---



##### 








---



##### 




    
    Total assets as of December 31, 2009 increased by 20.3% to $200 million as
compared to $167 million as of December 31, 2008.
 
    
    Net loans outstanding increased by $32 million, or 21.2% to $183 million as of
December 31, 2009 from $151 million as of December 31, 2008.
 
    
    Deposits as of December 31, 2009 were $179 million, an increase of $33 million or
23.0% from December 31, 2008.
 
    
    Net interest income, the Banks main source of income, increased by $1.7 million
or 31.9% during the year ended December 31, 2009 as compared to the same period in
2008.
 
    
    The Companys net income increased to $678 thousand, or 129.9%, for the year
ended December 31, 2009 as compared to net income of $295 thousand for the year
ended December 31, 2008.
    Milton D. Jernigan II
    
    Richard J. MorganChairman of the Board
    
    President and CEO
  1




---



##### 



SELECTED CONSOLIDATED FINANCIAL DATA
  Year Ended December 31,(Dollars in thousands, except per share data)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Operation Statement Data:Net interest income
    
    $
    7,341
    
    
    $
    5,567
    
    
    $
    5,895
    
    
    $
    5,301
    
    
    $
    4,200Provision for loan losses
    
    $
    1,616
    
    
    $
    647
    
    
    $
    45
    
    
    $
    225
    
    
    $
    360Noninterest income
    
    $
    720
    
    
    $
    569
    
    
    $
    620
    
    
    $
    633
    
    
    $
    625Noninterest expense
    
    $
    5,315
    
    
    $
    5,028
    
    
    $
    4,688
    
    
    $
    3,652
    
    
    $
    2,773Federal and state income tax expense
    
    $
    (452
    )
    
    $
    (166
    )
    
    $
    (694
    )
    
    $
    (774
    )
    
    $
    (658
    )Net income
    
    $
    678
    
    
    $
    295
    
    
    $
    1,088
    
    
    $
    1,283
    
    
    $
    1,033Per share data and shares outstanding:Net income per share, basic
    
    $
    0.37
    
    
    $
    0.16
    
    
    $
    0.60
    
    
    $
    0.71
    
    
    $
    0.63Net income per share, diluted
    
    $
    0.37
    
    
    $
    0.16
    
    
    $
    0.59
    
    
    $
    0.69
    
    
    $
    0.62Book value at period end
    
    $
    11.50
    
    
    $
    11.16
    
    
    $
    11.02
    
    
    $
    10.36
    
    
    $
    9.63Average common shares outstanding during year
    
    
    1,820,548
    
    
    
    1,820,548
    
    
    
    1,816,504
    
    
    
    1,803,583
    
    
    
    1,647,645Diluted average common shares outstanding during year
    
    
    1,820,548
    
    
    
    1,820,548
    
    
    
    1,848,195
    
    
    
    1,846,462
    
    
    
    1,672,928Shares outstanding at period end
    
    
    1,820,548
    
    
    
    1,820,548
    
    
    
    1,820,548
    
    
    
    1,803,583
    
    
    
    1,803,583Financial Condition data:Total assets
    
    $
    200,371
    
    
    $
    166,569
    
    
    $
    148,811
    
    
    $
    141,270
    
    
    $
    112,545Loans receivable (net)
    
    $
    183,102
    
    
    $
    151,101
    
    
    $
    124,670
    
    
    $
    95,081
    
    
    $
    75,367Allowance for loan losses
    
    $
    2,380
    
    
    $
    1,860
    
    
    $
    1,665
    
    
    $
    1,614
    
    
    $
    1,615Other interest-earning assets
    
    $
    8,909
    
    
    $
    9,227
    
    
    $
    18,358
    
    
    $
    40,121
    
    
    $
    31,985Total deposits
    
    $
    178,645
    
    
    $
    145,241
    
    
    $
    123,408
    
    
    $
    112,205
    
    
    $
    88,167Borrowings
    
    $
    
    
    
    $
    
    
    
    $
    4,306
    
    
    $
    9,579
    
    
    $
    6,010Stockholders equity
    
    $
    20,942
    
    
    $
    20,311
    
    
    $
    20,056
    
    
    $
    18,687
    
    
    $
    17,363Selected performance ratios:Return on average earning assets
    
    
    0.51
    %
    
    
    0.25
    %
    
    
    1.07
    %
    
    
    1.23
    %
    
    
    1.19
    %Return on average equity
    
    
    4.54
    %
    
    
    1.92
    %
    
    
    7.47
    %
    
    
    7.16
    %
    
    
    6.76
    %Net interest margin
    
    
    4.00
    %
    
    
    3.59
    %
    
    
    4.38
    %
    
    
    5.06
    %
    
    
    4.86
    %Net interest spread
    
    
    3.32
    %
    
    
    2.60
    %
    
    
    3.10
    %
    
    
    3.83
    %
    
    
    4.01
    %Efficiency ratio
    
    
    65.94
    %
    
    
    81.94
    %
    
    
    72.21
    %
    
    
    61.56
    %
    
    
    57.47
    %Asset quality ratios:Nonperforming loans to gross loans
    
    
    1.47
    %
    
    
    3.80
    %
    
    
    0.89
    %
    
    
    0.65
    %
    
    
    0.77
    %Allowance for loan losses to loans
    
    
    1.28
    %
    
    
    1.22
    %
    
    
    1.32
    %
    
    
    1.67
    %
    
    
    2.10
    %Allowance for loan losses to nonperforming loans
    
    
    .87x
    
    
    
    .32x
    
    
    
    1.48x
    
    
    
    2.57x
    
    
    
    2.73xNonperforming assets to loans and other real estate
    
    
    2.76
    %
    
    
    3.80
    %
    
    
    0.89
    %
    
    
    0.65
    %
    
    
    0.77
    %Net loan charge-offs (recoveries) to average loans
    
    
    0.65
    %
    
    
    0.33
    %
    
    
    0.00
    %
    
    
    0.26
    %
    
    
    (0.15
    )%Capital ratios:Total risk-based capital ratio
    
    
    12.25
    %
    
    
    14.14
    %
    
    
    16.48
    %
    
    
    19.10
    %
    
    
    22.50
    %Tier I risk-based capital ratio
    
    
    10.99
    %
    
    
    12.91
    %
    
    
    15.23
    %
    
    
    17.84
    %
    
    
    21.20
    %Leverage ratio
    
    
    10.43
    %
    
    
    12.24
    %
    
    
    13.91
    %
    
    
    15.10
    %
    
    
    17.30
    %Average equity to average assets
    
    
    11.03
    %
    
    
    12.86
    %
    
    
    13.93
    %
    
    
    16.63
    %
    
    
    17.05
    %
  2




---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS
   General
   Overview
  
    
    Total assets as of December 31, 2009 increased by 20.3% to $200 million as
compared to $167 million as of December 31, 2008.
 
    
    Net loans outstanding increased by $32 million, or 21.2%, to $183 million as of
December 31, 2009 from $151 million as of December 31, 2008.
  3




---



##### 




    
    Deposits as of December 31, 2009 were $179 million, an increase of $33 million or
23.0% from $146 million at December 31, 2008.
 
    
    The Companys net income increased to $678 thousand, or 129.9%, for the year
ended December 31, 2009 as compared to net income of $295 thousand for the year
ended December 31, 2008.
 
    
    Net interest income, the Companys main source of income, was $7.3 million during
the year ended December 31, 2009 compared to $5.6 million for the same period in
2008. This represents an increase of 31.9% for the year December 31, 2009 as
compared to 2008.
 
