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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 (IRS Employer Identification No.)
of 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act).
Yes [ ] No [X]
Outstanding Shares of Common Stock on March 31, 2003: 6,150,240
---------
MONROE BANCORP AND SUBSIDIARY
FORM 10-Q
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets............................3
Consolidated Condensed Statements of Income - Three Months.......4
Consolidated Condensed Statement of Shareholders' Equity.........5
Consolidated Condensed Statements of Cash Flows..................6
Notes to Consolidated Condensed Financial Statements.............7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................10
Forward Looking Statements....................................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk........16
Item 4. Controls and Procedures...........................................18
Part II. Other Information:
Item 1. Legal Proceedings.................................................19
Item 2. Changes In Securities.............................................19
Item 3. Defaults Upon Senior Securities...................................19
Item 4. Submission of Matters to a Vote of Security Holders...............19
Item 5. Other Information.................................................19
Item 6a. Exhibits.........................................................19
Item 6b. Reports Filed on Form 8-K........................................20
Signatures....................................................................21
Certification for Quarterly Report on Form 10-Q by Principal
Executive Officer.........................................................22
Certification for Quarterly Report on Form 10-Q by Principal
Financial Officer.........................................................23
Exhibit Index.................................................................24
2
Part I. - Financial Information
- -------------------------------
Item 1. Financial Statements
- -----------------------------
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(Dollars in thousands, except per share data)
March 31, December 31,
2003 2002
(Unaudited)
------------------------
Assets
Cash and due from banks .................................... $ 16,057 $ 20,526
Federal funds sold ....................................... 12,700 --
----------------------
Cash and cash equivalents ........................... 28,757 20,526
Trading securities ......................................... 2,826 2,817
Investment securities
Available for sale ..................................... 49,992 43,033
Held to maturity ....................................... 52,108 57,929
----------------------
Total investment securities ....................... 102,100 100,962
Loans held for sale ........................................ 5,197 7,417
Loans, net of allowance for loan losses of $4,680 and $4,574 392,004 379,324
Premises and equipment ..................................... 11,732 11,793
Federal Home Loan Bank of Indianapolis stock, at cost ...... 2,124 1,882
Interest receivable and other assets ....................... 8,680 8,596
----------------------
Total assets ........................................... $ 553,420 $ 533,317
======================
Liabilities
Deposits
Noninterest-bearing .................................... $ 62,531 $ 60,476
Interest-bearing ....................................... 356,139 338,091
----------------------
Total deposits .................................... 418,670 398,567
Borrowings ................................................. 83,858 85,240
Interest payable and other liabilities ..................... 5,908 5,247
----------------------
Total liabilities ...................................... 508,436 489,054
----------------------
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 ................................. 3,372 3,368
Retained earnings .......................................... 41,435 40,619
Accumulated other comprehensive income ..................... 576 675
Unearned ESOT shares ....................................... (536) (536)
----------------------
Total shareholders' equity .......................... 44,984 44,263
----------------------
Total liabilities and shareholders' equity ............. $ 553,420 $ 533,317
======================
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)
Three Months Ended
March 31,
------------------
2003 2002
------------------
Interest Income
Loans, including fees ........................ $ 5,855 $ 6,380
Trading securities ........................... 13 16
Investment securities
Taxable .................................. 901 805
Tax exempt ............................... 234 279
Federal funds sold ......................... 22 31
------------------
Total interest income .................... 7,025 7,511
------------------
Interest Expense
Deposits ..................................... 1,804 2,310
Short-term borrowings ........................ 75 118
Other borrowings ............................. 426 456
------------------
Total interest expense ................... 2,305 2,884
------------------
Net Interest Income ............................... 4,720 4,627
Provision for loan losses .................... 405 276
------------------
Net Interest Income After Provision for Loan Losses 4,315 4,351
------------------
Other Income
Fiduciary activities ......................... 273 217
Service charges on deposit accounts .......... 634 595
Commission income ............................ 186 208
Securities losses ............................ (4) --
Unrealized loss on trading securities ........ (25) (13)
Net gains on loan sales ...................... 364 219
Other operating income ....................... 256 189
------------------
Total other income ....................... 1,684 1,415
------------------
Other Expenses
Salaries and employee benefits ............... 2,250 2,115
Net occupancy and equipment expenses ......... 638 595
Advertising .................................. 127 168
Depreciation in directors' deferred
compensation plan ........................ (19) --
Other operating expense ...................... 709 632
------------------
Total other expenses ..................... 3,705 3,510
------------------
Income Before Income Tax .......................... 2,294 2,256
Income tax expense ........................... 746 757
------------------
Net Income ........................................ $ 1,548 $ 1,499
==================
Basic earnings per share .......................... $ .25 $ .25
Diluted earnings per share ........................ .25 .25
See notes to consolidated condensed financial statements.
