10QSB 1 d10qsb.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 Commission File Number 0-27307 M&F BANCORP, INC. -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) North Carolina 56-1980549 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2634 Chapel Hill Blvd., P.O. Box 1932, Durham, North Carolina 27707 -------------------------------------------------------------------------------- (Address of principal executive offices) (919) 683-1521 -------------------------------------------------------------------------------- (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___X____ No _______ - State the number of shares outstanding of each of the issuer's class of common equity, as of the latest practicable date: Common Stock no par value 853,725 -------------------------------------------------------------------------------- Outstanding at October 19, 2001 Transitional Small Business Disclosure Format (Check one): Yes ___________ No ______X_______ - M&F BANCORP, INC.
INDEX Page PART I. FINANCIAL INFORMATION (unaudited) Item 1. Consolidated Condensed Financial Statements Consolidated Condensed Balance Sheets as of September 30, 2001 and December 31, 2000 3 Consolidated Condensed Statements of Income and Comprehensive Income for the nine months ended September 30, 2001 and September 30, 2000 4 Consolidated Condensed Statements of Income and Comprehensive Income for the three months ended September 30, 2001 and September 30, 2000 5 Consolidated Condensed Statements of Shareholders' Equity for the nine months ended September 30, 2001 and September 30, 2000 6 Consolidated Condensed Statements of Cash flows for the nine months ended September 30, 2001 and September 30, 2000 7 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signature Page 12
2 PART I: FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
September 30, 2001 December 31, 2000 ASSETS (unaudited) Cash and due from financial institutions $ 4,709 $ 2,982 Interest-earning deposits in financial institutions 5,481 7,617 Federal funds sold 5,000 ------------------- ------------------- Cash and cash equivalents 10,190 15,599 Securities available for sale 29,602 29,632 Securities held to maturity 1,412 1,412 Loans: Commercial, financial and agricultural loans 63,862 64,639 Real estate -construction loans 3,904 8,485 Real Estate-mortgage loans 41,710 34,112 Installment loans to individuals 7,344 7,690 ------------------- ------------------- Total Loans 116,820 114,926 Unearned income 386 373 Allowance for loan losses 1,590 1,748 ------------------- ------------------- Net Loans 114,844 112,805 Bank premises and equipment, net 5,216 5,391 Other assets 1,797 2,122 ------------------- ------------------- TOTAL ASSETS $ 163,061 $ 166,961 =================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Noninterest-bearing deposits 25,185 29,984 Interest-bearing deposits 105,815 105,162 ------------------- ------------------- Total Deposits 131,000 135,146 Other borrowings 11,880 11,895 Other liabilities 1,823 2,213 ------------------- ------------------- Total Liabilities 144,703 149,254 Shareholders' Equity: Common stock 5,999 5,999 Retained earnings 11,427 10,981 Accumulated other comprehensive income 932 727 ------------------- ------------------- Shareholders' Equity 18,358 17,707 ------------------- ------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 163,061 $ 166,961 =================== ===================
3 CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) (in thousands, except per share data)
September 30 Nine months ended: 2001 2000 Interest income: Interest on loans $ 7,278 $ 7,476 Securities: Taxable 867 1,108 Tax exempt 321 350 Federal funds sold 2 28 Other interest 330 91 -------------------- --------------------- Total interest income $ 8,798 $ 9,053 -------------------- --------------------- Interest expense: Interest on deposits 2,907 2,605 Interest on other borrowings 453 407 -------------------- --------------------- Total interest expense $ 3,360 $ 3,012 -------------------- --------------------- Net interest income 5,438 6,041 Provision for loan losses 419 344 -------------------- --------------------- Net interest income after provision for loan losses 5,019 5,697 Non-interest income 1,454 1,092 Salaries & employee benefits 3,257 3,241 Other non-interest expense 2,351 2,396 -------------------- --------------------- Income before taxes 865 1,152 Income tax expense 216 297 -------------------- --------------------- Net income $ 649 $ 855 -------------------- --------------------- Other comprehensive income, net of tax 207 381 -------------------- --------------------- Comprehensive income $ 856 $ 1,236 ==================== ===================== Net income per share: Basic $ 0.76 $ 1.00 Diluted $ 0.76 $ 1.00 Weighted average common shares outstanding: Basic Diluted 854 854 854 854 Dividends per share common: .24 .24
4 CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) (in thousands, except per share data)
