UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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|
|
þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended JUNE
30, 2009
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|
o
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|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission file number
000-51104
CommerceFirst Bancorp, Inc.
(Exact Name of Registrant as Specified in its Charter)
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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, Suite 200, Annapolis, MD 21401
(Address of Principal Executive Offices)
410-280-6695
(Registrants 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
þ
No
o
Indicate by checkmark whether the registrant has submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Yes
þ
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.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the
Securities Exchange Act).
Yes
o
No
þ
As of July 24, 2009, the number of outstanding shares of registrants common stock, par value $0.01
per share was: 1,820,548
CommerceFirst Bancorp, Inc.
FORM 10-Q
INDEX
2
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
June 30, 2009 and December 31, 2008
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June 30,
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December 31,
|
|
|
|
2009
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|
2008
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|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,354,110
|
|
|
$
|
3,290,691
|
|
Interest bearing deposits
|
|
|
15,470,575
|
|
|
|
|
|
Federal funds sold
|
|
|
251,466
|
|
|
|
5,673,666
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|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
18,076,151
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|
|
|
8,964,357
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|
Investment securities available-for-sale, at fair value
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|
|
3,019,687
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|
|
|
3,085,770
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|
Investments in restricted stocks, at cost
|
|
|
467,000
|
|
|
|
467,000
|
|
Loans receivable, net of allowance for loan losses of
$2,080,000
at June 30, 2009 and $1,860,000 at December 31, 2008
|
|
|
166,939,100
|
|
|
|
151,101,169
|
|
Premises and equipment, net
|
|
|
861,025
|
|
|
|
1,000,967
|
|
Accrued interest receivable
|
|
|
730,819
|
|
|
|
639,538
|
|
Deferred income taxes
|
|
|
906,399
|
|
|
|
667,993
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|
Other real estate owned
|
|
|
653,000
|
|
|
|
|
|
Other assets
|
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|
414,005
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|
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|
642,280
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
192,067,186
|
|
|
$
|
166,569,074
|
|
|
|
|
|
|
|
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|
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LIABILITIES
|
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Non-interest bearing deposits
|
|
$
|
20,693,595
|
|
|
$
|
23,598,842
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|
Interest bearing deposits
|
|
|
149,766,765
|
|
|
|
121,642,218
|
|
|
|
|
|
|
|
|
Total deposits
|
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|
170,460,360
|
|
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|
145,241,060
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|
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|
|
|
|
|
|
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Accrued interest payable
|
|
|
283,130
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|
|
|
265,105
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|
Other liabilities
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|
|
948,772
|
|
|
|
752,352
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
171,692,262
|
|
|
|
146,258,517
|
|
|
|
|
|
|
|
|
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|
|
|
|
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STOCKHOLDERS EQUITY
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|
Common stock $.01 par value; authorized 4,000,000 shares
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|
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|
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|
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|
Issued and outstanding: 1,820,548 shares at June 30, 2009
and at December 31, 2008
|
|
|
18,205
|
|
|
|
18,205
|
|
Additional paid-in capital
|
|
|
17,852,931
|
|
|
|
17,852,931
|
|
Retained earnings
|
|
|
2,492,803
|
|
|
|
2,392,882
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available-for-sale
|
|
|
10,985
|
|
|
|
46,539
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
20,374,924
|
|
|
|
20,310,557
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
192,067,186
|
|
|
$
|
166,569,074
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations
For the Six and Three Months Ended June 30, 2009 and 2008
(Unaudited)
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|
|
|
|
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|
Six Months Ended
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|
Three Months Ended
|
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|
June 30,
|
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|
June 30,
|
|
|
|
2009
|
|
|
2008
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|
|
2009
|
|
|
2008
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
5,586,210
|
|
|
$
|
5,051,386
|
|
|
$
|
2,876,206
|
|
|
$
|
2,505,064
|
|
U.S. Treasury securities
|
|
|
65,460
|
|
|
|
195,110
|
|
|
|
33,091
|
|
|
|
94,907
|
|
Investment in stocks
|
|
|
13,010
|
|
|
|
12,943
|
|
|
|
6,075
|
|
|
|
6,076
|
|
Interest bearing deposits
|
|
|
7,625
|
|
|
|
|
|
|
|
5,491
|
|
|
|
|
|
Federal funds sold
|
|
|
2,443
|
|
|
|
102,502
|
|
|
|
88
|
|
|
|
28,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
5,674,748
|
|
|
|
5,361,941
|
|
|
|
2,920,951
|
|
|
|
2,634,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,342,777
|
|
|
|
2,519,087
|
|
|
|
1,179,021
|
|
|
|
1,224,755
|
|
Repurchase agreements
|
|
|
|
|
|
|
22,717
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|
|
|
|
|
|
|
7,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,342,777
|
|
|
|
2,541,804
|
|
|
|
1,179,021
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|
|
|
1,232,341
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
3,331,971
|
|
|
|
2,820,137
|
|
|
|
1,741,930
|
|
|
|
1,402,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less provision for loan losses
|
|
|
799,253
|
|
|
|
59,277
|
|
|
|
269,803
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,532,718
|
|
|
|
2,760,860
|
|
|
|
1,472,127
|
|
|
|
1,352,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of SBA loans
|
|
|
117,534
|
|
|
|
130,047
|
|
|
|
117,534
|
|
|
|
98,665
|
|
Gain on sale of securities
|
|
|
|
|
|
|
40,431
|
|
|
|
|
|
|
|
40,431
|
|
Service charges and other income
|
|
|
207,766
|
|
|
|
116,879
|
|
|
|
106,811
|
|
|
|
52,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
325,300
|
|
|
|
287,357
|
|
|
|
224,345
|
|
|
|
191,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
1,462,393
|
|
|
|
1,481,956
|
|
|
|
737,797
|
|
|
|
739,539
|
|
Legal and professional
|
|
|
127,234
|
|
|
|
159,218
|
|
|
|
61,508
|
|
|
|
63,052
|
|