4
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Three Months Ended March 31, 2003
(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 (Loss) Trust Shares Total
--------------------------------------------------------------------------------------------------
Balances, January 1, 2003 6,150,240 $ 137 $ 3,368 $40,619 $ 675 $ (536) $ 44,263
Comprehensive Income:
Net income for the
period $ 1,548 1,548 1,548
Unrealized losses on
securities (net of tax
benefit) (99) (99) (99)
ESOT shares earned 4
4
Cash dividend ($.12 per
share) (732) (732)
--------------------------------------------------------------------------------------------------
Balances, March 31, 2003 6,150,240 $ 137 $3,372 $ 1,449 $41,435 $ 576 $ (536) $44,984
==================================================================================================
See notes to consolidated condensed financial statements.
5
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
--------------------
2003 2002
--------------------
Operating Activities
Net income ......................................................... $ 1,548 $ 1,499
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses ........................................ 405 276
Depreciation and amortization .................................... 228 214
Deferred income tax .............................................. (55) (27)
Investment securities amortization, net .......................... 116 65
Securities (gain) loss ........................................... (1) --
Origination of loans held for sale ............................ (17,642) (7,208)
Proceeds from sale of loans held for sale ..................... 20,226 13,028
Gain on sale of loans held for sale .............................. (364) (219)
ESOT compensation ................................................ 4 --
Net change in:
Trading securities ............................................. (9) (31)
Interest receivable and other assets ........................... 25 1,168
Interest payable and other liabilities ......................... 661 471
--------------------
Net cash provided by operating activities ................. 5,142 9,236
--------------------
Investing Activities
Purchases of securities available for sale ......................... (10,771) --
Proceeds from sales of securities available for sale ............... 1 109
Proceeds from paydowns and maturities of securities
available for sale .......................................... 3,588 1,175
Purchases of securities held to maturity ........................... -- (5,078)
Proceeds from paydowns and maturities of securities held to maturity 5,776 3,610
Purchase of FHLB stock ............................................. (242) (348)
Net change in loans ................................................ (13,085) (10,876)
Purchases of premises and equipment ................................ (167) (423)
--------------------
Net cash used by investing activities ..................... (14,900) (11,831)
--------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits 16,421 4,729
Certificates of deposit .......................................... 3,682 18,574
Borrowings ....................................................... (8,912) (23,612)
Proceeds of Federal Home Loan Bank advances ........................ 9,000 7,395
Repayment of Federal Home Loan Bank advances ..................... (1,470) (51)
Cash dividends paid .............................................. (732) (738)
--------------------
Net cash provided by financing activities ................. 17,989 6,297
--------------------
Net Change in Cash and Cash Equivalents ................................. 8,231 3,702
Cash and Cash Equivalents, Beginning of Period .......................... 20,526 17,276
--------------------
Cash and Cash Equivalents, End of Period ................................ $ 28,757 $ 20,978
====================
Supplemental cash flow disclosures
Interest paid ...................................................... $ 2,394 $ 2,946
Income tax paid .................................................... -- 150
See notes to consolidated condensed financial statements.