    
    The provision for loan losses increased from $647 thousand in 2008 to $1.6
million in 2009, reflecting increased provisions for loan losses.
   Critical Accounting Policies
   Provision for Loan Losses
 Financial Condition
   4




---



##### 



Loan Portfolio
    2009
    
    
    2008
    
    
    2007Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentage(In thousands)
    
    Balance
    
    
    of Loans
    
    
    Balance
    
    
    of Loans
    
    
    Balance
    
    
    of LoansCommercial and industrial loans
    
    $
    68,476
    
    
    
    36.9
    %
    
    $
    58,783
    
    
    
    38.4
    %
    
    $
    53,437
    
    
    
    42.3
    %Real estate loans secured by:Residential real estate
    
    
    22,140
    
    
    
    11.9
    %
    
    
    19,007
    
    
    
    12.4
    %
    
    
    **
    
    
    
    **Commercial real estate
    
    
    94,947
    
    
    
    51.2
    %
    
    
    75,200
    
    
    
    49.2
    %
    
    
    72,933
    
    
    
    57.7
    %Total real estate loans
    
    
    117,087
    
    
    
    63.1
    %
    
    
    94,207
    
    
    
    61.6
    %
    
    
    72,933
    
    
    
    57.7
    %185,563
    
    
    
    100.0
    %
    
    
    152,990
    
    
    
    100.0
    %
    
    
    126,370
    
    
    
    100.0
    %Unearned loan fees, net
    
    
    (81
    )
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (35
    )Allowance for loan losses
    
    
    (2,380
    )
    
    
    
    
    
    
    (1,860
    )
    
    
    
    
    
    
    (1,665
    )$
    183,102
    
    
    
    
    
    
    $
    151,101
    
    
    
    
    
    
    $
    124,670
 2006
    
    
    2005Percentage
    
    
    
    
    
    
    Percentage(In thousands)
    
    Balance
    
    
    of Loans
    
    
    Balance
    
    
    of LoansCommercial and industrial loans
    
    $
    45,350
    
    
    
    46.8
    %
    
    $
    38,555
    
    
    
    50.0
    %Real estate loans secured by:Residential real estate
    
    
    **
    
    
    
    **
    
    
    
    **
    
    
    
    **Commercial real estate
    
    
    51,461
    
    
    
    53.2
    %
    
    
    38,516
    
    
    
    50.0
    %Total real estate loans
    
    
    51,461
    
    
    
    53.2
    %
    
    
    38,516
    
    
    
    50.0
    %96,811
    
    
    
    100.0
    %
    
    
    77,071
    
    
    
    100.0
    %Unearned loan fees, net
    
    
    (116
    )
    
    
    
    
    
    
    (89
    )Allowance for loan losses
    
    
    (1,614
    )
    
    
    
    
    
    
    (1,615
    )$
    95,081
    
    
    
    
    
    
    $
    75,367
 **
    
    delineation by type of real estate is not available.  5




---



##### 



LOAN MATURITIES AS OF DECEMBER 31, 20091 year
    
    
    
    
    
    
    After(In thousands)
    
    or less
    
    
    1-5 years
    
    
    5 years
    
    
    TotalMaturity of Loans Receivable:Commercial and Industrial loans
    
    $
    41,619
    
    
    $
    12,442
    
    
    $
    14,415
    
    
    $
    68,476Real estate loans
    
    
    23,427
    
    
    
    25,297
    
    
    
    68,363
    
    
    
    117,087Total loans receivable
    
    $
    65,046
    
    
    $
    37,739
    
    
    $
    82,778
    
    
    $
    185,563Fixed interest rates
    
    $
    9,268
    
    
    $
    31,787
    
    
    $
    2,868
    
    
    $
    43,923Floating and adjustable interest rates
    
    
    55,778
    
    
    
    5,952
    
    
    
    79,910
    
    
    
    141,640Total loans receivable
    
    $
    65,046
    
    
    $
    37,739
    
    
    $
    82,778
    
    
    $
    185,563
 LOAN RE- PRICING AS OF DECEMBER 31, 20091 year
    
    
    
    
    
    
    After(In thousands)
    
    or less
    
    
    1-5 years
    
    
    5 years
    
    
    TotalLoans with:Fixed interest rates
    
    $
    9,268
    
    
    $
    31,787
    
    
    $
    2,868
    
    
    $
    43,923Floating and adjustable
interest rates
    
    
    66,920
    
    
    
    73,483
    
    
    
    1,237
    
    
    
    141,640Total loans receivable
    
    $
    76,188
    
    
    $
    105,270
    
    
    $
    4,105
    
    
    $
    185,563
     6




---



##### 



(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Allowance for loan losses:Beginning balance
    
    $
    1,860
    
    
    $
    1,665
    
    
    $
    1,614
    
    
    $
    1,615
    
    
    $
    1,154Charge-offs- commercial and industrial loans
    
    
    (963
    )
    
    
    (497
    )
    
    
    (72
    )
    
    
    (226
    )
    
    
    (15
    )Recoveries- commercial and industrial loans
    
    
    5
    
    
    
    45
    
    
    
    78
    
    
    
    
    
    
    
    116Charge-offs- commercial real estate loan
    
    
    (138
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net recoveries (charge-offs)
    
    
    (1,096
    )
    
    
    (452
    )
    
    
    6
    
    
    
    (226
    )
    
    
    101Provision for loan losses
    
    
    1,616
    
    
    
    647
    
    
    
    45
    
    
    
    225
    
    
    
    360Ending balance
    
    $
    2,380
    
    
    $
    1,860
    
    
    $
    1,665
    
    
    $
    1,614
    
    
    $
    1,615Net recoveries (charge-offs) to average loans
    
    
    (0.65
    %)
    
    
    (0.33
    %)
    
    
    0.00
    %
    
    
    (0.26
    )%
    
    
    0.15
    %
  Loan Quality
   7




---



##### 



(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balance at the beginning of the year
    
    $
    5,819
    
    
    $
    1,125
    
    
    $
    628
    
    
    $
    592
    
    
    $
    1,057New loans placed on non-accrual
    
    
    2,427
    
    
    
    5,046
    
    
    
    569
    
    
    
    262Less:Loan restored to interest earning status
    
    
    1,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid-off: sold in foreclosure
    
    
    576
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other real estate owned additions
    
    
    2,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charge offs
    
    
    1,101
    
    
    
    236
    
    
    
    72
    
    
    
    226
    
    
    
    15Other including payments received
    
    
    107
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    450Balance at the end of the year
    
    $
    2,734
    
    
    $
    5,819
    
    
    $
    1,125
    
    
    $
    628
    
    
    $
    592
  (In thousands)
    
    2009
    
    
    2008Loans classified as impaired with specific reserves
    
    $
    2,519
    
    
    $
    1,892Loans classified as impaired with no specific reserves
    
    
    215
    
    
    
    3,927Total loans classified as impaired
    
    $
    2,734
    
    
    $
    5,819Allowance for loan losses on impaired loans
    
    $
    922
    
    
    $
    840Average balance of impaired loans during year
    
    $
    4,559
    
    
    $
    2,142
       8




---



##### 



(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Nonaccrual loans:Commercial and Industrial
    
    $
    2,734
    
    
    $
    2,218
    
    
    $
    1,125
    
    
    $
    628
    
    
    $
    592Real estate  commercial
    
    
    
    
    
    
    3,601
    
    
    
    
    
    
    
    
    
    
    
    Accrual loans -past due 90 days and over
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans
    
    
    2,734
    
    
    
    5,819
    
    
    
    1,125
    
    
    
    628
    
    
    
    592Other real estate owned
    
    
    2,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets
    
    $
    5,196
    
    
    $
    5,819
    
    
    $
    1,125
    
    
    $
    628
    
    
    $
    592Allowance for loan losses to total
non-performing loans
    
    
    87.1
    %
    
    
    32.0
    %
    
    
    148.0
    %
    
    
    257.0
    %
    
    
    272.8
    %Non-performing loans to total loans
    
    
    1.47
    %
    
    
    3.80
    %
    
    
    0.89
    %
    
    
    0.65
    %
    
    
    0.77
    %Non-performing assets to total assets
    
    
    2.76
    %
    
    
    3.80
    %
    
    
    0.89
    %
    
    
    0.65
    %
    
    
    0.77
    %
  ALLOWANCE FOR LOAN LOSSES BY CATEGORY
 December 31, 2009
    
    
    December 31, 2008% of Loans in
    
    
    
