Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x

 

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

 

 

 

For the quarterly period ended JUNE 30, 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 number  000-51104

 

CommerceFirst Bancorp, Inc.

 (Exact Name of Registrant as Specified in its Charter)

 

Maryland

 

52-2180744

(State or Other Jurisdiction
of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

1804 West Street, Suite 200, Annapolis, MD 21401

(Address of Principal Executive Offices)

 

410-280-6695

(Registrant’s Telephone Number, Including Area Code)

 

N/A

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

 

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

 

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

 

Large accelerated filer o

Accelerated filer  o

Non-accelerated filer o

Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Securities Exchange Act).    Yes o   No x

 

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

 

 

 



Table of Contents

 

CommerceFirst Bancorp, Inc.

 

FORM 10-Q

 

INDEX

 

 

 

Page(s)

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1 - Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition – June 30, 2008 (Unaudited) and December 31, 2007 (Audited)

 

 

3

 

 

 

 

Consolidated Statements of Operations – Six and three month (Unaudited)

 

 

4

 

 

 

 

Consolidated Statements of Comprehensive Income – Six months (Unaudited)

 

 

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity – Six months (Unaudited)

 

 

6

 

 

 

 

Consolidated Statements of Cash Flows – Six months (Unaudited)

 

 

7

 

 

 

 

Notes to Consolidated Financial Statements

 

 

8-9

 

 

 

 

Item 2 - Management’s Discussion and Analysis

 

 

9-20

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

 

 

21

 

 

 

 

Item 4 - Controls and Procedures

 

 

21

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

Item 1 – Legal Proceedings

 

 

21

Item 1A Risk Factors

 

 

21

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

 

21

Item 3 – Defaults Upon Senior Securities

 

 

21

Item 4 –Submission of Matters to a Vote of Security Holders

 

 

21

Item 5 – Other Information

 

 

21-22

Item 6 – Exhibits

 

 

22

 

 

 

 

SIGNATURES

 

 

23

 

2



Table of Contents

 

CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
June 30, 2008 and December 31, 2007

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(Unaudited)

 

(Audited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

4,598,272

 

$

3,001,573

 

Federal funds sold

 

9,221,608

 

8,723,315

 

Cash and cash equivalents

 

13,819,880

 

11,724,888

 

Investment securities – available-for-sale, at fair value

 

6,105,000

 

9,167,700

 

Investments in restricted stocks, at cost

 

467,000

 

467,000

 

Loans receivable, net of allowance for loan losses of $1,741,000 at June 30, 2008 and $1,665,000 at December 31, 2007

 

138,436,695

 

124,669,790

 

Premises and equipment, net

 

985,404

 

1,097,927

 

Accrued interest receivable

 

619,114

 

742,766

 

Deferred income taxes

 

662,820

 

551,882

 

Other assets

 

296,439

 

388,630

 

Total Assets

 

$

161,392,352

 

$

148,810,583

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

18,595,004

 

$

19,245,887

 

Interest bearing deposits

 

117,279,992

 

104,161,959

 

Total deposits

 

135,874,996

 

123,407,846

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

4,283,104

 

4,305,936

 

Accrued interest payable

 

194,911

 

201,253

 

Other liabilities

 

708,093

 

839,187

 

Total Liabilities

 

141,061,104

 

128,754,222

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock - $.01 par value; authorized 4,000,000 shares.

 

 

 

 

 

Issued and outstanding: 1,820,548 shares at June 30, 2008 and December 31, 2007

 

18,205

 

18,205

 

Additional paid-in capital

 

17,852,931

 

17,852,931

 

Retained earnings

 

2,407,445

 

2,097,967

 

Accumulated other comprehensive income:

 

 

 

 

 

Net unrealized gain on securities available-for-sale

 

52,667

 

87,258

 

Total Stockholders’ Equity

 

20,331,248

 

20,056,361

 

Total Liabilities and Stockholders’ Equity

 

$

161,392,352

 

$

148,810,583

 

 

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

 

3



Table of Contents

 

CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

For the Six and Three Months ended June 30, 2008 and 2007 (Unaudited)

 

 

 

Six Months Ended

 

Three Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

Interest income:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

5,051,386

 

$

4,519,002

 

$

2,505,064

 

$

2,342,355

 

U.S. Treasury securities

 

195,110

 

225,060

 

94,907

 

115,639

 

Investment in stocks

 

12,943

 

12,990

 

6,076

 

6,075

 

Federal funds sold

 

102,502

 

470,767

 

28,742

 

167,340

 

Total interest income

 

5,361,941

 

5,227,819

 

2,634,789

 

2,631,409

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

2,519,087

 

2,335,823

 

1,224,755

 

1,149,056

 

Repurchase agreements

 

22,717

 

60,272

 

7,586

 

23,040

 

Total interest expense

 

2,541,804

 

2,396,095

 

1,232,341

 

1,172,096

 

Net interest income

 

2,820,137

 

2,831,724

 

1,402,448

 

1,459,313

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

59,277

 

45,000

 

50,000

 

 

