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 June 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 __X__.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of June 30, 2000.
Common stock, $1 par value--744,290 shares outstanding
1
JAMES MONROE BANCORP, INC.
TABLE OF CONTENTS
Page. No.
Part I. Financial Information
Item. 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 3
Consolidated Income Statements for the three-months
and six-months Ended June 30, 2000 and
September 30, 1999 4
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the six-months ended
June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the six-months
ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits 23
PART 1. FINANCIAL INFORMATION
Item. 1. FINANCIAL STATEMENTS
JAMES MONROE BANCORP, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except share data)
(Unaudited) (Audited)
JUNE 30 DECEMBER 31,
2000 1999
----------- ------------
ASSETS
Cash and due from banks $ 5,491 $ 2,641
Federal funds sold 4,819 1,537
Securities available-for-sale at fair value 15,535 13,518
Loans, net of allowance for loan losses of $496 in 2000
and $363 in 1999 42,452 30,676
Bank premises and equipment, net 716 714
Accrued interest receivable 482 346
Other assets 293 186
-------- --------
$ 69,788 $ 49,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 23,015 $ 13,217
Interest-bearing deposits 39,529 29,602
-------- --------
Total deposits 62,544 42,819
Accrued interest payable and other liabilities 323 199
-------- --------
Total liabilities 62,867 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) (257) (581)
Accumulated other comprehensive (loss) (265) (245)
-------- --------
Total stockholders' equity 6,921 6,600
-------- --------
$ 69,788 $ 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 SIX MONTHS ENDED
----------------------- ------------------------
JUNE 30 JUNE 30 JUNE 30 JUNE 30
2000 1999 2000 1999
------- ------- ------- --------
INTEREST INCOME:
Loans, including fees $ 961 $ 457 $1,718 $ 797
Securities, taxable 244 128 468 250
Federal funds sold 42 45 82 94
------ ------ ------ ------
Total interest income 1,247 630 2,268 1,141
INTEREST EXPENSE:
Deposits 443 191 808 340
Borrowed funds 3 -- 3 --
------ ------ ------ ------
Total interest expense 446 191 811 340
------ ------ ------ ------
Net interest income 801 439 1,457 801
PROVISION FOR LOAN LOSSES 77 53 133 113
------ ------ ------ ------
Net interest income after provision for loan losses 724 386 1,324 688
NONINTEREST INCOME:
Service charges and fees 47 20 95 33
Other 16 11 32 17
------ ------ ------ ------
Total noninterest income 63 31 127 50
NONINTEREST EXPENSES:
Salaries and wages 263 169 516 314
Employee benefits 38 23 75 46
Occupancy expenses 64 53 131 108
Equipment expenses 35 27 78 50
Other operating expenses 175 108 327 217
------ ------ ------ ------
575 380 1,127 735
------ ------ ------ ------
Income (loss) before income taxes 212 37 324 3
PROVISION FOR INCOME TAXES -- -- -- --
------ ------ ------ ------
Net income (loss) $ 212 $ 37 $ 324 $ 3
====== ====== ====== ======
EARNINGS PER SHARE-BASIC $ 0.28 $ 0.05 $ 0.44 $ --
====== ====== ====== ======
EARNINGS PER SHARE-DILUTED $ 0.28 $ 0.05 $ 0.42 $ --
====== ====== ====== ======
Notes to financial statements are an integral part of these statements.