    
    
    
    % of Loans inAllocated
    
    
    each Category to
    
    
    Allocated
    
    
    each Category toAllowance
    
    
    Total Loans
    
    
    Allowance
    
    
    Total Loans(In thousands)
    
    Amount
    
    
    Receivable
    
    
    Amount
    
    
    ReceivableCommercial and
industrial loans
    
    $
    1,898
    
    
    
    36.7
    %
    
    $
    1,538
    
    
    
    38.4
    %Real estate loans
    
    
    436
    
    
    
    63.3
    %
    
    
    317
    
    
    
    61.6
    %Unallocated to loan type
    
    
    46
    
    
    
    
    
    
    
    5
    
    
    
    $
    2,380
    
    
    
    100.0
    %
    
    $
    1,860
    
    
    
    100.0
    %
 December 31, 2007
    
    
    December 31, 2006% of Loans in
    
    
    
    
    
    
    % of Loans inAllocated
    
    
    each Category to
    
    
    Allocated
    
    
    each Category toAllowance
    
    
    Total Loans
    
    
    Allowance
    
    
    Total Loans(In thousands)
    
    Amount
    
    
    Receivable
    
    
    Amount
    
    
    ReceivableCommercial and
industrial loans
    
    $
    1,284
    
    
    
    42.3
    %
    
    $
    642
    
    
    
    46.8
    %Real estate loans
    
    
    273
    
    
    
    57.7
    %
    
    
    972
    
    
    
    53.2
    %Unallocated to loan type
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    $
    1,665
    
    
    
    100.0
    %
    
    $
    1,614
    
    
    
    100.0
    %
  9




---



##### 



December 31, 2005% of Loans inAllocated
    
    
    each Category toAllowance
    
    
    Total Loans(In thousands)
    
    Amount
    
    
    ReceivableCommercial and industrial loans
    
    $
    784
    
    
    
    50.0
    %Real estate loans
    
    
    831
    
    
    
    50,0
    %Unallocated to loan type
    
    
    
    
    
    
    $
    1,615
    
    
    
    100.0
    %
 Investments
    (In thousands)
    
    2009
    
    
    2008
    
    
    2007Investment securities:U.S. Treasuries
    
    $
    
    
    
    $
    3,086
    
    
    $
    9,168Restricted stock:Federal Reserve Bank stock
    
    
    465
    
    
    
    405
    
    
    
    405Corporate equities
    
    
    62
    
    
    
    62
    
    
    
    62Total securities
    
    $
    527
    
    
    $
    3,553
    
    
    $
    9,635
   Deposits and Liquidity Management
   10




---



##### 



(In thousands)
    
    2009
    
    
    2008
    
    
    2007NOW accounts
    
    $
    309
    
    
    $
    1,247
    
    
    $
    2,440Money Market accounts
    
    
    7,841
    
    
    
    13,049
    
    
    
    16,268Savings accounts
    
    
    10,379
    
    
    
    148
    
    
    
    36Certificates of deposit accounts:Less than $100,000
    
    
    71,593
    
    
    
    37,539
    
    
    
    11,383$100,000 or more
    
    
    67,499
    
    
    
    69,659
    
    
    
    74,035$
    157,621
    
    
    $
    121,642
    
    
    $
    104,162
   11




---



##### 



December 31,(In thousands)
    
    2009
    
    
    2008Three months or less
    
    $
    16,874
    
    
    $
    12,084Over three but within twelve months
    
    
    36,912
    
    
    
    44,437Over twelve months through three years
    
    
    11,139
    
    
    
    12,861Over three years
    
    
    2,574
    
    
    
    277Total
    
    $
    67,499
    
    
    $
    69,659
  CDs with balances
    
    
    CDs with balancesof less than
    
    
    of $100,000 orSource
    
    $100,000
    
    
    greater
    
    
    Total(thousands)Local markets
    
    $
    14,521
    
    
    $
    51,341
    
    
    $
    65,862National market
    
    
    27,914
    
    
    
    548
    
    
    
    28,462CDARS program:Customers funds
    
    
    2,636
    
    
    
    11,231
    
    
    
    13,867Proprietary
funding
    
    
    9,288
    
    
    
    893
    
    
    
    10,181Other brokered funds
    
    
    17,234
    
    
    
    3,486
    
    
    
    20,720Total
    
    $
    71,593
    
    
    $
    67,499
    
    
    $
    139,092
    Borrowed funds
   12




---



##### 



2009
    
    
    2008
    
    
    2007Total outstanding at year-end
    
    $
    
    
    
    $
    
    
    
    $
    4,305,936Average rate at year end
    
    
    
    
    
    
    
    
    
    
    2.40
    %Average balance during the year
    
    $
    
    
    
    $
    2,650,978
    
    
    $
    3,494,779Average interest rate during the year
    
    
    
    
    
    
    1.12
    %
    
    
    2.62
    %Maximum amount at any month end
    
    $
    
    
    
    $
    5,494,595
    
    
    $
    9,492,000
 Stockholders Equity
   RESULTS OF OPERATIONS
   RETURN ON AVERAGE ASSETS AND AVERAGE EQUITY
Year Ended December 31,
 2009
    
    
    2008
    
    
    2007Return on Average Equity
    
    
    4.54
    %
    
    
    1.92
    %
    
    
    7.47
    %Return on Average Earning Assets
    
    
    0.51
    %
    
    
    0.25
    %
    
    
    1.07
    %Ratio of Average Equity to Average Assets
    
    
    11.03
    %
    
    
    12.86
    %
    
    
    13.93
    %
 Net Interest Income and Net Interest Margin
    13




---



##### 



AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
Years Ended
 2009
    
    
    2008Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/(In thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssets:Interest Earning Assets:Loans receivable
    
    $
    169,888
    
    
    $
    11,791
    
    
    
    6,94
    %
    
    $
    138,166
    
    
    $
    10,130
    
    
    
    7.31
    %Investment securities
    
    
    2,391
    
    
    
    108
    
    
    
    4.52
    %
    
    
    7,718
    
    
    
    341
    
    
    
    4.41
    %Interest bearing deposits
    
    
    10,127
    
    
    
    26
    
    
    
    0.26
    %
    
    
    306
    
    
    
    8
    
    
    
    2.61
    %Federal funds sold
    
    
    949
    
    
    
    3
    
    
    
    0.32
    %
    
    
    8,654
    
    
    
    171
    
    
    
    1.97
    %Total Interest Earning Assets
    
    
    183,355
    
    
    
    11,928
    
    
    
    6.51
    %
    
    
    154,844
    
    
    
    10,650
    
    
    
    6.86
    %Less allowance for loan losses
    
    
    (2,146
    )
    
    
    
    
    
    
    
    
    
    
    (1,738
    )Non-Interest Earning Assets
    
    
    5,830
    
    
    
    
    
    
    
    
    
    
    
    5,971Total Assets
    
    $
    187,039
    
    
    
    
    
    
    
    
    
    
    $
    159,077Liabilities and Stockholders Equity:Interest -Bearing Liabilities:Interest bearing demand deposits
    
    $
    1,600
    
    
    $
    1
    
    
    
    0.06
    %
    
    $
    1,373
    
    
    $
    3
    
    
    
    0.22
    %Money market deposit accounts
    
    
    11,942
    
    
    
    63
    
    
    
    0.53
    %
    
    
    17,852
    
    
    
    321
    
    
    