6
MONROE BANCORP AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2003
(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") and the Bank's wholly owned subsidiary MB Portfolio
Management, Inc. A summary of significant accounting policies is set forth in
Note 1 of Notes to Financial Statements included in the December 31, 2002,
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 March 31, 2003, and for the
three months ended March 31, 2003 and 2002, 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, 2002
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 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.
7
Note 2: Earnings Per Share
- --------------------------
The number of shares used to compute basic and diluted earnings per share was as
follows:
Three months ended
------------------
March 31, 2003 March 31, 2002
-------------- --------------
Net income (in thousands) ......... $ 1,548 $ 1,499
=========== ===========
Weighted average shares outstanding 6,150,240 6,150,240
Average unearned ESOT shares ...... (45,751) (49,185)
----------- -----------
Shares used to compute basic
earnings per share ......... 6,104,489 6,101,055
Effect of dilutive securities
Stock options ................. 5,637 2,042
----------- -----------
Shares used to compute diluted
earnings per share ........ 6,110,125 6,103,097
=========== ===========
Earnings per share basic .......... .25 .25
Earnings per share, diluted ....... .25 .25
Options to purchase 105,000 shares at March 31, 2002 were not included in the
earnings per share calculation because the exercise price exceeded the average
market price.
Note 3: Stock Options
- ---------------------
The Company has a stock-based employee compensation plan, which is described
more fully in Notes to Financial Statements included in the December 31, 2002
Annual Report to shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Table dollar amounts are in thousands except per share data.
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
---------------------------------------
Net income, as reported.................................. $ 1,548 $ 1,499
Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes.......................................... 1 4
---------------------------------------
Pro forma net income $ 1,547 $ 1,495
=======================================
Earnings per share:
Basic - as reported.................................. $ .25 $ .25
Basic - pro forma.................................... $ .25 $ .25
Diluted - as reported................................ $ .25 $ .25
Diluted - pro forma.................................. $ .25 $ .25
8
Note 4: Effect of Recent Accounting Pronouncements
- --------------------------------------------------
The Financial Accounting Standards Board ("FASB") adopted Statement of Financial
Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. This Statement amends FASB Statement No. 123,
Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation.
Under the provisions of SFAS No. 123, companies that adopted the fair value
based method were required to apply that method prospectively for new stock
option awards. This contributed to a "ramp-up" effect on stock-based
compensation expense in the first few years following adoption, which caused
concern for companies and investors because of the lack of consistency in
reported results. To address that concern, SFAS No. 148 provides two additional
methods of transition that reflect an entity's full complement of stock-based
compensation expense immediately upon adoption, thereby eliminating the ramp-up
effect.
SFAS No. 148 also improves the clarity and prominence of disclosures about the
proforma effects of using the fair value based method of accounting for
stock-based compensation for all companies - regardless of the accounting method
used - by requiring that the data be presented more prominently and in a more
user-friendly format in the footnotes to the financial statements. In addition,
SFAS No. 148 improves the timeliness of those disclosures by requiring that this
information be included in interim as well as annual financial statements. In
the past, companies were required to make proforma disclosures only in annual
financial statements.
The transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002.
The FASB has stated it intends to issue a new statement on accounting for
stock-based compensation and will require companies to expense stock options
using a fair value based method at date of grant. The implementation for this
proposed statement is not known.
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, formerly Monroe County 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 sixteen locations in Monroe, Jackson, Lawrence, and Hendricks
Counties, Indiana. Approximately 85 percent of the Bank's business is 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 annuities and other investment products.
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 Company now has three full service branch offices in eastern Hendricks
County, which is adjacent to Marion County and Indianapolis, Indiana. These
three branches are providing important balance sheet growth generating $37.6
million of loans at March 31, 2003, an increase of 13.9 percent over December
31, 2002, and $49.2 million of deposits, an increase of 45.1 percent over
December 31, 2002. The Bank's strategy in Hendricks County is as follows:
o Employ 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 high-potential 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.
