SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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Form 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] 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
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(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 June 30, 2001
$0.01 par value common stock 130,000 shares
- ---------------------------- ----------------
Class Outstanding
CFS BANCSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION: PAGE NO.
Item 1 - Financial Statements
Consolidated Balance Sheets at June 30, 2001
and September 30, 2000 (unaudited) -3-
Consolidated Statements of Operations for the
Three Months and Nine Months Ended
June 30, 2001 and 2000 (unaudited) -4-
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 2001 and 2000 (unaudited) -6-
Consolidated Statements of Comprehensive Income for
the Three Months and Nine Months Ended June 30, 2001
and 2000 (unaudited) -8-
Notes to Consolidated Financial Statements -9-
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations -11-
PART II - OTHER INFORMATION -15-
SIGNATURES -16-
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, September 30,
2001 2000
ASSETS
------
Cash and amounts due from depository
institutions $ 3,976,863 2,918,542
Federal funds sold and overnight deposits 2,251,311 675,813
------------ -----------
Total cash and cash equivalents 6,228,174 3,594,355
Interest bearing deposits 163,142 163,142
Investment securities held to maturity, at cost (fair value of
$1,532,668 and $3,506,924, respectively) 1,507,167 3,527,879
Investment securities available for sale, at fair value (cost of
$47,538,431 and $40,099,815, respectively) 47,922,114 39,376,161
Federal Home Loan Bank stock 747,500 747,500
Loans receivable (net of allowance for loan loss
of $378,936 and $342,156, respectively) 42,212,765 48,238,040
Premises and equipment, net 3,502,508 3,644,836
Real estate acquired by foreclosure 302,114 86,237
Accrued interest receivable on investment securities 298,372 335,656
Accrued interest receivable on loans 327,313 324,482
Other assets 627,127 525,440
------------ -----------
Total assets $103,838,296 100,563,728
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing deposits $78,263,027 76,334,441
Advance payments by borrowers for
taxes and insurance 199,828 267,533
Other liabilities 1,100,875 725,003
Employee Stock Ownership Plan debt 56,000 64,000
FHLB advances 14,950,000 14,950,000
------------ -----------
Total liabilities 94,569,730 92,340,977
Stockholders' Equity:
Common stock 130,000 130,000
Additional paid-in-capital 1,189,158 1,184,758
Retained earnings 7,743,487 7,422,368
Accumulated other comprehensive income (loss) 245,557 (463,139)
Unearned common stock held by ESOP (39,636) (51,236)
------------ -----------
Total stockholders' equity 9,268,566 8,222,751
------------ -----------
Total liabilities and stockholders' equity $103,838,296 100,563,728
============ ===========
See accompanying notes to consolidated financial statements
3
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
INTEREST INCOME:
Interest and fees on loans $ 976,610 967,548 3,146,365 2,879,649
Interest and dividend income
on investment securities 165,088 149,652 488,116 392,795
Interest income on
mortgage-backed securities 544,236 577,725 1,692,376 1,527,007
Other interest income 22,422 18,944 111,068 116,647
---------- ---------- ---------- ----------
Total interest income 1,708,356 1,713,869 5,437,925 4,916,098
INTEREST EXPENSE:
Interest on deposits 676,370 710,390 2,231,010 2,039,137
Interest on FHLB advances 204,067 180,867 639,031 501,128
---------- ---------- ---------- ----------
Total interest expense 880,437 891,257 2,870,041 2,540,265
Net interest income 827,919 822,612 2,567,884 2,375,833
Provision for (recovery of) loan losses - - - (100,000)
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 827,919 822,612 2,567,884 2,475,833
OTHER INCOME:
Service charges on deposits 80,983 96,047 279,128 320,065
Gain (loss) on sale of assets (1,924) 17,191 799 15,404
Gain (loss) on sale or call of securities 55,288 - 69,502 (6,125)
Other 8,289 8,421 21,209 23,018
---------- ---------- ---------- ----------
Total other income 142,636 121,659 370,638 352,362
EXPENSES:
Salaries and employee benefits 370,637 345,153 1,104,740 1,000,726
Net occupancy expense 29,329 32,866 102,513 91,027
Federal insurance premium 11,400 12,042 33,831 45,715
Data processing expenses 53,293 52,466 162,726 156,058
