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 quarter ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ To ___________
Commission file number 0-25047
RFS BANCORP, INC.
(Exact name of registrant as specified in its charter)
UNITED STATES 04-3449818
- ------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
310 BROADWAY
REVERE, MASSACHUSETTS 02151
- --------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 284-7777
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 NO X
------ --------
As of February 12, 2001, there were 884,923 shares of the registrant's common
stock were outstanding.
RFS BANCORP, INC. AND SUBSIDIARY
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 2000
and September 30, 2000 1
Consolidated Statements of Income - Three Months
Ended December 31, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders'
Equity-Three Months Ended December 31, 2000
and 1999 3
Consolidated Statements of Cash Flows - Three Months
Ended December 31, 2000 and 1999 4
Notes to Unaudited Consolidated Financial Statements -
December 31, 2000 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
RFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 2000 SEPTEMBER 30, 2000
----------------- ------------------
(Unaudited)
ASSETS
Cash and due from banks $ 3,896 $ 4,929
Federal funds sold 4,354 1,096
--------- ---------
Total cash and cash equivalents 8,250 6,025
Securities available for sale, at fair value 7,173 6,806
Securities held to maturity, at amortized cost 31,267 31,890
Federal Home Loan Bank stock, at cost 2,029 1,811
Loans, net of allowance for loan losses of $794 and
$746, respectively 90,646 85,546
Bank premises and equipment, net 4,106 3,783
Accrued interest receivable 1,130 808
Other assets 190 275
--------- ---------
Total assets $ 144,791 $ 136,944
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 92,292 $ 92,449
Federal Home Loan Bank borrowings 41,248 33,904
Accrued expenses and other liabilities 551 352
--------- ---------
Total liabilities 134,091 126,705
--------- ---------
Stockholders' equity:
Common stock $.01 par value, 5,000,000 shares
authorized, 933,523 shares issued and 884,923 9 9
shares outstanding
Additional paid-in capital 3,763 3,759
Retained earnings 7,089 6,923
Unearned shares, stock-based incentive plan
(13,837 shares, at cost) (162) (162)
Treasury stock (48,600 shares, at cost) (435) (435)
Accumulated other comprehensive income 717 461
Unallocated ESOP shares (281) (316)
--------- ---------
Total stockholders' equity 10,700 10,239
--------- ---------
Total liabilities and stockholders' equity $ 144,791 $ 136,944
========= =========
See accompanying notes to unaudited consolidated financial statements.
1
RFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
(Unaudited)
Interest and dividend income:
Interest and fees on loans $ 1,870 $ 1,467
Interest and dividends on securities 700 524
Other interest 33 53
-------- --------
Total interest and dividend income 2,603 2,044
-------- --------
Interest expense:
Deposits 835 626
Federal Home Loan Bank borrowings 569 391
-------- --------
Total interest expense 1,404 1,017
-------- --------
Net interest and dividend income 1,199 1,027
Provision for loan losses 48 36
-------- --------
Net interest and dividend income, after provision
for loan losses 1,151 991
-------- --------
Other income:
Service charges on deposit accounts 28 67
Other income 99 38
-------- --------
Total other income 127 105
-------- --------
Operating expenses:
Salaries and employees benefits 512 417
Occupancy expense 60 46
Equipment expense 62 62
Advertising expense 38 18
Office supplies expense 15 19
Data processing expenses 66 60
Professional fees 109 46
Other expenses 168 151
-------- --------
Total operating expenses 1,030 819
-------- --------
Income before income taxes 248 277
Provision for income taxes 82 96
-------- --------
Net income $ 166 $ 181
======== ========
Basic earnings per share (annualized) $ 0.77 $ 0.80
Diluted earnings per share (annualized) $ 0.77 $ 0.80
Weighted average shares outstanding :
Basic 858,081 902,431
Diluted 865,262 908,502
See accompanying notes to unaudited consolidated financial statements.
