U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
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, 2000
[ ] 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 0-22587
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SFB BANCORP, INC.
------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Tennessee 62-1683732
- -------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
632 East Elk Avenue, Elizabethton, Tennessee 37643
- ---------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 543-1000
--------------
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.
X Yes No
---------- --------
As of May 1, 2000, there were 622,995 shares of the Registrant's common stock,
par value $0.10 per share, outstanding. The Registrant has no other classes of
common equity outstanding.
Transitional small business disclosure format:
Yes X No
---------- --------
<PAGE>
SFB BANCORP, INC.
AND SUBSIDIARY
Elizabethton, Tennessee
Index
<TABLE>
<CAPTION>
PART I. Page(s)
- ------- -------
<S> <C>
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets-(Unaudited) as of December 31, 1999 and March 31, 2000......................................3
Consolidated Statements of Income - (Unaudited) for the three month periods
ended March 31, 1999 and 2000.........................................................................................4
Consolidated Statements of Stockholders' Equity - (Unaudited)...........................................................5
Consolidated Statements of Cash Flows - (Unaudited) for the three months
ended March 31, 1999 and 2000.........................................................................................6
Notes to (Unaudited) Consolidated Financial Statements................................................................7-8
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................................................9-11
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
Signatures.............................................................................................................13
</TABLE>
2
<PAGE>
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
------------ ------------
Assets 1999 2000
------ ---- ----
<S> <C> <C>
Cash on hand $ 1,424 $ 592
Interest earning deposits 738 880
Investment securities:
Held to maturity (market value of $911
in 1999 and $923 in 2000) 1,017 988
Available for sale (amortized cost of $2,124
in 1999 and $2,124 in 2000) 2,091 2,091
Loans receivable, net 43,789 44,525
Mortgage-backed securities:
Available for sale (amortized cost of $2,225 in
1999 and $2,043 in 2000) 2,183 1,969
Premises and equipment, net 1,011 1,011
Federal Home Loan Bank stock 487 495
Accrued interest receivable 280 286
Prepaid expenses and other assets 109 67
-------- --------
Total assets $ 53,129 $ 52,904
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 40,435 $ 40,372
Federal Home Loan Bank advances 500 500
Advance payments by borrowers for taxes and insurance 220 375
Accrued expenses and other liabilities 157 162
Deferred income taxes 101 88
-------- --------
Total liabilities 41,413 41,497
-------- --------
Stockholders' equity:
Preferred stock ($.10 par value, 1,000,000 shares authorized;
none outstanding) - -
Common stock ($.10 par value, 4,000,000 shares authorized;
767,000 shares issued; 679,417 and 622,995 outstanding
at December 31, 1999 and March 31, 2000, respectively ) 77 77
Paid-in capital 7,382 7,384
Retained earnings, substantially restricted 6,165 6,291
Treasury stock at cost (87,583 and 144,005 shares at December 31,
1999 and March 31, 2000, respectively) (1,208) (1,667)
Accumulated other comprehensive income (45) (65)
Unearned compensation:
Employee stock ownership plan (419) (401)
Restricted stock plan (236) (212)
-------- --------
Total stockholders' equity 11,716 11,407
-------- --------
Total liabilities and stockholders' equity $ 53,129 $ 52,904
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
For Three Months Ended
March 31,
-----------------
1999 2000
---- ----
Interest income:
Loans $820 $881
Mortgage-backed securities 43 31
Investments 55 49
Interest earning deposits 37 4
---- ----
Total interest income 955 965
---- ----
Interest expense:
Deposits 466 456
Federal Home Loan Bank Advances -- 7
---- ----
Total interest expense 466 463
---- ----
Net interest income 489 502
Provision for loan losses 9 9
---- ----
Net interest income after provision
for loan losses 480 493
---- ----
Non-interest income:
Loan fees and service charges 42 51
Other 3 3
---- ----
Total non-interest income 45 54
---- ----
Non-interest expenses:
Compensation 140 179
Employee benefits 32 35
Net occupancy expense 23 32
Deposit insurance premiums 6 2
Data processing 25 32
Other 71 68
---- ----
Total non-interest expenses 297 348
---- ----
Income before income taxes 228 199
Income tax expense 86 73
---- ----
Net income $142 $126
==== ====
Earnings per share
Basic $.22 $.21
Diluted $.22 $.21
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other Unearned Compensation
Common Paid-In Retained Treasury Comprehensive ---------------------
Stock Capital Income Stock Income for ESOP for RSP Total
----- ------- ------ ----- ------ -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 77 7,368 5,732 (1,034) (24) (491) (358) 11,270
Comprehensive income:
Net income - - 559 - - - - 559
Unrealized losses on
securities available for sale,
net of income tax expense - - - - (21) - - (21)
Cash dividends declared ($.20 share) - - (126) - - - - (126)
Treasury stock purchased (72,850 shares) - - - (174) - - - (174)
Compensation earned - 14 - - - 72 122 208
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1999 77 7,382 6,165 (1,208) (45) (419) (236) 11,716
Comprehensive income:
Net income - - 126 - - - - 126
Unrealized losses on
securities available for sale,
net of income tax expense - - - - (20) - - (20)
Treasury stock purchased (56,422 shares) - - - (459) - - - (459)
Compensation earned - 2 - - - 18 24 44
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2000 $ 77 $ 7,384 $ 6,291 $ (1,667) $ (65) $ (401) $ (212) $ 11,407
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 2000
------- -------
<S> <C> <C>
Operating activities:
Net income $ 142 $ 126
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation 17 24
Provision for loan losses 9 9
Net increase (decrease) in deferred loan fees (10) 2
Accretion of discounts on investment securities, net (7) (5)
Amortization of premiums on mortgage-backed securities 2 --
Amortization of unearned compensation 49 44
FHLB stock dividends (8) (8)
(Increase) decrease in other assets (18) 42
(Increase) in accrued interest receivable (5) (6)
Increase (decrease) in accrued expenses and other liabilities (19) 5
Increase in current income taxes 47 --
------- -------
Net cash provided by operating activities 199 233
------- -------
Investing activities:
Maturities of investment securities held to maturity 33 34
Purchase of investment securities available for sale (1,298) --
Maturities of investment securities available for sale 1,000 --
Principal payments on mortgage-backed securities
available for sale 436 181
Net (increase) in loans (118) (747)
Purchase of premises and equipment (82) (24)
------- -------
Net cash (used) by investing activities (29) (556)
------- -------
Financing activities:
Net increase (decrease) in deposits $ 721 $ (63)
Increase in advance payments by borrowers for
taxes and insurance 143 155
Proceeds from FHLB Advances -- 800
Repayment of FHLB Advances -- (800)
Treasury stock purchased (21) (459)
------- -------
Net cash provided (used) by financing activities 843 (367)
------- -------
Increase (decrease) in cash and cash equivalents 1,013 (690)
Cash and cash equivalents at beginning of period 2,839 2,162
------- -------
Cash and cash equivalents at end of period $ 3,852 $ 1,472
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 449 $ 465
Income taxes 57 9
======= =======
Noncash transactions:
Unrealized gains (losses) on securities and mortgage-backed
securities available for sale, net of deferred taxes $ 5 $ (20)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
SFB BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands)
1. Basis of Preparation
--------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and therefore, do not
include all disclosures necessary for a complete presentation of the
consolidated balance sheets, consolidated statements of income,
consolidated statements of stockholders' equity, and consolidated
statements of cash flows in conformity with generally accepted accounting
principles. However, all adjustments which are, in the opinion of
management, necessary for the fair presentation of the interim financial
statements have been included. All such adjustments are of a normal
recurring nature. The statement of income for the three month period ended
March 31, 2000 is not necessarily indicative of the results which may be
expected for the entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto for the Company for the year ended December 31, 1999 which are
included in the Form 10-KSB by reference (file no. 0-22587).
2. Earnings Per Share
------------------
Basic earnings per common share for all periods presented is computed by
dividing net income by the weighted average number of common share
outstanding. Diluted earnings per common share is computed by dividing net
income available to common stockholders by the weighted average number of
common shares outstanding and dilutive potential common shares, which
include stock options. Dilutive potential common shares are calculated
using the treasury stock method. Options to purchase 73,630 shares of the
Company's common stock were outstanding during the March 2000 quarter, but
were not included in the computation of diluted EPS because their effect
would be anti-dilutive.
<TABLE>
<CAPTION>
March 31, 1999 March 31, 2000
--------------- -----------------------
Income Shares Income Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income $142 $126
BASIC EPS
Income available to common stockholders $142 645 $126 611
Per share amount $.22 $.21
Effect of Dilutive Securities $.00 $.00
DILUTIVE EPS
Income available to common stockholders $142 645 $126 611
Per share amount $.22 $.21
</TABLE>
7
<PAGE>
3. Asset Quality
-------------
The following table sets forth information regarding the Bank's
nonperforming loans (i.e., loans which are contractually past due 90 days
or more) at December 31, 1999 and March 31, 2000, respectively. As of the
dates indicated, the Bank had no loans categorized as troubled debt
restructuring within the meaning of SFAS 15.
