UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~SEPTEMBER~~MARCH 3031, ~~2010~~2011


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

For the transition period from to

Commission file number 000-51104

CommerceFirst Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)


Maryland		52-2180744

(State or Other Jurisdiction		(I.R.S. Employer Identification No.)
of Incorporation or Organization)

1804 West Street, Suite 200, Annapolis, MD 21401
(Address of Principal Executive Offices)

410-280-6695
(Registrant’s Telephone Number, Including Area Code)

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

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in ~~Rule12b~~Rule 12b-2 of the Securities Exchange Act). Yes o No þ

As of ~~November~~May 59, ~~2010~~2011 the number of outstanding shares of registrant’s common stock, par value $0.01 per share was: 1,820,548

CommerceFirst Bancorp, Inc.

FORM 10-Q

INDEX

	Page(s)
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements
Consolidated Statements of Financial Condition — September 30, 2010 (Unaudited) and December 31, 2009 (Audited)		3
Consolidated Statements of Financial Condition — March 31, 2011 (Unaudited) and December 31, 2010 (Audited)		3
FOR PERIODS ENDED SEPTEMBER 30, 2010 and 2009:
FOR PERIODS ENDED MARCH 31, 2011 and 2010:
Consolidated Statements of Operations — Nine and Three months (Unaudited)		4
Consolidated Statements of Operations — Three months (Unaudited)		4
Consolidated Statements of Comprehensive Income — Nine and Three months (Unaudited)		5
Consolidated Statements of Stockholders’ Equity — Three months (Unaudited)		5
Consolidated Statements of Stockholders’ Equity — Nine months (Unaudited)		6
Consolidated Statements of Cash Flows — Three months (Unaudited)		6
Consolidated Statements of Cash Flows — Nine months (Unaudited)		7
Notes to Consolidated Financial Statements		7-10
Notes to Consolidated Financial Statements		8-11
Item 2 — Management’s Discussion and Analysis		10-27
Item 2 — Management’s Discussion and Analysis		12-29
Item 3 — Quantitative and Qualitative Disclosures About Market Risk		28
Item 3 — Quantitative and Qualitative Disclosures About Market Risk		29
Item 4 — Controls and Procedures		28
Item4T — Controls and Procedures		29
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings		3028
Item 1A Risk Factors		3028
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		3028
Item 3 — Defaults Upon Senior Securities		3028
Item 4 — [Removed and Reserved]		3028
Item 5 — Other Information		3028
Item 6 — Exhibits		3029
SIGNATURES		3130
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)

CommerceFirst Bancorp, Inc. and Subsidiary ~~Consolidated Statements of Financial Condition September 30, 2010 and December 31, 2009 (dollars in thousands except per share data)~~

	September 30,			December 31,
	2010			2009
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	2,757		$	2,106
Interest bearing deposits		14,445			8,228
Federal funds sold		—			154
Cash and cash equivalents		17,202			10,488
Investments in restricted stocks, at cost		527			527
Loans receivable		184,631			185,482
Allowance for loan losses		(2,533	)		(2,380	)
Net loans receivable		182,098			183,102
Premises and equipment, net		596			739
Accrued interest receivable		770			681
Deferred income taxes		890			919
Other real estate owned		2,387			2,462
Other assets		1,517			1,453
Total Assets	$	205,987		$	200,371
LIABILITIES
Non-interest bearing deposits	$	25,332		$	21,024
Interest bearing deposits		157,634			157,621
Total deposits		182,966			178,645
Accrued interest payable		159			184
Other liabilities		648			600
Total Liabilities		183,773			179,429
STOCKHOLDERS’ EQUITY
Common stock — $.01 par value; authorized 4,000,000 shares. Issued and outstanding: 1,820,548 shares at September 30, 2010 and at December 31, 2009		18			18
Additional paid-in capital		17,853			17,853
Retained earnings		4,343			3,071
Total Stockholders’ Equity		22,214			20,942
Total Liabilities and Stockholders’ Equity	$	205,987		$	200,371

Consolidated Statements of Financial Condition

March 31, 2011 and December 31, 2010
(Dollars in thousands except per share data)


	March 31,			December 31,
	2011			2010
	(Unaudited)			(Audited)
ASSETS

Cash and due from banks	$	2,860		$	1,437
Interest bearing deposits		12,519			12,289

Cash and cash equivalents		15,379			13,726
Investments in restricted stocks, at cost		527			527

Loans receivable		187,661			184,883
Allowance for loan losses		(3,589	)		(3,174	)

Net loans receivable		184,072			181,709

Premises and equipment, net		507			556
Accrued interest receivable		761			750
Deferred income taxes		1,413			1,133
Other real estate owned		2,799			3,324
Other assets		1,088			1,399

Total Assets	$	206,546		$	203,124


LIABILITIES

Non-interest bearing deposits	$	25,442		$	23,760
Interest bearing deposits		157,227			156,350

Total deposits		182,669			180,110

Accrued interest payable		117			106
Other liabilities		947			543

Total Liabilities		183,733			180,759


STOCKHOLDERS’ EQUITY
Common stock — $.01 par value; authorized 4,000,000 shares
Issued and outstanding: 1,820,548 shares at March 31, 2011 and at December 31, 2010		18			18
Additional paid-in capital		17,853			17,853
Retained earnings		4,942			4,494

Total Stockholders’ Equity		22,813			22,365

Total Liabilities and Stockholders’ Equity	$	206,546		$	203,124

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

CommerceFirst Bancorp, Inc. and Subsidiary ~~Consolidated Statements of Operations For the Nine and Three Months ended September 30, 2010 and 2009 (Unaudited) (dollars in thousands except per share data)~~

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Interest income:
Interest and fees on loans	$	9,471	$	8,606	$	3,179	$	3,019
U.S. Treasury securities		—		82		—		17
Investment in stocks		21		19		7		6
Interest bearing deposits		41		17		17		9
Federal funds sold		—		2		—		—
Total interest income		9,533		8,726		3,203		3,051
Interest expense:
Deposits		2,500		3,547		753		1,204
Total interest expense		2,500		3,547		753		1,204
Net interest income		7,033		5,179		2,450		1,847
Less provision for loan losses		1,646		1,149		612		350
		5,387		4,030		1,838		1,497
Non-interest income:
Gain on sale of SBA loans		419		164		49		47
Service charges and other income		361		339		115		130
Total non-interest income		780		503		164		177
Non-interest expenses:
Compensation and benefits		2,220		2,185		756		722
Legal and professional		188		196		56		68
Rent and occupancy		424		420		145		139
Marketing and business development		64		46		16		22
FDIC insurance		239		332		83		120
Data processing		109		104		37		37
Support services		149		142		47		48
Communications		95		89		32		33
Depreciation and amortization		175		219		57		71
Other		385		311		179		94
Total non-interest expenses		4,048		4,044		1,408		1,354
Income before income taxes		2,119		489		594		320
Income tax expense		847		197		238		128
Net income	$	1,272	$	292	$	356	$	192
Basic earnings per share	$	0.70	$	0.16	$	0.20	$	0.11
Diluted earnings per share	$	0.70	$	0.16	$	0.20	$	0.11

Consolidated Statements of Operations

For the Three Months ended March 31, 2011 and 2010 (Unaudited)
(Dollars in thousands except per share data)


	March 31,		March 31,
	2011		2010
Interest income:
Interest and fees on loans	$	3,057	$	3,124
Investment in stocks		7		7
Interest bearing deposits		13		9

Total interest income		3,077		3,140

Interest expense:
Deposits		568		886

Total interest expense		568		886


Net interest income		2,509		2,254

Less provision for loan losses		681		447

		1,828		1,807


Non-interest income:
Gain on sale of SBA loans		209		225
Gain on sale of other real estate owned		43		—
Service charges and other income		149		121

Total non-interest income		401		346


Non-interest expenses:
Compensation and benefits		772		721
Legal and professional		65		55
Rent and occupancy		145		139
Marketing and business development		18		22
FDIC insurance		89		76
Data processing		37		36
Support services		47		47
Communications		33		32
Depreciation and amortization		52		59
Other		242		89

Total non-interest expenses		1,500		1,276

Income before income taxes		729		877
Income tax expense		281		349

Net income and total comprehensive income	$	448	$	528


Basic and diluted earnings per share	$	0.25	$	0.29

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

CommerceFirst Bancorp, Inc. and Subsidiary ~~Consolidated Statements of Comprehensive Income For the Nine and Three Months ended September 30, 2010 and 2009 (Unaudited) (dollars in thousands)~~

	Nine Months Ended					Three Months Ended
	September 30,					September 30,
	2010		2009			2010		2009
Net income	$	1,272	$	292		$	356	$	192
Change in unrealized gains on securities available for sale, net of taxes		—		(47	)		—		(11	)
Total comprehensive income	$	1,272	$	245		$	356	$	181

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2011 and 2010
(Dollars in thousands)
(Unaudited)


			Additional
	Common		Paid-in		Retained
	Stock		Capital		Earnings		Total

Balance December 31, 2009	$	18	$	17,853	$	3,071	$	20,942

Net income — March 31, 2010						528		528


Balance March 31, 2010	$	18	$	17,853	$	3,599	$	21,470


Balance December 31, 2010	$	18	$	17,853	$	4,494	$	22,365

Net income — March 31, 2011						448		448


Balance March 31, 2011	$	18	$	17,853	$	4,942	$	22,813

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

CommerceFirst Bancorp, Inc. and Subsidiary ~~Consolidated Statements of Stockholders’ Equity For the Nine Months Ended September 30, 2010 and 2009 (dollars in thousands) (Unaudited)~~

							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive
	Stock		Capital		Earnings		Income			Total
Balance December 31, 2008	$	18	$	17,853	$	2,393	$	47		$	20,311
Net income- September 30, 2009						292					292
Net change in unrealized gains on securities available-for-sale								(47	)		(47	)
Balance September 30, 2009	$	18	$	17,853	$	2,685	$	—		$	20,556
Balance December 31, 2009	$	18	$	17,853	$	3,071	$	—		$	20,942
Net income- September 30, 2010						1,272					1,272
Balance September 30, 2010	$	18	$	17,853		4,343	$	—		$	22,214

Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2011 and 2010
(Dollars in thousands)
(Unaudited)


	March 31,			March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	448		$	528
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		52			59
Gain on sales of SBA loans		(209	)		(225	)
Gain on sales of other real estate owned		(43	)		—
Provision for loan losses		681			447
Provision for losses on unfunded commitments		—			2
Valuation allowance on other real estate owned		75			—
Deferred income taxes		(280	)		39
Change in assets and liabilities:
Increase in accrued interest receivable		(11	)		(35	)
Decrease in other assets		236			92
Increase (decrease) in accrued interest payable		11			(4	)
Increase in other liabilities		404			346

Net cash provided by operating activities		1,364			1,249


CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans, net		(5,171	)		(3,358	)
Proceeds from sale of SBA loans		2,336			3,765
Proceeds from sale of other real estate owned		568			—
Purchase of premises and equipment		(3	)		(19	)

Net cash (used by) provided by investing activities		(2,270	)		388


CASH FLOWS FROM FINANCING ACTIVITIES
Increase in non-interest bearing deposits, net		1,682			2,643
Net increase in other deposits		877			9,790

Net cash provided by financing activities		2,559			12,433


Net increase in cash and cash equivalents		1,653			14,070
Cash and cash equivalents at beginning of period		13,726			10,488

Cash and cash equivalents at end of period	$	15,379		$	24,558


SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	557		$	890

Income taxes paid	$	—		$	—

Transfer of loans to real estate owned	$	—		$	653

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

CommerceFirst Bancorp, Inc. and Subsidiary Consolidated Statement of Cash Flows For the Nine Months Ended September 30, 2010 and 2009 (dollars in thousands) (Unaudited)

	September 30,			September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,272		$	292
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		175			219
Gain on sales of SBA loans		(419	)		(164	)
Provision for loan losses		1,646			1,149
Provision for losses on unfunded commitments		6			5
Valuation allowance on other real estate owned		75			—
Deferred income taxes		29			(219	)
Change in assets and liabilities:
Increase in accrued interest receivable		(89	)		(21	)
(Increase) decrease in other assets		(64	)		253
(Decrease) increase in accrued interest payable		(25	)		4
Increase (decrease) in other liabilities		42			(21	)
Other amortization and accretion, net		—			9
Net cash provided by operating activities		2,648			1,506
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of restricted stock		—			(60	)
Proceeds from redemption of investment securities		—			3,000
Proceeds from sale of SBA loans		6,635			2,608
Increase in loans, net		(6,858	)		(30,096	)
Increase in other real estate owned		—			(653	)
Purchase of premises and equipment		(32	)		(15	)
Net cash used by investing activities		(255	)		(25,216	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in non-interest bearing deposits, net		4,308			(1,972	)
Net increase in other deposits		13			30,437
Net cash provided by financing activities		4,321			28,465
Net increase in cash and cash equivalents		6,714			4,755
Cash and cash equivalents at beginning of period		10,488			8,964
Cash and cash equivalents at end of period	$	17,202		$	13,719
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	2,525		$	3,543
Income taxes paid	$	1,140		$	415
Transfer of loans to real estate owned	$	—		$	653
Total decrease in unrealized gains on available for sale securities	$	—		$	(47	)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and its Significant Accounting Policies

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

The financial data at December 31, ~~2009~~2010 are derived from audited consolidated financial statements that are included in the Company’s Annual Report for the year ended December 31, ~~2009~~2010. The financial data at ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010 are derived from unaudited consolidated financial statements. Interim results are not necessarily indicative of results for the full year.

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

Cash and cash equivalents in the statement of cash flows include cash on hand, non-interest bearing amounts due from correspondent banks, interest and non-interest bearing deposits due from the Federal Reserve, ~~certificate~~certificates of ~~deposits~~deposit with maturities of less than one year and Federal funds sold.

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

Note 2. Fair value

ASC Section 820 — Fair Value Measurements and Disclosure defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These inputs are summarized in three broad levels as follows:


		*Level 1:*		Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. government and agency securities actively traded in over-the-counter markets.

		*Level 2:*		Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale.

		*Level 3:*		Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investments, retained interests from securitizations, and certain collateralized debt obligations.

The Company’s bond holdings in the investment securities portfolio, if any, are the only asset or liability subject to fair value measurement on a recurring basis. No financial assets or liabilities are valued on a recurring basis under Level 1or Level 2 inputs at March 31, 2011 or December 31, 2010. The Company has financial and non-financial assets measured by fair value measurements on a non-recurring basis during 2011. At March 31, 2011, these assets include $7.1 million of non-accrual loans ($5.2 million after specific reserves) and other real estate owned of $2.8 million all of which are valued under Level 3 inputs.

The Company’s bond holdings in the investment securities portfolio, if any, are the only asset or liability subject to fair value measurement on a recurring basis. No assets are valued under Level 1 inputs at September 30, 2010 or December 31, 2009. The Company has assets measured by fair value measurements on a non-recurring basis during 2010. At September 30, 2010, these assets include $1.0 million of non-accrual loans and other real estate owned of $2.4 million which are valued under Level 2 inputs. The remaining $2.0 million ($1.5 million after specific reserves) of non-accrual loans are valued under Level 3 inputs.