September 30 Three months ended: 2001 2000 Interest income: Interest on loans $ 2,388 $ 2,500 Securities: Taxable 262 381 Tax exempt 106 106 Federal funds sold (4) 0 Other interest 70 25 -------------------- --------------------- Total interest income $ 2,822 $ 3,012 Interest expense: Interest on deposits 924 906 Interest on other borrowings 138 150 -------------------- ---------------------- Total interest expense $ 1,062 $ 1,056 Net interest income 1,760 1,956 Provision for loan losses 147 134 -------------------- ---------------------- Net interest income after provision for loan losses 1,613 1,822 Non-interest income 458 359 Salaries & employee benefits 1,029 1,020 Other non-interest expense 696 755 -------------------- ---------------------- Income before taxes 346 406 Income tax expense 89 123 -------------------- ---------------------- Net Income $ 257 $ 283 -------------------- ---------------------- Other comprehensive income, net of tax 175 424 -------------------- ---------------------- Comprehensive income $ 432 $ 707 ==================== ====================== Net Income per share: Basic $ 0.30 $ 0.33 Diluted $ 0.30 $ 0.33 Weighted average common shares outstanding: Basic Diluted 854 854 854 854 Dividends per share common: .08 .08
5 CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) (in thousands)
September 30 Nine months ended: 2001 2000 Beginning balance, January 1 17,707 $ 16,299 Net income 649 855 Other comprehensive income 207 381 Dividends (205) (205) -------------------- --------------------- Ending balance, September 30 $ 18,358 $ 17,330 ==================== =====================
6 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (in thousands, except per share data)
September 30 Nine months ended: 2001 2000 Cash flows from operating activities: Net income $ 649 $ 855 Adjustments to reconcile net income to net cash from operating activities: Provision for possible loan losses 419 344 Provision for depreciation 313 309 Deferred income tax benefit (425) (42) Gain on disposal of assets (188) 0 Deferred loan fees 12 50 Income taxes receivable 196 0 Interest Receivable 124 193 Prepaid expenses and other assets (88) (19) Accrued expenses and other liabilities (36) 219 Other 45 (24) ----------------- ----------------- Net cash from operating activities 1,021 1,885 Cash flows (used in) provided by Investing Activities: Proceeds from sales and maturities of 8,662 2,435 securities (AFS) Purchase of securities (AFS) (8,692) (2,000) Net increase in loans (1,941) (9,698) Purchase of premises and equipment (107) (395) ----------------- ----------------- Net cash used in investing activities (2,078) (9,658) Cash provided by (used in) financing activities: Net decrease in demand and savings deposits (7,393) (2,964) Net increase in certificates of deposit 3,246 2,514 Cash dividends (205) (205) Increase in borrowing 1,900 ----------------- ----------------- Net cash (used by) provided by financing activities (4,352) 1,245 Net decrease in cash and cash equivalents (5,409) (6,528) Cash and cash equivalents at the beginning of the period 15,599 14,636 ----------------- ----------------- Cash and cash equivalents at the end of the period $ 10,190 $ 8,108 ================= =================
7 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation The consolidated financial statements include the accounts and transactions of M&F Bancorp, Inc. (the "Company") and its wholly owned subsidiary, Mechanics & Farmers Bank ("M&F Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and instructions from Regulation S-B. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation have been included. The accounting policies followed are set forth in Note A to the Company's 2000 Annual Report to Shareholders on file with the Securities and Exchange Commission. 2. Net Income Per Share Net Income per share calculations are determined on the basis of the weighted-average number of common shares outstanding. There were no dilutive potential common shares outstanding for the periods ended September 30, 2001 and September 30, 2000. 3. Regulatory Capital Requirements M&F Bank is subject to various regulatory capital requirements administered by regulatory banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. As of September 30, 2001 and September 30, 2000 M&F Bank had the following capital levels. Capital
Risk Based Tier 1 Tier 2 Required Capital September 30, 2001 16.00% 14.26% 11.44% 6.00% December 31, 2000 15.63% 13.86% 11.82% 6.00%