December 31, March 31,
1999 2000
---- ----
Nonaccrual loans $ 217 $ 407
Repossessed real estate - -
----- -----
Total nonperforming assets $ 217 $ 407
==== ====
Nonperforming loans to net loans .50% .91%
Nonperforming assets to total assets .41% .77%
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risk associated with the effect of opening a new
branch, the ability to control costs and expenses, and general economic
conditions. The Company undertakes no obligation to publicly release the results
of any revisions to those forward looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The following discussion and analysis is intended to assist in understanding the
financial condition and the results of operations of the Company. References to
the "Company" include SFB Bancorp, Inc. and/or the Bank as appropriate.
Comparison of Results of Operations for the Three Months Ended March 31, 1999
and 2000
Net Income. Net income decreased $16,000, or 11.3%, for the three months ended
March 31, 2000, to $126,000, compared to $142,000 for the three months ended
March 31, 1999. The decrease was primarily the result of an increase in
non-interest expenses, offset by an increase in net interest income and lower
income tax expense. Basic income per share decreased $.01, from $.22 for the
three month ended March 31, 1999, to $.21 for the three months ended March 31,
2000.
Net Interest Income. Net interest income increased approximately $13,000, or
2.7%, from $489,000 for the three months ended March 31, 1999, to $502,000 for
the three months ended March 31, 2000. The increase in net interest income
primarily reflects a $747,000 decrease in average interest-earning assets,
offset by an approximate $578,000 decrease in average interest-bearing
liabilities. The interest rate spread increased from 2.91% for three months
ending March 31, 1999, to 3.07% for the three months ending March 31, 2000,
while the net interest margin increased 16 basis points to 3.99% for the three
months ended March 31, 2000.
Interest Income. Total interest income increased $10,000, from $955,000 for the
three months ended March 31, 1999, to $965,000 for the three months ended March
31, 2000. The increase was attributable to a 19 basis point increase in the
average yield on average interest-earning assets, offset by an approximate
$747,000 decrease in average interest-earning assets to $50.3 million at March
31, 2000. Interest on loans increased $61,000, interest on interest-earning
deposits decreased $33,000, and interest on investments decreased $6,000. The
increase in interest on loans primarily reflects an increase of approximately
$4.0 million in the average loans outstanding balance for 2000, as compared to
1999. The decrease in interest on interest-earning deposits
9
<PAGE>
primarily reflects a $3.1 million decrease in the average interest-earning
deposits balance for 2000, as compared to 1999. Interest on mortgage-backed
securities decreased $12,000 as the portfolio continues to mature and principal
payments are received. The $3.1 million decrease in average interest-earning
deposits, along with the principal payments from mortgage-backed securities were
used to fund loan demand, deposit withdrawals and stock repurchases.
Interest Expense. Interest expense decreased $3,000, from $466,000 for the three
months ended March 31, 1999, to $463,000 for the three months ended March 31,
2000. The decrease for the three months ended March 31, 2000 was primarily the
result of a decrease of approximately $978,000 in the average balance of
deposits outstanding, offset by a $400,000 increase in average Federal Home Loan
Bank of Cincinnati advances outstanding for the three month period in 2000,
compared to the same period in 1999.
Provision for Loan Losses. The provision for loan losses for three month period
ended March 31, 1999 and 2000 was $9,000, respectively. Management regularly
performs an analysis to quantify the inherent risk of loss in its portfolio. At
March 31, 2000 the ratio of the allowance for loan loss was at a level deemed
adequate by management to provide for losses in the loan portfolio. The ratio of
allowance for loan loss to non-performing loans at March 31, 2000 was 88.66% and
nonperforming loans represented .77% of total consolidated assets.
Non-Interest Income. Non-interest income remains a relatively insignificant
source of income for the Company. The income is produced by fees on new loan
production and service fees on other products and services. Total non-interest
income was $54,000 for the three months ended March 31, 2000, compared to
$45,000 for the three months ended March 31, 1999.
Non-Interest Expense. Non-interest expense increased by $51,000, from
approximately $297,000 for the three month period ended March 31, 1999, to
approximately $348,000 for the three month period in 2000. The increase was
primarily the result of increased compensation expense of $39,000, a combined
$16,000 increase in net occupancy and data processing expenses, offset by a
$7,000 reduction in deposit insurance premiums and other expenses incurred
during the period. The increase in compensation expense for the three months
ended March 31, 2000, was primarily attributable normal compensation increases,
an extra payroll period in the 2000 quarter, compared to 1999, combined with the
addition of extra personnel associated with the new branch office in Mountain
City, Tennessee. The decrease in other non-interest expense was mainly
attributable to management's attempt to control general operating expenses and
those expenses associated with being a public company. The increase in net
occupancy expense was mainly attributable to expenses associated with the Bank's
additional branch office in Mountain City, Tennessee. The increase in data
processing was mainly attributable to expenses associated with increased
transaction volumes and ATM services. The decrease in deposit insurance premiums
was attributable to reduced insurance assessment rates.
