U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to ________________________
Commission file number 333-38098
JAMES MONROE BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
VIRGINIA 54-1941875
- -------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
3033 WILSON BLVD., ARLINGTON, VIRGINIA 22201
(Address of Principal Executive Offices)
703-524-8100
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes____. No ____.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 25, 2000.
Common stock, $1 par value--841,219 shares outstanding
1
JAMES MONROE BANCORP, INC.
TABLE OF CONTENTS
Page. No.
Part I. Financial Information
Item. 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 3
Consolidated Income Statements for the three-months
and nine-months Ended September 30, 2000 and
September 30, 1999 4
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the nine-months ended
September 30, 2000 and September 30, 1999 5
Consolidated Statements of Cash Flows for the nine-months
ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II.Other Information
Item 1. Legal 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
2
PART 1. FINANCIAL INFORMATION
Item. 1. FINANCIAL STATEMENTS
JAMES MONROE BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
(Unaudited) (Audited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------- --------------
ASSETS
Cash and due from banks $ 4,903 $ 2,641
Federal funds sold 7,844 1,537
Securities available-for-sale at fair value 19,112 13,518
Loans, net of allowance for loan losses of $546,000 in 2000
and $363,000 in 1999 44,676 30,676
Bank premises and equipment, net 698 714
Accrued interest receivable 492 346
Other assets 384 186
-------- --------
$ 78,109 $ 49,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 20,429 $ 13,217
Interest-bearing deposits 49,972 29,602
-------- --------
Total deposits 70,401 42,819
Accrued interest payable and other liabilities 424 199
-------- --------
Total liabilities 70,825 43,018
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized 2,000,000 shares; issued and
outstanding 744,290 in 2000 and 742,590 in 1999 744 743
Capital surplus 6,699 6,683
Retained earnings (deficit) (2) (581)
Accumulated other comprehensive (loss) (157) (245)
-------- --------
Total stockholders' equity 7,284 6,600
-------- --------
$ 78,109 $ 49,618
======== ========
Notes to financial statements are an integral part of these statements.
3
JAMES MONROE BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------- -------- -------- --------
INTEREST INCOME:
Loans, including fees 1,081 556 $ 2,799 $ 1,353
Securities, taxable 267 158 735 408
Federal funds sold 99 87 181 180
-------- -------- -------- --------
Total interest income 1,447 801 3,715 1,941
INTEREST EXPENSE:
Deposits 622 267 1,429 607
Borrowed funds -- -- 3 --
-------- -------- -------- --------
Total interest expense 622 267 1,432 607
-------- -------- -------- --------
Net interest income 825 534 2,283 1,334
PROVISION FOR LOAN LOSSES 49 66 183 179
-------- -------- -------- --------
Net interest income after provision for loan losses 776 468 2,100 1,155
NONINTEREST INCOME:
Service charges and fees 49 33 145 66
Gain on sale of securities 2 -- 2
Other 28 13 59 30
-------- -------- -------- --------
Total noninterest income 79 46 206 96
NONINTEREST EXPENSES:
Salaries and wages 252 183 768 497
Employee benefits 33 23 107 69
Occupancy expenses 66 59 197 166
Equipment expenses 38 26 116 76
Other operating expenses 189 159 517 377
-------- -------- -------- --------
578 450 1,705 1,185
-------- -------- -------- --------
Income (loss) before income taxes 277 64 601 66
PROVISION FOR INCOME TAXES 22 -- 22 --
-------- -------- -------- --------
Net income (loss) $ 255 $ 64 $ 579 $ 66
======== ======== ======== ========
EARNINGS PER SHARE-BASIC $ 0.34 $ 0.09 $ 0.78 $ 0.09
======== ======== ======== ========
EARNINGS PER SHARE-DILUTED $ 0.33 $ 0.08 $ 0.76 $ 0.09
======== ======== ======== ========
Weighted-average diluted shares outstanding 770,207 762,658 766,437 761,470
======== ======== ======== ========
Notes to financial statements are an integral part of these statements.
4
JAMES MONROE BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Nine Months Ended September 30, 2000 and 1999
($ in thousands)
(Unaudited)
ACCUMULATED
OTHER
RETAINED COMPRE- COMPRE- TOTAL
COMMON CAPITAL EARNINGS HENSIVE HENSIVE STOCKHOLDERS'
STOCK SURPLUS (DEFICIT) (LOSS) INCOME EQUITY
------- ------- ------- ------- ------- -------
BALANCE, JANUARY 1, 1999 $ 738 $ 6,638 $ (707) $ (11) $ 6,658
Comprehensive (loss):
Net income 66 $ 66 66
Net change in unrealized (losses)
on available for sale securities,
net of deferred taxes of $98 (192) (192) (192)
-------
Total comprehensive (loss) $ (126)
=======
Issuance of common stock 5 45 -- -- 50
------- ------- ------- ------- -------
BALANCE, SEPTEMBER 30, 1999 $ 743 $ 6,683 $ (641) $ (203) $ 6,582
======= ======= ======= ======= =======
ACCUMULATED
OTHER
RETAINED COMPRE- COMPRE- TOTAL
COMMON CAPITAL EARNINGS HENSIVE HENSIVE STOCKHOLDERS'
STOCK SURPLUS (DEFICIT) INCOME/(LOSS) INCOME EQUITY
------- ------- ------- ------------- ------- --------
BALANCE, JANUARY 1, 2000 $ 743 $ 6,683 $ (581) $ (245) $ 6,600
Comprehensive income/(loss):
Net income 579 $ 579 579
Net change in unrealized (losses)
on available for sale securities,
net of deferred taxes of $45 88 88 88
-------
Total comprehensive income $ 667
=======
Exercise of stock options 1 16 17
------- ------- ------- ------- -------
BALANCE, SEPTEMBER 30, 2000 $ 744 $ 6,699 $ (2) $ (157) $ 7,284
======= ======= ======= ======= =======
Notes to financial statements are an integral part of these statements.
