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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 June 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 July 28, 2000
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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M&F BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet as of June 30, 2000
and December 31, 1999 3
Consolidated Condensed Statements of Income for the three
months ended June 30, 2000 and June 30, 1999 4
Consolidated Condensed Statements of Income for the six
months ended June 30, 2000 and June 30, 1999 5
Consolidated Condensed Statements of Shareholders' Equity
for the six months ended June 30, 2000 and June 30, 1999 6
Consolidated Condensed Statements of Cash flows for the
six months ended June 30, 2000 and June 30, 1999 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 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
Exhibit 27 16
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
ASSETS
Cash and due from financial institutions $ 6,750 $ 5,333
Interest-earning deposits in financial
institutions 2,329 4,187
Federal funds sold 5,100
Cash and cash equivalents 9,079 14,636
Securities available for sale 31,299 31,065
Securities held to maturity 1,412 1,412
Loans:
Commercial, Financial and Agricultural
Loans 63,218 57,654
Real Estate -Construction Loans 5,400 4,844
Real Estate-Mortgage Loans 36,873 35,087
Installment Loans to Individuals 5,469 7,658
Total Loans 110,960 105,243
Unearned income 301 341
Allowance for Loan Losses 1,499 1,342
Net Loans 109,160 103,560
Bank premises and equipment, net 5,270 5,013
Other assets 2,058 2,074
TOTAL ASSETS $ 158,278 $ 157,744
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits 27,397 28,583
Savings, NOW, and MMDA 60,129 60,210
Time Deposits 42,264 40,736
Total Deposits 129,790 129,529
Other Borrowings 10,000 10,000
Other Liabilities 1,837 1,916
Total Liabilities 141,627 141,445
Shareholders' Equity:
Common Stock 6,000 6,000
Retained Earnings 10,788 10,352
Accumulated Other Comprehensive Loss (137) (53)
Shareholders' Equity 16,651 16,299
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 158,278 $ 157,744
</TABLE>
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CONSOLIDATED CONDENSED STATEMENT OF INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended: June 30, 2000 June 30, 1999
<S> <C> <C>
Interest Income:
Interest on Loans $2,524 $2,134
Securities:
Taxable 355 348
Tax exempt 118 132
Federal Funds Sold 11 51
Other Interest 29 17
Total Interest Income $3,037 $2,682
Interest Expense:
Interest-bearing Demand 29 32
Savings 291 252
Time Deposits 537 477
Interest on Federal Funds & Borrowings 141 116
Total Interest Expense $ 998 $ 877
Net Interest Income 2,039 1,805
Provision for Loan Losses 133 79
Net Interest Income After Provision for
Loan Losses 1,906 1,726
Non-interest Income 378 345
Salaries & Employee Benefits 1,166 949
Other Non-interest Expense 841 805
Income before Taxes 277 317
Income Tax Expense 27 81
Net Income $ 250 $ 236
Earnings per share common equivalent shares:
Basic $ 0.29 $ 0.28
Diluted $ 0.29 $ 0.28
Weighted average common shares outstanding:
Basic
Diluted 854 854
854 854
</TABLE>
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CONSOLIDATED CONDENSED STATEMENT OF INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended: June 30, 2000 June 30, 1999
<S> <C> <C>
Interest Income:
Interest on Loans $4,976 $4,219
Securities:
Taxable 727 686
Tax exempt 244 260
Federal Funds Sold 28 118
Other Interest 66 27
Total Interest Income $6,041 $5,310
Interest Expense:
Interest-bearing Demand 60 64
Savings 594 525
Time Deposits 1,045 962
Interest on Federal Funds & Borrowings 257 242
Total Interest Expense $1,956 $1,793
Net Interest Income 4,085 3,517
Provision for Loan Losses 210 196
Net Interest Income After Provision for
Loan Losses 3,875 3,321
Non-interest Income 733 709
Salaries & Employee Benefits 2,221 1914
Other Non-interest Expense 1,641 1522
Income before Taxes 746 594
Income Tax Expense 174 162
Net Income $ 572 $ 432
Earnings per share common equivalent shares:
Basic $ 0.67 $ 0.51
Diluted $ 0.67 $ 0.51
Weight average common shares outstanding:
Basic 854 854
Diluted 854 854
</TABLE>
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CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
Beginning Balance, January 1 $ 16,299 $16,497
Net Income 572 432
Other Comprehensive Loss (84) (616)
Dividends (136) (174)
Ending Balance, June 30 $ 16,651 $16,139
</TABLE>
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended: June 30, 2000 June 30, 1999
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 572 $ 432
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 210 196
Provision for depreciation 203 70