Rent and occupancy
|
|
|
281,036
|
|
|
|
270,774
|
|
|
|
137,619
|
|
|
|
133,303
|
|
Marketing and business development
|
|
|
24,805
|
|
|
|
60,077
|
|
|
|
18,583
|
|
|
|
36,905
|
|
FDIC insurance
|
|
|
211,612
|
|
|
|
49,461
|
|
|
|
153,585
|
|
|
|
24,021
|
|
Data processing
|
|
|
67,423
|
|
|
|
64,262
|
|
|
|
33,690
|
|
|
|
31,247
|
|
Support services
|
|
|
93,737
|
|
|
|
84,023
|
|
|
|
54,533
|
|
|
|
50,463
|
|
Communications
|
|
|
55,397
|
|
|
|
55,561
|
|
|
|
27,932
|
|
|
|
29,693
|
|
Depreciation and amortization
|
|
|
148,199
|
|
|
|
145,260
|
|
|
|
73,550
|
|
|
|
72,631
|
|
Other
|
|
|
217,766
|
|
|
|
190,512
|
|
|
|
103,387
|
|
|
|
99,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
2,689,602
|
|
|
|
2,561,104
|
|
|
|
1,402,184
|
|
|
|
1,279,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
168,416
|
|
|
|
487,113
|
|
|
|
294,288
|
|
|
|
264,366
|
|
Income tax expense
|
|
|
68,495
|
|
|
|
177,635
|
|
|
|
117,784
|
|
|
|
104,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
99,921
|
|
|
$
|
309,478
|
|
|
$
|
176,504
|
|
|
$
|
160,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.17
|
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.17
|
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
For the Six and Three Months Ended June 30, 2009 and 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
99,921
|
|
|
$
|
309,478
|
|
|
$
|
176,504
|
|
|
$
|
160,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gain
included in net income, net of taxes
|
|
|
|
|
|
|
(24,663
|
)
|
|
|
|
|
|
|
(24,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains on securities
available for sale, net of taxes
|
|
|
(35,554
|
)
|
|
|
(9,928
|
)
|
|
|
(6,924
|
)
|
|
|
(74,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(35,554
|
)
|
|
|
(34,591
|
)
|
|
|
(6,924
|
)
|
|
|
(99,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
64,367
|
|
|
$
|
274,887
|
|
|
$
|
169,580
|
|
|
$
|
60,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders Equity
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
18,205
|
|
|
$
|
17,852,931
|
|
|
$
|
2,097,967
|
|
|
$
|
87,258
|
|
|
$
|
20,056,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income- June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
309,478
|
|
|
|
|
|
|
|
309,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains on
securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,591
|
)
|
|
|
(34,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2008
|
|
$
|
18,205
|
|
|
$
|
17,852,931
|
|
|
$
|
2,407,445
|
|
|
$
|
52,667
|
|
|
$
|
20,331,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
18,205
|
|
|
$
|
17,852,931
|
|
|
$
|
2,392,882
|
|
|
$
|
46,539
|
|
|
$
|
20,310,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income- June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
99,921
|
|
|
|
|
|
|
|
99,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains on
securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,554
|
)
|
|
|
(35,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009
|
|
$
|
18,205
|
|
|
$
|
17,852,931
|
|
|
$
|
2,492,803
|
|
|
$
|
10,985
|
|
|
$
|
20,374,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
99,921
|
|
|
$
|
309,478
|
|
Adjustments to reconcile net income to net cash
provided by operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
148,199
|
|
|
|
145,260
|
|
Gain on sale of investment securities
|
|
|
|
|
|
|
(40,431
|
)
|
Gain on sales of SBA loans
|
|
|
(117,534
|
)
|
|
|
(130,047
|
)
|
Provision for loan losses
|
|
|
799,253
|
|
|
|
59,277
|
|
Provision for losses on unfunded commitments
|
|
|
3,000
|
|
|
|
3,000
|
|
Deferred income taxes
|
|
|
(215,246
|
)
|
|
|
(90,344
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in accrued interest receivable
|
|
|
(91,281
|
)
|
|
|
123,652
|
|
Decrease in other assets
|
|
|
228,275
|
|
|
|
92,191
|
|
Increase (decrease) in accrued interest payable
|
|
|
18,025
|
|
|
|
(6,342
|
)
|
Increase (decrease) in other liabilities
|
|
|
193,420
|
|
|
|
(134,094
|
)
|
Other amortization and accretion, net
|
|
|
7,369
|
|
|
|
8,571
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,073,401
|
|
|
|
340,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from sale of investment securities
|
|
|
|
|
|
|
3,039,375
|
|
Proceeds from sale of SBA loans
|
|
|
1,983,727
|
|
|
|
1,972,967
|
|
Increase in loans, net
|
|
|
(18,503,377
|
)
|
|
|
(15,669,102
|
)
|
Increase in other real estate owned
|
|
|
(653,000
|
)
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(8,257
|
)
|
|
|
(32,737
|
)
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(17,180,907
|
)
|
|
|
(10,689,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Decrease in non-interest bearing deposits, net
|
|
|
(2,905,247
|
)
|
|
|
(650,883
|
)
|
Net increase in other deposits
|
|
|
28,124,547
|
|
|
|
13,118,033
|
|
Net decrease in securities sold under agreements
to repurchase
|
|
|
|
|
|
|
(22,832
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
25,219,300
|
|
|
|
12,444,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
9,111,794
|
|
|
|
2,094,992
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,964,357
|
|
|
|
11,724,888
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
18,076,151
|
|
|
$
|
13,819,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
2,324,752
|
|
|
$
|
2,548,146
|
|
|
|
|
|
|
|
|
Total decrease in unrealized gains on available
for sale securities
|
|
$
|
(35,554
|
)
|
|
$
|
(55,187
|
)
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
7
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, 2008 are derived from audited consolidated financial
statements that are included in the Companys Annual Report for the year ended December 31,
2008. The financial data at June 30, 2009 and 2008 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.
The Company has evaluated subsequent events through the date of issuance of the financial
data included herein, July 24, 2009.
Cash and cash equivalents in the statement of cash flows include cash on hand, non-interest
bearing amounts due from correspondent banks, interest and non-interest bearing deposits due
from the Federal Reserve and Federal funds sold.
Certain prior period amounts have been reclassified to conform to the current periods
method of presentation.
Note 2. Fair value
FASB Statement No. 157 (SFAS 157),
Fair Value Measurements
defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value measurements.
SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop
those assumptions. The hierarchy of valuation techniques based on whether the inputs to
those valuation techniques are observable or unobservable. These inputs are summarized in
three broad levels: Level 1 Quoted prices in active markets for identical securities,
Level 2 Other significant observable inputs (including quoted prices in active markets
for similar securities) and Level 3 Significant unobservable inputs (including the
Companys own assumptions in determining the fair value of investments)
The Companys bond holdings in the investment securities are the only asset or liability
subject to fair value measurement on a recurring basis. These assets are valued under Level
1 inputs. The Company also has assets measured on a non-recurring basis during the period.
These assets include $1.8 million of an impaired loan, other real estate owned of $653
thousand and $62 thousand of investments in corporate equities valued under Level 2 inputs.
The remaining $1.2 million of impaired loans are valued under Level 3 inputs.