Professional services 46,006 40,044 160,151 188,240
Depreciation and amortization 59,535 66,278 189,233 215,142
Advertising expense 13,110 23,808 45,015 58,970
Office supplies 24,000 7,913 52,796 44,362
Insurance expense 17,596 19,804 51,197 49,172
Other 110,897 120,971 382,526 344,623
---------- ---------- ---------- ----------
Total other expense 735,803 721,345 2,284,728 2,194,035
---------- ---------- ---------- ----------
Income before income taxes 234,752 222,926 653,794 634,160
Income tax expense 80,788 79,304 232,805 233,163
---------- ---------- ---------- ----------
Net Income $ 153,964 143,622 420,989 400,997
========== ========== ========== ==========
See accompanying notes to consolidated financial statements
4
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
Basic earnings per common share $ 1.21 1.13 3.32 3.17
========== ========== ========== ==========
Basic average shares outstanding 126,871 126,645 126,771 126,545
========== ========== ========== ==========
Diluted earnings per common share $ 1.14 1.07 3.13 2.99
========== ========== ========== ==========
Diluted average shares outstanding 134,671 134,445 134,571 134,163
========== ========== ========== ==========
Dividends declared and paid
per common share $ - - 0.75 0.75
========== ========== ========== ==========
See accompanying notes to consolidated financial statements
5
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income $ 420,989 400,997
Adjustments to reconcile net income to
net cash provided by operating activities
Loan loss provision -- 50,000
Depreciation and amortization 189,233 215,142
Compensation expense recognized on ESOP allocation 12,000 11,000
Net amortization of premium on investment securities 76,576 38,861
Loss on sale of investment securities held to maturity -- 2,042
Loss (gain) on sale or call of investment securities available for sale (69,502) 4,083
Loss recognized on foreclosed loans -- 5,155
Loss (gain) on sale of real estate acquired by foreclosure 1,875 (14,333)
Decrease in deferred gain on sale of REO (2,674) (1,907)
Decrease (increase) in accrued interest receivable 34,453 (95,658)
Decrease (increase) in other assets (101,687) 324,106
Increase (decrease) in accrued interest on deposits (127,885) 19,890
Decrease in other liabilities (25,965) (64,005)
------------ ------------
Net cash provided by operating activities 407,413 895,373
Cash flows from investing activities:
Purchase of interest-bearing deposits -- (1,618)
Purchase of investment securities available for sale (17,065,225) (10,493,881)
Proceeds from sale of investment securities held to maturity -- 81,232
Proceeds from sale of investment securities available for sale 3,871,940 1,309,941
Proceeds from call of investment security available for sale 3,000,000 --
Proceeds from call of investment securities held to maturity 500,000 --
Proceeds from principal collected on
investment securities held to maturity 1,517,807 760,170
Proceeds from principal collected on
investment securities available for sale 2,750,000 2,965,011
Net change in loans 5,781,606 (2,327,304)
Purchase of FHLB stock -- (5,000)
Purchase of premises and equipment (46,905) (58,865)
Proceeds from sale of real estate acquired by foreclosure 25,917 49,330
------------ ------------
Net cash used in investing activities 335,140 (7,720,984)
See accompanying notes to consolidated financial statements
6
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
2001 2000
Cash flows from financing activities:
Net increase in interest bearing deposits 2,056,471 1,877,282
Decrease in advance payments by
borrowers for taxes and insurance (67,705) (82,732)
Net proceeds from FHLB advances - 100,000
Net proceeds from other borrowing - 710,000
Cash dividends (97,500) (97,500)
------------ ------------
Net cash provided by financing activities 1,891,266 2,507,050
Net increase (decrease) in cash and cash equivalents 2,633,819 (4,318,561)
Cash and cash equivalents at beginning of period 3,594,355 7,689,451
------------ ------------
Cash and cash equivalents at end of period $ 6,228,174 3,370,890
============ ============
Supplemental information on cash payments:
Interest paid $ 2,997,926 2,520,375
Income taxes paid 266,000 313,500
Supplemental information on noncash transactions:
Loans transferred to real estate acquired by foreclosure $ 243,669 42,412
See accompanying notes to consolidated financial statements
7
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended Nine months ended
June 30, June 30,
2001 2000 2001 2000
Net income $153,964 143,622 420,989 400,997