    1.79
    %Savings accounts
    
    
    3,942
    
    
    
    71
    
    
    
    1.80
    %
    
    
    91
    
    
    
    
    
    
    
    Certificates of deposit
    
    
    126,451
    
    
    
    4,452
    
    
    
    3.52
    %
    
    
    97,124
    
    
    
    4,729
    
    
    
    4.86
    %Securities sold under agreements
to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,651
    
    
    
    302
    
    
    
    1.13
    %Total Interest Bearing Liabilities
    
    
    143,935
    
    
    
    4,587
    
    
    
    3.19
    %
    
    
    119,091
    
    
    
    5,083
    
    
    
    4.26
    %Non-Interest Bearing Liabilities:Demand deposits
    
    
    21,413
    
    
    
    
    
    
    
    
    
    
    
    18,608Other
    
    
    1,058
    
    
    
    
    
    
    
    
    
    
    
    917Total Liabilities
    
    
    166,406
    
    
    
    
    
    
    
    
    
    
    
    138,616Stockholders Equity
    
    
    20,633
    
    
    
    
    
    
    
    
    
    
    
    20,461Total Liabilities and Equity
    
    $
    187,039
    
    
    
    
    
    
    
    
    
    
    $
    159,077Net Interest Income
    
    
    
    
    
    $
    7,341
    
    
    
    
    
    
    
    
    
    
    $
    5,567Net Interest Spread
    
    
    
    
    
    
    
    
    
    
    3.32
    %
    
    
    
    
    
    
    
    
    
    
    2.60
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    4.00
    %
    
    
    
    
    
    
    
    
    
    
    3.59
    %
 Yields on securities are calculated based on amortized cost.
  14




---



##### 



AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE
Year Ended
 2007Average
    
    
    
    
    
    
    Yield/(In thousands)
    
    Balance
    
    
    Interest
    
    
    RateAssets:Interest Earning Assets:Loans receivable
    
    $
    111,385
    
    
    $
    9,680
    
    
    
    8.69
    %Investment securities
    
    
    10,750
    
    
    
    460
    
    
    
    4.28
    %Interest bearing deposits
    
    
    
    
    
    
    
    
    
    
    Federal funds sold
    
    
    13,810
    
    
    
    683
    
    
    
    4.95
    %Total Interest Earning Assets
    
    
    135,945
    
    
    
    10,823
    
    
    
    7.96
    %Less allowance for loan losses
    
    
    (1,705
    )Non-Interest Earning Assets
    
    
    5,236Total Assets
    
    $
    139,476Liabilities and Stockholders Equity:Interest -Bearing Liabilities:Interest bearing demand deposits
    
    $
    2,333
    
    
    $
    32
    
    
    
    1.37
    %Money market deposit accounts
    
    
    18,466
    
    
    
    715
    
    
    
    3.87
    %Savings accounts
    
    
    141
    
    
    
    1
    
    
    
    0.71
    %Certificates of deposit
    
    
    75,651
    
    
    
    4,027
    
    
    
    5.32
    %Securities sold under agreements
to repurchase
    
    
    3,495
    
    
    
    92
    
    
    
    2.63
    %Total Interest Bearing Liabilities
    
    
    100,086
    
    
    
    4,867
    
    
    
    4.86
    %Non-Interest Bearing Liabilities:Demand deposits
    
    
    18,884Other
    
    
    1,075Total Liabilities
    
    
    120,045Stockholders Equity
    
    
    19,431Total Liabilities and Equity
    
    $
    139,476Net Interest Income
    
    
    
    
    
    $
    5,956Net Interest Spread
    
    
    
    
    
    
    
    
    
    
    3.10
    %Net Interest Margin
    
    
    
    
    
    
    
    
    
    
    4.38
    %
 Yields on securities are calculated based on amortized cost.
   15




---



##### 



Rate/Volume Analysis of Net Interest Income
  RATE/VOLUME ANALYSIS
 2009 vs. 2008
    
    
    2008 vs. 2007Increase (Decrease)
    
    
    Increase (Decrease)In thousands)
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest-Earning Assets:Federal funds sold
    
    $
    (152
    )
    
    $
    (16
    )
    
    $
    (168
    )
    
    $
    (255
    )
    
    $
    (257
    )
    
    $
    (512
    )Interest bearing deposits
    
    
    18
    
    
    
    
    
    
    
    18
    
    
    
    8
    
    
    
    
    
    
    
    8Investment portfolio
    
    
    (258
    )
    
    
    24
    
    
    
    (234
    )
    
    
    (130
    )
    
    
    12
    
    
    
    (118
    )Loans receivable
    
    
    2,325
    
    
    
    (664
    )
    
    
    1,661
    
    
    
    2,313
    
    
    
    (1,802
    )
    
    
    511Net Change in Interest Income
    
    
    1,933
    
    
    
    (656
    )
    
    
    1,277
    
    
    
    1,936
    
    
    
    (2,047
    )
    
    
    (111
    )Interest Bearing Liabilities:Interest bearing deposits
    
    
    1,193
    
    
    
    (1,660
    )
    
    
    (467
    )
    
    
    981
    
    
    
    (703
    )
    
    
    278Other borrowed funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Securities sold under agreements
to repurchase
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )
    
    
    (22
    )
    
    
    (40
    )
    
    
    (62
    )Net Change in Interest
Expense
    
    
    1,163
    
    
    
    (1,660
    )
    
    
    (497
    )
    
    
    959
    
    
    
    (743
    )
    
    
    216Change in Net Interest Income
    
    $
    770
    
    
    $
    1,004
    
    
    $
    1,774
    
    
    $
    977
    
    
    $
    (558
    )
    
    $
    (327
    )
 Provision for Loan Losses
   Non-interest Income
      16




---



##### 



Non-interest Expense
  Income Taxes
 Accounting for Income Taxes
 Off-Balance Sheet Arrangements
  Interest Rate Risk Management
   17




---



##### 



RATE SENSITIVITY ANALYSIS (Static GAP)
December 31, 2009
 0-3
    
    
    4-12
    
    
    1-3
    
    
    >3<5(In thousands)
    
    Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    5 YRS +
    
    
    TotalInterest earning assetsInterest bearing deposits
    
    $
    8,228
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,228Federal funds sold
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Loans*
    
    
    60,029
    
    
    
    14,270
    
    
    
    41,380
    
    
    
    62,964
    
    
    
    4,105
    
    
    
    182,748Total
    
    
    68,411
    
    
    
    14,270
    
    
    
    41,380
    
    
    
    62,964
    
    
    
    4,105
    
    
    
    191,130Interest bearing
liabilitiesSavings/MoneyMarket/NOW
    
    
    18,529
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,529Certificates of deposit
    
    
    26,607
    
    
    
    68,118
    
    
    
    37,587
    
    
    
    6,780
    
    
    
    
    
    
    
    139,092Total
    
    
    45,136
    
    
    
    68,118
    
    
    
    37,587
    
    
    
    6,780
    
    
    
    
    
    
    
    157,621GAP:Period
    
    $
    23,275
    
    
    
    (53,848
    )
    
    
    3,793
    
    
    
    56,184
    
    
    
    4,105
    
    
    $
    33,509Cumulative
    
    
    
    
    
    $
    (30,573
    )
    
    $
    (26,780
    )
    
    $
    29,404
    
    
    $
    33,509
 *
    
    Loan amounts above exclude $2.7 million of loans on non-interest accrual. Capital Resources and Adequacy
      18




---



##### 



Market for Common Stock and Dividends
  2009
    
    
    2008High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    5.60
    
    
    
    4.05
    
    
    $
    11.30
    
    
    $
    9.90Second Quarter
    
    
    6.25
    
    
    
    4.50
    
    
    
    10.75
    
    
    
    8.32Third Quarter
    
    
    6.75
    
    
    
    5.26
    
    
    