2
RFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
ADDITIONAL UNEARNED SHARES,
COMMON PAID-IN RETAINED TREASURY STOCK-BASED
STOCK CAPITAL EARNINGS STOCK INCENTIVE PLAN
----- --------- ------- -------- ---------------
Balance at September 30, 2000 $ 9 $3,759 $6,923 $(435) $(162)
Comprehensive income:
Net income -- -- 166 -- --
Change in unrealized holding gain on securities
available for sale, net of taxes -- -- -- -- --
Comprehensive income
Unearned compensation payment -- -- -- -- --
Common stock repurchases -- -- -- -- --
Recognition and retention plan -- 4 -- -- --
---- ------ ------ ----- -----
Balance at December 31, 2000 $ 9 $3,763 $7,089 $(435) $(162)
==== ====== ====== ===== ======
Balance at September 30, 1999 $ 9 $3,736 $6,357 $-- $(168)
Comprehensive income:
Net income -- -- 181 -- --
Change in unrealized holding gain on securities
available for sale, net of taxes -- -- -- -- --
Comprehensive income
Unearned compensation payment
Recognition and retention plan -- 6 -- -- --
---- ------ ------ ----- -----
Balance at December 31, 1999 $ 9 $3,742 $6,538 $ -- $(168)
==== ====== ====== ===== ======
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE UNALLOCATED STOCKHOLDERS'
INCOME ESOP SHARES EQUITY
------------- ------------ -------------
Balance at September 30, 2000 $ 461 $ (316) $10,239
Comprehensive income:
Net income -- -- --
Change in unrealized holding gain on securities
available for sale, net of taxes 256 -- --
Comprehensive income 422
Unearned compensation payment -- 35 35
Common stock repurchases -- -- --
Recognition and retention plan -- -- 4
----- ------- -------
Balance at December 31, 2000 $ 717 $ (281) $10,700
===== ======== =======
Balance at September 30, 1999 $437 $ (351) $10,020
Comprehensive income:
Net income -- -- --
Change in unrealized holding gain on securities
available for sale, net of taxes (96) -- --
Comprehensive income 85
Unearned compensation payment 35 35
Recognition and retention plan -- -- 6
----- ------- -------
Balance at December 31, 1999 $341 $ (316) $10,146
===== ======= =======
See accompanying notes to unaudited consolidated financial statements.
3
RFS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- ---------------
(unaudited)
Cash flows from operating activities:
Net income $ 166 $ 181
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 48 36
(Gain) loss on sale of loans 3 2
Net amortization (accretion) of securities (8) 10
Depreciation 64 57
Recognition and retention plan 4 6
Unearned compensation payment 35 35
(Increase) in interest receivable (322) (42)
(Increase) decrease in other assets 417 (40)
Increase (decrease) in accrued expenses and other liabilities (321) (104)
Change in deferred loan origination fees, net 27 (3)
-------- --------
Net cash provided by operating activities 113 138
-------- --------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank Stock (218) --
Purchases of held-to-maturity securities -- --
Purchase of available-for-sale securities -- --
Proceeds from maturities, calls and paydowns 706 1,188
Net increase in loans, net (5,920) (1,376)
Proceeds from sale of loans 742 438
Purchases of banking premises and equipment (387) (164)
-------- --------
Net cash provided by (used in) investing activities (5,077) 86
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (155) 4,223
Proceeds from Federal Home Loan Bank of Boston advances 31,035 11,500
Repayment of advances from Federal Home Loan Bank of Boston (23,691) (11,300)
-------- --------
Net cash provided by financing activities 7,189 4,423
-------- --------
Net change in cash and cash equivalents 2,225 4,647
Cash and cash equivalents at beginning of period 6,025 3,429
-------- --------
Cash and cash equivalents at end of period $ 8,250 $ 8,076
======== ========
Supplemental cash flow information:
Interest paid on deposits $ 830 $ 626
Interest paid on Federal Home Loan Bank of Boston
borrowings $ 550 $ 391
Income taxes paid $ 15 $ 55
4
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1) BASIS OF PRESENTATION AND CONSOLIDATION
The unaudited consolidated interim financial statements of RFS Bancorp, Inc. and
subsidiary ("RFS Bancorp" or the "Company") presented herein should be read in
conjunction with the consolidated financial statements for the year ended
September 30, 2000 included in the Annual Report on Form 10-KSB of RFS Bancorp,
Inc., the holding company for Revere Federal Savings Bank (the "Bank"). The
operating results for the period ended December 31, 2000 are those of the
Company and Bank. The Bank is a federally chartered stock savings bank founded
in 1901. 47% of the shares of common stock of the Company are owned by the
public and 53% are owned by Revere MHC, a federal mutual holding company.