The changes in the assets subject to fair value measurements are summarized below by Level:

In thousands	Level 1		Level 2			Level 3
	Level 1 and
December 31, 2009:
In thousands	Level 2		Level 3
Loans	$	—	$	1,458		$	1,276
December 31, 2010:
Other real estate owned		—		2,462			—
Loans	$	—	$	7,283
Total December 31, 2009		—		3,920			1,276
Other real estate owned		—		3,324
Activity:
Total December 31, 2010		—		10,607
Loans:
Activity:
New loans measured at fair value		—		—		$	2,109
Loans:
Payments and other loan reductions		—		—			(312	)
New loans measured at fair value		—		753
Loans charged-off		—		(438	)		(1,097	)
Payments and other loan reductions		—		(618	)
Net change in loans		—		(438	)	$	700
Loans charged-off		—		(275	)
Other real estate owned:
Net change in loans		—		(140	)
Provision for valuation reduction		—		(75	)		—
Other real estate owned:
		—		(75	)		—
Sales of other real estate owned				(450	)
September 30, 2010:
Provision for valuation reduction		—		(75	)
Loans		—		1,020			1,976
		—		(525	)
Other real estate owned		—		2,387			—
March 31, 2011:
Total September 30, 2010	$	—	$	3,407		$	1,976
Loans		—		7,143
Other real estate owned		—		2,799
Total March 31, 2011	$	—	$	9,942

The estimated fair values of the Company’s financial instruments at ~~September~~March 3031, ~~2010~~2011 and December 31, 2010 ~~2009~~ are summarized below. The fair values of a significant portion of these financial ~~instruments~~ instruments are estimates derived using present value techniques and may not be indicative of the ~~net~~ net realizable or liquidation values. Also, the calculation of estimated fair values is based on ~~market~~ market conditions at a specific point in time and may not reflect current or future fair values.

September 30, 2010

December 31, 2009

March 31, 2011

December 31, 2010

Carrying

Fair

Carrying

Fair

In thousands

Amount

Value

Amount

Value

Financial assets:

Cash and due from banks

2,~~757~~860

21,~~106~~437

Interest bearing deposits

1412,~~445~~519

812,~~228~~289

Federal funds sold

—

154

Investments in restricted stock

527

Loans, net

~~182~~184,~~098~~072

193,~~078~~480

~~183~~181,~~102~~709

~~192~~191,~~687~~353

Accrued interest receivable

~~770~~761

~~681~~750

Financial liabilities:

Non-interest bearing deposits

25,~~332~~442

2123,~~024~~760

Interest bearing deposits

157,~~634~~227

~~159~~158,~~918~~609

~~157~~156,~~621~~350

~~160~~157,~~450~~228

Accrued interest payable

~~159~~117

~~184~~106

Off-balance sheet commitments

—

Fair values are based on quoted market prices for similar instruments or estimated using discounted cash flows. The discounts used are estimated using comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead costs and optionality of such instruments.

The fair value of cash and due from banks, interest bearing deposits, federal funds sold, investments in restricted stocks and accrued interest receivable are equal to the carrying amounts. The fair values of investment securities are determined using market quotations. The fair value of loans receivable is estimated using discounted cash flow analysis.

The fair value of non-interest bearing deposits, interest-bearing checking, savings, and money market deposit accounts, securities sold under agreements to repurchase, and accrued interest payable are equal to the carrying amounts. The fair value of fixed maturity time deposits is estimated using discounted cash flow analysis.

Note 3. Net Income per Common Share

Basic earnings per share of common stock are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by including the average dilutive common equivalents outstanding during the period. Dilutive common equivalent shares consist of stock options and warrants, calculated using the treasury stock method. ~~All of the previously issued and outstanding warrants and options expired~~ ~~during August 2010.~~

	Nine Months				Three Months
	Three Months
	Ended September 30,				Ended September 30,
	Ended March 31,
	2010		2009		2010		2009
In thousands except for per share data	2011		2010
Weighted average shares outstanding		1,820,548		1,820,548		~~1,820,548~~		~~1,820,548~~
Common stock equivalents		—		—		—		—
Average common shares and equivalents		1,820,548		1,820,548		~~1,820,548~~		~~1,820,548~~
Net income (in thousands)	$	~~1,272~~448	$	~~292~~528	$	~~356~~	$	~~192~~
Basic earnings per share	$	0.70	$	0.16	$	0.20	$	0.11
Basic and diluted earnings per share	$	0.25	$	0.29
Diluted earnings per share	$	0.70	$	0.16	$	0.20	$	0.11

All of the ~~126,372~~ outstanding warrants and options were excluded from the calculation of diluted ~~income~~ income per share in ~~2009~~2010 because they ~~are~~were anti-dilutive. All of the warrants and options expired in 2010.

Note 4. Related Party Transactions

The Company paid $1530 thousand during the first ~~nine~~three months of ~~2010~~2011 for legal services to a firm of which a Director of the Company is a principal. The Company also paid $4111 thousand during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 for computer related services to firm of which a Director is a principal. The above transactions have been consummated on terms equivalent to those that prevail in arms length transactions.

Executive officers, directors and their affiliated interests enter into loan transactions with the Company in the ordinary course of business. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with unrelated borrowers. They do not involve more than normal risk of collectability or present other unfavorable terms. At ~~September~~March 3031, ~~2010~~2011 the amounts of such loans outstanding were $2.8 million.

Deposit balances of executive officers, directors and their affiliated interests totaled $1312.4 million at ~~September~~March 3031, ~~2010~~2011.

Note 5. Commitments and contingencies

The Company is a party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments typically include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. Outstanding commitments as of ~~September~~ March 3031, ~~2010~~2011 are as follows:

	Millions
In millions
Loan commitments	$	95.12
Unused lines of credit	$	3634.51
Letters of Credit	$	1.3

Note 6. Recent Relevant Accounting Pronouncements

In ~~January~~July 2010, the FASB issued ASU No. 2010-0620, —Receivables ~~Fair~~(Topic ~~Value~~310), ~~Measurements~~Disclosures about the Credit Quality of Financing Receivables and ~~Disclosures~~the ~~amending Topic~~Allowance ~~820~~for Credit Losses. The main objective of this ASU ~~provides~~is ~~for~~to ~~additional~~provide ~~disclosures~~financial ofstatement ~~transfers~~users ~~between~~with ~~assets~~greater ~~and~~transparency ~~liabilities~~about an entity’s ~~valued~~allowance ~~under~~for ~~Level~~credit 1losses and 2the ~~inputs~~credit asquality ~~well~~of asits financing receivables. The ASU requires that entities provide additional ~~disclosures~~information ~~regarding~~to ~~those~~assist ~~assets~~financial ~~and~~statement users in assessing their ~~liabilities~~credit ~~valued~~risk ~~under~~exposures ~~Level~~and 3evaluating ~~inputs~~the adequacy of its allowance for credit losses. ~~The~~For ~~new~~the Company, the disclosures ~~are~~as ~~effective~~of ~~for~~the ~~interim~~end ~~and~~of ~~annual~~ a reporting ~~periods~~period ~~beginning~~were ~~after~~required for the annual reporting periods ended December 1531, ~~2009~~2010. ~~except~~Required ~~for~~disclosures ~~those~~about ~~provisions~~activity ~~addressing~~that ~~Level~~occurs 3during a ~~fair~~reporting ~~value~~period ~~measurements which provisions~~ are effective for ~~fiscal~~interim ~~years,~~ and ~~interim~~annual reporting periods ~~therein,~~ beginning ~~after December~~January 151, ~~2010~~2011. The adoption of this ASU ~~did~~resulted ~~not~~in ~~have~~additional adisclosures ~~material~~in ~~impact on~~ the Company’s ~~consolidated~~ financial statements regarding its loan portfolio and related allowance for loan losses but does not change the accounting for loans or the allowance. The Company has complied with the reporting requirements as of March 31, 2011.

In February 2010, the FASB issued ASU No. 2010-09 amending FASB ASC Topic 855 to exclude SEC reporting entities from the requirement to disclose the date on which subsequent events have been evaluated. It further modifies the requirement to disclose the date on which subsequent events have been evaluated in reissued financial statements to apply only to such statements that have been restated to correct an error or to apply U.S. GAAP retrospectively. The Company has complied with ASU No. 2010-09.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The main objective of this ASU is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The ASU requires that entities provide additional information to assist financial statement users in assessing their credit risk exposures and evaluating the adequacy of its allowance for credit losses. For the Company, the disclosures as of the end of a reporting period are required for the annual reporting periods ending on December 31, 2010. Required disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning January 1, 2011. The adoption of this ASU will result in additional disclosures in the Company’s financial statements regarding its loan portfolio and related allowance for loan losses but does not change the accounting for loans or the allowance. The Company will comply with this ASU for the annual reporting period ending December 31, 2010 and the interim and annual reporting periods thereafter.

The FASB has issued several exposure drafts which, if adopted, would significantly alter the Company’s (and all other financial institutions’) method of accounting for, and reporting, its financial assets and some liabilities from a historical cost method to a fair value method of accounting as well as the reported amount of net interest income. Also, the FASB has issued an exposure draft regarding a change in the accounting for leases. Under this exposure draft, the total amount of “lease rights” and total amount of future payments required under all leases would be reflected on the balance sheets of all entities as assets and debt. If the changes under discussion in either of these exposure drafts are adopted, the financial statements of the Company could be materially impacted as to the amounts of recorded assets, liabilities, capital, net interest income, interest expense, depreciation expense, rent expense and net income. The Company has not determined the extent of the possible changes at this time. The exposure drafts are in different stages of review, approval and possible adoption.

11In April 2011, the FASB issued ASU No. 2011-02, Receivable (Topic 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The main objective of the ASU is to clarify a creditor’s evaluation of whether in modifying a loan, it has granted a concession in circumstances that qualify the loan as a Troubled Debt Restructured (TDR) loan. These loans are subject to various accounting and disclosure requirements. The ASU is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Certain disclosures are required for loans considered as TDR loans resulting from the application of the ASU that were not considered TDR under prior guidance. The Company has not yet determined the effect, if any, of the ASU on its financial statements; however, it will comply with the new guidance as required.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import. Such forward-looking statements involve known and unknown risks including, but not limited to, changes in general economic and business conditions, interest rate fluctuations, competition within and from outside the banking industry, new products and services in the banking industry, risk inherent in making loans such as repayment risks and fluctuating collateral values, problems with technology utilized by the Company, changing trends in customer profiles and changes in laws, accounting standards and regulations applicable to the Company. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned against placing undue reliance on any such forward-looking statements. The Company’s past results are not necessarily indicative of future performance. Please refer to the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010, and other ~~periodic~~ periodic reports filed with the Securities and Exchange Commission, for a discussion of various ~~factors~~ factors which may affect our performance.

~~General~~10

CommerceFirst Bancorp, Inc. (the “Company”) is the bank holding company for CommerceFirst Bank, a Maryland chartered commercial bank headquartered in Annapolis, Maryland (the “Bank”). The Bank was capitalized, became a wholly owned subsidiary of the Company and commenced operations on June 29, 2000. The Company’s common stock trades on the NASDAQ Capital Market under the symbol “CMFB”. The Company maintains five banking offices in Anne Arundel, Howard and Prince George’s counties in central Maryland. The Company focuses on providing commercial banking services to small and medium sized businesses in its market areas.

The Company assets increased modestly at September 30, 2010 from December 31, 2009 primarily with the increase in cash and cash equivalents as the Company increased its liquidity position. Earnings improved as the result of this asset growth and the reduction of the cost of deposits due to re-pricing of the deposits to lower current market interest rates. The provision for loan losses continues to remain relatively high in recognition of the effect of uncertain economic conditions on the Company’s borrowers and collateral values as well as loan charge-offs. Key measurements and events for the period include the following:

• The Company’s net income was $1.3 million during the nine months ended September 30, 2010 as compared to net income of $292 thousand for the nine month period ended September 30, 2009 largely resulting from increased net interest income during 2010. • Net interest income, the Company’s main source of income, increased by 35.8% from $5.2 million during the nine month period ended September 30, 2009 to $7.0 million for the nine months ended September 30, 2010. • Total assets increased by 2.8% from $200 million at December 31, 2009 to $206 million at September 30, 2010. • Net loans outstanding decreased by 0.5% from $183 million at December 31, 2009 to $182 million as of September 30, 2010. • Deposits increased by 2.4% from $179 million at December 31, 2009 to $183 million at September 30, 2010. • Non-interest income increased by 55.1% from $503 thousand for the nine month period ended September 30, 2009 to $780 thousand for the nine month period ended September 30, 2010. • Non-interest expenses increased by 0.1% from $4.04 million for the nine months ended September 30, 2009 to $4.05 million for the nine month period ended September 30, 2010.

General

The Company assets increased modestly at March 31, 2011 from December 31, 2010 with increases in cash and cash equivalents and loans receivable. Earnings declined as the increase in the provision for loan losses and loan collections expenses offset improvements in net interest income. The provision for loan losses continues to remain relatively high in recognition of the effect of uncertain economic conditions on the Company’s borrowers and collateral values as well as loan charge-offs. Key measurements and events for the period include the following:

	•		The Company’s net income was $448 thousand during the three months ended March 31, 2011 as compared to net income of $528 thousand for the three months ended March 31, 2010. The $80 thousand decline in net income is primarily attributable to increases in the provision for loan losses, an established valuation allowance for other real estate owned and increased loan collection expenses.

	•		Net interest income, the Company’s main source of income, increased by 11.3% from $2.3 million during the three months ended March 31, 2010 to $2.5 million for the three months ended March 31, 2011.

	•		Total assets increased by 1.7% from $203 million at December 31, 2010 to $206 million at March 31, 2011.

	•		Net loans outstanding increased by 1.3% from $182 million at December 31, 2010 to $184 million as of March 31, 2011.

	•		Deposits increased by 1.4% from $180 million at December 31, 2010 to $183 million at March 31, 2011.

	•		Non-interest income increased by 15.9% from $346 thousand for the three months ended March 31, 2010 to $401 thousand for the three months ended March 31, 2011.

	•		Non-interest expenses increased by 17.6% from $1.3 million for the three months ended March 31, 2010 to $1.5 million for the three months ended March 31, 2011.

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

Critical Accounting Policies

~~CommerceFirst~~The ~~Bancorp, Inc.~~Company’s consolidated financial statements are prepared in accordance with ~~accounting~~ accounting principles generally accepted in the United States and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements ~~and~~ and accompanying notes. These estimates, assumptions and judgments are based on information ~~available~~ available as of the date of the financial statements; accordingly, as this information changes, the ~~financial~~ financial statements could reflect different estimates, assumptions and judgments. Certain ~~policies~~ policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than ~~originally~~ originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.

~~The most significant accounting policies followed by CommerceFirst Bancorp, Inc. are presented in~~11 Note 1 to the Company’s audited consolidated financial statements incorporated by reference in its Annual Report on Form 10-K for the year ended December 31, 2009. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

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

RESULTS OF OPERATIONS

General. The Company reported net income of $1.3 million for the nine months ended September 30, 2010 as compared to net income of $292 thousand for the nine month period ended September 30, 2009. Earnings increased during 2010 as the result of the increase in earning assets, reduction of interest expense and the increase in gains on loan sales. The provision for loan losses was $1.6 million during 2010 as compared to $1.1 million in 2009, an increase of $0.5 million, or 43.3%. The Company continues to experience the detrimental effects of the weakened economy on its loan customers which effects are recognized through the Company’s provision for loan losses and loan charge-offs. The amount of non-accrual loans increased by $263 thousand, or 9.6%, at September 30, 2010 as compared to December 31, 2009. Net interest income increased in 2010 as compared to 2009 by $1.9 million, or 35.8%. This increase resulted primarily from increases in earning assets and reduced cost of deposits. During the first half of 2010 and the last quarter of 2009, a significant amount of high interest rate, longer term certificates of deposit matured and were either re-priced at lower rates or replaced with lower rate accounts. Additional higher rate certificates of deposit were re-priced or replaced at lower interest rates during the third quarter of 2010 resulting in increases in net interest income, net interest margin and net interest spread. However, the amount of such certificates available to be re-priced in future quarters is diminishing. There are approximately $2 million of certificates of deposit with interest rates greater than 3% at September 30, 2010. Most of these accounts mature during the fourth quarter of 2010; therefore, subsequent increases in net income, net interest margin and net interest spread as a result of reduction in the cost of deposits may be more difficult to achieve or be less significant.