    8.82
    
    
    
    7.09Fourth Quarter
    
    
    6.25
    
    
    
    5.08
    
    
    
    8.25
    
    
    
    5.25
  Financial Statements
   19




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  20




---



##### 



CommerceFirst Bancorp, Inc. and Subsidiary
 Consolidated Statements of Financial Condition
 December 31, 2009 and December 31, 2008
 December 31,
    
    
    December 31,2009
    
    
    2008ASSETSCash and due from banks
    
    $
    2,105,545
    
    
    $
    3,290,691Interest bearing deposits
    
    
    8,228,452
    
    
    
    Federal funds sold
    
    
    154,310
    
    
    
    5,673,666Cash and cash equivalents
    
    
    10,488,307
    
    
    
    8,964,357Investment securities  available-for-sale, at fair value
    
    
    
    
    
    
    3,085,770Investments in restricted stocks, at cost
    
    
    527,000
    
    
    
    467,000Loans receivable, net of allowance for loan losses of $2,380,000
at December 31, 2009 and $1,860,000 at December 31, 2008
    
    
    183,101,808
    
    
    
    151,101,169Premises and equipment, net
    
    
    739,479
    
    
    
    1,000,967Accrued interest receivable
    
    
    680,549
    
    
    
    639,538Deferred income taxes
    
    
    919,299
    
    
    
    667,993Other real estate owned
    
    
    2,461,957
    
    
    
    Other assets
    
    
    1,452,938
    
    
    
    642,280Total Assets
    
    $
    200,371,337
    
    
    $
    166,569,074LIABILITIESNon-interest bearing deposits
    
    $
    21,024,369
    
    
    $
    23,598,842Interest bearing deposits
    
    
    157,621,122
    
    
    
    121,642,218Total deposits
    
    
    178,645,491
    
    
    
    145,241,060Accrued interest payable
    
    
    183,958
    
    
    
    265,105Other liabilities
    
    
    599,914
    
    
    
    752,352Total Liabilities
    
    
    179,429,363
    
    
    
    146,258,517STOCKHOLDERS EQUITYCommon stock  $.01 par value; authorized 4,000,000 shares.
Issued and outstanding: 1,820,548 shares at December 31, 2009
and at December 31, 2008
    
    
    18,205
    
    
    
    18,205Additional paid-in capital
    
    
    17,852,931
    
    
    
    17,852,931Retained earnings
    
    
    3,070,838
    
    
    
    2,392,882Accumulated other comprehensive income:Net unrealized gain on securities available-for-sale
    
    
    
    
    
    
    46,539Total Stockholders Equity
    
    
    20,941,974
    
    
    
    20,310,557Total Liabilities and Stockholders Equity
    
    $
    200,371,337
    
    
    $
    166,569,074
   21




---



##### 



CommerceFirst Bancorp, Inc. and Subsidiary
 Consolidated Statements of Operations
 For the Years Ended December 31, 2009 and 2008
 December 31,
    
    
    December 31,2009
    
    
    2008Interest income:Interest and fees on loans
    
    $
    11,791,357
    
    
    $
    10,129,748U.S. Treasury securities
    
    
    82,093
    
    
    
    316,944Investment in stocks
    
    
    26,350
    
    
    
    25,093Interest bearing deposits
    
    
    25,723
    
    
    
    7,960Federal funds sold
    
    
    2,618
    
    
    
    171,009Total interest income
    
    
    11,928,141
    
    
    
    10,650,754Interest expense:Deposits
    
    
    4,586,705
    
    
    
    5,053,614Repurchase agreements
    
    
    
    
    
    
    29,852Total interest expense
    
    
    4,586,705
    
    
    
    5,083,466Net interest income
    
    
    7,341,436
    
    
    
    5,567,288Provision for loan losses
    
    
    1,616,167
    
    
    
    647,105Net interest income after provision for loan losses
    
    
    5,725,269
    
    
    
    4,920,183Non-interest income:Gain on sale of SBA loans
    
    
    257,233
    
    
    
    241,220Gain on sale of securities
    
    
    
    
    
    
    40,431Service charges and other income
    
    
    462,452
    
    
    
    287,417Total non-interest income
    
    
    719,685
    
    
    
    569,068Non-interest expenses:Compensation and benefits
    
    
    2,903,142
    
    
    
    2,865,510Legal and professional
    
    
    249,752
    
    
    
    298,167Rent and occupancy
    
    
    557,898
    
    
    
    536,940Marketing and business development
    
    
    58,515
    
    
    
    121,660FDIC insurance
    
    
    365,996
    
    
    
    101,550Data processing
    
    
    138,522
    
    
    
    132,206Support services
    
    
    184,725
    
    
    
    179,586Communications
    
    
    121,316
    
    
    
    112,437Depreciation and amortization
    
    
    279,514
    
    
    
    294,009Other
    
    
    455,959
    
    
    
    385,874Total non-interest expenses
    
    
    5,315,339
    
    
    
    5,027,939Income before income taxes
    
    
    1,129,615
    
    
    
    461,312Income tax expense
    
    
    451,659
    
    
    
    166,397Net income
    
    $
    677,956
    
    
    $
    294,915Basic earnings per share
    
    $
    0.37
    
    
    $
    0.16Diluted earnings per share
    
    $
    0.37
    
    
    $
    0.16
   22




---



##### 



CommerceFirst Bancorp, Inc. and Subsidiary
 Consolidated Statements of Comprehensive Income
 For the Years Ended December 31, 2009 and 2008
 December 31,
    
    
    December 31,2009
    
    
    2008Net income
    
    $
    677,956
    
    
    $
    294,915Reclassification adjustment for gain
included in net income, net of tax
    
    
    
    
    
    
    (28,679
    )Change in unrealized gains and
(losses) on securities available-for-sale,
net of tax
    
    
    (46,539
    )
    
    
    (12,040
    )Other comprehensive income (loss)
    
    
    (46,539
    )
    
    
    (40,719
    )Total comprehensive income
    
    $
    631,417
    
    
    $
    254,196
   23




---



##### 



CommerceFirst Bancorp, Inc. and Subsidiary
 Consolidated Statements of Stockholders Equity
 For the Years Ended December 31, 2009 and 2008
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance December 31, 2007
    
    $
    18,205
    
    
    $
    17,852,931
    
    
    $
    2,097,967
    
    
    $
    87,258
    
    
    $
    20,056,361Net income in 2008
    
    
    
    
    
    
    
    
    
    
    294,915
    
    
    
    
    
    
    
    294,915Net change in unrealized gains and
(losses) on securities available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,719
    )
    
    
    (40,719
    )Balance December 31, 2008
    
    
    18,205
    
    
    
    17,852,931
    
    
    
    2,392,882
    
    
    
    46,539
    
    
    
    20,310,557Net income in 2009
    
    
    
    
    
    
    
    
    
    
    677,956
    
    
    
    
    
    
    
    677,956Net change in unrealized gains and
(losses) on securities available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,539
    )
    
    
    (46,539
    )Balance December 31, 2009
    
    $
    18,205
    
    
    $
    17,852,931
    
    
    $
    3,070,838
    
    
    $
    
    
    
    $
    20,941,974
   24




---



##### 



CommerceFirst Bancorp, Inc. and Subsidiary
 Consolidated Statements of Cash Flows
 For the Years Ended December 31, 2009 and 2008
 December 31,
    
    
    December 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    677,956
    
    
    $
    294,915Adjustments to reconcile net income to net cash
provided by operations:Depreciation and amortization
    
    
    279,514
    
    
    
    294,009Gain on sale of investment security
    
    
    
    
    
    
    (40,431
    )Gain on sales of SBA loans
    
    
    (257,233
    )
    
    
    (241,220
    )Provision for loan losses
    
    
    1,616,167
    
    
    
