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 March 31, 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 April 18, 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 March 31, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Income for the three months ended March 31, 4
2001 and March 31, 2000
Consolidated Condensed Statements of Shareholders' Equity for the three months 5
ended March 31, 2001 and March 31, 2000
Consolidated Condensed Statements of Cash flows for the three months ended March 31, 6
2001 and March 31, 2000
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results 8
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 12-13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
Exhibit 27 15
2
PART I: FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, 2001 December 31, 2000
ASSETS (unaudited)
Cash and due from financial institutions $5,909 $ 2,982
Interest-earning deposits in financial institutions 17,594 7,617
Federal funds sold
5,000
Cash and cash equivalents 23,503 15,599
Securities available for sale 27,148 29,632
Securities held to maturity 1,412 1,412
Loans:
Commercial, financial and agricultural loans 64,655 64,639
Real estate -construction loans 8,022 8,485
Real Estate-mortgage loans 36,155 34,112
Installment loans to individuals 5,231 7,690
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Total Loans 114,063 114,926
Unearned income 360 373
Allowance for loan losses 1,862 1,748
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Net Loans 111,866 112,805
Bank premises and equipment, net 5,331 5,391
Other assets 2,599 2,122
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TOTAL ASSETS $ 171,834 $ 166,961
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Interest-bearing deposits 29,920 29,984
Noninterest-bearing deposits 110,161 105,162
Total Deposits 140,081 135,146
Other borrowings 11,890 11,895
Other liabilities 1,981 2,213
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Total Liabilities 153,952 149,254
Shareholders' Equity:
Common stock 5,998 5,999
Retained earnings 11,144 10,981
Accumulated other comprehensive income 740 727
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Shareholders' Equity 17,882 17,706
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 171,834 $ 166,961
3
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(unaudited)
(in thousands, except per share data)
Three months ended: March 31, 2001 March 31, 2000
Interest Income:
Interest on loans $ 2,486 $ 2,452
Securities :
Taxable 342 372
Tax exempt 108 126
Federal funds sold 6 17
Other interest 141 37
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Total Interest Income $ 3,083 $ 3,004
Interest Expense:
Interest-bearing demand 30 31
Savings 313 303
Time deposits 635 508
Interest on federal funds & borrowings 158 116
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Total Interest Expense $ 1,136 $ 958
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Net Interest Income 1,947 2,046
Provision for loan losses 134 77
Net Interest Income After Provision for Loan Losses 1,813 1,969
Non-interest Income 423 355
Salaries & employee benefits 1,104 1,055
Other non-interest expense 843 792
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Income before Taxes 289 477
Income tax expense 59 155
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Net Income $ 230 $ 322
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Earnings per share common equivalent shares:
Basic $ 0.27 $ 0.38
Diluted $ 0.27 $ 0.38
Weighted average common shares outstanding:
Basic 854 854
Diluted 854 854
Dividends per share common: .08 .08
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CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
March 31, 2001 March 31, 2000
Beginning Balance, January 1 17,706 $16,299
Net Income 230 322
Other Comprehensive (Loss) Income 14 (41)
Dividends (68) (68)
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Ending Balance, March 31 $17,882 $16,512
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5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands, except per share data)
Three months ended: March 31, 2001 March 31, 2000
Cash flows from operating activities:
Net Income $ 230 $ 322
Adjustments to reconcile net income to net cash from
operating activities:
Provision for possible loan losses 134 77
Provision for depreciation 105 98
Deferred income taxes (9) 67
Loss on disposal of assets (8) 0
Deferred loan fees 13 8
Income taxes receivable (14) 19
Interest Receivable 94 166
Prepaid expenses and other assets (224) 19
Accrued expenses and other
liabilities 375 128
Other 161 (4)
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Net cash from operating activities 857 900
Cash flows used in Investing Activities:
Proceeds from sales and maturities of
securities (AFS) 3,500 1,000
Purchase of securities (AFS) (2,112) (2000)
Net increase (decrease) in loans 837 (2,554)
Purchase of premises and equipment (45) (20)
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Net cash used in investing activities 2,180 (3,756)
Net Cash Provided by (Used In) Financing Activities:
Net decrease in demand and savings
deposits 85 641
Net increase in certificates of
deposit 4,850 657
Cash dividends (68) (68)
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Net cash provided by financing activities 4,867 1,230
Net Decrease in Cash and Cash Equivalents 7,904 (1,626)
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 $ 23,503 $ 13,010
6
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. 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 ("SFAS") 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 are 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 March 31, 2001 and March 31, 2000. The shares
outstanding have been adjusted for a 3-for-2 stock split accounted for as a 50
percent stock dividend declared on December 14, 1999 to all shareholders 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 March 31, 2001 and March 31, 2000 the
Company had the following capital level.