The most significant accounting policies followed by CommerceFirst Bancorp, Inc. are presented in Note 1 to the Company’s audited consolidated financial statements incorporated by reference in its Annual Report on Form 10-K for the year ended December 31, 2010. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

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

RESULTS OF OPERATIONS

General. The Company reported net income of $448 thousand for the three months ended March 31, 2011 as compared to net income of $528 thousand for the three month period ended March 31, 2010. Net earnings declined during 2011 as compared to 2010 in spite of the increase in net interest margin because of an increase in the provision for loan losses of $234 thousand, expensed valuation allowance for declines in other real estate owned of $75 thousand and loan collection expenses of $57 thousand. Net interest margin increased primarily as the result of the reduction in the cost of deposits. The provision for loan losses was $681 thousand during 2011 as compared to $447 thousand in 2010, an increase of $234 thousand, or 52.4%. The Company continues to experience the detrimental effects of the weakened economy on its loan customers which effects are recognized through the Company’s provision for loan losses and loan charge-offs. The amount of non-accrual loans decreased by $140 thousand, or 1.9%, at March 31, 2011 as compared to December 31, 2010.

Net interest income increased in 2011 as compared to 2010 by $255 thousand, or 11.3%. This increase resulted primarily from the reduction in the cost of deposits. During 2010 a significant amount of high interest rate, longer term certificates of deposit matured and were either re-priced at lower rates or replaced with lower rate accounts resulting in decreases in costs of funds, increases in net interest income, net interest margin and net interest spread. However, the amount of such certificates available to be re-priced in future quarters is minimal.

Return on Average Assets and Average Equity. The following table shows the return on average assets and average equity for the period shown.

	Nine Months Ended						Year ended
	Three Months Ended						Year ended
	September 30,						December 31,
	March 31,						December 31,
	2010			2009			2009
	2011			2010			2010
Return on Average Equity		7.8087	%		19.9189	%		48.5461	%
Return on Average Earning Assets		0.8491	%		01.2206	%		0.5194	%
Ratio of Average Equity to Average Assets		1011.4519	%		1110.2436	%		1110.0362	%

~~Nine months ended September 30, 2010~~12

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

Total interest income ~~increased~~decreased by $~~807~~63 thousand or 92.30% to $93.51 million for the ~~nine~~three month period ended ~~September~~March 3031, ~~2010~~2011 as compared to the same period in ~~2009~~2010. This ~~increase~~decrease in interest income was primarily attributable to the ~~$23.8 million~~decline ~~increase~~ in ~~average~~the ~~earning~~yield ~~assets~~on ~~during~~ the ~~first~~loans ~~three quarters~~from of6.88% in 2010 asto ~~compared~~6.66% toin 2011. Further, interest income declined because of the ~~same~~$2.0 million ~~period~~decrease in ~~2009~~average earning assets during 2011 as compared to. Interest income was adversely affected by the 236 basis point decline in the yield of the average earning assets from 6.537% in ~~2009~~2010 to 6.331% in ~~2010~~ 2011.

Interest expense decreased by $~~1.0 million~~318 thousand or 2935.59% to $~~2.5 million~~568 thousand for the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 as compared to $~~3.5 million~~886 thousand during the same ~~nine~~three months of ~~2009~~2010. This decrease was primarily attributable to the ~~135~~72 basis point decrease in the cost of funds from 32.42% during ~~the~~ the first ~~nine~~three months of ~~2009~~2010 to 21.05% during the first ~~nine~~three months of ~~2010~~2011. ~~The~~Also ~~decline~~contributing to the reduction in the cost of funds was ~~partially offset by the~~ $238.91 million ~~increase~~decrease in average interest bearing liabilities during ~~2010~~2011 as compared to ~~2009~~2010.

The net interest income for the ~~nine~~three month period ended ~~September~~March 3031, ~~2010~~2011 was $72.05 million as compared to $5.2.3 million for the same period in ~~2009~~2010. Net interest income increased primarily because of the ~~increase in average earning assets and the~~ reduced cost of funds during the ~~nine~~ three months ended ~~September~~March 3031, ~~2010~~2011 as compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010.

~~The following table shows the average balances and average rates earned or paid on of the various~~13 ~~categories of the Company’s assets and liabilities for the nine month period ended September 30 of each year. Nonperforming loans are included in average balances in the following table:~~

~~NINE~~The ~~MONTHS~~following table shows the average balances and average rates earned or paid on of the various categories of the Company’s assets and liabilities for the three month period ended March 31 of each year. Nonperforming loans are included in average loan balances in the following table:

	2010								2009								2008
	2011								2010								2009
	Average					Yields/			Average					Yields/			Average					Yields/
THREE MONTHS	Average					Yields/			Average					Yields/			Average					Yields/
In thousands	Balance			Interest		Rates			Balance			Interest		Rates			Balance			Interest		Rates
Assets
Securities (1)	$	527		$	217		5.3339	%	$	~~3,018~~527		$	~~101~~7		45.4739	%	$	83,~~480~~539		$	~~281~~39		4.4147	%
Loans, net of unearned income		184,680			9,471		6.86	%		165,615			8,606		6.95	%		135,163			7,588		7.48	%
Loans, net of unearned income (2)		186,284			3,057		6.66	%		184,219			3,124		6.88	%		156,328			2,710		7.03	%
Interest-bearing deposits in other banks		1711,~~330~~036			4113		0.3248	%		814,~~984~~927			179		0.2524	%		—1,966			—2		—0.41	%
Federal funds sold		43—			—		~~0.19~~—	%		~~1,211~~129			2—		0.2219	%		93,~~269~~277			~~160~~3		20.3037	%
Total interest-earning assets		~~202~~197,~~580~~847			93,~~533~~077		6.2931	%		~~178~~199,~~828~~802			83,~~726~~140		6.5237	%		~~152~~165,~~912~~984			82,~~029~~754		76.0076	%
Less allowance for loan losses		(23,~~326~~319	)							(2,~~133~~428	)							(12,~~729~~035	)
Non interest earning assets		89,~~454~~127								58,~~693~~631								56,~~780~~909
Total assets	$	~~208~~203,~~708~~655							$	~~182~~206,~~388~~005							$	~~156~~169,~~963~~984
Liabilities & Stockholders’ Equity
Interest-bearing deposits
Interest bearing demand deposits	$	~~714~~766		$	—		0.0405	%	$	~~1,965~~712		$	1—		0.0705	%	$	1,~~550~~842		$	3—		0.2600	%
Money market deposit accounts		78,~~911~~628			288		0.4738	%		128,~~335~~453			499		0.5343	%		18,~~391~~093			~~286~~26		20.0758	%
Savings accounts		1523,~~563~~780			~~164~~67		1.4114	%		212,~~183~~036			3144		1.9048	%		55175			—		~~0.00~~—	%
Certificates of deposit		~~139~~122,~~435~~695			~~2,308~~493		21.2163	%		~~123~~142,~~267~~729			~~3,466~~833		32.7637	%		93109,~~905~~954			31,~~501~~138		4.9720	%
Securities sold under agreement to repurchase		—			—		—			—			—		—			2,763			28		1.35	%
Total interest-bearing liabilities		155,869			568		1.48	%		163,930			886		2.19	%		130,064			1,164		3.63	%
Total interest-bearing liabilities		163,623			2,500		2.04	%		139,750			3,547		3.39	%		116,664			3,818		4.36	%
Demand deposits and other liabilities		25,005								20,727								19,543
Demand deposits and other liabilities		23,275								22,130								19,957
Total liabilities		180,874								184,657								149,607
Total liabilities		186,898								161,880								136,621
Stockholders’ equity		22,781								21,348								20,377
Stockholders’ equity		21,810								20,508								20,342
Total liabilities and stockholders’ equity	$	203,655							$	206,005							$	169,984
Total liabilities and stockholders’ equity	$	208,708							$	182,388							$	156,963
Interest rate spread							4.83	%							4.18	%							3.13	%
Interest rate spread							4.25	%							3.13	%							2.64	%
Net interest income and margin				$	2,509		5.14	%				$	2,254		4.58	%				$	1,590		3.91	%
Net interest income and margin				$	7,033		4.64	%				$	5,179		3.87	%				$	4,211		3.67	%

(1) Yields on securities are calculated based on amortized cost.


(1)		Yields on securities are calculated based on amortized cost.

(2)		Loan balances include loans on nonaccrual

Net interest margin was 45.6414% in the first ~~nine~~three months of ~~2010~~2011, as compared to 34.8758% in the comparable period in ~~2009~~2010. Interest spread was 4.2583% in the first ~~nine~~three months of ~~2010~~2011, as compared to the 34.1318% in the first ~~nine~~three months of ~~2009~~2010 reflecting the greater reduction in the cost of interest bearing funds as compared to the reduction of the earnings rates of interest earning assets. ~~The~~Absent ~~growth~~a reduction in ~~average~~market ~~loans~~interest ~~receivable~~rates, asthe ~~well~~Company asdoes not anticipate continuing significant reductions in the ~~re-pricing~~cost of its interest bearing ~~deposits~~ atfunds ~~lower~~as ~~interest~~a ~~rates~~majority ~~combined~~of tothe ~~improve~~higher costing ~~the~~funds ~~net~~have ~~interest~~been ~~spread~~re-priced ~~and~~to ~~net~~lower ~~interest margin~~levels.

The following table sets forth certain information regarding changes in interest income and interest expense of the Company. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) changes in volume (change in volume of the asset multiplied by the prior year’s rate) and (ii) changes in rates (change in rate multiplied by the current year’s volume).


	March 31, 2011 vs. 2010									March 31, 2010 vs. 2009
	Increase (Decrease)									Increase (Decrease)
In thousands	Volume			Rate			Total			Volume			Rate			Total
Interest-Earning Assets:
Federal funds sold	$	—		$	—		$	—		$	(3	)	$	—		$	(3	)
Interest bearing deposits		(2	)		6			4			14			(7	)		7
Investment portfolio		—			—			—			(33	)		1			(32	)
Loans receivable		35			(102	)		(67	)		484			(70	)		414

Net Change in Interest Income		33			(96	)		(63	)		462			(76	)		386

Interest Bearing Liabilities:
Interest bearing deposits		(44	)		(274	)		(318	)		318			(596	)		(278	)

Net Change in Interest Expense		(44	)		(274	)		(318	)		318			(596	)		(278	)

Change in Net Interest Income	$	77		$	178		$	255		$	144		$	520		$	664

Provision for Loan Losses. The provision for loan losses represents the amount charged against earnings to increase the allowance for loan losses to the level deemed appropriate by management. The provision for loan losses and the allowance for loan losses are based on management’s ongoing assessment of the Company’s credit exposure and consideration of certain other relevant factors. The provision for loan losses was $681 thousand the three months ended March 31, 2011 as compared to $447 thousand for the three months ended March 31, 2010. The Company has increased its provision for loan losses to address identified loan concerns and in recognition of the detrimental effect of the weakened economy. The allowance is comprised of specific and general allowance amounts.

Non-Interest Income. Non-interest income principally consists of gains from the sale of the guaranteed portion of Small Business Administration loans and from deposit account services charges. For the three months ended March 31, 2011, gains on sales of the guaranteed portion of SBA loans was $209 thousand whereas gains on sales of SBA loans amounted to $225 thousand during the first three months of 2010. Generally, the Company desires to sell the guaranteed portion of most additional SBA loans resulting in a continuing stream of income that may vary significantly from quarter to quarter, depending in part upon the volume of loans actually sold. Deposit account service charges and other income amounted to $149 thousand during the three months ended March 31, 2011 as compared to $121 thousand for the same period in 2010, reflecting an increase in the number of accounts subject to service charges on such deposit accounts. Also included in this increase was the increase in net rental income from rental of other real estate owned properties.

Non-Interest Expense. Total non-interest expenses increased by $224 thousand during the three month period ended March 31, 2011 as compared to the same period in 2010, a 17.6% increase. The 2011 expenses reflect $75 thousand of provision for declining value of other real estate owned; no such provision was expensed in 2010. Loan collection expenses increased by $41 thousand from $16 thousand during 2010 to $57 thousand in 2011 resulting from increased loan collection efforts.

Income Tax Expense. During the three months ended March 31, 2011, the Company recorded an income tax expense of $281 thousand as compared to a $349 thousand expense during the same period in 2010. The income tax expense was 38.6% of income before taxes in 2011 and 39.8% of income before taxes in 2010.

FINANCIAL CONDITION.

General. The Company’s assets at March 31, 2011 were $206.5 million, an increase of $3.4 million or 1.7%, from December 31, 2010. The gross loans totaled $187.7 million at March 31, 2011 and are comprised of real estate loans of $132.7 million, an increase of $2.1 million, or 1.6%, from December 31, 2010 and commercial loans of $52.3 million, an increase of $.7 million, or 1.3% from December 31, 2010. The changes noted above reflect the effect of reclassifying approximately $9.5 million of commercial loans to real estate loans during the second quarter of 2010. The reclassification resulted from a review by the Company of the risk profile of the loan portfolio. The majority of the reclassified loans are to entities whose cash flow is directly or indirectly significantly dependent upon the sale, refinance, or management of real estate assets or collections of the entities’ financing of real estate. None of these loans were on non-accrual or classified as substandard at the time of reclassification. At March 31, 2011, deposits totaled $182.7 million, an increase of $2.6 million, or 1.4%, from December 31, 2010. Deposits at March 31, 2011 are comprised primarily of certificates of deposit of $124.6 million, NOW and Money Market accounts of $8.9 million, savings accounts of $23.8 million and noninterest bearing deposits of $25.4 million.

	September 30, 2010 vs.									September 30, 2009 vs.
	2009									2008
	Increase (Decrease)									Increase (Decrease)
In thousands	Volume			Rate			Total			Volume			Rate			Total
Interest-Earning Assets:
Federal funds sold	$	(2	)	$	—		$	(2	)	$	(139	)	$	(19	)	$	(158	)
Interest bearing deposits		16			8			24			17			—			17
Investment portfolio		(84	)		4			(80	)		(181	)		1			(180	)
Loans receivable		991			(126	)		865			1,710			(692	)		1,018
Net Change in Interest Income		921			(114	)		807			1,407			(710	)		697
Interest Bearing Liabilities:
Interest bearing deposits		528			(1,575	)		(1,047	)		949			(1,192	)		(243	)
Securities sold under agreements to repurchase		—			—			—			(28	)		—			(28	)
Net Change in Interest Expense		528			(1,575	)		(1,047	)		921			(1,192	)		(271	)
Change in Net Interest Income	$	393		$	1,461		$	1,854		$	486		$	482		$	968

Loan Portfolio. The loan portfolio is the largest component of earning assets and accounts for the greatest portion of total interest income. At March 31, 2011, net loans were $184.1 million, a 1.3% increase from the $181.7 million in loans outstanding at December 31, 2010. Generally, loans are internally generated but the Company does periodically purchase loan participations from other local community banks. Lending activity is generally confined to the Company’s immediate market areas. The $2.4 million increase in loans is net of the sales of SBA guaranteed portions of loans in the amount of $2.1 million during the first quarter of 2011. Without these sales, loan balances would have increased by $4.5 million. The Company is continuing its efforts to attract quality credits with no dilution of credit underwriting standards. The current economic conditions have reduced the number of loan requests as well as the number of applicants that meet the Company’s underwriting standards.

