ITEM 1. BUSINESS.
GENERAL -------
Monroe Bancorp (the "Company") is a one-bank holding company formed as a general corporation under Indiana law in 1984. At December 31, 2009, on a consolidated basis the Company had total assets of $802,451,000, total loans including loans held for sale of $587,365,000 and total deposits of $634,254,000. The Company holds all of the outstanding stock of Monroe Bank (the "Bank"), which was formed in 1892. The Bank is the primary business activity of the Company.
The Bank, headquartered in Bloomington, Indiana, conducts business from 18 locations in Monroe, Hamilton, Hendricks, Jackson and Lawrence Counties in Indiana. Approximately 78 percent of the Bank's deposits are in Monroe County and are concentrated in and around the city of Bloomington. However, the Company's anticipated continued development of its existing and additional banking business in Hamilton County, Hendricks County and other counties in the greater Indianapolis area, is expected to gradually reduce this concentration.
The Company, as a bank holding company, engages in commercial banking through the Bank. The Company may also engage in certain non-banking activities closely related to banking and own certain other business companies that are not banks, subject to applicable laws and regulations, although it has no current plans to do so.
As of December 31, 2009, the Bank had 204 full-time equivalent employees.
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 installment loans; o originating residential mortgage loans that are generally sold into the secondary market; o providing personal and corporate trust services; o providing investment advisory and brokerage services; and o providing fixed and variable annuities.
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.
Based upon a closing price of $6.24 for the Company's stock on December 31, 2009, the Company's $0.16 dividend per share provided a dividend yield of 2.56 percent. The Company's stock trades on the NASDAQ Global Market under the symbol MROE.
Management believes that the Company's culture of community involvement, service quality, and customer focus has played a significant role in the Company's growth and success over the years. Management also believes that other significant factors contributing to the Company's growth include, but are not limited to, the attractiveness of the Company's primary markets, an involved Board that sets high performance standards and the increased use of incentive and commission compensation plans.
The primary issue that affected the Company in 2009 was the continued weakness of the economy and related stress in residential housing markets. The Company focused much of its efforts on managing asset quality issues resulting from the effect that economic conditions had on loans made primarily to residential real estate development related projects. The increase in the Company's provision for loan losses ($11,850,000 in 2009 compared to $8,880,000 in 2008) was largely asset quality issues related to this market segment.
Management's efforts focused on developing methodologies to identify potentially weak credits as early as possible, which enabled a proactive and aggressive approach to managing these credits and the development of workout strategies as appropriate. Nonetheless, loans 30 days past due increased from $17,319,000 (2.7 percent of total loans) at December 31, 2008 to $38,843,000 (6.6 percent of total loans) at December 31, 2009. Past due loans increased during this period by $21,524,000 or 124.3 percent. During the same period, non-performing loans (non-accrual loans and troubled debt restructuring) increased from $14,329,000 (2.3 percent of total loans) to $20,603,000 (3.5 percent of total loans) at December 31, 2009. Of the non-performing loans outstanding at December 31, 2009, $20,299,000 or 98.5 percent were secured by real estate (net of any charge-downs previously taken). The increase in past due loans and non-performing loans was driven by loans internally defined as Residential Real Estate Development, Residential Speculative Construction, Unimproved Land and loans secured by 1-4 Family Non-Owner Occupied Residential Properties. Management believes the presence of real estate collateral mitigates the level of expected loss though the level of mitigation is uncertain due to the difficulty ascertaining real estate values at this time. Residential Real Estate Development, Residential Speculative Construction, Unimproved Land and loans secured by 1-4 Family Non-Owner Occupied Residential Properties that were 30 days or more past due at year-end 2009 totaled $13,038,000.
A second area of focus was the growth of noninterest income. The Company experienced significant noninterest income growth during the year, primarily in gains on sales of available for sale securities, net gains on loan sales and debit card interchange fees. Gains on sales of available for sale securities were $2,146,000 in 2009, compared to $951,000 in 2008, an increase of 125.7 percent primarily due to the quality and increased value of the Company's investment portfolio. Net gains on loan sales were $1,364,000 in 2009, compared to $703,000 in 2008, an increase of 94.0 percent largely due to strong residential mortgage refinancing activity. The Company does not anticipate security gains and net gains on loan sales to continue at the same rate in 2010. Debit card interchange fees were $1,178,000 in 2009, compared to $1,098,000 in 2008, an increase of 7.3 percent primarily due to increased debit card usage.
A third area of Management focus was staff efficiency and cost management. Excluding the effect of the directors' and executives' rabbi trust deferred compensation plan and the $1,004,000 increase in Federal Deposit Insurance Corporation (the "FDIC") assessment, the Company reduced all other operating expenses in 2009 by $876,000, or 4.2 percent compared to 2008. The reduction in expenses was largely due to a $729,000 decrease in salaries and employee benefits largely driven by a reduction in the average number of employees from 225 in 2008 to 210 in 2009. A reduction in advertising expenditures also contributed to the decline in operating expense. Advertising expense decreased $188,000, or 26.0 percent in 2009 compared to 2008 due to the Company's cost management efforts.
A fourth area of Management focus was pricing discipline and other strategies to offset pressure on the Company's net interest margin created by the interest expense for the subordinated debt issuance in July 2009 and the increase in non-accrual loans. To combat this and other adverse factors, Management's efforts to improve its net interest margin included the development of a loan pricing model, establishing floors on variable rate loan products, increased efforts to attract lower cost checking accounts and increased use of competitively priced brokered certificates of deposit. Despite these and other actions, the Company's tax-equivalent net interest margin decreased to 3.15 percent for 2009 compared to 3.30 percent for 2008. The fifteen basis point (100 basis points equals 1 percent) decline was largely a result of the $624,000 of interest expense for the subordinated debt issued in July 2009 and the increase in non-accrual loan balances, which decreased the tax-equivalent net interest
margin by approximately eight basis points and three basis points, respectively, in 2009. Non-accrual loans totaled $20,603,000 at year-end 2009 compared to $14,329,000 at year-end 2008, an increase of $6,274,000 or 43.8 percent. The increase in non-accrual loans resulted from slowing economic activity and stresses in the residential housing market.
In addition to the areas of focus discussed above, Management took steps in 2009 to reduce interest rate risk associated with the increasing possibility of rising rates or a yield curve with increasing slope. To this end, Management reduced its liability sensitivity by adding short term assets that shortened the average life of the Company's investment portfolio and by adding interest rate floors to many new and renewing loans.
Company Goals - ------------- The Company's business strategies are focused on five major areas:
o improving asset quality and strengthening credit processes; o increasing the Company's net interest margin; o managing interest rate risk; o increasing the ratio of noninterest income to net interest income; and o increasing operating efficiency.
Achievement of the Company's financial objectives will require continued moderate loan and deposit growth from the Bank's initiatives in Hendricks County and Hamilton County, two attractive markets in the greater Indianapolis area, as well as from its core markets in and around Monroe County.
Management will measure its overall success in terms of earnings per share growth rate, return on equity, the ratio of non-performing loans to total loans, service quality and staff retention rates.
Competition - ----------- The Company's market area is highly competitive. In addition to competition from commercial banks (including certain larger regional banks) and savings associations, the Company also competes with numerous credit unions, finance companies, insurance companies, mortgage companies, securities and brokerage firms, money market mutual funds, loan production offices and other providers of financial services. The Company competes with these firms in terms of pricing, delivery channels, product features, service quality, responsiveness and other factors.
The Company also competes directly with a large number of financial service providers who do not have a physical presence in our markets (e.g., Capital One, Wells Fargo) but have been successful in selling their services using technology and sophisticated target marketing techniques. We fully expect these companies to increase their future efforts to attract business from our customers.
