U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-K
x
Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the
fiscal year ended December 31, 2008
o
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.: 000-51104
CommerceFirst
Bancorp, Inc.
(Name of Small
Business Issuer in its Charter)
Maryland
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52-2180744
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(State or other jurisdiction
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(I.R.S. Employer Identification No.)
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of incorporation or organization)
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1804 West Street, Annapolis MD
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21401
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(Address of principal executive offices)
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(Zip Code)
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Issuers Telephone
Number:
410-280-6695
Securities registered under Section 12(b) of
the Act
Title of Each Class
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Name of Each Exchange on which Registered
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Common Stock, $0.01 par value
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The Nasdaq Stock Market
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Securities registered
under Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.
Yes
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No
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Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act
Yes
o
No
x
Indicate by check mark if
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 past 12 months
(or for such shorter period that the registrant was required to file such
reports; and (2) has been subject to such filing requirements for the past
90 days.
Yes
x
No
o
Indicate by check
mark if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§225.405 of this chapter) is not contained herein and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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 the definitions of
large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting
company
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(Do not check if a
smaller
reporting company)
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
The aggregate market
value of the outstanding Common Stock held by non-affiliates as of June 30,
2008 was approximately $15,475,000.
As of March 5, 2009,
the number of outstanding shares of the Common Stock, $0.01 par value, of CommerceFirst
Bancorp, Inc. was 1,820,548.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the
following documents are hereby incorporated by reference in this Form 10-K: the Companys Annual Report to Shareholders
for the Year Ended December 31, 2008 Part II; the Companys Proxy Statement
for the Annual Meeting of Shareholders to be held on May 6, 2009 Part III.
PART I
ITEM
1. Description of Business.
CommerceFirst
Bancorp, Inc. (the Company) was incorporated under the laws of the State
of Maryland on July 9, 1999, to serve as the bank holding company for a
newly formed Maryland chartered commercial bank. The Company was formed by a group of local
businessmen and professionals with significant prior experience in community
banking in the Companys market area, together with an experienced community
bank senior management team. The Companys sole subsidiary, CommerceFirst Bank
(the Bank), a Maryland chartered commercial bank and member of the Federal
Reserve System, commenced banking operations on June 29, 2000.
The Bank operates
from its main headquarters in Annapolis, Maryland, and from branch offices in
Lanham (opened in September 2004), Glen Burnie (opened in June 2006),
Columbia (opened in August 2006), and Severna Park (opened in June 2007)
Maryland. The Bank does not anticipate
opening any additional branches during 2009. The Bank believes it is well
positioned to continue to grow assets and increase shareholder value while
maintaining individualized customer service.
The Bank operates
as a community bank alternative to the super-regional financial institutions
that dominate its primary market area. The cornerstone of the Banks philosophy
is to provide superior, individualized service to its customers. The Bank focuses on relationship banking,
providing each customer with a number of services, familiarizing itself with,
and addressing itself to, customer needs in a proactive, personalized fashion.
Description
of Services.
The Bank
offers full commercial banking services to its business and professional
clients. The Bank emphasizes providing commercial banking services to sole
proprietorships, small and medium-sized businesses, partnerships, corporations,
and non-profit organizations and associations in and near the Banks primary
service areas. Limited retail banking
services are offered to accommodate the individual needs of commercial
customers as well as members of the communities the Bank serves.
The Banks loan
portfolio consists of business and real estate loans. The business loans
generally have variable rates and/or short maturities where the cash flow of
the borrower is the principal source of debt service, with a secondary emphasis
on collateral. Real estate loans are made generally on commercial
property and are structured with fixed rates that adjust in three to five
years, generally with maturities of five to ten years, or with variable rates
tied to various indices and adjusting as the indices change. The Companys
portfolio contains a small amount of acquisition and construction loans
(approximately $2.5 million) which are well secured.
In general, the
Bank offers the following credit services:
1)
Commercial
loans for business purposes including working capital, equipment purchases,
real estate, lines of credit, and government contract financing. Asset
based lending and accounts receivable financing are available on a selective
basis.
2)
Real
estate loans for business and investment purposes.
3)
Commercial
lines of credit.
4)
Merchant
credit card services are offered through an outside vendor.
The
Bank has developed an expertise in making loans under the guarantee programs of
the SBA. The Bank currently expects that it will sell the guaranteed portion of
SBA loans to secondary market investors as soon as possible after funding,
while retaining the uninsured portion. The sale of the guaranteed portion of
such loans is expected to result in gains, and the Bank expects to receive fees
for servicing the loans. SBA guaranteed
loans are subjected to the same underwriting standards applied to other loans.
The Banks lending
activities carry the risk that the borrowers will be unable to perform on their
obligations. Interest rate policies of
the Federal Reserve Board as well as national and local economic conditions can
have a significant impact on the Banks and the Companys results of
operations. To the extent that economic
conditions deteriorate, business and individual borrowers may be less able to
meet their obligations to the Bank in full in a timely
2
manner, resulting in
decreased earnings or losses to the Bank.
To the extent the Bank makes fixed rate loans, general increases in
interest rates will tend to reduce the Banks spread as the interest rates the
Bank must pay for deposits increase while interest income is flat. Economic conditions and interest rates may
also adversely affect the value of property pledged as security for loans.
Deposit services
include business and personal checking accounts, NOW accounts, savings
accounts, and a tiered Money Market Account basing the payment of interest on
balances on deposit. Certificates of deposits are offered with various
maturities. The acceptance of brokered deposits is utilized when deemed
appropriate by management in order to have available funding sources for loans
and investments especially during times when competing local deposit
institutions drive up their rate offering well beyond rates available to the
Bank in national markets. Brokered deposits include certificates of deposit
received in exchange for the placement of the Banks customers deposit funds
with other financial institutions under the Certificate of Deposit Account
Registry Service (CDARS) program.
Other services for
business accounts include Internet banking services and cash management
services.
Bills have been introduced in prior Congresses that
would permit banks to pay interest on checking and demand deposit accounts
established by businesses, a practice which is currently prohibited by
regulation. If the legislation effectively permitting the payment of interest
on business demand deposits is enacted, of which there can be no assurance, it
is likely that the Bank may be required to pay interest on some portion of its
non-interest bearing deposits in order to compete against other banks. As a significant portion of its deposits are
non-interest bearing demand deposits established by businesses, payment of
interest on these deposits could have a significant negative impact on its net
income, net interest income, interest margin, return on assets and equity, and
other indices of financial performance.
The Bank expects that other banks would be faced with similar negative
impacts. The Bank also expects that the
primary focus of competition would continue to be based on other factors, such
as quality of service.
Source of
Business.
Management
believes that the market segments which the Bank targets, small to medium sized
businesses and the professional base of the Banks market area, demand the
convenience and personal service that a smaller, independent financial
institution such as the Bank can offer. It is these themes of convenience
and personal service that form the basis for the Banks business development
strategies. The Bank provides services from its headquarters and main
branch offices located in Annapolis, Maryland, and from its branch offices in
Lanham, Glen Burnie, Columbia, and Severna Park, Maryland. It believes these
locations meet the needs of the Banks existing and potential customers, and
provide prospects for additional growth and expansion.
