U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2006
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________________ to ___________________
Commission file number 000-32641
JAMES MONROE BANCORP, INC.
(Exact Name of Registrant 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)
703-707-8855
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_].
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company as defined in
Rule12b-2 of the Securities Exchange Act. Yes [_]. No [X].
The number of shares of the registrant's common stock, $1 par value, as of May
5, 2005 is 6,073,370.
1
JAMES MONROE BANCORP, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2006
December 31, 2005, and March 31, 2005 3
Consolidated Statements of Income for the three
months ended March 31, 2006 and 2004 4
Consolidated Statements of Changes in
Stockholders' Equity for the three months
ended March 31, 2006 and 2005 5
Consolidated Statements of Cash Flows for the
nine months ended March 31, 2006 and 2005 6
Notes to Interim Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 29
Item 4. Controls and Procedures 29
Part II. Other Information
Item 1. Legal Proceedings 30
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security
Holders 30
Item 5. Other Information 30
Item 6. Exhibits 30
2
PART I. Financial Information
Item 1. Financial Statements
JAMES MONROE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2006, December 31, 2005 and March 31, 2005
(Dollars in thousands, except share data)
(Unaudited) (Unaudited)
MARCH 31, DECEMBER 31, MARCH 31,
2006 2005 2005
----------- ------------ -----------
ASSETS
Cash and due from banks $ 15,568 $ 19,960 $ 20,569
Interest bearing deposits in banks 155 24 554
Federal funds sold 8,000 5,968 2,040
Securities available for sale, at fair value 117,285 118,986 142,279
Loans held for sale 1,203 2,299 3,224
Loans:
Loans, net of unearned income 398,240 378,491 291,600
Allowance for loan losses (4,127) (3,920) (3,223)
-------- -------- --------
Loans, net 394,113 374,571 288,377
Bank premises and equipment, net 2,102 2,226 2,421
Accrued interest receivable 2,584 2,392 2,454
Other assets 3,861 3,495 2,709
-------- -------- --------
TOTAL ASSETS $544,871 $529,921 $464,627
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing deposits $115,943 $106,831 $108,502
Interest bearing deposits 336,786 364,468 309,247
-------- -------- --------
Total deposits 452,729 471,299 417,749
Federal Home Loan Bank advances 31,000 -- --
Trust preferred capital notes 17,527 17,527 9,279
Accrued interest payable and other liabilities 350 1,450 1,346
-------- -------- --------
Total liabilities 501,606 490,276 428,374
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized
10,000,000 shares; 5,876,279 issued and
outstanding at March 31, 2006, 5,574,710 at
December 31, 2005, 4,447,252 at March 31, 2005 5,876 5,575 4,447
Capital surplus 26,296 23,386 24,360
Retained earnings 13,639 12,672 9,226
Accumulated other comprehensive (loss) (2,546) (1,988) (1,780)
-------- -------- --------
Total stockholders' equity 43,265 39,645 36,253
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $544,871 $529,921 $464,627
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
JAMES MONROE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------
2006 2005
------ ------
INTEREST AND DIVIDEND INCOME:
Loans, including fees $6,939 $4,228
Loans held for sale 25 25
Securities, taxable 1,255 1,470
Federal funds sold 36 56
Other interest income 2 1
------ ------
Total interest and dividend income 8,257 5,780
------ ------
INTEREST EXPENSE:
Deposits 3,050 1,605
Federal funds purchased and FHLB advances 249 15
Borrowed funds 307 136
------ ------
Total interest expense 3,606 1,756
------ ------
Net interest income 4,651 4,024
PROVISION FOR LOAN LOSSES 207 434
------ ------
Net interest income after provision for loan losses 4,444 3,590
------ ------
NONINTEREST INCOME:
Service charges and fees 111 75
Gain on sale of securities -- 8
Gain on sale of loans 159 162
Other 120 87
------ ------
Total noninterest income 390 332
------ ------
NONINTEREST EXPENSES:
Salaries and wages 1,717 1,347
Employee benefits 326 264
Occupancy expenses 322 307
Equipment expenses 180 167
Other operating expenses 799 668
------ ------
Total noninterest expenses 3,344 2,753
------ ------
Income before income taxes 1,490 1,169
PROVISION FOR INCOME TAXES 523 401
------ ------
Net income $ 967 $ 768
====== ======
EARNINGS PER SHARE, basic (1) $ 0.17 $ 0.14
EARNINGS PER SHARE, diluted (1) $ 0.17 $ 0.13
(1) Per share data for 2005 is adjusted to reflect 5 for 4 stock split in the
form of a 25% dividend paid on December 28, 2005.
The accompanying notes are an integral part of these consolidated financial
statements.
4
JAMES MONROE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2006 and 2005
(Dollars in thousands)
(Unaudited)
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS (LOSS) INCOME EQUITY
------ -------- -------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 2004 $4,445 $24,325 $ 8,458 $ (327) $36,901
Comprehensive income:
Net income 768 $ 768 768
Net change in unrealized (loss)
on available for sale securities,
net of deferred taxes of $749 (1,453) (1,453) (1,453)
-------
Total comprehensive income $ (685)
=======
Issuance of common stock 2 35 37
------ ------- ------- ------- -------
BALANCE, MARCH 31, 2005 $4,447 $24,360 $ 9,226 $(1,780) $36,253
====== ======= ======= ======= ========
BALANCE, DECEMBER 31, 2005 $5,575 $23,386 $12,672 $(1,988) $39,645
Comprehensive income:
Net income 967 $ 967 967
Net change in unrealized (loss)
on available for sale securities,
net of deferred taxes of $288 (558) (558) (558)
-------
Total comprehensive loss $ 409
=======
Issuance of common stock 3 62 65
Exercise of stock options 298 2,848 3,146
------ ------- ------- ------- -------
BALANCE, MARCH 31, 2006 $5,876 $26,296 $13,639 $(2,546) $43,265
====== ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
JAMES MONROE BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2006 and 2005
(Dollars in thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
--------------------
2006 2005
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 967 $ 768
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 160 146
Provision for loan losses 207 434
Amortization of bond premium 32 79
Accretion of bond discount (38) (82)
Realized (gain) on sales of securities available
for sale -- (8)
Realized (gain) on sales of loans held-for-sale (159) (162)
Origination of loans held-for-sale (10,395) (11,201)
Proceeds from sales of loans held-for-sale 11,650 11,126
Deferred income tax (benefit) (79) (115)
(Increase) in accrued interest receivable (192) (477)
Decrease in other assets 1 40
Increase (decrease) in accrued interest payable
and other liabilities (1,100) 810
-------- --------
Net cash provided by operating activities 1,054 1,358
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale -- (2,158)
Proceeds from calls and maturities of securities
available for sale 861 3,665
Proceeds from sales of securities available for
sale -- 818
Purchases of premises and equipment (36) (129)
(Increase) decrease in interest bearing cash
balances (131) 1,888
(Increase) decrease in Federal funds sold (2,032) 33,714
Net (increase) in loans (19,749) (41,605)
-------- --------
Net cash (used in) investing activities (21,087) (3,807)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
savings deposits and money market accounts (13,737) 5,376
Net increase (decrease) in time deposits (4,833) 8,319
Net increase in Federal Home Loan Bank advances 31,000 -
Proceeds from issuance of common stock 3,211 37
-------- --------
Net cash provided by financing activities 15,641 13,732
-------- --------
(Decrease) Increase in cash and due from banks $ (4,392) $ 11,283
CASH AND DUE FROM BANKS
Beginning $ 19,960 $ 9,286
-------- --------
Ending $ 15,568 $ 20,569
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid on deposits and borrowed funds $ 3,844 $ 1,664
======== ========
Income taxes paid $ 523 $ 385
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES,
unrealized (loss) on securities available for sale $ (846) $ (2,202)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
JAMES MONROE BANCORP, INC. AND SUBSIDIARIES
NOTES TO INTERIM 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 operating subsidiary. James Monroe Bank commenced banking operations on
June 8, 1998. As of March 31, 2006 the Company operated the main office in
Arlington, Virginia, one branch in Annandale, Virginia, one branch and a
drive-up facility in Leesburg, Virginia, one branch in Fairfax City, Virginia,
one branch in Chantilly, Virginia, one branch in Manassas, Virginia, and one
loan production office in Gaithersburg, Maryland.
