10QSB 1 form10qsb_87198.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, 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 April 18, 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 March 31, 2001 and December 31, 2000 3 Consolidated Condensed Statements of Income for the three months ended March 31, 4 2001 and March 31, 2000 Consolidated Condensed Statements of Shareholders' Equity for the three months 5 ended March 31, 2001 and March 31, 2000 Consolidated Condensed Statements of Cash flows for the three months ended March 31, 6 2001 and March 31, 2000 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 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 12-13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature Page 14 Exhibit 27 15
2 PART I: FINANCIAL INFORMATION ITEM 1 Financial Statements CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
March 31, 2001 December 31, 2000 ASSETS (unaudited) Cash and due from financial institutions $5,909 $ 2,982 Interest-earning deposits in financial institutions 17,594 7,617 Federal funds sold 5,000 Cash and cash equivalents 23,503 15,599 Securities available for sale 27,148 29,632 Securities held to maturity 1,412 1,412 Loans: Commercial, financial and agricultural loans 64,655 64,639 Real estate -construction loans 8,022 8,485 Real Estate-mortgage loans 36,155 34,112 Installment loans to individuals 5,231 7,690 ----- ----- Total Loans 114,063 114,926 Unearned income 360 373 Allowance for loan losses 1,862 1,748 ----- ----- Net Loans 111,866 112,805 Bank premises and equipment, net 5,331 5,391 Other assets 2,599 2,122 ----- ----- TOTAL ASSETS $ 171,834 $ 166,961 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Interest-bearing deposits 29,920 29,984 Noninterest-bearing deposits 110,161 105,162 Total Deposits 140,081 135,146 Other borrowings 11,890 11,895 Other liabilities 1,981 2,213 ----- ----- Total Liabilities 153,952 149,254 Shareholders' Equity: Common stock 5,998 5,999 Retained earnings 11,144 10,981 Accumulated other comprehensive income 740 727 --- --- Shareholders' Equity 17,882 17,706 ------ ------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 171,834 $ 166,961
3 CONSOLIDATED CONDENSED STATEMENT OF INCOME (unaudited) (in thousands, except per share data)
Three months ended: March 31, 2001 March 31, 2000 Interest Income: Interest on loans $ 2,486 $ 2,452 Securities : Taxable 342 372 Tax exempt 108 126 Federal funds sold 6 17 Other interest 141 37 --- -- Total Interest Income $ 3,083 $ 3,004 Interest Expense: Interest-bearing demand 30 31 Savings 313 303 Time deposits 635 508 Interest on federal funds & borrowings 158 116 --- --- Total Interest Expense $ 1,136 $ 958 ------- ----- Net Interest Income 1,947 2,046 Provision for loan losses 134 77 Net Interest Income After Provision for Loan Losses 1,813 1,969 Non-interest Income 423 355 Salaries & employee benefits 1,104 1,055 Other non-interest expense 843 792 --- --- Income before Taxes 289 477 Income tax expense 59 155 -- --- Net Income $ 230 $ 322 ----- ----- Earnings per share common equivalent shares: Basic $ 0.27 $ 0.38 Diluted $ 0.27 $ 0.38 Weighted average common shares outstanding: Basic 854 854 Diluted 854 854 Dividends per share common: .08 .08 --------------------------- --- ---
4 CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited) (in thousands)
March 31, 2001 March 31, 2000 Beginning Balance, January 1 17,706 $16,299 Net Income 230 322 Other Comprehensive (Loss) Income 14 (41) Dividends (68) (68) ---- ---- Ending Balance, March 31 $17,882 $16,512 ------- -------
5 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (in thousands, except per share data)
Three months ended: March 31, 2001 March 31, 2000 Cash flows from operating activities: Net Income $ 230 $ 322 Adjustments to reconcile net income to net cash from operating activities: Provision for possible loan losses 134 77 Provision for depreciation 105 98 Deferred income taxes (9) 67 Loss on disposal of assets (8) 0 Deferred loan fees 13 8 Income taxes receivable (14) 19 Interest Receivable 94 166 Prepaid expenses and other assets (224) 19 Accrued expenses and other liabilities 375 128 Other 161 (4) ------ ------ Net cash from operating activities 857 900 Cash flows used in Investing Activities: Proceeds from sales and maturities of securities (AFS) 3,500 1,000 Purchase of securities (AFS) (2,112) (2000) Net increase (decrease) in loans 837 (2,554) Purchase of premises and equipment (45) (20) ---- ---- Net cash used in investing activities 2,180 (3,756) Net Cash Provided by (Used In) Financing Activities: Net decrease in demand and savings deposits 85 641 Net increase in certificates of deposit 4,850 657 Cash dividends (68) (68) ---- ---- Net cash provided by financing activities 4,867 1,230 Net Decrease in Cash and Cash Equivalents 7,904 (1,626) Cash and Cash Equivalents at the Beginning of the Period 15,599 14,636 ------ ------ Cash and Cash Equivalents at the End of the Period $ 23,503 $ 13,010
