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
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For
the quarterly period ended
SEPTEMBER 30, 2011
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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
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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 November 1, 2011 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
September 30, 2011 and December 31, 2010
(Dollars in thousands except per share data)
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|
|
|
|
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September 30,
|
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December 31,
|
|
|
|
2011
|
|
|
2010
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|
|
|
(Unaudited)
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|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash and due from banks
|
|
$
|
2,158
|
|
|
$
|
1,437
|
|
Interest bearing deposits
|
|
|
18,059
|
|
|
|
12,289
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
20,217
|
|
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|
13,726
|
|
Investments in restricted stocks, at cost
|
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|
527
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|
|
|
527
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|
|
|
|
|
|
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|
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|
Loans receivable
|
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|
180,748
|
|
|
|
184,883
|
|
Allowance for loan losses
|
|
|
(3,038
|
)
|
|
|
(3,174
|
)
|
|
|
|
|
|
|
|
Net loans receivable
|
|
|
177,710
|
|
|
|
181,709
|
|
|
|
|
|
|
|
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Premises and equipment, net
|
|
|
442
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|
|
|
556
|
|
Accrued interest receivable
|
|
|
754
|
|
|
|
750
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|
Deferred income taxes
|
|
|
1,087
|
|
|
|
1,133
|
|
Other real estate owned
|
|
|
2,637
|
|
|
|
3,324
|
|
Other assets
|
|
|
1,423
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
204,797
|
|
|
$
|
203,124
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|
|
|
|
|
|
|
|
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|
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LIABILITIES
|
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|
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|
|
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|
|
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Non-interest bearing deposits
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|
$
|
28,059
|
|
|
$
|
23,760
|
|
Interest bearing deposits
|
|
|
152,208
|
|
|
|
156,350
|
|
|
|
|
|
|
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Total deposits
|
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|
180,267
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|
|
|
180,110
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|
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|
|
|
|
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|
Accrued interest payable
|
|
|
99
|
|
|
|
106
|
|
Other liabilities
|
|
|
670
|
|
|
|
543
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
181,036
|
|
|
|
180,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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STOCKHOLDERS EQUITY
|
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Common stock $.01 par value; authorized 4,000,000 shares.
Issued and outstanding: 1,820,548 shares at September 30,
2011 and at December 31, 2010
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|
|
18
|
|
|
|
18
|
|
Additional paid-in capital
|
|
|
17,853
|
|
|
|
17,853
|
|
Retained earnings
|
|
|
5,890
|
|
|
|
4,494
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
23,761
|
|
|
|
22,365
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
204,797
|
|
|
$
|
203,124
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations
For the Nine and Three Months ended September 30, 2011 and 2010 (Unaudited)
(Dollars in thousands except per share data)
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|
|
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|
Nine Months Ended
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Three Months Ended
|
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|
September 30,
|
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|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
9,099
|
|
|
$
|
9,471
|
|
|
$
|
3,024
|
|
|
$
|
3,179
|
|
Investment in stocks
|
|
|
21
|
|
|
|
21
|
|
|
|
7
|
|
|
|
7
|
|
Interest bearing deposits
|
|
|
44
|
|
|
|
41
|
|
|
|
16
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
9,164
|
|
|
|
9,533
|
|
|
|
3,047
|
|
|
|
3,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,628
|
|
|
|
2,500
|
|
|
|
510
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,628
|
|
|
|
2,500
|
|
|
|
510
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
7,536
|
|
|
|
7,033
|
|
|
|
2,537
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less provision for loan losses
|
|
|
1,894
|
|
|
|
1,646
|
|
|
|
586
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,642
|
|
|
|
5,387
|
|
|
|
1,951
|
|
|
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales of SBA loans
|
|
|
366
|
|
|
|
419
|
|
|
|
23
|
|
|
|
49
|
|
Gain on sales of other real estate owned
|
|
|
97
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Service charges and other income
|
|
|
448
|
|
|
|
361
|
|
|
|
158
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
911
|
|
|
|
780
|
|
|
|
226
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
2,328
|
|
|
|
2,220
|
|
|
|
785
|
|
|
|
756
|
|
Legal and professional
|
|
|
172
|
|
|
|
188
|
|
|
|
53
|
|
|
|
56
|
|
Rent and occupancy
|
|
|
429
|
|
|
|
424
|
|
|
|
147
|
|
|
|
145
|
|
Marketing and business development
|
|
|
64
|
|
|
|
64
|
|
|
|
18
|
|
|
|
16
|
|
FDIC insurance
|
|
|
168
|
|
|
|
239
|
|
|
|
13
|
|
|
|
83
|
|
Data processing
|
|
|
115
|
|
|
|
109
|
|
|
|
40
|
|
|
|
37
|
|
Support services
|
|
|
157
|
|
|
|
149
|
|
|
|
49
|
|
|
|
47
|
|
Loan collection
|
|
|
145
|
|
|
|
49
|
|
|
|
56
|
|
|
|
12
|
|
Other real estate owned loss provision
|
|
|
125
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Communications
|
|
|
99
|
|
|
|
95
|
|
|
|
32
|
|
|
|
32
|
|
Depreciation and amortization
|
|
|
148
|
|
|
|
175
|
|
|
|
46
|
|
|
|
57
|
|
Other
|
|
|
322
|
|
|
|
261
|
|
|
|
114
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
4,272
|
|
|
|
4,048
|
|
|
|
1,353
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,281
|
|
|
|
2,119
|
|
|
|
824
|
|
|
|
594
|
|
Income tax expense
|
|
|
885
|
|
|
|
847
|
|
|
|
329
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,396
|
|
|
$
|
1,272
|
|
|
$
|
495
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
0.77
|
|
|
$
|
0.70
|
|
|
$
|
0.27
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders Equity
For the Nine Months Ended September 30, 2011 and 2010
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
Balance December 31, 2009
|
|
$
|
18
|
|
|
$
|
17,853
|
|
|
$
|
3,071
|
|
|
$
|
20,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income- September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
1,272
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2010
|
|
$
|
18
|
|
|
$
|
17,853
|
|
|
$
|
4,343
|
|
|
$
|
22,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
$
|
18
|
|
|
$
|
17,853
|
|
|
$
|
4,494
|
|
|
$
|
22,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income- September 30,
2011
|
|
|
|
|
|
|
|
|
|
|
1,396
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2011
|
|
$
|
18
|
|
|
$
|
17,853
|
|
|
$
|
5,890
|
|
|
$
|
23,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CommerceFirst Bancorp, Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2011 and 2010
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,396
|
|
|
$
|
1,272
|
|
Adjustments to reconcile net income to net cash
provided by operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
148
|
|
|
|
175
|
|
Gain on sales of SBA loans
|
|
|
(366
|
)
|
|
|
(419
|
)
|
Gain on sales of other real estate owned
|
|
|
(97
|
)
|
|
|
|
|
Provision for loan losses
|
|
|
1,894
|
|
|
|
1,646
|
|
Provision for losses on unfunded commitments
|
|
|
|
|
|
|
6
|
|
Write-downs of other real estate owned
|
|
|
125
|
|
|
|
75
|
|
Deferred income taxes
|
|
|
46
|
|
|
|
29
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accrued interest receivable
|
|
|
(4
|
)
|
|
|
(89
|
)
|
Increase in other assets
|
|
|
(24
|
)
|
|
|
(64
|
)
|
Decrease in accrued interest payable
|
|
|
(7
|
)
|
|
|
(25
|
)
|
Increase in other liabilities
|
|
|
127
|
|
|
|
42
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,238
|
|
|
|
2,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from sale of SBA loans
|
|
|
5,132
|
|
|
|
6,635
|
|
Increase in loans, net
|
|
|
(3,738
|
)
|
|
|
(6,858
|
)
|
Proceeds from sales of other real estate owned
|
|
|
1,736
|
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(34
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
3,096
|
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Increase in non-interest bearing deposits, net
|
|
|
4,299
|
|
|
|
4,308
|
|
(Decrease) increase in other deposits, net
|
|
|
(4,142
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
157
|
|
|
|
4,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
6,491
|
|
|
|
6,714
|
|
Cash and cash equivalents at beginning of period
|
|
|
13,726
|
|
|
|
10,488
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
20,217
|
|
|
$
|
17,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,635
|
|
|
$
|
2,525
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,275
|
|
|
$
|
1,140
|
|
|
|
|
|
|
|
|
Transfer of loans to real estate owned
|
|
$
|
1,077
|
|
|
$
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and its Significant Accounting Policies
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, 2010 are derived from audited consolidated financial statements
that are included in the Companys Annual Report for the year ended December 31, 2010. The
financial data at September 30, 2011 and 2010 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, interest and non-interest bearing deposits due from the
Federal Reserve, certificate of deposits with maturities of less than one year and Federal funds
sold, if any.
Certain prior period amounts have been reclassified to conform to the current periods method of
presentation.
Note 2. Fair value
ASC Section 820
Fair Value Measurements and Disclosure
defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value measurements. Topic 820
establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. The hierarchy of valuation techniques is based on whether the inputs to those
valuation techniques are observable or unobservable. These inputs are summarized in three broad
levels as follows:
|
Level 1:
|
|
Quoted prices in active exchange markets for
identical assets or liabilities; also includes
certain U.S. Treasury and other U.S.
government and agency securities actively
traded in over-the-counter markets.
|
|
|
Level 2:
|
|
Observable inputs other than Level 1 including quoted prices for
similar assets or liabilities, quoted prices in less active
markets, or other observable inputs that can be corroborated by
observable market data; also includes derivative contracts whose
value is determined using a pricing model with observable market
inputs or can be derived principally from or corroborated by
observable market data. This category generally includes certain
U.S. government and agency securities, corporate debt securities,
derivative instruments, and residential mortgage loans held for
sale.
|
|
|
Level 3:
|
|
Unobservable inputs supported by little or no market activity for
financial instruments whose value is determined using pricing
models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of
fair value requires significant management judgment or
estimation; also includes observable inputs for single dealer
nonbinding quotes not corroborated by observable market data.
