SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
- --------------------------------------------------------------------------------
Form 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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
- --------------------------------------- ------------------------
(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, 2001
$0.01 par value common stock 139,220 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 December 31, 2001
and September 30, 2001 (unaudited) -3-
Consolidated Statements of Operations for the Three Months
Ended December 31, 2001 and 2000 (unaudited) -4-
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2001 and 2000 (unaudited) -6-
Consolidated Statements of Comprehensive Income for the Three Months
Months Ended December 31, 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 -13-
SIGNATURES -14-
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, September 30,
2001 2001
---- ----
ASSETS
------
Cash and amounts due from depository
institutions $ 4,989,789 3,508,465
Federal funds sold and overnight deposits 3,430,205 2,610,541
------------- ------------
Total cash and cash equivalents 8,419,994 6,119,006
Interest bearing deposits 163,142 163,142
Investment securities held to maturity (fair value of
$1,002,972 and $1,244,186 respectively) 972,631 1,210,924
Investment securities available for sale, at fair value (cost of
$50,656,883 and $46,448,236, respectively) 50,993,935 47,260,024
Federal Home Loan Bank stock 947,500 747,500
Loans receivable, net of allowance 40,641,776 41,109,567
Premises and equipment, net 3,449,483 3,450,612
Real estate acquired by foreclosure 445,089 267,413
Accrued interest receivable on investment securities 250,062 299,271
Accrued interest receivable on loans 300,816 321,442
Other assets 396,104 2,379,392
------------- ------------
Total assets $ 106,980,532 103,328,293
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing deposits $ 77,227,411 76,945,341
Advance payments by borrowers for
taxes and insurance 71,405 270,788
Other liabilities 1,087,279 1,262,817
Employee Stock Ownership Plan debt 56,000 56,000
FHLB advances 18,950,000 14,950,000
------------- ------------
Total liabilities 97,392,095 93,484,946
Common stock subject to put option (27,986 shares) 1,175,412 1,175,412
Stockholders' equity:
Common stock 1,392 1,392
Additional paid-in-capital 1,449,196 1,446,846
Retained earnings 6,794,005 6,739,788
Accumulated other comprehensive income 206,218 519,545
Unearned common stock held by ESOP (37,786) (39,636)
------------- ------------
Total stockholders' equity 8,413,025 8,667,935
------------- ------------
Total liabilities and stockholders' equity $ 106,980,532 103,328,293
============= ============
See accompanying notes to consolidated financial statements.
3
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
2001 2000
---- ----
INTEREST INCOME:
Interest and fees on loans $899,337 $1,038,243
Interest and dividend income
on investment securities 119,968 160,878
Interest income on
mortgage-backed securities 495,286 574,756
Other interest income 19,199 37,118
----------- -----------
Total interest income 1,533,790 1,810,995
Interest on deposits 541,472 783,733
Interest on FHLB advances 208,804 231,010
----------- -----------
Total interest expense 750,276 1,014,743
Net interest income 783,514 796,252
Provision for loan losses -- --
----------- -----------
Net interest income after
provision for loan losses 783,514 796,252
OTHER INCOME:
Service charges on deposits 92,999 88,592
Gain on sale of assets -- 1,980
Gain on sale of securities 128,667 12,813
Other 5,112 5,483
----------- -----------
Total other income 226,779 108,868
OTHER EXPENSES:
Salaries and employee benefits 359,257 357,379
Net occupancy expense 37,110 34,962
Federal insurance premium 7,960 11,109
Data processing expenses 54,124 53,294
Professional services 97,228 87,422
Depreciation and amortization 41,306 65,261
Advertising expense 13,836 22,650
Office supplies 10,404 21,369
Insurance expense 18,399 16,641
Other 108,768 134,570
----------- -----------
Total other expenses 748,393 804,657
----------- -----------
Income before income taxes 261,900 100,463
Income tax expense 89,346 36,453
----------- -----------
Net income $ 172,554 $ 64,010
=========== ===========
See accompanying notes to consolidated financial statements.
