Significant |   |
|                             |   | as      of                                           |   |   | Identical |   |   | Observable |   |   | Unobservable |   |
|                             |   | June      30,                                        |   |   | Assets |   |   | Inputs |   |   | Inputs |   |
|                             |   | 2008                                                 |   |   | (Level 1) |   |   | (Level 2) |   |   | (Level 3) |   |
|                             |   |                                                 |   |   |   |   |   |   |   |   |   |   |
| Available      for sale security |   | $                                                    | 1,007  |   |   |   | - |   |   | $ | 1,007 |   |   |   | - |   |

|   | Assets      measured at fair value on a non-recurring basis are summarized below (in      thousands): |
|--------|-------------------------------------------------------------------------------------------------------|

|                         |   | Net Carrying Value at June 30,      2008 |   |   | Total Losses |   |
|------------------------------|--------|------------------------------------------|--------|--------|--------------|--------|
|                         |   |                                     |   |   |         |   |   |   |   |   |   |   |   | Three |   |   | Six |   |
|                         |   |                                     |   |   |         |   |   |   |   |   |   |   |   | Months |   |   | Months |   |
|                         |   |                                     |   |   |         |   |   |   |   |   |   |   |   | Ended |   |   | Ended |   |
|                         |   |                                     |   |   |         |   |   |   |   |   |   |   |   | June      30, |   |   | June      30, |   |
|                         |   | Total                                    |   |   | Level 1      |   |   | Level 2 |   |   | Level 3 |   |   | 2008 |   |   | 2008 |   |
|                         |   |                                     |   |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Impaired      loans          |   | $                                        | 9,129  |   |         |   | - |   |   |   | - |   |   |   | 9,129 |   |   |   | 1,466 | (1) |   |   | 1,494 | (1) |
| Other      real estate owned |   | $                                        | 3,218  |   |         |   | - |   |   |   | - |   |   |   | 3,218 |   |   |   | 30 |   |   |   | 30 |   |

|   | (1) | Represents      a specific valuation allowance (recorded as part of the overall allowance      for loan losses) for thirteen nonaccrual loans totaling $6,824 in      accordance with SFAS 114. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

A

----

Index

r

----

Index

s

|   | 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. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|   | A      summary of the Company's financial instruments with off-balance sheet risk      at June 30, 2008 follows (inthousands): |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

|                        |   | Contract |   |
|-----------------------------|--------|----------|--------|
|                        |   | Amount   |   |
|                        |   |     |   |
| Unused      lines of credit |   | $        | 20,238 |   |

|                                               |   | Six      Months |   |   |              |   |   | Six      Months |   |
|----------------------------------------------------|--------|-----------------|--------|--------|-------------------|--------|--------|-----------------|--------|
|                                               |   | Ended           |   |   | Year      Ended   |   |   | Ended           |   |
|                                               |   | June      30,   |   |   | December      31, |   |   | June      30,   |   |
|                                               |   | 2008            |   |   | 2007              |   |   | 2007            |   |
| Average      equity as a percentage                |   |            |   |   |              |   |   |            |   |
| of      average assets                             |   |            | 14.20  | %      |              |   | 13.53  | %               |   |   | 13.30 | % |
|                                               |   |            |   |   |              |   |   |            |   |   |   |   |
| Total      equity to total assets at end of period |   |            | 13.92  | %      |              |   | 15.26  | %               |   |   | 12.37 | % |
|                                               |   |            |   |   |              |   |   |            |   |   |   |   |
| Return      on average assets (1)                  |   |            | (3.02  | )%     |              |   | (3.08  | )%              |   |   | (2.86 | )% |
|                                               |   |            |   |   |              |   |   |            |   |   |   |   |
| Return      on average common stockholders         |   |            |   |   |              |   |   |            |   |   |   |   |
|      equity      (1)      |   |            | (27.24 | )%     |              |   | (24.12 | )%              |   |   | (21.48 | )% |
|                                               |   |            |   |   |              |   |   |            |   |   |   |   |
| Noninterest      expense to average assets (1)     |   |            | 3.58   | %      |              |   | 3.90   | %               |   |   | 3.12 | % |