8
The estimated fair values of the Companys financial instruments at June 30, 2009 and
December 31, 2008 are summarized below. The fair values of a significant portion of these
financial instruments are estimates derived using present value techniques and may not be
indicative of the net realizable or liquidation values. Also, the calculation of estimated
fair values is based on market conditions at a specific point in time and may not reflect
current or future fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,354
|
|
|
$
|
2,354
|
|
|
$
|
3,291
|
|
|
$
|
3,291
|
|
Interest bearing deposits
|
|
|
15,471
|
|
|
|
15,471
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
251
|
|
|
|
251
|
|
|
|
5,674
|
|
|
|
5,674
|
|
Investment securities
|
|
|
3,020
|
|
|
|
3,020
|
|
|
|
3,086
|
|
|
|
3,086
|
|
Investments in restricted stock
|
|
|
467
|
|
|
|
467
|
|
|
|
467
|
|
|
|
467
|
|
Loans, net
|
|
|
166,939
|
|
|
|
173,684
|
|
|
|
151,101
|
|
|
|
158,169
|
|
Accrued interest receivable
|
|
|
731
|
|
|
|
731
|
|
|
|
640
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
20,694
|
|
|
$
|
20,694
|
|
|
$
|
23,599
|
|
|
$
|
23,599
|
|
Interest bearing deposits
|
|
|
149,767
|
|
|
|
152,560
|
|
|
|
121,642
|
|
|
|
124,499
|
|
Accrued interest payable
|
|
|
283
|
|
|
|
283
|
|
|
|
265
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values are based on quoted market prices for similar instruments or estimated using
discounted cash flows. The discounts used are estimated using comparable market rates for
similar types of instruments adjusted to be commensurate with the credit risk, overhead
costs and optionality of such instruments.
The fair value of cash and due from banks, federal funds sold, investments in restricted
stocks and accrued interest receivable are equal to the carrying amounts. The fair values of
investment securities are determined using market quotations. The fair value of loans
receivable is estimated using discounted cash flow analysis.
The fair value of non-interest bearing deposits, interest-bearing checking, savings, and
money market deposit accounts, and accrued interest payable are equal to the carrying
amounts. The fair value of fixed-maturity time deposits is estimated using discounted cash
flow analysis.
Note 3. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Weighted average shares outstanding
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
Common stock equivalents
|
|
|
|
|
|
|
3,919
|
|
|
|
|
|
|
|
2,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares and
equivalents
|
|
|
1,824,467
|
|
|
|
1,824,467
|
|
|
|
1,822,660
|
|
|
|
1,822,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
99,921
|
|
|
$
|
309,478
|
|
|
$
|
176,504
|
|
|
$
|
160,144
|
|
Basic earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.17
|
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
Diluted earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.17
|
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
All of the 126,372 outstanding warrants and options were excluded from the calculation of
diluted income per share in 2009 because they are anti-dilutive, while none were excluded in
2008.
9
Note 4. Related Party Transactions
The Bank paid $26 thousand during the first six months of 2009 for legal services to a firm
of which a Director of the Bank is a principal. Also, the Bank paid $20 thousand for
support services to a computer consulting firm of which a Director of the Bank is also a
principal during this time frame. Expenditures totaling less than $10 thousand were paid to
several entities in which directors were principals during the first six months of 2009. 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 June 30, 2009 the amounts of such loans outstanding
were $3.9 million.
Deposit balances of executive officers, directors and their affiliated interests totaled
$12.6 million at June 30, 2009.
Note 5. 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 June 30, 2009 are as follows:
|
|
|
|
|
Loan commitments
|
$
|
9.8 million
|
Unused lines of credit
|
$
|
34.7 million
|
Letters of Credit
|
$
|
.8 million
|
Note 6. Recent Relevant Accounting Pronouncements
On January 12, 2009, the FASB issued FASB Staff Position EITF 99-20-1,
Amendments to the
Impairment Guidance of EITF Issue No. 99-20
(FSP). FASB FSP 99-20-1 amends the impairment
guidance in FASB EITF Issue No. 99-20,
Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests that Continue to be held by a
Transferor in Securitized Financial Assets
. The intent of the FSP is to reduce complexity
and achieve more consistent determinations as to whether other-than-temporary impairments of
available for sale or held to maturity debt securities have occurred. The FSP is effective
for interim and annual reporting periods ending after December 15, 2008. The adoption of
this FSP did not have an impact on the Companys consolidated financial statements.
In April 2009, the FASB issued three Final Staff Positions (FSPs) to provide additional
guidance and disclosures regarding fair value measurements and impairments of securities:
FSP FAS 157-4.
Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
, provides guidance for estimating fair value when the volume and
level of activity for an asset or liability have significantly decreased. The
adoption of FSP FAS 157-4 did not have a material impact on the Companys
consolidated financial statements.
10
FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments,
amends the other-than-temporary impairment guidance for debt securities
to make
the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in financial
statements. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material
impact on the Companys consolidated financial statements.
FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial
Instruments
, requires disclosure about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. The Company has complied with the requirements of FSP FAS
107-1.
These three FSPs were effective for interim and annual periods ending after June 15, 2009.
In May 2009, the FASB issued FASB Statement No. 165,
Subsequent Events,
which establishes
general standards of and accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available to be issued.
This FASB was effective for interim and annual periods ending after June 15, 2009. The
Company has complied with the requirements of FASB 165.
In June 2009, the FASB issued FASB Statement No. 166,
Accounting for Transfers of Financial
Assets an amendment of FASB Statement No. 140
to improve the reporting for the transfer of
financial assets resulting from 1) practices that have developed since the issuance of FASB
Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
that are not consistent with the original intent and key
requirements of that Statement and (2) concerns of financial statement users that many of
the financial assets (and related obligations) that have been derecognized should continue
to be reported in the financial statements of transferors. This Statement must be applied as
of the beginning of each reporting entitys first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period and for
interim and annual reporting periods thereafter. Earlier application is prohibited. The
Company will review the requirements of FASB No. 166 and comply with its requirements. The
Company does not expect that the adoption of this Statement will have a material impact on
the Companys consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167,
Amendments to FASB Interpretation No. 46(R)
to amend certain requirements of FASB
Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities
to improve financial reporting by enterprises involved with variable interest entities and
to provide more relevant and reliable information to users of financial statements. The
Statement is effective as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The Company will review the requirements of FASB No. 167 and
comply with its requirements. The Company does not expect that the adoption of this
Statement will have a material impact on the Companys consolidated financial statements.
In June 2009, the FASB issued Statement No. 168,
The FASB Accounting Standards
Codification
TM
and the Hierarchy of Generally Accepted Accounting Principlesa
replacement of FASB Statement No. 162.
Under the Statement,
The FASB Accounting
Standards Codification
(Codification) will become the source of authoritative U.S.
generally accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement, the
Codification will supersede all then-existing non-SEC accounting and reporting standards.