5
JAMES MONROE BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 579 $ 66
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 55 59
Provision for loan losses 183 179
Gain on sale of securities (2) --
(Increase) in accrued interest receivable (146) (186)
Amortization of bond premium 17 3
Accretion of bond discount (2) (3)
(Increase) in other assets (199) (72)
Increase/(Decrease) in accrued interest and other liabilities 225 (14)
-------- --------
Net cash provided by (used in) operating activities $ 710 $ 32
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale $ (6,972) (9,095)
Proceeds from calls and maturities of securities available for sale 1,485 730
Purchases of premises and equipment (70) (63)
(Increase) decrease in Federal funds sold (6,307) (411)
Net (increase) in loans (14,183) (14,363)
-------- --------
Net cash (used in) investing activities $(26,047) $(23,202)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, savings deposits
and money market accounts $ 13,027 $ 20,167
Net increase in time deposits 14,555 4,835
Proceeds from issuance of common stock 17 50
-------- --------
Net cash provided by financing activities $ 27,599 $ 25,052
-------- --------
Increase (decrease)in cash and due from banks $ 2,262 $ 1,882
CASH AND DUE FROM BANKS
Beginning 2,641 1,306
-------- --------
Ending $ 4,903 $ 3,188
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash payments for interest paid to depositors $ 1,345 $ 607
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,
unrealized (loss) on securities available for sale $ 133 $ (290)
======== ========
Notes to financial statements are an integral part of these statements.
6
JAMES MONROE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1--
Organization. James Monroe Bancorp, Inc. was incorporated under the laws of the
Commonwealth of Virginia on April 9, 1999 to be the holding company for James
Monroe Bank. James Monroe Bancorp acquired all of the shares of James Monroe
Bank on July 1, 1999 in a mandatory share exchange under which each outstanding
share of common stock of James Monroe Bank was exchanged for one share of James
Monroe Bancorp common stock. James Monroe Bank, a Virginia chartered commercial
bank, which is a member of the Federal Reserve System, is James Monroe Bancorp's
sole subsidiary. James Monroe Bank commenced banking operations on June 8, 1998,
and currently operates the main office in Arlington, Virginia, and has one
branch in Annandale, Virginia.
Basis of Presentation. In the opinion of management, the accompanying unaudited
consolidated financial statements of James Monroe Bancorp, Inc. and Subsidiary
(the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all the
information and footnotes required for complete financial statements. In the
opinion of management, all adjustments and reclassifications necessary for a
fair presentation have been included. Operating results for the nine-month
period ended September 30, 2000, are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. The unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended December 31,
1999.
Note 2--
Earnings Per Share. The following table discloses the calculation of basic and
diluted earnings per share for the three months and nine-months ended September
30, 2000 and 1999.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
2000 1999 2000 1999
------- ------- ------- -------
Net Income
Weighted average shares outsanding--basic 744,290 742,590 744,023 741,802
Common share equivalents for stock options 25,917 19,668 22,414 19,668
------- ------- ------- -------
Weighted average shares outsanding--diluted 770,207 762,258 766,437 761,470
======= ======= ======= =======
Earnings per share-basic $ 0.34 $ 0.09 $ 0.78 $ 0.09
======= ======= ======= =======
Earnings per share-diluted $ 0.33 $ 0.08 $ 0.76 $ 0.09
======= ======= ======= =======
7
Note 3--
Investment Securities. Amortized cost and carrying value (estimated market
value) of securities available-for-sale at September 30, 2000, and December 31,
1999, are summarized in the table that follows. The Company classifies all
securities as available-for-sale.
September 30, 2000
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
--------- -------- -------- --------
U.S. Government agencies and corporations $ 11,655 $ -- $ (223) $ 11,432
Mortgaged-backed securities 4,333 -- (29) 4,304
Corporate debt securities 3,017 14 -- 3,031
Equity securities 345 -- -- 345
-------- -------- -------- --------
$ 19,350 $ 14 $ (252) $ 19,112
======== ======== ======== ========
December 31, 1999
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
--------- -------- -------- --------
U.S. Government agencies and corporations $ 13,690 $ 5 $ (377) $ 13,318
Corporate debt securities -- -- -- --
Equity securities 200 -- -- 200
-------- -------- -------- --------
$ 13,890 $ 5 $ (377) $ 13,518
======== ======== ======== ========
Note 4
Loans. Major classifications of loans at September 30, 2000, and December 31,
1999, are summarized in the following table.