Net interest income after provision for loan losses

 

2,760,860

 

2,786,724

 

1,352,448

 

1,459,313

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Gain on sale of SBA loans

 

130,047

 

154,854

 

98,665

 

68,691

 

Gain on sale of securities

 

40,431

 

 

40,431

 

 

Service charges and other income

 

116,879

 

147,742

 

52,701

 

61,780

 

Total non-interest income

 

287,357

 

302,596

 

191,797

 

130,471

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

1,481,956

 

1,286,008

 

739,539

 

661,214

 

Legal and professional

 

159,218

 

106,743

 

63,052

 

46,285

 

Rent and occupancy

 

270,774

 

228,186

 

133,303

 

115,071

 

Marketing and business development

 

60,077

 

51,206

 

36,905

 

19,831

 

Core processing conversion

 

 

53,038

 

 

29,170

 

Insurance

 

17,960

 

20,385

 

9,480

 

10,193

 

Data processing

 

64,262

 

57,299

 

31,247

 

28,093

 

Support services

 

84,023

 

67,090

 

50,463

 

36,607

 

Communications

 

55,561

 

47,262

 

29,693

 

22,409

 

Office supplies

 

32,004

 

49,222

 

16,944

 

28,375

 

Depreciation and amortization

 

145,260

 

99,205

 

72,631

 

54,104

 

Other

 

190,009

 

115,431

 

96,622

 

60,534

 

Total non-interest expenses

 

2,561,104

 

2,181,075

 

1,279,879

 

1,111,886

 

Income before income taxes

 

487,113

 

908,245

 

264,366

 

477,898

 

Income tax expense

 

177,635

 

352,700

 

104,222

 

190,700

 

Net income

 

$

309,478

 

$

555,545

 

$

160,144

 

$

287,198

 

Basic earnings per share

 

$

0.17

 

$

0.31

 

$

0.09

 

$

0.16

 

Diluted earnings per share

 

$

0.17

 

$

0.30

 

$

0.09

 

$

0.15

 

 

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

 

4



Table of Contents

 

CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income

For the Six and Three Months ended June 30, 2008 and 2007 (Unaudited)

 

 

 

Six Months Ended

 

Three Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

309,478

 

$

555,545

 

$

160,144

 

$

287,198

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain included in net income, net of tax

 

(24,663

)

 

(24,663

)

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains and (losses) on securities available for sale, net of tax

 

(9,928

)

(31,608

)

(74,681

)

(31,128

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)

 

(34,591

)

(31,608

)

(99,344

)

(31,128

)

Total comprehensive income

 

$

274,887

 

$

523,937

 

$

60,800

 

$

256,070

 

 

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

 

5



Table of Contents

 

CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

For the Six Months Ended June 30, 2008 and 2007

(Unaudited)

 

 

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2006

 

$

18,036

 

$

17,683,450

 

$

1,010,153

 

$

(24,654

)

$

18,686,985

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income – June 30, 2007

 

 

 

 

 

555,545

 

 

 

555,545

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized losses on securities available-for-sale

 

 

 

 

 

 

 

(31,608

)

(480

)

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock, net of costs

 

169

 

169,481

 

 

 

 

 

169,650

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2007

 

$

18,205

 

$

17,852,931

 

$

1,565,698

 

$

(56,262

)

$

19,380,572

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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

 

6



Table of Contents

 

CommerceFirst Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2008 and 2007

(Unaudited)

 

 

 

June 30,

 

June 30,

 

 

 

2008

 

2007

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

309,478

 

$

555,545

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

Depreciation and amortization

 

145,260

 

99,205

 

Gain on sale of investment securities

 

(40,431

)

 

Gain on sale of SBA loans

 

(130,047

)

(154,854

)

Provision for loan losses

 

59,277

 

45,000

 

Provision for losses on unfunded commitments

 

3,000

 

3,000

 

Deferred income taxes

 

(90,344

)

(18,537

)

Change in assets and liabilities:

 

 

 

 

 

Decrease (increase) in accrued interest receivable

 

123,652

 

(128,555

)

Decrease in other assets

 

92,191

 

276,017

 

Decrease in accrued interest payable

 

(6,342

)

(21,674

)

(Decrease) increase in other liabilities

 

(134,094

)

99,056

 

Other amortization and accretion. net

 

8,571

 

12,372

 

Net cash provided by operating activities

 

340,171

 

766,575

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Investment in securities – available for sale

 

 

(2,997,187

)

Maturities of investment securities

 

 

3,000,000

 

Proceeds from sale of investment securities

 

3,039,375

 

 

Proceeds from sales of SBA loans

 

1,972,967

 

1,708,001

 

Increase in loans, net

 

(15,669,102

)

(14,138,836

)

Purchase of premises and equipment

 

(32,737

)

(451,218

)

Net cash used by investing activities

 

(10,689,497

)

(12,879,240

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

(Decrease) increase in non-interest bearing deposits, net

 

(650,883

)

2,788,264

 

Net increase (decrease) in other deposits

 

13,118,033

 

(327,881

)

