SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25180
CKF BANCORP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 61-1267810
- -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
340 WEST MAIN STREET, DANVILLE, KENTUCKY 40422
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (859) 236-4181
--------------
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes X No
--------------- ---------------
As of November 13, 2002, 735,843 shares of the registrant's common stock were
issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
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CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001...............................................3
Consolidated Statements of Income for the Nine-Month Periods
Ended September 30, 2002 and 2001 (unaudited) and for the
Three-Month Periods Ended September 30, 2002 and 2001
(unaudited).........................................................4
Consolidated Statement of Changes in Stockholders' Equity for
the Nine-Month Periods Ended September 30, 2002 and 2001
(unaudited).........................................................5
Consolidated Statements of Cash Flows for the Nine-Month
Periods Ended September 30, 2002 and 2001 (unaudited)...............6
Notes to Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................10
Item 3. Controls and Procedures..............................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................16
Item 2. Changes in Securities and Use of Proceeds............................16
Item 3. Defaults Upon Senior Securities......................................16
Item 4. Submission of Matters to a Vote of Security Holders..................16
Item 5. Other Information....................................................16
Item 6. Exhibits and Reports on Form 8-K.....................................16
SIGNATURES....................................................................17
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------
(Unaudited)
ASSETS
Cash and due from banks $ 1,020,913 $ 1,653,515
Interest bearing deposits 9,689,003 3,867,477
Investment securities:
Securities available-for-sale 1,826,365 2,136,749
Securities held-to-maturity (market values of $1,726,691 and
$1,715,269 at September 30, 2002 and December 31, 2001,
respectively) 1,645,830 1,662,518
FHLB Stock 1,646,900 1,590,900
Loans receivable, net 120,256,630 123,488,713
Accrued interest receivable 964,022 997,077
Office property and equipment, net 2,003,684 2,054,217
Goodwill, net of amortization of $44,492 1,099,588 1,099,588
Prepaid federal income tax -- 369,027
Other assets 183,586 183,010
--------------- ---------------
Total assets $ 140,336,521 $ 139,102,791
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 118,487,170 $ 113,642,079
Advances from Federal Home Loan Bank 6,734,492 10,921,675
Accrued interest payable 59,504 58,605
Advance payment by borrowers for taxes and insurance 197,789 40,482
Accrued and deferred federal income tax 876,612 832,431
Other liabilities 526,043 604,717
--------------- ---------------
Total liabilities 126,881,610 126,099,989
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Commitments and contingencies
Preferred stock, 100,000 shares, authorized and unissued
Common stock, $.01 par value, 4,000,000 shares authorized;
735,843 and 738,915, issued and outstanding at September 30,
2002 and December 31, 2001, respectively 10,000 10,000
Additional paid-in capital 9,539,912 9,555,941
Retained earnings, substantially restricted 9,237,051 8,727,481
Accumulated other comprehensive income 122,264 327,117
Treasury stock, 264,157 and 261,085 shares, respectively, at cost (4,354,309) (4,301,010)
Incentive Plan Trust, 37,100 and 46,100 shares, respectively, at cost (723,821) (899,411)
Unearned Employee Stock Ownership Plan (ESOP) stock (376,186) (417,316)
---------------- ---------------
Total stockholders' equity 13,454,911 13,002,802
--------------- ---------------
Total liabilities and stockholders' equity $ 140,336,521 $ 139,102,791
=============== ===============
See accompanying notes to consolidated financial statements.
