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EX-23 - EXHIBIT 23 - COMMERCEFIRST BANCORP INC | c13669exv23.htm |
EX-13 - EXHIBIT 13 - COMMERCEFIRST BANCORP INC | c13669exv13.htm |
EX-32.B - EXHIBIT 32(B) - COMMERCEFIRST BANCORP INC | c13669exv32wb.htm |
EX-31.B - EXHIBIT 31(B) - COMMERCEFIRST BANCORP INC | c13669exv31wb.htm |
EX-31.A - EXHIBIT 31(A) - COMMERCEFIRST BANCORP INC | c13669exv31wa.htm |
EX-32.A - EXHIBIT 32(A) - COMMERCEFIRST BANCORP INC | c13669exv32wa.htm |
Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
þ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File No.: 000-51104
CommerceFirst Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 52-2180744 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1804
West Street, Annapolis MD 21401
(Address of principal executive offices) (Zip Code)
(Address of principal executive offices) (Zip Code)
Registrants Telephone Number: 410-280-6695
Securities registered pursuant to Section 12(b) of the Act
Title of class | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act
Yes o No þ
Indicate by check mark if the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports; and (2) has been subject to
such filing requirements for the past 90 days. Yes 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 o No o
Indicate by check mark if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§225.405 of this chapter) is not contained herein and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K o
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The aggregate market value of the outstanding Common Stock held by non-affiliates as of June 30,
2010 was approximately $15,201,576.
As of March 3, 2011, the number of outstanding shares of the Common Stock, $0.01 par value, of
CommerceFirst Bancorp, Inc. was 1,820,548.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are hereby incorporated by reference in this Form 10-K: the
Companys Annual Report to Shareholders for the Year Ended December 31, 2010 Part II; the
Companys Proxy Statement for the Annual Meeting of Shareholders to be held on May 4, 2011 Part
III.
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1. | Business. |
CommerceFirst Bancorp, Inc. (the Company) was incorporated under the laws of the State of
Maryland on July 9, 1999, to serve as the bank holding company for a newly formed Maryland
chartered commercial bank. The Company was formed by a group of local businessmen and
professionals with significant prior experience in community banking in the Companys market area,
together with an experienced community bank senior management team. The Companys sole subsidiary,
CommerceFirst Bank (the Bank), a Maryland chartered commercial bank and member of the Federal
Reserve System, commenced banking operations on June 29, 2000.
The Company operates from its main headquarters in Annapolis, Maryland, and from branch
offices in Lanham, Maryland opened in September 2004, Glen Burnie, Maryland opened in June 2006,
Columbia, Maryland opened in August 2006, and Severna Park, Maryland opened in June 2007, Maryland.
The Company does not anticipate opening any additional branches during 2011, but will consider
opening more branches if an advantageous opportunity presents itself.
Further asset and loan growth by the Company may be limited by its levels of regulatory
capital. Increases in the loan portfolio 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 providing sufficient capital to support growth and/or the raising of additional
capital.
The Company operates as a community bank alternative to the super-regional financial
institutions that dominate its primary market area. The cornerstone of the Companys philosophy is
to provide superior, individualized service to its customers. The Company focuses on relationship
banking, providing each customer with a number of services, familiarizing itself with, and
addressing itself to, customer needs in a proactive, personalized fashion.
Description of Services. The Company offers full commercial banking services to its business
and professional clients. The Company emphasizes providing commercial banking services to sole
proprietorships, small and medium-sized businesses, partnerships, corporations, and non-profit
organizations and associations in and near the Companys primary service areas. Limited retail
banking services are offered to accommodate the personal needs of commercial customers as well as
members of the communities the Company serves.
The Companys loan portfolio consists of business and real estate loans. The business loans
generally have variable rates and/or short maturities where the cash flow of the borrower is the
principal source of debt service, with a secondary emphasis on collateral. Real estate loans are
made generally on commercial property as well as 1-4 family residential properties held as
investments, and are structured with fixed rates that adjust in three to five years, generally with
maturities of five to ten years, or with variable rates tied to various indices and adjusting as
the indices change. The Companys portfolio contains a small amount of acquisition and construction
loans (approximately $1 million), one of which in the amount of $771 thousand is on nonaccrual.
In general, the Company offers the following credit services:
1) | Commercial loans for business purposes including working capital, equipment
purchases, real estate, lines of credit, and government contract financing. Asset
based lending and accounts receivable financing are available on a selective basis. |
||
2) | Real estate loans for business and investment purposes. |
||
3) | Commercial lines of credit. |
||
4) | Merchant credit card services are offered through an outside vendor. |
The Company has developed an expertise in making loans under the guarantee programs of the
Small Business Administration (SBA). The Company currently expects that it will sell the guaranteed
portion of SBA loans to secondary market investors as soon as possible after funding, while
retaining the uninsured portion. The sale of the guaranteed
portion of such loans is expected to result in gains, and the Company expects to receive fees for
servicing the loans. SBA guaranteed loans are subjected to the same underwriting standards applied
to other loans.
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Table of Contents
The Companys lending activities carry the risk that the borrowers will be unable to
perform on their obligations. Interest rate policies of the Board of Governors of the Federal
Reserve System (the Federal Reserve Board or the Federal Reserve) as well as national and local
economic conditions can have a significant impact on the Company and the Companys results of
operations. To the extent that economic conditions deteriorate, business and individual borrowers
may be less able to meet their obligations to the Company in full in a timely manner, resulting in
decreased earnings or losses to the Company. To the extent the Company makes fixed rate loans,
general increases in interest rates will tend to reduce the Companys spread as the interest rates
the Company must pay for deposits increase while interest income is flat. Economic conditions and
interest rates may also adversely affect the value of property pledged as security for loans.
Deposit services include business and personal checking accounts, NOW accounts, premium
savings accounts, and a tiered Money Market Account basing the payment of interest on balances on
deposit. Certificates of deposits are offered with various maturities. The Company supplements
its local deposits with out-of-area deposits comprised of funds obtained through the use of deposit
listing services, deposits obtained through the use of brokers and through the Certificates of
Deposit Account Registry Service program. The acceptance of brokered deposits is utilized when
deemed appropriate by management in order to have available funding sources for loans and
investments especially during times when competing local deposit institutions drive up their rate
offering well beyond rates available to the Company in national markets.
Other services for business accounts include remote deposit and internet Banking services.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), enacted
in July 2010, eliminated the historic prohibition on paying interest on checking and demand deposit
accounts maintained by businesses. With this change, it is likely that the Company may be
required to pay interest on some portion of its non-interest bearing deposits in order to compete
against other banks. As a significant portion of its deposits are non-interest bearing demand
deposits established by businesses, payment of interest on these deposits could have a significant
negative impact on its net income, net interest income, interest margin, return on assets and
equity, and other indices of financial performance. The Company expects that other banks would be
faced with similar negative impacts. The Company also expects that the primary focus of
competition would continue to be based on other factors, such as quality of service.
Source of Business. Management believes that the market segments which the Company targets,
small to medium sized businesses and the professional base of the Companys market area, demand the
convenience and personal service that a smaller, independent financial institution such as the
Company can offer. It is these themes of convenience and personal service that form the basis for
the Companys business development strategies. The Company provides services from its headquarters
and main branch offices located in Annapolis, Maryland, and from its branch offices in Lanham, Glen
Burnie, Columbia, and Severna Park, Maryland. It believes these locations meet the needs of the
Companys existing and potential customers, and provide prospects for additional growth and
expansion.
The Company has capitalized upon the extensive business and personal contacts and
relationships of its Directors and Executive Officers to establish the Companys initial customer
base. To introduce new customers to the Company, reliance is placed on aggressive
officer-originated calling programs and director, customer and shareholder referrals.
The risk of nonpayment (or deferred payment) of loans is inherent in commercial banking. The
Companys marketing focus on small to medium sized businesses may result in the assumption by the
Company of certain lending risks that are different from those attendant to loans to larger
companies. Management of the Company carefully evaluates all loan applications and attempts to
minimize its credit risk exposure by use of thorough loan application, approval and monitoring
procedures; however, there can be no assurance that such procedures can significantly reduce such
lending risks.
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Economic Conditions and Concentrations. The Company has a substantial amount of loans secured
by real estate in the Annapolis, Maryland/suburban Washington D.C. metropolitan areas as
collateral, and substantially all of our loans are to borrowers in that area and contiguous markets
in Maryland. At December 31, 2010, 71.7% of the Companys loans were commercial real estate loans
(including loans to investors in residential property for rental purposes primarily secured by 1-4
family properties). An additional 28.3% of loans were commercial and industrial loans which are not
primarily secured by real estate. These concentrations expose the Company to the risk that adverse
developments in the real estate market, or in the general economic conditions in its market area,
could increase the levels of nonperforming loans and charge-offs, and reduce loan demand and
deposit growth. In that event, the Company would likely experience lower earnings or losses.
Additionally, if economic conditions in the area deteriorate, or there is significant volatility or
weakness in the economy or any significant sector of the areas economy, the Companys ability to
develop our business relationships may be diminished, the quality and collectability of the loans
may be adversely affected, the value of collateral may decline and loan demand may be reduced.
