Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities and Exchange Act of 1934
For the fiscal year ended December 31, 2001 Commission file number 000-31951
MONROE BANCORP
--------------
(Exact name of registrant as specified in its charter)
Indiana 35-1594017
------- ----------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
210 East Kirkwood Avenue, Bloomington, Indiana 47408
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(812) 336-0201
--------------
Securities Registered Pursuant to Section 12(b) of the Act: NONE
----
Securities Registered Pursuant to
Section 12(g) of the Act: Common Shares, No Par Value
---------------------------
(Title of Class)
Indicate by check mark 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
require to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value (not necessarily a reliable indication of the price
at which more than a limited number of shares would trade) of the voting stock
held by non-affiliates of the registrant was $59,987,364 on March 6, 2002.
As of March 6, 2002 there were 6,150,240 outstanding common shares, without par
value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
--------- -----------------------
Portions of the 2001 Annual Report to Shareholders Part II
Portions of the Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held April 25, 2002 Part III
FORM 10-K TABLE OF CONTENTS
Form 10-K
Page Number
Part I
Item 1 - Business....................................................3
Item 2 - Properties.................................................32
Item 3 - Legal Proceedings..........................................33
Item 4 - Submissions of Matters to a Vote of Security Holders.......33
Part II
Item 5 - Market for the Registrant's Common Equity and
Related Shareholder Matters..............................33
Item 6 - Selected Financial Data....................................33
Item 7 - Management's Discussions and Analysis of Financial
Condition and Results of Operations......................33
Item 7A - Quantitative and Qualitative Disclosures about Market
Risk....................................................33
Item 8 - Financial Statements and Supplementary Data................34
Item 9 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures.....................34
Part III
Item 10 - Directors and Executive Officers of the Registrant........34
Item 11 - Executive Compensation....................................34
Item 12 - Security Ownership of Certain Beneficial
Owners and Management...................................34
Item 13 - Certain Relationships and Related Transactions............35
Part IV
Item 14 - Exhibits, Financial Statements Schedules, and
Reports on Form 8-K.....................................35
Signatures...................................................................37
2
PART I
ITEM 1. Business.
General
-------
Monroe Bancorp (the "Company") is a one-bank holding company formed under
Indiana law in 1984. At December 31, 2001, on a consolidated basis the Company
had total assets of $495.5 million, total loans of $371.8 million and total
deposits of $359.2 million. The Company holds all of the outstanding stock of
Monroe Bank (the "Bank"), which was formed in 1892. The Bank is the primary
business activity of the Company.
The Bank, with its primary office located in Bloomington, Indiana, conducts
business from fifteen locations in Monroe, Hendricks, Jackson and Lawrence
Counties, Indiana. Approximately 85% of the Bank's business is in Monroe County
and is concentrated in and around the city of Bloomington. However, the
Company's recent expansion into Hendricks County is expected to gradually reduce
this concentration.
As of December 31, 2001, the Bank had 179 full-time equivalent employees. As a
community bank, management believes that the Bank must continue to promote
community involvement and leadership among Bank employees.
The Bank is a traditional community bank, which provides a variety of financial
services to its customers, including:
o accepting deposits;
o making commercial, mortgage and installment loans;
o originating fixed rate residential mortgage loans for sale into the
secondary market;
o providing personal and corporate trust services;
o providing investment advisory and brokerage services; and
o providing fixed and variable annuities.
The majority of the Bank's revenue is derived from interest and fees on loans
and investments, and the majority of its expense is interest paid on deposits
and general and administrative expenses related to its business.
The Bank's focus in 2001 was on growing its business lines within its core
market, Monroe County, Indiana, while laying the ground work for expanding the
Company's business into an attractive new market, Hendricks County, Indiana. The
results of these strategies can be seen in the Company's loan growth of 25.3
percent in 2001, the growth of fee income which increased 31.7 percent over
2000, and record earnings of $5.7 million.
The Bank's entry into the rapidly growing Hendricks County market has also
yielded positive results. The Bank opened its first Hendricks County branch, in
Avon, Indiana, in August of 2001 and its second branch, in Plainfield, Indiana,
in October. At December 31, 2001, these offices had generated $17.1 million of
loans and $11.6 million of deposits which exceeded plan in terms of loan and
deposit growth. A third Hendricks County branch in Brownsburg, Indiana is
scheduled to open in the second quarter of 2002. The Bank utilizes its existing
loan underwriting standards and policies and procedures in all of the Bank's
markets.
3
The Company's operation has yielded ten consecutive years of earnings growth.
The Company has also increased its annual dividend each year during that period,
increasing it from $.05 per share in 1991 to $0.44 per share in 2001. Based upon
the average of the bid and asked price for the Company's stock on December 31,
2001, (MROE; listed on NASDAQ), the Company's $.44 dividend provided a dividend
yield of 3.96 percent.
Management believes that the Company's culture of community involvement,
outstanding service quality, and customer focus has played a significant role in
the Company's earnings and balance sheet growth. Other significant factors
include, but are not limited to; the economic health of the communities in which
the Company operates and opportunities created by the recent level of the
interest rates
Bank Goals
- ----------
The Bank's business plan sets forth the following goals:
o Increase non-interest income as a percentage of total revenue by growing
the Bank's investment sales, asset management and deposit related fee
business.
o Establish a third branch location in eastern Hendricks County (which is
adjacent to Marion County and the Indianapolis area) in 2002 and continue
efforts to rapidly grow business within this market.
o Maintain asset quality while growing the loan portfolio.
o Maintain or increase its market share in the Bank's primary market area
through competitive pricing, marketing and an emphasis on service.
o Continue to utilize technology to enhance efficiency where appropriate.
As indicated above, one of the Company's goals is to increase the ratio of
non-interest income to total revenue. Excluding realized and unrealized gains
and losses on securities, the Company's ratio non-interest income to total
revenue (non-interest income plus net interest income after provision for loan
losses) was 32.4 percent for 2001, 26.4 percent for 2000 and 23.8 percent for
1999.
The Bank has been able to increase its deposit market share in the Monroe County
market through competitive pricing, marketing and an emphasis on service. All
FDIC insured deposits held by financial institutions in Monroe County grew by
$157.1 million, or 15.2 percent, during the five-year period between June 30,
1996 and June 30, 2001. During the same period, the Bank was able to grow its
deposits within the County by $92.7 million (41.1 percent) and increase its
market share from 21.8 percent in 1996 to 26.7 percent in 2001. Like many
financial institutions, deposit growth has not kept pace with the Bank's growth
in loans. The Bank has addressed short-term liquidity needs by borrowing federal
funds (short-term borrowings from other banks) and longer term advances from the
Federal Home Loan Bank of Indianapolis (FHLBI).
The Bank, like many financial institutions, believes that it is possible to
utilize technology to enhance customer satisfaction. The Bank began offering its
Internet banking service in 1999, which provides customer account information
and cash management features.
The Company, as a bank holding company, engages in commercial banking through
the Bank. The Company may also engage in certain non-banking activities closely
related to banking and own certain other business companies that are not banks,
subject to applicable laws and regulations, although it has no current plans to
do so.
4
Competition
- -----------
The Bank's market area is highly competitive. In addition to competition from
commercial banks (including certain larger regional banks) and savings
associations, the Bank also competes with numerous credit unions, finance
companies, insurance companies, mortgage companies, securities and brokerage
firms, money market mutual funds, loan production offices and other providers of
financial services.
Regulation and Supervision
--------------------------
Both the Company and the Bank operate in highly regulated environments and are
subject to supervision and regulation by several governmental regulatory
agencies, including the Federal Reserve Board (the "FDIC") and the Indiana
Department of Financial Institutions (the "DFI"). The laws and regulations
established by these agencies are generally intended to protect depositors, not
shareholders. Changes in applicable laws, regulations, governmental policies,
income tax laws and accounting principles may have a material effect on our
business and prospects. The following summary is qualified by reference to the
statutory and regulatory provisions discussed.
Monroe Bancorp
- --------------
The Bank Holding Company Act. Because the Company owns all of the outstanding
capital stock of the Bank, it is registered as a bank holding company under the
federal Bank Holding Company Act of 1956 and is subject to periodic examination
by the Federal Reserve and required to file periodic reports of its operations
and any additional information that the Federal Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the Bank
Holding Company Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before acquiring another bank holding company or
acquiring more than 5 percent of the voting shares of a bank (unless it already
owns or controls the majority of such shares).
Bank holding companies are prohibited, with certain limited exceptions, from
engaging in activities other than those of banking or of managing or controlling
banks. They are also prohibited from acquiring or retaining direct or indirect
ownership or control of voting shares or assets of any company which is not a
bank or bank holding company, other than subsidiary companies furnishing
services to or performing services for their subsidiaries, and other
subsidiaries engaged in activities which the Federal Reserve Board determines to
be so closely related to banking or managing or controlling banks as to be
incidental to these operations. The Bank Holding Company Act does not place
territorial restrictions on the activities of such nonbanking-related
activities.
Effective as of March 11, 2000, the Gramm-Leach-Bliley Act allows bank holding
companies meeting management, capital and CRA standards to engage in a
substantially broader range of nonbanking activities than was previously
permissible, including insurance underwriting and agency, and underwriting and
making merchant banking investments in commercial and financial companies. This
act also removes various restrictions that previously applied to bank holding
company ownership of securities firms and mutual fund advisory companies.
The Company does not currently plan to engage in any activity other than owning
the stock of the Bank.
5
Dividends. The Federal Reserve's policy is that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income or which could only be funded in ways that weakened the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies.
Source of Strength. In accordance with Federal Reserve Board policy, the Company
is expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances in which the Company might not
otherwise do so.
Monroe Bank
- -----------
General Regulatory Supervision. The Bank is an Indiana-chartered banking
corporation subject to examination by the DFI. The DFI and the FDIC regulate or
monitor virtually all areas of the Bank's operations. The Bank must undergo
regular on site examinations by the FDIC and DFI and must submit annual reports
to the FDIC and the DFI.
Lending Limits. Under Indiana law, the total loans and extensions of credit by
an Indiana-chartered bank to a borrower outstanding at one time and not fully
secured may not exceed 15% of the bank's capital and unimpaired surplus.
Deposit Insurance. Deposits in the Bank are insured by the FDIC up to a maximum
amount, which is generally $100,000 per depositor subject to aggregation rules.
The Bank is subject to deposit insurance assessment by the FDIC pursuant to its
regulations establishing a risk-related deposit insurance assessment system,
based upon the institution's capital levels and risk profile. The Bank is also
subject to assessment for the Financial Corporation (FICO) to service the
interest on its bond obligations. The amount assessed on individual
institutions, including the Bank, by FICO is in addition to the amount paid for
deposit insurance according to the risk-related assessment rate schedule.
Increases in deposit insurance premiums or changes in risk classification will
increase the Bank's cost of funds, and we may not be able to pass these costs on
to our customers.
Transactions with Affiliates and Insiders. The Bank is subject to limitations on
the amount of loans or extensions of credit to, or investments in, or certain
other transactions with, affiliates and on the amount of advances to third
parties collateralized by the securities or obligations of affiliates.
Furthermore, within the foregoing limitations as to amount, each covered
transaction must meet specified collateral requirements. Compliance is also
required with certain provisions designed to avoid the taking of low quality
assets. The Bank is also prohibited from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with nonaffiliated companies.
Extensions of credit by the Bank to its executive officers, directors, certain
principal shareholders, and their related interests must:
o be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with third parties; and
o not involve more than the normal risk of repayment or present other
unfavorable features.
6
Dividends. Under Indiana law, the Bank may pay dividends from its undivided
profits in an amount declared by its Board of Directors, subject to prior
approval of the DFI if the proposed dividend, when added to all prior dividends
declared during the current calendar year, would be greater than the current
year's "net profits" and retained "net profits" for the previous two calendar
years.
Federal law generally prohibits the Bank from paying a dividend to the Company
if the depository institution would thereafter be undercapitalized. The FDIC may
prevent an insured bank from paying dividends if the bank is in default of
payment of any assessment due to the FDIC. In addition, payment of dividends by
a bank may be prevented by the applicable federal regulatory authority if such
payment is determined, by reason of the financial condition of such bank, to be
an unsafe and unsound banking practice.
Branching and Acquisitions. Branching by the Bank requires the prior approval of
the FDIC and the DFI. Under current law, Indiana chartered banks may establish
branches throughout the state and in other states. Congress authorized
interstate branching, with certain limitations, beginning in 1997. Indiana law
authorizes an Indiana bank to establish one or more branches in states other
than Indiana through interstate merger transactions and to establish one or more
interstate branches through de novo branching or the acquisition of a branch.
Community Reinvestment Act. The Community Reinvestment Act requires that the
FDIC evaluate the record of the Bank in meeting the credit needs of its local
community, including low and moderate income neighborhoods. These factors are
also considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. Failure to adequately meet these criteria could result in
the imposition of additional requirements and limitations on the Bank.
Capital Regulations. The federal bank regulatory authorities have adopted
risk-based capital guidelines for banks and bank holding companies that are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies and account for
off-balance sheet items. Risk-based capital ratios are determined by allocating
assets and specified off-balance sheet commitments to four risk weighted
categories of 0 percent, 20 percent, 50 percent, or 100 percent, with higher
levels of capital being required for the categories perceived as representing
greater risk. The guidelines are minimums, and the federal regulators have noted
that banks and bank holding companies contemplating significant expansion
programs should not allow expansion to diminish their capital ratios and should
maintain ratios in excess of the minimums. Neither the Company nor the Bank has
received any notice indicating that either is subject to higher capital
requirements.
The federal bank regulatory authorities have also implemented a leverage ratio
to supplement to the risk-based guidelines. The principal objective of the
leverage ratio is to place a constraint on the maximum degree to which a bank
holding company may leverage its equity capital base.
The Bank is also subject to the FDIC's "prompt corrective action" regulations,
which implement a capital-based regulatory scheme designed to promote early
intervention for troubled banks. This framework contains five categories of
compliance with regulatory capital requirements, including "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." As of December 31, 2001, the Bank was
qualified as "well capitalized." It should be noted that a bank's capital
category is determined solely for the purpose of applying the FDIC's "prompt
corrective action" regulations and that the capital category may not constitute
an accurate representation of the bank's overall financial
7
condition or prospects. The degree of regulatory scrutiny of a financial
institution increases, and the permissible activities of the institution
decreases, as it moves downward through the capital categories. Bank holding
companies controlling financial institutions can be required to boost the
institutions' capital and to partially guarantee the institutions' performance.
Other Regulations. Interest and other charges collected or contracted for by the
Bank are subject to state usury laws and federal laws concerning interest rates.
The Bank's loan operations are also subject to federal laws applicable to credit
transactions, such as the:
o Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;
o Home Mortgage Disclosure Act of 1975, requiring financial institutions
to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation
to help meet the housing needs of the community it serves;
o Equal Credit Opportunity Act, prohibiting discrimination on the basis
of race, creed or other prohibited factors in extending credit;
o Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies;
o Fair Debt Collection Act, governing the manner in which consumer debts
may be collected by collection agencies; and
o rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws.
The deposit operations of the Bank also are subject to the:
o Customer Information Security Act. The federal bank regulatory
agencies have adopted final guidelines (the "Guidelines") for
safeguarding confidential customer information. the Guidelines require
each financial institution, under the supervision and ongoing
oversight of its Board of Directors, to create a comprehensive written
information security program designed to ensure the security and
confidentiality of customer information, protect against any
anticipated threats or hazards to the security or integrity of such
information; and protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to
any customer.
o Electronic Funds Transfer Act, and Regulation E issued by the Federal
Reserve Board to implement that Act, which governs automatic deposits
to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and
other electronic banking service.
Enforcement Powers. Federal regulatory agencies may assess civil and criminal
penalties against depository institutions and certain "institution-affiliated
parties," including management, employees, and agents of a financial
institution, as well as independent contractors and consultants such as
attorneys and accountants and others who participate in the conduct of the
financial institution's affairs. In addition, regulators may commence
enforcement actions against institutions and institution-affiliated parties.
Possible enforcement actions include the termination of deposit insurance.
Furthermore, regulators may issue cease-and-desist orders to, among other
things, require affirmative action to correct any harm resulting from a
violation or practice,
8
including restitution, reimbursement, indemnifications or guarantees against
loss. A financial institution may also be ordered to restrict its growth,
dispose of certain assets, rescind agreements or contracts, or take other
actions as determined by the regulator to be appropriate.
Effect of Governmental Monetary Policies. Our earnings are affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies. The Federal Reserve Bank's monetary policies have
had, and are likely to continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary
policy in order, among other things, to curb inflation or combat a recession.
The monetary policies of the Federal Reserve Board have major effects upon the
levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of
the discount rate on borrowings of member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature or impact
of future changes in monetary and fiscal policies.
FORWARD LOOKING STATEMENTS
--------------------------
Some of the information in this Form 10-K includes forward-looking statements
concerning the intent, belief, outlook, estimate or expectations of the Company
and its subsidiaries, its directors, or its officers primarily with respect to
future events or the future operations, performance, financial condition and
likelihood of success of the Company and the Bank. You can identify these
statements by use of terms such as "expect," "believe," "goal," "plan,"
"intend," "estimate," "may," "will" or similar words. These forward-looking
statements are not guarantees of future events or performance and are based upon
assumptions rather than historical or current facts. The forward looking
statements involve known and unknown risks, uncertainties and other factors that
could cause our actual results to differ materially from those anticipated in
the forward-looking statements. The factors which could cause a difference
between actual results and those in the forward looking statements include
changes in interest rates; loss of deposits and loan demand to other financial
institutions; substantial changes in financial markets; changes in real estate
values and the real estate market; or regulatory changes. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements.
9
Statistical Data.
Selected Financial Data
-----------------------
Financial Highlights
(dollar amounts in thousands, except share and per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
At or for the Years Ended December 31,
2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- --------------
Summary of operations
Net interest income $ 16,937 $ 15,694 $ 14,769 $ 14,101 $ 13,256
Noninterest income 4,916 3,734 3,852 3,079 2,275
Noninterest expense 12,046 10,744 11,052 9,683 8,416
Net income 5,749 5,333 4,723 4,645 4,384
Per common share
Basic earnings per share $ 0.94 $ 0.87 $ 0.77 $ 0.76 $ 0.72
Cash dividends per share 0.44 0.40 0.34 0.32 0.27
Book value per common share 6.67 6.14 5.62 5.25 4.79
Selected year-end balances
Total assets $ 495,553 $ 441,831 $ 416,649 $ 375,418 $ 323,874
Total securities 88,450 102,250 109,237 83,309 62,360
Total loans 371,800 296,759 273,894 244,503 233,414
Total deposits 359,206 342,995 313,150 305,058 276,138
Shareholders' equity 40,684 37,732 34,444 32,138 29,284
Selected average balances
Total assets $ 454,485 $ 428,582 $ 393,225 $ 345,697 $ 310,647
Total securities 91,872 105,495 99,718 70,363 59,824
Total loans 327,125 287,485 254,397 239,611 222,744
Total deposits 354,185 335,505 314,769 288,204 269,147
Shareholders' equity 39,609 36,075 33,445 30,803 28,217
Ratios based on average balances
Return on assets (1) 1.26% 1.24% 1.20% 1.34% 1.41%
Return on equity (2) 14.52% 14.78% 14.12% 15.08% 15.54%
Dividend payout ratio (3) 46.83% 45.98% 44.06% 42.09% 37.57%
Equity to assets ratio (4) 8.72% 8.42% 8.51% 8.91% 9.08%
(1) Net income divided by average total assets
(2) Net income divided by average equity
(3) Dividends per share divided by net income per share
(4) Average equity divided by average total assets
10
Net Interest Income
-------------------
The following table presents information to assist in analyzing net
interest income. The table of Average Balance Sheets and Interest Rates presents
the major components of interest-earning assets and interest-bearing
liabilities, related interest income and expense and the resulting yield or
cost. For analytical purposes, interest income presented in the table has been
adjusted to a tax equivalent basis assuming a 34 percent tax rate for all years.
The tax equivalent adjustment recognizes the income tax savings when comparing
taxable and tax-exempt assets.
11
Average Balance Sheets and Interest Rates
(dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------------------------
2001 2000 1999
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- ---------- ------- ---------- ---------- ------- ---------- ---------- -------
Interest earning assets
Securities
Taxable $ 61,036 $ 3,446 5.65% $ 69,619 $ 4,016 5.77% $ 60,456 $ 3,431 5.68%
Tax-exempt (1) 30,836 1,930 6.26% 35,876 2,274 6.34% 39,262 2,495 6.35%
---------- ---------- ---------- ---------- ---------- ----------
Total securities 91,872 5,376 5.85% 105,495 6,290 5.96% 99,718 5,926 5.94%
Loans (2) 327,125 26,778 8.19% 287,485 25,889 9.01% 254,397 21,832 8.58%
Time deposits with banks 32 2 6.25% 44 2 4.55% 95 3 3.16%
FHLB Stock 1,359 101 7.43% 1,264 102 8.07% 1,180 94 7.97%
Federal funds sold 2,072 89 4.30% 2,223 144 6.48% 8,725 422 4.84%
---------- ---------- ---------- ---------- ---------- ----------
Total interest earning assets 422,460 32,346 7.66% 396,511 32,427 8.17% 364,115 28,277 7.76%
---------- ---------- ---------- ---------- ---------- ----------
Noninterest earning assets
Allowance for loan losses (3,949) (3,649) (3,572)
Premises and equipment 10,889 10,451 8,393
Cash and due from banks 16,377 16,862 16,604
Accrued interest and other assets 8,708 8,407 7,685
---------- ---------- ----------
Total assets $ 454,485 $ 428,582 $ 393,225
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Total interest-bearing deposits $ 299,400 12,649 4.22% $ 281,637 13,057 4.64% $ 262,552 10,776 4.10%
Borrowed funds
Short-term borrowings 38,065 1,224 3.22% 40,873 2,294 5.61% 30,226 1,300 4.30%
Long-term debt 16,362 864 5.28% 10,126 590 5.83% 9,914 574 5.79%
---------- ---------- ---------- ---------- ---------- ----------
Total borrowed funds 54,427 2,088 3.84% 50,999 2,884 5.66% 40,140 1,874 4.67%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 353,827 14,737 4.17% 332,636 15,941 4.79% 302,692 12,650 4.18%
Noninterest-bearing liabilities
Noninterest-bearing demand
deposits 54,785 53,868 52,217
Other liabilities 6,264 6,003 4,871
Shareholders' equity 39,609 36,075 33,445
---------- ---------- ----------
Total liabilities and
shareholders' equity $ 454,485 14,737 $ 428,582 15,941 $ 393,225 12,650
========== ---------- ========== ---------- ========== ----------
Interest margin recap
Net interest income and
interest rate spread $ 17,609 3.49% (3) $ 16,486 3.38% (3) $ 15,627 3.58% (3)
========== ========== ==========
Net interest margin 4.17% 4.16% 4.29%
Tax equivalent adjustment (4) $ 672 $ 792 $ 858
(1) Interest income on tax-exempt securities has been adjusted to a tax
equivalent basis using a marginal income tax rate of 34% for all years.
(2) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income.
(3) Total interest expense divided by total earning assets
(4) Interest income adjustment to convert tax-exempt investment securities
interest to fully tax equivalent basis using a marginal rate of 34%
12
The following table presents net interest income components on a tax-equivalent
basis and reflects changes between periods attributable to movement in either
the average balance or average interest rate for both earning assets and
interest-bearing liabilities. The volume differences were computed as the
difference in volume between the current and prior year times the interest rate
of the prior year, while the interest rate changes were computed as the
difference in rate between the current and prior year items times the volume of
the prior year. Volume/rate variances have been allocated on the basis of the
absolute relationship between volume variances and rate variances. Nonaccrual
loans were included in the average loan balances used in determining the yields.
Volume / Rate Analysis
(dollar amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
2001 Compared to 2000 2000 Compared to 1999
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------------- ----------------------------------------
Volume Rate Total Volume Rate Total
------------------------- ----------- ------------ ----------- -----------
Interest income
Loans $ 3,765 $(2,876) $ 889 $ 2,941 $ 1,116 $ 4,057
Securities
Taxable (482) (88) (570) 528 57 585
Tax-exempt (315) (29) (344) (215) (6) (221)
----------- ------------ ----------- ------------ ----------- -----------
Total securities interest (797) (117) (914) 313 51 364
----------- ------------ ----------- ------------ ----------- -----------
Time deposits with banks (2) 2 0 (2) 1 (1)
FHLB stock 8 (9) (1) 7 1 8
Federal funds sold (11) (44) (55) (388) 110 (278)
----------- ------------ ----------- ------------ ----------- -----------
Total interest income 2,963 (3,044) (81) 2,871 1,279 4,150
----------- ------------ ----------- ------------ ----------- -----------
Interest expense
Interest-bearing deposits 854 (1,262) (408) 820 1,461 2,281
Short-term borrowings (171) (899) (1,070) 533 461 994
Long-term debt 393 (119) 274 12 4 16
----------- ------------ ----------- ------------ ----------- -----------
Total interest expense 1,076 (2,280) (1,204) 1,365 1,926 3,291
----------- ------------ ----------- ------------ ----------- -----------
Change in net interest income
(fully tax-equivalent basis) $ 1,887 $ (763) $ 1,123 $ 1,506 $ (646) $ 859
=========== ============ ============ ===========
Tax equivalent adjustment using marginal
rate of 34% for 2001 and 2000 120 66
----------- -----------
Change in net interest income $ 1,243 $ 925
=========== ===========
13
Allowance for Loan Loss and Asset Quality
-----------------------------------------
The following table presents activity in the allowance for loan losses during
the years indicated. The Company's policy is to charge off loans when, in
Management's opinion, the loan is deemed uncollectible, although concerted
efforts are made to maximize future recoveries.
Analysis of Allowance for Loan Losses
(dollar amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Balance at beginning of year $ 3,873 $ 3,343 $ 3,562 $ 3,341 $ 3,201
Loans charged off
Commercial, financial and agricultural (374) (87) (522) (17) (169)
Real estate (191) (56) (143) (157) (52)
Installment (255) (152) (195) (153) (166)
--------- --------- --------- --------- ---------
Total charge-offs (820) (295) (860) (327) (387)
--------- --------- --------- --------- ---------
Charge-offs recovered
Commercial, financial and agricultural 39 46 18 12 18
Real estate 9 14 10 11 19
Installment 47 45 28 45 40
--------- --------- --------- --------- ---------
Total recoveries 95 105 56 68 77
--------- --------- --------- --------- ---------
Net loans charged off (725) (190) (804) (259) (310)
Current year provision 1,050 720 585 480 450
--------- --------- --------- --------- ---------
Balance at end of year $ 4,198 $ 3,873 $ 3,343 $ 3,562 $ 3,341
========= ========= ========= ========= =========
Loans at year end $ 371,800 $ 296,759 $ 273,894 $ 244,503 $ 233,414
Ratio of allowance to loans
at period end 1.13% 1.31% 1.22% 1.46% 1.43%
Average loans $ 327,125 $ 287,485 $ 254,397 $ 239,611 $ 222,744
Ratio of net loans charged off
to average loans 0.22% 0.07% 0.32% 0.11% 0.14%
14
The allocation of the allowance for loan losses is illustrated in the following
table. The Company regards the allowance as a general allowance which is
available to absorb losses from all loans. The allocation of the allowance as
shown in this table should neither be interpreted as an indication of future
charge-offs, nor as an indication that charge-offs in future periods will occur
in these amounts.
Allocation of the Allowance for Loan Losses
(dollar amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------------- --------------------------
Amount Percent Amount Percent Amount Percent
----------- ------------ ----------- ------------ ------------ ------------
Balance at December 31:
Commercial, financial and agricultural $ 1,430 19.83% $ 1,022 22.53% $ 804 21.53%
Real Estate 1,941 74.13% 2,327 68.35% 1,927 68.78%
Installment 358 6.04% 405 9.12% 325 9.69%
Unallocated 469 N/A 119 N/A 287 N/A
----------- ------------ ----------- ------------ ------------ ------------
Total allowance for loan losses $ 4,198 100.0% $ 3,873 100.0% $ 3,343 100.0%
=========== ============ =========== ============ ============ ============
1998 1997
------------------------- -------------------------
Amount Percent Amount Percent
----------- ------------ ----------- ------------
Balance at December 31:
Commercial, financial and agricultural $ 979 20.83% $ 770 19.02%
Real Estate 1,999 69.88% 2,017 70.96%
Installment 334 9.29% 338 10.02%
Unallocated 250 N/A 216 N/A
----------- ------------ ----------- ------------
Total allowance for loan losses $ 3,562 100.0% $ 3,341 100.0%
=========== ============ =========== ============
Nonperforming assets and their relative percentages to loan balances are
presented in the table on the following page. The level of nonperforming loans
and leases is an important element in assessing asset quality and the relevant
risk in the credit portfolio. Nonperforming loans include nonaccrual loans,
restructured loans and loans delinquent 90 days or more.
Loans are evaluated for nonaccrual status when payments are past due over 90
days. Current year interest previously recorded but not deemed collectible is
reversed and charged against current income. Interest income on these loans is
then recognized when collected. Loans significantly past due, not well secured
and in the process of collection are generally placed on nonaccrual status.
Restructured loans are loans for which the contractual interest rate has been
reduced or other concessions are granted to the borrower because of
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans.
Another element associated with asset quality is other real estate owned (OREO),
which represents properties acquired by the Company through loan defaults by
customers.
15
Nonperforming Assets
(dollar amounts in thousands)
- -----------------------------------------------------------------------------------------------------------
December 31,
-----------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Principal balance
Nonaccrual $ 779 $ 332 $ 389 $ 1,189 $ 1,362
Restructured 763 836 1,115 859 690
90 days or more past due and still accruing 1,705 2,289 849 1,363 831
---------- ---------- ---------- ---------- ----------
Total nonperforming loans $ 3,247 $ 3,457 $ 2,353 $ 3,411 $ 2,883
=========== ========== ========== ========== ==========
Nonperforming loans as a percent of loans 0.87% 1.16% 0.86% 1.40% 1.24%
Other real estate owned $ 505 $ 362 $ 89 $ 497 $ 101
OREO as a percent of loans 0.14% 0.12% 0.03% 0.20% 0.04%
Allowance as a percent of
nonperforming loans 129.29% 112.03% 142.07% 104.43% 115.89%
Interest income of $88,699 for the year ended December 31, 2001, was recognized
on the nonaccruing and restructured loans listed in the table above, whereas,
interest income of $122,518 would have been recognized under their original
terms.
Potential Problem Loans
- -----------------------
In addition to loans classified for regulatory purposes, management also
designates certain loans for internal monitoring purposes in a watch category.
Loans may be placed on management's watch list as a result of delinquent status,
concern about the borrower's financial condition, or the value of the collateral
securing the loan, substandard classification during regulatory examinations, or
simply as a result of management's desire to monitor more closely a borrower's
financial condition and performance. Watch category loans may include loans with
loss potential that are still performing and accruing interest and may be
current under the terms of the loan agreements; however, management may have a
significant degree of concern about the borrowers' ability to continue to
perform according to the terms of the loans. Loss exposure on these loans is
typically evaluated based primarily upon the estimated liquidation value of the
collateral securing these loans. Also, watch category loans may include credits
which, although adequately secured and performing, have past delinquency
problems or where unfavorable financial trends are exhibited by borrowers.
All watch list loans are subject to additional scrutiny and monitoring. The
Company's philosophy encourages loan officers to identify borrowers that should
be monitored in this fashion and believes this process ultimately results in the
identification of problem loans in a more timely fashion.
Management has identified $2.7 million and $2.9 million of loans on its watch
list which were not included in impaired or non-performing loans at December 31,
2001 and 2000, respectively.
16
Noninterest Income and Expense
------------------------------
The following table presents the balances of noninterest income and expense from
1999 through 2001 and the percentage changes between periods.
Noninterest Income and Expense
(dollar amounts in thousands)
- ----------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------
% change % change
2001 from '00 2000 from '99 1999
---------- -------- ---------- -------- ----------
Noninterest Income
Deposit service charges and fees $ 2,128 42.82% $ 1,490 10.04% $ 1,354
Trust department income 839 3.33% 812 37.63% 590
Commission income 770 18.83% 648 190.58% 223
Security gains/(losses) (230) 4.07% (221) -145.95% 481
Realized gain on sale of real estate loans 515 157.50% 200 -49.24% 394
Other operating income 894 11.06% 805 -0.62% 810
---------- ---------- ----------
Total noninterest income $ 4,916 31.66% $ 3,734 -3.06% $ 3,852
========== ========== ==========
Years Ended December 31,
------------------------------------------------------
% change % change
2001 from '00 2000 from '99 1999
---------- -------- ---------- -------- ----------
Noninterest Expense
Salaries and employee benefits $ 7,495 11.42% $ 6,727 7.87% $ 6,236
Occupancy and equipment 1,968 9.58% 1,796 2.98% 1,744
Other 2,583 16.30% 2,221 -27.70% 3,072
---------- ---------- ----------
Total noninterest expense $ 12,046 12.12% $ 10,744 -2.79% $ 11,052
========== ========== ==========
Other Income
2001 Compared to 2000
Other noninterest income increased 31.7 percent to $4.9 million compared to $3.7
million in 2000. Security losses are comprised almost entirely of net unrealized
losses on trading securities (mutual funds) held in a grantor trust (a rabbi
trust) in connection with the Company's Directors' Deferred Compensation Plan.
These securities are held as trading securities, hence, unrealized gains and
losses are recognized on the income statement. This net unrealized loss is
directly offset by a decrease to directors' fee expense, and is included in the
item identified on page 27 of the consolidated financial statements as
"Appreciation (depreciation) on directors' deferred compensation plan," and is
further discussed in Note 13 to the consolidated financial statements (page 40).
The activity of the rabbi trust has no effect on the Company's net income.
Omitting the rabbi trust activity (securities net losses/gains) from 2001 and
2000, other income increased 30.2 percent to $5.1 million during 2001.
17
This increase occurred due to the following reasons:
o Deposit service charges and fees increased 42.8 percent in 2001. At the end
of 2000, the Company began offering an "Overdraft Protector" product,
whereby customers with checking accounts which met certain criteria were
allowed to overdraw their accounts up to $300. This product allows
customers to avoid checks being returned for non-sufficient funds (NSF).
Many customers took advantage of this, and as a result, overdraft/NSF fees
increased by $565,000 in 2001.
o The Bank sells substantially all fixed rate residential mortgage loans on
the secondary market. Realized gains on the sale of real estate loans
increased $315,000, or 157.5 percent, in 2001. The decrease in interest
rates during 2001 substantially increased refinancing activity and new
mortgage originations. The Bank also increased its marketing efforts and
its staff in the mortgage department. As a result of these and other
factors, the Bank lead Monroe County in the dollar volume of mortgage loans
originated in 2001. Management does not believe this same rate of growth in
gains on the sale of real estate loans will occur again in 2002 due to
changing market conditions.
o The Company began a platform-based, or branch-based, fixed rate annuity
sales program in October 1999, and platform-based mutual funds and variable
rate annuities were first sold March 2000. The Company also offers a full
service brokerage operation offered through Raymond James Financial
Services, Inc. Platform-based investment sales and brokerage operations
generated $770,000 of commission income in 2001 compared to $648,000 in
2000, an increase of 18.8 percent. At December 31, 2001, the Bank had nine
employees who hold Series 7 licenses. In addition, 20 branch employees held
insurance licenses and are able to sell fixed annuities. Branch personnel
continue to receive extensive training and are coached on an ongoing basis
to enable them to work in a customer need-focused environment.
2000 Compared to 1999
Other noninterest income decreased 3.1 percent to $3.7 million compared to $3.9
million in 1999. Without rabbi trust activity (unrealized securities net
losses/gains), other income increased 17.3 percent to $4.0 million during 2000.
This increase occurred due to the following reasons:
o Platform-based investment sales and brokerage operations generated $648,000
of commission income in 2000 compared to $223,000 in 1999, an increase of
190.6 percent. At December 31, 2000, the Bank had seven employees who held
Series 7 licenses. In addition, 22 branch employees held insurance licenses
and were able to sell fixed annuities.
o The Trust Department also experienced strong growth during 2000. The fair
market value of assets managed by the Trust Department was $130.8 million
at December 31, 2000 compared to $121.7 million at December 31, 1999.
Trustee fees grew 37.6 percent, or $222,000, in 2000. Approximately
$110,000 of revenue came from new account relationships and the remainder
of the growth was due to an increase in the fee structure that was
implemented in the fall of 1999.
o Service fees on deposit accounts increased 10.0 percent to $1.5 million in
2000 due to an increase in the fee structure implemented in August 1999.
Other operating income decreased
18
slightly in 2000, primarily because the Company recognized a $49,000 gain
on the sale of a warehouse in 1999.
o Realized gains on the sale of real estate loans decreased $194,000, or
49.2 percent, in 2000 primarily because the increase in interest rates
substantially slowed refinancing activity.
Other Expense
2001 Compared to 2000
Other noninterest expense increased 12.1 percent to $12.0 million during 2001.
As previously discussed in the Other Income section, the net unrealized losses
from securities in the rabbi trust directly reduced director fee expense in 2001
and 2000. Without the effect of the rabbi trust noninterest expense would have
increased to $12.2 million in 2001. The Company's efficiency ratio (noninterest
expense divided by the sum of net interest income, on a tax-equivalent basis,
and noninterest income) increased to 53.8 percent in 2001 from 53.4 percent in
2000. Management anticipated increased start-up costs in its new Hendricks
County market, and the increase in the efficiency ratio was well within
management's projections.
The increase in other expenses occurred due to the following reasons:
o Salaries and employee benefits increased $768,000, or 11.4 percent, during
2001. Commissions paid to mortgage originators and platform salespeople
increased due to increases in commission revenue in these areas. We also
hired a new commissioned mortgage originator and a mortgage processor. Nine
additional employees were hired during 2001 to staff the two new branches
in Hendricks County. The Bank is partially self-insured and its 2001
employee group health insurance costs also increased by $164,000, or 67.8%,
over 2000. Annual raises accounted for the remainder of the increase.
o Occupancy and equipment expense increased by $172,000, or 9.6 percent,
during 2001. Approximately $96,000 of this was attributed to the new
Hendricks County branches. Without these expenses, occupancy and equipment
expense would have increased 4.2 percent over 2000.
o Other expense increased by $362,000, or 16.3 percent during 2001. Outside
professional fees increased by $65,000 due to the Bank outsourcing its
proof function and initiating document imagining for its checking accounts.
While this service will be relatively cost neutral in the long-run, initial
start up expenses exceeded savings in other areas in 2001. Marketing
expenses increased buy $60,000 primarily due to increased marketing efforts
for our new Hendricks County branches.
2000 Compared to 1999
Other noninterest expense decreased 2.8 percent to $10.7 million during 2000.
Without the effect of the rabbi trust on 2000 and 1999, other noninterest
expense would have increased 3.7 percent to $11.0 million in 2000.
This increase occurred due to the following reasons:
o Salaries and employee benefits increased 7.9 percent, or $491,000 primarily
due to normal salary increases and increased commissions paid to employees
on platform-based annuity and mutual fund sales.
19
o Net occupancy expense only increased 3.0 percent due to a conscious effort
to contain costs.
o Advertising and other operating expenses decreased 7.1 percent compared to
1999. The Bank focused on containing costs and on pursuing efficiency
through the use of technology and by pushing information and decision
making authority to the point of customer contact. The Company's efficiency
ratio was 53.4 percent for 2000 compared to 55.5 percent in 1999.
Financial Condition
-------------------
Securities
----------
Held-to-maturity securities are those which the Company has both the positive
intent and the ability to hold to maturity. They are reported at amortized cost.
Available-for-sale securities are those which the Company may decide to sell if
needed for liquidity, asset/liability management, or other reasons.
Available-for-sale securities are reported at fair value, with unrealized gains
and losses included in other comprehensive income, net of tax.
Trading securities consist of investments in various mutual funds held in
grantor trusts formed by the Company related to the Monroe Bancorp Directors'
Deferred Compensation Plan. The Company's obligations under the deferred
compensation plan change in concert with the performance of the investments.
The tables on the following page summarize the carrying values of securities
from December 31, 1999 through December 31, 2001. The maturity distribution of
securities at December 31, 2001 is summarized by classification. Yields on
tax-exempt securities are adjusted to a tax equivalent basis using a marginal
federal tax rate of 34 percent for all years.
20
Securities
(dollar amounts in thousands)
- ----------------------------------------------------------------------------
At December 31,
2001 2000 1999
---------- ---------- ----------
Available for sale
U.S. Treasury & government agencies $ 16,110 $ 21,562 $ 17,083
States and political subdivisions 1,475 1,891 2,634
Equity securities 236 183 402
---------- ---------- ----------
Total available for sale $ 17,821 $ 23,636 $ 20,119
Held to Maturity
U.S. Treasury & government agencies $ 39,172 $ 43,429 $ 48,001
States and political subdivisions 28,375 31,517 35,879
Mortgage-backed & asset-backed 22 497 1,891
---------- ---------- ----------
Total held to maturity $ 67,569 $ 75,443 $ 85,771
Trading securities
Mutual funds $ 3,060 $ 3,171 $ 3,347
---------- ---------- ----------
Total trading securities $ 3,060 $ 3,171 $ 3,347
---------- ---------- ----------
Total Securities $ 88,450 $ 102,250 $ 109,237
========== ========== ==========
Securities Maturity Schedule at December 31, 2001
- -------------------------------------------------
1 Year and Less 1 to 5 Years 5 to 10 Years Over 10 Years Total
--------------- -------------- -------------- -------------- --------------
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Available for sale
U.S. Treasury & government agencies $ 3,058 5.66% $ 13,052 5.83% $ - $ - $ 16,110 5.80%
State and municipal 960 6.86% 515 6.40% - - 1,475 6.70%
Equity securities 236 3.28% - - 236 3.28%
-------- -------- -------- -------- --------
Total available for sale $ 4,254 $ 13,567 $ - $ - $ 17,821 5.84%
======== ======== ======== ======== ========
Held to Maturity
U.S. Treasury & government agencies $ 6,263 5.36% $ 32,909 5.66% $ - $ - $ 39,172 5.62%
State and municipal 5,966 6.39% 21,757 6.10% 652 5.37% - 28,375 6.15%
Mortgage-backed & asset-backed - 22 6.94% - - 22 6.94%
-------- -------- -------- -------- --------
Total held to maturity $ 12,229 $ 54,688 $ 652 $ - $ 67,569 5.84%
======== ======== ======== ======== ========
Trading Securities
Mutual funds $ 3,060 2.77% $ - $ - $ - $ 3,060 2.77%
-------- -------- -------- -------- --------
Total trading securities $ 3,060 $ - $ - $ - $ 3,060 2.77%
======== ======== ======== ======== ========
The majority of the securities portfolio is comprised of U.S. Treasury and
government agency securities, and state and municipal securities (tax-exempt).
Trading securities consist solely of mutual funds held in a grantor trust,
established for the Monroe Bancorp Directors' Deferred Compensation Plan. During
1999, the Company also purchased stocks of nine financial institutions which are
classified as available-for-sale. Stocks of four of these financial institutions
remain in the Company's portfolio at December 31, 2001.
The securities portfolio carries varying degrees of risk. Investments in U.S.
Treasury and federal agency securities have little or no credit risk.
Obligations of states and political subdivisions and corporate securities are
the areas of highest potential credit exposure in the portfolio. This risk is
minimized through the purchase of high quality investments. The Company's
investment policy requires that general obligations of other states and
political subdivisions and corporate bonds must have a rating of A or better
when purchased. In-state general obligation municipals must be
21
rated Baa or better. In-state revenue municipals must be rated A or better and
out-of-state revenue municipals must be rated AA or better at the time of
purchase. The vast majority of these investments maintained their original
ratings at December 31, 2001. No securities of an individual issuer, excluding
the U.S. Government and its agencies, exceed 10 percent of the Company's
shareholders' equity as of December 31, 2001. The Company does not use
off-balance sheet derivative financial instruments. As of December 31, 2001 and
December 31, 2000, the securities portfolio held no structured notes.
Loans
-----
The loan portfolio constitutes the major earning asset of the Company, and
offers the best alternative for maximizing interest spread above the cost of
funds. The Company's loan personnel have the authority to extend credit under
guidelines established and approved by the Board of Directors. Any credit which
exceeds the authority of the loan officer, but is under $2 million is forwarded
to the Bank's officers' loan committee for approval. This committee is comprised
of the President/CEO, the Senior Vice President of Loans and several experienced
loan officers. Individual credits exceeding $2 million are forwarded to the
Board of Directors' loan committee for approval. This loan committee is
comprised of six board members, one of whom is the President/CEO. The loan
committee not only acts as an approval body to ensure consistent application of
the Company's loan policy, but also provides valuable insight through
communication and pooling of knowledge, judgment, and experience of its members.
The Company's primary lending area generally includes Monroe, Lawrence, Jackson,
Hendricks and contiguous counties in South Central Indiana. The Company extends
out-of-area credit only to borrowers who are considered to be low risk, and
then, only on a limited basis.
22
The following table reflects outstanding balances by loan type.
Loans Outstanding
(dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------
At December 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Commercial and industrial $ 73,724 $ 66,872 $ 58,961 $ 50,920 $ 44,401
Real estate:
One-to-four-family 119,709 86,512 83,367 76,731 80,031
Multi-family 41,941 37,656 34,078 33,807 28,438
Commercial 71,057 42,424 40,782 32,232 32,983
Construction 28,013 24,277 20,787 19,956 16,265
Home equity 13,637 10,554 7,938 7,124 7,084
Farm land 1,256 1,388 1,454 1,018 826
Installment 22,463 27,076 26,527 22,715 23,386
----------- ----------- ----------- ----------- -----------
Total loans $ 371,800 $ 296,759 $ 273,894 $ 244,503 $ 233,414
=========== =========== =========== =========== ===========
The following table presents the composition of the loan portfolio expressed as
a percent of total loans.
At December 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Commercial and industrial 19.83% 22.53% 21.53% 20.83% 19.02%
Real estate:
One-to-four-family 32.20% 29.15% 30.43% 31.38% 34.30%
Multi-family 11.28% 12.69% 12.44% 13.83% 12.18%
Commercial 19.11% 14.30% 14.89% 13.18% 14.13%
Construction 7.53% 8.18% 7.59% 8.16% 6.97%
Home equity 3.67% 3.56% 2.90% 2.91% 3.03%
Farm land 0.34% 0.47% 0.53% 0.42% 0.35%
Installment 6.04% 9.12% 9.69% 9.29% 10.02%
----------- ----------- ----------- ----------- -----------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ===========
A discussion of each line item set forth in the preceding tables follows:
o Commercial and Industrial Lending.
At December 31 2001, commercial and industrial loans totaled $73.7 million, or
19.8 percent of our gross loan portfolio. This category is comprised of business
loans and business lines of credit. Approximately 75 percent of commercial and
industrial loans are secured by business assets: furniture and fixtures,
inventory, accounts receivable or automobiles. Approximately 25 percent of these
loans are unsecured, however, approximately 98% of these unsecured loans carry
personal guarantees. At December 31, 2001, 20.6 percent of commercial and
industrial loans
23
were fixed rate and 79.4 percent were variable rate. Adjustable rate loans carry
a maximum maturity of eight years. Fixed-rate loans carry a maximum maturity of
five years. Lines of credit are normally written for a one-year term or less.
Interest rates on variable rate loans are indexed to prime, and vary as the
prime rate changes. These loans are made to a wide variety of businesses in our
primary lending area, and there were no concentrations in any one industry.
o One-to-four-family Residential Real Estate Lending.
At December 31, 2001, one-to-four-family mortgages totaled $119.7 million, or
32.2 percent of our gross loan portfolio. Indiana University's presence in the
community provides a strong rental market, accordingly, a material amount of
these loans were for other than single family residences. At December 31, 2001,
1.9 percent of these loans were fixed rate and 98.1 percent were adjustable
rate. Adjustable-rate mortgages (or ARMs) are offered with either a one-year,
three-year, or five-year term to the initial repricing date. After the initial
period, the interest rate for each ARM loan adjusts annually. We use an index
tied to the one-year U.S. Treasury bill rate to reprice our ARM loans. These
loans have a maximum maturity of 30 years. It is the Bank's practice to sell all
of the fixed rate owner-occupied residential mortgages it originates on the
secondary market. The Bank obtains a commitment from the purchaser to buy these
loans before they are closed, and does not retain servicing. Adjustable rate
loans generally pose different credit risks than fixed rate loans, primarily
because as interest rates rise, the borrower's payment rises, increasing the
potential for default. The payment history for these ARM loans has not varied
significantly from that of fixed rate loans.
o Multi-family and Commercial Real Estate Lending.
These loans are secured primarily by multi-family (five or more) dwellings,
small retail establishments, not-for-profit organizations' buildings and small
office buildings located in our primary lending area. At December 31, 2001,
commercial and multi-family loans totaled $113.0 million, or 30.4 percent of our
gross loan portfolio. At December 31, 2001, 6.9 percent were fixed rate while
93.1 percent were adjustable rate. These loans generally require monthly
payments and have maximum maturities of 25 years. Fixed-rate loans have maximum
maturities of five years. The Bank offers one-year, three-year and five-year
multi-family and commercial ARMs. These loans are indexed to prime. Loans
secured by multi-family and commercial real estate are underwritten based on the
income producing potential of the property and the financial strength of the
borrower. In order to monitor the adequacy of cash flows on income-producing
properties, the borrower is required to provide periodic financial information.
Because payments on loans secured by multi-family and commercial real estate are
often dependent on the successful management of the properties, repayment of
such loans may be subject to adverse conditions in the real estate market or the
economy.
o Construction and Vacant Land Lending.
At December 31, 2001, construction and vacant land loans totaled $28.0 million,
representing 7.5 percent of our gross loan portfolio. We originate construction
loans on commercial and residential properties located in our primary lending
area. At December 31, 2001, 31.8 percent of these loans were fixed rate and 68.2
percent were variable rate. The vast majority of these loans have maturity dates
of less than one year. The interest rates on these loans are indexed to prime.
During the construction phase, the borrower generally pays interest only on a
monthly basis. Loans to individuals for the construction of their residences may
either be short-term construction financing or a construction/ permanent loan
which automatically converts to a long-term mortgage consistent with our
one-to-four family loan products. These loans involve many of the same risks
inherent with commercial and multi-family loans discussed above and tend to be
more sensitive to general economic conditions than many other types of loans.
24
o Home Equity Lending.
At December 31, 2001, home equity loans totaled $13.6 million, representing 3.7
percent of our gross loan portfolio. Our home equity loans are all adjustable
rate loans, and adjust after one year. Interest rates on these loans are tied to
prime and increase as the loan-to-value ratio increases. These loans may be
originated in amounts, together with the existing first mortgage, of up to 100
percent of the value of the property securing the loan. The maximum term of
these loans is 30 years.
o Installment Lending.
This category is comprised of new and used automobile loans, mobile home loans,
secured and unsecured personal loans, and personal lines of credit. At December
31, 2001, the balance of this account was $22.4 million, representing 6.0
percent of total loans. Installment loans, at December 31, 2001, were divided
between the following categories: automobile loans 61.2 percent, secured
personal loans 15.4 percent, lines of credit 3.7 percent, unsecured personal
loans 12.9 percent, and mobile home loans 6.8 percent. The indirect lending
function comprises approximately 40 percent of all personal loans. We originate
auto loans, boat and recreational vehicle loans on both a direct and an indirect
basis. We generally buy indirect auto loans on a rate basis, paying the dealer a
cash payment for loans with an interest rate which is sometimes in excess of the
rate we require. Any premium is amortized over the remaining life of the loan.
Any prepayments are charged to future amounts owed that dealer.
We underwrite indirect auto loans using the Fair-Isaacs credit scoring system.
We process the loan application using the same procedures as if we were making
the loan directly to the customer, hence, we accept only the more qualified
buyers based on our scoring. Upon purchasing the contract from the dealer, we
assume all service and liability for the loan.
o Loan-to-value Limits
The Company adheres to the FDIC guidelines for loan-to-value limits. These
guidelines are as follows:
Loan Category Loan-to-Value Limit
- ------------- -------------------
Real Estate:
Raw land 65%
Land development 75%
Construction:
Commercial, multi-family and non-residential 80%
One-to-four-family residential 85%
Improved property 85%
Owner-occupied one-to-four-family 90%
Home equity 100%
Non-owner occupied 85%
Commercial and Industrial (secured by):
Accounts receivable 60 days or less past due 80%
Inventory - raw materials 50%
Inventory - finished goods 80%
Equipment 100%
Installment (automobile, RV, boat, etc.) 100%
25
Management believes the degree of risk assumed on any loan is commensurate with
the interest rate assessed, and is thereby able to receive a higher rate of
return on commercial and real estate construction loans as compared to
residential real estate loans. Although these loan types usually possess
increased elements of risk, the Company's lending practices, policies, and
procedures that are in place are intended to mitigate certain risks associated
with such loans. The bank's commercial and industrial loans are made to local
businesses operating in diverse industries and the portfolio contains no
specific industry concentrations, which mitigates certain risks. The real estate
loan portfolio is strengthened by a stable local economy and by the strong
rental market provided by Indiana University. Adjustable-rate loans generally
pose different credit risks than fixed-rate loans, primarily because as interest
rates rise, the borrower's payment rises, increasing the potential for default.
The following table reflects the maturity schedule of loans. Also indicated are
fixed and variable rate loans maturing after one year for the same loan
categories.
Loan Liquidity
(dollar amounts in thousands)
- -------------------------------------------------------------------------
Loan Maturities at December 31, 2001
--------------------------------------------
1 Year 1 - 5 Over 5
and Less Years Years Total
-------- -------- -------- --------
Commercial and industrial $ 38,857 $ 22,013 $ 12,854 $ 73,724
Real estate:
One-to-four-family 1,806 2,069 115,834 119,709
Multi-family -- 1,079 40,862 41,941
Commercial 2,150 5,927 62,980 71,057
Construction 21,530 5,105 1,379 28,014
Home equity 254 -- 13,382 13,636
Farm land -- 88 1,168 1,256
Installment 3,392 15,767 3,304 22,463
-------- -------- -------- --------
Total loans $ 67,989 $ 52,048 $251,763 $371,800
======== ======== ======== ========
Loans maturing after
1 year with:
Fixed interest rates $ 26,790 $ 19,862
Floating interest rates 25,258 231,901
-------- --------
$ 52,048 $251,763
======== ========
26
Deposits
--------
The Company offers a wide variety of deposit products and services to individual
and commercial customers, such as noninterest-bearing and interest-bearing
checking accounts, savings accounts, money market accounts, and certificates of
deposit. The deposit base provides the major funding source for earning assets.
