UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

                                       OR

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

For the transition period from              to

Commission File No.  0-31951
                     -------

                                 MONROE BANCORP
                                 --------------
             (Exact name of registrant as specified in its charter)

           Indiana                                         35-1594017
           -------                                         ----------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

                            210 East Kirkwood Avenue
                              Bloomington, IN 47408
                              ---------------------
                    (Address of principal executive offices)
                                   (Zip Code)
                                 (812) 336-0201
                                 --------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]    No [ ]

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes [ ]    No [ ]

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

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

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ]    No  [X]

Outstanding Shares of Common Stock on November 5, 2009:  6,227,550

<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                                    FORM 10-Q
<TABLE>
<CAPTION>
                                                                                                   Page No.
                                                                                                   -------
<S>                                                                                                <C>
Part I. Financial Information:


    Item 1.    Financial Statements:

                  Consolidated Condensed Balance Sheets................................................3

                  Consolidated Condensed Statements of Income - Nine Months............................4

                  Consolidated Condensed Statements of Income - Three Months...........................5

                  Consolidated Condensed Statement of Shareholders' Equity.............................6

                  Consolidated Condensed Statements of Cash Flows......................................7

                  Notes to Consolidated Condensed Financial Statements.................................8

    Item 2.    Management's Discussion and Analysis of Financial
                      Condition and Results of Operations.............................................16

    Item 3.    Quantitative and Qualitative Disclosures About Market Risk.............................26

    Item 4.    Controls and Procedures................................................................28

Part II.  Other Information:

    Item 1.    Legal Proceedings......................................................................28

    Item 1A.   Risk Factors...........................................................................28

    Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds............................33

    Item 3.    Defaults Upon Senior Securities........................................................33

    Item 4.    Submission of Matters to a Vote of Security Holders....................................33

    Item 5.    Other Information......................................................................33

    Item 6.    Exhibits...............................................................................33

Signatures............................................................................................36

Exhibit Index.........................................................................................37
</TABLE>

                                        2
<PAGE>


Part I. Financial Information

Item 1. Financial Statements

                          MONROE BANCORP AND SUBSIDIARY
                      Consolidated Condensed Balance Sheets
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                             September 30, December 31,
                                                                 2009         2008
                                                              (Unaudited)
                                                               ---------    ---------
<S>                                                            <C>          <C>
Assets
       Cash and due from banks .............................   $  11,031    $  11,552
       Federal funds sold ..................................      44,089        8,663
       Interest-earning deposits ...........................      11,416        3,506
                                                               ---------    ---------
             Total cash and cash equivalents ...............      66,536       23,721

       Trading securities, at fair value ...................       3,312        2,981
       Investment securities:
            Available for sale .............................      99,936      113,495
            Held to maturity ...............................       5,053        5,054
                                                               ---------    ---------
                 Total investment securities ...............     104,989      118,549

       Loans ...............................................     604,942      629,702
       Allowance for loan losses ...........................     (13,181)     (11,172)
                                                               ---------    ---------
            Net loans ......................................     591,761      618,530
       Loans held for sale .................................       3,725        3,389
       Premises and equipment ..............................      20,127       20,750
       Federal Home Loan Bank of Indianapolis stock, at cost       2,353        2,312
       Other assets ........................................      31,078       29,567
                                                               ---------    ---------
                  Total assets .............................   $ 823,881    $ 819,799
                                                               =========    =========

Liabilities
       Deposits:
            Noninterest-bearing ............................   $  88,724    $  84,317
            Interest-bearing ...............................     566,083      580,862
                                                               ---------    ---------
                 Total deposits ............................     654,807      665,179

       Borrowings ..........................................     103,388       93,203
       Other liabilities ...................................       8,465        5,496
                                                               ---------    ---------
                  Total liabilities ........................   $ 766,660    $ 763,878

Commitments and Contingent Liabilities

Shareholders' Equity
       Common stock, no-par value
           Authorized, 18,000,000 shares
           Issued and outstanding - 6,227,550 shares .......   $     137    $     137
       Additional paid-in capital ..........................       4,397        4,419
       Retained earnings ...................................      52,287       50,628
       Accumulated other comprehensive income ..............         480          817
       Unearned ESOT shares ................................         (80)         (80)
                                                               ---------    ---------
                  Total shareholders' equity ...............      57,221       55,921
                                                               ---------    ---------
                  Total liabilities and shareholders' equity   $ 823,881    $ 819,799
                                                               =========    =========
</TABLE>
       See notes to consolidated condensed financial statements.

                                       3
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                   Consolidated Condensed Statements of Income
                                   (Unaudited)
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                            September 30,
                                                                         2009        2008
                                                                       --------    --------
<S>                                                                    <C>         <C>
Interest Income
      Loans, including fees ........................................   $ 25,539    $ 28,284
      Trading securities ...........................................         47          76
      Investment securities
           Taxable .................................................      1,558       2,683
           Tax exempt ..............................................        525         953
      Federal funds sold ...........................................         28         162
      Other interest income ........................................         33         162
                                                                       --------    --------
                 Total interest income .............................     27,730      32,320
                                                                       --------    --------

Interest Expense
      Deposits .....................................................      8,294      12,985
      Short-term borrowings ........................................         62         682
      Other borrowings .............................................      1,303       1,042
                                                                       --------    --------
                 Total interest expense ............................      9,659      14,709
                                                                       --------    --------
                 Net interest income ...............................     18,071      17,611
      Provision for loan losses ....................................      7,000       4,730
                                                                       --------    --------
                 Net interest income after provision for loan losses     11,071      12,881
                                                                       --------    --------

Noninterest Income
      Fiduciary activities .........................................      1,693       1,834
      Service charges on deposit accounts ..........................      2,603       2,849
      Commission income ............................................        626         674
      Gains on sales of available for sale securities ..............      1,656         775
      Gains (losses) on sales of trading securities ................       (201)         14
      Unrealized gains (losses) on trading securities ..............        467        (488)
      Net gains on loans sales .....................................      1,106         561
      Debit card interchange fees ..................................        872         822
      Bank owned life insurance (BOLI) .............................        477         389
      Net loss on foreclosed assets ................................       (874)        (67)
      Other operating income .......................................        436         574
                                                                       --------    --------
                 Total other income ................................      8,861       7,937
                                                                       --------    --------

Noninterest Expenses
      Salaries and employee benefits ...............................      8,884       9,452
      Net occupancy and equipment expense ..........................      2,757       2,547
      Advertising ..................................................        427         585
      Legal fees ...................................................        352         408
      Appreciation (depreciation) in directors' and executives'
           deferred compensation plans .............................        303        (390)
      Federal Deposit Insurance Corporation assessment .............      1,214         343
      Other operating expense ......................................      2,838       2,885
                                                                       --------    --------
                 Total other expenses ..............................     16,775      15,830
                                                                       --------    --------

                 Income before income tax ..........................      3,157       4,988
                 Income tax expense ................................        565         800
                                                                       --------    --------
                           Net income ..............................   $  2,592    $  4,188
                                                                       ========    ========

      Basic earnings per share .....................................   $  0.417    $  0.674
      Diluted earnings per share ...................................   $  0.417    $  0.673
      Dividends declared and paid per share ........................   $   0.15    $   0.39
</TABLE>
      See notes to consolidated condensed financial statements.

                                       4
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                   Consolidated Condensed Statements of Income
                                   (Unaudited)
                  (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                           September 30,
                                                                         2009        2008
                                                                       --------    --------
<S>                                                                    <C>         <C>
Interest Income
      Loans, including fees ........................................   $  8,535    $  9,232
      Trading securities ...........................................         11          21
      Investment securities
           Taxable .................................................        519         807
           Tax exempt ..............................................         89         282
      Federal funds sold ...........................................         11          52
      Other interest income ........................................         10          78
                                                                       --------    --------
                 Total interest income .............................      9,175      10,472
                                                                       --------    --------

Interest Expense
      Deposits .....................................................      2,430       3,949
      Short-term borrowings ........................................         21         168
      Other borrowings .............................................        640         375
                                                                       --------    --------
                 Total interest expense ............................      3,091       4,492
                                                                       --------    --------
                 Net interest income ...............................      6,084       5,980
      Provision for loan losses ....................................      2,200       2,800
                                                                       --------    --------
                 Net interest income after provision for loan losses      3,884       3,180
                                                                       --------    --------

Noninterest Income
      Fiduciary activities .........................................        637         592
      Service charges on deposit accounts ..........................        905         996
      Commission income ............................................        225         208
      Gains on sales of available for sale securities ..............        264         210
      Losses on sales of trading securities ........................       (201)       --
      Unrealized gains (losses) on trading securities ..............        377        (222)
      Net gains on loans sales .....................................        361         189
      Debit card interchange fees ..................................        297         281
      Bank owned life insurance (BOLI) .............................        163         140
      Net gain (loss) on foreclosed assets .........................       (761)          4
      Other operating income .......................................        146         151
                                                                       --------    --------
                 Total other income ................................      2,413       2,549
                                                                       --------    --------

Noninterest Expenses
      Salaries and employee benefits ...............................      2,849       3,031
      Net occupancy and equipment expense ..........................        899         844
      Advertising ..................................................        138         187
      Legal fees ...................................................        115         121
      Appreciation (depreciation) in directors' and executives'
           deferred compensation plans .............................        184        (203)
      Federal Deposit Insurance Corporation assessment .............        280         140
      Other operating expense ......................................        964         949
                                                                       --------    --------
                 Total other expenses ..............................      5,429       5,069
                                                                       --------    --------

                 Income before income tax ..........................        868         660
                 Income tax expense (credit) .......................        158         (75)
                                                                       --------    --------
                           Net income ..............................   $    710    $    735
                                                                       ========    ========

      Basic earnings per share .....................................   $  0.114    $  0.118
      Diluted earnings per share ...................................   $  0.114    $  0.118
      Dividends declared and paid per share ........................   $   0.01    $   0.13
</TABLE>
      See notes to consolidated condensed financial statements.

                                       5
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
            Consolidated Condensed Statement of Shareholders' Equity
                            For the Nine Months Ended
                               September 30, 2009
                                   (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                               Unearned
                                         Common Stock                                           Accumulated    Employee
                                     -------------------  Additional                               Other         Stock
                                        Shares              Paid in   Comprehensive  Retained  Comprehensive   Ownership
                                     Outstanding  Amount    Capital       Income     Earnings  Income (Loss)  Trust Shares   Total
                                     -----------------------------------------------------------------------------------------------
<S>                                   <C>         <C>       <C>                      <C>           <C>          <C>        <C>
Balances January 1, 2009............  6,227,550   $  137    $ 4,419                  $ 50,628      $  817       $  (80)    $ 55,921

Comprehensive Income:
  Net income for the period.........                                      $ 2,592       2,592                                 2,592
   Other comprehensive income -
    unrealized loss on securities,
    net of tax and reclassification
    adjustment......................                                         (337)                   (337)                     (337)
ESOT shares forfeited...............                            (11)                                                            (11)
Stock options forfeited, net of
     expense........................                            (11)                                                            (11)
Repurchase of stock, at cost........         --                  --                                                              --
Cash dividend ($0.15 per share)                                                          (933)                                 (933)
                                      ---------------------------------------------------------------------------------------------
Balances September 30, 2009.........  6,227,550   $  137    $ 4,397       $ 2,255    $ 52,287      $  480       $  (80)    $ 57,221
                                      =============================================================================================
</TABLE>
See notes to consolidated condensed financial statements.