The financial industry experienced significant volatility and stress as economic conditions
worsened, unemployment increased and asset values declined during 2009 and 2010. While the Company
did not have direct exposure to the upheaval in the residential mortgage loan market and did not
invest in mortgage back securities or the preferred stock of Freddie Mac and Fannie Mae, the
slowing economy, declines in housing construction and the related impact on contractors and other
small and medium sized businesses, has had an adverse impact on the Companys business. This impact
included increased levels of nonperforming assets, loan charge-offs and increased loan loss
provisions. While the Company believes that it has taken adequate reserves for the problem assets
in its loan portfolio at December 31, 2010, there can be no assurance that the Company will not be
required to take additional charge-offs or make additional provisions for nonperforming loans, or
that currently performing loans will continue to perform. Additionally, there can be no assurance
that the steps taken to stimulate the economy and stabilize the financial system will prove
successful, or that they will improve the financial condition of the Companys customers or the
Company.
Employees
At December 31, 2010 the Company had 39 full time equivalent employees, two of whom are
executive officers. The Chairman of the Board, an attorney in private practice, devotes
considerable time each month to the advancement of the Company, principally in business development
activities. The Company (as distinguished from the Bank) does not have any employees or officers
who are not employees or officers of the Bank. None of the Companys employees are represented by
any collective bargaining group, and the Company believes that its employee relations are good.
The Company provides a benefit program that includes health and dental insurance, a 401(k) plan,
and life and long-term disability insurance for substantially all full time employees.
Market Area and Competition
Location and Market Area. The main office and the headquarters are located at 1804 West
Street, Annapolis, Maryland 21401. The second office is located at 4451 Parliament Place, Lanham,
Maryland 20706, and opened in the third quarter of 2004. The third office is located at 910
Cromwell Park Drive, Glen Burnie, Maryland 21061 and opened late in the second quarter of 2006. The
fourth office is located at 6230 Old Dobbin Lane, Columbia, Maryland and opened in the third
quarter of 2006. The Company opened its fifth branch office located at 487 Ritchie
Highway, Severna Park, Maryland, in June 2007.
The Company is located in one of the most dynamic regions in the United States. The Federal
Government has a major direct and indirect influence on the economies, infrastructure and land use
management of Washington, D.C. and the Maryland and Virginia counties surrounding Washington.
According to the State of Marylands Department of Business and Economic Development (the
Department), the region is the nations 4th largest market with a population of 6.9
million and a workforce of 3.4 million and is the home to three major airports, the nations
capital and a highly educated workforce. The regional economy is usually strong and diverse, boasts
consistently higher job growth and lower unemployment rates as compared to other regions and is
increasingly service sector and small business oriented. Information technology, the medical
industry and tourism are all major growth industries for the region. These industries are
characterized by small niche oriented enterprises that thrive on
their ability to tap the highly educated workforce and abundant access to the regions substantial
communications infrastructure. Current economic conditions have negatively impacted business
activities in the region.
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Table of Contents
The Companys market strategy is to grow within the Central Maryland corridor, which consists
of Anne Arundel, Prince Georges, Montgomery and Howard counties, areas which it believes have
significant growth opportunities. The Company does not have a branch in Montgomery county at this
time and does not have near term plans to open a branch in the county.
Anne Arundel County. The county is located in central Maryland on the western shore of the
Chesapeake Bay and lies wholly in the Atlantic Coastal Plain, east of the Appalachian mountain
chain. The County is centered within the Baltimore-Washington corridor with its County Seat, The
City of Annapolis, just 24 miles from Baltimore City and 33 miles from Washington, D.C. The land
area is 416 square miles or 266,078 acres, making Anne Arundel the tenth in size among Maryland
Counties. The county evolved from a bedroom community to Baltimore to be more heavily influenced by
Washington growth factors. The county has developed its own unique and diverse economy due to
growth opportunities presented by Baltimore/Washington International (BWI) Airport, which has long
been considered one of the State of Marylands prime economic engines. Unemployment rates in Anne
Arundel County have been consistently lower than those in Maryland and the United States. The
unemployment rate in the county as of June 2010 was 6.9% (6.7% as of June 2009) as compared to the
Maryland rate of 8.2% and the national unemployment rate of 9.6% as of the same date. Anne Arundel
Countys economy has diversified in the last 25 years, trending toward more private sector
employment but government employment still dominates because Anne Arundel County contains the State
Capital of Maryland, the United States Naval Academy, the National Security Agency (NSA)
headquarters and numerous other Federal, State, County and City of Annapolis jobs. The largest
private sector employer in the county is Northrop Grumman. Outside the government sector, the local
economy is dominated by small and mid-sized service sector enterprises providing internet based
services; high-technology telecommunications; product distribution, a result of proximity of goods
arriving to the Port of Baltimore and BWI Airport; and technical support services.
In 2005, Congress authorized the Department of Defense to reorganize its base structure- a
process commonly known as BRAC or Base Realignment and Closure. Marylands Ft. Meade was chosen to
absorb military workers from Northern Virginia in a process that will continue through 2013.
Maryland, specifically Anne Arundel County, is expected to gain more jobs from military base
shuffling than any other state in the nation. There are 80 tenant organizations in Ft. Meade,
including NSA, Defense Information Schools, the EPA, as well as the Department of the Defense
intelligence training facilities. Employees at Ft. Meade number approximately 36,000, which is
expected to grow to 42,000 when BRAC consolidation is completed
Once home to large Maryland-based regional banks, financial services are now primarily
provided by larger super-regional institutions such as Bank of America, SunTrust, Wachovia (now
Wells Fargo), M & T Bank, BB&T and Capital One, all of which expanded into this highly attractive
banking market over the past decade by acquisition.
Prince Georges County. In Prince Georges County, 15,300 businesses employ over 230,000
workers; an estimated 475 of these businesses have 100 or more employees. Almost 900 technology
companies employ 33,600 highly-trained workers the second highest number of high-tech
companies, as well as defense and aerospace companies, of any jurisdiction in the state. Major
employers include the Computer Sciences Corporation, the University of Maryland at College Park,
the Beltsville Agricultural Research Center, Safeway, SGT, and Verizon. Additionally, Andrews Air
Force Base in Camp Springs is a large military facility that provides transportation for the
President and other high-ranking government officials and foreign dignitaries. New technology
companies are nurtured in several business incubators in the county.
Relocating and expanding businesses have been increasingly attracted to Prince Georges County
due to its competitively priced land and buildings, an integrated transportation system, proximity
to Washington, D.C., and attractive business incentives. The county closely mirrors Anne Arundel
County with respect to small business enterprises, with 97% of the over 15 thousand employers
having fewer than 100 workers, according to published data. Government is a significant economic
influence, with 80 thousand Federal, state and county employees.
Similar to Anne Arundel County, large super-regional banking institutions have obtained
additional market share in the suburban Washington market from the acquisition of many of the
community banks that once existed in this area. Prince Georges County has a population of over 800
thousand.
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Howard County. Expansion into neighboring Howard County is a natural extension of the
Companys strategic growth plan. Howard County is situated in the heart of the corridor between
Washington, D.C. and Baltimore. Howard Countys population is projected to grow to 327,000 by 2035,
according to the Howard County Department of Planning and Zoning. Currently the countys citizens
are among the wealthiest in Maryland with a median 2007 household income of $101,672. Howard
Countys geographic location has resulted in the substantial growth of a wide variety of
industries, including high-tech and life science businesses, in addition to transportation and
education related activities. Accessible to I-95 and I-70, the county is located within a 20-minute
drive of Baltimore/Washington International Airport and the Port of Baltimore, and serves as a
bedroom community for both Baltimore and Washington DC area employers. Additionally, Dulles
International and Washington National Airports are within an hours drive. Howard County has a
strong economic base of its own with over 7,000 Howard County businesses employing more than
122,000 people, including 725 high-tech businesses with a workforce of nearly 24,000 workers. Like
the other counties in which the Company operates, the population and workforce of Howard County are
highly educated, and income levels are favorably high.
Competition. Deregulation of financial institutions and holding company acquisitions of banks
across state lines has resulted in widespread, fundamental changes in the financial services
industry. This transformation, although occurring nationwide, is particularly intense in the
greater Baltimore/Washington, DC area. In Anne Arundel, Prince Georges and Howard Counties,
competition is exceptionally keen from large banking institutions headquartered outside of
Maryland. In addition, the Company competes with other community banks, savings and loan
associations, credit unions, mortgage companies, finance companies and others providing financial
services. Among the advantages that many of these institutions have over the Company are their
abilities to finance extensive advertising campaigns, maintain extensive branch networks and
technology investments, and to directly offer certain services, such as international banking and
trust services, which the Company does not directly offer. Further, the greater capitalization of
the larger institutions allows for substantially higher lending limits than the Company. Certain
of these competitors have other advantages, such as tax exemption in the case of credit unions, and
lesser regulation in the case of mortgage companies and finance companies. As a result of the
Dodd-Frank Act, almost unlimited interstate de novo branching is available to all state and
federally chartered banks. As a result, institutions which previously were ineligible to establish
de novo branches in Maryland may elect to do so.