Net decrease in securities sold under agreements to repurchase

 

(22,832

)

(6,544,335

)

Exercise of warrants to purchase common stock

 

 

169,650

 

Net cash provided by (used in) financing activities

 

12,444,318

 

(3,914,302

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

2,094,992

 

(16,026,967

)

Cash and cash equivalents at beginning of period

 

11,724,888

 

32,355,480

 

Cash and cash equivalents at end of period

 

$

13,819,880

 

$

16,328,513

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

Interest paid

 

$

2,548,146

 

$

2,417,769

 

Total decrease in unrealized gains/losses on available for sale securities

 

$

(55,187

)

$

(47,890

)

 

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

 

7



Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. The Company and its Significant Accounting Policies

 

Summary of Significant Accounting Policies

 

Basis of Presentation:

 

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

 

The financial data at December 31, 2007 are derived from audited consolidated financial statements that are included in the Company’s Annual Report for the year ended December 31, 2007. The financial data at June 30, 2008 and 2007 are derived from unaudited consolidated financial statements. Interim results are not necessarily indicative of results for the full year.

 

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

 

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

 

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

 

Note 2. Net Income per Common Share

 

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

 

 

 

Six Months
Ended June 30,

 

Three Months
Ended June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

Weighted average shares outstanding

 

1,820,548

 

1,812,581

 

1,820,548

 

1,820,548

 

Common stock equivalents

 

3,919

 

37,179

 

2,112

 

37,399

 

Average common shares and equivalents

 

1,824,467

 

1,849,760

 

1,822,660

 

1,857,947

 

Net income

 

$

309,478

 

$

555,545

 

$

160,144

 

$

287,198

 

Basic earnings per share

 

$

0.17

 

$

0.31

 

$

0.09

 

$

0.16

 

Diluted earnings per share

 

$

0.17

 

$

0.30

 

$

0.09

 

$

0.15

 

 

8



Table of Contents

 

Note 3. Related Party Transactions

 

The Bank paid $25,083 during the first six months of 2008 for support services to a computer consulting firm of which a Director of the Bank is also a principal. The Bank also paid $129,036 during the first six months of 2008 for various group insurance benefits and the 401k plan for which a Director of the Company and the Bank ultimately receives commission compensation. Expenditures totaling less than $10,000 were paid to several entities in which directors were principals during the first six months of 2008. All of the above transactions have been consummated on terms equivalent to those that prevail in arms length transactions.

 

Executive officers, directors and their affiliated interests enter into loan transactions with the Bank in the ordinary course of business. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with unrelated borrowers. They do not involve more than normal risk of collectability or present other unfavorable terms. At June 30, 2008 the amounts of such loans outstanding were $3,995,190.

 

Deposits and securities sold under agreements to repurchase held by executive officers, directors and their affiliated interests totaled $21.9 million at June 30, 2008.

 

Note 4. Commitments and contingencies
 

The Bank is a party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments typically include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. Outstanding commitments as of June 30, 2008 are as follows:

 

Loan commitments

 

$

15,223,600

 

Unused lines of credit

 

$

35,948,382

 

Letters of Credit

 

$

1,593,268

 

 

Note 5. Recent Relevant Accounting Pronouncements

 

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

 

ITEM 2.

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

 

Forward-Looking Statements

 

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

 

9



Table of Contents

 

results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company’s past results are not necessarily indicative of future performance.

 

General

 

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

 

The Company continued its efforts to increase investments in loans during 2008. Loans increased by 11.0% during the first six months of 2008. The increase in loans and the recent decreases in market interest rates have resulted in increases in the Company’s interest income but a decline in its net interest margin.

 

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

 

·                   Total assets at June 30, 2008 increased by 8.5% to $161.4 million as compared to $148.8 million as of December 31, 2007.

 

·                   Net loans outstanding increased by 11.0% from $124.7 million as of December 31, 2007 to $138.4 million as of June 30, 2008.

 

·                   Deposits at June 30, 2008 were $135.9 million, an increase of $12.5 million or 10.1% from December 31, 2007.

 

·                   The Company’s net income decreased to $309 thousand, or 44.3%, for the six month period ended June 30, 2008 as compared to net income of $556 thousand for the six month period ended June 30, 2007.

 

·                   Net interest income, the Company’s main source of income, was $2.8 million during the six month periods ended June 30, 2008 and 2007.

 

·                   Non-interest income declined by $15 thousand or 5.0%, for the six month period ended June 30, 2008, as compared to the six month period ended June 30, 2007.

 

·                   Non-interest expenses increased by $380 thousand or 17.4%, for the six months ended June 30, 2008, as compared to the same period in 2007.

 

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

 

Critical Accounting Policies

 

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

 

10



Table of Contents

 

or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

 

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

 

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

 

RESULTS OF OPERATIONS

 

General .