3
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------- ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
INTEREST INCOME:
Interest on loans $ 6,758,958 $ 5,668,556 $ 2,204,715 $ 2,328,235
Interest and dividends on investments 145,296 143,489 48,169 67,250
Other interest income 96,882 116,144 29,247 40,820
------------- ------------- ------------- -------------
Total interest income 7,001,136 5,928,189 2,282,131 2,436,305
------------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits 3,611,459 3,297,761 1,153,071 1,350,399
Other interest expense 324,839 369,274 83,987 214,681
------------- ------------- ------------- -------------
Total interest expense 3,936,298 3,667,035 1,237,058 1,565,080
------------- ------------- ------------- -------------
NET INTEREST INCOME 3,064,838 2,261,154 1,045,073 871,225
Provision for loan losses 90,000 35,000 30,000 15,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 2,974,838 2,226,154 1,015,073 856,225
------------- ------------- ------------- -------------
NON-INTEREST INCOME:
Loan and other service fees 134,397 116,890 43,609 41,483
Gain on foreclosed real estate 6,693 38,385 817 22,841
Other non-interest income, net 8,651 18,464 4,178 7,203
------------- ------------- ------------- -------------
Total non-interest income 149,741 173,739 48,604 71,527
------------- ------------- ------------- -------------
NON-INTEREST EXPENSE:
Compensation and benefits 860,531 608,682 289,274 245,649
Occupancy expense, net 156,772 114,067 52,681 48,436
Data Processing 176,166 165,304 60,038 60,050
Legal and professional fees 67,517 53,671 13,068 21,032
State franchise tax 105,164 50,042 33,168 15,767
Other non-interest expense 242,641 220,484 88,053 87,810
------------- ------------- ------------- -------------
Total non-interest expense 1,608,791 1,212,250 536,282 478,744
------------- ------------- ------------- -------------
Income before income tax expense 1,515,788 1,187,643 527,395 449,008
Provision for income taxes 515,368 413,447 179,314 162,311
------------- ------------- ------------- -------------
Net income $ 1,000,420 $ 774,196 $ 348,081 $ 286,697
============= ============= ============= =============
Basic earnings per common share $ 1.53 $ 1.21 $ .53 $ .45
============= ============= ============ =============
Diluted earnings per common share $ 1.50 $ 1.20 $ .52 $ .44
============= ============= ============ =============
Weighted average common shares
outstanding during the period 655,821 639,023 659,782 641,351
============= ============= ============= =============
Weighted average common shares
outstanding after dilutive effect
during the period 665,473 647,422 670,204 649,750
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME
---------- ------------ -------------- ---------------
Balance, December 31, 2000 $ 10,000 $ 9,578,665 $ 8,091,071 $ 348,909
Comprehensive income:
Net income 774,196
Other comprehensive loss, (30,416)
net of tax
Unrealized loss on securities
Total comprehensive income
Dividend declared (426,903)
ESOP shares earned 17,905
Issue of common stock
Purchase of common stock,
12,000 shares
-------- ----------- ------------ ---------
Balance, September 30, 2001 $ 10,000 $ 9,596,570 $ 8,438,364 $ 318,493
======== =========== ============ =========
Balance, December 31, 2001 $ 10,000 $ 9,555,941 $ 8,727,481 $ 327,117
Comprehensive income:
Net income 1,000,420
Other comprehensive loss,
net of tax (204,853)
Unrealized loss on securities
Total comprehensive income
Dividend declared (490,850)
ESOP shares earned 33,306
Purchase of common stock,
3,072 shares
Shares issued upon exercise
of options (49,335)
-------- ----------- ----------- ----------
Balance, September 30, 2002 $ 10,000 $ 9,539,912 $ 9,237,051 $ 122,264
======== =========== =========== ==========
INCENTIVE UNEARNED TOTAL
TREASURY PLAN ESOP STOCKHOLDERS'
STOCK TRUST SHARES EQUITY
--------------- -------------- ------------ ------------
Balance, December 31, 2000 $ (4,136,260) $ (1,093,433) $ (472,086) $ 13,326,866
Comprehensive income:
Net income 774,196
Other comprehensive loss,
net of tax
Unrealized loss on securities (30,416)
-----------
Total comprehensive income 743,780
Dividend declared (426,903)
ESOP shares earned 41,776 59,681
Issue of common stock 21,000 21,000
Purchase of common stock,
12,000 shares (164,750) (164,750)
------------ ------------ ---------- ------------