The Company's success, in view of the substantial competition, is felt to be a result of factors such as its history of community involvement and support, commitment to outstanding customer service, awareness of and responsiveness to customer needs, and its attractive mix of high touch and high tech delivery channels. The impact of these factors can be seen in the success the Company has had in increasing its share of deposits in Monroe County.
The Company has been able to increase its deposit market share in the Monroe County market through competitive pricing, marketing and an emphasis on service. According to data published annually by the FDIC, all FDIC insured deposits held by financial institutions in Monroe County grew by $407,856,000, or 31.8 percent, during the five-year period between June 30, 2004 and June 30, 2009. During the same period, the Company was able to grow its deposits within Monroe County by $170,830,000 (48.5 percent) and increase its market share from 27.5 percent in 2004 to 30.9 percent in 2009. Deposit growth over the last five years
has been consistent with the Company's growth in loans. In 2009, the Company addressed short-term liquidity needs by borrowing federal funds (short-term borrowings from other banks) and acquiring brokered and short-term public fund certificates of deposit.
Available Information - --------------------- All reports filed electronically by the Company with the United States Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form 8-K, as well as any amendments to those reports are accessible at no cost on the Company's Web site at www.monroebank.com. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information concerning issuers that file electronically with the SEC, and the Company's filings are accessible on the SEC's web site at www.sec.gov. The public may read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC 20549-0213. The public may obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
REGULATION AND SUPERVISION - --------------------------
Both the Company and the Bank operate in highly regulated environments and are subject to supervision and regulation by several governmental regulatory agencies, including the Board of Governors of the Federal Reserve (the "Federal Reserve"), the FDIC and the Indiana Department of Financial Institutions (the "DFI"). The laws and regulations established by these agencies are generally intended to protect depositors, not shareholders. Changes in applicable laws, regulations, governmental policies, income tax laws and accounting principles may have a material effect on our business and prospects. The following summary is qualified by reference to the statutory and regulatory provisions discussed.
MONROE BANCORP - --------------
The Bank Holding Company Act. Because the Company owns all of the outstanding capital stock of the Bank, it is registered as a bank holding company under the federal Bank Holding Company Act of 1956, is subject to periodic examination by the Federal Reserve, and is required to file periodic reports of our operations and any additional information that the Federal Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before acquiring another bank holding company or acquiring more than five percent of the voting shares of a bank (unless it already owns or controls the majority of such shares).
Bank holding companies are prohibited, with certain limited exceptions, from engaging in activities other than those of banking or of managing or controlling banks. They are also prohibited from acquiring or retaining direct or indirect ownership or control of voting shares or assets of any company which is not a bank or bank holding company, other than subsidiary companies furnishing services to or performing services for their subsidiaries, and other subsidiaries engaged in activities which the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be incidental to these operations. The Bank Holding Company Act does not place territorial restrictions on the activities of such nonbanking-related activities.
Effective as of March 11, 2001, the Gramm-Leach-Bliley Act allows bank holding companies which meet certain management, capital and CRA standards and which have elected to become a financial holding company to engage in a substantially broader range of nonbanking activities than was previously permissible, including insurance underwriting and agency, and underwriting and making merchant banking investments in commercial and financial companies. This act also removes various restrictions that previously applied to bank holding company ownership of securities firms and mutual fund advisory companies.
The Company does not currently plan to engage in any activity other than owning the stock of the Bank.
Dividends. The Federal Reserve's policy is that a bank holding company experiencing earnings weakness should not pay cash dividends exceeding its net income or which could only be funded in ways that weaken the bank holding company's financial health, such as by borrowing. Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
Source of Strength. In accordance with Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances in which the Company might not otherwise do so.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. Among other requirements, the Sarbanes-Oxley Act established: (i) new requirements for audit committees of public companies, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the chief executive officers and chief financial officers of reporting companies; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for reporting companies regarding various matters relating to corporate governance; and (v) new and increased civil and criminal penalties for violation of the securities laws.
MONROE BANK - -----------
General Regulatory Supervision. The Bank is an Indiana-chartered banking corporation subject to examination by the DFI. The DFI and the FDIC regulate or monitor virtually all areas of the Bank's operations. The Bank must undergo regular on-site examinations by the FDIC and DFI and must submit annual reports to the FDIC and the DFI.
Lending Limits. Under Indiana law, the total loans and extensions of credit by an Indiana-chartered bank to a borrower outstanding at one time and not fully secured may not exceed 15 percent of the bank's capital and unimpaired surplus. In addition, the total amount of outstanding loans and extensions of credit to any borrower outstanding at one time and fully secured by readily marketable collateral may not exceed ten percent of the unimpaired capital and unimpaired surplus of the bank (this limitation is separate from and in addition to the above limitation).
Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.
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 which totaled $378,000 was due on September 30, 2009 and was collected by the FDIC via electronic Automated Clearing House payment on October 1, 2009.
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. This regulation became effective on November 17, 2009. 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.
Deposits in the Bank are insured by the FDIC up to a maximum amount, which is generally $250,000 (in effect until December 31, 2013) per depositor subject to aggregation rules. The Bank is also subject to assessment for the Financial Corporation ("FICO") to service the interest on its bond obligations. The amount assessed on individual institutions, including the Bank, by FICO is in addition to the amount paid for deposit insurance according to the risk-related assessment rate schedule. Increases in deposit insurance premiums or changes in risk classification will increase the Bank's cost of funds, and it may not be able to pass these costs on to its customers. During 2007, the FDIC began collecting deposit insurance premiums in arrears. The last payment in the amount of $4,334,000 was made by the Bank on December 30, 2009, for the quarter ended September 30, 2009 and prepayment of the quarter ending December 31, 2009 and for all of 2010, 2011 and 2012.
Transactions with Affiliates and Insiders. The Bank is subject to limitations on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements. Compliance is also required with certain provisions designed to avoid the taking of low quality assets. The Bank is also prohibited from engaging in certain transactions with certain affiliates and insiders unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies. Extensions of credit by the Bank to its executive officers, directors, certain principal shareholders, and their related interests must:
o be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties; and o not involve more than the normal risk of repayment or present other unfavorable features.
Dividends. Under Indiana law, the Bank may pay dividends from its undivided profits in an amount declared by its Board of Directors, subject to prior approval of the DFI if the proposed dividend, when added to all prior dividends declared during the current calendar year, would be greater than the current year's "net profits" and retained "net profits" for the previous two calendar years.
Federal law generally prohibits the Bank from paying a dividend to the Company if the depository institution would thereafter be undercapitalized. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice.
Branching and Acquisitions. Branching by the Bank requires the prior approval of the FDIC and the DFI. Under current law, Indiana chartered banks may establish branches throughout the state and in other states. Congress authorized interstate branching, with certain limitations, beginning in 1997. Indiana law authorizes an Indiana bank to establish one or more branches in states other than Indiana through interstate merger transactions and to establish one or more interstate branches through de novo branching or the acquisition of a branch.
Community Reinvestment Act. The Community Reinvestment Act requires that the FDIC evaluate the record of the Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could result in the imposition of additional requirements and limitations on the Bank.
Capital Regulations. The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and account for off-balance sheet items. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk-weighted categories of 0 percent, 20 percent, 50 percent, or 100 percent, with higher levels of capital being required for the categories perceived as representing greater risk. The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios in excess of the minimums. Neither the Company nor the Bank has received any notice indicating that either is subject to higher capital requirements.
The federal bank regulatory authorities have also implemented a leverage ratio to supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base.
