SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________________________________________________________
Form 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE EXCHANGE ACT
For the transition period from ________ to ______.
Commission File Number: 0-24625
CFS Bancshares, Inc.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 63-1207881
- -------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1700 3rd Avenue North
Birmingham, Alabama 35203
- ------------------------- -------
(Address of principal Zip Code
executive office)
Registrant's telephone number, including area code:(205)328-2041
Indicate by check mark whether the registrant (1) has filed all
the reports required to be filed by section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or 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
--- ---
Number of shares outstanding of common stock
as of December 31, 1999
$0.01 par value common stock 130,000 shares
- ---------------------------- -----------------
Class Outstanding
CFS BANCSHARES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION: PAGE No.
Consolidated Balance Sheets at December 31, 1999
and September 30, 1999 (unaudited) -3-
Consolidated Statements of Operations for the
Three Months Ended December 31, 1999 and
1998 (unaudited) -4-
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1999 and 1998
(unaudited) -6-
Consolidated Statements of Comprehensive Income
for the Three Months ended December 31, 1999
and 1998 (unaudited) -8-
Notes to Consolidated Financial Statements -9-
Management's Discussion and Analysis of Financial
Condition and Results of Operations -11-
PART II - OTHER INFORMATION -15-
SIGNATURES -16-
EXHIBITS
CFS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, September 30,
1999 1999
ASSETS
------
Cash and amounts due from depository
institutions $ 5,093,224 $ 4,811,709
Federal funds sold and overnight deposits 666,690 2,877,742
----------- -----------
Total cash and cash equivalents 5,759,914 7,689,451
Interest bearing deposits 161,524 161,524
Investment securities held to maturity
(fair value of $4,684,817 and $4,919,789,
respectively) 4,698,814 4,929,808
Investment securities available for sale,
at fair value (cost of $33,147,486 and
$34,389,879, respectively) 32,299,450 33,604,258
Federal Home Loan Bank stock 592,500 592,500
Loans receivable, net of allowances 43,394,575 43,521,160
Premises and equipment, net 3,831,107 3,871,433
Real estate acquired by foreclosure 47,270 47,270
Accrued interest receivable on investment
securities 118,877 122,584
Accrued interest receivable on mortgage-
backed securities 161,779 169,254
Accrued interest receivable on loans 310,422 317,617
Other assets 580,822 1,077,514
----------- -----------
Total assets $91,957,054 96,104,373
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing deposits $71,892,563 $75,180,323
Advance payments by borrowers for taxes
and insurance 49,915 257,724
Other liabilities 1,019,002 981,602
Employee Stock Ownership Plan debt 72,000 72,000
FHLB advances 11,200,000 11,850,000
----------- -----------
Total Liabilities 84,233,480 88,341,649
Stockholders' Equity:
Common stock 130,000 130,000
Additional paid-in-capital 1,181,108 1,180,060
Retained earnings 7,018,295 7,020,548
Accumulated other comprehensive income (loss) (542,743) (502,798)
Unearned common stock held by ESOP (63,086) (65,086)
----------- -----------
Total Stockholders' Equity 7,723,574 7,762,724
----------- -----------
Total liabilities and stockholders'
equity $91,957,054 $96,104,373
=========== ===========
See accompanying notes to consolidated financial statements.