Regulation
The following summaries of statutes and regulations affecting bank holding companies do not
purport to be complete discussions of all aspects of such statutes and regulations and are
qualified in their entirety by reference to the full text thereof.
The Company. The Company is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended, (the Act) and is subject to supervision by the Federal Reserve Board.
As a bank holding company, the Company is required to file with the Federal Reserve Board an annual
report and such other additional information as the Federal Reserve Board may require pursuant to
the Act. The Federal Reserve Board may also make examinations of the Company and each of its
subsidiaries.
The Act requires approval of the Federal Reserve Board for, among other things, the
acquisition by a proposed bank holding company of control of more than five percent (5%) of the
voting shares, or substantially all the assets, of any bank or the merger or consolidation by a
bank holding company with another bank holding company. The Act also generally permits the
acquisition by a bank holding company of control or substantially all the assets of any bank
located in a state other than the home state of the bank holding company, except where the bank has
not been in existence for the minimum period of time required by state law, but if the bank is at
least five years old, the Federal Reserve Board may approve the acquisition. A presumption of
control arises under the Change in Bank Control Act where a person controls 10% or more of a class
of the voting stock of a company or insured bank which is a reporting company under the Securities
Exchange Act of 1934, such a the Company.
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With certain limited exceptions, a bank holding company is prohibited from acquiring control
of any voting shares of any company which is not a bank or bank holding company and from engaging
directly or indirectly in any activity other than banking or managing or controlling banks or
furnishing services to or performing service for its authorized subsidiaries. A bank holding
company may, however, engage in or acquire an interest in, a company that engages in activities
which the Federal Reserve Board has determined by order or regulation to be so closely related to
banking or managing or controlling banks as to be properly incident thereto. In making such a
determination, the Federal Reserve Board is required to consider whether the performance of such
activities can reasonably be expected to produce benefits to the public, such as convenience,
increased competition or gains in efficiency, which outweigh possible adverse effects, such as
undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate between activities
commenced de novo and activities commenced by the acquisition, in whole or in part, of a going
concern. Some of the activities that the Federal Reserve Board has determined by regulation to be
closely related to banking include making or servicing loans, performing certain data processing
services, acting as a fiduciary or investment or financial advisor, and making investments in
corporations or projects designed primarily to promote community welfare.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the bank holding company or any of its
subsidiaries, or investments in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower. Further, a holding company and any
subsidiary bank are prohibited from engaging in certain tie-in arrangements in connection with the
extension of credit. A subsidiary bank may not extend credit, lease or sell property, or furnish
any services, or fix or vary the consideration for any of the foregoing on the condition that: (i)
the customer obtain or provide some additional credit, property or services from or to such bank
other than a loan, discount, deposit or trust service; (ii) the customer obtain or provide some
additional credit, property or service from or to the Company or any other subsidiary of the
Company; or (iii) the customer not obtain some other credit, property or service from competitors,
except for reasonable requirements to assure the soundness of credit extended.
The Gramm-Leach-Bliley Act of 1999 (the GLB Act) allows a bank holding company or other
company to certify status as a financial holding company, which allows such company to engage in
activities that are financial in nature, that are incidental to such activities, or are
complementary to such activities. The GLB Act enumerates certain activities that are deemed
financial in nature, such as underwriting insurance or acting as an insurance principal, agent or
broker, underwriting, dealing in or making markets in securities, and engaging in merchant banking
under certain restrictions. It also authorizes the Federal Reserve Board to determine by
regulation what other activities are financial in nature, or incidental or complementary thereto.
The GLB Act allows a wider array of companies to own banks, which could result in companies with
resources substantially in excess of the Companys entering into competition with the Company and
the Bank.
The GLB Act made substantial changes in the historic restrictions on non-bank activities of
bank holding companies, and allows affiliations between types of companies that were previously
prohibited. The GLB Act also allows banks to engage in a wider array of non-banking activities
through financial subsidiaries.
The Dodd-Frank Act contains various provisions designed to enhance the regulation of
depository institutions and prevent the recurrence of a financial crisis such as occurred in
2008-2009. Also included is the creation of a new federal agency to administer and enforce consumer
and fair lending laws, a function that is now performed by the depository institution regulators.
The full impact of the Dodd-Frank Act on the Companys business and operations will not be known
for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act
may have a material impact on the Companys operations, particularly through increased compliance
costs resulting from possible future consumer and fair lending regulations.
The Bank. The Bank, as a Maryland chartered commercial bank which is a member of the Federal
Reserve System (a state member bank) and whose accounts are insured by the Deposit Insurance Fund
of the Federal Deposit Insurance Corporation (the FDIC) up to the maximum legal limits of the
FDIC, is subject to regulation, supervision and regular examination by the Maryland Department of
Financial Institutions and the Federal Reserve Board. The regulations of these various agencies
govern most aspects of the Banks business, including required reserves against
deposits, loans, investments, mergers and acquisitions, borrowing, dividends and location and
number of branch offices. The laws and regulations governing the Bank generally have been
promulgated to protect depositors and the Deposit Insurance Fund, and not for the purpose of
protecting stockholders.
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Competition among commercial banks, savings and loan associations, and credit unions has
increased following enactment of legislation that greatly expanded the ability of banks and bank
holding companies to engage in interstate banking or acquisition activities. As a result of
federal and state legislation, banks in the Washington D.C./Maryland/Virginia area can, subject to
limited restrictions, acquire or merge with a bank in another of the jurisdictions, and can branch
de novo in any of the jurisdictions.
Banking is a business that depends on interest rate differentials. In general, the
differences between the interest paid by a bank on its deposits and its other borrowings and the
interest received by a bank on loans extended to its customers and securities held in its
investment portfolio constitute the major portion of the banks earnings. Thus, the earnings and
growth of the Bank will be subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve Board, which regulates the supply of money through various means
including open market dealings in United States government securities. The nature and timing of
changes in such policies and their impact on the Bank cannot be predicted.
Branching and Interstate Banking. The federal banking agencies are authorized to approve
interstate bank merger transactions without regard to whether such transaction is prohibited by the
law of any state, unless the home state of one of the banks has opted out of the interstate bank
merger provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
Riegle-Neal Act) by adopting a law after the date of enactment of the Riegle-Neal Act and prior
to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. Interstate acquisitions of branches are permitted only
if the law of the state in which the branch is located permits such acquisitions. Such interstate
bank mergers and branch acquisitions are also subject to the nationwide and statewide insured
deposit concentration limitations described in the Riegle-Neal Act. The District of Columbia,
Maryland and Virginia have each enacted laws which permit interstate acquisitions of banks and bank
branches. The Dodd-Frank Act authorizes national and state banks to establish de novo branches in
other states to the same extent as a bank chartered by that state would be permitted to branch.
Previously, banks could only establish branches in other states if the host state expressly
permitted out-of-state banks to establish branches in that state.
Although the District of Columbia, Maryland and Virginia had all enacted laws which permitted
banks in these jurisdictions to branch freely, the branching provisions of the Dodd-Frank Act could
result in banks from other states establishing de novo branches in the Banks market area.
Transaction with Affiliates. The Bank is subject to the provisions of Section 23A and 23B of
the Federal Reserve Act and Federal Reserve Regulation W of the Federal Reserve Bank which place
limits on the amount of loans or extensions of credit to affiliates (as defined in the Federal
Reserve Act), investments in or certain other transactions with affiliates and on the amount of
advances to third parties collateralized by the securities or obligations of affiliates. The law
and regulation limit the aggregate amount of transactions with any individual affiliate to ten
percent (10%) of the capital and surplus of the Bank and also limit the aggregate amount of
transactions with all affiliates to twenty percent (20%) of capital and surplus. Loans and certain
other extensions of credit to affiliates are required to be secured by collateral in an amount and
of a type described in the regulation, and the purchase of low quality assets from affiliates is
generally prohibited. The law and Regulation W also, among other things, prohibit an institution
from engaging in certain transactions with certain affiliates (as defined in the Federal Reserve
Act) unless the transactions are on terms substantially the same, or at least as favorable to such
institution and/or its subsidiaries, as those prevailing at the time for comparable transactions
with non-affiliated entities. In the absence of comparable transactions, such transactions may
only occur under terms and circumstances, including credit standards that in good faith would be
offered to or would apply to non-affiliated companies.
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The Company is subject to the restrictions contained in Section 22(h) of the Federal Reserve
Act and the Federal Reserve Boards Regulation O thereunder on loans to executive officers,
directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer or a greater-than-10%
stockholder of a bank as well as certain affiliated interests of any of the foregoing may not
exceed, together with all other outstanding loans to such person and affiliated interests, the
loans-to-one-borrower limit applicable to national banks (generally 15% of the institutions
unimpaired capital and surplus), and all loans to all such persons in the aggregate may not exceed
the institutions unimpaired capital and unimpaired surplus. Regulation O also prohibits the
making of loans in an amount greater than $25,000 or 5% of capital and surplus but in any event not
over $500,000, to directors, executive officers and greater-than-10% stockholders of a bank, and
their respective affiliates, unless such loans are approved in advance by a majority of the board
of directors of the bank with any interested director not participating in the voting.