Balance, September 30, 2001 $ (4,301,010) $ (1,072,433) $ (430,310) $ 12,559,674
============ ============ ========== ============
Balance, December 31, 2001 $ (4,301,010) $ (899,411) $ (417,316) $ 13,002,802
Comprehensive income:
Net income 1,000,420
Other comprehensive loss,
net of tax
Unrealized loss on securities (204,853)
---------
Total comprehensive income 795,567
Dividend declared (490,850)
ESOP shares earned 41,130 74,436
Purchase of common stock,
3,072 shares (53,299) (53,299)
Shares issued upon exercise
of options 175,590 126,255
------------ ----------- ---------- ------------
Balance, September 30, 2002 $ (4,354,309) $ (723,821) $ (376,186) $ 13,454,911
============ =========== ========== ============
See accompanying notes to consolidated financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
------------------------------
2002 2001
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,000,420 $ 774,196
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Amortization of discounts and premiums on investment securities 1,602 34,266
Federal Home Loan Bank stock dividends (56,000) (55,500)
Amortization of premiums on loans 71,615 216,178
Amortization of deferred loan origination fees (29,180) (3,542)
Provision for losses on loans 90,000 35,000
ESOP benefit expense 74,436 59,681
Provision for depreciation 99,927 78,068
Amortization of premiums on deposits and FHLB advances (224,095) (182,903)
Non-cash compensation under stock based benefit plan -- 21,000
Increase (decrease) in cash due to changes in:
Accrued interest receivable 33,055 (155,663)
Other assets (576) 45,279
Accrued interest payable 899 14,072
Other liabilities (78,674) (485,008)
Federal income taxes 518,739 218,447
------------- -----------
Net cash provided by operating activities 1,502,168 613,571
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash consideration in the acquisition of First Lancaster, net -- (10,795,858)
Proceeds from maturity of government agency bonds 500,000 500,000
Purchase of government agency bonds (532,422) (992,468)
Principal repayments on mortgage back securities 47,508 81,848
Loan originations and principal payments on loans, net 2,955,023 (4,934,682)
Proceeds from sale of real estate owned 144,625 --
Purchase of office property and equipment (49,394) (5,288)
Investment in service corporation -- (76,320)
------------- ------------
Net cash provided (used) by investing activities 3,065,340 (16,222,768)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 5,651,126 5,068,420
Net increase (decrease) in certificates of deposit (604,705) 22,915,738
Proceeds from FHLB advances -- 12,000,000
Payments on FHLB advances (4,164,418) (18,614,555)
Net increase in custodial accounts 157,307 147,409
Proceeds from the exercise of stock options 126,255 --
Purchase of treasury stock (53,299) (164,750)
Payment of dividends to shareholders (490,850) (426,903)
------------- -----------
Net cash provided by financing activities 621,416 20,925,359
------------- -----------
Increase in cash and cash equivalents 5,188,924 5,316,162
Cash and cash equivalents, beginning of period 5,520,992 3,266,707
------------- -----------
Cash and cash equivalents, end of period $ 10,709,916 $ 8,582,869
============= ============
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
------------------------------
2002 2001
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for federal income taxes $ 260,925 $ 195,000
============= ============
Cash paid for interest on deposits and FHLB advances $ 4,159,494 $ 3,947,133
============= ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Real estate owned acquired by foreclosure $ 144,625 $ 93,333
============= ============
Mortgage loans originated to finance sale of real estate owned
acquired by foreclosure $ 144,625 $ 925,000
============= ============
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CKF Bancorp, Inc. (the "Company") was formed in August 1994 at the
direction of Central Kentucky Federal Savings Bank (the "Bank") to become
the holding company of the Bank upon the conversion of the Bank from mutual
to stock form (the "Conversion"). Since the Conversion, the Company's
primary assets have been the outstanding capital stock of the Bank, cash on
deposit with the Bank, and a note receivable from the Company's Employee
Stock Ownership Plan ("ESOP"), and its sole business is that of the Bank.