3
CFS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1999 1998
INTEREST INCOME:
Interest and fees on loans $ 961,326 $1,036,410
Interest and dividend income on
investment securities 119,389 34,712
Interest income on mortgage-backed
securities 474,560 487,614
Other interest income 53,563 33,350
---------- ----------
Total interest income 1,608,838 1,592,086
Interest on deposits 659,631 703,857
Interest on FHLB advances 162,513 132,625
---------- ----------
Total interest expense 822,144 836,482
Net interest income 786,694 755,604
Provision for loan losses -- --
---------- ----------
Net interest income after provision
for loan losses 786,694 755,604
OTHER INCOME:
Service charges on deposits 116,705 110,416
Gain (loss) on sale of assets 934 6,347
Gain on sale of securities -- --
Other 7,294 6,581
---------- ----------
Total other income 124,933 123,344
EXPENSES:
Salaries and employee benefits 320,905 353,211
Net occupancy expense 27,304 28,286
Federal insurance premium 23,589 24,029
Data processing expenses 50,902 65,041
Professional services 92,331 67,111
Depreciation and amortization 78,130 72,943
Advertizing expense 19,095 51,635
Office supplies 20,336 13,807
Insurance expense 15,799 14,858
Other 109,820 75,084
---------- ----------
Total other expense 758,211 766,005
---------- ----------
Income before income taxes 153,416 112,943
Income tax expense 58,169 49,464
---------- ----------
Net income $ 95,247 $ 63,479
========== ==========
See accompanying notes to consolidated financial statements
4
CFS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1999 1998
Basic earnings per common share $ 0.76 $ 0.53
======== ========
Basic average shares outstanding 125,870 119,695
======== ========
Diluted earnings per common share $ 0.72 $ 0.48
Diluted average shares outstanding 133,070 131,695
Dividends declared and paid per
common share $ 0.75 $ 0.75
See accompanying notes to consolidated financial statements
5
CFS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
1999 1998
Cash flows from operating activities:
Net income $ 95,247 $ 63,479
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 78,130 72,943
Compensation expense recognized on ESOP
allocation 3,500 17,160
Net amortization of premium on investment
securities 16,036 38,157
Gain on sale or call of investment
securities available for sale -- (1,636)
(Gain) loss on sale of real estate acquired
by foreclosure -- (4,101)
Decrease in deferred gain on sale of REO (834) (610)
Decrease in accrued interest receivable 18,377 54,961
Decrease (increase) in other assets 496,692 (124,594)
Decrease in accrued interest on deposits (12,628) (4,748)
Increase (decrease) in other liabilities 60,252 (88,478)
----------- -----------
Net cash provided by (used in) operating
activities 754,772 22,533
Cash flows from investing activities:
Purchase of investment securities held to
maturity -- (502,656)
Purchase of investment securities available
for sale (52,580) (4,637,064)
Maturity or call of investment securities
available for sale -- 1,000,000
Net change in loans 126,585 (25,965)
Proceeds from principal collected on
investment securities held to maturity 227,650 484,199
Proceeds from principal collected on investment
securities available for sale 1,282,281 3,696,140
Purchase of premises and equipment (37,804) (39,931)
Proceeds from sale of real estate acquired
by foreclosure -- 13,860
----------- -----------
Net cash provided by (used in) investing
activities 1,546,132 (11,417)
See accompanying notes to consolidated financial statements
6
CFS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
1999 1998
Cash flows from financing activities:
Net decrease in interest bearing deposits (3,275,132) (1,395,455)
Increase (decrease) in FHLB advances (650,000) 850,000
Decrease in advance payments by
borrowers for taxes and insurance (207,809) (136,985)
Cash dividends (97,500) (97,500)
----------- ----------
Net cash used in financing activities (4,230,441) (779,940)
Net increase in cash and cash equivalents (1,929,537) (768,824)
Cash and cash equivalents at beginning of
period 7,689,451 5,317,285
----------- ----------
Cash and cash equivalents at end of period $ 5,759,914 4,548,461
=========== ==========
Supplemental information on cash payments
Interest paid on deposits $ 674,693 708,605
Taxes paid $ 180,000 --
Supplemental information on noncash transactions:
Loans transferred to real estate acquired
by foreclosure $ -- 107,621
See accompanying notes to consolidated financial statements
7
CFS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
December 31,
1999 1998
Net income $ 95,247 $ 63,479
Other comprehensive income, before tax:
Unrealized holding (losses) gains arising
during the period (62,415) (21,959)
Less reclassification adjustment for gains
on securities available for sale -- --
--------- --------
Total other comprehensive income,
before tax (62,415) (21,959)
Income tax expense (benefit) related to
other comprehensive income:
Unrealized holding gain (loss) on available
for sale securities (22,470) (8,125)
Less reclassification adjustment for gains
on securities available for sale -- --
--------- --------
Total income tax expense (benefit)
related to other comprehensive income (22,470) (8,125)
--------- --------
Total other comprehensive income (loss),
net of tax (39,945) (13,834)
--------- --------
Total comprehensive income (loss) $ 55,302 $ 49,645
========= ========
See accompanying notes to consolidated financial statements
8
CFS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (none
of which are other than normal recurring accruals) necessary for
a fair statement of financial position of the Company and the
results of operations for the three month periods ended December
31, 1998 and 1999. The results contained in these statements
are not necessarily indicative of the results that may be
expected for the entire year. For further information, refer to
the consolidated financial statements and notes included in the
Company's annual report on Form 10-KSB for the year ended
September 30, 1999.
