UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
Commission File Number 0-27307
M&F BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-1980549
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2634 Chapel Hill Blvd., P.O. Box 1932, Durham, North Carolina 27707
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(Address of principal executive offices)
(919) 683-1521
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ___X____ No _______
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State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date:
Common Stock no par value 853,725
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Outstanding at October 19, 2001
Transitional Small Business Disclosure Format (Check one):
Yes ___________ No ______X_______
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M&F BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of September 30, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Income and Comprehensive Income
for the nine months ended September 30, 2001 and September 30, 2000 4
Consolidated Condensed Statements of Income and Comprehensive Income
for the three months ended September 30, 2001 and September 30, 2000 5
Consolidated Condensed Statements of Shareholders' Equity for the nine months
ended September 30, 2001 and September 30, 2000 6
Consolidated Condensed Statements of Cash flows for the nine months ended
September 30, 2001 and September 30, 2000 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 12
2
PART I: FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30, 2001 December 31, 2000
ASSETS (unaudited)
Cash and due from financial institutions $ 4,709 $ 2,982
Interest-earning deposits in financial institutions 5,481 7,617
Federal funds sold
5,000
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Cash and cash equivalents 10,190 15,599
Securities available for sale 29,602 29,632
Securities held to maturity 1,412 1,412
Loans:
Commercial, financial and agricultural loans 63,862 64,639
Real estate -construction loans 3,904 8,485
Real Estate-mortgage loans 41,710 34,112
Installment loans to individuals 7,344 7,690
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Total Loans 116,820 114,926
Unearned income 386 373
Allowance for loan losses 1,590 1,748
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Net Loans 114,844 112,805
Bank premises and equipment, net 5,216 5,391
Other assets 1,797 2,122
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TOTAL ASSETS $ 163,061 $ 166,961
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits 25,185 29,984
Interest-bearing deposits 105,815 105,162
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Total Deposits 131,000 135,146
Other borrowings 11,880 11,895
Other liabilities 1,823 2,213
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Total Liabilities 144,703 149,254
Shareholders' Equity:
Common stock 5,999 5,999
Retained earnings 11,427 10,981
Accumulated other comprehensive income 932 727
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Shareholders' Equity 18,358 17,707
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 163,061 $ 166,961
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3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except per share data)
September 30
Nine months ended: 2001 2000
Interest income:
Interest on loans $ 7,278 $ 7,476
Securities:
Taxable 867 1,108
Tax exempt 321 350
Federal funds sold 2 28
Other interest 330 91
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Total interest income $ 8,798 $ 9,053
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Interest expense:
Interest on deposits 2,907 2,605
Interest on other borrowings 453 407
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Total interest expense $ 3,360 $ 3,012
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Net interest income 5,438 6,041
Provision for loan losses 419 344
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Net interest income after provision for loan losses 5,019 5,697
Non-interest income 1,454 1,092
Salaries & employee benefits 3,257 3,241
Other non-interest expense 2,351 2,396
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Income before taxes 865 1,152
Income tax expense 216 297
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Net income $ 649 $ 855
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Other comprehensive income, net of tax 207 381
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Comprehensive income $ 856 $ 1,236
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Net income per share:
Basic $ 0.76 $ 1.00
Diluted $ 0.76 $ 1.00
Weighted average common shares outstanding:
Basic
Diluted 854 854
854 854
Dividends per share common:
.24 .24
4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except per share data)
September 30
Three months ended: 2001 2000
Interest income:
Interest on loans $ 2,388 $ 2,500
Securities:
Taxable 262 381
Tax exempt 106 106
Federal funds sold (4) 0
Other interest 70 25
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Total interest income $ 2,822 $ 3,012
Interest expense:
Interest on deposits 924 906
Interest on other borrowings 138 150
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Total interest expense $ 1,062 $ 1,056
Net interest income 1,760 1,956
Provision for loan losses 147 134
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Net interest income after provision for loan losses 1,613 1,822
Non-interest income 458 359
Salaries & employee benefits 1,029 1,020
Other non-interest expense 696 755
