FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
(Dollars in thousands)
|
|
2013
|
|
2012
|
|
|
(Unaudited)
|
|
**
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,326
|
|
|
$
|
42,586
|
|
Investment securities available for sale, at fair value
|
|
|
56,133
|
|
|
|
60,811
|
|
Other invested assets
|
|
|
389
|
|
|
|
488
|
|
Loans, net of unearned income and deferred fees
|
|
|
173,837
|
|
|
|
175,222
|
|
Allowances for loan losses
|
|
|
(3,234
|
)
|
|
|
(3,499
|
)
|
Loans, net
|
|
|
170,603
|
|
|
|
171,723
|
|
Interest receivable
|
|
|
847
|
|
|
|
858
|
|
Bank premises and equipment, net
|
|
|
4,524
|
|
|
|
4,683
|
|
Cash surrender value of bank-owned life insurance
|
|
|
6,086
|
|
|
|
5,978
|
|
OREO
|
|
|
2,895
|
|
|
|
3,055
|
|
Deferred tax assets and taxes receivable, net
|
|
|
4,551
|
|
|
|
4,387
|
|
Other assets
|
|
|
6,176
|
|
|
|
1,530
|
|
TOTAL ASSETS
|
|
$
|
282,530
|
|
|
$
|
296,099
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
193,040
|
|
|
$
|
205,921
|
|
Noninterest-bearing deposits
|
|
|
47,421
|
|
|
|
44,958
|
|
Total deposits
|
|
|
240,461
|
|
|
|
250,879
|
|
Other borrowings
|
|
|
887
|
|
|
|
2,937
|
|
Other liabilities
|
|
|
5,451
|
|
|
|
6,004
|
|
Total liabilities
|
|
|
246,799
|
|
|
|
259,820
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Series B Preferred Stock- $1,000 liquidation value per share, 11,735 shares issued and outstanding as of June 30, 2013, and December 31, 2012
|
|
|
11,726
|
|
|
|
11,725
|
|
Common stock, no par value 10,000,000 shares authorized as of June 30, 2013 and December 31, 2012; 2,031,337 shares issued and outstanding as of June 30, 2013 and December 31, 2012
|
|
|
8,732
|
|
|
|
8,732
|
|
Retained earnings
|
|
|
17,115
|
|
|
|
17,230
|
|
Accumulated other comprehensive loss
|
|
|
(1,842
|
)
|
|
|
(1,408
|
)
|
Total stockholders' equity
|
|
|
35,731
|
|
|
|
36,279
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
282,530
|
|
|
$
|
296,099
|
|
See notes to consolidated financial statements.
3
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
|
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Dollars in thousands except for share and per share data)
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
2,478
|
|
|
$
|
2,600
|
|
|
$
|
4,911
|
|
|
$
|
5,193
|
|
Investment securities, including dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
189
|
|
|
|
198
|
|
|
|
368
|
|
|
|
407
|
|
Tax-exempt
|
|
|
9
|
|
|
|
29
|
|
|
|
18
|
|
|
|
69
|
|
Other
|
|
|
11
|
|
|
|
34
|
|
|
|
36
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
2,687
|
|
|
|
2,861
|
|
|
|
5,333
|
|
|
|
5,742
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
174
|
|
|
|
216
|
|
|
|
363
|
|
|
|
468
|
|
Borrowings
|
|
|
2
|
|
|
|
16
|
|
|
|
3
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
176
|
|
|
|
232
|
|
|
|
366
|
|
|
|
507
|
|
Net interest income
|
|
|
2,511
|
|
|
|
2,629
|
|
|
|
4,967
|
|
|
|
5,235
|
|
Less provision for loan losses
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
2,511
|
|
|
|
2,585
|
|
|
|
4,967
|
|
|
|
5,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
322
|
|
|
|
331
|
|
|
|
618
|
|
|
|
661
|
|
Rental income
|
|
|
84
|
|
|
|
92
|
|
|
|
178
|
|
|
|
181
|
|
Cash surrender value of life insurance
|
|
|
57
|
|
|
|
50
|
|
|
|
108
|
|
|
|
100
|
|
Realized gain on sale of securities
|
|
|
—
|
|
|
|
134
|
|
|
|
—
|
|
|
|
189
|
|
Realized gain (loss) on sale of OREO
|
|
|
26
|
|
|
|
(27
|
)
|
|
|
28
|
|
|
|
(26
|
)
|
Gains at foreclosure
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
Other income
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
2
|
|
Total noninterest income
|
|
|
495
|
|
|
|
581
|
|
|
|
940
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,433
|
|
|
|
1,408
|
|
|
|
2,900
|
|
|
|
2,896
|
|
Occupancy and equipment
|
|
|
370
|
|
|
|
368
|
|
|
|
742
|
|
|
|
724
|
|
Directors fees
|
|
|
74
|
|
|
|
81
|
|
|
|
157
|
|
|
|
151
|
|
Marketing
|
|
|
46
|
|
|
|
53
|
|
|
|
88
|
|
|
|
89
|
|
Professional fees
|
|
|
211
|
|
|
|
242
|
|
|
|
492
|
|
|
|
459
|
|
Information technology
|
|
|
207
|
|
|
|
240
|
|
|
|
421
|
|
|
|
464
|
|
FDIC deposit insurance
|
|
|
126
|
|
|
|
128
|
|
|
|
228
|
|
|
|
264
|
|
OREO expense, net
|
|
|
218
|
|
|
|
48
|
|
|
|
253
|
|
|
|
149
|
|
Delivery expenses
|
|
|
45
|
|
|
|
49
|
|
|
|
84
|
|
|
|
101
|
|
Other
|
|
|
286
|
|
|
|
268
|
|
|
|
538
|
|
|
|
567
|
|
Total noninterest expense
|
|
|
3,016
|
|
|
|
2,885
|
|
|
|
5,903
|
|
|
|
5,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10
|
)
|
|
|
281
|
|
|
|
4
|
|
|
|
434
|
|
Income tax expense (benefit)
|
|
|
(3
|
)
|
|
|
98
|
|
|
|
1
|
|
|
|
108
|
|
Net income (loss)
|
|
|
(7
|
)
|
|
|
183
|
|
|
|
3
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends and accretion
|
|
|
59
|
|
|
|
59
|
|
|
|
118
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
(66
|
)
|
|
$
|
124
|
|
|
$
|
(115
|
)
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share of common stock:
|
|
$
|
(0.03
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.10
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
2,031,337
|
|
|
|
2,031,337
|
|
|
|
2,031,337
|
|
|
|
2,031,337
|
|
See notes to consolidated financial statements.
4
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
(Dollars in thousands)
|
|
June 30,
|
|
|
June 30,
|
|
(Unaudited)
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(7
|
)
|
|
$
|
183
|
|
|
$
|
3
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities available for sale
|
|
|
(596
|
)
|
|
|
65
|
|
|
|
(672
|
)
|
|
|
115
|
|
Tax Effect
|
|
|
230
|
|
|
|
(17
|
)
|
|
|
238
|
|
|
|
(19
|
)
|
Unrealized holding gains (losses) on securities available for sale, net of tax
|
|
|
(366
|
)
|
|
|
48
|
|
|
|
(434
|
)
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for realized gains
|
|
|
—
|
|
|
|
(134
|
)
|
|
|
—
|
|
|
|
(189
|
)
|
Tax Effect
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
|
|
25
|
|
Reclassification adjustments for realized gains, net of tax
|
|
|
—
|
|
|
|
(109
|
)
|
|
|
—
|
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
90
|
|
|
|
106
|
|
|
|
180
|
|
|
|
213
|
|
Net pension gain (loss)
|
|
|
(90
|
)
|
|
|
(106
|
)
|
|
|
(180
|
)
|
|
|
(213
|
)
|
Tax effect
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Defined benefit plan adjustment, net of tas
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of taxes
|
|
|
(366
|
)
|
|
|
(61
|
)
|
|
|
(434
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(373
|
)
|
|
$
|
122
|
|
|
$
|
(431
|
)
|
|
$
|
258
|
|
See notes to consolidated financial statements.
5
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 and 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
(Dollars in thousands except for share data)
|
|
of
|
|
|
Common
|
|
|
Preferred
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
(Unaudited)
|
|
Shares
|
|
|
Stock
|
|
|
Stock
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
Balances as of December 31, 2011
|
|
|
2,031,337
|
|
|
$
|
8,732
|
|
|
$
|
11,724
|
|
|
$
|
17,380
|
|
|
$
|
(1,439
|
)
|
|
$
|
36,397
|
|
Accretion of Series B preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
326
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
(68
|
)
|
Dividends declared on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2012
|
|
|
2,031,337
|
|
|
$
|
8,732
|
|
|
$
|
11,725
|
|
|
$
|
17,587
|
|
|
$
|
(1,507
|
)
|
|
$
|
36,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2012
|
|
|
2,031,337
|
|
|
$
|
8,732
|
|
|
$
|
11,725
|
|
|
$
|
17,230
|
|
|
$
|
(1,408
|
)
|
|
$
|
36,279
|
|
Accretion of Series B preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
|
|
(434
|
)
|
Dividends declared on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2013
|
|
|
2,031,337
|
|
|
$
|
8,732
|
|
|
$
|
11,726
|
|
|
$
|
17,115
|
|
|
$
|
(1,842
|
)
|
|
$
|
35,731
|
|
See notes to consolidated financial statements.
6
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3
|
|
|
$
|
326
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
—
|
|
|
|
44
|
|
Depreciation and amortization
|
|
|
176
|
|
|
|
176
|
|
Amortization of discounts/premiums on investments, net
|
|
|
577
|
|
|
|
86
|
|
Loan purchase accounting amortization, net
|
|
|
43
|
|
|
|
87
|
|
Deferred loan origination fees and costs, net
|
|
|
94
|
|
|
|
88
|
|
Gains on sale of available for sale securities
|
|
|
—
|
|
|
|
(189
|
)
|
Increase in cash surrender value of bank owned life insurance
|
|
|
(108
|
)
|
|
|
(100
|
)
|
Gain on foreclosure
|
|
|
(5
|
)
|
|
|
—
|
|
Net gain sale of OREO
|
|
|
(28
|
)
|
|
|
26
|
|
Writedown of OREO
|
|
|
165
|
|
|
|
—
|
|
Net changes in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable and other assets
|
|
|
(1,550
|
)
|
|
|
181
|
|
Other liabilities
|
|
|
(515
|
)
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,148
|
)
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Activity in available-for-sale securities:
|
|
|
|
|
|
|
|
|
Sales
|
|
|
—
|
|
|
|
4,755
|
|
Maturities and calls
|
|
|
—
|
|
|
|
670
|
|
Principal collections
|
|
|
9,093
|
|
|
|
3,839
|
|
Purchases
|
|
|
(5,663
|
)
|
|
|
(26,896
|
)
|
FHLB stock redemptions
|
|
|
99
|
|
|
|
119
|
|
Net (increase) decrease in loans
|
|
|
(4,093
|
)
|
|
|
6,717
|
|
Purchases of bank premises and equipment
|
|
|
(56
|
)
|
|
|
(100
|
)
|
Payment of BOLI premium
|
|
|
—
|
|
|
|
(6
|
)
|
Proceeds from sale of real estate owned
|
|
|
44
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(576
|
)
|
|
|
(10,731
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net decrease in deposits
|
|
|
(10,379
|
)
|
|
|
(15,679
|
)
|
Proceeds from other borrowings
|
|
|
62
|
|
|
|
788
|
|
Repayments of other borrowings
|
|
|
(102
|
)
|
|
|
(690
|
)
|
Cash dividends
|
|
|
(117
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(10,536
|
)
|
|
|
(15,699
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(12,260
|
)
|
|
|
(26,094
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of the beginning of the period
|
|
|
42,586
|
|
|
|
61,296
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of the end of the period
|
|
$
|
30,326
|
|
|
$
|
35,202
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
|
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
384
|
|
|
$
|
622
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Noncash Transactions:
|
|
|
|
|
|
|
|
|
Loans transferred to OREO
|
|
|
54
|
|
|
|
337
|
|
Net unrealized loss on investment securities available for sale, net of deferred income tax
|
|
$
|
(434
|
)
|
|
$
|
(74
|
)
|
Transfer of participation loans sold from other borrowings to loans
|
|
$
|
(2,010
|
)
|
|
$
|
—
|
|
Loan transfer to other assets
|
|
$
|
3,012
|
|
|
$
|
—
|
|
Transfer between fixed assets and non-interest bearing deposit account
|
|
$
|
(39
|
)
|
|
|
—
|
|
Accrection of Series B preferred stock
|
|
$
|
1
|
|
|
$
|
1
|
|
See notes to consolidated financial statements.
8
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
|
|
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations
M&F Bancorp, Inc. (the “Company”)
is a bank holding company, and the parent company of Mechanics and Farmers Bank (the “Bank”), a state chartered commercial
bank incorporated in North Carolina (“NC”) in 1907, which began operations in 1908. The Bank has seven branches in
NC: two in Durham, two in Raleigh, and one each in Charlotte, Greensboro and Winston-Salem. The Company, headquartered in Durham,
operates as a single business segment and offers a wide variety of consumer and commercial banking services and products almost
exclusively in NC.
Basis of Presentation
The Consolidated Financial Statements include
the accounts and transactions of the Company and the Bank, the wholly owned subsidiary. All significant inter-company accounts
and transactions have been eliminated in consolidation.
The Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim
financial statements and in accordance with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. The accompanying Consolidated
Financial Statements and Notes are unaudited except for the balance sheet and footnote information as of December 31, 2012, which
were derived from the Company’s audited consolidated Annual Report on Form 10-K as of and for the year ended December 31,
2012.
The Consolidated Financial Statements included
herein do not include all the information and notes required by GAAP and 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-K as of and for the year ended
December 31, 2012.
In the opinion of management, the interim financial
statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial
position, results of operations and cash flows in the Consolidated Financial Statements. The unaudited operating results for the
periods presented may not be indicative of annual results.
Segment Reporting
Based on an analysis performed by the Company,
management has determined that the Company has only one operating segment, which is commercial banking. The chief operating decision-maker
uses consolidated results to make operating and strategic decisions and therefore, the Company is not required to disclose additional
segment information.
Use of Estimates
The financial statements are prepared in accordance
with GAAP, which require management to make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Ne
w
Accountin
g
Pronouncement
s
The Financial Accounting Standards Board (“FASB”)
amended the Comprehensive Income topic of the Accounting Standards Codification (“ASC”) in February 2013. The amendments
address reporting of amounts reclassified out of accumulated other comprehensive income. Specifically, the amendments do not change
the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments
do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.
In addition, in certain circumstances an entity is required to present, either on the face of the statement where net income is
presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line
items of net income. The amendments were effective for the Company on a prospective basis for reporting periods beginning after
December 15, 2012. The adoption of these amendments did not have a material effect on the consolidated financial statements of
the Company, although new disclosures are included in these consolidated financial statements.
On April 22, 2013, the FASB issued guidance
addressing application of the liquidation basis of accounting. The guidance is intended to clarify when an entity should apply
the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets
and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments will
be effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013,
and interim reporting periods therein and those requirements should be applied prospectively from the day that liquidation becomes
imminent. Early adoption is permitted. The Company does not expect these amendments to have any effect on its financial statements.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Other accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial
position, results of operations or cash flows.
The main objectives of
our investment strategy are to provide a source of liquidity while managing our interest rate risk, and to generate an adequate
level of interest income without taking undue risks. Our investment policy permits investments in various types of securities,
certificates of deposits and federal funds sold in compliance with various restrictions in the policy. As of June 30, 2013 and
December 31, 2012, all investment securities were classified as available-for-sale.
