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 March 31, 2001
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 May 09, 2001, 884,923 shares of the registrant's common stock were
outstanding.
RFS BANCORP, INC. AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Condensed Consolidated Financial Statements:(unaudited)
Condensed Consolidated Balance Sheets - March 31, 2001
and September 30, 2000 1
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 2001 and 2000 2
Condensed Consolidated Statements of Income - Six Months
Ended March 31, 2001 and 2000 3
Condensed Consolidated Statements of Changes in Stockholders'
Equity-Six Months Ended March 31, 2001
and 2000 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended March 31, 2001 and 2000 5
Notes to Unaudited Condensed Consolidated Financial
Statements - March 31, 2001 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Not applicable
PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Securityholders 25
Item 6 Exhibits and Reports on Form 8-K 26
SIGNATURES 27
RFS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, 2001 SEPTEMBER 30, 2000
-------------- ------------------
(Unaudited)
ASSETS
Cash and due from banks $ 6,467 $ 4,929
Federal funds sold 7,015 1,096
-------- --------
Total cash and cash equivalents 13,482 6,025
Securities available for sale, at fair value 7,057 6,806
Securities held to maturity, at amortized cost 31,532 31,890
Federal Home Loan Bank, ("FHLB") stock, at cost 2,144 1,811
Loans, net of allowance for loan losses of $835 and
$746, respectively 93,916 85,546
Bank premises and equipment, net 4,339 3,783
Accrued interest receivable 839 808
Other assets 369 275
-------- --------
Total assets $153,678 $136,944
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $104,154 $ 92,449
FHLB borrowings 38,258 33,904
Accrued expenses and other liabilities 445 352
-------- --------
Total liabilities 142,857 126,705
-------- --------
Stockholders' equity:
Common stock $.01 par value, 5,000,000 shares
authorized, 933,523 shares issued and 884,923
shares outstanding 9 9
Additional paid-in capital 3,769 3,759
Retained earnings 7,216 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 705 461
Unallocated ESOP shares (281) (316)
-------- --------
Total stockholders' equity 10,821 10,239
-------- --------
Total liabilities and stockholders' equity $153,678 $136,944
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
1
RFS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
---------------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
(Unaudited)
Interest and dividend income:
Interest and fees on loans $ 1,902 $ 1,482
Interest and dividends on securities 689 604
Other interest 74 31
-------- --------
Total interest and dividend income 2,665 2,117
-------- --------
Interest expense:
Deposits 871 655
FHLB borrowings 586 431
-------- --------
Total interest expense 1,457 1,086
-------- --------
Net interest and dividend income 1,208 1,031
Provision for loan losses 48 36
-------- --------
Net interest and dividend income, after provision for
loan losses 1,160 995
-------- --------
Other income:
Service charges on deposit accounts 23 50
Other income 83 44
-------- --------
Total other income 106 94
-------- --------
Operating expenses:
Salaries and employees benefits 552 471
Occupancy expense 98 58
Equipment expense 75 61
Advertising expense 22 14
Office supplies expense 16 18
Data processing expenses 58 55
Professional fees 85 48
Other expenses 170 151
-------- --------
Total operating expenses 1,076 876
-------- --------
Income before income taxes 190 213
Provision for income taxes 63 76
-------- --------
Net income $ 127 $ 137
======== ========
Basic earnings per share $ 0.15 $ 0.15
Diluted earnings per share $ 0.15 $ 0.15
Weighted average shares outstanding :
Basic 858,081 897,211
Diluted 861,371 901,750
See accompanying notes to unaudited condensed consolidated financial statements.