Basis of Presentation. In the opinion of management, the accompanying unaudited
consolidated financial statements of James Monroe Bancorp, Inc. and Subsidiaries
(the Company) have been prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. 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. All such adjustments and reclassifications are
of a normal and recurring nature. Operating results for the three month period
ended March 31, 2006 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2006, or any other period. The
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes for
the year ended December 31, 2005.
Stock Compensation Plans. At March 31, 2006, the Company had three stock based
compensation plans. Through 2005, the Company accounts for these plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, no stock based
employee compensation cost was reflected in net income, as all options granted
had an exercise price equal to the market value of the underlying common stock
on the date of the grant. Effective January 1, 2006, the Company has applied,
using the modified prospective method, the fair value provision of SFAS 123(R),
with respect to options granted or vesting on or after that date. Under the
modified prospective method, prior periods are not restated to reflect stock
based compensation expense in net income. The following table illustrates the
effect on net income and earnings per share for the period ended March 31, 2005
as if the Company had applied the fair value recognition provisions of SFAS No.
123, Accounting for Stock Based Compensation, to stock based employee
compensation.
Effective April 13, 2005, the Board of Directors of the Company approved the
acceleration of the vesting of all "underwater" unvested stock options including
options held by executive officers. A stock option was considered "underwater"
if the option exercise price was greater than $18.05 per share, the opening
market price as of the date of the board action. In addition, the Board of
Directors of the Company approved the granting and immediate vesting of 11,250
shares of the Company's stock to an Executive Officer of the Company. Under the
Executive Officer's employment agreement with the Company these shares were
originally scheduled to be granted in the fourth quarter of 2005. As a result of
these actions, the vesting of options to purchase 66,500 shares of the Company's
common stock was accelerated.
7
THREE MONTHS ENDED
MARCH 31, 2005
------------------
(Dollars in thousands, except per share data)
Net income, as reported $ 768
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards (112)
-----
Pro forma net income $ 656
=====
Earnings per share:
Basic- as reported 0.14
=====
Basic- pro forma 0.12
=====
Diluted- as reported 0.13
=====
Diluted- pro forma 0.11
=====
Stock option plan activity for the three months ended March 31, 2006 is
summarized below:
WEIGHTED
AVERAGE INTRINSIC
WEIGHTED REMAINING VALUE OF
AVERAGE CONTRACTUAL UNEXERCISED
EXERCISE LIFE IN-THE-MONEY
SHARES PRICE (IN YEARS) OPTIONS
--------- -------- ----------- ------------
Options outstanding, January 1 731,363 8.92
Granted -- --
Exercised (298,792) 6.67
Canceled or expired (16) 7.00
--------
Options outstanding, March 31 432,555 10.48 6 $5,445,053
Options exercisable, March 31 432,451 10.48 6 $5,444,194
The total intrinsic value of in the money options exercised during the three
months ended March 31, 2006 was $3.4 million.
NOTE 2. EARNINGS PER SHARE
The following table discloses the calculation of basic and diluted earnings per
share for the three months ended March 31, 2006 and 2005. The average shares
outstanding and per share calculations have been restated to reflect the 5-for-4
stock split discussed in Note 7 and all preceding stock splits.
8
THREE MONTHS ENDED
MARCH 31,
-----------------------
2006 2005
---------- ----------
(Dollars in thousands, except per share data)
Net Income $ 967 $ 768
========== ==========
Weighted average shares
outstanding--basic 5,638,517 5,556,586
Common share equivalents for stock options 192,344 309,715
---------- ----------
Weighted average shares outstanding--diluted 5,830,861 5,866,301
========== ==========
Earnings per share-basic $ 0.17 $ 0.14
========== ==========
Earnings per share-diluted $ 0.17 $ 0.13
========== ==========
9
NOTE 3. SECURITIES AVAILABLE FOR SALE
Securities available for sale are reported at fair value with unrealized gains
and losses (net of income taxes) recorded in stockholders' equity as a component
of "accumulated other comprehensive income (loss)." Actual gains and losses on
the sales of these securities, if any, are computed using the specific
identification method and included in "gain (loss) on sale of securities" on the
income statement. The amortized cost and carrying value (estimated market value)
of securities available for sale at March 31, 2006, December 31, 2005, and March
31, 2005, are summarized in the tables that follow. The Company classifies all
securities as available for sale.
MARCH 31, 2006
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
U.S. agency $ 97,286 $-- $(2,872) $ 94,414
Mortgage-backed securities 18,543 21 (811) 17,753
Corporate notes 1,845 -- (197) 1,648
Restricted stock 3,470 -- -- 3,470
-------- --- ------- --------
Total securities $121,144 $21 $(3,880) $117,285
======== === ======= ========
DECEMBER 31, 2005
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
U.S. agency $ 99,276 $-- $(2,299) $ 96,977
Mortgage-backed securities 18,968 23 (537) 18,454
Corporate notes 1,849 -- (200) 1,649
Restricted stock 1,906 -- -- 1,906
-------- --- ------- --------
Total securities $121,999 $23 $(3,036) $118,986
======== === ======= ========
MARCH 31, 2005
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
(Dollars in thousands) COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
U.S. agency $119,618 $-- $(2,133) $117,485
Mortgage-backed securities 21,501 54 (433) 21,122
Corporate notes 2,162 5 (191) 1,976
Restricted Stock 1,696 -- -- 1,696
-------- --- ------- --------
Total securities $144,977 $59 $(2,757) $142,279
======== === ======= ========
10
Information pertaining to securities with gross unrealized losses at March 31,
2006, December 31, 2005 and March 31, 2005, aggregated by investment category
and length of time that the individual securities have been in a continuous loss
position, follows:
MARCH 31, 2006
-------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE
----------------------- -----------------------
UNREALIZED UNREALIZED
(Dollars in thousands) FAIR VALUE (LOSS) FAIR VALUE (LOSS)
---------- ---------- ---------- ----------
U.S. Government and
federal agency $31,815 $(1,040) $62,598 $(1,832)
Mortgage backed 3,570 (138) 920 (673)
Corporate notes 728 (82) 11,901 (115)
------- ------- ------- -------
Total $36,113 $(1,260) $75,419 $(2,620)
======= ======= ======= =======
DECEMBER 31, 2005
-------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE
----------------------- -----------------------
UNREALIZED UNREALIZED
(Dollars in thousands) FAIR VALUE (LOSS) FAIR VALUE (LOSS)
---------- ---------- ---------- ----------
U.S. Government and
federal agency $69,704 $(1,660) $27,268 $ (639)
Mortgage backed -- -- 16,535 (537)
Corporate notes -- -- 1,649 (200)
------- ------- ------- -------
Total $69,704 $(1,660) $45,452 $(1,376)
======= ======= ======= =======
MARCH 31, 2005
-------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR MORE
----------------------- -----------------------
UNREALIZED UNREALIZED
(Dollars in thousands) FAIR VALUE (LOSS) FAIR VALUE (LOSS)
---------- ---------- ---------- ----------
U.S. Government and
federal agency $105,483 $(1,590) $12,002 $(543)
Mortgage backed 9,912 (241) 8,698 (192)
Corporate notes 1,671 (191) -- --
-------- ------- ------- -----
Total $117,066 $(2,022) $20,700 $(735)
======== ======= ======= =====
Management evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (1) the length of time and the extent
to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value.
The bonds in an unrealized loss position at March 31, 2006, December 31, 2005,
and March 31, 2005 were temporarily impaired due to the current interest rate
environment and not increased credit risk. All securities owned by the Company
are payable at par at maturity. Of the securities temporarily impaired at March
31, 2006, 27 are U.S. Government agency issued bonds (Government National
Mortgage Association and the Federal Home Loan Bank) rated AAA by Standard and
Poor's, 34 are government sponsored enterprise issued bonds (Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation) rated AAA by
Standard and Poor's, and two are corporate bonds rated investment grade by
Standard and Poor's. As management has the ability and intends to hold debt
securities until maturity, or for the foreseeable future, no declines are deemed
to be other than temporary.
11
NOTE 4. LOANS
Major classifications of loans at March 31, 2006, December 31, 2005, and March
31, 2005 are summarized in the following table.
