Add
MROE to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| MROE > SEC Filings for MROE > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
General
Monroe Bancorp is a one-bank holding company formed under Indiana law in 1984.
The Company holds all of the outstanding stock of Monroe Bank, which was formed
in 1892. Banking is the primary business activity of the Company.
The Bank, with its primary offices located in Bloomington, Indiana, conducts business from eighteen locations in Monroe, Jackson, Lawrence, Hendricks and Hamilton counties in Indiana. Approximately 78 percent of the Bank's deposits are in Monroe County and is concentrated in and around the city of Bloomington.
The Bank is a traditional community bank which provides a variety of financial services to its customers, including:
o accepting deposits;
o making commercial, mortgage and personal loans;
o originating fixed and variable rate residential mortgage loans for
sale into the secondary market;
o providing personal and corporate trust services;
o providing investment advisory and brokerage services; and
o providing annuities and other investment products.
The majority of the Bank's revenue is derived from interest and fees on loans and investments, and the majority of its expense is interest paid on deposits and general and administrative expenses related to its business.
Critical Accounting Policies
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements on pages 37 to 38 of the 2008
Annual Report to Shareholders. Certain of these policies are important to the
portrayal of the Company's financial condition, since they require management to
make difficult, complex or subjective judgments, some of which may relate to
matters that are inherently uncertain. Management has identified these policies
in the Critical Accounting Policies section of the Management's Discussion and
Analysis on pages 22 to 23 of the 2008 Annual Report to Shareholders. There have
been no changes in these critical accounting policies to date.
Non-GAAP Financial Measures
In January 2003, the United States Securities and Exchange Commission ("SEC")
issued Regulation G, "Conditions for Use of Non-GAAP Financial Measures." A
non-GAAP financial measure is a numerical measure of a company's historical or
future performance, financial position, or cash flow that excludes (includes)
amounts or adjustments that are included (excluded) in the most directly
comparable measure calculated in accordance with generally accepted accounting
principles ("GAAP"). Regulation G requires companies that present non-GAAP
financial measures to disclose a numerical reconciliation to the most directly
comparable measurement using GAAP as well as the reason why the non-GAAP measure
is an important measure.
Management has used the following non-GAAP financial measures throughout this quarterly report on Form 10-Q.
o In the "Net Interest Income / Net Interest Margin" section, the discussion is focused on tax-equivalent rates and margin. Municipal bond and municipal loan interest has been converted to a tax-equivalent rate using a federal tax rate of 34 percent. Management believes a discussion of the changes in tax-equivalent rates and margin is more relevant because it better explains changes in after-tax net income.
o In the "Noninterest Income / Noninterest Expense" section of this document, we report noninterest income and noninterest expense without the effect of unrealized gains and losses on securities in a grantor
trust ("rabbi trust") which is a non-GAAP financial measure. Other income includes realized and unrealized securities gains and losses and capital gain dividends on trading securities (mutual funds) held in a rabbi trust in connection with the Company's Directors' and Executives' Deferred Compensation Plans. These securities are held as trading securities, and hence, unrealized gains and losses are recognized on the income statement. Any unrealized or realized loss on securities held in the rabbi trust net of any dividend, interest and capital gain dividend income earned on the securities in the rabbi trust (included in net interest income) are directly offset by a decrease to directors' fee/deferred executive compensation expense (included in other expense), and conversely, any net realized or unrealized gain combined with interest, dividends and capital gain dividends earned on the securities in the trust are directly offset by an increase to directors' fee/deferred executive compensation expense. These offsets are included in the line item identified on page 4 of the consolidated financial statements as "Depreciation in directors' and executives' deferred compensation plans." The activity in the rabbi trust has no effect on the Company's net income, therefore, management believes a more accurate comparison of current and prior year noninterest income and noninterest expense can be made if the rabbi trust realized and unrealized gains, losses, capital gain dividends and offsetting appreciation (depreciation) on the deferred compensation plans and trustee fees are removed.