Accordingly, the consolidated financial statements and discussions herein
include both the Company and the Bank. On December 29, 1994, the Bank
converted from mutual to stock form as a wholly owned subsidiary of the
Company. In conjunction with the Conversion, the Company issued 1,000,000
shares of its common stock to the public.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for fair
presentation have been included. The results of operations and other data
for the nine-month period ended September 30, 2002 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending December 31, 2002.
2. Regulatory Capital
The Bank's actual capital and its statutory required capital levels based
on the consolidated financial statements accompanying these notes are as
follows (in thousands):
SEPTEMBER 30, 2002
---------------------------------------------------------------------------------
FOR CAPITAL TO BE WELL
ADEQUACY PURPOSES CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
------------------------- ------------------------- --------------------------
ACTUAL REQUIRED REQUIRED
------------------------- ------------------------- --------------------------
AMOUNT % AMOUNT % AMOUNT %
------------------------- ------------------------- --------------------------
Core capital $ 11,031 7.9% $5,562 4.0% $8,343 6.0%
Tangible capital 11,031 7.9% 5,562 4.0% n/a n/a
Total Risk based capital 11,697 12.7% 7,357 8.0% 9,196 10.0%
Tier 1 Risk based capital 11,031 12.0% n/a n/a 4,598 5.0%
3. DIVIDENDS
A cash dividends of $0.35 per share were paid on February 11, 2002 to
stockholders of record as of January 28, 2002 and of $0.40 per share on
August 12, 2002 to stockholders of record as of July 29, 2002. The total
dividends paid by the Company for the nine-month period ended September 30,
2002 amounted to $490,850.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMON STOCK
The Company purchased 3,072 shares of treasury stock at a cost of $53,299
during the nine-month period ended September 30, 2002. In addition, the
Company issued 9,000 shares of stock at an average price of $14.03 per
share, or total proceeds of $126,255, related the exercise of stock options
during the nine-month period.
5. BUSINESS COMBINATION
On May 31, 2001, the Company acquired First Lancaster Bancshares, Inc.
(First Lancaster), the holding company of First Lancaster Federal Savings
Bank (Lancaster), a federally chartered savings bank, located in Lancaster,
Kentucky. Under the Agreement and Plan of Merger dated as of December 14,
2000, the Company acquired First Lancaster for a cash purchase price of
$13.6 million, which represented $16.27 per share for each outstanding
share of First Lancaster common stock. An additional payment of $130,371
was made for the cancellation of all outstanding First Lancaster stock
options. As a result of the merger, Lancaster was merged into Central
Kentucky Federal Savings Bank.
The combination was accounted for under the purchase method of accounting,
and accordingly, the net assets were recorded at their estimated fair
values at the date of acquisition, May 31, 2001. The net assets acquired at
May 31, 2001 totaled $13.7 million, with total assets amounting to $56.1
million, which included net loans of $47.8 million and goodwill of $1.1
million, and with total liabilities assumed amounting to $42.4 million,
which included deposits of $31.6 million and FHLB advances of $10.1
million. Fair value adjustments on the assets and liabilities included in
the purchase are being amortized over the estimated lives of the related
assets and liabilities. The excess of the purchase price over the estimated
fair value of the underlying net assets of $1,144,080 was allocated to
goodwill and was amortized over 15 years using the straight-line method
through December 31, 2001 (See Note 6).