4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Six Months Ended June 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 3 $ 3 3
Net change in unrealized (losses)
on available for sale securities,
net of deferred taxes of $98 (110) (110) (110)
------
Total comprehensive (loss) $ (107)
======
Issuance of common stock 5 45 -- -- 50
----- ------- ------ ------ -------
BALANCE, JUNE 30, 1999 $ 743 $ 6,683 $ (704) $ (121) $ 6,601
===== ======= ====== ======= =======
ACCUMULATED
OTHER
RETAINED COMPRE- COMPRE- TOTAL
COMMON CAPITAL EARNINGS HENSIVE HENSIVE STOCKHOLDERS'
STOCK SURPLUS (DEFICIT) (LOSS) INCOME EQUITY
------ ------- --------- ------------- -------- -------------
BALANCE, JANUARY 1, 2000 $ 743 $ 6,683 $ (581) $ (245) $ 6,600
Comprehensive income/(loss):
Net income 324 $ 324 324
Net change in unrealized (losses)
on available for sale securities,
net of deferred taxes of $45 (20) (20) (20)
-----
Total comprehensive income $ 304
=====
Exercise of stock options 1 16 17
----- ------- ------ ------ -------
BALANCE, JUNE 30, 2000 $ 744 $ 6,699 $ (257) $ (265) $ 6,921
===== ======= ====== ====== =======
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)
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 324 $ 3
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 65 52
Provision for loan losses 133 113
Gain on sale of securities -- --
(Increase) in accrued interest receivable (136) (147)
Amortization of bond premium 1 3
Accretion of bond discount (7) (1)
(Increase) in other assets (124) (48)
Increase/(Decrease) in accrued interest and other liabilities 124 81
-------- --------
Net cash provided by (used in) operating activities $ 380 $ 56
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale $ (2,018) $ (4,987)
Proceeds from calls and maturities of securities available for sale -- 730
Purchases of premises and equipment (63) (58)
(Increase) decrease in Federal funds sold (3,282) 92
Net (increase) in loans (11,909) (10,092)
-------- --------
Net cash (used in) investing activities $(17,272) $(14,315)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, savings deposits
and money market accounts $ 11,262 $ 12,447
Net increase in time deposits 8,463 2,564
Proceeds from issuance of common stock 17 50
-------- --------
Net cash provided by financing activities $ 19,742 $ 15,061
-------- --------
Increase (decrease)in cash and due from banks $ 2,850 $ 802
CASH AND DUE FROM BANKS
Beginning 2,641 1,306
-------- --------
Ending $ 5,491 $ 2,108
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash payments for interest paid to depositors $ 768 $ 254
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,
unrealized (loss) on securities available for sale $ (28) $ (167)
======== ========
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 six-month period
ended June 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 six-months ended June 30,
2000 and 1999.
Three Months Ended Six Months Ended
June 30, June 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 20,228 19,356 20,228 19,356
------------------------- -------------------------------
Weighted average shares outsanding--diluted 764,518 761,946 764,251 761,158
========================= ===============================
Earnings per share-basic $ 0.28 $ 0.05 $ 0.44 $ 0.00
========================= ===============================
Earnings per share-diluted $ 0.28 $ 0.05 $ 0.42 $ 0.00
========================= ===============================
7
NOTE 3--
Investment Securities. Amortized cost and carrying value (estimated market
value) of securities available-for-sale at June 30, 2000, and December 31, 1999,
are summarized in the table that follows. The Company classifies all securities
as available-for-sale.
Gross Gross Estimated
Amortized Unrealized Unrealized Market
($ in thousands) Cost Gains Losses Value
--------------- -------------- --------------- --------------
U.S. Government agencies and corporations $ 11,655 $ -- $ (350) $ 11,305
Mortgaged-backed securities 2,444 4 (55) 2,393
Corporate debt securities 1,491 5 (4) 1,492
Equity securities 345 -- -- 345
-------- -------- -------- --------
$ 15,935 $ 9 $ (409) $ 15,535
======== ======== ======== ========
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 June 30, 2000, and December 31, 1999,
are summarized in the following table.
June 30, December 31,
($ in thousands) 2000 1999
-------- ------------
Commercial loans $ 18,792 $ 15,812
Real estate-Commercial 17,860 9,849
Real estate-1-4 family residential 2,986 1,003
Home equity loans 470 158
Consumer loans 2,840 4,217
-------- --------
42,948 31,039
Less allowance for loan losses (496) (363)
-------- --------
Net Loans $ 42,452 $ 30,676
======== ========
8
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, Inc. and should be read in conjunction with our consolidated financial
statements and footnotes thereto for the year ended December 31, 1999.
BALANCE SHEET
Total assets increased by $20.2 million from December 31, 1999 to June 30, 2000
ending the period at $69.8 million. The increase in assets occurred as a result
of a $19.7 million increase in deposits with noninterest-bearing deposits
increasing $9.8 million and interest-bearing deposits increasing $9.9 million.
With this growth in deposits, the Company was able to fund the $11.9 million
increase in loans, added $2.0 million to the securities portfolio, and increased
the Company's short-term liquidity position by $3.3 million. The Company
emphasizes deposit generation as much as loan generation. Thus to-date,
sufficient deposit growth has been available to fund loan demand.