 

The Company reported a net profit of $309 thousand for the six-month period ended June 30, 2008 as compared to a net profit of $556 thousand for the six-month period ended June 30, 2007. Net interest income declined by $12 thousand during the first half of 2008 as compared to the first half of 2007. The Company’s net interest income was negatively affected by the reduced interest rate environment initiated by the Federal Reserve Bank in late 2007 and continuing into 2008. The reduced earnings are also the result of expense increases attributable to additional personnel required by the Bank’s branch expansion (the Bank opened a branch in June of 2007), expenses necessitated by the growth of the Bank’s loan portfolio, deposit insurance assessments begun in 2007 and other higher expenses associated with the new internet banking and core processing platforms which became operational during the second quarter of 2007.

 

The Company reported a net profit of $160 thousand for the three-month period ended June 30, 2008 as compared to a net profit of $287 thousand for the three-month period ended June 30, 2007. This decline was the result of the same factors mentioned in the above paragraph.

 

The following table shows the return on average assets and average equity for the period shown.

 

Return on Average Assets and Average Equity

 

 

 

Six Months Ended

 

Year ended

 

 

 

June 30,

 

December 31,

 

 

 

2008

 

2007

 

2007

 

 

 

 

 

 

 

 

 

Return on Average Equity

 

3.05

%

5.87

%

7.47

%

 

 

 

 

 

 

 

 

Return on Average Earning Assets

 

0.41

%

0.83

%

1.07

%

 

 

 

 

 

 

 

 

Ratio of Average Equity to Average Assets

 

13.13

%

13.83

%

13.93

%

 

11



Table of Contents

 

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

 

Six Months Ended June 30, 2008

 

Net Interest Income and Net Interest Margin

 

Total interest income increased by $134 thousand or 2.6% to $5.4 million for the six months ended June 30, 2008 as compared to $5.2 million for the same period in 2007. This increase in interest income was attributable to the increase in average earning assets during the first quarter of 2008 of $16.4 million as compared to the same period in 2007. Interest income was adversely affected by the decline in the yield of the average earning assets from 7.9% in 2007 to 7.1% in 2008.

 

Interest expense increased by $146 thousand or 6.1% to $2.5 million for the six months ended June 30, 2008 as compared to $2.4 million during the first six months of 2007. This increase was primarily attributable to increased average interest bearing liabilities of $14.7 million during 2008 as compared to 2007. The effect of the increased interest bearing liabilities was offset to some degree by the decline in the interest cost of the deposits from 4.8% in 2007 as compared to the interest cost of the funds of 4.5% during 2008.

 

The net interest income for the six months ended June 30, 2008 was $2.82 million as compared to $2.83 million for the same period in 2007. Net interest income decreased because the yield on the interest earning assets declining faster than the cost of the interest bearing liabilities during the period of market interest rate declines. The effect of the declining interest rates was partially offset by the increase in interest earning assets exceeding the increase in interest bearing liabilities during 2008.

 

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

 

AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE

 

 

 

Six Months Ended June 30:

 

 

 

2008

 

2007

 

 

 

Average

 

 

 

Yield/

 

Average

 

 

 

Yield/

 

(in thousands)

 

Balance

 

Interest

 

Rate

 

Balance

 

Interest

 

Rate

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

133,223

 

$

5,051

 

7.60

%

$

104,442

 

$

4,519

 

8.73

%

Investment securities

 

9,445

 

208

 

4.42

%

11,560

 

238

 

4.15

%

Federal funds sold

 

7,976

 

103

 

2.59

%

18,265

 

471

 

5.20

%

Total Interest Earning Assets

 

150,644

 

5,362

 

7.14

%

134,267

 

5,228

 

7.85

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less allowance for loan losses

 

(1,719

)

 

 

 

 

(1,673

)

 

 

 

 

Non-Interest Earning Assets

 

5,670

 

 

 

 

 

5,344

 

 

 

 

 

Total Assets

 

$

154,595

 

 

 

 

 

$

137,938

 

 

 

 

 

 

12



Table of Contents

 

 

 

Six Months Ended June 30:

 

 

 

2008

 

2007

 

 

Average

 

 

 

Yield/

 

Average

 

 

 

Yield/

 

(in thousands)

 

Balance

 

Interest

 

Rate

 

Balance

 

Interest

 

Rate

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest -Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand deposits

 

$

1,814

 

$

2

 

0.22

%

$

2,579

 

$

19

 

1.48

%

Money market deposit accounts

 

19,728

 

215

 

2.19

%

20,661

 

427

 

4.17

%

Savings accounts

 

63

 

 

0.00

%

132

 

1

 

1.00

%

Certificates of deposit

 

90,014

 

2,302

 

5.13

%

71,975

 

1,889

 

5.29

%

Securities sold under agreements to repurchase

 

3,040

 

23

 

1.52

%

4,582

 

60

 

2.65

%

Total Interest Bearing Liabilities

 

114,659

 

2,542

 

4.45

%

99,929

 

2,396

 

4.84

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

18,814

 

 

 

 

 

18,090

 

 

 

 

 

Other

 

828

 

 

 

 

 

838

 

 

 

 

 

Total Liabilities

 

134,301

 

 

 

 

 

118,857

 

 

 

 

 

Stockholders’ Equity

 

20,294

 

 

 

 

 

19,081

 

 

 

 

 

Total Liabilities and Equity

 

$

154,595

 

 

 

 

 

$

137,938

 

 

 

 

 

Net Interest Income

 

 

 

$

2,820

 

 

 

 

 

$

2,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Spread

 

 

 

 

 

2.69

%

 

 

 

 

3.02

%

Net Interest Margin

 

 

 

 

 

3.75

%

 

 

 

 

4.25

%

 

Yields on securities are calculated based on amortized cost.