This category generally includes certain private equity
investments, retained interests from securitizations, and certain
collateralized debt obligations.
|
The Companys bond holdings in the investment securities portfolio, if any, are the only asset or
liability subject to fair value measurement on a recurring basis. No financial assets or
liabilities are valued on a recurring basis under Level 1 or Level 2 inputs at September 30, 2011
or December 31, 2010. The Company has financial and non-financial assets measured by fair value
measurements on a non-recurring basis during 2011. At September 30, 2011,
these assets include $5.0 million of non-accrual loans ($3.7 million after specific reserves) and
other real estate owned of $2.6 million all of which are valued under Level 3 inputs.
7
The changes in the assets subject to fair value measurements on a non-recurring basis are
summarized below by Level:
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
|
and
|
|
|
|
|
In thousands
|
|
Level 2
|
|
|
Level 3
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
|
|
|
$
|
7,283
|
|
Other real estate owned
|
|
|
|
|
|
|
3,324
|
|
|
|
|
|
|
|
|
Total December 31, 2010
|
|
|
|
|
|
|
10,607
|
|
|
|
|
|
|
|
|
Activity:
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
New loans measured at fair value
|
|
|
|
|
|
|
2,323
|
|
Payments and other loan reductions
|
|
|
|
|
|
|
(1,479
|
)
|
Foreclosed to other real estate owned
|
|
|
|
|
|
|
(979
|
)
|
Loans charged-off
|
|
|
|
|
|
|
(2,158
|
)
|
|
|
|
|
|
|
|
Net change in loans
|
|
|
|
|
|
|
(2,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
Additions to other real estate owned
|
|
|
|
|
|
|
1,077
|
|
Sales of other real estate owned
|
|
|
|
|
|
|
(1,639
|
)
|
Provision for valuation reduction
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
Net change in other real estate owned
|
|
|
|
|
|
|
(687
|
)
|
|
|
|
|
|
|
|
September 30, 2011:
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
4,990
|
|
Other real estate owned
|
|
|
|
|
|
|
2,637
|
|
|
|
|
|
|
|
|
Total September 30, 2011
|
|
$
|
|
|
|
$
|
7,627
|
|
|
|
|
|
|
|
|
The estimated fair values of the Companys financial instruments at September 30, 2011 and December
31, 2010 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
In thousands
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2,158
|
|
|
$
|
2,158
|
|
|
$
|
1,437
|
|
|
$
|
1,437
|
|
Interest bearing deposits
|
|
|
18,059
|
|
|
|
18,059
|
|
|
|
12,289
|
|
|
|
12,289
|
|
Investments in restricted stock
|
|
|
527
|
|
|
|
527
|
|
|
|
527
|
|
|
|
527
|
|
Loans, net
|
|
|
177,710
|
|
|
|
187,774
|
|
|
|
181,709
|
|
|
|
191,353
|
|
Accrued interest receivable
|
|
|
754
|
|
|
|
754
|
|
|
|
750
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
28,059
|
|
|
$
|
28,059
|
|
|
$
|
23,760
|
|
|
$
|
23,760
|
|
Interest bearing deposits
|
|
|
152,208
|
|
|
|
153,834
|
|
|
|
156,350
|
|
|
|
157,228
|
|
Accrued interest payable
|
|
|
99
|
|
|
|
99
|
|
|
|
106
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
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, interest bearing deposits, 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, securities sold under agreements to repurchase, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Weighted average shares outstanding
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
Common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares and
equivalents
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
1,820,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,396
|
|
|
$
|
1,272
|
|
|
$
|
495
|
|
|
$
|
356
|
|
Basic earnings per share
|
|
$
|
0.77
|
|
|
$
|
0.70
|
|
|
$
|
0.27
|
|
|
$
|
0.20
|
|
Diluted earnings per share
|
|
$
|
0.77
|
|
|
$
|
0.70
|
|
|
$
|
0.27
|
|
|
$
|
0.20
|
|
During 2010, all of the outstanding warrants and options were excluded from the calculation of
diluted income per share because they were anti-dilutive. All the warrants and options expired in
2010.
Note 4. Related Party Transactions
The Company paid $90 thousand during the first nine months of 2011 for legal services to a firm of
which a Director of the Company is a principal. The Company also paid $37 thousand during the nine
months ended September 30, 2011 for computer related services to a firm of which a Director is a
principal. 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
Company 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 September 30, 2011 the amounts of such loans outstanding were $2.9 million.
Deposit balances of executive officers, directors and their affiliated interests totaled $11.8
million at September 30, 2011.
9
Note 5. Commitments and contingencies
The Company 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
September 30, 2011 are as follows:
|
|
|
|
|
In millions
|
|
|
|
|
Loan commitments
|
|
$
|
8.2
|
|
Unused lines of credit
|
|
$
|
32.8
|
|
Letters of Credit
|
|
$
|
1.3
|
|
Note 6. Recent Relevant Accounting Pronouncements
In July 2010, the FASB issued ASU No. 2010-20,
Receivables (Topic 310), Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses.
The main objective of
this ASU is to provide financial statement users with greater transparency about an entitys
allowance for credit losses and the credit quality of its financing receivables. The ASU requires
that entities provide additional information to assist financial statement users in assessing their
credit risk exposures and evaluating the adequacy of its allowance for credit losses. For the
Company, the disclosures as of the end of a reporting period were required for the annual reporting
periods ended December 31, 2010. Required disclosures about activity that occurs during a
reporting period are effective for interim and annual reporting periods beginning January 1, 2011.
The adoption of this ASU resulted in additional disclosures in the Companys financial statements
regarding its loan portfolio and related allowance for loan losses but does not change the
accounting for loans or the allowance. The Company has complied with the reporting requirements as
of September 30, 2011.
In April 2011, the FASB issued ASU No. 2011-02, Receivable (Topic 310),
A Creditors Determination
of Whether a Restructuring is a Troubled Debt Restructuring
. The main objective of the ASU is to
clarify a creditors evaluation of whether in modifying a loan it has granted a concession in
circumstances that qualify the loan as a Troubled Debt Restructured (TDR) loan. These loans are
subject to various accounting and disclosure requirements. The ASU is effective for the first
interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively
to the beginning of the annual period of adoption. Certain disclosures are required for loans
considered as TDR loans resulting from the application of the ASU that were not considered TDR
loans under prior guidance. The Company has complied with ASU No. 2011-02 as of September 30, 2011.
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820),
Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
. The main
objective of the ASU is to conform the requirements for measuring fair value and the disclosure
information under U.S. generally accepted accounting principles (GAAP) and International Financial
Reporting Standards (IFRS). The amendments change the wording used to describe many of the
requirements in U.S. GAAP for measuring fair value and for the disclosure about fair value
measurements. Other amendments clarify existing requirements and change particular principles or
requirements for measuring fair value or disclosing information about fair value measurements. The
ASU is effective for the first interim or annual period beginning on or after December 15, 2011,
early application for public entities is not permitted. The Company will review the requirements of
ASU No. 2011-04 and comply with its requirements. The adoption of this ASU is not expected to have
a material impact on the Companys consolidated financial statements.
10
The FASB has issued several exposure drafts which, if adopted, would significantly alter the
Companys (and all other financial institutions) method of accounting for, and reporting, its
financial assets and some liabilities from a historical cost method to a fair value method of
accounting as well as the reported amount of net interest income. Also, the FASB has issued an
exposure draft regarding a change in the accounting for leases. Under this exposure draft, the
total amount of lease rights and total amount of future payments required under all leases would
be reflected on the balance sheets of all entities as assets and debt. If the changes under
discussion in either of these exposure drafts are adopted, the financial statements of the Company
could be materially impacted as to the amounts of recorded assets, liabilities, capital, net
interest income, interest expense, depreciation expense, rent expense and net income. The Company
has not determined the extent of the possible changes at this time. The exposure drafts are in
different stages of review and consideration. The FASB is scheduled to complete their deliberations
by year end, December 31, 2011.
|
|
|
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,
accounting standards 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. Please
refer to the Risk Factors section of the Companys Annual Report on Form 10-K for the year ended
December 31, 2010, and other periodic reports filed with the Securities and Exchange Commission,
for a discussion of various factors which may affect our 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 maintains five banking offices in Anne Arundel, Howard and Prince Georges counties in
central Maryland. The Company focuses on providing commercial banking services to small and medium
sized business in its market areas.
The Companys assets increased modestly at September 30, 2011 from December 31, 2010 with increases
in cash and cash equivalents offset by a decline in loans receivable. Earnings increased 9.8% in
the nine month period ended September 30, 2011 as compared to the nine months ended September 30,
2010. The improvement in net interest income offset the increases in the provision for loan losses,
write-downs on other real estate owned and loan collections expenses. The provision for loan losses
continues to be high in recognition of the effect of uncertain economic conditions on the Companys
borrowers and collateral values as well as loan charge-offs. Key measurements and events for the
period include the following:
|
|
|
The Companys net income was $1.4 million during the nine months ended September 30,
2011 as compared to net income of $1.3 million for the nine months ended September 30,
2010.
|
|
|
|
Net interest income, the Companys main source of income, increased by 7.2% from
$7.0 million during the nine months ended September 30, 2010 to $7.5 million for the
nine months ended September 30, 2011.
|
11
|
|
|
Total assets increased by 0.8% from $203 million at December 31, 2010 to $205
million at September 30, 2011.
|
|
|
|
Net loans outstanding decreased by 2.2% from $182 million at December 31, 2010 to
$178 million as of September 30, 2011.
|
|
|
|
Deposits increased by 0.1% from $180.1 million at December 31, 2010 to $180.3
million at September 30, 2011.
|
|
|
|
Non-interest income increased by 16.8% from $780 thousand for the nine months ended
September 30, 2010 to $911 thousand for the nine months ended September 30, 2011.
|
|
|
|
Non-interest expenses increased by 5.5% from $4.0 million for the nine months ended
September 30, 2010 to $4.3 million for the nine months ended September 30, 2011.
|
A discussion of the factors leading to these changes can be found in the discussion below.
Critical Accounting Policies
The Companys 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 audited consolidated financial statements incorporated by reference in its
Annual Report on Form 10-K for the year ended December 31, 2010. 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.
The Company 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. These procedures include identifying
and assessing possible impaired loans. The Companys 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.