Our available-for-sale
securities totaled $56.1 million and $60.8 million as of June 30, 2013 and December 31, 2012, respectively. Securities with a fair
value of $1.1 million were pledged to the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) and an additional
$3.7 million and $14.7 million in investments were pledged to public housing authorities in North Carolina and the North Carolina
Department of State Treasurer, respectively, as collateral for public deposits at June 30, 2013. Securities with a fair value of
$1.1 million were pledged to the Federal Reserve Bank and an additional $4.9 million and $2.6 million in investments were pledged
to public housing authorities in North Carolina and the North Carolina Department of State Treasurer, respectively, as collateral
for public deposits at December 31, 2012. Our investment portfolio consists of the following securities:
|
·
|
U.S. government agency securities ,
|
|
·
|
U.S. government sponsored residential mortgage backed securities (“MBS”), and
|
|
·
|
Municipal securities (“Municipals”).
|
The amortized cost,
gross unrealized gains and losses and fair values of investment securities at June 30, 2013 and December 31, 2012 were:
(Dollars in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies
|
|
$
|
2,000
|
|
|
$
|
—
|
|
|
$
|
(108
|
)
|
|
$
|
1,892
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
52,654
|
|
|
|
303
|
|
|
|
(206
|
)
|
|
|
52,751
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
1,491
|
|
|
|
34
|
|
|
|
(35
|
)
|
|
|
1,490
|
|
Total at June 30, 2013
|
|
$
|
56,145
|
|
|
$
|
337
|
|
|
$
|
(349
|
)
|
|
$
|
56,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies
|
|
$
|
1,322
|
|
|
$
|
5
|
|
|
|
—
|
|
|
$
|
1,327
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
57,333
|
|
|
|
627
|
|
|
|
(29
|
)
|
|
|
57,931
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
1,497
|
|
|
|
56
|
|
|
|
—
|
|
|
|
1,553
|
|
Total at December 31, 2012
|
|
$
|
60,152
|
|
|
$
|
688
|
|
|
$
|
(29
|
)
|
|
$
|
60,811
|
|
Sales and calls of securities
available-for-sale for the three months ended June 30, resulted in aggregate gross realized gains of $134 thousand during 2012
compared to none during the comparable period in 2013. During the same three-month periods, the Company realized no gross losses.
Sales and calls of securities available-for-sale for the six months ended June 30, resulted in aggregate gross realized gains of
$189 thousand during 2012 compared to none during the comparable period in 2013. During the same six-month periods, the Company
realized no gross losses.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The amortized cost and
estimated market values of securities as of June 30, 2013 and December 31, 2012 by contractual maturities are shown below. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. MBS, which are not due at a single maturity date, are grouped based upon the final payment date.
MBS may mature earlier because of principal prepayments.
(Dollars in thousands)
|
|
As of June 30, 2013
|
(Unaudited)
|
|
Fair Value
|
|
Amortized Cost
|
US government agencies
|
|
|
|
|
|
|
|
|
Due after five years through ten years
|
|
$
|
1,892
|
|
|
$
|
2,000
|
|
Total US government agencies
|
|
$
|
1,892
|
|
|
$
|
2,000
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
15,869
|
|
|
$
|
15,824
|
|
Due after one year through five years
|
|
|
26,178
|
|
|
|
26,119
|
|
Due after five years through ten years
|
|
|
7,218
|
|
|
|
7,222
|
|
Due after ten years
|
|
|
3,486
|
|
|
|
3,489
|
|
Total government sponsored MBS
|
|
$
|
52,751
|
|
|
$
|
52,654
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
480
|
|
|
$
|
466
|
|
Due after one year through five years
|
|
|
443
|
|
|
|
424
|
|
Due after five years through ten years
|
|
|
567
|
|
|
|
601
|
|
Total North Carolina municipal bonds
|
|
$
|
1,490
|
|
|
$
|
1,491
|
|
(Dollars in thousands)
|
|
As of December 31, 2012
|
(Unaudited)
|
|
Fair Value
|
|
Amortized Cost
|
US government agencies
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
1,005
|
|
|
$
|
1,000
|
|
Due after one year through five years
|
|
|
322
|
|
|
|
322
|
|
Total US government agencies
|
|
$
|
1,327
|
|
|
$
|
1,322
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
Due after one year through five years
|
|
$
|
135
|
|
|
$
|
126
|
|
Due after five years through ten years
|
|
|
171
|
|
|
|
161
|
|
Due after ten years
|
|
|
57,625
|
|
|
|
57,046
|
|
Total government sponsored MBS
|
|
$
|
57,931
|
|
|
$
|
57,333
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
488
|
|
|
$
|
466
|
|
Due after one year through five years
|
|
|
458
|
|
|
|
425
|
|
Due after five years through ten years
|
|
|
607
|
|
|
|
606
|
|
Total North Carolina municipal bonds
|
|
$
|
1,553
|
|
|
$
|
1,497
|
|
All securities owned as of June 30, 2013 and
December 31, 2012 are investment grade. The unrealized losses were attributable to changes in market interest rates. The Company
evaluates securities for other than temporary impairment on a quarterly basis. Consideration is given to the financial condition
and near-term prospects of the issuer, the length of time and extent to which the fair value has been less than cost, and our intent
and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair
value. Based on these evaluations, the Company did not deem any securities to be impaired during 2012 or the first six months of
2013.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
As of June 30, 2013 and December
31, 2012, the Company held 29 and 11 investment positions, respectively, with unrealized losses of $349 thousand and $29 thousand,
respectively. These investments were in U.S. government agencies, government sponsored MBS and municipal bonds. In analyzing an
issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management had determined that
all declines in market values of available-for-sale securities are not other-than-temporary, and will not likely be required to
sell.
As of June 30, 2013 and December
31, 2012, the fair value of securities with gross unrealized losses by length of time that the individual securities have been
in an unrealized loss position is as follows:
(Dollars in thousands)
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
(Unaudited)
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies
|
|
$
|
1,892
|
|
|
$
|
(108
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,892
|
|
|
$
|
(108
|
)
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
21,255
|
|
|
|
(206
|
)
|
|
|
21
|
|
|
|
—
|
|
|
|
21,276
|
|
|
|
(206
|
)
|
Municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
567
|
|
|
|
(35
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
567
|
|
|
|
(35
|
)
|
Total at June 30, 2013
|
|
$
|
23,714
|
|
|
$
|
(349
|
)
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
23,735
|
|
|
$
|
(349
|
)
|
(Dollars in thousands)
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
8,027
|
|
|
$
|
(29
|
)
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
8,048
|
|
|
$
|
(29
|
)
|
Total at December 31, 2012
|
|
$
|
8,027
|
|
|
$
|
(29
|
)
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
8,048
|
|
|
$
|
(29
|
)
|
The Company has
stock in the Federal Home Loan Bank of Atlanta ("FHLB"), classified on the Consolidated Balance Sheets as Other invested
assets, which is evaluated on a quarterly basis for other-than-temporary impairment. The FHLB has been issuing dividends and repurchasing
excess stock on a pro-rata basis for several quarters. The Company believes that the investment in FHLB is not impaired.
To be a member of
the FHLB System, the Bank is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.15% of its
total assets as of December 31 of the prior year (up to a maximum of $20.0 million and $26.0 at June 30, 2013 and December 31,
2012, respectively), plus 4.5% of its outstanding FHLB advances. The carrying value of FHLB stock, which is included in Other invested
assets, as of June 30, 2013 and December 31, 2012 was $389 thousand and $488 thousand, respectively. No ready market exists for
the FHLB stock, and it has no quoted market value; however, management believes that the cost approximates the market value as
of June 30, 2013 and December 31, 2012, as redemption has historically been at cost. The FHLB, of which the Bank is a member, has
been impacted by the Recession that began in 2008. Management has reviewed its investment in FHLB stock for impairment and does
not believe it is impaired as of June 30, 2013 or December 31, 2012.
|
4.
|
RECONCILIATIONS OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ("EPS")
|
Basic EPS is computed
by dividing net income (loss) available to common stockholders by the weighted average number shares of common stock outstanding
for the period. Basic EPS excludes the dilutive effect that could occur if any options or warrants to purchase shares of common
stock were exercised. Diluted EPS is computed by dividing net income (loss) available to common stockholders by the sum of the
weighted average number of shares of common stock outstanding for the period plus the number of additional shares of common stock
that would have been outstanding if the potentially dilutive common shares had been issued. There are no stock options or warrants
outstanding.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
5.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
Comprehensive income includes net
income and all other changes to the Company's equity, with the exception of transactions with stockholders. The Company's other
comprehensive income and accumulated other comprehensive income are comprised of unrealized gains and losses on certain investments
in debt securities and defined benefit plan adjustments.
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
|
|
For the Three and Six Months Ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Gains and
Losses on
Available-for-
Sale
Securities
|
|
|
Defined
Benefit
Pension Items
|
|
|
Total
|
|
Balance as of March 31, 2013
|
|
$
|
358
|
|
|
$
|
(1,834
|
)
|
|
$
|
(1,476
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(366
|
)
|
|
|
—
|
|
|
|
(366
|
)
|
Amounts reclassified from acumulated other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net current-period other comprehensive loss
|
|
|
(366
|
)
|
|
|
—
|
|
|
|
(366
|
)
|
Balance as of June 30, 2013
|
|
$
|
(8
|
)
|
|
$
|
(1,834
|
)
|
|
$
|
(1,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
$
|
426
|
|
|
$
|
(1,834
|
)
|
|
$
|
(1,408
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(434
|
)
|
|
|
—
|
|
|
|
(434
|
)
|
Amounts reclassified from acumulated other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net current-period other comprehensive loss
|
|
|
(434
|
)
|
|
|
—
|
|
|
|
(434
|
)
|
Balance as of June 30, 2013
|
|
$
|
(8
|
)
|
|
$
|
(1,834
|
)
|
|
$
|
(1,842
|
)
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
6.
|
LOANS AND ALLOWANCE FOR LOAN LOSSES
|
The activity
in the Allowance for Loan Losses (“ALLL”) for the three and six months of ended June 30, 2013 and 2012 and related
asset balances at June 30, 2013 and December 31, 2012 is summarized as follows:
|
|
For the Three Months Ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
Faith-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-
|
|
|
Real
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
|
Real Estate
|
|
|
Profit
|
|
|
Estate
|
|
|
Consumer
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of quarter balance
|
|
$
|
76
|
|
|
$
|
1,192
|
|
|
$
|
1,278
|
|
|
$
|
851
|
|
|
$
|
27
|
|
|
$
|
48
|
|
|
$
|
29
|
|
|
$
|
3,501
|
|
Charge-offs
|
|
|
—
|
|
|
|
(237
|
)
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(275
|
)
|
Recoveries
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
—
|
|
|
|
8
|
|
Provision for loan losses
|
|
|
165
|
|
|
|
(151
|
)
|
|
|
—
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(16
|
)
|
|
|
—
|
|
Balance at June 30, 2013
|
|
$
|
241
|
|
|
$
|
806
|
|
|
$
|
1,278
|
|
|
$
|
831
|
|
|
$
|
22
|
|
|
$
|
43
|
|
|
$
|
13
|
|
|
$
|
3,234
|
|
|
|
For the Three Months Ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
Faith-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-
|
|
|
Real
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
|
Real Estate
|
|
|
Profit
|
|
|
Estate
|
|
|
Consumer
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of quarter balance
|
|
$
|
64
|
|
|
$
|
1,052
|
|
|
$
|
1,107
|
|
|
$
|
1,309
|
|
|
$
|
46
|
|
|
$
|
52
|
|
|
$
|
67
|
|
|
$
|
3,697
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(137
|
)
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(144
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
Provision for loan losses
|
|
|
(3
|
)
|
|
|
135
|
|
|
|
(16
|
)
|
|
|
(9
|
)
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
(67
|
)
|
|
|
44
|
|
Balance at June 30, 2012
|
|
$
|
61
|
|
|
$
|
1,187
|
|
|
$
|
1,091
|
|
|
$
|
1,243
|
|
|
$
|
46
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
3,679
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
|
For the Six Months Ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
Faith-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-
|
|
|
Real
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
|
Real Estate
|
|
|
Profit
|
|
|
Estate
|
|
|
Consumer
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year balance
|
|
$
|
90
|
|
|
$
|
881
|
|
|
$
|
1,246
|
|
|
$
|
937
|
|
|
$
|
30
|
|
|
$
|
54
|
|
|
$
|
261
|
|
|
$
|
3,499
|
|
Charge-offs
|
|
|
—
|
|
|
|
(237
|
)
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
(2
|
)
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(282
|
)
|
Recoveries
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
8
|
|
|
|
1
|
|
|
|
6
|
|
|
|
—
|
|
|
|
17
|
|
Provision for loan losses
|
|
|
151
|
|
|
|
160
|
|
|
|
32
|
|
|
|
(81
|
)
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
(248
|
)
|
|
|
—
|
|
Balance at June 30, 2013
|
|
$
|
241
|
|
|
$
|
806
|
|
|
$
|
1,278
|
|
|
$
|
831
|
|
|
$
|
22
|
|
|
$
|
43
|
|
|
$
|
13
|
|
|
$
|
3,234
|
|
|
|
For the Six Months Ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
Faith-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-
|
|
|
Real
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
|
Real Estate
|
|
|
Profit
|
|
|
Estate
|
|
|
Consumer
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year balance
|
|
$
|
348
|
|
|
$
|
971
|
|
|
$
|
1,128
|
|
|
$
|
1,299
|
|
|
$
|
62
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
3,850
|
|
Charge-offs
|
|
|
—
|
|
|
|
(57
|
)
|
|
|
—
|
|
|
|
(236
|
)
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(310
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
88
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95
|
|
Provision for loan losses
|
|
|
(287
|
)
|
|
|
273
|
|
|
|
(38
|
)
|
|
|
92
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
—
|
|
|
|
44
|
|
Balance at June 30, 2012
|
|
$
|
61
|
|
|
$
|
1,187
|
|
|
$
|
1,091
|
|
|
$
|
1,243
|
|
|
$
|
46
|
|
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
3,679
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
Faith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-
|
|
|
Residential
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
|
Real Estate
|
|
|
Profit
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending ALLL balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
321
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
436
|
|
Collectively evaluated for impairment
|
|
|
241
|
|
|
|
806
|
|
|
|
1,163
|
|
|
|
510
|
|
|
|
22
|
|
|
|
43
|
|
|
|
13
|
|
|
|
2,798
|
|
Total ending ALLL balance
|
|
$
|
241
|
|
|
$
|
806
|
|
|
$
|
1,278
|
|
|
$
|
831
|
|
|
$
|
22
|
|
|
$
|
43
|
|
|
$
|
13
|
|
|
$
|
3,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
5,775
|
|
|
$
|
15,918
|
|
|
$
|
4,247
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,953
|
|
Loans collectively evaluated for imapirment
|
|
|
8,191
|
|
|
|
39,127
|
|
|
|
69,602
|
|
|
|
27,394
|
|
|
|
1,146
|
|
|
|
2,424
|
|
|
|
—
|
|
|
|
147,884
|
|
Total ending loans balance
|
|
$
|
8,191
|
|
|
$
|
44,902
|
|
|
$
|
85,520
|
|
|
$
|
31,641
|
|
|
$
|
1,159
|
|
|
$
|
2,424
|
|
|
$
|
—
|
|
|
$
|
173,837
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
Faith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Non-
|
|
|
Residential
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
|
Real Estate
|
|
|
Profit
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending ALLL balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
44
|
|
|
$
|
349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
480
|
|
Collectively evaluated for impairment
|
|
|
90
|
|
|
|
794
|
|
|
|
1,202
|
|
|
|
588
|
|
|
|
30
|
|
|
|
54
|
|
|
|
261
|
|
|
|
3,019
|
|
Total ending ALLL balance
|
|
$
|
90
|
|
|
$
|
881
|
|
|
$
|
1,246
|
|
|
$
|
937
|
|
|
$
|
30
|
|
|
$
|
54
|
|
|
$
|
261
|
|
|
$
|
3,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
4,837
|
|
|
$
|
14,907
|
|
|
$
|
2,443
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,203
|
|
Loans collectively evaluated for impairment
|
|
|
3,282
|
|
|
|
43,332
|
|
|
|
70,990
|
|
|
|
31,331
|
|
|
|
1,330
|
|
|
|
2,754
|
|
|
|
—
|
|
|
|
153,019
|
|
Total ending loans balance
|
|
$
|
3,282
|
|
|
$
|
48,169
|
|
|
$
|
85,897
|
|
|
$
|
33,774
|
|
|
$
|
1,346
|
|
|
$
|
2,754
|
|
|
$
|
—
|
|
|
$
|
175,222
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The Bank
experienced $267 thousand and $62 thousand in net charge-offs for the three months ended June 30, 2013 and 2012, respectively.
Annualized net charge-offs/(recoveries) as a percent of average loan balances outstanding totaled .61% and .14% during the three
month periods ended June 30, 2013 and 2012, respectively. The Bank experienced $265 thousand in net charge-offs for the six months
ended June 30, 2013 compared to $215 thousand in net loan charge-offs for the six months ended June 30, 2012. Annualized net charge-offs/(recoveries)
as a percent of average loan balances outstanding totaled .30% and .24% during the six month periods ended June 30, 2013 and 2012,
respectively, and 0.27% for the year ended December 31, 2012.