On June 27, 2001, M&F Bank Board of Directors declared a dividend to transfer $500,000 from its capital to the Company to allow the Company to explore business opportunities. 6. 4. New Accounting Pronouncement The Financial Accounting Standards Board has issued Statement of Financial Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") as amended by FAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. These Statements establish 8 accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. . The Company adopted SFAS 133 on January 1, 2001. The adoption of this standard did not have a material impact on the Company's financial statements. 5. Common Stock Cash Dividends On March 27, 2001, the Board of Directors of the Company declared a quarterly cash dividend of $0.08 per share to all shareholders of record on March 20, 2001 payable April 13, 2001. The dividend reduced shareholders equity by $68,298. On June 26, 2001, the Board of Directors of the Company declared a quarterly cash dividend of $0.08 per share to all shareholders of record on June 19, 2001. The dividend reduced equity by $68,298. On September 25, 2001, the Board of Directors of the Company declared a quarterly cash dividend of $0.08 per share to all shareholders of record on September 25, 2001. The dividend reduced equity by $68,298. 6. Presentation Certain amounts in 2000 have been reclassified to conform to the 2001 presentation. ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations General The following discussion and analysis of earnings and related financial data should be read in conjunction with the Company's financial statements and notes thereto included in the Annual Report on Form 10-KSB for the year ended December 31, 2000. It is intended to assist you in understanding the financial condition and the results of operations for the three months and nine months ended September 30, 2001 and 2000. Forward -Looking Statements When used in this report, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or other similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward- looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. 9 The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or occurrences after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Financial Condition Total assets decreased 2.34 percent to $163,061,000 at September 30, 2001 from $166,961,000 at December 31, 2000. The investment portfolio balance (including FHLB stock) as of September 30, 2001 was $31,014,000 compared to $31,044,000 at December 31, 2000. The average yield on the securities portfolio was 5.11 percent for the nine months ended September 30, 2001 compared to 5.99 percent for the same period in 2000. Interest-earning deposits held at financial institutions decreased 28.04 percent to $5,481,000 compared to $7,617,000 at December 31, 2000. Net loans increased 1.81 percent from December 31, 2000. The average yield on the loan portfolio was 8.44 percent at September 30, 2001 compared to 8.66 percent at December 31, 2000. Management continues to focus on increasing our adjustable rate loans in an effort to improve our interest rate sensitivity. This effort is normally achieved in the area of commercial loans, which are primarily secured by real estate. Deposits decreased 3.07 percent to $131,000,000 at September 30, 2001 from $135,146,000 at December 31, 2000. The percentage of interest-bearing accounts to total accounts decreased to 80.78 percent from 82.99 percent at September 30, 2000 and increased from 77.81 percent at December 31, 2000. The average interest rate on deposits increased to 3.67 percent at September 30, 2001 from 3.23 percent at December 31, 2000 and 3.48 percent at September 30, 2000 due to an increase in time deposits compared to the same nine month period in 2000. Management believes that large deposit growth will be more difficult as customers continue to look for alternative investment opportunities with higher yields. As a result, the Company will continue to evaluate other sources of liquidity to meet loan demand, if necessary. Total shareholders' equity increased 3.33 percent to $18,296,000 on September 30, 2001 from $17,707,000 at December 31, 2000. The change was due to year-to-date comprehensive income partially offset by dividends declared. Results of Operations - Comparison for the nine months and three months ended September 30, 2001 and 2000 Net income decreased 24.09 percent to $649,000 for the nine months ended September 30, 2001 compared with $855,000 for the same period in 2000. The principal factor contributing to the decline in the net income was the decrease in the net interest income of approximately $603,000 for the nine months ended September 30, 2001 as compared with the same period in 2000. Noninterest income for the period increased $362,000 to $1,454,000 compared to the $1,092,000. The increase resulted from increased rental income for the corporate facility (currently 100% occupancy of tenant space compared to approximately 60% for the same period in the prior year). Net income for the three months ended September 30, 2001 decreased 9.19 percent or $26,000 to $257,000 compared with $283,000 for the same period in 2000. The Company's earnings for the three months ended September 30, 2001 continued to be adversely impacted by the reduction in interest rates and minimal