Critical Accounting Policies
- ----------------------------
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements on pages 33 to 35 of the
December 31, 2002 Annual Report to Shareholders. Certain of these 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 has
identified the determination of the allowance for loan losses to be the
accounting area that requires the most subjective or complex judgments, and as
such could be the most subject to revision as new information becomes available.
10
The allowance for loan losses represents management's estimate of probable
credit losses inherent in the loan portfolio. Determining the amount of the
allowance for loan losses is considered a critical accounting estimate because
it requires significant judgment and the use of estimates related to the amount
and timing of expected future cash flows on impaired loans, estimated losses on
pools of homogeneous loans based on historical loss experience, and
consideration of current economic trends and conditions, all of which may be
susceptible to significant change. The loan portfolio also represents the
largest asset type on the consolidated balance sheet. Note 1 to the consolidated
financial statements in the December 31, 2002 Annual Report to Shareholders
describes the methodology used to determine the allowance for loan losses and a
discussion of the factors driving changes in the amount of the allowance for
loan losses is included in the Asset Quality and Provision for Loan Losses
section of the Management's Discussion and Analysis included in the December 31,
2002 Annual Report to Shareholders.
Results of Operations
- ---------------------
Overview
- --------
Net income for the first quarter 2003 was $1.5 million a 3.3 percent increase
over the same quarter last year. Basic and diluted earnings per share were $0.25
for the three months ended March 31, 2003, unchanged from the first quarter of
2002.
Annualized return on average equity (ROE) for the first quarter of 2003
decreased to 14.00 percent compared to 14.77 percent for first quarter of 2002.
The annualized return on average assets (ROA) was 1.15 percent for the first
quarter of 2003 compared with 1.22 percent for the same period in 2002.
The growth in net income shown between the first three months of 2003 and the
same period in 2002 can be primarily attributed to growth in our core lending
business and an increase in mortgage loan sales and fiduciary activities fees
(trust and asset management fees).
First quarter 2003 dividends paid were 0.12 per share, unchanged from the first
quarter of 2002. At March 31, 2003 the dividend yield was 3.63 percent compared
to 3.92 percent at March 31, 2002. The decrease in yield occurred due to an
increase in the market value of the stock. At March 31, 2003, the closing market
price of Monroe Bancorp stock was $13.24 per share compared to $12.25 per share
at March 31, 2002, an increase of 8.1 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.
The tax-equivalent net interest margin was 3.92 percent for the quarter ended
March 31, 2003, a decrease from 4.13 percent for the same quarter last year.
Average first quarter 2003 loan yields declined by 93 basis points over first
quarter 2002 yields and deposit yields declined 88 basis points in the same time
period. Average first quarter 2003 securities yields declined by 58 basis points
over the first quarter of 2002, and borrowed funds yields declined 21 basis
points. The decline in yields on borrowed funds was lower because approximately
half of the borrowed funds have longer-term maturities while the other half are
tied to the federal funds rate, which only declined 50 basis points from the
first quarter of 2002. Securities, which tend to have lower yields than loans,
also comprised a larger percentage of total earning assets during the first
quarter of 2003 (20.5 percent) compared to the first quarter of 2002 (18.4
percent).
Net interest income after the provision for loan losses was $4.31 million for
the three months ended March 31, 2003 compared to $4.35 million for the same
period in 2002, a decrease of 0.8 percent. The decrease results entirely from an
increase in the provision for loan losses, which was $405,000 for the first
quarter of 2003 compared to $276,000 for the first quarter of 2002. Net interest
income before the provision for loan losses increased $93,000, or 2.0 percent
during the first quarter of 2003 compared to the first quarter of 2002. Total
11
interest income decreased by $486,000, or 6.5 percent, for the first quarter of
2003 compared to the first quarter of 2002. This decrease was the result of a
decrease in the average tax-equivalent yield on earning assets to 5.8 percent
compared to 6.6 percent for the first quarter of 2002. This decrease reflects
loans repricing downward coupled with securities comprising a larger percentage
of earning assets. At March 31, 2003, the prime rate was 4.25 percent, compared
to 4.75 percent at March 31, 2002, which is why loans repriced at a lower rate.