All other non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This Statement is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. In the FASBs view, the
issuance of this Statement and the Codification will not change GAAP, except for those
nonpublic nongovernmental entities that must now apply the American Institute of Certified
Public Accountants Technical Inquiry Service Section 5100, Revenue Recognition, paragraphs
3876. The Company does
not expect that the adoption of this Statement will have a material impact on the Companys
consolidated financial statements.
11
ITEM 2
|
|
MANAGEMENTS 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 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
Companys 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 Companys common stock trades on the NASDAQ Capital Market under the symbol CMFB.
The Company continued its efforts to increase investments in loans during 2009 to better utilize
its resources and leverage new capital obtained from the issuance of common stock in 2005. Loans
increased by 10.5% during the first six months of 2009. The increase in loans and the reduction of
the cost of deposits resulted in an increase in net interest margin.
The Company continued a pattern of asset and revenue growth during the first six months of 2009 but
operating results have been adversely affected by increases in federal deposit insurance premiums
and increases in the provision for loan losses in recognition of the effect of uncertain economic
conditions on the Companys loans. Key measurements and events for the period include the
following:
|
|
|
Total assets at June 30, 2009 increased by 15.3% to $192.1 million as compared to
$166.6 million as of December 31, 2008.
|
|
|
|
|
Net loans outstanding increased by 10.5% from $151.1 million as of December 31, 2008
to $166.9 million as of June 30, 2009.
|
|
|
|
|
Deposits at June 30, 2009 were $170.0 million, an increase of $25.2 million or 17.4%
from December 31, 2008.
|
|
|
|
|
The Companys net income for the six month period ended June 30, 2009 was $99.9
thousand as compared to net income of $309.5 thousand for the six month period ended
June 30, 2008 primarily resulting from increased provision for loan losses during 2009
as well as increases in federal deposit insurance premiums.
|
12
|
|
|
Net interest income, the Companys main source of income, was $3.3 million during
the six month period ended June 30, 2009 compared to $2.8 million for the same period
in 2008, an increase of 18.2%.
|
|
|
|
|
Non-interest income increased by $38 thousand for the six month period ended June
30, 2009 as compared to the six month period ended June 30, 2008.
|
|
|
|
|
Non-interest expenses increased by $128 thousand or 5.0%, for the six months ended
June 30, 2009, as compared to the same period in 2008.
|
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 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 Companys annual audited consolidated financial statements included in its Annual
Report on Form 10-K for the year ended December 31, 2008. 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.
13
RESULTS OF OPERATIONS
General
.
The Company reported net income of $99.9 thousand for the six-month period ended June 30, 2009 as
compared to net income of $309.5 thousand for the six-month period ended June 30, 2008. The reduced
earnings in 2009 are the result of the increase in the provision for loan losses from $59 thousand
during the first six months of 2008 to $799 thousand for the same period in 2009. The Company is
increasing its allowance for loan losses in recognition of the detrimental effect of the weakened
economy on its loan customers. The level of impaired loans and the amount of loans for which
specific
reserves have been established have increased as compared to the first quarter of 2008 resulting in
the increase of provisions for loan losses during the first half of 2009 as compared to the same
period in 2008. Net interest income increased in 2009 as compared to 2008 by $512 thousand
(18.2%). During 2008, the Companys net interest income was negatively affected by the reduced
interest rate environment initiated by the Federal Reserve Bank in late 2007. In the first half of
2009, the average interest rate paid on interest bearing funds declined at a more rapid pace then
the decline in the average interest rate earned on interest earning assets. This resulted in
increases in net interest spread, net interest margin and net interest income. The increase in
non-interest expenses of $128 thousand was somewhat offset by increases in non- interest income of
$38 thousand. The largest non-interest expense increase was the $162 thousand increase in federal
deposit insurance premiums.
Return on Average Assets and Average Equity
.
The following table shows the return on average assets
and average equity for the period shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
Return on Average Equity
|
|
|
0.99
|
%
|
|
|
3.05
|
%
|
|
|
1.92
|
%
|
|
|
Return on Average Earning Assets
|
|
|
0.12
|
%
|
|
|
0.41
|
%
|
|
|
0.25
|
%
|
|
|
Ratio of Average Equity to
Average Assets
|
|
|
11.64
|
%
|
|
|
13.13
|
%
|
|
|
12.86
|
%
|
Six months ended June 30, 2009
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 Companys 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 $313 thousand or 5.8% to $5.7 million for the six-month period
ended June 30, 2009. This increase in interest income was attributable to the increase in average
earning assets during the first half of 2009 of $20.9 million as compared to the same period in
2009. Interest income was adversely affected by the decline in the yield of the average earning
assets from 7.1% in 2008 to 6.7% in 2009.
Interest expense decreased by $199 thousand or 7.8% to $2.3 million for the six months ended June
30, 2009 as compared to $2.5 million during the first six months of 2008. This decrease was
primarily attributable to the decrease in the cost of funds from 4.5% during the first half of 2008
to 3.6% during the first half of 2009. The decline in the cost of funds was partially offset by the
increase in average interest bearing liabilities of $17.4 million during 2009 as compared to 2008.
The net interest income for the six-month period ended June 30, 2009 was $3.3 million as compared
to $2.8 million for the same period in 2008. Net interest income increased primarily because of
the increase in average earning assets and the reduced cost of funds during the six months ended
June 30, 2009 as compared to the six months ended June 30, 2008.