MARCH 31, DECEMBER 31, MARCH 31,
(Dollars in thousands) 2006 2005 2005
--------- ------------ ---------
Construction loans $ 62,052 $ 43,860 $ 36,211
Commercial loans 46,117 47,426 42,602
Commercial real estate loans 272,143 269,421 197,331
Real estate 1-4 family residential 1,189 1,341 1,391
Home equity loans 7,695 8,033 5,866
Consumer loans 8,787 8,164 7,986
Deposit overdrafts 257 246 213
-------- -------- --------
Total loans 398,240 378,491 291,600
Less: allowance for loan losses (4,127) (3,920) (3,223)
-------- -------- --------
Net Loans $394,113 $374,571 $288,377
======== ======== ========
Changes in the allowance for loan losses are as follows:
THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
MARCH 31, DECEMBER 31, MARCH 31,
(Dollars in thousands) 2006 2005 2005
------------------ ------------ ------------------
Beginning balance $3,920 $2,790 $2,790
Loan charge-offs:
Commercial -- (35) --
Consumer -- (2) (1)
------ ------ ------
Total charge-offs -- (37) (1)
Recoveries of loans previously
charged-off:
Commercial -- -- --
Consumer -- -- --
------ ------ ------
Total recoveries -- -- --
------ ------ ------
Net charge-offs -- (37) (1)
------ ------ ------
Provision for loan losses 207 1,167 434
------ ------ ------
Ending balance $4,127 $3,920 $3,223
====== ====== ======
12
The following table presents the amounts of nonperforming assets at the
dates indicated.
MARCH 31, DECEMBER 31, MARCH 31,
(Dollars in thousands) 2006 2005 2005
--------- ------------ ---------
Nonaccrual loans
Commercial $221 $223 $293
Consumer -- -- --
---- ---- ----
Total nonaccrual loans 221 223 293
Loans past-due 90-days or more
Commercial 4 9 5
Consumer 17 25 17
---- ---- ----
Total loans past-due 90-days
or more 21 34 22
Restructured loans -- -- --
---- ---- ----
Total nonperforming assets $242 $257 $315
==== ==== ====
NOTE 5. DEPOSITS
Interest bearing deposits consist of the following:
MARCH 31, DECEMBER 31, MARCH 31,
(Dollars in thousands) 2006 2005 2005
--------- ------------ ---------
NOW accounts $ 14,452 $ 12,787 $ 15,143
Savings accounts 3,520 3,020 5,162
Money market accounts 130,114 155,128 207,491
Certificates of deposit under $100,000 49,555 48,473 12,533
Certificates of deposit $100,000 and over 136,619 142,748 67,323
Individual retirement accounts 2,526 2,312 1,595
-------- -------- --------
Total interest bearing deposits $336,786 $364,468 $309,247
======== ======== ========
NOTE 6. TRUST PREFERRED CAPITAL SECURITIES
On March 25, 2002, James Monroe Statutory Trust I, a subsidiary of the Company,
was formed for the purpose of issuing redeemable trust preferred securities and
purchasing the Company's junior subordinated debentures, which are its sole
assets. The Company owns all of Trust I's outstanding common securities. On
March 26, 2002, $5.2 million of the trust preferred securities were issued in a
pooled underwriting totaling approximately $500 million. The securities bear
interest at a rate equal to the three month LIBOR plus 360 basis points, subject
to a cap of 11% which is set and payable on a quarterly basis. During 2005, the
interest rates ranged from 6.15% to 7.56%. The rate for the quarterly period
beginning December 27, 2005, was 8.12%. The rate for the quarterly period
beginning March 27, 2006 is 8.57%. The securities have a maturity date of March
25, 2032, and are subject to varying call provisions beginning March 26, 2007.
On July 16, 2003, James Monroe Statutory Trust II, a subsidiary of the Company,
was formed for the purpose of issuing redeemable trust preferred securities and
purchasing the Company's junior subordinated debentures, which are its sole
assets. The Company owns all of Trust II's outstanding common securities. On
July 31, 2003, $4.1 million of the trust preferred securities were issued in a
private placement transaction. The securities bear interest at a rate equal to
the three month LIBOR plus 310 basis points, subject to a cap of 12% which is
set and payable on a quarterly basis. During 2005, the interest rates ranged
from 5.66% to 7.06%. The rate for the quarterly period beginning December 31,
2005, was 7.63%. The rate for the quarterly period beginning March 31, 2006 is
8.08%. The securities have a maturity date of July 31, 2033, and are subject to
ranging call provisions beginning July 31, 2008.
On October 3, 2005, James Monroe Statutory Trust III, a newly formed subsidiary
of the Company, was formed for the purpose of issuing redeemable trust preferred
securities and purchasing the Company's junior subordinated debentures, which
are its sole assets. The Company owns all of Trust III's outstanding common
securities. On October 3, 2005, $8.2 million of the trust preferred securities
were issued in a private placement transaction. The securities bear interest at
a rate
13
of 6.253% until September 15, 2010 at which time the rate adjusts quarterly to
the three month LIBOR plus 155 basis points. The securities have a maturity date
of December 15, 2035, and are redeemable at par beginning December 15, 2010.
The trust preferred securities may be included in Tier 1 capital for regulatory
capital adequacy determination purposes up to 25% of Tier 1 capital. The portion
of the securities not considered as Tier 1 capital will be included in Tier 2
capital. At March 31, 2006, $15,270,000 of the trust preferred securities
qualified as Tier I capital and the remaining $2,257,000 qualified as Tier II
capital.
The Company and the Trusts believe that, taken together, the Company's
obligations under the junior subordinated debentures, the Indentures, the Trust
Declarations and the Guarantees entered into in connection with the issuance of
the trust preferred securities constitute a full and unconditional guarantee by
the Company of the Trusts' respective obligations with respect to the trust
preferred securities.
Subject to certain exceptions and limitations, the Company may elect from time
to time to defer interest payments on the junior subordinated debt securities,
which would result in a deferral of distribution payments on the related trust
preferred securities.
NOTE 7. COMMON STOCK SPLIT
On December 28, 2005 the Company issued 1,478,317 additional shares necessary to
effect a 5-for-4 common stock split in the form of a 25% stock dividend to
shareholders of record on November 28, 2005. The earnings per common share for
all periods prior to December 2005 have been restated to reflect the stock
split.
NOTE 8. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets an amendment of FASB Statement 140" (Statement 156). Statement 156 amends
Statement 140 with respect to separately recognized servicing assets and
liabilities. Statement 156 requires an entity to recognize a servicing asset or
liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract and requires all servicing assets and
liabilities to be initially measured at fair value, if practicable. Statement
156 also permits entities to subsequently measure servicing assets and
liabilities using an amortization method or fair value measurement method. Under
the amortization method, servicing assets and liabilities are amortized in
proportion to and over the estimated period of servicing. Under the fair value
measurement method, servicing assets are measured at fair value at each
reporting date and changes in fair value are reported in net income for the
period the change occurs.
Adoption of Statement 156 is required as of the beginning of fiscal years
beginning subsequent to September 15, 2006. Earlier adoption is permitted as of
the beginning of an entity's fiscal year, provided the entity has not yet issued
financial statements, including interim financial statements.
The Corporation does not expect the adoption of Statement 156 at the beginning
of 2007 to have a material impact.
NOTE 9. BUSINESS COMBINATION
On March 27, 2006 the Company entered into entered into an Agreement and Plan of
Merger (the "Agreement") with Mercantile Bankshares Corporation, Baltimore,
Maryland ("Mercantile"), pursuant to which the Company will be merged into
Mercantile, with Mercantile surviving (the "Merger"). The Agreement contemplates
that James Monroe Bank, the Company's wholly owned subsidiary (the "Bank"), will
be merged into Mercantile Safe Deposit & Trust Company, Mercantile's largest
subsidiary bank.
In connection with the execution of the Merger Agreement, (i) the directors and
executive officers of the Company entered into a Voting Agreement with
Mercantile (the "Voting Agreement"); (ii) John Maxwell, President and CEO of the
Company and three senior officers of James Monroe Bank, the Company's subsidiary
bank, each entered into employment agreements with Mercantile, to be effective
upon the effectiveness of the merger; and (iii) Richard Linhart, Chief Operating
Officer of the Company, entered into a consulting Agreement, to be effective
upon the effectiveness of the merger.