The decline in yields on earning assets was more than offset by the decline in
interest expense. Interest expense decreased by $579,000 for the first quarter
of 2003 compared to the first quarter of 2002. This decrease resulted from a
decrease in the average rate paid on interest bearing liabilities to 2.2 percent
during the first quarter of 2003 from 2.9 percent for the same quarter in 2002.
Also contributing to the growth in net interest income was an increase in the
volume of loans. The average balance of loans grew to $396.0 million during the
first quarter of 2003 compared to $373.4 million for the same period in 2002, an
increase of $22.6 million, or 6.1 percent. The average balance of investment
securities also increased to $104.7 million in the first quarter of 2003
compared to $86.4 million in the first quarter of 2002. Average interest bearing
liabilities increased $32.4 million, or 8.2 percent, in the first quarter of
2003 compared to first quarter 2002.
Noninterest Income / Noninterest Expense
- ----------------------------------------
Total noninterest income increased $269,000 for the three months ended March 31,
2003 compared to the same period in 2002. Unrealized securities gains and losses
are comprised entirely of net unrealized gains and losses on trading securities
(mutual funds) held in a grantor trust ("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. Any unrealized or realized loss on securities held in the
rabbi trust net of any dividend or interest income earned on the securities in
the rabbi trust (included in net interest income) are directly offset by a
decrease to directors' fee expense, and conversely, any net realized or
unrealized gain combined with interest and dividends earned on the securities in
the trust are directly offset by an increase to directors' fee expense. These
offsets are included in the line item identified on page 4 of the consolidated
condensed financial statements as "Depreciation on directors' deferred
compensation plan." The activity in the rabbi trust has no effect on the
Company's net income, therefore, management believes a more accurate comparison
of current and prior year noninterest income can be made if the rabbi trust
realized and unrealized gains and losses are removed. Omitting the realized and
unrealized losses on rabbi trust securities in the amount of $30,000 and $13,000
from 2003 and 2002, respectively, noninterest income increased $286,000 or 20.0
percent during the first quarter of 2003 compared to the first quarter of 2002.
This growth mainly occurred in two areas. First, the Bank sells substantially
all fixed rate residential mortgage loans it originates on the secondary market.
Gains on these sales increased $145,000 during the first quarter of 2003
compared to 2002, or 66.2 percent, primarily because the Company expanded its
marketing and loan origination efforts to take advantage of the opportunity
created by decreases in interest rates which have prompted customers to
refinance their home mortgages. Management does not believe this same rate of
growth in gains on the sale of real estate loans will occur for the remainder of
2003 due to the likelihood of changing market conditions. Second, income from
fiduciary activities (trust and asset management) increased $56,000 or 25.8
percent primarily due to increased assets under management.
Total other noninterest expense increased $195,000 during the first quarter of
2003 compared to the same period in 2002. As previously discussed, the net
unrealized losses on trading securities in the rabbi trust directly decreased
director fee expense in 2003 and 2002. Omitting the Depreciation in Directors'
Deferred Compensation Plan of $(19,000) in 2003 and $0 in 2002 (which equal the
net of interest and dividends earned on the rabbi trust and the realized and
unrealized losses on the securities in the trust), other noninterest expense
increased $214,000 or 6.1 percent. Salaries and employee benefits increased
$135,000 or 6.4 percent primarily due to annual raises, an increase in average
full time equivalent employees and increases in commissions to mortgage lenders.
Occupancy expense increased $43,000, or 7.2 percent, primarily due to having one
additional branch in Hendricks County plus increased costs on a new branch
located in Monroe County which was opened mid-February 2002. Other operating
expense increased $77,000, or 10.1 percent primarily because loan collection
expense increased.