The unaudited consolidated interim financial statements herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for completed
financial statements.
In the opinion of management, the consolidated financial statements reflect all
adjustments (consisting solely of normal recurring accruals) necessary for a
fair presentation of such information. Interim results are not necessarily
indicative of results to be expected for the entire year.
2) COMMITMENTS AND CONTINGENCIES
At December 31, 2000, the Bank had outstanding commitments to originate loans
amounting to approximately $994,000, unused construction advances amounting to
approximately $2.7 million and unused lines of credit amounting to approximately
$2.4 million for commercial loans and $4.3 million for home equity loans.
3) EARNINGS PER SHARE
Earnings per share for the three months ended December 31, 2000 were $0.77 and
$0.77, respectively, on a basic and diluted basis.
Basic earnings per share represents income available to common stock divided by
the weighted-average number of common shares outstanding during the period. In
calculating basic earnings per share, the number of shares of common stock
outstanding is reduced by the number of shares held by the Company's ESOP that
have not been allocated or are not committed for release to
5
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
participants' individual accounts. Diluted earnings per share reflects
additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income that would
result from the assumed conversion. Potential common shares that may be issued
by the Company relate solely to outstanding stock options and unearned RRP
shares and are determined using the treasury stock method.
4) RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133, as amended by SFAS No.
138, establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. The statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The adoption of SFAS No. 133 did not have a
material effect on the Company's consolidated financial statements.
6
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
5) INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated
balance sheets according to management's intent. The carrying amount of
securities and their approximate fair values are as follows:
DECEMBER 31, 2000 SEPTEMBER 30, 2000
------------------- ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- ------
(In Thousands)
Securities available for sale:
Mortgage-backed securities $ 5,912 $ 5,930 $ 5,987 $ 5,830
Marketable equity securities 24 1,243 24 976
-------- -------- -------- --------
Total $ 5,936 $ 7,173 $ 6,011 $ 6,806
======== ======== ======== ========
Securities held to maturity:
U.S. Government & federal
agency obligations $ 12,488 $ 12,678 $ 12,487 $ 12,304
Mortgage-backed securities 16,578 16,590 17,139 16,885
Asset-backed securities 2,176 2,122 2,239 2,285
Foreign debt securities 25 25 25 25
-------- -------- -------- --------
Total $ 31,267 $ 31,415 $ 31,890 $ 31,499
======== ======== ======== ========
7
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
6) LOANS
The following table presents selected data relating to the composition of the
Company's loan portfolio by type of loan on the dates indicated.
DECEMBER 31, 2000 SEPTEMBER 30, 2000
-------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(Dollars in Thousands)
Residential mortgage loans $50,688 55.33% $50,226 58.10%
Commercial real estate loans 22,441 24.49 18,251 21.11
Construction and land loans 4,732 5.16 4,472 5.17
Commercial loans 6,648 7.26 6,689 7.74
Consumer loans 1,691 1.85 1,524 1.77
Home equity loans 5,418 5.91 5,281 6.11
------- ------ ------- ------
Total loans $91,618 100.00% $86,443 100.00%
======= ====== ======= ======
Less:
Deferred loan origination
fees, net 178 151
Allowance for loan losses 794 746
------- -------
Total loans, net $90,646 $85,546
======= =======
8
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
7) ALLOWANCE FOR LOAN LOSSES
The following table analyzes activity in the Company's allowance for loan losses
for the periods indicated.