Capital
7
Risk Based Tier 1 Tier 2 Required Capital
March 31, 2001 16.47% 14.75% 12.18% 6.00%
December 31, 2000 15.63% 13.86% 11.82% 6.00%
6. Comprehensive Income
The Company applies the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") which 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. 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. 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 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. 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.
8. 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.
9. 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 ended March 31, 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
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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 2.92 percent to $171,834,000 at March 31, 2001 from
$166,961,000 at December 31, 2000. The investment portfolio balance (including
FHLB stock) as of March 31, 2001 was $28,560,000 compared to $31,044,000 at
December 31, 2000. Maturities and deposits were used to fund loan demand and
satisfy liquidity needs. The investment portfolio can be liquidated to meet loan
demand if necessary. Approximately 95 percent of the portfolio was classified as
available-for-sale at March 31, 2001 and December 31, 2000. All securities
purchased during 2001 and 2000 were classified in the available-for-sale
category.
Net Loans decreased less than one percent from December 31, 2000. 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 area of commercial loans which are primarily secured by
real estate.
Deposits increased 3.65 percent to $140,081,000 at March 31, 2001 from
$135,146,000 at December 31, 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 seek
other sources of liquidity to meet loan demand.
Total shareholders' equity increased less than one percent to $17,882,000 on
March 31, 2001 from $17,706,000 at December 31, 2000. The change in this account
was due to year-to-date net income partially offset by dividends declared.
Results of Operations - Comparison for the three months ended March 31, 2001 and
2000
Net income for the three months ended March 31, 2001 decreased 28.57 percent to
$230,000 compared with $322,000 for the same period in 2000. The Company
increased the loan loss provision by 74.03 percent from $77,000 to $134,000. The
increase was necessary due to increased loan volume and increased classified
loans. The Company recognized an increase in interest expense compared to the
same period in the prior year due to an increase in long-term debt outstanding
and time deposits.
9
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 March 31, 2001 allowance for
loan losses was 1,862,000 or 1.63 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. At October 1, 2000 the Company had a
single loan totaling $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.
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.
10
03/31/01 12/31/00
(Dollars in Thousand)
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Non-Accruing Loans $ 2,855 2,795
Accruing Loans Delinquent 90 days or more 694 475
Foreclosed Assets 163 163
Restructured Loans 1,048 1,329
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Total Non-Performing Assets $ 4,760 $ 4,762
Percentage of total assets 2.77% 2.85%
The level of non-performing assets impacts the Bank's need to boost reserves to
cover potential loan losses. As non-performing assets decline, it has a
favorable impact on earning assets and net interest income.
11
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
13(a) Exhibits
Not applicable
13(b) On February 9, 2001 the Company filed on Form 8-K the
announcement that Julia W. Taylor would retire from the Board
of Directors of M&F Bancorp, Inc. and that Ms. Taylor had
asked that her name be withdrawn from nomination for the May
1, 2001 Annual Meeting of Shareholders. Additionally, the
Company announced that Ms. Taylor asked not to be re-appointed
to the Mechanics & Farmers Bank Board of Directors when
directors are appointed on March 27, 2001.
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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.
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(Registrant)
Date: May 9, 2001
By: /s/Lee Johnson Jr.
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Lee Johnson, Jr.
President
Date: May 9, 2001
By: /s/Fohliette W. Becote
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Fohliette W. Becote
Treasurer
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