 

Net interest margin was 3.8% in the first half of 2008, as compared to 4.3% in the comparable period in 2007. Interest spread was 2.7% in the first half of 2008, as compared to the 3.0% in the first half of 2007. The yield on interest earning assets declined at a faster rate than the decline in the cost of interest bearing liabilities resulting in the reduction of the net interest margin and net interest spread. The rapid market interest rate reductions have resulted in the rates earned on the Company’s loans, a significant proportion of which are floating rate loans which re-price the loans immediately with declines in market interest rates, declining faster than its interest bearing liabilities, which are comprised mostly of fixed rate certificates of deposit which will re-price at their maturity date

 

Provision for Loan Losses

 

The provision for loan losses was $59 thousand during the first half of 2008 as compared to $45 thousand during the first half of 2007, a 31.7% increase, reflecting increases in average loans and current economic uncertainties.

 

Non-Interest Income .

 

Non-interest income principally consists of gains from the sale of investment securities and the guaranteed portion of Small Business Administration loans and from deposit account services charges. For the six months ended June 30, 2008, gains on sales of SBA loans amounted to $130 thousand as compared to $155 thousand for the same period in 2007. Generally, the Bank desires to sell the guaranteed portion of most additional SBA loans resulting in a continuing stream of income that may vary significantly from quarter to quarter, depending in part upon the volume of loans actually sold. During June 2008, the Bank sold an investment security which resulted in a gain of $40 thousand. No securities were sold in 2007. Deposit account service charges amounted to $117 thousand during the six months ended June 30, 2008 as compared to $148 thousand for the same period in 2007. The decline results from the reduction in overdraft fees incurred by account holders.

 

13



Table of Contents

 

Non-Interest Expense .

 

Non-interest expense totaled $2.6 million for the six-month period ended June 30, 2008 as compared to $2.2 million for the same period in 2007, a 17.2% increase. Compensation and benefit expense increased $196 thousand reflecting additional personnel required for a branch that was opened in June 2007 thus incurring non-interest expense for the first six months of 2008 but only one month of such expenses in the six month ended June 30, 2007, as well as personnel needed to manage the growth of the Company, particularly its loan portfolio. Other expenses increased because of the additional branch. Non-interest expenses also increased because of the deposit insurance assessment by the FDIC in 2008 (none in 2007), the additional expenses of upgraded data processing systems and products installed in the second quarter of 2007 as well as the general growth of the Company.

 

Income Tax Expense .

 

During the six months ended June 30, 2008, the Company recorded an income tax expense of $178 thousand as compared to $353 thousand during the same period in 2007. Income tax expense was 36.5% of income before taxes in 2008 and 38.8% of income before taxes in 2007. The effective rate declined because of the effect on deferred tax items of state income tax rate changes in the first quarter of 2008.

 

Three Months Ended June 30, 2008

 

Net Interest Income and Net Interest Margin

 

Total interest income increased by $3 thousand or 0.1% for the three-month period ended June 30, 2008 as compared the same period in 2007. The increase in interest earning assets was offset by the reduction in the interest rates on the assets as the reduced interest rate environment continues to adversely affect interest earnings.

 

Interest expense increased by $60 thousand or 5.0% to $1.23 million for the three months ended June 30, 2008 as compared to $1.17 million during the first six months of 2007. This increase was primarily attributable to increased average interest bearing liabilities during 2008 as compared to 2007. The effect of the increased interest bearing liabilities was offset to some degree by the decline in the interest cost of the deposits.

 

The net interest income for the three-month period ended June 30, 2008 was $1.40 million as compared to $1.46 million for the same period in 2007. Net interest income decreased primarily because the interest earning assets are re-pricing downward faster than the interest bearing liabilities during the recent period of declining market interest rates.

 

Provision for Loan Losses

 

The provision for loan losses was $50 thousand during the three month period ended June 30, 2008 as compared to no provision during the three months ended June 30, 2007, reflecting increases in average loans and current economic uncertainties.

 

Non-Interest Income .

 

Non-interest income totaled $192 thousand for the three months ended June 30, 2008 as compared to $130 thousand during the three months ended June 30, 2007. For the three months ended June 30, 2008, gains on sales of SBA loans amounted to $99 thousand as compared to $69 thousand for the same period in 2007. During June 2008, the Bank sold an investment security which resulted in a gain of $40 thousand. No securities were sold in 2007. Deposit account service charges amounted to $53 thousand during the three months ended June 30, 2008 as compared to $62 thousand for the same period in 2007. The decline results from the reduction in overdraft fees incurred by account holders.