Results of Operations
Overview
Net income for the third quarter of 2009 was $710,000, a 3.4 percent decrease
from net income of $735,000 for the same quarter last year. Basic and diluted
earnings per share for the third quarter of 2009 were $0.114, down 3.4 percent
from $0.118 per basic and diluted share for the third quarter of 2008.
Annualized return on average equity "ROAE" for the third quarter of 2009
decreased to 4.95 percent compared to 5.20 percent for the third quarter of
2008. The annualized return on average assets "ROAA" was 0.34 percent for the
third quarter of 2009 compared to 0.37 percent for the same period of 2008.
Net income for the first nine months of 2009 was $2,592,000, a 38.1 percent decrease from net income of $4,188,000 for the same period last year. Basic earnings per share for the first nine months of 2009 were $0.417, down 38.1 percent from $0.674 per share for the same period of 2008. Diluted earnings per share for the first nine months of 2009 were $0.417, down 38.0 percent from $0.673 per share for the same period of 2008. Annualized ROAE for the nine months ended September 30, 2009 decreased to 6.14 percent compared to 10.01 percent for the first nine months of 2008. The annualized ROAA was 0.42 percent for the nine months ended September 30, 2009 compared to 0.71 percent for the first nine months of 2008.
The decline in net income for the third quarter was primarily due to net losses on foreclosed assets (other real estate owned and repossessions) and increased subordinated debt interest expense partially offset by a decrease in the provision for loan losses expense. Net losses on foreclosed assets totaled $761,000 in the third quarter of 2009 compared to a net gain of $4,000 in the same period of 2008. An additional $287,000 of subordinated debt interest expense was incurred in the third quarter of 2009 as a result of the Company's July 17, 2009 issuance of $13,000,000 of subordinated debt. The provision for loan losses totaled $2,200,000 for the third quarter of 2009 compared to $2,800,000 for the same period of 2008. Net interest income for the third quarter of 2009, after the provision for loan losses, increased $704,000, or 22.1 percent from the third quarter of 2008. Net interest income for the nine months ended September 30, 2009, after the provision for loan losses, decreased by $1,810,000 or 14.1 percent compared to the same period in 2008.
The following items affected third quarter and year-to-date results:
o General Economic Conditions in the Real Estate Markets - Among the primary areas of management focus during 2008 and 2009 were managing the deterioration of asset quality resulting from slowing economic activity and stresses affecting residential housing markets. Nonperforming assets and 90-day past due loans totaled $21,622,000 (2.62 percent of total assets) at September 30, 2009 compared to $22,959,000 (2.79 percent of total assets) at June 30, 2009 and $14,565,000 (1.78 percent of total assets) at September 30, 2008. The provision for loan losses for the nine months ended September 30, 2009
totaled $7,000,000, a $2,270,000 increase over the $4,730,000
provision made during the same period of 2008 due to management's
assessment of probable incurred losses in the Bank's loan portfolio.
o Gains on Sales of Available for Sale Securities - Gains of $1,656,000
were realized from sales of available for sale securities during the
first nine months of 2009 compared to $775,000 in the same period of
2008.
o Compensation Expenses - Total compensation expenses (salaries,
incentive compensation and benefits) decreased by $568,000 or 6.0
percent to $8,884,000 for the first nine months of 2009 compared to
$9,452,000 for the first nine months of 2008 due primarily to a
reduction in staff levels and the reduction and elimination of certain
incentive plans.
o Gains on Loan Sales - Gains on the sale of loans totaled $1,106,000
for the first nine months of 2009, a 97.1 percent increase over the
$561,000 in the first nine months of 2008 due to strong residential
mortgage loan refinancing activity.
o FDIC Assessment Expense - The Company experienced an $871,000 or 253.9
percent increase in deposit insurance expense in the first nine months
of 2009 compared to the same period in 2008 related to the insurance
assessment methodology set forth in the Federal Deposit Insurance
Reform Act of 2005 ("FDIC Act"). The FDIC Act allocated credits to the
Bank that could be applied toward quarterly FDIC assessments. The
Bank's credits were depleted in the first quarter of 2008 which
contributed to the increased 2009 expense. In addition, a special FDIC
assessment of $378,000 was incurred in the second quarter of 2009
which substantially increased expense in 2009 compared to 2008.