Other comprehensive income, before tax:
Unrealized holding (losses) gains arising
during the period (94,132) (22,403) 1,176,853 (177,028)
Less reclassification adjustment for gains (losses) on
securities available for sale 55,302 - 69,516 (6,125)
--------- -------- --------- --------
Total other comprehensive income, before tax (149,434) (22,403) 1,107,337 (170,903)
Income tax expense (benefit) related to other
comprehensive income:
Unrealized holding gain (loss) on available
for sale securities (33,887) (8,352) 423,667 (63,730)
Less reclassification adjustment for gains (losses) on
securities available for sale 19,909 - 25,026 (2,205)
--------- -------- --------- --------
Total income tax expense (benefit) related to
other comprehensive income (53,796) (8,352) 398,641 (61,525)
--------- -------- --------- --------
Total other comprehensive income (loss), net of tax (95,638) (14,051) 708,696 (109,378)
--------- -------- --------- --------
Total comprehensive income $ 58,326 129,571 1,129,685 291,619
========= ======== ========= ========
8
CFS BANCSHARES, INC. AND SUBSIDIARY
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 and nine month periods
ended June 30, 2000 and 2001. 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, 2000.
2. RECLASSIFICATIONS
Certain items in the 2000 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 calculated diluted
earnings per share for the three months and nine months ended June 30, 2001 and
2000.
Three months ended Nine months ended
June 30, June 30,
2001 2000 2001 2000
-------------------------------------------------
Weighted average common shares outstanding 126,871 126,645 126,771 126,545
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the quarter 7,800 7,800 7,800 7,618
-------------------------------------------------
Total weighted average common shares and
potential common stock outstanding 134,671 134,445 134,571 134,163
=================================================
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 established accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, 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.
Statement No. 133, as amended, was effective for financial statements for the
first quarter of fiscal years beginning after June 15, 2000. Adoption of
Statement No. 133 did not have an impact on the financial statements of the
Company.
9
In September 2000, FASB issued Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Statement No.
140 is effective for all transfers and servicing of financial assets and
extinguishments of liabilities after March 31, 2001. The Statement is effective
for recognition and reclassification of collateral and disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Due to the nature of its activities, the Company does not
expect a material change to its results of operations as a result of adopting
Statement No. 140.
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Statement No. 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. Statement No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in
accordance with the provisions of Statement No. 142. Statement No. 142 will also
require that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. The Company is required to adopt the provision of Statement No. 141
effective immediately and Statement 142 effective January 1, 2002. To date the
Company has not been involved in any business combinations and does not
currently have any goodwill capitalized on its balance sheet. As such, the
Company does not expect the adoption of Statements No. 141 and 142 to have an
impact on the financial statements of the Company.
In July 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement
Obligations. That standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity should capitalize
the cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The Company is
required to adopt the provision of Statement No. 143 for fiscal year beginning
after June 15, 2002. The Company is currently assessing whether Statement No.
143 will have an impact on its financial statements.
In July 2001, the Office of the Chief Accountant and the Division of Corporation
Finance of the Securities and Exchange Commission (the Commission) released
Staff Accounting Bulletin No. 102, (SAB 102), Selected Loan Loss Allowance
Methodology and Documentation Issues, which provides certain views of the staff
on the development, documentation, and application of a systematic loan loss
allowance methodology.