The Bank is also subject to the FDIC's "prompt corrective action" regulations, which implement a capital-based regulatory scheme designed to promote early intervention for troubled banks. This framework contains five categories of compliance with regulatory capital requirements, including "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." As of December 31, 2009, the Bank was qualified as "well capitalized." It should be noted that a Bank's capital category is determined solely for the purpose of applying the FDIC's "prompt corrective action" regulations and that the capital category may not constitute an accurate representation of the Bank's overall financial condition or prospects. The degree of regulatory scrutiny of a financial institution increases, and the permissible activities of the institution decrease, as it moves downward through the capital categories. Bank holding companies controlling financial institutions can be required to boost the institutions' capital and to partially guarantee the institutions' performance.
The Company took several actions in 2009 to preserve and increase capital. On April 27, 2009, the Company announced it would preserve capital by reducing its quarterly dividend from $0.13 per share to $0.01 per share and announced its plan to issue Subordinated Debentures. On July 17, 2009, $13,000,000 of Tier 2 capital was raised by the Company through the issuance of Subordinated Debentures. The Subordinated Debentures were issued as the result of a public offering. The Subordinated Debentures carry an interest rate of 10 percent and will mature on June 30, 2019. The Company has the right to call the Subordinated Debentures at any time after three years. On July 23, 2009, the Company's Board of Directors voted to provide $10,000,000 of the net proceeds of the offering to the Bank as additional capital with the remaining proceeds to be used by the Company for general corporate purposes.
The Company did not participate in the U. S. Treasury's Troubled Asset Relief Program ("TARP") Capital Purchase Program ("CPP") based upon the Board's conclusion that it was not in the best long term interest of the Company to do so.
Other Regulations. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank's loan operations are also subject to federal and state laws applicable to credit transactions, such as the:
o Truth-In-Lending Act and state consumer protection laws, governing disclosures of credit terms and prohibitive certain practices with regard to consumer borrowers; o Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; o Equal Credit Opportunity Act and other fair lending laws, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; o Fair Credit Reporting Act of 1978 and Fair and Accurate Transactions Act of 2003, governing the use and provision of information to credit reporting agencies; o Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and o rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The deposit operations of the Bank also are subject to the:
o Customer Information Security Guidelines. The federal bank regulatory agencies have adopted final guidelines (the "Guidelines") for safeguarding confidential customer information. The Guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors, to create a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information; and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. o Electronic Funds Transfer Act, and Regulation E. The Electronic Funds Transfer Act, which is implemented by Regulation E, governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking service.
Enforcement Powers. Federal regulatory agencies may assess civil and criminal penalties against depository institutions and certain "institution-affiliated parties," including management, employees, and agents of a financial institution, as well as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution's affairs. In addition, regulators may commence enforcement actions against institutions and institution-affiliated parties. Possible enforcement actions include the termination of deposit insurance. Furthermore, regulators may issue cease-and-desist orders to, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the regulator to be appropriate.
Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Bank's monetary policies have
had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.
Recent Legislative and Regulatory Initiatives to Address Financial and Economic Crises. Congress, the United States Department of the Treasury ("Treasury") and the federal banking regulators, including the FDIC, have taken broad action since early September 2008 to address volatility in the U.S. banking system and financial markets.
In October 2008, the Emergency Economic Stabilization Act of 2008 ("EESA") was enacted. The EESA authorizes Treasury to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in the Troubled Asset Relief Program ("TARP"). The purpose of TARP is to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. As part of TARP, Treasury has allocated $250 billion towards the Capital Purchase Program ("CPP"). Under the CPP, Treasury will purchase debt or equity securities from participating institutions. Participants in the CPP are subject to executive compensation limits and are encouraged to expand their lending and mortgage loan modifications.
EESA also increased FDIC deposit insurance on most accounts from $100,000 to $250,000. This increase is in place until the end of 2013 and is not covered by deposit insurance premiums paid by the banking industry.
Following a systemic risk determination, on October 14, 2008, the FDIC established a Temporary Liquidity Guarantee Program ("TLGP"). The TLGP includes the Transaction Account Guarantee Program ("TAGP"), which provides unlimited deposit insurance coverage for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. As originally enacted, the TAGP expired on December 31, 2009, and banks participating in the TAGP paid a 10 basis point fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place. On October 1, 2009, the FDIC extended the TAGP for six months until June 30, 2010. Any insured depository institution that was participating in the TAGP program as of October 1, 2009 was permitted to continue in the TAGP during the extension period. The annual assessment rate that applies to participating institutions during the extension period is either 15 basis points, 20 basis points or 25 basis points, depending on the "Risk Category" assigned to the institution under the FDIC's risk-based premium system. Any institution participating in the TAGP program as of October 1, 2009 that desired to opt out of the TAGP extension was required to submit its opt-out election to the FDIC on or before November 2, 2009.
The TLGP also includes the Debt Guarantee Program ("DGP"), under which the FDIC guarantees certain senior unsecured debt of FDIC-insured institutions and their holding companies. The unsecured debt must be issued on or after October 14, 2008 and not later than June 30, 2009, and the guarantee is effective through the earlier of the maturity date or June 30, 2012. The DGP coverage limit is generally 125 percent of the entity's eligible debt outstanding on September 30, 2008 and scheduled to mature on or before June 30, 2009 or, for certain insured institutions, 2 percent of their total liabilities as of September 30, 2008. Depending on the term of the debt maturity, the nonrefundable DGP fee ranges from 50 to 100 basis points (annualized) for covered debt outstanding until the earlier of maturity or June 30, 2012. The TAGP and DGP are in effect for all
eligible entities, unless the entity opted out on or before December 5, 2008. The Company did not opt out of the TAGP or the DGP, although it does not have any eligible debt and therefore does not currently anticipate paying any premium associated with the DGP.
On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 ("ARRA"), more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. In addition, ARRA imposes new executive compensation and corporate governance limits on current and future participants in the Treasury's Capital Purchase Program, which would include the Company if it participates the Capital Purchase Program, which are in addition to those previously announced by Treasury. The new limits remain in place until the participant has redeemed the preferred stock sold to Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to Treasury's consultation with the recipient's appropriate federal regulator.
On May 20, 2009, the Helping Families Save Their Homes Act of 2009, which extended the temporary increase in the standard maximum deposit insurance amount provided by the FDIC to $250,000 per depositor through December 31, 2013, was signed into law. This extension of the temporary $250,000 coverage limit (pursuant to EESA) became effective immediately upon the President's signature. The legislation provides that the standard maximum deposit insurance amount provided by the FDIC will return to $100,000 on January 1, 2014.
On October 22, 2009, the Federal Reserve issued a comprehensive proposal on incentive compensation policies (the "Incentive Compensation Proposal") intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This guidance sets expectations for banking organizations concerning their incentive compensation arrangements and related risk-management, control and governance processes. The Incentive Compensation Proposal, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon three primary principles: (i) balanced risk-taking incentives, (ii) compatibility with effective controls and risk management, and (iii) strong corporate governance. Any deficiencies in compensation practices that are identified may be incorporated into the organization's supervisory ratings, which can affect its ability to make acquisitions or perform other actions. In addition, under the Incentive Compensation Proposal, the Federal Reserve in appropriate circumstances may take enforcement action against a banking organization.