9
RESULTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
($ IN THOUSANDS EXCEPT SHARE DATA) 2000 1999 2000 1999
----------- ----------- ---------- ----------
RESULTS OF OPERATIONS:
Total interest income $1,247 $630 $2,268 $1,141
Total interest expense 446 191 811 340
Net interest income 801 439 1,457 801
Provision for loan and lease
losses 77 53 133 113
Other income 63 31 127 71
Noninterest expense 575 380 1,127 756
Income before taxes 212 37 324 3
Net income 212 37 324 3
PER SHARE DATA:
Basic and diluted earnings per
share $0.28 $0.05 $0.42 $0.00
Weighted average shares
outstanding 764,830 740,201 764,429 741,402
Book value (at period-end) $9.30 $8.89
Shares outstanding 744,290 742,590
PERFORMANCE RATIOS:
Return on average assets 1.36% 0.42% 1.13% 0.02%
Return on average equity 12.51% 2.23% 9.68% 0.09%
Net interest margin 5.54% 5.39% 5.45% 5.39%
Efficiency Ratio 66.55% 80.85% 71.15% 86.70%
OTHER RATIOS:
Allowance for loan losses to total
loans 1.16% 1.07%
Equity to assets 9.92% 17.13%
Nonperforming assets to total
assets 0% 0% 0% 0%
Net charge-offs to total loans 0% 0% 0% 0%
Risk-Adjusted Capital Ratios:
Tier 1 14.7% 25.9%
Total 15.7% 26.9%
Leverage Ratio 11.5% 19.2%
For the quarter ended June 30, 2000, the Company earned $212,000 or
$.28 per share compared with $37,000 of net income or $.05 per share for the
comparable second quarter of 1999. With respect to performance ratios,
annualized return on average assets was 1.36% compared with .42% for the same
quarter in 1999 and the return on average equity was 12.51% for the quarter
ended June 30, 2000 compared with 2.23% in 1999.
10
For the six-month period ended June 30, the Company earned $324,000
compared with $3,000 for the same six-month period in 1999. Earnings per share
was $.42, significantly higher than the $.00 earned for the same period in 1999.
Return on average assets was 1.13% and return on average equity was 9.68%
compared with .02% and .09%, respectively, for the same six-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
(5.45% vs. 5.39% for the six-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.
The Company currently has filed a SB-2 with the Securities and Exchange
Commission which should become effective in the third quarter. The Company is
looking to sell additional shares and raise an additional $5 million in capital
with a proposed over-subscription of up to $2 million. The purpose of the sale
of stock is to raise capital necessary to support the continued growth of James
Monroe Bank and for other general corporate purposes.
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.
For the six-month period ended June 30, net interest income increased
$656,000, or 81.9%, from the $801,000 for 1999 to $1.5 million for the first
six-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 $23.8 million, or 79.2%, from the first six-months of 1999
to the same period of 2000, and the yield on earning assets increased by 82
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 $18.8 million, or 105.4% and the yield on such loans
increased by 41 basis points. Also contributing to the increase in earning
assets on a period-to-period basis was the increase in taxable securities which
increased $6.1 million for the six-months ended June 30, 2000, as compared with
the average for the six-months in 1999 and the yield on such securities, which
increased 46 basis points period to period.
Interest expense for the first six months of 2000 was $811,000 compared
with $340,000 in interest expense for the first six months of 1999. This
increase is predominately a result of the growth in the volume of
interest-bearing deposits although the average cost of interest-bearing deposits
increased 91 basis points. Table 2 shows the mix between growth in the volume of
deposits versus the increase due to the higher interest rate environment in
2000.
Table 2 also 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 six-months ended June 30, 2000, as
compared to the six-months ended June 30, 1999,is almost entirely due to the
growth in the volume of earning assets and interest-
11
bearing liabilities. The net interest margin for the six-month to six-month
comparative periods improved during the period of rising rates, resulting in a
5.45% net interest margin for the six-month period in 2000 compared with a 5.39%
net interest margin for the same period in 1999. The Company has been able to
consistently maintain a margin over 5% during a period where the national prime
rate has risen 4 times for a cumulative increase of 1.75% since September 30,
1999.