The Bank has
capitalized upon the extensive business and personal contacts and relationships
of its Directors and Executive Officers to establish the Banks initial
customer base. To introduce new
customers to the Bank, reliance is placed on aggressive officer-originated
calling programs and director, customer and shareholder referrals.
The risk of
nonpayment (or deferred payment) of loans is inherent in commercial
banking. The Banks marketing focus on small to medium sized businesses
may result in the assumption by the Bank of certain lending risks that are
different from those attendant to loans to larger companies. Management
of the Bank carefully evaluates all loan applications and attempts to minimize
its credit risk exposure by use of thorough loan application, approval and
monitoring procedures; however, there can be no assurance that such procedures
can significantly reduce such lending risks.
Economic Conditions and Concentrations.
We
have a substantial amount of loans secured by real estate in the Annapolis,
Maryland/suburban Washington D.C. metropolitan areas as collateral, and
substantially all of our loans are to borrowers in that area and contiguous
markets in Maryland. At December 31,
2008, 61.6% of our loans were commercial real estate loans (including loans to
investors in residential property for rental purposes primarily secured by one
to four family properties). An additional 38.4% were commercial and industrial
loans which are not primarily secured by real estate. These concentrations
expose us to the risk that adverse developments in the real estate market, or
in the general economic conditions in our market area, could increase the
levels of nonperforming loans and charge-offs, and reduce loan demand and
deposit growth. In that event, we would likely experience lower earnings or
losses. Additionally, if economic conditions in the area deteriorate, or there
is significant volatility or weakness in the economy or any significant sector
of the areas economy, our ability to develop our business relationships may be
diminished, the
3
quality and
collectability of our loans may be adversely affected, the value of collateral
may decline and loan demand may be reduced.
During
2008, the financial industry encountered significant volatility and stress as
economic conditions worsened, unemployment increased and the effects of the mortgage
crisis became more widespread. While
the Company did not have direct exposure to the subprime mortgage issues in
that it did not make residential mortgage loans to retail customers, and did
not invest in mortgage backed securities or the preferred stock of Freddie Mac
and Fannie Mae, the slowing economy, declines and housing construction and the
related impact on contractors and other small and medium sized businesses, has
had an adverse impact on the Companys business. Additionally, there can be no
assurance that the steps taken to stimulate the economy and stabilize the
financial system will prove successful, or that they will improve the financial
condition of the Companys customers or the Company.
Employees
At December 31,
2008 the Bank had 38 full time equivalent employees, two of whom are executive
officers. The Chairman of the Board, an attorney in private practice, devotes
considerable time each month to the advancement of the Bank, principally in
business development activities. The Company (as distinguished from the Bank)
does not have any employees or officers who are not employees or officers of
the Bank. None of the Banks employees
are represented by any collective bargaining group, and the Bank believes that
its employee relations are good. The
Bank provides a benefit program that includes health and dental insurance, a
401(k) plan, and life and long-term disability insurance for substantially
all full time employees.
Market
Area and Competition
Location
and Market Area.
The
main office and the headquarters are located at 1804 West Street, Annapolis,
Maryland 21401. The second office is
located at 4451 Parliament Place, Lanham, Maryland 20706, and opened in the
third quarter of 2004. The third office is located at 910 Cromwell Park Drive,
Glen Burnie, Maryland 21061 and opened late in the second quarter of 2006. The
fourth office is located at 6230 Old Dobbin Lane, Columbia, Maryland and opened
in the third quarter of 2006. The Bank opened its fifth branch office located
at 487 Ritchie Highway, Severna Park, Maryland, in June 2007.
The Company is located in
one of the most dynamic regions in the United States. The Federal Government
has a major direct and indirect influence on the economies, infrastructure and
land use management of Washington, D.C. and the Maryland and Virginia counties
surrounding Washington. According to the
State of Marylands Department of Business and Economic Development (the Department),
the region is the nations 4
th
largest market
with a population of 6.9 million and a workforce of 3.4 million and is the
home to three major airports, the nations capital and a highly educated
workforce. The regional economy is usually strong and diverse, boasts
consistently high job growth and low unemployment and is increasingly service
sector and small business oriented.
Information technology, the medical industry and tourism are all major
growth industries for the region. These
industries are characterized by small niche oriented enterprises that thrive on
their ability to tap the highly educated workforce and abundant access to the
regions substantial communications infrastructure. Current economic conditions
have negatively impacted business activities in the region but at a lesser
degree than other areas.
The
Banks market strategy is to grow within the Central Maryland corridor, which
consists of Anne Arundel, Prince Georges, Montgomery and Howard counties,
areas which it believes have significant growth opportunities. The Bank does
not have a branch in Montgomery county at this time and does not have near term
plans to open a branch in the county.
Anne Arundel County.
The county
is located in central Maryland on the western shore of the
Chesapeake Bay and lies wholly in the Atlantic Coastal Plain, east of the
Appalachian mountain chain. The County is centered within the
Baltimore-Washington corridor with its County Seat, The City of Annapolis, just
24 miles from Baltimore City and 33 miles from Washington, D.C. The land area
is 416 square miles or 266,078 acres, making Anne Arundel the tenth in size
among Maryland Counties. The county evolved from a bedroom community to
Baltimore to be more heavily influenced by Washington growth factors. The county has developed its own unique and
diverse economy
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due to growth opportunities presented by
Baltimore/Washington International (BWI) Airport, which has long been
considered one of the State of Marylands prime economic engines. Anne Arundel Countys economy has diversified
in the last 25 years from having nearly half of its employment in government
(48.8% in 1970) to less than 30% today. Government still dominates because Anne
Arundel County contains the State Capital of Maryland, the United States Naval
Academy, the National Security Agency (NSA) headquarters and numerous other
Federal, State, County and City of Annapolis jobs. The largest private sector
employer in the county is Northrop Grumman.
The local economy is dominated by
small and mid-sized service sector enterprises.
Anne Arundel County is home to over 14 thousand businesses, 97% of which
have fewer than 100 employees. The countys businesses include internet based
services; high-technology telecommunications; product distribution, a result of
proximity of goods arriving to the Port of Baltimore and BWI Airport; and
technical support services. Once home to
large Maryland-based regional banks, financial services are now primarily
provided by larger super-regional institutions such as Bank of America,
SunTrust, Wachovia (now Wells Fargo), M & T Bank and BB&T, all of
which expanded into this highly attractive banking market over the past decade
by acquisition. Based on data from the 2000 Census and in projected figures by
the Countys Economic Development Corporation, Anne Arundel County has a
population in excess of 600 thousand and provides 285 thousand civilian labor
force jobs, 70% of which are in the service sector. The mean household income of $76 thousand
compares very favorably to the national average.
Prince
Georges County
. In Prince Georges County, 15,300 businesses
employ over 230,000 workers; an estimated 475 of these businesses have 100 or
more employees. Almost 900 technology companies employ 33,600 highly-trained
workers the second highest number of high-tech companies, as well as defense
and aerospace companies, of any jurisdiction in the state. Major employers include the Computer Sciences
Corporation, the University of Maryland at College Park, the Beltsville
Agricultural Research Center, Safeway, SGT, and Verizon. Additionally, Andrews
Air Force Base in Camp Springs is a large military facility that provides
transportation for the President and other high-ranking government officials
and foreign dignitaries. New technology companies are nurtured in several
business incubators in the county.