12
RESULTS OF OPERATIONS
General
.
The Company reported net income of $1.4 million for the nine months ended September 30,
2011 as compared to net income of $1.3 million for the nine month period ended September 30, 2010.
Earnings increased during 2011 as compared to 2010 because the increase in net interest income
exceeded the increase in the provision for loan losses of $248 thousand, the write-downs of other
real estate owned of $125 thousand and the increase in loan collection expenses of $96 thousand.
Net interest margin increased primarily as the result of the reduction in the cost of deposits. The
provision for loan losses was $1.9 million during 2011 as compared to $1.6 million in 2010, an
increase of $248 thousand, or 15.1%. The Company continues to experience the detrimental effects
of the weakened economy on its loan customers which effects are recognized through the Companys
provision for loan losses and loan charge-offs. The amount of non-accrual loans decreased by $2.3
million, or 31.5%, at September 30, 2011 as compared to December 31, 2010.
Net interest income increased by $503 thousand, or 7.2%, in 2011 as compared to 2010. This
increase resulted primarily from the reduction in the cost of deposits. During the second half of
2010 and the first half of 2011 a significant amount of high interest rate, longer term
certificates of deposit matured and were either re-priced at lower rates or replaced with lower
rate accounts resulting in decreases in costs of funds, increases in net interest income, net
interest margin and net interest spread. However, the amount of such high interest rate
certificates available to be re-priced in future quarters is minimal.
Return on Average Assets and Average Equity
. The following table shows the return on average assets
and average equity for the period shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Equity
|
|
|
8.03
|
%
|
|
|
7.80
|
%
|
|
|
8.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Earning Assets
|
|
|
0.93
|
%
|
|
|
0.84
|
%
|
|
|
0.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Average Equity to
Average Assets
|
|
|
11.27
|
%
|
|
|
10.45
|
%
|
|
|
10.62
|
%
|
Nine months ended September 30, 2011
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 decreased by $369 thousand or 3.9% to $9.2 million for the nine month period
ended September 30, 2011 as compared to the same period in 2010. This decrease in interest income
was primarily attributable to the decline in the yield on loans from 6.86% in 2010 to 6.63% in
2011.
Interest expense decreased by $872 thousand or 34.9% to $1.6 million for the nine months ended
September 30, 2011 as compared to $2.5 million during the same nine months of 2010. This decrease
was primarily attributable to the 65 basis point decrease in the cost of funds from 2.04% during
the first nine months of 2010 to 1.39% during the first nine months of 2011. Also contributing to
the reduction in the cost of funds was a $7.5 million decrease in average interest bearing
liabilities during 2011 as compared to 2010.
13
The net interest income for the nine month period ended September 30, 2011 was $7.5 million as
compared to $7.0 million for the same period in 2010. Net interest income increased primarily
because of the reduced cost of funds during the nine months ended September 30, 2011 as compared to
the nine months ended September 30, 2010.
The following table shows the average balances and average rates earned or paid on of the various
categories of the Companys assets and liabilities for the nine month period ended September 30 of
each year. Nonperforming loans are included in average loan balances in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Average
|
|
|
|
|
|
|
Yields/
|
|
|
Average
|
|
|
|
|
|
|
Yields/
|
|
|
Average
|
|
|
|
|
|
|
Yields/
|
|
In thousands
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
(2)
|
|
$
|
183,500
|
|
|
$
|
9,099
|
|
|
|
6.63
|
%
|
|
$
|
184,680
|
|
|
$
|
9,471
|
|
|
|
6.86
|
%
|
|
$
|
165,615
|
|
|
$
|
8,606
|
|
|
|
6.95
|
%
|
Interest-bearing deposits in other banks
|
|
|
16,603
|
|
|
|
44
|
|
|
|
0.35
|
%
|
|
|
17,330
|
|
|
|
41
|
|
|
|
0.32
|
%
|
|
|
8,984
|
|
|
|
17
|
|
|
|
0.25
|
%
|
Securities
(1)
|
|
|
527
|
|
|
|
21
|
|
|
|
5.33
|
%
|
|
|
527
|
|
|
|
21
|
|
|
|
5.33
|
%
|
|
|
3,018
|
|
|
|
101
|
|
|
|
4.47
|
%
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
0.19
|
%
|
|
|
1,211
|
|
|
|
2
|
|
|
|
0.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
200,630
|
|
|
|
9,164
|
|
|
|
6.10
|
%
|
|
|
202,580
|
|
|
|
9,533
|
|
|
|
6.29
|
%
|
|
|
178,828
|
|
|
|
8,726
|
|
|
|
6.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(3,492
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,326
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,133
|
)
|
|
|
|
|
|
|
|
|
Non interest earning assets
|
|
|
9,108
|
|
|
|
|
|
|
|
|
|
|
|
8,454
|
|
|
|
|
|
|
|
|
|
|
|
5,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
206,246
|
|
|
|
|
|
|
|
|
|
|
$
|
208,708
|
|
|
|
|
|
|
|
|
|
|
$
|
182,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
$
|
645
|
|
|
$
|
|
|
|
|
0.04
|
%
|
|
$
|
714
|
|
|
$
|
|
|
|
|
0.04
|
%
|
|
$
|
1,965
|
|
|
$
|
1
|
|
|
|
0.07
|
%
|
Money market deposit accounts
|
|
|
8,536
|
|
|
|
24
|
|
|
|
0.38
|
%
|
|
|
7,911
|
|
|
|
28
|
|
|
|
0.47
|
%
|
|
|
12,335
|
|
|
|
49
|
|
|
|
0.53
|
%
|
Savings accounts
|
|
|
24,547
|
|
|
|
207
|
|
|
|
1.13
|
%
|
|
|
15,563
|
|
|
|
164
|
|
|
|
1.41
|
%
|
|
|
2,183
|
|
|
|
31
|
|
|
|
1.90
|
%
|
Certificates of deposit
|
|
|
122,434
|
|
|
|
1,397
|
|
|
|
1.53
|
%
|
|
|
139,435
|
|
|
|
2,308
|
|
|
|
2.21
|
%
|
|
|
123,267
|
|
|
|
3,466
|
|
|
|
3.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
156,162
|
|
|
|
1,628
|
|
|
|
1.39
|
%
|
|
|
163,623
|
|
|
|
2,500
|
|
|
|
2.04
|
%
|
|
|
139,750
|
|
|
|
3,547
|
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits and other liabilities
|
|
|
26,850
|
|
|
|
|
|
|
|
|
|
|
|
23,275
|
|
|
|
|
|
|
|
|
|
|
|
22,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
183,012
|
|
|
|
|
|
|
|
|
|
|
|
186,898
|
|
|
|
|
|
|
|
|
|
|
|
161,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
23,234
|
|
|
|
|
|
|
|
|
|
|
|
21,810
|
|
|
|
|
|
|
|
|
|
|
|
20,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
206,246
|
|
|
|
|
|
|
|
|
|
|
$
|
208,708
|
|
|
|
|
|
|
|
|
|
|
$
|
182,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
4.71
|
%
|
|
|
|
|
|
|
|
|
|
|
4.25
|
%
|
|
|
|
|
|
|
|
|
|
|
3.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin
|
|
|
|
|
|
$
|
7,536
|
|
|
|
5.02
|
%
|
|
|
|
|
|
$
|
7,033
|
|
|
|
4.64
|
%
|
|
|
|
|
|
$
|
5,179
|
|
|
|
3.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Yields on securities are calculated based on amortized cost.
|
|
(2)
|
|
Loan balances include loans on nonaccrual
|
Net interest margin was 5.02% in the first nine months of 2011, as compared to 4.64% in the
comparable period in 2010. Interest spread was 4.71% in the first nine months of 2011, as compared
to the 4.25% in the first nine months of 2010 reflecting the larger reduction in the cost of
interest bearing funds as compared to the reduction of the earnings rates of interest earning
assets. Absent a reduction in market interest rates, the Company does not anticipate continuing
significant reductions in the cost of its interest bearing funds as substantially all of the
significantly higher costing funds have been re-priced to lower levels.
14
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 vs.
|
|
|
September 30, 2010 vs.
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Increase (Decrease)
|
|
|
Increase (Decrease)
|
|
In thousand
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
(61
|
)
|
|
$
|
(311
|
)
|
|
$
|
(372
|
)
|
|
$
|
991
|
|
|
$
|
(126
|
)
|
|
$
|
865
|
|
Interest bearing deposits
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
3
|
|
|
|
16
|
|
|
|
8
|
|
|
|
24
|
|
Investment portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
4
|
|
|
|
(80
|
)
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Interest Income
|
|
|
(63
|
)
|
|
|
(306
|
)
|
|
|
(369
|
)
|
|
|
921
|
|
|
|
(114
|
)
|
|
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
(113
|
)
|
|
|
(759
|
)
|
|
|
(872
|
)
|
|
|
528
|
|
|
|
(1,575
|
)
|
|
|
(1,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Interest Expense
|
|
|
(113
|
)
|
|
|
(759
|
)
|
|
|
(872
|
)
|
|
|
528
|
|
|
|
(1,575
|
)
|
|
|
(1,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income
|
|
$
|
50
|
|
|
$
|
453
|
|
|
$
|
503
|
|
|
$
|
393
|
|
|
$
|
1,461
|
|
|
$
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1.9 million the nine months ended September 30, 2011 as compared
to $1.6 million for the nine months ended September 30, 2010. The Company has increased 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 sales of other real estate owned as
well as from deposit account services charges. For the nine months ended September 30, 2011, gains
on sales of the guaranteed portion of SBA loans were $366 thousand whereas gains on sales of SBA
loans amounted to $419 thousand during the first nine months of 2010. Generally, the Company
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. The volume of SBA loans origination has been declining and the
Company expects continued reduced gains on these loan sales. The Company had gains from the sales
of other real estate owned of $97 thousand in the first nine months of 2011. There were no sales of
other real estate owned in 2010. Deposit account service charges and other income amounted to $448
thousand during the nine months ended September 30, 2011 as compared to $361 thousand for the same
period in 2010, reflecting an increase in the number of accounts and activity subject to service
charges on such deposit accounts.