6. GOODWILL
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill
and Other Intangible Assets." Statement No. 141 pertains to business
combinations initiated after June 30, 2001 and requires all business
combinations after this date to be accounted for using the purchase method
of accounting. The Statement further provided that goodwill recorded in
purchase accounting transactions occurring prior to June 30, 2001 would
continue to be amortized against earnings until the effective date of
Statement No. 142. Statement No. 142 pertains to the accounting for
goodwill and other intangible assets and is effective for the Company
beginning January 1, 2002. Beginning in January 2002, the Company is
required to cease amortizing goodwill. In accordance with Statement No.
142, and subsequent to the effective date, the Company is required to test
the goodwill carrying value for impairment at the reporting unit level,
which is the operating segment or component of the business identified with
the goodwill. If the carrying amount of goodwill exceeds the implied
goodwill determined as a result of the test then an impairment loss is
immediately recognized for the excess amount. Further, after the initial
evaluation of goodwill, the Company must annually evaluate the recorded
goodwill for impairment. For the nine-month period ended September 30,
2002, the Company did not record any loss due to the impairment of
goodwill, and the carrying value of goodwill at September 30, 2002 totals
$1,099,588.
9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-QSB, the words or phrases "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area, competition, and
information provided by third-party vendors that could cause actual results to
differ materially from historical earnings and those presently anticipated and
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 2001 TO SEPTEMBER 30, 2002
At September 30, 2002, total assets amounted to $140.3 million, an increase of
$1.2 million, or 0.9%, from $139.1 million at December 31, 2001. The increase in
assets includes a $5.2 million increase in cash and interest-bearing deposits, a
$3.2 million decrease in net loans receivable and a $327,000 decrease in
investment securities. The increase in total assets was in part funded by a $4.8
million increase in deposits, which was offset by a decrease in borrowed funds
of $4.2 million.
Investment securities decreased $327,000, or 8.6%, to $3.5 million, during the
nine-month period ended September 30, 2002. Securities classified as
available-for-sale and recorded at market value decreased $310,000 due solely to
the decrease in the market value of such securities. Investment securities
classified as held to maturity decreased $17,000 due to the maturity of a
$500,000 government agency bond and $48,000 in principal repayments on mortgage
backed securities which were offset by the purchase of a government agency bond
of $532,000.
Loans receivable decreased by $3.2 million, or 2.6%, to $120.3 million, during
the nine-month period ended September 30, 2002. The decrease was primarily due
to loan principal repayments of $42.5 million, which were offset by loan
originations of $32.9 million and by loan purchases of $6.6 million. Loans
transferred to real estate owned during the period equaled $145,000. The
allowance for losses on loans totaled $544,000 at September 30, 2002 compared to
$458,000 at December 31, 2001. The allowance as a percentage of total loans
outstanding, net of unearned loan origination fees, was 0.45% at September 30,
2002 and 0.37% at December 31, 2001. Although management believes that its
allowance for loan losses at September 30, 2002 is adequate based upon the
available facts and circumstances, there can be no assurance that additions to
such allowance will not be necessary in future periods, which could adversely
affect the results of operations.
Deposits increased by $4.8 million, or 4.3%, to $118.5 million, during the
nine-month period ended September 30, 2002. This increase reflects the Company's
competitively priced product line within the local market area, plus the
reaction of customers to the increased risk in alternative investments as
evidenced by the recent decline in the stock market indexes. During the period,
Advances from the Federal Home Loan Bank decreased by $4.2 million, or 38.3%, to
$6.7 million at September 30, 2002.
Stockholders' equity increased by $452,000, or 3.5%, to $13.5 million, during
the nine-month period ended September 30, 2002. The increase was due to earnings
of $1.0 million, the release of shares related to the employee stock ownership
plan of $74,000 and the issuance of shares upon the exercise of stock options of
$126,000, which were partially offset by the payments of dividends to
stockholders of $491,000, a decrease in the unrealized gains on available for
sale securities, net of tax, of $204,000 and the purchase of treasury stock of
$53,000.