Relocating and expanding
businesses have been increasingly attracted to Prince Georges County due to
its competitively priced land and buildings, an integrated transportation
system, proximity to Washington, D.C., and attractive business incentives. The
county closely mirrors Anne Arundel County with respect to small business
enterprises, with 97% of the over 15 thousand employers having fewer than 100
workers, according to published data.
Government is a significant influence, with 75 thousand Federal, state
and county employees. Similar to Anne Arundel County, large super-regional
banking institutions have obtained additional market share in the suburban
Washington market from the acquisition of many of the community banks that once
existed in this area. Prince Georges County has a population of 805 thousand.
Howard
County
. Expansion into neighboring Howard County is a natural
extension of the Banks strategic growth plan. Howard County is situated in the
heart of the corridor between Washington, D.C. and Baltimore. Howard Countys
population is projected to grow to 321,050 by 2030, according to the Howard
County Department of Planning and Zoning. Currently the countys citizens are
among the wealthiest in Maryland with a median household income
of $82,900. Howard Countys geographic location has resulted in the
substantial growth of a wide variety of industries, including high-tech and
life science businesses, in addition to transportation and education related
activities. Accessible to I-95 and I-70, the county is located within a
20-minute drive of Baltimore/Washington International Airport and the Port of
Baltimore, and serves as a bedroom community for both Baltimore and Washington
DC area employers. Additionally, Dulles International and Washington National
Airports are within an hours drive. Howard County has a strong economic base
of its own with over 7,000 Howard County businesses employing more than 122,000
people, including 725 high-tech businesses with a workforce of nearly 24,000
workers. Like the other counties in which the Company operates, the population
and workforce of Howard County is highly educated, and income levels are
favorably high.
Competition.
Deregulation of financial
institutions and holding company acquisitions of banks across state lines has
resulted in widespread, fundamental changes in the financial services
industry. This transformation, although occurring nationwide, is
particularly intense in the greater Baltimore/Washington, DC area. In Anne Arundel, Prince Georges and Howard
Counties, competition is exceptionally keen from large banking institutions
headquartered outside of Maryland. In addition, the Bank competes with
other community banks, savings and loan associations, credit unions,
5
mortgage companies,
finance companies and others providing financial services. Among the
advantages that many of these institutions have over the Bank are their
abilities to finance extensive advertising campaigns, maintain extensive branch
networks and technology investments, and to directly offer certain services,
such as international banking and trust services, which the Bank does not
directly offer. Further, the greater capitalization of the larger institutions
allows for substantially higher lending limits than the Bank. Certain of these competitors have other
advantages, such as tax exemption in the case of credit unions, and lesser
regulation in the case of mortgage companies and finance companies.
Regulation
The following
summaries of statutes and regulations affecting bank holding companies do not
purport to be complete discussions of all aspects of such statutes and
regulations and are qualified in their entirety by reference to the full text
thereof.
The
Company.
The Company
is a bank holding company registered under the Bank Holding Company Act of
1956, as amended, (the Act) and is subject to supervision by the Federal
Reserve Board. As a bank holding company, the Company is required to file
with the Federal Reserve Board an annual report and such other additional
information as the Federal Reserve Board may require pursuant to the Act.
The Federal Reserve Board may also make examinations of the Company and each of
its subsidiaries.
The Act requires
approval of the Federal Reserve Board for, among other things, the acquisition
by a proposed bank holding company of control of more than five percent (5%) of
the voting shares, or substantially all the assets, of any bank or the merger
or consolidation by a bank holding company with another bank holding
company. The Act also generally permits the acquisition by a bank holding
company of control or substantially all the assets of any bank located in a
state other than the home state of the bank holding company, except where the
bank has not been in existence for the minimum period of time required by state
law, but if the bank is at least 5 years old, the Federal Reserve Board may
approve the acquisition.
With certain
limited exceptions, a bank holding company is prohibited from acquiring control
of any voting shares of any company which is not a bank or bank holding company
and from engaging directly or indirectly in any activity other than banking or
managing or controlling banks or furnishing services to or performing service
for its authorized subsidiaries. A bank holding company may, however,
engage in or acquire an interest in, a company that engages in activities which
the Federal Reserve Board has determined by order or regulation to be so
closely related to banking or managing or controlling banks as to be properly
incident thereto. In making such a determination, the Federal Reserve
Board is required to consider whether the performance of such activities can
reasonably be expected to produce benefits to the public, such as convenience,
increased competition or gains in efficiency, which outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The
Federal Reserve Board is also empowered to differentiate between activities
commenced
de novo
and activities commenced by the
acquisition, in whole or in part, of a going concern. Some of the
activities that the Federal Reserve Board has determined by regulation to be
closely related to banking include making or servicing loans, performing
certain data processing services, acting as a fiduciary or investment or
financial advisor, and making investments in corporations or projects designed
primarily to promote community welfare.
Subsidiary banks
of a bank holding company are subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the bank holding company or
any of its subsidiaries, or investments in the stock or other securities
thereof, and on the taking of such stock or securities as collateral for loans
to any borrower. Further, a holding company and any subsidiary bank are
prohibited from engaging in certain tie-in arrangements in connection with the
extension of credit. A subsidiary bank may not extend credit, lease or
sell property, or furnish any services, or fix or vary the consideration for
any of the foregoing on the condition that: (i) the customer obtain
or provide some additional credit, property or services from or to such bank
other than a loan, discount, deposit or trust service; (ii) the customer
obtain or provide some additional credit, property or service from or to the
Company or any other subsidiary of the Company; or (iii) the customer not
obtain some other credit, property or service from competitors, except for
reasonable requirements to assure the soundness of credit extended.
6
The Gramm-Leach-Bliley Act of 1999 (the GLB Act)
allows a bank holding company or other company to certify status as a financial
holding company, which allows such company to engage in activities that are
financial in nature, that are incidental to such activities, or are
complementary to such activities. The GLB Act enumerates certain activities
that are deemed financial in nature, such as underwriting insurance or acting
as an insurance principal, agent or broker, underwriting, dealing in or making
markets in securities, and engaging in merchant banking under certain
restrictions. It also authorizes the
Federal Reserve Board to determine by regulation what other activities are
financial in nature, or incidental or complementary thereto. The GLB Act allows
a wider array of companies to own banks, which could result in companies with
resources substantially in excess of the Companys entering into competition
with the Company and the Bank.
The GLB Act made
substantial changes in the historic restrictions on non-bank activities of bank
holding companies, and allows affiliations between types of companies that were
previously prohibited. The GLB Act also
allows banks to engage in a wider array of non-banking activities through financial
subsidiaries.
The
Bank.