12
Financial Condition
- -------------------
Assets and Liabilities
- ----------------------
Total assets of the Company at March 31, 2003 increased 3.8 percent, or $20.1
million compared to December 31, 2002. As mentioned before, deposit growth
exceeded loan growth during the first quarter of 2003. At March 31, 2003, total
loans grew by $10.5 million, or 2.7 percent over December 31, 2002 balances.
Deposits grew by $20.1 million, or 5.0 percent during first three months of
2003, and borrowings (federal funds purchased, repurchase agreements and FHLB
advances) decreased $1.4 million.
Capital
- -------
Shareholders' equity increased $721,000 at March 31, 2003 compared to December
31, 2002. This increase was a result of year-to-date net income of $1.5 million,
dividends paid of $732,000 and other comprehensive loss, consisting solely of
the change (decrease) in net unrecognized gains in the Company's
available-for-sale securities portfolio of $99,000.
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 March 31, 2003 and December
31, 2002, the Company and the Bank are categorized as well capitalized and met
all subject capital adequacy requirements. There are no conditions or events
since March 31, 2003 that management believes have changed the Company's or
Bank's classification
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 March 31, 2003
Total capital(1)(to risk-weighted
assets)
Consolidated $ 49,073 13.0% $ 30,235 8.0% N/A N/A
Bank 48,853 13.0 29,994 8.0 $ 37,493 10.0%
Tier I capital(1)(to risk-weighted
assets)
Consolidated 44,393 11.8 15,117 4.0 N/A N/A
Bank 44,173 11.8 14,997 4.0 22,496 6.0
Tier I capital(1)(to average
assets)
Consolidated 44,393 8.2 21,656 4.0 N/A N/A
Bank 44,173 8.2 21,536 4.0 26,921 5.0
As of December 31, 2002
Total capital(1)(to risk-weighted
assets)
Consolidated $ 48,145 13.0% $ 29,681 8.0% N/A N/A
Bank 47,871 13.0 29,443 8.0 $ 36,804 10.0%
Tier I capital(1)(to risk-weighted
assets)
Consolidated 43,571 11.7 14,841 4.0 N/A N/A
Bank 43,297 11.8 14,722 4.0 22,082 6.0
Tier I capital(1)(to average
assets)
Consolidated 43,571 8.1 21,280 4.0 N/A N/A
Bank 43,297 8.1 21,395 4.0 26,743 5.0
(1) As defined by regulatory agencies
13
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 March 31, 2003, the Bank had $20.7 million
of loans internally classified compared to $21.4 million at December 31, 2002.
The allowance for loan losses was $4.7 million, or 1.18 percent of portfolio
loans (excluding loans held for sale) at March 31, 2003 compared to $4.6
million, or 1.19 percent, of portfolio loans at December 31, 2002. A portion of
classified loans are non-accrual loans. The Bank had non-accrual loans totaling
$7.6 million at March 31, 2003 compared to $3.6 million at December 31, 2002.
The increase in nonaccrual loans primarily resulted from the addition of $3.0
million of loans to one borrower and his related entity. At March 31, 2003, the
Bank had $1.9 million of loans 90 days or more past due but still accruing,
compared to $1.7 million at December 31, 2002.
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 $42.5 million at March 31, 2003
compared to $35.0 million at December 31, 2002. At March 31, 2003, the Bank had
excess borrowing capacity at the FHLBI of $2.5 million as limited by the
Company's Board resolution in effect at that date. If the Company's borrowing
capacity were not limited by the Board resolution, the Company would have excess
borrowing capacity of $47.2 million based on collateral. Additional advances
were obtained in the first quarter of 2003 to arbitrage five- year fixed rate
loan growth. Management's primary focus is on increasing deposits to fund future
growth, however, the Board increased the Company's FHLBI advances limit to $57
million in April 2003.