    647,105Provision for losses on unfunded commitments
    
    
    6,000
    
    
    
    6,000Deferred income taxes
    
    
    (220,991
    )
    
    
    (91,524
    )Change in assets and liabilities:(Increase) decrease in accrued interest receivable
    
    
    (41,011
    )
    
    
    103,228Increase in other assets
    
    
    (810,658
    )
    
    
    (253,650
    )(Decrease) increase in accrued interest payable
    
    
    (81,147
    )
    
    
    63,852Decrease in other liabilities
    
    
    (158,438
    )
    
    
    (92,835
    )Other
    
    
    8,916
    
    
    
    17,680Net cash provided by operating activities
    
    
    1,019,075
    
    
    
    707,129CASH FLOWS FROM INVESTING ACTIVITIESPurchase of restricted stock
    
    
    (60,000
    )
    
    
    Maturities of investment securities
    
    
    3,000,000
    
    
    
    3,000,000Proceeds from sale of investment security
    
    
    
    
    
    
    3,039,375Proceeds from sales of SBA loans
    
    
    4,821,753
    
    
    
    4,129,121Increase in loans, net
    
    
    (38,181,326
    )
    
    
    (30,966,385
    )Increase in other real estate owned
    
    
    (2,461,957
    )
    
    
    Purchase of premises and equipment
    
    
    (18,026
    )
    
    
    (197,049
    )Net cash used by investing activities
    
    
    (32,899,556
    )
    
    
    (20,994,938
    )CASH FLOWS FROM FINANCING ACTIVITIES(Decrease) increase in non-interest bearing deposits, net
    
    
    (2,574,473
    )
    
    
    4,352,955Net increase in other deposits
    
    
    35,978,904
    
    
    
    17,480,259Net decrease in securities sold under agreements
to repurchase
    
    
    
    
    
    
    (4,305,936
    )Net cash provided by financing activities
    
    
    33,404,431
    
    
    
    17,527,278Net increase (decrease) in cash and cash equivalents
    
    
    1,523,950
    
    
    
    (2,760,531
    )Cash and cash equivalents at beginning of period
    
    
    8,964,357
    
    
    
    11,724,888Cash and cash equivalents at end of period
    
    $
    10,488,307
    
    
    $
    8,964,357SUPPLEMENTAL CASH FLOW INFORMATIONInterest paid
    
    $
    4,667,852
    
    
    $
    5,019,614Total decrease in unrealized gains on available
for sale securities
    
    $
    (76,854
    )
    
    $
    (65,306
    )
   25




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. The Company and its Significant Accounting Policies
  Principles of Consolidation
  Use of Estimates
  Investment Securities
     26




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. The Company and its Significant Accounting Policies (continued)
 Restricted Securities
  Loans and Allowance for Loan Losses
   The FASB Accounting Standards Codification (ASC) , , Accounting by Creditors for
Impairment of a Loan as amended by Statement 118, Accounting by Creditors for Impairment of
a Loan  Income Recognition and Disclosures)
    27




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. The Company and its Significant Accounting Policies (continued)
 Unearned Discounts and Servicing Rights of SBA Loans Sold
   Other Real Estate Owned (OREO)
  Reserve for Unfunded Commitments
  Premises and Equipment
   28




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. The Company and its Significant Accounting Policies (continued)
 Long-Lived Assets
 Accounting for the Impairment or
Disposal of Long-Lived Asset)
 Transfers of Financial Assets
  Deferred Income Taxes
  Securities Sold under Agreements to Repurchase
  Concentration of Credit Risk
   Comprehensive Income or Loss
   29




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. The Company and its Significant Accounting Policies (continued)
 Statement of Cash Flows
  Earnings Per Share
   2009
    
    
    2008Weighted average shares outstanding
    
    
    1,820,548
    
    
    
    1,820,548Common stock equivalents
    
    
    
    
    
    
    Average common shares and equivalents
    
    
    1,820,548
    
    
    
    1,820,548Net income
    
    $
    677,956
    
    
    $
    294,915Basic earnings per share
    
    $
    0.37
    
    
    $
    0.16Diluted earnings per share
    
    $
    0.37
    
    
    $
    0.16
  Stock Options
 Share-Based Payments)
 Fair Value
 Fair Value Measurements)
  30




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. The Company and its Significant Accounting Policies (continued)
 Fair Value
  Review of Subsequent Events
  Reclassification
  Note 2. Investment Securities
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2008:U.S. Treasury
(due within one
year)
    
    $
    3,008,916
    
    
    $
    76,854
    
    
    $
    
    
    
    $
    3,085,770
    December 31,2009
    
    
    2008Federal Reserve Bank of Richmond
    
    $
    465,000
    
    
    $
    405,000Atlantic Central Bankers Bank
    
    
    37,000
    
    
    
    37,000Maryland Financial Bank
    
    
    25,000
    
    
    
    25,000$
    527,000
    
    
    $
    467,000
  31




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 3. Loans
  December 31, 2009
    
    
    December 31, 2008Percentage
    
    
    
    
    
    
    PercentageBalance
    
    
    of Loans
    
    
    Balance
    
    
    of LoansCommercial & Industrial loans
    
    $
    68,476,247
    
    
    
    36.9
    %
    
    $
    58,782,633
    
    
    
    38.4
    %Real estate loans secured by:Residential real estate
    
    
    22,140,255
    
    
    
    11.9
    %
    
    
    19,006,592
    
    
    
    12.4
    %Commercial real estate
    
    
    94,946,433
    
    
    
    51.2
    %
    
    
    75,200,348
    
    
    
    49.2
    %Total real estate loans
    
    
    117,086,688
    
    
    
    63.1
    %
    
    
    94,206,940
    
    
    
    61.6
    %185,562,935
    
    
    
    100.0
    %
    
    
    152,989,573
    
    
    
    100.0
    %Unearned loan fees, net
    
    
    (81,127
    )
    
    
    
    
    
    
    (28,404
    )Allowance for loan losses
    
    
    (2,380,000
    )
    
    
    
    
    
    
    (1,860,000
    )$
    183,101,808
    
    
    
    
    
    
    $
    151,101,169
   2009
    
    
    2008Balance at beginning of period
    
    $
    1,860,000
    
    
    $
    1,665,000Provision for loan losses
    
    
    1,616,167
    
    
    
    647,105Commercial and Industrial loans charged off
    
    
    (963,172
    )
    
    
    (497,510
    )Commercial real estate loan charge off
    
    
    (137,947
    )
    
    
    Commercial and Industrial loans recovery
    
    
    4,952
    
    
    
    45,405Net charge off
    
    
    (1,096,167
    )
    
    
    (452,105
    )Balance at end of period
    
    $
    2,380,000
    
    
    $
    1,860,000
  2009
    
    
    2008Total loans at beginning of year
    
    $
    3,603,709
    
    
    $
    4,621,497New loans and funding during the year
    
    
    353,766
    
    
    
    41,692Repayments during the year
    
    
    (363,340
    )
    
    
    (1,059,480
    )Total loans at end of year
    
    $
    3,594,135
    
    
    $
    3,603,709
   32




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 3. Loans (continued)
  Loan AmountBalance at December 31, 2008
    
    $
    5,819,139New loans placed on non-accrual
    
    
    2,426,957Less:Loan restored to interest earning status
    
    
    1,265,991Pay-off : Sold in foreclosure
    
    
    575,774Other real estate owned addition
    
    
    2,461,957Charge  offs
    
    
    1,101,118Other including payments
    
    
    107,583Balance at December 31, 2009
    
    $
    2,733,673
  December 31,
    
    
    December 31,2009
    
    
    2008Loans classified as impaired with specific reserves
    
    $
    2,518,689
    
    
    $
    1,892,056Loans classified as impaired with no specific
reserves
    
    
    214,984
    
    
    