The Bank, as a
Maryland chartered commercial bank which is a member of the Federal Reserve
System (a state member bank) and whose accounts are insured by the Deposit
Insurance Fund of the Federal Deposit Insurance Corporation (the FDIC) up to
the maximum legal limits of the FDIC, is subject to regulation, supervision and
regular examination by the Maryland Department of Financial Institutions and
the Federal Reserve Board. The
regulations of these various agencies govern most aspects of the Banks
business, including required reserves against deposits, loans, investments,
mergers and acquisitions, borrowing, dividends and location and number of
branch offices. The laws and regulations governing the Bank generally have been
promulgated to protect depositors and the Deposit Insurance Fund, and not for
the purpose of protecting stockholders.
Competition among
commercial banks, savings and loan associations, and credit unions has
increased following enactment of legislation that greatly expanded the ability
of banks and bank holding companies to engage in interstate banking or
acquisition activities. As a result of
federal and state legislation, banks in the Washington D.C./Maryland/Virginia
area can, subject to limited restrictions, acquire or merge with a bank in
another of the jurisdictions, and can branch
de novo
in any of the jurisdictions.
Additionally, legislation has been proposed which may result in
non-banking companies being authorized to own banks, which could result in
companies with resources substantially in excess of the Companys entering into
competition with the Company and the Bank.
Banking is a
business that depends on interest rate differentials. In general, the
differences between the interest paid by a bank on its deposits and its other
borrowings and the interest received by a bank on loans extended to its
customers and securities held in its investment portfolio constitute the major
portion of the banks earnings. Thus, the earnings and growth of the Bank
will be subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve Board, which
regulates the supply of money through various means including open market
dealings in United States government securities. The nature and timing of
changes in such policies and their impact on the Bank cannot be predicted.
Branching
and Interstate Banking.
The federal banking agencies are authorized to approve interstate bank
merger transactions without regard to whether such transaction is prohibited by
the law of any state, unless the home state of one of the banks has opted out
of the interstate bank merger provisions of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the Riegle-Neal Act) by adopting a law
after the date of enactment of the Riegle-Neal Act and prior to June 1,
1997 which applies equally to all out-of-state banks and expressly prohibits
merger transactions involving out-of-state banks. Interstate acquisitions of branches are
permitted only if the law of the state in which the branch is located permits
such acquisitions. Such interstate bank
mergers and branch acquisitions are also subject to the nationwide and statewide
insured deposit concentration limitations described in the Riegle-Neal Act.
The Riegle-Neal Act authorizes the federal banking
agencies to approve interstate branching
de novo
by
national and state banks in states that specifically allow for such
branching. The District of Columbia,
Maryland and Virginia have all enacted laws that permit interstate acquisitions
of banks and bank branches and permit out-of-state banks to establish
de novo
branches.
7
Transaction
with Affiliates.
The Bank is subject to the provisions of Section 23A
and 23B of the Federal Reserve Act and Federal Reserve Regulation W of the
Federal Reserve Bank which place limits on the amount of loans or extensions of
credit to affiliates (as defined in the Federal Reserve Act), investments in or
certain other transactions with affiliates and on the amount of advances to
third parties collateralized by the securities or obligations of
affiliates. The law and regulation limit
the aggregate amount of transactions with any individual affiliate to ten
percent (10%) of the capital and surplus of the Bank and also limit the
aggregate amount of transactions with all affiliates to twenty percent (20%) of
capital and surplus. Loans and certain
other extensions of credit to affiliates are required to be secured by
collateral in an amount and of a type described in the regulation, and the
purchase of low quality assets from affiliates is generally prohibited. The law
and Regulation W also, among other things, prohibit an institution from engaging
in certain transactions with certain affiliates (as defined in the Federal
Reserve Act) unless the transactions are on terms substantially the same, or at
least as favorable to such institution and/or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliated
entities. In the absence of comparable
transactions, such transactions may only occur under terms and circumstances,
including credit standards that in good faith would be offered to or would
apply to non-affiliated companies.
The Bank is subject to
the restrictions contained in Section 22(h) of the Federal Reserve
Act and the Federal Reserve Boards Regulation O thereunder on loans to
executive officers, directors and principal stockholders. Under Section 22(h), loans to a
director, an executive officer or a greater-than-10% stockholder of a bank as
well as certain affiliated interests of any of the foregoing may not exceed,
together with all other outstanding loans to such person and affiliated interests,
the loans-to-one-borrower limit applicable to national banks (generally 15% of
the institutions unimpaired capital and surplus), and all loans to all such
persons in the aggregate may not exceed the institutions unimpaired capital
and unimpaired surplus. Regulation O
also prohibits the making of loans in an amount greater than $25,000 or 5% of
capital and surplus but in any event not over $500,000, to directors, executive
officers and greater-than-10% stockholders of a bank, and their respective affiliates,
unless such loans are approved in advance by a majority of the board of
directors of the bank with any interested director not participating in the
voting. Furthermore, Regulation O
requires that loans to directors, executive officers and principal stockholders
of a bank be made on terms substantially the same as those that are offered in
comparable transactions to unrelated third parties unless the loans are made
pursuant to a benefit or compensation program that is widely available to all
employees of the bank and does not give preference to insiders over other
employees. Regulation O also prohibits a
depository institution from paying overdrafts over $1,000 of any of its
executive officers or directors unless they are paid pursuant to written pre-authorized
extension of credit or transfer of funds plans.
All of the Banks loans
to its and the Companys executive officers, directors and greater-than-10%
stockholders, and affiliated interests of such persons, comply with the
requirements of Regulation W and Section 22(h) of the Federal Reserve
Act and Regulation O.
Community
Reinvestment Act.
The Community Reinvestment Act (CRA)
requires that, in connection with examinations of financial institutions within
their respective jurisdictions, the Federal Reserve Board, the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency or the
Office of Thrift Supervision shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institutions discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. An
institutions CRA activities are considered in, among other things, evaluating
mergers, acquisitions and applications to open a branch or facility, as well as
determining whether the institution will be permitted to exercise certain of
the powers allowed by the GLB Act. The
CRA also requires all institutions to make public disclosure of their CRA
ratings. The Bank was last examined for CRA compliance as of October 2005
and received a CRA rating of satisfactory.
USA
Patriot Act.
Under the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act, commonly referred to as the USA Patriot
Act or the Patriot Act, financial institutions are subject to prohibitions
against specified financial transactions and account relationships, as well as
8
enhanced due diligence
standards intended to detect, and prevent, the use of the United States
financial system for money laundering and terrorist financing activities. The Patriot Act requires financial
institutions, including banks, to establish anti-money laundering programs,
including employee training and independent audit requirements, meet minimum
standards specified by the act, follow minimum standards for customer
identification and maintenance of customer identification records, and
regularly compare customer lists against lists of suspected terrorists,
terrorist organizations and money launderers.
The costs or other effects of the compliance burdens imposed by the
Patriot Act or future anti-terrorist, homeland security or anti-money
laundering legislation or regulations cannot be predicted with certainty.
Capital
Adequacy Guidelines.
The Federal Reserve Board and the FDIC have adopted risk based capital
adequacy guidelines pursuant to which they assess the adequacy of capital in
examining and supervising banks and bank holding companies and in analyzing
bank regulatory applications. Risk-based
capital requirements determine the adequacy of capital based on the risk
inherent in various classes of assets and off-balance sheet items.