10
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND
2001
NET INCOME
Net income for the nine-month period ended September 30, 2002 was $1.0 million
compared to $774,000 for the corresponding period in 2001, an increase of
$226,000, or 29.2%. The increase resulted from an increase in net interest
income of $804,000 offset by increases in provision for loan losses of $55,000,
non-interest expense of $397,000 and income tax expense of $102,000 and by a
decrease in non-interest income of $24,000.
INTEREST INCOME
Interest income increased by $1.1 million, or 18.1%, to $7.0 million for the
nine-month period ended September 30, 2002 compared to the nine-month period
ended September 30, 2001. The increase was due to a $32.9 million, or 31.6%,
increase from 2001 to 2002 in the weighted-average balance of interest-earning
assets, offset by a 78 basis point decrease in the average yield of
interest-earning assets, from 7.59% in 2001 to 6.81% in 2002. The increase in
the average interest-earning assets was primarily due to the Company's
acquisition of First Lancaster Bancshares, Inc. on May 31, 2001.
INTEREST EXPENSE
Interest expense increased by $269,000, or 7.3%, to $3.9 million for the
nine-month period ended September 30, 2002 compared to the nine-month period
ended September 30, 2001. The increase was due to a $31.8 million, or 33.5%,
increase from 2001 to 2002 in the weighted-average balance of interest-bearing
liabilities, offset by a 100 basis point decrease in the average cost of funds,
from 5.14% in 2001 to 4.14% in 2002. The increase in average interest-bearing
liabilities was primarily due to the acquisition of First Lancaster Bancshares
on May 31, 2001.
NET INTEREST INCOME
As a result of the changes in interest income and in interest expense, net
interest income increased by $804,000, or 35.5%, to $3.1 million for the
nine-month period ended September 30, 2002 compared to the nine-month period
ended September 30, 2001. The increase in net interest income was attributable
to the decrease in the average cost of interest bearing liabilities exceeding
the decrease in the average yield of interest earning assets. The interest rate
spread was 2.68% and 2.45% during the nine-month periods ended September 30,
2002 and 2001, respectively.
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses of $90,000 and $35,000 in the
nine-month periods ended September 30, 2002 and 2001, respectively. Management
established the Company's existing level of its allowance for loan losses based
upon its analysis of various factors, including the market value of the
underlying collateral, composition of the loan portfolio, the Company's
historical loss experience, delinquency trends and prevailing and projected
economic conditions in the Company's market area.
NON-INTEREST INCOME
Non-interest income amounted to $150,000 and $174,000 for the nine-month periods
ended September 30, 2002 and 2001, respectively, a decrease of $24,000, or
13.8%. The decrease in non-interest income was related to a decrease of $32,000
in gain on foreclosed real estate. Non-interest income also included fees
charged in connection with loans and service charges on deposit accounts of
$134,000 and $117,000 for the nine-month periods ended September 30, 2002 and
2001, respectively.
11
NON-INTEREST EXPENSE
Non-interest expense totaled $1.6 million and $1.2 million for the nine-month
periods ended September 30, 2002 and 2001, respectively, an increase of
$397,000, or 32.7%, and such expense amounted to 1.51% and 1.52% of average
assets on an annualized basis for the periods ended September 30, 2002 and 2001,
respectively. The increase was due to increases in compensation and benefits of
$252,000, occupancy expense of $43,000, data processing expense of $11,000,
legal and professional fees of $14,000, state franchise tax of $55,000, and
other operating expenses of $22,000. The increases in the various non-interest
expenses were primarily due to the Company's acquisition of First Lancaster
Bancshares, Inc. on May 31, 2001.
INCOME TAXES
The provision for income taxes for the nine month periods ended September 30,
2002 and 2001 was $515,000 and $413,000, respectively, which as a percentage of
income before income taxes was 34.0% for each of the nine-month periods ended
September 30, 2002 and 2001.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND
2001
NET INCOME
Net income for the three-month period ended September 30, 2002 was $348,000
compared to $287,000 for the corresponding period in 2001, an increase of
$61,000, or 21.4%. The increase resulted from an increase in net interest income
of $174,000 offset by increases in provision for loan losses of $15,000,
non-interest expense of $58,000 and income tax expense of $17,000 and by a
decrease in non-interest income of $23,000.