September 30, December 31,
($ in thousands) 2000 1999
------------- ------------
Commercial loans $ 20,435 $ 15,812
Real estate-Commercial 17,506 9,849
Real estate-1-4 family residential 3,579 1,003
Home equity loans 578 158
Consumer loans 3,124 4,217
-------- --------
45,222 31,039
Less allowance for loan losses (546) (363)
-------- --------
Net Loans $ 44,676 $ 30,676
======== ========
8
Note 4
Capital Requirement. A comparison of Bancorp's and its wholly-owned subsidiary
bank (James Monroe Bank) regulatory capital at September 30, 2000, compared to
minimum regulatory capital guidelines is shown in the table that follows.
Minimum Minimum To Be
Actual Guidelines "Well Capitalized"
------------------ ----------------- -----------------------
Total Risk-Based Capital
Company 17.2% 8.0% 10.0%
Bank 17.9% 8.0% 10.0%
Tier 1 Risk-Based Capital
Company 14.1% 4.0% 6.0%
Bank 16.6% 4.0% 6.0%
Tier 1 Leverage Ratio
Company 10.3% 3.0% 3.0%
Bank 10.4% 3.0% 3.0%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING STATEMENTS
This document contains forward looking statements within the meaning of the
Securities Exchange Act of 1934, as amended, including statements of goals,
intentions, and expectations as to future trends, plans, events or results of
Company operations and policies and regarding general economic conditions. These
statements are based upon current and anticipated economic conditions,
nationally and in the Company's market, interest rates and interest rate
policies, competitive factors, statements by suppliers of data processing
equipment and services, government agencies and other third parties, which by
their nature are not susceptible to accurate forecast, and are subject to
significant uncertainty. Because of these uncertainties and the assumptions on
which this discussion and the forward-looking statements are based, actual
future operations and results in the future may differ materially from those
indicated herein. Readers are cautioned against placing undue reliance on any
such forward-looking statement. The Company does not undertake to update any
forward-looking statement to reflect occurrences or events which may not have
been anticipated as of the date of such statements.
FINANCIAL OVERVIEW
The following discussion provides information about the results of operations
and financial condition, liquidity, and capital resources of James Monroe
Bancorp and should be read in conjunction with our consolidated financial
statements and footnotes thereto for the year ended December 31, 1999.
9
BALANCE SHEET
Total assets increased by $28 million from December 31, 1999 to September 30,
2000 ending the period at $78.1 million. The increase in assets occurred as a
result of a $27.6 million increase in deposits with noninterest-bearing deposits
increasing $7.2 million and interest-bearing deposits increasing $20.4 million.
With this growth in deposits, the Company was able to fund the $14.9 million
increase in loans, added $5.5 million to the securities portfolio, and increased
the Company's short-term liquidity position by $6.3 million. The Company
emphasizes deposit generation as much as loan generation. Thus to-date,
sufficient deposit growth has been available to fund loan demand.
RESULTS OF OPERATIONS
James Monroe Bancorp, Inc.
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------------- ---------------------------------
($ IN THOUSANDS EXCEPT SHARE DATA) 2000 1999 2000 1999
-------------- -------------- -------------- -------------
RESULTS OF OPERATIONS:
Total interest income $ 1,447 $ 801 $ 3,715 $ 1,941
Total interest expense 622 267 1,432 607
Net interest income 825 534 2,283 1,334
Provision for loan and lease losses 49 66 183 179
Other income 79 46 206 96
Noninterest expense 578 450 1,705 1,185
Income before taxes 277 64 601 66
Net income 255 64 579 66
PER SHARE DATA:
Earnings per share, diluted $ 0.33 $ 0.08 $ 0.76 $ 0.09
Weighted average shares outstanding 770,207 762,258 766,437 761,470
Book value (at period-end) $ 9.79 $ 8.95 9.79 8.95
Shares outstanding 744,290 742,590 744,290 742,590
PERFORMANCE RATIOS (ANNUALIZED):
Return on average assets 1.41% 0.58% 1.24% 0.24%
Return on average equity 14.21% 3.87% 11.28% 1.33%
Net interest margin 4.88% 5.19% 5.23% 5.28%
Efficiency Ratio 63.94% 77.59% 68.50% 82.87%
OTHER RATIOS:
Allowance for loan losses to total loans 1.21% 1.15%
Equity to assets 9.33% 13.81%
Nonperforming assets to total assets 0.1% 0% 0.1% 0%
Net charge-offs to total loans 0% 0% 0% 0%
Risk-Adjusted Capital Ratios:
Tier 1 16.6% 21.7%
Total 17.9% 22.7%
Leverage Ratio 10.4% 19.4%
10
For the quarter ended September 30, 2000, the Company earned $255,000
or $.33 per share compared with $64,000 of net income or $.08 per share for the
same period in 1999. With respect to performance ratios, this resulted in an
annualized return on average assets of 1.41% and a return on average equity of
14.21% for the quarter ended September 30, 2000.
For the nine-month period ended September 30, the Company earned
$579,000 compared with $66,000 for the same nine-month period in 1999. Earnings
per share were $.76, significantly higher than the $.09 earned for the same
period in 1999. Return on average assets was 1.23% and return on average equity
was 11.28% compared with .24% and 1.33%, respectively, for the same nine-month
period in 1999. The Company has experienced strong growth in assets and earnings
since it commenced operations in June 1998.
The Company continues to focus on managing a strong net interest margin
(5.23% vs. 5.28% for the nine-month periods in 2000 and 1999, respectively),
maintaining strong asset quality as demonstrated by the lack of charge-offs and
nonperforming loans to-date, and balancing cost control with the need to incur
costs to support the rapid growth the Company has experienced.