At the effective time, and as a result of the Merger, each outstanding share of
the Company's common stock will be converted into the right to receive either
(i) $23.50 in cash without interest (the "Cash Election Price"), or (ii) 0.6033
shares of Mercantile's common stock (the "Exchange Ratio", and together with the
Cash Election Price, the "Merger Consideration"). Each Company shareholder will
be entitled to elect the number of shares to be exchanged for the Cash
14
Election Price or to make no election, in which case their shares will be
converted into Mercantile shares at the Exchange Ratio, in each case subject to
proration. The Agreement provides that at least 50%, and not more than 66%, of
the aggregate Merger Consideration must be in the form of Mercantile common
stock, and that at least 34% and not more than 50% be in cash. The Merger will
be tax-free to the shareholders of the Company to the extent that they receive
shares of Mercantile in exchange for their Company common stock. Outstanding
options to purchase shares of Company common stock will be "rolled over" into
stock options to purchase Mercantile common stock.
The Company and Mercantile have made customary representations, warranties and
covenants in the Agreement, including, among others, the Company agrees (i) not
to (A) solicit proposals relating to alternative business combination
transactions or (B) subject to certain exceptions, enter into discussions
concerning or provide confidential information in connection with alternative
business combination transactions, (ii) to cause a meeting of shareholders to be
held to consider approval of the Merger, and (iii) subject to certain
exceptions, for the Company's board of directors to recommend that the Company's
shareholders adopt and approve the Merger and the Agreement.
Consummation of the Merger is subject to various customary conditions which
include: the approval by the Company's shareholders; no legal impediment to the
Merger; the receipt of required regulatory approvals, including the expiration
or termination of the waiting period under, the Bank Holding Company Act of
1956, the Bank Merger Act, and any other applicable law. The Merger Agreement
contains certain termination rights for both the Company and Mercantile, and
further provides that, upon termination of the Agreement under specified
circumstances, the Company may be required to pay Mercantile a termination fee
of up to $5,000,000.
The foregoing description of the Agreement is qualified in its entirety by
reference to the full text of the Merger Agreement.
The directors and executive officers of the Company, in their capacities as
shareholders of the Company, entered into a Voting Agreement with Mercantile
with respect to the shares of Company common stock which they can vote. The
Voting Agreements require, among other things, that such persons vote for
approval of the Merger and the Agreement. Such shareholders collectively own
approximately 21.7% of the outstanding shares of Company common stock, excluding
shares which they may purchase upon the exercise of options. The foregoing
description of the Voting Agreement is qualified in its entirety by reference to
the full text of the Voting Agreement.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis and other portions of this report
contain 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. In some cases, forward
looking statements can be identified by use of such words as "may," "will,"
"anticipate," "believes," "expects," "plans," "estimates," "potential,"
"continue," "should," and similar words or phases. 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, 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.
INTRODUCTION
This Management's Discussion and Analysis reviews the financial condition
and results of operations of the Company and its subsidiaries as of and for the
three months ended March 31, 2006 and 2005. Some tables cover more than these
periods to comply with Securities and Exchange Commission disclosure
requirements or to illustrate trends over a period of time. When reading this
discussion, reference should be made to the consolidated financial statements
and related notes that appear herein and to our consolidated financial
statements and footnotes thereto for the year ended December 31, 2005.
CRITICAL ACCOUNTING POLICIES
There were no changes to the Company's critical accounting policies in the
first quarter of 2006. Critical accounting policies are those applications of
accounting principles or practices that require considerable judgment,
estimation, or sensitivity analysis by management. In the financial service
industry, examples, albeit not an all inclusive list, of disclosures that may
fall within this definition are the determination of the adequacy of the
allowance for loan losses, valuation of mortgage servicing rights, valuation of
derivatives or securities without a readily determinable market value, and the
valuation of the fair value of intangibles and goodwill. Except for the
determination of the adequacy of the allowance for loan losses, the Company does
not believe there are other practices or policies that require significant
sensitivity analysis, judgments, or estimations.
Allowance for Loan Losses. The Company has developed a methodology to
determine, on a quarterly basis, an allowance to absorb probable loan losses
inherent in the portfolio based on evaluations of the collectibility of loans,
historical loss experience, peer bank loss experience, delinquency trends,
economic conditions, portfolio composition, and specific loss estimates for
loans considered substandard or doubtful. All commercial and commercial real
estate loans that exhibit probable or observed credit weaknesses are subject to
individual review. If necessary, reserves would be allocated to individual loans
based on management's estimate of the borrower's ability to repay the loan given
the availability of collateral and other sources of cash flow. Any reserves for
impaired loans are measured based on the present rate or fair value of the
underlying collateral. The Company evaluates the collectibility of both
principal and interest when assessing the need for a loss accrual. A composite
allowance factor that considers the Company's and other peer bank loss
experience ratios, delinquency trends, economic conditions, and portfolio
composition are applied to the total of commercial and commercial real estate
loans not specifically evaluated.
Homogeneous loans, such as consumer installment, residential mortgage
loans, home equity loans, and smaller consumer loans are not individually risk
graded. Reserves are established for each homogeneous pool of loans based on the
expected net charge offs from a current trend in delinquencies, losses or
historical experience and general economic conditions. The Company has no
material delinquencies in these types of loans, and has not, since inception,
had a trend or an indication of a trend that would guide the Company in expected
material losses in these types of homogeneous pools of loans.
The Company's allowance for loan losses is determined based upon a
methodology developed by management as described above and is approved by the
board of directors each quarter.
16
COMPANY HIGHLIGHTS SINCE MARCH 31, 2005 ARE:
o Average assets grew $85.2 million (19%).
o Average loans grew $118.5 million (44%).
o Average deposits grew $55.1 million (9%).
o The net interest margin was 3.69% for the first three months of
2006 compared to 3.79% for the full year 2005 and 3.82% during
the first three months of 2005.
o Asset quality remained strong as the dollar volume of total
nonperforming loans at March 31, 2006 declined $15,000 from
December 31, 2005 to $242,000 at March 31, 2006. More
importantly, the percentage of total loans represented by such
nonperforming loans has declined significantly from 0.07% at
December 31, 2005 to 0.06% at March 31, 2006. The allowance for
loan losses totaled 1.04% of total loans outstanding at both
December 31, 2005 and March 31, 2006.
o On March 27, 2006 James Monroe Bancorp, Inc. and Mercantile
Bankshares Corporation announced the execution of a definitive
agreement pursuant to which the Company will merge with
Mercantile Bankshares Corporation.
FINANCIAL OVERVIEW
The following discussion provides information about the results of
operations and financial condition, liquidity, and capital resources of the
Company and should be read in conjunction with our consolidated financial
statements and notes thereto for the year ended December 31, 2005.
BALANCE SHEET
March 31, 2006 vs. December 31, 2005 and March 31, 2005. At March 31, 2006
assets totaled $544.9 million, an increase of $14.9 million from December 31,
2005, and $80.2 million from March 31, 2005. The increase in assets over the
past year has been funded by the Company's growth in deposits and short term
borrowings. Since March 31, 2005, deposits increased $35.0 million, with
noninterest bearing deposits increasing $7.4 million, and interest bearing
deposits increasing $27.6 million. Deposits declined $18.6 million from December
31, 2005 as noninterest bearing deposits grew $9.1 million while interest
bearing deposits declined $27.7 million. A portion of the decline in interest
bearing deposits can be attributed to an increase in the Company's off balance
sheet cash management sweep product which generates fee income for the Company.
Short term borrowings totaled $31.0 million at quarter-end. There were no short
term borrowings outstanding at December 31, 2005 or March 31, 2005. Through the
growth in deposits and short term borrowings, combined with a reallocation of
securities to higher yielding assets, the Company was able to fund growth in
loans of $106.6 million over the past year and $19.7 million over the first
quarter. Securities decreased $25.0 million from March 31, 2005 and $1.7 million
from December 31, 2005. Overnight investments increased $6.0 million from March
31, 2005 and $2.0 million from December 31, 2005.
RESULTS OF OPERATIONS
First Quarter 2006 vs. First Quarter 2005. For the three months ended March
31, 2006, the Company had net income of $967,000, or $.17 per diluted share,
compared to $768,000 or $.13 per diluted share, for the comparable period of
2005. Annualized return on average assets was .74% for the three months ended
March 31, 2006, compared to .70% for the same three month period in 2005. Return
on average equity was 9.64% for the three months ended March 31, 2006, compared
with 8.36% for the same three month period in 2005.
