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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, 2000
Commission File Number 0-27307
M&F BANCORP, INC.
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(Name of small business issuer 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)
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 [ ]
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 24, 2000
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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M&F BANCORP, INC.
INDEX
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PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of September 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Income for the three months ended September 30, 4
2000 and September 30, 1999
Consolidated Condensed Statements of Income for the nine months ended September 30, 5
2000 and September 30, 1999
Consolidated Condensed Statements of Stockholders' Equity for the nine months 6
ended September 30, 2000 and September 30, 1999
Consolidated Condensed Statements of Cash flows for the nine months ended September 30, 7
2000 and September 30, 1999
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results 10
of Operations
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
Exhibit 27
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PART I: FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(dollars in thousands)
September 30, December 31,
2000 1999
ASSETS
Cash and due from financial institutions $ 4,770 $ 5,349
Interest-earning deposits in financial institutions 3,338 4,187
Federal funds sold 5,100
Cash and cash equivalents 8,108 14,636
Securities available for sale 30,294 31,065
Securities held to maturity 1,412 1,412
Loans:
Commercial, Financial and Agricultural Loans 63,244 57,654
Real Estate-Construction Loans 9,483 4,844
Real Estate-Mortgage Loans 36,691 35,087
Installment Loans to Individuals 5,571 7,658
Total Loans 114,989 105,243
Unearned income 391 341
Allowance for Loan Losses 1,582 1,342
Net Loans 113,016 103,560
Bank premises and equipment, net 5,382 5,013
Other assets 2,232 2,058
TOTAL ASSETS $160,444 $ 157,744
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits 29,262 28,583
Savings, NOW, and MMDA 56,567 60,210
Time Deposits 43,250 40,736
Total Deposits 129,079 129,529
Other Borrowings 11,900 10,000
Other Liabilities 2,135 1,916
Total Liabilities 143,114 141,445
Stockholders' Equity:
Common Stock 6,000 6,000
Retained Earnings 11,006 10,352
Accumulated Other Comprehensive (Loss)Income 324 (53)
Stockholders' Equity 17,330 16,299
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $160,444 $ 157,744
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CONSOLIDATED CONDENSED STATEMENT OF INCOME
(unaudited)
(in thousands, except per share data)
September 30, September 30,
Three months ended: 2000 1999
Interest Income:
Interest on Loans $2,500 $2,197
Securities:
Taxable 381 380
Tax exempt 106 128
Federal Funds Sold 0 17
Other Interest 25 28
Total Interest Income $3,012 $2,750
Interest Expense:
Interest-bearing Demand 28 31
Savings 291 254
Time Deposits 587 487
Interest on Federal Funds & Borrowings 150 118
Total Interest Expense $1,056 $ 890
Net Interest Income 1,956 1,860
Provision for Loan Losses 134 12
Net Interest Income After Provision for Loan Losses 1,822 1,848
Non-interest Income 359 412
Salaries & Employee Benefits 1,020 956
Other Non-interest Expense 755 658
Income before Taxes 406 646
Income Tax Expense 123 188
Net Income $ 283 $ 458
Earnings per share common equivalent shares:
Basic $ 0.33 $ 0.54
Diluted $ 0.33 $ 0.54
Weighted average common shares outstanding:
Basic 854 854
Diluted 854 854
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CONSOLIDATED CONDENSED STATEMENT OF INCOME
(unaudited)
(in thousands, except per share data)
September 30, September 30,
Nine months ended: 2000 1999
Interest Income:
Interest on Loans $7,476 $6,416
Securities:
Taxable 1,108 1066
Tax exempt 350 388
Federal Funds Sold 28 135
Other Interest 91 55
Total Interest Income $9,053 $8,060
Interest Expense:
Interest-bearing Demand 88 95
Savings 885 779
Time Deposits 1,632 1,449
Interest on Federal Funds & 407 360
Borrowings
Total Interest Expense $3,012 $2,683
Net Interest Income 6,041 5,377
Provision for Loan Losses 344 208
Net Interest Income After Provision for Loan 5,697 5,169
Losses
Non-interest Income 1,092 1,124
Salaries & Employee Benefits 3,241 2870
Other Non-interest Expense 2,396 2183
Income before Taxes 1,152 1,240
Income Tax Expense 297 350
Net Income $ 855 $ 890
Earnings per share common equivalent shares:
Basic $ 1.00 $ 1.04
Diluted $ 1.00 $ 1.04
Weighted average common shares outstanding:
Basic 854 854
Diluted 854 854
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CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
(dollars in thousands)
September 30, September 30,
2000 1999
Beginning Balance, January 1 $ 16,299 $ 16,497
Net Income 855 890
Other Comprehensive (Loss) Income 381 (868)
Dividends (205) (310)
