UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

For the transition period from                                 to              

Commission file number  000-51104

CommerceFirst Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

1804 West Street, Suite 200, Annapolis, MD 21401

(Address of Principal Executive Offices)

410-280-6695

(Registrant’s Telephone Number, Including Area Code)

N/A

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

Indicate by check 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 o

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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Securities Exchange Act).

Yes o   No x

As of April 24, 2008, the number of outstanding shares of registrant’s common stock, par value $0.01 per share was: 1,820,548

CommerceFirst Bancorp, Inc.

FORM 10-Q

INDEX

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CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

March 31, 2008 and December 31, 2007

The accompanying notes are an integral part of these consolidated financial statements.

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CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

For the Three Months Ended March 31, 2008 and 2007

( Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2008 and 2007

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2008 and 2007

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2008 and 2007

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.          The Company and its Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The financial data at December 31, 2007 are derived from audited consolidated financial statements that are included in the Company’s Annual Report for the year ended December 31, 2007.  The financial data at March 31, 2008 and 2007 are derived from unaudited consolidated financial statements. Interim results are not necessarily indicative of results for the full year.

The consolidated financial statements include the accounts of CommerceFirst Bancorp, Inc. (the “Company”) and its subsidiary, CommerceFirst Bank (the “Bank”).  Inter-company balances and transactions have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and cash equivalents in the statement of cash flows include cash on hand, non-interest bearing amounts due from correspondent banks and the Federal Reserve and Federal funds sold.

Certain prior period amounts have been reclassified to conform to the current period’s method of presentation.

Note 2.          Net Income per Common Share

Basic earnings per share of common stock are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by including the average dilutive common equivalents outstanding during the period.  Dilutive common equivalent shares consist of stock options and warrants, calculated using the treasury stock method.

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Note 3.          Related Party Transactions

The Bank paid $10,470 during the first three months of 2008 for support services to a computer consulting firm of which a Director of the Bank is also a principal.  The Bank also paid $65,823 during the first three months of 2008 for various group insurance benefits and the 401k plan for which a Director of the Company and the Bank will ultimately receive commission compensation. Expenditures totaling less than $10,000 were paid to several entities in which directors were principals during the first three months of 2008. All of the above transactions have been consummated on terms equivalent to those that prevail in arms length transactions.

Executive officers, directors and their affiliated interests enter into loan transactions with the Bank in the ordinary course of business.  These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with unrelated borrowers.  They do not involve more than normal risk of collectability or present other unfavorable terms. At March 31, 2008 the amounts of such loans outstanding were $4,126,199.

Deposit balances of executive officers, directors and their affiliated interests totaled $15.8 million at March 31, 2008. Affiliated interests of directors also held $135 thousand in securities sold under agreements to repurchase at March 31, 2008.

Note 4.          Commitments and contingencies

The Bank is a party to financial instruments in the normal course of business to meet the financing needs of its customers.  These financial instruments typically include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. Outstanding commitments as of March 31, 2008 are as follows:

Note 5.          Recent Relevant Accounting Pronouncements

The Company adopted FASB Statement No. 157 (SFAS 157), Fair Value Measurements in January 2008.  SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. The adoption of SFAS 157 did not have a material impact on the Company’s consolidated financial statements in 2008.

ITEM 2.                         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .

Forward-Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.  Such forward-looking statements involve known and unknown risks including, but not limited to, changes in general economic and business conditions, interest rate fluctuations, competition within and from outside the banking industry, new products and services in the banking industry, risk inherent in making loans such as repayment risks and fluctuating collateral values, problems with technology utilized

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by the Company, changing trends in customer profiles and changes in laws and regulations applicable to the Company.  Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company’s past results are not necessarily indicative of future performance.

General

CommerceFirst Bancorp, Inc. (the “Company”) is the bank holding company for CommerceFirst Bank, a Maryland chartered commercial bank headquartered in Annapolis, Maryland (the “Bank”). The Bank was capitalized, became a wholly owned subsidiary of the Company and commenced operations on June 29, 2000. The Company’s common stock trades on the NASDAQ Capital Market under the symbol “CMFB”.