TABLE 1
Six Months Ended
June 30, 2000 June 30, 1999
- -------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------
ASSETS
Loans:
Commercial $17,865 $ 800 9.01% $ 7,405 $ 328 8.93%
Commercial real estate 15,048 703 9.39 7,356 339 9.29
Consumer 3,673 215 11.77 3,054 131 8.65
---------------- ----------------
Total Loans 36,586 1,718 9.44 17,815 798 9.03
Taxable securities 14,422 468 6.53 8,310 250 6.07
Federal funds sold 2,742 82 6.01 3,863 93 4.85
---------------- ----------------
TOTAL EARNING ASSETS 53,750 2,268 8.49% 29,988 1,141 7.67%
Less allowance for loan losses (415) (183)
Cash and due from banks 3,241 1,498
Premises and equipment, net 723 490
Other assets 544 265
------- -------
TOTAL ASSETS $57,843 $32,058
======= =======
LIABILITIES AND
STOCKHOLDERS'EQUITY
Interest-bearing demand deposits $ 3,403 $ 36 2.13% $ 2,978 $ 15 1.02%
Money market deposit accounts 19,374 437 4.54 10,833 211 3.93
Savings accounts 310 5 3.24 201 3 3.01
Time deposits 12,204 333 5.49 4,455 111 5.02
---------------- ----------------
TOTAL INTEREST-BEARING 35,291 811 4.62% 18,467 340 3.71%
LIABILITIES -----
Net Interest Income and Net Yield
on Earning Assets $1,457 5.45% $801 5.39%
============= ==============
Noninterest-bearing demand
deposits 15,541 6,770
Other liabilities 280 161
Stockholders'equity 6,731 6,660
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY $57,843 $32,058
======= =======
12
TABLE 2
EFFECT OF VOLUME RATE CHANGES ON NET INTEREST INCOME
Six Months Ended
June 30, 2000 vs June 30, 1999
------------------------------
Due to Change
in Average:
or -----------------
(Decrease) Volume Rate
------------------------------
EARNING ASSETS:
Loans $ 920 883 38
Taxable securities 218 197 20
Federal funds sold (11) (63) 52
------------------------------
Total interest income 1,127 1,017 110
INTEREST-BEARING LIABILITIES:
Interest-bearing demand
deposits 21 2 19
Money market deposit
accounts 226 189 37
Savings deposits 2 2 0
Time deposits 222 211 11
------------------------------
Total interest expense 471 404 68
------------------------------
Net Interest Income $ 656 $ 613 $ 43
==============================
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. 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 or loans charged off. 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 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.
13
The accompany tables reflect the composition of the loan portfolio at June 30,
2000, and June 30, 1999.
TABLE 3
The following table presents the activity in the allowance for loan and
lease losses for the six-months ended June 30, 2000 and 1999.
Six-Months Ended
June 30,
--------------------------
($ in thousands) 2000 1999
--------- --------
Balance, January 1 $363 $132
Provision for loan losses 133 113
Loan charge-offs 0 0
Loan recoveries 0 0
---- ----
Net charge-offs 0 0
---- ----
Balance, September 30 $496 $245
==== ====
The following table shows the amounts of non-performing assets at the
dates indicated.
June 30, December 31,
($ in thousands) 2000 1999
-------- ------------
Nonaccrual loans $ -0- $ -0-
Loans past-due 30-days
or more -0- -0-
Restructured loans -0- -0-
Other real estate owned -0- -0-
-------- ------------
Total nonperforming assets $ -0- $ -0-
======== ============
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.
June 30,
---------------------------------------------------
($ in thousands) 2000 1999
-------------------------------------------------- --------------------------
Percent Percent
Of Loans Of Loans
In In
Amount Category Amount Category
-------------------------------------------------------------------------------
Commercial $ 277 44% $ 137 51%
Commercial real estate 184 42 91 32
Consumer 35 7 17 14
Other -0- 7 -0- 3
--------- ---------- ---------- ----------
Balance End of Period $ 496 100% $ 245 100%
========= ========== ========== ==========
14
LOANS
The loan portfolio is the largest component of earning assets and
accounts for the greatest portion of total interest income. At June 30, 2000,
total loans were $42.9 million, a 38.4% increase from the $31.0 million of loans
at December 31, 1999. In general, loans are internally generated with the
exception of a small percentage of participation loans purchased from other
local community banks, and lending activity is confined to our market of
Northern Virginia. We do not engage in highly leveraged transactions or foreign
lending activities.