4
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
2001 2000
---- ----
Basic earnings per common share $ 1.26 $ 0.51
=========== ===========
Basic average shares outstanding 136,599 125,870
=========== ===========
Diluted earnings per common share $ 1.26 0.48
=========== ===========
Diluted average shares outstanding 136,599 133,070
=========== ===========
Dividends declared and paid
per common share $ 0.85 0.75
=========== ===========
See accompanying notes to consolidated financial statements.
5
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 172,554 64,010
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 41,306 65,261
Compensation expense recognized on ESOP allocation 4,200 4,000
Net amortization of premium on investment securities 26,335 8,416
Gain on sale of investment securities available for sale (128,667) (12,813)
Decrease in deferred gain on sale of foreclosed real estate -- (1,980)
Decrease (increase) in accrued interest receivable 69,835 (24,962)
Decrease (increase) in other assets 143,288 (119,673)
Decrease in accrued interest on deposits (16,471) (54,959)
Decrease in other liabilities (54,305) (115,868)
----------- -----------
Net cash provided by (used in) operating activities 258,075 (188,568)
----------- -----------
Cash flows from investing activities:
Purchase of investment securities available for sale (8,172,739) (3,283,621)
Purchase of FHLB stock (200,000) --
Net change in loans 290,115 1,261,531
Proceeds from sale of investment securities
available for sale 2,025,000 2,878,190
Proceeds from call of investment securities
available for sale 1,840,000 --
Proceeds from principal collected on
investment securities held to maturity 237,874 817,701
Proceeds from principal collected on
investment securities available for sale 2,041,842 712,555
Purchase of premises and equipment -- (25,637)
----------- -----------
Net cash (used in) provided by investing activities (1,937,908) 2,360,719
----------- -----------
See accompanying notes to consolidated financial statements.
6
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2001 2000
---- ----
Cash flows from financing activities:
Increase in interest bearing deposits 298,541 504,082
Advances from FHLB 4,000,000 --
Decrease in advance payments by
borrowers for taxes and insurance (199,383) (172,968)
Cash dividends (118,337) (97,500)
----------- -----------
Net cash provided by financing activities 3,980,821 233,614
----------- -----------
Net increase in cash and cash equivalents 2,300,988 2,405,765
Cash and cash equivalents at beginning of period 6,119,006 3,594,355
----------- -----------
Cash and cash equivalents at end of period $ 8,419,994 6,000,120
=========== ===========
Supplemental information on cash payments:
Interest paid $ 557,943 838,692
Taxes paid $ -- 136,000
Supplemental information on noncash activities:
Loans transferred to real estate acquired by foreclosure $ 177,676 --
See accompanying notes to consolidated financial statements.
7
CFS BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended
December 31,
2001 2000
---- ----
Net income $ 172,554 64,010
Other comprehensive income, before tax:
Unrealized holding gain (loss) arising
during the period (346,071) 744,935
Less reclassification adjustment for gain on
securities available for sale 128,667 12,813
--------- --------
Total other comprehensive income (loss), before tax (474,738) 732,122
--------- --------
Income tax expense (benefit) related to other
comprehensive income:
Unrealized holding gain (loss) on available
for sale securities (117,664) 267,920
Less reclassification adjustment for gains on
securities available for sale 43,747 4,356
--------- --------
Total income tax expense (benefit) related to
other comprehensive income (161,411) 263,564
--------- --------
Total other comprehensive income (loss), net of tax (313,327) 468,558
--------- --------
Total comprehensive income (loss) $(140,773) 532,568
========= ========
See accompanying notes to consolidated financial statements.
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 presentation of financial position of
the Company and the results of operations for the three month periods ended
December 31, 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, 2001.