Although the Company has continued to grow in asset size since its
inception in 1998, it has been able to control its operating efficiency. Within
the past two years the Company expanded into the Chantilly and Manassas markets,
opened a new operations center, opened a loan production office in Gaithersburg,
Maryland, and expanded its mortgage lending division. While these initiatives
have increased operating expenses, as evidenced by the rise in the Bank's
efficiency ratio to 66.3% for the first quarter of 2006, they have helped the
Company grow and diversify into new markets. The efficiency ratio is a non-GAAP
financial measure, which we believe provides investors with important
information regarding our operational efficiency. We compute our efficiency
ratio by dividing noninterest expense by the sum of net interest income on a tax
equivalent basis and noninterest income, which includes securities gains or
losses and gains or losses on the sale of mortgage loans. Comparison of our
efficiency ratio with those of other companies may not be possible, because
other companies may calculate the efficiency ratio differently.
17
QUARTERLY RESULTS OF OPERATIONS
2006 2005
---------- -------------------------------------------------
FIRST FOURTH THIRD SECOND FIRST
(Dollars in thousands except share data) QUARTER QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS:
Net interest income $ 4,651 $ 4,756 $ 4,706 $ 4,345 $ 4,024
Provision for loan losses 207 154 234 345 434
Other income 390 383 509 403 332
Noninterest expense 3,344 3,059 3,142 2,929 2,753
Income before taxes 1,490 1,926 1,839 1,474 1,169
Net income 967 1,269 1,210 970 768
PER SHARE DATA:
Earnings per share, basic (1) $ 0.17 $ 0.23 $ 0.22 $ 0.18 $ 0.14
Earnings per share, diluted (1) $ 0.17 $ 0.22 $ 0.21 $ 0.17 $ 0.13
Weighted average shares
outstanding - basic (1) 5,638,517 5,573,060 5,564,931 5,560,454 5,556,586
- diluted (1) 5,830,861 5,944,630 5,918,374 5,859,034 5,866,301
AT PERIOD END:
Loans $ 398,240 $ 378,491 $ 362,049 $ 333,603 $ 291,600
Earning assets 524,883 505,768 485,049 511,102 439,697
Total assets 544,871 529,921 505,723 534,261 464,627
Deposits 452,729 471,299 423,399 485,455 417,749
Stockholders' equity 43,265 39,645 38,650 38,385 36,253
Book value per share (1) $ 7.36 $ 7.11 $ 6.94 $ 6.90 $ 6.52
Shares outstanding (1) 5,876,279 5,574,710 5,573,028 5,563,205 5,559,065
PERFORMANCE RATIOS:
Return on average assets 0.74% 0.96% 0.95% 0.80% 0.70%
Return on average equity 9.64% 12.86% 12.36% 10.37% 8.36%
Net interest margin 3.69% 3.77% 3.83% 3.75% 3.82%
Efficiency ratio (2) 66.34% 59.53% 60.25% 61.69% 63.20%
OTHER RATIOS:
Allowance for loan losses to total loans 1.04% 1.04% 1.04% 1.06% 1.11%
Equity to assets 7.94% 7.48% 7.64% 7.18% 7.80%
Nonperforming loans to total loans 0.06% 0.07% 0.09% 0.09% 0.11%
Net charge-offs to total loans 0.00% 0.00% 0.00% 0.01% 0.00%
Risk adjusted capital ratios:
Leverage ratio 11.6% 10.6% 9.7% 9.9% 10.5%
Tier 1 14.9% 14.0% 13.0% 13.3% 14.7%
Total 16.3% 15.9% 14.0% 14.3% 15.8%
(1) Per share data and share data has been adjusted to reflect a 5-for-4 stock
split in the form of a 25% stock dividend paid on December 28, 2005.
(2) Computed by dividing noninterest expense by the sum of net interest income
on a tax equivalent basis and noninterest income, including securities gains or
losses and gains or losses on the sale of loans. This is a non-GAAP financial
measure, which we believe provides investors with important information
regarding our operational efficiency. Comparison of our efficiency ratio with
those of other companies may not be possible, because other companies may
calculate the efficiency ratio differently.
18
NET INTEREST INCOME, AVERAGE BALANCES AND YIELDS
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 the Bank's performance as it is the
principal source of revenue and earnings. Unlike the larger regional or
mega-banks that have significant sources of fee income, community banks, such as
James Monroe Bank, rely on net interest income from traditional banking
activities as the primary revenue source.
Table 1 provides certain information relating to the Company's average
consolidated statements of financial condition and reflects the interest income
on interest earning assets and interest expense of interest bearing liabilities
for the quarters ended March 31, 2006 and 2005 and the average yields earned and
rates paid during those periods. These yields and costs are derived by dividing
income or expense by the average daily balance of the related asset or liability
for the periods presented. The Company did not have any tax exempt income during
any of the periods presented in Table 1. Nonaccrual loans have been included in
the average balances of loans receivable.
First Quarter 2006 vs. First Quarter 2005. For the three month period ended
March 31, 2006, net interest income increased $627,000, or 16%, to $4.7 million
from $4.0 million earned during the same period in 2005. This was primarily a
result of the increase in the volume of earning assets, and partially offset by
growth in higher yielding deposit products and borrowed funds. During the three
months ended March 31, 2006, total average earning assets increased by $84.4
million, or 20%, from the same period of 2005. Average loans outstanding grew by
$118.5 million, or 44%, during the first quarter of 2006 compared to the same
period in 2005, while at the same time, the yield on such loans increased by 89
basis points. Average securities declined $26.6 million, or 18%, during the
first quarter of 2006 compared to the same period in 2005 and the yield on the
securities portfolio increased by 18 basis points. Average Federal funds sold
declined by $7.3 million, or 69%, during the first quarter of 2006 compared to
the same period in 2005 and the yield on these funds increased by 250 basis
points.
During the three months ended March 31, 2006, total average interest
bearing liabilities grew by $79.0 million, or 25% from the same period of 2005.
Interest bearing deposits increased $53.5 million with time deposits growing
$120.6 million while money market accounts declined $65.0 million, or 30% and
savings accounts declined $1.4 million, or 31%. Average borrowings, which
includes fed funds purchased, Federal Home Loan Bank advances and trust
preferred capital notes, increased $25.5 million over the same period of 2005.
Interest expense paid on liabilities for the first quarter of 2006 was $3.6
million compared with $1.8 million for the same period of 2005.
The yield on earning assets improved 106 basis points from 5.49% for the
quarter ending March 31, 2005 to 6.55% during the same period in 2006. The
overall yield on loans grew 89 basis points, the securities portfolio increased
18 basis points, and Federal funds sold grew 250 basis points reflecting the
overall rise in interest rates from the quarter of 2005 to the same period this
year. The cost of funds increased 144 basis points from 2.25% for the quarter
ending March 31, 2005 to 3.69% during the same period in 2006.
The resulting effect of the changes in interest rates between the quarter
ended March 31, 2006 and 2005, offset by changes in the volume and mix of
earning assets and interest bearing liabilities resulted in a slight decline in
the net interest margin of 13 basis points from 3.82% in 2005 versus 3.69% in
2006.