                                       6
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
                 Consolidated Condensed Statements of Cash Flows
                                   (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                                   September 30,
                                                                                 2009         2008
                                                                               ---------    ---------
<S>                                                                            <C>          <C>
Operating Activities
      Net income ...........................................................   $   2,592    $   4,188
      Adjustments to reconcile net income to net cash provided
              by operating activities:
          Provision for loan losses ........................................       7,000        4,730
          Depreciation and amortization ....................................         914          875
          Deferred income tax ..............................................        (634)      (1,592)
          Investment securities amortization, net ..........................         (12)         (22)
          Available for sale securities gains including redemptions ........      (1,656)        (775)
          Trading securities gains including redemptions ...................         201          (14)
          Net change in trading securities .................................        (532)         371
          (Gain) loss on disposal of premises and equipment ................           9           (6)
          Origination of loans held for sale ...............................     (76,549)     (35,107)
          Proceeds from sale of loans held for sale ........................      77,319       36,236
          Gain on sale of loans held for sale ..............................      (1,106)        (561)
          ESOT shares earned (forfeited) ...................................         (11)          21
          (Gain) loss on foreclosed assets .................................         828          (22)
          Stock-based compensation expense (forfeiture) ....................         (11)          45
          Net change in:
               Interest receivable and other assets ........................        (742)         892
               Interest payable and other liabilities ......................       3,481          792
                                                                               ---------    ---------
                         Net cash provided by operating activities .........      11,091       10,051
                                                                               ---------    ---------

Investing Activities
      Purchase of securities available for sale ............................    (274,210)     (49,533)
      Proceeds from paydowns and maturities of securities available for sale     223,546       19,332
      Proceeds from sales of securities available for sale .................      65,388       55,183
      Net change in loans ..................................................      16,967      (34,771)
      Purchase of premises and equipment ...................................        (812)      (1,599)
      Proceeds from sale of premises and equipment .........................        --              6
      Proceeds from sale of foreclosed assets ..............................         188        1,246
      Purchase of FHLB stock ...............................................         (41)        --
      Purchase of bank owned life insurance (BOLI) .........................        --         (2,100)
                                                                               ---------    ---------
                         Net cash provided (used) by investing activities ..      31,026      (12,236)
                                                                               ---------    ---------

Financing Activities
      Net change in:
          Noninterest-bearing, interest-bearing demand and savings deposits       40,985        7,639
          Certificates of deposit ..........................................     (51,357)      52,065
          Borrowings .......................................................       7,096      (22,380)
      Proceeds from Federal Home Loan Bank advances ........................      10,000       19,000
      Repayments of Federal Home Loan Bank advances ........................     (18,093)     (17,087)
      Proceeds from subordinated debentures ................................      13,000         --
      Cash dividends paid ..................................................        (933)      (2,424)
                                                                               ---------    ---------
                         Net cash provided used by financing activities ....         698       36,813
                                                                               ---------    ---------
Net Change in Cash and Cash Equivalents ....................................      42,815       34,628
Cash and Cash Equivalents, Beginning of Period .............................      23,721       25,640
                                                                               ---------    ---------
Cash and Cash Equivalents, End of Period ...................................   $  66,536    $  60,268
                                                                               =========    =========

Supplemental cash flow disclosures
      Interest paid ........................................................   $   9,845    $  14,689
      Income tax paid ......................................................         450        2,250
</TABLE>
       See notes to consolidated condensed financial statements.

                                       7
<PAGE>

                          MONROE BANCORP AND SUBSIDIARY
              Notes to Consolidated Condensed Financial Statements
                               September 30, 2009
                                   (Unaudited)

Note 1: Basis of Presentation
-----------------------------
The consolidated condensed financial statements include the accounts of Monroe
Bancorp (the "Company") and its wholly owned subsidiary, Monroe Bank, a state
chartered bank (the "Bank") and the Bank's wholly owned subsidiaries, HIE
Enterprises, LLC and MB Portfolio Management, Inc. ("MB") and MB's majority
owned subsidiary MB REIT, Inc. A summary of significant accounting policies is
set forth in Note 1 of the Notes to Financial Statements included in the
December 31, 2008, Annual Report to Shareholders. All significant intercompany
accounts and transactions have been eliminated in consolidation.

The interim consolidated condensed financial statements have been prepared in
accordance with instructions to Form 10-Q, and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.

The interim consolidated condensed financial statements at September 30, 2009,
and for the three and nine months ended September 30, 2009 and 2008, have not
been audited by independent accountants, but reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for such periods.

The consolidated condensed balance sheet of the Company as of December 31, 2008
has been derived from the audited consolidated balance sheet of the Company as
of that date. Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission.

The results of operations for the period are not necessarily indicative of the
results to be expected for the year.

Note 2: Earnings Per Share
--------------------------
The number of shares used to compute basic and diluted earnings per share was as
follows:

<TABLE>
<CAPTION>
                                                     Nine months ended
                                           ----------------------------------------
                                           September 30, 2009    September 30, 2008
                                           ------------------    ------------------
<S>                                            <C>                   <C>
Net income (in thousands) ..................   $     2,592           $     4,188
                                               ===========           ===========
Weighted average shares outstanding ........     6,227,550             6,227,550
Average unearned ESOT shares ...............        (5,538)               (9,500)
                                               -----------           -----------
Shares used to compute basic earnings
     per share .............................     6,222,012             6,218,050
Effect of dilutive securities- stock options          --                   8,798
                                               -----------           -----------
Shares used to compute diluted earnings
     per share .............................     6,222,012             6,226,848
                                               ===========           ===========

Earnings per share, basic ..................   $     0.417           $     0.674
Earnings per share, diluted ................   $     0.417           $     0.673
</TABLE>


                                       8
<PAGE>


Options to purchase 5,500 shares at $10.12 per share, 22,000 shares at $12.05
per share, 16,500 shares at $12.73 per share, 11,000 shares at $14.73 per share,
30,000 shares of common stock at $16 per share, 13,000 shares of common stock at
$16.83, and 210,000 shares of common stock at $22 per share were outstanding at
September 30, 2009 and options to purchase 30,000 shares of common stock at $16
per share, 13,000 shares of common stock at $16.83, and 210,000 shares of common
stock at $22 per share were outstanding at September 30, 2008, but were not
included in the computation of diluted earnings per share for the nine months
ended September 30, 2009 and 2008, respectively because the options' exercise
price was greater than the average market price of the common shares.

<TABLE>
<CAPTION>
                                                      Three months ended
                                           ----------------------------------------
                                           September 30, 2009    September 30, 2008
                                           ------------------    ------------------
<S>                                            <C>                   <C>
Net income (in thousands) ..................   $       710           $       735
                                               ===========           ===========
Weighted average shares outstanding              6,227,550             6,227,550
Average unearned ESOT shares                        (4,163)               (7,100)
                                               -----------           -----------
Shares used to compute basic earnings
     per share .............................     6,223,387             6,220,450
Effect of dilutive securities- stock options          --                     737
                                               -----------           -----------
Shares used to compute diluted earnings
     per share .............................     6,223,387             6,221,187
                                               ===========           ===========

Earnings per share, basic ..................   $     0.114           $     0.118
Earnings per share, diluted ................   $     0.114           $     0.118
</TABLE>


Options to purchase 5,500 shares at $10.12 per share, 22,000 shares at $12.05
per share, 16,500 shares at $12.73 per share, 11,000 shares at $14.73 per share,
30,000 shares of common stock at $16 per share, 13,000 shares of common stock at
$16.83, and 210,000 shares of common stock at $22 per share were outstanding at
September 30, 2009 and options to purchase 82,500 shares at $12.05 per share,
11,000 shares at $14.73 per share, 30,000 shares of common stock at $16 per
share, 13,000 shares of common stock at $16.83, and 210,000 shares of common
stock at $22 per share were outstanding at September 30, 2008, but were not
included in the computation of diluted earnings per share for the three months
ended September 30, 2009 and 2008, respectively because the options' exercise
price was greater than the average market price of the common shares.



                                       9
<PAGE>

Note 3:  Investment Securities
------------------------------
<TABLE>
<CAPTION>
                                                            Gross        Gross
                                           Amortized   Unrealized   Unrealized         Fair
                                                Cost        Gains       Losses        Value
                                           ------------------------------------------------
<S>                                         <C>          <C>          <C>          <C>
September 30, 2009
Available for Sale
         Federal Agencies .............     $ 59,194     $    209     $      2     $ 59,401
         Corporate Bonds ..............        2,549            3         --          2,552
         State and municipal ..........        5,931           54         --          5,985
         Mortgage-backed securities ...       28,523          464           19       28,968
         Marketable equity securities .        3,013           17         --          3,030
                                            --------     --------     --------     --------
            Total available for sale ..       99,210          747           21       99,936
                                            --------     --------     --------     --------

Held to Maturity
         Federal Agencies .............        1,003           71         --          1,074
         State and municipal ..........        4,050         --             54        3,996
         Mortgage-backed securities ...         --           --           --           --
                                            --------     --------     --------     --------
            Total held to maturity ....        5,053           71           54        5,070
                                            --------     --------     --------     --------

            Total investment securities     $104,263     $    818     $     75     $105,006
                                            ========     ========     ========     ========
</TABLE>

The amortized cost and fair value of securities available for sale and held to
maturity at September 30, 2009, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
                                 Available for Sale       Held to Maturity
                               ---------------------   ---------------------
                               Amortized        Fair   Amortized        Fair
                                    Cost       Value        Cost       Value
                               ---------------------   ---------------------
<S>                              <C>         <C>         <C>         <C>
Within one year ............     $17,119     $17,158     $  --       $  --
One to five years ..........      50,303      50,518       1,003       1,074
Five to ten years ..........         252         262        --          --
Over ten years .............        --          --         4,050       3,996
                                 -------     -------     -------     -------
                                  67,674      67,938       5,053       5,070

Mortgage-backed securities .      28,523      28,968        --          --
Marketable equity securities       3,013       3,030        --          --
                                 -------     -------     -------     -------

   Totals ..................     $99,210     $99,936     $ 5,053     $ 5,070
                                 =======     =======     =======     =======
</TABLE>

Securities with a carrying value of $75,704,000 were pledged at September 30,
2009 to secure certain deposits and for other purposes as permitted or required
by law.

Proceeds from sales of securities available for sale for the nine months ended
September 30, 2009 were $65,388,000. Gross gains of $1,648,000 were realized on
sales and $8,000 were realized on redeemed available for sales securities in the
nine months ended September 30, 2009. Proceeds from sales of securities
available for sale for the three months ended September 30, 2009 were
$12,637,000. Gross gains of $263,000 were realized on sales and $1,000 were
realized on redeemed available for sales securities in the three months ended
September 30, 2009.

There were no sales of held to maturity securities during the nine months ended
September 30, 2009.

Trading securities, which consist of mutual funds held in a rabbi trust
associated with the directors' and executives' deferred compensation plans, are
recorded at fair value. Unrealized holding gains on trading securities of
$467,000 were included in earnings in the nine months ended September 30, 2009
and unrealized holding gains on trading securities of $377,000 were included in
earnings in the three months ended September 30, 2009.

                                       10
<PAGE>

Certain investments in debt and marketable equity securities are reported in the
financial statements at an amount less than their historical cost. Total fair
value of these investments at September 30, 2009 was $22,206,000 which is
approximately 21.2 percent of the Company's available for sale and held to
maturity investment portfolio.


Based on evaluation of available evidence, including recent changes in market
interest rates, credit rating information and information obtained from
regulatory filings, management believes the declines in fair value for these
securities are temporary.

Should the impairment of any of these securities become other than temporary,
the cost basis of the investment will be reduced and the resulting loss
recognized in net income in the period the other-than-temporary impairment is
identified.

The following table shows our investments' gross unrealized losses and fair
value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position at September 30,
2009:

<TABLE>
<CAPTION>
                                                                     September 30, 2009
                                        ------------------------------------------------------------------------------
                                          Less than 12 Months         12 Months or More               Total
                                        ------------------------------------------------------------------------------
                                                      Unrealized                 Unrealized                 Unrealized
Description of Securities               Fair Value        Losses   Fair Value        Losses   Fair Value        Losses
                                        ----------    ----------   ----------    ----------   ----------    ----------
<S>                                        <C>          <C>           <C>          <C>           <C>          <C>
U.S. government agencies ............      $12,640      $    (2)      $  --        $  --         $12,640      $    (2)
Corporate bonds .....................         --           --            --           --            --           --
Mortgage-backed securities ..........        5,570          (19)         --           --           5,570          (19)
State and political subdivisions ....        3,996          (54)         --           --           3,996          (54)
Marketable equity securities ........         --           --            --           --            --           --
                                           -------      -------       -------      -------       -------      -------
Total temporarily impaired securities      $22,206      $   (75)      $  --        $  --         $22,206      $   (75)
                                           =======      =======       =======      =======       =======      =======
</TABLE>


Note 4:  Fair Value Measurements
--------------------------------

Effective January 1, 2008, the Company adopted FASB Accounting Standards
Codification ("ASC") Topic 820. ASC Topic 820 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. ASC Topic 820 has been applied prospectively as of the beginning
of the period.

ASC Topic 820 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. ASC Topic 820 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:

     Level 1: Quoted prices in active markets for identical assets or
     liabilities,

     Level 2: Observable inputs other than Level 1 prices, such as quoted prices
     for similar assets or liabilities; quoted prices in active markets that are
     not active; or other inputs that are observable or can be corroborated by
     observable market data for substantially the full term of the assets or
     liabilities,

     Level 3: Unobservable inputs that are supported by little or no market
     activity and that are significant to the fair value of the assets or
     liabilities.

Below is a description of the valuation methodologies used for instruments
measured at fair value on a recurring and non-recurring basis and recognized in
the accompanying balance sheet, as well as the general classification of such
instruments pursuant to the valuation hierarchy.