Income Taxes. Income tax expense for the three months ended March 31, 2000,
decreased $13,000, to $73,000, compared to the same period in 1999. The decrease
was primarily the result of lower pre-tax income. The effective tax rate for the
three months ended March 31, 2000 and 1999, was approximately 37% and 38%,
respectively.
10
<PAGE>
Liquidity and Capital Resources. The Company's primary sources of funds are new
deposits, proceeds from principal and interest payments on loans, and repayments
on mortgage-backed securities. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition. The Company's primary investing activity is loan originations. The
Company maintains liquidity levels adequate to fund loan commitments, investment
opportunities, deposit withdrawals and other financial commitments. At March 31,
2000 there were no material commitments for capital expenditures. Obligations to
fund outstanding loan commitments at March 31, 2000 were approximately $294,000.
At March 31, 2000 management had no knowledge of any trends, events or
uncertainties that will have or are reasonably likely to have material effects
on the liquidity, capital resources or operations of the Company. Further at
March 31, 2000, management was not aware of any current recommendations by the
regulatory authorities which, if implemented, would have such an effect.
The Bank exceeded all of its capital requirements at March 31, 2000. The Bank
had the following capital ratios at March 31, 2000:
<TABLE>
<CAPTION>
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"(1)
------------------------ ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 2000:
Total Capital
(To risk weighted assets) $ 9,862 30.2% $ 2,609 8.0% $ 3,262 10.0%
Tier I Capital
(To risk weighted assets) $ 9,501 29.1% $ 1,305 4.0% $ 1,957 6.0%
Tier I Capital
(To total assets) $ 9,501 18.3% $ 979 3.0% $ 1,631 5.0%
Tangible Capital
(To total assets) $ 9,501 18.3% $ 489 1.5% $ 1,631 5.0%
</TABLE>
(1) As categorized under the Prompt Corrective Action Provisions.
11
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and its subsidiaries may be a party
to various legal proceedings incident to its or their business. At
March 31, 2000, there were no legal proceedings to which the Company
or any subsidiary was a party, or to which of any of their property
was subject, which were expected by management to result in a
material loss.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) 3(i) Charter of SFB Bancorp, Inc.*
3(ii) Bylaws of SFB Bancorp, Inc. *
4 Specimen Stock Certificate *
10 Employment Agreement with Peter W. Hampton *
10.1 SFB Bancorp, Inc. 1998 Stock Option Plan **
10.2 Security Federal Bank Restricted Stock Plan **
27 Financial Data Schedule ( Electronic filing only)
* Incorporated by reference to the Registration Statement on
Form SB-2, File No. 333-23505.
** Incorporated by reference to the proxy statement for the
annual meeting of stockholders on June 1, 1998 and filed with
the SEC on April 17, 1998.
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SFB Bancorp, Inc.
Date: May 9, 2000 By /s/ Peter W. Hampton
-------------- --------------------------------
Peter W. Hampton
(President and Chief Executive
Officer)
Date: May 9, 2000 By /s/ Bobby Hyatt
-------------- --------------------------------
Bobby Hyatt
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 592
<INT-BEARING-DEPOSITS> 880
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,091
<INVESTMENTS-CARRYING> 988
<INVESTMENTS-MARKET> 923
<LOANS> 46,114
<ALLOWANCE> 361
<TOTAL-ASSETS> 52,904
<DEPOSITS> 40,372
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,125
<LONG-TERM> 0
0
0
<COMMON> 77
<OTHER-SE> 11,330
<TOTAL-LIABILITIES-AND-EQUITY> 52,904
<INTEREST-LOAN> 881
<INTEREST-INVEST> 80
<INTEREST-OTHER> 4
<INTEREST-TOTAL> 965
<INTEREST-DEPOSIT> 456
<INTEREST-EXPENSE> 463
<INTEREST-INCOME-NET> 502
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 348
<INCOME-PRETAX> 199
<INCOME-PRE-EXTRAORDINARY> 199
<EXTRAORDINARY> 199
<CHANGES> 0
<NET-INCOME> 126
<EPS-BASIC> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 3.99
<LOANS-NON> 407
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 352
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 361
<ALLOWANCE-DOMESTIC> 361
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