19
TABLE 1: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, AND YIELDS/RATES
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2006 MARCH 31, 2005
---------------------------- ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------
(Dollars in thousands)
ASSETS
Loans:
Commercial $ 91,634 $1,749 7.74% $ 71,318 $1,117 6.35%
Commercial real estate 272,975 4,761 7.07% 179,262 2,838 6.42%
Consumer 22,959 429 7.58% 18,477 273 5.99%
-------- ------ -------- ------
Total loans 387,568 6,939 7.26% 269,057 4,228 6.37%
Loans held for sale 1,637 25 6.19% 1,914 25 5.30%
Taxable securities 118,781 1,255 4.28% 145,331 1,470 4.10%
Federal funds sold and cash equivalents 3,286 38 4.69% 10,536 57 2.19%
-------- ------ -------- ------
Total earning assets 511,272 8,257 6.55% 426,838 5,780 5.49%
-------- ------ -------- ------
Less: allowance for loan losses (3,971) (2,966)
Cash and due from banks 15,474 15,255
Premises and equipment, net 2,179 2,459
Other assets 6,150 4,293
-------- --------
TOTAL ASSETS $531,104 $445,879
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Interest bearing demand deposits $ 13,132 $ 24 0.74% $ 13,868 $ 32 0.94%
Money market deposit accounts 148,928 1,009 2.75% 213,966 1,085 2.06%
Savings accounts 3,109 11 1.43% 4,506 15 1.35%
Time deposits 193,861 2,006 4.20% 73,232 473 2.62%
-------- ------ -------- ------
Total interest bearing deposits 359,030 3,050 3.45% 305,572 1,605 2.13%
Borrowings:
Trust preferred capital notes 17,527 307 7.10% 9,279 136 5.94%
Other borrowed funds 19,444 249 5.19% 2,160 15 2.82%
-------- ------ -------- ------
Total borrowings 36,971 556 6.10% 11,439 151 5.35%
-------- ------ -------- ------
Total interest bearing liabilities 396,001 3,606 3.69% 317,011 1,756 2.25%
-------- ------ -------- ------
Net interest income and net yield
on interest earning assets $4,651 3.69% $4,024 3.82%
====== ======
Noninterest-bearing demand deposits 92,191 90,527
Other liabilities 2,213 1,055
Stockholders' equity 40,699 37,286
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUTIY $531,104 $445,879
======== ========
20
Table 2 shows the composition of the net change in net interest income for
the periods indicated, as allocated between the change due to changes in the
volume of average earning assets and interest bearing liabilities, and the
changes due to changes in interest rates. As the table shows, the increase in
net interest income of $627,000 for the quarter ended March 31, 2006, as
compared to the quarter ended March 31, 2005, is due to the growth in the volume
of earning assets and interest bearing liabilities. While the rise in interest
rates has, to date, had an impact on interest income, it has had a greater
impact on interest expense. Management has controlled its exposure to changes in
interest rates such that the steadily rising interest rate environment has
resulted in a modest $144,000 decline of net interest income during the first
quarter of 2006 compared to the same quarter last year, whereas the growth in
earning assets and interest bearing liabilities resulted in an increase of
$771,000 to net interest income. Interest income increased $2.5 million during
the first quarter of 2006 compared to the first quarter of 2005 as higher
yielding loans grew at a faster pace than securities and overnight investments
resulting in a $1.6 million increase in interest income attributable to asset
growth while changes in rates resulted in growth of interest income of $926,000.
Interest expense during these comparable quarters increased $1.9 million with
$780,000 of this rise attributable to growth in interest bearing liabilities
while changes in rates resulted in an increase of interest expense of $1.1
million.
TABLE 2
THREE MONTHS ENDED MARCH 31,
2006 VS. 2005
----------------------------
DUE TO CHANGE
INCREASE IN AVERAGE
OR ---------------
(DECREASE) VOLUME RATE
---------- ------ ------
(Dollars in thousands)
EARNING ASSETS:
Loans $2,711 $1,862 $ 849
Mortgage loans -- (4) 4
Taxable securities (215) (269) 54
Federal funds sold and cash equivalents (19) (39) 20
------ ------ ------
Total interest income 2,477 1,551 926
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits (8) (2) (6)
Money market deposit accounts (76) (330) 254
Savings deposits (4) (5) 1
Time deposits 1,533 779 754
Borrowed funds 405 337 68
------ ------ ------
Total interest expense 1,850 780 1,070
------ ------ ------
Net interest income $ 627 $ 771 $ (144)
====== ====== ======
21
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based upon a methodology that includes
among other factors, a specific evaluation of commercial and commercial real
estate loans that are considered special mention, substandard or doubtful. All
other loans are then categorized in pools of loans with common characteristics.
A potential loss factor is applied to these loans which considers the historical
charge off history of the Company and its peer group, trends in delinquencies
and loan grading, current economic conditions, and factors that include the
composition of the Company's loan portfolio. At March 31, 2006, the Company had
a $163 thousand impaired loan on nonaccrual status, and an additional $79,000 in
loans on nonaccrual status or past due 90 days or more and still accruing. See
Note 4 to the unaudited consolidated financial statements for additional
information regarding the Company's asset quality and allowance for loan losses.
While the dollar volume of total nonperforming loans at March 31, 2006 declined
$15,000, or 6%, from $257,000 at December 31, 2005, and $73,000, or 23%, from
March 31, 2005 to $242,000 at March 31, 2006, more importantly, the percentage
of total loans represented by such nonperforming loans has declined
significantly from 0.11% at March 31, 2005 to 0.07% at December 31, 2005 to
0.06% at March 31, 2006.
The Company's methodology determining an appropriate allowance for loan
losses was approved by the Audit Committee and the Board of Directors. The
quarterly allowance and provision are approved by the Board. The methodology is
reevaluated on a quarterly basis. Pending the development of a negative trend
with respect to past due loans or charge offs or significant changes in economic
conditions, the Company continues to maintain an allowance it believes is
adequate.
As reflected in Table 3 below, the allowance is allocated among the various
categories of loans based upon the methodology described herein.
TABLE 3
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.
See Note 4 to the unaudited consolidated financial statements included in this
report for additional information regarding the allowance for loan losses and
nonperforming assets.
MARCH 31, 2006 DECEMBER 31, 2005 MARCH 31, 2005
----------------- ----------------- -----------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ --------
(Dollars in thousands)
Construction loans $ 478 15.6% $ 338 11.6% $ 312 12.4%
Commercial loans 926 11.6% 982 12.5% 725 14.6%
Commercial real estate loans 2,632 68.3% 2,516 71.2% 2,073 67.7%
Real estate 1-4 family residential 3 0.3% 4 0.4% 16 0.5%
Home equity loans 20 1.9% 21 2.1% 15 2.0%
Consumer loans 68 2.3% 59 2.2% 82 2.8%
------ ---- ------ ---- ------ ----
Balance end of the period $4,127 100% $3,920 100% $3,223 100%
====== ==== ====== ==== ====== ====
LOANS
The loan portfolio is the largest component of earning assets and accounts
for the greatest portion of total interest income. At March 31, 2006, total
loans were $398 million, a 36.6% increase from the $291.6 million in loans
outstanding at March 31, 2005. Total loans at March 31, 2006 represented a 5.2%
increase from the $378.5 million of loans at December 31, 2005. In general,
loans are internally generated with the exception of a small percentage of
participation loans purchased from other local community banks. Lending activity
is largely 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 or adjustable rate commercial loans made to small to medium
sized
22
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.
Virtually all of the Company's commercial real estate mortgage and
development loans, which account for approximately 68% of our total loans at
March 31, 2006, relate to property in the Northern Virginia market. As such,
they are subject to risks relating to the general economic conditions in that
market, and the market for real estate in particular. The local real estate
market remains generally strong, and the Company attempts to mitigate risk
though careful underwriting, including primary reliance on the borrower's
financial capacity and ability to repay without resort to the property, and
lends primarily with respect to properties occupied or managed by the owner.
The Company's 1-4 family residential real estate loans are generally not
the typical purchase money first mortgage loan or refinancing, but are loans
made for other purposes and the collateral obtained is a first deed of trust on
the residential property of the borrower. The underlying loan would have a final
maturity much shorter than the typical first mortgage and may be a variable or
fixed rate loan. As reflected in Table 4, 23% of the Company's loans are fixed
rate loans and 95% of the Company's loans reprice or have a maturity date that
falls within five years.
Consumer loans consist primarily of secured installment credits to
individuals. The consumer portfolio, which includes consumer loans, home equity
loans, and 1-4 family residential loans, represents 4.5% of the loan portfolio
at March 31, 2006, as compared to 5.1% at March 31, 2005 and 4.7% at December
31, 2005.
TABLE 4
Table 4 shows the maturities of the loan portfolio and the sensitivity of
loans to interest rate fluctuations at March 31, 2006. Maturities are based on
the earlier of contractual maturity or repricing date. Demand loans, loans with
no contractual maturity and overdrafts are represented in one year or less.