14
The following table shows the average balances and the rates of the various categories of the
Companys assets and liabilities. Nonperforming loans are included in average balances in the
following table:
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30:
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
|
Yield/
|
|
(In thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
160,151
|
|
|
$
|
5,586
|
|
|
|
7.03
|
%
|
|
$
|
133,223
|
|
|
$
|
5,051
|
|
|
|
7.60
|
%
|
Investment securities
|
|
|
3,523
|
|
|
|
79
|
|
|
|
4.52
|
%
|
|
|
9,445
|
|
|
|
208
|
|
|
|
4.42
|
%
|
Interest bearing deposits
|
|
|
6,163
|
|
|
|
8
|
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
1,726
|
|
|
|
2
|
|
|
|
0.23
|
%
|
|
|
7,976
|
|
|
|
103
|
|
|
|
2.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Earning Assets
|
|
|
171,563
|
|
|
|
5,675
|
|
|
|
6.67
|
%
|
|
|
150,644
|
|
|
|
5,362
|
|
|
|
7.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(2,126
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,719
|
)
|
|
|
|
|
|
|
|
|
Non-Interest Earning Assets
|
|
|
5,571
|
|
|
|
|
|
|
|
|
|
|
|
5,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
175,008
|
|
|
|
|
|
|
|
|
|
|
$
|
154,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest -Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
$
|
2,190
|
|
|
|
1
|
|
|
|
0.09
|
%
|
|
$
|
1,814
|
|
|
$
|
2
|
|
|
|
0.22
|
%
|
Money market deposit accounts
|
|
|
13,539
|
|
|
|
36
|
|
|
|
0.54
|
%
|
|
|
19,728
|
|
|
|
215
|
|
|
|
2.19
|
%
|
Savings accounts
|
|
|
560
|
|
|
|
4
|
|
|
|
1.44
|
%
|
|
|
63
|
|
|
|
|
|
|
|
0.00
|
%
|
Certificates of deposit
|
|
|
115,811
|
|
|
|
2,302
|
|
|
|
4.01
|
%
|
|
|
90,014
|
|
|
|
2,302
|
|
|
|
5.13
|
%
|
Securities sold under agreements
to repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,040
|
|
|
|
23
|
|
|
|
1.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
|
132,100
|
|
|
|
2,343
|
|
|
|
3.58
|
%
|
|
|
114,659
|
|
|
|
2,542
|
|
|
|
4.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
21,544
|
|
|
|
|
|
|
|
|
|
|
|
18,814
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
154,642
|
|
|
|
|
|
|
|
|
|
|
|
134,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
20,366
|
|
|
|
|
|
|
|
|
|
|
|
20,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
|
175,008
|
|
|
|
|
|
|
|
|
|
|
$
|
154,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
|
$
|
3,332
|
|
|
|
|
|
|
|
|
|
|
$
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Spread
|
|
|
|
|
|
|
|
|
|
|
3.09
|
%
|
|
|
|
|
|
|
|
|
|
|
2.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
|
|
|
3.92
|
%
|
|
|
|
|
|
|
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yields on securities are calculated based on amortized cost.
Net interest margin was 3.9% in the first half of 2009, as compared to 3.8% in the comparable
period in 2008. Interest spread was 3.1% in the first half of 2009, as compared to the 2.7% in the
first half of 2008 reflecting the greater reduction in the cost of interest bearing funds as
compared to the reduced earnings rate of interest earning assets. The growth in loans receivable as
well as the re-pricing of interest bearing deposits at lower interest rates combined to improve the
net interest spread and net interest margin.
15
The following table sets forth certain information regarding changes in interest income and
interest expense of the Company. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to: (i) changes in volume (change in
volume of the asset multiplied by the prior years rate) and (ii) changes in rates (change in rate
multiplied by the current years volume).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 vs. June 30, 2008
|
|
|
|
Increase (Decrease)
|
|
(In thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
(80
|
)
|
|
$
|
(20
|
)
|
|
$
|
(100
|
)
|
Interest bearing deposits
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Investment portfolio
|
|
|
(131
|
)
|
|
|
1
|
|
|
|
(130
|
)
|
Loans receivable
|
|
|
1,021
|
|
|
|
(486
|
)
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Interest Income
|
|
|
818
|
|
|
|
(505
|
)
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
534
|
|
|
|
(710
|
)
|
|
|
(176
|
)
|
Securities sold under agreements
to repurchase
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Change in Interest Expense
|
|
|
511
|
|
|
|
(710
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income
|
|
$
|
307
|
|
|
$
|
205
|
|
|
$
|
512
|
|
|
|
|
|
|
|
|
|
|
|
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 managements ongoing
assessment of the Companys credit exposure and consideration of certain other relevant factors.
The provision for loan losses was $799 thousand during the six months ended June 30, 2009 as
compared to $59 thousand for the six months ended June 30, 2008. The Company is increasing its
provision for loan losses to address identified loan concerns and in recognition of the detrimental
effect of the weakened economy. The allowance is comprised of specific and general allowance
amounts.
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 six months ended June 30, 2009, gains on sales of the guaranteed portion of SBA
loans was $118 thousand whereas gains on sales of SBA loans amounted to $130 thousand during the
first half of 2008. 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. Deposit account service charges
amounted to $208 thousand during the six months ended June 30, 2009 as compared to $117 thousand
for the same period in 2008 reflecting higher service charges assessed on deposit account
activities. The Company increased service charge rates as well as chargeable items during 2009.
Non-Interest Expense.
Non-interest expense increased by $128 thousand during the six-month period
ended June 30, 2009 as compared to the same period in 2008, a 5.0% increase. The increase in FDIC
insurance assessments of $162 thousand, including $86 thousand in special assessment, was the
primary cause of the increase in non-interest expense for the six months ended June 30, 2009. The
FDIC has indicated that another special insurance premium may be assessed during the fourth quarter
of 2009.
Income Tax Expense.
During the six months ended June 30, 2009, the Company recorded an income tax
expense of $68 thousand as compared to a $178 thousand expense during the same period in 2008. The
income tax expense was 40.7% of income before taxes in 2009 and 36.5% of income before taxes in
2008. In the six month period ended June 30, 2008, the effective income tax rate was reduced 5.9%
because the effect of a 2008 state tax rate change on deferred tax items.
16
Three months ended June 30, 2009
Net Interest Income and Net Interest Margin
.
Total interest income increased by $286 thousand or 10.9% to $2.9 million for the three-month
period ended June 30, 2009. This increase in interest income was attributable to the increase in
average earning assets during 2009 as compared to 2008. The interest income was adversely affected
by the decline in the yield of the average earning assets.
Interest expense decreased by $53 thousand or 4.3% to $1.2 million for the three months ended June
30, 2009 as compared to the same period of 2008. This decrease was primarily attributable to the
decrease in the cost of funds. The decline in the cost of funds was partially offset by the
increase in average interest bearing liabilities during 2009 as compared to 2008.
The net interest income for the three-month period ended June 30, 2009 was $1.7 million as compared
to $1.4 million for the same period in 2008. Net interest income increased primarily because of
the increase in average earning assets and the reduced cost of funds during the three months ended
June 30, 2009 as compared to the three months ended June 30, 2008.
Provision for Loan Losses.
The provision for loan losses was $270 thousand during the three months
ended June 30, 2009 as compared to $50 thousand for the three months ended June 30, 2008. The
Company is increasing its provision for loan losses to address identified loan concerns and in
recognition of the detrimental effect of the weakened economy. The allowance is comprised of
specific and general allowance amounts.
Non-Interest Income
.
For the three months ended June 30, 2009, gains on sales of the guaranteed
portion of SBA loans were $118 thousand whereas gains on sales of SBA loans amounted to $99
thousand during the same period in 2008. Deposit account service charges amounted to $107 thousand
during the three months ended June 30, 2009 as compared to $53 thousand for the same period in 2008
reflecting higher service charges assessed on deposit account activities. The Company increased
service charge rates as well as chargeable items during 2009.
Non-Interest Expense
.