INTEREST INCOME
Interest income decreased by $154,000, or 6.3%, to $2.3 million for the
three-month period ended September 30, 2002 compared to the three-month period
ended September 30, 2001. The decrease was due to a $385,000, or 0.3%, decrease
from 2001 to 2002 in the weighted-average balance of interest-earning assets,
and to a 44 basis point decrease in the average yield of interest-earning
assets, from 7.19% in 2001 to 6.75% in 2002.
INTEREST EXPENSE
Interest expense decreased by $328,000, or 21.0%, to $1.2 million for the
three-month period ended September 30, 2002 compared to the three-month period
ended September 30, 2001. The decrease was due to a $4.0 million, or 3.1%,
decrease from 2001 to 2002 in the weighted-average balance of interest-bearing
liabilities, and to a 90 basis point decrease in the average cost of funds, from
4.88% to 3.98%.
NET INTEREST INCOME
As a result of the changes in interest income and in interest expense, net
interest income increased by $174,000, or 20.0%, to $1.0 million for the
three-month period ended September 30, 2002 compared to the three-month period
ended September 30, 2001. The increase in net interest income was attributable
to the decrease in the average cost of interest bearing liabilities exceeding
the decrease in the average yield of interest earning assets. The interest rate
spread was 2.78% and 2.31% during the three-month periods ended September 30,
2002 and 2001, respectively.
12
PROVISION FOR LOAN LOSSES
The Company recorded a provision for loan losses of $30,000 and $15,000 in the
three-month periods ended September 30, 2002 and 2001, respectively. Management
established the Company's existing level of its allowance for loan losses based
upon its analysis of various factors, including the market value of the
underlying collateral, composition of the loan portfolio, the Company's
historical loss experience, delinquency trends and prevailing and projected
economic conditions in the Company's market area.
NON-INTEREST INCOME
Non-interest income amounted to $49,000 and $72,000 for the three-month periods
ended September 30, 2002 and 2001, respectively, a decrease of $23,000, or
32.0%. The decrease in non-interest income was primarily related to a decrease
of $22,000 in gain on foreclosed real estate. Non-interest income included fees
charged in connection with loans and service charges on deposit accounts of
$44,000 and $41,000 for the three-month periods ended September 30, 2002 and
2001, respectively.
NON-INTEREST EXPENSE
Non-interest expense totaled $536,000 and $478,000 for the three-month periods
ended September 30, 2002 and 2001, respectively, an increase of $58,000, or
12.0%, and such expense amounted to 1.53% and 1.39% of average assets on an
annualized basis for the periods ended September 30, 2002 and 2001,
respectively. The increase was due to increases in compensation and benefits of
$44,000, occupancy expense of $4,000 and state franchise tax of $18,000, which
were offset by a decrease in legal and professional fees of $8,000.
INCOME TAXES
The provision for income taxes for the three-month periods ended September 30,
2002 and 2001 was $179,000 and $162,000, respectively, which as a percentage of
income before income taxes was 34.0% for each of the three-month periods ended
September 30, 2002 and 2001.
13
NON-PERFORMING ASSETS
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated. No loans were recorded as
restructured loans within the meaning of SFAS No. 15 at the dates indicated.