----

Index

|                                                                                                                     |   | Three Months Ended June 30, |    |
|--------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                     |   | 2008                        |    |   | 2007 |   |
|                                                                                                                     |   |                        |    |   | Interest |   |   | Average |   |   |   |   |   | Interest |   |   | Average |   |
|                                                                                                                     |   | Average                     |    |   | and |   |   | Yield/ |   |   | Average |   |   | and |   |   | Yield/ |   |
|                                                                                                                     |   | Balance                     |    |   | Dividends |   |   | Cost |   |   | Balance |   |   | Dividends |   |   | Cost |   |
|                      |   | ($      in thousands)       |    |
| Interest-earning      assets:                                                                                            |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                                                                    |   | $                           | 116,957 |   |   |   | 1,833 |   |   |   | 6.29 | % |   | $ | 137,409 |   |   |   | 2,633 |   |   |   | 7.69 | % |
| Investment      securities                                                                                               |   |                        | 9,143   |   |   |   | 115 |   |   |   | 5.04 |   |   |   | 6,169 |   |   |   | 82 |   |   |   | 5.33 |   |
| Other      interest-earning assets (1)                                                                                   |   |                        | 21,908  |   |   |   | 125 |   |   |   | 2.29 |   |   |   | 22,452 |   |   |   | 294 |   |   |   | 5.25 |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-earning assets                                                                                       |   |                        | 148,008 |   |   |   | 2,073 |   |   |   | 5.62 |   |   |   | 166,030 |   |   |   | 3,009 |   |   |   | 7.27 |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning      assets                                                                                          |   |                        | 8,778   |   |   |   |   |   |   |   |   |   |   |   | 5,551 |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                        |   | $                           | 156,786 |   |   |   |   |   |   |   |   |   |   | $ | 171,581 |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                       |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                                                                                                  |   |                        | 9,849   |   |   |   | 45 |   |   |   | 1.83 |   |   |   | 14,402 |   |   |   | 89 |   |   |   | 2.48 |   |
| Money      market and NOW deposits                                                                                       |   |                        | 32,886  |   |   |   | 134 |   |   |   | 1.63 |   |   |   | 30,576 |   |   |   | 164 |   |   |   | 2.15 |   |
| Time      deposits                                                                                                       |   |                        | 85,118  |   |   |   | 945 |   |   |   | 4.45 |   |   |   | 97,175 |   |   |   | 1,241 |   |   |   | 5.12 |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing deposits                                                                                     |   |                        | 127,853 |   |   |   | 1,124 |   |   |   | 3.53 |   |   |   | 142,153 |   |   |   | 1,494 |   |   |   | 4.22 |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements                                                                                               |   |                        | 1,081   |   |   |   | 6 |   |   |   | 2.23 |   |   |   | 316 |   |   |   | 3 |   |   |   | 3.81 |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing liabilities                                                                                  |   |                        | 128,934 |   |   |   | 1,130 |   |   |   | 3.52 |   |   |   | 142,469 |   |   |   | 1,497 |   |   |   | 4.21 |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      liabilities                                                                                     |   |                        | 6,308   |   |   |   |   |   |   |   |   |   |   |   | 6,649 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                                                                                                |   |                        | 21,544  |   |   |   |   |   |   |   |   |   |   |   | 22,463 |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                          |   | $                           | 156,786 |   |   |   |   |   |   |   |   |   |   | $ | 171,581 |   |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                                                                 |   |                        |    |   |   | $ | 943 |   |   |   |   |   |   |   |   |   |   | $ | 1,512 |   |   |   |   |   |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-rate      spread (2)                                                                                            |   |                        |    |   |   |   |   |   |   |   | 2.10 | % |   |   |   |   |   |   |   |   |   |   | 3.06 | % |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest-earning assets, net margin (3)                                                                         |   | $                           | 19,074  |   |   |   |   |   |   |   | 2.56 | % |   | $ | 23,561 |   |   |   |   |   |   |   | 3.65 | % |
|                                                                                                                     |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio      of interest-earning assets to                                                                                 |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-bearing      liabilities                                                                                        |   |                        | 1.15    |   |   |   |   |   |   |   |   |   |   |   | 1.17 |   |   |   |   |   |   |   |   |   |