Income taxes provision 174 273
Gain on sale or disposal of assets 0 (13)
Deferred loan fees 41 13
Interest Receivable 76 32
Prepaid expenses and other assets 84 113
Accrued expenses and other liabilities 81 (203)
Other 20 101
Net Cash from Operating Activities 1,461 1,014
Cash flows used in Investing Activities:
Proceeds from sales and maturities of
securities (AFS) 1,000 6,784
Purchase of securities (AFS) (2,000) (10,045)
Net increase in loans (5,750) (1,823)
Purchase of premises and equipment (392) (2,391)
Proceeds from the sale of assets 158
Net Cash Used in Investing Activities (7,142) (7,317)
Net Cash Provided by (Used In) Investing Activities:
Net decrease in demand and savings deposits (1,114) (3,166)
Net increase (decrease) in certificates of
deposit 1,374 (730)
Cash dividends (136) (174)
Net Cash Provided By (Used In) Financing Activities 124 (4,070)
Net Decrease in Cash and Cash Equivalents (5,541) (10,373)
Cash and Cash Equivalents at the Beginning of the 14,620 20,963
Period
Cash and Cash Equivalents at the End of the Period $ 9,079 $ 10,590
</TABLE>
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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 June 30, 2000 and June 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 shareholders of record
December 14, 1999 payable 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 June 30, 2000 and June 30, 1999 the
Company had the following capital levels.
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<TABLE>
<CAPTION>
Capital
Risk Based Tier 1 Tier 2
<S> <C> <C> <C>
June 30, 2000 16.20% 14.62% 11.83%
December 31, 1999 16.79% 15.14% 10.54%
</TABLE>
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. This Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. Therefore, this statement will
become effective January 1, 2001.
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 shareholders of record March 14, 2000
payable April 15, 2000. The dividend reduced shareholders 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 shareholders of record June 13, 2000 payable
July 14, 2000. The payment of the cash dividend reduced shareholders' equity by
$68,298.
9. Presentation
Certain amounts in 1999 have been reclassified to conform to the 2000
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 unaudited consolidated condensed
financial statements and related notes to the consolidated condensed statements.
It is intended to assist you in understanding the
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financial condition and the results of operations for the three months and six
months ended June 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 less than 1.00 percent to $158,278,000 at June 30, 2000
from $157,744,000 on December 31, 1999. The investment portfolio balance
(including FHLB stock) as of June 30, 2000 was $32,708,000 compared to
$31,802,000 at December 31, 1999. The portfolio decrease was caused by the
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 percent of the portfolio are classified as available-for-sale.
All securities purchased during 2000 were classified in the available-for-sale
category.
The increase of 5.4 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 secured by real estate.
Deposits increased less than 1.00 percent to $129,790,000 at June 30, 2000 from
$129,529,000 at December 31, 1999. Management believes that deposit growth may
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.
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Total shareholders' equity increased 2.16 percent to $16,651,000 on June 30,
2000 from $16,299,000 at December 31, 1999. The marginal change in this account
was due to an increase in net income and partially offset by dividends.
Results of Operations - Comparison three months and six months ended June 30,
2000 with June 30, 1999
Net income increased 32.41 percent to $572,000 on June 30, 2000 compared with
$432,000 for the same period in 1999. The Company increased the loan loss
provision by seven percent from the prior year from $196,000 to $210,000. 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 16.03 percent increase in salaries and benefits from the prior year. This
increase primarily related to 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 increased 5.93 percent from $236,000 for the prior
year to $250,000. 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 from $79,000 to $133,000 for the same period for the prior year. The
incentive compensation also impacted the second 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 June 30, 2000 allowance for loan
losses was 1,499,000 or 1.35 percent of total loans outstanding compared with
$1,342,000 or 1.28 percent of total loans outstanding on December 31, 1999.
