-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MkYHwKNUzbY00Felk7JWjdokHHEZn1Ovb63iSHfOYA5HZ0vOVnGlYB8nTFV9jcb7 ymHBe6FpejlrsFZaeo7weg== 0000916641-02-000814.txt : 20020514 0000916641-02-000814.hdr.sgml : 20020514 ACCESSION NUMBER: 0000916641-02-000814 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: M&F BANCORP INC /NC/ CENTRAL INDEX KEY: 0001094738 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 561980549 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27307 FILM NUMBER: 02647661 BUSINESS ADDRESS: STREET 1: 2634 CHAPTEL HILL BLVD STREET 2: PO BOX 19322 CITY: DURHAM STATE: NC ZIP: 27702-3221 BUSINESS PHONE: 9196831521 MAIL ADDRESS: STREET 1: 2634 CHAPTEL HILL BLVD STREET 2: PO BOX 19322 CITY: DURHAM STATE: NC ZIP: 27701-3221 10QSB 1 d10qsb.txt FORM 10-QSB 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 March 31, 2002 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 April 12, 2002 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 March 31, 2002 and December 31, 2001 3 Consolidated Condensed Statements of Income for the three months ended March 31, 4 2002 and March 31, 2001 Consolidated Condensed Statements of Shareholders' Equity for the three months 5 ended March 31, 2002 and March 31, 2001 Consolidated Condensed Statements of Cash flows for the three months ended 6 March 31, 2002 and March 31, 2001 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results 8 of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature Page 12
2 PART I: FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
March 31, 2002 December 31, 2001 ASSETS (unaudited) Cash and amounts due from fin. institutions $ 6,068 $ 5,488 Interest-earning deposits in financial institutions 10,894 4,327 ------------- ------------- Cash and cash equivalents 16,962 9,815 Securities available for sale 25,872 28,913 Securities held to maturity 1,413 1,413 Loans: Commercial, financial and agricultural loans 73,070 71,573 Real estate-construction loans 2,038 1,377 Real estate-mortgage loans 46,357 44,438 Installment loans to individuals 4,622 4,921 ------------- ------------- Total Loans 126,087 122,309 Unearned income (466) (424) Allowance for loan losses (1,696) (1,505) ------------- ------------- Net Loans 123,925 120,380 Company premises and equipment, net 5,084 5,141 Other assets 2,714 2,434 ------------- ------------- TOTAL ASSETS $ 175,970 $ 168,096 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Interest-bearing deposits 115,735 109,741 Non-interest-bearing deposits 28,106 25,642 ------------- ------------- Total Deposits 143,841 135,383 Other borrowings 11,870 12,375 Other liabilities 2,236 2,485 ------------- ------------- Total Liabilities 157,947 150,243 Shareholders' Equity: Common stock 5,999 5,998 Retained earnings 11,707 11,615 Accumulated other comprehensive income 317 240 ------------- ------------- Shareholders' Equity 18,023 17,853 ------------- ------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 175,970 $ 168,096 ============= =============
3 CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited) (in thousands, except per share data)
Three months ended: March 31, 2002 March 31, 2001 Interest Income: Interest on loans $ 2,521 $ 2,486 Securities: Taxable 253 342 Tax exempt 107 108 Federal funds sold 6 Other interest 21 141 ---------------- ---------------- Total interest income $ 2,902 $ 3,083 ---------------- ---------------- Interest Expense: Interest-bearing demand 28 30 Savings 268 313 Time deposits 457 635 Interest on federal funds & borrowings 154 158 ---------------- ---------------- Total Interest Expense 907 $ 1,136 ---------------- ---------------- Net Interest Income 1,995 1,947 Provision for loan losses 184 134 ---------------- ---------------- Net Interest Income After Provision for 1,811 1,813 Loan Losses Non-interest income 503 423 Salaries & employee benefits 1,256 1,104 Other non-interest expense 794 843 ---------------- ---------------- Income before taxes 264 289 Income tax expense 70 59 ---------------- ---------------- Net income $ 194 $ 230 ================ ================ Earnings per share common equivalent shares: Basic and diluted $ 0.23 $ 0.27 Weighted average common shares outstanding: Basic and diluted 854 854 Dividends per share common: Basic and diluted $ .08 $ .08
4 CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) (in thousands)
March 31, 2002 March 31, 2001 Beginning balance, January 1 $ 17,853 $ 17,706 Net income 194 230 Other Comprehensive Income 44 14 Dividends (68) (68) -------------- ------------- Ending Balance, March 31 $ 18,023 $ 17,882 ============== =============
5 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (in thousands, except per share data)