Loans
—
Loans are stated at the amount of unpaid principal, net of deferred loan origination fees and costs. Nonrefundable loan fees, net
of direct costs, associated with the origination or acquisition of loans are deferred and recognized as an adjustment of the loan
yield over the life of the respective loan using the effective interest method. Loans (net) are reduced by the ALLL. Interest on
loans is accrued on the daily balances of unpaid principal outstanding. Interest income is accrued and credited to income only
if deemed collectible. Other loan fees and charges, representing service charges for the prepayment of loans, for delinquent payments,
or for miscellaneous loan services, are recorded in income when collected.
A portfolio segment
is defined as the level at which an entity develops and documents a systematic methodology to determine its ALLL. The composition
of the loan portfolio, net of deferred fees and costs, by loan classification as of June 30, 2013 and December 31, 2012 was as
follows:
(Dollars in thousands)
|
|
June 30, 2013
|
|
|
December 31, 2012
|
|
Commercial
|
|
$
|
8,191
|
|
|
$
|
3,282
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,208
|
|
|
|
3,621
|
|
Owner occupied
|
|
|
18,736
|
|
|
|
18,377
|
|
Other
|
|
|
22,958
|
|
|
|
26,171
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
2,344
|
|
Owner Occupied
|
|
|
79,001
|
|
|
|
76,418
|
|
Other
|
|
|
6,519
|
|
|
|
7,135
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
24,647
|
|
|
|
24,702
|
|
Multifamily
|
|
|
3,826
|
|
|
|
5,828
|
|
Home equity
|
|
|
3,168
|
|
|
|
3,161
|
|
Construction
|
|
|
—
|
|
|
|
83
|
|
Consumer
|
|
|
1,159
|
|
|
|
1,346
|
|
Other loans
|
|
|
2,424
|
|
|
|
2,754
|
|
Loans, net of deferred fees
|
|
|
173,837
|
|
|
|
175,222
|
|
ALLL
|
|
|
(3,234
|
)
|
|
|
(3,499
|
)
|
Loans, net of ALLL
|
|
$
|
170,603
|
|
|
$
|
171,723
|
|
The Bank has a concentration
of loans to faith-based non-profit organizations, in which the Bank has specialized lending experience. As of June 30, 2013, the
percentage of loans in this niche, which included construction, real estate secured, and lines of credit, comprised approximately
49.20% of the total loan portfolio and the reserve for these loans was 39.52% of the total allowance. Historically the Bank has
experienced low levels of loan losses in this niche; however, repayment of these loans is generally dependent on voluntary contributions
which some have been adversely affected by the recent recession.
Non-Performing
Loans and Leases
- Generally, all classes of loans and leases are placed on non-accrual status upon becoming contractually
past due 90 days or more as to principal or interest (unless loans are adequately secured by collateral, are in the process of
collection, and are reasonably expected to result in repayment), or where substantial doubt about full repayment of principal or
interest is evident.
When
a loan is placed on non-accrual status, regardless of class, the accrued and unpaid interest receivable is reversed and the loan
is accounted for on the cash or cost recovery method until qualifying for return to accrual status. All payments received on non-accrual
loans and leases are applied against the principal balance of the loan or lease. Loans may be returned to accrual status when
all principal and interest amounts contractually due (including any arrearages) are reasonably assured of repayment within a reasonable
period, the borrower has demonstrated payment performance for a minimum of six months in accordance with the original or revised
contractual terms of the loan, and when doubt about repayment is resolved.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Generally,
for all classes of loans and leases, a charge-off is recorded when it is probable that a loss has been incurred and when it is
possible to determine a reasonable estimate of the loss. For all classes of commercial loans and leases, a charge-off is determined
on a subjective basis after due consideration of the debtor's prospects for repayment and the fair value of collateral. For closed-end
consumer loans, the entire outstanding balance of the loan is charged-off during the month that the loan becomes 120 days past
due as to principal or interest. Consumer loans with non-real estate collateral are written down to the value of the collateral,
less estimated costs to sell, if repossession of collateral is assured and in process. For residential mortgage and home equity
loan classes, a partial charge-off is recorded at 120 days past due as to principal or interest for the amount that the loan balance
exceeds the fair value of the collateral less estimated costs to sell.
Impaired Loans
- A
loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to
collect all amounts due from the borrower in accordance with the original contractual terms of the loan, including scheduled interest
payments. Impaired loans include all classes of commercial non-accruing loans and Troubled Debt Restructurings ("TDRs").
Impaired loans exclude smaller balance homogeneous loans (consumer and small business non-accruing loans) not in the process of
foreclosure that are collectively evaluated for impairment.
For
all classes of commercial loans, a quarterly evaluation of specific individual commercial borrowers with identified weaknesses
is performed to identify impaired loans. The identification of specific borrowers for review is based on a review of non-accrual
loans as well as those loans specifically identified by management as exhibiting above average levels of risk.
When a
loan has been identified as being impaired, the amount of impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the estimated fair value of
the collateral, less any selling costs, if the loan is collateral-dependent. If the measurement of the impaired loan is less than
the recorded investment in the loan (net of deferred loan fees or costs and unamortized premiums or discounts), impairment is recognized
by creating or adjusting an existing allocation of the ALLL, or by recording a partial charge-off of the loan to its estimated
fair value. Interest payments made on impaired loans are typically applied to principal unless collectability of the principal
amount is reasonably assured, in which case interest income may be accrued or recognized on a cash basis.
Income Recognition
on Impaired and Non-accrual Loans
- Loans, including impaired loans, are generally classified as non-accrual if they are
past due as to maturity, or payment of principal or interest for a period of more than 90 days, unless such loans are well secured
and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan
is generally classified as non-accrual. Loans that are on a current payment status or past due less than 90 days may also be classified
as non-accrual if full repayment of principal and/or interest is in doubt.
Loans may be returned
to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment
within a reasonable period of time, and the borrower has demonstrated payment performance for a minimum of six months in accordance
with the contractual terms involving payments of cash or cash equivalents. During the non-accrual period, all payments received
will be applied to principal. After a loan is returned to accruing status, foregone interest will be accreted to interest income
on a pro-rata basis over the remaining term of the loan if full repayment of principal and interest is reasonably assured.
In the case where
a non-accrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have
been recognized on the remaining loan balance at the contractual interest rate. Receipts in excess of that amount are recorded
as recoveries to the ALLL until prior charged off balances have been fully recovered.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The following tables
show past due loans at June 30, 2013 and December 31, 2012:
June 30, 2013
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Or More
|
|
|
Total Past
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Due
|
|
|
Current
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
8,186
|
|
|
$
|
8,191
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,208
|
|
|
|
3,208
|
|
Owner occupied
|
|
|
29
|
|
|
|
57
|
|
|
|
3,699
|
|
|
|
3,785
|
|
|
|
14,951
|
|
|
|
18,736
|
|
Other
|
|
|
—
|
|
|
|
494
|
|
|
|
86
|
|
|
|
580
|
|
|
|
22,378
|
|
|
|
22,958
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner Occupied
|
|
|
—
|
|
|
|
488
|
|
|
|
—
|
|
|
|
488
|
|
|
|
78,513
|
|
|
|
79,001
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,519
|
|
|
|
6,519
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
339
|
|
|
|
192
|
|
|
|
2,003
|
|
|
|
2,534
|
|
|
|
22,113
|
|
|
|
24,647
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,826
|
|
|
|
3,826
|
|
Home equity
|
|
|
127
|
|
|
|
—
|
|
|
|
19
|
|
|
|
146
|
|
|
|
3,022
|
|
|
|
3,168
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1,157
|
|
|
|
1,159
|
|
Other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,424
|
|
|
|
2,424
|
|
Total
|
|
$
|
502
|
|
|
$
|
1,231
|
|
|
$
|
5,807
|
|
|
$
|
7,540
|
|
|
$
|
166,297
|
|
|
$
|
173,837
|
|
December 31, 2012
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Or More
|
|
|
Total Past
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Due
|
|
|
Current
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
353
|
|
|
$
|
—
|
|
|
$
|
353
|
|
|
$
|
2,929
|
|
|
$
|
3,282
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,621
|
|
|
|
3,621
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
263
|
|
|
|
263
|
|
|
|
18,114
|
|
|
|
18,377
|
|
Other
|
|
|
1,570
|
|
|
|
856
|
|
|
|
400
|
|
|
|
2,826
|
|
|
|
23,345
|
|
|
|
26,171
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,344
|
|
|
|
2,344
|
|
Owner Occupied
|
|
|
1,845
|
|
|
|
—
|
|
|
|
661
|
|
|
|
2,506
|
|
|
|
73,912
|
|
|
|
76,418
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,135
|
|
|
|
7,135
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
787
|
|
|
|
548
|
|
|
|
2,812
|
|
|
|
4,147
|
|
|
|
20,555
|
|
|
|
24,702
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,828
|
|
|
|
5,828
|
|
Home equity
|
|
|
122
|
|
|
|
120
|
|
|
|
108
|
|
|
|
350
|
|
|
|
2,811
|
|
|
|
3,161
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
|
|
83
|
|
Consumer
|
|
|
8
|
|
|
|
9
|
|
|
|
—
|
|
|
|
17
|
|
|
|
1,329
|
|
|
|
1,346
|
|
Other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,754
|
|
|
|
2,754
|
|
Total
|
|
$
|
4,332
|
|
|
$
|
1,886
|
|
|
$
|
4,244
|
|
|
$
|
10,462
|
|
|
$
|
164,760
|
|
|
$
|
175,222
|
|
At June 30, 2013 and December 31,
2012, the total recorded investment in impaired loans amounted to $26.0 million and $24.1 million, respectively. Of these impaired
loans, $2.9 million and $5.5 million were on non-accrual at June 30, 2013 and December 31, 2012, respectively.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The recorded investment and related
information for impaired loans is summarized as follows for June 30, 2013, June 30, 2012 and December 31, 2012:
|
|
June 30, 2013
|
|
|
|
At end of period
|
|
|
For Six Months Ended
|
|
|
For Three Months Ended
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
ALLL
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
221
|
|
|
$
|
—
|
|
|
$
|
147
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
361
|
|
|
|
365
|
|
|
|
—
|
|
|
|
12
|
|
|
|
278
|
|
|
|
5
|
|
|
|
276
|
|
Owner occupied
|
|
|
795
|
|
|
|
559
|
|
|
|
—
|
|
|
|
17
|
|
|
|
525
|
|
|
|
9
|
|
|
|
468
|
|
Other
|
|
|
4,856
|
|
|
|
4,873
|
|
|
|
—
|
|
|
|
113
|
|
|
|
4,385
|
|
|
|
54
|
|
|
|
4,028
|
|
Faith based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
15,036
|
|
|
|
15,061
|
|
|
|
—
|
|
|
|
299
|
|
|
|
10,391
|
|
|
|
157
|
|
|
|
10,589
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
2,770
|
|
|
|
2,739
|
|
|
|
—
|
|
|
|
10
|
|
|
|
1,441
|
|
|
|
3
|
|
|
|
1,625
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
9
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60
|
|
|
|
—
|
|
|
|
28
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
8
|
|
Impaired loans with no allowance recorded
|
|
$
|
23,840
|
|
|
$
|
23,619
|
|
|
$
|
—
|
|
|
$
|
451
|
|
|
$
|
17,306
|
|
|
$
|
228
|
|
|
$
|
17,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
|
|
59
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
501
|
|
|
|
—
|
|
|
|
501
|
|
Faith based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
882
|
|
|
|
885
|
|
|
|
115
|
|
|
|
34
|
|
|
|
324
|
|
|
|
27
|
|
|
|
435
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
1,408
|
|
|
|
1,412
|
|
|
|
294
|
|
|
|
—
|
|
|
|
836
|
|
|
|
—
|
|
|
|
1,013
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
91
|
|
|
|
92
|
|
|
|
27
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
23
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impaired loans with allowance recorded
|
|
$
|
2,381
|
|
|
$
|
2,389
|
|
|
$
|
436
|
|
|
$
|
34
|
|
|
$
|
1,732
|
|
|
$
|
27
|
|
|
$
|
2,031
|
|
Impaired loans
|
|
$
|
26,221
|
|
|
$
|
26,008
|
|
|
$
|
436
|
|
|
$
|
485
|
|
|
$
|
19,038
|
|
|
$
|
255
|
|
|
$
|
19,200
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
|
June 30, 2012
|
|
|
|
At end of period
|
|
|
For Six Months Ended
|
|
|
For Three Months Ended
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
ALLL
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,567
|
|
|
$
|
590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
590
|
|
|
$
|
—
|
|
|
$
|
590
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
374
|
|
|
|
374
|
|
|
|
—
|
|
|
|
17
|
|
|
|
540
|
|
|
|
7
|
|
|
|
496
|
|
Owner occupied
|
|
|
724
|
|
|
|
724
|
|
|
|
—
|
|
|
|
20
|
|
|
|
890
|
|
|
|
12
|
|
|
|
726
|
|
Other
|
|
|
5,699
|
|
|
|
5,699
|
|
|
|
—
|
|
|
|
85
|
|
|
|
4,894
|
|
|
|
55
|
|
|
|
5,407
|
|
Faith based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
13,222
|
|
|
|
13,216
|
|
|
|
—
|
|
|
|
263
|
|
|
|
12,137
|
|
|
|
150
|
|
|
|
11,752
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
789
|
|
|
|
779
|
|
|
|
—
|
|
|
|
17
|
|
|
|
767
|
|
|
|
8
|
|
|
|
690
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impaired loans with no allowance recorded
|
|
$
|
22,375
|
|
|
$
|
21,382
|
|
|
$
|
—
|
|
|
$
|
402
|
|
|
$
|
19,818
|
|
|
$
|
232
|
|
|
$
|
19,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
378
|
|
|
|
5
|
|
|
|
—
|
|
Owner occupied
|
|
|
285
|
|
|
|
285
|
|
|
|
121
|
|
|
|
37
|
|
|
|
469
|
|
|
|
28
|
|
|
|
59
|
|
Other
|
|
|
2,027
|
|
|
|
2,026
|
|
|
|
229
|
|
|
|
—
|
|
|
|
228
|
|
|
|
—
|
|
|
|
501
|
|
Faith based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
433
|
|
|
|
433
|
|
|
|
37
|
|
|
|
17
|
|
|
|
907
|
|
|
|
10
|
|
|
|
435
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
672
|
|
|
|
673
|
|
|
|
238
|
|
|
|
3
|
|
|
|
415
|
|
|
|
1
|
|
|
|
1,013
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
267
|
|
|
|
267
|
|
|
|
205
|
|
|
|
—
|
|
|
|
231
|
|
|
|
—
|
|
|
|
23
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Impaired loans with allowance recorded
|
|
$
|
3,684
|
|
|
$
|
3,684
|
|
|
$
|
830
|
|
|
$
|
67
|
|
|
$
|
2,629
|
|
|
$
|
44
|
|
|
$
|
2,031
|
|
Impaired loans
|
|
$
|
26,059
|
|
|
$
|
25,066
|
|
|
$
|
830
|
|
|
$
|
469
|
|
|
$
|
22,447
|
|
|
$
|
276
|
|
|
$
|
21,692
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
|
December 31, 2012
|
|
|
|
At end of period
|
|
|
For Period Ended
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
ALLL
|
|
|
Income
|
|
|
Recorded
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Recognized
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
295
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
371
|
|
|
|
371
|
|
|
|
—
|
|
|
|
31
|
|
|
|
300
|
|
Owner occupied
|
|
|
530
|
|
|
|
530
|
|
|
|
—
|
|
|
|
38
|
|
|
|
635
|
|
Other
|
|
|
4,312
|
|
|
|
3,698
|
|
|
|
—
|
|
|
|
129
|
|
|
|
4,473
|
|
Faith based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
14,479
|
|
|
|
14,479
|
|
|
|
—
|
|
|
|
567
|
|
|
|
12,261
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,611
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
814
|
|
|
|
814
|
|
|
|
—
|
|
|
|
19
|
|
|
|
2,671
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
86
|
|
|
|
86
|
|
|
|
—
|
|
|
|
3
|
|
|
|
111
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
16
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Impaired loans with no allowance recorded
|
|
$
|
20,608
|
|
|
$
|
19,994
|
|
|
$
|
—
|
|
|
$
|
787
|
|
|
$
|
22,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
238
|
|
|
|
238
|
|
|
|
87
|
|
|
|
15
|
|
|
|
60
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
Faith based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
214
|
|
Owner occupied
|
|
|
428
|
|
|
|
428
|
|
|
|
44
|
|
|
|
30
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
1,543
|
|
|
|
1,543
|
|
|
|
349
|
|
|
|
45
|
|
|
|
757
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impaired loans with allowance recorded
|
|
$
|
2,209
|
|
|
$
|
2,209
|
|
|
$
|
480
|
|
|
$
|
90
|
|
|
$
|
1,531
|
|
Impaired loans
|
|
$
|
22,817
|
|
|
$
|
22,203
|
|
|
$
|
480
|
|
|
$
|
877
|
|
|
$
|
23,892
|
|
Impaired loans not
included in the above December 31, 2012 table are recorded investments of $1.9 million in homogeneous first mortgage residential
real estate loans, which are collectively measured for impairment. Total impaired loans were $24.1 million as of December 31, 2012.