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

| (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. |
|-----|-------------------------------------------------------------------------------------------------------------|

----

Index

|                                             |   | Six Months Ended June 30, |    |
|--------------------------------------------------|--------|---------------------------|---------|
|                                             |   | 2008                      |    |   | 2007 |   |
|                                             |   |                      |    |   | Interest |   |   | Average |   |   |   |   |   | Interest |   |   | Average |   |
|                                             |   | Average                   |    |   | and |   |   | Yield/ |   |   | Average |   |   | and |   |   | Yield/ |   |
|                                             |   | Balance                   |    |   | Dividends |   |   | Cost |   |   | Balance |   |   | Dividends |   |   | Cost |   |
|                                             |   | ($      in thousands)     |    |
| Interest-earning      assets:                    |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                            |   | $                         | 120,225 |   |   |   | 3,849 |   |   |   | 6.42 | % |   | $ | 134,679 |   |   |   | 5,309 |   |   |   | 7.95 | % |
| Investment      securities                       |   |                      | 7,826   |   |   |   | 201 |   |   |   | 5.15 |   |   |   | 5,078 |   |   |   | 136 |   |   |   | 5.40 |   |
| Other      interest-earning assets (1)           |   |                      | 20,503  |   |   |   | 272 |   |   |   | 2.66 |   |   |   | 25,933 |   |   |   | 673 |   |   |   | 5.23 |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-earning assets               |   |                      | 148,554 |   |   |   | 4,322 |   |   |   | 5.83 |   |   |   | 165,690 |   |   |   | 6,118 |   |   |   | 7.45 |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-earning      assets                  |   |                      | 9,184   |   |   |   |   |   |   |   |   |   |   |   | 5,601 |   |   |   |   |   |   |   |   |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                |   | $                         | 157,738 |   |   |   |   |   |   |   |   |   |   | $ | 171,291 |   |   |   |   |   |   |   |   |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:               |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                                          |   |                      | 9,998   |   |   |   | 101 |   |   |   | 2.03 |   |   |   | 14,941 |   |   |   | 184 |   |   |   | 2.48 |   |
| Money      market and NOW deposits               |   |                      | 31,478  |   |   |   | 279 |   |   |   | 1.78 |   |   |   | 32,920 |   |   |   | 406 |   |   |   | 2.49 |   |
| Time      deposits                               |   |                      | 86,929  |   |   |   | 2,011 |   |   |   | 4.64 |   |   |   | 94,201 |   |   |   | 2,379 |   |   |   | 5.09 |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing deposits             |   |                      | 128,405 |   |   |   | 2,391 |   |   |   | 3.73 |   |   |   | 142,062 |   |   |   | 2,969 |   |   |   | 4.21 |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase      agreements                       |   |                      | 953     |   |   |   | 16 |   |   |   | 3.37 |   |   |   | 158 |   |   |   | 3 |   |   |   | 3.83 |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest-bearing liabilities          |   |                      | 129,358 |   |   |   | 2,407 |   |   |   | 3.73 |   |   |   | 142,220 |   |   |   | 2,972 |   |   |   | 4.21 |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      liabilities             |   |                      | 5,975   |   |   |   |   |   |   |   |   |   |   |   | 6,289 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                        |   |                      | 22,405  |   |   |   |   |   |   |   |   |   |   |   | 22,782 |   |   |   |   |   |   |   |   |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity  |   | $                         | 157,738 |   |   |   |   |   |   |   |   |   |   | $ | 171,291 |   |   |   |   |   |   |   |   |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                         |   |                      |    |   |   | $ | 1,915 |   |   |   |   |   |   |   |   |   |   | $ | 3,146 |   |   |   |   |   |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-rate      spread (2)                    |   |                      |    |   |   |   |   |   |   |   | 2.10 | % |   |   |   |   |   |   |   |   |   |   | 3.24 | % |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest-earning assets, net margin (3) |   | $                         | 19,196  |   |   |   |   |   |   |   | 2.59 | % |   | $ | 23,470 |   |   |   |   |   |   |   | 3.83 | % |
|                                             |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio      of interest-earning assets to         |   |                      |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest-bearing      liabilities                |   |                      | 1.15    |   |   |   |   |   |   |   |   |   |   |   | 1.17 |   |   |   |   |   |   |   |   |   |

