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, 2001
[ ] 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
SFB BANCORP, INC.
------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Tennessee 62-1683732
---------------------------------------------- --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
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 11, 2001, there were 582,995 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
---------- --------
1
SFB BANCORP, INC.
AND SUBSIDIARY
Elizabethton, Tennessee
Index
PART I. Page(s)
------- -------
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets-(Unaudited) as of December 31, 2000 and March 31, 2001.......................3
Consolidated Statements of Comprehensive Income - (Unaudited) for the three month period
ended March 31, 2000 and 2001..........................................................................4
Consolidated Statements of Stockholders' Equity - (Unaudited)............................................5
Consolidated Statements of Cash Flows - (Unaudited) for the three months
ended March 31, 2000 and 2001..........................................................................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
2
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
December 31, March 31,
-----------------------
Assets 2000 2001
------ --------- ---------
Cash on hand $ 581 $ 761
Interest earning deposits 1,540 2,948
Investment securities:
Held to maturity (market value of $841
in 2000 and $804 in 2001) 870 841
Available for sale 1,621 701
Loans receivable, net 46,814 47,044
Mortgage-backed securities:
Available for sale 1,659 1,628
Premises and equipment, net 957 942
Federal Home Loan Bank stock, at cost 524 533
Accrued interest receivable 355 282
Other assets 47 81
-------- --------
Total assets $ 54,968 $ 55,761
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 42,252 $ 43,735
Federal Home Loan Bank advances 1,000 -
Advance payments by borrowers for taxes and insurance 222 358
Accrued expenses and other liabilities 128 140
Income taxes:
Current 18 79
Deferred 129 137
-------- --------
Total liabilities 43,749 44,449
-------- --------
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; 588,595 and 582,995 outstanding at
December 31, 2001 and March 31, 2001, respectively) 77 77
Paid-in capital 7,392 7,396
Retained earnings, substantially restricted 6,539 6,646
Treasury stock at cost (178,405 shares at December 31, 2000 and
184,005 at March 31, 2001) (2,245) (2,315)
Accumulated other comprehensive income (57) (46)
Unearned compensation:
Employee stock ownership plan (348) (330)
Restricted stock plan (139) (116)
-------- --------
Total stockholders' equity 11,219 11,312
-------- --------
Total liabilities and stockholders' equity $ 54,968 $ 55,761
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
For Three Months Ended
March 31,
----------------
2000 2001
------ ------
Interest income:
Loans $ 881 $ 954
Mortgage-backed securities 31 26
Investments 49 35
Interest earning deposits 4 26
------ ------
Total interest income 965 1,041
------ ------
Interest expense:
Deposits 456 572
Federal Home Loan Bank Advances 7 2
------ ------
Total interest expense 463 574
------ ------
Net interest income 502 467
Provision for loan losses 9 9
------ ------
Net interest income after provision
for loan losses 493 458
------ ------
Non-interest income:
Loan fees and service charges 51 46
Other 3 4
------ ------
Total non-interest income 54 50
------ ------
Non-interest expenses:
Compensation 179 168
Employee benefits 35 32
Net occupancy expense 32 31
Deposit insurance premiums 2 2
Data processing 32 34
Other 68 69
------ ------
Total non-interest expenses 348 336
------ ------
Income before income taxes 199 172
Income tax expense 73 65
------ ------
Net income $ 126 $ 107
Other comprehensive (loss) income (20) 11
------ ------
Comprehensive income $ 106 $ 118
====== ======
Earnings per share
Basic $ .21 $ .19
Diluted $ .21 $ .19
The accompanying notes are an integral part of these consolidated financial
statements.