The main source used to meet parent company cash requirements continued to be
dividends from its subsidiary, the Bank. During the first three months of 2003,
dividends totaling $690,000 were declared and paid to the parent company by the
bank subsidiary. At March 31, 2003, the amount of dividends the bank subsidiary
can pay to the parent company without prior regulatory approval was $6.7 million
compared to $5.8 million at December 31, 2002. As discussed in the Company's
2002 Form 10-K, the Company's subsidiary bank is subject to regulation and,
among other things, may be limited in their ability to pay dividends or transfer
funds to the parent company. Accordingly, consolidated cash flows as presented
in the consolidated statements of cash flows on page 6 may not represent cash
immediately available to the parent company.
The following discussion relates to the Consolidated Condensed Statements of
Cash Flows (page 6). During the first three months of 2003, $5.1 million of cash
was provided by operating activities, compared to $9.2 million during the same
period in 2002. During the first three months of 2003, $14.9 million was used by
investing activities, compared to $11.8 million for the first three months of
2002. The primary use of funds in this category during 2003 and 2002 was the net
increase in loans, which totaled $13.1 million during the first three months of
2003 compared to $10.9 million during the same period in 2002. During the first
three months of 2003, $18.0 million of cash was provided by financing
activities, primarily from growth in noninterest-bearing demand,
interest-bearing demand and savings deposits, compared to $6.3 million provided
during the first three months of 2002. Overall, net cash and cash equivalents
increased $8.2 million during the first three months of 2003 compared to
increasing $3.7 million during the same period in 2002.
14
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.
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.
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 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 filings with the Securities and Exchange Commission.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- ------------------------------------------------------------------
Market risk of the Company 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 Company's interest sensitivity position at March 31, 2003 remained adequate
to meet the Company's 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.
Net portfolio value is the market value of the equity and is equal to the net
present value of the cash flows derived from its assets minus the net present
value of the cash flows associated with its 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 to 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.
The following table represents the Bank's projected change in NPV for the
various rate change (rate shock) levels as of March 31, 2003:
Net Portfolio Value at March 31, 2003
--------------------------------------
Change in Interest Rate Dollar Amount $ Change in % Change
(basis points) (in thousands) NPV in NPV
-------------- -------------- --- ------
+300 $ 59,923 $ 3,785 6.74%
+200 58,805 2,667 4.75
+100 57,568 1,430 2.55
0 56,138 --- ---
-100 54,338 (1,800) (3.21)
-200 59,151 3,013 5.37
16
The following table represents the Bank's projected change in NPV for the
various rate shock levels as of December 31, 2002:
Net Portfolio Value at December 31, 2002
----------------------------------------
Change in Interest Rate Dollar Amount $ Change in % Change
(basis points) (in thousands) NPV in NPV
-------------- -------------- --- ------
+300 $ 61,609 $ 2,342 3.95%
+200 60,980 1,713 2.89
+100 60,259 993 1.68
0 59,267 --- ---
-100 58,012 (1,254) (2.12)
-200 61,848 2,581 4.36
Management believes a 200 basis point (two percent) decrease in rates is highly
unlikely. Management also believes an increase in rates is more probable;
therefore, we will focus our discussion on the effects of a 100 basis point (one
percent) decrease in rates and an increase of 300 basis points (three percent).