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 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. M&F Bancorp, Inc. became the parent holding company of Mechanics & Farmers Bank on September 1, 1999; therefore, prior periods reflect the balances of M&F Bank and its subsidiary. 2. Investment Securities The Company accounts for investment securities using Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). Under SFAS 115, the accounting for investment securities held as an asset is 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. The Company applies Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114) and Statement of Financial Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures (SFAS 118). 4. Earnings Per Share Earnings per share are calculated on the basis of the weighted-average number of common shares outstanding. There were no dilutive potential common shares outstanding for the periods ended March 31, 2001 and March 31, 2000. The shares outstanding have been adjusted for a 3-for-2 stock split accounted for as a 50 percent stock dividend declared on December 14, 1999 to all shareholders of record as of December 14, 1999 payable on January 21, 2000, for all periods presented. 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, 2001 and March 31, 2000 the Company had the following capital level. Capital 7
Risk Based Tier 1 Tier 2 Required Capital March 31, 2001 16.47% 14.75% 12.18% 6.00% December 31, 2000 15.63% 13.86% 11.82% 6.00%
6. Comprehensive Income The Company applies the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") which 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. 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. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. 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. 8. 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. 9. 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 ended March 31, 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 8 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 2.92 percent to $171,834,000 at March 31, 2001 from $166,961,000 at December 31, 2000. The investment portfolio balance (including FHLB stock) as of March 31, 2001 was $28,560,000 compared to $31,044,000 at December 31, 2000. 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, 2001 and December 31, 2000. All securities purchased during 2001 and 2000 were classified in the available-for-sale category. Net Loans decreased less than one percent from December 31, 2000. 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 3.65 percent to $140,081,000 at March 31, 2001 from $135,146,000 at December 31, 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 seek other sources of liquidity to meet loan demand. Total shareholders' equity increased less than one percent to $17,882,000 on March 31, 2001 from $17,706,000 at December 31, 2000. The 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, 2001 and 2000 Net income for the three months ended March 31, 2001 decreased 28.57 percent to $230,000 compared with $322,000 for the same period in 2000. The Company increased the loan loss provision by 74.03 percent from $77,000 to $134,000. The increase was necessary due to increased loan volume and increased classified loans. The Company recognized an increase in interest expense compared to the same period in the prior year due to an increase in long-term debt outstanding and time deposits. 9 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, 2001 allowance for loan losses was 1,862,000 or 1.63 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. At October 1, 2000 the Company had a single loan totaling $2,485,000 to default. The loan had been restructured in the previous quarter. Management had already considered the loan in the calculation of 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. 10
03/31/01 12/31/00 (Dollars in Thousand) -------------------- Non-Accruing Loans $ 2,855 2,795 Accruing Loans Delinquent 90 days or more 694 475 Foreclosed Assets 163 163 Restructured Loans 1,048 1,329 ----- ----- Total Non-Performing Assets $ 4,760 $ 4,762 Percentage of total assets 2.77% 2.85%
The level of non-performing assets impacts the Bank's need to boost reserves to cover potential loan losses. 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 13(a) Exhibits Not applicable 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 re-appointed to the Mechanics & Farmers Bank Board of Directors when directors are appointed on March 27, 2001. 12 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. ----------------- (Registrant) Date: May 9, 2001 By: /s/Lee Johnson Jr. ----------------------------- Lee Johnson, Jr. President Date: May 9, 2001 By: /s/Fohliette W. Becote ----------------------------- Fohliette W. Becote Treasurer 13