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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-31951
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MONROE BANCORP
--------------
(Exact name of registrant as specified in its charter)
Indiana 35-1594017
------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
210 East Kirkwood Avenue
Bloomington, IN 47408
---------------------
(Address of principal executive offices)
(Zip Code)
(812) 336-0201
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Outstanding Shares of Common Stock on March 31, 2004: 6,092,340
---------
MONROE BANCORP AND SUBSIDIARY
FORM 10-Q
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets..........................3
Consolidated Condensed Statements of Income - Three Months.....4
Consolidated Condensed Statement of Shareholders' Equity.......5
Consolidated Condensed Statements of Cash Flows................6
Notes to Consolidated Condensed Financial Statements...........7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................9
Forward Looking Statements....................................................16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......16
Item 4. Controls and Procedures..........................................18
Part II. Other Information:
Item 1. Legal Proceedings................................................18
Item 2e. Changes In Securities and Use of Proceeds.......................19
Item 3. Defaults Upon Senior Securities..................................19
Item 4. Submission of Matters to a Vote of Security Holders..............19
Item 5. Other Information................................................19
Item 6a. Exhibits.........................................................19
Item 6b. Reports on Form 8-K..............................................20
Signatures....................................................................21
Exhibit Index.................................................................22
2
Part I - Financial Information
- ------------------------------
Item 1. Financial Statements
- ------- --------------------
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(Dollars in thousands, execept per share data)
March 31, December 31,
2004 2003
(Unaudited)
--------- ---------
Assets
Cash and due from banks ............................... $ 19,381 $ 29,708
Trading securities, at fair value ..................... 3,419 3,329
Investment securities
Available for sale ............................... 78,991 66,372
Held to maturity ................................. 28,205 39,797
--------- ---------
Total investment securities ................. 107,196 106,169
Loans ................................................. 437,886 422,292
Allowance for loan losses ............................. (5,027) (5,019)
--------- ---------
Net loans ........................................ 432,859 417,273
Loans held for sale ................................... 3,079 2,219
Premises and equipment ................................ 11,804 11,683
Federal Home Loan Bank of Indianapolis stock, at cost . 2,360 2,331
Other assets .......................................... 17,016 16,551
--------- ---------
Total assets ............................. $ 597,114 $ 589,263
========= =========
Liabilities
Deposits
Noninterest-bearing .............................. $ 68,965 $ 73,579
Interest-bearing ................................. 385,523 363,104
--------- ---------
Total deposits .............................. 454,488 436,683
Borrowings ............................................ 90,407 101,872
Other liabilities ..................................... 5,935 5,333
--------- ---------
Total liabilities ........................ 550,830 543,888
Commitments and Contingent Liabilities
Shareholders' Equity
Common stock, no-par value
Authorized, 18,000,000 shares
Issued and outstanding - 6,092,340 and 6,095,640
shares, respectively ........................ 137 137
Additional paid-in capital ............................ 2,538 2,618
Retained earnings ..................................... 43,556 42,689
Accumulated other comprehensive income ................ 528 406
Unearned ESOT shares .................................. (475) (475)
--------- ---------
Total shareholders' equity ............... 46,284 45,375
--------- ---------
Total liabilities and shareholders' equity $ 597,114 $ 589,263
========= =========
See notes to consolidated condensed financial statements.
3
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)
(Dollars in thousands, execept per share data)
Three Months Ended
March 31,
------------------
2004 2003
------- -------
Interest Income
Loans, including fees ......................................... $ 5,917 $ 5,855
Trading securities ............................................ 17 13
Investment securities
Taxable .................................................. 786 901
Tax exempt ............................................... 181 234
Federal funds sold ............................................ 2 22
------- -------
Total interest income ............................. 6,903 7,025
------- -------
Interest Expense
Deposits ...................................................... 1,470 1,804
Short-term borrowings ......................................... 77 75
Other borrowings .............................................. 484 426
------- -------
Total interest expense ............................ 2,031 2,305
------- -------
Net interest income ............................... 4,872 4,720
Provision for loan losses ..................................... 330 405
------- -------
Net interest income after provision for loan losses 4,542 4,315
------- -------
Other Income
Fiduciary activities .......................................... 335 273
Service charges on deposit accoutns ........................... 707 634
Commission income ............................................. 228 186
Securities gains (losses) ..................................... 132 (4)
Unrealized gains (losses) on trading securities ............... 66 (25)
Net gains on loans sales ...................................... 192 364
Other operating income ........................................ 391 256
------- -------
Total other income ................................ 2,051 1,684
------- -------
Other Expenses
Salaries and employee benefits ................................ 2,553 2,250
Net occupancy and equipment expense ........................... 627 638
Advertising ................................................... 149 127
Legal fees .................................................... 127 101
Appreciation (depreciation) in directors' and executives'
deferred compensation plans .............................. 74 (19)
Other operating expense ....................................... 649 608
------- -------
Total other expenses .............................. 4,179 3,705
------- -------
Income before income tax .......................... 2,414 2,294
Income tax expense ................................ 761 746
------- -------
Net income ............................ $ 1,653 $ 1,548
======= =======
Basic and diluted earnings per share .......................... $ 0.27 $ 0.25
See notes to consolidated condensed financial statements.