2
RFS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
Six Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
(Unaudited)
Interest and dividend income:
Interest and fees on loans $ 3,772 $ 2,949
Interest and dividends on securities 1,389 1,128
Other interest 107 85
-------- --------
Total interest and dividend income 5,268 4,162
-------- --------
Interest expense:
Deposits 1,706 1,281
FHLB borrowings 1,155 822
-------- --------
Total interest expense 2,861 2,103
-------- --------
Net interest and dividend income 2,407 2,059
Provision for loan losses 96 72
-------- --------
Net interest and dividend income, after provision for
loan losses 2,311 1,987
-------- --------
Other income:
Service charges on deposit accounts 51 117
Other income 182 81
-------- --------
Total other income 233 198
-------- --------
Operating expenses:
Salaries and employees benefits 1,064 888
Occupancy expense 158 104
Equipment expense 137 123
Advertising expense 59 33
Office supplies expense 31 37
Data processing expenses 123 114
Professional fees 194 119
Other expenses 340 277
-------- --------
Total operating expenses 2,106 1,695
-------- --------
Income before income taxes 438 491
Provision for income taxes 145 172
-------- --------
Net income $ 293 $ 318
======== ========
Basic earnings per share $ 0.34 $ 0.35
Diluted earnings per share $ 0.34 $ 0.35
Weighted average shares outstanding:
Basic 858,081 899,835
Diluted 863,444 905,136
See accompanying notes to unaudited condensed consolidated financial statements.
3
RFS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 2001 AND 2000
(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 --- --- 293 --- ---
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 --- 10 --- --- ---
-------- ------------ ---------- ---------- --------------
Balance at March 31, 2001 $ 9 $ 3,769 $ 7,216 $ (435) $ (162)
======== ============ ========== ========== ==============
Balance at September 30, 1999 $ 9 $ 3,736 $ 6,357 $ --- $ (168)
Comprehensive income:
Net income --- --- 318 --- ---
Change in unrealized holding gain on
securities available for sale, net of
taxes --- --- --- --- ---
Comprehensive income
Unearned compensation payment --- --- --- --- ---
Common stock repurchases --- --- --- (93) ---
Recognition and retention plan --- 12 --- --- ---
-------- ------------ ---------- ---------- --------------
Balance at March 31, 2000 $ 9 $ 3,748 $ 6,675 $ (93) $ (168)
======== ============ ========== ========== ==============
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE UNALLOCATED STOCKHOLDERS'
INCOME(LOSS) 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 244 --- ---
Comprehensive income 537
Unearned compensation payment --- 35 35
Common stock repurchases --- --- ---
Recognition and retention plan --- --- 10
-------------- ------------ -------------
Balance at March 31, 2001 $ 705 $ (281) $ 10,821
============== ============ =============
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 (127) --- ---
Comprehensive income 191
Unearned compensation payment --- 35 35
Common stock repurchases --- --- (93)
Recognition and retention plan --- --- 12
-------------- ------------ -------------
Balance at March 31, 2000 $ 310 $ (316) $ 10,165
============== ============ =============
See accompanying notes to unaudited condensed consolidated financial statements.
4
RFS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Six Months
Ended Ended
March 31, 2001 March 31, 2000
------------------ ------------------
(unaudited)
Cash flows from operating activities:
Net income $ 293 $ 318
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 96 72
(Gain) loss on sale of loans 6 3
Amortization, net of accretion, of securities (15) 19
Depreciation 148 114
Earned MRRP shares 10 12
Reduction in unallocated ESOP shares 35 35
Increase in interest receivable (31) (93)
(Increase) decrease in other assets 237 (153)
Decrease in accrued expenses and other liabilities (417) (140)
Change in deferred loan origination fees, net 36 7
------------ -----------
Net cash provided by operating activities 398 194
------------ -----------
Cash flows from investing activities:
Purchase of FHLB stock (333) (65)
Purchases of held-to-maturity securities (987) (7,985)
Purchases of available-for-sale securities --- ---
Proceeds from maturities of held-to-maturity securities 1,529 2,003
Net increase in loans (9,561) (3,576)
Proceeds from sale of loans 1,056 556
Purchases of banking premises and equipment (704) (519)
------------ -----------
Net cash used in investing activities (9,000) (9,586)
------------ -----------
Cash flows from financing activities:
Net increase in deposits 11,705 6,838
Proceeds from FHLB advances 47,886 24,000
Repayment of advances from FHLB (43,532) (19,610)
Common stock repurchases --- (93)
------------ -----------
Net cash provided by financing activities 16,059 11,135
------------ -----------
Net increase in cash and cash equivalents 7,457 1,743
Cash and cash equivalents at beginning of period 6,025 3,429
------------ -----------
Cash and cash equivalents at end of period $ 13,482 $ 5,172
============ ===========
Supplemental cash flow information:
Interest paid on deposits $ 1,712 $ 1,281
Interest paid on FHLB borrowings $ 1,144 $ 822
Income taxes paid $ 219 $ 243
See accompanying notes to unaudited condensed consolidated financial statements.