The Company continued its efforts to increase investments in loans during 2008 to better utilize its resources and leverage new capital obtained from the issuance of common stock in 2005. Loans increased by 5.6% during the first three months of 2008. The increase in loans and the recent decreases in market interest rates have resulted in increases in the Company’s interest income but a decline in its net interest margin.

The Company continued a pattern of asset and revenue growth during the first quarter of 2008 but operating results have been adversely affected through a rapidly declining interest rate environment and increased expenses relating to the Company’s growth. Key measurements and events for the period include the following:

·                   Total assets at March 31, 2008 increased by 5.2% to $156.6 million as compared to $148.8 million as of December 31, 2007.

·                   Net loans outstanding increased by 5.6% from $124.7 million as of December 31, 2007 to $131.7 million as of March 31, 2008.

·                   Deposits at March 31, 2008 were $132.8 million, an increase of $9.4 million or 7.6% from December 31, 2007.

·                   The Company’s net income decreased to $149 thousand, or 44.4%, for the three month period ended March 31, 2008 as compared to net income of $268 thousand for the three month period ended March 31, 2007.

·                   Net interest income, the Company’s main source of income, was $1.43 million during the three month period ended March 31, 2008 compared to $1.38 million for the same period in 2007.

·                   Non-interest income declined by $76 thousand or 44.4%, for the three month period ended March 31, 2008, as compared to the three month period ended March 31, 2007.

·                   Non-interest expenses increased by $210 thousand or 19.4%, for the three months ended March 31, 2008, as compared to the same period in 2007.

A discussion of the factors leading to these changes can be found in the discussion below.

Critical Accounting Policies

CommerceFirst Bancorp, Inc.’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the industry in which it operates.  Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes.  These estimates, assumptions and

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judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments.  Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.  Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event.  Carrying assets and liabilities at fair value inherently results in more financial statement volatility.  The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

The most significant accounting policies followed by CommerceFirst Bancorp, Inc. are presented in Note 1 to the Company’s annual audited consolidated financial statements included in  its Annual Report on Form 10-KSB for the year ended December 31, 2007. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.  Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

CommerceFirst Bancorp, Inc. believes it has developed appropriate policies and procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio.  CommerceFirst Bancorp, Inc.’s assessments may be affected in future periods by changes in economic conditions, the impact of regulatory examinations and the discovery of information with respect to borrowers that is not known to management at the time of the issuance of the consolidated financial statements.

RESULTS OF OPERATIONS

General .

The Company reported a net profit of $149 thousand for the three-month period ended March 31, 2008 as compared to a net profit of $268 thousand for the three-month period ended March 31, 2007. While net interest income increased in 2008 as compared to 2007 by $43 thousand, the Company’s net interest income was negatively affected by the reduced interest rate environment initiated by the Federal Reserve Bank in late 2007 and continuing into 2008.  The reduced earnings are also the result of expense increases attributable to additional personnel required by the Bank’s branch expansion (the Bank opened a branch in June of 2007), expenses necessitated by the growth of the Bank’s loan portfolio, deposit insurance assessments begun in 2007 and other higher expenses associated with the new internet banking and core processing platforms which became operational in the second quarter of 2007.

Return on Average Assets and Average Equity . The following table shows the return on average assets and average equity for the period shown.

Return on Average Assets and Average Equity

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Net Interest Income and Net Interest Margin . Net interest income is the amount by which interest earned on assets exceeds the interest paid on interest-bearing liabilities.  The Company’s principal interest earning assets are loans to businesses.  Interest-bearing liabilities consist primarily of savings accounts, money market accounts and certificates of deposit.  Generally, changes in net interest income are measured by net interest rate spread and net interest margin.  Net interest rate spread is equal to the difference between the average rate earned on interest earning assets and the average rate incurred on interest-bearing liabilities.  Net interest margin represents the difference between interest income (including net loan fees earned) and interest expense calculated as a percentage of average earning assets.