4
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Three Months Ended
March 31, 2004
(Unaudited)
(Dollars in thousands, except share data)
Unearned
Common Stock Accumulated Employee
------------------- Additional Other Stock
Shares Paid in Comprehensive Retained Comprehensive Ownership
Outstanding Amount Capital Income Earnings Income Trust Shares Total
---------------------------------------------------------------------------------------------
Balances January 1, 2004........... 6,095,640 $ 137 $ 2,618 $ 42,689 $ 406 $ (475) $ 45,375
Comprehensive Income:
Net income for the period $ 1,653 1,653 1,653
Unrealized gain on securities
net of tax of $63 (net of
reclassification adjustment
of $44 for realized gains
included in income)........ 122 122 122
ESOT shares earned................. 6 6
Repurchase of stock, at cost....... (8,300) (129) (129)
Stock options exercised............ 5,000 43 43
Cash dividend ($.13 per share) (786) (786)
---------------------------------------------------------------------------------------------
Balances March 31, 2004............ 6,092,340 $ 137 $ 2,538 $ 1,775 $ 43,556 $ 528 $ (475) $ 46,284
=============================================================================================
See notes to consolidated condensed financial statements.
5
MONROE BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
--------------------
2004 2003
-------- --------
Operating Activities
Net income ........................................................... $ 1,653 $ 1,548
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ......................................... 330 405
Depreciation and amortization ..................................... 209 228
Deferred income tax ............................................... 63 (55)
Investment securities amortization, net ........................... 127 116
Securities gain ................................................... (138) (1)
Origination of loans held for sale ................................ (13,089) (17,642)
Proceeds from sale of loans held for sale ......................... 12,421 20,226
Gain on sale of loans held for sale ............................... (192) (364)
ESOT compensation ................................................. 6 4
Net change in:
Trading securities ........................................... (90) (9)
Interest receivable and other assets ......................... (591) 25
Interest payable and other liabilities ....................... 602 661
-------- --------
Net cash provided by operating activities .......... 1,311 5,142
-------- --------
Investing Activities
Purchase of securities available for sale ............................ (16,245) (10,771)
Proceeds from sales of securities available for sale ................. 2,252 1
Proceeds from paydowns and maturities of securities available for sale 1,601 3,588
Purchases of securities held to maturity ............................. -- --
Proceeds from paydowns and maturities of securities held to maturity . 11,561 5,776
Purchase of FHLB stock ............................................... (29) (242)
Net change in loans .................................................. (15,916) (13,085)
Purchase of premises and equipment ................................... (330) (167)
-------- --------
Net cash used by investing activities .............. (17,106) (14,900)
-------- --------
Financing Activities
Net change in:
Noninterest-bearing, interest-bearing demand and savings deposits . (22,319) 16,421
Certificates of deposit ........................................... 40,124 3,682
Borrowings ........................................................ (9,573) (8,912)
Proceeds from Federal Home Loan Bank advances ........................ -- 9,000
Repayments of Federal Home Loan Bank advances ........................ (1,892) (1,470)
Cash dividends paid .................................................. (786) (732)
Stock options exercised .............................................. 43 --
Repurchase of common stock ........................................... (129) --
-------- --------
Net cash provided by financing activities .......... 5,468 17,989
-------- --------
Net Change in Cash and Cash Equivalents ................................... (10,327) 8,231
Cash and Cash Equivalents, Beginning of Period ............................ 29,708 20,526
-------- --------
Cash and Cash Equivalents, End of Period .................................. $ 19,381 $ 28,757
======== ========
Supplemental cash flow disclosures
Interest paid ........................................................ $ 2,008 $ 2,394
Income tax paid ...................................................... -- --
See notes to consolidated condensed financial statements.
6
MONROE BANCORP AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
March 31, 2004
(Unaudited)
Note 1: Basis of Presentation
- -----------------------------
The consolidated condensed financial statements include the accounts of Monroe
Bancorp (the "Company") and its wholly owned subsidiary, Monroe Bank, a state
chartered bank (the "Bank") and the Bank's wholly owned subsidiary MB Portfolio
Management, Inc. A summary of significant accounting policies is set forth in
Note 1 of Notes to Financial Statements included in the December 31, 2003,
Annual Report to Shareholders. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The interim consolidated condensed financial statements have been prepared in
accordance with instructions to Form 10-Q, and therefore do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The interim consolidated condensed financial statements at March 31, 2004, and
for the three months ended March 31, 2004 and 2003, have not been audited by
independent accountants, but reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
such periods.
The consolidated condensed balance sheet of the Company as of December 31, 2003
has been derived from the audited consolidated balance sheet of the Company as
of that date. Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K annual report filed with the Securities and
Exchange Commission.
The results of operations for the period are not necessarily indicative of the
results to be expected for the year.
7
Note 2: Earnings Per Share
The number of shares used to compute basic and diluted earnings per share was as
follows:
Three months ended
------------------
March 31, 2004 March 31, 2003
-------------- --------------
Net income (in thousands) .................. $ 1,653 $ 1,548
=========== ===========
Weighted average shares outstanding ........ 6,093,921 6,150,240
Average unearned ESOT shares ............... (40,361) (45,751)
----------- -----------
Shares used to compute basic
earnings per share .................. 6,053,560 6,104,489
Effect of dilutive securities
Stock options .......................... 14,788 5,636
----------- -----------
Shares used to compute diluted
earnings per share ................. 6,068,348 6,110,125
=========== ===========
Earnings per share basic ................... $ 0.27 $ 0.25
Earnings per share, diluted ................ 0.27 0.25
For the three months ended March 31, 2003, options to purchase 27,391 shares
were not included in the earnings per share calculation because the exercise
price exceeded the average market price.