~~Provision~~The ~~for~~percentage ~~Loan~~of ~~Losses.~~total ~~The~~loans ~~provision~~comprised ~~for~~of ~~loan~~commercial ~~losses~~real ~~represents~~estate ~~the~~loans ~~amount~~has ~~charged~~increased ~~against~~as the ~~earnings~~Company tohas ~~increase~~concentrated ~~the~~on ~~allowance~~this ~~for~~type ~~loan~~of ~~losses~~lending. toThe ~~the~~majority ~~level~~of ~~deemed~~these ~~appropriate~~loans are secured by ~~management.~~real ~~The~~property ~~provision~~that ~~for~~is ~~loan~~occupied ~~losses~~by ~~and~~ the ~~allowance~~borrowers’ ~~for~~businesses. ~~loan~~The ~~losses~~Company ~~are~~has ~~based~~approximately ~~on management’s ongoing~~$0.9 million ~~assessment~~ of ~~the~~acquisition ~~Company’s credit exposure~~ and ~~consideration~~construction ofloans ~~certain~~secured ~~other~~by ~~relevant~~residential ~~factors~~building lots. The ~~provision~~Company ~~for~~does ~~loan~~not engage ~~losses~~in ~~was~~foreign $1lending activities.~~6 million~~ ~~during~~Loans ~~the~~secured ~~nine~~by ~~months~~residential ~~ended~~real ~~September 30,~~estate ~~2010~~are ~~as compared~~loans to investors ~~$1.1 million~~ for ~~the~~commercial ~~nine months ended September 30, 2009~~purposes. The ~~Company~~Bank ~~has~~does ~~increased its~~not ~~provision~~lend ~~for~~funds ~~loan losses~~ to ~~address~~consumers. ~~identified~~The ~~loan~~following ~~concerns~~table presents ~~and in recognition of~~ the ~~detrimental~~ ~~effect~~composition of the ~~weakened~~loan ~~economy.~~portfolio ~~The~~by ~~allowance~~type ~~is comprised~~ of ~~specific~~loan ~~and~~at ~~general allowance~~the ~~amounts~~dates indicated.

~~Non-Interest~~Loans Income. Non-interest income principally consists of gains from the sale of the guaranteed portion of Small Business Administration loans and from deposit account services charges. For the nine months ended September 30receivable, 2010, gains on sales of the guaranteed portion of SBA loans was $419 thousand whereas gains on sales of SBA loans amounted to $164 thousand during the first nine months of 2009. Generally, the Company desires to sell the guaranteed portion of most additional SBA loans resulting in a continuing stream of income that may vary significantly from quarter to quarter, depending in part upon the volume of loans actually sold. Deposit account service charges and other income amounted to $361 thousand during the nine months ended September 30, 2010 as compared to $339 thousand for the same period in 2009, reflecting an increase in the number of accounts subject to service charges on such deposit accounts. This increase was somewhat offset by declines in net ~~rental~~is ~~income~~comprised ~~from rental~~ of ~~other real estate owned properties caused by additional expenses to maintain~~ the ~~properties.~~following:

Non-Interest Expense. Total non-interest expenses increased by $4 thousand during the nine month period ended September 30, 2010 as compared to the same period in 2009, a 0.1% increase. The 2009 expenses included $86 thousand of a FDIC special insurance assessment whereas no special assessment was charged during 2010. The 2010 expenses reflect $75 thousand of provision for declining value of other real estate owned; no such provision was expensed in 2009.


	March 31, 2011						March 31, 2010						December 31, 2010
				Percentage						Percentage						Percentage
(In thousands)	Balance			of Loans			Balance			of Loans			Balance			of Loans
Commercial and Industrial loans	$	45,956			24.5	%	$	59,187			34.5	%	$	44,582			24.1	%
SBA loans		7,071			3.8	%		6,933			2.4	%		7,742			4.2	%
Real estate loans:
Owner occupied		85,296			45.4	%		72,918			39.5	%		85,633			46.3	%
Non owner occupied		49,449			26.3	%		45,897			23.6	%		47,040			25.4	%

Total real estate loans		134,745			71.7	%		118,815			63.1	%		132,673			71.7	%

		187,772			100.0	%		184,935			100.0	%		184,997			100.0	%

Unearned loan fees, net		(111	)					(86	)					(114	)
Allowance for loan losses		(3,589	)					(2,376	)					(3,174	)

	$	184,072					$	182,473					$	181,709

~~Income~~Note: ~~Tax~~The ~~Expense.~~loan ~~During~~amounts ~~the~~and ~~nine~~percentages ~~months~~for ~~ended~~March ~~September 30~~31, 2010, ~~the~~above ~~Company~~do ~~recorded~~not anreflect ~~income tax~~the ~~expense~~effect of ~~$847~~reclassifying ~~thousand~~approximately ~~as compared to a~~ $~~197~~9.5 ~~thousand~~million ~~expense~~of ~~during~~commercial ~~the~~and ~~same~~industrial ~~period~~loans into ~~2009. The~~real ~~income~~estate ~~tax~~loans ~~expense~~during ~~was~~the ~~40.0%~~second quarter of ~~income before taxes in~~ 2010 ~~and 40~~.~~3% of income before taxes in 2009.~~

~~Three~~Real ~~months~~estate ~~ended~~loans ~~September 30,~~are ~~2010~~secured by residential and commercial properties as follows:

Net Interest Income and Net Interest Margin. Total interest income increased by $152 thousand or 5.0% to $3.2 million for the three-month period ended September 30, 2010. This increase in interest income was attributable to the increase in average earning assets during 2010 as compared to 2009. The interest income was adversely affected by the decline in the yield of the average earning assets.


(In thousands)	March 31, 2011		March 31, 2010		December 31, 2010
Real estate loans secured by:
Residential real estate	$	24,908	$	22,747	$	24,307
Commercial real estate		109,837		96,068		108,366

Total real estate loans	$	134,745	$	118,815	$	132,673

None of the loans secured by residential real estate are owner occupied properties.

~~Interest~~The ~~expense~~following ~~decreased~~table byshows ~~$451~~the ~~thousand~~interest orrate ~~37.5%~~sensitivity toof ~~$753 thousand for~~ the ~~three~~loan ~~months~~portfolio ~~ended September~~at March 3031, ~~2010~~2011. Demand asloans, ~~compared~~loans towithout ~~the~~a ~~same~~stated ~~period~~maturity ofand ~~2009.~~overdrafts ~~This~~are ~~decrease~~reported ~~was~~as ~~primarily attributable~~re-pricing ~~to the decrease~~ in ~~the~~one ~~cost~~year or ~~of funds~~less. ~~The~~Floating ~~decline~~rate inloans ~~the~~are ~~cost~~reported ofto ~~funds~~reflect ~~was partially offset by~~ the ~~increase~~period inuntil ~~average interest bearing liabilities during 2010 as compared to 2009~~re-pricing.

The following table shows the average balances and average rates earned or paid on of the various categories of the Company’s assets and liabilities for the three month period ended September 30 of each year. Nonperforming loans are included in average balances in the following table:


	Loan Re-pricing as of March 31, 2011
	1 year				After
In thousands	or less		1-5 years		5 years		Total
Loans with:
Fixed interest rates	$	13,172	$	38,123	$	938	$	52,233
Floating and adjustable interest rates		64,227		71,312		—		135,539

Total loans receivable	$	77,399	$	109,435	$	938	$	187,772

~~THREE~~Allowance ~~MONTHS~~for loan losses. The adequacy of the allowance for loan losses is evaluated based upon loan categories except for loans rated substandard, doubtful or loss, which are evaluated separately and assigned loss amounts based upon the evaluation. Loss ratios are applied to each category of loan to determine estimated loss amounts. Categories of loans are identified as commercial, SBA and mortgage loans. Loss ratios are determined based upon historical losses incurred adjusted for the effect of current economic conditions, any industry concentration or identified weakness in an industry, credit management and underwriting policy changes and secured versus unsecured nature of the loan category. At March 31, 2011, the range of the loss ratios used to determine estimated losses by loan category were: commercial loans — 1.1%; SBA loans (unguaranteed portion) — 6.9% and real estate loans- 0.2% to 1.5%. These loss ratios are approximately the same as those ratios applied at December 31, 2010. Additional losses are estimated resulting from additional identified risks factors, such as loans with underwriting exceptions, the level and direction of payment delinquencies and the level of large loans. Not all of these additional loss estimates are allocated to the separate loan categories.

	2010								2009								2008
	Average					Yields/			Average					Yields/			Average					Yields/
In thousands	Balance			Interest		Rates			Balance			Interest		Rates			Balance			Interest		Rates
Assets
Securities (1)	$	527		$	7		5.27	%	$	1,540		$	23		5.99	%	$	6,104		$	72		4.68	%
Loans, net of unearned income		185,858			3,179		6.79	%		176,419			3,019		6.87	%		139,658			2,537		7.21	%
Interest-bearing deposits in other banks		16,466			17		0.41	%		14,510			9		0.25	%		—			—		—
Federal funds sold		—			—		—			198			0		0.00	%		11,833			58		1.94	%
Total interest-earning assets		202,851			3,203		6.26	%		192,667			3,051		6.35	%		157,595			2,667		6.71	%
Less allowance for loan losses		(2,197	)							(2,096	)							(1,747	)
Non interest earning assets		8,211								6,317								5,564
Total assets	$	208,865							$	196,888							$	161,412
Liabilities & Stockholders’ Equity
Interest-bearing deposits
Interest bearing demand deposits	$	692		$	—		0.06	%	$	1,522		$	—		0.00	%	$	1,026		$	1		0.39	%
Money market deposit accounts		7,695			8		0.41	%		8,930			13		0.58	%		15,730			70		1.77	%
Savings accounts		19,630			63		1.27	%		5,375			27		2.01	%		38			—		—
Certificates of deposit		133,226			682		2.03	%		137,938			1,164		3.38	%		101,650			1,200		4.68	%
Securities sold under agreement to repurchase		—			—		—			—			—		—			2,180			5		0.91	%
Total interest-bearing liabilities		161,243			753		1.85	%		153,765			1,204		3.14	%		120,624			1,276		4.20	%
Demand deposits and other liabilities		25,407								21,303								20,348
Total liabilities		186,650								175,068								140,972
Stockholders’ equity		22,215								21,820								20,440
Total liabilities and stockholders’ equity	$	208,865							$	196,888							$	161,412
Interest rate spread							4.41	%							3.21	%							2.51	%
Net interest income and margin				$	2,450		4.79	%				$	1,847		3.85	%				$	1,391		3.50	%

The Company monitors its loan portfolio for indications of weaknesses through the review of borrowers’ financial condition, cash flows, loan payment delinquencies, economic factors occurring in borrowers’ business sectors and other information which may come to the Company through its contacts in the market place. The determination of the effect of the weaknesses noted on the repayment of the loans is an ongoing process as to each borrower. The Company may set aside specific loss reserves during this process in amounts determined on subjective bases until such time as the collectability of the loan from the borrowers’ primary repayment source(s) is in doubt. During this time, secondary and tertiary repayment sources, including liquidation of collateral, are evaluated which may result in additional specific loss reserves being established. Independent or internal appraisals and evaluations are performed to determine potential recovery amounts, or range of amounts, from the loan collateral and other payment sources. Collateral values are subject to change depending on market factors, collateral condition and method and timing of liquidation efforts. Loans, or portions of loans, for which the Company does not expect to obtain repayment are charged-off. In most cases, the Company has established specific reserves for the amount of the loan’s loss prior to the point of charge-off.

~~(1)~~The ~~Yields~~adequacy onof ~~securities~~the allowance for loan losses is also reviewed at least quarterly using risk ratings applied to the loans based upon rating criteria consistent with regulatory definitions. The risk rating is adjusted, as necessary, if loans become delinquent, if significant adverse information is discovered regarding the underlying credit and, in the case of commercial loans and commercial real estate loans, the normal periodic review of the underlying credit indicates that a change in risk rating is appropriate. An estimated “low” and “high” loss percentage is applied to loans in each risk rating. These loss percentages increase as the loan risk rating increases. Loans rated as substandard, doubtful or loss are ~~calculated~~evaluated separately and assigned loss amounts based upon the separate evaluation. Risks factors identified beyond individual loan risks, such as economic conditions, underwriting exceptions and loan concentrations are quantified based upon management’s estimations of loss exposure. Loss percentages used are generally based upon management’s best estimates considering losses incurred. Estimated “low” and “high” allowance for loan loss amounts are derived by accumulating the estimated losses using the “low” and “high” loss percentages for each risk rating and adding losses based upon separate loan evaluations and identified other risks. The actual allowance for loan losses is compared to this range to ascertain that it is reasonably situated within the range. In addition, on ~~amortized~~at ~~cost~~least a quarterly basis, the recorded allowance for loan losses (as a percent of loans) is compared to peer group levels to ascertain the reasonableness of the estimate. At March 31, 2011, the actual allowance for loan losses of 1.91% was between the “high” allowance amount of 1.94% and the low range percent of 1.69%.

The net interest income for the three month period ended September 30, 2010 was $2.5 million as compared to $1.8 million for the same period in 2009. Net interest income increased primarily because of the increase in average earning assets and the reduced cost of funds during the three months ended September 30, 2010 as compared to the three months ended September 30, 2009.

~~Provision~~The allowance for ~~Loan~~loan ~~Losses~~losses represents 1.91% and 1.72% of loans receivable at March 31, 2011 and December 31, 2010, respectively. The ~~provision~~increase in the allowance for loan losses ~~was~~as ~~$612~~a ~~thousand~~percent ~~during the three~~of ~~months~~loans ~~ended~~at ~~September~~March 3031, ~~2010~~2011 as compared to ~~$350~~December 31, ~~thousand~~2010 ~~for~~resulted from increased specific reserves as well as general reserves reflecting the ~~three~~effect ~~months~~of ~~ended~~the ~~September 30,~~current ~~2009~~economic conditions. ~~The~~There ~~Company~~was ~~has~~no change ~~increased~~in ~~its~~the ~~provision~~methodology of determining the allowance for loan losses toat ~~address~~March 31, ~~identified~~2011 ~~loan~~as ~~concerns~~compared ~~and~~to inDecember 31, ~~recognition~~2010 ofapart ~~the~~from ~~detrimental~~changes ~~effect~~to loss factors based on management’s perception of ~~the~~economic ~~weakened~~environmental ~~economy~~factors and trends. ~~The~~Management believes that the allowance isfor loan ~~comprised~~losses ofis ~~specific~~adequate ~~and~~for ~~general~~each ~~allowance~~period ~~amounts~~presented.

~~Non-Interest~~The ~~Income.~~activity For the three months ended September 30, 2010, gains on sales of the guaranteed portion of SBA loans were $49 thousand whereas gains on sales of SBA loans amounted to $47 thousand during the same period in ~~2009. Deposit account service charges and other income amounted to $115 thousand during~~ the ~~three~~allowance ~~months ended September 30, 2010 as compared to $130 thousand~~ for ~~the~~loan ~~same~~losses ~~period~~is inshown ~~2009 reflecting the decrease~~ in ~~net rental income from~~ the ~~leases of~~following ~~other real estate owned properties~~table.