5
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
1) BASIS OF PRESENTATION AND CONSOLIDATION
The unaudited condensed consolidated interim financial statements of RFS
Bancorp, Inc., a federally chartered mid-tier stock holding company, 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 March 31, 2001 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-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for completed financial statements.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
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 March 31, 2001, the Bank had outstanding commitments to originate loans
amounting to approximately $3.4 million, unused construction advances
amounting to approximately $2.9 million and unused lines of credit
amounting to approximately $2.8 million for commercial loans and $4.0
million for home equity loans.
3) EARNINGS PER SHARE
Earnings per share for the three months ended March 31, 2001 were $0.15 and
$0.15, and for the six months ended March 31, 2001 were $0.34 and $0.34,
respectively, on a basic and diluted basis.
6
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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 Employee
Stock Ownership Plan (the "ESOP") that have not been allocated or are not
committed for release to 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 Company adopted the statement as of
October 1, 2000. The adoption of SFAS No. 133 did not have a material effect on
the Company's consolidated financial statements.
FASB has issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". This Statement replaces
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" and rescinds SFAS Statement No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125". SFAS No.
140 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. This statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; however, the disclosure provisions
are effective for fiscal years ending after December 15, 2000. The Company has
not yet quantified the remaining provisions effective in 2001; however, the
Company does not expect that the adoption of this statement will have a material
impact on its financial position or results of operations.
7
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
5) INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated
balance sheets according to management's intention. The carrying amount of
securities and their approximate fair values are as follows:
MARCH 31, 2001 SEPTEMBER 30, 2000
---------------------------- ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- -------- ----------- -------
(In Thousands)
(Unaudited)
Securities available for sale:
Mortgage-backed securities $ 5,842 $ 5,887 $ 5,987 $ 5,830
Marketable equity securities 24 1,170 24 976
-------- -------- -------- --------
Total $ 5,866 $ 7,057 $ 6,011 $ 6,806
======== ======== ======== ========
Securities held to maturity:
U.S. government & federal
agency obligations $ 12,488 $ 12,918 $ 12,487 $ 12,304
Mortgage-backed securities 16,966 17,128 17,139 16,885
Asset-backed securities 2,053 2,017 2,239 2,285
Foreign debt securities 25 25 25 25
-------- -------- -------- --------
Total $ 31,532 $ 32,088 $ 31,890 $ 31,499
======== ======== ======== ========
8
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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.
AT MARCH 31, 2001 AT SEPTEMBER 30, 2000
-------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- --------- -------- ---------
(Dollars in Thousands)
(Unaudited)
Residential mortgage loans $53,502 56.36% $50,226 58.10%
Commercial real estate loans 23,121 24.35 18,251 21.11
Construction and land loans 3,615 3.81 4,472 5.17
Commercial loans 6,638 6.99 6,689 7.74
Consumer loans 1,625 1.71 1,524 1.77
Home equity loans 6,437 6.78 5,281 6.11
------- ------- ------- -------
Total loans 94,938 100.00% 86,443 100.00%
======= =======
Less:
Deferred loan origination fees, net 187 151
Allowance for loan losses 835 746
-------- -------
Total loans, net $93,916 $85,546
======== =======
9
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
7) Allowance for Loan Losses
The following table analyzes activity in the Company's allowance for loan losses
for the periods indicated.