Non-Interest Expense
. Total non-interest expenses increased by $224 thousand during the nine month
period ended September 30, 2011 as compared to the same period in 2010, a 5.5% increase. The 2011
expenses reflect $125 thousand of write-downs of other real estate owned reflecting declining
market values as compared to $75 thousand of write-downs during 2010. Loan collection expenses
increased by $96 thousand from $49 thousand during 2010 to $145 thousand in 2011 resulting from
increased loan collection efforts.
Income Tax Expense
. During the nine months ended September 30, 2011, the Company recorded an income
tax expense of $885 thousand as compared to an $847 thousand expense during the same period in
2010. The income tax expense was 38.8% of income before taxes in 2011 and 40.0% of income before
taxes in 2010.
Three months ended September 30, 2011
Net Interest Income and Net Interest Margin.
Total interest income decreased by $156 thousand or
4.9% to $3.0 million for the three month period ended September 30, 2011 as compared to the same
period in 2010. This decrease in interest income was primarily attributable to the decline in the
yield on loans from 6.79% in 2010 to 6.67% in 2011. Interest income was adversely affected by the
23 basis point decline in the yield of the average earning assets from 6.26% in 2010 to 6.00% in
2011.
15
Interest expense decreased by $243 thousand or 32.3% to $510 thousand for the three months ended
September 30, 2011 as compared to $753 thousand during the same three months of 2010. This
decrease was attributable to the decline in interest bearing deposits and the 55 basis point
decrease in the cost of funds from 1.85% during the third quarter of 2010 to 1.3% during the third
quarter of 2011. Also contributing to the reduction in the cost of funds was $6.0 million decrease
in average interest bearing liabilities during 2011 as compared to 2010.
The net interest income for the three month periods ended September 30, 2011 and 2010 was $2.5
million.
The following table shows the average balances and average rates earned or paid on of the various
categories of the Companys assets and liabilities for the three month period ended September 30 of
each year. Nonperforming loans are included in average loan balances in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
Average
|
|
|
|
|
|
|
Yields/
|
|
|
Average
|
|
|
|
|
|
|
Yields/
|
|
|
Average
|
|
|
|
|
|
|
Yields/
|
|
In thousands
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
|
Balance
|
|
|
Interest
|
|
|
Rates
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unearned income
(2)
|
|
$
|
179,745
|
|
|
$
|
3,024
|
|
|
|
6.67
|
%
|
|
$
|
185,858
|
|
|
$
|
3,179
|
|
|
|
6.79
|
%
|
|
$
|
176,419
|
|
|
$
|
3,019
|
|
|
|
6.87
|
%
|
Interest-bearing deposits in other banks
|
|
|
21,070
|
|
|
|
16
|
|
|
|
0.30
|
%
|
|
|
16,466
|
|
|
|
17
|
|
|
|
0.41
|
%
|
|
|
14,510
|
|
|
|
9
|
|
|
|
0.25
|
%
|
Securities
(1)
|
|
|
527
|
|
|
|
7
|
|
|
|
5.27
|
%
|
|
|
527
|
|
|
|
7
|
|
|
|
5.27
|
%
|
|
|
1,540
|
|
|
|
23
|
|
|
|
5.99
|
%
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
201,342
|
|
|
|
3,047
|
|
|
|
6.00
|
%
|
|
|
202,851
|
|
|
|
3,203
|
|
|
|
6.26
|
%
|
|
|
192,667
|
|
|
|
3,051
|
|
|
|
6.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(3,403
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,197
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,096
|
)
|
|
|
|
|
|
|
|
|
Non interest earning assets
|
|
|
9,221
|
|
|
|
|
|
|
|
|
|
|
|
8,211
|
|
|
|
|
|
|
|
|
|
|
|
6,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
207,160
|
|
|
|
|
|
|
|
|
|
|
$
|
208,865
|
|
|
|
|
|
|
|
|
|
|
$
|
196,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
$
|
512
|
|
|
$
|
|
|
|
|
0.02
|
%
|
|
$
|
692
|
|
|
$
|
|
|
|
|
0.06
|
%
|
|
$
|
1,522
|
|
|
$
|
|
|
|
|
0.00
|
%
|
Money market deposit accounts
|
|
|
8,331
|
|
|
|
8
|
|
|
|
0.38
|
%
|
|
|
7,695
|
|
|
|
8
|
|
|
|
0.41
|
%
|
|
|
8,930
|
|
|
|
13
|
|
|
|
0.58
|
%
|
Savings accounts
|
|
|
25,922
|
|
|
|
70
|
|
|
|
1.07
|
%
|
|
|
19,630
|
|
|
|
63
|
|
|
|
1.27
|
%
|
|
|
5,375
|
|
|
|
27
|
|
|
|
2.01
|
%
|
Certificates of deposit
|
|
|
120,485
|
|
|
|
432
|
|
|
|
1.42
|
%
|
|
|
133,226
|
|
|
|
682
|
|
|
|
2.03
|
%
|
|
|
137,938
|
|
|
|
1,164
|
|
|
|
3.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
155,250
|
|
|
|
510
|
|
|
|
1.30
|
%
|
|
|
161,243
|
|
|
|
753
|
|
|
|
1.85
|
%
|
|
|
153,765
|
|
|
|
1,204
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits and other liabilities
|
|
|
28,231
|
|
|
|
|
|
|
|
|
|
|
|
25,407
|
|
|
|
|
|
|
|
|
|
|
|
21,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
183,481
|
|
|
|
|
|
|
|
|
|
|
|
186,650
|
|
|
|
|
|
|
|
|
|
|
|
175,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
23,679
|
|
|
|
|
|
|
|
|
|
|
|
22,215
|
|
|
|
|
|
|
|
|
|
|
|
21,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
207,160
|
|
|
|
|
|
|
|
|
|
|
$
|
208,865
|
|
|
|
|
|
|
|
|
|
|
$
|
196,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
4.41
|
%
|
|
|
|
|
|
|
|
|
|
|
3.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and margin
|
|
|
|
|
|
$
|
2,537
|
|
|
|
5.00
|
%
|
|
|
|
|
|
$
|
2,450
|
|
|
|
4.79
|
%
|
|
|
|
|
|
$
|
1,847
|
|
|
|
3.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Yields on securities are calculated based on amortized cost.
|
|
(2)
|
|
Loan balances include loans on nonaccrual
|
Net interest margin was 5.00% in the third quarter of 2011, as compared to 4.79% in the
comparable period in 2010. Interest spread was 4.70% in the third quarter of 2011, as compared to
the 4.41% in the third quarter of 2010 reflecting the greater reduction in the cost of interest
bearing funds as compared to the reduction of the earnings rates of interest earning assets. Absent
a reduction in market interest rates, the Company does not anticipate continuing significant
reductions in the cost of its interest bearing funds as substantially all of the higher costing
funds have been re-priced to lower levels.
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 $586 thousand the three months
ended September 30, 2011 as compared to $612 thousand for the three months ended September 30,
2010. The decline in the provision for the three months ended September 30, 2011 as compared to the
same period in 2010 primarily results from lower amount of loans outstanding. The allowance is
comprised of specific and general allowance amounts.
16
Non-Interest Income
. Non-interest income principally consists of gains from the sale of the
guaranteed portion of Small Business Administration loans and from deposit account services
charges. For the three months ended September 30, 2011, gains on sales of the guaranteed portion of
SBA loans was $23 thousand whereas gains on sales of SBA loans amounted to $49 thousand during the
same period in 2010. The Company had gains from the sales of other real estate owned of $45
thousand during the quarter ended September 30, 2011. There were no sales of other real estate
owned in 2010. Deposit account service charges and other income amounted to $158 thousand during
the three months ended September 30, 2011 as compared to $115 thousand for the same period in 2010,
reflecting an increase in the number of accounts subject to service charges on such deposit
accounts.
Non-Interest Expense
. Total non-interest expenses decreased by $55 thousand during the three month
period ended September 30, 2011 as compared to the same period in 2010, a 3.9% decrease. The 2010
expenses include $75 thousand of write-downs of other real estate owned reflecting declining
values; no such provision was expensed in 2011. Loan collection expenses increased by $44 thousand
from expenses of $12 thousand during 2010 to expenses of $56 thousand in 2011 resulting from
increased loan collection efforts. These expense increases were offset by the reduction in FDIC
insurance costs of $70 thousand for the third quarter of 2011 as compared to the same quarter in
2010 reflecting the changes made by the FDIC in the method of computation of insurance premiums.
Income Tax Expense
. During the three months ended September 30, 2011, the Company recorded an
income tax expense of $329 thousand as compared to a $238 thousand expense during the same period
in 2010. The income tax expense was 39.9% of income before taxes in 2011 and 40.0% of income before
taxes in 2010.
FINANCIAL CONDITION.
General
.
The Companys assets at September 30, 2011 were $205 million, an increase of $1.7 million
or 0.8%, from December 31, 2010. The gross loans totaled $181 million at September 30, 2011 and
are comprised of real estate loans of $129 million, a decrease of $3.3 million, or 2.5%, from
December 31, 2010 and commercial loans, including SBA loans, of $52 million, a decrease of $0.8
million, or 1.6% from December 31, 2010. At September 30, 2011 and December 31, 2010, deposits
totaled $180 million. Deposits at September 30, 2011 are comprised primarily of certificates of
deposit of $117 million, NOW and Money Market accounts of $8 million, savings accounts of $27
million and noninterest bearing deposits of $28 million.
Loan Portfolio.
The loan portfolio is the largest component of earning assets and accounts for the
greatest portion of total interest income. At September 30, 2011, net loans were $178 million, a
2.2% decrease from the $182 million in the net loans at December 31, 2010. Generally, loans are
internally generated but the Company does periodically purchase loan participations from other
local community banks. Lending activity is generally confined to the Companys immediate market
areas. The $4 million decrease in loans is net of the sales of SBA guaranteed portions of loans in
the amount of $5 million during 2011. Without these sales, loan balances would have increased by $1
million. The Company is continuing its efforts to attract quality credits with no dilution of
credit underwriting standards. The current economic conditions have reduced the number of loan
requests as well as the number of applicants that meet the Companys underwriting standards.