Loans in the commercial category, as well as commercial real estate
mortgages, consist primarily of short-term (five year or less final maturity)
and/or floating rate commercial loans made to small to medium-sized companies.
We do not have any agricultural loans in the portfolio. There are no substantial
loan concentrations to any one industry or to any one borrower.
Consumer loans consist primarily of secured installment credits to
individuals, residential construction loans secured by a first deed of trust,
home equity loans, or home improvement loans. The consumer portfolio represents
7.7% of the loan portfolio at June 30, 2000.
TABLE 5
The following table presents the composition of the loan portfolio by
type of loan at the dates indicated.
June 30, December 31,
($ in thousands) 2000 1999
------------- --------------
Commercial $ 17,724 $ 14,748
Government guaranteed
loans 1,067 1,064
Commercial real estate 17,860 11,010
Real estate mortgage loans 2,986 1,003
Consumer loans 3,300 3,175
Overdrafts 11 39
------------ ---------------
Total Loans $ 42,948 $ 31,039
============ ===============
INVESTMENT SECURITIES
The carrying value of James Monroe Bancorp's securities portfolio
increased $2.0 million to $15.5 million at June 30, 2000 from $13.5 million at
December 31, 1999. James Monroe Bancorp currently, and for all periods shown,
classifies its entire securities portfolio as Available-for-Sale. Increases in
the portfolio have occurred whenever deposit growth has outpaced loan demand and
the forecast for loan growth is such that the investment of excess liquidity in
investment securities (as opposed to short-term investments such as federal
funds) is warranted. In general, our investment philosophy is to acquire high
quality government agency securities or high-grade corporate bonds, with a
maturity of five years or less in the case of fixed rate securities. In the case
of mortgaged-backed securities, the policy is to invest only in those securities
whose average expected life is projected to be approximately five years or less.
To the extent possible the Company attempts to "ladder" the maturities of such
securities.
15
TABLE 6
The following table provides information regarding the composition of
our investment portfolio at the dates indicated.
At June 30, 2000 At December 31, 1999
----------------------------- ---------------------------
Percent of Percent of
($ in thousands) Balance Total Balance Total
-------------- ------------- ------------ -------------
INVESTMENTS AVAILABLE-FOR-SALE
(AT ESTIMATED MARKET VALUE):
U.S. Government Agency
Obligations $ 11,305 72.8% $13,318 98.5%
Mortgage-backed securities 2,393 15.4 - 0.0
Corporate debt securities 1,492 9.6 - 0.0
-------------- ------------- ------------ -------------
$ 15,190 97.8 $13,318 98.5
Other investments 345 2.2 200 1.5
-------------- ------------- ------------ -------------
Total $ 15,535 100.0% $13,518 100.0%
============== ============= ============ =============
At June 30, 2000, we recorded a write-down of $401,000, or 2.5%, to
reflect the decline in the fair market value of the available for sale
securities, as compared with the original cost.
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.
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 June 30, 2000, our Basic
Surplus ratios (net access to cash and secured borrowings as a percentage of
total assets was approximately 28% compared to the present internal minimum
guideline range of 10% to 12%.
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.
16
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 7, 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 June 30, 2000, the
following 12-month impact on net interest income is estimated to range from a
positive impact of 6% to a negative impact of 6% 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 10% to a negative impact of 10%. 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.
17
MATCH FUNDING MATRIX
JAMES MONROE BANK
JUNE 30, 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 &
Equity 9,018 16,825 7,803 6,349 2,233 3,284 2,163 2,519 844 18,779 68,817
60+ Months 12,626 9,018 3,608 12,626
36-59
Months 6,448 6,448 ASSET SENSITIVE 6,448
24-35
Months 6,249 6,249 6,249
12-23
Months 6,925 520 6,405 6,925
10-11
Months 3,772 1,398 2,374 3,772
7-9
Months 6,293 3,975 2,233 85 6,293
4-6
Months 8,581 3,199 2,163 2,519 700 8,581
2-3
Months 16,975 144 16,831 16,975
1 Month 1,948 LIABILITY SENSITIVE 1,948 1,948
O/N 0 0
- -------------------------------------------------------------------------------------------------------------------------
Total 69,817 9,018 16,825 7,803 6,349 2,233 3,284 2,163 2,519 844 18,779 69,817
=========================================================================================================================
18
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 show the detail for the six-month periods ended
June 30, 2000 and 1999.