Furthermore, Regulation O requires that loans to directors, executive officers and principal
stockholders of a bank be made on terms substantially the same as those that are offered in
comparable transactions to unrelated third parties unless the loans are made pursuant to a benefit
or compensation program that is widely available to all employees of the bank and does not give
preference to insiders over other employees. Regulation O also prohibits a depository institution
from paying overdrafts over $1,000 of any of its executive officers or directors unless they are
paid pursuant to written pre-authorized extension of credit or transfer of funds plans. Violations
on the insider transaction provisions of law and regulation could result in severe regulatory
consequences for the Bank and Company, including the imposition of civil money penalties, or
regulatory enforcement agreements or orders which require time consuming or expensive corrective
actions.
Community Reinvestment Act. The Community Reinvestment Act (CRA) requires that, in
connection with examinations of financial institutions within their respective jurisdictions, the
Federal Reserve Board, the FDIC, the Office of the Comptroller of the Currency or the Office of
Thrift Supervision shall evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those institutions. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an institutions discretion
to develop the types of products and services that it believes are best suited to its particular
community, consistent with the CRA. An institutions CRA activities are considered in, among other
things, evaluating mergers, acquisitions and applications to open a branch or facility, as well as
determining whether the institution will be permitted to exercise certain of the powers allowed by
the GLB Act. The CRA also requires all institutions to make public disclosure of their CRA
ratings. The Company was last examined for CRA compliance as of August 17, 2009 and received a CRA
rating of satisfactory.
USA Patriot Act. Under the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act, commonly referred to as the USA Patriot Act or
the Patriot Act, financial institutions are subject to prohibitions against specified financial
transactions and account relationships, as well as enhanced due diligence standards intended to
detect, and prevent, the use of the United States financial system for money laundering and
terrorist financing activities. The Patriot Act requires financial institutions, including banks,
to establish anti-money laundering programs, including employee training and independent audit
requirements, meet minimum standards specified by the act, follow minimum standards for customer
identification and maintenance of customer identification records, and regularly compare customer
lists against lists of suspected terrorists, terrorist organizations and money launderers. The
costs or other effects of the compliance burdens imposed by the Patriot Act or future
anti-terrorist, homeland security or anti-money laundering legislation or regulations cannot be
predicted with certainty.
Capital Adequacy Guidelines. The Federal Reserve Board and the FDIC have adopted risk based
capital adequacy guidelines pursuant to which they assess the adequacy of capital in examining and
supervising banks and bank holding companies and in analyzing bank regulatory applications.
Risk-based capital requirements determine the adequacy of capital based on the risk inherent in
various classes of assets and off-balance sheet items. Under the Dodd-Frank Act, the Federal
Reserve Board is required to apply consolidated capital requirements to depository institution
holding companies that are no less stringent than those currently applied to depository
institutions. The Dodd-Frank Act additionally requires capital requirements to be countercyclical
so that the required amount of capital increases in times of economic expansion and decreases in
times of economic contraction, consistent with safety and soundness.
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State member banks are expected to meet a minimum ratio of total qualifying capital (the sum
of core capital (Tier 1) and supplementary capital (Tier 2)) to risk weighted assets of 8%. At
least half of this amount (4%) should be
in the form of core capital. These requirements apply to the Bank and will apply to the Company (a
bank holding company) once its total assets equal $500,000,000 or more, it engages in certain
highly leveraged activities or it has publicly held debt securities.
Tier 1 Capital generally consists of the sum of common stockholders equity and perpetual
preferred stock (subject in the case of the latter to limitations on the kind and amount of such
stock which may be included as Tier 1 Capital), less goodwill, without adjustment for changes in
the market value of securities classified as available-for- sale in accordance with ASC Topic 320.
Tier 2 Capital consists of the following: hybrid capital instruments; perpetual preferred stock
which is not otherwise eligible to be included as Tier 1 Capital; term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses.
Assets are adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no risk-based capital) for assets
such as cash, to 100% for the bulk of assets which are typically held by a bank holding company,
including certain multi-family residential and commercial real estate loans, commercial business
loans and consumer loans. Residential first mortgage loans on 1-4 family residential real estate
and certain seasoned multi-family residential real estate loans, which are not 90 days or more
past-due or nonperforming and which have been made in accordance with prudent underwriting
standards are assigned a 50% level in the risk-weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans. Off-balance sheet items
also are adjusted to take into account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve Board has established
a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets) requirement for the
most highly-rated banks, with an additional cushion of at least 100 to 200 basis points for all
other banks, which effectively increases the minimum Leverage Capital Ratio for such other banks to
4.0% 5.0% or more. The highest-rated banks are those that are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity, good earnings and, in general, those which are considered
a strong banking organization. A bank having less than the minimum Leverage Capital Ratio
requirement shall, within 60 days of the date as of which it fails to comply with such requirement,
submit a reasonable plan describing the means and timing by which the bank shall achieve its
minimum Leverage Capital Ratio requirement. A bank which fails to file such plan is deemed to be
operating in an unsafe and unsound manner, and could subject the bank to a cease-and-desist order.
Any insured depository institution with a Leverage Capital Ratio that is less than 2.0% is deemed
to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the Federal Deposit
Insurance Act (the FDIA) and is subject to potential termination of deposit insurance. The
capital regulations also provide, among other things, for the issuance of a capital directive,
which is a final order issued to a bank that fails to maintain minimum capital or to restore its
capital to the minimum capital requirement within a specified time period. Such directive is
enforceable in the same manner as a final cease-and-desist order.
The foregoing capital requirements represent minimum requirements. Our state and federal
regulators have the discretion to require us to maintain higher capital levels based upon our
concentrations of loans, the risk of our lending or other activities, the performance of our loan
and investment portfolios and other factors. Failure to maintain such higher capital expectations
could result in a lower composite regulatory rating, which would impact our deposit insurance
premiums and could affect our ability to borrow, and costs of borrowing, and could result in
additional or more severe enforcement actions.
Under guidance from the federal banking regulators, banks which have concentrations in
construction, land development or commercial real estate loans (other than loans for majority owner
occupied properties) would be expected to maintain higher levels of risk management and,
potentially, higher levels of capital. It is possible that we may be required to maintain higher
levels of capital than we would otherwise be expected to maintain as a result of our levels of
construction, development and commercial real estate loans, which may require us to obtain
additional capital.
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Prompt Corrective Action. Under Section 38 of the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that it regulates. The
federal banking agencies have promulgated substantially similar regulations to implement the system
of prompt corrective action established by Section 38 of the FDIA. Under the regulations, a bank
shall be deemed to be: (i) well capitalized if it has a Total Risk Based
Capital Ratio of 10.0% or more, a Tier 1 Risk Based Capital Ratio of 6.0% or more, a Leverage
Capital Ratio of 5.0% or more and is not subject to any written capital order or directive; (ii)
adequately capitalized if it has a Total Risk Based Capital Ratio of 8.0% or more, a Tier 1 Risk
Based Capital Ratio of 4.0% or more and a Tier 1 Leverage Capital Ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of well capitalized; (iii)
undercapitalized if it has a Total Risk Based Capital Ratio that is less than 8.0%, a Tier 1 Risk
based Capital Ratio that is less than 4.0% or a Leverage Capital Ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) significantly undercapitalized if it has a Total Risk Based
Capital Ratio that is less than 6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0%; and (v) critically undercapitalized if it has a
ratio of tangible equity to total assets that is equal to or less than 2.0%.
An institution generally must file a written capital restoration plan which meets specified
requirements with an appropriate federal banking agency within 45 days of the date the institution
receives notice or is deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. A federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after receiving a capital
restoration plan, subject to extensions by the applicable agency.
An institution that is required to submit a capital restoration plan must concurrently submit
a performance guaranty by each company that controls the institution. Such guaranty shall be
limited to the lesser of (i) an amount equal to 5.0% of the institutions total assets at the time
the institution was notified or deemed to have notice that it was undercapitalized or (ii) the
amount necessary at such time to restore the relevant capital measures of the institution to the
levels required for the institution to be classified as adequately capitalized. Such a guaranty
shall expire after the federal banking agency notifies the institution that it has remained
adequately capitalized for each of four consecutive calendar quarters. An institution which fails
to submit a written capital restoration plan within the requisite period, including any required
performance guaranty, or fails in any material respect to implement a capital restoration plan,
shall be subject to the restrictions in Section 38 of the FDIA which are applicable to
significantly undercapitalized institutions.