Management has considered non-performing assets and total classified assets in
establishing 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, and foreclosed
assets, which have been acquired as a result of foreclosure or deed-in-lieu of
foreclosure.
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<TABLE>
<CAPTION>
06/30/00 12/31/99
(Dollars in Thousand)
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<S> <C> <C>
Non-Accruing Loans $ 565 518
Accruing Loans Delinquent 90 days or more 674 1,300
Foreclosed Assets 76 56
Restructured Loans 3,029 725
Total Non-Performing Assets $ 4,344 $ 2,599
Percentage of total assets 2.76% 1.65%
</TABLE>
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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
The Annual Meeting of Stockholders held on May 3, 2000 was held to vote on the
following:
1. Elect six (6) persons to serve on the Board of Directors of M&F Bancorp,
Inc. until the annual meeting of stockholders in 2001. The following six
directors were elected:
<TABLE>
<CAPTION>
Director Votes in Favor Votes Withheld
-------- -------------- --------------
<S> <C> <C>
J.W. Taylor 580,358 2,684
B.S. Ruffin 580,692 2,719
J.M. Sansom 580,502 2,896
A.L. Spaulding 437,115 98,405
G.G. Fulbright 532,876 2,644
M.K. Sloan 437,321 98,300
</TABLE>
2. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
to increase the number of authorized shares of Common Stock from 1,000,000
to 5,000,000 shares.
527,078 votes in favor 6,108 votes against 2,334 abstentions
3. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
to eliminate the preemptive rights of stockholders to purchase additional
shares upon issuance.
484,940 votes in favor 22,829 votes against 2,796 abstentions
4. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
to eliminate the rights of stockholders to cumulate their votes in the
election of directors.
512,229 votes in favor 20,626 votes against 2,665 abstentions
5. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
that would allow the Board of Directors to consider certain factors in
approving or disapproving any potential merger offer.
496,745 votes in favor 12,446 votes against 1,374 abstentions
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6. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
requiring any potential acquirer to pay an equal price for all shares of
M&F Bancorp, Inc. in the even of an acquisition offer.
505,247 votes in favor 5,269 votes against 49 abstentions
7. Approve any amendment to the Articles of Incorporation of M&F Bancorp, Inc.
requiring that members of the Board of Directors may be removed only for
cause.
486,992 votes in favor 20,975 votes against 2,598 abstentions
8. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
requiring that any transaction not recommended by the Board of Directors be
approved by at least a three-fourths favorable vote of the stockholders.
492,821 votes in favor 16,148 votes against 1,596 abstentions
9. Approve an amendment to the Articles of Incorporation of M&F Bancorp, Inc.
requiring that any amendment, repeal or deletion of the "anti-takeover
amendments be approved by at least a three-fourths favorable vote of the
stockholders.
448,155 votes in favor 11,780 votes against 630 abstentions
10. To ratify the selection of Deloitte & Touche, LLP as the independent
auditor for the M&F Bancorp, Inc. for the fiscal year ending December 31,
2000.
531,803 votes in favor 1,833 votes against 1,884 abstentions
Items 1, 2 and 10 were approved by the required vote. Items 3-9 were not
approved by the required 75% vote.
ITEM 5. Other Information: Not applicable
ITEM 6. Exhibits and Report on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) On June 28, 2000 the Company filed on Form 8-K the announcement
that Julia W. Taylor would retire on or about September 30,
2000 as President/CEO of Mechanics & Farmers Bank, the single
bank subsidiary of M&F Bancorp, Inc. Lee Johnson, Jr., Executive
Vice President, Chief Financial Officer and Financial Group
Executive is expected to be appointed to serve as
President/Chief Operating Officer of the Bank.
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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: August 10, 2000
By: /s/ J.W. Taylor
---------------------------------------------
J.W. Taylor
Chairman, President/CEO
Date: August 10, 2000
By: /s/ Lee Johnson, Jr.
---------------------------------------------
Lee Johnson, Jr.
Vice President
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