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Income before taxes 346 406
Income tax expense 89 123
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Net Income $ 257 $ 283
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Other comprehensive income, net of tax 175 424
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Comprehensive income $ 432 $ 707
==================== ======================
Net Income per share:
Basic $ 0.30 $ 0.33
Diluted $ 0.30 $ 0.33
Weighted average common shares outstanding:
Basic
Diluted 854 854
854 854
Dividends per share common:
.08 .08
5
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
September 30
Nine months ended: 2001 2000
Beginning balance, January 1 17,707 $ 16,299
Net income 649 855
Other comprehensive income 207 381
Dividends (205) (205)
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Ending balance, September 30 $ 18,358 $ 17,330
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6
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands, except per share data)
September 30
Nine months ended: 2001 2000
Cash flows from operating activities:
Net income $ 649 $ 855
Adjustments to reconcile net income to net cash from
operating activities:
Provision for possible loan losses 419 344
Provision for depreciation 313 309
Deferred income tax benefit (425) (42)
Gain on disposal of assets (188) 0
Deferred loan fees 12 50
Income taxes receivable 196 0
Interest Receivable 124 193
Prepaid expenses and other assets (88) (19)
Accrued expenses and other liabilities (36) 219
Other 45 (24)
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Net cash from operating activities 1,021 1,885
Cash flows (used in) provided by Investing Activities:
Proceeds from sales and maturities of 8,662 2,435
securities (AFS)
Purchase of securities (AFS) (8,692) (2,000)
Net increase in loans (1,941) (9,698)
Purchase of premises and equipment (107) (395)
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Net cash used in investing activities (2,078) (9,658)
Cash provided by (used in) financing activities:
Net decrease in demand and savings deposits (7,393) (2,964)
Net increase in certificates of deposit 3,246
2,514
Cash dividends (205) (205)
Increase in borrowing 1,900
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Net cash (used by) provided by financing activities (4,352) 1,245
Net decrease in cash and cash equivalents (5,409) (6,528)
Cash and cash equivalents at the beginning of the period 15,599 14,636
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Cash and cash equivalents at the end of the period $ 10,190 $ 8,108
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts and transactions of
M&F Bancorp, Inc. (the "Company") and its wholly owned subsidiary, Mechanics &
Farmers Bank ("M&F Bank"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The accompanying unaudited
Consolidated Condensed Financial Statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and instructions from Regulation S-B.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and the related notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
In the opinion of management, all adjustments consisting of normal recurring
adjustments necessary for a fair presentation have been included.
The accounting policies followed are set forth in Note A to the Company's 2000
Annual Report to Shareholders on file with the Securities and Exchange
Commission.
2. Net Income Per Share
Net Income per share calculations are determined on the basis of the
weighted-average number of common shares outstanding. There were no dilutive
potential common shares outstanding for the periods ended September 30, 2001 and
September 30, 2000.
3. Regulatory Capital Requirements
M&F Bank is subject to various regulatory capital requirements administered by
regulatory banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. As of September 30, 2001 and September 30, 2000
M&F Bank had the following capital levels.
Capital
Risk Based Tier 1 Tier 2 Required Capital
September 30, 2001 16.00% 14.26% 11.44% 6.00%
December 31, 2000 15.63% 13.86% 11.82% 6.00%
On June 27, 2001, M&F Bank Board of Directors declared a dividend to transfer
$500,000 from its capital to the Company to allow the Company to explore
business opportunities.
6.
4. New Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement of Financial
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133") as amended by FAS No. 137, Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. These Statements establish
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accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. They require that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. . The Company adopted SFAS
133 on January 1, 2001. The adoption of this standard did not have a material
impact on the Company's financial statements.
5. Common Stock Cash Dividends
On March 27, 2001, the Board of Directors of the Company declared a quarterly
cash dividend of $0.08 per share to all shareholders of record on March 20, 2001
payable April 13, 2001. The dividend reduced shareholders equity by $68,298. On
June 26, 2001, the Board of Directors of the Company declared a quarterly cash
dividend of $0.08 per share to all shareholders of record on June 19, 2001. The
dividend reduced equity by $68,298. On September 25, 2001, the Board of
Directors of the Company declared a quarterly cash dividend of $0.08 per share
to all shareholders of record on September 25, 2001. The dividend reduced equity
by $68,298.