Non-Interest Expense. Total non-interest expense increased by $54 thousand during the three-month period ended September 30, 2010 as compared to the same period in 2009, a 4.0% increase. The 2010 expenses reflect $75 thousand of provision for declining value of other real estate owned; no such provision was expensed in 2009.


	Three Months
	Ended			Year Ended December 31,
(In thousands)	March 31, 2011			2010			2009			2008			2007
Allowance for loan losses:
Beginning balance	$	3,174		$	2,380		$	1,860		$	1,665		$	1,614
Charge-offs — Commercial and Industrial loans		(85	)		(1,140	)		(500	)		(179	)		(72	)
Charge-offs — SBA loans		(143	)		(447	)		(463	)		(318	)		—
Recoveries — Commercial and Industrial loans		6			26			—			45			78
Recoveries — SBA loans		3			25			5			—			—
Real estate loans:
Charge-offs — Owner occupied		(47	)		—			(138	)		—			—
Charge-offs — Non owner occupied		—			(386	)		—			—			—

Net recoveries (charge-offs)		(266	)		(1,922	)		(1,096	)		(452	)		6

Provision for loan losses		681			2,716			1,616			647			45

Ending balance	$	3,589		$	3,174		$	2,380		$	1,860		$	1,665


Net recoveries (charge-offs) to average loans		(0.14	%)		(1.04	%)		(0.65	%)		(0.33	%)		0.00	%

~~Income Tax Expense.~~ During ~~the three months ended September 30~~2011, ~~2010,~~loans ~~the~~to ~~Company~~seven ~~recorded~~borrowers ~~an income~~and ~~tax~~related ~~expense~~entities oftotaling $~~238~~0.3 million ~~thousand~~were asdetermined ~~compared~~ to ~~a $128 thousand expense during the same period~~ inbe ~~2009.~~uncollectible ~~The income tax expense was 40.0% of income before taxes in 2010~~ and ~~40.0%~~were ~~of income before taxes in 2009~~charged-off.

~~FINANCIAL~~The ~~CONDITION~~activity in the allowance for loan losses by category during the three months ended March 31, 2011 is shown in the following table.

General. The Company’s assets at September 30, 2010 were $206.0 million, an increase of $5.6 million or 2.8%, from December 31, 2009. The gross loans totaled $184.6 million at September 30, 2010 and are comprised of real estate loans of $131.5 million, an increase of $14.4 million, or 12.3%, from December 31, 2009 and commercial loans of $53.2 million, a decrease of $15.3 million, or 22.3% from December 31, 2009. The changes noted above reflect the effect of reclassifying approximately $9.5 million of commercial loans to real estate loans during the second quarter of 2010. The reclassification resulted from a review by the Company of the risk profile of the loan portfolio. The majority of the reclassified loans are to entities whose cash flow is directly or indirectly significantly dependent upon the sale, refinance, or management of real estate assets or collections of the entities’ financing of real estate. None of these loans were on non-accrual or classified as substandard at the time of reclassification. At September 30, 2010, deposits totaled $183.0 million, an increase of $4.3 million, or 2.4%, from December 31, 2009. Deposits at September 30, 2010 are comprised primarily of certificates of deposit of $127.6 million, NOW and Money Market accounts of $8.8 million, savings accounts of $21.2 million and noninterest bearing deposits of $25.3 million.


					Real Estate Loans
	Commercial						Non-
	and		SBA		Owner		Owner
In thousands	Industrial		Loans		Occupied		Occupied		Unallocated		Total
Balance at December 31, 2010	$	1,023	$	627	$	682	$	715	$	127	$	3,174
Less loan charge offs		85		143		47		—		—		275
Loss recoveries		6		3		—		—		—		9
Provision for loan losses		367		11		229		63		11		681

Balance at March 31, 2011	$	1,311	$	498	$	864	$	778	$	138	$	3,589


Allowance for loans individually evaluated for impairment	$	822	$	119	$	646	$	426	$	—	$	2,013

Amount of loans individually evaluated for impairment	$	1,445	$	319	$	8,673	$	3,234	$	—	$	13,671

Loan Portfolio. The loan portfolio is the largest component of earning assets and accounts for the greatest portion of total interest income. At September 30, 2010, net loans were $182.1 million, a 0.5% decrease from the $183.1 million in loans outstanding at December 31, 2009. Generally, loans are internally generated but the Company does periodically purchase loan participations from other local community banks. Lending activity is generally confined to the Company’s immediate market areas. The small decrease in the loan balances from December 31, 2009 to September 30, 2010 resulted partially from the sale of SBA guaranteed portions of loans in the amount of $6.6 million during the first nine months of 2010. Without these sales, loan balances would have increased by $5.6 million. The Company is continuing its efforts to attract quality credits with no dilution of credit underwriting standards. The current economic conditions have reduced the number of loan requests as well as the number of applicants that meet the Company’s underwriting standards.

The percentage of total loans comprised of commercial real estate loans has increased as the Company has concentrated on this type of lending. The majority of these loans are secured by real property that is occupied by the borrowers’ businesses. The Company has approximately $0.9 million of acquisition and construction loans secured by residential building lots. The Company does not engage in foreign lending activities. Loans secured by residential real estate are loans to investors for commercial purposes. The Bank does not lend funds to consumers. The following table presents the composition of the loan portfolio by type of loan at the dates indicated.

~~Loans~~The ~~receivable,~~activity ~~net~~in the allowance for loan losses by category during the three months ended March 31, 2010 is ~~comprised~~shown ofin the following: table.

	September 30, 2010						September 30, 2009						December 31, 2009
							Real Estate Loans
				Percentage						Percentage						Percentage
	Commercial									Non-
In thousands	Balance			of Loans			Balance			of Loans			Balance			of Loans
	and			SBA			Owner			Owner
Commercial and Industrial loans	$	53,211			28.8	%	$	66,727			37.1	%	$	68,476			36.9	%
In thousands	Industrial			Loans			Occupied			Occupied			Unallocated			Total
Real estate loans secured by:
Balance at December 31, 2009	$	1,290		$	576		$	168		$	242		$	104		$	2,380
Residential real estate		26,510			14.4	%		22,261			12.4	%		22,140			11.9	%
Loan charge offs		150			325			—			—			—			475
Commercial real estate		105,024			56.8	%		90,843			50.5	%		94,947			51.2	%
Loss recoveries		21			3			—			—			—			24
Total real estate loans		131,534			71.2	%		113,104			62.9	%		117,087			63.1	%
Provision for loan losses		198			163			21			78			(13	)		447
		184,745			100.0	%		179,831			100.0	%		185,563			100.0	%
Balance at March 31, 2010	$	1,359		$	417		$	189		$	320		$	91		$	2,376
Unearned loan fees, net		(114	)					(77	)					(81	)
Allowance for loans individually evaluated for impairment	$	886		$	54		$	22		$	46		$	—		$	988
Allowance for loan losses		(2,533	)					(2,150	)					(2,380	)
Amount of loans individually evaluated for impairment	$	2,631		$	256		$	8,725		$	1,854		$	—		$	13,466
	$	182,098					$	177,604					$	183,102

~~Note:~~Additionally, ~~The~~the ~~loan~~Company ~~amounts~~has ~~and~~established ~~percentages~~a reserve for ~~September 30,~~unfunded ~~2010~~commitments ~~above~~that ~~reflect~~is ~~the~~recorded ~~effect~~by a ofprovision ~~reclassifying~~charged ~~approximately~~to $9other expenses.5 At March ~~million~~31, of2011 ~~commercial~~the ~~and~~balance ~~industrial~~of ~~loans~~this toreserve ~~real~~was $60 ~~estate~~thousand. ~~loans~~The ~~during~~reserve, ~~the~~based ~~second~~on ~~quarter~~evaluations of ~~2010.~~the ~~Without~~collectability ~~the~~of ~~reclassification~~loans, ~~the~~is ~~commercial~~an amount that ~~and~~management ~~industrial~~believes ~~loans~~will ~~would~~be ~~have~~adequate ~~comprised~~over ~~approximately~~time ~~33.9%~~to ofabsorb ~~the~~possible ~~total~~losses ~~loans~~on atunfunded commitments ~~September 30,~~(off-balance ~~2010~~sheet financial instruments) that may become uncollectible in the future.

~~The~~Asset ~~following~~Quality. ~~table~~In ~~shows~~its ~~the~~lending ~~interest~~activities, ~~rate~~the ~~sensitivity~~Company ofseeks ~~the~~to ~~loan~~develop ~~portfolio~~sound atloans ~~September 30,~~with customers ~~2010.~~who ~~Demand~~will ~~loans,~~grow ~~loans~~with ~~without~~the aCompany. ~~stated~~There ~~maturity~~has ~~and~~not ~~overdrafts~~been ~~are~~an ~~reported~~effort asto ~~re-pricing~~rapidly inbuild the portfolio and ~~one~~earnings ~~year~~at orthe ~~less.~~sacrifice ~~Floating~~of ~~rate~~asset ~~loans~~quality. ~~are~~At ~~reported~~the tosame ~~reflect~~time, the ~~period~~extension ~~until~~of recredit inevitably carries some risk of non-~~pricing~~payment.

	Loan Re-pricing as of September 30, 2010
	1 year				After
In thousands	or less		1-5 years		5 years		Total
Loans with:
Fixed interest rates	$	14,152	$	31,282	$	—	$	45,434
Floating and adjustable interest rates		69,465		69,846		—		139,311
Total loans receivable	$	83,456	$	100,661	$	—	$	184,745

Below is a summary of the Company’s impaired loans at March 31, 2011 and December 31, 2010:

Allowance for loan losses. The adequacy of the allowance for loan losses is evaluated based upon loan categories except for loans rated substandard, doubtful or loss, which are evaluated separately and assigned loss amounts based upon the evaluation. Loss ratios are applied to each category of loan to determine estimated loss amounts. Categories of loans are identified as commercial, SBA and mortgage loans. Loss ratios are determined based upon historical losses incurred adjusted for the effect of current economic conditions, any industry concentration or identified weakness in an industry, credit management and underwriting policy changes and secured versus unsecured nature of the loan category. At September 30, 2010, the range of the loss ratios used to determine estimated losses by loan category were: commercial loans — 1.0%; SBA loans (unguaranteed portion) — 6.7% and real estate loans- 0.2% to 2.0%. These loss ratios are about 0.04% higher than the ratios applied at December 31, 2009. The loss ratios have increased because of the amount of loan charge-offs reflecting the effect of the continuing trend of weaknesses in economic conditions. Additional losses are estimated resulting from additional identified risks factors, such as loans with underwriting exceptions, the level and direction of payment delinquencies and the level of large loans. Not all of these additional loss estimates are allocated to the separate loan categories.


									For Period:
									Average
					Related Allowance for				Recorded		Interest Income
	Recorded Investment				Losses				Investment		Recognized
	March 31,		December 31,		March 31,		December 31,		March 31,		March 31,		December 31,
	2011		2010		2011		2010		2011		2011		2010
Non-accrual loans:
Commercial and Industrial loans:
With specific reserves	$	1,186	$	963	$	791	$	445	$	985	$	—	$	25
Without specific reserves		—		—		—		—				—		—

		1,186		963		791		445		985		—		25

SBA loans:
With specific reserves		248		359		119		194		325		—		8
Without specific reserves		27		29		—		—		29		—		—

		275		388		119		194		354		—		8

Real Estate — Owner Occupied:
With specific reserves		3,202		3,140		646		483		3,179		—		64
Without specific reserves		545		816		—		—		613		—		17

		3,747		3,956		646		483		3,792		—		81

in additional specific loss reserves being established. Independent or internal appraisals and evaluations are performed to determine potential recovery amounts, or range of amounts, from the loan collateral and other payment sources. Collateral values are subject to change depending on market factors, collateral condition and method and timing of liquidation efforts. Loans, or portions of loans, for which the Company does not expect to obtain repayment are charged-off. In most cases, the Company has established specific reserves for the amount of the loans’ losses prior to the point of charge-off.


									For Period:
									Average
					Related Allowance for				Recorded		Interest Income
	Recorded Investment				Losses				Investment		Recognized
	March 31,		December 31,		March 31,		December 31,		March 31,		March 31,		December 31,
Continued	2011		2010		2011		2010		2011		2011		2010
Real Estate — Non Owner Occupied:
With specific reserves		1,935		1,976		426		399		1,966		—		41
Without specific reserves		—		—		—		—		—		—		—

		1,935		1,976		426		399		1,966		—		41

Total Non-accrual loans
With specific reserves	$	6,571	$	6,438	$	1,982	$	1,521	$	6,455	$	—	$	138
Without specific reserves		572		845		—		—		642		—		17

Total Non-accrual loans	$	7,143	$	7,283	$	1,982	$	1,521	$	7,097	$	—	$	155


TDR loans:**
Commercial and Industrial loans:
With specific reserves	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Without specific reserves		45		154		—		—		150		1		13

	$	45	$	154		—		—		150		1		13

Number of loans		1		1
Real Estate — Owner Occupied:
With specific reserves		2,051		2,051		13		13		2,051		60		125
Without specific reserves		—		—		—		—		—		—		—

		2,051		2,051		13		13		2,051		60		125

Number of loans		1		1
Real Estate — Non Owner Occupied:
With specific reserves		1,599		1,603		11		11		1,600		16		82
Without specific reserves		174		177		—		—		177		3		12

		1,773		1,780		11		11		1,777		19		94

Number of loans		7		7
Total Loans:
With specific reserves	$	3,650	$	3,654	$	25	$	25	$	3,651	$	76		207
Without specific reserves		219		331		—		—		327		4		25

Total TDR loans	$	3,869	$	3,985	$	25	$	25	$	3,978	$	80	$	232

Number of loans		9		9

Other Impaired loans:
Commercial and Industrial loans:
With specific reserves	$	—	$	250	$	—	$	125		125	$	—	$	19
Without specific reserves		—		—		—		—		—		—		—

Total Other Impaired loans	$	—	$	250	$	—	$	125		125	$	—	$	19


Total Impaired Loans:
With specific reserves	$	10,221	$	10,342	$	1,005	$	1,671		10,231	$	76	$	364
Without specific reserves		791		1,176		—		—		969		4		42

Total Impaired loans	$	11,012	$	11,518	$	1,005	$	1,671		11,200	$	80	$	406

~~The~~** ~~adequacy~~Troubled ofDebt the allowance for loan losses is also reviewed at least quarterly using risk ratings applied to the loans based upon rating criteria consistent with regulatory definitions. The risk rating is adjusted, as necessary, if loans become delinquent, if significant adverse information is discovered regarding the underlying credit and, in the case of commercial loans and commercial real estate loans, the normal periodic review of the underlying credit indicates that a change in risk rating is appropriate. An estimated “low” and “high” loss percentage is applied to loans in each risk rating. These loss percentages increase as the loan risk rating increases. Loans rated as substandard, doubtful or loss are evaluated separately and assigned loss amounts based upon the separate evaluation. Risks factors identified beyond individual loan risks, such as economic conditions, underwriting exceptions and loan concentrations are quantified based upon management’s estimations of loss exposure. Loss percentages used are generally based upon management’s best estimates considering losses incurred. Estimated “low” and “high” allowance for loan loss amounts are derived by accumulating the estimated losses using the “low” and “high” loss percentages for each risk rating and adding losses based upon separate loan evaluations and identified other risks. The actual allowance for loan losses is compared to this range to ascertain that it is reasonably situated within the range. In addition, on at least a quarterly basis, the recorded allowance for loan losses (as a percent of loans) is compared to peer group levels to ascertain the reasonableness of the estimate. At September 30, 2010, the actual allowance for loan losses of 1.37% was equal to the “high” allowance amount. The low range percent was 1.12%. Restructured

The allowance for loan losses represents 1.37% and 1.28% of loans receivable at September 30, 2010 and December 31, 2009, respectively. The increase in the allowance for loan losses as a percent of loans at September 30, 2010 as compared to December 31, 2009 resulted from increased specific reserves as well as general reserves reflecting the effect of the current economic conditions. There was no change in the methodology of determining the allowance for loan losses at September 30, 2010 as compared to December 31, 2009 apart from changes to loss factors based on management’s perception of economic environmental factors and trends. Management believes that the allowance for loan losses is adequate for each period presented.