While the capital ratios shown in the aforementioned table exceed
regulatory minimum guidelines, in order to obtain additional capital which the
Company believes is necessary to support continued growth, the Company is
conducting an offering of up to 344,528 shares of common stock at a price of
$14.50 per share, with an oversubscription allocation of an additional 137,930
shares. The offering commenced in August 2000, and will end on November 15,
2000. On October 16, 2000, the Company accepted subscriptions for an aggregate
of 96,929 shares of common stock, and received the $1,407,324 aggregate
subscription price of such shares. As of October 25, 2000, the Company had
received additional subscriptions for 4,195 shares of common stock. Although the
Company anticipates that it will accept these subscriptions upon termination of
the offering, there can be no assurance that any additional shares will be sold.
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned
on assets and the interest paid on deposits and borrowings. Net interest income
is one of the major determining factors in a financial institution's performance
as it is the principal source of earnings. Table 1 presents average balance
sheets and a net interest income analysis for the quarter ended September 30,
2000, compared with the quarter ended September 30, 1999, and for the nine-month
period ended September 30, 2000, compared with the nine-months ended September
30, 1999. James Monroe Bancorp did not have any tax exempt income during any
period presented.
For the nine-month period ended September 30 as reflected in Table 1,
net interest income increased $1 million, or 71.7%, from the $1.3 million for
1999 to $2.3 million for the first nine-months of 2000. The increase was due
primarily to the increase in average total earning assets, and average loans in
particular. Total average earning assets increased by $24.5 million, or 72.5%,
from the first nine-months of 1999 to the same period of 2000, and the yield on
earning assets increased by 81 basis points reflecting increases in and
adjustments to interest rates on new and outstanding floating rate loans
resulting from 4 increases in the Company's prime rate since September 1999. The
Fed has raised rates six times totaling 175 basis points since they began
raising rates in June 1999. Average loans outstanding grew by $19.3 million, or
96.3% and the yield on such loans increased by 45 basis points. Also
contributing to the increase in earning assets on a period-to-period basis was
the increase in taxable securities which increased $6.2 million for the
nine-months ended September 30, 2000, as compared with the average for the
nine-months in 1999 and the yield on such securities, which increased 37 basis
points period to period.
11
Interest income increased $646,000 for the quarter ended September 30,
2000, to $1.5 million, a 80.6% increase as compared with the same quarter in
1999. This improvement was almost entirely the result of the increase in the
volume of loans and securities. Interest expense for the quarter ended September
30, 2000, was $622,000, an increase of approximately $355,000, or 133% over
interest expense for the same quarter of 1999. The increase is attributable
principally to a $20.7 million increase in average interest-bearing deposits.
Table 2 shows the composition of the net change in net interest income
for the periods indicated, as allocated between the change in net interest
income due to changes in the volume of average assets and the changes in net
interest income due to changes in interest rates. As the table shows, the
increase in net interest income for the nine-months ended September 30, 2000, as
compared to the nine-months ended September 30, 1999,is almost entirely due to
the growth in the volume of earning assets and interest-bearing liabilities. The
net interest margin for the nine-month to nine-month comparative periods held
relatively steady, declining slightly with a 5.23% net interest margin for the
nine-month period in 2000 compared with a 5.28% net interest margin for the same
period in 1999. The Company has been able to maintain a relatively consistent
margin during a period where the national prime rate has risen 4 times for a
cumulative increase of 1.75% since September 30, 1999.
12
TABLE 1
Consolidated Average Balances, Yields and Rates for the Nine-Months Ended
September 30, 2000 and 1999.
($ in thousands)
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
- -------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial $ 18,381 $ 1,305 9.48% $ 8,528 $ 612 9.59%
Commercial real estate 16,142 1,123 9.29 8,208 534 8.69
Consumer 4,734 372 10.50 3,261 207 8.48
-------------------------------------- ----------------------------------------
Total Loans 39,257 2,800 9.53 19,997 1,353 9.04
Taxable securities 15,147 734 6.47 8,972 408 6.07
Federal funds sold 3,878 181 6.23 4,824 180 4.98
-------------------------------------- ----------------------------------------
TOTAL EARNING ASSETS 58,282 3,715 8.51% 33,793 1,941 7.67%
Less allowance for loan losses (451) (211)
Cash and due from banks 3,440 1,888
Premises and equipment, net 719 490
Other assets 617 265
---------- -----------
TOTAL ASSETS $ 62,607 36,225
========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearning demand deposits $ 3,540 $ 56 2.11% $ 2,754 27 1.31%
Money market deposit accounts 19,594 683 4.66 12,322 371 4.03
Savings accounts 322 7 2.90 238 5 2.81
Time deposits 15,428 683 5.91 5,452 204 5.00
Borrowed funds 60 3 6.68 -- -- --
-------------------------------------- ----------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 38,944 1,432 4.91% 20,766 607 3.91%
-------------------------------------- ----------------------------------------
Net Interest Income and Net Yield
on Interest-Earning Assets $ 2,283 5.23% $ 1,334 5.28%
======================= =========================
Noninterest-bearing demand
deposits 16,550 8,721
Other liabilities 255 110
Stockholders' equity 6,858 6,628
----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 62,607 36,225
=========== =========
13
INTEREST INCOME
The following table indicates changes in interest income and interest
expense attributable to changes in average volume and average rates in
comparison with the same period in the preceding year. The change in interest
due to combined rate-volume variance has been allocated to rate and volume
changes in proportion to the absolute dollar amounts of the changes in each.