Note 3: Stock Options
The Company has a stock-based employee compensation plan, which is described
more fully in the Notes to Financial Statements included in the December 31,
2003 Annual Report to Shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Table dollar amounts are in thousands except per share data.
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
--------------------------------------
Net income, as reported ............................... $ 1,653 $ 1,548
Less: Total stock-based employee compensation cost
determined under the fair value based method, net of
income taxes ....................................... 3 1
------------------------------
Pro forma net income .................................. $ 1,650 $ 1,547
==============================
Earnings per share:
Basic - as reported ............................... $ 0.27 $ 0.25
Basic - proforma .................................. 0.27 0.25
Diluted - as reported ............................. 0.27 0.25
Diluted - proforma ................................ 0.27 0.25
8
Item 2. Management's Discussion and Analysis of Financial Condition
- ------- and Results of Operations
-----------------------------------------------------------
General
- -------
Monroe Bancorp (the "Company") is a one-bank holding company formed under
Indiana law in 1984. The Company holds all of the outstanding stock of Monroe
Bank (the "Bank"), which was formed in 1892. Banking is the primary business
activity of the Company.
The Bank, with its primary offices located in Bloomington, Indiana, conducts
business from sixteen locations in Monroe, Jackson, Lawrence, and Hendricks
counties in Indiana. Approximately 80 percent of the Bank's business is in
Monroe County and is concentrated in and around the city of Bloomington.
The Bank is a traditional community bank which provides a variety of financial
services to its customers, including:
o accepting deposits;
o making commercial, mortgage and personal loans;
o originating fixed rate residential mortgage loans for sale into the
secondary market;
o providing personal and corporate trust services;
o providing investment advisory and brokerage services; and
o providing annuities and other investment products.
The majority of the Bank's revenue is derived from interest and fees on loans
and investments, and the majority of its expense is interest paid on deposits
and general and administrative expenses related to its business.
Critical Accounting Policies
- ----------------------------
The most significant accounting policies followed by the Company are presented
in Note 1 to the consolidated financial statements on pages 34 to 36 of the
December 31, 2003 Annual Report to Shareholders. Certain of these policies are
important to the portrayal of the Company's financial condition, since they
require management to make difficult, complex or subjective judgments, some of
which may relate to matters that are inherently uncertain. Management has
identified these policies in the Critical Accounting Policies section of the
Management's Discussion and Analysis on pages 15 to 16 of the December 31, 2003
Annual Report to Shareholders. There have been no changes in these critical
accounting policies to date.
Non-GAAP Financial Measures
- ---------------------------
In January 2003, the United States Securities and Exchange Commission ("SEC")
issued Regulation G, "Conditions for Use of Non-GAAP Financial Measures." A
non-GAAP financial measure is a numerical measure of a company's historical or
future performance, financial position, or cash flow that excludes (includes)
amounts or adjustments that are included (excluded) in the most directly
comparable measure calculated in accordance with generally accepted accounting
principles ("GAAP"). Regulation G requires companies that present non-GAAP
financial measures to disclose a numerical reconciliation to the most directly
comparable measurement using GAAP as well as the reason why the non-GAAP measure
is an important measure.
Management has used two non-GAAP financial measures throughout this quarterly
report on Form 10-Q. In the "Net Interest Income / Net Interest Margin" section,
the discussion is focused on tax-equivalent rates and margin. Management
believes a discussion of the changes in tax-equivalent rates and margin is more
relevant because it better explains changes in after-tax net income. Also, in
the "Other Income / Other Expense" section of this document, we report other
income and other expense without the effect of unrealized gains and losses on
securities in a grantor trust (rabbi trust) which is a non-GAAP financial
measure. Other income includes realized and unrealized securities gains and
losses on trading securities (mutual funds) held in a grantor trust ("rabbi
trust") in connection with the Company's Directors' and Executives' Deferred
Compensation Plans. These securities are held as trading securities, hence,
unrealized gains and losses are recognized on the income statement. Any
unrealized or realized loss on securities held in the rabbi trust net of any
dividend or interest income earned on the securities in the rabbi trust
(included in net interest income) are directly offset by a
9
decrease to directors' fee/deferred executive compensation expense (included in
other expense), and conversely, any net realized or unrealized gain combined
with interest and dividends earned on the securities in the trust are directly
offset by an increase to directors' fee/deferred executive compensation expense.
These offsets are included in the line item identified on page 4 of the
consolidated financial statements as "Appreciation (depreciation) on directors'
and executives' deferred compensation plans." The activity in the rabbi trust
has no effect on the Company's net income, therefore, management believes a more
accurate comparison of current and prior year other income and other expense can
be made if the rabbi trust realized and unrealized gains and losses and
offsetting appreciation (depreciation) on the deferred compensation plans are
removed.