6. Presentation
Certain amounts in 2000 have been reclassified to conform to the 2001
presentation.
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The following discussion and analysis of earnings and related financial data
should be read in conjunction with the Company's financial statements and notes
thereto included in the Annual Report on Form 10-KSB for the year ended December
31, 2000. It is intended to assist you in understanding the financial condition
and the results of operations for the three months and nine months ended
September 30, 2001 and 2000.
Forward -Looking Statements
When used in this report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or other
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the market area,
and competition that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. The Company wishes to
advise readers that the factors listed above could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
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The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions, which may be made to any
forward-looking statements to reflect events or occurrences after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Financial Condition
Total assets decreased 2.34 percent to $163,061,000 at September 30, 2001 from
$166,961,000 at December 31, 2000. The investment portfolio balance (including
FHLB stock) as of September 30, 2001 was $31,014,000 compared to $31,044,000 at
December 31, 2000. The average yield on the securities portfolio was 5.11
percent for the nine months ended September 30, 2001 compared to 5.99 percent
for the same period in 2000. Interest-earning deposits held at financial
institutions decreased 28.04 percent to $5,481,000 compared to $7,617,000 at
December 31, 2000.
Net loans increased 1.81 percent from December 31, 2000. The average yield on
the loan portfolio was 8.44 percent at September 30, 2001 compared to 8.66
percent at December 31, 2000. Management continues to focus on increasing our
adjustable rate loans in an effort to improve our interest rate sensitivity.
This effort is normally achieved in the area of commercial loans, which are
primarily secured by real estate.
Deposits decreased 3.07 percent to $131,000,000 at September 30, 2001 from
$135,146,000 at December 31, 2000. The percentage of interest-bearing accounts
to total accounts decreased to 80.78 percent from 82.99 percent at September 30,
2000 and increased from 77.81 percent at December 31, 2000. The average interest
rate on deposits increased to 3.67 percent at September 30, 2001 from 3.23
percent at December 31, 2000 and 3.48 percent at September 30, 2000 due to an
increase in time deposits compared to the same nine month period in 2000.
Management believes that large deposit growth will be more difficult as
customers continue to look for alternative investment opportunities with higher
yields. As a result, the Company will continue to evaluate other sources of
liquidity to meet loan demand, if necessary.
Total shareholders' equity increased 3.33 percent to $18,296,000 on September
30, 2001 from $17,707,000 at December 31, 2000. The change was due to
year-to-date comprehensive income partially offset by dividends declared.
Results of Operations - Comparison for the nine months and three months ended
September 30, 2001 and 2000
Net income decreased 24.09 percent to $649,000 for the nine months ended
September 30, 2001 compared with $855,000 for the same period in 2000. The
principal factor contributing to the decline in the net income was the decrease
in the net interest income of approximately $603,000 for the nine months ended
September 30, 2001 as compared with the same period in 2000. Noninterest income
for the period increased $362,000 to $1,454,000 compared to the $1,092,000. The
increase resulted from increased rental income for the corporate facility
(currently 100% occupancy of tenant space compared to approximately 60% for the
same period in the prior year).
Net income for the three months ended September 30, 2001 decreased 9.19 percent
or $26,000 to $257,000 compared with $283,000 for the same period in 2000. The
Company's earnings for the three months ended September 30, 2001 continued to be
adversely impacted by the reduction in interest rates and minimal loan growth.
With the decline in variable interest rate loans and new loans issued with lower
yields, larger outstanding balances are
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needed to sustain the same level of interest income. The net interest margin
decreased by 10.02 percent compared to the same period for the prior year.
Management plans to increase marketing efforts with expanded advertising and
increased product promotions. Noninterest income for the period was $458,000
compared to $359,000 for the same period in the prior year.
Non-performing assets and allowance for loan losses
The allowance for loan losses is calculated based upon an evaluation of
pertinent factors underlying the types and qualities of the Company's loans.
Management considers such factors as the repayment status of a loan, the
estimated net realizable value of the underlying collateral, the borrower's
ability to repay the loan, current and anticipated economic conditions which
might affect the borrower's ability to repay the loan and the Company's past
statistical history concerning charge-offs. The September 30, 2001 allowance for
loan losses was $1,590,000 or 1.37 percent of total loans outstanding compared
with $1,748,000 or 1.52 percent of total loans outstanding at December 31, 2000.