The recorded investment
in TDRs, which are included in total impaired loans, was $20.9 million, $24.2 million and $20.2 million at June 30, 2013, June
30, 2012 and December 31, 2012, respectively.
Reserve for
Credit Losses
- The Company's reserve for credit losses is comprised of two components, the ALLL and the reserve for unfunded
commitments (the “Unfunded Reserve”).
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Allowances
for Loan Losses
- The ALLL is a valuation allowance that is established through a provision for loan losses charged to
expense. When management believes that the collectability of the principal is unlikely, loans are charged against the ALLL. Subsequent
recoveries, if any, are credited to the ALLL.
The
ALLL is management's estimate of probable losses that are inherent in the loan portfolio. The ALLL is based on regular quarterly
assessments. The methodologies for measuring the appropriate level of the ALLL include the combination of a quantitative historical
loss history by loan type and a qualitative analysis for loans not classified as impaired or TDRs ("ASC 450 reserve"),
and a specific allowance method for impaired and TDR loans ("ASC 310 reserve"). The qualitative analysis for the ASC
450 reserve is patterned after the guidelines provided under Securities Exchange Commission (“SEC”) Staff Accounting
Bulletin 102 and the Federal Financial Institutions Examination Council (“FFIEC”) Interagency Policy Statement on the
Allowance for Loan and Lease Losses and
include
the following:
|
·
|
Changes in lending policies and procedures, including underwriting standards and collection, charge-off,
and recovery practices;
|
|
·
|
Changes in national economic and business conditions and developments and the effect of unemployment
on African Americans, who are the majority of our customers;
|
|
·
|
Changes in the nature and volume of the loan portfolio;
|
|
·
|
Changes in the experience, ability, and depth of lending management and staff;
|
|
·
|
Changes in trends of the volume and severity of past due and classified loans; and changes in trends
in the volume of non-accrual loans, troubled debt restructurings and classified loans;
|
|
·
|
Changes in the quality of the loan review system and the degree of oversight by the Bank’s Board
of Directors;
|
|
·
|
The existence and effect of any concentrations of credit, and changes in the level of such concentrations;
and
|
|
·
|
The effect of external factors such as competition and legal and regulatory requirements.
|
Management has developed,
from historical loan and economic information, quantitative drivers for certain qualitative factors. Management has identified
which factors, by nature, are subjective, such as lending policies, competition and regulatory requirements. The quantitative drivers
of qualitative factors, to which different weights are assigned based on management’s judgment, are reviewed and updated
quarterly based on updated quarterly and eight-quarter rolling data. The quantitative loss history is based on an eight-quarter
rolling history of losses incurred by different loan types within the loan portfolio.
A specific ALLL
is established for loans identified as impaired or TDRs, based on significant conditions or circumstances related to the specific
credits. The specific allowance amounts are determined by a method prescribed by ASC 310,
Receivables.
Loans identified
as impaired and non-accruing TDRs are accounted for in accordance with one of three valuations: (i) the present value of future
cash flows discounted at the loan's effective interest rate; (ii) the loan's observable market price, or (iii) the fair value of
the collateral, if the loan is collateral dependent, less estimated liquidation costs such as realtor fees, delinquent property
taxes, and other miscellaneous recording fees and taxes. Generally, appraisals are considered current if performed within the past
12 months. At June 30, 2013, there were 87 loans evaluated based upon collateral dependency compared to 55 loans at December 31,
2012.
For commercial business,
faith-based non-profit, real estate and certain consumer loans, the measurement of loan impairment is based on the present value
of the expected future cash flows, discounted at the loan's effective interest rate, or on the fair value of the loan's collateral
if the loan is collateral dependent. Most consumer loans are smaller balance and homogeneous, and are evaluated for impairment
on a collective basis, applying the quantitative loss history and the qualitative factors. Impairment losses are included in the
ALLL through a charge to the provision for loan losses.
The Company uses
several credit quality indicators to manage credit risk on an ongoing basis. The Company's credit risk rating system was developed
to aid in the risk management process by grouping credits with similar risk profiles into pass (which includes internal watch),
special mention, or criticized categories, which includes substandard, doubtful, and loss. Credit risk ratings are applied individually
to all classes of loans. Internal credit reviews and external contracted credit review examinations are used to determine and validate
loan risk grades. The credit review system takes into consideration factors such as: borrower's background and experience; historical
and current financial condition; credit history and payment performance; economic conditions and their impact on various industries;
type, market value and volatility of the market value of collateral; lien position; and the financial strength of guarantors.
The process of assessing the adequacy
of the ALLL is necessarily subjective. Further, and particularly in periods of economic downturns, it is reasonably possible that
future credit losses may exceed historical loss levels and may also exceed management's current estimates of incurred losses inherent
within the loan portfolio. As such, there can be no assurance that future loan charge-offs will not exceed management's current
estimate of what constitutes a reasonable ALLL.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The Company and
the Bank are subject to periodic examination by their federal and state regulators, and may be required by such regulators to recognize
additions to the allowance for loan losses based on the regulators' assessment of credit information available to them at the time
of their examinations.
Reserve for
Unfunded Commitments
- The Unfunded Reserve is a component of other liabilities and represents the estimate for probable
credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include loans with usable
balances available, new commitments to lend that are not yet funded, and standby and commercial letters of credit. The process
used to determine the Unfunded Reserve is consistent with the process for determining the quantitative portion of the ASC 450 reserve,
as adjusted for estimated funding probabilities and historical eight quarter rolling quantitative loan loss factors. The level
of the Unfunded Reserve is adjusted by recording an expense or recovery in other noninterest expense. The balances of $15.2 thousand
and $54.4 thousand for June 30, 2013 and December 31, 2012, respectively, are reflected in other liabilities on the Consolidated
Balance Sheets.
The following table
presents the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of
June 30, 2013 and December 31, 2012, respectively:
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
or More
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
June 30, 3013
|
|
|
|
|
|
|
|
Still
|
|
|
|
|
(Dollars in thousands)
|
|
Non-accrual
|
|
|
Number
|
|
|
Accruing
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
69
|
|
|
|
3
|
|
|
|
3,631
|
|
|
|
4
|
|
Other
|
|
|
47
|
|
|
|
1
|
|
|
|
39
|
|
|
|
1
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner Occupied
|
|
|
3,918
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
3,281
|
|
|
|
42
|
|
|
|
1,684
|
|
|
|
11
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
15
|
|
|
|
4
|
|
|
|
19
|
|
|
|
1
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
13
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
Other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
7,343
|
|
|
|
58
|
|
|
$
|
5,373
|
|
|
|
17
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
or More
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
Still
|
|
|
|
|
(Dollars in thousands)
|
|
Non-accrual
|
|
|
Number
|
|
|
Accruing
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner occupied
|
|
|
39
|
|
|
|
1
|
|
|
|
224
|
|
|
|
4
|
|
Other
|
|
|
49
|
|
|
|
1
|
|
|
|
351
|
|
|
|
1
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner Occupied
|
|
|
5,241
|
|
|
|
4
|
|
|
|
661
|
|
|
|
3
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
3,384
|
|
|
|
44
|
|
|
|
357
|
|
|
|
6
|
|
Multifamily
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
3
|
|
|
|
1
|
|
|
|
101
|
|
|
|
1
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
16
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
Other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
8,732
|
|
|
|
53
|
|
|
$
|
1,694
|
|
|
|
15
|
|
Non-accrual loans
and loans past due over 90 days still accruing interest include both smaller balance homogenous loans that are collectively evaluated
for impairment and individually classified impaired loans. Loans for which principal or interest is in default for 90 days or more
are classified as a non-accrual unless they are well secured and in process of collection.
Those loans over
90 days still accruing interest were in the process of modification. In these cases, the borrowers are still making payments. Borrowers
have continued to make payments on these loans while administrative and legal due processes are proceeding which will enable the
Bank to extend or modify maturity dates.
The Company categorizes loans into
risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information,
historical payment experience, credit documentation, public information, and current economic trends, among other factors. The
Company analyzes loans for reserves according to the loan's classification as to credit risk. This analysis includes non-homogenous
loans, such as commercial, commercial real estate and faith-based non–profit entities, and mortgage loans in process of foreclosure
for which the loan to value does not support repayment in full. This analysis is performed on at least a quarterly basis. The Company
uses the following definitions for risk ratings:
|
·
|
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the
loan or of the institution’s credit position at some future date. Management believes that there is a moderate likelihood
of some loss related to those loans and leases that are considered special mention.
|
|
·
|
Substandard. Loans classified as substandard are inadequately protected by the current sound financial
repayment capacity and debt service coverage of the obligor or of the collateral pledge, if any. Loans so classified have a well-defined
weakness or weaknesses that may jeopardize the liquidation of our repayment according to the original terms of the debt. In addition
to commercial and faith-based non-profit loans with identified weaknesses, substandard loans include loans within the mortgage
and consumer portfolio segments that are past due 90 days or more as to principal or interest if the loan to value does not support
full repayment. Substandard loans are evaluated for impairment on an individual loan basis unless the substandard loan is a smaller
homogeneous loan that is not a TDR and is not in the process of foreclosure. These loans exhibit a distinct possibility that the
Company will sustain some loss if the deficiencies related to the loss are not corrected in a timely manner.
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
·
|
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as
substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
|
|
·
|
Loss. Based on current facts and circumstances, loans classified as loss are not expected to be
repaid, or that collateral will be difficult to liquidate. Loans classified as loss are charged off to the ALLL with board approval.
|
|
·
|
Pass. Loans not identified as special mention, substandard, doubtful or loss are classified as
pass.
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The following is a breakdown of
loans by risk categories at June 30, 2013 and December 31, 2012:
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubful
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
8,184
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
8,191
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,662
|
|
|
|
—
|
|
|
|
546
|
|
|
|
—
|
|
|
|
3,208
|
|
Owner occupied
|
|
|
13,923
|
|
|
|
647
|
|
|
|
4,166
|
|
|
|
—
|
|
|
|
18,736
|
|
Other
|
|
|
18,420
|
|
|
|
962
|
|
|
|
3,576
|
|
|
|
—
|
|
|
|
22,958
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Owner Occupied
|
|
|
62,000
|
|
|
|
5,529
|
|
|
|
11,472
|
|
|
|
—
|
|
|
|
79,001
|
|
Other
|
|
|
6,519
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,519
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
20,082
|
|
|
|
694
|
|
|
|
3,871
|
|
|
|
—
|
|
|
|
24,647
|
|
Multifamily
|
|
|
3,724
|
|
|
|
39
|
|
|
|
63
|
|
|
|
—
|
|
|
|
3,826
|
|
Home equity
|
|
|
2,895
|
|
|
|
—
|
|
|
|
273
|
|
|
|
—
|
|
|
|
3,168
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
1,142
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
1,159
|
|
Other loans
|
|
|
2,424
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,424
|
|
Total
|
|
$
|
141,975
|
|
|
$
|
7,871
|
|
|
$
|
23,991
|
|
|
$
|
—
|
|
|
$
|
173,837
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubful
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,274
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
3,282
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,065
|
|
|
|
—
|
|
|
|
556
|
|
|
|
—
|
|
|
|
3,621
|
|
Owner occupied
|
|
|
13,379
|
|
|
|
3,151
|
|
|
|
1,847
|
|
|
|
—
|
|
|
|
18,377
|
|
Other
|
|
|
21,582
|
|
|
|
966
|
|
|
|
3,623
|
|
|
|
—
|
|
|
|
26,171
|
|
Faith-based non-profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2,344
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,344
|
|
Owner Occupied
|
|
|
58,732
|
|
|
|
5,313
|
|
|
|
12,373
|
|
|
|
—
|
|
|
|
76,418
|
|
Other
|
|
|
7,059
|
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,135
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
19,465
|
|
|
|
1,731
|
|
|
|
3,506
|
|
|
|
—
|
|
|
|
24,702
|
|
Multifamily
|
|
|
5,702
|
|
|
|
63
|
|
|
|
63
|
|
|
|
—
|
|
|
|
5,828
|
|
Home equity
|
|
|
2,853
|
|
|
|
—
|
|
|
|
308
|
|
|
|
—
|
|
|
|
3,161
|
|
Construction
|
|
|
83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83
|
|
Consumer
|
|
|
1,323
|
|
|
|
2
|
|
|
|
21
|
|
|
|
—
|
|
|
|
1,346
|
|
Other loans
|
|
|
2,754
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,754
|
|
Total
|
|
$
|
141,615
|
|
|
$
|
11,302
|
|
|
$
|
22,305
|
|
|
$
|
—
|
|
|
$
|
175,222
|
|
Loans
Modified as a TDR
- Loans are considered to have been modified as a TDR when the Company makes certain concessions to a
borrower experiencing financial difficulty. Concessions to the borrower at modification may include interest rate reductions, principal
or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession
of collateral. Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of six
months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification,
or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms
and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period.
Since the economic crisis began in 2008, management has elected to offer concessions to borrowers with identified financial weaknesses,
even if the borrowers have continued making scheduled payments, working with the borrowers to enable them to continue meeting their
obligations to repay the debt to the Company.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
The following tables present TDRs
as of June 30, 2013 and December 31, 2012.
|
|
Troubled Debt Restructurings
|
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
Non-accrual
|
|
|
Total
|
|
|
|
Accrual Status
|
|
|
Stauts
|
|
|
Modifications
|
|
(Dollars in thousands)
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2
|
|
|
$
|
361
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2
|
|
|
$
|
361
|
|
Owner occupied
|
|
|
3
|
|
|
|
489
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
489
|
|
Other
|
|
|
5
|
|
|
|
4,809
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
4,809
|
|
Faith-based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occpied
|
|
|
18
|
|
|
|
12,000
|
|
|
|
2
|
|
|
|
2,639
|
|
|
|
20
|
|
|
|
14,639
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
2
|
|
|
|
282
|
|
|
|
4
|
|
|
|
259
|
|
|
|
6
|
|
|
|
541
|
|
|
|
|
30
|
|
|
$
|
17,941
|
|
|
|
6
|
|
|
$
|
2,898
|
|
|
|
36
|
|
|
$
|
20,839
|
|
|
|
Troubled Debt Restructurings
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
Non-accrual
|
|
|
Total
|
|
|
|
Accrual Status
|
|
|
Stauts
|
|
|
Modifications
|
|
(Dollars in thousands)
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
2
|
|
|
$
|
371
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2
|
|
|
$
|
371
|
|
Owner occupied
|
|
|
4
|
|
|
|
730
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
730
|
|
Other
|
|
|
5
|
|
|
|
3,648
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
3,648
|
|
Faith-based non-profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occpied
|
|
|
17
|
|
|
|
9,666
|
|
|
|
4
|
|
|
|
5,241
|
|
|
|
21
|
|
|
|
14,907
|
|
Residential real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage
|
|
|
2
|
|
|
|
285
|
|
|
|
4
|
|
|
|
309
|
|
|
|
6
|
|
|
|
594
|
|
|
|
|
30
|
|
|
$
|
14,700
|
|
|
|
8
|
|
|
$
|
5,550
|
|
|
|
38
|
|
|
$
|
20,250
|
|
No loans were restructured during
the three or six months ended June 30, 2013 or during the three months ended June 30, 2012. During the six months ended June 30,
2012, there were two loans restructured totaling $1.4 million.