loan growth. With the decline in variable interest rate loans and new loans issued with lower yields, larger outstanding balances are 10 needed to sustain the same level of interest income. The net interest margin decreased by 10.02 percent compared to the same period for the prior year. Management plans to increase marketing efforts with expanded advertising and increased product promotions. Noninterest income for the period was $458,000 compared to $359,000 for the same period in the prior year. Non-performing assets and allowance for loan losses The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the types and qualities of the Company's loans. Management considers such factors as the repayment status of a loan, the estimated net realizable value of the underlying collateral, the borrower's ability to repay the loan, current and anticipated economic conditions which might affect the borrower's ability to repay the loan and the Company's past statistical history concerning charge-offs. The September 30, 2001 allowance for loan losses was $1,590,000 or 1.37 percent of total loans outstanding compared with $1,748,000 or 1.52 percent of total loans outstanding at December 31, 2000. Management has considered non-performing assets and total classified assets in establishing the allowance for loan losses. On July 5, 2001, the Company sold the property securing an adversely classified loan in a foreclosure sale for total proceeds of $1,965,000 resulting in a loss of $489,823. The loss had been previously reserved and included in the allowance for loan losses. The ratio of non-performing assets to total assets is one indicator of the exposure to credit risk. Non-performing assets of the Company consist of non-accruing loans, accruing loans delinquent 90 days or more, restructured loans, and foreclosed assets, which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. The following table provides certain information regarding non-performing assets. 09/30/01 12/31/00 (Dollars in Thousands) --------------------- Non-Accruing Loans $ 693 2,795 Accruing Loans Delinquent 90 days or more 687 475 Foreclosed Assets 112 163 Restructured Loans 981 1,329 ------- ------- Total Non-Performing Assets $ 2,473 $ 4,762 ======= ======= Percentage of total assets 1.52% 2.85% The level of non-performing assets impacts the Company's need to maintain reserves adequate to cover loan losses in the existing portfolio. As non-performing assets decline, it has a favorable impact on earning assets and net interest income. 11 PART II Other Information ITEM 1. Legal Proceedings: Not applicable ITEM 2. Changes in Securities: Not applicable ITEM 3. Defaults upon Senior Securities: Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders: Not applicable ITEM 5. Other Information: Not applicable ITEM 6. Exhibits and Report on Form 8-K (c) Exhibits Exhibit (3)(i) Articles of Incorporation of M&F Bancorp, Inc., incorporated by reference to Exhibit (3) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999. Exhibit (3)(ii) Bylaws of M&F Bancorp, Inc., incorporated by reference to Exhibit (3) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999. Exhibit (4) Specimen Stock Certificate incorporated by reference to Exhibit (4) to the Form 10-KSB40 for the fiscal year ended December 31, 2000 filed with the Securities and Exchange Commission on April 2, 2001. Exhibit (10)(a) Employment Agreement between Mechanics and Farmers Bank and Lee Johnson, Jr. incorporated by reference to Exhibit 10(a) to the Form 10- QSB for the quarter ended September 30, 2000 filed with the Securities and Exchange Commission on November 9, 2000. Exhibit (10)(b) Retention Bonus Agreement between Mechanics and Farmers Bank and Fohliette Becote incorporated by reference to Exhibit 10(b) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999. Exhibit (10)(c) Retention Bonus Agreement between Mechanics and Farmers Bank and Walter D. Harrington incorporated by references to Exhibit 10(c) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999. Exhibit (10)(d) Retention Bonus Agreement between Mechanics and Farmers Bank and Harold G. Sellars incorporated by reference to Exhibit 10(d) to the Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999. Exhibit (10)(e) Retention Bonus Agreement Between Mechanics and Farmers Bank and Elaine Small incorporated by reference to Exhibit 10(e) to the Form 10- QSB for the quarter ended September 30, 1999 filed with the Securities and Exchange Commission on November 12, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to signed on its behalf by the undersigned, thereunto duly authorized. M&F Bancorp, Inc. ----------------- 12 (Registrant) Date: November 7, 2001 By: /s/ Lee Johnson Jr. --------------------------------------- Lee Johnson, Jr. President/Chief Executive Officer Date: November 7, 2001 By: /s/ Fohliette W. Becote --------------------------------------- Fohliette W. Becote Secretary/Treasurer 13