Total interest income increased by $128 thousand or 4.9% to $2.7 million for the three-month period ended March 31, 2008 as compared to $2.6 million for the same period in 2007.  This increase in interest income was attributable to the increase in average earning assets during the first quarter of 2008 of $12.9 million as compared to the same period in 2007. Interest income was adversely affected by the decline in the yield of the average earning assets from 7.7% in 2007 to 7.3% in 2008.

Interest expense increased by $85 thousand or 7.0% to $1.3 million for the three months ended March 31, 2008 as compared to $1.2 million during the first three months of 2007.  This increase was primarily attributable to increased average interest bearing liabilities of $11 million during 2008 as compared to 2007. The effect of the increased interest bearing liabilities was offset to some degree by the decline in the interest cost of the deposits from 4.8% in 2007 as compared to the interest cost of the funds of 4.6% during 2008.

The net interest income for the three-month period ended March 31, 2008 was $1.43 million as compared to $1.38 million for the same period in 2007.  Net interest income increased because of the increase in interest earning assets exceeded the increase in interest bearing liabilities during the first quarter of 2008 as compared to 2007. The affect of this net increase in earning assets over interest bearing liabilities was offset by the yield on the assets declining faster than the cost of the liabilities during market interest rate declines.

The following table shows the average balances and the rates of the various categories of the Company’s assets and liabilities. Nonperforming loans are included in average balances in the following table:

AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE

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Yields on securities are calculated based on amortized cost.

Net interest margin was 3.8% in the first quarter of 2008, as compared to 4.1% in the comparable period in 2007. Interest spread was 2.7% in the first quarter of 2008, as compared to the 2.9% in the first quarter of 2007. The yield on interest earning assets declined at a faster rate than the decline in the cost of interest bearing liabilities resulting in the reduction of the net interest margin and net interest spread. The rapid market interest rate reductions have resulted in the rates earned on the Company’s loans, a significant proportion of which are floating rate loans which re-price the loans immediately with declines in market interest rates, declining faster than its interest bearing liabilities, which are comprised mostly of fixed rate certificates of deposit which will re-price at their maturity date

Non-Interest Income . Non-interest income principally consists of gains from the sale of the guaranteed portion of Small Business Administration loans and from deposit account services charges. For the three months ended March 31, 2008, gains on sales of SBA loans amounted to $31 thousand as compared to $86 thousand for the same period in 2007.  Generally, the Bank desires to sell the guaranteed portion of most additional SBA loans resulting in a continuing stream of income that may vary significantly from quarter to quarter, depending in part upon the volume of loans actually sold. D eposit account service charges amounted to $64 thousand during the three months ended March 31, 2008 as compared to $86 thousand for the same period in 2007. The decline results from the reduction in overdraft fees incurred by account holders.

Non-Interest Expense .  Non-interest expense totaled $1.3 million for the three-month period ended March 31, 2008 as compared to $1.1 million for the same period in 2007, a 19.4% increase. Compensation and benefit expense increased $117 thousand reflecting additional personnel required for a branch that was opened in June 2007 (thus incurring non-interest expense for the first three months of 2008 but no expenses in 2007) as well as personnel needed to manage the growth of the Company, particularly its loan portfolio. Other expenses increased because of an additional branch in operation during 2008 as compared to 2007, the additional expenses of upgraded data processing systems and products installed in the second quarter of 2007 as well as the general growth of the Company.

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Income Tax Expense . During the three months ended March 31, 2008, the Company recorded an income tax expense of $73 thousand as compared to $162 thousand during the same period in 2007. Income tax expense was 33.0% of income before taxes in 2008 and 37.6% of income before taxes in 2007. The effective rate declined 5.9% because the effect of state tax rate changes to the effected deferred tax items.

FINANCIAL CONDITION.