The following table shows loans
newly restructured during the six months ended June 30, 2012.
|
|
For the Six Months Ended
|
|
|
|
June 30, 2012
|
|
|
|
|
|
|
Pre-modification Outstanding
|
|
|
Post-Modification Oustanding
|
|
(Dollars in thousands)
|
|
Number of loans
|
|
|
Recorded Investment
|
|
|
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
Extended payment terms
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1
|
|
|
$
|
82
|
|
|
$
|
82
|
|
Other
|
|
|
1
|
|
|
|
1,354
|
|
|
|
1,359
|
|
|
|
|
2
|
|
|
$
|
1,436
|
|
|
$
|
1,441
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
There were no loans modified as
TDRs and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default
occurring during the three and six months ended June 30, 2013 and 2012.
TDR defaults can result in a higher
ALLL and a corresponding higher provision for loan losses because they generally negatively impact the timing of and expected collections
from these impaired loans. Impaired loans, which include TDRs, are evaluated for specific additions to the ALLL by subtracting
the recorded investment in these impaired loans from their fair values. Fair values is generally determined by the present value
of future cash flows, collateral value, or liquidation value. Defaults generally reduce the present value of the future cash flows
and can negatively influence the collateral values if the declining real estate values are affecting the sale of collateral.
|
7.
|
OTHER REAL ESTATE OWNED (“OREO”)
|
At the time of foreclosure,
real estate is recorded at fair market value based on appraised value less estimated costs to sell, such as realtor, legal and
recording fees and expenses. Subsequent to foreclosure, properties are appraised annually and adjusted to the lower of carrying
amount or fair market value less estimated costs to sell. At June 30, 2013 and December 31, 2012, OREO totaled $2.9 million and
$3.1 million, respectively.
Borrowings as of
June 30, 2013 consisted of an FHLB borrowing of $0.7 million with an interest rate of 0.50% that matures in 2020 and a capital
lease of $0.2 million with an interest rate of 1.60%. Borrowings as of December 31, 2012 consisted of an FHLB borrowing of $0.7
million with an interest rate of 0.50% that matures in 2020, a capital lease of $0.2 million with an interest rate of 1.60%, and
$2.0 million in loan participations sold (that did not qualify for Sales Accounting under GAAP), with an effective interest rate
of 4.45%. During the first quarter of 2013, loan participation agreements were updated to conform for Sales Accounting treatment;
therefore, loan participations are now netted within the loans category.
The Company has federal funds lines
of credit with three correspondent banks totaling $10.0 million at June 30, 2013 and December 31, 2012. The Company periodically
tests its federal funds lines of credit with its correspondent banks. These lines were tested during the three and six months ended
June 30, 2013. The Company had unused borrowing capacity with the FHLB of $6.1 million as of June 30, 2013 and $7.5 million as
of December 31, 2012. In addition, the Company has the ability to borrow from the Federal Reserve Bank to the extent of investment
securities pledged to the Federal Reserve.
|
9.
|
COMMITMENTS AND CONTINGENCIES
|
The Bank is a party
to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk beyond the amount recognized on the Consolidated Balance Sheets. The
contractual amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.
The Bank’s
exposure to credit losses in the event of non-performance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank utilizes the same
credit policies in making commitments and conditional obligations as it does for balance sheet instruments.
Commitments to extend
credit are agreements to lend to a customer as long as there is not a violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank, upon extension of credit is based on management’s credit evaluation of the counter parties. Collateral
varies and may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial
properties.
Standby letters
of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
To the extent deemed necessary, collateral of varying types and amounts is held to secure customer performance under certain of
those letters of credit outstanding.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Financial instruments
whose contract amounts represent credit risk as of June 30, 2013 and December 31, 2012, respectively, are commitments to extend
credit (including availability of lines of credit), and standby letters of credit. Loan commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer’s credit worthiness
on a case-by-case basis. The amount of collateral deemed necessary by the Bank is based on management’s credit evaluation
and underwriting guidelines for the particular loan.
Commitments outstanding
at June 30, 2013 are summarized in the following table:
(Dollars in thousands)
|
|
Commercial
letters of credit
|
|
|
Other loan
commitments
|
|
|
Total
commitments
|
|
Less than one year
|
|
$
|
123
|
|
|
$
|
10,008
|
|
|
$
|
10,131
|
|
One to three years
|
|
|
86
|
|
|
|
5,283
|
|
|
|
5,369
|
|
Three to five years
|
|
|
71
|
|
|
|
8,147
|
|
|
|
8,218
|
|
More than five years
|
|
|
—
|
|
|
|
1,682
|
|
|
|
1,682
|
|
Total
|
|
$
|
280
|
|
|
$
|
25,120
|
|
|
$
|
25,400
|
|
|
10.
|
FAIR VALUE MEASUREMENT
|
Fair value is defined
as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value should
be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy
that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted
prices in active markets and the lowest priority to unobservable data. Fair value measurements are required to be separately disclosed
by level within the fair value hierarchy. The Company bases fair values on the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.
For assets and liabilities
recorded at fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing
fair value measurements, in accordance with the fair value hierarchy.
Fair value measurements
for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon estimates,
are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other
factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement
of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying
assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current
or future values.
The Company utilizes
fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may
be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment,
OREO, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market
accounting or write-downs of individual assets.
The Company groups
assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value. These levels are:
Level 1 —Valuations
for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 2 —Valuations
are obtained from readily available pricing sources via independent providers for market transactions involving similar assets
or liabilities. The Company’s principal market for these securities is the secondary institutional markets and valuations
are based on observable market data in those markets. Level 2 securities include U. S. Agencies, state and municipal bonds and
MBS.
Level 3 — Valuations for
assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow
models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate
certain assumptions and projections in determining the fair value assigned to such assets.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Assets and Liabilities Measured
on a Recurring Basis:
Available-for-Sale Investment
Securities:
Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted
prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical
technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted securities. Level 1 securities include those
traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include
U.S. government agency securities, mortgage-backed securities issued by government-sponsored entities, municipal bonds and corporate
debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.
Assets measured at fair value on
a recurring basis as of June 30, 2013 were:
(Dollars in thousands)
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
June 30, 2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies
|
|
$
|
1,892
|
|
|
$
|
—
|
|
|
$
|
1,892
|
|
|
$
|
—
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
52,751
|
|
|
|
—
|
|
|
|
52,751
|
|
|
|
—
|
|
Non-Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
1,490
|
|
|
|
—
|
|
|
|
1,490
|
|
|
|
—
|
|
Total
|
|
$
|
56,133
|
|
|
$
|
—
|
|
|
$
|
56,133
|
|
|
$
|
—
|
|
Assets measured at fair value on
a recurring basis as of December 31, 2012 were:
(Dollars in thousands)
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
December 31, 2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Recurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agencies
|
|
$
|
1,327
|
|
|
$
|
—
|
|
|
$
|
1,327
|
|
|
$
|
—
|
|
Government sponsored MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
57,931
|
|
|
|
—
|
|
|
|
57,931
|
|
|
|
—
|
|
Municipal securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Carolina
|
|
|
1,553
|
|
|
|
—
|
|
|
|
1,553
|
|
|
|
—
|
|
Total
|
|
$
|
60,811
|
|
|
$
|
—
|
|
|
$
|
60,811
|
|
|
$
|
—
|
|
There
were no recurring Level 3 Assets at June 30, 2013 or December 31, 2012.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Assets and Liabilities Measured
on a Nonrecurring Basis:
Impaired loans:
Impaired loans are evaluated and valued at the time the loan is identified as impaired, and are carried at the lower of cost
or market value. Market value is measured based on the value of the collateral securing these loans or net present value of expected
future cash flows discounted at the loan’s effective interest rate. Collateral may be real estate and/or business assets
including equipment, inventory, and/or accounts receivable. The value of business equipment, inventory, and accounts receivable
collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s
review and analysis. Appraised and reported values may be discounted based on management’s historical knowledge, changes
in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s
selling costs and other expenses. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment
and adjusted accordingly, based on the same factors identified above. The Company records impaired loans as nonrecurring Level
3, when Management believes the underlying collateral is worth less than the appraised value.
Other real estate
owned (“OREO”):
Foreclosed assets are adjusted to fair value, less estimated carrying costs and costs to sell,
upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of the carrying value
or the fair value, less estimated costs to sell. Fair value is based upon independent market prices, appraised values of the collateral,
or management’s estimation of the value of the collateral. The Company records foreclosed assets as nonrecurring Level 3.
Repossessed
Collateral:
Repossessed collateral is adjusted to fair value, less estimated costs to sell, upon transfer of the loans to
repossessions. Subsequently, repossessed assets are carried at the lower of the carrying value or the fair value, less estimated
costs to sell. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation
of the value of the collateral. The Company records repossessed collateral as nonrecurring Level 3.
Mortgage Serving Rights:
Mortgage
servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair
value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net
servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the
discounted cash flow model are those that we believe market participants would use in estimating future net servicing income, including
estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. Significant
assumptions in the valuation of mortgage servicing rights include changes in interest rates, estimated loan repayment rates, and
the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the
use of significant unobservable inputs, as well as significant management judgment and estimation.
Assets measured at fair value on
a nonrecurring basis as of June 30, 2013 and December 31, 2012 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
June 30, 2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
2,895
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,895
|
|
Repossessed collateral
|
|
|
590
|
|
|
|
—
|
|
|
|
—
|
|
|
|
590
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5,797
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,797
|
|
Faith-based non-profit
|
|
|
15,831
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,831
|
|
Residential real estate
|
|
|
2,813
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,813
|
|
Consumer
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
Mortgage Servicing Rights
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
Total
|
|
$
|
27,966
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,966
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
(Dollars in thousands)
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
December 31, 2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
3,055
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,055
|
|
Repossessed collateral
|
|
|
590
|
|
|
|
—
|
|
|
|
—
|
|
|
|
590
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial real estate
|
|
|
4,749
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,749
|
|
Faith-based non-profit
|
|
|
14,863
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,863
|
|
Residential real estate
|
|
|
3,916
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,916
|
|
Consumer
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
Mortgage Servicing Rights
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
Total
|
|
$
|
27,225
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,225
|
|
Quantitative Information about Level 3 Fair
Value Measurements
(Dollars in thousands)
|
|
|
|
|
|
|
Significant
|
|
Significant
|
|
|
|
|
|
Valuation
|
|
Unobservable
|
|
Unobservable
|
Description
|
|
June 30, 2013
|
|
|
Technique
|
|
Inputs
|
|
Input Value
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
2,895
|
|
|
discounted appraisals
|
|
collateral discounts
|
|
6-20%
|
Repossessed collateral
|
|
|
590
|
|
|
discounted appraisals
|
|
collateral discounts
|
|
20-50%
|
Impaired loans
|
|
|
24,454
|
|
|
discounted appraisals
|
|
collateral discounts
|
|
6-20%
|
Mortgage Servicing Rights
|
|
|
27
|
|
|
discounted cash flows
|
|
PSA speed
|
|
426%
|
Total
|
|
$
|
27,966
|
|
|
|
|
cost to service
|
|
6.00%
|
|
|
|
|
|
|
|
|
discount rate
|
|
10.00%
|
(Dollars in thousands)
|
|
|
|
|
|
|
Significant
|
|
Significant
|
|
|
|
|
|
Valuation
|
|
Unobservable
|
|
Unobservable
|
Description
|
|
December 31, 2012
|
|
|
Technique
|
|
Inputs
|
|
Input Value
|
Nonrecurring:
|
|
|
|
|
|
|
|
|
|
|
OREO
|
|
$
|
3,055
|
|
|
discounted appraisals
|
|
collateral discounts
|
|
6-20%
|
Repossessed collateral
|
|
|
590
|
|
|
discounted appraisals
|
|
collateral discounts
|
|
20-50%
|
Impaired loans
|
|
|
23,544
|
|
|
discounted appraisals
|
|
collateral discounts
|
|
6-20%
|
Mortgage Servicing Rights
|
|
|
36
|
|
|
discounted cash flows
|
|
PSA speed
|
|
426%
|
Total
|
|
$
|
27,225
|
|
|
|
|
cost to service
|
|
6.00%
|
|
|
|
|
|
|
|
|
discount rate
|
|
10.00%
|
The Company discloses
estimated fair values for its significant financial instruments. The methodologies for estimating the fair value of financial assets
and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for
other financial assets and liabilities are discussed below.
The Company had
no transfers between any of the three levels in 2012 or 2013.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
Cash and Cash
Equivalents
: The carrying amount of cash, due from banks, and federal funds sold approximates fair value, and is therefore
considered Level 1 input.
Loans (other
than impaired), net of allowances for loan losses
: Fair values are estimated for portfolios of loans with similar financial
characteristics. The majority of the Company’s loans and lending-related commitments are not carried at fair value on a recurring
basis on the Consolidated Balance Sheets, nor are they actively traded.
The fair value of
performing loans is calculated by discounting scheduled cash flows through their individual contractual maturity, using discount
rates that reflect the credit risk, overhead expenses, interest rate earned and again, contractual maturity of each loan. The maturity
is based on contractual maturities for each loan, modified as required by an estimate of the effect of historical prepayments and
current economic conditions.
For all loans, assumptions
regarding the characteristics and segregation of loans, maturities, credit risk, cash flows, and discount rates are determined
using specific borrower and other available information and are therefore considered a Level 3 input.
Accrued Interest
Receivable and Payable
: The fair value of interest receivable and payable is estimated to approximate the carrying amounts
and is therefore considered a Level 1 input.
Deposits
:
The fair value of deposits with no stated maturity, such as demand deposits, checking accounts, savings and money market accounts,
is equal to the carrying amount and is therefore considered a Level 1 input. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows, where the discount rate is estimated using the market rates currently offered
for deposits of similar remaining maturities and is therefore considered a Level 2 input.
Borrowings
:
The fair value of borrowings is based on the discounted value of estimated cash flows. The discounted rate is estimated using market
rates currently offered for similar advances or borrowings and is therefore considered a Level 3 input.
Off-Balance Sheet
Instruments
: Since the majority of the Company’s off-balance sheet instruments consist of non-fee-producing variable
rate commitments, the Company has determined they do not have a distinguishable fair value.
As of June 30, 2013
and December 31, 2012, the carrying amounts and associated estimated fair value of financial assets and liabilities of the Company
are as follows:
|
|
June 30, 2013
|
|
(Dollars in thousands)
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,326
|
|
|
$
|
30,326
|
|
|
$
|
30,326
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities
|
|
|
56,133
|
|
|
|
56,133
|
|
|
|
—
|
|
|
|
56,133
|
|
|
|
—
|
|
Loans, net of allowances for loan losses
|
|
|
170,603
|
|
|
|
173,406
|
|
|
|
|
|
|
|
|
|
|
|
173,406
|
|
Accrued interest receivable
|
|
|
847
|
|
|
|
847
|
|
|
|
847
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-maturity deposits
|
|
$
|
117,731
|
|
|
$
|
117,731
|
|
|
|
117,731
|
|
|
|
—
|
|
|
|
—
|
|
Maturity deposits
|
|
|
122,730
|
|
|
|
122,269
|
|
|
|
—
|
|
|
|
122,269
|
|
|
|
—
|
|
Other borrowings
|
|
|
887
|
|
|
|
818
|
|
|
|
—
|
|
|
|
—
|
|
|
|
818
|
|
Accrued interest payable
|
|
|
101
|
|
|
|
101
|
|
|
|
101
|
|
|
|
—
|
|
|
|
—
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
|
|
|
December 31, 2012
|
|
(Dollars in thousands)
|
|
Carrying
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42,586
|
|
|
$
|
42,586
|
|
|
$
|
42,586
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities
|
|
|
60,811
|
|
|
|
60,811
|
|
|
|
—
|
|
|
|
60,811
|
|
|
|
—
|
|
Loans, net of allowances for loan losses
|
|
|
171,723
|
|
|
|
175,041
|
|
|
|
—
|
|
|
|
—
|
|
|
|
175,041
|
|
Accrued interest receivable
|
|
|
858
|
|
|
|
858
|
|
|
|
858
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-maturity deposits
|
|
$
|
116,276
|
|
|
$
|
116,276
|
|
|
|
116,276
|
|
|
|
—
|
|
|
|
—
|
|
Maturity deposits
|
|
|
134,603
|
|
|
|
134,322
|
|
|
|
—
|
|
|
|
134,322
|
#
|
|
|
—
|
|
Other borrowings
|
|
|
2,937
|
|
|
|
2,871
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,871
|
|
Accrued interest payable
|
|
|
119
|
|
|
|
119
|
|
|
|
119
|
|
|
|
—
|
|
|
|
—
|
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
|
ITEM 2 – Management’s Discussion
and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following discussion and analysis is intended
to aid the reader in understanding and evaluating the Company’s consolidated results of operations and financial condition.