                                       11
<PAGE>

Trading and Available for Sale Securities

Where quoted market prices are available in an active market, securities are
classified within Level 1 of the valuation hierarchy. Level 1 securities include
highly liquid government bonds, mortgage products and exchange traded equities.
If quoted market prices are not available, then fair values are estimated by
using pricing models, certain market information, and quoted prices of
securities with similar characteristics or discounted cash flows. Level 2
securities include certain collateralized mortgage and debt obligations and
certain municipal securities. In certain cases where Level 1 or Level 2 inputs
are not available, securities are classified within Level 3 of the hierarchy. At
this time the Company has no securities classified as Level 3 securities.

Impaired Loans

Loans impairment is reported when full payment under the loan terms is not
expected. Impaired loans are carried at the present value of estimated future
cash flows using the loan's existing rate, or the fair value of collateral if
the loan is collateral dependent. During the first nine months of 2009 and the
twelve months ended December 31, 2008, certain impaired loans were partially
charged-off or re-evaluated, resulting in a remaining balance for these loans,
net of specific allowance, of $9,027,000 and $9,821,000, as of September 30,
2009 and December 31, 2008, respectively. This valuation would be considered
Level 3. Level 3 inputs for impaired loans included current and prior
appraisals, discounting factors, the borrowers' financial results and other
considerations including expected cash flows.

Other Real Estate Owned

At September 30, 2009, other real estate owned was reported at fair value less
cost to sell of $3,118,000 measured using Level 3 inputs within the fair value
hierarchy. Level 3 inputs for other real estate owned included third party
appraisals adjusted for cost to sell.

The following table presents the fair value measurements of assets and
liabilities recognized in the accompanying balance sheet measured at fair value
on a recurring and non-recurring basis and the level within the ASC Topic 820
fair value hierarchy in which the fair value measurements fall:

<TABLE>
<CAPTION>
                                                                         Fair Value Measurements Using
                                                             -----------------------------------------------------
                                                                Quoted Prices in    Significant
                                                                 Active Markets        Other          Significant
                                                                 for Identical       Observable       Unobservable
                                                                     Assets            Inputs            Inputs
                                                 Fair Value        (Level 1)         (Level 2)         (Level 3)
                                                 -----------------------------------------------------------------
<S>                                               <C>               <C>               <C>               <C>
As of September 30, 2009
------------------------
Fair value measured on a recurring basis
  Trading securities .........................    $  3,312          $  3,312          $   --            $   --
  Available for sale securities
    Federal agencies .........................      59,401            19,141            40,260              --
    Corporate bonds ..........................       2,552              --               2,552              --
    State and municipal ......................       5,985              --               5,985              --
    Mortgage-backed securities ...............      28,968              --              28,968              --
    Marketable equity securities .............       3,030             3,030              --                --
                                                  --------          --------          --------          --------
        Total ................................    $ 99,936          $ 22,171          $ 77,765          $   --
                                                  ========          ========          ========          ========

Fair value measured on a non-recurring basis
  Impaired loans, net of specific allowance ..       9,027              --                --               9,027
  Other real estate owned ....................       3,118              --                --               3,118

As of December 31, 2008
-----------------------
Fair value measured on a recurring basis
  Trading securities .........................    $  2,981          $  2,981          $   --            $   --
  Available for sale securities ..............     113,495            15,966            97,529              --
Fair value measured on a non-recurring basis
  Impaired loans, net of specific allowance ..       9,821              --                --               9,821
</TABLE>

                                       12
<PAGE>

The following methods and assumptions were used to estimate the fair value of
all other financial instruments not recognized in the accompanying balance
sheet:

Cash and Cash Equivalents - The fair value of cash and cash equivalents
approximates carrying value.

Loans - The fair value for loans is estimated using discounted cash flow
analyses that use interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.

Interest Receivable/Payable - The fair values of interest receivable/payable
approximate carrying values.

FHLB Stock - Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.

Deposits - The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.

Borrowings - The fair value of Federal Home Loan Bank advances are estimated
using a discounted cash flow calculation, based on current rates for similar
debt. Other borrowings consist of federal funds purchased, securities sold under
repurchase agreements, a trust preferred subordinated debenture and loans sold
under repurchase agreement. The rates at September 30, 2009, approximate market
rates, thus the fair value approximates carrying value.

Off-Balance Sheet Commitments - Commitments include commitments to purchase and
originate mortgage loans, commitments to sell mortgage loans, and standby
letters of credit and are generally of a short-term nature. The fair value of
such commitments is based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                               September 30, 2009
                                              --------------------
                                              Carrying        Fair
                                                Amount       Value
                                              --------------------
<S>                                           <C>         <C>
Assets
  Cash and cash equivalents ..............    $ 66,536    $ 66,536
  Trading account securities .............       3,312       3,312
  Investment securities available for sale      99,936      99,936
  Investment securities held to maturity .       5,053       5,070
  Loans including loans held for sale, net     595,486     603,836
  Interest receivable ....................       2,527       2,527
  Stock in FHLB ..........................       2,353       2,353

Liabilities
  Deposits ...............................     654,807     639,151
  Borrowings .............................     103,388      97,307
  Interest payable .......................       1,465       1,465

Off-Balance Sheet Commitments ............        --          --
</TABLE>

                                       13
<PAGE>

Note 5:  Accumulated Other Comprehensive Income (Loss)
------------------------------------------------------
<TABLE>
<CAPTION>
                                                                           September 30, 2009
                                                                 -------------------------------------
                                                                 Nine months ended  Three months ended
                                                                 -----------------  ------------------
<S>                                                                    <C>             <C>
Net unrealized gain on securities available-for-sale ..........        $ 1,151         $   492
Less:  reclassification adjustment for gains included in income          1,656             264
                                                                       -------         -------
    Other comprehensive income (loss), before tax effect ......           (505)            228
Tax benefit (expense) .........................................            168             (80)
                                                                       -------         -------
    Other comprehensive income (loss) .........................        $  (337)        $   148
                                                                       =======         =======
</TABLE>

Note 6:  Borrowings
-------------------
On July 17, 2009, $13 million of Tier 2 capital was raised through the issuance
of Subordinated Debentures. The Subordinated Debentures were issued as the
result of a public offering. The Subordinated Debentures carry an interest rate
of 10 percent and will mature on June 30, 2019. The Company has the right to
call the Subordinated Debentures at any time after three years. The Subordinated
Debentures were issued pursuant to the prospectus filed as part of the Company's
registration statement under the Securities Act of 1933. On July 23, 2009, the
Company's Board of Directors voted to provide $10 million of the net proceeds of
the offering to the Bank as additional capital with the remaining proceeds to be
used by the Company for general corporate purposes.

Note 7:  Reclassifications
--------------------------
Reclassifications of certain amounts in the 2008 consolidated condensed
financial statements have been made to conform to the 2009 presentation.

Note 8:  Contingencies
----------------------
The Company and Bank are from time to time subject to other claims and lawsuits
which arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Company.

Note 9:  New Accounting Pronouncements
--------------------------------------
In April 2009, the FASB issued new accounting guidance on determining fair value
when the volume and level of activity for an asset or liability have
significantly decreased and identifying transactions that are not orderly. This
guidance emphasizes that even if there has been a significant decrease in the
volume and level of activity for the asset or liability and regardless of the
valuation technique(s) used, the objective of a fair value measurement remains
the same. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. This new guidance requires a reporting
entity to disclose in interim and annual periods the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period. This guidance shall be
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Management has determined the adoption of
this guidance did not have a material effect on the Company's financial position
or results of operations.

In April 2009, the FASB issued new accounting guidance for recognition and
presentation of other-than-temporary impairments. This new guidance amended the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. This new guidance does not amend existing recognition
and measurement guidance related to other-than-temporary impairments of equity
securities. An entity shall disclose information for interim and annual periods
that enables users of its financial statements to understand the types of
available-for-sale and held-to maturity debt and equity securities held,
including information about investments in an unrealized loss position for which
an other-than-temporary impairment has or has not been recognized. In addition,
for interim and annual periods, an entity shall disclose information that

                                       14
<PAGE>

enables users of financial statements to understand the reasons that a portion
of an other-than-temporary impairment of a debt security was not recognized in
earnings and the methodology and significant inputs used to calculate the
portion of the total other-than-temporary impairment that was recognized in
earnings. The new guidance is effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. Management has determined the adoption of this guidance
did not have a material effect on the Company's financial position or results of
operations.

In April 2009, the FASB issued new accounting guidance requiring interim
disclosures about fair value of financial instruments. This guidance requires
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements
and to require those disclosures in summarized financial information at interim
reporting periods. This guidance shall be effective for interim reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. Management has determined the adoption of this
guidance did not have a material effect on the Company's financial position or
results of operations.

In May 2009, the FASB issued new accounting guidance on subsequent events. The
objective of this guidance is to establish general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The new
accounting guidance was effective for financial statements issued for fiscal
years and interim periods ending after June 15, 2009. Management has determined
the adoption of this guidance did not have a material effect on the Company's
financial position or results of operations.

In June 2009, the FASB issued new accounting guidance related to accounting for
transfers of financial assets. The Board's objective in issuing this new
guidance is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a
transferor's continuing involvement, if any, in transferred financial assets.
This guidance is effective as of the beginning of the first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period and for interim and annual reporting periods
thereafter. Earlier application is prohibited. This guidance must be applied to
transfers occurring on or after the effective date. Management has determined
the adoption of this guidance did not have a material effect on the Company's
financial position or results of operations.

In June 2009, the FASB issued new accounting guidance on consolidation of
variable interest entities, which include: 1) the elimination of the exemption
for qualifying special purpose entities, 2) a new approach for determining who
should consolidate a variable interest entity, and 3) changes to when it is
necessary to reassess who should consolidate a variable interest entity. This
new guidance is effective as of the beginning of the first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. Management has determined the
adoption of this guidance did not have a material effect on the Company's
financial position or results of operations.

                                       15
<PAGE>

In June 2009, the Financial Accounting Standards Board, (FASB) issued an
accounting standard which established the Codification to become the single
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities, with the exception of guidance issued by the U.S.
Securities and Exchange Commission, (the SEC) and its staff. All guidance
contained in the Codification carries an equal level of authority. The
Codification is not intended to change GAAP, but rather is expected to simplify
accounting research by reorganizing current GAAP into approximately 90
accounting topics. The Company adopted this accounting standard in preparing the
Consolidated Financial Statements for the period ended September 30, 2009. The
adoption of this accounting standard, which was subsequently codified into ASC
Topic 105, "Generally Accepted Accounting Principles," had no impact on retained
earnings and will have no impact on the Company's financial position or results
of operations.

Note 10:  Subsequent Events
---------------------------
None. Subsequent events have been evaluated through November 6, 2009, which is
the date the financial statements were issued.

Item 2.   Management's Discussion and Analysis of Financial Condition and
------    Results of Operations
          ---------------------------------------------------------------

General
-------
Monroe Bancorp is a one-bank holding company formed under Indiana law in 1984.
The Company holds all of the outstanding stock of Monroe Bank, which was formed
in 1892. Banking is the primary business activity of the Company.

The Bank, with its primary offices located in Bloomington, Indiana, conducts
business from eighteen locations in Monroe, Jackson, Lawrence, Hendricks and
Hamilton counties in Indiana. Approximately 78 percent of the Bank's deposits
are in Monroe County and is concentrated in and around the city of Bloomington.

The Bank is a traditional community bank which provides a variety of financial
services to its customers, including:

     o    accepting deposits;
     o    making commercial, mortgage and personal loans;
     o    originating fixed and variable rate residential mortgage loans for
          sale into the secondary market;
     o    providing personal and corporate trust services;
     o    providing investment advisory and brokerage services; and
     o    providing annuities and other investment products.

The majority of the Bank's revenue is derived from interest and fees on loans
and investments, and the majority of its expense is interest paid on deposits
and general and administrative expenses related to its business.

Critical Accounting Policies
----------------------------
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements on pages 37 to 38 of the 2008
Annual Report to Shareholders. Certain of these policies are important to the
portrayal of the Company's financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to
matters that are inherently uncertain. Management has identified these policies
in the Critical Accounting Policies section of the Management's Discussion and
Analysis on pages 22 to 23 of the 2008 Annual Report to Shareholders. There have
been no changes in these critical accounting policies to date.

Non-GAAP Financial Measures
---------------------------
In January 2003, the United States Securities and Exchange Commission ("SEC")
issued Regulation G, "Conditions for Use of Non-GAAP Financial Measures." A
non-GAAP financial measure is a numerical measure of a company's historical or
future performance, financial position, or cash flow that excludes (includes)
amounts or adjustments that are included (excluded) in the most directly
comparable measure calculated in accordance with generally accepted accounting
principles ("GAAP"). Regulation G requires companies that present non-GAAP
financial measures to disclose a numerical reconciliation to the most directly
comparable measurement using GAAP as well as the reason why the non-GAAP measure
is an important measure.