    3,927,083Total loans classified as impaired
    
    $
    2,733,673
    
    
    $
    5,819,139Allowance for loan losses on impaired loans
    
    $
    921,636
    
    
    $
    840,429Average balance of impaired loans during period
    
    $
    4,558,766
    
    
    $
    2,141,744
       33




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 4. Premises and Equipment
  UsefulLives
    
    2009
    
    
    2008Equipment
    
    3-10 years
    
    $
    652,723
    
    
    $
    686,198Furniture and fixtures
    
    3-5 years
    
    
    645,872
    
    
    
    652,620Leasehold improvements
    
    4-10 years
    
    
    343,698
    
    
    
    343,698Software
    
    3 years
    
    
    17,025
    
    
    
    27,1651,659,318
    
    
    
    1,709,681Accumulated depreciation
and amortization
    
    
    
    
    919,839
    
    
    
    708,714Net
    
    
    
    $
    739,479
    
    
    $
    1,000,967
 Note 5. Deposits
  2009
    
    
    2008NOW accounts
    
    $
    309,310
    
    
    $
    1,247,466Money Market accounts
    
    
    7,840,804
    
    
    
    13,049,169Savings accounts
    
    
    10,379,367
    
    
    
    147,096Certificates of deposit accounts:Less than $100,000
    
    
    71,592,556
    
    
    
    37,538,787$100,000 or more
    
    
    67,499,085
    
    
    
    69,659,700$
    157,621,122
    
    
    $
    121,642,218
   2009
    
    
    2008NOW accounts
    
    $
    800
    
    
    $
    2,938Money Market accounts
    
    
    63,032
    
    
    
    321,781Savings accounts
    
    
    71,476
    
    
    
    162Certificates of deposit, $100,000 or more
    
    
    2,919,894
    
    
    
    3,671,349Certificates of deposit, less than $100,00
    
    
    1,531,503
    
    
    
    1,057,384$
    4,586,705
    
    
    $
    5,053,614
    34




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 6. Short-term borrowings
  2008Total outstanding at year-end
    
    $
    Average balance during the year
    
    $
    2,650,978Average interest rate during the year
    
    
    1.12
    %
  Note 7. Income Taxes
  2009
    
    
    2008Current:Federal
    
    $
    532,298
    
    
    $
    217,239State
    
    
    140,352
    
    
    
    40,682672,650
    
    
    
    257,921Deferred:Federal
    
    
    (178,305
    )
    
    
    (56,749
    )State
    
    
    (42,686
    )
    
    
    (34,775
    )(220,991
    )
    
    
    (91,524
    )$
    451,659
    
    
    $
    166,397
  2009
    
    
    2008Federal tax at statutory rates
    
    $
    384,069
    
    
    $
    156,846State income taxes net of
federal tax benefit
    
    
    64,460
    
    
    
    18,073Other
    
    
    3,130
    
    
    
    (8,522
    )$
    451,659
    
    
    $
    166,397
  2009
    
    
    2008Deferred tax assets:Allowance for loan losses
    
    $
    787,340
    
    
    $
    647,795Deferred unpaid leave
    
    
    86,779
    
    
    
    95,496Non-accrued interest income
    
    
    81,872
    
    
    
    Other
    
    
    21,304
    
    
    
    18,934977,295
    
    
    
    762,225Deferred tax liabilities:Accumulated depreciation
    
    
    57,996
    
    
    
    63,917Unrealized gain on securities, net
    
    
    
    
    
    
    30,31557,996
    
    
    
    94,232Net deferred tax assets
    
    $
    919,299
    
    
    $
    667,993
  35




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 8. Commitments and Contingencies
   2009Loan commitments:Commercial
    
    $
    3,730,000Commercial real estate
    
    
    3,503,000$
    7,233,000Un-advanced loan funds:Commercial
    
    $
    31,836,000Commercial real estate
    
    
    6,907,000$
    38,743,000Standby letters of credit
    
    $
    774,000
      36




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 8. Commitments and Contingencies (continued)
  Year EndingDecember 31,2010
    
    $
    416,8682011
    
    
    397,3172012
    
    
    317,9722013
    
    
    323,1642014
    
    
    321,8812015
    
    
    134,9472016
    
    
    59,400
  Note 9. Regulatory Matters
    For Capital
    
    
    To be Well CapitalizedAdequacy
    
    
    For Purposes of PromptActual
    
    
    Purposes
    
    
    Corrective ActionDecember 31, 2009
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    
    
    Ratio
    
    
    Amount
    
    
    
    
    RatioTotal Capital (1):Company
    
    $
    23,357,414
    
    
    
    12.3
    %
    
    $
    15,238,056
    
    
    3
    
    
    8.0
    %
    
    
    N/ABank
    
    
    21,835,410
    
    
    
    11.5
    %
    
    
    15,237,781
    
    
    3
    
    
    8.0
    %
    
    $
    19,047,227
    
    
    3
    
    
    10.0
    %Tier I Capital (1):Company
    
    
    20,965,979
    
    
    
    11.0
    %
    
    
    7,619,028
    
    
    3
    
    
    4.0
    %
    
    
    N/ABank
    
    
    19,443,975
    
    
    
    10.2
    %
    
    
    7,618,891
    
    
    3
    
    
    4.0
    %
    
    
    11,428,336
    
    
    3
    
    
    6.0
    %Tier I Capital (2):Company
    
    
    20,965,979
    
    
    
    10.4
    %
    
    
    8,033,821
    
    
    3
    
    
    4.0
    %
    
    
    N/ABank
    
    
    19,443,975
    
    
    
    9.7
    %
    
    
    8,033,683
    
    
    3
    
    
    4.0
    %
    
    
    10,042,104
    
    
    3
    
    
    5.0
    %
  37




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 9. Regulatory Matters (continued)
 For Capital
    
    
    To be Well CapitalizedAdequacy
    
    
    For Purposes of PromptActual
    
    
    Purposes
    
    
    Corrective ActionDecember 31, 2008
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    
    
    Ratio
    
    
    Amount
    
    
    
    
    RatioTotal Capital (1):Company
    
    $
    22,195,139
    
    
    
    14.1
    %
    
    $
    12,555,275
    
    
    3
    
    
    8.0
    %
    
    
    N/ABank
    
    
    18,590,109
    
    
    
    11.9
    %
    
    
    12,555,149
    
    
    3
    
    
    8.0
    %
    
    $
    15,693,936
    
    
    3
    
    
    10.0
    %Tier I Capital (1):Company
    
    
    20,264,018
    
    
    
    12.9
    %
    
    
    6,277,637
    
    
    3
    
    
    4.0
    %
    
    
    N/ABank
    
    
    16,682,109
    
    
    
    10.6
    %
    
    
    6,277,574
    
    
    3
    
    
    4.0
    %
    
    
    9,416,362
    
    
    3
    
    
    6.0
    %Tier I Capital (2):Company
    
    
    20,264,018
    
    
    
    12.2
    %
    
    
    6,622,065
    
    
    3
    
    
    4.0
    %
    
    
    N/ABank
    
    
    16,682,109
    
    
    
    10.1
    %
    
    
    6,618,837
    
    
    3
    
    
    4.0
    %
    
    
    8,273,547
    
    
    3
    
    
    5.0
    %
 (1)
    
    to risk weighted assets(2)
    
    to average assets Note 10. Warrant and Option Plans
   Note 11. Employee Benefit Plans
  Note 12. Related Party Transactions
   38




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 12. Related Party Transactions (continued)
   Note 13. Fair Values of Financial Instruments
  December 31, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(In thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and due from banks
    
    $
    2,106
    
    
    $
    2,106
    
    
    $
    3,291
    
    
    $
    3,291Interest bearing deposits
    
    
    8,228
    
    
    
    8,228
    
    
    
    
    
    
    
    Federal funds sold
    
    
    154
    
    
    