State member banks
are expected to meet a minimum ratio of total qualifying capital (the sum of
core capital (Tier 1) and supplementary capital (Tier 2)) to risk weighted
assets of 8%. At least half of this
amount (4%) should be in the form of core capital. These requirements apply to the Bank and will
apply to the Company (a bank holding company) once its total assets equal
$500,000,000 or more, it engages in certain highly leveraged activities or it
has publicly held debt securities.
Tier 1 Capital
generally consists of the sum of common stockholders equity and perpetual
preferred stock (subject in the case of the latter to limitations on the kind
and amount of such stock which may be included as Tier 1 Capital), less
goodwill, without adjustment for changes in the market value of securities
classified as available for sale in accordance with FAS 115. Tier 2 Capital consists of the following:
hybrid capital instruments; perpetual preferred stock which is not otherwise
eligible to be included as Tier 1 Capital; term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based
capital) for assets such as cash, to 100% for the bulk of assets which are
typically held by a bank holding company, including certain multi-family
residential and commercial real estate loans, commercial business loans and
consumer loans. Residential first
mortgage loans on one to four family residential real estate and certain
seasoned multi-family residential real estate loans, which are not 90 days or
more past-due or non-performing and which have been made in accordance with
prudent underwriting standards are assigned a 50% level in the risk-weighing
system, as are certain privately-issued mortgage-backed securities representing
indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain
risk characteristics.
In addition to the
risk-based capital requirements, the Federal Reserve Board has established a
minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets)
requirement for the most highly-rated banks, with an additional cushion of at
least 100 to 200 basis points for all other banks, which effectively increases
the minimum Leverage Capital Ratio for such other banks to 4.0% - 5.0% or
more. The highest-rated banks are those that
are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and, in general, those which are
considered a strong banking organization.
A bank having less than the minimum Leverage Capital Ratio requirement
shall, within 60 days of the date as of which it fails to comply with such
requirement, submit a reasonable plan describing the means and timing by which
the bank shall achieve its minimum Leverage Capital Ratio requirement. A bank which fails to file such plan is
deemed to be operating in an unsafe and unsound manner, and could subject the
bank to a cease-and-desist order. Any insured depository institution with a
Leverage Capital Ratio that is less than 2.0% is deemed to be operating in an
unsafe or unsound condition pursuant to Section 8(a) of the Federal
Deposit Insurance Act (the FDIA) and is subject to potential termination of
deposit insurance. However, such an
institution will not be subject to an enforcement proceeding solely on account
of its capital ratios, if it has entered into and is in compliance with a
written agreement to increase its Leverage Capital Ratio and to take such other
action as may be necessary for the institution to be operated in a safe and
sound manner. The capital regulations
also provide, among other things, for the issuance of a capital directive,
which is a final order issued to a bank that fails to maintain minimum capital
or to restore its capital to the minimum capital requirement within a specified
time period. Such directive is
enforceable in the same manner as a final cease-and-desist order.
9
Under guidance from the federal banking
regulators, banks which have concentrations in construction, land development
or commercial real estate loans (other than loans for majority owner occupied
properties) would be expected to maintain higher levels of risk management and,
potentially, higher levels of capital.
It is possible that we may be required to maintain higher levels of
capital than we would otherwise be expected to maintain as a result of our
levels of construction, development and commercial real estate loans, which may
require us to obtain additional capital.
Prompt Corrective Action.
Under Section 38 of the FDIA, each
federal banking agency is required to implement a system of prompt corrective
action for institutions that it regulates.
The federal banking agencies have promulgated substantially similar
regulations to implement the system of prompt corrective action established by Section 38
of the FDIA. Under the regulations, a
bank shall be deemed to be: (i) well capitalized if it has a Total Risk
Based Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0%
or more, a Leverage Capital Ratio of 5.0% or more and is not subject to any
written capital order or directive; (ii) adequately capitalized if it
has a Total Risk Based Capital Ratio of 8.0% or more, a Tier 1 Risk Based
Capital Ratio of 4.0% or more and a Tier 1 Leverage Capital Ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
well capitalized; (iii) undercapitalized if it has a Total Risk Based
Capital Ratio that is less than 8.0%, a Tier 1 Risk based Capital Ratio that is
less than 4.0% or a Leverage Capital Ratio that is less than 4.0% (3.0% under
certain circumstances); (iv) significantly undercapitalized if it has a
Total Risk Based Capital Ratio that is less than 6.0%, a Tier 1 Risk Based
Capital Ratio that is less than 3.0% or a Leverage Capital Ratio that is less
than 3.0%; and (v) critically undercapitalized if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.
An institution generally must file a written
capital restoration plan which meets specified requirements with an appropriate
federal banking agency within 45 days of the date the institution receives
notice or is deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. A federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after
receiving a capital restoration plan, subject to extensions by the applicable
agency.
An institution that is required to submit a
capital restoration plan must concurrently submit a performance guaranty by
each company that controls the institution.
Such guaranty shall be limited to the lesser of (i) an amount equal
to 5.0% of the institutions total assets at the time the institution was
notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the
institution to the levels required for the institution to be classified as
adequately capitalized. Such a guaranty
shall expire after the federal banking agency notifies the institution that it
has remained adequately capitalized for each of four consecutive calendar
quarters. An institution which fails to
submit a written capital restoration plan within the requisite period,
including any required performance guaranty, or fails in any material respect
to implement a capital restoration plan, shall be subject to the restrictions
in Section 38 of the FDIA which are applicable to significantly
undercapitalized institutions.
A critically undercapitalized institution
is to be placed in conservatorship or receivership within 90 days unless the
FDIC formally determines that forbearance from such action would better protect
the deposit insurance fund. Unless the
FDIC or other appropriate federal banking regulatory agency makes specific
further findings and certifies that the institution is viable and is not
expected to fail, an institution that remains critically undercapitalized on
average during the fourth calendar quarter after the date it becomes critically
undercapitalized must be placed in receivership. The general rule is that the FDIC will
be appointed as receiver within 90 days after a bank becomes critically
undercapitalized unless extremely good cause is shown and the federal
regulators agree to an extension. In
general, good cause is defined as capital that has been raised and is imminently
available for infusion into the Bank except for certain technical requirements
that may delay the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized,
an institution shall become subject to the provisions of Section 38 of the
FDIA, which (i) restrict payment of capital distributions and management
fees; (ii) require that the appropriate federal banking agency monitor the
condition of the institution and its efforts to restore its capital; (iii) require
submission of a capital restoration plan; (iv) restrict the growth of the
institutions assets; and (v) require prior approval of certain expansion
proposals. The appropriate federal
banking agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines that any of these
actions is necessary to resolve
10
the problems of the institution at the least possible long-term cost to
the deposit insurance fund, subject in certain cases to specified
procedures. These discretionary
supervisory actions include: requiring the institution to raise additional
capital; restricting transactions with affiliates; requiring divestiture of the
institution or the sale of the institution to a willing purchaser; and any
other supervisory action that the agency deems appropriate. These and additional mandatory and permissive
supervisory actions may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
Additionally, under Section 11(c)(5) of
the FDIA, a conservator or receiver may be appointed for an institution
where: (i) an institutions
obligations exceed its assets; (ii) there
is substantial dissipation of the institutions assets or earnings as a result
of any violation of law or any unsafe or unsound practice; (iii) the institution is in an unsafe or
unsound condition; (iv) there is a
willful violation of a cease-and-desist order;
(v) the institution is unable to pay its obligations in the
ordinary course of business; (vi) losses
or threatened losses deplete all or substantially all of an institutions
capital, and there is no reasonable prospect of becoming adequately
capitalized without assistance; (vii) there
is any violation of law or unsafe or unsound practice or condition that is
likely to cause insolvency or substantial dissipation of assets or earnings,
weaken the institutions condition, or otherwise seriously prejudice the
interests of depositors or the insurance fund;
(viii) an institution ceases to be insured; (ix) the institution is undercapitalized
and has no reasonable prospect that it will become adequately capitalized,
fails to become adequately capitalized when required to do so, or fails to
submit or materially implement a capital restoration plan; or (x) the
institution is critically undercapitalized or otherwise has substantially
insufficient capital.