THREE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
(Dollars in Thousands)
Average loans, net $89,540 $73,799
====== ======
Period-end gross loans $91,618 $74,111
====== ======
Allowance for loan losses at beginning of period $ 746 $ 624
Provision for loan losses 48 36
Plus recoveries -- --
Loans charged-off -- --
Allowance for loan losses at end of period $ 794 $ 660
====== ======
Non-performing loans $ -- $ 33
====== ======
Ratios:
Allowance for loan losses to period-end gross loans .87% .89%
Allowance for loan losses to non-performing loans 0.00% 2,000.00%
9
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
8) DEPOSITS AND BORROWED FUNDS
The following tables set forth the various types of deposit accounts at the
Company and the balances in these accounts as well as the borrowings of the
Company at the dates indicated.
DECEMBER 31, 2000 SEPTEMBER 30, 2000
--------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(Dollars in Thousands)
Deposits:
Savings accounts $20,358 22.06% $22,207 24.02%
NOW checking 10,274 11.13 8,913 9.64
Demand deposits 13,043 14.13 13,039 14.10
Money market accounts 2,354 2.55 2,699 2.92
Certificates of deposit 46,263 50.13 45,591 49.32
------ ------ ------ ------
Total deposits $92,292 100.00% $92,449 100.00%
====== ====== ====== ======
Borrowed funds:
Advances from Federal Home
Loan Bank of Boston $41,248 $33,904
Other borrowed funds -- --
------ ------
Total borrowed funds $41,248 $33,904
====== ======
10
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
GENERAL
Revere Federal Savings Bank (the "Bank") completed its conversion from a
federal mutual savings association to a stock institution and was simultaneously
acquired by RFS Bancorp, Inc. (the "Company") on December 18, 1998 upon the
consummation of the Bank's reorganization to the mutual holding company form of
organization and stock offering (the "Reorganization"). The following discussion
compares the financial condition of the Company and the Bank, at December 31,
2000 to September 30, 2000, and the results of operations for the three months
ended December 31, 2000, compared to the same period in 1999. This discussion
and analysis should be read in conjunction with the consolidated financial
statements and related notes thereto included within this report.
The Company and the Bank may from time to time make written or oral
"forward-looking statements." These forward-looking statements may be contained
in this quarterly filing with the Securities and Exchange Commission (the
"SEC"), the Annual Report to Shareholders, other filings with the SEC, and in
other communications by the Company and the Bank, which are made in good faith
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The words "may,""could," "should,""would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are
intended to identify forward-looking statements.
Forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties. The following factors, many of which are subject to change based
on various other factors beyond the Company's control, and other factors
discussed in this Form 10-QSB, as well as other factors identified in the
Company's filings with the SEC and those presented elsewhere by management from
time to time, could cause its financial performance to differ materially from
the plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements:
- the strength of the United States economy in general and the
strength of the local economies in which the Company and the Bank
conduct operations;
- the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve
Board;
- inflation, interest rate, market and monetary fluctuations;
- the timely development of and acceptance of new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
- the willingness of users to substitute competitors' products and
services for the Company's and the Bank's products and services;
- the Company's and the Bank's success in gaining regulatory approval
of their products and services, when required;
11
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
- the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
- the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
- the impact of technological changes;
- acquisitions;
- changes in consumer spending and saving habits; and
- the Company's and the Bank's success at managing the risks involved
in their business.
This list of important factors is not exclusive. The Company or the Bank
does not undertake to update any forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf of the Company or the
Bank.