2. RECLASSIFICATIONS
Certain items in the 1998 consolidated financial statements have
been reclassified to conform to current year classifications.
3. NET INCOME PER SHARE
Presented below is a summary of the components used to calculate
diluted earnings per share for the three months ended December
31, 1998 and 1997.
Three Months Ended December 31,
1999 1998
---- ----
Diluted earnings per share:
Weighted average common shares outstanding 125,870 119,695
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the quarter 7,200 12,000
------- -------
Total weighted average common shares and
potential common stock outstanding 133,070 131,695
======= =======
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Financial Accounting Standard No.
130, Reporting Comprehensive Income, ("FAS130"). This standard
establishes standards for reporting and displaying comprehensive
income and its components in a full set of general purpose
financial statements. FAS130 requires all items that are
required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statements that is displayed in equal prominence with the other
financial statements. The term "comprehensive income" refers to
revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current
accounting standards. Currently, "other comprehensive income"
for the Company consists of items recorded in equity under
Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities. FAS130 is effective
for financial statements for years beginning after December 15,
1997.
9
In June 1997, the FASB issued Financial Accounting Standard No.
131, Disclosures about Segments of an Enterprise and Related
Information, ("FAS131"). FAS131 establishes new standards for
the disclosures made by public business enterprises to report
information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial
reports to shareholders. It also establishes standards for
related disclosures about products and services, geographic
areas, and major customers. FAS131 is effective for financial
statements for years beginning after December 15, 1997. The
Company does not have separate segments and thus has not
segmented reporting in the accompanying financial statements.
In June 1998, the FASB issued Financial Accounting Standard No.
133, Accounting for Derivative Instruments and Hedging
Activities, ("FAS133"). The standard establishes comprehensive
accounting and reporting standards for derivative instruments
and hedging activities. FAS133 requires that all derivative
instruments be recorded in the statement of financial position
at fair value; the accounting for gains or losses due to changes
in fair value of the derivative instruments depends on whether
the derivative instruments qualify as hedging instruments. If a
derivative instrument does not qualify as a hedge, the gain or
loss is reported in earnings when it occurs. However, if the
derivative qualifies as a hedging instrument, the accounting
varies based on the type of risk being hedged, and includes
either recognizing earnings for changes in fair value each
reporting period, or accumulating changes in other comprehensive
income and recognizing earnings during the period that the
hedged forecasted item impacts earnings. FAS133 becomes
effective for financial statements for the first quarter of
fiscal years beginning after June 15, 1999. The Company has no
derivative financial instruments that would be accounted for at
fair value under FAS133.
10
MANAGEMENT DISCUSSION AND ANALYSIS
- ----------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
Net income for the three months ended December 31, 1999 was
$95,247 an increase of $31,768 or 50.05% when compared to the
three months ended December 31, 1998. The increase in net
earnings resulted primarily from an increase in net interest
income after provision for loan losses.
NET INTEREST INCOME
- -------------------
Net interest income is the difference between the interest and
fees earned on loans, securities and other interest earning
assets (interest income) and the interest paid on deposits and
FHLB advances (interest expense). The Bank's deposits and FHLB
advances are primarily short term in nature and reprice faster
than the Bank's interest earning assets, consisting mainly of
loans and mortgage backed securities, which generally have
longer maturities. The mix of the Bank's interest earning
assets and deposits and FHLB advances along with the trend of
market interest rates have a substantial impact on the change in
net interest margin. The cost of the Bank's interest bearing
liabilities decreased 17 basis points from 4.04% for the three
month period ended December 31, 1998 to 3.87% during the three
month period ended December 31, 1999 while the yield on interest
earning assets decreased 6 basis points from 7.65% for the three
month period ended December 31, 1998 to 7.59% for the comparable
period in the current fiscal year.
The increase in the net interest spread of 11 basis points along
with an increase in the average balances of interest earning
assets caused net interest income to increase. The Bank's net
interest income increased by $31,090 or 4.12% from $755,604 for
the three month period ended December 31, 1998 to $786,694 for
the three month period in the current fiscal year.