SAB 102 does not change any of the accounting profession's existing rules on
accounting for loan loss provision or allowances. Rather, SAB 102 draws upon
existing guidance, in Commission rules and interpretations, generally accepted
accounting principles, and generally accepted auditing standards, and explains
certain views of the staff in applying existing guidance related to loan loss
allowance methodologies and supporting documentation. SAB 102 is effective
immediately. The Company does not expect SAB 102 to have a significant impact on
its financial statements.
10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
----------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
- --------
Net income for the nine months ended June 30, 2001 was $420,989 an increase of
$19,992 or 4.99% when compared to the nine months ended June 30, 2000. Earnings
per diluted share were $3.13 for the current period compared to $2.94 per
diluted share for the prior year. The increase in net income resulted primarily
from increases in net interest income and other income that were partially
offset by an increase in operating expenses. During the nine months ended June
30, 2000 the Bank benefited from a net loan loss recovery of $100,000 while
there was no such recovery during the current period. Net income for the three
months ended June 30, 2001 was $153,964 an increase of $10,342 or 7.20% as
compared to net income during the three months ended June 30, 2000 of $143,622.
Earnings per diluted share for the quarter improved to $1.14 compared to $1.07
for the prior year.
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 increased 21 basis
points from 3.93% for the nine month period ended June 30, 2000 to 4.14% during
the nine month period ended June 30, 2001 while the yield on interest earning
assets increased 10 basis points from 7.59% for the nine month period ended June
30, 2000 to 7.69% for the comparable period in the current fiscal year.
The Bank's net interest income increased by $192,051 or 8.08% from $2,375,833
for the nine month period ended June 30, 2000 to $2,567,884 for the nine month
period in the current fiscal year. Net interest income for the three months
ended June 30, 2001 increased by $5,307 or .65% from $822,612 for the three
months ended June 30, 2000 to $827,919 for the three months ended June 30, 2001.
The increase in net interest income is primarily the result of an increase in
interest bearing assets of approximately $4.2 million which occurred between
June 30, 2000 and June 30, 2001.
OTHER INCOME
- ------------
Other income increased from $352,362 for the nine month period ended June 30,
2000 to $370,638 for the comparable period in the current fiscal year. A decline
in service charges on deposits of $40,937 when comparing the nine months ended
June 30, 2001 to the comparable period in the prior fiscal year was offset by an
increase in gains on sale or call of securities of $75,641. The decline in
service charges resulted from a charge-off of checking accounts overdrawn from
insufficient funds charges and from a decline in the overall volume of accounts
incurring service charges compared to the prior fiscal year. The increase in
gains on the sale or call of investment securities increased primarily as the
result of a call of a $1,000,000 par security during June 2001 that the Bank
purchased at a discount. During the nine month period in the prior fiscal year
the Bank had losses from the sale of securities of $6,125. During the three
11
months ended June 30, 2001 other income increased by $20,977 as the result of
increases in the gain on sale or call of securities as described above that were
partially offset by decreases in service charges on deposit accounts as noted in
the discussion for the nine month periods.
OTHER EXPENSE
- -------------
During the nine month period ended June 30, 2001 the Bank's other expense
increased by 4.13% or $90,693 from $2,194,035 for the nine month period ended
June 30, 2000 to $2,284,728 for the comparable period in the current year.
Salaries and employee benefits and other expense increased by $104,014 and
$37,903, respectively when comparing the nine months ended June 30, 2001 to the
nine month period ended June 30, 2000. The increase in salaries and employee
benefits resulted from an increase in security guard expense at the Bank's
branch locations and from moderate increases in salary expense for the Bank's
employees. The increase in other expense resulted from expensing insurance
deductibles related to a legal issue and from additional expenses associated
with maintaining assets acquired through foreclosure or repossession.
The increases described above were partially offset by declines in professional
services and depreciation and amortization of $28,089 and $25,909, respectively
when comparing the nine months ended June 30, 2001 to the same period in the
prior fiscal year.