General . The Company’s assets at March 31, 2008 were $156.6 million, an increase of $7.8 million or 5.23%, from December 31, 2007.  Gross loans totaled $133.4 million comprised of commercial real estate loans of $77.2 million, an increase of $4.2 million, or 5.8%, from December 31, 2007 and commercial loans of $56.2 million, an increase of $2.8 million, or 5.2% from December 31, 2007. At March 31, 2008, deposits totaled $132.8 million an increase of $9.4 million, or 7.6%, from December 31, 2007. Deposits at March 31, 2008 are comprised primarily of certificates of deposit of $92.7 million, Money Market accounts of $20.9 million, and noninterest bearing deposits of $17.5 million.

Loan Portfolio.  The loan portfolio is the largest component of earning assets and accounts for the greatest portion of total interest income.  At March 31, 2008, net loans were $131.7 million, a 5.6% increase from the $124.7 million in loans outstanding at December 31, 2007. In general, loans consist of internally generated loans and, to lesser degree, participation loans purchased from other local community banks.  Lending activity is generally confined to our immediate market areas. The strong growth is attributable to the satisfactory culmination of efforts to attract quality credits; there has been no dilution of credit underwriting standards. The percentage of total loans comprised of commercial real estate loans has increased as the Company has concentrated on this type of lending. The majority of these loans are secured by real property that is occupied by the borrowers’ businesses. The Company does not engage in foreign lending activities. The following table presents the composition of the loan portfolio by type of loan at the dates indicated.

Loans receivable, net is comprised of the following:

The following table shows the interest rate sensitivity of the loan portfolio at March 31, 2008. Demand loans, loans without a stated maturity and overdrafts are reported as due in one year or less. Floating rate loans are reported to reflect the period until re-pricing.

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Provision for Loan Losses

The provision for loan losses represents the amount charged against earnings to increase the allowance for loan losses to the level deemed appropriate by management.  The provision for loan losses and the allowance for loan losses are based on management’s ongoing assessment of the Company’s credit exposure and consideration of certain other relevant factors.

The adequacy of the allowance for loan losses is evaluated based upon loan categories except for loans rated substandard, doubtful or loss, which are evaluated separately and assigned loss amounts based upon the evaluation.  Loss ratios are applied to each category of loan to determine estimated loss amounts.  Categories of loans are identified commercial, SBA and mortgage loans.  Loss ratios are determined based upon losses incurred adjusted for the effect of current economic conditions, any industry concentration or identified weakness in an industry, credit management and underwriting policies changes and secured versus unsecured nature of loan category. At March 31, 2008, the range of the loss ratios used to determine estimated losses by loan category were: commercial loans - 0.6%; SBA loans (unguaranteed portion) - 6.5% and real estate loans- 0.15% to 0.95%.  Additional losses are estimated resulting from additional identified risks factors, such as loans with underwriting exceptions, the level and direction of payment delinquencies and the level of large loans.  These additional loss estimates are not allocated to the separate loan categories.

The adequacy of the allowance for loan losses is also reviewed at least quarterly using risk ratings applied to the loans based upon rating criteria consistent with regulatory definitions.  The risk rating is adjusted, as necessary, if loans become delinquent, if significant adverse information is discovered regarding the underlying credit and, in the case of commercial loans and commercial real estate loans, the normal periodic review of the underlying credit indicates that a change in risk rating is appropriate.  An estimated “low” and “high” loss percentage is applied to loans in each risk rating.  These loss percentages increase as the loan risk rating increases.  Loans rated as substandard, doubtful or loss are evaluated separately and assigned loss amounts based upon the separate evaluation.  Risks factors identified beyond individual loan risks, such as economic conditions, underwriting exceptions and loan concentrations are quantified based upon management’s estimations of loss exposure.  Loss percentages used are generally based upon management’s best estimates considering losses incurred.  Estimated “low” and “high” allowance for loan loss amounts are derived by accumulating the estimated losses using the “low” and “high” loss percentages for each risk rating and adding losses based upon separate loan evaluations and identified other risks.  The actual allowance for loan losses is compared to this range to ascertain that it is reasonably situated within the range. In addition, on at least a quarterly basis, the recorded allowance for loan losses (as a percent of loans) is compared to peer group levels to ascertain the reasonableness of the estimate. At March 31, 2008, the actual allowance for loan losses was between the “low” and “high” allowance amounts.