Results of Operations
- ---------------------
Overview
- --------
Net income for the first quarter 2004 was $1.7 million, a 6.8 percent increase
over the same quarter last year. Basic and diluted earnings per share for the
first quarter of 2004 were $0.27 up from $0.25 for the first quarter of 2003.
Annualized return on average equity (ROE) for the first quarter of 2004
increased to 14.46 percent compared to 14.00 percent for first quarter of 2003.
The annualized return on average assets (ROA) was 1.13 percent for the first
quarter of 2004 compared with 1.15 percent for the same period in 2003.
Year to date 2004 dividends paid were $0.13 per share, up from $0.12 per share
for the same period of 2003. At March 31, 2004 the dividend yield was 3.2
percent compared to 3.6 percent at March 31, 2003. The decrease in yield
occurred due to an increase in the market value of the stock. At March 31, 2004,
the closing market price of Monroe Bancorp stock was $16.35 per share compared
to $13.24 per share at March 31, 2003. Monroe Bancorp has increased its dividend
each year for more than sixteen years.
Net Interest Income / Net Interest Margin
- -----------------------------------------
The table on the following page presents information to assist in analyzing net
interest income. The table of Average Balance Sheets and Interest Rates presents
the major components of interest-earning assets and interest-bearing
liabilities, related interest income and expense and the resulting yield or
cost. Interest income presented in the table has been adjusted to a tax
equivalent basis assuming a 40 percent tax rate. The tax equivalent adjustment
recognizes the income tax savings when comparing taxable and tax-exempt assets.
10
Average Balance Sheets and Interest Rates
----------------------------------------------------------------------
Three Months Ended March 31, 2004 Three Months Ended March 31, 2003
--------------------------------- ---------------------------------
Average Average Rate Average Average Rate
ASSETS Balance Interest (annualized) Balance Interest (annualized)
------- -------- ------------ ------- -------- ------------
Interest earning assets
Securities
Taxable ......................................... $ 84,628 $ 818 3.89% $ 79,719 $ 945 4.81%
Tax-exempt (1) .................................. 25,324 303 4.82% 24,931 390 6.34%
--------- --------- --------- ---------
Total securities ........................... 109,952 1,121 4.10% 104,650 1,335 5.17%
Loans (2) ............................................ 431,667 5,919 5.51% 396,018 5,858 6.00%
Time deposits with banks ............................. 12 -- 51 --
FHLB Stock ........................................... 2,353 32 5.47% 1,916 25 5.29%
Federal funds sold ................................... 810 2 0.99% 7,459 22 1.20%
--------- --------- --------- ---------
Total interest earning assets ............ 544,794 7,073 5.22% 510,094 7,239 5.76%
--------- --------- --------- ---------
Noninterest earning assets
Allowance for loan losses ............................. (5,059) (4,672)
Premises and equipment & other assets ................ 28,464 19,554
Cash and due from banks .............................. 17,830 16,421
--------- ---------
Total assets ............................... $ 586,029 $ 541,397
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Total interest-bearing deposits ...................... $ 372,831 1,470 1.59% $ 355,249 1,803 2.06%
Borrowed funds ....................................... 92,292 561 2.44% 74,605 502 2.73%
--------- --------- --------- ---------
Total interest-bearing liabilities .............. 465,123 2,031 1.76% 429,854 2,305 2.17%
--------- --------- --------- ---------
Noninterest-bearing liabilities
Noninterest-bearing demand deposits .................. 69,433 61,071
Other liabilities .................................... 5,487 5,635
Shareholders' equity ................................. 45,986 44,837
--------- ---------
Total liabilities and shareholders' equity $ 586,029 $ 541,397
========= =========
Interest margin recap
Net interest income and interest rate spread
T/E net interest income margin ....................... $ 5,042 3.47% $ 4,934 3.58%
T/E net interest margin as a percent of
total average earning assets .................... 3.72% 3.92%
Tax equivalent adjustment (1) ............................. 170 214
--------- ---------
Net interest income ....................... $ 4,872 $ 4,720
========= =========
(1) Interest income on tax-exempt securities has been adjusted to a tax
equivalent basis using a marginal income tax rate of 40%.
(2) Nonaccrual loans are included in average loan balances and loan fees are
included in interest income.
11
Net Interest Income / Net Interest Margin (continued)
- -----------------------------------------------------
Net interest income is the primary source of the Company's earnings. It is a
function of the net interest margin and the volume of average earning assets.
The tax-equivalent net interest margin was 3.72 percent for the quarter ended
March 31, 2004, a decrease from 3.92 percent for the same quarter last year.
Average first quarter 2004 loan yields declined by 49 basis points (0.49
percent) over first quarter 2003 yields and deposit yields declined 47 basis
points in the same time period. Average first quarter 2004 tax-equivalent
securities yields declined by 107 basis points over the first quarter of 2003,
and borrowed funds yields declined 29 basis points. The decline in yields on
borrowed funds was less than the decline in deposit yields because approximately
half of the borrowed funds have longer-term maturities (i.e., have not yet
repriced) while the other half are tied to the federal funds rate, which only
declined 25 basis points from the first quarter of 2003. The decline in
securities yields was greater than the decline in loan yields because a
significant portion of the securities portfolio matured during the past year and
was reinvested at dramatically lower rates.