Results of operations are primarily dependent upon net interest and
dividend income. Net interest income is the difference between income earned on
the Company's loan and investment portfolio and the Company's funds which
consists of interest paid on deposits and borrowings. Operating results are also
affected by the provision for loan losses, securities sales activities and
service charges on deposit accounts as well as other fees. The Company's
operating expenses consist of salaries and employee benefits, occupancy and
equipment expenses, professional fees as well as marketing and other expenses.
Results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in interest rates and government
and regulatory policies.
12
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
MARKET RISK ANALYSIS
QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Like other institutions, the
Company's most significant form of market risk is interest rate risk. The
Company is subject to interest rate risk to the degree that the Company's
interest-bearing liabilities, primarily deposits with short and medium-term
maturities, mature or reprice at different rates than the Company's
interest-earning assets. The Company believes it is critical to manage the
relationship between interest rates and the effect on the Company's net
portfolio value ("NPV"). This approach calculates the difference between the
present value of expected cash flows from assets and the present value of
expected cash flows from liabilities, as well as cash flows from off-balance
sheet contracts. The Company manages assets and liabilities within the context
of the marketplace, regulatory limitations and within limits established by the
Company's Board of Directors on the amount of change in NPV which is acceptable
given certain interest rate changes.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Company's
assets mature or reprice more quickly or to a greater extent than the Company's
liabilities, the Company's net portfolio value and net interest income would
tend to increase during periods of rising interest rates but decrease during
periods of falling interest rates. Conversely, if the Company's assets mature or
reprice more slowly or to a lesser extent than the Company's liabilities, the
Company's net portfolio value and net interest income would tend to decrease
during periods of rising interest rates but increase during periods of falling
interest rates. The Company's policy has been to mitigate the interest rate risk
inherent in the historical savings institution business of originating long-term
loans funded by short-term deposits by pursuing certain strategies designed to
decrease the vulnerability of the Company's earnings to material and prolonged
changes in interest rates. In this regard, the Company's attempts to minimize
interest rate risk by, among other things, emphasizing the origination and
retention of adjustable-rate loans and loans with shorter maturities and the
sale of long-term one-to-four family fixed-rate loans in the secondary market.
AVERAGE BALANCES, INTEREST, YIELDS AND RATES
The following tables set forth certain information relating to the
Company's average balance sheet and reflect the interest earned on assets and
interest cost of liabilities for the periods indicated and the average yields
earned and rates paid for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average monthly balances of assets
and liabilities, respectively, for the periods presented. Average balances are
derived from daily balances. Loans on nonaccrual status are included in the
average balances of loans shown in the tables. The investment securities in the
following tables are presented at amortized cost.
13
THREE MONTHS ENDED DECEMBER 31, 2000 THREE MONTHS ENDED DECEMBER 31, 1999
------------------------------------- ------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------ ------- --------- ------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Total loans, net $ 89,540 $1,870 8.35% $ 73,799 $1,467 7.95%
Investments 39,213 700 7.14% 31,606 524 6.63%
Other earning assets 2,146 33 6.15% 4,182 53 5.07%
-------- ------ -------- ------
Total interest-earning assets 130,899 2,603 7.95% 109,587 2,044 7.46%
------ ------
Cash and due from banks 3,737 1,821
Other assets 4,941 4,792
-------- --------
Total assets $139,577 $116,200
======== ========
INTEREST-BEARING LIABILITIES:
Passbook & Statement Savings $ 21,787 118 2.17% $ 17,931 67 1.49%
NOW's and MMA's 12,455 52 1.67% 9,803 35 1.43%
Certificate of deposits 45,927 665 5.79% 41,582 524 5.04%
-------- ------ -------- ------
Total interest-bearing deposits 80,169 835 4.17% 69,316 626 3.61%
Federal Home Loan Bank of Boston borrowings 35,345 569 6.44% 27,178 391 5.75%
-------- ------ -------- ------
Total interest-bearing liabilities 115,514 1,404 4.86% 96,494 1,017 4.22%
------ ------
Demand deposit accounts 11,634 8,771
Other liabilities 2,039 826
-------- --------
Total liabilities 129,187 106,091
Stockholders' equity 10,390 10,109
-------- --------
Total liabilities and stockholders' equity $139,577 $116,200
======== ========
Net interest income $1,199 $1,027
====== ======
Interest rate spread 3.09% 3.24%
Net interest margin 3.66% 3.75%
Interest-earning assets/interest-bearing
liabilities 113.32% 113.57%
14
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
RATE/VOLUME ANALYSIS
The following tables set forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rates (change in
rate multiplied by old volume). Changes in rate-volume (changes in rate
multiplied by the changes in volume) are allocated between changes in rate and
changes in volume.