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------
Loans accounted for on a non-accrual basis:(1)
Real estate mortgage:
One-to-four family residential $ 246,786 $ 332,141
Multi-family residential, non-residential, and land - -
Commercial non-mortgage - -
Consumer 18,550 40,532
------------- -------------
Total $ 265,336 $ 372,673
============= =============
Accruing loans which are contractually past due 90 days or more:
Real estate mortgage:
One-to-four family residential $ 1,380,837 $ 1,739,818
Multi-family residential, non-residential, and land - -
Commercial non-mortgage - -
Consumer 11,664 30,100
------------- -------------
Total $ 1,392,501 $ 1,769,918
============= =============
Total of loans accounted for as non-accrual or as accruing past
due 90 days or more $ 1,657,837 $ 2,142,591
============= =============
Percentage of loans receivable, net 1.38% 1.74%
============= =============
Other non-performing assets (2) $ - $ 9,500
============= =============
<FN>
(1) Non-accrual status denotes any mortgage loan past due 90 days and whose
loan balance, plus accrued interest exceeds 90% of the estimated loan
collateral value, and any consumer or commercial loan more than 90 days
past due. Payments received on a non-accrual loan are either applied to the
outstanding principal balance or recorded as interest income, or both,
depending on assessment of the collectibility of the loan.
(2) Other non-performing assets represent property acquired by the Bank through
foreclosure or repossession. Such property is carried at the lower of its
fair market value or the principal balance of the related loan.
</FN>
During the nine-month period ended September 30, 2002, additional interest
income of $8,582 would have been recorded on loans accounted for on a
non-accrual basis if the loans had been current throughout the year. Interest on
such loans actually included in income during the nine-month period ended
September 30, 2002 totaled $18,677.
At September 30, 2002, there were no loans, identified by management, which were
not reflected in the preceding table, but as to which known information about
possible credit problems of borrowers caused management to have serious doubts
as to the ability of the borrowers to comply with present loan repayment terms.
14
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds for operations are deposits from its
primary market area, principal and interest payments on loans, and proceeds from
maturing investment securities. The principal uses of funds by the Bank include
the origination and purchase of mortgage, commercial and consumer loans and the
purchase of investment securities. The Bank must satisfy two capital standards,
as set by the OTS. These standards include a ratio of core capital to adjusted
total assets of 4.0%, and a combination of core and "supplementary" capital
equal to 8.0% of risk-weighted assets. The Bank's capital exceeded these capital
standards at September 30, 2002.
At September 30, 2002, the Bank had outstanding commitments to originate loans
totaling $3.1 million, excluding $1.7 million in unused home equity lines of
credit and $2.0 million in other lines of credit and standby letters of credit.
Additionally, the Bank had undisbursed commitments on construction loans closed
totaling $2.8 million. Management believes that the Bank's sources of funds are
sufficient to fund all of its outstanding commitments. Certificates of deposit,
which are scheduled to mature in one year or less from September 30, 2002,
totaled $66.7 million. Management believes that a significant percentage of such
deposits will remain with the Bank.
ITEM 3: CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our
periodic SEC reports. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.
In addition, there have been no significant changes in the Company's internals
controls or in other factors that could significantly affect those controls
subsequent to the date of their last evaluation.
15
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None
Item 3. DEFAULTS UPON SENIOR SECURITIES None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
Item 5. OTHER INFORMATION None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
99 Certification
b) No reports on Form 8-K were filed during the quarter ended
September 30, 2002.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CKF Bancorp, Inc.
Date: November 13, 2002 /s/ John H. Stigall
-----------------------------------------------
John H. Stigall, President and Chief Executive
Officer
(Duly Authorized Officer)
Date: November 13, 2002 /s/ Russell M. Brooks
-----------------------------------------------
Russell M. Brooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
17
CERTIFICATION
I, John H. Stigall, President and Chief Executive Officer of CKF Bancorp, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CKF Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board or directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ John H. Stigall
-----------------------------------------------
John H. Stigall, President and Chief Executive
Officer
(Duly Authorized Officer)
18
CERTIFICATION
I, Russell M. Brooks, President and Chief Executive Officer of CKF Bancorp,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CKF Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board or directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Russell M. Brooks
-----------------------------------------------------
Russell M. Brooks, Vice President and Chief Financial
Officer
(Duly Authorized Officer)
19