Regulatory Enforcement Authority
. Federal banking law grants substantial enforcement
powers to federal banking regulators.
This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and
to initiate injunctive actions against banking organizations and
institution-affiliated parties. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action,
including misleading or untimely reports filed with regulatory authorities.
A result of the volatility and instability in
the financial system during 2008, the Congress, the bank regulatory authorities
and other government agencies have called for or proposed additional regulation
and restrictions on the activities, practices and operations of banks and their
holding companies. While many of these
proposals relate to institutions that have accepted investments from, or sold
troubled assets to, the Department of the Treasury or other government
instrumentalities, or otherwise participate in government programs intended to
promote financial stabilization, the Congress and the federal banking agencies
have broad authority to require all banks and holding companies to adhere to
more rigorous or costly operating procedures , corporate governance procedures,
or to engage in activities or practices which they would not otherwise
elect. Any such requirement could
adversely affect the Companys and Banks business and results of
operations. The Company did not accept
an investment by the Treasury Department in its preferred stock or warrants to
purchase common stock, and except for the temporary increases in deposit
insurance for customer accounts, has not participated in any of the programs
adopted by the Treasury Department FDIC or Federal Reserve.
Deposit Insurance Premiums.
The FDIC maintains a risk based assessment
system for determining deposit insurance premiums. Four risk categories (I-IV),
each subject to different premium rates, are established, based upon an
institutions status as well capitalized, adequately capitalized or
undercapitalized, and the institutions supervisory rating. During 2008, all insured depository institutions
paid deposit insurance premiums ranging between 5 and 7 basis points on an
institutions assessment base for institutions in risk category I (well
capitalized institutions perceived as posing the least risk to the insurance
fund), and 10, 28 and 40 basis points for institutions in risk categories II, III
and IV. The levels of rates are subject
to periodic adjustment by the FDIC.
Depository institutions will also pay premiums for the increased
coverage provided by the FDIC.
Commencing in 2009, the premium rates increased by 7 basis points in
each category for the first quarter of 2009.
For the second quarter of 2009 and beyond, the FDIC has issued a final rule providing
for further changes in rates, which introduces three adjustments that could be
made to an institutions initial base assessment rate: (1) a potential
decrease for long-term unsecured debt, including senior and subordinated debt
and, for small institutions, a portion of Tier 1 capital; (2) a potential
increase for secured liabilities above a threshold amount; and (3) for non-Risk
11
Category I institutions, a potential increase for brokered deposits
above a threshold amount other than those received through a deposit placement
network on a reciprocal basis. The
schedule for base assessment rates and potential adjustment is set forth in the
following table.
|
|
Risk
Category I
|
|
Risk
Category II
|
|
Risk
Category III
|
|
Risk
Category IV
|
|
Initial Base Assessment Rate
|
|
12-16
|
|
22
|
|
32
|
|
45
|
|
Unsecured Debt Adjustment
|
|
(5) - 0
|
|
(5) - 0
|
|
(5) - 0
|
|
(5) - 0
|
|
Secured Liability Adjustment
|
|
0 - 8
|
|
0 - 11
|
|
0 - 16
|
|
0 - 22.5
|
|
Brokered Deposit Adjustment
|
|
N/A
|
|
0 - 10
|
|
0 - 10
|
|
0 - 10
|
|
Total Base Assessment Rate
|
|
7 - 24
|
|
17 - 43
|
|
27 - 58
|
|
40 - 77.5
|
|
Additionally, the Bank has elected to
participate in the FDIC program whereby noninterest bearing transaction account
deposits will be insured without limitation through December 31,
2009. The bank is required to pay an
additional premium to the FDIC of 10 basis point on the amount of balances in
noninterest bearing transaction accounts that exceed the existing deposit
insurance limit of $250,000.
Further, in late February 2009, the FDIC
adopted an interim rule imposing a 20 basis point emergency special
assessment on all banks on June 30, 2009. The assessment is to be
collected on September 30, 2009. The interim rule would also permit
the FDIC to impose an emergency special assessment after June 30, 2009, of
up to 10 basis points, if necessary to maintain public confidence in federal deposit
insurance. As a result of competitive
pressures for deposits, the Company may not be able to adjust deposit rates to
offset the cost of increased deposit insurance premiums. In any event, the Company will have to absorb
the cost of the increased premiums until such time as it is able to reprice its
time deposits.
ITEM 1A.
Risk Factors.
As the Company is a smaller reporting
company, this item is not applicable.
ITEM 1B.
Unresolved Staff Comment
None.
ITEM 2.
Properties.
The main branch office and the executive
offices of the Bank and the Company are located at 1804 West Street, Annapolis,
Maryland, in a brick and masonry structure. The Company leases 8,100 square
feet in the building under a five-year lease, which commenced in April 2000.
Rent expense was $216,198 and $211,553 for the years ended December 31,
2008 and 2007, respectively. The
Company has exercised the first of three five-year renewal options.
The second office of the Bank is located at
4451 Parliament Place, Lanham, Maryland in a masonry structure. The Bank leases
2,100 square feet in the building under a ten-year lease (with an exit option
at the end of five years) which commenced in June 2004. Rent expense was
$35,793 and $33,109 for the years ended December 31, 2008 and 2007,
respectively.
The third office of the Bank is located at
910 Cromwell Park Drive, Glen Burnie, Maryland in a masonry structure. The Bank
leases 2,600 square feet in the building under a five-year lease (with one
five-year renewal option) which commenced in June 2006. Rent expense was $75,452 and $80,675 for the
years ended December 31, 2008 and
2007, respectively.
The fourth office of the Bank is located at
6230 Old Dobbin Lane, Columbia, Maryland in a masonry structure. The Bank
leases 2,400 square feet in the building under a ten-year lease (with one
five-year renewal option) which
12
commenced in August 2006.
Rent expense was $74,457 and $70,006 for the years ended December 31,
2008 and 2007, respectively.
The fifth office of the Bank is located at
485 Ritchie Highway, Severna Park, Maryland in a masonry structure. The Bank
leases approximately 1,500 square feet in the building under a five-year lease
(with two five-year renewal options) which commenced in June 2007. Rent
expense was $52,333 in 2008 and $26,761during 2007.
Management believes adequate insurance
coverage is in force on all of its properties.
ITEM 3.