OTHER INCOME
- ------------
During the three month period ended December 31, 1999 other
income increased from $123,344 for the three month period ended
December 31, 1998 to $124,933 for the comparable period in the
current fiscal year. Decreases in gains on sale of assets and
securities of $5,413 was partially offset by an increase in
service charges on deposits of $6,289 when comparing the three
months ended December 31, 1999to the comparable period in the
prior fiscal year.
OTHER EXPENSE
- -------------
During the three month period ended December 31, 1999 the Bank's
other expense decreased by 1.02% or $7,794 from $766,005 for the
three month period ended December 31, 1998 to $758,211 for the
comparable period in the current year. Salaries and employee
benefits, data processing expense and advertising expense
decreased by $32,306, $14,139 and $32,540 respectively when
comparing the three months ended December 31, 1998 to the three
month period ended December 31, 1999. The decrease in salaries
and employee benefits resulted from a decline in the expense
associated with the Bank's ESOP and from a slight reduction in
the number employees at the Bank. The decrease in data
processing expense resulted from changes in the Bank's data
processing vendor during fiscal 1998 and from declines in Year
2000 related expenses. The decline in advertising resulted from
decreases in the amount of media purchases compared to the
three-month period ended December 31, 1998 during which the Bank
was conducting an extensive advertising campaign. The decreases
described above were partially
11
offset by increases in professional services and other expense
of $25,220 and $34,736, respectively.
REVIEW OF FINANCIAL CONDITION
- -----------------------------
Significant factors affecting the Bank's financial condition
from September 30, 1999 to December 31, 1999 are detailed below:
ASSETS
- ------
Total assets decreased $4,147,319 or 4.32% from $96,104,373 at
September 30, 1999 to $91,957,054 at December 31, 1999. The
decline is primarily attributable to a decline in the Bank's
deposits and other liabilities and was funded primarily by a
decrease in federal funds sold and overnight deposits and
investment securities which declined by $2,211,052 and
$1,535,802, respectively from $2,877,742 and $38,534,066,
respectively at September 30, 1999 to $666,690 and $36,998,264,
respectively at December 31, 1999.
Liabilities
- -----------
Total liabilities decreased $4,106,669 or 4.65% between
September 30, 1999 and December 31, 1999. The decrease resulted
from a decline in the Bank's interest bearing deposits of
$3,287,760 from $75,180,323 at September 30, 1999 to $71,892,563
at December 31, 1999 and in FHLB advances which declined by
$650,000 between September 30, 1999 and December 31, 1999. The
decline in deposits is attributable to seasonal withdrawals of
transaction accounts and to withdrawals related to the Year
2000. The change in FHLB advances resulted from the payment of
a short-term advance taken in September 1999 that was paid back
in October 1999.
LOAN QUALITY
- ------------
A key to long term earnings growth for Citizens Federal Savings
Bank is maintenance of a high quality loan portfolio. The
Bank's directive in this regard is carried out through its
policies and procedures for review of loans. The goals and
results of these policies and procedures are to provide a sound
basis for new credit extensions and an early recognition of
problem assets to allow the most flexibility in their timely
disposition.
At December 31, 1999 the Bank had $1,022,006 in assets
classified as substandard including assets acquired by
foreclosure or repossession of $47,270 no assets classified as
doubtful and $56,357 in assets classified as loss. A specific
loan loss reserve has been established for all loans classified
as a loss. At September 30, 1999 the Bank had $848,537 in
assets classified as substandard including real estate acquired
by foreclosure of $47,270, no assets classified as doubtful and
$54,589 in assets classified as loss.
The allowance for loan losses was $286,892 at December 31, 1998.
Management believes that the current allowance for loan losses
is adequate to cover any potential future loan losses which
exist in the loan portfolio, although there can be no assurance
that further increases in the loan loss allowance will not be
made as circumstances warrant.
12
LIQUIDITY AND INTEREST SENSITIVITY
- ----------------------------------
The Bank is required under applicable federal regulations to
maintain specified levels of cash and "liquid" investments in
qualifying types of United States Treasury and federal agency
securities and other investments. Such investments serve as a
source of funds upon which the Bank may rely to meet deposit
withdrawals and other short term needs. The Bank monitors its
cash flow position to assure adequate liquidity levels and to
take advantage of market opportunities. The Bank maintains
liquidity levels, which significantly exceed the minimum
regulatory requirements. Management believes that the Bank's
liquidity is adequate to fund all outstanding commitments and
other cash needs.