On January 14, 2010, the current administration announced a proposal to impose a fee (the "Financial Crisis Responsibility Fee") on those financial institutions that benefited from recent actions taken by the U.S. government to stabilize the financial system. If implemented as initially proposed, the Financial Crisis Responsibility Fee will be applied to firms with over $50 billion in consolidated assets, and, therefore, by its terms would not apply to the Corporation. The Financial Crisis Responsibility Fee would be collected by the Internal Revenue Service and would be approximately fifteen basis points, or 0.15 percent, of an amount calculated by subtracting a covered institution's Tier 1 capital and FDIC-assessed deposits (and/or an adjustment for insurance liabilities covered by state guarantee funds) from such institution's total assets. The Financial Crisis Responsibility Fee, if implemented as proposed by the current administration, would go into effect on June 30, 2010 and remain in place for at least ten years. The U.S. Treasury would be asked to report after five years on the effectiveness of the Financial Crisis Responsibility Fee as well as its progress in repaying projected losses to the U.S. government as a result of TARP. If losses to the U.S. government as a result of TARP have not been recouped after ten years, the Financial Crisis Responsibility Fee would remain in place until such losses have been recovered.
FORWARD-LOOKING STATEMENTS --------------------------
Portions of information in this Form 10-K contain forward-looking statements about the Company which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. This document contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may" or words of similar meaning. These forward-looking statements, by their nature, are subject to risks and uncertainties. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) changes in competitive pressures among depository institutions; (2) changes in the interest rate environment; (3) changes in prepayment speeds, charge-offs and loan loss provisions; (4) changes in general economic conditions, either national or in the markets in which the Company does business; (5) legislative or regulatory changes adversely affecting the business of the Company; (6) changes in real estate values or the real estate markets; (7) unexpected and/or adverse outcomes in pending or future litigation; and (8) the Company's business development efforts in new markets in and around Hendricks and Hamilton Counties.
Statistical Data. Selected Financial Data
(1) Net income divided by average total assets (2) Net income divided by average equity (3) Dividends per share divided by net income per share (4) Average equity divided by average total assets
Net Interest Income -------------------
The table which follows 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. For analytical purposes, interest income presented in the table has been adjusted to a tax-equivalent basis (as discussed on page 12 of the Company's 2009 Annual Report to Shareholders under the caption "Management's Discussion and Analysis") assuming a 34 percent tax rate. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets. Management believes a table of the changes in tax-equivalent rates and margin is more relevant because it better explains changes in after-tax net income.
(1) Interest income on tax-exempt securities has been adjusted to a tax-equivalent basis using a marginal income tax rate of 34%. (2) Nonaccrual loans are included in average loan balances and loan fees are included in interest income. (3) Interest income adjustment to convert tax-exempt investment securities interest to fully tax equivalent basis using a marginal rate of 34%.
The following table presents net interest income components on a tax-equivalent basis and reflects changes between periods attributable to movement in either the average balance or average interest rate for both earning assets and interest-bearing liabilities. The volume differences were computed as the difference in volume between the current and prior year times the interest rate of the prior year, while the interest rate changes were computed as the difference in rate between the current and prior year items times the volume of the prior year. Volume/rate variances have been allocated on the basis of the absolute relationship between volume variances and rate variances. Non-accrual loans were included in the average loan balances used in determining the yields.
(1) Interest income on tax-exempt securities has been adjusted to a tax-equivalent basis using a marginal income tax rate of 34%.
Allowance for Loan Loss and Asset Quality -----------------------------------------
The following table presents activity in the allowance for loan losses during the years indicated. The Company's policy is to charge off loans when, in management's opinion, the loan is deemed uncollectible. However, management makes a concerted effort to collect charged off loans.
The allocation of the allowance for loan losses along with the percentage of each loan type to total loans outstanding is illustrated in the following table. The Company regards the allowance as a general allowance which is available to absorb losses from all loans.
Non-performing assets and their relative percentages to loan balances are presented in the table which follows. The level of non-performing loans is an important element in assessing asset quality and the relevant risk in the credit portfolio. Non-performing loans include non-accrual loans, restructured loans and loans delinquent 90 days or more and still accruing.
Loans are evaluated for non-accrual status when payments are past due over 90 days or when management feels that there is a high probability that principal and interest are not fully collectible. Current year interest previously recorded but not deemed collectible is reversed and charged against current income. Interest income on these loans is then recognized after principal is collected. Loans significantly past due that are not well secured and in the process of collection are generally placed on non-accrual status. Restructured loans are loans for which the contractual interest rate has been reduced or other concessions are granted to the borrower because of deterioration in the financial condition of the borrower resulting in the inability of the borrower to meet the original contractual terms of the loans. Another element associated with asset quality is other real estate owned (OREO), which represents properties acquired by the Company through loan defaults by customers.
Interest income of $597,000 for the year ended December 31, 2009, was recognized on the non-accruing and restructured loans listed in the table above, whereas, interest income of $1,364,000 would have been recognized under their original terms.
Potential Problem Loans - ----------------------- In addition to loans classified for regulatory purposes, management also designates certain loans for internal monitoring purposes in a watch category. Loans may be placed on management's watch list as a result of delinquent status, concern about the borrower's financial condition or the value of the collateral securing the loan, substandard classification during regulatory examinations, or simply as a result of management's desire to monitor more closely a borrower's financial condition and performance. Watch category loans may include loans with loss potential that are still performing and accruing interest and may be current under the terms of the loan agreements; however, management may have a significant degree of concern about the borrowers' ability to continue to perform according to the terms of the loans. Loss exposure on these loans is typically evaluated based primarily upon adequacy of the cash flow repaying the loan or the estimated liquidation value of the collateral securing these loans. Also, watch category loans may include credits which, although adequately secured and performing, have past delinquency problems or where unfavorable financial trends are exhibited by borrowers.
All watch list loans are subject to additional scrutiny and monitoring on a monthly or quarterly basis. The Company's philosophy encourages loan officers to identify borrowers that should be monitored in this fashion and believes this process ultimately results in the identification of problem loans in a more timely fashion.
Management has identified $52,778,000 and $42,480,000 of loans on its watch list, which were not included in impaired or non-performing loans at December 31, 2009 and 2008, respectively.
Noninterest Income and Expense ------------------------------
A comparative table and complete discussion of noninterest income and expense is contained in the 2009 Annual Report to Shareholders Managements Discussion and Analysis on pages 16 to 17 under the caption "Other Income and Expense."
Financial Condition -------------------
Securities ----------
Held to maturity securities are those which the Company has both the positive intent and the ability to hold to maturity. They are reported at amortized cost. Available for sale securities are those which the Company may decide to sell if needed for liquidity, asset/liability management, or other reasons. Available for sale securities are reported at fair value, with unrealized gains and losses included in other comprehensive income, net of tax.
Trading securities consist of investments in various mutual funds and Monroe Bancorp common stock held in grantor trusts formed by the Company related to the Monroe Bancorp Directors' Deferred Compensation Plan. The Company's obligations under the deferred compensation plan change in concert with the performance of the investments.
The tables which follow summarize the carrying values of securities from December 31, 2007 through December 31, 2009. The maturity distribution of securities at December 31, 2009 is summarized by classification.
(1) Mortgage-backed and asset-backed securities maturities are based on average life at the projected prepayment speed. (2) Equity securities and mutual funds have no maturities.
Securities (continued) ----------------------
The majority of the securities portfolio is comprised of government agency securities, and mortgage-backed obligations. Trading securities consist solely of mutual funds and Monroe Bancorp stock held in a grantor trust, established for the Monroe Bancorp Directors' and Executives' Deferred Compensation Plan.
The securities portfolio carries varying degrees of risk. Investments in government agency and mortgage-backed securities have little or no credit risk. Obligations of states and political subdivisions and corporate securities are the areas of highest potential credit exposure in the portfolio. This risk is minimized through the purchase of high quality investments. The Company's investment policy requires that general obligations of other states and political subdivisions and corporate bonds must have a rating of A or better when purchased. In-state general obligation municipals must be rated Baa or better. In-state revenue municipals must be rated A or better and out-of-state revenue municipals must be rated AA or better at the time of purchase. The vast majority of these investments maintained their original ratings at December 31, 2009. No securities of an individual issuer, excluding the U.S. Government and its agencies, exceed 10 percent of the Company's shareholders' equity as of December 31, 2009. The Company does not use off-balance sheet derivative financial instruments. As of December 31, 2009 and December 31, 2008, the securities portfolio held no structured notes.