A critically undercapitalized institution is to be placed in conservatorship or receivership
within 90 days unless the FDIC formally determines that forbearance from such action would better
protect the deposit insurance fund. Unless the FDIC or other appropriate federal banking
regulatory agency makes specific further findings and certifies that the institution is viable and
is not expected to fail, an institution that remains critically undercapitalized on average during
the fourth calendar quarter after the date it becomes critically undercapitalized must be placed in
receivership. The general rule is that the FDIC will be appointed as receiver within 90 days after
a bank becomes critically undercapitalized unless extremely good cause is shown and the federal
regulators agree to an extension. In general, good cause is defined as capital that has been
raised and is imminently available for infusion into the Bank except for certain technical
requirements that may delay the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized, an institution shall become subject to the
provisions of Section 38 of the FDIA, which (i) restrict payment of capital distributions and
management fees; (ii) require that the appropriate federal banking agency monitor the condition of
the institution and its efforts to restore its capital; (iii) require submission of a capital
restoration plan; (iv) restrict the growth of the institutions assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency for an
undercapitalized institution also may take any number of discretionary supervisory actions if the
agency determines that any of these actions is necessary to resolve the problems of the institution
at the least possible long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring the institution
to raise additional capital; restricting transactions with affiliates; requiring divestiture of the
institution or the sale of the institution to a willing purchaser; and any other supervisory action
that the agency deems appropriate. These and additional mandatory and permissive supervisory
actions may be taken with respect to significantly undercapitalized and critically undercapitalized
institutions.
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Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed
for an institution where: (i) an institutions obligations exceed its assets; (ii) there is
substantial dissipation of the institutions assets or earnings as a result of any violation of law
or any unsafe or unsound practice; (iii) the institution is in an unsafe or unsound condition;
(iv) there is a willful violation of a cease-and-desist order; (v) the institution is unable to
pay its obligations in the ordinary course of business; (vi) losses or threatened losses deplete
all or substantially all of an
institutions capital, and there is no reasonable prospect of becoming adequately capitalized
without assistance; (vii) there is any violation of law or unsafe or unsound practice or condition
that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the
institutions condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution is
undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails
to become adequately capitalized when required to do so, or fails to submit or materially implement
a capital restoration plan; or (x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.
Regulatory Enforcement Authority. Federal banking law grants substantial enforcement powers
to federal banking regulators. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and institution-affiliated parties. In
general, these enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with regulatory authorities.
As a result of the volatility and instability in the financial system during 2008, 2009 and
2010, the Congress, the bank regulatory authorities and other government agencies have called for
or proposed additional regulation and restrictions on the activities, practices and operations of
banks and their holding companies. While many of these proposals relate to institutions that have
accepted investments from, or sold troubled assets to, the Department of the Treasury or other
government agencies, or otherwise participate in government programs intended to promote financial
stabilization, the Congress and the federal banking agencies have broad authority to require all
banks and holding companies to adhere to more rigorous or costly operating procedures, corporate
governance procedures, or to engage in activities or practices which they would not otherwise
elect. Any such requirement could adversely affect the Companys business and results of
operations. The Company did not accept an investment by the Treasury Department in its preferred
stock or warrants to purchase common stock, and except for the temporary increases in deposit
insurance for customer accounts, has not participated in any of the programs adopted by the
Treasury Department, FDIC or Federal Reserve.
FDIC Insurance Premiums. The FDIC maintains a risk-based assessment system for determining
deposit insurance premiums. Four risk categories (I-IV), each subject to different premium rates,
are established, based upon an institutions status as well capitalized, adequately capitalized or
undercapitalized, and the institutions supervisory rating. The levels of rates are subject to
periodic adjustment by the FDIC. Depository institutions will also pay premiums for the increased
coverage provided by the FDIC.
Commencing in 2009, the premium rates increased by 7 basis points in each category for the
first quarter of 2009. For the second quarter of 2009 and beyond, the FDIC established further
changes in rates, and introduced three adjustments that can be made to an institutions initial
base assessment rate: (1) a potential decrease for long-term unsecured debt, including senior and
subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) a potential
increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I
institutions, a potential increase for brokered deposits above a threshold amount. The schedule
for base assessment rates and potential adjustment is set forth in the following table.
Risk | Risk | Risk | Risk | |||||||||||||
Category I | Category II | Category III | Category IV | |||||||||||||
Initial Base Assessment Rate |
12 16 | 22 | 32 | 45 | ||||||||||||
Unsecured Debt Adjustment (added) |
(5) to 0 | (5) to 0 | (5) to 0 | (5) to 0 | ||||||||||||
Secured Liability Adjustment (added) |
0 to 8 | 0 to 11 | 0 to 16 | 0 to 22.5 | ||||||||||||
Brokered Deposit Adjustment (added) |
N/A | 0 to 10 | 0 to 10 | 0 to 10 | ||||||||||||
Total Base Assessment Rate |
7 to 24 | 17 to 43 | 27 to 58 | 43 to 77.5 |
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The FDIC also imposed a special FDIC insurance assessment of 5 basis points implemented a five
basis point special assessment of each insured depository institutions assets minus Tier 1 capital
as of June 30, 2009, but
no more than 10 basis points times the institutions assessment base for the second quarter of
2009, which was collected on September 30, 2009. While no subsequent special assessments have been
made since 2009, additional special assessments may be imposed by the FDIC in the future.
In order to increase its liquidity, the FDIC required banks to prepay three years of estimated
insurance premiums in December 2009. The Company paid the FDIC approximately $1.1 million in
December 2009 for its estimated premiums for the subsequent three years. The prepaid premium
payment is being applied to required calculated quarterly insurance assessments.
The Dodd-Frank Act permanently increases the maximum deposit insurance amount for banks,
savings institutions and credit unions to $250,000 per depositor, and extends unlimited deposit
insurance to non-interest bearing transaction accounts through December 31, 2012. The Dodd-Frank
Act requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to
1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to
insured depository institutions when the reserve ratio exceeds certain thresholds. Effective one
year from the date of enactment, Dodd-Frank eliminates the federal statutory prohibition against
the payment of interest on business checking accounts.
The Dodd-Frank Act also broadens the base for FDIC insurance assessments. Assessments will now
be based on the average consolidated total assets less tangible equity capital of a financial
institution. Effective April 1, 2011, the new schedule for base assessment rates and potential
adjustments is as set forth in the following table.
Large and Highly | ||||||||||||||||||||
Risk | Risk | Risk | Risk | Complex | ||||||||||||||||
Category I | Category II | Category III | Category IV | Institutions | ||||||||||||||||
Initial Base Assessment Rate |
5 to 9 | 14 | 23 | 35 | 5 to 35 | |||||||||||||||
Unsecured Debt Adjustment (added) |
(4.5) to 0 | (5) to 0 | (5) to 0 | (5) to 0 | (5) to 0 | |||||||||||||||
Brokered Deposit Adjustment (added) |
N/A | 0 to 10 | 0 to 10 | 0 to 10 | 0 to 10 | |||||||||||||||
Total Base Assessment Rate |
2.5 to 9 | 9 to 24 | 18 to 33 | 30 to 45 | 2.5 to 45 |
Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent federal
agency called the Consumer Financial Protection Bureau (CFPB) which is granted broad rulemaking,
supervisory and enforcement powers under various federal consumer financial protection laws,
including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures
Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions
of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB will have examination and
primary enforcement authority with respect to depository institutions with $10 billion or more in
assets. Smaller institutions will be subject to rules promulgated by the CFPB but will continue to
be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB
will have authority to prevent unfair, deceptive or abusive practices in connection with the
offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish
certain minimum standards for the origination of residential mortgages including a determination of
the borrowers ability to repay. In addition, Dodd-Frank will allow borrowers to raise certain
defenses to foreclosure if they receive any loan other than a qualified mortgage as defined by
the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that
are more stringent than those adopted at the federal level and, in certain circumstances, permits
state attorneys general to enforce compliance with both the state and federal laws and regulations.
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to
be written implementing rules and regulations will have on community banks. However, it is expected
that at a minimum they will increase our operating and compliance costs and could increase our
interest expense.
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The FDIC is experiencing significant demands on its financial resources resulting in capital
and liquidity issues at the FDIC. To address these challenges, the FDIC may need to obtain
additional funding from banks. The form of such funding, if needed, is not now known.
As a result of competitive pressures for deposits, the Company may not be able to adjust
deposit rates to offset the cost of increased deposit insurance premiums.
ITEM 1A. | Risk Factors. |
An investment in the Companys common stock involves various risks. The Company has identified
the following material risks affecting its business. These risk factors may cause our future
earnings to be lower or our financial condition to be less favorable than the Company expects. In
addition, other risks of which the Company is not aware, which relate to the banking and financial
services industries in general, or which it does not believe are material, may cause earnings to be
lower, or hurt the Companys future financial condition.
The Company may not be able to successfully manage continued growth.
The Company intends to seek further growth in the level of assets and deposits and may
consider expanding the branch network in the future. The Company may not be able to manage
increased levels of assets and liabilities, and an expanded branch system, without increased
expenses and higher levels of nonperforming assets. The Company may be required to make additional
investments in equipment and personnel to manage higher asset levels and loan balances and a larger
branch network, which may adversely impact earnings, shareholder returns and efficiency ratio.
Increases in operating expenses or nonperforming assets may have an adverse impact on the value of
the Companys common stock. There can be no assurance that the Company will establish any
additional branches, or if established, that they can be operated profitably.