In February 2009, the Board of Directors of the Federal Deposit Insurance Corporation voted to amend the restoration plan for the Deposit Insurance Fund "DIF". The amended restoration plan extended the period of time to raise the DIF reserve ratio to 1.15 percent from five to seven years. The amended restoration plan also included a final rule that set assessment rates. Under this final rule which began on April 1, 2009, the FDIC premium assessed to the Company increased.
On May 22, 2009, the Board of Directors of the FDIC voted to levy a special assessment on insured institutions as part of the agency's efforts to rebuild the DIF and help maintain public confidence in the banking system. The final rule established a special assessment of five basis points on each FDIC-insured depository institution's assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment was due on September 30, 2009 and was collected by the FDIC via electronic Automated Clearing House payment on October 1, 2009. It is possible that an additional special assessment will be necessary in the fourth quarter of 2009, although the amount of such a special assessment is uncertain.
On September 29, 2009, the FDIC Board of Directors adopted a Notice of Proposed Rulemaking "NPR" that would require insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC Board also voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011, and extend the restoration period from seven to eight years. Public comments on the NPR were due 30 days after publication in the Federal Register.
Net Interest Income / Net Interest Margin
The following table presents information to assist in analyzing net interest
income. The table of Average Balance Sheets and Interest Rates presents the
major components of interest-earning assets and interest-bearing liabilities,
related interest income and expense and the resulting yield or cost. Interest
income presented in the table has been adjusted to a tax-equivalent basis
assuming a 34 percent tax rate. The tax-equivalent adjustment recognizes the
income tax savings when comparing taxable and tax-exempt assets.
Average Balance Sheets and Interest Rates
------------------------------------ ------------------------------------
Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
------------------------------------ ------------------------------------
Average Average Rate Average Average Rate
ASSETS Balance Interest (annualized) Balance Interest (annualized)
------- -------- ------------ ------- -------- ------------
Interest earning assets
Securities
Taxable ........................................ $ 81,724 $ 1,577 2.58% $ 76,414 $ 2,668 4.66%
Tax-exempt (1) ................................. 24,004 795 4.43% 37,192 1,444 5.19%
--------- --------- --------- ---------
Total securities ........................... 105,728 2,372 3.00% 113,606 4,112 4.83%
Loans (2) ........................................... 625,883 25,544 5.46% 594,304 28,312 6.36%
FHLB Stock .......................................... 2,339 27 1.54% 2,312 92 5.32%
Federal funds sold .................................. 25,709 28 0.15% 7,851 162 2.75%
Interest-earning deposits ........................... 6,495 33 0.68% 11,352 192 2.25%
--------- --------- --------- ---------
Total interest earning assets .............. 766,154 28,004 4.89% 729,425 32,870 6.02%
--------- --------- --------- ---------
Noninterest earning assets
Allowance for loan losses ........................... (12,798) (7,461)
Premises and equipment & other assets ............... 55,714 47,563
Cash and due from banks ............................. 14,008 13,631
--------- ---------
Total assets .............................. $ 823,078 $ 783,158
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Total interest-bearing deposits ..................... $ 584,635 8,294 1.90% $ 564,251 12,985 3.07%
Borrowed funds ...................................... 89,203 1,365 2.05% 74,286 1,724 3.10%
--------- --------- --------- ---------
Total interest-bearing liabilities ........ 673,838 9,659 1.92% 638,537 14,709 3.08%
--------- --------- --------- ---------
Noninterest-bearing liabilities
Noninterest-bearing demand deposits ................. 82,560 78,730
Other liabilities ................................... 10,211 9,988
Shareholders' equity ................................ 56,469 55,903
--------- ---------
Total liabilities and shareholders' equity . $ 823,078 $ 783,158
========= =========
Interest margin recap
Net interest income and interest rate spread
Net interest margin .................................. 3.15% 3.23%