Loans -----
The loan portfolio constitutes the major earning asset of the Company, and offers the best alternative for maximizing interest spread above the cost of funds. The Company's loan personnel have the authority to extend credit under guidelines established and approved by the Board of Directors. Any credit which exceeds the authority of the loan officer, but is under $2,000,000 is reviewed by the Company's Officers' Loan Committee for approval. The committee is comprised of the President/CEO, the Senior Vice President Chief Credit Officer and several experienced loan officers. Aggregate relationships exceeding $2,000,000 are reviewed by the Board of Directors' Loan Committee for approval. This Loan Committee is comprised of six board members, one of whom is the President/CEO. The Loan Committee not only acts as an approval body to ensure consistent application of the Company's loan policy, but also provides valuable insight through communication and pooling of knowledge, judgment, and experience of its members.
The Company's primary lending area generally includes Monroe, Hamilton, Hendricks, Jackson, Lawrence and contiguous Counties in Southern and Central Indiana. The Company extends out-of-area credit only to borrowers who are considered to be low risk, and then, only on a limited basis.
The following table reflects outstanding balances by loan type.
Loans Outstanding (dollar amounts in thousands) - -------------------------------------------------------------------------------- December 31, ---------------------------------------------------- 2009 2008 2007 2006 2005 -------- -------- -------- -------- --------
Commercial and industrial $ 79,545 $103,121 $103,069 $ 92,528 $ 89,850 Agricultural ............ 1,557 1,658 1,542 1,384 1,427 Real estate: One-to-four-family ... 97,213 110,242 91,530 94,817 99,180 Multi-family ......... 87,717 84,063 69,502 59,608 59,057 Commercial ........... 209,284 205,433 171,144 165,714 156,014 Construction ......... 62,351 80,917 101,011 97,006 68,066 Home equity .......... 31,332 28,976 25,222 26,515 28,792 Farm land ............ 2,644 2,547 3,462 3,195 3,216 Installment ............. 15,722 16,134 18,349 18,696 19,864 -------- -------- -------- -------- -------- Total loans ..... $587,365 $633,091 $584,831 $559,463 $525,466 ======== ======== ======== ======== ========
The following table presents the composition of the loan portfolio expressed as a percent of total loans.
December 31, ---------------------------------------------------- 2009 2008 2007 2006 2005 -------- -------- -------- -------- --------
Commercial and industrial 13.54 % 16.29 % 17.62 % 16.54 % 17.11 % Agricultural ............ 0.27 % 0.26 % 0.26 % 0.25 % 0.27 % Real estate: One-to-four-family ... 16.55 % 17.41 % 15.65 % 16.95 % 18.87 % Multi-family ......... 14.93 % 13.28 % 11.89 % 10.65 % 11.24 % Commercial ........... 35.63 % 32.45 % 29.27 % 29.62 % 29.69 % Construction ......... 10.62 % 12.78 % 17.27 % 17.34 % 12.95 % Home equity .......... 5.33 % 4.58 % 4.31 % 4.74 % 5.48 % Farm land ............ 0.45 % 0.40 % 0.59 % 0.57 % 0.61 % Installment ............. 2.68 % 2.55 % 3.14 % 3.34 % 3.78 % -------- -------- -------- -------- -------- Total .......... 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % ======== ======== ======== ======== ========
The following table reflects the maturity schedule of loans. Also indicated are fixed and variable rate loans maturing after one year.
Deposits --------
The Company offers a wide variety of deposit products and services to individual and commercial customers, such as noninterest-bearing and interest-bearing checking accounts, savings accounts, money market accounts, and certificates of deposit. The deposit base provides the major funding source for earning assets.
The following table shows the average amount of deposits and average rates of interest paid thereon for the years indicated.
Certificates of deposit and other time deposits of $100,000 or more mature as follows:
CD's over $100,000 (dollar amounts in thousands) - -------------------------------------------------------------------------------- At December 31, ------------------------------ 2009 2008 2007 -------- -------- -------- 3 months or less .. $ 21,565 $ 51,527 $ 32,831 3 through 6 months 19,170 23,282 30,023 6 through 12 months 34,557 31,054 42,791 Over 12 months .... 19,867 21,726 22,957 -------- -------- -------- $ 95,159 $127,589 $128,602 ======== ======== ========
Certificates of deposit of $100,000 or more totaled $95,159,000 at December 31, 2009, which was a decrease of $32,430,000 compared to December 31, 2008. The Company began using brokered certificates of deposit as an alternative funding source in 2005. While the Company's primary focus for 2010 will be on growing core deposits, management anticipates it will continue to use brokered and public fund certificates of deposit as an alternative funding source in the future.
Borrowings ----------
A detailed schedule of short-term borrowings follows:
Repurchase agreements are borrowings which mature daily, and are secured by U.S. government agency obligations.
The Bank became a member of the Federal Home Loan Bank of Indianapolis ("FHLB") in 1997 and has excess borrowing capacity at the FHLB of $48,660,000 as of December 31, 2009 based on pledged collateral. All current and any future borrowings are secured by a blanket collateral pledge of the Bank's one-to-four family residential loans and multi-family loans. Other borrowings, consisting of FHLB advances, loans sold under repurchase agreements and subordinated debentures including two trust preferred debentures, were $44,127,000 and $33,799,000, as of December 31, 2009 and 2008, respectively. The subordinated debentures and FHLB borrowings accounted for the vast majority of other borrowings. The Company expects to primarily use deposit growth in the future as a source of loan funding and for general liquidity, but may continue to supplement this with additional FHLB advances.
Liquidity ---------
A table detailing the maturity and repricing of the Company's assets accompanied by a discussion of the Company's interest rate sensitivity and liquidity is presented in the 2009 Annual Report to Shareholders Management's Discussion and Analysis on pages 13 to 14 under the caption "Interest Rate Sensitivity and Disclosures about Market Risk" and on pages 14 to 16 under the caption "Liquidity."
The following table details the main components of cash flows for the years ended December 31, 2009 and 2008.
Capital Adequacy ----------------
Management believes the Company and Bank met all the capital requirements as of December 31, 2009 and 2008, and the Bank was well-capitalized under the guidelines established by the banking regulators. To be well-capitalized, the Bank must maintain the prompt corrective action capital guidelines discussed in the "Capital Regulations" subsection of the "Regulation and Supervision" portion of this document. Consolidated capital amounts and ratios are presented in the following table. Bank capital levels are substantially similar.
At December 31, 2009 management was not aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material effect on the Company's consolidated liquidity, capital resources or operations.
ITEM 1A.
ITEM 1A. RISK FACTORS
DIFFICULT CONDITIONS IN THE CAPITAL MARKETS AND THE ECONOMY GENERALLY MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
Our results of operations are materially affected by conditions in the capital markets and the economy generally. The capital and credit markets have been experiencing extreme volatility and disruption for more than twelve months at unprecedented levels. In many cases, these markets have produced downward pressure on stock prices of, and credit availability to, certain companies without regard to those companies' underlying financial strength.
Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining U.S. real estate market have contributed to increased volatility and diminished expectations for the economy and the capital and credit markets going forward. These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and national recession. In addition, the fixed-income markets are experiencing a period of extreme volatility which has negatively impacted market liquidity conditions. Initially, the concerns on the part of market participants were focused on the subprime segment of the mortgage-backed securities market. However, these concerns have since expanded to include a broad range of mortgage-and asset-backed and other fixed income securities, including those rated investment grade, the U.S. and international credit and interbank money markets generally, and a wide range of financial institutions and markets, asset classes and sectors.
Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, and inflation all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our financial products could be adversely affected. Adverse changes in the economy could affect earnings negatively and could have a material adverse effect on our business, results of operations and financial condition. The current mortgage crisis and economic slowdown has also raised the possibility of future legislative and regulatory actions in addition to the recent enactment of EESA and ARRA that could further impact our business. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations and financial condition.
THERE CAN BE NO ASSURANCE THAT ACTIONS OF THE U.S. GOVERNMENT, FEDERAL RESERVE AND OTHER GOVERNMENTAL AND REGULATORY BODIES FOR THE PURPOSE OF STABILIZING THE FINANCIAL MARKETS WILL ACHIEVE THE INTENDED EFFECT.
In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008 EESA was signed into law. Pursuant to EESA, the Treasury was granted authority to utilize up to $700 billion to purchase distressed assets from financial institutions or infuse capital into financial institutions for the purpose of stabilizing the financial markets. The Treasury announced the Capital Purchase Program under EESA pursuant to which it has purchased and will continue to purchase senior preferred stock in participating financial institutions such as the Company. There can be no assurance, however, as to the actual impact that EESA, including the Capital Purchase Program and the Treasury's Troubled Asset Relief Program, will have on the financial markets or on us. The failure of these programs to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.
The federal government, Federal Reserve and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. There can be no assurance as to what impact such actions will have on the financial markets, including the extreme levels of volatility currently being experienced. Such continued volatility could materially and adversely affect our business, financial condition and results of operations, or the trading price of our common stock.
WE MAY BE REQUIRED TO PAY SIGNIFICANTLY HIGHER FEDERAL DEPOSIT INSURANCE CORPORATION PREMIUMS IN THE FUTURE.
Recent insured institution failures, as well as deterioration in banking and economic conditions, have significantly increased FDIC loss provisions, resulting in a decline in the designated reserve ratio to historical lows. The FDIC expects a higher rate of insured institution failures in the next few years compared to recent years; thus, the reserve ratio may continue to decline. In addition, EESA temporarily increased the limit on FDIC coverage to $250,000 through December 31, 2013. 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.
Additionally, the FDIC adopted a final rule requiring insured depository institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along with the regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. This prepayment does not preclude the FDIC from changing assessment rates or from further revising the risk-based assessment system during the prepayment period or thereafter. As a result, we may also be required to pay significantly higher FDIC insurance assessments premiums in the future. These higher FDIC assessment rates and future special assessments could have an adverse impact on our results of operations.
RECENT NEGATIVE DEVELOPMENTS IN THE FINANCIAL INDUSTRY AND THE CREDIT MARKETS MAY SUBJECT US TO ADDITIONAL REGULATION.
As a result of the recent global financial crisis, the potential exists for new federal or state laws and regulations regarding lending and funding practices and liquidity standards to be promulgated, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement orders. Negative developments in the financial industry and the domestic and international credit markets, and the impact of new legislation in response to those developments, may negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and may adversely impact our financial performance.
A SIGNIFICANT NUMBER OF THE LOANS IN OUR PORTFOLIO ARE SECURED BY REAL ESTATE, AND A CONTINUED DOWNTURN IN THE ECONOMY WITHIN THE MARKETS WE SERVE COULD SIGNIFICANTLY HURT OUR BUSINESS AND PROSPECTS FOR GROWTH.
As of December 31, 2009, real estate loans comprised $494,521,000 or approximately 84.7 percent of our total loan portfolio (excluding loans held for sale) and approximately 61.6 percent of our total assets. Of that amount, $433,661,000 consisted of commercial and residential real estate loans and $60,860,000 consisted of construction real estate loans. The market value of real estate securing our real estate loans can fluctuate significantly in a short period of time as a result of market conditions. Adverse developments affecting real estate values in our primary market areas could increase the credit risk associated with our loan portfolio.
In addition, the repayment of commercial real estate loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of our control or that of the borrower could negatively impact the future cash flow and market values of the affected properties.
FURTHER DETERIORATION OF OUR NONPERFORMING LOANS OR AN INCREASE IN THE NUMBER OF NON-PERFORMING LOANS MAY HAVE AN ADVERSE EFFECT ON OUR OPERATIONS.
Weakening economic conditions in the residential and commercial real estate sectors have adversely affected, and may continue to adversely affect, our loan portfolio. The ratio of nonperforming assets and 90 day past due loans to total assets increased to 3.2 percent as of December 31, 2009, from 2.3 percent as of December 31, 2008. It is likely that this ratio will increase over the next several quarters as a result of the general economic environment as well as the progression of certain delinquent loans to loans that are 90 days or more past due. If loans that currently are non-performing further deteriorate or loans that are currently performing become nonperforming, we may need to increase our allowance for loan losses or charge-off those loans. Any increase or charge-off would have an adverse impact on our financial condition and results of operations.
THE GEOGRAPHIC CONCENTRATION OF OUR MARKETS MAKES OUR BUSINESS HIGHLY SUSCEPTIBLE TO LOCAL ECONOMIC CONDITIONS.
Unlike larger banking organizations that are more geographically diversified, our operations are currently concentrated in the Bloomington, Indiana and Central Indiana markets. As a result of this geographic concentration, our financial results depend largely upon economic conditions in these market areas. Deterioration in economic conditions in one or all of these markets could result in one or more of the following:
o an increase in loan delinquencies; o an increase in non-performing loans and foreclosures; o a decrease in the demand for our products and services; and o a decrease in the value of collateral for loans, especially real estate, in turn reducing customers' borrowing power, the value of assets associated with problem loans and collateral coverage.
To date, the impact of the adverse economic conditions in our Central Indiana market has been severe. As a result, we have experienced asset quality issues in the Central Indiana market, and we expect to continue to experience higher levels of problem assets in this market unless the economy greatly improves. If current levels of market disruption and volatility continue in our Central Indiana market, or if our Bloomington, Indiana market suffers increased levels of market disruption and volatility, our problem assets may increase and the demand for our products and services could be adversely affected, which could in turn have a material adverse effect on our business, results of operations and financial condition.
FUTURE GROWTH OR OPERATING RESULTS MAY REQUIRE THE COMPANY TO RAISE ADDITIONAL CAPITAL BUT THAT CAPITAL MAY NOT BE AVAILABLE OR IT MAY BE DILUTIVE.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. To the extent our future operating results erode capital or we elect to expand through loan growth or acquisition we may be required to raise capital. Our ability to raise capital will depend on conditions in the capital markets, which are outside of our control, and on our financial performance.
Accordingly, we cannot be assured of our ability to raise capital when needed or on favorable terms. If we cannot raise additional capital when needed, we will be subject to increased regulatory supervision and the imposition of restrictions on our growth and business. These could negatively impact our ability to operate or further expand our operations through acquisitions or the establishment of additional branches and may result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition and results of operations.
OUR ALLOWANCE FOR POSSIBLE LOAN LOSSES MAY BE INSUFFICIENT
We maintain an allowance for possible loan losses, which is a reserve established through a provision for possible loan losses charged to expense that represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management's continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for possible loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates of current credit risks and future trends, all of which may undergo material changes. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for possible loan losses, we will need additional provisions to increase the allowance for possible loan losses. Any increases in the allowance for possible loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our financial condition and results of operations.