4
SFB BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
(in thousands, except share data)
Accumulated
Other Unearned Compensation
Common Paid-In Retained Treasury Comprehensive --------------------
Stock Capital Income Stock Income for ESOP for RSP Total
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1999 77 7,382 6,165 (1,208) (45) (419) (236) 11,716
Net income - - 485 - - - - 485
Other comprehensive income - - - - (12) - - (12)
Cash dividends declared
($.20 share) - - (111) - - - - (111)
Treasury stock purchased
(90,822 shares) - - - (1,037) - - - (1,037)
Compensation earned - 10 - - - 71 97 178
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1999 77 7,392 6,539 (2,245) (57) (348) (139) 11,219
Net income - - 107 - - - - 107
Other comprehensive income - - - - 11 - - 11
Treasury stock purchased
(5,600 shares) - - - (70) - - - (70)
Compensation earned - 4 - - - 18 23 45
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2001 $ 77 $ 7,396 $ 6,646 $ (2,315) $ (46) $ (330) $ (116) $ 11,312
======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
SFB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended
March 31,
------------------
2000 2001
------- -------
Operating activities:
Net income $ 126 $ 107
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 24 23
Provision for loan losses 9 9
Net increase (decrease) in deferred loan fees 2 (4)
Deferred income taxes - -
Accretion of discounts on investment securities, net (5) (8)
Amortization of premiums on mortgage-backed securities - 1
Amortization of unearned compensation 44 45
FHLB stock dividends (8) (9)
(Increase) decrease in other assets 42 (34)
(Increase) in accrued interest receivable (6) 73
Increase (decrease) in accrued expenses and other liabilities 5 12
Increase in current income taxes - 61
------- -------
Net cash provided by operating activities 233 276
------- -------
Investing activities:
Maturities of investment securities held to maturity 34 35
Purchase of investment securities available for sale - (700)
Maturities of investment securities available for sale - 1,625
Principal payments on mortgage-backed securities
available for sale 181 46
Net increase in loans (747) (235)
Purchase of premises and equipment (24) (8)
------- -------
Net cash provided (used) by investing activities (556) 763
------- -------
Financing activities:
Net increase (decrease) in deposits $ (63) $ 1,483
Increase in advance payments by borrowers for
taxes and insurance 155 136
Proceeds from FHLB Advances 800 -
Repayment of FHLB Advances (800) (1,000)
Treasury stock purchased (459) (70)
------- -------
Net cash provided (used) by financing activities (367) 549
------- -------
Increase (decrease) in cash and cash equivalents (690) 1,588
Cash and cash equivalents at beginning of period 2,162 2,121
------- -------
Cash and cash equivalents at end of period $ 1,472 $ 3,709
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 465 $ 563
Income taxes 9 15
======= =======
Noncash transactions:
Unrealized gains (losses) on securities and mortgage-backed
securities available for sale, net of deferred taxes $ (20) $ 11
The accompanying notes are an integral part of these consolidated financial
statements.
6
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, 2001 is not necessarily indicative of the results which may be
expected for the entire year or any other future interim period.
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, 2000 which are
included in the Form 10-KSB by reference (file no. 0-22587).
2. Earnings Per Share
------------------
Basic earnings per common share ("EPS") 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 2001
quarter, but were not included in the computation of diluted EPS because
their effect would be anti-dilutive.
March 31, 2000 March 31, 2001
---------------- ----------------
Income Shares Income Shares
------ ------ ------ ------
Net Income $126 $107
BASIC EPS
Income available to common stockholders $126 611 $107 552
Per share amount $.21 $.19
Effect of Dilutive Securities $.00 $.00
DILUTIVE EPS
Income available to common stockholders $126 611 $107 552
Per share amount $.21 $.19
7
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, 2000 and March 31, 2001, 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,
2000 2001
---- ----
Nonaccrual loans $ 192 $ 333
Repossessed real estate - -
----- -----
Total nonperforming assets $ 192 $ 333
===== =====
Nonperforming loans to net loans .41% .71%
Nonperforming assets to total assets .35% .60%
8
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, 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 refer collectively to the Company and Security Federal Bank (the
"Bank"), unless the context indicates otherwise.
Comparison of Results of Operations for the Three Months Ended March 31, 2000
and 2001
Net Income. Net income decreased $19,000, or 15.1%, for the three months ended
March 31, 2001, to $107,000, compared to $126,000 for the three months ended
March 31, 2000. The decrease was primarily the result of a decrease in the net
interest margin of $35,000, offset by a $12,000 decrease in other non-interest
expenses and a decrease of $8,000 in income tax expense for three month period
in 2001, as compared 2000. Diluted income per share decreased $.02, from $.21
for the three month ended March 31, 2000, to $.19 for the three months ended
March 31, 2001.
Net Interest Income. Net interest income decreased approximately $35,000, or
7.0%, from $502,000 for the three months ended March 31, 2000, to $467,000 for
the three months ended March 31, 2001. The decrease in net interest income
primarily reflects a increase of approximately $3.0 million in average
interest-bearing liabilities, offset by an approximate $2.8 million increase in
average interest-earning assets. The interest rate spread decreased from 2.83%
for three months ending March 31, 2000, to 2.54% for the three months ending
March 31, 2000, while the net interest margin decreased 29 basis points to 3.52%
for the three months ended March 31, 2001.