TABLE 2
Nine-Months Ended September 30, 2000
vs. September 30, 1999
--------------------------------------------
Increase Due to Change
or in Average:
-----------------------------
(Decrease) Volume Rate
--------------------------------------------
EARNING ASSETS:
Loans $1,447 $ 1,370 $ 77
Taxable securities 326 298 28
Federal funds sold 1 (4) 5
--------------------------------------------
Total interest income 1,774 1,664 110
INTEREST-BEARING LIABILITIES:
Interest-bearing demand
deposits 29 9 20
Money market deposit
accounts 312 247 65
Savings deposits 2 2 0
Time deposits 479 436 43
Borrowed funds 3 3 --
--------------------------------------------
Total interest expense 825 697 128
--------------------------------------------
Net Interest Income $ 949 $ 967 $ (18)
============================================
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based upon management's judgement as
to the adequacy of the allowance to absorb future possible losses. Since the
Company is a relatively young bank, and its asset quality to date has been high,
it has no history of loan losses. Except for one loan that was put on nonaccrual
status in the third-quarter, the Company also has not had any nonaccrual loans,
loans past due 90-days or more, restructured loans, other real estate owned or
foreclosed properties. At September 30, 2000, the one loan on nonaccrual status
is for approximately $55,000. There were no other loans which were performing
but as to which information known to us caused management to have serious doubts
as to the ability of the borrower to comply with the current loan repayment
terms. In determining the adequacy of the allowance, the value and adequacy of
the collateral is considered as well as the growth and composition of the
portfolio. Consideration is given to the results of examinations and evaluations
of the overall portfolio by senior management, external auditors, and regulatory
examiners. At the present
14
time the Company's policy is to maintain the allowance as a percentage of total
loans at approximately 1.20%. Management considers the allowance to be adequate
for the periods presented.
The accompany tables reflect the composition of the loan portfolio at
September 30, 2000, and September 30, 1999.
TABLE 3
The following table presents the activity in the allowance for loan and
lease losses for the nine-months ended September 30, 2000 and 1999.
Nine Months Ended
September 30,
-------------------
($ in thousands) 2000 1999
---- ----
Balance, January 1 $363 $132
Provision for loan losses 183 179
Loan charge-offs 0 0
Loan recoveries 0 0
---- ----
Net charge-offs 0 0
---- ----
Balance, September 30 $546 $311
==== ====
The following table shows the amounts of non-performing assets at the
dates indicated.
September 30, December 31,
($ in thousands) 2000 1999
------------- ------------
Nonaccrual loans $ 55 $ -0-
Loans past-due 30-days
or more -0- -0-
Restructured loans -0- -0-
Other real estate owned -0- -0-
---- -----
Total nonperforming assets $ 55 $ -0-
==== =====
15
TABLE 4
The following table shows the allocation of the allowance for loan
losses at the dates indicated. The allocation of portions of the allowance to
specific categories of loans is not intended to be indicative of future losses,
and does not restrict the use of the allowance to absorb losses in any category
of loans.
September 30,
-----------------------------------------------
($ in thousands) 2000 1999
-------------------------------------------------- ---------------------
Amount Percent Amount Percent
--------------------------------------------------------------------------
Commercial $ 250 45.8% $ 175 56.3%
Commercial real estate 200 36.6 115 37.0
Consumer 96 17.6 21 6.7
Other -0- -0- -0- -0-
----- ------- ------- ------
Balance End of Period $ 546 100% $ 311 100%
===== ======= ======== ======
TABLE 5
Table 5 shows the maturities of the loan portfolio and the sensitivity of loans
to interest rate fluctuations at September 30, 2000. Maturities are based on the
earlier of contractual maturity or repricing date.
($ in thousands) September 30, 2000
-------------------------------------------------------------
After One
Year
One Year or Through After
Less Five Years Five Years Total
----------- ---------- ---------- ---------
Commercial $ 13,909 $ 2,987 $ 1,521 $ 18,417
Government guaranteed
loans 191 1,021 317 1,529
Commercial real estate 6,089 11,518 243 17,850
Real estate mortgage 1,607 2,868 -0- 4,475
Consumer 2,483 468 -0- 2,951
--------- -------- -------- ---------
Total loans $ 24,279 $ 18,862 $ 2,081 $ 45,222
========= ======== ======== =========
Fixed Rate $ 9,710 $ 11,269 $ 2,081 $ 23,060
Variable Rate 14,569 7,593 -0- 22,162
--------- -------- -------- ---------
Total loans $ 24,279 $ 18,862 $ 2,081 $ 45,222
========= ======== ======== =========
LOANS
The loan portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At September 30,
2000, total loans were $45.2 million, a 66.8% increase from the $27.1 million of
loans at September 30, 1999. In general, loans are internally generated with the
exception of a small percentage of participation loans purchased from other
local community banks, and lending activity is confined to our market of
Northern Virginia. We do not engage in highly leveraged transactions or foreign
lending activities.
Loans in the commercial category, as well as commercial real estate
mortgages, consist primarily of short-term (five year or less final maturity)
and/or floating rate commercial loans made to small to medium-sized companies.