17
The loan portfolio includes a significant amount of commercial real estate loans. The majority of
these loans are secured by real property that is occupied by the borrowers businesses. The Company
has approximately $0.8 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
September 30, 2010
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
(In thousands)
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
Commercial and Industrial loans
|
|
$
|
43,708
|
|
|
|
24.2
|
%
|
|
$
|
47,331
|
|
|
|
25.6
|
%
|
|
$
|
44,582
|
|
|
|
24.1
|
%
|
SBA loans
|
|
|
7,831
|
|
|
|
4.3
|
%
|
|
|
5,880
|
|
|
|
3.2
|
%
|
|
|
7,742
|
|
|
|
4.2
|
%
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
79,730
|
|
|
|
44.1
|
%
|
|
|
83,712
|
|
|
|
45.3
|
%
|
|
|
85,633
|
|
|
|
46.3
|
%
|
Non owner occupied
|
|
|
49,560
|
|
|
|
27.4
|
%
|
|
|
47,822
|
|
|
|
25.9
|
%
|
|
|
47,040
|
|
|
|
25.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
129,290
|
|
|
|
71.5
|
%
|
|
|
131,534
|
|
|
|
71.2
|
%
|
|
|
132,673
|
|
|
|
71.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,829
|
|
|
|
100.0
|
%
|
|
|
184,745
|
|
|
|
100.0
|
%
|
|
|
184,997
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned loan fees, net
|
|
|
(81
|
)
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
Allowance for loan losses
|
|
|
(3,038
|
)
|
|
|
|
|
|
|
(2,533
|
)
|
|
|
|
|
|
|
(3,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
177,710
|
|
|
|
|
|
|
$
|
182,098
|
|
|
|
|
|
|
$
|
181,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans are secured by residential and commercial properties as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
(In thousands)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
Real estate loans secured by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
26,204
|
|
|
$
|
26,510
|
|
|
$
|
24,307
|
|
Commercial real estate
|
|
|
103,086
|
|
|
|
105,024
|
|
|
|
108,366
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
$
|
129,290
|
|
|
$
|
131,534
|
|
|
$
|
132,673
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the interest rate sensitivity of the loan portfolio at September 30,
2011. Demand loans, loans without a stated maturity and overdrafts are reported as re-pricing in
one year or less. Floating rate loans are reported to reflect the period until re-pricing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Re-pricing as of September 30, 2011
|
|
|
|
1 year
|
|
|
Over 1 to
|
|
|
After
|
|
|
|
|
In thousands
|
|
or less
|
|
|
5 years
|
|
|
5 years
|
|
|
Total
|
|
Loans with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rates
|
|
$
|
12,303
|
|
|
$
|
33,969
|
|
|
$
|
1,338
|
|
|
$
|
47,610
|
|
Floating and adjustable interest rates
|
|
|
66,549
|
|
|
|
66,670
|
|
|
|
|
|
|
|
133,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
$
|
78,852
|
|
|
$
|
100,639
|
|
|
$
|
1,338
|
|
|
$
|
180,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 as
commercial, SBA and mortgage loans. Loss ratios are determined based upon historical losses
incurred adjusted for the effect of current economic conditions, any industry concentration or
identified weakness in an industry, credit management and underwriting policy changes and secured
versus unsecured nature of the loan category. At September 30, 2011, the range of the loss ratios
used to determine estimated losses by loan category were: commercial loans 1.3%; SBA loans
(unguaranteed portion) 6.7% and real estate loans- 0.2% to 0.9%. These loss ratios approximate
those ratios applied at December 31, 2010. 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. Not all of these additional loss
estimates are allocated to the separate loan categories.
The Company monitors its loan portfolio for indications of weaknesses through the review of
borrowers financial condition, cash flows, loan payment delinquencies, economic factors occurring
in borrowers business sectors and other information which may come to the Company through its
contacts in the market place. The determination of the effect of the weaknesses noted on the
repayment of the loans is an ongoing process as to each borrower. The Company may set aside
specific loss reserves during this process in amounts determined on subjective bases until such
time as the collectability of the loan from the borrowers primary repayment source(s) is in doubt.
During this time, secondary and tertiary repayment sources, including liquidation of collateral,
are evaluated which may result in additional specific loss reserves being established. Independent
or internal appraisals and evaluations are performed
to determine potential recovery amounts, or range of amounts, from the loan collateral and other
payment sources. Collateral values are subject to change depending on market factors, collateral
condition and method and timing of liquidation efforts. Loans, or portions of loans, for which the
Company does not expect to obtain repayment are charged-off. In most cases, the Company has
established specific reserves for the amount of the loans loss prior to the point of charge-off.
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 September 30, 2011, the actual allowance
for loan losses of 1.68% of loans was between the high allowance amount of 1.69% and the low
range percent of 1.43%.
The allowance for loan losses represents 1.68% and 1.72% of loans receivable at September 30, 2011
and December 31, 2010, respectively. The decrease in the allowance for loan losses as a percent of
loans at September 30, 2011 as compared to December 31, 2010 resulted from $2 million in net loan
charge-offs taken during 2011. There was no change in the methodology of determining the allowance
for loan losses at September 30, 2011 as compared to December 31, 2010 apart from changes to loss
factors based on managements perception of economic environmental factors and trends. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
September 30, 2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
3,174
|
|
|
$
|
2,380
|
|
|
$
|
1,860
|
|
|
$
|
1,665
|
|
|
$
|
1,614
|
|
Charge-offs Commercial and Industrial
loans
|
|
|
(806
|
)
|
|
|
(1,140
|
)
|
|
|
(500
|
)
|
|
|
(179
|
)
|
|
|
(72
|
)
|
Charge-offs SBA loans
|
|
|
(285
|
)
|
|
|
(447
|
)
|
|
|
(463
|
)
|
|
|
(318
|
)
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs Owner occupied
|
|
|
(535
|
)
|
|
|
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
Charge-offs Non owner occupied
|
|
|
(532
|
)
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries Commercial and Industrial
loans
|
|
|
100
|
|
|
|
26
|
|
|
|
|
|
|
|
45
|
|
|
|
78
|
|
Recoveries SBA loans
|
|
|
28
|
|
|
|
25
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net recoveries (charge-offs)
|
|
|
(2,030
|
)
|
|
|
(1,922
|
)
|
|
|
(1,096
|
)
|
|
|
(452
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
1,894
|
|
|
|
2,716
|
|
|
|
1,616
|
|
|
|
647
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,038
|
|
|
$
|
3,174
|
|
|
$
|
2,380
|
|
|
$
|
1,860
|
|
|
$
|
1,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net recoveries (charge-offs) to average loans
|
|
|
(1.11
|
%)
|
|
|
(1.04
|
%)
|
|
|
(0.65
|
%)
|
|
|
(0.33
|
%)
|
|
|
0.00
|
%
|
During 2011, loans to twenty one borrowers and related entities totaling $2.2 million were
determined to be uncollectible and were charged-off.
19
The activity in the allowance for loan losses by category during the nine months ended September
30, 2011 is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
and
|
|
|
SBA
|
|
|
Owner
|
|
|
Owner
|
|
|
|
|
|
|
|
In thousands
|
|
Industrial
|
|
|
Loans
|
|
|
Occupied
|
|
|
Occupied
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
1,023
|
|
|
$
|
627
|
|
|
$
|
682
|
|
|
$
|
715
|
|
|
$
|
127
|
|
|
$
|
3,174
|
|
Less loan charge offs
|
|
|
(806
|
)
|
|
|
(285
|
)
|
|
|
(535
|
)
|
|
|
(532
|
)
|
|
|
|
|
|
|
(2,158
|
)
|
Loss recoveries
|
|
|
100
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Provision for loan losses
|
|
|
650
|
|
|
|
136
|
|
|
|
355
|
|
|
|
730
|
|
|
|
23
|
|
|
|
1,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
967
|
|
|
$
|
506
|
|
|
$
|
502
|
|
|
$
|
913
|
|
|
$
|
150
|
|
|
$
|
3,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loans
individually
evaluated for impairment
|
|
$
|
417
|
|
|
$
|
103
|
|
|
$
|
364
|
|
|
$
|
579
|
|
|
|
|
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loans individually
evaluated for impairment
|
|
$
|
1,030
|
|
|
$
|
1,641
|
|
|
$
|
7,685
|
|
|
$
|
4,292
|
|
|
|
|
|
|
$
|
14,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The activity in the allowance for loan losses by category during the nine months ended September
30, 2010 is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
and
|
|
|
SBA
|
|
|
Owner
|
|
|
Owner
|
|
|
|
|
|
|
|
In thousands
|
|
Industrial
|
|
|
Loans
|
|
|
Occupied
|
|
|
Occupied
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
1,290
|
|
|
$
|
576
|
|
|
$
|
168
|
|
|
$
|
242
|
|
|
$
|
104
|
|
|
$
|
2,380
|
|
Loan charge offs
|
|
|
1,005
|
|
|
|
424
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
1,535
|
|
Loss recoveries
|
|
|
23
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Provision for loan losses
|
|
|
401
|
|
|
|
247
|
|
|
|
306
|
|
|
|
629
|
|
|
|
63
|
|
|
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
709
|
|
|
$
|
418
|
|
|
$
|
474
|
|
|
$
|
765
|
|
|
$
|
167
|
|
|
$
|
2,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loans
individually
evaluated for impairment
|
|
$
|
264
|
|
|
$
|
35
|
|
|
$
|
262
|
|
|
$
|
433
|
|
|
$
|
|
|
|
$
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loans individually
evaluated for impairment
|
|
$
|
2,127
|
|
|
$
|
317
|
|
|
$
|
8,714
|
|
|
$
|
2,317
|
|
|
$
|
|
|
|
$
|
13,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Company has established a reserve for unfunded commitments that is recorded by a
provision charged to other expenses. At September 30, 2011 the balance of this reserve was $60
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.
20
Asset Quality
.
In its lending activities, the Company seeks to develop sound loans with customers
who will grow with the Company. The Company has not, and does not intend 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.