 

14



Table of Contents

 

Non-Interest Expense .

 

Non-interest expense totaled $1.3 million for the three-month period ended June 30, 2008 as compared to $1.1 million for the same period in 2007, a 15.1% increase. Compensation and benefit expense increased $78 thousand, a 11.8% increase, reflecting additional personnel required for a branch that was opened in June 2007 thus incurring non-interest expense for the all three months of the quarter ended June 30, 2008 but only one month of such expenses in the quarter ended June 30, 2007, as well as personnel needed to manage the growth of the Company, particularly its loan portfolio. Other expenses also increased because of the additional branch. Non-interest expenses also increased because of the deposit insurance assessment by the FDIC in 2008 (none in 2007), the additional expenses of upgraded data processing systems and products installed in the second quarter of 2007 as personnel needed to manage the growth of the Company, particularly its loan portfolio.

 

Income Tax Expense .

 

During the three months ended June 30, 2008, the Company recorded an income tax expense of $104 thousand as compared to $191 thousand during the same period in 2007. Income tax expense was 39.4% of income before taxes in 2008 and 39.9% of income before taxes in 2007.

 

FINANCIAL CONDITION.

 

General . The Company’s assets at June 30, 2008 were $161.4 million, an increase of $12.6 million or 8.5%, from December 31, 2007. Gross loans totaled $140.2 million comprised of commercial real estate loans of $81.5 million, an increase of $8.6 million, or 11.8%, from December 31, 2007 and commercial loans of $58.6 million, an increase of $5.2 million, or 9.8% from December 31, 2007. At June 30, 2008, deposits totaled $135.9 million an increase of $12.5 million, or 10.1%, from December 31, 2007. Deposits at June 30, 2008 are comprised primarily of certificates of deposit of $95.9 million, Money Market accounts of $20.4 million, and noninterest bearing deposits of $18.6 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, 2008, net loans were $138.4 million, an 11.0% increase from the $124.7 million in loans outstanding at December 31, 2007. In general, loans consist of internally generated loans and, to lesser degree, participation loans purchased from other local community banks. Lending activity is generally confined to our immediate market areas. The strong growth is attributable to the satisfactory culmination of efforts to attract quality credits; there has been no dilution of credit underwriting standards. The percentage of total loans comprised of real estate loans has increased as the Company has concentrated on this type of lending. The majority of these loans (approximately 73.8% and 77.3% at June 30, 2008 and December 31, 2207, respectively) are secured by real property that is occupied by the borrowers’ businesses.

 

Loans secured by residential real estate are loans to investors for the financing of rental properties or other business ventures. Residential real estate loans include loans to local builders and developers for acquisition and development and home building totaling $1.7 million at June 30, 2008 and $.8 million at December 31, 2007. None of these loans are delinquent and all are performing satisfactorily at June 30, 2008.

 

The Company does not engage in foreign lending activities. The following table presents the composition of the loan portfolio by type of loan at the dates indicated.

 

15



Table of Contents

 

Loans receivable, net is comprised of the following:

 

 

 

June 30, 2008

 

December 31, 2007

 

 

 

 

 

Percentage

 

 

 

Percentage

 

(In thousands)

 

Balance

 

of Loans

 

Balance

 

of Loans

 

Commercial loans

 

$

58,648

 

41.8

%

$

53,437

 

42.3

%

Real estate loans secured by:

 

 

 

 

 

 

 

 

 

Residential real estate

 

15,872

 

11.3

%

12,100

 

9.6

%

Commercial real estate

 

65,685

 

46.9

%

60,833

 

48.1

%

Total real estate loans

 

81,557

 

58.2

%

72,933

 

57.7

%

 

 

140,205

 

100.0

%

126,370

 

100.0

%

Unearned loan fees, net

 

(27

)

 

 

(35

)

 

 

Allowance for loan losses

 

(1,741

)

 

 

(1,665

)

 

 

 

 

$

138,437

 

 

 

$

124,670

 

 

 

 

The following table shows the interest rate sensitivity of the loan portfolio at June 30, 2008. Demand loans, loans without a stated maturity and overdrafts are reported as due in one year or less. Floating rate loans are reported to reflect the period until re-pricing.

 

 

 

Interest rate sensitivity of loan portfolio

 

 

 

One Year

 

After One Year

 

After Five

 

 

 

(In thousands)

 

or Less

 

through Five Years

 

Years

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

64,696

 

$

72,004

 

$

3,505

 

$

140,205

 

 

Provision for Loan Losses

 

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

 

The adequacy of the allowance for loan losses is evaluated based upon loan categories except for loans rated substandard, doubtful or loss, which are evaluated separately and assigned loss amounts based upon the evaluation.  Loss ratios are applied to each category of loan to determine estimated loss amounts.  Categories of loans are identified commercial, SBA and mortgage loans.  Loss ratios are determined based upon losses incurred adjusted for the effect of current economic conditions, any industry concentration or identified weakness in an industry, credit management and underwriting policies changes and secured versus unsecured nature of loan category. At June 30, 2008, the range of the loss ratios used to determine estimated losses by loan category were: commercial loans - 0.50% to 0.57%; SBA loans (unguaranteed portion) - 6.5% and real estate loans- 0.15% to 0.95%.  Additional losses are estimated resulting from additional identified risks factors, such as loans with underwriting exceptions, the level and direction of payment delinquencies and the level of large loans.  These additional loss estimates are not allocated to the separate loan categories.