SIX SIX
MONTHS ENDED MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------ ------------------
(Dollars in Thousands)
(Unaudited)
Average loans, net $ 91,449 $ 74,415
========== ==========
Period-end gross loans 94,938 76,192
========== ==========
Allowance for loan losses at beginning of period 746 624
Provision for loan losses 96 72
Plus recoveries --- ---
Loans charged-off (7) (1)
---------- ----------
Allowance for loan losses at end of period 835 695
========== ==========
Non-performing loans 522 20
========== ==========
Ratios:
Allowance for loan losses to period-end gross loans .88% .91%
Allowance for loan losses to non-performing loans 160.0% 3,475.0%
10
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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.
AT MARCH 31, 2001 AT SEPTEMBER 30, 2000
----------------------------- ------------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- --------- -------- ---------
(Dollars in Thousands)
(Unaudited)
Deposits:
Savings accounts $ 22,095 21.21% $22,207 24.02%
NOW checking 10,033 9.63 8,913 9.64
Demand deposits 15,591 14.97 13,039 14.10
Money market accounts 9,014 8.66 2,699 2.92
Certificates of deposit 47,421 45.53 45,591 49.32
-------- ------ ------- ------
Total deposits $104,154 100.00% $92,449 100.00%
======== ====== ======= ======
Borrowed funds:
Advances from FHLB 38,258 33,904
Other borrowed funds --- ---
-------- -------
Total borrowed funds 38,258 33,904
======== =======
11
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
GENERAL
The following discussion compares the financial condition of RFS
Bancorp, Inc. (the "Company") at March 31, 2001 to September 30, 2000, and the
results of operations for the three months and six months ended March 31, 2001,
compared to the same periods in 2000. This discussion and analysis should be
read in conjunction with the consolidated financial statements and related notes
thereto included within this report.
The Company 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, 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:
o the strength of the United States economy in general and the
strength of the local economies in which the Company conduct
operations;
o the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Federal
Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o 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;
o the willingness of users to substitute competitors' products and
services for the Company's products and services;
o the Company's success in gaining regulatory approval of their
products and services, when required;
12
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and saving habits; and
o the Company's success at managing the risks involved in their
business.
This list of important factors is not exclusive. The Company 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.
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.
13
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
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
14
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
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.
15
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
THREE MONTHS ENDED MARCH 31, 2001 THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------- ----------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
--------- ---------- -------- --------- ---------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
INTEREST-EARNING ASSETS:
Total loans, net $ 93,375 $ 1,902 8.15% $ 75,075 $ 1,482 7.90%
Investments 38,874 689 7.09% 35,623 604 6.78%
Other earning assets 5,677 74 5.21% 2,340 31 5.30%
--------- ---------- --------- ----------
Total interest-earning assets 137,926 2,665 7.73% 113,038 2,117 7.49%
---------- ----------
Cash and due from banks 3,927 1,825
Other assets 5,814 5,192
--------- ---------
Total assets $ 147,667 $ 120,055
========= =========
INTEREST-BEARING LIABILITIES:
Passbook & Statement Savings $ 20,774 118 2.27% $ 18,166 70 1.54%
NOW's and MMA's 15,723 78 1.98% 10,795 45 1.67%
Certificate of deposits 46,889 675 5.76% 41,698 540 5.18%
--------- ---------- --------- ----------
Total interest-bearing deposits 83,386 871 4.18% 70,659 655 3.71%
FHLB borrowings 35,345 586 6.63% 29,353 431 5.87%
--------- ---------- --------- ----------
Total interest-bearing liabilities 118,731 1,457 4.91% 100,012 1,086 4.34%
---------- ----------
Demand deposit accounts 12,244 9,000