Below is a summary of the recorded investment amount and related allowance for losses of the
Companys impaired loans at September 30, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment
|
|
|
Related Allowance for Losses
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
LOANS WITH SPECIFIC RESERVES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
$
|
758
|
|
|
$
|
963
|
|
|
$
|
335
|
|
|
$
|
445
|
|
SBA loans
|
|
|
106
|
|
|
|
359
|
|
|
|
103
|
|
|
|
194
|
|
Real Estate Owner Occupied
|
|
|
1,643
|
|
|
|
3,140
|
|
|
|
364
|
|
|
|
483
|
|
Real Estate Non Owner Occupied
|
|
|
1,939
|
|
|
|
1,976
|
|
|
|
477
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-accrual loans
|
|
|
4,446
|
|
|
|
6,438
|
|
|
|
1,279
|
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR** loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
|
|
|
|
2,051
|
|
|
|
|
|
|
|
13
|
|
Real Estate Non Owner Occupied
|
|
|
1,742
|
|
|
|
1,603
|
|
|
|
102
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans
|
|
|
1,742
|
|
|
|
3,654
|
|
|
|
102
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Other Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
|
82
|
|
|
|
250
|
|
|
|
82
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Impaired loans
|
|
|
82
|
|
|
|
250
|
|
|
|
82
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOANS WITHOUT SPECIFIC RESERVES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA loans
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
544
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-accrual loans
|
|
|
544
|
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR** loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
|
45
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
1,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Non Owner Occupied
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans
|
|
|
1,539
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
$
|
885
|
|
|
$
|
1,367
|
|
|
$
|
417
|
|
|
$
|
570
|
|
SBA loans
|
|
|
106
|
|
|
|
388
|
|
|
|
103
|
|
|
|
194
|
|
Real Estate Owner Occupied
|
|
|
3,681
|
|
|
|
6,007
|
|
|
|
364
|
|
|
|
496
|
|
Real Estate Non Owner Occupied
|
|
|
3,681
|
|
|
|
3,756
|
|
|
|
579
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired loans
|
|
|
8,353
|
|
|
$
|
11,518
|
|
|
$
|
1,463
|
|
|
$
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
**
|
|
Troubled Debt Restructured
|
21
Below is a summary of the average recorded investment amount and recognized interest income
related to the Companys impaired loans during the nine month and three month periods ended at
September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Recorded Amount
|
|
|
Income Recorded
|
|
|
|
For Periods Ended
|
|
|
For Periods Ended
|
|
|
|
September 30, 2011
|
|
|
September 30, 2011
|
|
|
|
Nine Months
|
|
|
Three months
|
|
|
Nine Months
|
|
|
Three Months
|
|
LOANS WITH SPECIFIC RESERVES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
$
|
1,149
|
|
|
$
|
1,220
|
|
|
$
|
6
|
|
|
$
|
|
|
SBA loans
|
|
|
271
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
2,613
|
|
|
|
1,668
|
|
|
|
|
|
|
|
|
|
Real Estate Non Owner Occupied
|
|
|
2,019
|
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-accrual loans
|
|
|
6,052
|
|
|
|
5,139
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR** loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Non Owner Occupied
|
|
|
1,764
|
|
|
|
1,745
|
|
|
|
48
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans
|
|
|
1,764
|
|
|
|
1,745
|
|
|
|
48
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
|
132
|
|
|
|
92
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Impaired loans
|
|
|
132
|
|
|
|
92
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOANS WITHOUT SPECIFIC RESERVES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA loans
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
572
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-accrual loans
|
|
|
589
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR** loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
|
87
|
|
|
|
45
|
|
|
|
3
|
|
|
|
1
|
|
Real Estate Owner Occupied
|
|
|
747
|
|
|
|
1,494
|
|
|
|
79
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDR loans
|
|
|
834
|
|
|
|
1,539
|
|
|
|
82
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
$
|
1,368
|
|
|
$
|
1,357
|
|
|
$
|
12
|
|
|
$
|
2
|
|
SBA loans
|
|
|
288
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
Real Estate Owner Occupied
|
|
|
3,932
|
|
|
|
3,707
|
|
|
|
79
|
|
|
|
27
|
|
Real Estate Non Owner Occupied
|
|
|
3,783
|
|
|
|
3,786
|
|
|
|
48
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired loans
|
|
$
|
9,371
|
|
|
$
|
9,060
|
|
|
$
|
139
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Non-accrual loan activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
In thousands
|
|
September 30, 2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance at the beginning of the period
|
|
$
|
7,283
|
|
|
$
|
2,734
|
|
|
$
|
5,819
|
|
|
$
|
1,125
|
|
|
$
|
628
|
|
New loans placed on non-accrual
|
|
|
2,322
|
|
|
|
7,846
|
|
|
|
2,427
|
|
|
|
5,046
|
|
|
|
569
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan restored to interest earning status
|
|
|
|
|
|
|
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
Other real estate owned additions
|
|
|
979
|
|
|
|
945
|
|
|
|
2,462
|
|
|
|
|
|
|
|
|
|
Charge offs
|
|
|
2,158
|
|
|
|
1,973
|
|
|
|
1,101
|
|
|
|
236
|
|
|
|
72
|
|
Other including payments received
|
|
|
1,478
|
|
|
|
379
|
|
|
|
683
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
4,990
|
|
|
$
|
7,283
|
|
|
$
|
2,734
|
|
|
$
|
5,819
|
|
|
$
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loan activity by category during the nine month period ended September 30, 2011 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Owner
|
|
|
Non Owner
|
|
In thousands
|
|
Total
|
|
|
Industrial
|
|
|
SBA
|
|
|
Occupied
|
|
|
Occupied
|
|
Balance at the beginning of the period
|
|
$
|
7,283
|
|
|
$
|
667
|
|
|
$
|
388
|
|
|
$
|
3,956
|
|
|
$
|
2,272
|
|
New loans placed on non-accrual
|
|
|
2,322
|
|
|
|
1,089
|
|
|
|
129
|
|
|
|
581
|
|
|
|
523
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned additions
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
|
720
|
|
|
|
259
|
|
Charge offs
|
|
|
2,158
|
|
|
|
806
|
|
|
|
285
|
|
|
|
535
|
|
|
|
532
|
|
Other including payments received
|
|
|
1,478
|
|
|
|
192
|
|
|
|
126
|
|
|
|
1,095
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
4,990
|
|
|
$
|
758
|
|
|
$
|
106
|
|
|
$
|
2,187
|
|
|
$
|
1,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loan activity by category during the nine month period ended September 30, 2010 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Owner
|
|
|
Non Owner
|
|
In thousands
|
|
Total
|
|
|
Industrial
|
|
|
SBA
|
|
|
Occupied
|
|
|
Occupied
|
|
Balance at the beginning of the period
|
|
$
|
2,734
|
|
|
$
|
2,280
|
|
|
$
|
454
|
|
|
$
|
|
|
|
$
|
|
|
New loans placed on non-accrual
|
|
|
2,109
|
|
|
|
346
|
|
|
|
505
|
|
|
|
|
|
|
|
1,258
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge offs
|
|
|
1,535
|
|
|
|
855
|
|
|
|
574
|
|
|
|
|
|
|
|
106
|
|
Other including payments received
|
|
|
312
|
|
|
|
148
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
$
|
2,996
|
|
|
$
|
1,623
|
|
|
$
|
221
|
|
|
$
|
|
|
|
$
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans with specific reserves at September 30, 2011 are comprised of:
Commercial loans
six loans to five borrowers totaling $758 thousand with $335 thousand
of specific reserves established.
SBA loans
three loans totaling $106 thousand with $103 thousand of specific reserves
established.
Owner-occupied Real Estate loans
three loans secured by commercial property in the
amount of $1.6 million with specific reserves established for these loans in the amount of $364
thousand.
Non-owner Occupied Real Estate loans
five loans to four borrowers in the amount of
$1.9 million, secured by the residential and commercial property after partial charge-off of
$246 thousand and with specific reserves of $477 thousand established for the loans. The
borrowers on four of the above loans are controlled by the same individual.
All of these loans are in various stages of collection.
23
At September 30, 2011, the Company has modified nine loans in amounts totaling $3.3 million which
modifications qualify the loans as Troubled Debt Restructuring (TDR). These borrowers are in
compliance with the modified terms and are accruing interest. Changes made to the loans included
the reduction of loan payments from principal and interest payments to interest only payments for
specific time periods, the decrease in interest rates charged on a loan and the extension of the
maturity of a loan. Specific reserves were established on the loans as appropriate. The majority of
these loans were modified in the third quarter of 2010 as the adverse economic conditions hampered
borrowers current cash flows.
TDRs
included in non-accruing loans
are summarized below. Generally the borrowers have not shown
sustained compliance with the modified loan terms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investment
|
|
|
Related Allowance for Losses
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
In thousands
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
TDRs with specific reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
SBA loans
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
40
|
|
Real Estate Owner Occupied:
|
|
|
1,340
|
|
|
|
3,140
|
|
|
|
285
|
|
|
|
483
|
|
Real Estate Non Owner Occupied:
|
|
|
782
|
|
|
|
819
|
|
|
|
255
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accruing loans
|
|
$
|
2,122
|
|
|
$
|
4,009
|
|
|
$
|
540
|
|
|
$
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans
|
|
|
5
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Accruing TDR loan activity for the three and nine months ended September 30, 2011 is shown in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
and
|
|
|
SBA
|
|
|
Owner
|
|
|
Owner
|
|
|
|
|
In thousands
|
|
Industrial
|
|
|
Loans
|
|
|
Occupied
|
|
|
Occupied
|
|
|
Total
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR loans at June 30, 2011
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
1,494
|
|
|
$
|
1,753
|
|
|
$
|
3,292
|
|
New TDR loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
1,494
|
|
|
$
|
1,742
|
|
|
$
|
3,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TDR loans at December 31,
2010
|
|
$
|
154
|
|
|
$
|
|
|
|
$
|
2,051
|
|
|
$
|
1,780
|
|
|
$
|
3,985
|
|
New TDR loans
|
|
|
45
|
|
|
|
|
|
|
|
1,494
|
|
|
|
|
|
|
|
1,539
|
|
Principal payments received
|
|
|
|
|
|
|
|
|
|
|
(2,051
|
)
|
|
|
(38
|
)
|
|
|
(2,089
|
)
|
Loans moved to non-accrual*
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
1,494
|
|
|
$
|
1,742
|
|
|
$
|
3,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Accrued income reversed upon move to non-accrual
|
At September 30, 2011, there were $3.8 million of performing loans considered potential
problem loans, defined as loans which are not included in the 90 day past due, not reported as
troubled debt restructures or as nonaccrual loans, but for which known information about possible
credit problems causes the Company to be uncertain as to the ability of the borrowers to comply
with the present loan repayment terms which may in the future result in disclosure in the past due,
nonaccrual or restructured loans. The Company closely monitors the financial status of these
borrowers.