Legal Proceedings.
From time to time the Company is
a participant in various legal proceedings incidental to its business. In the opinion of management, the liabilities
(if any) resulting from such legal proceeding will not have a material effect
on the financial position of the Company
ITEM 4.
Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of
security holders during the fourth quarter of the year ended December 31,
2008.
PART II
ITEM 5.
Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchase of Equity Securities.
(a) Market for Common Stock and
Dividends.
The
information regarding the market for the Companys Common Stock, the number of
holders of the common stock and dividend history required under Item 5(a) is
hereby incorporated herein by reference from the material under the caption
Market for Common Stock and Dividends in the Companys Annual Report for the
fiscal year ended December 31, 2008.
See Item 11 of this annual report for Equity Compensation Plan
Information.
Recent Sales of Unregistered Shares.
None.
(b) Use of Proceeds:
Not applicable
(c)
Issuer Repurchases of Securities
during the
Fourth Quarter of 2008.
None.
ITEM 6. Selected Financial Data
The information required under Item 6 is
hereby incorporated herein by reference to the material appearing under the
caption Selected Consolidated Financial Data in the Companys Annual Report
to Shareholders for the fiscal year ended December 31, 2008.
13
ITEM 7.
Managements Discussion and Analysis of Financial Condition and Results
of Operations.
The information required by this item is
incorporated by reference to the material appearing under the caption
Management Discussion and Analysis in the Companys Annual Report to
Shareholders for the year ended December 31, 2008.
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk.
As the Company is a smaller reporting
company, this item is not applicable.
ITEM 8. Financial Statements and
Supplementary Data
The information required by this item is
incorporated by reference to the Consolidated Financial
Statements
and Notes thereto contained in the
Companys
Annual Report to Shareholders for the year ended December 31, 2008.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
ITEM 9A
Controls and Procedures
Disclosure Controls and Procedures.
The Companys management, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer, evaluated, as of the
last day of the period covered by this report, the effectiveness of the design
and operation of the Companys disclosure controls and procedures, as defined
in Rule 15d-15 under the Securities Exchange Act of 1934. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective.
Managements Report on Internal Control Over
Financial Reporting
The management of CommerceFirst Bancorp, Inc. (the Company) is
responsible for the preparation, integrity and fair presentation of the
consolidated financial statements included in this Annual Report. The financial
statements have been prepared in conformity with accounting principles
generally accepted in the United States of America and reflect managements
judgments and estimates concerning the effects of events and transactions that
are accounted for or disclosed.
Management is also responsible for establishing and maintaining an
effective internal control over financial reporting. The Companys internal control over financial
reporting includes those policies and procedures that pertain to the Companys
ability to record, process, summarize and report reliable financial data. The
internal control system contains monitoring mechanisms, and appropriate actions
are taken to correct identified deficiencies. Management believes that internal
controls over financial reporting, which are subject to scrutiny by management
and the Companys internal auditors, support the integrity and reliability of
the financial statements. Management recognizes that there are inherent
limitations in the effectiveness of any internal control system, including the
possibility of human error and the circumvention or overriding of internal
controls. Accordingly, even effective internal control over financial reporting
can provide only reasonable assurance with respect to financial statement
preparation. In addition, because of changes in conditions and circumstances,
the effectiveness of internal control over financial reporting may vary over
time.
Management assessed the Companys system of internal control over
financial reporting as of December 31, 2008. This assessment was conducted
based on the Committee of Sponsoring Organizations (COSO) of the Treadway
Commission Internal Control - Integrated Framework. Based on this assessment,
management believes that the Company maintained effective internal control over
financial reporting as of December 31, 2008. Managements assessment
concluded that there were no material weaknesses within the Companys internal
control
14
structure. The 2008 end of year
consolidated financial statements have been audited by the independent
accounting firm of Trice Geary & Myers LLC (TGM). Personnel from TGM
were given unrestricted access to all financial records and related data,
including minutes of all meetings of the Board of Directors and Committees
thereof. Management believes that all
representations made to the independent auditors were valid and appropriate.
The resulting report from TGM accompanies the financial statements.
The Board of Directors of the Company, acting through its Audit
Committee (the Committee), is responsible for the oversight of the Companys
accounting policies, financial reporting and internal control. The Audit
Committee of the Board of Directors is comprised entirely of outside directors
who are independent of management. The Audit Committee is responsible for the
appointment and compensation of the independent auditors and approves decisions
regarding the appointment or removal of members of the internal audit function.
The Committee meets periodically with management, the independent auditors, and
the internal auditors to insure that they are carrying out their
responsibilities. The Committee is also responsible for performing an oversight
role by reviewing and monitoring the financial, accounting, and auditing
procedures of the Company in addition to reviewing the Companys financial
reports. The independent auditors and the internal auditors have full and
unlimited access to the Audit Committee, with or without the presence of the
management of the Company, to discuss the adequacy of internal control over
financial reporting, and any other matters which they believe should be brought
to the attention of the Audit Committee.
There were no changes in the Banks internal control over financial
reporting during the quarter ended December 31,
2008 that has materially affected, or is reasonably likely to materially
affect, the Banks internal control over financial reporting.
The annual report does not include an attestation report of the
Companys registered public accounting firm regarding internal control over
financial reporting. Managements report
was not subject to attestation by the Companys registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission
that permit the company to provide only managements report in this annual
report.
ITEM 9B.
Other Information.
None.
Part III
ITEM 10.
Directors, Executive Officers and Corporate Governance.
The information required under Item 10 is
hereby incorporated herein by reference from the material under the captions
Election of Directors and Compliance with Section 16(a) of the
Securities Exchange Act of 1934 in the Companys Proxy Statement for the
Annual Meeting of Stockholders to be held on May 6, 2009.
Code of
Ethics.
The
Company has adopted a Code of Ethics that applies to all Directors, officers
and employees of the Company and the Bank.
The Company will provide a copy of the Code of Ethics without charge
upon written request directed to Candace M. Springmann, Corporate Secretary,
CommerceFirst Bancorp, Inc, 1804 West Street, Annapolis, Maryland 21401.
There have
been no material changes in the procedures by which shareholders may recommend
nominees to the Companys Board of Directors since the proxy statement for the
2008 annual meeting of shareholders.
ITEM 11.
Executive Compensation
The information required by Item 11 is hereby incorporated herein by
reference to the material under the captions Election of Directors - Executive
Compensation, and Directors Compensation in the Companys Proxy Statement
for the Annual Meeting of Stockholders to be held on May 6, 2009.
15
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance under
Equity Compensation Plans
The following table sets forth information regarding outstanding options
and other rights to purchase common stock under the Companys compensation
plans.