The Company has a lower level of core deposits and a higher level of wholesale funding, relative
to peer institutions.
Over the past several years, the Company has achieved significant growth in our loan
portfolio. Because the Companys deposits have not grown at similar rates, the Company has had to
supplement our funding sources to include the use of the national market to attract funds. During
an environment when interest rates are rising and the related U.S. Treasury interest rate curve is
flattening, the use of this funding source may result in an increase in interest costs
disproportionate to loan yields. This results in less net interest income, which could adversely
impact earnings, the stock price and shareholder returns.
The Companys concentrations of loans may create a greater risk of loan defaults and losses.
A substantial portion of the Companys loans are secured by real estate in the Companys
market areas in Maryland. It also has a significant amount of commercial real estate loans. While
Management believes that the commercial real estate concentration risk is mitigated by
diversification among the types and characteristics of real estate collateral properties, sound
underwriting practices, and ongoing portfolio monitoring and market analysis, the repayments of
these loans usually depends on the successful operation of a business or the sale of the underlying
property. As a result, these loans are more likely to be adversely affected by adverse conditions
in the real estate market or the economy in general. The remaining loans in the loan portfolio are
commercial or industrial loans. These loans are collateralized by various business assets the value
of which may decline during adverse market conditions. These loans are also susceptible to adverse
economic conditions. Adverse conditions in the real estate market and the economy may result in
increasing levels of loan charge-offs and nonperforming assets and the reduction of earnings.
Commercial and commercial real estate loans tend to have larger balances than residential
mortgage loans. Because the loan portfolio contains a significant number of commercial and
commercial real estate with relatively large balances, the deterioration of one or a few of these
loans may cause a significant increase in nonperforming assets. An increase in nonperforming loans
could result in: a loss of earnings from these loans, an increase in the provision for loan losses,
or an increase in loan charge-offs, which could have an adverse impact on the Companys results of
operations and financial condition.
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Further, under guidance adopted 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 Bank may be required to maintain higher levels of
capital than it would otherwise be expected to maintain as a result of the Banks levels of
commercial real estate loans, which may require the Company to obtain additional capital sooner
than it would otherwise seek it, which may reduce shareholder returns.
The Companys financial condition and results of operations would be adversely affected if its
allowance for loan losses is not sufficient to absorb actual losses or if it is required to
increase the allowance for loan losses.
Although the Company believes that the allowance for loan losses is maintained at a level
adequate to absorb any inherent losses in the loan portfolio, these estimates of loan losses are
necessarily subjective and their accuracy depends on the outcome of future events. If the Company
needs to make significant and unanticipated increases in the loss allowance in the future, its
results of operations and financial condition would be materially adversely affected at that time.
While the Company strives to carefully monitor credit quality and to identify loans that may
become nonperforming, at any time there are loans included in the portfolio that will result in
losses, but that have not been identified as nonperforming, impaired or potential problem loans.
The Company cannot be sure that it will be able to identify deteriorating loans before they become
nonperforming assets, or that it will be able to limit losses on those loans that are identified.
As a result, future additions to the allowance may be necessary.
The Companys continued growth depends on our ability to meet minimum regulatory capital levels.
Growth and shareholder returns may be adversely affected if sources of capital are not available to
help the Company meet them.
The Company is required to maintain its regulatory capital levels at or above the required
minimum levels. If earnings do not meet current estimates, if it incurs unanticipated losses or
expenses, or if it grows faster than expected, the Company may need to obtain additional capital
sooner than expected, through borrowing, additional issuances of debt or equity securities, or
otherwise. If it does not have continued access to sufficient capital, it may be required to reduce
its level of assets or reduce its rate of growth in order to maintain regulatory compliance. Under
those circumstances net income and the rate of growth of net income may be adversely affected.
Additional issuances of equity securities could have a dilutive effect on existing shareholders.
The Company cannot be certain that it will be able to acquire additional capital when it is
required, or that the terms upon which it is available will not be disadvantageous to existing
shareholders.
The Company may not be able to successfully compete with others for business.
The Company competes for loans and deposits with numerous regional and national banks, online
divisions of out-of-market banks, and other community banking institutions, as well as other kinds
of financial institutions and enterprises, such as securities firms, insurance companies, savings
associations, credit unions, mortgage brokers, and private lenders. As a result of the Dodd-Frank
Act, additional competitors who have not previously been able to establish de novo branches in
Maryland, may elect to do so. Many competitors have substantially greater resources than the
Company, and operate under less stringent regulatory environments. The differences in resources and
regulations may make it harder for the Company to compete profitably, reduce the rates that it can
earn on loans and investments, increase the rates it must offer on deposits, and adversely affect
the Companys overall financial condition and earnings.
Liquidity challenges may increase due to turmoil in the financial markets.
The turmoil in the financial markets over the last several years has resulted in sharp
declines in real estate values and financial instruments. These declines have resulted in large
losses at many financial institutions detrimentally affecting depositors confidence in all
financial institutions. This lack of confidence has resulted in rapid withdrawals by depositors in
several institutions causing the institutions to fail and/or require federal assistance.
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The Company positions itself in the marketplace as a business bank. It does not (and did not)
originate or acquire home loans or securities dependent upon home loans for repayment.
Nevertheless, the turmoil in the
financial markets has caused many depositors to seek safety in government securities, resulting in
liquidity challenges for all banks. Should turmoil in the markets continue, the Company may be
forced to pay higher interest rates to obtain deposits to meet the needs of its depositors and
borrowers, resulting in reduced net interest income. If conditions worsen significantly, it is
possible that banks such as the Bank may be unable to meet the needs of their depositors and
borrowers, which could, in the worst case, result in the Company being placed into receivership.
The current economic environment poses significant challenges for the Company and could adversely
affect its financial condition and results of operations.
The Company is operating in a challenging and uncertain economic environment. Financial
institutions continue to be affected by sharp declines in the real estate market and constrained
financial markets. Dramatic declines in the housing market over the past years, with falling home
prices and high levels of foreclosures and unemployment, have resulted in significant write-downs
of asset values by financial institutions. Continued declines in real estate values, home sales
volumes, and financial stress on borrowers as a result of the uncertain economic environment could
have an adverse effect on the Companys borrowers or their customers, which could adversely affect
the Companys financial condition and results of operations. A worsening of these conditions would
likely exacerbate the adverse effects on the Company and others in the financial institutions
industry. For example, further deterioration in local economic conditions in the Companys market
could drive losses beyond that which is provided for in its allowance for loan losses. The Company
may also face the following risks in connection with these events:
| Economic conditions that negatively affect housing prices and the job market have
resulted, and may continue to result, in a deterioration in credit quality of the loan
portfolios, and such deterioration in credit quality has had, and could continue to
have, a negative impact on the Companys business; |
||
| The methodologies the Company uses to establish our allowance for loan losses may no
longer be reliable because they rely on complex judgments, including forecasts of
economic conditions, which may no longer be capable of accurate estimation; |
||
| Continued turmoil in the market, and loss of confidence in the banking system, could
require the Company to pay higher interest rates to obtain deposits to meet the needs
of its depositors and borrowers, resulting in reduced margin and net interest income.
If conditions worsen significantly, it is possible that banks such as the Company may
be unable to meet the needs of their depositors and borrowers, which could, in the
worst case, result in the Company being placed into receivership; and |
||
| Compliance with increased regulation of the banking industry may increase our costs,
limit our ability to pursue business opportunities, and divert management efforts. |
As these conditions or similar ones continue to exist or worsen, the Company could experience
continuing or increased adverse effects on its financial condition.
Higher deposit insurance premiums and assessments could adversely affect our financial condition.
Deposit insurance premiums charged by the FDIC increased substantially in 2009 and 2010 and
the Company may face increased FDIC premiums in the future. A large number of bank failures has
significantly depleted the Deposit Insurance Fund and reduced the ratio of reserves to insured
deposits. During 2009, the FDIC adopted a revised risk-based deposit insurance assessment schedule,
which raised deposit insurance premiums and it implemented a five basis point special assessment
which was collected on September 30, 2009. Additional special assessments may be imposed by the
FDIC in the future. The Dodd-Frank Act requires the FDIC to increase the reserve ratio of the
Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the
requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio
exceeds certain thresholds. These actions could significantly increase the Companys noninterest
expense for the foreseeable future. There is no assurance that the Company will be able to reflect
all or any portion of these premium costs in the rates it pays depositors.
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There can be no assurance that recent legislation and regulatory actions taken by the federal
government will help stabilize the financial system in the United States.
Several pieces of federal legislation have been enacted, and the United States Department of
the Treasury, the Federal Reserve, the FDIC, and other federal agencies have enacted numerous
programs, policies and regulations to address the current liquidity and credit crises. These
measures include the Emergency Economic Stimulus Act of 2008 (EESA), the American Reinvestment
and Recovery Act of 2009 (ARRA), and the numerous programs, including the TARP Capital Purchase
Program, in which the Company did not participate, and expanded deposit insurance coverage, enacted
thereunder.