THREE MONTHS ENDED DECEMBER 31,
2000 VS. 1999
INCREASE (DECREASE)
--------------------------------------------------------
DUE TO
-------------------------------
RATE VOLUME TOTAL
---- ------ -----
(In Thousands)
Interest and dividend income:
Loans, net $ 77 $326 $403
Investments 43 133 176
Other earning assets 16 (36) (20)
---- ---- ----
Total 136 423 559
---- ---- ----
Interest expense:
Deposits 124 85 209
Borrowed funds 50 128 178
---- ---- ----
Total 174 213 387
---- ---- ----
Change in net interest income ($38) $210 $172
==== ==== ====
15
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND SEPTEMBER 30, 2000.
Total assets increased by $7.8 million or 5.7% to $144.8 million at
December 31, 2000 from $136.9 million at September 30, 2000. The net increase in
total assets is primarily attributable to a $5.1 million increase in net loans
and an increase in cash and cash equivalents of $2.2 million, offset by a
$256,000 decrease in investment securities. Total net loans increased by $5.1
million or 6.0% to $90.6 million at December 31, 2000 as compared to $85.5
million at September 30, 2000. Investment securities held by the Company
decreased by $256,000 or 0.7% to $38.4 million at December 31, 2000 from $38.7
million at September 30, 2000.
Total liabilities increased by $7.4 million or 5.8% at December 31, 2000
to $134.1 million from $126.7 million at September 30, 2000. Total deposits
decreased by $157,000 or 0.2% to $92.3 million at December 31, 2000 from $92.4
million at September 30, 2000. Total Federal Home Loan Bank of Boston borrowings
increased by $7.3 million or 21.7% to $41.2 million at December 31, 2000 from
$33.9 million at September 30, 2000 due to the Bank's need to fund its
origination of commercial loans during this period.
COMPARISON OF THE OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
AND 1999.
GENERAL. Results of operations are primarily dependent upon net interest and
dividend income. Net interest income is the difference between income earned on
the Company's loan and investment portfolio and the Company's funds which
consists of interest paid on deposits and borrowings. Operating results are also
affected by the provision for loan losses, securities sales activities and
service charges on deposit accounts as well as other fees. The Company's
operating expenses consist of salaries and employee benefits, occupancy and
equipment expenses, professional fees as well as marketing and other expenses.
Results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in interest rates and government
and regulatory policies.
NET INCOME. The Company's net income for the three months ended December 31,
2000 was $166,000 as compared to $181,000 for the three months ended December
31, 1999. This $15,000 or 8.3% decrease in net income during the period was the
result of an increase of $559,000 in interest and dividend income, an increase
of $22,000 in other income, offset by a increase of $387,000 in interest
expense, an increase of $211,000 in operating expenses, an increase of $12,000
in the provision for loan losses and an decrease in the provision for income
taxes of $14,000. The Company's continued expansion of its lending activities
accounted for the increase in interest
16
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
income, while its interest expense increased due to rising interest rates.