The March 31, 2003 table above indicates that the Bank's estimated NPV would be
expected to increase by 6.74 percent in the event of a sudden and sustained 300
basis point (bp) increase in interest rates. The increase in the Bank's NPV
under this rate shock scenario is the result of the model's projected change in
asset and liability values. Specifically, the model projects the NPV of the
Bank's assets to decline by $17.6 million as a result of the fact that a
majority of the Bank's assets do not immediately reprice. However, the decline
in asset values is more than offset by a $21.4 million dollar decline in the NPV
of the cash flow associated with the Bank's liabilities. The decline in NPV of
the Bank's liabilities (which has a positive impact on the Bank's overall NPV)
is caused by the fact that the change in the rate paid on the Bank's liabilities
is projected to lag any upward interest rate change. The changes projected to
the NPV of the Bank's assets and liabilities combine to yield a $3.8 million
(6.74 percent) change in the net present value of the Bank. In the event of a
sudden and sustained 100 bp decrease in prevailing interest rates, the Bank's
estimated NPV would be expected to decrease 3.21 percent. The primary reason for
this decrease relates to the current low level of interest rates. While assets
can continue to reprice downward by the 100 basis points (bps) assumed in this
scenario, many of the Bank's liabilities (e.g. NOW, savings and certain money
market checking and savings accounts) no longer have the ability to reprice
downward by 100 bps. The Bank's liability sensitivity is greatly reduced by the
fact that these interest sensitive deposit products are approaching their
absolute floor rates (0.0 percent). Floors on one-to-four family residential
mortgages come into play when rates decrease 200 bps, which causes NPV to begin
to increase again. The direction of the change in NPV did not vary between March
31, 2003 and December 31, 2002, however, the magnitude of the changes increased,
primarily as the result of two factors. First, the Bank's earning assets
increased by $20.3 million, or 4.2 percent, during the three-month period.
Importantly, much of the growth was focused in categories that extremely rate
sensitive (e.g., Federal Funds sold). Second, assets that reprice within one
year increased by $27.7 million during the past three months while liabilities
that repriced during the next twelve months increased by only $60,000. These
balance sheet changes yield improved results in the event of rising rates and a
lower NPV in the case of a 100 bps rate drop. As of March 31, 2003, the
Company's estimated changes in NPV at all levels of interest rate changes 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.
17
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.
(c) Limitations on the Effectiveness of Controls. Monroe Bancorp's management,
including its principal executive officer and principal financial officer,
does not expect that Monroe Bancorp's disclosure controls and procedures
and other internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within
the company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under
all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
(d) CEO and CFO Certifications. Appearing immediately following the Signatures
section of this report there are Certifications of Monroe Bancorp's
principal executive officer and principal financial officer. The
Certifications are required in accord with Section 302 of the
Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). This Item of
this report, which you are currently reading is the information concerning
the Evaluation referred to in the Section 302 Certifications and this
information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics presented.
18
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, 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.
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 as Amended and Restated January 1,
2001 is incorporated by reference to registrant's Form 10-Q
filed November 13, 2002.
10 (vi) Monroe Bancorp Employee Stock Ownership Plan as Amended and
Restated January 1, 2001 is incorporated by reference to
registrant's Form 10-Q filed November 13, 2002.
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.
19
Item 6b. Reports filed on Form 8-K.
- -------- --------------------------
Monroe Bancorp filed an 8-K on January 21, 2003 to report a
press release of 2002 earnings and a summary of fourth quarter
2002 and calendar year 2002 financial information issued
January 21, 2003.
20
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: May 14, 2003 By: /s/ Mark D. Bradford
------------ -------------------------------
Mark D. Bradford, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2003 By: /s/ Gordon M. Dyott
------------ -------------------------------
Gordon M. Dyott, Exec. Vice
President, Chief Financial
Officer (Principal Financial
Officer)
21
Certification for Quarterly Report on Form 10-Q by Principal Executive Officer
------------------------------------------------------------------------------
I, Mark D. Bradford, President and Chief 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: May 14, 2003
/s/ Mark D. Bradford
--------------------
Mark D. Bradford
President and Chief Executive Officer
(Principal Executive Officer)
22
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: May 14, 2003
/s/ Gordon M. Dyott
--------------------
Gordon M. Dyott
Executive Vice President, Chief Financial
Officer, (Principal Financial Officer)
23
Exhibit Index
-------------
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.
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 as Amended and Restated January 1,
2001 is incorporated by reference to registrant's Form 10-Q
filed November 13, 2002.
10 (vi) Monroe Bancorp Employee Stock Ownership Plan as Amended and
Restated January 1, 2001 is incorporated by reference to
registrant's Form 10-Q filed November 13, 2002.
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.
24