Ending Balance, September 30 $ 17,330 $ 16,209
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
September 30, September 30,
Nine months ended: 2000 1999
Cash flows from operating activities:
Net Income $ 855 $ 890
Adjustments to reconcile net income to net cash from
operating activities:
Provision for possible loan losses 344 208
Provision for depreciation 309 99
Deferred income taxes (42) 513
Gain on sale or disposal of assets 0 (17)
Deferred loan fees 50 5
Interest Receivable 193 55
Prepaid expenses and other assets (19) 26
Accrued expenses and other liabilities 219 (158)
Other (24) 371
Net Cash from Operating Activities 1,885 1,992
Cash flows used in Investing Activities:
Proceeds from sales and maturities of
securities (AFS) 2,435 9,304
Purchase of securities (AFS) (2,000) (13,045)
Net increase in loans (9,698) (6,034)
Purchase of premises and equipment (395) (2,733)
Proceeds from the sale of assets 158
Net Cash Used in Investing Activities (9,658) (12,350)
Net Cash Provided by (Used In) Investing Activities:
Net decrease in demand and savings deposits (2,964) 833
Net increase (decrease) in certificates of
deposit 2,514 202
Cash dividends (205) (310)
Increase in Borrowings 1,900
Net Cash Provided By (Used In) Financing Activities 1,245 725
Net Decrease in Cash and Cash Equivalents (6,528) (9,633)
Cash and Cash Equivalents at the Beginning of the 14,636 20,963
Period
Cash and Cash Equivalents at the End of the Period $ 8,108 $ 11,330
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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.
In the opinion of management, all adjustments consisting of normal recurring
adjustments necessary for a fair presentation have been included. M&F Bancorp,
Inc. became the parent holding company of Mechanics & Farmers Bank on September
1, 1999 therefore prior periods reflect the balances of M&F Bank and its
subsidiary.
2. Investment Securities
The Company accounts for investment securities using Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities (SFAS 115). Under SFAS 115, the accounting for investment
securities held as an asset is dependent upon their classification as held to
maturity, available for sale, or trading assets.
3. Loans
Loans are carried at their principal amount outstanding, net of the allowance
for possible loan losses and deferred fees. Interest on commercial, mortgage and
installment loans is accrued and credited to operating income based upon the
principal amount outstanding. The Company's policy is to discontinue the accrual
of interest when, in management's judgment, circumstances indicate that
collection is doubtful. The Company applies Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114)
and Statement of Financial Accounting Standards No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures (SFAS 118).
4. Earnings Per Share
Earnings per share is calculated 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, 2000 and September 30, 1999. The
shares outstanding have been adjusted for 3-for-2 stock split accounted for as a
50 percent dividend declared on December 14, 1999 to all stockholders of record
as of December 14, 1999 payable on January 21, 2000, for all periods presented.
5. Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements administered
by the federal 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
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September 30, 2000 and September 30, 1999 the Company had the following capital
levels.
Capital
Risk Based Tier 1 Tier 2
September 30, 2000 16.00% 14.33% 12.00%
December 31, 1999 16.79% 15.14% 10.54%
6. Comprehensive Income
Effective January 1, 1999, The Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). Adoption of this standard requires the
Company to (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
7. Accounting Change Pending Implementation
The Financial Accounting Standards Board has issued Statement of Financial
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133, as amended by SFAS 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Therefore,
this statement will become effective January 1, 2001. The Company does not
expect adoption of this standard to have a material impact on its financial
statements.
8. Common Stock Cash Dividends
On March 14, 2000, the Board of Directors of the Company declared a quarterly
cash dividend of $0.08 per share to all stockholders of record March 14, 2000
payable April 15, 2000. The dividend reduced stockholders equity by $68,298. On
June 27, 2000, the Board of Directors of the Company declared a quarterly cash
dividend of $.08 per share to all stockholders of record September 13, 2000
payable July 14, 2000. The payment of the cash dividend reduced stockholders'
equity by $68,298. On September 26, 2000, the Board of Directors of the Company
declared a quarterly cash dividend of $.08 per share to all stockholders of
record September 13, 2000 payable October 13, 2000. The payment of the cash
dividend reduced stockholders' equity by $68,298.