Three months ended: March 31, 2002 March 31, 2001 Cash flows from operating activities: Net income $ 194 $ 230 Adjustments to reconcile net income to net cash from operating activities: Provision for possible loan losses 184 134 Provision for depreciation 92 105 Deferred income taxes 180 (9) Loss on disposal of assets 39 (8) Deferred loan fees 43 13 Income taxes receivable 283 (14) Interest Receivable 37 94 Prepaid expenses and other assets 37 (224) Accrued expenses and other liabilities (19) 375 Other (176) 161 ------------- -------------- Net cash from operating activities 894 857 Cash flows used in Investing Activities: Proceeds from sales and maturities of 2,180 3,500 securities (AFS) Purchase of securities (AFS) (500) (2,112) Net (increase) decrease in loans (3,774) 837 Purchase of premises and equipment (42) (45) ------------- -------------- Net cash used in (provided by) investing (2,136) 2,180 activities Net Cash Provided by (Used In) Financing Activities: Net decrease in demand and savings deposits 9,741 85 Net (decrease) increase in certificates of (1,284) deposit 4,850 Cash dividends (68) (68) ------------- -------------- Net cash provided by financing activities 8,389 4,867 Net Increase in Cash and Cash Equivalents 7,147 7,904 Cash and Cash Equivalents at the Beginning of the 9,815 15,599 Period ------------- -------------- Cash and Cash Equivalents at the End of the Period $ 16,962 $ 23,503 ============= ==============
6 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 Company ("M&F Company"). 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, 2001. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation have been included. 2. Investment Securities The Company accounts for investment securities dependent upon their classification as held to maturity, available for sale, or trading assets. 3. Loans Loans are carried at their principal amount outstanding, net of the allowance for possible loan losses and deferred fees. Interest on commercial, mortgage and installment loans is accrued and credited to operating income based upon the principal amount outstanding. The Company's policy is to discontinue the accrual of interest when, in management's judgment, circumstances indicate that collection is doubtful. 4. Earnings Per Share Earnings per share are calculated on the basis of the weighted-average number of common shares outstanding. The potential dilutive common shares outstanding for the periods ended March 31, 2002 and March 31, 2001 represented 82,200 shares. 5. Regulatory Capital Requirements The Company is subject to various regulatory capital requirements administered by the federal 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 March 31, 2002 and December 31, 2001 the Company had the following capital levels: 7 Capital (a) (b) Minimum Risk Based Tier 1 Tier 1 Required Capital March 31, 2002 15.26% 13.55% 11.26% 6.00% December 31, 2001 15.60% 13.91% 11.44% 6.00% a) to risk weighted assets b) to average assets 6. Comprehensive Income Reporting comprehensive income requires the Company to (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. 7. Common Stock Cash Dividends On March 19, 2002, the Board of Directors of the Company declared a quarterly cash dividend of $0.08 per share to all shareholders of record on March 19, 2002 payable April 12, 2002. The dividend reduced shareholders' equity by $68,298. 8. Presentation Certain amounts in 2001 have been reclassified to conform to the 2002 presentation. 9. Subsequent Event On May 8, 2002 the Company purchased 10,902 shares of common stock at $9.75 per share for a total of $106,295. The shares were retired from the outstanding shares of common stock. 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, 2001. It is intended to assist you in understanding the financial condition and the results of operations for the three months ended March 31, 2002 and 2001. Critical Accounting Policies The accounting and reporting policies of the Company and its bank subsidiary are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The more critical accounting and reporting policies include the Company's accounting for securities, loans, the allowance for loan losses and income taxes. In particular, the Company's accounting policies relating to the allowance for loan losses and income taxes involve the use of estimates and require significant judgments to be made by management. Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position or consolidated results of operations. Please also refer to Note A in the "Notes to Consolidated Financial Statements" in the Company's Annual Report for the year ended December 31, 2001 on Form 10-KSB on file with 8 the Securities and Exchange Commission for details regarding all of the Company's critical and significant accounting policies. 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. 