TABLE 8
Six-Months Ended June 30,
-------------------------
($ in thousands) 2000 1999
-------- --------
Services charges on deposit
accounts $ 95 $ 33
Cash management fees 14 4
Other fee income 18 13
-------- --------
Total Noninterest
Income$ 127 $ 50
======== ========
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 and
service charges on deposit accounts.
TABLE 9
The categories of noninterest expense that exceed 1% of operating
revenue are as follows:
Six-Months Ended June 30,
-----------------------------
($ in thousands) 2000 1999
----------- ----------
Salaries and benefits $ 592 $ 361
Occupancy cost, net 131 108
Equipment expense 78 50
Professional fees 40 28
Data processing costs 111 69
State franchise tax 36 32
Other 139 87
------ ------
Total Noninterest
Expense $1,127 $ 735
====== ======
Noninterest expense increased $392,000 or 53% from $735,000 to $1.1
million for the first six-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 $283,000 is primarily the result of
the staff costs for the new branch, the full effect for the six-month period of
several additional personnel at the main office added during 1999, and merit
increases for 2000.
Occupancy and equipment costs increased $23,000 and $28,000,
respectively, in the first six-months of 2000 over the first six-months of 1999.
The increase is almost entirely due to the rent for the new branch plus the cost
of living escalator on the main office lease and the furniture, equipment,
computer and software for the new branch. With respect to the $42,000 increase
in data processing costs in the comparative six-month periods, again is a result
of the growth in the number of accounts at the
19
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.
TABLE 10
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 $ 1,357 $ 784 $ 3,074 $ 2,037 $ 7,252
Certificates of deposit of $100,000 or more 2,627 1,922 4,304 1,496 10,349
-------- -------- --------- ---------- ---------
$ 3,984 $ 2,706 $ 7,378 $ 3,533 $ 17,601
========= ======== ========= ========== =========
CAPITAL MANAGEMENT
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 six-months of 2000 were $324,000, nearly two and a
half times the earnings level for the entire year of 1999. One of the Company's
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 June 30, 2000, all but $257,000 of the losses have been recaputured.
At the current rate of earnings improvement, the Company expects to restore all
lost capital by the fourth quarter and expects to be in a fully-taxable
position. In addition, at the current pace of growth, should such growth
continue, the capital to be raised will be necessary to support the asset size
of the potential company and to support future branching strategies.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On April 20, 2000, the annual meeting of shareholders of the Company
was held for the purpose of (1) electing eleven (11) directors to serve until
the next annual meeting and until their successors are duly elected and
qualified; (2) considering and voting upon an amendment to the 1998 Management
Stock Option Plan to increase the number of shares reserved under the Plan from
66,880 shares to 91,880 shares.
The name of each director elected at the meeting, who constitute the
entire Board of Directors in office upon completion of the meeting, and the
votes cast for such persons are set forth below.
----------------------------------------------------------------------------------------------------------
Name For Against/Withheld Abstentions Broker Non-votes
----------------------------------------------------------------------------------------------------------
Fred A. Burroughs,III 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Dr. Terry L. Collins 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Norman P. Horn 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Dr. David C. Karlgaard 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Richard C. Litman 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
John R. Maxwell 459,894 18,750
----------------------------------------------------------------------------------------------------------
Dr. Alvin E. Nashman 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Helen L. Newman 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Thomas L. Patterson 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
David W. Pijor 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
Russell E. Sherman 474,894 3,750 -- --
----------------------------------------------------------------------------------------------------------
The vote by which the amendment to the Company's 1998 Management Stock
Option Plan, was approved, was as follows:
For: 421,494
Against: 35,750
Abstain: 21,400
Broker Non-votes: --
Item 5. Other Information
None
21
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: December 29, 2000 BY: /s/John R. Maxwell
------------------------------
John R. Maxwell, President & CEO
Date: December 29, 2000 BY: /s/ Richard I. Linhart
-----------------------------
Richard I. Linhart, Executive Vice
President & Chief Operating Officer
22