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 calculate diluted
earnings per share for the three months ended December 31, 2001 and 2000:
2001 2000
---- ----
Weighted average common shares outstanding 136,599 125,870
Net effect of the assumed exercise of stock options based on
the treasury stock method using average market price for the quarter -- 7,200
------- -------
Total weighted average common shares and potential common stock outstanding 136,599 133,070
======= =======
4. SUBSEQUENT EVENTS
On January 24, 2002 shareholders voted to approve the CFS Bancshares, Inc. Stock
Option and Incentive Plan. Accordingly on 01/24/2002 the Company granted 10,450
options to acquire the Company's stock. The options are immediately vested and
exercisable at the fair value of the Company as defined in the stock option and
incentive plan.
9
MANAGEMENT DISCUSSION AND ANALYSIS
- ----------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
- --------
Net income for the three months ended December 31, 2001 was $172,554 an increase
of $108,544 or 169.57% when compared to the three months ended December 31,
2000. The increase in net earnings resulted primarily from an increase in gains
on sale of securities available for sale.
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 a portion of its 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 120 basis points from 4.44% for the three month period
ended December 31, 2000 to 3.24% during the three month period ended December
31, 2001 while the yield on interest earning assets decreased 136 basis points
from 7.82% for the three month period ended December 31, 2000 to 6.46% for the
comparable period in the current fiscal year. The decline in the yields on
interest earning assets resulted from declines in the average balance of net
loans receivable, as well as a decline in the average market interest rates
between December 2000 and December 2001.
The decrease in the net interest spread of 16 basis points was partially offset
by increases in the average balances of net interest earning assets when
comparing the three month period ended December 31, 2001 to the three month
period ended December 31, 2000. The Bank's net interest income decreased by
$12,738 or 1.60% from $796,252 for the three month period ended December 31,
2000 to $783,514 for the three month period in the current fiscal year.
OTHER INCOME
- ------------
Other income increased from $108,868 for the three month period ended December
31, 2000 to $226,779 for the comparable period in the current fiscal year. The
increase resulted from an increase in the gain on sale of investment securities
available for sale. During the three month period ended December 31, 2001 the
Bank sold fixed rate investment securities with a par balance of $2,000,000 for
a net gain of $128,667. The Bank recognized gains on the sale of investment
securities during the three month period ended December 31, 2000 of $12,813.
OTHER EXPENSE
- -------------
The Bank's other expense decreased by 6.99% or $56,264 from $804,657 for the
three month period ended December 31, 2000 to $748,393 for the comparable period
in the current year. Decreases in depreciation and amortization, office supplies
and other expense of $23,955, $10,965 and $25,802 respectively, were primarily
responsible for the overall decline in operating expense for the three months
ended December 31, 2001 as compared to the three months ended December 31, 2000.
A significant amount of the furniture and equipment purchased when the Bank
relocated its main office during 1996 has been fully depreciated which led to
the decrease in depreciation expense. During the three months ended December 31,
2000 the Bank incurred expenses equal to insurance deductibles related to two
legal matters. There were no such expenses during the current fiscal year and as
a result other expense decreased.
10
REVIEW OF FINANCIAL CONDITION
- -----------------------------
Significant factors affecting the Bank's financial condition between September
30, 2001 and December 31, 2001 are detailed below:
ASSETS
- ------
Total assets increased $3,652,239 or 3.53% from $103,328,293 at September 30,
2001 to $106,980,532 at December 31, 2001. Increases in cash and cash
equivalents of $2,300,988 and investment securities available for sale of
$3,733,911 were partially offset by a decrease in other assets of $1,983,288.
Other, assets which had a balance of $2,379,392 at September 30, 2001, included
a receivable for securities with a par value of $1,840,000 which had been called
by the issuer but not yet settled. The Bank received the funds for the called
security during the early part of October 2001.
LIABILITIES
- -----------
Total liabilities increased $3,911,349 or 4.18% between September 30, 2001 and
December 31, 2001. The increase resulted from an increase in the Bank's advances
from the Federal Home Loan Bank of Atlanta which increased by $4,000,000 from
$14,950,000 at September 30, 2001 to $18,950,000 at December 31, 2001. The
additional funding from the FHLB was used to purchase mortgage backed
securities.