On July 21, 2010, the President signed into law The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act). The Dodd-Frank Act contains various provisions designed to
enhance the regulation of depository institutions and prevent the recurrence of a financial crisis
such as occurred in 2007-2009. Also included is the creation of a new federal agency to administer
and enforce consumer and fair lending laws, a function that is now performed by the depository
institution regulators. The full impact of the Dodd-Frank Act on the Companys business and
operations will not be known for years until regulations implementing the statute are written and
adopted. The Dodd-Frank Act may have a material impact on the Companys operations, particularly
through increased compliance costs.
The Company cannot predict the actual effects of EESA, ARRA, the regulatory reform measures
and various governmental, regulatory, monetary and fiscal initiatives which have been and may be
enacted on the financial markets, on the Company and the Bank. The terms and costs of these
activities, or the failure of these actions to help stabilize the financial markets, asset prices,
market liquidity and a continuation or worsening of current financial market and economic
conditions could materially and adversely affect the Companys business, financial condition,
results of operations, and the trading prices of its securities.
The Company expects to face increased regulation of our industry, including as a result of
EESA, the ARRA and the Dodd-Frank Act and related initiatives by the federal government. Compliance
with such regulations may increase costs and limit the Companys ability to pursue business
opportunities.
Trading in the common stock has been light. As a result, shareholders may not be able to quickly
and easily sell their common stock.
Although the Companys common stock is listed for trading on the NASDAQ Capital Market and a
number of brokers offer to make a market in the common stock on a regular basis, trading volume to
date has been limited. A more liquid market for the Companys common stock may not develop (or if
one develops, it may not be sustainable). As a result, shareholders may find it difficult to sell a
significant number of shares at the prevailing market price.
Directors and officers of CommerceFirst Bancorp own approximately 22% of the outstanding common
stock. As a result of their combined ownership, they could make it more difficult to obtain
approval for some matters submitted to shareholder vote, including acquisition of the Company. The
results of the vote may be contrary to the desires or interests of the public shareholders.
Directors and executive officers own approximately 22% of the outstanding shares of common
stock. By voting against a proposal submitted to shareholders, the directors and officers, as a
group, may be able to make approval more difficult for proposals requiring the vote of
shareholders, such as some mergers, share exchanges, asset sales, and amendments to the Articles of
Incorporation.
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Changes in interest rates and other factors beyond the Companys control could have an adverse
impact on its financial performance and results.
The Companys operating income and net income depend to a great extent on its net interest
margin, i.e., the difference between the interest yields it receive on loans, securities and other
interest bearing assets and the interest rates it pay on interest bearing deposits and other
liabilities. Net interest margin is affected by changes in market interest rates, because different
types of assets and liabilities may react differently, and at different times, to market interest
rate changes. When interest bearing liabilities mature or reprice more quickly than interest
earning
assets in a period, an increase in market rates of interest could reduce net interest income.
Similarly, when interest earning assets mature or reprice more quickly than interest bearing
liabilities, falling interest rates could reduce net interest income These rates are highly
sensitive to many factors beyond our control, including competition, general economic conditions
and monetary and fiscal policies of various governmental and regulatory authorities, including the
Federal Reserve Board.
The Company attempts to manage our risk from changes in market interest rates by adjusting the
rates, maturity, re-pricing, and balances of the different types of interest earning assets and
interest bearing liabilities, but interest rate risk management techniques are not exact. As a
result, a rapid increase or decrease in interest rates could have an adverse effect on the
Companys net interest margin and results of operations. The results of the interest rate
sensitivity simulation model depend upon a number of assumptions which may not prove to be
accurate. There can be no assurance that the Company will be able to successfully manage our
interest rate risk. Increases in market rates and adverse changes in the local residential real
estate market, the general economy or consumer confidence would likely have a significant adverse
impact on noninterest income, as a result of reduced demand for SBA guaranteed loans, the majority
of which the Company sells.
Changes in laws, including that which permit banks to pay interest on checking and demand
deposit accounts established by businesses in July 2011, could have a significant negative effect
on net interest income, net income, net interest margin, return on assets and return on equity.
Usually, more than 10% of the Companys deposits were noninterest bearing demand deposits.
Substantial regulatory limitations on changes of control and anti-takeover provisions of Maryland
law may make it more difficult for shareholders to receive a change in control premium.
With certain limited exceptions, federal regulations prohibit a person or company or a group
of persons deemed to be acting in concert from, directly or indirectly, acquiring more than 10%
(5% if the acquiror is a bank holding company) of any class of the Companys voting stock or
obtaining the ability to control in any manner the election of a majority of its directors or
otherwise direct the management or policies of the Company without prior notice or application to
and the approval of the Federal Reserve. There are comparable prior approval requirements for
changes in control under Maryland law. Also, Maryland corporate law contains several provisions
that may make it more difficult for a third party to acquire control of the Company without the
approval of its Board of Directors, and may make it more difficult or expensive for a third party
to acquire a majority of its outstanding common stock.
Government regulation will significantly affect the Companys business, and may result in higher
costs and lower shareholder returns.
The banking industry is heavily regulated. Banking regulations are primarily intended to
protect the federal deposit insurance funds and depositors, not shareholders. The Company and Bank
are regulated and supervised by the Maryland Department of Financial Regulation, the Federal
Reserve Board and the FDIC. The burden imposed by federal and state regulations puts banks at a
competitive disadvantage compared to less regulated competitors such as finance companies, mortgage
banking companies and leasing companies. Changes in the laws, regulations and regulatory practices
affecting the banking industry may increase the costs of doing business or otherwise adversely
affect the Company and create competitive advantages for others. Regulations affecting banks and
financial services companies undergo continuous change, and the Company cannot predict the ultimate
effect of these changes, which could have a material adverse effect on its profitability or
financial condition. Federal economic and monetary policy may also affect the Companys ability to
attract deposits and other funding sources, make loans and investments, and achieve satisfactory
interest spreads.
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The loss of the services of any key employees could adversely affect investor returns.
Our business is service oriented, and our success depends to a large extent upon the services
of Richard J. Morgan, our President and the Banks Market Leaders. The loss of the services of any
of these officers could adversely affect the Companys business.
ITEM 1B. | Unresolved Staff Comments |
None.
ITEM 2. | Properties. |
The main branch office and the executive offices of the Bank and the Company are located at
1804 West Street, Annapolis, Maryland, in a brick and masonry structure. The Company leases 8,100
square feet in the building under a lease, which commenced in April 2000. Rent expense was $224,219
and $222,524 for the years ended December 31, 2010 and 2009, respectively. The Company has
exercised the second of three five-year renewal options.
The second office of the Company is located at 4451 Parliament Place, Lanham, Maryland in a
masonry structure. The Company leases 2,100 square feet in the building under a ten-year lease
which commenced in June 2004. Rent expense was $35,848 and $33,519 for the years ended December 31,
2010 and 2009, respectively.
The third office of the Company is located at 910 Cromwell Park Drive, Glen Burnie, Maryland
in a masonry structure. The Company leases 2,600 square feet in the building under a five-year
lease (with one five-year renewal option) which commenced in June 2006. Rent expense was $73,602
and $73,158 for the years ended December 31, 2010 and 2009, respectively.
The fourth office of the Company is located at 6230 Old Dobbin Lane, Columbia, Maryland in a
masonry structure. The Company leases 2,400 square feet in the building under a ten-year lease
(with one five-year renewal option) which commenced in August 2006. Rent expense was $85,230 and
$81,251 for the years ended December 31, 2010 and 2009, respectively.
The fifth office of the Company is located at 485 Ritchie Highway, Severna Park, Maryland in a
masonry structure. The Company leases approximately 1,500 square feet in the building under a
five-year lease (with two five-year renewal options) which commenced in June 2007. Rent expense was
$57,169 in 2010 and $56,441 during 2009.
Management believes adequate insurance coverage is in force on all of its properties.
ITEM 3. | 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.
ITEM 4. | [Removed and Reserved] |
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PART II
ITEM 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. |
(a) Market for Common Stock and Dividends. The information regarding the market for the
Companys Common Stock, the number of holders of the common stock and dividend history required
under Item 5(a) is hereby incorporated herein by reference from the material under the caption
Market for Common Stock and Dividends in the Companys Annual Report for the fiscal year ended
December 31, 2010. See Item 12 of this annual report for Equity Compensation Plan Information.
Recent Sales of Unregistered Shares. None.
(b) Use of Proceeds: Not applicable
(c) Issuer Repurchases of Securities during the Fourth Quarter of 2010. None.
ITEM 6. | Selected Financial Data. |
The information required under Item 6 is hereby incorporated herein by reference to the
material appearing under the caption Selected Consolidated Financial Data in the Companys Annual
Report to Shareholders for the fiscal year ended December 31, 2010.
ITEM 7. | Managements
Discussion and Analysis of Financial Condition and Results of Operations. |
The information required by this item is incorporated by reference to the material appearing
under the caption Management Discussion and Analysis in the Companys Annual Report to
Shareholders for the year ended December 31, 2010.
ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
As the Company is a smaller reporting company, this item is not applicable.