Tax-equivalent net interest income spread ............ 18,345 2.97% 18,161 2.94%
Tax-equivalent net interest margin as a percent of
total average earning assets .................. 3.20% 3.33%
Tax-equivalent adjustment (1) ............................. 274 550
--------- ---------
Net interest income ................................. $ 18,071 $ 17,611
========= =========
|
Average Balance Sheets and Interest Rates
------------------------------------- -------------------------------------
Three Months Ended September 30, 2009 Three Months Ended September 30, 2008
------------------------------------- -------------------------------------
Average Average Rate Average Average Rate
ASSETS Balance Interest (annualized) Balance Interest (annualized)
------- -------- ------------ ------- -------- ------------
Interest earning assets
Securities
Taxable ......................................... $ 87,679 $ 511 2.31% $ 70,286 $ 799 4.52%
Tax-exempt (1) .................................. 13,912 135 3.85% 33,299 427 5.10%
--------- --------- --------- ---------
Total securities ............................ 101,591 646 2.52% 103,585 1,226 4.71%
Loans (2) ............................................ 616,125 8,537 5.50% 609,184 9,252 6.04%
FHLB Stock ........................................... 2,353 19 3.20% 2,312 30 5.19%
Federal funds sold ................................... 33,927 11 0.13% 9,161 52 2.25%
Interest-earning deposits ............................ 6,953 10 0.57% 14,685 78 2.11%
--------- --------- --------- ---------
Total interest earning assets ............... 760,949 9,223 4.81% 738,927 10,638 5.73%
--------- --------- --------- ---------
Noninterest earning assets
Allowance for loan losses ............................ (13,769) (8,116)
Premises and equipment & other assets ................ 55,994 47,458
Cash and due from banks .............................. 13,182 14,058
--------- ---------
Total assets ................................ $ 816,356 $ 792,327
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Total interest-bearing deposits ...................... $ 565,264 2,430 1.71% $ 570,606 3,949 2.75%
Borrowed funds ....................................... 98,339 661 2.67% 75,238 543 2.87%
--------- --------- --------- ---------
Total interest-bearing liabilities .......... 663,603 3,091 1.85% 645,844 4,492 2.77%
--------- --------- --------- ---------
Noninterest-bearing liabilities
Noninterest-bearing demand deposits .................. 85,037 81,425
Other liabilities .................................... 10,797 8,816
Shareholders' equity ................................. 56,919 56,242
--------- ---------
Total liabilities and shareholders' equity .. $ 816,356 $ 792,327
========= =========
Interest margin recap
Net interest income and interest rate spread
Net interest margin .................................. 3.17% 3.22%
Tax-equivalent net interest income spread ............ $ 6,132 2.96% $ 6,146 2.96%
Tax-equivalent net interest margin as a percent of
total average earning assets .................... 3.20% 3.31%
Tax-equivalent adjustment (1) ............................. 48 166
--------- ---------
Net interest income ......................... $ 6,084 $ 5,980
========= =========
|
Net interest income is the primary source of the Company's earnings. It is a function of the net interest margin and the volume of average earning assets. The net interest margin as a percent of average earnings assets was 3.15 percent for the first nine months of 2009, down from 3.23 percent for the same period in 2008 and was 3.17 percent for the third quarter of 2009, down from 3.22 percent for the same period in 2008. Adjusting for tax-exempt income and expense, as discussed in the "Non-GAAP Financial Measures" section, the tax-equivalent net interest margin as a percent of average earning assets was 3.20 percent for the first nine months of 2009, down from 3.33 percent for the same period last year and was 3.20 percent for the quarter ended September 30, 2009, down from 3.31 percent for the same quarter last year. The thirteen basis point drop in the tax-equivalent net interest margin during the first nine months of 2009 compared to the same period in 2008 and the eleven basis point drop in the third quarter of 2009 compared to 2008 were primarily the result of higher balances of nonperforming assets and fixed assets, and the issuance of $13,000,000 of subordinated debt during the first nine months of 2009 and significantly higher loan fees during the first nine months of 2008.