Non-interest expense increased by $122 thousand during the three-month
period ended June 30, 2009 as compared to the same period in 2008, a 9.6% increase. The increase in
FDIC insurance assessments of $130 thousand, including $86 thousand in special assessment, was the
primary cause of the increase in non-interest expense for the three months ended June 30, 2009. The
FDIC has indicated that another special insurance premium may be assessed during the fourth quarter
of 2009.
Income Tax Expense
.
During the three months ended June 30, 2009, the Company recorded an income tax
expense of $118 thousand as compared to a $104 thousand expense during the same period in 2008. The
income tax expense was 40.0% of income before taxes in 2009 and 39.4% of income before taxes in
2008.
FINANCIAL CONDITION.
General
.
The Companys assets at June 30, 2009 were $192.1 million, an increase of $25.5 million or
15.3%, from December 31, 2008. Gross loans totaled $169.1 million is comprised of real estate
loans of $101.4 million, an increase of $7.2 million, or 7.6%, from December 31, 2008 and
commercial loans of $67.7 million, a decrease of $8.9 million, or 15.2% from December 31, 2008. At
June 30, 2009, deposits totaled $170.5 million an increase of $25.2 million, or 17.4%, from
December 31, 2008. Deposits at June 30, 2009 are comprised primarily of certificates of deposit of
$130.2 million, NOW and Money Market accounts of $16.3 million, savings accounts of $3.3 million
and noninterest bearing deposits of $20.7 million.
Loan Portfolio.
The loan portfolio is the largest component of earning assets and accounts for the
greatest portion of total interest income. At June 30, 2009, net loans were $166.9 million, a
10.5% increase from the $151.1 million in loans outstanding at December 31, 2008. 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 Company continues its efforts to increase investments
in loans to better utilize its resources and leverage capital obtained from the issuance of common
stock in 2005. The Company has not reduced its credit underwriting standards to achieve loan
growth. The Company has approximately $2.4 million of acquisition and construction loans secured by
residential building lots. The Company does not engage in foreign lending activities. Loans secured
by residential real estate are loans to investors for commercial purposes. The Bank does not lend
funds to consumers. The following table presents the composition of the loan portfolio by type of
loan at the dates indicated.
17
Loans receivable, net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
(In thousands)
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
Commercial & industrial loans
|
|
$
|
67,717
|
|
|
|
40.0
|
%
|
|
$
|
58,783
|
|
|
|
38.4
|
%
|
Real estate loans secured by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
21,461
|
|
|
|
12.7
|
%
|
|
|
19,007
|
|
|
|
12.4
|
%
|
Commercial real estate
|
|
|
79,907
|
|
|
|
47.3
|
%
|
|
|
75,200
|
|
|
|
49.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
101,368
|
|
|
|
60.0
|
%
|
|
|
94,207
|
|
|
|
61.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,085
|
|
|
|
100.0
|
%
|
|
|
152,990
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned loan fees, net
|
|
|
(66
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
Allowance for loan losses
|
|
|
(2,080
|
)
|
|
|
|
|
|
|
(1,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166,939
|
|
|
|
|
|
|
$
|
151,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the interest rate sensitivity of the loan portfolio at June 30, 2009.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity of loan portfolio
|
|
|
|
One Year
|
|
|
After One Year
|
|
|
After Five
|
|
|
|
|
(In thousands)
|
|
or Less
|
|
|
through Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
$
|
72,582
|
|
|
$
|
93,457
|
|
|
$
|
3,046
|
|
|
$
|
169,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses.
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 June 30, 2009, the range of the loss ratios used to determine estimated
losses by loan category were: commercial loans 0.66%; SBA loans (unguaranteed portion) 5.5% and
real estate loans- 0.20% to 1.15%. These loss ratios are about 0.15% higher than the ratios applied
at December 31, 2008 reflecting general weaknesses in economic conditions. 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.
18
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 managements estimations of loss exposure. Loss
percentages used are generally based upon managements 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 June
30, 2009, the actual allowance for loan losses of 1.23% was between the low and high allowance
amounts of 1.10% and 1.35%, respectively.
The allowance for loan losses represents 1.23% and 1.22% of loans receivable at June 30, 2009 and
December 31, 2008, 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 loan losses is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
(In thousands)
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,860
|
|
|
$
|
1,665
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
(445
|
)
|
|
|
(497
|
)
|
Commercial real estate loan
|
|
|
(138
|
)
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
4
|
|
|
|
45
|
|
|
|
|
|
|
|
|
Net charge offs
|
|
|
(579
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
799
|
|
|
|
647
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,080
|
|
|
$
|
1,860
|
|
|
|
|
|
|
|
|
The ratio of net charge-offs as a percentage of average loans was 0.36% during the six months ended
June 30, 2009 and 0.33% during the year ended December 31, 2008.
Additionally, the Company has established a reserve for unfunded commitments that is recorded by a
provision charged to other expenses. At June 30, 2009 the balance of this reserve was $51 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 loans 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.
19
Non-accrual loan activity is summarized as follows since December 31, 2008:
|
|
|
|
|
(In thousands)
|
|
Loan Amount
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
5,819
|
|
New loans placed on non-accrual
|
|
|
344
|
|
Less:
|
|
|
|
|
Loan restored to interest earning status
|
|
|
1,266
|
|
Payments on loans applied to principal
|
|
|
12
|
|
Pay-off : Sold in foreclosure
|
|
|
576
|
|
Other real estate owned addition
|
|
|
663
|
|
Charge offs
|
|
|
579
|
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
3,067
|
|
|
|
|
|
Included in the amount of non-accrual loans at June 30, 2009 is a loan in the amount of $1,809
thousand which is well secured by real estate.
Information regarding loans classified as impaired follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
Loans classified as impaired with specific reserves
|
|
$
|
1,076
|
|
|
$
|
1,892
|
|
Loans classified as impaired with no specific reserves
|
|
$
|
1,933
|
|
|
$
|
3,927
|
|
Allowance for loan losses on impaired loans
|
|
$
|
741
|
|
|
$
|
840
|
|
Average balance of impaired loans during period
|
|
$
|
5,054
|
|
|
$
|
2,142
|
|
The loans classified as impaired with specific reserves at June 30, 2009 include a non-accrual loan
in the amount of $483 thousand (same balance at December 31, 2008) which is the remaining balance
of a relationship totaling $958 thousand classified and placed in non-accrual status prior to 2007.
This loan is secured by an assignment of life insurance proceeds. The specific reserve allocated
to this loan is $326 thousand. Three loans totaling $101 thousand have specific reserves
established at the loan amounts. Specific reserves in the amount of $314 thousand have been
established for the remaining balance of classified loans (five loans with balances totaling $492
thousand) with specific reserves.