Management has considered non-performing assets and total classified assets in
establishing the allowance for loan losses. On July 5, 2001, the Company sold
the property securing an adversely classified loan in a foreclosure sale for
total proceeds of $1,965,000 resulting in a loss of $489,823. The loss had been
previously reserved and included in the allowance for loan losses.
The ratio of non-performing assets to total assets is one indicator of the
exposure to credit risk. Non-performing assets of the Company consist of
non-accruing loans, accruing loans delinquent 90 days or more, restructured
loans, and foreclosed assets, which have been acquired as a result of
foreclosure or deed-in-lieu of foreclosure. The following table provides certain
information regarding non-performing assets.
09/30/01 12/31/00
(Dollars in Thousands)
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Non-Accruing Loans $ 693 2,795
Accruing Loans Delinquent 90 days or more 687 475
Foreclosed Assets 112 163
Restructured Loans 981 1,329
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Total Non-Performing Assets $ 2,473 $ 4,762
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Percentage of total assets 1.52% 2.85%
The level of non-performing assets impacts the Company's need to maintain
reserves adequate to cover loan losses in the existing portfolio. As
non-performing assets decline, it has a favorable impact on earning assets and
net interest income.
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PART II
Other Information
ITEM 1. Legal Proceedings: Not applicable
ITEM 2. Changes in Securities: Not applicable
ITEM 3. Defaults upon Senior Securities: Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders: Not applicable
ITEM 5. Other Information: Not applicable
ITEM 6. Exhibits and Report on Form 8-K
(c) Exhibits
Exhibit (3)(i) Articles of Incorporation of M&F Bancorp, Inc.,
incorporated by reference to Exhibit (3) to the Form 10-QSB for the quarter
ended September 30, 1999 filed with the Securities and Exchange Commission on
November 12, 1999.
Exhibit (3)(ii) Bylaws of M&F Bancorp, Inc., incorporated by reference
to Exhibit (3) to the Form 10-QSB for the quarter ended September 30, 1999 filed
with the Securities and Exchange Commission on November 12, 1999.
Exhibit (4) Specimen Stock Certificate incorporated by reference to
Exhibit (4) to the Form 10-KSB40 for the fiscal year ended December 31, 2000
filed with the Securities and Exchange Commission on April 2, 2001.
Exhibit (10)(a) Employment Agreement between Mechanics and Farmers Bank
and Lee Johnson, Jr. incorporated by reference to Exhibit 10(a) to the Form 10-
QSB for the quarter ended September 30, 2000 filed with the Securities and
Exchange Commission on November 9, 2000.
Exhibit (10)(b) Retention Bonus Agreement between Mechanics and Farmers
Bank and Fohliette Becote incorporated by reference to Exhibit 10(b) to the Form
10-QSB for the quarter ended September 30, 1999 filed with the Securities and
Exchange Commission on November 12, 1999.
Exhibit (10)(c) Retention Bonus Agreement between Mechanics and Farmers
Bank and Walter D. Harrington incorporated by references to Exhibit 10(c) to the
Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities
and Exchange Commission on November 12, 1999.
Exhibit (10)(d) Retention Bonus Agreement between Mechanics and Farmers
Bank and Harold G. Sellars incorporated by reference to Exhibit 10(d) to the
Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities
and Exchange Commission on November 12, 1999.
Exhibit (10)(e) Retention Bonus Agreement Between Mechanics and Farmers
Bank and Elaine Small incorporated by reference to Exhibit 10(e) to the Form 10-
QSB for the quarter ended September 30, 1999 filed with the Securities and
Exchange Commission on November 12, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to signed on its behalf by the undersigned, thereunto duly
authorized.
M&F Bancorp, Inc.
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(Registrant)
Date: November 7, 2001
By: /s/ Lee Johnson Jr.
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Lee Johnson, Jr.
President/Chief Executive Officer
Date: November 7, 2001
By: /s/ Fohliette W. Becote
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Fohliette W. Becote
Secretary/Treasurer
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