REVIEW OF FINANCIAL CONDITION
- -----------------------------
Significant factors affecting the Bank's financial condition from September 30,
2000 to June 30, 2001 are detailed below:
ASSETS
- ------
Total assets increased $3,274,568 or 3.26% from $100,563,728 at September 30,
2000 to $103,838,296 at June 30, 2001. This increase can be attributed primarily
to an increase of $1,107,337 in the fair value over cost of the investment
securities available for sale and general asset growth caused by $1,928,586 of
new deposits. Significant changes in assets balances include an increase in
investment securities available for sale which increased by $8,545,953 or 21.70%
from $39,376,161 at September 30, 2000 to $47,922,114 at June 30, 2001 and an
increase in federal funds sold and overnight deposits which increased by
$1,575,498 between September 30, 2000 and June 30, 2001. The increases described
above were funded from decreases in investment securities held to maturity and
net loans receivable of $2,020,712 and $6,025,275, respectively when comparing
June 30, 2001 balances to those of September 30, 2000. The decrease in net loans
receivable resulted from an increase in the amount of prepayments on the
existing portfolio due to the decline in interest rates and from decreases in
the amount of loans originated. During the two fiscal years prior to the current
period the Bank originated a significant number of non-residential mortgages.
The opportunities for making such loans during the past 12 months has decreased
significantly.
LIABILITIES
- -----------
Total liabilities increased $2,228,753 or 2.41% between September 30, 2000 and
June 30, 2001. The increase resulted from an increase in the Bank's interest
bearing deposits of $1,928,586 from $76,334,441 at September 30, 2000 to
$78,263,027 at June 30, 2001. The increase in deposits occurred in the Bank's
transaction (checking and savings) accounts.
12
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 June 30, 2001 the Bank had $809,933 in assets classified as substandard
including assets acquired by foreclosure or repossession of $302,114, no assets
classified as doubtful and $155,475 in assets classified as loss. A specific
loan loss allowance has been established for all loans classified as a loss. At
September 30, 2000 the Bank had $748,261 in assets classified as substandard
including real estate acquired by foreclosure of $86,237, no assets classified
as doubtful, and $54,572 in assets classified as loss.
The allowance for loan losses was $378,936 at June 30, 2001. 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.
LIQUIDITY AND INTEREST SENSITIVITY
- ----------------------------------
The Bank is required under applicable federal regulations to maintain specified
levels of cash and "liquid" 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. 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 the
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.
13
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 June 30, 2001 the Bank satisfied all regulatory requirements. The Bank's
compliance with the current standards is as follows:
For capital Well
Actual adequacy purposes capitalized
------- ----------------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital
(to risk weighted assets) $9,085,177 19.62% 3,705,040 8.00% 4,631,300 10.00%
Tier I capital
(to risk weighted assets) $8,974,595 19.38% 1,852,520 4.00% 2,778,780 6.00%
Tier I capital
(to average assets) $8,974,595 8.78% 4,088,040 4.00% 5,110,051 5.00%
Reconciliation of Bank capital: Risk Weighted Tier I Capital
Capital
Total stockholders' equity (GAAP) $9,268,566 $9,268,566
Holding company equity (48,414) (48,414)
Unrealized gain on securities - AFS (245,557) (245,557)
Allowance for loan losses 223,461 --
Equity investments (112,879)
Total $9,085,177 $8,974,595
14
CFS BANCSHARES, INC. AND SUBSIDIARY
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
Not Applicable
ITEM 3: DEFAULT UPON SENIOR SECURITIES
Not Applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION:
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
None
15
CFS BANCSHARES INC. AND SUBSIDIARY
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: August 13, 2001 By:/s/ Bunny Stokes, Jr.
--------------- ----------------------------------
Bunny Stokes, Jr.
Chairman/CEO
(principal executive officer)
Date: August 13, 2001 By:/s/ Bunny Stokes, Jr.
--------------- ----------------------------------
W. Kent McGriff
Executive Vice President
(principal financial and accounting officer)