Other liabilities 5,965 921
--------- ---------
Total liabilities 136,940 109,933
Stockholders' equity 10,727 10,122
--------- ---------
Total liabilities and stockholders' equity $ 147,667 $ 120,055
========= =========
Net interest income $ 1,208 $ 1,031
========= ========
Interest rate spread 2.82% 3.15%
Net interest margin 3.50% 3.65%
Interest-earning assets/interest-bearing 116.17% 113.02%
liabilities
16
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
SIX MONTHS ENDED MARCH 31, 2001 SIX MONTHS ENDED MARCH 31, 2000
----------------------------------------- ----------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
--------- ---------- -------- --------- ---------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
INTEREST-EARNING ASSETS:
Total loans, net $ 91,449 $ 3,772 8.25% $ 74,415 $ 2,949 7.93%
Investments 39,094 1,389 7.11% 33,584 1,128 6.72%
Other earning assets 3,912 107 5.47% 3,261 85 5.21%
--------- ---------- --------- ----------
Total interest-earning assets 134,455 5,268 7.84% 111,260 4,162 7.48%
---------- ----------
Cash and due from banks 3,830 1,772
Other assets 5,742 5,085
--------- ---------
Total assets $144,027 $118,117
========= =========
INTEREST-BEARING LIABILITIES:
Passbook & Statement Savings $ 21,283 231 2.17% $ 18,013 137 1.52%
NOW's and MMA's 14,077 131 1.86% 10,296 80 1.55%
Certificate of deposits 46,400 1,344 5.79% 41,633 1,064 5.11%
--------- ---------- --------- ----------
Total interest-bearing deposits 81,760 1,706 4.17% 69,942 1,281 3.66%
FHLB borrowings 37,676 1,155 6.13% 28,260 822 5.82%
--------- ---------- --------- ----------
Total interest-bearing liabilities 119,436 2,861 4.79% 98,202 2,103 4.28%
---------- ----------
Demand deposit accounts 11,939 8,887
Other liabilities 2,096 888
--------- ----------
Total liabilities 133,471 107,977
Stockholders' equity 10,556 10,140
--------- ----------
Total liabilities and stockholders' equity $144,027 $118,117
========= ==========
Net interest income $ 2,407 $ 2,059
=========== ===========
Interest rate spread 3.05% 3.20%
Net interest margin 3.58% 3.70%
Interest-earning assets/interest-bearing liabilities 112.57% 113.30%
17
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
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 March 31,
2001 vs. 2000
Increase (decrease)
----------------------------------------------------
Due to
------------------------------
Rate Volume Total
----------------------------------------------------
(In Thousands)
(Unaudited)
Interest and dividend income:
Loans, net $ 49 $ 371 $ 420
Investments 28 57 85
Other earning assets 0 43 43
---- ----- -----
Total 77 471 548
---- ----- -----
Interest expense:
Deposits 111 105 216
Borrowed funds 60 95 155
---- ----- -----
Total 171 200 371
---- ----- -----
Change in net interest income ($94) $ 271 $ 177
==== ===== =====
18
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
Six Months Ended March 31,
2001 vs. 2000
Increase (decrease)
----------------------------------------------------
Due to
------------------------------
Rate Volume Total
----------------------------------------------------
(In Thousands)
(Unaudited)
Interest and dividend income:
Loans, net $125 $ 698 $ 823
Investments 68 193 261
Other earning assets 4 18 22
---- ----- -----
Total 197 909 1,106
---- ----- -----
Interest expense:
Deposits 235 190 425
Borrowed funds 46 287 333
---- ----- -----
Total 281 477 758
---- ----- -----
Change in net interest income ($84) $ 432 $ 348
==== ===== =====
19
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND SEPTEMBER 30, 2000.
Total assets increased by $16.7 million or 12.2% to $153.6 million at
March 31, 2001 from $136.9 million at September 30, 2000. Total net loans
increased by $8.4 million or 9.8% to $93.9 million at March 31, 2001 as compared
to $85.5 million at September 30, 2000. Cash and cash equivalents increased by
$7.5 million or 123.8% to $13.5 million at March 31, 2001 from $6.0 million at
September 30, 2000. This increase is primarily due to increases in our deposit
accounts.
Total liabilities increased by $16.2 million or 12.6% at March 31, 2001
to $142.7 million from $126.7 million at September 30, 2000. Total deposits
increased by $11.7 million or 12.7% to $104.2 million at March 31, 2001 from
$92.4 million at September 30, 2000. Total Federal Home Loan Bank of Boston
borrowings increased by $4.4 million or 12.8% to $38.3 million at March 31, 2001
from $33.9 million at September 30, 2000.