Tax-equivalent net interest income was $5.0 million for the three months ended
March 31, 2004 compared to $4.9 million for the same period in 2003, an increase
of 2.2 percent. Loan and deposit volume increased in 2004, but the decline in
yields and decrease in the margin partially offset the income generated by the
increase in volume.
Other Income / Other Expense
- ----------------------------
Total other income increased $367,000 for the three months ended March 31, 2004
compared to the same period in 2003. Omitting the net realized and unrealized
gains on rabbi trust securities in the amount of $60,000 in the first quarter of
2004 and losses in the amount of $30,000 in 2003, other income increased
$277,000 or 16.2 percent during the first quarter of 2004 compared to the first
quarter of 2003.
The growth in other income mainly occurred in the following areas:
o Gains were recognized on the sale of securities in the amount of
$132,000 in the first quarter of 2004 compared to losses of $4,000 in
the first quarter of 2003.
o Other operating income grew by $135,000 or 52.7 percent during the
first quarter of 2004. This growth resulted primarily because the
Company purchased bank owned life insurance (BOLI) in the last half of
2003 on selected Bank officers to help fund the increasing costs of
providing employee health benefits. Tax-free income of $93,000 was
recognized on the BOLI policies during the first quarter of 2004.
o Service charges were $707,000 during the first quarter of 2004
compared to $634,000 in the first quarter of 2003, an increase of 11.5
percent. Growth primarily occurred in the Overdraft Protector product.
o Trust fee income totaled $335,000 for the first quarter of 2004
compared to $273,000 for the first quarter of 2003, an increase of
22.7 percent. During that time, trust assets under management grew
from $156.8 million to $202.1 million. Recently, we renamed this area
of the Company to better reflect our ability to provide sophisticated
asset management services. What was once Financial Management Services
is now the Company's Wealth Management Group.
o Full service brokerage and branch-based annuity and mutual fund sales
(another area of our Wealth Management Group) generated fees of
$228,000 in the first quarter of 2004 compared to $186,000 in the
first quarter of 2003, an increase of 22.6 percent.
Growth in the areas mentioned above was partially offset by a decrease in gains
recognized on mortgages sold into the secondary market. During the first quarter
of 2004, gains of $192,000 were recognized, compared to $364,000 during the
first quarter of 2003, a decrease of $172,000. The year over year decline in
gains from the sale of mortgages was the result of a less favorable environment
for refinancing transactions during the first quarter of 2004 compared to the
first quarter of 2003.
12
Total other expense increased $474,000 during the first quarter of 2004 compared
to the same period in 2003. Omitting the appreciation in the Directors' and
Executives' Deferred Compensation Plan of $74,000 in 2004 and the depreciation
in the Plan of $19,000 in 2003 (which equals the sum of the net of interest and
dividends earned on the rabbi trust and the realized and unrealized losses on
the securities in the trust), other expense increased $381,000 or 10.2 percent.
Salaries and employee benefits increased $303,000 or 13.5 percent primarily due
to an increase in salaries of $177,000 or 11.6 percent due to the hiring of key
employees for the Company's expansion into Hendricks County and annual raises.
Health insurance expense increased $76,000 or 59.9 percent. The Company has
substantially restructured its insurance program for the plan year beginning May
1, and anticipates the annual 2004 percentage increase over 2003 to be lower
than the first quarter percentage increase.
Financial Condition
- -------------------
Assets and Liabilities
- ----------------------
Total assets of the Company at March 31, 2004 were $597.1 million an increase of
1.3 percent or $7.8 million compared to $589.3 million at December 31, 2003.
Loans grew to $441.0 million at March 31, 2004 compared to $424.5 million at
December 31, 2003, an increase of 3.9 percent. The Company's Central Indiana
operations provided 29.1 percent of the year to date loan growth, with the
remainder occurring in the Company's core market of Monroe County and the
surrounding counties. Growth primarily occurred in construction and commercial
real estate loans. Deposits increased to $454.5 at March 31, 2004 compared to
$436.7 at December 31, 2003, an increase of 4.1 percent. Time deposits increased
by $40.1 million during the same period, while interest-bearing and non-interest
bearing demand deposits declined by $22.3 million. Cash and due from banks
declined by $10.3 million at March 31, 2004 compared to December 31, 2003. The
decline is the result of the Bank having an unusually high balance in its check
clearing account at December 31, 2003 as a result of customer transactions. The
balance in this cash equivalent account returned to more typical levels early in
the first quarter of 2004. Borrowings declined $11.5 million at March 31, 2004
compared to December 31, 2003. The decline in borrowings was a result of
securities sold under agreement to repurchase decreasing by $7.2 million and
federal funds purchased decreasing by $2.4 million.
Capital
- -------
Shareholders' equity increased $909,000 at March 31, 2004 compared to December
31, 2003. This increase was a result of year-to-date net income of $1.7 million,
dividends paid of $786,000, other comprehensive income, consisting solely of the
change (increase) in net unrecognized gains in the Company's available-for-sale
securities portfolio of $122,000, treasury stock purchased of $129,000, options
issued of $43,000 and ESOP shares earned of $6,000.