This discussion is designed to provide more comprehensive information about the major components of the Company’s results
of operations, financial condition, liquidity, and capital resources than may be obtained from reading the financial statements
alone. This discussion should be read in conjunction with, and is qualified in its entirety by reference to, the Company’s
Consolidated Financial Statements, including the related notes thereto presented under Item 1 in this Quarterly Report on Form
10-Q. All information presented is consolidated data unless otherwise specified.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This quarterly report on Form 10-Q contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent
expectations and beliefs of the Company and Mechanics and Farmers Bank (the “Bank”), including but not limited to the
Company’s operations, performance, financial condition, growth or strategies. These forward-looking statements are identified
by words such as “expects”, “anticipates”, “should”, “estimates”, “believes”
and variations of these words and other similar statements. For this purpose, any statements contained in this quarterly report
on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Readers should not place
undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These forward-looking statements involve estimates, assumptions, risks and uncertainties
that could cause actual results to differ materially from current projections depending on a variety of important factors, including
but not limited to those risk factors identified in the section headed "Risk Factors", beginning on page 10 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission (the
"SEC") on March 29, 2013 (the "Annual Report"). The Company undertakes no obligation to update any forward-looking
statement, whether written or not, which may be made from time to time by or on behalf of the Company.
IMPACT OF RECENT DEVELOPMENTS ON THE BANKING
INDUSTRY
In
2010,
the
Dodd-
Fran
k
Wal
l
Stree
t
Refor
m
an
d
Consume
r
Protectio
n
Ac
t
(the
“
Dodd
-
Fran
k
Act
”
)
wa
s
signe
d
int
o
law
.
Th
e
Dodd
-
Fran
k
Ac
t
wa
s
intende
d
primaril
y
t
o
overhau
l
th
e
financia
l
regulator
y
framewor
k
followin
g
the
globa
l
financia
l
crisi
s
an
d
ha
s
impacted
,
an
d
wil
l
continu
e
t
o
impact
,
al
l
financia
l
institution
s
includin
g
th
e
Compan
y
an
d
th
e
Bank
.
Th
e
Dodd
-Frank
Ac
t
contain
s
provision
s
tha
t
have
,
amon
g
othe
r
things
,
establishe
d
a
Burea
u
o
f
Consume
r
Financia
l
Protectio
n
(th
e
"CFPB")
,
establishe
d
a
systemic
ris
k
regulator
,
consolidate
d
certai
n
federa
l
ban
k
regulator
s
an
d
impose
d
increase
d
corporat
e
governanc
e
an
d
executiv
e
compensatio
n
requirements on financial institutions.
Th
e
Dodd
-
Fran
k
Ac
t
require
s
variou
s
federa
l
agencie
s
t
o
adop
t a
broa
d
rang
e
o
f
ne
w
implementin
g
rule
s
an
d
regulation
s
an
d
t
o
prepar
e
numerous
studie
s
an
d
report
s
fo
r
th
e
U.S
.
Congress
.
Th
e
federa
l
agencie
s
ar
e
give
n
significan
t
discretio
n
i
n
draftin
g
an
d
implementin
g
regulations
.
Many
regulation
s
hav
e
bee
n
promulgated
,
and more
additiona
l
regulation
s
ar
e
expecte
d
t
o
b
e
issue
d
i
n
2013
an
d
thereafter
.
Consequently,
man
y
o
f
th
e
detail
s
an
d
muc
h
o
f
th
e
impac
t
o
f
th
e
Dodd
-
Fran
k
Ac
t
ma
y
no
t
b
e
know
n
fo
r
man
y
month
s
o
r
years.
Many of the provisions of the Dodd-Frank Act
are focused on financial institutions that are significantly larger than the Company and the Bank. As rules and regulations are
promulgated by the federal agencies, the Bank will have to address each to ensure compliance with applicable provisions of the
Act and compliance costs are expected to increase.
It is expected that the Dodd-Frank Act and
the regulations it requires could increase the non-interest expense and compliance costs of the Bank and comparable financial institutions.
Although neither the possible increase in the Bank’s non-interest expense and compliance costs, nor any one or more of the
other aspects of Dodd-Frank Act discussed above, may have a material effect upon the Company’s future financial performance
by themselves, the specific impact of the Dodd-Frank Act cannot be determined with specificity until after all required or otherwise
proposed regulations are issued in final form. We believe that our operating income will be adversely affected, as will the operating
expenses of other community financial institutions, in the future as a consequence of the implementation of the Dodd-Frank Act.
Because of the current uncertainty about the schedule of implementation, the breadth of the regulations expected to be issued,
and other similar factors, we cannot quantify the amount of any adverse impact.
The banking industry, including the Company,
is operating in a challenging and volatile economic environment. The effects of the downturn in the housing market have adversely
impacted credit markets, consumer confidence and the broader economy. Although the Bank remains profitable, it has not been immune
to the impact of the recent recession or the increased focus of banking regulators upon capital and liquidity levels.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
EXECUTIVE SUMMARY
As
discussed in more detail below, the following is an executive summary of the Company’s significant results for the three
months ended June 30, 2013.
|
·
|
Net loss before preferred stock dividends was $7 thousand for
the three months ended June 30, 2013 compared to net income of $183 thousand for the three months ended June 30, 2012. For the
three months ended June 30, 2013, net loss available to common stockholders was $66 thousand or $.03 per common share. For the
three months ended June 30, 2012, net income available to common stockholders was $124 thousand or $0.06 per common share.
|
|
·
|
Interest income on loans decreased by $122 thousand or 4.69%,
while interest income on investments and cash decreased $52 thousand resulting in total interest income being $2.7 million –
a decrease of $174 thousand over the comparable period in 2012. Average loans outstanding for the three months ended June 30, 2013
decreased $827 thousand from June 30, 2012, and the rate for average loan interest earned decreased 25 basis points compared to
June 30, 2012.
|
|
·
|
Interest expense on deposits decreased $42 thousand, while interest
expense on borrowings decreased by $14 thousand, resulting in total interest expense being $56 thousand less in the three months
ended June 30, 2013 compared to the three months ended June 30, 2012. Average interest-bearing deposits outstanding decreased $10.9
million compared to the three months ended June 30, 2012, and the average cost of those deposits decreased 6 basis points (“bps”)
in the three months ended June 30, 2013 compared to the same period in June 30, 2012. Average borrowings in the three months ended
June 30, 2013 decreased $2.0 million compared to June 30, 2012, and the cost of those borrowings decreased 132 bps over the comparable
period.
|
|
·
|
Net interest income, due to the above factors, decreased $118
thousand for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. The net interest margin, on
a tax equivalent (“TE”) basis for the three months ended June 30, 2013 was 3.92% compared to 3.83% for the three months
ended June 30, 2012, an increase of 9 bps.
|
|
·
|
The balance of the ALLL as a percentage of loans outstanding
decreased slightly in 2013 to 1.86% as of June 30, 2013 compared to 2.00% as of December 31, 2012. Loans outstanding decreased
$1.4 million from December 31, 2012, and net charge-offs were $267 thousand during the three months ended June 30, 2013 compared
to net charge-offs of $62 thousand during the three months ended June 30, 2012. No provision for loan losses was made during second
quarter ended June 30, 2013 compared to a provision of $44 thousand during the comparable period in 2012.
|
|
·
|
Noninterest income decreased by $86 thousand in the second quarter
of 2013 compared to the same period in 2012, mainly due to realized gains on the sales of investment securities of $134 thousand
in the 2012 period compared to none during the 2013 period, partially offset with $26 thousand in realized gain on the sale of
OREO during 2013 compared to a $27 thousand realized loss on the sale of OREO during 2012.
|
|
·
|
Noninterest expense increased $131 thousand in the second quarter
of 2013 compared to the same period in 2012 primarily driven by increases in net OREO expense, which increased $170 thousand. The
increase was partially offset by decreases in directors fees, marketing, professional fees and information technology.
|
|
·
|
Preferred stock dividends and accretion in the quarters ended
June 30, 2013 and 2012 were $59 thousand. The dividend yield for the three months ended June 30, 2013 and 2012 was 2.00%.
|
As
discussed in more detail below, the following is an executive summary of the Company’s significant results for the six months
ended June 30, 2013.
|
·
|
Net income before preferred stock dividends was $3 thousand for
the six months ended June 30, 2013 compared to net income of $326 thousand for the six months ended June 30, 2012. For the six
months ended June 30, 2013, net loss available to common stockholders was $115 thousand or $0.06 per common share. For the six
months ended June 30, 2012, net income available to common stockholders was $207 thousand or $0.10 per common share.
|
|
·
|
Interest income on loans decreased by $282 thousand or 5.43%,
while interest income on investments and cash decreased $127 thousand resulting in total interest income being $5.3 million –
a decrease of $409 thousand over the comparable period in 2012. Average loans outstanding for the six months ended June 30, 2013
decreased $5.0 million from June 30, 2012, and the rate for average loan interest earned decreased 16 bps compared to June 30,
2012.
|
|
·
|
Interest expense on deposits decreased $105 thousand, while interest
expense on borrowings decreased $36 thousand, resulting in total interest expense being $141 thousand less in the six months ended
June 30, 2013 compared to the six months ended June 30, 2012. Average interest-bearing deposits outstanding decreased $9.6 million
compared to the six months ended June 30, 2012, and the average cost of those deposits decreased 8 bps in the six months ended
June 30, 2013 compared to the same period in 2012. Average borrowings in the six months ended June 30, 2013 decreased $1.0 million
compared to June 30, 2012, and the cost of those borrowings increased 235 bps during the comparable period.
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
|
·
|
Net interest income, due to the above factors, decreased $268
thousand for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. The net interest margin, on a tax
equivalent (“TE”) basis for the six months ended June 30, 2013 and 2012 was 3.76%.
|
|
·
|
The balance of the ALLL as a percentage of loans outstanding
decreased slightly in 2013 to 1.86% as of June 30, 2013 compared to 2.00% as of December 31, 2012. Loans outstanding decreased
$1.4 million from December 31, 2012, and net charge-offs were $265 thousand during the six months ended June 30, 2013 compared
to net charge-offs of $215 thousand during the six months ended June 30, 2012. No provision for loan losses was made during six
months ended June 30, 2013 compared to a provision of $44 thousand during the comparable period in 2012.
|
|
·
|
Noninterest income decreased by $167 thousand during the six
months ended June 30, 2013 compared to the same period in 2012, mainly due to realized gains on the sales of investment securities
of $189 thousand in the 2012 period compared to none during the 2013 period, partially offset with $28 thousand in realized gain
on the sale of OREO during 2013 compared to $26 thousand realized loss on the sale of OREO during 2012.
|
|
·
|
Noninterest expense increased $39 thousand in 2013 compared to
the same period in 2012 primarily driven by increases in occupancy, net OREO expense, and professional fees. These increases were
partially offset by decreases in information technology, FDIC deposit insurance, and delivery expenses.
|
|
·
|
Preferred stock dividends and accretion for the six months ended
June 30, 2013 and 2012 were $118 thousand and $119 thousand, respectively. The dividend yield for the six months ended June 30,
2013 and 2012 was 2.00%.
|
CRITICAL ACCOUNTING
POLICIES AND ESTIMATES
The following discussion and analysis of the
Company’s financial condition and results of operations are based on the Company’s Consolidated Financial Statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties that
affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for loan losses, investment
values, income taxes, contingencies, and litigation. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. However, because future events
and their effects cannot be determined with certainty, actual results may differ from these estimates under different assumptions
or conditions, and the Company may be exposed to gains or losses that could be material.
The Company’s significant accounting
policies are discussed below and in the Annual Report. Management believes that the following accounting policies are the most
critical to aid in fully understanding and evaluating the Company’s reported financial results, and they require management’s
most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are
inherently uncertain. Management has reviewed these critical accounting policies and related disclosures with the Audit Committee
of the Board of Directors.
|
·
|
ALLL – The Company records an estimated ALLL for loan losses based on known problem loans
and estimated risks inherent within the existing loan portfolio. The allowance calculation takes into account historical loss trends,
current market, and economic conditions. If economic conditions were to decline significantly or the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional increases
to the allowance may be required.
|
|
·
|
Investments – The Company records an investment impairment charge when it believes an investment
has experienced a decline in value that is other than temporary. Future adverse changes in market conditions and associated market
values of investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected
in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
|
|
·
|
Deferred Taxes – The Company assesses the need to record a valuation allowance to reduce
its deferred tax assets to the amount that is more likely than not to be realized. The Company considers anticipated future taxable
income and ongoing prudent and feasible tax planning strategies in determining the need for the valuation allowance which, at this
time, it deems not to be necessary. In the event the Company were to determine that it would not be able to realize all or part
of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such
determination was made.
|
|
·
|
Foreclosed Assets - Foreclosed assets represent properties acquired through foreclosure or physical
possession. Write-downs to fair value of foreclosed assets at the time of transfer are charged to allowance for loan losses. Subsequent
to foreclosure, the Company periodically evaluates the value of foreclosed assets held for sale and records an impairment charge
for any subsequent declines in fair value less selling costs. Subsequent declines in value are charged to operations. Fair value
is based on an assessment of information available at the end of a reporting period and depends upon a number of factors, including
historical experience, economic conditions, and issues specific to individual properties. The evaluation of these factors involves
subjective estimates and judgments that may change.
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
|
·
|
Fair Value Estimates- Fair value is the price that would be received to sell an asset or paid to
transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market
participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument
is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are traded
actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value.
However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be
necessary to estimate fair value. In developing our fair value measurements, we maximize the use of observable inputs and minimize
the use of unobservable inputs.
|
|
·
|
The fair value hierarchy defines Level 1 and 2 valuations as those that are based on quoted
prices for identical instruments traded in active markets and quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market. Level 3 valuations are based on model-based techniques that use at least one significant
assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that we believe market
participants would use in pricing the asset or liability. Financial assets that are recorded at fair value on a recurring basis
include available-for-sale investment securities.
|
FINANCIAL CONDITION
The Company’s financial condition is
measured in terms of its asset and liability composition, asset quality, capital resources and liquidity.
Assets.
Total assets decreased from
$296.1 million at December 31, 2012 to $282.5 million at June 30, 2013. The largest component of asset decline was in cash and
cash equivalents, which decreased $12.3 million from December 31, 2012 to June 30, 2013. The decrease in cash was primarily caused
by the decrease of $10.4 million in total deposits. Investment securities decreased by $4.7 million, primarily due to $577 thousand
net premium amortization during the period and investment maturities of $9.1 million, partially offset by $5.7 million in investment
purchases. Gross loans decreased $1.4 million primarily due to the disposition of a $3.0 million loan participation, partially
offset with the issuance of new loans. Other real estate owned (“OREO”) decreased slightly from $3.1 million at December
31, 2012 to $2.9 million at June 30, 2013.
Liabilities.
Total liabilities decreased
from $259.8 million at December 31, 2012 to $246.8 million at June 30, 2013. The change was primarily driven by an $11.0 million
decrease in Bank’s time deposits greater than $100,000 – primarily Certificate of Deposit Account Registry Service
(“CDARS”) deposits, which are subject to significant seasonal volatility. Other borrowings decreased by $2.1 million,
primarily due to the reclassification of previously non-qualifying loan participation purchases not meeting the treatment for Sale
Accounting under GAAP.
Stockholders’ Equity.
Total consolidated
stockholders’ equity decreased from $36.3 million at December 31, 2012 to $35.7 million at June 30, 2013. For the six months
ended June 30, 2013, the net decrease in retained earnings was primarily comprised of $3 thousand of net income, offset by dividends
and accretion on preferred stock of $118 thousand. The Company did not pay a common stock dividend during the six months ended
June 30, 2013. Accumulated other comprehensive loss represents the unrealized gain or loss on available-for-sale securities and
the unrealized gain or loss related to the deferred pension liability, net of deferred taxes. Accumulated other comprehensive loss
totaled $1.8 million at June 30, 2013 compared to $1.4 million at December 31, 2012.