SLOWER THAN ANTICIPATED GROWTH IN THE BANK'S NEW BANKING CENTERS COULD RESULT IN REDUCED NET INCOME
We have placed a strategic emphasis on expanding the banking center network of the Bank. We opened a full service banking center in Brownsburg, Hendricks County, Indiana in January of 2006, opened a full service banking center in Plainfield, Hendricks County, Indiana in December of 2007, opened a full service banking center in Avon, Hendricks County, Indiana in January of 2008, and opened a full service banking center in Noblesville, Hamilton County, Indiana in September of 2008. Executing this strategy carries risks of slower than anticipated growth in the new banking centers. New banking centers require a significant investment of both financial and personnel resources. Lower than expected loan and deposit growth in the new banking centers could result in lower than expected revenues and net income generated by those investments. Opening new banking centers could result in more additional expenses than anticipated and divert resources from current core operations.
INABILITY TO HIRE OR RETAIN CERTAIN KEY PROFESSIONALS, MANAGEMENT AND STAFF COULD ADVERSELY AFFECT OUR REVENUES AND NET INCOME
We rely on key personnel to manage and operate our business, including major revenue generating functions such as the loan and deposit portfolios. The loss of key staff may adversely affect our ability to maintain and manage these portfolios effectively, which could negatively affect our revenues. In addition, loss of key personnel could result in increased recruiting and hiring expenses, which could cause a decrease in our net income.
WE ARE SUBJECT TO INTEREST RATE RISK
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and
regulatory agencies. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits and the fair value of our financial assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
WE ARE SUBJECT TO ENVIRONMENTAL LIABILITY RISK ASSOCIATED WITH LENDING ACTIVITIES
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property's value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND SUPERVISION
We are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors' funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations.
OUR CONTROLS AND PROCEDURES MAY FAIL OR BE CIRCUMVENTED
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
OUR INFORMATION SYSTEMS MAY EXPERIENCE AN INTERRUPTION OR BREACH IN SECURITY
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption
or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
CHANGES IN TECHNOLOGY COULD BE COSTLY
The banking industry is undergoing technological innovation. In order to maintain our competitive position, we must react to these innovations and evaluate the technologies to enable it to compete on a cost-effective basis. The cost of such technology, including personnel, may be high in both absolute and relative terms. There can be no assurance, given the fast pace of change and innovation, that our technology will meet or continue to meet our needs.
THE TRADING VOLUME IN OUR COMMON STOCK IS LESS THAN THAT OF OTHER LARGER FINANCIAL SERVICES COMPANIES
Although our common stock is listed for trading on NASDAQ Global Market, the trading volume in our common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall.
WE MAY NOT BE ABLE TO PAY DIVIDENDS IN THE FUTURE IN ACCORDANCE WITH PAST PRACTICES
We may not be able to pay dividends in accordance with past practice. We traditionally pay a quarterly dividend to stockholder. The payment of dividends is subject to legal and regulatory restrictions and, therefore, any payment of dividends in the future will depend in large part on our earnings, capital requirements, financial conditions and other factors considered relevant by our Board of Directors.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
ITEM 2. PROPERTIES.
The Company, through the Bank, currently operates its business from its main office in downtown Bloomington, Indiana and from 17 additional locations in Monroe, Hamilton, Hendricks, Jackson and Lawrence Counties in Indiana. The Company opened banking centers (included in the aforementioned totals) in Avon, Hendricks County, Indiana in January 2008, in Noblesville, Hamilton County, Indiana in September 2008, and also has an operations center located in Bloomington, Monroe County, Indiana. Information about those locations is set forth in the table which follows.
The Company owns its main office. It owns 11 of its other banking center locations and leases space for six banking centers. The Company also leases its Operations Center. The main office contains approximately 18,656 square feet of space, and is occupied solely by the Company. The Company's data processing center, bookkeeping, loan operations and deposit operations departments are located at the Operations Center.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than routine litigation incidental to the business of the Company or the Bank, to which the Company or the Bank is a party or of which any of its property is subject. Further, there is no material legal proceeding in which any director, officer, principal shareholder, or affiliate of the Company, or any associate of such director, officer, principal shareholder or affiliate is a party, or has a material interest, adverse to the Company.
ITEM 4.
ITEM 4. RESERVED.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company's common stock is quoted on the NASDAQ Global Market under the symbol "MROE." The following table sets forth, for the periods indicated, the high and low sales prices for the Company's common stock as reported by the NASDAQ Global Market:
Price Per Share ----------------------------------- 2009 2008 Dividends Declared --------------- ----------------- ------------------ Quarter High Low High Low 2009 2008 - -------------------------------------------------------------------------- First Quarter $ 9.23 $ 5.50 $ 16.25 $ 13.13 $ 0.13 $ 0.13 Second Quarter 9.50 7.16 14.83 11.75 0.01 0.13 Third Quarter 8.03 6.17 12.99 10.49 0.01 0.13 Fourth Quarter 7.75 5.50 12.00 6.00 0.01 0.13
In each quarter during 2009 and 2008, the Company declared and paid the cash dividends listed in the table above for a per share total of $0.16 and $0.52 for 2009 and 2008, respectively. The Company has paid a regular cash dividend for over 28 consecutive years. The Company currently expects, but can give no assurance, that cash dividends will continue to be paid in the future or that future dividends, if paid, will be comparable to the amounts paid in recent years.
Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding net profits (as defined) for the current year plus those for the previous two years. The Bank normally restricts dividends to a lesser amount because of the need to maintain an adequate capital structure. Total shareholders' equity of the Bank at December 31, 2009 was $73,257,000 of which $71,889,000 was restricted from dividend distribution to the Company. The Company does not anticipate that this regulatory limitation will affect the future payment of dividends.
As of March 12, 2010, there were approximately 251 shareholders of record.
During 2009, no stock options were exercised and there were no sales of unregistered securities.
Stock Repurchased During 2009 - -----------------------------
None.
The stock repurchase plan was announced June 16, 2006. The total dollar amount approved was $10,000,000. The plan has no expiration date, but the Board of Directors may terminate the plan at anytime. The Board of Directors suspended repurchase activities beginning in the fourth quarter of 2007 and as of December 31, 2009, the Board of Directors has not determined when stock repurchases will recommence. The Company's most recent stock repurchase transaction took place on August 7, 2007.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information required under this item is incorporated by reference to pages 5 through 6 of the Company's 2009 Annual Report to Shareholders under the caption "Five-Year Financial Summary."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required under this item is incorporated by reference to pages 7 through 21 of the Company's 2009 Annual Report to Shareholders under the caption "Management's Discussion and Analysis."
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required under this item is incorporated by reference to pages 13 through 14 of the Company's 2009 Annual Report to Shareholders under the caption "Management's Discussion and Analysis - Interest Rate Sensitivity and Disclosures about Market Risk."
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required under this item are incorporated herein by reference to pages 23 through 47 of the Company's 2009 Annual Report to Shareholders.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls And Procedures
The Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) based on their evaluation of these controls and procedures as required by Rule 13a-15 as of the end of the period covered by this Form 10-K are effective in ensuring that information required to be disclosed by the Company in a report that it files or submits under the Securities Exchange Act of 1934, it is recorded, processed, summarized and reported within the time period specified by the rules and forms of the Securities and Exchange Commission, and are accumulated and communicated to the Company's management to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2009.
The Company's independent registered public accounting firm has issued their report on the effectiveness of the Company's internal control over financial reporting. That report follows under the heading, Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.