Management has used the following non-GAAP financial measures throughout this
quarterly report on Form 10-Q.

     o    In the "Net Interest Income / Net Interest Margin" section, the
          discussion is focused on tax-equivalent rates and margin. Municipal
          bond and municipal loan interest has been converted to a
          tax-equivalent rate using a federal tax rate of 34 percent. Management
          believes a discussion of the changes in tax-equivalent rates and
          margin is more relevant because it better explains changes in
          after-tax net income.

     o    In the "Noninterest Income / Noninterest Expense" section of this
          document, we report noninterest income and noninterest expense without
          the effect of unrealized gains and losses on securities in a grantor

                                       16
<PAGE>

          trust ("rabbi trust") which is a non-GAAP financial measure. Other
          income includes realized and unrealized securities gains and losses
          and capital gain dividends on trading securities (mutual funds) held
          in a rabbi trust in connection with the Company's Directors' and
          Executives' Deferred Compensation Plans. These securities are held as
          trading securities, and hence, unrealized gains and losses are
          recognized on the income statement. Any unrealized or realized loss on
          securities held in the rabbi trust net of any dividend, interest and
          capital gain dividend income earned on the securities in the rabbi
          trust (included in net interest income) are directly offset by a
          decrease to directors' fee/deferred executive compensation expense
          (included in other expense), and conversely, any net realized or
          unrealized gain combined with interest, dividends and capital gain
          dividends earned on the securities in the trust are directly offset by
          an increase to directors' fee/deferred executive compensation expense.
          These offsets are included in the line item identified on page 4 of
          the consolidated financial statements as "Depreciation in directors'
          and executives' deferred compensation plans." The activity in the
          rabbi trust has no effect on the Company's net income, therefore,
          management believes a more accurate comparison of current and prior
          year noninterest income and noninterest expense can be made if the
          rabbi trust realized and unrealized gains, losses, capital gain
          dividends and offsetting appreciation (depreciation) on the deferred
          compensation plans and trustee fees are removed.

Results of Operations
---------------------

Overview
--------
Net income for the third quarter of 2009 was $710,000, a 3.4 percent decrease
from net income of $735,000 for the same quarter last year. Basic and diluted
earnings per share for the third quarter of 2009 were $0.114, down 3.4 percent
from $0.118 per basic and diluted share for the third quarter of 2008.
Annualized return on average equity "ROAE" for the third quarter of 2009
decreased to 4.95 percent compared to 5.20 percent for the third quarter of
2008. The annualized return on average assets "ROAA" was 0.34 percent for the
third quarter of 2009 compared to 0.37 percent for the same period of 2008.

Net income for the first nine months of 2009 was $2,592,000, a 38.1 percent
decrease from net income of $4,188,000 for the same period last year. Basic
earnings per share for the first nine months of 2009 were $0.417, down 38.1
percent from $0.674 per share for the same period of 2008. Diluted earnings per
share for the first nine months of 2009 were $0.417, down 38.0 percent from
$0.673 per share for the same period of 2008. Annualized ROAE for the nine
months ended September 30, 2009 decreased to 6.14 percent compared to 10.01
percent for the first nine months of 2008. The annualized ROAA was 0.42 percent
for the nine months ended September 30, 2009 compared to 0.71 percent for the
first nine months of 2008.

The decline in net income for the third quarter was primarily due to net losses
on foreclosed assets (other real estate owned and repossessions) and increased
subordinated debt interest expense partially offset by a decrease in the
provision for loan losses expense. Net losses on foreclosed assets totaled
$761,000 in the third quarter of 2009 compared to a net gain of $4,000 in the
same period of 2008. An additional $287,000 of subordinated debt interest
expense was incurred in the third quarter of 2009 as a result of the Company's
July 17, 2009 issuance of $13,000,000 of subordinated debt. The provision for
loan losses totaled $2,200,000 for the third quarter of 2009 compared to
$2,800,000 for the same period of 2008. Net interest income for the third
quarter of 2009, after the provision for loan losses, increased $704,000, or
22.1 percent from the third quarter of 2008. Net interest income for the nine
months ended September 30, 2009, after the provision for loan losses, decreased
by $1,810,000 or 14.1 percent compared to the same period in 2008.

The following items affected third quarter and year-to-date results:

     o    General Economic Conditions in the Real Estate Markets - Among the
          primary areas of management focus during 2008 and 2009 were managing
          the deterioration of asset quality resulting from slowing economic
          activity and stresses affecting residential housing markets.
          Nonperforming assets and 90-day past due loans totaled $21,622,000
          (2.62 percent of total assets) at September 30, 2009 compared to
          $22,959,000 (2.79 percent of total assets) at June 30, 2009 and
          $14,565,000 (1.78 percent of total assets) at September 30, 2008. The
          provision for loan losses for the nine months ended September 30, 2009

                                       17
<PAGE>

          totaled $7,000,000, a $2,270,000 increase over the $4,730,000
          provision made during the same period of 2008 due to management's
          assessment of probable incurred losses in the Bank's loan portfolio.
     o    Gains on Sales of Available for Sale Securities - Gains of $1,656,000
          were realized from sales of available for sale securities during the
          first nine months of 2009 compared to $775,000 in the same period of
          2008.
     o    Compensation Expenses - Total compensation expenses (salaries,
          incentive compensation and benefits) decreased by $568,000 or 6.0
          percent to $8,884,000 for the first nine months of 2009 compared to
          $9,452,000 for the first nine months of 2008 due primarily to a
          reduction in staff levels and the reduction and elimination of certain
          incentive plans.
     o    Gains on Loan Sales - Gains on the sale of loans totaled $1,106,000
          for the first nine months of 2009, a 97.1 percent increase over the
          $561,000 in the first nine months of 2008 due to strong residential
          mortgage loan refinancing activity.
     o    FDIC Assessment Expense - The Company experienced an $871,000 or 253.9
          percent increase in deposit insurance expense in the first nine months
          of 2009 compared to the same period in 2008 related to the insurance
          assessment methodology set forth in the Federal Deposit Insurance
          Reform Act of 2005 ("FDIC Act"). The FDIC Act allocated credits to the
          Bank that could be applied toward quarterly FDIC assessments. The
          Bank's credits were depleted in the first quarter of 2008 which
          contributed to the increased 2009 expense. In addition, a special FDIC
          assessment of $378,000 was incurred in the second quarter of 2009
          which substantially increased expense in 2009 compared to 2008.

In February 2009, the Board of Directors of the Federal Deposit Insurance
Corporation voted to amend the restoration plan for the Deposit Insurance Fund
"DIF". The amended restoration plan extended the period of time to raise the DIF
reserve ratio to 1.15 percent from five to seven years. The amended restoration
plan also included a final rule that set assessment rates. Under this final rule
which began on April 1, 2009, the FDIC premium assessed to the Company
increased.

On May 22, 2009, the Board of Directors of the FDIC voted to levy a special
assessment on insured institutions as part of the agency's efforts to rebuild
the DIF and help maintain public confidence in the banking system. The final
rule established a special assessment of five basis points on each FDIC-insured
depository institution's assets, minus its Tier 1 capital, as of June 30, 2009.
The special assessment was due on September 30, 2009 and was collected by the
FDIC via electronic Automated Clearing House payment on October 1, 2009. It is
possible that an additional special assessment will be necessary in the fourth
quarter of 2009, although the amount of such a special assessment is uncertain.

On September 29, 2009, the FDIC Board of Directors adopted a Notice of Proposed
Rulemaking "NPR" that would require insured institutions to prepay their
estimated quarterly risk-based assessments for the fourth quarter of 2009 and
for all of 2010, 2011 and 2012. The FDIC Board also voted to adopt a uniform
three-basis point increase in assessment rates effective on January 1, 2011, and
extend the restoration period from seven to eight years. Public comments on the
NPR were due 30 days after publication in the Federal Register.

Net Interest Income / Net Interest Margin
-----------------------------------------
The following table presents information to assist in analyzing net interest
income. The table of Average Balance Sheets and Interest Rates presents the
major components of interest-earning assets and interest-bearing liabilities,
related interest income and expense and the resulting yield or cost. Interest
income presented in the table has been adjusted to a tax-equivalent basis
assuming a 34 percent tax rate. The tax-equivalent adjustment recognizes the
income tax savings when comparing taxable and tax-exempt assets.

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                                          Average Balance Sheets and Interest Rates
                                                           ------------------------------------ ------------------------------------
                                                           Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
                                                           ------------------------------------ ------------------------------------
                                                             Average              Average Rate   Average              Average Rate
                            ASSETS                           Balance    Interest  (annualized)   Balance    Interest  (annualized)
                                                             -------    --------  ------------   -------    --------  ------------
<S>                                                         <C>        <C>            <C>       <C>        <C>            <C>
Interest earning assets
     Securities
          Taxable ........................................  $  81,724  $   1,577      2.58%     $  76,414  $   2,668      4.66%
          Tax-exempt (1) .................................     24,004        795      4.43%        37,192      1,444      5.19%
                                                            ---------  ---------                ---------  ---------
              Total securities ...........................    105,728      2,372      3.00%       113,606      4,112      4.83%

     Loans (2) ...........................................    625,883     25,544      5.46%       594,304     28,312      6.36%
     FHLB Stock ..........................................      2,339         27      1.54%         2,312         92      5.32%
     Federal funds sold ..................................     25,709         28      0.15%         7,851        162      2.75%
     Interest-earning deposits ...........................      6,495         33      0.68%        11,352        192      2.25%
                                                            ---------  ---------                ---------  ---------
              Total interest earning assets ..............    766,154     28,004      4.89%       729,425     32,870      6.02%
                                                            ---------  ---------                ---------  ---------
Noninterest earning assets
     Allowance for loan losses ...........................    (12,798)                             (7,461)
     Premises and equipment & other assets ...............     55,714                              47,563
     Cash and due from banks .............................     14,008                              13,631
                                                            ---------                           ---------
              Total assets ..............................   $ 823,078                           $ 783,158
                                                            =========                           =========

            LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
     Total interest-bearing deposits .....................  $ 584,635      8,294      1.90%     $ 564,251     12,985      3.07%
     Borrowed funds ......................................     89,203      1,365      2.05%        74,286      1,724      3.10%
                                                            ---------  ---------                ---------  ---------
              Total interest-bearing liabilities ........     673,838      9,659      1.92%       638,537     14,709      3.08%
                                                            ---------  ---------                ---------  ---------

Noninterest-bearing liabilities
     Noninterest-bearing demand deposits .................     82,560                              78,730
     Other liabilities ...................................     10,211                               9,988
     Shareholders' equity ................................     56,469                              55,903
                                                            ---------                           ---------
              Total liabilities and shareholders' equity .  $ 823,078                           $ 783,158
                                                            =========                           =========

Interest margin recap
Net interest income and interest rate spread
     Net interest margin ..................................                           3.15%                               3.23%
     Tax-equivalent net interest income spread ............               18,345      2.97%                   18,161      2.94%
     Tax-equivalent net interest margin as a percent of
            total average earning assets ..................                           3.20%                               3.33%
Tax-equivalent adjustment (1) .............................                  274                                 550
                                                                       ---------                           ---------

      Net interest income .................................            $  18,071                           $  17,611
                                                                       =========                           =========
</TABLE>
(1)  Interest income on tax-exempt securities has been adjusted to a tax
     equivalent basis using a marginal income tax rate of 34%.
(2)  Nonaccrual loans are included in average loan balances and loan fees are
     included in interest income.