The loans classified as impaired without established specific reserves at June 30, 2009 include a
loan well secured by commercial real estate in the amount of $1.8 million. The remaining balance of
such loans is comprised of three loans in various stages of collection.
The Company acquired real property under a foreclosure process concluded in March 2009. The Company
recognized a loss of approximately $138 thousand in connection with the foreclosure. The property
is a commercial building with an existing tenant for part of the premises with a value of
approximately $653 thousand. The Company intends to market the property.
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 2009, there
were no amounts included in gross interest income attributable to loans in non-accrual status.
A well secured real estate loan in the carrying amount of $1.3 million at June 30, 2009 was
restructured through a forbearance agreement during the first quarter of 2009. The borrower has
complied with the requirements under the forbearance agreement including payment requirements and
the loan was placed back on an accrual basis. Interest payments of $39 thousand had been received
on this previously classified non-accrual impaired loan and recognized in interest income in the
second quarter of 2009.
20
Investment Portfolio
.
At June 30, 2009, the carrying value of the investment securities portfolio
was $3.02 million, a decrease of $66 thousand from the carrying value of $3.09 million at December
31, 2008. 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 bankers banks to facilitate loan participations.
The following table provides information regarding the composition of the Banks investment
securities portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Securities and Stocks
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
Percent
|
|
(In thousands)
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Investment securities,
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries
|
|
$
|
3,020
|
|
|
|
100.00
|
%
|
|
$
|
3,086
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in stocks,
at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Stock
|
|
|
405
|
|
|
|
86.72
|
%
|
|
|
405
|
|
|
|
86.72
|
%
|
Corporate equities
|
|
|
62
|
|
|
|
13.28
|
%
|
|
|
62
|
|
|
|
13.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stocks
|
|
$
|
467
|
|
|
|
100.00
|
%
|
|
$
|
467
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Deposits are the major source of funds for lending and investment activities. Deposits
increased $25.2 million (17.4%) to $170.4 million at June 30, 2009 from $145.2 million at December
31, 2008. Non-interest bearing deposits decreased $2.9 million or 12.3%, interest bearing demand
accounts (Money Market and NOW accounts) increased by $2.0 million or 14.0%, savings accounts
deposits increase $3.1 million and certificates of deposit increased $23.0 million, or 21.5% during
the six months ended June 30, 2009. Certificates of deposit in amounts of $100 thousand and over
totaled $75.8 million at June 30, 2009 and $67.0 million at December 31, 2008. Deposits are
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
Non-interest bearing deposits
|
|
$
|
20,693
|
|
|
$
|
23,599
|
|
Savings deposits
|
|
|
3,266
|
|
|
|
148
|
|
Interest bearing demand deposits
|
|
|
16,301
|
|
|
|
14,296
|
|
Certificates of deposit
|
|
|
130,200
|
|
|
|
107,198
|
|
|
|
|
|
|
|
|
|
|
$
|
170,460
|
|
|
$
|
145,241
|
|
|
|
|
|
|
|
|
The Company began to offer a new premium saving account during 2009 resulting in the substantial
increase in the balances of saving accounts at June 30, 2009. This account is attractively priced
to increase deposits and to increase the Companys deposit customer base. The increase in interest
bearing deposits is generally attributable to increases in title companies accounts at June 30, 2009. The increase in certificates of deposit includes an
increase in brokered deposits of $4.9 million.
21
LIQUIDITY AND CAPITAL RESOURCES
The Companys principal sources of funds are deposits, consisting of demand deposits, NOW accounts,
money market accounts, savings accounts and certificates of deposit. These accounts provide the
Company with a relatively stable source of funds. We generally target larger deposit relationships
by offering competitive interest rates on certificates of deposit of $100,000 or more in our local
markets. We supplement our local deposits with out-of-area deposits including deposits obtained
through the use of brokers and through the CDARS program. As a result, a substantial portion of our
deposits, 44.5% at June 30, 2009 (57.3% at December 31, 2008), are comprised of certificate of
deposit accounts of $100 thousand or more. The Companys use of larger denomination certificates of
deposit and brokered deposits facilitates funding the rapid growth in the loan portfolio. The Bank
has used such certificates of deposits as a funding source since its inception. While sometimes
requiring higher interest rates, such funds carry lower acquisition costs (marketing, overhead
costs) and can be obtained when required at the maturity dates desired. Substantially all of the
deposit accounts over $100 thousand are fully insured by the FDIC through differing ownership and
trustee arrangements. All of the brokered deposits are fully insured by the FDIC. This insurance
and the strong capital position of the Bank reduce the likelihood of large deposit withdrawals for
reasons other than interest rate competition. Interest rates on these deposits can be higher than
other deposits products. There is, however, a risk that some deposits would be lost if rates were
to increase and the Bank elected not to remain competitive with its own deposit rates. Under those
conditions, the Bank believes that it is positioned to use other sources of funds, such as
borrowing on its unsecured credit facilities with other banks or the sale of investment securities
or borrowing using the securities as collateral, to offset a decline in deposits in the short run.
At June 30, 2009 the company had cash and cash equivalents in the amount of $18.1 million as
compared to $9.0 million at December 31, 2008. The Company increased its deposits during May and
June of 2009 to supplement its general liquidity level as well as to fund expected loan
settlements. Some of the larger loans (totaling approximately $5.5 million) expected to settle in
June 2009 actually settled in July 2009. Therefore cash and cash equivalents generated to fund the
loans remained in interest bearing deposits at June 30, 2009.
The Company currently has no business other than that of the Bank and does not currently have any
material funding commitments unrelated to that business. The Banks principal sources of funds for
loans, investments and general operations are deposits from its primary market area, principal and
interest payments on loans, and proceeds from maturing investment securities. Its principal funding
commitments are for the origination or purchase of loans and the payment of maturing deposits, and
the payment for checks drawn upon it. The Banks most liquid assets are cash and cash equivalents,
which are cash on hand, amounts due from other financial institutions and Federal funds sold. The
levels of such assets are dependent on the Banks lending, investment and operating activities at
any given time. The variations in levels of cash and cash equivalents are influenced by deposit
flows and loan demand, both current and anticipated.
At June 30, 2009, the Bank has $8.5 million available under unsecured Federal funds borrowing
facilities from other financial institutions; no amounts were outstanding under these facilities.
The Company believes its levels of liquidity and capital are adequate to conduct the business of
the Company and Bank.
OFF-BALANCE SHEET ARRANGEMENTS
Standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to customers. The Bank holds
collateral supporting those commitments for which collateral is deemed necessary. The Bank has not
been required to perform on any financial guarantees and has not recorded or incurred any losses on
its commitments. The issuance of letters of credit is not a significant activity of the Bank.
Outstanding letters of credit at June 30, 2009 total $0.8 million ($1.6 million at December 31,
2008).