There are five capital categories defined in the regulations ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At March 31, 2004 and December
31, 2003, the Company and the Bank were categorized as well capitalized and met
all subject capital adequacy requirements. There are no conditions or events
since March 31, 2004 that management believes have changed the Company's or
Bank's classification
13
The actual and required capital amounts and ratios are as follows:
Required for Adequate To Be Well
Actual Capital(1) Capitalized(1)
----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------
As of March 31, 2004
--------------------
Total capital 1 (to risk-weighted
assets)
Consolidated $ 49,915 11.4% $ 34,912 8.0% N/A N/A
Bank 49,541 11.5 34,547 8.0 $ 43,184 10.0%
Tier I capital 1 (to risk-weighted
assets)
Consolidated 44,888 10.3 17,456 4.0 N/A N/A
Bank 44,514 10.3 17,274 4.0 25,910 6.0
Tier I capital 1 (to average
assets)
Consolidated 44,888 7.7 23,441 4.0 N/A N/A
Bank 44,514 7.7 23,253 4.0 29,066 5.0
As of December 31, 2003
-----------------------
Total capital 1 (to risk-weighted
assets)
Consolidated $ 49,998 12.1% $ 33,090 8.0% N/A N/A
Bank 48,525 11.9 32,712 8.0 $ 40,890 10.0%
Tier I capital 1 (to risk-weighted
assets)
Consolidated 44,969 10.9 16,545 4.0 N/A N/A
Bank 43,506 10.6 16,356 4.0 24,534 6.0
Tier I capital 1 (to average
assets)
Consolidated 44,969 7.8 22,992 4.0 N/A N/A
Bank 43,506 7.6 22,859 4.0 28,574 5.0
(1) As defined by regulatory agencies
Classification of Assets, Allowance for Loan Losses, and Nonperforming Loans
- ----------------------------------------------------------------------------
The Bank currently classifies loans internally to assist management in
addressing collection and other risks. These classified loans represent credits
characterized by the distinct possibility that some loss will be sustained if
deficiencies are not corrected. As of March 31, 2004, the Bank had $14.7 million
of loans internally classified compared to $15.7 million at December 31, 2003.
The allowance for loan losses was $5.0 million, or 1.1 percent of portfolio
loans (excluding loans held for sale) at March 31, 2004 compared to $5.0
million, or 1.2 percent, of portfolio loans at December 31, 2003. A portion of
classified loans are nonaccrual loans. The Bank had nonperforming loans
(nonaccrual loans, restructured loans and ninety days past due loans still
accruing) totaling $6.4 million, or 1.5 percent of total loans at March 31, 2004
virtually unchanged from December 31, 2003. March 31, 2004 nonperforming loans
have decreased when compared to March 31, 2003, when nonperforming loans were
$9.9 million, or 2.5 percent of total loans.
During the first quarter of 2004, the Bank had net loan charge offs totaling
$323,000 compared to $299,000 charged off for the same period in 2003.
14
Liquidity
- ---------
Liquidity refers to the ability of a financial institution to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals
and pay operating expenses. The primary sources of liquidity are cash,
interest-bearing deposits in other financial institutions, marketable
securities, loan repayments, increased deposits and total institutional
borrowing capacity.
o Cash Requirements
Management believes that the Company has adequate liquidity and adequate sources
for obtaining additional liquidity if needed. Short-term liquidity needs
resulting from normal deposit/withdrawal functions are provided by the Company
retaining a portion of cash generated from operations and through utilizing
federal funds and repurchase agreements. Long-term liquidity and other liquidity
needs are provided by the ability of the Company to borrow from the Federal Home
Loan Bank of Indianapolis (FHLB). FHLB advances were $41.9 million at March 31,
2004 compared to $43.8 million at December 31, 2003. At March 31, 2004, the
Company had excess borrowing capacity at the FHLB of $15.1 million as limited by
the Company's board resolution in effect at that date. If the Company's
borrowing capacity were not limited by the board resolution, the Company would
have excess borrowing capacity of $44.5 million based on collateral. In terms of
managing the Company's liquidity, management's primary focus is on increasing
deposits to fund future growth. However, the Board may increase its resolution
limit on FHLB advances if the Company needs additional liquidity. The Company's
internal Asset/Liability Committee (ALCO) meets regularly to review projected
loan demand and discuss appropriate funding sources to adequately manage the
Company's gap position and minimize interest rate risk.
At March 31, 2004, the Bank's primary liquidity ratio (net cash, short-term and
marketable assets divided by net deposits and short-term liabilities) was 17.7
percent, compared to 19.1 percent at December 31, 2003. Management considers
this ratio to be adequate.
At the bank holding company level, the Company primarily uses cash to pay
dividends to shareholders. The main source of funding for the holding company is
dividends from its subsidiary (the Bank). During the first quarter of 2004, the
Bank declared dividends to the holding company of $670,000. As of April 1, 2004,
the amount of dividends the Bank can pay to the parent company without prior
regulatory approval was $4.4 million, versus $3.4 million at January 1, 2004. As
discussed in Note 10 to the Consolidated Financial Statements (page 42 of the
2003 Annual Report to Shareholders) and Item 1 of the December 31, 2003 Form
10-K, the Bank is subject to regulation and, among other things, may be limited
in its ability to pay dividends or transfer funds to the holding company.