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 increased 4.68 percent to $175,970,000 at March 31, 2002 from $168,096,000 at December 31, 2001. The investment portfolio balance (including FHLB stock) as of March 31, 2002 was $27,285,000 compared to $30,326,000 at December 31, 2001. Maturities and deposits were used to fund loan demand and satisfy liquidity needs. The investment portfolio can be liquidated to meet loan demand if necessary. Approximately 95 percent of the portfolio was classified as available-for-sale at March 31, 2002 and December 31, 2001. All securities purchased during 2002 and 2001 were classified in the available-for-sale category. Net loans increased 2.94 percent to $123,925,000 at March 31, 2002 from $120,380,000 at December 31, 2001. Management continues its effort to add more adjustable rate loans to the portfolio in an effort to reduce the interest rate sensitivity of our loans. This effort is normally achieved in the area of commercial loans which are primarily secured by real estate. Deposits increased 6.25 percent to $143,841,000 at March 31, 2002 from $135,383,000 at December 31, 2001. The majority of the growth came from increased balances on public fund accounts from local universities and municipalities. 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 seek other sources of liquidity to meet loan demand. Total shareholders' equity increased marginally to $18,023,000 on March 31, 2002 from $17,853,000 at December 31, 2001. The favorable change in this account was due to year-to-date net income partially offset by dividends declared. Results of Operations - Comparison for the three months ended March 31, 2002 and 2001 Net income for the three months ended March 31, 2002 decreased 15.65 percent to $194,000 compared with $230,000 for the same period in 2001. Total interest income decreased 5.87 percent to $2,902,000 at March 31, 2002 from $3,083,000 at 9 March 31, 2001. The decrease resulted primarily from a reduction in the securities income created by a lower balance outstanding in the securities portfolio. Total interest expense decreased 20.16 percent to $907,000 at March 31, 2002 from $1,136,000 at March 31, 2001. The reduction resulted from lower interest rates, a yield of 2.60 percent compared to 3.55 for the prior year. A higher volume of deposits partially offset the change in yield. The Company increased the loan loss provision by 37.31 percent from $134,000 to $184,000. The increase was a factor of increased loan volume and management's assessment of non-performing assets and total classified assets. Non-interest income increased 18.91 percent from $423,000 to $503,000 primarily due to a $45,000 gain on the sale of other real estate owned. Employee compensation and benefits and other non-interest expense increased 5.29 percent from $1,947,000 to $2,050,000. The increase in the other non-interest category was attributed to small increases in various accounts. 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 March 31, 2002 allowance for loan losses was $1,696,000 or 1.35 percent of total loans outstanding compared with $1,505,000 or 1.23 percent of total loans outstanding at December 31, 2001. An increase in loan volume was the primary cause for an increase in the loan loss allowance. Management has also considered non-performing assets and total classified assets in establishing 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. 03/31/02 12/31/01 (Dollars in Thousands) ----------------------------- Non-Accruing Loans $ 370 434 Accruing Loans Delinquent 90 days or more 351 263 Foreclosed Assets 40 133 Restructured Loans 792 914 ------- ------- Total Non-Performing Assets $ 1,553 $ 1,744 ======= ======= Percentage of total assets 88% 1.04% As non-performing assets decline, it has a favorable impact on earning assets and net interest income. Liquidity, Interest Rate Sensitivity and Market Risks The objectives of the Company's liquidity management policy include providing adequate funds to meet the needs of depositors and borrowers at all times, as well as providing funds to meet the basic needs for on-going operations of the Company and regulatory requirements. The Company's liquidity position remained substantially constant during the three-month period ended March 31, 2002. 10 The Company places great significance on monitoring and managing the Company's asset/liability position. The Company's policy for managing its interest margin (or net yield on interest-earning assets) is to maximize net interest income while maintaining a stable deposit base. The Company's deposit base has not historically been subject to the levels of volatility experienced in national financial markets in recent years; however, the Company does realize the importance of minimizing such volatility while at the same time maintaining and improving earnings. Gap analysis, a common method historically used to estimate interest rate sensitivity, measures the difference or gap between the volume of interest-earning assets and interest-bearing liabilities repricing over various time periods. However, this method addresses only the magnitude of funding mismatches and does not address the magnitude or relative timing of rate changes. Therefore, management prepares on a quarterly basis earnings projections based on a range of interest rate scenarios of rising, flat and declining rates in order to more accurately measure