The activity in the allowance for loan losses is shown in the following table.

	Nine Months Ended			Year Ended December 31,
In thousands	September 30, 2010			2009			2008			2007			2006
Allowance for loan losses:
Beginning balance	$	2,380		$	1,860		$	1,665		$	1,614		$	1,615
Charge-offs- Commercial and Industrial loans		(1,429	)		(963	)		(497	)		(72	)		(226	)
Recoveries- Commercial and Industrial loans		42			5			45			78			—
Charge-offs- Commercial real estate loans		(106	)		(138	)		—			—			—
Net recoveries (charge-offs)		(1,493	)		(1,096	)		(452	)		6			(226	)
Provision for loan losses		1,646			1,616			647			45			225
Ending balance	$	2,533		$	2,380		$	1,860		$	1,665		$	1,614
Net recoveries (charge-offs) to average loans		(0.81	%)		(0.65	%)		(0.33	%)		0.00	%		(0.26	)%

~~The~~Non-accrual ~~activity in the allowance for~~ loan ~~losses~~activity ~~by category during 2010~~ is ~~shown~~summarized inas ~~the following~~follows: ~~table.~~

	Commercial				Real Estate Loans
	Three Months
	and						Non-
	Ended		Year Ended December 31,
	Industrial		SBA		Owner		Owner
In thousands	March 31, 2011		2010		2009		2008		2007
In thousands	Loans		Loans		Occupied		Occupied		Unallocated		Total
Balance at the beginning of the period	$	7,283	$	2,734	$	5,819	$	1,125	$	628
Loan Category
New loans placed on non-accrual		753		7,846		2,427		5,046		569
Balance at December 31, 2009	$	1,290	$	576	$	168	$	242	$	104	$	2,380
Less:
Loan charge offs		1,005		424		—		106		—		1,535
Loan restored to interest earning status		—		—		1,266		—		—
Loss recoveries		23		19		—		—		—		42
Paid-off: sold in foreclosure		—		—		576		—		—
Provision for loan losses		401		247		306		629		63		1,646
Other real estate owned additions		—		945		2,462		—		—
Balance at September 30, 2010	$	709	$	418	$	474	$	765	$	167	$	2,533
Charge offs		275		1,973		1,101		236		72
Allowance for loans individually evaluated for impairment	$	264	$	35	$	262	$	433	$	—	$	994
Other including payments received		618		379		107		116		—
Amount of loans individually evaluated for impairment	$	2,127	$	317	$	8,714	$	2,317	$	—	$	13,475
Balance at the end of the period	$	7,143	$	7,283	$	2,734	$	5,819	$	1,125

~~Additionally,~~Non-accrual ~~the~~loan ~~Company~~activity ~~has established a reserve for unfunded commitments that is recorded~~ by ~~a provision~~category ~~charged~~during ~~to other expenses. At September 30, 2010~~ the ~~balance~~three ofmonth ~~this~~period ~~reserve~~ended ~~was $58 thousand. The reserve~~March 31, ~~based~~2011 ~~on evaluations of the collectability of loans,~~ is ~~an amount that~~ ~~management~~summarized ~~believes~~as ~~will be adequate over time to absorb possible losses on unfunded commitments~~follows: ~~(off-balance sheet financial instruments) that may become uncollectible in the future.~~

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


			Commercial				Real Estate		Real Estate
			and				Owner		Non Owner
In thousands	Total		Industrial		SBA		Occupied		Occupied
Balance at the beginning of the period	$	7,283	$	963	$	388	$	3,956	$	1,976
New loans placed on non-accrual		753		404		70		279		—
Less:
Charge offs		275		85		143		47		—
Other including payments received		618		96		40		441		41

Balance at the end of the period	$	7,143	$	1,186	$	275	$	3,747	$	1,935

~~Below~~Non-accrual isloan aactivity ~~summary~~by ofcategory during the ~~Company’s~~three ~~impaired~~month ~~loans.~~period ended March 31, 2010 is summarized as follows:

	Unpaid				Related		Interest
			Commercial				Real Estate		Real Estate
September 30, 2010	Principal		Recorded		Allowance		Income
			and				Owner		Non Owner
In thousands	~~Balance~~Total		~~Investment~~Industrial		~~for losses~~SBA		~~Recognized~~Occupied		Occupied
Non-accrual loans:
Balance at the beginning of the period	$	2,734	$	2,280	$	454	$	—	$	—
Commercial and Industrial loans:
New loans placed on non-accrual		403		—		403		—		—
With specific reserves	$	2,192	$	1,342	$	264	$	—
Less:
Without specific reserves		—		—		—		—
Charge offs		475		—		475		—		—
		2,192		1,342		264		—
Other including payments received		126		—		126		—		—
SBA loans:
Balance at the end of the period	$	2,536	$	2,280	$	256	$	—	$	—
With specific reserves		189		107		25		—
Without specific reserves		115		115		—		—
		304		222		25		—
Real Estate — Non Owner Occupied:
With specific reserves		1,538		1,432		229		—
Without specific reserves		—		—		—		—
		1,538		1,432		229		—

Non-accrual loans with specific reserves at March 31, 2011 are comprised of:

Commercial loans — eight loans to seven borrowers totaling $1.2 million with $0.8 million of specific reserves established.

SBA loans — four loans to three borrowers totaling $248 thousand with $119 thousand of specific reserves established.

Owner-occupied Real Estate loans — five loans to six borrowers secured by commercial property in the amount of $3.2 million with specific reserves established for these loans in the amount of $646 thousand.

Non-owner Occupied Real Estate loans — five loans to four borrowers, secured by the residential and commercial property in the amount of $1.9 million, after a partial charge-off of $106 thousand and with specific reserves of $426 thousand established for the loans. The borrowers of four of the above loans are controlled by the same individual.

All of these loans are in various stages of collection.

	Unpaid				Related		Interest
September 30, 2010	Principal		Recorded		Allowance		Income
In thousands	Balance		Investment		for losses		Recognized
Total Loans:
With specific reserves	$	3,919	$	2,881	$	518	$	—
Without specific reserves		115		115		—		—
Total Non-accrual loans	$	4,034	$	2,996	$	518	$	—
Troubled Debt Restructured loans:
Commercial and Industrial loans:
With specific reserves	$	—	$	—	$	—	$	—
Without specific reserves		253		253		—		3
	$	253	$	253		—		3
Number of loans				1
Real Estate — Owner Occupied:
With specific reserves		1,141		1,141		272		60
Without specific reserves		1,264		1,264		—		67
		2,405		2,405		272		127
Number of loans				3
Real Estate — Non Owner Occupied:
With specific reserves		885		885		215		25
Without specific reserves		1,603		1,603		—		71
		2,488		2,488		215		96
Number of loans				8
Total Loans:
With specific reserves	$	2,026	$	2,026	$	487		85
Without specific reserves		3,120		3,120		—		141
Total Troubled Debt Restructured loans	$	5,146	$	5,146	$	487		226
Number of loans				12
Other Impaired loans:
Commercial and Industrial loans:
With specific reserves	$	—	$	—	$	—	$	—
Without specific reserves		550		550		—		27
Total Other Impaired loans	$	550	$	550	$	—	$	27
Total Impaired Loans:
With specific reserves	$	5,945	$	4,907	$	1,005	$	85
Without specific reserves		3,785		3,785		—		168
Total Impaired loans	$	9,730	$	8,692	$	1,005	$	253

At March 31, 2011, the Company has modified nine loans in amounts totaling $3.9 million which modifications qualify the loans as Troubled Debt Restructuring (TDR). These loans are included in the schedule above of accruing impaired loans. These borrowers are in compliance with the modified terms and are accruing interest. Changes made to the loans included the reduction of loan payments from principal and interest payments to interest only payments for specific time periods, the decrease in interest rates charged on a loan and the extension of the maturity of a loan. Specific reserves were established on the loans as appropriate. The majority of these loans were modified in the third quarter of 2010 as the adverse economic conditions hampered borrowers’ current cash flows.

~~Note:~~TDRs ~~Differences~~included ~~between~~in ~~the~~non-accruing ~~unpaid~~loans ~~principal~~are ~~balances~~summarized ~~and~~below. ~~the~~Generally ~~recorded investments above result from~~ the ~~Company~~borrowers ~~charging-off~~have ~~portions of loans. The charge-offs do~~ not ~~affect the~~shown ~~total~~sustained ~~amount~~compliance ~~due~~with ~~from~~ the ~~borrowers~~modified loan terms.


	Recorded		Specific		Recorded		Specific
	Amount		Reserve		Amount		Reserve
	March 31,		March 31,		December 31,		December 31,
In thousands	2011		2011		2010		2010
TDR on Non-accrual loans:
Commercial and Industrial loans:
With specific reserves	$	151	$	31	$	—	$	—
Without specific reserves								—

		151		31		—		—

Number of loans		1
SBA loans:
With specific reserves		—		—		50		50
Without specific reserves		—		—		—		—

		—		—		50		50

Number of loans						1
Real Estate — Owner Occupied:
With specific reserves		3,140		600		3,140		483
Without specific reserves		—		—		—		—

		3,140		600		3,140		483

Number of loans		4				4
Real Estate — Non Owner Occupied:
With specific reserves*		807		244		819		223
Without specific reserves		—		—		—		—

		807		244		819		223

Number of loans		2				2
Total TDR Non-accrual Loans:
With specific reserves	$	4,098	$	875	$	4,009	$	756
Without specific reserves		—		—		—		—

Total TDR Non-accrual loans	$	4,098	$	875	$	4,009	$	756

Number of loans		7				7

At March 31, 2011, there were $4.4 million of performing loans considered potential problem loans, defined as loans which are not included in the 90 day past due, not reported as troubled debt restructures or as nonaccrual loans, but for which known information about possible credit problems causes the Company to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loans. The Company closely monitors the financial status of these borrowers.

Generally, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when principal or interest is delinquent for ninety days or more. Interest may accrue on TDRs if the borrowers are consistently in compliance with the modified loan terms. During 2011, there were no amounts included in gross interest income attributable to loans in non-accrual status.

~~Non-accrual~~The ~~loan~~following ~~activity~~table isshows ~~summarized~~the asamounts ~~follows~~of non-performing assets on the dates indicated:

	Nine Months
	March 31,			December 31:
	Ended
In thousands	2011			2010			2009			2008			2007
	September 30,			Year Ended December 31,
Nonaccrual loans:
In thousands	2010			2009			2008			2007			2006
Commercial and Industrial	$	1,187		$	963		$	2,280		$	1,676		$	868
Balance at the beginning of the period	$	2,734		$	5,819		$	1,125		$	628		$	592
SBA		275			388			454			542			257
New loans placed on non-accrual		2,109			2,427			5,046			569			262
Real estate — owner occupied		3,746			3,956			—			3,601			—
Less:
Real estate — non owner occupied		1,935			1,976			—			—			—
Loan restored to interest earning status		53			1,266			—			—			—
Accrual loans —past due 90 days and over		—			—			—			—			—
Paid-off: sold in foreclosure		—			576			—			—			—
Total non-performing loans		7,143			7,283			2,734			5,819			1,125
Other real estate owned additions		—			2,462			—			—			—
Other real estate owned		2,799			3,324			2,462			—			—
Charge offs		1,535			1,101			236			72			226
Total non-performing assets	$	9,942		$	10,607		$	5,196		$	5,819		$	1,125
Other including payments received		259			107			116
Accruing Troubled Debt Restructured loans	$	3,869		$	3,985		$	1,263			—			—
Balance at the end of the period	$	2,996		$	2,734		$	5,819		$	1,125		$	628
Allowance for loan losses to total non-performing loans		50.2	%		43.6	%		87.1	%		32.0	%		148.0	%
Non-performing loans to total loans		3.81	%		3.94	%		1.47	%		3.80	%		0.89	%
Non-performing assets to total assets		4.81	%		5.22	%		2.59	%		3.49	%		0.76	%

~~Non-accrual~~The ~~loan~~payment ~~activity~~status byof ~~category~~loans ~~during~~receivable ~~the~~at ~~nine month period ended September~~March 3031, ~~2010~~2011 is ~~summarized~~ as follows:

			Commercial				Real Estate		Real Estate
			and				Owner		Non Owner
In thousands	Total		Industrial		SBA		Occupied		Occupied
Balance at the beginning of the period	$	2,734	$	2,280	$	454	$	—	$	—
Current accruing loans	$	178,752	$	44,765	$	6,722	$	81,142	$	46,123
New loans placed on non-accrual		2,109		346		505		—		1,258
Current non-accruing loans		1,415		167		—		1,248		—
Less:
Past due loans:
Loan restored to interest earning status		53		53		—		—		—
30 to 89 days past due		1,877		—		74		412		1,391
Paid-off: sold in foreclosure		—
90 days plus past due and accruing		—		—		—		—		—
Other real estate owned additions		—
Non-accrual loans, non current		5,728		1,020		275		2,498		1,935
Charge offs		1,535		855		574		—		106
Total past due loans		7,605		1,020		349		2,910		3,326
Other including payments received		259		95		164		—		—
Total loans at the end of the period	$	187,772	$	45,952	$	7,071	$	85,300	$	49,449
Balance at the end of the period	$	2,996	$	1,623	$	221	$	—	$	1,152

~~Comparative~~The ~~information~~Company ~~regarding~~applies risk ratings to the ~~non-accrual~~loans based upon rating criteria consistent with regulatory definitions. The risk ratings are adjusted, as necessary, if loans atbecome ~~September 30~~delinquent, if ~~2010~~significant adverse information is discovered regarding the underlying credit and ~~December~~the normal periodic reviews of the underlying credits indicate that a change in risk rating is appropriate. A summary of the risk rating of loans receivable at March 31, ~~2009~~ 2011 follows:

In thousands	September 30, 2010		December 31, 2009
			Commercial				Real Estate		Real Estate
Loans classified non-accrual with specific reserves	$	2,881	$	2,519
			and				Owner		Non Owner
Loans classified non-accrual with no specific reserves		115		215
In thousands	Total		Industrial		SBA		Occupied		Occupied
Total non-accrual loans	$	2,996	$	2,734
Risk rated — pass	$	174,103	$	44,507	$	6,752	$	76,629	$	46,215
Allowance for loan losses on non-accrual loans	$	518	$	922
Risk rated — special mention (loan weaknesses noted which could lead to loan loss)		4,236		323		44		2,570		1,299
Average balance non-accrual loans during period	$	2,769	$	4,559
Risk rated- substandard or doubtful (loans with significant weaknesses that could, or has, result in loan losses)		9,433		1,122		275		6,101		1,935
Total loans at the end of the period	$	187,772	$	45,952	$	7,071	$	85,300	$	49,449

Non-accrual loans with specific reserves at September 30, 2010 are comprised of:

Commercial loans — two loans outstanding to a borrower and entity controlled by the same borrower totaling $1.0 million, after partial loan charge off of $437 thousand, secured by residential real estate and corporate assets with a specific reserve of $20 thousand and five loans to various entities totaling $322 thousand with $244 thousand of specific reserves established.