The provision for loan losses was $9 thousand during the three months ended March 31, 2008 as compared to $45 thousand for the three months ended March 31, 2007 reflecting the small amount of loan charge-offs but recognizing current economic conditions. Most of the increase in loans was in the real estate secured portfolio which has lower loss estimates.

The allowance for loan losses represents 1.27% and 1.32% of loans receivable at March 31, 2008 and December 31, 2007, respectively. The Company has no exposure to foreign countries or foreign borrowers.  Management believes that the allowance for loan losses is adequate for each period presented.

The activity in the allowance for credit losses is shown in the following table. All charge offs and recoveries relate to commercial loans.

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Additionally, the Company has established a reserve for unfunded commitments that is recorded by a provision charged to other expenses. At March 31, 2008 the balance of this reserve was $43.5 thousand. The reserve, based on evaluations of the collectability of loans, is an amount that management believes will be adequate over time to absorb possible losses on unfunded commitments (off-balance sheet financial instruments) that may become uncollectible in the future.

Asset Quality . In its lending activities, the Company seeks to develop sound credits with customers who will grow with the Company. There has not been an effort to rapidly build the portfolio and earnings at the sacrifice of asset quality.  At the same time, the extension of credit inevitably carries some risk of non-payment.

The following table shows an analysis of nonperforming assets at the dates indicated:

At March 31, 2008 the Company had nine loans to six unrelated entities in non-accrual status; all of these loans were in non-accrual status at December 31, 2007.

One loan in the amount of $583 thousand is the remaining balance of a relationship totaling $958 thousand recognized as impaired in September 2004 and placed in non-accrual status at that time. This loan is partially secured by real estate and by assignment of life insurance proceeds.  The specific reserves allocated to this loan are $426 thousand and collection proceedings continue.

An affiliated group of borrowers have three commercial loans totaling $139 thousand for which no specific reserves have been established. Another borrower has a commercial loan in the amount of $174 thousand for which a specific reserve of $87 thousand has been established.  Collection proceedings are continuing on these loans.

Four other loans totaling $224 thousand were considered potential problem loans and $150 thousand specific reserves were established .

Generally, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when principal or interest is delinquent for ninety days or more. During 2008, there were no amounts included in gross interest income attributable to loans in non-accrual status. There was no real estate owned at any time during 2008.

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Investment Portfolio . At March 31, 2008, the carrying value of the investment securities portfolio was $9.3 million, an increase of $104 thousand from the carrying value of $9.2 million at December 31, 2007. The Company currently classifies its entire securities portfolio as available for sale. Increases in the portfolio will occur whenever deposit growth outpaces loan demand and the forecast for growth is such that the investment of excess liquidity in investment securities (as opposed to short term investments such as Federal funds) is warranted. In addition, the Company has purchased Federal Reserve stock in accordance with regulation and expects to maintain small equity positions in stock in two banker’s banks to facilitate loan participations.

The following table provides information regarding the composition of the Bank’s investment securities portfolio at the dates indicated.

The value of the U.S. treasury investment securities is derived from market quotes as reported to the Company by a third party brokerage firm. Corporate equities are comprised of common stock in two “bankers’ banks” and are generally not readily marketable.

Deposits are the major source of funds for lending and investment activities. Deposits increased $9.4 million (7.6%) to $133 million at March 31, 2008 from $123 million at December 31, 2007.  Non-interest bearing deposits decreased $1.8 million or 9.2%, money market accounts increased $4.6 million or 28.5% and certificates of deposit increased $7.3 million, or 8.6% during the three months ended March 31, 2008. Certificates of deposit in amounts of $100,000 and over totaled $77.8 million at March 31, 2008 and $74.0 at December 31, 2007.

Deposits are comprised of the following: