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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-31951
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MONROE BANCORP
(Exact name of registrant as specified in its charter)
Indiana 35-1594017
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
210 East Kirkwood Avenue
Bloomington, IN 47408
(Address of principal executive offices)
(Zip Code)
(812) 336-0201
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Outstanding Shares of Common Stock on October 31, 2002: 6,150,240
---------
MONROE BANCORP AND SUBSIDIARY
FORM 10-Q
INDEX
Page No.
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets........................3
Consolidated Condensed Statements of Income - Nine Months....4
Consolidated Condensed Statements of Income - Three Months...5
Consolidated Condensed Statement of Shareholders' Equity.....6
Consolidated Condensed Statements of Cash Flows..............7
Notes to Consolidated Condensed Financial Statements.........8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......18
Item 4. Controls and Procedures..........................................20
Forward Looking Statements...................................................20
Part II. Other Information:
Item 1. Legal Proceedings................................................22
Item 2. Changes In Securities............................................22
Item 3. Defaults Upon Senior Securities..................................22
Item 4. Submission of Matters to a Vote of Security Holders..............22
Item 5. Other Information................................................22
Item 6a. Exhibits........................................................22
Item 6b. Reports Filed on Form 8-K.......................................23
Signatures...................................................................24
Certification for Quarterly Report on Form 10-Q by Principal
Executive Officer............................................................25
Certification for Quarterly Report on Form 10-Q by Principal
Financial Officer............................................................26
Exhibit Index................................................................27
2
Item 1. Financial Statements
- ------- ---------------------
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(Dollars in thousands, except per share data)
September 30, December 31,
2002 2001
(Unaudited) (Audited)
--------------------------
Assets
Cash and due from banks .................................... $ 16,705 $ 17,276
Federal funds sold ....................................... -- --
------------------------
Cash and cash equivalents ........................... 16,705 17,276
Trading securities ......................................... 2,707 3,060
Investment securities
Available for sale ..................................... 37,560 17,821
Held to maturity ....................................... 63,448 67,569
------------------------
Total investment securities ....................... 101,008 85,390
Loans held for sale ...................................... 8,276 8,032
Loans, net of allowance for loan losses of $3,931 and $4,198 378,157 359,570
Premises and equipment ..................................... 11,923 11,633
Federal Home Loan Bank of Indianapolis stock, at cost ...... 1,882 1,534
Interest receivable and other assets ....................... 8,347 9,058
------------------------
Total assets ........................................... $ 529,005 $ 495,553
========================
Liabilities
Deposits
Noninterest-bearing .................................... $ 60,281 $ 55,034
Interest-bearing ....................................... 344,010 304,172
------------------------
Total deposits .................................... 404,291 359,206
Short-term borrowings ...................................... 39,474 58,212
Other borrowings ........................................... 36,088 31,785
Interest payable and other liabilities ..................... 5,646 5,666
------------------------
Total liabilities ...................................... 485,499 454,869
------------------------
Commitments and Contingent Liabilities
Shareholders' Equity
Common stock, no-par value
Authorized - 18,000,000 shares
Issued and outstanding -6,150,240 shares ............... 137 137
Additional paid-in capital ................................. 3,365 3,359
Retained earnings .......................................... 39,972 37,449
Accumulated other comprehensive income ..................... 625 336
Unearned ESOT shares ....................................... (593) (597)
------------------------
Total shareholders' equity .......................... 43,506 40,684
------------------------
Total liabilities and shareholders' equity ............. $ 529,005 $ 495,553
========================
See notes to consolidated condensed financial statements.
3
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Nine Months Ended
September 30,
----------------------
2002 2001
----------------------
Interest Income
Loans, including fees ............................... $ 18,758 $ 20,208
Trading securities ................................ 47 62
Investment securities
Taxable ......................................... 2,806 2,677
Tax exempt ...................................... 798 962
Federal funds sold ................................ 86 82
----------------------
Total interest income ........................... 22,495 23,991
----------------------
Interest Expense
Deposits ............................................ 6,798 9,948
Short-term borrowings ............................... 322 1,085
Long-term debt ...................................... 1,385 473
----------------------
Total interest expense .......................... 8,505 11,506
----------------------
Net Interest Income ...................................... 13,990 12,485
Provision for loan losses ........................... 957 545
----------------------
Net Interest Income After Provision for Loan Losses ...... 13,033 11,940
----------------------
Other Income
Trust fees .......................................... 710 651
Service charges on deposit accounts ................. 1,928 1,540
Commission income ................................... 606 503
Realized and unrealized losses on securities ........ (247) (408)
Gain on sale of loans ............................... 632 311
Other operating income .............................. 609 724
----------------------
Total other income .............................. 4,238 3,321
----------------------
Other Expenses
Salaries and employee benefits ...................... 6,529 5,510
Premises and equipment .............................. 1,790 1,447
Advertising ......................................... 475 386
Depreciation on directors' and executives' deferred
compensation plan ............................ (407) (356)
Other operating expense ............................. 1,817 1,580
----------------------
Total other expenses ............................ 10,204 8,567
----------------------
Income Before Income Tax ................................. 7,067 6,694
Income tax expense .................................. 2,348 2,321
----------------------
Net Income ............................................... $ 4,719 $ 4,373
======================
Basic earnings per share ................................. $ .77 $ .71
Diluted earnings per share ............................... .77 .71
See notes to consolidated condensed financial statements.
4
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
September 30,
--------------------
2002 2001
--------------------
Interest Income
Loans, including fees ........................ $ 6,215 $ 6,812
Trading securities ......................... 14 19
Investment securities
Taxable .................................. 990 799
Tax exempt ............................... 248 308
Federal funds sold ......................... 28 13
--------------------
Total interest income .................... 7,495 7,951
--------------------
Interest Expense
Deposits ..................................... 2,212 3,097
Short-term borrowings ........................ 106 252
Long-term debt ............................... 461 240
--------------------
Total interest expense ................... 2,779 3,589
--------------------
Net Interest Income ............................... 4,716 4,362
Provision for loan losses .................... 405 225
--------------------
Net Interest Income After Provision for Loan Losses 4,311 4,137
--------------------
Other Income
Trust fees ................................... 254 216
Service charges on deposit accounts .......... 671 490
Commission income ............................ 195 192
Realized and unrealized losses on securities . (88) (274)
Gain on sale of loans ........................ 239 81
Other operating income ....................... 223 193
--------------------
Total other income ....................... 1,494 898
--------------------
Other Expenses
Salaries and employee benefits ............... 2,225 1,945
Premises and equipment ....................... 595 481
Advertising .................................. 127 135
Depreciation on directors' and executives'
deferred compensation plan ............ (229) (259)
Other operating expense ...................... 612 551
--------------------
Total other expenses ..................... 3,330 2,853
--------------------
Income Before Income Tax .......................... 2,475 2,182
Income tax expense ........................... 818 760
--------------------
Net Income ........................................ $ 1,657 $ 1,422
====================
Basic earnings per share .......................... $ .27 $ .23
Diluted earnings per share ........................ .27 .23
See notes to consolidated condensed financial statements.
5
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Nine Months Ended September 30, 2002
(Unaudited)
(Dollars in thousands)
Unearned
Common Stock Accumulated Employee
------------------------ Additional Other Stock
Shares Paid In Comprehensive Retained Comprehensive Ownership
Outstanding Amount Capital Income Earnings Income Trust Shares Total
----------------------------------------------------------------------------------------------------
Balances, January 1, 2002 6,150,240 $ 137 $ 3,359 $37,449 $ 336 $ (597) $ 40,684
Comprehensive Income:
Net income for the period $ 4,719 4,719 4,719
Unrealized gains on securities 289 289 289
Cash dividend ($.36 per share) (2,196) (2,196)
ESOT shares earned 6 4 10
----------------------------------------------------------------------------------------------------
Balances, September 30, 2002 6,150,240 $ 137 $3,365 $ 5,008 $39,972 $ 625 $ (593) $43,506
====================================================================================================
See notes to consolidated condensed financial statements.
6
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
----------------------
2002 2001
----------------------
Operating Activities
Net income ........................................................... $ 4,719 $ 4,373
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses ........................................ 957 545
Depreciation and amortization .................................... 652 560
Deferred income tax ........................................... 100 256
Investment securities amortization ............................... 227 178
Securities gain .................................................. (198) (4)
Origination of loans held for sale ............................. (48,626) (28,198)
Proceeds from sale of loans held for sale ..................... 49,014 27,480
Gain on sale of loans held for sale .............................. (632) (311)
ESOT compensation ................................................ 10 7
Net change in:
Trading securities ............................................... 353 304
Interest receivable and other assets ............................. 511 (130)
Interest payable and other liabilities ........................... (20) 736
----------------------
Net cash provided by operating activities ................... 7,067 5,796
----------------------
Investing Activities
Purchases of securities available for sale ........................... (27,651) (3,529)
Proceeds from sales of securities available for sale ................. 5,420 63
Proceeds from paydowns and maturities of securities
available for sale ............................................ 3,018 9,670
Purchases of securities held to maturity ............................. (15,949) (312)
Proceeds from paydowns and maturities of securities held to maturity 19,903 10,313
Purchase of FHLB stock ............................................. (348) (93)
Net change in loans ................................................ (19,543) (51,236)
Purchases of premises and equipment ................................ (942) (1,103)
----------------------
Net cash used by investing activities ....................... (36,092) (36,227)
----------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits .. 16,733 16,099
Certificates of deposit ............................................ 28,352 4,179
Short-term borrowings ............................................ (18,738) (5,250)
Proceeds of long-term debt ......................................... 9,338 19,683
Repayment of long-term debt ........................................ (5,035) (2,048)
Cash dividends paid ................................................ (2,196) (2,023)
Repurchase of common stock ......................................... (571)
----------------------
Net cash provided by financing activities ................... 28,454 30,069
----------------------
Net Change in Cash and Cash Equivalents ................................... (571) (362)
Cash and Cash Equivalents, Beginning of Period ............................ 17,276 25,983
----------------------
Cash and Cash Equivalents, End of Period .................................. $ 16,705 $ 25,621
======================
Supplemental cash flow disclosures
Interest paid ........................................................ $ 8,558 $ 11,561
Income tax paid ...................................................... 2,360 2,260
See notes to consolidated condensed financial statements.
7
MONROE BANCORP AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
September 30, 2002
(Unaudited)
Note 1: Basis of Presentation
- -----------------------------
The consolidated financial statements include the accounts of Monroe Bancorp
(the "Company") and its wholly owned subsidiary, Monroe Bank, a state chartered
bank (the "Bank"). A summary of significant accounting policies is set forth in
Note 1 of Notes to Financial Statements included in the December 31, 2001,
Annual Report to Shareholders. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The interim consolidated financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
The interim consolidated financial statements at September 30, 2002, and for the
nine months ended September 30, 2002 and 2001, have not been audited by
independent accountants, but reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
such periods.
The consolidated condensed balance sheet of the Company as of December 31, 2001
has been derived from the audited consolidated balance sheet of the Company as
of that date. Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These consolidated condensed financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K annual report for 2001 filed with
the Securities and Exchange Commission.
The results of operations for the period are not necessarily indicative of the
results to be expected for the year.
8
Note 2: Earnings Per Share
- --------------------------
Earnings per share (EPS) were computed as follows (dollar amounts in thousands
except share data):
Nine months ended
-----------------
September 30, 2002 September 30, 2001
------------------ ------------------
Net income ........................ $ 4,719 $ 4,373
=========== ===========
Weighted average shares outstanding 6,150,240 6,145,025
Average unearned ESOT shares ...... (49,721) (8,051)
----------- -----------
Shares used to compute basic
earnings per share ....... 6,100,519 6,136,974
Effect of dilutive securities
stock options ............ 3,543 --
----------- -----------
Shares used to compute diluted
earning per share ........ 6,104,062 6,136,974
=========== ===========
Earnings per share, basic ......... $ .77 $ .71
Earnings per share, diluted ....... .77 .71
For the nine months ended September 30, 2002 and 2001, options to purchase
105,000 and 115,000 shares, respectively, were not included in the earnings per
share calculation because the exercise price exceeded the year to date average
market price.
Three months ended
------------------
September 30, 2002 September 30, 2001
------------------ ------------------
Net income ........................ $ 1,657 $ 1,422
=========== ===========
Weighted average shares outstanding 6,150,240 6,134,766
Average unearned ESOT shares ...... (48,381) (5,525)
----------- -----------
Shares used to compute basic
earnings per share ....... 6,101,859 6,129,241
Effect of dilutive securities
stock options ............ 6,655 --
----------- -----------
Shares used to compute diluted
earning per share ........ 6,108,514 6,129,241
=========== ===========
Earnings per share, basic ......... $ .27 $ .23
Earnings per share, diluted ....... .27 .23
For the three months ended September 30, 2001, options to purchase 115,000
shares were not included in the earnings per share calculation because the
exercise price exceeded the average market price for the quarter.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ------- -----------------------------------------------------------
General
- -------
Monroe Bancorp (the "Company") is a one-bank holding company formed under
Indiana law in 1984. The Company holds all of the outstanding stock of Monroe
Bank (the "Bank"), which was formed in 1892. Banking is the primary business
activity of the Company.
The Bank, with its primary offices located in Bloomington, Indiana, conducts
business from nineteen locations in Monroe, Jackson, Lawrence, and Hendricks
Counties, Indiana. Approximately 80 percent of the Bank's business is originated
in branches located in Monroe County and is concentrated in and around the city
of Bloomington.
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 personal 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.
Market Expansion
- ----------------
The Bank now has three branches in Hendricks County, west of Indianapolis. The
Avon and Plainfield branches opened in September and October 2001, respectively,
and a third branch opened in Brownsburg in May of 2002. As of September 30,
2002, the Bank had $36.4 million in deposits and $29.2 million in loans at the
Hendricks County branches.
The Bank's strategy in opening these branches is as follows:
o Hire experienced and established professionals from within the market. This
accelerates the Bank's ability to build name recognition and credibility in
the new market.
o Avoid the start-up expense associated with pursuing the mass retail market.
Instead open relatively low cost offices in professional buildings. Target
marketing efforts to the commercial real estate, residential mortgage, and
large depositor segments.
o Stress community involvement and business development activities supported
by the involvement of executives from the Company's primary market.
10
Critical Accounting Policies
- ----------------------------
The notes to the consolidated financial statements contain a summary of the
Company's significant accounting policies presented on pages 30 to 31 of the
annual report for calendar year 2001. Certain of theses policies are important
to the portrayal of the Company's financial condition, since they require
management to make difficult, complex or subjective judgments, some of which may
relate to matters that are inherently uncertain. Management believes that its
primary critical accounting policies are as follows:
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is a significant estimate that can and does change
based on management's assumptions about specific borrowers and applicable
economic and environmental conditions. The allowance for loan losses is
maintained through the provision for loan losses, which is a charge against
earnings. The amount provided for loan losses and the determination of the
appropriateness of the allowance are based on a continuous review of the loan
portfolio, including an internally administered loan "watch" list and an
independent loan review provided by an outside accounting firm (BKD, LLP). The
evaluation takes into consideration identified credit problems from individually
evaluated loans, as well as historical loss experience, adjusted for relevant
qualitative environmental factors, for loans evaluated collectively. Qualitative
environmental factors considered during the analysis include: national and local
economic trends, trends in delinquencies and charge-offs, trends in volume and
terms of loans (including concentrations within industries), recent changes in
underwriting standards, experience and depth of lending staff, and industry
conditions.
The Bank's methodology for assessing the appropriateness of the allowance
consists of several key elements including:
o the formula allowance related to historical losses on homogeneous pools of
loans
o specific allowances related to specifically identified loans
o the unallocated allowance attributed to qualitative environmental factors
Trading Activities
- ------------------
Trading activities are engaged in by the Company and consist of investments in
various mutual funds held in grantor trusts formed by the Company in connection
with a deferred compensation plan. Securities that are held principally for
resale in the near term are recorded in the trading assets account at fair
value. Gains and losses, both realized and unrealized, are included in other
income. Interest and dividends are included in net interest income.
Quoted market prices, when available, are used to determine the fair value of
trading instruments. If quoted market prices are not available, then fair values
are estimated using pricing models, quoted prices of instruments with similar
characteristics, or discounted cash flows.
Investment Securities
- ---------------------
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost. Debt securities not classified as
held to maturity or included in the trading account and marketable equity
securities not classified as trading are classified as available for sale.
Securities available for sale are carried at fair value with unrealized gains
and losses reported separately in accumulated other comprehensive income, net of
tax.
11
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
Loans held for sale
- -------------------
Loans held for sale are carried at the lower of aggregate cost or market. Market
is determined using the aggregate method. Net unrealized losses, if any, are
recognized through a valuation allowance by charges to income based on the
difference between estimated sales proceeds and aggregate cost.
Loans
- -----
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
Results of Operations
- ---------------------
Overview
- --------
Net income for the third quarter was $1.7 million compared with $1.4 million for
the same quarter last year, an increase of 16.5 percent. Basic and diluted
earnings per share were $0.27 for the three months ended September 30, 2002
compared to $0.23 for the three months ended September 30, 2001. Net income was
$4.7 million and $4.4 million for the nine-month periods ended September 30,
2002 and 2001, respectively, an increase of 7.9 percent. Basic and diluted
earnings per share were $0.77 for the nine months ended September 30, 2002,
compared to $0.71 for the nine months ended September 30, 2001.
Annualized return on average equity (ROE) for the third quarter of 2002
increased to 15.25 percent compared to 14.08 percent ROE for the third quarter
in 2001. The annualized return on average assets (ROA) was 1.24 percent for the
third quarter of 2002 compared with 1.21 percent for the same period in 2001.
For the nine-month periods ended September 30, 2002 and 2001, annualized ROE was
14.98 percent and 14.89 percent, respectively, while the annualized ROA was 1.22
percent and 1.30 percent, respectively.
The year to date earnings growth rate reflects strong growth in loans, fee
income and gains on mortgages sold in the secondary market offset by the impact
of the Bank's entry into Hendricks County and an increase in the provision for
loan losses. In addition to all of these factors, a gain on the sale of a
security also contributed to quarterly net income growth. Excluding the start-up
operation in Hendricks County, the Company generated a 16.4 percent increase in
net income for the third quarter 2002 compared to 2001, and an increase of 11.7
percent year to date.
As of September 30, 2002, year to date dividends paid were $0.36 per share,
compared to $0.33 per share for the same period in 2001, an increase of 9.1
percent. In keeping with management's strategy, the Company has increased the
dividend rate each year for more than 15 years. At September 30, 2002, the
annualized dividend yield was 3.6 percent compared to 4.0 percent at September
30, 2001. The decrease in yield occurred due to an increase in the market value
of the stock. At September 30, 2002, the closing market price of Monroe Bancorp
stock was $13.23 compared to $10.90 per share at September 30, 2001, an increase
of 21.4 percent.
Net Interest Income / Net Interest Margin
- -----------------------------------------
Net interest income is the primary source of the Company's earnings. It is a
function of the net interest margin and the volume of average earning assets.
Net interest income after the provision for loan losses was $4.3 million for the
three months ended September 30, 2002 compared to $4.1 million for the same
period in 2001,
12
an increase of 4.2 percent. Net interest income before the provision increased
to $4.7 million compared to $4.4 million, an increase of 8.1 percent. The
increase in net interest income can primarily be attributed to strong loan
growth. Average total loans for the third quarter of 2002 were $383.7 million
compared to $338.4 million for the third quarter of 2001, an increase of $45.3
million, or 13.4 percent. In April of 2002, the Bank securitized $9.9 million of
loans with the Federal Home Loan Mortgage Association (Freddie Mac). Without the
securitization, average 2002 third quarter loans would have grown 16.3 percent
over the third quarter of 2001. The increase was partially offset by an increase
to the provision for loan losses, which was $405,000 for the third quarter of
2002 compared to $225,000 for the third quarter of 2001. Credit quality remains
strong and delinquent loans as a percent of the total portfolio have decreased
to 1.25 percent at September 30, 2002 compared to 1.52 percent at September 30,
2001. However, the Bank has experienced an increase in loan charge offs this
year compared to last year, and an increase in loans internally classified and
non-accrual loans, as discussed further under "Classification of Assets,
Allowance for Loan Losses, and Nonperforming Loans." These factors, coupled with
significant growth in the loan portfolio, led management to increase the
provision in 2002.
The third quarter tax-equivalent net interest margin was 3.9 percent in 2002
compared to 4.2 percent in the third quarter of 2001. The decline in the margin
occurred primarily for two reasons. The Bank consciously obtained longer term
deposits and Federal Home Loan Bank of Indianapolis (FHLBI) advances for
asset/liability management purposes. These deposits/borrowings carry a higher
rate of interest than if the Bank had relied on short-term deposits and
borrowings to fund loan growth. Management believes that the longer term fixed
rate funding has reduced the Company's interest rate risk even though the
short-term effect is a decline in the margin. Also, during the third quarter of
2002, deposits grew more quickly than loans, and more funds were invested in
federal funds sold than during the third quarter of 2001, when loans grew faster
than deposits. The tax equivalent yield on earning assets decreased during the
third quarter of 2002 to 6.2 percent compared to 7.5 percent for the third
quarter of 2001. This was a reflection of loans repricing as the prime rate
decreased from 6.0 percent at the end of the third quarter of 2001 to 4.75
percent at the end of the third quarter of 2002. The average rate on interest
bearing liabilities also decreased, from 4.0 percent during the third quarter of
2001 to 2.6 percent for the third quarter of 2002, due to the declining interest
rate environment.
For the nine months ended September 30, 2002, net interest income after the
provision for loan losses was $13.0 million compared to $11.9 million for the
same period in 2001, an increase of $1.1 million, or 9.2 percent. Once again,
this growth resulted primarily from an increase in the average balance of loans
to $377.7 million for the first nine months of 2002 compared to $316.8 million
for the same period in 2001, an increase of $60.8 million or 19.2 percent. Total
interest income decreased to $22.5 million for the first nine months of 2002
from $24.0 million for the same period in 2001. Total interest expense also
decreased to $8.5 million during the first nine months of 2002 from $11.5
million for the first nine months of 2001. These decreases occurred because the
decline in the interest rate environment.
The increase in net interest income was also offset by an increase in the
provision for loan losses. During the first nine months of 2002, $957,000 was
added to the provision, compared to $545,000 during the same period in 2001.
Reasons for this increase were previously discussed in this section. The
tax-equivalent yield on earning assets decreased from 7.9 percent for the first
nine months of 2001 to 6.4 percent for the first nine months of 2002. The
average rate on interest bearing liabilities decreased to 2.8 percent for the
first nine months of 2002 from 4.4 percent for the same period in 2001. The
Company's net interest margin decreased to 4.0 percent for the first nine months
of 2002 compared to 4.2 percent in the prior year. Reasons for the decrease in
the margin year-to-date are the same as the reasons for the decrease in the
third quarter as discussed above.
Noninterest Income / Noninterest Expense
- ----------------------------------------
Total noninterest income increased $596,000 for the three months ended September
30, 2002 compared to the same period in 2001. Unrealized securities losses
during the third quarter of 2002 of $239,000 are included in "Realized and
unrealized losses on securities" on page 5 of the consolidated condensed
financial
13
statements and unrealized losses of $275,000 are included for the third quarter
of 2001. These unrealized losses and gains are comprised entirely of net
unrealized losses and gains on trading securities (mutual funds) held in a
grantor trust ("rabbi trust") in connection with the Company's Directors' and
Executives' Deferred Compensation Plans. These securities are held as trading
securities, hence, unrealized gains and losses are recognized on the income
statement. Any net unrealized loss is directly offset by a decrease to
directors' fee and executives' deferred compensation expense, and conversely,
any unrealized gain is offset by an increase to directors' fee/executives'
deferred compensation expense. This is included in the line item identified on
page 5 of the consolidated condensed financial statements as "Depreciation on
directors' and executives' deferred compensation plan." The activity in the
rabbi trust has no effect on the Company's net income.
Omitting the unrealized losses and gains on the rabbi trust from 2002 and 2001,
noninterest income increased $560,000 or 47.7 percent during the third quarter
of 2002 compared to the same period of 2001. This growth mainly occurred in the
following three areas: service charges, which increased $181,000 or 36.9 percent
due to the maturation of the Overdraft Protector product, gains on sales of
mortgages in the secondary market which increased $158,000 or 195.1%, primarily
due to low interest rates causing refinancing activity to increase, and a gain
on the sale of a security, which resulted in a $151,000 gain. Excluding both
unrealized and realized security gains, noninterest income still increased
$410,000, or 35.0 percent, a significant increase over third quarter 2001.
For the first nine months of 2002, noninterest income increased $917,000 or 27.6
percent over the same period for 2001. Omitting the unrealized losses from the
rabbi trust, noninterest income increased $949,000, or 25.4 percent. The
majority of these increases occurred in the following areas: service charges
which increased $388,000, or 25.2 percent, due to the maturation of the
Overdraft Protector product, gains on the sale of mortgages in the secondary
market which increased $321,000, or 103.2 percent, gains on sales of securities
which increased $193,000, and platform sales and brokerage commission income
which increased $103,000, or 20.5 percent.
Management does not anticipate that growth in the Overdraft Protector product
or gains on sales of mortgages in the secondary market will continue at their
current pace. Mortgage refinancing has increased significantly this year, due to
declining mortgage rates. Management also believes the growth rate of deposit
related fees, including the Overdraft Protector product, will increase at a rate
closer to the underlying growth in retail checking accounts in the future.
Total other noninterest expense increased $477,000 during the third quarter of
2002 compared to the same period in 2001. As previously discussed above, the net
unrealized losses on trading securities in the rabbi trust directly decreased
director fee expense in 2002 and 2001. Without the effect of the rabbi trust on
2002 and 2001, other noninterest expense increased $447,000 or 14.4 percent.
Salaries and employee benefits increased $280,000 or 14.4 percent primarily
because we have fully staffed our three Hendricks County branches now.
Commission expense also increased due to an increase in loan sale income and
platform and brokerage income. Premises and equipment expense also increased by
$114,000, or 23.7 percent, primarily due to the addition of the three Hendricks
County branches.
For the nine months ending September 30, 2002, noninterest expense increased
$1.6 million over the same period of 2001. Without the effect of the rabbi trust
unrealized losses on directors' fee/executives' deferred compensation expense,
noninterest expense increased $1.7 million, or 18.9 percent. As discussed above,
the bulk of this increase occurred in salaries and employee benefits, which
increased $1.0 million or 18.5 percent due to the increase in Hendricks County
staff plus increases in mortgage, platform sales and brokerage commission
expense. Premises and equipment expense increased $343,000, or 23.7 percent,
primarily due to the expansion in Hendricks County. The Bank also demolished an
older branch in Monroe County and built a larger branch in its place in February
2002, which contributed to the increase in occupancy expense. Other operating
expense increased $237,000, or 15.0 percent, primarily because the Bank
outsourced its proof
14
operations during the fourth quarter of 2001. This expense was partially offset
by a reduction in salaries when the Proof Department staff filled other open
positions within the Bank.
Financial Condition
- -------------------
Assets and Liabilities
- ----------------------
Total assets of the Company increased 6.8 percent, or $33.5 million at September
30, 2002 compared to December 31, 2001. As previously mentioned, deposit growth
exceeded loan growth during the first nine months of 2002. At September 30,
2002, total loans grew $18.6 million, or 5.0 percent over December 31, 2001.
This growth occurred despite loans with a balance of $9.5 million at September
30, 2002 being securitized with Freddie Mac in April of 2002. Without the
securitization, loans would have increased $28.1 million, or 7.5 percent. Total
investment securities increased by $15.6 million, or 18.3 percent, at September
30, 2002 compared to December 31, 2001, primarily because of the securities
mentioned above received from Freddie Mac in exchange for the securitized loans.
Deposits grew $45.1 million, or 12.6 percent during first nine months of 2002,
while short-term borrowings, repurchase agreements and federal funds purchased,
declined $18.7 million or 32.2 percent. The Bank had $21.9 million of federal
funds purchased at December 31, 2001 compared to $200,000 at September 30, 2002.
The strong growth in deposits offset the need for the Bank to purchase federal
funds. Other borrowings, primarily FHLBI advances, increased $4.3 million, or
13.5 percent during the first nine months of 2002.
Capital Resources
- -----------------
Shareholders' equity increased $2.8 million at September 30, 2002 compared to
December 31, 2001. This increase was a result of year-to-date net income of $4.7
million, dividends paid of $2.2 million and other comprehensive income (the net
change in the fair market value of the Company's available-for-sale securities
portfolio) of $289,000.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations: total risk adjusted capital,
Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk inherent in the entity's activities that are not part of the
calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At September 30, 2002 and
December 31, 2001, the Company and the Bank are categorized as well capitalized
and met all subject capital adequacy requirements. There are no conditions or
events since September 30, 2002 that management believes have changed the
Company's or Bank's classification.
15
The actual and required capital amounts and ratios are as follows:
Required for Adequate To Be Well
Actual Capital(1) Capitalized(1)
----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------
As of September 30, 2002
Total capital(1)(to risk-weighted assets)
Consolidated $ 46,802 12.7% $ 29,557 8.0% N/A N/A
Bank 46,761 12.8 29,327 8.0 $ 36,659 10.0%
Tier I capital(1)(to risk-weighted assets)
Consolidated 42,871 11.6 14,779 4.0 N/A N/A
Bank 42,830 11.7 14,664 4.0 21,995 6.0
Tier I capital(1)(to average assets)
Consolidated 42,871 8.1 21,140 4.0 N/A N/A
Bank 42,830 8.2 21,010 4.0 26,263 5.0
As of December 31, 2001
Total capital(1)(to risk-weighted assets)
Consolidated $ 44,530 13.3% $ 26,840 8.0% N/A N/A
Bank 44,217 13.3 26,578 8.0 $ 32,222 10.0%
Tier I capital(1)(to risk-weighted assets)
Consolidated 40,335 12.0 13,420 4.0 N/A N/A
Bank 40,064 12.1 13,289 4.0 19,933 6.0
Tier I capital(1)(to average assets)
Consolidated 40,335 8.4 19,229 4.0 N/A N/A
Bank 40,064 8.4 19,103 4.0 23,879 5.0
(1) As defined by regulatory agencies
Classification of Assets, Allowance for Loan Losses, and Nonperforming Loans
- ----------------------------------------------------------------------------
The Bank currently classifies loans internally to assist management in
addressing collection and other risks. These classified loans represent credits
characterized by the distinct possibility that some loss will be sustained if
deficiencies are not corrected. As of September 30, 2002, the Bank had $13.3
million of loans internally classified compared to $6.4 million at December 31,
2001. The increase in internally classified assets ($8.6 million) primarily
relates to four credits. One of the credits is in the process of an orderly
liquidation and the Bank expects to be substantially paid by the end of the
fourth quarter. The second credit had several notes which were delinquent at
September 30, 2002, however, none of these notes were more than 30 days
delinquent at that date. The third credit has one note under 30 days past due
but has demonstrated weak performance (the company is showing operating losses
and a declining cash flow). The last credit is under 30 days past due and a
workout strategy is being pursued.
The allowance for loan losses was $3.9 million, or 1.0 percent of total loans at
September 30, 2002, compared to $4.2 million, and 1.1 percent of total loans on
December 31, 2001. As of September 30, 2002, the Bank had $2.4 million loans
over 90 days past due, virtually unchanged from December 31, 2001. The Bank had
non-accrual loans totaling $1.8 million at September 30, 2002 compared to
$710,000 at December 31, 2001. The increase is largely a result of the softening
of economic conditions within the Bank's market coupled with a more proactive
stance on placing delinquent credits on nonaccrual status. At September 30,
2002, the Bank had $563,000 of loans 90 days or more past due but still
accruing, compared to $1.7 million at December 31, 2001. These decreased because
more of these loans were placed on nonaccrual status. Total delinquent loans
were
16
1.25 percent of total loans at September 30, 2002 compared to 1.52 percent at
September 30, 2001. Management attributes this decrease to ongoing contact
between loan officers and their customers, and prompt action when there are
reasonable indications of credit deterioration as well as the impact of net
charge offs described in the following paragraph.
During the third quarter of 2002, the Bank charged off loans totaling $660,000
compared to $203,000 charged off for the same period in 2001. Year to date, $1.2
million of loans have been charged off compared to $505,000 for the same period
in 2001. This increase, once again, was a result of the softening economic
conditions and management's more proactive stance on writing down loans.
Liquidity
- ---------
Liquidity refers to the ability of a financial institution to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals
and pay operating expenses. The primary sources of liquidity are cash,
interest-bearing deposits in other financial institutions, marketable
securities, loan repayments, increased deposits and total institutional
borrowing capacity.
Management believes that the Company has adequate liquidity for its short and
long-term needs. Short-term liquidity needs resulting from normal
deposit/withdrawal functions are provided by the Company by retaining a portion
of cash generated from operations and through utilizing federal funds and
repurchase agreements. Long-term liquidity and other liquidity needs are
provided by the ability of the Company to borrow from the Federal Home Loan Bank
of Indianapolis (FHLBI). FHLBI advances were $35.0 million at September 30, 2002
compared to $30.7 million at December 31, 2001. The Bank has excess borrowing
capacity at the FHLBI of $10.0 million as limited by a Board resolution. If the
Bank's borrowing capacity were not limited by the Board resolution, the Bank
would have excess borrowing capacity of $56.9 million. Management's primary
focus has been on increasing deposits to fund future growth, as is evidenced by
the strong growth in deposits during the first nine months of 2002, but the
Board may increase its resolution limit if the Bank needs additional liquidity.
The following discussion relates to the Consolidated Condensed Statements of
Cash Flows (page 7). During the first nine months of 2002, $7.1 million of cash
was provided by operating activities, compared to $5.8 million during the same
period in 2001. During the first nine months of 2002, $36.1 million was used by
investing activities, compared to $36.2 million for the first nine months of
2001. The primary use of funds in this category during 2002 has been the
purchase of securities, $27.7 million compared to $3.5 million during the first
nine months of 2001. In 2001, the primary use in this category was the net
change in loans, $51.2 million compared to $19.5 million during 2002. As
mentioned before, $9.8 million of loans were securitized with Freddie Mac and
held as securities which inflates securities purchases and reduces the net
change in loans this year. During the first nine months of 2002, $28.5 million
was provided by financing activities, primarily from growth in certificates of
deposit, compared to $30.1 million provided by financing activities during the
first nine months of 2001, primarily from proceeds of long-term debt (FHLBI
advances). Overall, net cash and cash equivalents decreased $571,000 during the
first nine months of 2002 compared to decreasing $362,000 during the same period
in 2001.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
17
The primary assets and liabilities of the Company are monetary in nature.
Consequently, interest rates generally have a more significant impact on
performance than the effects of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services. In a period of rapidly rising interest rates, the
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels. The Company
constantly monitors the liquidity and maturity structure of its assets and
liabilities, and believes active asset/liability management has been an
important factor in its ability to record consistent earnings growth through
periods of interest rate volatility.
Other
- -----
The Securities and Exchange Commission maintains a web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including Monroe
Bancorp (ticker symbol MROE). The address is http://www.sec.gov.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- ------- ----------------------------------------------------------
Market risk of the Bank encompasses exposure to both liquidity risk and interest
rate risk and is reviewed on an ongoing basis by management and quarterly by the
Asset/Liability Committee ("ALCO") and the Board of Directors.
Liquidity was addressed as part of the discussion entitled "Liquidity."
The Bank's interest sensitivity position at September 30, 2002 remained adequate
to meet its primary goal of achieving optimum interest margins while avoiding
undue interest rate risk.
The Bank's interest rate risk is measured by computing estimated changes in net
interest income and the net portfolio value ("NPV") of its cash flows from
assets and liabilities in the event of adverse movements in interest rates.
Interest rate risk exposure is measured using an interest rate sensitivity
analysis to determine the change in NPV in the event of hypothetical changes in
interest rates. Another method also used to enhance the overall process is
interest rate sensitivity gap analysis. This method is utilized to determine the
repricing characteristics of the Bank's assets and liabilities.
NPV represents the market value of portfolio equity and is equal to the market
value of assets minus the market value of liabilities. This particular analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and sustained 1 percent to 3 percent (100 - 300 basis point) increase or
decrease in interest rates. The Company's Board of Directors adopted an interest
rate risk policy which established a 10 percent maximum increase or decrease in
the NPV in the event of a sudden and sustained 2 percent (200 basis point)
increase or decrease in interest rates.
18
The following table represents the Bank's projected change in NPV for the
various rate change (rate shock) levels as of September 30, 2002:
Net Portfolio Value at September 30, 2002
-----------------------------------------
Change in Interest Rate Dollar Amount $ Change in Percent Change
(basis points) (in thousands) NPV in NPV
-------------- -------------- --- ------
+300 $ 59,815 $ 2,178 3.98%
+200 56,367 1,587 2.90
+100 55,656 876 1.60
0 54,780 -- --
-100 54,198 (1,188) (2.17)
-200 55,215 435 0.79
The following table represents the Bank's projected change in NPV for the
various rate shock levels as of December 31, 2001:
Net Portfolio Value at December 31, 2001
----------------------------------------
Change in Interest Rate Dollar Amount $ Change in Percent Change
(basis points) (in thousands) NPV in NPV
-------------- -------------- --- ------
+300 $ 58,855 $ (2,236) (3.66)%
+200 59,619 (1,472) (2.41)
+100 60,358 (733) (1.20)
0 61,091 -- --
-100 61,761 670 1.10
-200 61,974 883 1.45
Management believes a 200 basis point decrease is unlikely, therefore, we will
focus our discussion on the effects of a 100 basis point decrease and a 300
basis point increase.
The September 30, 2002 table above indicates that the Bank's estimated NPV would
be expected to increase by 398 basis points as of September 30, 2002 in the
event of a sudden and sustained 300 basis point increase in interest rates,
which is a change in direction from a decrease of 366 basis points at December
31, 2001. This would indicate that the Bank is now more asset sensitive as
opposed to being liability sensitive at December 31, 2001. In the event of
sudden and sustained 100 basis point decrease in prevailing interest rates, the
Bank's estimated NPV would be expected to decrease 217 basis points, which is a
change in direction from an increase of 110 basis points at December 31, 2001.
The reason for the change in direction of NPV is found in three areas. First,
while total deposits and borrowings increased by 4.6 percent from December 31,
2001 to September 30, 2002, non-interest bearing demand deposits grew by 9.5
percent. The value of these deposits increases with rising rates. Second,
balances in deposit categories which management believes will reprice at a
19
pace less than that of market rates in general (e.g. NOW accounts and money
market checking) increased by 7.8 percent between these two periods. Third,
interest earnings assets that will reprice during the next twelve months
increased by 9.6 percent, while interest bearing liabilities that reprice within
the next twelve months increased by only 3.6 percent. These three factors
contributed to a reduction in the Bank's overall liability sensitivity. Floors
on 1-4 family residential loans come into play when rates decrease 200 bps which
causes NPV to begin to increase again. As of September 30, 2002 the Company's
estimated changes in NPV were within the approved guidelines established by the
Board of Directors.
Computations of prospective effects of hypothetical interest rate changes are
based on a number of assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-off rates, and should not be relied upon
as indicative of actual results. These computations do not contemplate any
actions management may undertake in response to changes in interest rates. The
NPV calculation is based on the net present value of discounted cash flows
utilizing certain prepayment assumptions and market interest rates.
Certain shortcomings are inherent in the method of computing the estimated NPV.
Actual results may differ from that information presented in the table above
should market conditions vary from the assumptions used in preparation of the
table information. If interest rates remain or decrease below current levels,
the proportion of adjustable rate loans in the loan portfolio could decrease in
future periods due to refinancing activity. Also, in the event of an interest
rate change, prepayment and early withdrawal levels would likely be different
from those assumed in the table. Lastly, the ability of many borrowers to repay
their adjustable rate debt may decline during a rising interest rate
environment.
Item 4. Controls and Procedures.
- ------ -----------------------
(a) Evaluation of Disclosure Controls and Procedures. Monroe Bancorp's
principal executive officer and principal financial officer have
concluded that the Monroe Bancorp's disclosure controls and procedures
(as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934, as amended), based on their evaluation of these controls and
procedures as of a date within ninety (90) days prior to the filing
date of this Form 10-Q, are effective.
(b) Changes in Internal Controls. There have been no significant changes in
Monroe Bancorp's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the
evaluation thereof, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Forward-Looking Statements
- --------------------------
This release contains forward-looking statements about the Company which we
believe are within the meaning of the Private Securities Litigation Reform Act
of 1995. This release contains certain forward-looking statements with respect
to the financial condition, results of operations, plans, objectives, future
performance and business of the Company. Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or current
facts. They often include the words "believe," "expect," "anticipate," "intend,"
"plan," "estimate" or words of similar meaning, or future or conditional verbs
such as "will," "would," "should," "could" or "may" or words of similar meaning.
These forward-looking statements, by their nature, are subject to risks and
uncertainties. There are a number of important factors that could cause future
results to differ materially from historical performance and these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to: (1) competitive pressures among depository institutions;
(2) changes in the interest rate environment; (3) prepayment speeds, charge-offs
and loan loss provisions; (4) general economic
20
conditions, either national or in the markets in which the Company does business
(5) legislative or regulatory changes adversely affect the business of the
Company; and (6) changes in real estate values or the real estate markets.
Further information on other factors which could affect the financial results of
the Company are included in the Company's other filings with the Securities and
Exchange Commission.
21
Part II - Other Information
Item 1. Legal Proceedings.
- ------- ------------------
None.
Item 2. Changes in Securities.
- ------- ----------------------
None
Item 3. Defaults upon Senior Securities.
- ------- --------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote by Security Holders.
- ------- ----------------------------------------------------
None.
Item 5. Other Information.
- ------- ------------------
None.
Item 6a. 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, 2001.
3 (ii) Monroe Bancorp Bylaws are incorporated by reference to
registrant's Form 10 filed November 14, 2001.
10 (i) 1999 Directors' Stock Option Plan of Monroe Bancorp is
incorporated by reference to registrant's Form 10 filed
November 14, 2001.
10 (ii) 1999 Management Stock Option Plan of Monroe Bancorp is
incorporated by reference to registrant's Form 10 filed
November 14, 2001.
10 (iii) Deferred Compensation Trust for Monroe Bancorp is incorporated
by reference to registrant's Form 10 filed November 14, 2001.
10 (iv) Monroe County Bank Agreement for Supplemental Death or
Retirement Benefits is incorporated by reference to
registrant's Form 10 filed November 14, 2001.
10 (v) Monroe Bancorp Thrift Plan as amended and restated January
1, 2001
10 (vi) Monroe Bancorp Employee Stock Ownership Plan as amended and
restated January 1, 2001
99(i) Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99(ii) Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
22
Item 6b. Reports filed on Form 8-K.
- ------- --------------------------
Monroe Bancorp filed the following Forms 8-K:
o Filed July 23, 2002 to report the release of a summary
of second quarter earnings issued July 23, 2002
o Filed August 16, 2002 to report the Quarterly Financial
Statements (June 30, 2002) issued August 16, 2002.
Monroe Bancorp filed the following Form 8-K/A:
o Filed August 20, 2002 to amend the Quarterly Financial
Statement (June 30, 2002) to add the signature page.
23
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.
MONROE BANCORP
Date: November 13, 2002 By: /s/ Mark D. Bradford
----------------- ------------------------------
Mark D. Bradford, President and
Chief Executive Officer and
Principal Executive Officer
Date: November 13, 2002 By: /s/ Gordon M. Dyott
----------------- ------------------------------
Gordon M. Dyott, Exec. Vice
President, Chief Financial Officer
and Principal Financial Officer
24
Certification for Quarterly Report on Form 10-Q by Principal Executive Officer
------------------------------------------------------------------------------
I, Mark D. Bradford, President, Chief Executive Officer and Principal Executive
officer certify that:
1. I have reviewed this quarterly report on Form 10-Q of Monroe Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
-----------------
/s/ Mark D. Bradford
-------------------------------------
Mark D. Bradford
President and Chief Executive Officer
Principal Executive Officer
25
Certification for Quarterly Report on Form 10-Q by Principal Financial Officer
------------------------------------------------------------------------------
I, Gordon M. Dyott, Executive Vice President, Chief Financial Office/Principal
Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Monroe Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
-----------------
/s/ Gordon M. Dyott
-------------------------------------
Gordon M. Dyott
Executive Vice President, Chief
Financial Officer, Principal
Financial Officer
26
Exhibit Index
-------------
Exhibit
Number Description
- ------ -----------
3 (i) Monroe Bancorp Articles of Incorporation are incorporated by reference
to registrant's Form 10 filed November 14, 2001.
3 (ii) Monroe Bancorp Bylaws are incorporated by reference to registrant's
Form 10 filed November 14, 2001.
10 (i) 1999 Directors' Stock Option Plan of Monroe Bancorp is incorporated by
reference to registrant's Form 10 filed November 14, 2001.
10 (ii) 1999 Management Stock Option Plan of Monroe Bancorp is incorporated by
reference to registrant's Form 10 filed November 14, 2001.
10 (iii) Deferred Compensation Trust for Monroe Bancorp is incorporated by
reference to registrant's Form 10 filed November 14, 2001.
10 (iv) Monroe County Bank Agreement for Supplemental Death or Retirement
Benefits is incorporated by reference to registrant's Form 10 filed
November 14, 2001.
10 (v) Monroe Bancorp Thrift Plan Amended and Restated January 1, 2001
10 (vi) Monroe Bancorp Employee Stock Ownership Plan Amended and Restated
January 1, 2001
99(i) Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99(ii) Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
27