9. Presentation
Certain amounts in 1999 have been reclassified to conform to the 2000
presentation.
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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 unaudited consolidated condensed
financial statements and related notes to the consolidated condensed statements.
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,
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.
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 increased 1.71 percent to $160,444,000 at September 30, 2000 from
$157,744,000 at December 31, 1999. The investment portfolio balance (including
FHLB stock) as of September 30, 2000 was $31,706,000 compared to $32,477,000 at
December 31, 1999. The portfolio decrease was caused by an increase in the loan
portfolio. Maturities and deposits were used to fund loan demand. The portfolio
can be liquidated to meet loan demand if necessary. Approximately 96 and 96
percent of the portfolio were classified as available-for-sale at September 30,
2000 and December 31, 1999. All securities purchased during 2000 were classified
in the available-for-sale category.
The increase of 9.13 percent in net loans from December 31, 1999 was represented
by an increase in commercial real estate mortgage loans. Management continues
its effort to add more adjustable rate loans to the portfolio in an effort to
reduce the interest rate sensitivity of our loans. This effort is normally
achieved in the commercial loans most of which are primarily secured by real
estate.
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Deposits decreased 0.35 percent to $129,079,000 at September 30, 2000 from
$129,529,000 at December 31, 1999. Management believes that large deposit growth
will be more difficult as customers continue to look for alternative investment
opportunities with higher yields. Because of availability of future deposits the
Company will continue to seek other sources of liquidity to meet loan demand.
Total stockholders' equity increased 6.33 percent to $17,330,000 on September
30, 2000 from $16,299,000 at December 31, 1999. The change in this account was
due to year-to-date net income and partially offset by dividends declared.
Results of Operations - Comparison three months and nine months ended September
30, 2000 with September 30, 1999
Net income for the nine months ended September 30, 2000 decreased 3.93 percent
to $855,000 on September 30, 2000 compared with $890,000 for the same period in
1999. The Company increased the loan loss provision by 65.38 percent from
$208,000 to $344,000. The increase was necessary due to increased loan volume,
increased classified loans, and a mandated regulatory change for loans in
bankruptcy. The Company recognized a 12.93 percent increase in salaries and
benefits from the prior year due to a 10 percent increase in staffing levels.
This increase was partially impacted by the method and timing of incentive
compensation awarded in April 2000. The difference in this category should
decline as the year progresses.
Net income for the quarter decreased 38.21 percent from $458,000 in the prior
year to $283,000 in 2000. While the Company recognized an increase in net
interest margin it was impacted by the increase in the loan loss provision.
Management increased the monthly loan loss provision beginning in March and
anticipates maintaining the higher provision for the remainder of 2000. The
provision increased to $134,000 from $12,000 for the same period in the prior
year. The incentive compensation also impacted the third quarter of 2000
compared to 1999.
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, 2000 allowance for
loan losses was 1,582,000 or 1.38 percent of total loans outstanding compared
with $1,342,000 or 1.28 percent of total loans outstanding at December 31, 1999.
Management has considered non-performing assets and total classified assets in
establishing the allowance for loan losses. At October 1, 2000 the Company had a
single loan for $2,485,000 to default. The loan had been restructured in the
previous quarter. Management had already considered the loan in the calculation
of the allowance for loan losses.
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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, foreclosed assets
and restructured loans, which have been acquired as a result of foreclosure or
deed-in-lieu of foreclosure.
09/30/00 12/31/99
(Dollars in Thousand)
Non-Accruing Loans $ 427 518
Accruing Loans Delinquent 90 days or more 767 1,300
Foreclosed Assets 91 56
Restructured Loans 3,144 725
Total Non-Performing Assets $4,429 $2,599
Percentage of total assets 2.76% 1.65%
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
(a) Exhibits
10. Material Contract
Executive Employment Agreement between Mechanics & Farmers
Bank, subsidiary of the Company and Lee Johnson, Jr.
27. Financial Data Schedule
(b) Report on Form 8-K
The Company filed a report on Form 8-K dated September 26, 2000
announcing that Lee Johnson, Jr. had been appointed President of
the Company upon the retirement of Julia W. Taylor as President
and CEO on September 30, 2000. Additionally, Elaine D. Small was
appointed Vice-President of the Company effective October 1,
2000.
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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.
(Registrant)
Date: November 10, 2000
By: /s/ Lee Johnson, Jr.
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Lee Johnson, Jr.
President
Date: November 10, 2000
By: /s/ Fohliette W. Becote
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Fohliette W. Becote
Treasurer