Operating expenses increased due to the Company's planned expenditures in human
and technological resources. The return on average assets for the three months
ended December 31, 2000 was .48% compared to .62% for the three months ended
December 31, 1999.
NET INTEREST AND DIVIDEND INCOME. Net interest and dividend income for the three
months ended December 31, 2000 increased $172,000 or 16.7% to $1.2 million from
$1.0 million for the three months ended December 31, 1999. The increase can be
attributed to a combination of a $559,000 increase in interest and dividend
income attributable primarily to continued loan growth and a $387,000 increase
in interest expense on deposits and borrowed funds due to increases in interest
rates, ordinary deposit growth and additional borrowings to fund asset growth.
The average yield on interest-earning assets increased 49 basis points to
7.95% for the three months ended December 31, 2000 from 7.46 % for the three
months ended December 31, 1999, while the average cost of interest-bearing
liabilities increased by 64 basis points to 4.86% for the three months ended
December 31, 2000 from 4.22% for the three months ended December 31, 1999. The
interest rate spread decreased to 3.09% for the three months ended December 31,
2000 from 3.24% for the three months ended December 31, 1999. The net interest
margin decreased from 3.75% to 3.66% during this period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased by
$559,000 or 27.3% to $2.6 million for the three months ended December 31, 2000
from $2.0 million for the three months ended December 31, 1999. The increase in
interest and dividend income was a result of a greater mix of higher yielding
commercial and commercial real estate loans and an increase in the average
balance of investment securities.
The average balance of net loans for the three months ended December 31,
2000 was $89.5 million compared to $73.8 million for the three months ended
December 31, 1999. The average yield on net loans was 8.35% for the three months
ended December 31, 2000 compared to 7.95% for the three months ended December
31, 1999. The average balance of investment securities for the three months
ended December 31, 2000 was $39.2 million compared to $31.6 million for the
three months ended December 31, 1999. The average yield on investment securities
was 7.14% for the three months ended December 31, 2000 compared to 6.63% for the
three months ended December 31, 1999.
INTEREST EXPENSE. Interest expense increased by $387,000 or 38.1 % to $1.4
million for the three months ended December 31, 2000 from $1.0 million for the
three months ended December 31, 1999. Interest expense increased primarily as a
result of an increase in interest rates paid on Federal Home
17
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
Loan Bank of Boston borrowings and deposit accounts. Average interest-bearing
deposits increased by $10.9 million or 15.7% to $80.2 million for the three
months ended December 31, 2000. Interest expense on deposits increased $209,000
or 33.4% to $835,000 for the three months ended December 31, 2000 compared to
$626,000 for the three months ended December 31, 1999. Interest expense on
borrowings from the Federal Home Loan Bank of Boston increased $178,000 or 45.5%
to $569,000 for the three months ended December 31, 2000 from $391,000 for the
three months ended December 31, 1999. This increase is attributable to an
increase in the rates paid on such borrowings and an increase in the level of
Federal Home Loan Bank of Boston borrowings during the periods.
PROVISION FOR LOAN LOSSES. The provision for loan losses is a result of the
Company's periodic analysis of the adequacy of the allowance for loan losses.
The provision for loan losses increased $12,000 or 33.3% to $48,000 for the
three months ended December 31, 2000 as compared to $36,000 for the same period
in 1999. The provision reflects management's assessment of potential losses and
is based on a review of the risk characteristics as well as the growth of the
loan portfolio. The Bank considers many factors in determining the level of the
provision for loan losses. Collateral value on a loan by loan basis, trends of
loan delinquencies, risk classification identified in the Bank's regular review
of individual loans, and economic conditions are major factors in establishing
the provision. At December 31, 2000, the balance of the allowance for loan
losses was $794,000 or .87% of total loans versus $746,000 or .86% of total
loans at September 30, 2000. As the Bank continues to expand its small business
lending, additional increases to the provision are likely.