SBA loans — four loans to various entities totaling $107 thousand with $25 thousand of specific reserves established.

~~Non-owner~~Real ~~Occupied~~estate ~~Real~~acquired ~~Estate~~through ~~loans-~~or ~~two~~in ~~loans~~the toprocess of foreclosure is recorded at fair value less estimated disposal costs. The Company periodically evaluates the ~~same~~recoverability ~~entity,~~of ~~secured~~the bycarrying value of the ~~same~~real estate acquired through foreclosure using current estimates of fair value when it ~~residential~~has ~~property~~reason into believe that real estate values have declined for the ~~amount~~particular type and location of the real estate owned. In the event of a subsequent decline, an allowance would be provided to reduce real estate acquired through foreclosure to fair value less estimated disposal cost. The Company acquired through foreclosure a commercial building with a fair value of approximately $~~778~~653 thousand in March 2009. Because of the decline in real estate values in this building’s area, ~~after~~the aCompany has ~~partial~~reduced ~~charge-off~~the carrying value of this owned building by $~~106~~153 thousand during 2010 and $75 thousand in 2011 offsetting these reductions as increases in non-interest expenses. The Company acquired another commercial building by foreclosure in November 2009 with ~~specific~~a ~~reserves~~fair value of approximately $471.8 ~~thousand~~million. The Company also acquired through foreclosure five residential properties, comprised of four condominium units and one ~~loan~~single ~~secured~~family byresidence, ~~undeveloped~~during ~~land~~the infourth quarter of 2010. The house and one of the ~~amount~~condominiums were sold in 2011. The fair value of ~~$374~~these ~~thousand~~properties, ~~with~~and anthe ~~established~~recorded ~~reserve~~amount of the other real estate owned was $56555 thousand at March 31, ~~and~~2011. aThe ~~loan~~Company ~~secured~~is leasing bythe acommercial ~~loan~~properties ~~guarantor’s~~and ~~home~~several inof the ~~amount~~residential condominiums to others under short term leases as it offers them for sale. Net income from the operations of ~~$280~~the properties was $16 thousand ~~with~~during ~~reserves~~the ofthree months ended March 31, 2011 and $~~126~~4 thousand ~~established~~during the first three months of 2010. There was no financing of OREO sales during 2011 or 2010.

~~All~~Investment ofPortfolio. ~~these~~At ~~loans~~March 31, ~~are~~2011, December 31, 2010 and March 31, 2010, the Company had no investments in ~~various~~securities ~~stages~~other than investments in Federal Reserve Bank stock as required by regulation and stock in two banker’s banks. The Company is maintaining its liquid assets in its account at the Federal Reserve and fully FDIC insured certificates of ~~collection~~deposits in other financial institutions for safety and liquidity purposes. The Company will make additional investments when interest rates have increased and the Company has sufficient excess liquidity. The following table provides information regarding the composition of the Company’s investment securities portfolio at the dates indicated.

Non-accrual loans without specific reserves at September 30, 2010 are comprised of two SBA loans totaling $115 thousand.


	Investment in Stocks
	March 31, 2011					December 31, 2010
In thousands	Amount		Percent			Amount		Percent
Investments in stocks, at cost;
Federal Reserve Stock	$	465		88.24	%	$	465		88.24	%
Corporate equities		62		11.76	%		62		11.76	%

Total stocks	$	527		100.00	%	$	527		100.00	%

AtThese ~~September 30,~~stock ~~2010,~~holdings ~~the~~are ~~Company~~recorded ~~has~~at ~~modified~~cost ~~twelve loans in amounts totaling $5.1 million which modifications qualify the loans~~ as ~~Troubled~~they ~~Debt~~are ~~Restructuring.~~not ~~Changes~~readily made to the loans included the reduction of loan payments from principal and interest payments to interest only payments for specific time periods, the decrease in interest rates charged on a loan and the extension of the maturity of a loanmarketable. ~~Specific reserves were established on the loans as appropriate. The majority of~~ ~~these loans were modified in the third quarter of 2010 as the adverse economic conditions hampered borrowers’ current cash flows.~~

AtDeposits ~~September 30,~~and ~~2010,~~Liquidity. ~~there~~The ~~were~~Company ~~$4.4 million~~currently has no business other than that of ~~performing~~the ~~loans~~Bank ~~considered~~and ~~potential~~does not ~~problem~~currently have any material funding commitments unrelated to that business. The Bank’s principal sources of funds for loans, ~~defined~~investments asand ~~loans~~general ~~which~~operations are ~~not~~deposits ~~included~~from inits primary ~~the~~market ~~90 day~~area, ~~past~~principal ~~due~~and interest payments on loans, ~~not~~and ~~reported~~proceeds asfrom ~~troubled~~maturing ~~debt~~investment ~~restructures~~securities. orIts asprincipal ~~nonaccrual~~funding ~~loans,~~commitments ~~but~~are for ~~which~~the ~~known~~origination ~~information~~or ~~about~~purchase ~~possible credit~~of ~~problems~~loans ~~causes~~and the ~~Company~~payment toof bematuring ~~uncertain~~deposits, asand to the ~~ability~~payment offor ~~the~~checks ~~borrowers~~drawn toupon ~~comply~~it. ~~with~~The ~~the~~Bank’s ~~present~~most ~~loan~~liquid ~~repayment~~assets ~~terms~~are cash and cash equivalents, which ~~may~~are incash ~~the~~on ~~future~~hand, ~~result~~amounts indue ~~disclosure~~from inother financial institutions including the ~~past~~Federal ~~due, nonaccrual~~Reserve orand ~~restructured~~Federal ~~loans~~funds sold. The ~~Company~~levels ~~closely~~of ~~monitors~~such assets are dependent on the ~~financial~~Bank’s ~~status~~lending, investment and operating activities at any given time. The variations in levels of ~~these~~liquid assets are influenced by deposit flows and loan demand, both ~~borrowers~~current and anticipated.

~~Generally~~The Company’s deposits consist of demand deposits, ~~the~~NOW ~~accrual~~accounts, money market accounts, savings accounts and certificates of ~~interest~~deposit. isThese ~~discontinued~~accounts ~~when~~provide the Company with a ~~loan~~relatively isstable source ~~specifically~~of ~~determined~~funds. toThe ~~be impaired~~Company orgenerally ~~when~~targets ~~principal~~larger ordeposit relationships by offering competitive interest isrates ~~delinquent~~on ~~for~~certificates ~~ninety~~of ~~days~~deposit of $75 thousand or more in our local markets. ~~During~~Deposits from the local market areas are supplemented with out-of-area deposits comprised of funds obtained through the use of deposit listing services (national market certificates of deposit), deposits obtained through the use of brokers and through the Certificates of Deposit Account Registry Service (CDARS) program. As a result, a substantial portion of our deposits, 23.1% at March 31, 2011 and 24.5% at December 31, 2010 and 34.2% at March 31, ~~there~~2010, are comprised of certificate of ~~were~~deposit noaccounts ~~amounts~~of ~~included~~$100 inthousand ~~gross~~or ~~interest~~more. ~~income~~Total ~~attributable~~certificates toof ~~loans~~deposit inrepresent ~~non-accrual~~68.2% ~~status~~of deposits at March 31, 2011 and 68.5% of deposits at December 31, 2010 and 75.9% at March 31, 2010.

The following table shows the amounts of non-performing assets on the dates indicated:

	September 30,			December 31:
In thousands	2010			2009			2008			2007			2006
Nonaccrual loans:
Commercial and Industrial and SBA	$	1,564		$	2,734		$	2,218		$	1,125		$	628
Real estate		1,432			—			3,601			—			—
Accrual loans —past due 90 days and over		—			—			—			—			—
Total non-performing loans		2,996			2,734			5,819			1,125			628
Other real estate owned		2,387			2,462			—			—			—
Total non-performing assets	$	5,383		$	5,196		$	5,819		$	1,125		$	628
Allowance for loan losses to total non-performing loans		84.5	%		87.1	%		32.0	%		148.0	%		257.0	%
Non-performing loans to total loans		1.62	%		1.47	%		3.80	%		0.89	%		0.65	%
Non-performing assets to total assets		2.61	%		2.59	%		3.49	%		0.76	%		0.44	%

The payment status of loans receivable at September 30, 2010 is as follows:

			Commercial				Real Estate		Real Estate
			and				Owner		Non Owner
In thousands	Total		Industrial		SBA		Occupied		Occupied
Current accruing loans	$	179,436	$	45,533	$	5,463	$	82,154	$	46,286
Current non-accruing loans		1,338		187		—		—		1,151
Past due loans:
30 to 89 days past due		2,313		455		195		—		1,663
90 days plus past due and accruing		—		—		—		—		—
Non-accrual loans, non current		1,658		1,156		222		—		280
Total past due loans		3,971		1,611		417		—		1,943
Total loans at the end of the period	$	184,745	$	47,331	$	5,880	$	82,154	$	49,380

The Company applies risk ratings to the loans based upon rating criteria consistent with regulatory definitions. The risk ratings are adjusted, as necessary, if loans become delinquent, if significant adverse information is discovered regarding the underlying credit and the normal periodic reviews of the underlying credits indicate that a change in risk rating is appropriate. A summary of the risk rating of loans receivable at September 30, 2010 follows:

			Commercial				Real Estate		Real Estate
			and				Owner		Non Owner
In thousands	Total		Industrial		SBA		Occupied		Occupied
Risk rated — pass	$	171,270	$	45,204	$	5,563	$	73,440	$	47,063
Risk rated — special mention (loan weaknesses noted which could lead to loan loss)		7,324		482		179		6,663		—
Risk rated — substandard or doubtful (loans with significant weaknesses that could, or has, result in loan losses)		6,151		1,645		138		2,051		2,317
Total loans at the end of the period	$	184,745	$	47,331	$	5,880	$	82,154	$	49,380

Real estate acquired through or in the process of foreclosure is recorded at fair value less estimated disposal costs. The Company periodically evaluates the recoverability of the carrying value of the real estate acquired through foreclosure using current estimates of fair value when it has reason to believe that real estate values have declined for the particular type and location of the real estate owned. In the event of a subsequent decline, an allowance would be provided to reduce real estate acquired through foreclosure to fair value less estimated disposal cost. The Company acquired through foreclosure a commercial building with a fair value of approximately $653 thousand in March 2009. Because of the decline in real estate values in this building’s area, the Company has reduced the carrying value of this owned building by $75 thousand during the third quarter of 2010 with an offsetting increase in non-interest expenses. The Company acquired another commercial building by foreclosure in November 2009 with a fair value of approximately $1.8 million. The Company is leasing these properties to others under short term leases as it offers them for sale.

Investment Portfolio. At September 30, 2010, December 31, 2009 and September 30, 2009, the Company had no investments in securities other than investments in Federal Reserve Bank stock as required by regulation and stock in two banker’s banks. The Company is maintaining its liquid assets in its account at the Federal Reserve and fully FDIC insured certificates of deposits in other financial institutions for safety and liquidity purposes. The Company will make additional investments when interest rates have increased and the Company has sufficient excess liquidity. The following table provides information regarding the composition of the Company’s investment securities portfolio at the dates indicated.

	Investment in Stocks
	September 30, 2010					December 31, 2009
In thousands	Amount		Percent			Amount		Percent
Investments in stocks, at cost;
Federal Reserve Stock	$	465		88.24	%	$	465		88.24	%
Corporate equities		62		11.76	%		62		11.76	%
Total stocks	$	527		100.00	%	$	527		100.00	%

The stocks in the two “bankers’ banks” are not readily marketable.

Deposits and Liquidity. The Company currently has no business other than that of the Bank and does not currently have any material funding commitments unrelated to that business. The Bank’s principal sources of funds for loans, investments and general operations are deposits from its primary market area, principal and interest payments on loans, and proceeds from maturing investment securities. Its principal funding commitments are for the origination or purchase of loans and the payment of maturing deposits, and the payment for checks drawn upon it. The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from other financial institutions including the Federal Reserve and Federal funds sold. The levels of such assets are dependent on the Bank’s lending, investment and operating activities at any given time. The variations in levels of liquid assets are influenced by deposit flows and loan demand, both current and anticipated.

The Company’s deposits consist of demand deposits, NOW accounts, money market accounts, savings accounts and certificates of deposit. These accounts provide the Company with a relatively stable source of funds. The Company generally targets larger deposit relationships by offering competitive interest rates on certificates of deposit of $75 thousand or more in our local markets. Deposits from the local market areas are supplemented with out-of-area deposits comprised of funds obtained through the use of deposit listing services (national market certificates of deposit), deposits obtained through the use of brokers and through the Certificates of Deposit Account Registry Service (CDARS) program. As a result, a substantial portion of our deposits, 28.4% at September 30, 2010 and 37.8% at December 31, 2009 and 43.8% at September 30, 2009, are comprised of certificate of deposit accounts of $100 thousand or more. Total certificates of deposit represent 79.7% of deposits at September 30, 2010 and 77.9% of deposits at December 31, 2009 and 78.2% at September 30, 2009.

The Company’s reliance on certificates of deposit, including the use of larger denomination certificates of deposit and brokered deposits, facilitates funding the growth in the loan portfolio. The Company has relied on certificates of deposit as a primary funding source and has used larger certificates of deposits as a funding source since its inception. While sometimes requiring higher interest rates, such funds carry lower acquisition costs (marketing, overhead costs) and can be obtained when required at the maturity dates desired. Substantially all of the deposit accounts over $100 thousand are fully insured by the FDIC through differing ownership and trustee arrangements and the insured deposit limit of $250 thousand. All of the brokered deposits and national market deposits are fully insured by the FDIC. This insurance and the strong capital position of the Company reduce the likelihood of large deposit withdrawals for reasons other than interest rate competition. Interest rates on these deposits can be, but are not always, higher than other deposits products. There is, however, a risk that some deposits would be lost if rates were to increase and the Company elected not to remain competitive with its own deposit rates. Under those conditions, the Company believes that it is positioned to use other sources of funds, such as borrowing on its unsecured credit facilities with other banks or the sale of loans.

26At March 31, 2011, deposits totaled $182.7 million as compared to $180.1 million at December 31, 2010. The $2.6 million increase in deposits resulted from the $1.7 million increase in noninterest bearing deposits, the $0.8 million increase in savings accounts balance, the increase of $1.3 million in the amount of certificates of deposit and the decrease of $1.3 million in interest bearing demand deposits and money market accounts. There were $34.1 million and $33.1 million of brokered certificates of deposit at March 31, 2011 and December 31, 2010, respectively. Included in these brokered deposits at March 31, 2011 are $8.2 million of certificates of deposits received in exchange for the placement of the Company’s customers’ deposit funds with other financial institutions under the CDARS program. Included in deposits are deposits of officers and directors (and their affiliated entities) of $12.4 million at March 31, 2011.

~~Table~~As a result of ~~Contents~~the enactment of the Dodd-Frank Act, banks are no longer prohibited from paying interest on demand deposit accounts, including those from businesses, effective in July 2011. If the Company starts to pay interest on these accounts, its net interest margin would decline. It is not clear what affect the elimination of this prohibition will have on the Bank’s interest expense, allocation of deposits, deposit pricing, loan pricing, net interest margin, ability to compete, ability to establish and maintain customer relationships, or profitability.