ITEM 8. | Financial Statements and Supplementary Data |
The information required by this item is incorporated by reference to the Consolidated
Financial Statements and Notes thereto contained in the Companys Annual Report to Shareholders for
the year ended December 31, 2010.
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
ITEM 9A | Controls and Procedures |
Disclosure Controls and Procedures. The Companys management, under the supervision and with
the participation of the Chief Executive Officer and Chief Financial Officer, evaluated, as of the
last day of the period covered by this report, the effectiveness of the design and operation of the
Companys disclosure controls and procedures, as defined in Rule 15d-15 under the Securities
Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were effective.
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Managements Report on Internal Control Over Financial Reporting
The management of CommerceFirst Bancorp, Inc. (the Company) is responsible for the
preparation, integrity and fair presentation of the Consolidated Financial Statements incorporated
by reference in this Annual Report. The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and reflect managements
judgments and estimates concerning the effects of events and transactions that are accounted for or
disclosed.
Management is also responsible for establishing and maintaining an effective internal control
over financial reporting. The Companys internal control over financial reporting includes those
policies and procedures that pertain to the Companys ability to record, process, summarize and
report reliable financial data. The internal control system contains monitoring mechanisms, and
appropriate actions are taken to correct identified deficiencies. Management believes that internal
controls over financial reporting, which are subject to scrutiny by management and the Companys
internal auditors, support the integrity and reliability of the financial statements. Management
recognizes that there are inherent limitations in the effectiveness of any internal control system,
including the possibility of human error and the circumvention or overriding of internal controls.
Accordingly, even effective internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. In addition, because of changes in
conditions and circumstances, the effectiveness of internal control over financial reporting may
vary over time.
Management assessed the Companys system of internal control over financial reporting as of
December 31, 2010. This assessment was conducted based on the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission Internal Control Integrated Framework. Based on this
assessment, management believes that the Company maintained effective internal control over
financial reporting as of December 31, 2010. Managements assessment concluded that there were no
material weaknesses within the Companys internal control structure. The 2010 end of year
consolidated financial statements have been audited by the independent accounting firm of TGM Group
LLC (TGM). Personnel from TGM were given unrestricted access to all financial records and related
data, including minutes of all meetings of the Board of Directors and Committees thereof.
Management believes that all representations made to the independent auditors were valid and
appropriate. The resulting report from TGM accompanies the financial statements.
The Board of Directors of the Company, acting through its Audit Committee (the Committee),
is responsible for the oversight of the Companys accounting policies, financial reporting and
internal control. The Audit Committee of the Board of Directors is comprised entirely of outside
directors who are independent of management. The Audit Committee is responsible for the appointment
and compensation of the independent auditors and approves decisions regarding the appointment or
removal of members of the internal audit function. The Committee meets periodically with
management, the independent auditors, and the internal auditors to insure that they are carrying
out their responsibilities. The Committee is also responsible for performing an oversight role by
reviewing and monitoring the financial, accounting, and auditing procedures of the Company in
addition to reviewing the Companys financial reports. The independent auditors and the internal
auditors have full and unlimited access to the Audit Committee, with or without the presence of the
management of the Company, to discuss the adequacy of internal control over financial reporting,
and any other matters which they believe should be brought to the attention of the Audit Committee.
There were no changes in the Companys internal control over financial reporting during the
quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
The annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the company to provide only managements report in
this annual report.
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ITEM 9B. | Other Information. |
None.
Part III
ITEM 10. | Directors, Executive Officers and Corporate Governance. |
The information required under Item 10 is hereby incorporated herein by reference from the
material under the captions Election of Directors and Compliance with Section 16(a) of the
Securities Exchange Act of 1934 in the Companys Proxy Statement for the Annual Meeting of
Stockholders to be held on May 4, 2011.
Code of Ethics. The Company has adopted a Code of Ethics that applies to all Directors,
officers and employees of the Company and the Bank. The Company will provide a copy of the Code of
Ethics without charge upon written request directed to Candace M. Springmann, Corporate Secretary,
CommerceFirst Bancorp, Inc, 1804 West Street, Annapolis, Maryland 21401.
There have been no material changes in the procedures by which shareholders may recommend
nominees to the Companys Board of Directors since the proxy statement for the 2010 annual meeting
of shareholders.
ITEM 11. | Executive Compensation |
The information required by Item 11 is hereby incorporated herein by reference to the material
under the captions Election of Directors Executive Compensation, and Directors Compensation
in the Companys Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2011.
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. |
Securities Authorized for Issuance under Equity Compensation Plans
None. All of the warrants and options previously issued expired in August 2010. No warrants or
options were exercised during 2010. At December 31, 2010 there are no active equity compensation
plans maintained by the Company under which options, warrants or other equity based compensation
may be issued.
The other information required by Item 12 is hereby incorporated herein by reference to the
material under the caption Voting Securities and Principal Shareholders in the Companys Proxy
Statement for the Annual Meeting of Stockholders to be held on May 4, 2011.
ITEM 13. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by Item 13 is hereby incorporated herein by reference to the material
under the caption Election of Directors in the Companys Proxy Statement for the Annual Meeting
of Stockholders to be held on May 4, 2011.
ITEM 14 | Principal Accountant Fees and Services |
The information required by Item 14 is hereby incorporated herein by reference to the material
under the caption Ratification of Appointment of Independent Registered Public Accounting Firm
Fees paid to Independent Accounting Firm in the Companys Proxy Statement for the Annual Meeting
of Stockholders to be held on May 4, 2011.
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The following financial statements are incorporated in this report under Item 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
Consolidated Statements of Comprehensive Income for the years ended December 31, 2010 and 2009
Consolidated Statements of Shareholders Equity for the years ended December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
Notes to Consolidated Financial Statements
ITEM 15. | Exhibits, Financial Statement Schedules |
Exhibit No. | Description of Exhibits | |||
3 | (a) | Certificate of Incorporation of the Company, as amended (1) |
||
3 | (b) | Bylaws of the Company (1) |
||
10 | (a) | Employment Agreement between Richard J. Morgan and the Company (2) |
||
10 | (b) | Employment Agreement between Lamont Thomas and the Company (3) |
||
10 | (c) | 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 Refer to Note 1 to the Consolidated
Financial Statements included in Exhibit 13. |
|||
13 | Annual Report to Shareholders |
|||
21 | Subsidiaries of the Registrant |
|||
The sole subsidiary of the Registrant is CommerceFirst Bank, a Maryland chartered commercial bank. |
||||
23 | Consent of TGM Group LLC |
|||
31 | (a) | Certification of Richard J. Morgan, President and CEO |
||
31 | (b) | Certification of Michael T. Storm, Executive Vice President and Chief Financial Officer |
||
32 | (a) | Certification of Richard J. Morgan, President and Chief Executive Officer |
||
32 | (b) | Certification of Michael T. Storm, Executive Vice President and Chief Financial Officer |
(1) | Incorporated by reference to exhibit of the same number filed with the Companys
Registration Statement on Form SB-2, as amended, (File No. 333-91817) |
|
(2) | Incorporated by reference to exhibit 10(b) to the Companys to Registration Statement on Form
SB-2, as amended) (File No. 333-91817) |
|
(3) | Incorporated by reference to exhibits 10(c) to the Companys to Registration Statement on
Form SB-2, as amended) (File No. 333-91817) |
|
(4) | Incorporated by reference to Exhibit 10(d) to the Companys Quarterly Report on Form 10-QSB
for the period ended March 31, 2007. |
|
(5) | Incorporated by reference to Exhibit 10(e) to the Companys Quarterly Report on Form 10-QSB
for the period ended September 30, 2007. |
|
(6) | 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 Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMMERCEFIRST BANCORP, INC |
||||
March 3, 2011 | By: | /s/ Richard J. Morgan, | ||
Richard J. Morgan, President and CEO | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name | Position | Date | ||
/s/ Milton D. Jernigan II
|
Chairman of the Board of Directors of the Company and the Bank | March 3, 2011 | ||
/s/ Richard J. Morgan
|
Director, President and CEO of the
Company and the Bank (Principal Executive Officer) |
March 3, 2011 | ||
/s/ Edward B. Howlin, Jr.
|
Director of the Company and the Bank | March 3, 2011 | ||
/s/ Charles L. Hurtt, Jr.
|
Director of the Company and the Bank | March 3, 2011 | ||
/s/ Lamont Thomas
|
Director of Company and the Bank | March 3, 2011 | ||
/s/ Robert R. Mitchell
|
Director of the Company and the Bank | March 3, 2011 | ||
/s/ John A. Richardson, Sr.
|
Director of the Company and the Bank | March 3, 2011 | ||
/s/ George C. Shenk, Jr.
|
Director of the Company and the Bank | March 3, 2011 | ||
/s/ Jerome A. Watts
|
Director of the Company and the Bank | March 3, 2011 | ||
/s/ Michael T. Storm
|
Executive Vice President/Chief Financial
Officer of the Company and the Bank (Principal Financial and Accounting Officer) |
March 3, 2011 |
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Exhibit 13 | Annual Report to Shareholders for the Year Ended December 31, 2010 |