MARCH 31, 2006
------------------------------------------------
AFTER ONE
WITHIN YEAR THROUGH AFTER FIVE
(Dollars in thousands) ONE YEAR FIVE YEARS YEARS TOTAL
--------- ------------ ---------- --------
Construction loans $ 53,872 $ 3,002 $ 5,178 $ 62,052
Commercial loans 36,509 9,377 231 46,117
Commercial real estate loans 129,721 128,727 13,695 272,143
Real estate 1-4 family residential 243 651 295 1,189
Home equity loans 7,695 -- -- 7,695
Consumer loans 7,279 1,508 -- 8,787
Deposit overdrafts 257 -- -- 257
-------- -------- ------- --------
Total loans $235,576 $143,265 $19,399 $398,240
======== ======== ======= ========
AFTER ONE
WITHIN YEAR THROUGH AFTER FIVE
(Dollars in thousands) ONE YEAR FIVE YEARS YEARS TOTAL
--------- ------------ ---------- --------
Fixed rate $ 37,318 $ 44,382 $ 9,173 $ 90,873
Variable/Adjustable rate 198,258 98,883 10,226 307,367
-------- -------- ------- --------
Total loans $235,576 $143,265 $19,399 $398,240
======== ======== ======= ========
23
INVESTMENT SECURITIES
The Company 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 to six years or less in the case of fixed rate securities. In the case of
mortgage backed securities, the policy is to invest only in those securities
whose average expected life is projected to be approximately five to six years
or less. Mortgage backed securities with a maturity of ten years or more are
either adjustable rate securities or the expected life of the mortgage pool is
generally no more than five or six years. To the extent possible, we attempt to
"ladder" the one time call dates for all our securities. The Company's
investment policy is driven by its interest rate risk process and the need to
minimize the effect of changing interest rates to the entire balance sheet.
The following table provides information regarding the composition of our
investment portfolio at the dates indicated.
TABLE 5
AT MARCH 31, 2006 AT MARCH 31, 2005
--------------------- ---------------------
PERCENT OF PERCENT OF
(Dollars in thousands) BALANCE PORTFOLIO BALANCE PORTFOLIO
-------- ---------- -------- ----------
Available for sale (fair value):
U.S. Agency $ 94,414 80.4% $117,485 82.6%
Mortgage-backed securities 16,849 14.4% 19,673 13.8%
Adjustable rate mortgage-backed securities 904 0.8% 1,449 1.0%
Corporate bonds 1,648 1.4% 1,976 1.4%
Restricted stock 3,470 3.0% 1,696 1.2%
-------- ----- -------- -----
Total $117,285 100.0% $142,279 100.0%
======== ===== ======== =====
TABLE 6
The following table provides information regarding the maturity composition
of our investment portfolio, at fair value, at March 31, 2006.
MATURITY OF SECURITIES
Years to Maturity
Within Over 1 Year Over 5 Years Over
1 Year through 5 Years through 10 Years 10 Years Total
--------------- --------------- ---------------- --------------- ----------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------- ----- ------- ------ ------- ----- -------- -----
AVAILABLE FOR SALE (FAIR VALUE):
U. S. Agency $30,976 4.00% $60,491 3.93% $ -- -- $ 2,947 6.00% $ 94,414 4.02%
Mortgage-backed securities 16 6.43% 272 4.53% 1,916 4.19% 14,645 4.82% 16,849 4.75%
Adjustable rate mortgage-
backed securities -- -- -- -- -- -- 904 3.94% 904 3.94%
Corporate bonds -- -- 920 4.50% 728 6.13% -- -- 1,648 5.22%
Restricted stock -- -- -- -- -- -- 3,470 5.56% 3,470 5.56%
------- ------- ------ ------- --------
Total $30,992 4.00% $61,683 3.94% $2,644 4.72% $21,966 5.06% $117,285 4.18%
======= ======= ====== ======= ========
24
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.
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. The matrix arrays repricing opportunities along a time line for
both assets and liabilities. The longer term, more fixed rate sources are
presented in the upper left hand corner while the shorter term, more variable
rate items, are at the lower left. Similarly, uses of funds, such as 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 in
time frames when numbers are to the right of the diagonal line.
At March 31, 2006, we were modestly liability sensitive in the short term
and then we become asset sensitive beyond three years. 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.
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. These products may not reprice
consistently with assets such as variable rate commercial loans or other loans
that immediately reprice as the prime rate changes. 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.
Thus, the Company manages its exposure to possible changes in interest
rates by 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 which include the
following scenarios: Static Rates, Most Likely Rate Projection, Rising Rate
Environment, Declining Rate Environment, Ramp Up 100bp and 200bp over 12-months,
and Ramp Down 100bp and 200bp over 12-months scenarios. In addition, 8 rate
shock scenarios are modeled at 50bp up and 50bp down increments but not below
zero. At March 31, 2006, the following 12-month impact on net interest income is
estimated to range from a positive impact of 8.2% in a rising rate scenario, to
a negative impact of 3.4% if rates decline 200 basis points from current levels.
In the rate shock scenarios the 12-month impact on net interest income is
estimated to range from a positive impact of 2.6% if rates were to immediately
increase 200 basis points, to a negative impact of 3.5% if rates were to
immediately decline 200 basis points. The Company believes these ranges of
exposure to changes in interest rates to be well within acceptable range given a
wide variety of potential rate change scenarios. This process is performed each
quarter to ensure the Company is not materially at risk to possible changes in
interest rates.
25
The following are the projected potential percentage impact on the
Company's net interest income over the next 12 months for the scenarios the
Company believes are most likely to occur, but measured against a static
interest rate environment as of March 31, 2006. The Company is positioned to
improve earnings if rates continue to rise. With respect to further reductions
in rates, the Company would experience further negative implications on margins
and earnings; however, the Company does not believe that a 200 basis point
decline is realistic given that interest rates remain at low levels, and in
light of the Federal Reserve's indications with respect to the interest rate
environment. Thus management believes the exposure to further changes in
anticipated interest rates would not have a material negative effect on the
results of operations, although there can be no assurance.
Rising Rate Scenario 8.2%
Ramp Up 200bp- 12 months 2.9%
Ramp Up 100bp- 12 months 1.6%
Most Likely Rates 2.3%
Static Rates -0-%
Ramp Down 100bp- 12 months (1.7)%
Ramp Down 200bp- 12 months (3.4)%
Low Rate Environment (2.0)%
NONINTEREST INCOME AND EXPENSE
Noninterest income consists primarily of service charges on deposit
accounts, gains on sales of loans and fees and other charges for banking
services. Noninterest expense consists primarily of salary and benefit costs and
occupancy and equipment expense. To date, the company has not been required to
pay any premiums for deposit insurance. To the extent that deposit premiums may
become required, the Company's results of operations will be adversely affected.
The following table shows the detail of noninterest income for the three
and nine month periods ended March 31, 2006 and 2005.
TABLE 7
The categories of noninterest income that exceed 1% of operating revenue
are as follows:
THREE MONTHS ENDED
MARCH 31,
------------------
(Dollars in thousands) 2006 2005
---- ----
Service charges on deposit accounts $111 $ 75
Cash management fees 44 28
Other fee income 76 59
Gain on sale of loans 159 162
Gain on sale of securities -- 8
---- ----
Total noninterest income $390 $332
==== ====
The increase in noninterest income during the three month period ended
March 31, 2006 compared to the same period last year is due in large part to an
increase in service charges on deposit accounts and cash management fees as
volumes have increased.
26
TABLE 8
The categories of noninterest expense that exceed 1% of operating revenue
are as follows:
THREE MONTHS ENDED
MARCH 31,
------------------
(Dollars in thousands) 2006 2005
------ ------
Salaries and benefits $2,043 $1,611
Occupancy cost, net 322 307
Equipment expense 180 167
Professional fees 44 38
Data processing costs 181 148
Advertising and public relations 80 61
State franchise tax 129 82
Director fees 76 49
Compliance expense 14 43
Other 275 247
------ ------
Other noninterest expense $3,344 $2,753
====== ======
Noninterest expense increased $591,000 from $2.8 million to $3.3 million
for the first quarter of 2006, as compared to the same period in 2005.
Approximately 73% of this increase is in salary and benefit costs. Throughout
2005 the Company added personnel and administrative staff to support the growth
in customers and transactions being processed. Occupancy costs and equipment
costs increased 5% and 8% respectively over the first quarter of 2006 as a loan
production office was added in Maryland and the mortgage division occupied a new
facility starting in the third quarter of 2005. The increase in state franchise
tax is due to the increased capital of the Bank from earnings retention and
capital infusions in 2005. Compliance expense is now captured as a separate
category and includes expenses related to compliance with regulatory initiatives
such as the Bank Secrecy Act, Section 404 of Sarbanes-Oxley, and the
Graham-Leach-Bliley Act.