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

| (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. |
|-----|-------------------------------------------------------------------------------------------------------------|

----

Index

|   | The      provision for loan losses was $2.9 million for the three months ended June      30, 2008 compared to $5.3 million for the six months ended June 30,      2007.  The allowance for loan losses is $6.1 million at June 30,      2008. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Real      estate loans continue to be the primary source of loan      charge-offs.  The Company charged off $614,000 for the three      month period ended June 30, 2008, compared to $4.4 million for the      comparable 2007 period. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | While      management believes that its allowance for loan losses is adequate as of      June 30, 2008, 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|   | The      provision for loan losses was $3.0 million for the six months ended June      30, 2008 a decrease of $2.3 million from the comparable 2007      period.    The increased provision during the 2007      period was necessary to establish an appropriate level of allowance for      loan losses and was primarily due to actions taken relating to portions of      loan pools purchased through Allen C. Ewing & Company issued by      Atlantic Capital Associates, Inc., Jacksonville,  Florida. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Real      estate loans continue to be the primary source of loan      charge-offs.  The Company charged off $749,000 for the period      ended June 30, 2008, compared to $4.4 million for the comparable 2007      period. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | While      management believes that its allowance for loan losses is adequate as of      June 30, 2008, 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

t

| (a)   | Evaluation      of Disclosure Controls andProcedures |
|-----------------|------------------------------------------------------|

|   | 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 its internal controls over financial      reporting during the quarter ended June 30, 2008 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 bedetected. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

N

|                                |   | For    |      |   | Withheld |   |
|-------------------------------------|--------|--------|-----------|--------|----------|--------|
|                                |   |   |      |   |     |   |
| John      V. (Jack) Cofer           |   |   | 2,017,558 |   |     |   | 272,904 |   |
| Joel      M. Cox                    |   |   | 2,248,439 |   |     |   | 42,023 |   |
| Bruce      G. Fedor                 |   |   | 2,041,964 |   |     |   | 248,498 |   |
| Jamie      B. Greusel               |   |   | 2,211,401 |   |     |   | 79,061 |   |
| Robert      A. Marks                |   |   | 2,211,401 |   |     |   | 79,061 |   |
| Stephen      A. McLaughlin2,041,214 |   |   | 249,248   |   |     |   |   |   |
| E.      Terry Skone                 |   |   | 2,248,439 |   |     |   | 42,023 |   |
| Richard      Storm, Jr.             |   |   | 2,041,964 |   |     |   | 248,498 |   |

| For       | Against | Abstain |
|-----------|---------|---------|
|      |    |    |
| 2,237,640 | 43,350  | 4,455   |

| For       | Against | Abstain |
|-----------|---------|---------|
|      |    |    |
| 1,982,955 | 248,985 | 4,505   |

----

Index

h

----

Index

| (a) | Exhibits |
|-----|----------|

|   |             |                        |                                                                                                                                                     |
|--------|------------------|-----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 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                                                                                                                   |
|   | (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                                                                                                   |
|   | (c)              | 10.4                        | Employee      Severance Agreement with Paul Nidasso                                                                                                      |
|   | (c)              | 10.5                        | Employee      Severance Agreement with Anthony Iannotta                                                                                                  |
|   | (c)              | 10.6                        | Employee      Severance Agreement with David Klein                                                                                                       |
|   | (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 |

----

Index

T

|                                  | MARCO      COMMUNITY BANCORP, INC. |
|---------------------------------------|------------------------------------|
|                                  | (Registrant)                       |
|                                  |                               |   |
|                                  |                               |   |
|                                  |                               |   |
|                                  |                               |   |
| Date:  August 13,      2008 | By:                                | /s/Richard Storm, Jr. |
|                                  |                               | Richard      Storm, Jr., Chief Executive Officer |
|                                  |                               |   |
|                                  |                               |   |
|                                  |                               |   |
|                                  |                               |   |
| Date:  August 13,      2008 | By:                                | /s/Laura A. Witty |
|                                  |                               | Laura      A. Witty, Interim Chief Financial Officer, |
|                                  |                               | Vice      President and Controller |
|                                  |                               |   |