The following table shows the average amount of deposits and average rates of
interest paid thereon for the years indicated.
Deposit Information
(dollar amounts in thousands)
- -------------------------------------------------------------------------------------
2001 2000 1999
--------------- -------------- ----------------
Amount Rate Amount Rate Amount Rate
-------- ---- ------ ---- -------- ----
Noninterest bearing $ 54,785 $ 53,868 $ 52,217
Interest bearing demand 115,980 2.52% 103,609 3.14% 95,961 2.64%
Savings deposits 17,847 1.83% 18,680 2.13% 20,174 1.99%
Time 165,573 5.67% 159,348 5.90% 146,417 5.36%
-------- -------- --------
Total average deposits $354,185 4.22% $335,505 4.64% $314,769 4.10%
======== ======== ========
Certificates of deposit and other time deposits of $100,000 or more mature as
follows:
at December 31,
---------------------------------------
CD's over $100,000 2001 2000 1999
----------- ----------- -----------
3 months or less $ 16,391 $ 19,420 $ 11,164
3 through 6 months 10,676 14,284 8,566
6 through 12 months 18,615 13,015 11,648
over 12 months 14,498 9,900 8,716
----------- ----------- -----------
$ 60,180 $ 56,619 $ 40,094
=========== =========== ===========
27
Borrowings
----------
A detailed schedule of short-term borrowing follows:
Short-term Borrowings
(dollar amounts in thousands)
- -----------------------------------------------------------------------------
December 31,
-------------------------------
2001 2000 1999
---- ---- ----
Repurchase agreements outstanding $ 36,312 $ 48,871 $ 29,164
Federal funds purchased 21,900 - 17,800
--------- --------- ---------
Total short-term borrowings $ 58,212 $ 48,871 $ 46,964
========= ========= =========
Average repurchase agreements during the year $ 35,504 $ 33,965 $ 28,999
========= ========= =========
Maximum month-end repurchase agreements $ 37,313 $ 48,871 $ 34,078
========= ========= =========
YTD Average interest rate 3.2% 5.4% 4.3%
Average interest rate at end of period 1.1% 5.6% 3.8%
Repurchase agreements are borrowings which mature daily and are secured by U.S.
Treasury and government agency obligations.
The Bank became a member of the Federal Home Loan Bank of Indianapolis ("FHLBI")
in 1997 and has the authority of the Board of Directors to borrow up to $38
million. All current and any future borrowings are secured by a blanket
collateral pledge of the Bank's one-to-four family residential loans and
multi-family loans. Other borrowings, consisting of FHLBI borrowings, a mortgage
and loans sold under repurchase agreements, as of December 31, 2001 and 2000
were $31.8 million and $6.5 million, respectively. The FHLBI borrowings
accounted for the majority of other borrowings. The Company had a net increase
in borrowings from the FHLBI of $24.2 million during 2001, because FHLBI
advances were used to help fund loan growth. Management believed longer term
interest rates were favorable during the later half of 2001, and locked in rates
on funds used to make three- to five-year ARM loans. The Company expects to
continue using FHLBI advances in the future as a source of loan funding and for
general liquidity.
28
Liquidity
---------
The following table presents a schedule of the maturity and repricing of the
Company's assets and liabilities over the next five years.
Liquidity and Interest Rate Sensitivity
(dollar amounts in thousands)
- -------------------------------------------------------------------------------------------------------------
At December 31, 2001
---------------------------------------------------------------
1 - 90 91 - 365 1 - 5
Days Days Years Over 5 Years Total
----------- ----------- ------------ ------------ ---------
Interest earning assets
- -----------------------
Loans $ 97,960 $ 94,114 $ 174,225 $ 5,501 $ 371,800
Securities held to maturity
Taxable 1,000 5,263 32,931 - 39,194
Tax-exempt 2,610 3,356 21,757 652 28,375
Securities available for sale
Taxable 1,245 2,049 13,052 - 16,346
Tax-exempt 176 784 515 - 1,475
Trading securities
Taxable 3,060 - - - 3,060
----------- ----------- ----------- ----------- -----------
Total securities 8,091 11,452 68,255 652 88,450
----------- ----------- ----------- ----------- -----------
Interest bearing deposits with banks 53 - - - 53
FHLB stock 1,534 - - - 1,534
Federal funds sold - - - - -
----------- ----------- ----------- ----------- -----------
Total interest earning assets $ 107,638 $ 105,566 $ 242,480 $ 6,153 $ 461,837
=========== =========== =========== =========== ===========
Interest bearing liabilities
- ----------------------------
Interest-bearing demand deposits $ 130,727 $ - $ - $ - $ 130,727
Savings deposits 16,840 - - - 16,840
Time deposits 39,193 68,495 48,693 224 156,605
Short-term borrowings 58,212 - - - 58,212
Other borrowings 22 4,636 23,785 3,342 31,785
----------- ----------- ----------- ----------- -----------
Total interest bearing liabilities $ 244,994 $ 73,131 $ 72,478 $ 3,566 $ 394,169
=========== =========== =========== =========== ===========
Rate sensitive gap $ (137,356) $ 32,435 $ 170,002 $ 2,587 $ 67,668
Rate sensitive cumulative gap $ (137,356) $ (104,921) $ 65,081 $ 67,668
Cumulative gap as a percentage of
earning assets -29.74% -22.72% 14.09% 14.65%
29
The following table details the main components of cash flows for the years
ended December 31, 2001 and 2000.
Funding Uses and Sources
(dollar amounts in thousands)
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001 Year Ended December 31, 2000
-------------------------------- --------------------------------
Increase/(Decrease) Increase/(Decrease)
Average ------------------- Average -------------------
Balance Amount Percent Balance Amount Percent
------- ------ ------- ------- ------ -------
Funding Uses
- ------------
Loans, net of unearned income $327,125 $ 39,640 13.79% $287,485 $ 33,088 13.01%
Taxable securities 61,036 (8,583) -12.33% 69,619 9,163 15.16%
Tax-exempt securities 30,836 (5,040) -14.05% 35,876 (3,386) -8.62%
Federal funds sold 2,072 (151) -6.79% 2,223 (6,502) -74.52%
-------- -------- -------- --------
Total uses $421,069 $ 25,866 6.54% $395,203 $ 32,363 8.92%
======== ======== ======== ========
Funding Sources
- ---------------
Noninterest bearing deposits $ 54,785 $ 917 1.70% $ 53,868 $ 1,651 3.16%
Interest bearing demand, savings & time 299,400 17,763 6.31% 281,637 19,085 7.27%
Short-term borrowings 38,065 (2,808) -6.87% 40,873 10,647 35.22%
Long-term debt 16,362 6,236 61.58% 10,126 212 2.14%
-------- -------- -------- --------
Total sources $408,612 $ 22,108 5.72% $386,504 $ 31,595 8.90%
======== ======== ======== ========
30
Capital Adequacy
----------------
Management believes the Company and Bank met all the capital requirements as of
December 31, 2001 and 2000, and the Bank was well-capitalized under the
guidelines established by the banking regulators. To be well-capitalized, the
Bank must maintain the prompt corrective action capital guidelines described in
the "Capital Regulations" portion of this document. Consolidated capital amounts
and ratios are presented in the following table. Bank capital levels are
substantially similar.
At December 31, 2001 management was not aware of any current recommendations by
banking regulatory authorities which, if they were to be implemented, would
have, or are reasonably likely to have, a material effect on the Company's
consolidated liquidity, capital resources or operations.
Capital
(dollar amounts in thousands)
- ------------------------------------------------------------------------------------
At December 31,
------------------------
2001 2000
--------- ---------
Tier 1 capital
Shareholders' equity $ 40,684 $ 37,732
Less: Intangibles -- --
Add / deduct: Unrealized (gain) loss on securities (349) 9
--------- ---------
Total Tier 1 capital $ 40,335 $ 37,741
========= =========
Total risk-based capital
Tier 1 capital $ 40,335 $ 37,741
Tier 2 capital 4,195 3,555
--------- ---------
Total risk-based capital $ 44,530 $ 41,296
========= =========
Risk weighted assets $ 335,504 $ 284,049
========= =========
Quarterly average assets $ 480,722 $ 433,738
========= =========
Risk-based ratios:
Tier 1 12.02% 13.29%
Total risk-based capital 13.27% 14.54%
Leverage ratios 8.39% 8.70%
31
Item 2. Properties.