24
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. Interest may accrue
on TDRs if the borrowers are consistently in compliance with the modified loan terms.
The following table shows the amounts of non-performing assets on the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31:
|
|
In thousands
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
$
|
758
|
|
|
$
|
963
|
|
|
$
|
2,280
|
|
|
$
|
1,676
|
|
|
$
|
868
|
|
SBA
|
|
|
106
|
|
|
|
388
|
|
|
|
454
|
|
|
|
542
|
|
|
|
257
|
|
Real estate owner occupied
|
|
|
2,187
|
|
|
|
3,956
|
|
|
|
|
|
|
|
3,601
|
|
|
|
|
|
Real estate non owner occupied
|
|
|
1,939
|
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual loans past due 90 days and over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
4,990
|
|
|
|
7,283
|
|
|
|
2,734
|
|
|
|
5,819
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
2,637
|
|
|
|
3,324
|
|
|
|
2,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
7,627
|
|
|
$
|
10,607
|
|
|
$
|
5,196
|
|
|
$
|
5,819
|
|
|
$
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing Troubled Debt Restructured loans
|
|
$
|
3,281
|
|
|
$
|
3,985
|
|
|
$
|
1,263
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses/total
non-performing loans
|
|
|
60.9
|
%
|
|
|
43.6
|
%
|
|
|
87.1
|
%
|
|
|
32.0
|
%
|
|
|
148.0
|
%
|
Non-performing loans to total loans
|
|
|
2.76
|
%
|
|
|
3.94
|
%
|
|
|
1.47
|
%
|
|
|
3.80
|
%
|
|
|
0.89
|
%
|
Non-performing assets to total assets
|
|
|
3.72
|
%
|
|
|
5.22
|
%
|
|
|
2.59
|
%
|
|
|
3.49
|
%
|
|
|
0.76
|
%
|
The payment status of loans receivable at September 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Owner
|
|
|
Non Owner
|
|
In thousands
|
|
Total
|
|
|
Industrial
|
|
|
SBA
|
|
|
Occupied
|
|
|
Occupied
|
|
Current accruing loans
|
|
$
|
173,303
|
|
|
$
|
42,469
|
|
|
$
|
7,488
|
|
|
$
|
75,923
|
|
|
$
|
47,423
|
|
Current non-accruing loans
|
|
|
778
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
524
|
|
Past due loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 89 days past due
|
|
|
2,536
|
|
|
|
481
|
|
|
|
237
|
|
|
|
1,620
|
|
|
|
198
|
|
90 days plus past due and accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans, non current
|
|
|
4,212
|
|
|
|
504
|
|
|
|
106
|
|
|
|
2,187
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total past due loans
|
|
|
6,748
|
|
|
|
985
|
|
|
|
343
|
|
|
|
3,807
|
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans at the end of the period
|
|
$
|
180,829
|
|
|
$
|
43,708
|
|
|
$
|
7,831
|
|
|
$
|
79,730
|
|
|
$
|
49,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Above amounts exclude deferred fees
The Company applies risk ratings to the loans based upon rating criteria consistent with
regulatory definitions. The risk ratings are adjusted, as necessary, if loans become delinquent,
if significant adverse information is discovered regarding the underlying credit and the normal
periodic reviews of the underlying credits indicate that a change in risk rating is appropriate. A
summary of the risk rating of loans receivable at September 30, 2011 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Owner
|
|
|
Non Owner
|
|
In thousands
|
|
Total
|
|
|
Industrial
|
|
|
SBA
|
|
|
Occupied
|
|
|
Occupied
|
|
Risk rated pass
|
|
$
|
170,707
|
|
|
$
|
42,724
|
|
|
$
|
7,684
|
|
|
$
|
73,786
|
|
|
$
|
46,513
|
|
Risk rated special mention (loan
weaknesses noted which could lead to
loan loss)
|
|
|
2,859
|
|
|
|
144
|
|
|
|
41
|
|
|
|
1,603
|
|
|
|
1,071
|
|
Risk rated- substandard or doubtful
(loans with significant weaknesses that
could, or has, result in loan losses)
|
|
|
7,263
|
|
|
|
840
|
|
|
|
106
|
|
|
|
4,341
|
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
180,829
|
|
|
$
|
43,708
|
|
|
$
|
7,831
|
|
|
$
|
79,730
|
|
|
$
|
49,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Above amounts exclude deferred fees
Real estate acquired through or in the process of foreclosure is recorded at fair value less
estimated disposal costs. The Company periodically evaluates the recoverability of the carrying
value of the real estate acquired through foreclosure using current estimates of fair value when it
has reason to believe that real estate values have declined for the particular type and location of
the real estate owned. In the event of a subsequent decline, an allowance would be provided to
reduce real estate acquired through foreclosure to fair value less estimated disposal cost.
Other Real Estate owned (ORE) activity for the nine months ended September 30, 2011 is summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
In thousands
|
|
Total
|
|
|
Property
|
|
|
Property
|
|
Balance December 31, 2010
|
|
$
|
3,324
|
|
|
$
|
2,309
|
|
|
$
|
1,015
|
|
New ORE properties and improvements
|
|
|
1,077
|
|
|
|
730
|
|
|
|
347
|
|
Valuation reductions
|
|
|
(125
|
)
|
|
|
(85
|
)
|
|
|
(40
|
)
|
Sales
|
|
|
(1,639
|
)
|
|
|
(490
|
)
|
|
|
(1,149
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
2,637
|
|
|
$
|
2,464
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
Number of properties
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Investment Portfolio
.
At September 30, 2011, December 31, 2010 and September 30, 2010, the
Company had no investments in securities other than investments in Federal Reserve Bank stock as
required by regulation and stock in two bankers banks. The Company is maintaining its liquid
assets in its account at the Federal Reserve and fully FDIC insured certificates of deposits in
other financial institutions for safety and liquidity purposes. The Company will make additional
investments when interest rates have increased and the Company has sufficient excess liquidity. The
following table provides information regarding the composition of the Companys investment
securities portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Stocks
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
In thousands
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Investments in
stocks, at cost;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Stock
|
|
$
|
465
|
|
|
|
88.24
|
%
|
|
$
|
465
|
|
|
|
88.24
|
%
|
Corporate equities
|
|
|
62
|
|
|
|
11.76
|
%
|
|
|
62
|
|
|
|
11.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stocks
|
|
$
|
527
|
|
|
|
100.00
|
%
|
|
$
|
527
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These stock holdings are recorded at cost as they are not readily marketable.
Deposits and Liquidity.
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 including the Federal Reserve. The levels of such assets are dependent on
the Banks lending, investment and operating activities at any given time. The variations in levels
of liquid assets are influenced by deposit flows and loan demand, both current and anticipated.
The Companys deposits consist 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. The Company generally targets larger deposit relationships by offering competitive
interest rates on certificates of deposit of $75 thousand or more in our local markets. Deposits
from the local market areas are supplemented with out-of-area deposits comprised of funds obtained
through the use of deposit listing services (national market certificates of deposit), deposits
obtained through the use of brokers and through the Certificates of Deposit Account Registry
Service (CDARS) program. As a result, a substantial portion of our deposits, 19.6% at September 30,
2011 and 24.5% at December 31, 2010 and 28.4% at September 30, 2010, are comprised of certificate
of deposit accounts of $100 thousand or more. Total certificates of deposit represent 64.9% of
deposits at September 30, 2011 and 68.5% of deposits at December 31, 2010 and 79.7% at September
30, 2010.
26
The Companys reliance on certificates of deposit, including the use of larger denomination
certificates of deposit and brokered deposits, facilitates funding the growth in the loan
portfolio. The Company has relied on certificates of deposit as a primary funding source and has
used larger 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 and the insured deposit limit of $250 thousand. All of the
brokered deposits and national market deposits are fully insured by the FDIC. This insurance and
the strong capital position of the Company reduce the likelihood of large deposit withdrawals for
reasons other than interest rate competition. Interest rates on these deposits can be, but are not
always, higher than other deposits products. There is, however, a risk that some deposits would be
lost if rates were to increase and the Company elected not to remain competitive with its own
deposit rates. Under those conditions, the Company 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 loans.
At September 30, 2011, deposits totaled $180.3 million as compared to $180.1 million at December
31, 2010. While the total of deposits remained level, the composition of the deposits changed as
noninterest bearing deposits increased by $4.3 million, savings deposits increased $4.1 million,
certificates of deposit decreased by $6.3 million, Money Market and Now accounts decreased by $1.9
million. There were $35.0 million and $33.1 million of brokered certificates of deposit at
September 30, 2011 and December 31, 2010, respectively. Included in these brokered deposits at
September 30, 2011 are $7.2 million of certificates of deposits received in exchange for the
placement of the Companys customers deposit funds with other financial institutions under the
CDARS program. Included in deposits are deposits of officers and directors (and their affiliated
entities) of $11.8 million at September 30, 2011.
As a result of the enactment of the Dodd-Frank Act, banks are no longer prohibited from paying
interest on demand deposit accounts, including those from businesses, effective in July 2011. If
the Company starts to pay interest on these accounts, its net interest margin would decline. It is
not clear what affect the elimination of this prohibition will have on the Banks interest expense,
allocation of deposits, deposit pricing, loan pricing, net interest margin, ability to compete,
ability to establish and maintain customer relationships, or profitability. The Company has
decided not to offer interest on demand deposit accounts at this time.