We do not have any agricultural loans in the portfolio. There are no substantial
loan concentrations to any one industry or to any one borrower.
16
Consumer loans consist primarily of secured installment credits to
individuals, residential construction loans secured by a first deed of trust,
home equity loans, or home improvement loans. The consumer portfolio represents
6.9% of the loan portfolio at September 30, 2000.
TABLE 6
The following table presents the composition of the loan portfolio by
type of loan at the dates indicated.
September 30, December 31,
($ in thousands) 2000 1999
------------- ------------
Commercial $ 18,906 $ 14,748
Government guaranteed
loans 1,529 1,064
Commercial real estate 17,506 11,010
Real estate mortgage loans 3,579 1,003
Consumer loans 3,652 3,175
Overdrafts 51 39
----------- ---------
Total Loans $ 45,222 $ 31,039
=========== =========
INVESTMENT SECURITIES
The carrying value of James Monroe Bancorp's securities portfolio increased $7.0
million to $19.1 million at September 30, 2000 from $12.1 million at September
30, 1999. From December 31, 1999 to September 30, 1999, the portfolio increased
$5.6 million. James Monroe Bancorp currently, and for all periods shown,
classifies its entire securities portfolio as Available-for-Sale. Increases in
the portfolio have occurred whenever deposit growth has outpaced loan demand and
the forecast for loan growth is such that the investment of excess liquidity in
investment securities (as opposed to short-term investments such as federal
funds) is warranted. In general, our investment philosophy is to acquire high
quality government agency securities or high-grade corporate bonds, with a
maturity of five years or less in the case of fixed rate securities. In the case
of mortgaged-backed securities, the policy is to invest only in those securities
whose average expected life is projected to be five years or less. To the extent
possible the Company attempts to "ladder" the maturities of such securities.
17
TABLE 7
The following table provides information regarding the composition of
our investment portfolio at the dates indicated.
At September 30, 2000 At December 31, 1999
------------------------- ---------------------------
Percent of Percent of
($ in thousands) Balance Total Balance Total
----------- ------------ ----------- -------------
INVESTMENTS AVAILABLE-FOR-SALE
(AT ESTIMATED MARKET VALUE):
U.S. Government Agency
Obligations $ 11,432 59.8% $ 13,318 98.5%
Mortgage-backed securities 4,304 22.5 -- 0.0
Corporate debt securities 3,031 15.9 -- 0.0
----------- ------------ ----------- -------------
$ 18,767 98.2 $ 13,318 98.5
Other investments 345 1.8 200 1.5
----------- ------------ ----------- -------------
Total $ 19,112 100.0% $ 13,518 100.0%
=========== ============ =========== =============
At September 30, 2000, we recorded a write-down of $238,500, or 1.2%,
to reflect the decline in the fair market value of the available for sale
securities, as compared with the original cost.
TABLE 8
The following table presents the book value amount and maturities of
the investment securities in the portfolio at September 30, 2000.
Years to Maturity
- --------------------------------------------------------------------------------------------------------------------------
Within Over 1 Over 5 Over
($ in thousands) 1 Year through 5 Years through 10 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AVAILABLE-FOR-SALE:
U.S. Government Agency $ 250 5.75% $10,905 5.81% $ 500 7.00% $ -- 0.00%
Mortgage-backed securities $ -- -- -- -- 3,418 6.91 915 6.80
Corporate bonds $ -- -- 3,017 7.39 -- --
-------- -------- ------- -------
Total Debt Securities
Available-for-Sale $ 250 5.75% $13,922 6.15% $3,918 6.02% $ 915 6.80%
======== ======== ======= =======
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objectives of asset and liability management are to provide
for the safety of depositor and investor funds, assure adequate liquidity, and
maintain an appropriate balance between interest sensitive earning assets and
interest bearing liabilities. Liquidity management involves the ability to meet
the cash flow requirements of customers who may be depositors wanting to
withdraw funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs.
18
We define liquidity for these purposes as the ability to raise cash
quickly at a reasonable cost without principal loss. The primary liquidity
measurement we utilize is called the Basic Surplus, which captures the adequacy
of our access to reliable sources of cash relative to the stability of our
funding mix of deposits. Accordingly, we have established borrowing facilities
with other banks (Federal funds) and the Federal Home Loan Bank as sources of
liquidity in addition to the deposits.
The Basic Surplus approach enables us to adequately manage liquidity
from both a tactical and contingency perspectives. At September 30, 2000, our
Basic Surplus ratios (net access to cash and secured borrowings as a percentage
of total assets was approximately 24% compared to the present internal minimum
guideline range of 7% to 10%.
Financial institutions utilize a number of methods to evaluate interest
rate risk. Methods range from the original static gap analysis (the difference
between interest sensitive assets and interest sensitive liabilities repricing
during the same period, measured at a specific point in time), to running
multiple simulations of potential interest rate scenarios, to rate shock
analysis, to highly complicated duration analysis.
One tool that we utilize in managing our interest rate risk is the
matched funding matrix depicted in the accompanying table. The matrix arrays
repricing opportunities along a time line for both assets and liabilities. The
longest term, most fixed rate sources are presented in the upper left hand
corner while the shorter term, most variable rate items, are at the lower left.