LIQUIDITY
- ---------
The Bank's primary sources of liquidity are deposits, loan payments, maturing
investment securities, principal and interest payments on investments,
mortgage-backed securities and CMOs, and advances from the Federal Home Loan
Bank of Atlanta. Additionally, the Bank has short-term investments that could be
readily liquidated to meet funding requirements and also maintains lines of
credit with two correspondent banks to meet any requirements caused by
short-term fluctuations in liquidity needs. Management believes that the Bank's
various sources of funds are adequate to meets its liquidity requirements in the
ordinary course of business.
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, 2001 the Bank had $1,036,019 in assets classified as substandard
including assets acquired by foreclosure or repossession of $445,089, 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 loss. At
September 30, 2001 the Bank had $935,215 in assets classified as substandard
including real estate acquired by foreclosure of $267,413, no assets classified
as doubtful, and $155,475 in assets classified as loss.
The allowance for loan losses was $382,344 at December 31, 2001 and $396,768 at
September 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.
11
CRITICAL ACCOUNTING POLICIES
Management has determined that the accounting for loan loss allowances is a
critical accounting policy with respect to the determination of financial
condition and reporting of results of operations.
Management determines the required allowances by classifying loans according to
credit quality and collateral security and applying historical loss percentages
to each category. Additionally, as necesary, management determines specific
allowances related to impaired loans based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or the fair
value of the collateral if the loan is collateral dependent. A key component in
the accounting policy is management's ability to timely identify changes in
credit quality which may impact the Company's financial results.
Management recognizes that in making loans, credit losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of a secured loan, the quality of the security for the loan.
Management's policy is to maintain an appropriate allowance for estimated losses
on the portfolio as a whole. The allowances are based on estimates of the
historical loan loss experience, evaluation of economic conditions and regular
periodic reviews of the Bank's loan portfolio. The Bank's loan portfolio
consists mostly of residential and non-residential real estate. Management
believes that the effects of any reasonably likely changes in the economy would
be limited somewhat due to the fact the loan portfolio is collateralized by real
estate.
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.
12
At December 31, 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) $9,318,181 20.02% 3,722,640 8.00% 4,653,300 10.00%
Tier I capital
(to risk weighted assets) $9,202,351 19.78% 1,861,320 4.00% 2,791,980 6.00%
Tier I capital
(to average assets) $9,202,351 8.93% 4,119,837 4.00% 5,149,796 5.00%
Reconciliation of capital: Risk Weighted Tier I Capital
Capital
Total stockholders' equity (GAAP) $9,408,569 $9,408,569
Unrealized gain on securities - AFS (206,218) (206,218)
Allowance for loan losses 227,000 --
Equity investments (111,170)
Total $9,318,181 $9,202,351
13
CITIZENS FEDERAL SAVINGS BANK 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
None
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
24, 2002 for the purpose of considering and acting upon the election of three
directors of the Company and the approval of the CFS Bancshares, Inc. 2001 Stock
Option and Incentive Plan. The result of the election in which 104,812 out of
139,220 possible votes were received was as follows:
Votes
-----
Votes Withheld or Broker
----- ----------- ------
For Abstained Non-Vote
--- --------- --------
Bunny Stokes, Jr. as Director 104,812 None None
Dr. Ross E. Gardner as Director 104,812 None None
Cynthia N. Day as Director 104,812 None None
2001 Stock Option Plan 102,612 25 2,175
ITEM 5: OTHER INFORMATION:
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
None
14
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:February 12, 2002 By:/s/ Bunny Stokes, Jr.
-------------------------- ---------------------------------
Bunny Stokes, Jr.
Chairman/CEO
(principal executive officer)
Date:February 12, 2002 By:/s/ W. Kent McGriff
-------------------------- ---------------------------------
W. Kent McGriff
Executive Vice President
(principal financial and accounting
officer)
14