COMPARISON OF THE OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001
AND 2000.
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 March 31, 2001
was $127,000 as compared to $137,000 for the three months ended March 31, 2000.
This $10,000 or 7.3% decrease in net income during the period was the result of
an increase of $548,000 in interest and dividend income, an increase of $12,000
in other income, offset by an increase of $371,000 in interest expense, an
increase in provision for loan losses of $12,000, an increase of $200,000 in
operating expenses. The continued expansion of the Company's lending activities
accounted for the increase in interest income, while its operating expenses
increased due to the Company's planned expenditures in human and technological
resources, including increased
20
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
staffing. The return on average assets for the three months ended March 31, 2001
was .34% compared to .46% for the three months ended March 31, 2000.
NET INTEREST AND DIVIDEND INCOME BEFORE PROVISION FOR LOAN LOSSES. The Company's
net interest and dividend income before provision for loan losses for the three
months ended March 31, 2001 increased $177,000 or 17.2% to $1.2 million from
$1.0 million for the three months ended March 31, 2000. The increase is
attributed to a combination of the $420,000 increase in interest and fees on
loans and an increase of $85,000 in interest and dividends on securities, offset
by an increase of $371,000 in interest expense on deposits and borrowed funds
due to higher interest rates.
The average yield on interest-earning assets increased 24 basis points
to 7.73% for the three months ended March 31, 2001 from 7.49% for the three
months ended March 31, 2000, while the average cost on interest-bearing
liabilities increased by 57 basis points to 4.91% for the three months ended
March 31, 2001 from 4.34% for the three months ended March 31, 2000. The
interest rate spread decreased to 2.82% for the three months ended March 31,
2001 from 3.15% for the three months ended March 31, 2000 and the net interest
margin decreased from 3.65% to 3.50% during this period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased by
$548,000 or 25.9% to $2.7 million for the three months ended March 31, 2001 from
$2.1 million for the three months ended March 31, 2000. The increase in interest
and dividend income was a result of higher interest rates and increased volume
of commercial and commercial real estate loans. The average balance of net loans
for the three months ended March 31, 2001 was $93.4 million compared to $75.1
million for the three months ended March 31, 2000. The average yield on net
loans was 8.15% for the three months ended March 31, 2001 compared to 7.90% for
the three months ended March 31, 2000. The average balance of investment
securities for the three months ended March 31, 2001 was $38.9 million compared
to $35.6 million for the three months ended March 31, 2000. The average yield on
investment securities was 7.09% for the three months ended March 31, 2001
compared to 6.78% for the three months ended March 31, 2000.
INTEREST EXPENSE. Interest expense increased by $371,000 or 34.2 % to $1.5
million for the three months ended March 31, 2001 from $1.1 million for the
three months ended March 31, 2000. Interest expense increased primarily as a
result of an increase in interest rates paid on FHLB borrowings and deposit
accounts and an increase in the level of FHLB borrowings during the three months
ended March 31, 2001 as compared to the same period in 2000. Average
interest-bearing deposits increased by $12.7 million or 18.0% to $83.4 million
for the three months ended March 31, 2001 from $70.7 million for the three
months ended March 31, 2000. This increase is
21
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
primarily due to increases resulting from an increase in checking products,
certificate of deposit products with competitive rates and new deposits
attributable to the Chelsea branch. Accordingly, interest expense on deposits
increased $216,000 or 33.0% to $871,000 for the three months ended March 31,
2001 compared to $655,000 for the three months ended March 31, 2000. Interest
expense on advances from the FHLB increased $155,000 or 36.0% to $586,000 for
the three months ended March 31, 2001 from $431,000 for the three months ended
March 31, 2000. This is attributable to rising rates paid on borrowings, and an
increase in the level of such advances.
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 March 31, 2001 as compared to $36,000 for the same period in
2000. 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 March 31, 2001, the balance of the allowance for loan losses
was $835,000 or .88% 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 $12,000 or 12.8% to
$106,000 for the three months ended March 31, 2001 from $94,000 for the three
months ended March 31, 2000. The increase was primarily the result of increased
fees on transactional deposit accounts. 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 and by continually
considering additional sources of revenue.