Similarly, uses of funds, assets, are arranged across the top moving from left
to right.
The body of the matrix is derived by allocating the longest fixed rate
funding sources to the longest fixed rate assets and shorter term variable
sources to shorter term variable uses. The result is a graphical depiction of
the time periods over which we expect to experience exposure to rising or
falling rates. Since the scales of the liability and assets sides are identical,
all numbers in the matrix would fall within the diagonal lines if we were
perfectly matched across all repricing time frames. Numbers outside the diagonal
lines represent two general types of mismatches: liability sensitive in time
frames when numbers are to the left of the diagonal line and asset sensitive
when numbers are to the right of the diagonal line.
As can be seen in Table 9, we are asset sensitive in the short term and
then become slightly liability sensitive. This is primarily caused by the
assumptions used in allocating a repricing term to nonmaturity deposits--demand
deposits, savings accounts, and money market deposit accounts. While the
traditional gap analysis and the matched funding matrix show a general picture
of our potential sensitivity to changes in interest rates, it cannot quantify
the actual impact of interest rate changes. The actual impact due to changes in
interest rates is difficult to quantify in that the administrative ability to
change rates on these products is influenced by competitive market conditions in
changing rate environments, prepayments of loans, customer demands, and many
other factors.
Thus, the Company utilizes simulation modeling or "what if" scenarios
to quantify the potential financial implications of changes in interest rates.
In practice, each quarter approximately 14 different "what if" scenarios are
evaluated, including 8 different "rate shock" scenarios. At September 30, 2000,
the following 12-month impact on net interest income is estimated to range from
a positive impact of 5% to a negative impact of 5% for the multiple scenarios.
In the next 12-month period the range of impact on net interest income is
estimated to be from a positive impact of 5% to a negative impact of 6%. The
Company believes this to be well within acceptable range given a wide variety of
potential interest rate change scenarios. This process is performed each quarter
to ensure the Company is not materially at risk to possible changes in interest
rates.
19
TABLE 9
Match Funding Matrix
James Monroe Bank
September, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS 60+ 36 - 59 24 - 35 12 - 23 10 - 11 7 - 9 4 - 6 2 - 3 1 MONTH O/N TOTAL
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES & 9,574 18,605 9,448 7,207 2,438 3,301 3,792 1,053 2,200 20,491 78,109
EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
60+ MONTHS 15,264 9,574 5,690 15,264
- ------------------------------------------------------------------------------------------------------------------------------------
36 - 59 6,325 6,325 Asset Sensitive 6,325
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
24 - 35 3,378 3,378 3,378
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
12 - 23 6,611 3,212 3,399 6,611
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
10 - 11 7,605 6,049 1,556 7,605
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
7 - 9 4,063 4,063 4,063
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
4 - 6 14,410 1,588 2,438 3,301 3,792 1,053 2,200 38 14,410
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
2 - 3 19,623 19,623 19,623
MONTHS
- ------------------------------------------------------------------------------------------------------------------------------------
1 MONTH 830 Liability Sensitive 830 830
- ------------------------------------------------------------------------------------------------------------------------------------
O/N 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 78,109 9,574 18,605 9,448 7,207 2,438 3,301 3,792 1,053 2,200 20,491 78,109
====================================================================================================================================
20
NONINTEREST INCOME AND EXPENSE
Noninterest income consist primarily of services charges on deposit
accounts and fees and other charges for banking services. Noninterest expense
consists primarily of salary and benefit costs and occupancy and equipment
expense. The following tables shows the detail for the quarters ended September
30, 2000 and 1999 and for the fiscal year ended December 31, 1999 and
seven-month period ended December 31, 1998.
TABLE 10
Nine-Months Ended September 30,
--------------------------------------
(Dollars in thousands) 2000 1999
------------------ -----------------
Services charges on deposit
accounts $ 145 $ 66
Cash management fees 27 9
Other fee income 34 21
------------------ -----------------
Total Noninterest
Income $ 206 $ 96
================== =================
The increase in noninterest income for the comparative periods is the
result of the continued growth of the Company and the expansion of products
resulting in fee income such as the increase in cash management fee income.
TABLE 11
The categories of noninterest expense that exceed 1% of operating revenue
are as follows:
Nine-Months Ended September 30,
-------------------------------------
(Dollars in thousands) 2000 1999
----------------- ------------------
Salaries and benefits $ 875 $ 566
Occupancy cost, net 313 242
Equipment expense 116 76
Professional fees 60 44
Data processing costs 159 101
State franchise tax 58 48
Other 124 108
-------------------------------------
Total Noninterest
Expense $ 1,705 $ 1,185
================= ==================
Noninterest expense increased $520,000 or 56% from $1,185 for the first
nine-months of 2000, as compared to the same period in 1999. Approximately half
of this increase is due to the operating cost of the Company's first branch
which was opened at the end of the year in 1999. The increase in salary and
benefit expense of $309,000 is primarily the result of the staff costs for the
new branch, the full effect for the nine-month period of several additional
personnel at the main office added during 1999, and merit increases for 2000.
Occupancy and equipment costs increased $71,000 and $40,000,
respectively, in the first nine-months of 2000 over the first nine-months of
1999. The increase is predominately due to the rent and hardware and software
costs of equipment the new branch. With respect to the $58,000 increase in data
21
TABLE 12
processing costs in the comparative nine-month periods, again is a result of the
growth in the number of accounts at the bank, one additional ATM, and the
addition of the debit card to the product line The increase in Other costs is a
combination of higher postage, supplies, and general operating expenses
resulting from a larger operation.