 

16



Table of Contents

 

The adequacy of the allowance for loan losses is also reviewed at least quarterly using risk ratings applied to the loans based upon rating criteria consistent with regulatory definitions.  The risk rating is adjusted, as necessary, if loans become delinquent, if significant adverse information is discovered regarding the underlying credit and, in the case of commercial loans and commercial real estate loans, the normal periodic review of the underlying credit indicates that a change in risk rating is appropriate.  An estimated “low” and “high” loss percentage is applied to loans in each risk rating.  These loss percentages increase as the loan risk rating increases.  Loans rated as substandard, doubtful or loss are evaluated separately and assigned loss amounts based upon the separate evaluation.  Risks factors identified beyond individual loan risks, such as economic conditions, underwriting exceptions and loan concentrations are quantified based upon management’s estimations of loss exposure.  Loss percentages used are generally based upon management’s best estimates considering losses incurred.  Estimated “low” and “high” allowance for loan loss amounts are derived by accumulating the estimated losses using the “low” and “high” loss percentages for each risk rating and adding losses based upon separate loan evaluations and identified other risks.  The actual allowance for loan losses is compared to this range to ascertain that it is reasonably situated within the range. In addition, on at least a quarterly basis, the recorded allowance for loan losses (as a percent of loans) is compared to peer group levels to ascertain the reasonableness of the estimate. At June 30, 2008, the actual allowance for loan losses was between the “low” and “high” allowance amounts.

 

The provision for loan losses was $59 thousand during the six months ended June 30, 2008 as compared to $45 thousand for the six months ended June 30, 2007 reflecting increases in loans and current economic conditions with recognition of the small amount of loan charge-offs incurred.

 

The allowance for loan losses represents 1.24% and 1.32% of loans receivable at June 30, 2008 and December 31, 2007, respectively. The Company has no exposure to foreign countries or foreign borrowers.  Management believes that the allowance for loan losses is adequate for each period presented.

 

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

 

 

 

Six Months
Ended

 

Year Ended

 

(In thousands)

 

June 30, 2008

 

December 31, 2007

 

Allowance for loan losses:

 

 

 

 

 

Beginning balance

 

$

1,665

 

$

1,614

 

Charge-offs:

 

 

 

 

 

Commercial loans

 

 

(72

)

Recoveries:

 

 

 

 

 

Commercial loans

 

17

 

78

 

Net recoveries

 

17

 

6

 

Provision for loan losses

 

59

 

45

 

Ending balance

 

$

1,741

 

$

1,665

 

 

Additionally, the Company has established a reserve for unfunded commitments that is recorded by a provision charged to other expenses. At June 30, 2008 the balance of this reserve was $45 thousand. The reserve, based on evaluations of the collectability of loans, is an amount that management believes will be adequate over time to absorb possible losses on unfunded commitments (off-balance sheet financial instruments) that may become uncollectible in the future.

 

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

 

17



Table of Contents

 

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

 

 

 

Analysis of Nonperforming Assets

 

(Dollars in thousands)

 

June 30, 2008

 

December 31, 2007

 

 

 

 

 

 

 

Non-accrual loans - Commercial

 

$

1,234

 

$

1,125

 

 

At June 30, 2008 the Company had eleven loans to eight unrelated entities in non-accrual status; all but two of these loans were in non-accrual status at December 31, 2007.

 

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

 

An affiliated group of borrowers have three commercial loans totaling $130 thousand for which no specific reserves have been established. Another borrower has a commercial loan in the amount of $169 thousand for which a specific reserve of $69 thousand has been established.  Collection proceedings are continuing on these loans.

 

Six other loans totaling $352 thousand were considered potential problem loans and $253 thousand specific reserves were established .

 

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

 

Investment Portfolio . At June 30, 2008, the carrying value of the investment securities portfolio was $6.1 million, a decrease of $3.1 million from the carrying value of $9.2 million at December 31, 2007. In order to increase its short-term liquidity position, the Company sold a U.S. Treasury Note for with a carrying value of $3.0 million realizing a profit on the sale of $40 thousand in June 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 banker’s banks to facilitate loan participations.

 

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

 

18



Table of Contents

 

 

 

Investment in Securities and Stocks

 

 

 

June 30, 2008

 

December 31, 2007

 

 

 

 

 

Percent

 

 

 

Percent

 

(In thousands)

 

Amount

 

of Total

 

Amount

 

of Total

 

Investment securities, at fair value:

 

 

 

 

 

 

 

 

 

U.S. Treasuries

 

$

6,105

 

100.00

%

$

9,168

 

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 $12.5 million (10.1%) to $136 million at June 30, 2008 from $123 million at December 31, 2007.  Non-interest bearing deposits decreased $651 thousand or 3.4%, money market accounts increased $4.1 million or 25.3% and certificates of deposit increased $10.4 million, or 12.2% during the six months ended June 30, 2008. Certificates of deposit in amounts of $100 thousand or more totaled $69.8 million at June 30, 2008 and $74.0 at December 31, 2007.