NONINTEREST INCOME. Total noninterest income increased by $22,000 or 21.0% to
$127,000 for the three months ended December 31, 2000 from $105,000 for the
three months ended December 31, 1999. The Company anticipates increases to
noninterest income as it continues to expand the volume of its deposit
relationships. It is also the Company's goal to increase its level of
noninterest income by expanding its delivery systems to include PC banking,
debit cards and additional ATMs and by continually considering additional
sources of revenue.
NONINTEREST EXPENSE. Noninterest expense increased by $211,000 or 25.8% to $1.0
million for the three months ended December 31, 2000 from $819,000 for the three
months ended December 31, 1999. The increase resulted primarily from planned
expenditures in human and technological resources. Salaries and employee
benefits, the largest component of noninterest expense was $512,000 for the
three months ended December 31, 2000 as compared to $417,000 for the three
months ended December 31, 1999, an increase of $95,000 or 22.8%. This increase
was primarily associated with the addition of full-time employees to staff the
Bank's customer service, commercial lending, sales and operations departments.
INCOME TAXES. The provision for income taxes amounted to $82,000 for the three
months ended December 31, 2000 as compared to $96,000 for the three months ended
December 31, 1999,
18
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 2000
resulting in effective tax rates of 33.1% and 34.7%, respectively. The effective
tax rate reflects the Company's utilization of a securities investment
subsidiary to substantially reduce state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, debt and equity securities, and to a
lesser extent, borrowings and proceeds from the sale of fixed rate mortgage
loans to the secondary market. While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit outflows,
mortgage prepayments, mortgage loan sales, and borrowings are greatly influenced
by general interest rates, economic conditions and competition. The Company is
required to maintain adequate levels of liquid assets. This guideline, which may
be varied depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The Company has historically
maintained a level of liquid assets in excess of regulatory requirements. The
Company's liquidity ratio at December 31, 2000 was 13.94%.
Liquidity management is both a daily and long-term function of
management. If the Company requires funds beyond its ability to generate them
internally, the Company believes it could borrow additional funds from the
Federal Home Loan Bank of Boston. At December 31, 2000, the Company had
borrowings of $41.2 million.
At December 31, 2000, the Company had $994,000 in outstanding commitments
to originate loans. The Company anticipates that it will have sufficient funds
available to meet its current loan origination commitments. Certificates of
deposit which are scheduled to mature in one year or less totaled $37.6 million
at December 31, 2000. Based on historical experience, management believes that a
significant portion of such deposits will remain with the Bank.
At December 31, 2000, the Company and the Bank exceeded all of their
regulatory capital requirements.
19
RFS BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
DECEMBER 31, 2000
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders (the "Meeting") on January
17, 2001. All of the proposals submitted to the stockholders were approved. The
proposals submitted to stockholders and the tabulation of votes for each
proposal is as follows:
1. For the election of each of the nominees for director:
NOMINEE: FOR WITHHELD
-------- --- --------
Theodore E. Charles 754,856 175
James J. McCarthy 754,981 50
Michael O'Brien 755,006 25
There were no broker held non-voted shares represented at the Meeting
with respect to this matter.
2. For the ratification of the appointment of Shatswell, MacLeod & Co.,
P.C. to act as independent auditors for the Company for the fiscal year ending
September 30, 2001.
For: 753,431
Against: 50
Abstained: 1,550
There were no broker held non-voted shares represented at the Meeting
with respect to this matter.
20
RFS BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
DECEMBER 31, 2000
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RFS BANCORP, INC.
Date: FEBRUARY 12, 2001 By: /s/ JAMES J. MCCARTHY
----------------- ------------------------------------
James J. McCarthy
President and Chief Executive Officer
Date: FEBRUARY 12, 2001 By: /s/ ANTHONY J. PATTI
----------------- ------------------------------------
Anthony J. Patti
Executive Vice President and
Chief Financial Officer
(principal accounting officer)