The Company, through the Bank, currently operates from its main office in
downtown Bloomington and from fourteen additional locations in Monroe, Jackson,
Hendricks and Lawrence Counties in Indiana. Information about those locations is
set forth in the table below:
- -------------------------------------------------------------------------------
NAME OF OFFICE LOCATION/TELEPHONE NUMBER
- -------------------------------------------------------------------------------
Downtown Main Office 210 East Kirkwood Avenue
Bloomington, IN 47408
(812) 336-0201
- -------------------------------------------------------------------------------
Ellettsville Banking Center 4616 West Richland Plaza
Bloomington, IN 47404
(812) 876-6044
- -------------------------------------------------------------------------------
Highland Village Banking Center 4191 West Third Street
Bloomington, IN 47403
(812) 331-3501
- -------------------------------------------------------------------------------
Kinser Crossing Banking Center 1825 North Kinser Pike
Bloomington, IN 47404
(812) 331-3518
- -------------------------------------------------------------------------------
Kirkwood Auto Branch 306 East Kirkwood Avenue
Bloomington, IN 47408
(812) 331-3510
- -------------------------------------------------------------------------------
Loan Center 111 South Lincoln Street
Bloomington, IN 47408
(812) 331-3555
- -------------------------------------------------------------------------------
Mall Road Banking Center 2801 Buick-Cadillac Blvd.
Bloomington, IN 47401
(812) 331-3507
- -------------------------------------------------------------------------------
Walnut Park Banking Center 2490 South Walnut Street
Bloomington, IN 47403
(812) 331-3514
- -------------------------------------------------------------------------------
Brownstown Banking Center 1051 West Spring Street
Brownstown, IN 47220
(812) 358-3171
- -------------------------------------------------------------------------------
Avon Banking Center 7517 Beechwood Centre Road, Suite 300
Avon, IN 46123
(317) 272-7820
- -------------------------------------------------------------------------------
Plainfield Banking Center 2059 Hadley Road
Plainfield, IN 46168
(317) 837-520
- -------------------------------------------------------------------------------
Bedford Banking Center Stone City Mall
3300 West 16th Street
Bedford, IN 47421
(812) 275-7800
- -------------------------------------------------------------------------------
Bell Trace Branch 800 Bell Trace Circle
Bloomington, IN 47408
(812) 331-3575
- -------------------------------------------------------------------------------
Meadowood Branch 2455 Tamarack Trail
Bloomington, IN 47408
(812) 353-7722
- -------------------------------------------------------------------------------
Redbud Hills Branch 3211 E. Moores Pike
Bloomington, IN 47401
(812) 353-7720
- -------------------------------------------------------------------------------
The Bank owns its main office. It owns seven of its branch locations and leases
space for seven branches. The Bank also leases its Operations Center. The main
office contains approximately 18,656 square feet of space, and is occupied
solely by the Bank. The Bank's data processing center, and proof and checking
departments are located at the Operations Center, 5001 N. Walnut St.,
Bloomington, IN.
32
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than routine litigation
incidental to the business of the Company or the Bank, to which the Company or
the Bank is a party or of which any of its property is subject. Further, there
is no material legal proceeding in which any director, officer, principal
shareholder, or affiliate of the Company, or any associate of such director,
officer or principal shareholder, is a party, or has a material interest,
adverse to the Company.
None of the routine legal proceedings, individually or in the aggregate, in
which the Company or the Bank are involved are expected to have a material
adverse impact on the financial position or the results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 2001 to a vote of
security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
The information required under this item is incorporated by reference to page 48
of the Company's 2001 Annual Report to Shareholders under the caption
"Shareholder Information."
ITEM 6. SELECTED FINANCIAL DATA.
The information required under this item is incorporated by reference to pages
14 through 15 of the Company's 2001 Annual Report to Shareholders under the
caption "Five-Year Financial Summary."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required under this item is incorporated by reference to pages
16 through 25 of the Company's 2001 Annual Report to Shareholders under the
caption "Management's Discussion and Analysis."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
The information required under this item is incorporated by reference to pages
18 through 19 of the Company's Annual Report to Shareholders - Management's
Discussion and Analysis under the caption "Liquidity, Interest Sensitivity and
Disclosures about Market Risk."
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required under this item are
incorporated herein by reference to pages 26 through 47 of the Company's 2001
Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this item relating to directors is incorporated
by reference to the Company's 2001 Proxy Statement furnished to its shareholders
in connection with the annual meeting to be held April 25, 2002 (the "2001 Proxy
Statement"), under the caption "Other Information You Need to Make an Informed
Decision - Directors of the Company - Who is on our Board of Directors?" on
pages 5 through 8 and "Other Information You Need to Make an Informed Decision -
Executive Officers of the Company - Who are our Executive Officers?" on page 10,
and on page 18 under the caption "Section 16A - Beneficial Ownership Reporting
Compliance - Securities Ownership of Certain Beneficial Owners," which Proxy
Statement has been filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated by reference to the
Company's 2001 Proxy Statement, under the following captions: "Other Information
You Need to Make an Informed Decision - Directors of the Company - How is our
Board of Directors Paid?" on pages 8 through 9) , "Other Information You Need to
Make an Informed Decision - Executive Officers of the Company - How are our
Executive Officers Paid?" on pages 11 through 12, "Other Information You Need to
Make an Informed Decision - Compensation Committee Insider Participation" on
page 14 and "Other Information You Need to Make an Informed Decision - Five-Year
Total Shareholder Return" on page 15, which Proxy Statement has been filed with
the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required under this item is incorporated by reference to the
Company's 2001 Proxy Statement, under the caption "Other Information You Need to
Make an Informed Decision - Security Ownership of Management - How much stock do
our Executive Officers and Directors Own?" on pages 17 through 18 and "Other
Information You Need to Make an Informed Decision - Securities Ownership of
Certain Beneficial Owners" on page 18, which Proxy Statement has been filed with
the Commission.
34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated by reference to the
Company's 2001 Proxy Statement, under the caption "Certain Relationships and
Related Transactions" on page 14, which Proxy Statement has been filed with the
Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
Exhibit 13
Page Number
-----------
(a) 1. Financial Statements:
Independent auditor's report..................................13
Consolidated balances sheet at
December 31, 2001 and 2000...............................26
Consolidated statement of income, years ended
December 31, 2001, 2000 and 1999.........................27
Consolidated statement of shareholders equity,
years ended December 31, 2001, 2000 and 1999.............28
Consolidated statement of cash flows, years ended
December 31, 2001, 2000 and 1999.........................29
Notes to consolidated financial statements....................30
(a) 2. Financial statement schedules:
All schedules are omitted because they are not applicable or
not required, or because the required information is included
in the consolidated financial statements or related notes.
(a) 3. Exhibits:
Exhibit No: Description of Exhibit:
- ------------ ----------------------
3 (i) Monroe Bancorp Articles of Incorporation are
incorporated by reference to registrant's Form 10
filed November 14, 2000.
3 (ii) Monroe Bancorp Bylaws are incorporated by reference
to registrant's Form 10 filed November 14, 2000.
10 (i) 1999 Directors' Stock Option Plan of Monroe Bancorp
is incorporated by reference to registrant's Form 10
filed November 14, 2000.
10 (ii) 1999 Management Stock Option Plan of Monroe Bancorp
is incorporated by reference to registrant's Form 10
filed November 14, 2000.
35
10 (iii) Deferred Compensation Trust for Monroe Bancorp
is incorporated by reference to registrant's Form 10
filed November 14, 2000.
10 (iv) Monroe County Bank Agreement for Supplemental Death
or Retirement Benefits is incorporated by reference
to registrant's Form 10 filed November 14, 2000.
10 (v) Monroe Bancorp Thrift Plan is incorporated by
reference to registrant's Form 10 filed November 14,
2000.
10 (vi) Monroe Bancorp Employee Stock Ownership Plan is
incorporated by reference to registrant's Form 10
filed November 14, 2000.
13 2001 Annual Report to Shareholders (except for the
pages and information expressly incorporated by
reference in this Form 10-K, the Annual Report to
Shareholders is provided solely for the information
of the Securities and Exchange Commission and is not
deemed "filed" as part of this Form 10-K).
21 Subsidiary of the Registrant
(b) Reports on Form 8-K:
Monroe Bancorp filed a Form 8-K on November 14, 2001, to report a
press release issued the same day. The press release announced
the completion of the repurchase of 50,000 shares of the
Company's common stock to fund the Employee Stock Ownership Plan.
Pursuant to the requirements of Section 13 or 15(d) 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, on this 21 day of March
2002.
MONROE BANCORP
By: /s/ Mark D. Bradford
----------------------------------
Mark D. Bradford, President
and Chief Executive Officer
36
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity
- --------- --------
Date
- ----
/s/ Mark D. Bradford President, Chief Executive Officer
- ---------------------------------- (Principal Executive Officer) and Director
March 21, 2002
Mark D. Bradford
/s/ Gordon M. Dyott Executive Vice President, Chief Financial
- ---------------------------------- Officer (Principal Accounting Officer
March 21, 2002 and Principal Financial Officer)
Gordon M. Dyott
/s/ Bradford J. Bomba, Jr. M.D. Director
- ----------------------------------
March 21, 2002
Bradford J. Bomba, Jr. M.D.
/s/ Steven R. Crider Director
- ----------------------------------
March 21, 2002
Steven R. Crider
/s/ Timothy D. Ellis Director
- ----------------------------------
March 21, 2002
Timothy D. Ellis
/s/ Joyce Claflin Harrell Director
- ----------------------------------
March 21, 2002
Joyce Claflin Harrell
/s/ Paul W. Mobley Director
- ----------------------------------
March 21, 2002
Paul W. Mobley
/s/ Richard P. Rechter Director
- ----------------------------------
March 21, 2002
Richard P. Rechter
37