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                        Average Balance Sheets and Interest Rates
                                                         ------------------------------------- -------------------------------------
                                                         Three Months Ended September 30, 2009 Three Months Ended September 30, 2008
                                                         ------------------------------------- -------------------------------------
                                                            Average              Average Rate   Average              Average Rate
                           ASSETS                           Balance    Interest  (annualized)   Balance    Interest  (annualized)
                                                            -------    --------  ------------   -------    --------  ------------
<S>                                                         <C>        <C>            <C>       <C>        <C>            <C>


Interest earning assets
     Securities
          Taxable ......................................... $  87,679  $     511      2.31%     $  70,286  $     799      4.52%
          Tax-exempt (1) ..................................    13,912        135      3.85%        33,299        427      5.10%
                                                            ---------  ---------                ---------  ---------
              Total securities ............................   101,591        646      2.52%       103,585      1,226      4.71%

     Loans (2) ............................................   616,125      8,537      5.50%       609,184      9,252      6.04%
     FHLB Stock ...........................................     2,353         19      3.20%         2,312         30      5.19%
     Federal funds sold ...................................    33,927         11      0.13%         9,161         52      2.25%
     Interest-earning deposits ............................     6,953         10      0.57%        14,685         78      2.11%
                                                            ---------  ---------                ---------  ---------
              Total interest earning assets ...............   760,949      9,223      4.81%       738,927     10,638      5.73%
                                                            ---------  ---------                ---------  ---------

Noninterest earning assets
     Allowance for loan losses ............................   (13,769)                             (8,116)
     Premises and equipment & other assets ................    55,994                              47,458
     Cash and due from banks ..............................    13,182                              14,058
                                                            ---------                           ---------
              Total assets ................................ $ 816,356                           $ 792,327
                                                            =========                           =========

            LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
     Total interest-bearing deposits ...................... $ 565,264      2,430      1.71%     $ 570,606      3,949      2.75%
     Borrowed funds .......................................    98,339        661      2.67%        75,238        543      2.87%
                                                            ---------  ---------                ---------  ---------
              Total interest-bearing liabilities ..........   663,603      3,091      1.85%       645,844      4,492      2.77%
                                                            ---------  ---------                ---------  ---------


Noninterest-bearing liabilities
     Noninterest-bearing demand deposits ..................    85,037                              81,425
     Other liabilities ....................................    10,797                               8,816
     Shareholders' equity .................................    56,919                              56,242
                                                            ---------                           ---------
              Total liabilities and shareholders' equity .. $ 816,356                           $ 792,327
                                                            =========                           =========


Interest margin recap
Net interest income and interest rate spread
     Net interest margin ..................................                           3.17%                               3.22%
     Tax-equivalent net interest income spread ............            $   6,132      2.96%                $   6,146      2.96%
     Tax-equivalent net interest margin as a percent of
          total average earning assets ....................                           3.20%                               3.31%
Tax-equivalent adjustment (1) .............................                   48                                 166
                                                                       ---------                           ---------

              Net interest income .........................            $   6,084                           $   5,980
                                                                       =========                           =========
</TABLE>
(1)  Interest income on tax-exempt securities has been adjusted to a tax
     equivalent basis using a marginal income tax rate of 34%.
(2)  Nonaccrual loans are included in average loan balances and loan fees are
     included in interest income.

                                       20
<PAGE>

Net interest income is the primary source of the Company's earnings. It is a
function of the net interest margin and the volume of average earning assets.
The net interest margin as a percent of average earnings assets was 3.15 percent
for the first nine months of 2009, down from 3.23 percent for the same period in
2008 and was 3.17 percent for the third quarter of 2009, down from 3.22 percent
for the same period in 2008. Adjusting for tax-exempt income and expense, as
discussed in the "Non-GAAP Financial Measures" section, the tax-equivalent net
interest margin as a percent of average earning assets was 3.20 percent for the
first nine months of 2009, down from 3.33 percent for the same period last year
and was 3.20 percent for the quarter ended September 30, 2009, down from 3.31
percent for the same quarter last year. The thirteen basis point drop in the
tax-equivalent net interest margin during the first nine months of 2009 compared
to the same period in 2008 and the eleven basis point drop in the third quarter
of 2009 compared to 2008 were primarily the result of higher balances of
nonperforming assets and fixed assets, and the issuance of $13,000,000 of
subordinated debt during the first nine months of 2009 and significantly higher
loan fees during the first nine months of 2008.

Net interest income was $18,071,000 for the nine months ended September 30, 2009
compared to $17,611,000 for the same period in 2008, an increase of 2.6 percent.
Adjusting for tax-exempt income and expense, as discussed in the "Non-GAAP
Financial Measures" section, tax-equivalent net interest income was $18,345,000
for the nine months ended September 30, 2009 compared to $18,161,000 for the
same period in 2008, an increase of 1.0 percent.

Net interest income was $6,084,000 for the three months ended September 30, 2009
compared to $5,980,000 for the same period in 2008, an increase of 1.7 percent.
Adjusting for tax-exempt income and expense, as discussed in the "Non-GAAP
Financial Measures" section, tax-equivalent net interest income was $6,132,000
for the three months ended September 30, 2009 compared to $6,146,000 in the same
period in 2008, a decrease of 0.2 percent.

Noninterest Income / Noninterest Expense
----------------------------------------
Total noninterest income for the first nine months of 2009 was $8,861,000
compared to $7,937,000 for the same period in 2008. Excluding the effect of the
Company's deferred compensation plan, discussed in the "Non-GAAP Financial
Measures" section, noninterest income for the nine months ended September 30,
2009 was $8,595,000 compared to $8,393,000 for the same period of 2008, an
increase of $202,000 or 2.4 percent. The effect of the Company's deferred
compensation plan for the first nine months of 2009 was a $266,000 increase in
noninterest income compared to a $456,000 decrease in the same period of 2008.

Significant changes in noninterest income occurred primarily in the following
areas:
     o    Gains of $1,656,000 were realized from sales of available for sale
          securities during the first nine months of 2009 compared to $775,000
          in the same period of 2008.
     o    Gains on the sale of loans totaled $1,106,000 for the first nine
          months of 2009, a 97.1 percent increase over the $561,000 in the first
          nine months of 2008 due to strong residential mortgage loan
          refinancing activity.

Total noninterest income for the third quarter of 2009 was $2,413,000, a
$136,000 or 5.3 percent decrease from $2,549,000 for the same period in 2008.
Excluding the effect of the Company's deferred compensation plan, discussed in
the "Non-GAAP Financial Measures" section, noninterest income totaled $2,237,000
for the third quarter of 2008 compared to $2,771,000 for the same period of
2008, a decrease of $534,000 or 19.3 percent.

Significant changes in noninterest income occurred primarily in the following
areas:
     o    Net losses on foreclosed assets totaled $761,000 in the third quarter
          of 2009 compared to a net gain of $4,000 in the same period of 2008.
          This decrease to income resulted primarily from declines in market
          values in the residential housing market and declining general
          economic conditions during the Company's holding period for these
          assets.
     o    Gains on the sale of loans totaled $361,000 for the three months ended
          September 30, 2009, a 91.0 percent increase over the $189,000 for the
          same period of 2008 due to strong residential mortgage loan
          refinancing activity.

For the nine months ended September 30, 2009, total noninterest expense was
$16,775,000 compared to $15,830,000 for the same period in 2008. Excluding the
effect of the Company's deferred compensation plan, discussed in the "Use of
Non-GAAP Financial Measures" section, total noninterest expense for the first
nine months of 2009 was $16,462,000, a $252,000 or 1.6 percent increase from
$16,210,000 for the same period in 2008. The effect of the Company's deferred

                                       21
<PAGE>

compensation plan for the first nine months of 2009 was a $313,000 increase in
noninterest expense compared to a $380,000 decrease in the same period of 2008.

Significant changes in noninterest expense occurred in the following areas:
     o    The Company experienced an $871,000 or 253.9 percent increase in FDIC
          insurance assessment expense in the first nine months of 2009 compared
          to the same period in 2008.
     o    Total compensation expenses (salaries, incentive compensation and
          benefits) decreased by $568,000 or 6.0 percent to $8,884,000 in the
          first nine months of 2009 compared to $9,452,000 in the first nine
          months of 2008.

For the quarter ended September 30, 2009, total noninterest expense was
$5,429,000 compared to $5,069,000 for the same period in 2008. Excluding the
effect of the Company's deferred compensation plan, discussed in the "Use of
Non-GAAP Financial Measures" section, total noninterest expense for the third
quarter of 2009 was $5,242,000, compared to $5,269,000 for the same period of
2008. The $27,000 or 0.5 percent decrease is largely the result of a $140,000 or
100.0 percent increase in deposit insurance expense relating to the Federal
Deposit Insurance Reform Act of 2005.

Income Taxes
------------
The Company records a provision for income taxes currently payable, along with a
provision for those taxes payable in the future. Such deferred taxes arise from
differences in timing of certain items for financial statement reporting rather
than income tax reporting. The major difference between the effective tax rate
applied to the Company's financial statement income and the federal and state
statutory rate of approximately 40 percent is interest on tax-exempt securities,
tax credits received and the effect of the Company's Delaware based investment
holding company and a real estate investment trust "REIT".

The Company's effective tax rate was 17.9 percent for the nine months ended
September 30, 2009 compared to 16.0 percent for the same period in 2008.

Financial Condition
-------------------

Assets and Liabilities
----------------------
Total assets of the Company at September 30, 2009 were $823,881,000 an increase
of 0.5 percent or $4,082,000 compared to $819,799,000 at December 31, 2008.
Loans (including loans held for sale) totaled $608,667,000 at September 30, 2009
compared to $633,091,000 at December 31, 2008, a decrease of 3.9 percent.
Deposits decreased to $654,807,000 at September 30, 2009 compared to
$665,179,000 at December 31, 2008, a decrease of $10,372,000 or 1.6 percent.
Borrowings increased to $103,388,000 at September 30, 2009 compared to
$93,203,000 at December 31, 2008, a 10.9 percent increase.

Capital
-------
Shareholders' equity increased by $1,300,000 at September 30, 2009 compared to
December 31, 2008. This increase was a result of year-to-date net income of
$2,592,000 offset by options forfeited net of expense of $11,000, ESOP shares
forfeited of $11,000, unrealized loss on securities in the Company's available
for sale securities portfolio totaling $337,000 (net of tax) and dividends paid
of $933,000.

The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations: total risk adjusted capital,
Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk inherent in the entity's activities that are not part of the
calculated ratios.

There are five capital categories defined in the regulations ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could

                                       22
<PAGE>

have a material effect on a bank's operations. At September 30, 2009 and
December 31, 2008, the Company and the Bank were categorized as well capitalized
and met all applicable capital adequacy requirements. There are no conditions or
events since September 30, 2009 that management believes have changed the
Company's or Bank's classification.

On July 17, 2009, $13 million of Tier 2 capital was raised by the Company
through the issuance of Subordinated Debentures. On July 23, 2009, the Company's
Board of Directors voted to provide $10 million of the net proceeds of the
offering to the Bank as additional capital with the remaining proceeds to be
used for general corporate purposes at the holding company level.

As of September 30, 2009 and December 31, 2008, the actual and required capital
amounts and ratios were as follows:

<TABLE>
<CAPTION>
                                                                     Required for          To Be Well
                                                     Actual       Adequate Capital (1)   Capitalized (1)
                                                 ------------------------------------------------------
                                                 Amount   Ratio      Amount   Ratio      Amount   Ratio
                                                 ------------------------------------------------------
<S>                                             <C>       <C>       <C>       <C>       <C>       <C>
As of September 30, 2009
------------------------
Total capital (1) (to risk-weighted assets)
  Consolidated .............................    $85,670   14.07 %   $48,719    8.00 %       N/A     N/A
  Bank .....................................     81,688   13.50      48,418    8.00     $60,522   10.00 %
Tier I capital (1) (to risk-weighted assets)
  Consolidated .............................     64,989   10.67      24,360    4.00         N/A     N/A
  Bank .....................................     74,053   12.24      24,209    4.00      36,313    6.00
Tier I capital (1) (to average assets)
  Consolidated .............................     64,989    7.96      32,654    4.00         N/A     N/A
  Bank .....................................     74,053    9.11      32,504    4.00      40,630    5.00

As of December 31, 2008
Total capital (1) (to risk-weighted assets)
  Consolidated .............................    $71,214   11.34 %   $50,224    8.00 %       N/A     N/A
  Bank .....................................     70,498   11.28      49,999    8.00     $62,499   10.00 %
Tier I capital (1) (to risk-weighted assets)
  Consolidated .............................     63,326   10.09      25,112    4.00         N/A     N/A
  Bank .....................................     62,644   10.02      25,000    4.00      37,499    6.00
Tier I capital (1) (to average assets)
  Consolidated .............................     63,326    7.74      32,734    4.00         N/A     N/A
  Bank .....................................     62,644    7.69      32,600    4.00      40,750    5.00
</TABLE>
(1)  As defined by regulatory agencies


Classification of Assets, Allowance for Loan Losses, and Nonperforming Loans The
Bank currently classifies loans internally to assist management in addressing
collection and other risks. The Bank maintains a "watch list" representing
credits that require above average attention in order to mitigate the risk of
default or loss. Over the periods noted below, the watch list consisted of the
following:


                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                        9/30/2009      6/30/2009      03/31/2009     12/31/2008     9/30/2008
                                                       ----------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>            <C>
Total Loans $ .....................................    608,667,000    624,018,000    630,842,000    633,091,000    616,226,000
Total Watch List Loans ............................     79,571,000     76,720,000     79,073,000     59,172,000     34,531,000
Number of Watch List Customers ....................             73             69             67             52             43
Total Watch List $> 30 Days Past Due ..............     21,823,000     17,368,000     22,370,000     14,751,000     15,821,000
Total Watch List $ Customers Secured by Real Estate     73,704,000     70,697,000     72,005,000     55,507,000     31,886,000
Total Watch List $ Secured by Non R/E .............      4,196,000      5,855,000      6,878,000      3,268,000      2,446,000
Total Watch List $ Unsecured ......................      1,671,000        168,000        190,000        397,000        199,000

Total Non Performing Loans $ ......................     16,993,000     18,576,000     13,696,000     14,329,000     14,000,000
</TABLE>

As of September 30, 2009, 72.6 percent of the watch list exposure was less than
thirty days past due, compared to 77.4 percent as of June 30, 2009 and 54.2
percent as of September 30, 2008. As of September 30, 2009, loans totaling
$73,704,000 or 92.6 percent of the total watch list loans were secured by real
estate with $52,431,000 or 71.1 percent less than thirty days past due and
$14,858,000 (20.2 percent) on non-accrual.