    154
    
    
    
    5,674
    
    
    
    5,674Investment securities
    
    
    
    
    
    
    
    
    
    
    3,086
    
    
    
    3,086Investments in restricted stock
    
    
    527
    
    
    
    527
    
    
    
    467
    
    
    
    467Loans, net
    
    
    183,102
    
    
    
    192,687
    
    
    
    151,101
    
    
    
    158,169Accrued interest receivable
    
    
    681
    
    
    
    681
    
    
    
    640
    
    
    
    640Financial liabilities:Non-interest bearing deposits
    
    $
    21,024
    
    
    $
    21,024
    
    
    $
    23,599
    
    
    $
    23,599Interest bearing deposits
    
    
    157,621
    
    
    
    160,450
    
    
    
    121,642
    
    
    
    124,499Securities sold under
agreements
to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued interest payable
    
    
    184
    
    
    
    184
    
    
    
    265
    
    
    
    265Off-balance sheet commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     39




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 14. Recently Issued Accounting Pronouncements
 Generally Accepted Accounting
Principles-amendments based on - The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles (formerly FASB Statement No. 168). The FASB Accounting
Standards Codification
  Fair Value Measurement and Disclosures Amendments to the Impairment Guidance of EITF Issue No. 99-20
 Fair Value Measurements and Disclosures
  Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly"
 Recognition and Presentation of Other-Than-Temporary
Impairment .
 Interim Disclosures about Fair Value of Financial
Instruments
  40




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 14. Recently Issued Accounting Pronouncements (continued)
 Subsequent Events,
 Accounting for Transfers of Financial
Assets  an amendment of FASB Statement No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
 Fair Value Measurements and Disclosures
  41




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 15. Parent Company Financial Information
  December 31,
    
    
    December 31,Statements of Financial Condition
    
    2009
    
    
    2008AssetsCash in CommerceFirst Bank
    
    $
    1,536,500
    
    
    $
    3,615,334Investment in subsidiary
    
    
    19,443,974
    
    
    
    16,728,648Other assets
    
    
    
    
    
    
    1,575$
    20,980,474
    
    
    $
    20,345,557Liabilities and Stockholders EquityAccrued expenses
    
    $
    38,500
    
    
    $
    35,000Stockholders equity
    
    
    20,941,974
    
    
    
    20,310,557$
    20,980,474
    
    
    $
    20,345,557
 Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,Statements of Operations
    
    2009
    
    
    2008Interest income from deposit in CommerceFirst Bank
    
    $
    17,343
    
    
    $
    1,575Administrative expenses
    
    
    144,478
    
    
    
    173,510Loss before equity in undistributed net income
of bank subsidiary and income tax benefit
    
    
    (127,135
    )
    
    
    (171,935
    )Income tax benefit
    
    
    43,226
    
    
    
    58,458Loss before equity in undistributed net income
of bank subsidiary
    
    
    (83,909
    )
    
    
    (113,477
    )Equity in undistributed net income of bank subsidiary
    
    
    761,865
    
    
    
    408,392Net income
    
    $
    677,956
    
    
    $
    294,915
 Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,Statements of Cash Flows
    
    2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    677,956
    
    
    $
    294,915Equity in undistributed earnings of bank subsidiary
    
    
    (761,865
    )
    
    
    (408,392
    )Decrease in other assets
    
    
    1,575
    
    
    
    3,537Increase in payables
    
    
    3,500
    
    
    
    25,000Net cash used in operating activities
    
    
    (78,834
    )
    
    
    (84,940
    )Cash flows used by investing activities:Investment in CommerceFirst Bank
    
    
    (2,000,000
    )
    
    
    Net cash used by investing activities
    
    
    (2,000,000
    )
    
    
    (Decrease) in cash and cash equivalents
    
    
    (2,078,834
    )
    
    
    (84,940
    )Cash and cash equivalents at beginning of period
    
    
    3,615,334
    
    
    
    3,700,274Cash and cash equivalents at end of period
    
    $
    1,536,500
    
    
    $
    3,615,334
  42




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##### 



Directors & Officers of
CommerceFirst Bancorp, Inc. and CommerceFirst Bank
 Milton D. Jernigan II, Esquire *  Chairman of the Board
Managing Partner
McNamee, Hosea, Jernigan, Kim, Greenan & Walker, P.A.
 Richard J. Morgan*
    
    Robert R. Mitchell*President & Chief Executive Officer
    
    Private Investor and Former President,Mitchell Business Equipment, Inc.Wilfred T. Azar, III
    
    John A. Richardson, Sr.*President, Empire Management Services
    
    President, Crofton Bowling Center, FormerPresident, Branch Electric Supply Co., Inc.William F. Chesley
    
    Don E. Riddle, Jr.President, W. F. Chesley Real Estate, Inc.
    
    Chairman & Chief Executive Officer,Homestead Gardens, Inc.Charles F. Delavan, Esquire
    
    Stephen C. SamarasPrincipal, Blumenthal, Delavan & Williams, P.A.
    
    Owner, Zymotic, Inc. (Zacharys Jewelers)Edward B. Howlin, Jr.*
    
    George C. Shenk, Jr.*President, Howlin Realty Management, Inc.
    
    President, Whitmore Group, Inc.Charles L. Hurtt, Jr., CPA*
    
    Lamont Thomas*President, Charles L. Hurtt, Jr., PA
    
    Former Executive Vice President & ChiefOperating Officer, CommerceFirst Bancorp, Inc.Milton D. Jernigan, Sr.
    
    Dale R. WatsonPrivate Investor and Retired Former Founder,
    
    President, Alpha Engineering Associates, Inc.Chairman and President, AAARentals, Inc. and AAA Tools, Inc.Nicholas J. Marino
    
    Jerome A. Watts*President, Marino Transportation Services, LLC
    
    Private Investor and Former Owner, PlanManagementMichael J. Miller
    
    J. Scott WimbrowVice President, Concrete General, Inc. &
    
    Senior Vice President, MacKenzie CommercialTri M Leasing Corp
    
    Real Estate Services LLC
 
 *
    
    Director of CommerceFirst Bancorp, Inc.




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##### 



Officers of
CommerceFirst Bank
 Michael T. Storm
    
    Thomas L. BolanderExecutive Vice President &
    
    Senior Vice PresidentChief Operating Officer and ChiefFinancial OfficerJames R. Baldwin
    
    Penny L. CantwellSenior Vice President
    
    Senior Vice PresidentGeorge Kapusta
    
    Candace M. SpringmannSenior Vice President
    
    Vice President & Corporate SecretaryJean J. Barnes
    
    Melonee Fleming, CCEVice President
    
    Vice PresidentDavid Steinhoff
    
    Susan M. LiebenthalVice President
    
    Assistant Vice PresidentIrma Russell
    
    Meghan T. StumpfAssistant Vice President
    
    Assistant Vice PresidentRobert W. Smith IV
    
    Sean D. WamsleyLoan Officer
    
    Loan OfficerGregory N. KrumCredit Officer
 Locations of
CommerceFirst Bank
 Annapolis
    
    Lanham1804 West Street, Suite 200
    
    4451 Parliament PlaceAnnapolis MD 21401
    
    Lanham MD 20706BWI
    
    Old Dobbin Lane910 Cromwell Park Drive
    
    6230 Old Dobbin LaneGlen Burnie MD 21061
    
    Columbia MD 21045Severna Park485 Ritchie HighwaySeverna Park, MD 21146
 The Company will provide, without charge, to any shareholder of record or any beneficial owner of
Common Stock, a copy of its 2009 Annual Report on Form 10-K filed with the Securities and Exchange
Commission, upon the written request. Requests should be directed to Candace M. Springmann,
Corporate Secretary, at the Companys executive offices at 1804 West Street, Suite 200, Annapolis
MD 21401.