Accordingly, consolidated cash flows as presented in the Consolidated Statements
of Cash Flows on page 6 may not represent cash immediately available to the
holding company.
o Sources and Uses of Cash
The following discussion relates to the Consolidated Statements of Cash Flows
(page 6 of the consolidated financial statements). During the first quarter of
2004, $1.3 million of cash was provided by operating activities, compared to
$5.1 million during the same period in 2003. The decrease in this area was
primarily a result of the decrease in proceeds from fixed-rate loans sold on the
secondary market. During the first quarter of 2004, $17.1 million was used for
investing activities, compared to $14.9 million in the first quarter of 2003.
The increase in the use of funds in this category occurred primarily because the
Company had a $15.9 million increase in loans in the first quarter of 2004
compared to a $13.1 million increase in the first quarter of 2003. In the first
quarter of 2004, $5.5 million of cash was provided by financing activities,
primarily from growth in certificates of deposit which offset declines in demand
deposits, savings deposits and borrowings, compared to $17.9 million provided
during the same period in 2003 with growth occurring primarily in demand
deposits, savings deposits and borrowings. Overall, net cash and cash
equivalents decreased $10.3 million during the first quarter of 2004 compared to
an increase of $8.2 million in the first quarter of 2003.
Impact of Inflation and Changing Prices
- ---------------------------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating
15
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
The primary assets and liabilities of the Company are monetary in nature.
Consequently, interest rates generally have a more significant impact on
performance than the effects of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services. In a period of rapidly rising interest rates, the
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels. The Company
constantly monitors the liquidity and maturity structure of its assets and
liabilities, and believes active asset/liability management has been an
important factor in its ability to record consistent earnings growth through
periods of interest rate volatility.
Other
- -----
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including Monroe
Bancorp (ticker symbol MROE). The address is http://www.sec.gov.
Forward-Looking Statements
- --------------------------
Portions of information in this Form 10-Q contain forward-looking statements
about the Company which we believe are within the meaning of the Private
Securities Litigation Reform Act of 1995. This Form 10-Q 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) competitive
pressures among depository institutions; (2) changes in the interest rate
environment; (3) prepayment speeds, charge-offs and loan loss provisions; (4)
general economic conditions, either national or in the markets in which the
Company does business (5) legislative or regulatory changes adversely affect the
business of the Company; and (6) changes in real estate values or the real
estate markets. Further information on other factors which could affect the
financial results of the Company are included in the Company's Form 10-K for the
year ended December 31, 2003 as filed with the Securities and Exchange
Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- ------- ----------------------------------------------------------
Market risk of the Company encompasses exposure to both liquidity risk and
interest rate risk and is reviewed on an ongoing basis by management and
quarterly by the Asset/Liability Committee ("ALCO") and the Board of Directors.
Liquidity was addressed as part of the discussion entitled "Liquidity."
The Company's interest sensitivity position at March 31, 2004 remained
consistent with the Company's primary goal of maximizing interest margin while
maintaining a low exposure to interest rate risk.
The Bank's interest rate risk is measured by computing estimated changes in net
interest income and the net portfolio value ("NPV") of its cash flows from
assets and liabilities in the event of adverse movements in interest rates.
Interest rate risk exposure is measured using an interest rate sensitivity
analysis to determine the change in NPV in the event of hypothetical changes in
interest rates. Another method also used to enhance the overall process is
interest rate sensitivity gap analysis. This method is utilized to determine the
repricing characteristics of the Bank's assets and liabilities.
Net portfolio value is the market value of the equity and is equal to the net
present value of the cash flows derived from its assets minus the net present
value of the cash flows associated with its liabilities. This
16
particular analysis assesses the risk of loss in market risk sensitive
instruments in the event of a sudden and sustained 1 percent to 3 percent (100
to 300 basis point) increase or decrease in interest rates. The Company's Board
of Directors adopted an interest rate risk policy which established a 10 percent
maximum increase or decrease in the NPV in the event of a sudden and sustained 2
percent (200 basis point) increase or decrease in interest rates.
The following table represents the Bank's projected change in NPV for the
various rate change (rate shock) levels as of March 31, 2004:
Net Portfolio Value at March 31, 2004
--------------------------------------
Change in Interest Rate Dollar Amount $ Change % Change
(basis points) (in thousands) in NPV in NPV
-------------- -------------- ------ ------
+300 $ 66,050 $ 2,304 3.61%
+200 65,174 1,428 2.24
+100 64,169 423 0.66
0 63,746 -- --
-100 63,242 (504) (0.79)
-200 66,633 2,887 4.53
The following table represents the Bank's projected change in NPV for the
various rate shock levels as of December 31, 2003:
Net Portfolio Value at December 31, 2003
----------------------------------------
Change in Interest Rate Dollar Amount $ Change % Change
(basis points) (in thousands) in NPV in NPV
-------------- -------------- ------ ------
+300 $ 66,910 $ 2,609 4.06%
+200 65,953 1,652 2.57
+100 64,826 525 0.82
0 64,301 -- --
-100 63,484 (817) (1.27)
-200 67,245 2,944 4.58
Management believes a 200 basis point (two percent) decrease in rates is highly
unlikely. Management also believes an increase in rates is more probable;
therefore, we will focus our discussion on the effects of a 100 basis point (one
percent) decrease in rates and an increase of 300 basis points (three percent).