22
Commitments to extend credit are agreements to lend funds to customers as long as there are no
violations of any condition established in the loan contracts. These commitments include
commitments to lend funds as well as un-advanced loan funds. These commitments at June 30, 2009
totaled $44.5 million ($42.9 million at December 31, 2008). Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
CAPITAL ADEQUACY
The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance
of appropriate levels of capital by bank holding companies and state non-member banks,
respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage
rules, which require bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the maintenance of specified
minimum ratios of capital to risk-weighted assets. At June 30, 2009, the Company and the Bank was
in full compliance with these guidelines, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Ratios
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
To be Adequately
|
|
|
To be Well
|
|
|
|
2009
|
|
|
2008
|
|
|
Capitalized
|
|
|
Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
13.1
|
%
|
|
|
14.1
|
%
|
|
|
8.0
|
%
|
|
|
N/A
|
|
Bank
|
|
|
12.2
|
%
|
|
|
11.9
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
Tier I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
11.8
|
%
|
|
|
12.9
|
%
|
|
|
4.0
|
%
|
|
|
|
|
Bank
|
|
|
10.9
|
%
|
|
|
10.6
|
%
|
|
|
4.0
|
%
|
|
|
6.0
|
%
|
Leverage Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
11.3
|
%
|
|
|
12.2
|
%
|
|
|
4.0
|
%
|
|
|
|
|
Bank
|
|
|
10.5
|
%
|
|
|
10.1
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
Under guidance by 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,
sooner than we otherwise would expect to.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4 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 13a-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. There were no changes in the Companys internal
control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934)
during the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
23
PART II OTHER INFORMATION
Item 1 Legal Proceedings
In the ordinary course of its business, the Company may become involved in routine legal
proceedings. At June 30, 2009, there are no such proceedings.
Item 1A Risk Factors
Not applicable
Item 2 Unregistered Sale of Equity Securities and Use of Proceeds
|
(a)
|
|
Sales of Unregistered Securities.
None
|
|
|
(b)
|
|
Use of Proceeds.
Not applicable.
|
|
|
(c)
|
|
Issuer Purchases of Securities.
None
|
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
At the Companys annual shareholders meeting held on May 6, 2009, the shareholders of the Company
elected Robert R. Mitchell, Richard J Morgan and George C. Shenk, Jr. as directors for three-year
terms as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
|
Votes Against
|
|
|
Votes Withheld
|
|
|
Total Votes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Mitchell
|
|
|
1,388,143
|
|
|
|
|
|
|
|
14,789
|
|
|
|
1,402,932
|
|
Percent of votes cast
|
|
|
98.96
|
%
|
|
|
|
|
|
|
1.04
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Morgan
|
|
|
1,390,643
|
|
|
|
|
|
|
|
12,289
|
|
|
|
1,402,932
|
|
Percent of votes cast
|
|
|
99.12
|
%
|
|
|
|
|
|
|
088
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George C. Shenk, Jr.
|
|
|
1,388,143
|
|
|
|
|
|
|
|
14,789
|
|
|
|
1,402,932
|
|
Percent of votes cast
|
|
|
98.96
|
%
|
|
|
|
|
|
|
1.04
|
%
|
|
|
100
|
%
|
There were no solicitations in opposition to managements nominees and all such nominees were
elected. These director-nominees were incumbent directors previously elected by the shareholders to
three-year terms. Directors continuing in office are Edwin B. Howlin, Jr, Charles L. Hurtt, Jr,
Milton D. Jernigan, II, John A. Richardson, Sr., Lamont Thomas and Jerome A. Watts.
Item 5 Other Information
|
(a)
|
|
Information Required to be Reported on
Form 8-K
.
None
|
|
|
(b)
|
|
Changes in Security Holder Nomination Procedures.
None
|
24
Item 6 Exhibits
|
|
|
|
|
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 attached hereto (7)
|
|
10
|
(f)
|
|
Extension of Employment Agreement between Richard J. Morgan and the Company (8)
|
|
11
|
|
|
Statement Regarding Computation of Per Share Income- See Notes to Financial Statements
|
|
21
|
|
|
Subsidiaries of the Registrant The sole subsidiary of the Registrant is CommerceFirst Bank,
a Maryland chartered commercial bank
|
|
31
|
(a)
|
|
Certification of Richard J. Morgan, President and CEO
|
|
31
|
(b)
|
|
Certification of Michael T Storm, Executive Vice President and CFO
|
|
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 (6)
|
|
|
|
(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 3.2 to the Companys Current Report on Form 8-K filed on
August 17, 2007.
|
|
(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).
|
|
(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 s 99(b) and 99(d) to the Companys Registration
Statement on Form SB-2, as amended (File No. 333-91817).
|
|
(7)
|
|
Incorporated by reference to Exhibit 10(e) to the Companys Quarterly Report on Form 10-QSB
for the period ended September 30, 2007.
|
|
(8)
|
|
Incorporated by reference to Exhibit 99 to the Companys Current Report on Form 8-K filed on
January 30, 2009.
|
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
COMMERCEFIRST BANCORP, INC.
|
|
Date: July 24, 2009
|
By:
|
/s/ Richard J. Morgan
|
|
|
|
Richard J. Morgan, President and Chief Executive Officer
|
|
|
|
|
Date: July 24, 2009
|
By:
|
/s/ Michael T. Storm
|
|
|
|
Michael T. Storm, Executive Vice President and Chief Financial Officer
|
|
26
EXHIBIT
INDEX
|
|
|
|
|
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 attached hereto (7)
|
|
10
|
(f)
|
|
Extension of Employment Agreement between Richard J. Morgan and the Company (8)
|
|
11
|
|
|
Statement Regarding Computation of Per Share Income- See Notes to Financial Statements
|
|
21
|
|
|
Subsidiaries of the Registrant The sole subsidiary of the Registrant is CommerceFirst Bank,
a Maryland chartered commercial bank
|
|
31
|
(a)
|
|
Certification of Richard J. Morgan, President and CEO
|
|
31
|
(b)
|
|
Certification of Michael T Storm, Executive Vice President and CFO
|
|
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 (6)
|
|
|
|
(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 3.2 to the Companys Current Report on Form 8-K filed on
August 17, 2007.
|
|
(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).
|
|
(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 s 99(b) and 99(d) to the Companys Registration
Statement on Form SB-2, as amended (File No. 333-91817).
|
|
(7)
|
|
Incorporated by reference to Exhibit 10(e) to the Companys Quarterly Report on Form 10-QSB
for the period ended September 30, 2007.
|
|
(8)
|
|
Incorporated by reference to Exhibit 99 to the Companys Current Report on Form 8-K filed on
January 30, 2009.
|
27
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