DEPOSITS AND OTHER BORROWINGS
The principal sources of funds for the Bank are core deposits (demand
deposits, NOW accounts, money market accounts, savings accounts and certificates
of deposit less than $100,000) from the local market areas surrounding the
Bank's offices. The Bank's deposit base includes transaction accounts, time and
savings accounts and accounts which customers use for cash management and which
provide the Bank with a source of fee income and cross marketing opportunities
as well as a low cost source of funds. Time and savings accounts, including
money market deposit accounts, also provide a relatively stable and low cost
source of funding.
27
TABLE 9
The following table reflects deposits by category for the periods
indicated.
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------
2006 2005 2004
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(Dollars in thousands) BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------- -------- ------- -------- -------
Deposits:
Noninterest-bearing demand $ 92,191 --% $ 90,527 --% $ 68,432 --%
Interest-bearing demand 13,132 0.74 13,868 0.94 11,708 0.65
Money market 148,928 2.75 213,966 2.06 126,366 1.70
Savings 3,109 1.43 4,506 1.35 2,759 1.17
Certificates of deposit of $100,000 or more 141,189 4.26 59,028 2.64 33,003 2.25
Other time 52,672 4.03 14,204 2.48 14,535 2.32
-------- -------- --------
Total interest bearing deposits 359,030 3.45% 305,572 2.13% 188,371 1.77%
-------- -------- --------
Total deposits $451,221 $396,099 $256,803
======== ======== ========
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 as of March
31, 2006.
3 MONTHS 4 TO 6 7 TO 9 10 TO 12 OVER 12
(Dollars in thousands) OR LESS MONTHS MONTHS MONTHS MONTHS TOTAL
-------- ------- ------- -------- ------- --------
Certificates of deposit less
than $100,000 $ 3,672 $31,617 $ 6,297 $ 6,614 $ 3,880 $ 52,081
Certificates of deposit of
$100,000 or more 30,439 54,116 14,228 24,569 13,267 136,619
------- ------- ------- ------- ------- --------
Total certificates of deposit $34,111 $85,733 $20,525 $31,183 $17,148 $188,700
======= ======= ======= ======= ======= ========
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 March 31, 2006, stockholders' equity increased
$7.0 million to $43.3 million from the $39.6 million in equity at March 31,
2005. The rise in equity was a result of the $4.4 million increase in retained
earnings over the past twelve months offset by the $766,000 decrease in other
comprehensive income resulting from an increase in unrealized losses on
securities. In addition, $3.4 million was contributed to capital from the
exercise of options and sale of shares in the Company's KSOP plan.
Capital Requirement. A comparison of the Company's and the Bank's
regulatory capital at March 31, 2006, compared to minimum regulatory capital
guidelines is shown in the table that follows.
28
TABLE 11
MINIMUM MINIMUM TO BE
ACTUAL GUIDELINES "WELL CAPITALIZED"
------ ---------- ------------------
Total Risk-Based Capital
Company 16.3% 8.0% N/A
Bank 12.3% 8.0% 10.0%
Tier 1 Risk-Based Capital
Company 14.9% 4.0% N/A
Bank 11.3% 4.0% 6.0%
Tier 1 Leverage Ratio
Company 11.6% 4.0% N/A
Bank 8.9% 4.0% 5.0%
OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
For information about off balance sheet arrangements and contractual
obligations of the Company, refer to item 7 of the Company's Form 10-K for the
year ended December 31, 2005. There have been no material changes in off balance
sheet arrangements and contractual obligations of the Company since December 31,
2005.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to Item 2 of this report, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", under the caption
"Liquidity and Interest Rate Sensitivity Management."
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, under the supervision and with the participation
of the Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer, evaluated, as of the last day of the period covered by this report, the
effectiveness of the design and operation of the Company's disclosure controls
and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934. Based on that evaluation, the Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective. There were no changes in the Company's
internal control over financial reporting (as defined in Rule 13a-15 under the
Securities Act of 1934) during the quarter ended March 31, 2006 that has
materially affected, or is reasonably likely to materially affect, the Bank's
internal control over financial reporting.
29
PART II. Other Information
Item 1. Legal Proceedings None
Item 1A. Risk Factors - There have been no material changes to the risk factors
as previously disclosed in the Company's Form 10-K for the year ended December
31, 2005.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Sales of Unregistered Securities. None
(b) Use of Proceeds. Not Applicable.
(c) Purchases of Securities. None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information
(a) Required Form 8-K Disclosures None
(b) Changes in Procedures for Director Nominations by
Security Holders. None
Item 6. Exhibits
Number Description
- ------ -----------
3(a) Articles of Incorporation of James Monroe Bancorp (1)
3(b) Bylaws of James Monroe Bancorp (2)
4(a) Indenture, dated as of March 26, 2002 between James Monroe Bancorp,
Inc. and State Street Bank and Trust Company of Connecticut, National
Association, as trustee (3)
4(b) Amended and Restated Declaration of Trust, dated as of March 26, 2002
among James Monroe Bancorp, Inc., State Street Bank and Trust Company
of Connecticut, National Association, as Institutional Trustee, and
John R. Maxwell, David W. Pijor and Richard I. Linhart as
Administrators (3)
4(c) Guarantee Agreement dated as of March 26, 2002, between James Monroe
Bancorp, Inc. and State Street Bank and Trust Company of Connecticut,
National Association, as trustee (3)
4(d) Indenture, dated as of July 31, 2003 between James Monroe Bancorp, Inc.
and U.S. Bank, National Association, as trustee (3)
4(e) Amended and Restated Declaration of Trust, dated as of July 31, 2003
among James Monroe Bancorp, Inc., U.S. Bank, National Association, as
Institutional Trustee, and John R. Maxwell, David W. Pijor and Richard
I. Linhart as Administrators (3)
4(f) Guarantee Agreement dated as of July 31, 2003, between James Monroe
Bancorp, Inc. and U.S. Bank, National Association, as trustee (3)
4(d) Indenture, dated as of October 3, 2005 between James Monroe Bancorp,
Inc. and U.S. Bank National Association, as trustee (3)
4(e) Amended and Restated Declaration of Trust, dated as of October 3, 2005
among James Monroe Bancorp, Inc., U.S. Bank National Association, as
trustee, and John R. Maxwell and John J. Brough as Administrators (3)
4(f) Guarantee Agreement dated as of October 3, 2005, between James Monroe
Bancorp, Inc. and U.S. Bank National Association, as trustee (3)
10(a) Employment contract between James Monroe Bancorp and John R. Maxwell(4)
10(b) Employment contract between James Monroe Bancorp and Richard I. Linhart
(5)
10(c) James Monroe Bancorp 1998 Management Incentive Stock Option Plan (6)
10(d) James Monroe Bancorp 2000 Director's Stock Option Plan (7)
10(e) James Monroe Bancorp, Inc. 2003 Equity Compensation Plan (8)
11 Statement re: Computation of Per Share Earnings
Please refer to Note 2 to the financial statements included in this
report.
21 Subsidiaries of the Registrant
30
31(a) Certification of Chief Executive Officer
31(b) Certification of Chief Operating Officer
31(c) Certification of Chief Financial Officer
32(a) Certification of Chief Executive Officer
32(b) Certification of Chief Operating Officer
32(c) Certification of Chief Financial Officer
- ----------
(1) Incorporated by reference to exhibit 3(a) to the Company's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 2004.
(2) Incorporated by reference to exhibit 3(b) to the Company's registration
statement on Form SB-2 (No. 333-38098).
(3) Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
Regulation SK. The Company agrees to provide a copy of these documents to
the Commission upon request.
(4) Incorporated by reference to exhibit 10.1 to the Company's Current Report
on Form 8-K filed on February 23, 2006.
(5) Incorporated by reference to exhibit of same number to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2003.
(6) Incorporated by reference to exhibit 10(b) to the Company's registration
statement on Form SB-2 (No. 333-38098).
(7) Incorporated by reference to exhibit 10(c) to the Company's registration
statement on Form SB-2 (No. 333-38098).
(8) Incorporated by reference to exhibit 10(e) to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2003.
31
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: May 12, 2006 BY: /s/John R. Maxwell
------------------------------------
John R. Maxwell, President &
Chief Executive Officer
Date: May 12, 2006 BY: /s/ Richard I. Linhart
------------------------------------
Richard I. Linhart, Senior Executive
Vice President & Chief Operating
Officer
Date: May 12, 2006 BY: /s/ John J. Brough
------------------------------------
John J. Brough, Executive Vice
President & Chief Financial Officer
32