NONINTEREST EXPENSE. Noninterest expense increased by $200,000 or 22.8% to $1.1
million for the three months ended March 31, 2001 from $876,000 for the three
months ended March 31, 2000. The increase resulted primarily from planned
expenditures in human and technological resources. Salaries and employee
benefits, the largest component of noninterest expense was $552,000 for the
three months ended March 31, 2001 as compared to $471,000 for the three months
ended March 31, 2000, an increase of $81,000 or 17.2%. This increase was
primarily associated with the addition of full time employees to staff the
Bank's customer service, commercial lending and operations departments.
22
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
INCOME TAXES. The provision for income taxes amounted to $63,000 for the three
months ended March 31, 2001 as compared to $76,000 for the three months ended
March 31, 2000, resulting in effective tax rate of 33.2% and 35.7%,
respectively. The effective tax rate reflects the Company's utilization of a
securities investment subsidiary to substantially reduce state income taxes.
COMPARISON OF THE OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND
2000.
NET INCOME. The Company's net income for the six months ended March 31, 2001 was
$293,000 as compared to $318,000 for the six months ended March 31, 2000. This
$25,000 or 7.9% decrease in net income during the six months ended March 31,
2001 was the result of an increase of $1.1 million in interest and dividend
income and an increase of $35,000 in other income, offset by an increase of
$758,000 in interest expense and an increase in provision for loan losses of
$24,000 and an increase of $411,000 in operating expenses. The Company's
continued expansion of its lending activities accounted for the increase in
interest income, while its interest expense increased due to rising interest
rates and operating expenses increased due to the Company's planned expenditures
in human and technological resources. The return on average assets for the six
months ended March 31, 2001 was .41% compared to .54% for the six months ended
March 31, 2000.
NET INTEREST AND DIVIDEND INCOME BEFORE PROVISION FOR LOAN LOSSES. The Company's
net interest and dividend income before provision for loan losses for the six
months ended March 31, 2001 increased $348,000 or 16.9% to $2.4 million from
$2.1 million for the six months ended March 31, 2000. The increase is attributed
to a combination of the $823,000 increase in interest and fees on loans and an
increase of $261,000 in interest and dividends on securities, offset by an
increase of $758,000 in interest expense on deposits and borrowed funds due to
higher interest rates and a higher level of funds borrowed.
The average yield on interest-earning assets increased 36 basis points
to 7.84% for the six months ended March 31, 2001 from 7.48% for the six months
ended March 31, 2000, while the average cost on interest-bearing liabilities
increased by 51 basis points to 4.79% for the six months ended March 31, 2001
from 4.28% for the six months ended March 31, 2000. The interest rate spread
decreased to 3.05% for the six months ended March 31, 2001 from 3.20% for the
six months ended March 31, 2000 and the net interest margin decreased from 3.70%
to 3.58% during the six months ended March 31, 2001 as compared to the same
period in 2000.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased by
$1.1 million or
23
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
26.6% to $5.3 million for the six months ended March 31, 2001 from $4.2 million
for the six months ended March 31, 2000. The increase in interest and dividend
income was a result of a higher level of commercial and commercial real estate
loans. The average balance of net loans for the six months ended March 31, 2001
was $91.4 million compared to $74.4 million for the six months ended March 31,
2000. The average yield on net loans was 8.25% for the six months ended March
31, 2001 compared to 7.93% for the six months ended March 31, 2000, reflecting a
general increase in interest rates. The average balance of investment securities
for the six months ended March 31, 2001 was $39.1 million compared to $33.6
million for the six months ended March 31, 2000. The average yield on investment
securities was 7.11% for the six months ended March 31, 2001 compared to 6.72%
for the six months ended March 31, 2000.