interest rate risk. Interest-bearing liabilities and the variable rate loans are generally repriced to current market rates. The Company's balance sheet is liability-sensitive, meaning that in a given period there will be more liabilities than assets subject to immediate repricing as the market rates change. Because most of the Company's loans are fixed rate mortgages, they reprice less rapidly than rate sensitive interest-bearing deposits. During periods of rising rates, this results in decreased net interest income. The opposite occurs during periods of declining rates. In addition to the gap analysis described above, the Company uses a modeling technique which projects net interest income under varying interest rate scenarios and the theoretical impact of immediate and sustained rate changes referred to as "rate shocks." "Rate shocks" measure the estimated theoretical impact on the Company's tax equivalent net interest income and market value of equity from hypothetical immediate changes in interest rates as compared to the estimated theoretical impact of rates remaining unchanged. The prospective effects of these hypothetical interest rate changes are based upon numerous assumptions including relative and estimated levels of key interest rates. The Company has not experienced a change in the mix of its rate-sensitive assets and liabilities or in market interest rates that it believes would result in a material change in its interest rate sensitivity from that reported at December 31, 2001. 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 11 (a) Exhibits Exhibit (3) (iii) Amended and Restated Article III, Section 5 of the Bylaws of M&F Bancorp, Inc. adopted by the shareholders of M&F Bancorp, Inc. on April 30, 2002. Exhibit (4) Specimen Stock Certificate incorporated by reference to Exhibit (4) to the Form 10-KSB40 for the fiscal year ended December 31, 20000 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. 13(b) On February 9, 2001 the Company filed on Form 8-K the announcement that Julia W. Taylor would retire from the Board of Directors of M&F Bancorp, Inc. and that Ms. Taylor had asked that her name be withdrawn from nomination for the May 1, 2001 Annual Meeting of Shareholders. Additionally, the Company announced that Ms. Taylor asked not to be reappointed to the Mechanics & Farmers Bank Board of Directors when directors are appointed on March 27, 2001. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. M&F Bancorp, Inc. - ----------------- (Registrant) Date: May 13, 2002 By: /s/Lee Johnson Jr. ---------------------------- Lee Johnson, Jr. President/Chief Executive Officer By: /s/Fohliette W. Becote ---------------------------- Fohliette W. Becote Secretary/Treasurer 12 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION Exhibit 3(iii) Amended and Restated Article III, Section 5 of the bylaws of M & F Bancorp, Inc., adopted by the shareholders of M & F Bancorp, Inc. on April 30, 2002. 13 EX-3.III 3 dex3iii.txt EXHIBIT 3.III EXHIBIT 3(iii) AMENDED AND RESTATED ARTICLE III, SECTION 5 OF THE BYLAWS OF M&F BANCORP, INC. Section 5. Terms of Directors. Each initial director shall hold office until the earliest of the first shareholders' meeting at which directors are elected, or until such director's death, resignation, or removal. At all times that the number of directors is less than nine (9), each director shall be elected to a term ending as of the next succeeding annual meeting of shareholders or until his or her earlier death, resignation, retirement, removal or disqualification or until his or her successor shall be elected and shall qualify. In the first election of directors that the total number of directors is nine (9) or more, the directors shall be divided into three (3) classes, as nearly equal as possible in number as may be, to serve in the first instance for terms of one (1), two (2) and three (3) years, respectively, from the date such class of directors takes office or until their earlier death, resignation, retirement, removal or disqualification or until their successors shall be elected and shall qualify, and thereafter the successors in each class of directors shall be elected for terms of three (3) years or until their earlier death, resignation, retirement, removal, or disqualification or until their successors shall be elected and shall qualify. In the event of any increase or decrease in the number of directors at a time that the directors are so classified, the additional or eliminated directorships shall be classified or chosen so that all classes of directors shall remain or become as nearly equal as possible in number. Notwithstanding the provisions of this Section 5, a decrease in the number of directors does not shorten an incumbent director's term. Despite the expiration of a director's term, such director shall continue to serve until a successor shall be elected and qualified or until there is a decrease in the number of directors. -----END PRIVACY-ENHANCED MESSAGE-----