Changes in interest rates will necessarily lead to changes in
net interest margin. The Bank's goal is to minimize volatility
in the net interest margin by taking an active role in managing
the level, mix and maturity of assets and liabilities. The
Bank's primary emphasis in reducing its interest rate risk is
to focus on reducing the weighted average maturity of the loan
portfolio and by purchasing adjustable rate securities.
Information about Forward-Looking Statements
- --------------------------------------------
Any statement contained in this report which is not a
historical fact, or which might otherwise be considered an
opinion or projection concerning the Bank or its business,
whether expressed or implied, is meant as and should be
considered a forward-looking statement as that term is defined
in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on assumptions and opinions
concerning a variety of known and unknown risks, including but
not necessarily limited to changes in market conditions, natural
disasters and other catastrophic events, increased competition,
changes in availability and cost of reinsurance, changes in
governmental regulations, and general economic conditions, as
well as other risks more completely described in the Bank's
filings with the Securities and Exchange Commission, including
this Annual Report on Form 10-KSB. If any of these assumptions
or opinions prove incorrect, any forward-looking statement made
on the basis of such assumptions or opinions may also prove
materially incorrect in one or more respects.
CAPITAL ADEQUACY AND RESOURCES
- ------------------------------
Management is committed to maintaining capital at a level
sufficient to protect stockholders and depositors, provide for
reasonable growth, and fully comply with all regulatory
requirements. Management's strategy to maintain this goal is to
retain sufficient earnings while providing a reasonable return
to stockholders in the form of dividends and return on equity.
The Office of Thrift Supervision has issued guidelines
identifying minimum regulatory "tangible" capital equal to 1.50%
of adjusted total assets, a minimum 3.00% core capital ratio and
a minimum risk based capital of 8.00% of risk weighted assets.
The Bank has provided the majority of its capital requirements
through the retention of earnings.
At December 31, 1999 the Bank satisfied all regulatory
requirements. The Bank's compliance with the current standards
is as follows:
13
For capital Well
Actual adequacy purposes capitalized
---------------- ------------------ ---------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital
(to risk weighted assets) $8,283,398 18.61% 3,560,240 8.00% 4,450,300 10.00%
Tier I capital
(to risk weighted assets) $8,174,382 18.37% 1,780,120 4.00% 2,670,180 6.00%
Tier I capital
(to average assets) $8,174,382 8.69% 3,761,229 4.00% 4,701,536 5.00%
Reconciliation of capital: Risk Weighted Tier I Capital
Capital
Total stockholders' equity (GAAP) $7,631,639 $7,631,639
Unrealized loss on securities - AFS 542,743 542,743
Allowance for loan losses 230,000 -
Equity investments (120,984)
Total $8,283,398 $8,174,382
14
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Bank is defending various lawsuits and claims. In the
opinion of management the ultimate disposition of these matters
will not have a significant effect on the financial position of
the Bank.
ITEM 2: CHANGE IN SECURITIES
ITEM 3: DEFAULT UPON SENIOR SECURITIES
Not Applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of CFS Bancshares, Inc. was
held on January 26, 2000 for the purpose of considering and
acting upon the election of one director to serve a three-year
term. The result of the election in which 100,632 out of
130,000 possible votes were cast as follows:
Votes Against
Votes For or Withheld
Odessa Woolfolk as Director 102,393 75
ITEM 5: OTHER INFORMATION:
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27. Financial Data Schedule
No report on Form 8-K were filed during the quarter
ended December 31, 1999.
15
CFS BANCSHARES, INC. AND SUBSIDIARIES
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.
CFS BANCSHARES, INC.
(Registrant)
Date: 2/11/00 /s/ Bunny Stokes, Jr.
-------------------------------------
Bunny Stokes, Jr.
Chairman/CEO
(principal executive officer)
Date: 2/11/00 /s/ W. Kent McGriff
------------------------------------
W. Kent McGriff
Executive Vice President
(principal financial and accounting
officer)
16