Although the amount of loans internally classified has increased over the past
twelve months, Management believes that the real estate collateral behind many
of the loans will reduce potential losses. The allowance for loan losses was
$13,181,000 or 2.18 percent of portfolio loans (excluding loans held for sale)
at September 30, 2009 compared to $11,172,000, or 1.77 percent, of portfolio
loans at December 31, 2008. A portion of classified loans are non-accrual loans.
The Bank had nonperforming assets (non-accrual loans, restructured loans, other
real estate owned and 90-days past due loans still accruing) totaling
$21,622,000 or 2.62 percent of total assets at September 30, 2009 compared to
$18,780,000 or 2.29 percent of total assets at December 31, 2008.

During the third quarter of 2009, the Bank had net loan charge-offs totaling
$1,979,000 compared to $1,151,000 in the third quarter of 2008. Past due loans
(30 days or more) were 3.73 percent of total loans at September 30, 2009
compared to 2.94 percent of total loans at September 30, 2008.

Liquidity
Liquidity refers to the ability of a financial institution to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals
and pay operating expenses. The primary sources of liquidity are cash,
interest-bearing deposits in other financial institutions, marketable
securities, loan repayments, increased deposits and total institutional
borrowing capacity.

Cash Requirements
Management believes that the Company has adequate liquidity and adequate sources
for obtaining additional liquidity if needed. Members of the Company's internal
Asset/Liability Committee "ALCO" regularly discuss projected loan demand and
appropriate funding sources to manage the Company's gap position and minimize
interest rate risk.

Short-term liquidity needs resulting from normal deposit/withdrawal functions
are provided by the Company retaining a portion of cash generated from
operations and through utilizing federal funds and repurchase agreements.
Long-term liquidity and other liquidity needs are provided by the ability of the
Company to borrow from the Federal Home Loan Bank of Indianapolis "FHLB", to
obtain brokered certificates of deposit "CDs" and to borrow on a line of credit.
FHLB advances were $17,430,000 at September 30, 2009 compared to $25,523,000 at
December 31, 2008. At September 30, 2009, the Company had excess borrowing
capacity at the FHLB of $51,262,000 as limited by the FHLB collateral limit. In
terms of managing the Company's liquidity, management's primary focus is on
increasing deposits to fund future growth.

Over the past year, the Company has also utilized alternative funding sources.
In July 2005, the Company began using brokered CDs as an alternate source of
funding. As of September 30, 2009, the Company had $46,201,000 of brokered CDs
on its balance sheet, compared to $66,101,000 at December 31, 2008 and
$23,101,000 at September 30, 2008.

                                       24
<PAGE>

At the bank holding company level, the Company primarily uses cash to pay
dividends to shareholders, to repurchase stock and to pay interest on
subordinated debt. During the past twelve months, the main sources of funding
for the holding company have been dividends from the Bank and proceeds from the
Company's July 17, 2009 Subordinated Debt issuance. During the first three
quarters of 2009, the Bank paid dividends totaling $1,684,000 to the holding
company. As of October 1, 2009, the amount of dividends the Bank can pay to the
parent company without prior regulatory approval was $5,714,000, versus
$4,317,000 at January 1, 2009. As discussed in Note 12 to the Consolidated
Financial Statements (page 46 of the 2008 Annual Report to Shareholders) and
Item 1 of the December 31, 2008 Form 10-K, the Bank is subject to many
regulations and, among other things, may be limited in its ability to pay
dividends or transfer funds to the holding company. Accordingly, consolidated
cash flows as presented in the Consolidated Statements of Cash Flows on page 7
may not represent cash immediately available to the holding company.

Sources and Uses of Cash
The following discussion relates to the Consolidated Statements of Cash Flows
(page 7 of the consolidated condensed financial statements). During the nine
months ended September 30, 2009, $11,091,000 of cash was provided by operating
activities, compared to $10,051,000 provided during the same period in 2008. The
increase in the cash provided in this area was primarily a result of the
increase in interest payable and other liabilities during the 2009 period as
compared to the 2008 period. Interest payable and other liabilities increased
$3,481,000 during the nine month period ended September 30, 2009 as compared to
an increase of $792,000 during the 2008 period. During the first nine months of
2009, $31,026,000 was provided by investing activities, compared to $12,236,000
used in the same period of 2008. The increase in the cash provided in this
category occurred primarily due to a $51,738,000 increase in the cash provided
by the net change in loans. During the first nine months of 2009, $698,000 of
cash was provided by financing activities compared to $36,813,000 of cash
provided during the same period in 2008. The decrease in cash provided by
financing activities was primarily the result of a $70,076,000 decrease in the
net change in noninterest-bearing, interest-bearing demand and savings deposits,
and certificates of deposit offset by a $29,476,000 increase in cash provided by
the net change in borrowings.

Overall, net cash and cash equivalents increased $42,815,000 during the nine
months ended September 30, 2009 compared to an increase of $34,628,000 in the
same period of 2008.

Impact of Inflation and Changing Prices
---------------------------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time, due to inflation.

The primary assets and liabilities of the Company are monetary in nature.
Consequently, interest rates generally have a more significant impact on
performance than the effects of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services. In a period of rapidly rising interest rates, the
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels. The Company
constantly monitors the liquidity and maturity structure of its assets and
liabilities, and believes active asset/liability management has been an
important factor in its ability to record consistent earnings growth through
periods of interest rate volatility.

Other
-----
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission, including Monroe
Bancorp (ticker symbol MROE). The address is http://www.sec.gov.

                                       25
<PAGE>

Forward-Looking Statements
--------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements about the
Company which we believe are within the meaning of the Private Securities
Litigation Reform Act of 1995. This Form 10-Q contains certain forward-looking
statements with respect to the financial condition, results of operations,
plans, objectives, future performance and business of the Company.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They often include the words "believe,"
"expect," "anticipate," "intend," "plan," "estimate" or words of similar
meaning, or future or conditional verbs such as "will," "would," "should,"
"could" or "may" or words of similar meaning. These forward-looking statements,
by their nature, are subject to risks and uncertainties. There are a number of
important factors that could cause future results to differ materially from
historical performance and these forward-looking statements. Factors that might
cause such a difference include, but are not limited to: (1) changes in
competitive pressures among depository institutions; (2) changes in the interest
rate environment; (3) changes in prepayment speeds, charge-offs and loan loss
provisions; (4) continued deterioration in general economic conditions, either
national or in the markets in which the Company does business; (5) legislative
or regulatory changes adversely affecting the business of the Company; (6)
changes in real estate values or the real estate markets; (7) the Company's
business development efforts in new markets in and around Hendricks and Hamilton
Counties; (8) actions of the Federal Reserve Board; (9) changes in accounting
principles and interpretations; and (10) actions of the Department of the
Treasury and the Federal Deposit Insurance Corporation under the Emergency
Economic Stabilization Act of 2008 and the Federal Deposit Insurance Act and
other legislative and regulatory actions and reforms. These forward-looking
statements speak only as of the date of this Form 10-Q and Monroe Bancorp
undertakes no obligation to update any such forward-looking statement to reflect
events or circumstances that occur after the date hereof. Further information on
other factors which could affect the financial results of the Company are
included in the Company's Form 10-K for the year ended December 31, 2008 as
filed with the Securities and Exchange Commission.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk
-------   ----------------------------------------------------------

Market risk of the Company encompasses exposure to both liquidity risk and
interest rate risk and is reviewed on an ongoing basis by management and
quarterly by the Asset/Liability Committee ("ALCO") and the Board of Directors.
Liquidity was addressed as part of the discussion entitled "Liquidity."

The Company's interest sensitivity position at September 30, 2009 remained
consistent with the Company's primary goal of maximizing interest margin while
maintaining a low exposure to interest rate risk. The Company's performance in
this regard can be seen under the Company's 200 basis point upward rate shock
analysis, net interest income is shown to decrease by approximately 3.31
percent, well below the Board established guidelines, and lower than the levels
forecasted using the Company's December 31, 2008 balance sheet.

Management uses several techniques to measure interest rate risk. Interest rate
risk exposure is measured using an interest rate sensitivity analysis to
determine the change in the net portfolio value ("NPV") of its cash flows from
assets and liabilities in the event of hypothetical changes in interest rates.
Management also forecasts the net interest income that the Bank's current
balance sheet would yield over the next twelve months assuming the same
hypothetical changes in interest rates. A third method used by the Bank to
measure interest rate risk is an interest rate sensitivity gap analysis. The gap
analysis is utilized to quantify the repricing characteristics of the Bank's
assets and liabilities.

Management believes that its forecast of changes in net interest income under
various rate shocks is the more valuable and easiest to interpret interest rate
risk measurement technique. Management believes that interested parties will
derive a better understanding of how the Company's intermediation activities
will perform under different rate scenarios from its presentation of projected
net interest income under various rate shocks. This should help users of the
information form clearer opinions of the Company's interest rate sensitivity.

                                       26
<PAGE>

The Company's Board of Directors adopted an interest rate risk policy which
established a 20 percent maximum increase or decrease in net interest income in
the event of a sudden and sustained 2 percent (200 basis point) increase or
decrease in interest rates.

The following table summarizes the results of management's forecast of net
interest income that would be generated by the Bank's September 30, 2009 balance
sheet under various rate shocks:

Projected Change in Net Interest Income - September 30, 2009
<TABLE>
<CAPTION>
                               Projected Net Interest             $ Change
                                   Income Over the             in Net Interest          % Change
Change in Interest Rate          Next Twelve Months                Income            in Net Interest
    (basis points)                (in thousands)               (in thousands)            Income
----------------------------------------------------------------------------------------------------
<S>     <C>                          <C>                           <C>                   <C>
        +200                         $ 23,009                      $ (787)               (3.31) %
        +100                           23,250                        (546)               (2.30)
           0                           23,796                           0                    0
        -100                           24,093                         297                 1.25
        -200                           23,415                        (381)                1.60
</TABLE>

For comparative purposes, the following table summarizes the results of
management's forecast of net interest income that would be generated by the
Bank's December 31, 2008 balance sheet under various rate shocks.

Projected Change in Net Interest Income - December 31, 2008
<TABLE>
<CAPTION>
                               Projected Net Interest              $ Change
                                   Income Over the             in Net Interest           % Change
Change in Interest Rate          Next Twelve Months                 Income           in Net Interest
    (basis points)                (in thousands)               (in thousands)            Income
----------------------------------------------------------------------------------------------------
<S>     <C>                          <C>                          <C>                    <C>
        +200                         $ 24,437                     $ (1,438)              (5.56) %
        +100                           24,867                       (1,008)              (3.90)
           0                           25,875                            0                   0
        -100                           26,449                          574                2.22
        -200                           26,465                          590                2.28
</TABLE>

The Company's liability sensitivity at September 30, 2009 has changed modestly
from its position at December 31, 2008. Management's efforts to incrementally
lengthen liabilities and shorten assets even as customers in general continue to
seek the opposite (shorter deposit terms and longer fixed rate loan terms) have
kept the results from the rate shocks of the two periods relatively similar.

Management believes a meaningful and sustained decline in interest rates is
unlikely over the next twelve months, while an increase in rates of 100 to 200
basis points over the next twelve months is certainly possible, if not likely.
Accordingly, we believe the 200 basis point increase is the most important
scenario to review and consider how a rate movement of this magnitude and
direction could affect net interest income derived from the Company's current
balance sheet and use this forecast to measure the Company's interest rate risk.