Deposits are summarized below as of dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
%
|
|
|
December 31:
|
|
In thousands
|
|
2011
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Non-interest bearing deposits
|
|
$
|
28,059
|
|
|
|
18.1
|
%
|
|
$
|
23,760
|
|
|
$
|
21,024
|
|
|
$
|
23,599
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts
|
|
|
432
|
|
|
|
(65.2
|
%)
|
|
|
1,279
|
|
|
$
|
309
|
|
|
$
|
1,247
|
|
Money Market accounts
|
|
|
7,729
|
|
|
|
(12.4
|
%)
|
|
|
8,824
|
|
|
|
7,841
|
|
|
|
13,049
|
|
Savings accounts
|
|
|
27,014
|
|
|
|
17.6
|
%
|
|
|
22,962
|
|
|
|
10,379
|
|
|
|
148
|
|
Certificates of deposit accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than $100,000
|
|
|
81,630
|
|
|
|
3.1
|
%
|
|
|
79,209
|
|
|
|
71,593
|
|
|
|
37,539
|
|
$100,000 or more
|
|
|
35,403
|
|
|
|
(19.7
|
%)
|
|
|
44,076
|
|
|
|
67,499
|
|
|
|
69,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing
deposits
|
|
|
152,208
|
|
|
|
(2.6
|
%)
|
|
|
156,350
|
|
|
|
157,621
|
|
|
|
121,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
180,267
|
|
|
|
0.1
|
%
|
|
$
|
180,110
|
|
|
$
|
178,645
|
|
|
$
|
145,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
The table below shows the maturities of certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
CDs of $100,000
|
|
|
|
|
|
|
CDs of $100,000
|
|
|
|
|
In thousands
|
|
or more
|
|
|
All CDs
|
|
|
or more
|
|
|
All CDs
|
|
Three months or less
|
|
$
|
7,507
|
|
|
$
|
23,138
|
|
|
$
|
9,228
|
|
|
$
|
21,682
|
|
Over three months to six months
|
|
|
6,254
|
|
|
|
20,051
|
|
|
|
15,492
|
|
|
|
28,124
|
|
Over six months to twelve months
|
|
|
7,651
|
|
|
|
26,970
|
|
|
|
7,486
|
|
|
|
29,325
|
|
Over twelve months through three years
|
|
|
13,610
|
|
|
|
41,785
|
|
|
|
9,058
|
|
|
|
36,497
|
|
Over three years
|
|
|
381
|
|
|
|
5,089
|
|
|
|
2,812
|
|
|
|
7,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,403
|
|
|
$
|
117,033
|
|
|
$
|
44,076
|
|
|
$
|
123,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below shows the source of the Companys certificate of deposits as well as the amount
equal to or greater than $100,000 at September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDs with
|
|
|
CDs with balances
|
|
|
|
|
|
|
balances of less
|
|
|
of $100,000 or
|
|
|
|
|
In thousands
|
|
than $100,000
|
|
|
greater
|
|
|
Total
|
|
Source
|
|
|
|
|
|
|
|
|
|
|
|
|
Local markets
|
|
$
|
5,446
|
|
|
$
|
22,419
|
|
|
$
|
27,865
|
|
National market
|
|
|
54,192
|
|
|
|
|
|
|
|
54,192
|
|
CDARS program:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers funds
|
|
|
|
|
|
|
7,153
|
|
|
|
7,153
|
|
Proprietary funding
|
|
|
4,192
|
|
|
|
5,831
|
|
|
|
10,023
|
|
Other brokered funds
|
|
|
17,800
|
|
|
|
|
|
|
|
17,800
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,630
|
|
|
$
|
35,403
|
|
|
$
|
117,033
|
|
|
|
|
|
|
|
|
|
|
|
CDARS program funding is reflected in the above schedule as Customers funds and Proprietary
funding. The Company, acting as agent for its customers, places customer funds in other financial
institutions under the program up to the FDIC insurance limit of $250,000. Under the CDARS program,
other financial institutions place deposits in the Company for the same amount of the customers
funds. Customers funds are comprised of deposits from these customer transactions. The Company
can obtain funding under the CDARS program by bidding for deposit funds without customers
involvement. This Proprietary funding results in traditional brokered deposits.
The Companys short term liquid assets of cash and cash equivalents were $20.2 million, or 9.9% of
assets, and $13.7 million, or 6.8% of assets at September 30, 2011 and December 31, 2010,
respectively. Continued growth in deposits will be required to fund any loan growth. Accordingly,
the Company intends to maintain a competitive posture in its deposit interest rate offerings. While
adequate liquidity is imperative, excess liquidity has the effect of a lower interest margin, as
funds not invested in loans are placed in short-term investments that earn significantly lower
yields.
The Company has available unsecured credit facilities for short-term liquidity needs from financial
institutions of $8.5 million at September 30, 2011 and December 31, 2010. There were no borrowings
outstanding under these credit arrangements at during 2011 or 2010.
The Company believes its levels of liquidity are adequate to conduct the business of the Company
and Bank.
28
OFF-BALANCE SHEET ARRANGEMENTS
Standby letters of credit are conditional commitments issued by the Company 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 Company
holds collateral supporting those commitments for which collateral is deemed necessary. The Company
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 Company. Outstanding letters of credit totaled $1.3 million at
September 30, 2011 and December 31, 2010.
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 September 30,
2011 totaled $40.9 million and $41.6 million at December 31, 2010. 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.
With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on the Companys
financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources, that is material to investors.
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 September 30, 2011, the Company and the
Bank were in full compliance with these guidelines, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Ratios
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
To be Adequately
|
|
|
To be Well
|
|
|
|
2011
|
|
|
2010
|
|
|
Capitalized
|
|
|
Capitalized
|
|
Total capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
14.1
|
%
|
|
|
13.1
|
%
|
|
|
8.0
|
%
|
|
|
N/A
|
|
Bank
|
|
|
13.4
|
%
|
|
|
12.3
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
Tier I:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
12.8
|
%
|
|
|
11.8
|
%
|
|
|
4.0
|
%
|
|
|
N/A
|
|
Bank
|
|
|
12.1
|
%
|
|
|
11.1
|
%
|
|
|
4.0
|
%
|
|
|
6.0
|
%
|
Leverage Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
11.5
|
%
|
|
|
11.0
|
%
|
|
|
4.0
|
%
|
|
|
N/A
|
|
Bank
|
|
|
10.8
|
%
|
|
|
10.3
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity,
earnings performance, and changing competitive conditions and economic forces. The adequacy of the
Companys capital is reviewed by management on an ongoing basis. Management seeks to maintain a
capital structure that will assure an adequate level of capital to support anticipated asset growth
and to absorb potential losses. The ability of the Company to grow is dependent on the availability
of capital with which to meet regulatory capital requirements, discussed below. To the extent the
Company is successful it may need to acquire additional capital through the sale of additional
common stock, other qualifying equity instruments, such as preferred stock (which the Company is
not currently authorized to issue), or subordinated debt. There can be no assurance that
additional capital will be available to the Company on a timely basis or on attractive terms.
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 the Company may be required to maintain higher levels of
capital than it would otherwise be expected to maintain as a result of its levels of construction,
development and commercial real estate loans, which may require us to obtain additional capital.
Significant further growth of the Company may be limited because the current level of capital will
not support rapid short term growth while maintaining regulatory capital expectations. Loan
portfolio growth will need to be funded by increases in deposits as the Company has limited amounts
of on-balance sheet assets deployable into loans. Growth will depend upon Company earnings and/or
the raising of additional capital.
29
|
|
|
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 September 30, 2011 that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
|
|
|
Item 1
|
|
Legal Proceedings
|
In the normal course of its business, the Company is involved in litigation arising from banking,
financial, and other activities it conducts. Management, after consultation with legal counsel,
does not anticipate that the ultimate liability, if any, arising out of these matters will have a
material effect on the Companys financial condition, operating results or liquidity.
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
|
|
[Removed and Reserved]
|
|
|
|
Item 5
|
|
Other Information
|
(a)
Information Required to be Reported on
Form 8-K
.
None
(b)
Changes in Security Holder Nomination Procedures.
None
30
|
|
|
|
|
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)
|
|
First Amendment to Employment Agreement between Lamont Thomas and the Company (4)
|
|
10
|
(d)
|
|
Employment Agreement between Michael T. Storm and CommerceFirst Bank (5)
|
|
10
|
(e)
|
|
Extension of Employment Agreement between Richard J. Morgan and the Company (6)
|
|
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 Chief Financial Officer
|
|
32
|
(a)
|
|
Certification of Richard J. Morgan, President and Chief Executive Officer
|
|
32
|
(b)
|
|
Certification of Michael T. Storm, Executive Vice President and Chief Financial Officer
|
|
101
|
|
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statement
of Financial Position at September 30, 2011 and December 31, 2010 (ii) the Consolidated
Statement of Earnings for the nine and three month periods ended September 30, 2011 and 2010,
(iii) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2011
and 2010 and (iv) the Notes to the Consolidated Financial Statements.
|
|
|
|
(1)
|
|
Incorporated by reference to exhibit of the same number filed with the Companys
Registration Statement on Form SB-2, as amended, (File No. 333-91817)
|
|
(2)
|
|
Incorporated by reference to exhibit 10(b) to the Companys to Registration Statement on Form
SB-2, as amended) (File No. 333-91817)
|
|
(3)
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Incorporated by reference to exhibits 10(c) to the Companys to Registration Statement on
Form SB-2, as amended) (File No. 333-91817)
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(4)
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Incorporated by reference to Exhibit 10(d) to the Companys Quarterly Report on Form 10-QSB
for the period ended March 31, 2007.
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(5)
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Incorporated by reference to Exhibit 10(e) to the Companys Quarterly Report on Form 10-QSB
for the period ended September 30, 2007.
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(6)
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Incorporated by reference to Exhibit 99 to the Companys Current Report on Form 8-K filed on
January 30, 2009.
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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.
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COMMERCEFIRST BANCORP, INC.
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Date: November 1, 2011
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By:
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/s/ Richard J. Morgan
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Richard J. Morgan, President and Chief Executive Officer
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Date: November 1, 2011
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By:
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/s/ Michael T. Storm
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Michael T. Storm, Executive Vice President and Chief Financial Officer
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31
Commercefirst Bancorp (NASDAQ:CMFB)
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