INTEREST EXPENSE. Interest expense increased by $758,000 or 36.0% to $2.9
million for the six months ended March 31, 2001 from $2.1 million for the six
months ended March 31, 2000. Interest expense increased primarily as a result of
an increase in interest rates paid on FHLB borrowings and deposit accounts and
an increase in the level deposits and FHLB borrowings during the six months
ended March 31, 2001. Average interest-bearing deposits increased by $11.8
million or 16.9% to $81.8 million for the six months ended March 31, 2001 from
$69.9 million for the same period in 2000. Deposit balances have increased as a
result of an increase in checking products, certificate of deposit products with
competitive rates and deposits attributable to the Chelsea branch. Accordingly,
interest expense on deposits increased $425,000 or 33.2% to $1.7 million for the
six months ended March 31, 2001 compared to $1.3 million for the six months
ended March 31, 2000. Interest expense on FHLB borrowings increased $333,000 or
40.5% to $1.2 million for the six months ended March 31, 2001 from $822,000 for
the six months ended March 31, 2000. This is attributable to an increase in the
rates paid on FHLB borrowings and an increase in the level of such borrowings.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $24,000 or
33.3% to $96,000 for the six months ended March 31, 2001 as compared to $72,000
for the same period in 2000. 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 March 31, 2001, the balance of the
allowance for loan losses was $835,000 or .88% of total loans. As the Bank
continues to expand its small business lending, additional increases to the
provision are likely.
NONINTEREST INCOME. Total noninterest income increased by $35,000 or 17.7% to
$233,000 for the six months ended March 31, 2001 from $198,000 for the six
months ended March 31, 2000. The
24
RFS BANCORP, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 2001
increase was primarily the result of increased fees on transactional deposit
accounts. 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 and by continually considering additional sources of revenue.
NONINTEREST EXPENSE. Noninterest expense increased by $411,000 or 24.2% to $2.1
million for the six months ended March 31, 2001 from $1.7 million for the six
months ended March 31, 2000. The increase resulted primarily from planned
expenditures in human and technological resources. Salaries and employee
benefits, the largest component of noninterest expense was $1.1 million for the
six months ended March 31, 2001 as compared to $888,000 for the six months ended
March 31, 2000, an increase of $176,000 or 19.8%. This increase was primarily
associated with the addition of full time employees to staff the Bank's customer
service, commercial lending and operations departments.
INCOME TAXES. The provision for income taxes amounted to $145,000 for the six
months ended March 31, 2001 as compared to $172,000 for the six months ended
March 31, 2000, resulting in effective tax rate of 33.1% and 35.0%,
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
As the Company's primary business consists that of the Bank's business,
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 Office of Thrift Supervision regulations require the Company to
maintain sufficient liquidity to ensure its safe and sound operation. 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 FHLB. At March 31, 2001, the
Company had borrowings of $38.3 million.
At March 31, 2001, the Company had $3.4 million 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 $37.2 million at March 31, 2001. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Bank.
At March 31, 2001, the Company and the Bank exceeded all of their
regulatory capital requirements.
25
RFS BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
MARCH 31, 2001
PART II OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITYHOLDERS
The Company held its Annual Meeting of Shareholders ("Meeting") on
January 17, 2001. All of the proposals submitted to the shareholders at the
Meeting were approved. The proposals submitted to shareholders and the
tabulation of votes for each proposal is as follows:
1. Election of Directors
The number of votes cast with respect to this matter was as follows:
Nominee For Withheld Broker Non-Votes
------- --- -------- ----------------
Theodore E. Charles 754,856 175 0
James J. McCarthy 754,981 50 0
J. Michael O'Brien 755,006 25 0
2. Ratification of the appointment of Shatswell MacLeod & Co., to
act as independent auditors for RFS Bancorp, Inc. for fiscal
year ending September 30, 2001.
The number of votes cast with respect to this matter was as follows:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
753,431 50 1,550 0
26
RFS BANCORP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
MARCH 31, 2001
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
27
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: May 09, 2001 By: /s/ James J. McCarthy
--------------- --------------------------------
James J. McCarthy
President and Chief Executive Officer
Date: May 09, 2001 By: /s/ Anthony J. Patti
--------------- --------------------------------
Anthony J. Patti
Executive Vice President and
Chief Financial Officer (principal
accounting officer)
28