The September 30, 2009 table indicates that the Bank's projected net interest
income for the next twelve months would decline by 3.31 percent in the event of
a sudden and sustained 200 basis point increase in interest rates. This result
is largely driven by the Company having more liabilities, primarily deposits,
that would reprice over the twelve-month horizon than assets. As a result, net
interest expense would increase faster than interest income in the event of an
upward rate shock. However, the volume difference between assets and liabilities
that reprice over the twelve month period has significantly reduced since
December 31, 2008 partially due to the Company's desire to increase liquidity.
This can best be seen in the Company's Fed Funds sold position which was
$44,089,000 at September 30, 2009 compared to $8,663,000 at December 31, 2008.

                                       27
<PAGE>

The decline in net interest income forecasted for the two periods presented is
largely related to the addition of $13,000,000 of subordinated debt, the impact
of increasing liquidity (very short assets) and the reduction in loan balances.

The results from the Company's rate shock analyses continue to indicate the
interest rate sensitivities of the Bank's assets and liabilities are relatively
well matched. The estimated changes in net interest income calculated as of
September 30, 2009 are within the approved guidelines established by the Board
of Directors.

Computations of prospective effects of hypothetical interest rate changes are
based on a number of assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-off rates, and should not be relied upon
as indicative of actual results. These computations do not contemplate actions
management may undertake in response to changes in interest rates.

Certain shortcomings are inherent in the method of computing the estimated net
interest income under hypothetical rate shocks. Actual results may differ from
that information presented in the table above should market conditions vary from
the assumptions used in preparation of the table information. If interest rates
remain or decrease below current levels, the proportion of adjustable rate loans
in the loan portfolio could decrease in future periods due to refinancing
activity. Also, in the event of an interest rate change, prepayment and early
withdrawal levels would likely be different from those assumed in the table.
Lastly, the ability of many borrowers to repay their adjustable rate debt may
decline during a rising interest rate environment.

Item 4.   Controls and Procedures.
-------   ------------------------

Monroe Bancorp's management is responsible for establishing and maintaining
effective disclosure controls and procedures, as defined under Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. As of September 30, 2009,
an evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer (the Company's principal
executive officer) and Chief Financial Officer (the Company's principal
financial officer), of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures as of September 30, 2009 were effective in
ensuring information required to be disclosed in this Quarterly Report on Form
10-Q was recorded, processed, summarized, and reported on a timely basis.

There were no changes in the Company's internal control over financial reporting
that occurred during the quarter ended September 30, 2009 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


Part II - Other Information
---------------------------

Item 1.   Legal Proceedings.
-------   ------------------
          None

Item 1A.  Risk Factors.
--------  -------------
          Our allowance for loan losses may be insufficient.

          We maintain an allowance for loan losses, which is a reserve
          established through a provision for possible loan losses charged to
          expense, that represents management's best estimate of probable losses
          within the existing portfolio of loans. The allowance, in the judgment
          of management, is necessary to reserve for estimated loan losses and
          risks inherent in the loan portfolio. The level of the allowance
          reflects management's continuing evaluation of industry
          concentrations, specific credit risks, loan loss experience, current
          loan portfolio quality, present economic, political and regulatory
          conditions and unidentified losses inherent in the current loan

                                       28
<PAGE>

          portfolio, and has been increasing as the economy worsens. The
          determination of the appropriate level of the allowance for loan
          losses inherently involves a high degree of subjectivity and requires
          management to make significant estimates of current credit risks and
          future trends, all of which may undergo material changes. In addition,
          bank regulatory agencies periodically review our allowance for loan
          losses and may require an increase in the provision for possible loan
          losses or the recognition of further loan charge-offs, based on
          judgments different than those of management. In light of the current
          economic environment, significant additional provisions for loan
          losses may be necessary to supplement the allowance for loan losses in
          the future. If charge-offs in future periods exceed the allowance for
          loan losses, we will need additional provisions to increase the
          allowance for loan losses. Any increases in the allowance for loan
          losses will result in a decrease in net income and, possibly, capital,
          and may have a material adverse effect on our financial condition and
          results of operations.

          A significant number of the loans in our portfolio are secured by real
          estate, and a continued downturn in the economy within the markets we
          serve could significantly hurt our business and prospects for growth.

          As of September 30, 2009, real estate loans comprised $498,890,000, or
          approximately 82.5% of our total loan portfolio (excluding loans held
          for sale) and approximately 60.6% of our total assets. Of that amount,
          $391,362,000 consisted of commercial and residential real estate loans
          and $76,620,000 consisted of construction real estate loans. The
          market value of real estate securing our real estate loans can
          fluctuate significantly in a short period of time as a result of
          market conditions. Adverse developments affecting real estate values
          in our primary market areas could increase the credit risk associated
          with our loan portfolio. In addition, the repayment of commercial real
          estate loans generally is dependent, in large part, on sufficient
          income from the properties securing the loans to cover operating
          expenses and debt service. Economic events or governmental regulations
          outside of our control or that of the borrower could negatively impact
          the future cash flow and market values of the affected properties.

          Beginning in 2007, the residential and commercial real estate sectors
          of the U.S. economy experienced an economic slowdown that has
          continued in 2009. Specifically, the values of residential and
          commercial real estate located in our market areas have declined,
          especially in our Central Indiana market, and these declines may
          continue in the future. If the loans that are collateralized by real
          estate become troubled during a time when market conditions are
          declining or have declined, then we may not be able to realize the
          full value of the collateral that we anticipated at the time of
          originating the loan, which could require us to increase our provision
          for loan losses and adversely affect our financial condition and
          results of operations.

          Further deterioration of our nonperforming loans or an increase in the
          number of non-performing loans may have an adverse effect on our
          operations.

          Weakening economic conditions in the residential and commercial real
          estate sectors have adversely affected, and may continue to adversely
          affect, our loan portfolio. The ratio of nonperforming assets and 90
          day past due loans to total assets increased to 2.62% as of September
          30, 2009, from 1.78% as of September 30, 2008. It is likely that this
          ratio will increase over the next several quarters as a result of the
          general economic environment as well as the progression of certain
          delinquent loans to loans that are 90 days or more past due. If loans
          that currently are non-performing further deteriorate or loans that
          are currently performing become nonperforming, we may need to increase
          our allowance for loan losses or charge-off those loans. Any increase
          or charge-off would have an adverse impact on our financial condition
          and results of operations.

          The geographic concentration of our markets makes our business highly
          susceptible to local economic conditions.

                                       29
<PAGE>

          Unlike larger banking organizations that are more geographically
          diversified, our operations are currently concentrated in the
          Bloomington, Indiana and Central Indiana markets. As a result of this
          geographic concentration, our financial results depend largely upon
          economic conditions in these market areas. Deterioration in economic
          conditions in one or all of these markets could result in one or more
          of the following:

               o    an increase in loan delinquencies;
               o    an increase in non-performing loans and foreclosures;
               o    a decrease in the demand for our products and services; and
               o    a decrease in the value of collateral for loans, especially
                    real estate, in turn reducing customers' borrowing power,
                    the value of assets associated with problem loans and
                    collateral coverage.

          To date, the impact of the adverse economic conditions in our Central
          Indiana market has been severe. As a result, we have experienced asset
          quality issues in the Central Indiana market, and we expect to
          continue to experience higher levels of problem assets in this market
          unless the economy greatly improves. If current levels of market
          disruption and volatility continue in our Central Indiana market, or
          if our Bloomington, Indiana market suffers increased levels of market
          disruption and volatility, our problem assets may increase and the
          demand for our products and services could be adversely affected,
          which could in turn have a material adverse effect on our business,
          results of operations and financial condition.

          We are subject to interest rate risk.

          Our earnings and cash flows are largely dependent upon our net
          interest income. Net interest income is the difference between
          interest income earned on interest earning assets such as loans and
          securities and interest expense paid on interest bearing liabilities
          such as deposits and borrowed funds. Interest rates are highly
          sensitive to many factors that are beyond our control, including
          general economic conditions and policies of various governmental and
          regulatory agencies. Changes in monetary policy, including changes in
          interest rates, could influence not only the interest we receive on
          loans and securities and the interest we pay on deposits and
          borrowings, but such changes could also affect (i) our ability to
          originate loans and obtain deposits, (ii) the fair value of our
          financial assets and liabilities, and (iii) the average duration of
          our mortgage-backed securities portfolio. Currently, we are in a
          liability-sensitive position. Therefore, if interest rates increase,
          the rates paid on deposits and other borrowings will increase at a
          faster rate than the interest rates received on loans and other
          investments, resulting in a decline in our net interest margin. If
          this happens, earnings could be adversely affected. In addition, due
          to the current low interest rate environment, interest rates paid on
          deposits are already approaching zero. If interest rates decrease, our
          liabilities will reprice downward more quickly than our assets.
          Because deposit pricing cannot become significantly lower than current
          levels, our net interest margin could decline in that case as well and
          earnings could be adversely affected.

          Liquidity risk could impair our ability to fund operations and
          jeopardize our financial condition.

          Liquidity is essential to our business. An inability to raise funds
          through deposits, borrowings, the sale of securities or loans and
          other sources could have a substantial negative effect on our
          liquidity. Our access to funding sources in amounts adequate to
          finance our activities on terms acceptable to us could be impaired by
          factors that affect us specifically or the financial services industry
          or the economy in general. For example, we could lose access to our
          federal funds lines or our lines of credit from correspondent banking
          organizations, or the costs of such funds could increase. We might not

                                       30
<PAGE>

          be able to replace such funds in the future if, among other things,
          market conditions or our results of operations or financial condition
          were to change.

          Slower than anticipated growth in the Bank's new branches could result
          in reduced net income.

          We opened full service branches in Brownsburg, Hendricks County,
          Indiana, in January 2006, Plainfield, Hendricks County, Indiana in
          December 2007, Avon, Hendricks County, Indiana in January 2008, and
          Noblesville, Hamilton County, Indiana in September 2008. New branches
          require a significant investment of both financial and personnel
          resources and lower than expected loan and deposit growth in the new
          branches could result in lower than expected revenues and net income
          generated by those investments. Opening new branches results in
          additional expenses and diverts resources from current core
          operations. None of the four branches is showing a profit, and we are
          unable to predict when, or if, they will achieve profitability.

          Future growth or operating results may require us to raise additional
          capital but that capital may not be available or it may be dilutive.

          We are required by federal and state regulatory authorities to
          maintain adequate levels of capital to support our operations. To the
          extent our future operating results erode capital or we elect to
          expand through loan growth or acquisition we may be required to raise
          additional capital. Our ability to raise capital will depend on
          conditions in the capital markets, which are outside of our control,
          and on our financial performance. Accordingly, we cannot be assured of
          our ability to raise capital when needed or on favorable terms. If we
          cannot raise additional capital when needed, we will be subject to
          increased regulatory supervision and the imposition of restrictions on
          our growth and business. These could negatively impact our ability to
          operate or further expand our operations through acquisitions or the
          establishment of additional branches and may result in increases in
          operating expenses and reductions in revenues that could have a
          material adverse effect on our financial condition and results of
          operations.

          We are subject to extensive government regulation and supervision.

          We, primarily through the Bank, are subject to extensive federal and
          state regulation and supervision. Banking regulations are primarily
          intended to protect depositors' funds, federal deposit insurance funds
          and the banking system as a whole, not shareholders. These regulations
          affect our lending practices, capital structure, investment practices,
          dividend policy and growth, among other things. Congress and federal
          regulatory agencies continually review banking laws, regulations and
          policies for possible changes. Changes to statutes, regulations or
          regulatory policies, including changes in interpretation or
          implementation of statutes, regulations or policies, could affect us
          in substantial and unpredictable ways. Such changes could subject us
          to additional costs, limit the types of financial services and
          products we may offer and/or increase the ability of non-banks to
          offer competing financial services and products, among other things.
          Failure to comply with laws, regulations or policies could result in
          sanctions by regulatory agencies, civil money penalties and/or
          reputation damage, which could have a material adverse effect on our
          business, results of operations and financial condition.

          As a result of the recent global financial crisis, the potential
          exists for new federal or state laws and regulations regarding lending
          and funding practices and liquidity standards to be promulgated, and
          bank regulatory agencies are expected to be active in responding to
          concerns and trends identified in examinations, including the expected
          issuance of many formal enforcement orders. Negative developments in
          the financial industry and the domestic and international credit
          markets, and the impact of new legislation in response to those
          developments, may negatively impact our operations by restricting our

                                       31
<PAGE>

          business operations, including our ability to originate or sell loans,
          and may adversely impact our financial performance.

          We may be required to pay significantly higher FDIC premiums in the
          future.