Interest Income. Total interest income increased $76,000, or 7.9%, from $965,000
for the three months ended March 31, 2000, to approximately $1.0 million for the
three months ended March 31, 2001. The increase in 2001, as compared to 2000,
was attributable to the $2.8 million increase in interest-earning assets,
combined with an 18 basis point increase in the average yield on average
interest-earning assets. Interest on loans increased $73,000, interest on
interest-earning deposits
9
increased $22,000, interest on investments decreased $14,000 and interest on
mortgage-backed securities decreased $5,000.
The increase in interest on loans primarily reflects an increase of
approximately $2.7 million in the average loans outstanding balance for 2001, as
compared to 2000. The average yield on loans increased 17 basis points, from
7.96% in 2000, to 8.13% in 2001. The increase in interest on interest-earning
deposits primarily reflects a $1.7 million increase in the average
interest-earning deposits balance for 2001, as compared to 2000. The increase in
the average interest-earning deposit balance for 2001, as compared to 2000, was
the result $970,000 of net investment maturities. The decrease in investment
interest reflects the maturity of investment securities which were transferred
to interest-earning deposits. Interest on mortgage-backed securities decreased
$5,000 as the portfolio continues to mature and principal payments are received.
The monies generated by investment maturities and the principal payments from
mortgage-backed securities were used to fund loan demand, deposit withdrawals
and stock repurchases.
Interest Expense. Interest expense increased $111,000, from $463,000 for the
three months ended March 31, 2000, to $574,000 for the three months ended March
31, 2001. The increase for the three months ended March 31, 2001 was primarily
the result of a increase of approximately $3.0 million in the average balance of
interest-bearing liabilities, combined with a 71 basis point increase in average
cost of funds. The increase was primarily due to the continued increase in
short-term interest rates during 2000, which forced the Company to reprice its
certificate of deposits at much higher rates. Until the higher priced
certificate of deposits return to a normal rate pattern, the Company's cost of
funds could remain high as compared to prior periods.
Provision for Loan Losses. The provision for loan losses for three month period
ended March 31, 2000 and 2001 was $9,000, respectively. Management regularly
performs an analysis to quantify the inherent risk of loss in its portfolio. At
March 31, 2001 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, 2001 was 106.74%
and nonperforming loans represented .60% of total consolidated assets.
Non-Interest Income. Non-interest income continues to be an additional 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
amounted to $54,000 and $50,000 for 2000 and 2001, respectively.
Non-Interest Expense. Non-interest expense decreased $12,000, from approximately
$348,000 for the three month period ended March 31, 2000, to approximately
$336,000 for the three month period in 2001. The decrease was primarily the
result of decreased compensation expense of $11,000, which resulted from a
reduction in staff.
Income Taxes. Income tax expense for the three months ended March 31, 2001,
decreased $8,000, to $65,000, compared to the same period in 2000. The decrease
was primarily the result of lower pre-tax income. The effective tax rate for the
three months ended March 31, 2000 and 2001, was approximately 37% and 38%,
respectively.
10
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,
2001 there were no material commitments for capital expenditures. Obligations to
fund outstanding loan commitments at March 31, 2001 were approximately $1.3
million.
At March 31, 2001 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, 2001, 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, 2001. The Bank
had the following capital ratios at March 31, 2001:
For Capital Categorized as
Actual Adequacy Purposes "Well Capitalized"(1)
------------------------ ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ----------- ----------- ------------ -----------
As of March 31, 2001:
Total Capital
(To risk weighted assets) $ 10,472 30.2% $ 2,772 8.0% $ 3,465 10.0%
Tier I Capital
(To risk weighted assets) $ 10,116 29.2% $ 1,386 4.0% $ 2,079 6.0%
Tier I Capital
(To total assets) $ 10,116 18.4% $ 1,647 3.0% $ 2,745 5.0%
Tangible Capital
(To total assets) $ 10,116 18.4% $ 823 1.5% $ 2,745 5.0%
(1) As categorized under the Prompt Corrective Action Provisions.
11
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, 2001, 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 * *
* 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 (File No. 0-22587).
(b) Reports on Form 8-K
None.
12
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 11, 2001 By /s/Peter W. Hampton
----------------------------------
Peter W. Hampton
(President and Chief Executive
Officer)
Date: May 11, 2001 By /s/Bobby Hyatt
----------------------------------
Bobby Hyatt
(Vice President and Finance
Officer)
13