Net interest income was $18,071,000 for the nine months ended September 30, 2009 compared to $17,611,000 for the same period in 2008, an increase of 2.6 percent. Adjusting for tax-exempt income and expense, as discussed in the "Non-GAAP Financial Measures" section, tax-equivalent net interest income was $18,345,000 for the nine months ended September 30, 2009 compared to $18,161,000 for the same period in 2008, an increase of 1.0 percent.
Net interest income was $6,084,000 for the three months ended September 30, 2009 compared to $5,980,000 for the same period in 2008, an increase of 1.7 percent. Adjusting for tax-exempt income and expense, as discussed in the "Non-GAAP Financial Measures" section, tax-equivalent net interest income was $6,132,000 for the three months ended September 30, 2009 compared to $6,146,000 in the same period in 2008, a decrease of 0.2 percent.
Noninterest Income / Noninterest Expense
Total noninterest income for the first nine months of 2009 was $8,861,000
compared to $7,937,000 for the same period in 2008. Excluding the effect of the
Company's deferred compensation plan, discussed in the "Non-GAAP Financial
Measures" section, noninterest income for the nine months ended September 30,
2009 was $8,595,000 compared to $8,393,000 for the same period of 2008, an
increase of $202,000 or 2.4 percent. The effect of the Company's deferred
compensation plan for the first nine months of 2009 was a $266,000 increase in
noninterest income compared to a $456,000 decrease in the same period of 2008.
Significant changes in noninterest income occurred primarily in the following
areas:
o Gains of $1,656,000 were realized from sales of available for sale
securities during the first nine months of 2009 compared to $775,000
in the same period of 2008.
o Gains on the sale of loans totaled $1,106,000 for the first nine
months of 2009, a 97.1 percent increase over the $561,000 in the first
nine months of 2008 due to strong residential mortgage loan
refinancing activity.
Total noninterest income for the third quarter of 2009 was $2,413,000, a $136,000 or 5.3 percent decrease from $2,549,000 for the same period in 2008. Excluding the effect of the Company's deferred compensation plan, discussed in the "Non-GAAP Financial Measures" section, noninterest income totaled $2,237,000 for the third quarter of 2008 compared to $2,771,000 for the same period of 2008, a decrease of $534,000 or 19.3 percent.
Significant changes in noninterest income occurred primarily in the following
areas:
o Net losses on foreclosed assets totaled $761,000 in the third quarter
of 2009 compared to a net gain of $4,000 in the same period of 2008.
This decrease to income resulted primarily from declines in market
values in the residential housing market and declining general
economic conditions during the Company's holding period for these
assets.
o Gains on the sale of loans totaled $361,000 for the three months ended
September 30, 2009, a 91.0 percent increase over the $189,000 for the
same period of 2008 due to strong residential mortgage loan
refinancing activity.
For the nine months ended September 30, 2009, total noninterest expense was $16,775,000 compared to $15,830,000 for the same period in 2008. Excluding the effect of the Company's deferred compensation plan, discussed in the "Use of Non-GAAP Financial Measures" section, total noninterest expense for the first nine months of 2009 was $16,462,000, a $252,000 or 1.6 percent increase from $16,210,000 for the same period in 2008. The effect of the Company's deferred
compensation plan for the first nine months of 2009 was a $313,000 increase in noninterest expense compared to a $380,000 decrease in the same period of 2008.
. . .
|
|