RESULTS OF
OPERATIONS
Three months ended June 30, 2013 compared
with three months ended June 30, 2012
|
·
|
Net loss before preferred stock dividends was $7 thousand and
$183 thousand for the three months ended June 30, 2013 and 2012, respectively. Net loss available to common stockholders for the
three months ended June 30, 2013 was $66 thousand or $.03 per share. Net income available to common stockholders for the three
months ended June 30, 2012 was $124 thousand or $0.06 per share.
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
|
·
|
Net operating income before income taxes and preferred dividends
for the three months ended June 30, 2013 and 2012 was $10 thousand and $281 thousand respectively.
|
|
o
|
Net interest margin increased from 3.83% for the three months
ended June 30, 2012 to 3.92% for the three months ended June 30, 2013 due to:
|
|
§
|
Average loans outstanding decreased $827 thousand the second
quarter of 2013 over the comparable period in 2012, while average yield decreased 25 bps to 5.54%. The combined effect resulted
in a $122 thousand decrease in interest income from loans.
|
|
§
|
Average interest bearing deposits outstanding decreased $10.9
million in the second quarter of 2013 over the comparable period in 2012. Interest expense declined by $56 thousand during the
three months ended June 30, 2013 compared to the same period in 2012 due to an 6 bps reduction in the average yield on deposits
coupled with a decrease in average balances outstanding.
|
|
§
|
Average borrowings outstanding decreased $14 thousand from the
2012 average balance, and the average rate paid on borrowings decreased from 2.21% in the second quarter of 2012 to .89% in the
comparable period in 2013.
|
|
o
|
Noninterest income decreased $86 thousand in the second quarter
of 2013 from the comparable period in 2012, predominantly due to the realized gains on the sales of investment securities of $134
thousand in the second quarter of 2012 compared to none during the comparable period in 2013, partially offset by an increase of
$8 thousand in rental income and a $5 thousand realized gain at foreclosure.
|
|
o
|
Noninterest expense increased $131 thousand in 2013 compared
to the same period in 2012 primarily driven by a $170 thousand increase in net OREO expenses and $25 thousand in salaries and employee
benefits, partially offset with a $33 thousand decrease in information technology and $18 thousand in other expenses.
|
|
o
|
Preferred stock dividends and accretion in the quarters ended
June 30, 2013 and 2012 were $59 thousand. Dividend yield for the three months ended June 30, 2013 and 2012 was 2.00%.
|
Net Interest Income.
Net interest income,
the difference between total interest income from loans and investments, and total interest expenses from deposits and borrowings,
is the Company’s principal source of earnings. The amount of net interest income is determined by the volume of interest-earning
assets, the level of rates earned on those assets, and the volume and cost of underlying funding from deposits and borrowings.
Net interest income decreased $118 thousand, or 4.49%, from $2.6 million for the three months ended June 30, 2012, to $2.5 million
for the three months ended June 30, 2013. Net interest spread is the difference between rates earned on interest-earning assets
and the interest paid on deposits and borrowed funds. Net interest margin is the total of net interest income divided by average
earning assets. Average earning assets for the three months ended June 30, 2013 was $256.7 million, down 7.25% compared to $276.7
million for the three months ended June 30, 2012. On a fully TE basis, net interest margin was 3.92% and 3.83% for the three months
ended June 30, 2013 and June 30, 2012, respectively. The net interest spread increased 13 bps to 3.83% for the three months ended
June 30, 2013 from 3.70% for the three months ended June 30, 2012. The yield on average interest-earning assets was 4.20% and 4.16%
for the three months ended June 30, 2013 and June 30, 2012, respectively, an increase of 4 bps, while the interest rate on average
interest-bearing liabilities for those periods was 0.37% and 0.46%, respectively, a decrease of 9 bps due to the ongoing low interest
rate environment.
Interest income decreased 6.08% for the three
months ended June 30, 2013 to $2.7 million from $2.9 million for the three months ended June 30, 2012. The average balances of
loans, which had overall yields of 5.54% for the three months ended June 30, 2013 and 5.79% for the three months ended June 30,
2012, respectively, decreased from $179.7 million for the three months ended June 30, 2012 to $178.9 million for the three months
ended June 30, 2013. The average balance of investment securities increased $12.8 million from $45.4 million for the three months
ended June 30, 2012 to $58.2 million for the three months ended June 30, 2013. The TE yield on investment securities decreased
from 2.16% for the three months ended June 30, 2012 to 1.40% for the three months ended June 30, 2013. The average balances of
federal funds and other short-term investments decreased from $51.6 million for the three months ended June 30, 2012 to $19.6 million
for the three months ended June 30, 2013. The average yield in this category was 0.22% and 0.26% during the second quarter of 2013
and 2012, respectively.
Interest expense decreased 24.14% for the three
months ended June 30, 2013 to $176 thousand from $232 thousand for the three months ended June 30, 2012. Average total interest-bearing
deposits, including savings, interest-bearing demand deposits and time deposits decreased from $198.8 million for the three months
ended June 30, 2012 to $187.9 million for the three months ended June 30, 2013. The average rate paid on interest-bearing deposits
decreased 6 bps from 0.43% for the three months ended June 30, 2012 to 0.37% for the three months ended June 30, 2013.
The average rate on borrowings decreased from
2.21% for the three months ended June 30, 2012 to .89% for the three months ended June 30, 2013. The average borrowings outstanding
decreased $2.0 million from the $2.9 million during three months ended June 30, 2012 to $0.9 million during the three months ended
June 30, 2013. The interest expense on borrowed funds decreased $14 thousand to $2 thousand in the second quarter of 2013 compared
to the same period in 2012.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
The following table, Average Balances, Interest
Earned or Paid, and Interest Yields/Rates reflects the Company’s effective yield on earning assets and cost of funds. Yields
and costs are computed by dividing income or expense for the year by the respective daily average asset or liability balance. Changes
in net interest income from year to year can be explained in terms of fluctuations in volume and rate. In the table, the amount
earned on nontaxable securities is reflected as actual, whereas the rate on nontaxable securities is stated at the TE rate.
Average Balances, Interest Earned or Paid, and Interest Yields/Rates
|
For the Three Months Ended June 30, 2013 and 2012
|
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
(Unaudited)
|
|
Average
Balance
|
|
|
Amount
Earned/Paid
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Amount
Earned/Paid
|
|
|
Average
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1):
|
|
$
|
178,918
|
|
|
$
|
2,478
|
|
|
|
5.54
|
%
|
|
$
|
179,745
|
|
|
$
|
2,600
|
|
|
|
5.79
|
%
|
Taxable securities
|
|
|
57,281
|
|
|
|
189
|
|
|
|
1.32
|
|
|
|
42,385
|
|
|
|
198
|
|
|
|
1.87
|
|
Nontaxable securities(2)
|
|
|
890
|
|
|
|
9
|
|
|
|
6.58
|
|
|
|
2,994
|
|
|
|
29
|
|
|
|
6.30
|
|
Federal funds sold and other interest on short-term investments
|
|
|
19,575
|
|
|
|
11
|
|
|
|
0.22
|
|
|
|
51,594
|
|
|
|
34
|
|
|
|
0.26
|
|
Total interest earning assets
|
|
|
256,664
|
|
|
|
2,687
|
|
|
|
4.20
|
%
|
|
|
276,718
|
|
|
|
2,861
|
|
|
|
4.16
|
%
|
Cash and due from banks
|
|
|
2,670
|
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
20,699
|
|
|
|
|
|
|
|
|
|
|
|
20,701
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(3,415
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,756
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
276,618
|
|
|
|
|
|
|
|
|
|
|
$
|
295,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
49,647
|
|
|
$
|
20
|
|
|
|
0.16
|
%
|
|
$
|
55,217
|
|
|
$
|
28
|
|
|
|
0.20
|
%
|
Interest-bearing demand deposits
|
|
|
21,817
|
|
|
|
4
|
|
|
|
0.07
|
|
|
|
22,992
|
|
|
|
8
|
|
|
|
0.14
|
|
Time deposits
|
|
|
116,484
|
|
|
|
150
|
|
|
|
0.52
|
|
|
|
120,594
|
|
|
|
180
|
|
|
|
0.60
|
|
Total interest-bearing deposits
|
|
|
187,948
|
|
|
|
174
|
|
|
|
0.37
|
|
|
|
198,803
|
|
|
|
216
|
|
|
|
0.43
|
|
Borrowed funds
|
|
|
899
|
|
|
|
2
|
|
|
|
0.89
|
|
|
|
2,902
|
|
|
|
16
|
|
|
|
2.21
|
|
Total interest-bearing liabilities
|
|
|
188,847
|
|
|
|
176
|
|
|
|
0.37
|
%
|
|
|
201,705
|
|
|
|
232
|
|
|
|
0.46
|
%
|
Non-interest-bearing deposits
|
|
|
45,935
|
|
|
|
|
|
|
|
|
|
|
|
51,906
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,810
|
|
|
|
|
|
|
|
|
|
|
|
5,697
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
240,592
|
|
|
|
|
|
|
|
|
|
|
|
259,308
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
36,026
|
|
|
|
|
|
|
|
|
|
|
|
36,536
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
276,618
|
|
|
|
|
|
|
|
|
|
|
$
|
295,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
2,511
|
|
|
|
|
|
|
|
|
|
|
$
|
2,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable securities
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
Tax equivalent adjustment (3)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income
|
|
|
|
|
|
$
|
2,517
|
|
|
|
|
|
|
|
|
|
|
$
|
2,647
|
|
|
|
|
|
Net interest spread (4)
|
|
|
|
|
|
|
|
|
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
3.70
|
%
|
Net interest margin (5)
|
|
|
|
|
|
|
3.92
|
%
|
|
|
|
|
|
|
|
|
|
|
3.83
|
%
|
|
|
|
|
(1) Loans receivable include nonaccrual loans for which accrual of interest income has not been recorded.
(2) The tax equivalent rate is computed using a blended federal and state tax rate of 38.55%
(3) The tax equivalent adjustment is computed using a blended tax rate of 38.55%.
(4) Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5) Net interest margin represents net
interest income divided by average interest-earning assets.
Provision for loan losses.
The
provision for loan losses amounted to $0 and $44 thousand for the three months ended June 30, 2013 and 2012, respectively. The
amount of the provision for loan losses decreased in 2013 primarily because of a decrease in historical loss ratios uses to calculate
the allowance for loan losses on performing loans in 2013 and a decrease of $1.4 million in loans outstanding.
Noninterest Income
. Noninterest income
decreased 14.80%, or $86 thousand, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. During
the second quarter of 2012, the Company realized $134 thousand from gains on the sales of investment securities, compared to none
during the comparable period in 2013. Service charge income decreased by $9 thousand primarily due to lower fees earned from overdraft
and non-sufficient-fee (“NSF”) income, which is customer activity based. Rental income increased by $8 thousand for
the three months ended June 30, 2013 when compared to the same period in 2012. The increase in rental income was driven by higher
occupancy rates during the second quarter of 2013 as compared to the same period in 2012. The Company realized net gains of $26
thousand on the sales of OREO during the second quarter of 2013 compared to net losses of $27 thousand during the same period in
2013.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
Noninterest Expense.
Noninterest expense
represents the costs of operating the Company and the Bank. Management regularly monitors all categories of noninterest expense
with the goal of improving productivity and operating performance. Noninterest expense increased 4.54% to $3.0 million for the
three months ended June 30, 2013 from $2.9 million for the three months ended June 30, 2012.
Salaries and employee benefits expenses for
the three months ended June 30, 2013 and June 30, 2012 were $1.4 million.
Occupancy expense increased $2 thousand in
the three months ended June 30, 2013 from the same period in 2012. Increases in security services and depreciation and insurance
led to the increase in occupancy expense.
Information technology costs decreased by 13.75%,
or $33 thousand, to $207 thousand during the second quarter of 2013, mainly due to decreased core processing and communications
charges.
Directors and advisory board fees decreased
by $7 thousand for the period ended June 30, 2013 to $74 thousand. The decrease reflects a decreased number of meetings held during
the period. Professional fees decreased by $31 thousand in 2013 compared to 2012 due to the decreased use of consultants, legal
and audit expenses. OREO expenses increased $170 thousand during the period as a result of valuation adjustments on OREO.
In the second quarter of 2013, FDIC insurance
premiums decreased $2 thousand due to a decrease in the Bank’s insurance rate and lower average deposits.
Other expenses increased $18 thousand for the
three months ended June 30, 2013 from the three months ended June 30, 2012. The increase was primarily driven by increases in supplies,
franchise taxes and miscellaneous expenses, partially offset with decreases in training and development and bankers blanket bond
insurance.
Provision for Income Taxes
. The Company
recorded an income tax benefit of $3 thousand for the three months ended June 30, 2013 and $98 thousand provision for income taxes
for the three months ended June 30, 2012. The overall effective rate was of 30.00% and 34.83% for the quarters ended June 30, 2013
and 2012. The lower effective tax rate during 2013 was largely driven by permanent differences in non-taxable income in proportion
to taxable income during the period.
Six months ended June 30, 2013 compared
with six months ended June 30, 2012
|
·
|
Net income before preferred stock dividends was $3 thousand and
$326 thousand for the six months ended June 30, 2013 and 2012, respectively. Net loss available to common stockholders for the
six months ended June 30, 2013 was $115 thousand or $0.06 per share. Net income available to common stockholders for the six months
ended June 30, 2012 was $207 thousand or $0.10 per share.
|
|
·
|
Net operating income before income taxes and preferred dividends
for the six months ended June 30, 2013 and 2012 was $4 thousand and $434 thousand respectively.
|
|
o
|
Net interest margin remained unchanged at 3.76% for the six months
ended June 30, 2013 and 2012 due to:
|
|
§
|
Average loans outstanding decreased $5.0 million in the six months
of 2013 over the comparable period in 2012, and the average yield decreased 16 bps to 5.56%. The combined effect resulted in a
$282 thousand decrease in interest income from loans.
|
|
§
|
Average interest bearing deposits outstanding decreased $9.6
million during the six months of 2013 over the comparable period in 2012. Interest expense declined by $106 thousand during the
six months ended June 30, 2013 compared to the same period in 2012 due to an 8 bps reduction in the average yield on deposits coupled
with a decrease in average balances outstanding.
|
|
§
|
Average borrowings outstanding decreased $1.0 million from the
2012 average balance, and the average rate paid on borrowings decreased from 2.66% during the six months of 2012 to 0.31% in during
the comparable period in 2013.
|
|
o
|
Noninterest income decreased $167 thousand during the six month
period ending June 30, 2013 from the comparable period in 2012, predominantly due to the realized gain on the sale of investment
securities of $189 thousand in the period ended June 30, 2012 compared to none during comparable period in 2013, partially offset
with $28 realized gain on the sale of OREO during the six month period ended June 30, 2013 compared to $26 thousand realized loss
on the sale of OREO during the comparable period in 2012.
|
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
|
o
|
Noninterest expense increased $39 thousand in 2013 compared to
the same period in 2012 primarily driven by a $104 thousand increase in OREO expenses and a $33 thousand increase in professional
fees, partially offset with lower information technology, FDIC deposit insurance and delivery expenses.
|
|
o
|
Preferred stock dividends and accretion during the periods ended
June 30, 2013 and 2012 were $118 thousand and $119 thousand, respectively. Dividend yield for the six months ended June 30, 2013
and 2012 was 2.00%.
|
Net Interest Income.
Net interest income,
the difference between total interest income from loans and investments, and total interest expenses from deposits and borrowings,
is the Company’s principal source of earnings. The amount of net interest income is determined by the volume of interest-earning
assets, the level of rates earned on those assets, and the volume and cost of underlying funding from deposits and borrowings.
Net interest income decreased $268 thousand, or 5.12%, from $5.2 million for the six months ended June 30, 2012, to $5.0 million
for the six months ended June 30, 2013. Net interest spread is the difference between rates earned on interest-earning assets and
the interest paid on deposits and borrowed funds. Net interest margin is the total of net interest income divided by average earning
assets. Average earning assets for the six months ended June 30, 2013 was $264.7 million, down 5.82% compared to $281.1 million
for the six months ended June 30, 2012. On a fully TE basis, net interest margin was 3.76% for the six months ended June 30, 2013
and 2012. The net interest spread increased 4 bps to 3.67% for the six months ended June 30, 2013, from 3.63% for the six months
ended June 30, 2012. The yield on average interest-earning assets was 4.04% and 4.12% for the six months ended June 30, 2013 and
2012, respectively, a decrease of 8 bps, while the interest rate on average interest-bearing liabilities for those periods was
0.37% and 0.49%, respectively, a decrease of 12 bps due to the ongoing low interest rate environment.