Equity
Compensation Plan Information
Plan category
|
|
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
|
|
Weighted average exercise price of
outstanding options, warrants and
rights
|
|
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a)
|
|
|
|
(a)
|
|
(b)
|
|
(c
)
|
|
Equity compensation plans approved by
security holders (1)
|
|
0
|
|
N/A
|
|
0
|
|
Equity compensation plans not approved by
security holders
|
|
126,372
|
(1)
|
$
|
10.00
|
|
0
|
|
Total
|
|
126,372
|
|
$
|
10.00
|
|
0
|
|
(1) Column (a) reflects 106,372
shares of common stock subject to issuance upon the exercise of warrants issued
to organizers of the Company and Bank under the Organizers Agreement and
related Warrant Plan, as amended and restated, which provided for the issuance
to organizers of warrants to purchase an aggregate of 15% of the number of
shares sold in the Companys initial registered offering of shares of its
common stock. The warrants are fully vested, and have a term ending in
August 2010. The warrants are subject to call by the Company upon the
occurrence of certain events, and are subject to mandatory exercise or
forfeiture upon certain regulatory events. Column (a) also includes
options to purchase 20,000 shares of common stock at an exercise price of
$10.00 per share issuable to certain officers of the Company under the
Companys 2004 Non-qualified Stock Option Plan. No additional options may be
issued under the Non-qualified Stock Option Plan.
The other information required by Item 12 is hereby incorporated herein
by reference to the material under the caption Voting Securities and Principal
Shareholders in the Companys Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 2009.
ITEM 13.
Certain Relationships and Related Transactions, and Director
Independence.
The information required by Item 13 is hereby incorporated herein by
reference to the material under the caption Election of Directors in the Companys Proxy Statement for the Annual
Meeting of Stockholders to be held on May 6, 2009.
ITEM 14 Principal
Accountant Fees and Services
The information required by Item 14 is hereby incorporated herein by
reference to the material under the caption Independent Registered Public
Accounting Firm in the Companys Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 2009.
16
The following financial statements are incorporated in this report
under Item 8:
Reports of Independent Registered Public Accounting Firm
|
Consolidated Statements of Financial Condition at December 31,
2008 and 2007
|
Consolidated Statements of Operations for the years ended
December 31, 2008 and 2007
|
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2008 and 2007
|
Consolidated Statements of Shareholders Equity for the years ended
December 31, 2008 and 2007
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2008 and 2007
|
Notes to Consolidated Financial Statements
|
ITEM 15.
Exhibits, Financial Statement Schedules
Exhibit No.
|
|
Description of Exhibits
|
|
|
|
3(a)
|
|
Certificate of Incorporation of the Company, as amended (1)
|
3(b)
|
|
Bylaws of the Company (1)
|
10(a)
|
|
Employment Agreement between Richard J. Morgan and the Company (2)
|
10(b)
|
|
Employment Agreement between Lamont Thomas and the Company (3)
|
10(c)
|
|
2004 Non Incentive Option Plan (4)
|
10(d)
|
|
First Amendment to Employment Agreement between Lamont Thomas and the
Company (5)
|
10(e)
|
|
Employment Agreement between Michael T. Storm and CommerceFirst Bank
(6)
|
10(f)
|
|
Extension of Employment Agreement between Richard J. Morgan and the
Company (7)
|
11
|
|
Statement regarding Computation of Per Share Income Refer to Note 1
to the Consolidated Financial Statements included in Exhibit 13.
|
13
|
|
Annual Report to Shareholders
|
21
|
|
Subsidiaries of the Registrant
|
|
|
|
The sole subsidiary of the Registrant is CommerceFirst Bank, a
Maryland chartered commercial bank.
|
|
|
|
23
|
|
Consent of Trice Geary & Myers, LLC
|
31(a)
|
|
Certification of Richard J. Morgan, President and CEO
|
31(b)
|
|
Certification of Michael T. Storm, Executive Vice President and Chief
Financial Officer
|
32(a)
|
|
Certification of Richard J. Morgan, President and Chief Executive
Officer
|
32(b)
|
|
Certification of Michael T. Storm, Executive Vice President and Chief
Financial Officer
|
99(a)
|
|
Amended and Restated Organizers Agreement (8)
|
(1)
|
Incorporated by reference to exhibit of the same number filed with
the Companys Registration Statement on Form SB-2, as amended, (File No. 333-91817)
|
(2)
|
Incorporated by reference to exhibit 10(b) to the Companys to
Registration Statement on Form SB-2, as amended) (File
No. 333-91817)
|
(3)
|
Incorporated by reference to exhibits 10(c) to the Companys to
Registration Statement on Form SB-2, as amended) (File
No. 333-91817)
|
(4)
|
Incorporated by reference to Exhibit 4 to the Companys
Registration Statement on Form S-8 (File
No. 333-119988).Incorporated by reference to Exhibit 4 to the
Companys to Registration Statement on Form S-8 (File No. 333-109138)
|
(5)
|
Incorporated by reference to Exhibit 10(d) to the Companys
Quarterly Report on Form 10-QSB for the period ended March 31,
2007.
|
(6)
|
Incorporated by reference to Exhibit 10(e) to the Companys
Quarterly Report on Form 10-QSB for the period ended September 30,
2007.
|
(7)
|
Incorporated by reference to Exhibit 99 to the Companys Current
Report on Form 8-K filed on January 30, 2009.
|
(8)
|
Incorporated by reference to exhibit s 99(b) and 99(d) to
the Companys Registration Statement on Form SB-2, as amended (File
No. 333-91817)
|
17
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
COMMERCEFIRST BANCORP, INC
|
|
|
|
|
March 5, 2009
|
By:
|
/s/ Richard J. Morgan,
|
|
|
Richard J. Morgan, President and CEO
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name
|
|
Position
|
|
Date
|
|
|
|
|
|
s/ Milton D. Jernigan II
|
|
Chairman of the Board of Directors of the Company and the
|
|
March 5, 2009
|
Milton D. Jernigan II
|
|
Bank
|
|
|
|
|
|
|
|
s/ Richard J. Morgan
|
|
Director, President and CEO of the Company and the Bank
|
|
March 5, 2009
|
Richard J. Morgan
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
s/ Edward B. Howlin, Jr.
|
|
Director of the Company and the Bank
|
|
March 5, 2009
|
Edward B. Howlin, Jr.
|
|
|
|
|
|
|
|
|
|
s/ Charles L. Hurtt, Jr., CPA
|
|
Director of the Company and the Bank
|
|
March 5, 2009
|
Charles L. Hurtt, Jr., CPA
|
|
|
|
|
|
|
|
|
|
s/ Lamont Thomas
|
|
Director of Company and the Bank
|
|
March 5, 2009
|
Lamont Thomas
|
|
|
|
|
|
|
|
|
|
s/ Robert R. Mitchell
|
|
Director of the Company and the Bank
|
|
March 5, 2009
|
Robert R. Mitchell
|
|
|
|
|
|
|
|
|
|
s/ John A. Richardson, Sr.
|
|
Director of the Company and the Bank
|
|
March 5, 2009
|
John A. Richardson, Sr.
|
|
|
|
|
|
|
|
|
|
s/ George C. Shenk, Jr.
|
|
Director of the Company and the Bank
|
|
March 5, 2009
|
George C. Shenk, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Director of the Company and the Bank
|
|
|
Jerome A. Watts
|
|
|
|
|
|
|
|
|
|
s/ Michael T. Storm
|
|
Executive Vice President/Chief Financial Officer of the
|
|
March 5, 2009
|
Michael T. Storm
|
|
Company and the Bank (Principal Financial and Accounting
|
|
|
|
|
Officer)
|
|
|
18
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