The following table indicates the amount of certificates of deposit of
less than $100,000 and $100,000 or more, and their remaining maturities.
Remaining Maturity
3 Months 4 to 6 7 to 12 Over 12
(Dollars in thousands) or Less Months Months Months Total
----------- ----------- -------- -------- --------
Certificates of deposit less than
$100,000 $ 1,145 $ 4,032 $ 3,207 $ 2,661 $ 11,045
Certificates of deposit of $100,000
or more 1,916 3,740 5,938 1,054 12,648
-------- -------- -------- ------- ---------
$ 3,061 $ 7,772 $ 9,145 $ 3,715 $ 23,693
======== ======== ======== ======= =========
CAPITAL MANAGEMENT
Management monitors historical and projected earnings, asset growth, as
well as its liquidity and various balance sheet risks in order to determine
appropriate capital levels. At September 30, 2000, stockholders' equity
increased $684,000 from the $6,600,000 of equity at December 31, 1999 reflecting
earnings of $579,000, an $88,000 improvement in the after-tax change in the fair
value of securities, and $17,000 which is the proceeds from the exercise of a
director stock option. As a result of the significant growth the Company has
experienced since its inception, management and the board of directors
determined that additional capital was required to support further growth. As a
result, the Company currently is in the process of raising additional capital.
The offering is for up to 344,528 shares of common stock at a price of $14.50
per share, with an over subscription allocation of an additional 137,930 shares.
The offering commenced in August 2000, and will end on November 15, 2000. On
October 25, 2000, the Company accepted subscriptions for an aggregate of 96,929
shares of common stock, and received the $1,405,470 aggregate subscription price
of such shares. As of October 25, 2000, the Company had received additional
subscriptions for 4,195 shares of common stock. Although the Company anticipates
that it will accept these subscriptions upon termination of the offering, there
can be no assurances that any additional shares will be sold.
James Monroe Bancorp has reported a steady improvement in earnings
since James Monroe Bank opened on June 8, 1998. Positive earnings were reported
in the ninth month of operations and culminated with $125,000 of earnings in
1999. Earnings for the first nine-months of 2000 were $579,000, nearly four
times the earnings level for the entire year of 1999. One of our initial
strategies was to restore the initial lost capital from the initial organization
costs of $254,000 and the accumulated earnings loss of $452,000 for 1998. As of
September 30, 2000, all but $2,000 of the losses have been recaputured. In
addition, the Company has fully utilized its net operating losses for tax
purposes.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Use Of Proceeds. On August 11, 2000, the Company's first registration
statement under the Securities Act of 1933, on Form SB-2 (No. 333-38098),
relating to its initial registered offering of common stock, $1.00 par value,
was declared effective by the Securities and Exchange Commission, and the
offering commenced. The offering related to an aggregate of up to 344,828 shares
of common stock, at an offering price of $14.50 per share, for an aggregate
offering price of $5,000,006. The Company also reserved the right to sell up to
an additional 137, 930 shares of common stock in the event that the offering was
oversubscribed, for an additional aggregate offering price of $1,999,985.
As of the date of this report, the offering has been extended until,
and the offering will terminate on, November 15, 2000. On October 16, 2000, the
Company accepted subscriptions for and sold 96,929 shares of common stock at the
offering price of $14.50 per share. Aggregate expenses to date of the offering
were $86,883, resulting in net proceeds of the offering to date of $1,318,587.
As of October 25, 2000, the Company has received, but has not accepted,
subscriptions for an additional 4,195 shares of common stock. Although the
Company anticipates that it will accept these subscriptions upon termination of
the offering, there can be no assurance that any additional shares will be sold.
No person or entity underwrote the Company's offering, which was made
through the efforts of the Company's directors and executive officers. None of
such directors or officers received any special compensation in connection with
the offering.
As of the date hereof, none of the proceeds of the offering have been
applied, other than investment in temporary investments pending application of
the proceeds. The Company anticipates contributing at least $1,000,000 of the
proceeds to its subsidiary bank at year-end. The remaining proceeds of the
offering will be retained by the Company and held in temporary investments
pending contribution to the bank.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
23
Item 6. Exhibits and reports on Form 8-K
Exhibits
Number Description
3(a) Articles of Incorporation of James Monroe Bancorp, as amended (1)
3(b) Bylaws of James Monroe Bancorp, (1)
10(a) Employment contract between James Monroe Bancorp and John R. Maxwell (1)
10(b) James Monroe Bancorp 1998 Management Incentive Stock Option Plan (1)
10(c) Monroe Bancorp 1999 Director's Stock Option Plan (1)
11 Statement re: Computation of Per Share Earnings
Please refer to Note 2 to the financial statements included in this report.
27 Financial Data Schedule
(1) Incorporated by reference to the exhibit of the same
number in the Company's registration statement on
Form SB-2 no. 333-38098.
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.
Date: October 25, 2000 BY: /s/ John R. Maxwell
---------------------------------------
John R. Maxwell, President & CEO
Date: October 25, 2000 BY: /s/ Richard I. Linhart
---------------------------------------
Richard I. Linhart, Executive Vice
President & Chief Operating Officer
24