The Company’s balance sheet is asset
sensitive and, as a result, interest-earning assets are re-pricing faster than interest-bearing liabilities. In theory, the Company
is better positioned for a rising rate environment.
Interest income decreased 7.12% for the six
months ended June 30, 2013 to $5.3 million from $5.7 million for the six months ended June 30, 2012. The average balance of loans,
which had overall yields of 5.56% for the six months ended June 30, 2013 and 5.72% for the six months ended June 30, 2012, respectively,
decreased from $181.6 million for the six months ended June 30, 2012 to $176.6 million for the six months ended June 30, 2013.
The average balance of investment securities increased $17.7 million from $42.0 million for the three months ended June 30, 2012
to $59.7 million for the six months ended June 30, 2013. The TE yield on investment securities decreased from 2.47% for the six
months ended June 30, 2012 to 1.33% for the six months ended June 30, 2013. The average balances of federal funds and other short-term
investments decreased from $57.4 million for the six months ended June 30, 2012 to $28.4 million for the six months ended June
30, 2013. The average yield in this category was 0.25% during the six month periods of 2013 and 2012.
Interest expense decreased 27.81% for the six
months ended June 30, 2013 to $366 thousand from $507 thousand for the six months ended June 30, 2012. Average total interest-bearing
deposits, including savings, interest-bearing demand deposits and time deposits decreased from $202.6 million for the six months
ended June 30, 2012 to $192.9 million for the six months ended June 30, 2013. The average rate paid on interest-bearing deposits
decreased 8 bps from 0.46% for the six months ended June 30, 2012 to 0.38% for the three months ended June 30, 2013, primarily
in response to the decreases in rates paid on time deposits.
The average rate on borrowings decreased from
2.66% for the six months ended June 30, 2012 to 0.31% for the six months ended June 30, 2013. The average borrowings outstanding
decreased $1.0 million from $2.9 million for the six months ended June 30, 2012 to $1.9 million for the six months ended June 30,
2013. The interest expense on borrowed funds decreased from $39 thousand for 2012 to $3 thousand for 2013.
The following table, Average Balances, Interest
Earned or Paid, and Interest Yields/Rates reflects the Company’s effective yield on earning assets and cost of funds. Yields
and costs are computed by dividing income or expense for the year by the respective daily average asset or liability balance. Changes
in net interest income from year to year can be explained in terms of fluctuations in volume and rate. In the table, the amount
earned on nontaxable securities is reflected as actual, whereas the rate on nontaxable securities is stated at the TE rate.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
Average Balances, Interest Earned or Paid, and Interest Yields/Rates
|
For the Six Months Ended June 30, 2013 and 2012
|
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
(Unaudited)
|
|
Average
Balance
|
|
|
Amount
Earned/Paid
|
|
|
Average
Rate
|
|
|
Average
Balance
|
|
|
Amount
Earned/Paid
|
|
|
Average
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable (1):
|
|
$
|
176,631
|
|
|
$
|
4,911
|
|
|
|
5.56
|
%
|
|
$
|
181,625
|
|
|
$
|
5,193
|
|
|
|
5.72
|
%
|
Taxable securities
|
|
|
58,820
|
|
|
|
368
|
|
|
|
1.25
|
|
|
|
38,596
|
|
|
|
407
|
|
|
|
2.11
|
|
Nontaxable securities(2)
|
|
|
891
|
|
|
|
18
|
|
|
|
6.58
|
|
|
|
3,445
|
|
|
|
69
|
|
|
|
6.52
|
|
Federal funds sold and other interest on short-term investments
|
|
|
28,359
|
|
|
|
36
|
|
|
|
0.25
|
|
|
|
57,391
|
|
|
|
73
|
|
|
|
0.25
|
|
Total interest earning assets
|
|
|
264,701
|
|
|
|
5,333
|
|
|
|
4.04
|
%
|
|
|
281,057
|
|
|
|
5,742
|
|
|
|
4.12
|
%
|
Cash and due from banks
|
|
|
2,794
|
|
|
|
|
|
|
|
|
|
|
|
2,263
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
20,777
|
|
|
|
|
|
|
|
|
|
|
|
20,794
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(3,469
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,826
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
284,803
|
|
|
|
|
|
|
|
|
|
|
$
|
300,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
50,918
|
|
|
$
|
42
|
|
|
|
0.16
|
%
|
|
$
|
55,510
|
|
|
$
|
61
|
|
|
|
0.22
|
%
|
Interest-bearing demand deposits
|
|
|
23,140
|
|
|
|
9
|
|
|
|
0.08
|
|
|
|
24,542
|
|
|
|
16
|
|
|
|
0.13
|
|
Time deposits
|
|
|
118,882
|
|
|
|
312
|
|
|
|
0.52
|
|
|
|
122,506
|
|
|
|
391
|
|
|
|
0.64
|
|
Total interest-bearing deposits
|
|
|
192,940
|
|
|
|
363
|
|
|
|
0.38
|
|
|
|
202,558
|
|
|
|
468
|
|
|
|
0.46
|
|
Borrowed funds
|
|
|
1,910
|
|
|
|
3
|
|
|
|
0.31
|
|
|
|
2,930
|
|
|
|
39
|
|
|
|
2.66
|
|
Total interest-bearing liabilities
|
|
|
194,850
|
|
|
|
366
|
|
|
|
0.38
|
%
|
|
|
205,488
|
|
|
|
507
|
|
|
|
0.49
|
%
|
Non-interest-bearing deposits
|
|
|
47,988
|
|
|
|
|
|
|
|
|
|
|
|
52,515
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
5,890
|
|
|
|
|
|
|
|
|
|
|
|
5,791
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
248,728
|
|
|
|
|
|
|
|
|
|
|
|
263,794
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
36,075
|
|
|
|
|
|
|
|
|
|
|
|
36,494
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
284,803
|
|
|
|
|
|
|
|
|
|
|
$
|
300,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
4,967
|
|
|
|
|
|
|
|
|
|
|
$
|
5,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable securities
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
Tax equivalent adjustment (3)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent net interest income
|
|
|
|
|
|
$
|
4,978
|
|
|
|
|
|
|
|
|
|
|
$
|
5,278
|
|
|
|
|
|
Net interest spread (4)
|
|
|
|
|
|
|
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
3.63
|
%
|
Net interest margin (5)
|
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
(1) Loans receivable include nonaccrual loans for which accrual of interest income has not been recorded.
(2) The tax equivalent rate is computed using a blended federal and state tax rate of 38.55%
(3) The tax equivalent adjustment is computed using a blended tax rate of 38.55%.
(4) Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average interest-earning assets.
Provision for loan losses.
A
s
o
f
June 30, 2013 and December 31,
2012, the ALLL was $3.2 million and $3.5 million, respectively, w
hic
h
represente
d
approximatel
y 1.86%
and 2.00%
o
f
loans
outstanding
,
ne
t
o
f
unearne
d
incom
e
an
d
deferre
d
cost
s
("ne
t
loan
s
outstanding")
,
o
n
thos
e
respectiv
e dates. During the
fourth quarter of 2012, the Company converted from a spreadsheet calculated ALLL to a more robust system provided by a third party
servicing company. Historic quantitative and qualitative factors were carried forward to the new system as well as an eight quarter
look back period for measuring loss histories. Slight variations in loss history calculations from the old system to the new system
resulted in a variance of approximately $261 thousand at December 31, 2012. Management elected to retain the variance as an unallocated
reserve as the team continued to validate and integrate nuances in the new system. During the six months ended June 30, 2013, management
determined it was comfortable with the model’s calculation methodology and therefore allocated a significant portion of the
previously unallocated reserve to accommodate qualitative and quantitative adjustments in the loan portfolio for the quarter. At
June 30, 2013, the unallocated reserve totaled $13 thousand. For the six months ended June 30, 2013, the there was no provision
for loan losses compared to $44 thousand during the comparable 2012 period. We believe the allowance for loan losses is appropriate
based on asset quality indicators and other factors.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
Noninterest Income
. Noninterest income
decreased 15.09%, or $167 thousand, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012. During
the six months ended June 30, 2012, the Company realized $189 thousand from gains on the sales of investment securities, compared
to none during the comparable period in 2013. Service charge income decreased by $43 thousand primarily due to lower fees earned
from overdraft and NSF income, which is customer activity based. The Company realized $28 thousand in gain on sale of OREO during
the six months ended June 30, 2013 compared to a net loss of $26 thousand during the comparable period in 2012.
Noninterest Expense.
Noninterest expense
represents the costs of operating the Company and the Bank. Management regularly monitors all categories of noninterest expense
with the goal of improving productivity and operating performance. Noninterest expense remained at $5.9 million for the six months
ended June 30, 2013 and 2012.
Salaries and employee benefits expenses for
the six months ended June 30, 2013 and 2012 were $2.9 million.
Occupancy expense increased $18 thousand in
the six months ended June 30, 2013 from the same period in 2012. Increases in security services and building maintenance and repairs
led to the increase in occupancy expense.
Information technology costs decreased by 9.27%,
or $43 thousand to $421 thousand during the six months ended June 30, 2013, mainly due to decreased communications and supplies
expense.
Directors and advisory board fees increased
by $6 thousand for the period ended June 30, 2012 to $157 thousand. The increase reflects an increased number of meetings held
during the period. Professional fees increased by $33 thousand in 2013 compared to 2012 due to the increased use of consultants,
partially offset with lower legal expenses. OREO expenses increased $104 thousand during the period.
During the six month period of 2013, FDIC insurance
premiums decreased $36 thousand due to a decrease in our insurance rate and lower average deposits.
Other expenses decreased $29 thousand for the
six months ended June 30, 2013 from the six months ended June 30, 2012. The reduction in other expenses was primarily driven by
a reduction in appraisal fees of $45 thousand and training and development expenses of $29 thousand, partially offset by increases
in miscellaneous expenses.
Provision for Income Taxes
. The Company
recorded an income tax expense of $1 thousand for the six months ended June 30, 2013 and $108 thousand for the six months ended
June 30, 2012. The overall effective rate was 25.00% and 24.88% for the six months ended June 30, 2013 and 2012, respectively.
ASSET QUALITY
Provision and Allowance for Loan Losses
(ALLL)
. The provision for loan losses is the amount charged against earnings, to establish an adequate allowance for loan losses.
Loan losses and recoveries are charged to or credited to this allowance, rather than reported as a direct expense or recovery.
As of June 30, 2013 and December 31, 2012, the allowance for loan losses was $3.2 million, which represented approximately 1.86%
and 2.00% of total loans outstanding on those respective dates. Nonperforming assets, defined as non-accruing loans plus OREO and
other repossessed assets, at June 30, 2013 were 3.83% of total assets compared to 4.18% at December 31, 2012.
Of the non-accruing loans totaling $7.3 million
at June 30, 2013, 99.82% of the outstanding balance is secured by real estate, which management believes mitigates the risk of
loss. Troubled debt restructurings (“TDRs”) on accrual status at June 30, 2012 totaled $17.9 million or 86.09% of total
TDRs. GAAP does not provide specific guidance on when a loan may be returned to accrual status. Federal banking regulators have
provided guidance that interest on impaired loans, including TDRs, should only be recorded when there has been a sustained period
of repayment performance, the loan is well secured, and collection under any revised terms is assessed as probable. The Company
follows guidance provided by its Federal banking regulators.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
Loans are generally placed on non-accrual status
when the scheduled payments reach 90 days past due. Loans are charged-off, with Board approval, when the Chief Credit Officer and
his staff determine that all reasonable means of collection of the outstanding balances, except through foreclosure, have been
exhausted. The Company continues its collection efforts subsequent to charge-off, which results in some recoveries each year. See
Note 6 to the consolidated financial statements for additional discussion of loans and ALLL.
Liquidity and Capital Resources
Liquidity, Interest Rate Sensitivity and
Market Risks
The objectives of the Company’s liquidity
management policy include providing adequate funds to meet the needs of depositors and borrowers at all times, providing funds
to meet the basic needs for on-going operations of the Company, and to meet regulatory requirements. The 30.96% liquidity ratio
is the sum of cash, overnight funds, and unpledged, marketable US government agency securities divided by the sum of deposits and
short-term borrowings (less the full amount of pledged deposits). Management believes that core deposit activity, $6.1 million
in available borrowing capacity from the FHLB of Atlanta at June 30, 2013, and Fed Funds accommodations of $10.0 million will be
adequate to meet the short-term and long-term liquidity needs of the Company. The Company had $692 thousand outstanding from the
FHLB as of June 30, 2013. The maximum outstanding balance from FHLB at any time during the first six months of 2013 was $703 thousand.
The Company periodically draws on its Fed Funds accommodations to test the lines availability.
The Company participates in the CDARS program,
which enables depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. Through
the CDARS program, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions.
All of the Bank’s CDARS brokered deposits are reciprocal, relationship-based deposits. There are several large depositors
in the CDARS program and the largest continuing depositor has renewed annual $20 million in deposits for several years. There is
no guarantee, however, this trend will continue. In management’s opinion, the large depositors have stable and long-term
relationships with the Bank.
Capital Resources
The Company and the Bank are subject to various
regulatory capital requirements administered by their federal and state banking regulators. Failure to satisfy minimum capital
requirements may result in certain mandatory and additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company’s Consolidated Financial Statements. The Bank is required to obtain the non-objection
of its regulators before engaging in any transactions that would materially change the composition of the Bank’s balance
sheet. Also, the Bank’s Memorandum of Understanding with its regulators requires the Bank to maintain a tier 1 leverage capital
ratio of not less than 8.00%, and a total risk based capital ratio of not less than 10.00%.
Index
M&F BANCORP, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, continued
|
The June 30, 2013 and December 31, 2012 regulatory
capital levels of the Company and Bank compared to the regulatory standards were:
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
To Be Well
|
|
(Dollars in thousands)
|
|
Actual
|
|
|
Purposes
|
|
|
Capitalized
|
|
(Unaudited)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
36,408
|
|
|
|
18.78
|
%
|
|
$
|
15,513
|
|
|
|
8.00
|
%
|
|
$
|
19,391
|
|
|
|
10.00
|
%
|
Bank
|
|
|
34,878
|
|
|
|
18.02
|
|
|
|
15,483
|
|
|
|
8.00
|
|
|
|
19,354
|
|
|
|
10.00
|
|
Tier 1 (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
33,974
|
|
|
|
17.52
|
%
|
|
$
|
7,756
|
|
|
|
4.00
|
%
|
|
$
|
11,635
|
|
|
|
6.00
|
%
|
Bank
|
|
|
32,449
|
|
|
|
16.77
|
|
|
|
7,742
|
|
|
|
4.00
|
|
|
|
11,612
|
|
|
|
6.00
|
|
Tier 1 (to average total assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
33,974
|
|
|
|
12.47
|
%
|
|
$
|
10,899
|
|
|
|
4.00
|
%
|
|
$
|
13,624
|
|
|
|
5.00
|
%
|
Bank
|
|
|
32,449
|
|
|
|
11.93
|
|
|
|
10,878
|
|
|
|
4.00
|
|
|
|
13,597
|
|
|
|
5.00
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
To Be Well
|
|
(Dollars in thousands)
|
|
Actual
|
|
|
Purposes
|
|
|
Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
36,646
|
|
|
|
19.15
|
%
|
|
$
|
15,311
|
|
|
|
8.00
|
%
|
|
$
|
19,138
|
|
|
|
10.00
|
|
Bank
|
|
|
34,860
|
|
|
|
18.45
|
|
|
|
15,211
|
|
|
|
8.00
|
|
|
|
19,014
|
|
|
|
10.00
|
|
Tier 1 (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
34,239
|
|
|
|
17.89
|
%
|
|
$
|
7,655
|
|
|
|
4.00
|
%
|
|
$
|
11,483
|
|
|
|
6.00
|
|
Bank
|
|
|
32,483
|
|
|
|
17.19
|
|
|
|
7,606
|
|
|
|
4.00
|
|
|
|
11,409
|
|
|
|
6.00
|
|
Tier 1 (to average total assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
34,239
|
|
|
|
11.56
|
%
|
|
$
|
11,851
|
|
|
|
4.00
|
%
|
|
$
|
14,813
|
|
|
|
5.00
|
|
Bank
|
|
|
32,483
|
|
|
|
11.02
|
|
|
|
11,786
|
|
|
|
4.00
|
|
|
|
14,733
|
|
|
|
5.00
|
|