 

Deposits are comprised of the following:

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2008

 

2007

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

18,595

 

$

19,246

 

Savings deposits

 

40

 

36

 

Interest bearing demand deposits

 

21,372

 

18,708

 

Certificates of deposit:

 

 

 

 

 

Balances equal to or greater than $100,000

 

76,760

 

74,036

 

Balances less than $100,000

 

19,108

 

11,382

 

Total certificates of deposit

 

95,868

 

85,418

 

 

 

$

135,875

 

$

123,408

 

 

LIQUIDITY AND CAPITAL RESOURCES.

 

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 Bank’s 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 Bank’s 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 Bank’s 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, 2008, the Bank’s cash and cash equivalents totaled $13.8 million, an increase of $2.1 million from December 31, 2007, primarily as the result of increases in deposits and the sale of an investment security.

 

19



Table of Contents

 

At June 30, 2008, 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 is 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, 2008 total $1.6 million ($2.0 million at December 31, 2007).

 

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, 2008 totaled $51 million ($58 million at December 31, 2007). 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, 2008, the Company and the Bank was in full compliance with these guidelines, as follows:

 

 

 

 

 

 

 

Minimum Ratios

 

 

 

June 30,
2008

 

December 31,
2007

 

To be “Adequately
Capitalized”

 

To be “Well
Capitalized”

 

 

 

 

 

 

 

 

 

 

 

Total capital:

 

 

 

 

 

 

 

 

 

Company

 

15.3

%

16.5

%

8.0

%

N/A

 

Bank

 

12.7

%

13.7

%

8.0

%

10.0

%

Tier I:

 

 

 

 

 

 

 

 

 

Company

 

14.0

%

15.2

%

4.0

%

 

Bank

 

11.5

%

12.4

%

4.0

%

6.0

%

Leverage Total:

 

 

 

 

 

 

 

 

 

Company

 

13.0

%

13.9

%

4.0

%

 

Bank

 

10.7

%

11.3

%

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.

 

20



Table of Contents

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4 – CONTROLS AND PROCEDURES

 

The Company’s 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 Company’s 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 Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter ended June 30, 2008  that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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, 2008, the Company is a party to a lawsuit filed by a loan customer alleging, primarily, the lack of commercially reasonable efforts to collect loan repayments from collateral liquidation by the Company. The plaintiffs are seeking release of remaining debts in the amount of $583 thousand, release of remaining collateral related thereto and certain damages approximating $3 million. The Company and the plaintiffs have entered into an agreement to settle the suit. The Company did not incur any losses under the agreement.

 

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 Company’s annual shareholders’ meeting held on April 16, 2008, the shareholders of the Company elected Milton D. Jernigan, II, John A. Richardson, Sr., and Jerome A. Watts as directors for three-year terms, all with 1,579,623 votes for and 1,214 votes withheld. There were no solicitations in opposition to management’s 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, Robert R. Mitchell, Richard J Morgan, George C. Shenk, Jr. and Lamont Thomas.

 

Item 5 – Other Information

 

(a)           Information Required to be Reported on Form 8-K.         None

 

21



Table of Contents

 

(b)   Changes in Security Holder Nomination Procedures.     None

 

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)

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, Senior Vice President and CFO

32(a)

 

Certification of Richard J. Morgan, President and Chief Executive Officer

32(b)

 

Certification of Michael T. Storm, Senior 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 Company’s Registration Statement on Form SB-2, as amended, (File No. 333-91817)

(2)

 

Incorporated by reference to exhibit 3.2 to the Company’s Current Report on Form 8-K filed on August 17, 2007

(3)

 

Incorporated by reference to exhibits 10(c) to the Company’s to Registration Statement on Form SB-2, as amended) (File No. 333-91817)

(4)

 

Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (File No. 333-119988).

(5)

 

Incorporated by reference to Exhibit 10(d) to the Company’s 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 Company’s Registration Statement on Form SB-2, as amended (File No. 333-91817)

(7)

 

Incorporated by reference to Exhibit 10(e) to the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2007.

 

22



Table of Contents

 

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, 2008

By:

/s/ Richard J. Morgan

 

Richard J. Morgan, President and Chief Executive Officer

 

 

 

 

Date:  July 24, 2008

By:

/s/ Michael T. Storm

 

Michael T. Storm, Executive Vice President and Chief Financial Officer

 

23


Commercefirst Bancorp (NASDAQ:CMFB)
Gráfica de Acción Histórica
De May 2024 a Jun 2024 Haga Click aquí para más Gráficas Commercefirst Bancorp.
Commercefirst Bancorp (NASDAQ:CMFB)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024 Haga Click aquí para más Gráficas Commercefirst Bancorp.