At September 30, 2010, deposits totaled $183.0 million as compared to $178.6 million at December 31, 2009. The $4.3 million increase in deposits resulted from the $4.3 million increase in noninterest bearing deposits, the $10.9 million increase in savings accounts balance, the decline of $11.5 million in the amount of certificates of deposit and the increase of $0.6 million in other deposit accounts. There were $34.6 million and $41.1 million of brokered certificates of deposit at September 30, 2010 and December 31, 2009, respectively. Included in these brokered deposits at September 30, 2010 are $9.4 million of certificates of deposits received in exchange for the placement of the Company’s customers’ deposit funds with other financial institutions under the CDARS program. Included in deposits are deposits of officers and directors (and their affiliated entities) of $13 million at September 30, 2010. As a result of the enactment of the Dodd-Frank Act, banks are no longer prohibited from paying interest on demand deposit accounts, including those from businesses, effective in July 2011. If the Company starts to pay interest on these accounts, its net interest margin would decline. It is not clear what affect the elimination of this prohibition will have on the Bank’s interest expense, allocation of deposits, deposit pricing, loan pricing, net interest margin, ability to compete, ability to establish and maintain customer relationships, or profitability.

Deposits are summarized below as of dates indicated:

	September 30,		%			December 31:
	March 31,		%			December 31:
In thousands	2010		Change			2009		2008		2007
	2011		Change			2010		2009		2008
Non-interest bearing deposits	$	25,332		20.5	%	$	21,024	$	23,599	$	19,246
In thousands
Non-interest bearing deposits	$	25,442		7.1	%	$	23,760	$	21,024	$	23,599
Interest bearing deposits:
NOW accounts		~~1,192~~251		~~285~~(80.84	%)	$	~~309~~1,279	$	~~1,247~~309	$	21,~~440~~247
Money Market accounts		78,~~629~~618		(2.73	%)		78,~~841~~824		137,~~049~~841		1613,~~268~~049
Savings accounts		2123,~~232~~796		~~104~~3.6	%		1022,~~379~~962		~~148~~10,379		36148
Certificates of deposit accounts:
Less than $100,000		7582,~~636~~437		54.61	%		7179,~~593~~209		3771,~~539~~593		1137,~~383~~539
$100,000 or more		5142,~~945~~125		(234.04	%)		6744,~~499~~076		6967,~~659~~499		7469,~~035~~659
Total interest bearing deposits		157,~~634~~227		0.06	%		~~157~~156,~~621~~350		~~121~~157,~~642~~621		~~104~~121,~~162~~642
Total deposits	$	182,~~966~~669		21.4	%	$	~~178~~180,~~645~~110	$	~~145~~178,~~241~~645	$	~~123~~145,~~408~~241

~~The table below shows the maturities of certificates of deposit:~~25

					December 31, 2009
	September 30, 2010				CDs of
	CDs of $100,000				$100,000 or
In thousand	or more		All CDs		more		All CDs
Twelve months or less	$	40,882	$	84,448	$	53,786	$	94,725
Over twelve months through three years		6,588		33,872		11,139		37,587
Over three years		4,475		9,261		2,574		6,780
Total	$	51,945	$	127,581	$	67,499	$	139,092

The table below shows the source of the Company’s certificate of deposits as well as the amount equal to or greater than $100,000 at September 30, 2010:

	CDs with		CDs with balances
	balances of less		of $100,000 or
In thousands	than $100,000		greater		Total
Source
Local markets	$	10,773	$	37,151	$	47,924
National market		44,590		448		45,038
CDARS program:
Customers’ funds		537		8,826		9,363
Proprietary funding		5,136		4,318		9,454
Other brokered funds		14,600		1,202		15,802
Total	$	75,636	$	51,945	$	127,581

The table below shows the maturities of certificates of deposit:


	March 31, 2011				December 31, 2010
					CDs of
	CDs of $100,000				$100,000 or
	or more		All CDs		more		All CDs
In thousands
Three months or less	$	15,520	$	28,518	$	9,228	$	21,682
Over three months to six months		7,226		17,788		15,492		28,124
Over six months to twelve months		1,946		15,744		7,486		29,325
Over twelve months through three years		14,973		57,107		9,058		36,497
Over three years		2,460		5,405		2,812		7,657

Total	$	42,125	$	124,562	$	44,076	$	123,285

The table below shows the source of the Company’s certificate of deposits as well as the amount equal to or greater than $100,000 at March 31, 2011:


	CDs with		CDs with balances
	balances of less		of $100,000 or
In thousands	than $100,000		greater		Total
Source
Local markets	$	6,472	$	26,574	$	33,046
National market		56,937		448		57,385
CDARS program:
Customers’ funds		571		7,545		8,116
Proprietary funding		3,704		6,355		10,059
Other brokered funds		14,753		1,203		15,956

Total	$	82,437	$	42,125	$	124,562

CDARS program funding is reflected in the above schedule as “Customers’ funds” and “Proprietary funding”. The Company, acting as agent for its customers, places customer funds in other financial institutions under the program up to the FDIC insurance limit of $250,000. Under the CDARS program, other financial institutions place deposits in the Company for the same amount of the customers’ funds. “Customers’ funds” are comprised of deposits from these customer transactions. The Company can obtain funding under the CDARS program by bidding for deposit funds without customers’ involvement. This “Proprietary funding” results in traditional brokered deposits.

The Company’s short term liquid assets of cash and cash equivalents were $1715.24 million, or 87.45% of assets, and $1013.57 million, or 56.28%, of assets at ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, respectively. Continued growth in deposits will be required to fund any loan growth. Accordingly, the Company intends to maintain a competitive posture in its deposit interest rate offerings. While adequate liquidity is imperative, excess liquidity has the effect of a lower interest margin, as funds not invested in loans are placed in short-term investments that earn significantly lower yields.

The Company has available unsecured credit facilities for short-term liquidity needs from financial institutions of $8.5 million at ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010. There were no borrowings outstanding under these credit arrangements at ~~September 30,~~during ~~2010~~2011 ~~and~~or ~~December 31, 2009~~2010.

The Company believes its levels of liquidity are adequate to conduct the business of the Company and Bank.

OFF-BALANCE SHEET ARRANGEMENTS

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral supporting those commitments for which collateral is deemed necessary. The Company has not been required to perform on any financial guarantees and has not recorded or incurred any losses on its commitments. The issuance of letters of credit is not a significant activity of the Company. Outstanding letters of credit at ~~September~~March 3031, 2011 and December 31, 2010 totaled $1.3 ~~million and $774 thousand~~ ~~at December 31, 2009~~million.

Commitments to extend credit are agreements to lend funds to customers as long as there are no violations of any condition established in the loan contracts. These commitments include commitments to lend funds as well as un-advanced loan funds. These commitments at ~~September~~March 3031, ~~2010~~ 2011 totaled $4534.61 million and $4641.06 million at December 31, ~~2009~~2010. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

With the exception of these off-balance sheet arrangements, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors.

CAPITAL ADEQUACY

The Federal Reserve Board and the FDIC have established guidelines with respect to the maintenance of appropriate levels of capital by bank holding companies and state non-member banks, respectively. The regulations impose two sets of capital adequacy requirements: minimum leverage rules, which require bank holding companies and banks to maintain a specified minimum ratio of capital to total assets, and risk-based capital rules, which require the maintenance of specified minimum ratios of capital to “risk-weighted” assets. At ~~September~~March 3031, ~~2010~~2011, the Company and the ~~Bank~~ Bank were in full compliance with these guidelines, as follows:


							Minimum Ratios
	March 31,			December 31,			To be “Adequately			To be “Well
	2011			2010			Capitalized”			Capitalized”
Total capital:
Company		13.1	%		13.1	%		8.0	%		N/A
Bank		12.4	%		12.3	%		8.0	%		10.0	%
Tier I:
Company		11.9	%		11.8	%		4.0	%		N/A
Bank		11.2	%		11.1	%		4.0	%		6.0	%
Leverage Total:
Company		11.2	%		11.0	%		4.0	%		N/A
Bank		10.5	%		10.3	%		4.0	%		5.0	%

							Minimum Ratios
	September 30,			December 31,			To be“ Adequately			To be “Well
	2010			2009			Capitalized”			Capitalized”
Total capital:
Company		13.0	%		12.3	%		8.0	%		N/A
Bank		12.2	%		11.5	%		8.0	%		10.0	%
Tier I:
Company		11.7	%		11.0	%		4.0	%		N/A
Bank		11.0	%		10.2	%		4.0	%		6.0	%
Leverage Total:
Company		10.6	%		10.4	%		4.0	%		N/A
Bank		10.0	%		9.7	%		4.0	%		5.0	%

The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, and changing competitive conditions and economic forces. The adequacy of the Company’s capital is reviewed by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses. The ability of the Company to grow is dependent on the availability of capital with which to meet regulatory capital requirements, discussed below. To the extent the Company is successful it may need to acquire additional capital through the sale of additional common stock, other qualifying equity instruments, such as preferred stock (which the Company is not currently authorized to issue), or subordinated debt. There can be no assurance that additional capital will be available to the Company on a timely basis or on attractive terms.

Under ~~recent~~ guidance by the federal banking regulators, banks which have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner ~~occupied~~ occupied properties) would be expected to maintain higher levels of risk management and, potentially, higher levels of capital. It is possible that the Company may be required to maintain higher levels of capital than it would otherwise be expected to maintain as a result of its levels of construction, development and commercial real estate loans, which may require us to obtain additional capital.

Significant further growth of the Company may be limited because the current level of capital will not support rapid short term growth while maintaining regulatory capital expectations. Loan portfolio growth will need to be funded by increases in deposits as the Company has limited amounts of on-balance sheet assets deployable into loans. Growth will depend upon Company earnings and/or the raising of additional capital.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM ~~4T—~~4 — CONTROLS AND PROCEDURES

The Company’s management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated, as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter ended ~~September~~March 3031, ~~2010~~2011 that has materially affected, or is reasonably likely to to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

In the ~~ordinary~~normal course of its business, the Company ~~may~~is ~~become~~ involved in ~~routine~~litigation ~~legal~~arising from banking, ~~proceedings~~financial, and other activities it conducts. AtManagement, ~~September 30~~after consultation with legal counsel, does ~~2010~~not anticipate that the ultimate liability, ~~there~~if ~~are~~any, noarising ~~such~~out ~~proceedings~~of these matters will have a material effect on the Company’s financial condition, operating results or liquidity.

Item 1A — Risk Factors

Not applicable

Item 2 — Unregistered Sale of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities. None ~~(b) Use of Proceeds. Not applicable. (c) Issuer Purchases of Securities. None~~

(b) Use of Proceeds.Not applicable.

Item 3. — Defaults Upon Senior Securities. None

Item 4 — [Removed and Reserved]

Item 5 — Other Information

	(a)		Information Required to be Reported on Form 8-K. None
	(b)		Changes in Security Holder Nomination Procedures. None

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

(b) Changes in Security Holder Nomination Procedures. None

Item 6 — Exhibits

Exhibit No.		~~Description of Exhibits~~	Description of Exhibits
3(a)		Certificate of Incorporation of the Company, as amended (1)
	3	(a)	Certificate of Incorporation of the Company, as amended (1)
3(b)		Bylaws of the Company (2)
	3	(b)	Bylaws of the Company (1)
10(a)		Employment Agreement between Richard J. Morgan and the Company (3)
	10	(a)	Employment Agreement between Richard J. Morgan and the Company (2)
10(b)		Employment Agreement between Lamont Thomas and the Company (4)
	10	(b)	Employment Agreement between Lamont Thomas and the Company (3)
10(c)		2004 Non Incentive Option Plan (5)
	10	(c)	First Amendment to Employment Agreement between Lamont Thomas and the Company (4)
10(d)		First Amendment to Employment Agreement between Lamont Thomas and the Company (6)
	10	(d)	Employment Agreement between Michael T. Storm and CommerceFirst Bank (5)
10(e)		Employment Agreement between Michael T. Storm and CommerceFirst Bank attached hereto (7)
	10	(e)	Extension of Employment Agreement between Richard J. Morgan and the Company (6)
10(f)		Extension of Employment Agreement between Richard J. Morgan and the Company (8)
	11		Statement regarding Computation of Per Share Income — See Notes to Financial Statements.
11		Statement Regarding Computation of Per Share Income- See Notes to Financial Statements
	21		Subsidiaries of the Registrant -The sole subsidiary of the Registrant is CommerceFirst Bank, a Maryland chartered commercial bank.
21		Subsidiaries of the Registrant — The sole subsidiary of the Registrant is CommerceFirst Bank, a Maryland chartered commercial bank.
	31	(a)	Certification of Richard J. Morgan, President and CEO
31(a)		Certification of Richard J. Morgan, President and CEO
	31	(b)	Certification of Michael T. Storm, Executive Vice President and Chief Financial Officer
31(b)		Certification of Michael T Storm, Executive Vice President and CFO
	32	(a)	Certification of Richard J. Morgan, President and Chief Executive Officer
32(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
32(b)		Certification of Michael T. Storm, Executive Vice President and Chief Financial Officer
99(a)		Amended and Restated Organizers Agreement (9)

(1)		Incorporated by reference to exhibit of the same number filed with the Company’s Registration Statement on Form SB-2, as amended, (File No. 333-91817)
(2)		Incorporated by reference to ~~Exhibit~~exhibit ~~3.2~~10(b) to the Company’s ~~Current~~to ~~Report~~Registration Statement on Form 8SB-K2, ~~filed~~as onamended) ~~August~~(File ~~17,~~No. ~~2007~~333-91817)
(3)		Incorporated by reference to ~~Exhibit~~exhibits 10(bc) to the Company’s to Registration Statement on Form SB-2, as amended) (File No. 333-91817)
(4)		Incorporated by reference to ~~exhibits~~Exhibit 10(cd) to the Company’s toQuarterly ~~Registration~~Report ~~Statement~~ on Form SB10-2,QSB asfor ~~amended)~~the ~~(File~~period ~~No.~~ended ~~333-91817)~~March 31, 2007.
(5)		Incorporated by reference to Exhibit 410(e) to the Company’s ~~Registration~~Quarterly ~~Statement~~Report on Form S10-8QSB ~~(File~~for ~~No.~~the ~~333-119988)~~period ended September 30, 2007.
(6)		Incorporated by reference to Exhibit ~~10(d)~~99 to the Company’s ~~Quarterly~~Current Report on Form 108-~~QSB~~K ~~for~~filed ~~the~~on ~~period~~January ~~ended March 31~~30, ~~2007~~2009.
(7)		Incorporated by reference to Exhibit 10(e) to the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2007.
(8)		Incorporated by reference to Exhibit 99 to the Company’s Current Report on Form 8-K filed on January 30, 2009.
(9)		Incorporated by reference to Exhibits 99(b) and 99(d) to the Company’s Registration Statement on Form SB-2, as amended (File No. 333-91817)

3029

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMMERCEFIRST BANCORP, INC.
Date: November 5, 2010	By:	/s/ Richard J. Morgan
Date: May 9, 2011	By:	/s/ Richard J. Morgan
	~~Richard J. Morgan, President and Chief Executive Officer~~	Richard J. Morgan, President and Chief Executive Officer
Date: November 5, 2010	By:	/s/ Michael T. Storm
Date: May 9, 2011	By:	/s/ Michael T. Storm
	~~Michael T. Storm, Executive Vice President and Chief Financial Officer~~	Michael T. Storm, Executive Vice President and Chief Financial Officer

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