          Recent insured institution failures, as well as deterioration in
          banking and economic conditions, have significantly increased the loss
          provisions of the Federal Deposit Insurance Corporation (the "FDIC"),
          resulting in a decline in the designated reserve ratio to historical
          lows. The FDIC expects a higher rate of insured institution failures
          in the next few years compared to recent years; thus, the reserve
          ratio may continue to decline. In addition, EESA temporarily increased
          the limit on FDIC coverage to $250,000 through December 31, 2009. On
          May 20, 2009, the temporary increase on the limit of FDIC coverage was
          extended to December 31, 2013. These developments will cause the
          premiums assessed on us by the FDIC to increase and materially
          increase our other expense.

          On December 16, 2008, the FDIC Board of Directors determined deposit
          insurance assessment rates for the first quarter of 2009 at 12 to 14
          basis points per $100 of deposits. Beginning April 1, 2009, the rates
          increased to 12 to 16 basis points per $100 of deposits. Additionally,
          on May 22, 2009, the FDIC announced a final rule imposing a 5 basis
          point special emergency assessment on June 30, 2009, payable September
          30, 2009. The amount of the assessment will be $0.05 for each $100 of
          assets, less Tier 1 capital, as of June 30, 2009, but the amount of
          the assessment is capped at 10 basis points of domestic deposits. The
          final rule also allows the FDIC to impose additional special emergency
          assessments on or after September 30, 2009, of up to 5 basis points
          per quarter, if necessary to maintain public confidence in FDIC
          insurance. The FDIC has indicated that a second assessment is
          possible. These higher FDIC assessment rates and special assessments
          will have an adverse impact on our results of operations.

          On September 29, 2009, the FDIC Board of Directors adopted a NPR that
          would require insured institutions to prepay their estimated quarterly
          risk-based assessments for the fourth quarter of 2009 and for all of
          2010, 2011 and 2012. The FDIC Board also voted to adopt a uniform
          three-basis point increase in assessment rates effective on January 1,
          2011, and extend the restoration period from seven to eight years.
          Public comments on the NPR were due 30 days after publication in the
          Federal Register. Presently, we anticipate our FDIC insurance related
          costs (assuming the 5 basis point special emergency assessment on June
          30, 2009, paid September 30, 2009, is the only special assessment in
          2009) to increase to $1.5 million in 2009 from $481,000 in 2008 and
          $69,000 in 2007, and we are unable to predict the impact in future
          periods in the event the economic crisis continues.

          Competition may adversely affect our business.

          Our market areas are highly competitive. In addition to competition
          from commercial banks (including certain larger regional banks) and
          savings associations, we also compete with numerous credit unions,
          finance companies, insurance companies, mortgage companies, securities
          and brokerage firms, money market mutual funds, loan production
          offices and other providers of financial services. We compete with
          these firms in terms of pricing, delivery channels, product features,
          service quality, responsiveness and other factors. We also compete
          directly with a large number of financial service providers who do not
          have a physical presence in our markets but have been successful in
          selling their services using technology and sophisticated target
          marketing techniques. We fully expect these companies to increase
          their future efforts to attract business from our customers.

          Increasing competition may decrease the prices we can charge for our
          services or cause us to pay higher rates for customer deposits.
          Additionally, we are continuously required to update our technology
          products (such as internet banking and remote deposit capture) to meet

                                       32
<PAGE>

          our customers' needs and demands, in order to retain those customers.
          Although our costs for these technology products may increase, we may
          be unable to pass along the cost of those products to our customers.
          Many of our competitors possess substantially greater financial
          resources and lending limits than we do, and they may provide services
          to their customers that we do not offer. These factors, alone or in
          combination with others, may have an adverse effect on our business,
          results of operations and financial condition.

          Inability to hire or retain certain key professionals, management and
          staff could adversely affect our revenues and net income.

          We rely on key personnel to manage and operate our business, including
          major revenue generating functions such as the loan and deposit
          portfolios. The loss of key staff may adversely affect our ability to
          maintain and manage these portfolios effectively, which could
          negatively affect our revenues. In addition, loss of key personnel
          could result in increased recruiting and hiring expenses, which could
          cause a decrease in our net income.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.
-------   ------------------------------------------------------------
          (a)-(b)  Not applicable.

          Stock Repurchased During the Third Quarter of 2009
          --------------------------------------------------
          (c) No stock was repurchased by the Company during the fiscal quarter
          ended September 30, 2009. The Company's stock repurchase plan was
          announced June 16, 2006. The total dollar amount approved was
          $10,000,000. The plan has no expiration date, but the Board of
          Directors may terminate the plan at anytime. The Board of Directors
          suspended repurchase activities beginning in the fourth quarter of
          2007 and as of September 30, 2009, the Board of Directors has not
          determined when stock repurchases will recommence.

Item 3.   Defaults upon Senior Securities.
-------   --------------------------------
          Not applicable.

Item 4.   Submission of Matters to a Vote of Security Holders.
-------   ----------------------------------------------------
          None

Item 5.   Other Information.
-------   ------------------
          Not applicable.

Item 6.   Exhibits.
-------   ---------


Exhibit No:    Description of Exhibit:
-----------    -----------------------

3(i)           Monroe Bancorp Articles of Incorporation are incorporated by
               reference to registrant's Form 10 filed November 14, 2000.

3(ii)          Monroe Bancorp By-laws as Amended July 23, 2009, are incorporated
               by reference to registrant's Form 8-K filed July 24, 2009.

4(i)           Indenture dated as of July 17, 2009 is incorporated by reference
               to registrant's Form 8-K filed on July 23, 2009.

10(i)          1999 Directors' Stock Option Plan of Monroe Bancorp is
               incorporated by reference to registrant's Form 10 filed November
               14, 2000.

                                       33
<PAGE>

10(ii)         1999 Management Stock Option Plan of Monroe Bancorp is
               incorporated by reference to registrant's Form 10 filed November
               14, 2000.

10 (iii)       Deferred Compensation Trust for Monroe Bancorp is incorporated by
               reference to registrant's Form 10 filed November 14, 2000.

10(iv)         Monroe County Bank Agreement for Supplemental Death or Retirement
               Benefits is incorporated by reference to registrant's Form 10
               filed November 14, 2000.

10(v)          Monroe Bancorp Thrift Plan as Amended and Restated January 1,
               2001 is incorporated by reference to registrant's Form 10-Q filed
               November 13, 2002.

10(vi)         Monroe Bancorp Employee Stock Ownership Plan as Amended and
               Restated January 1, 2001 is incorporated by reference to
               registrant's Form 10-Q filed November 13, 2002.

10(vii)        Third Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to registrant's Form 10-K filed
               March 29, 2004.

10(viii)       Monroe Bancorp Directors' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First and Second
               Amendments are incorporated by reference to registrant's Form
               10-K filed March 29, 2004.

10(ix)         Monroe Bancorp Executives' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First, Second and
               Third Amendments are incorporated by reference to registrant's
               Form 10-K filed March 29, 2004.

10(x)          Form of agreement under the 1999 Management Stock Option Plan of
               Monroe Bancorp is incorporated by reference to registrant's Form
               10-K filed March 15, 2005.

10(xi)         Schedule of 2009 Directors Compensation Arrangements is
               incorporated by reference to Item 9B of the registrant's Form
               10-K filed March 13, 2009.

10(xii)        Schedule of 2009 Executive Officers Compensation Arrangements is
               incorporated by reference to Item 9B of the registrant's Form
               10-K filed March 13, 2009.

10(xiii)       Fourth Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to Form 10-Q filed May 9, 2005.

10(xiv)        Monroe Bancorp Directors' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xv)         Monroe Bancorp Executives' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xvi)        Form of agreement under the Monroe Bancorp Directors' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xvii)       Form of agreement under the Monroe Bancorp Executives' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xviii)      First Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

                                       34
<PAGE>

10(xix)        Second Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xx)         Third Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xxi)        Fourth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xxii)       Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xxiii)      Sixth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 8, 2007.

10(xxiv)       Seventh Amendment to the Monroe Bancorp Thrift Plan as Amended
               and Restated January 1, 2001, incorporated by reference to Form
               10-K filed March 13, 2008.

10(xxv)        Fifth Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to Form 10-K filed March 13,
               2008.

31(i)          Certification for Quarterly Report on Form 10-Q by Principal
               Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

31(ii)         Certification for Quarterly Report on Form 10-Q by Principal
               Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

32(i)          Certification of Principal Executive Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.

32(ii)         Certification of Principal Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.










                                       35
<PAGE>

                                   SIGNATURES

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

                                      MONROE BANCORP

      Date: November 6, 2009          By: /s/ Mark D. Bradford
            ----------------              ----------------------------------
                                          Mark D. Bradford, President and
                                          Chief Executive Officer
                                          (Principal Executive Officer)

      Date: November 6, 2009          By: /s/ Gordon M. Dyott
            ----------------              ----------------------------------
                                          Gordon M. Dyott, Exec. Vice President,
                                          Chief Financial Officer
                                          (Principal Financial Officer)











                                       36
<PAGE>


                                  Exhibit Index
                                  -------------


Exhibit No:    Description of Exhibit:
-----------    -----------------------

3(i)           Monroe Bancorp Articles of Incorporation are incorporated by
               reference to registrant's Form 10 filed November 14, 2000.

3(ii)          Monroe Bancorp By-laws as Amended July 23, 2009, are incorporated
               by reference to registrant's Form 8-K filed July 24, 2009.

4(i)           Indenture dated as of July 17, 2009 is incorporated by reference
               to registrant's Form 8-K filed on July 23, 2009

10(i)          1999 Directors' Stock Option Plan of Monroe Bancorp is
               incorporated by reference to registrant's Form 10 filed
               November 14, 2000.

10(ii)         1999 Management Stock Option Plan of Monroe Bancorp is
               incorporated by reference to registrant's Form 10 filed
               November 14, 2000.

10 (iii)       Deferred Compensation Trust for Monroe Bancorp is incorporated by
               reference to registrant's Form 10 filed November 14, 2000.

10(iv)         Monroe County Bank Agreement for Supplemental Death or Retirement
               Benefits is incorporated by reference to registrant's Form 10
               filed November 14, 2000.

10(v)          Monroe Bancorp Thrift Plan as Amended and Restated January 1,
               2001 is incorporated by reference to registrant's Form 10-Q filed
               November 13, 2002.

10(vi)         Monroe Bancorp Employee Stock Ownership Plan as Amended and
               Restated January 1, 2001 is incorporated by reference to
               registrant's Form 10-Q filed November 13, 2002.

10(vii)        Third Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to registrant's Form 10-K filed
               March 29, 2004.

10(viii)       Monroe Bancorp Directors' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First and Second
               Amendments are incorporated by reference to registrant's Form
               10-K filed March 29, 2004.

10(ix)         Monroe Bancorp Executives' Deferred Compensation Plan as Amended
               and Restated Effective January 1, 1999 and First, Second and
               Third Amendments are incorporated by reference to registrant's
               Form 10-K filed March 29, 2004.

10(x)          Form of agreement under the 1999 Management Stock Option Plan of
               Monroe Bancorp is incorporated by reference to registrant's Form
               10-K filed March 15, 2005.

10(xi)         Schedule of 2009 Directors Compensation Arrangements is
               incorporated by reference to Item 9B of the registrant's Form
               10-K filed March 13, 2009.

10(xii)        Schedule of 2009 Executive Officers Compensation Arrangements is
               incorporated by reference to Item 9B of the registrant's Form
               10-K filed March 13, 2009.

10(xiii)       Fourth Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to Form 10-Q filed May 9, 2005.

                                       37
<PAGE>

10(xiv)        Monroe Bancorp Directors' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xv)         Monroe Bancorp Executives' 2005 Deferred Compensation Plan
               incorporated by reference to Form 10-K filed March 14, 2006.

10(xvi)        Form of agreement under the Monroe Bancorp Directors' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xvii)       Form of agreement under the Monroe Bancorp Executives' 2005
               Deferred Compensation Plan incorporated by reference to Form 10-K
               filed March 14, 2006.

10(xviii)      First Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xix)        Second Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xx)         Third Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xxi)        Fourth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xxii)       Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 9, 2006.

10(xxiii)      Sixth Amendment to the Monroe Bancorp Thrift Plan as Amended and
               Restated January 1, 2001, incorporated by reference to Form 10-Q
               filed May 8, 2007.

10(xxiv)       Seventh Amendment to the Monroe Bancorp Thrift Plan as Amended
               and Restated January 1, 2001, incorporated by reference to Form
               10-K filed March 13, 2008.

10(xxv)        Fifth Amendment to the Monroe Bancorp Employees' Stock Ownership
               Plan is incorporated by reference to Form 10-K filed March 13,
               2008.

31(i)          Certification for Quarterly Report on Form 10-Q by Principal
               Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

31(ii)         Certification for Quarterly Report on Form 10-Q by Principal
               Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002.

32(i)          Certification of Principal Executive Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.

32(ii)         Certification of Principal Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.



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