The March 31, 2004 table above indicates that the Bank's estimated NPV would be
expected to increase by 3.61 percent in the event of a sudden and sustained 300
basis point (bp) increase in interest rates and decrease 0.79 percent in the
event of an immediate 100 basis point decrease in interest rates. As of March
31, 2004, the Company's estimated changes in NPV at all levels of interest rate
changes were within the approved guidelines established by the Board of
Directors.
While the percentage change in NPV values have changed modestly over the past
three months, the results of the March 31, 2004 NPV analysis closely mirrors the
results of the December 31, 2003 analysis. This indicates that the net interest
rate sensitivity of the NPV of the March 31, 2004 mix of assets and liabilities
is very similar to the net rate sensitivity of the December 31, 2003 mix of
assets and liabilities
17
Computations of prospective effects of hypothetical interest rate changes are
based on a number of assumptions, including relative levels of market interest
rates, loan prepayments and deposit run-off rates, and should not be relied upon
as indicative of actual results. These computations do not contemplate actions
management may undertake in response to changes in interest rates. The NPV
calculation is based on the net present value of discounted cash flows utilizing
certain prepayment assumptions and market interest rates.
Certain shortcomings are inherent in the method of computing the estimated NPV.
Actual results may differ from that information presented in the table above
should market conditions vary from the assumptions used in preparation of the
table information. If interest rates remain or decrease below current levels,
the proportion of adjustable rate loans in the loan portfolio could decrease in
future periods due to refinancing activity. Also, in the event of an interest
rate change, prepayment and early withdrawal levels would likely be different
from those assumed in the table. Lastly, the ability of many borrowers to repay
their adjustable rate debt may decline during a rising interest rate
environment.
Item 4. Controls and Procedures.
- ------ -----------------------
Monroe Bancorp's management is responsible for establishing and maintaining
effective disclosure controls and procedures, as defined under Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. As of March 31, 2004, an
evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Corporation's disclosure
controls and procedures. Based on that evaluation, management concluded that
disclosure controls and procedures as of March 31, 2004 were effective in
ensuring material information required to be disclosed in this Quarterly Report
on Form 10-Q was recorded, processed, summarized, and reported on a timely
basis. Additionally, there were no changes in the Corporation's internal control
over financial reporting that occurred during the quarter ended March 31, 2004
that have materially affected, or are reasonably likely to materially affect,
the Corporation's internal control over financial reporting.
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings.
- ------- ------------------
None.
18
Item 2e. Changes in Securities and Uses of Proceeds.
- -------- -------------------------------------------
(d) Approximate
Dollar Value of
of Shares that
(c) Total Number of May Yet Be
(a) Total Shares Purchased as Purchased Under
Number of (b) Average Part of Publicly the Plans or
Shares Price Paid Announced Programs Programs (dollar
Period Purchased per Share or Plans amount in thousands)
- ------------------------------------------------------------------------------------------
January 1-31, 2004 -- -- -- $ 1,232
February 1-29, 2004 1,700 $ 14.80 1,700 1,207
March 1-31, 2004 6,600 15.68 6,600 1,103
The stock repurchase plan was announced September 3, 2003. Total dollar amount
approved: $2,000,000. The plan has no expiration date.
Item 3. Defaults upon Senior Securities.
- ------- --------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote by Security Holders.
- ------- ----------------------------------------------------
None.
Item 5. Other Information.
- ------- ------------------
None.
Item 6a. 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 Bylaws are incorporated by reference to
registrant's Form 10 filed November 14, 2000.
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, 2003.
19
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, 2003.
10 (vii)* Third Amendment to the Monroe Bancorp Employees' Stock
Ownership Plan 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,
Second and Third Amendments 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 incorporated by reference to
registrant's Form 10-K filed March 29, 2004.
31 (i) Certification for Quarterly Report on Form 10-Q by Principal
Executive Officer
31 (ii) Certification for Quarterly Report on Form 10-Q by Principal
Financial Officer
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.
Item 6b. Reports on Form 8-K.
- -------- --------------------
Monroe Bancorp filed the following Forms 8-K:
o Filed January 22, 2004 to report a press release of
annual and fourth quarter 2003 earnings and a summary
of annual and fourth quarter 2003 financial information
issued January 22, 2004.
o Filed March 12, 2004 to report a press release
declaring a first quarter dividend of $0.13 issued
March 11, 2004 and a second press release issued March
12, 2004 correcting the record date.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONROE BANCORP
Date: May 14, 2004 By: /s/ Mark D. Bradford
------------ ---------------------------------------
Mark D. Bradford, President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 14, 2004 By: /s/ Gordon M. Dyott
------------ ---------------------------------------
Gordon M. Dyott, Exec. Vice President,
Chief Financial Officer
(Principal Financial Officer)
21
Exhibit Index
-------------
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 Bylaws are incorporated by reference to
registrant's Form 10 filed November 14, 2000.
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, 2003.
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, 2003.
10 (vii) Third Amendment to the Monroe Bancorp Employees' Stock Ownership
Plan 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, Second and
Third Amendments 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 incorporated by reference to registrant's Form
10-K filed March 29, 2004.
31 (i) Certification for Quarterly Report on Form 10-Q by Principal
Executive Officer
31 (ii) Certification for Quarterly Report on Form 10-Q by Principal
Financial Officer
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.
22