Changes in Internal Controls
There were no changes in the Company's internal control over financial reporting that occurred during the Company's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 10 is not set forth herein because the Company intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2009 fiscal year, which Proxy Statement will contain such information. The information required by Item 10 is incorporated herein by reference to such Proxy Statement.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 11 is not set forth herein because the Company intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2009 fiscal year, which Proxy Statement will contain such information. The information required by Item 11 is incorporated herein by reference to such Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 12 is not set forth herein because the Company intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2009 fiscal year, which Proxy Statement will contain such information. The information required by Item 12, with the exception of the table presented above, is incorporated herein by reference to such Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 13 is not set forth herein because the Company intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2009 fiscal year, which Proxy Statement will contain such information. The information required by Item 13 is incorporated herein by reference to such Proxy Statement.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 14 is not set forth herein because the Company intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2009 fiscal year, which Proxy Statement will contain such information. The information required by Item 14 is incorporated herein by reference to such Proxy Statement.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Page Number * -------------
(a) 1. Financial Statements: Report of Independent Registered Public Accounting Firm.......22 Consolidated balance sheets at December 31, 2009 and 2008................................23 Consolidated income statements, years ended December 31, 2009, 2008 and 2007..........................24 Consolidated statements of shareholders' equity, years ended December 31, 2009, 2008 and 2007............ 25 Consolidated statements of cash flows, years ended December 31, 2009, 2008 and 2007..........................26 Notes to consolidated financial statements....................27
* The page numbers indicated refer to pages of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 2009, which is incorporated herein by reference.
(a) 2. Financial statement schedules:
All schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or related notes.
(a) 3. Exhibits:
Exhibit No: Description of Exhibit: - ------------ ----------------------
3(i) Monroe Bancorp Articles of Incorporation are incorporated by reference to registrant's Form 10 filed November 14, 2000.
3(ii) Monroe Bancorp Amended and Restated By-laws, amended July 23, 2009, are incorporated by reference to registrant's Form 8-K filed July 24, 2009.
4 Indenture dated as of July 17, 2009 by and between Wells Fargo Bank, N.A., and Monroe Bancorp is incorporated by reference to registrant's Form 8-K filed July 23, 2009.
10(i)* 1999 Directors' Stock Option Plan of Monroe Bancorp is incorporated by reference to registrant's Form 10 filed November 14, 2000.
10(ii)* 1999 Management Stock Option Plan of Monroe Bancorp is incorporated by reference to registrant's Form 10 filed November 14, 2000.
10(iii)* Deferred Compensation Trust for Monroe Bancorp is incorporated by reference to registrant's Form 10 filed November 14, 2000.
10(iv)* Monroe County Bank Agreement for Supplemental Death or Retirement Benefits is incorporated by reference to registrant's Form 10 filed November 14, 2000.
10(v)* Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001 is incorporated by reference to registrant's Form 10-Q filed November 13, 2002.
10(vi)* Monroe Bancorp Employee Stock Ownership Plan as Amended and Restated January 1, 2001 is incorporated by reference to registrant's Form 10-Q filed November 13, 2002.
10(vii)* Third Amendment to the Monroe Bancorp Employees' Stock Ownership Plan is incorporated by reference to registrant's Form 10-K filed March 29, 2004.
10(viii)* Monroe Bancorp Directors' Deferred Compensation Plan as Amended and Restated Effective January 1, 1999 and First and Second Amendments are incorporated by reference to registrant's Form 10-K filed March 29, 2004.
10(ix)* Monroe Bancorp Executives' Deferred Compensation Plan as Amended and Restated Effective January 1, 1999 and First, Second and Third Amendments are incorporated by reference to registrant's Form 10-K filed March 29, 2004.
10(x)* Form of agreement under the 1999 Management Stock Option Plan of Monroe Bancorp is incorporated by reference to registrant's Form 10-K filed March 15, 2005.
10(xi)* Schedule of Director Compensation is incorporated by reference to registrant's Form 8-K filed December 21, 2009.
10(xii)* Schedule of Executive Officer Compensation is incorporated by reference to registrant's Form 8-K filed December 21, 2009.
10(xiii)* Fourth Amendment to the Monroe Bancorp Employees' Stock Ownership Plan is incorporated by reference to Form 10-Q filed May 9, 2005.
10(xiv)* Monroe Bancorp Directors' 2005 Deferred Compensation Plan incorporated by reference to Form 10-K filed March 14, 2006.
10(xv)* Monroe Bancorp Executives' 2005 Deferred Compensation Plan incorporated by reference to Form 10-K filed March 14, 2006.
10(xvi)* Form of agreement under the Monroe Bancorp Directors' 2005 Deferred Compensation Plan incorporated by reference to Form 10-K filed March 14, 2006.
10(xvii)* Form of agreement under the Monroe Bancorp Executives' 2005 Deferred Compensation Plan incorporated by reference to Form 10-K filed March 14, 2006.
10(xviii)* First Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-Q filed May 9, 2006.
10(xix)* Second Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-Q filed May 9, 2006.
10(xx)* Third Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-Q filed May 9, 2006.
10(xxi)* Fourth Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-Q filed May 9, 2006.
10(xxii)* Fifth Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-Q filed May 9, 2006.
10(xxiii)* Sixth Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-Q filed May 8, 2007.
10(xxiv)* Seventh Amendment to the Monroe Bancorp Thrift Plan as Amended and Restated January 1, 2001, incorporated by reference to Form 10-K filed March 13, 2008.
10(xxv)* Fifth Amendment to the Monroe Bancorp Employees' Stock Ownership Plan is incorporated by reference to Form 10-K filed March 13, 2008.
13 Annual Report to Shareholders for the year ended December 31, 2009.
21 Subsidiaries of the Registrant.
23 Consent of Independent Registered Public Accounting Firm.
31(i) Certification for Annual Report on Form 10-K by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(ii) Certification for Annual Report on Form 10-K by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(i) Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(ii) Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan or arrangement
(b) Exhibits.
See the list of exhibits in Item 15(a)(3).
(c) Financial Statement Schedules.
All schedules are omitted as the required information either is not applicable or is included in the 2009 Annual Report to Shareholders or related notes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 15th day of March 2010.
MONROE BANCORP
By: /s/ Mark D. Bradford ------------------------------------------------ Mark D. Bradford, President, Chief Executive Officer, (Principal Executive Officer)
By: /s/ Gordon M. Dyott ------------------------------------------------ Gordon M. Dyott Executive Vice President, Chief Financial Officer, (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title/Capacity - --------- -------------- Date - ----
/s/ Mark D. Bradford President, Chief Executive Officer - --------------------------------- (Principal Executive Officer) and Director Mark D. Bradford Date: March 11, 2010
/s/ Gordon M. Dyott Executive Vice President, Chief Financial - --------------------------------- Officer (Principal Financial Officer) Gordon M. Dyott Date: March 11, 2010
/s/ David T. Meier Vice President, Director of Finance - --------------------------------- (Principal Accounting Officer) David T. Meier Date: March 10, 2010
/s/ Charles R. Royal, Jr. Director, Chairman - --------------------------------- Charles R. Royal, Jr. Date: March 11, 2010
/s/ James D. Bremner Director - --------------------------------- James D. Bremner Date: March 12, 2010
/s/ Bradford J. Bomba, Jr. M.D. Director - --------------------------------- Bradford J. Bomba, Jr. M.D. Date: March 11, 2010
Director - --------------------------------- Steven R. Crider
/s/ James G. Burkhart Director - --------------------------------- James G. Burkhart Date: March 15, 2010
/s/ Joyce Claflin Harrell Director - --------------------------------- Joyce Claflin Harrell Date: March 11, 2010
/s/ Harry F. McNaught, Jr. Director - --------------------------------- Harry F. McNaught, Jr. Date: March 11, 2010
/s/ Paul W. Mobley Director - --------------------------------- Paul W. Mobley Date: March 10, 2010