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, 2003.
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 12, 2003, 735,843 shares of the registrant's common stock were
issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2003 (unaudited) and
December 31, 2002.....................................................3
Consolidated Statements of Income for the Nine-Month Periods Ended
September 30, 2003 and 2002 (unaudited) and for the Three-Month
Periods Ended September 30, 2003 and 2002 (unaudited).................4
Consolidated Statement of Changes in Stockholders' Equity for the
Nine-Month Periods Ended September 30, 2003 and 2002 (unaudited)......5
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended
September 30, 2003 and 2002 (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,
2003 2002
---------------- ---------------
(Unaudited)
ASSETS
Cash and due from banks $ 1,190,460 $ 1,413,949
Interest bearing deposits 6,868,207 12,303,193
--------------- ---------------
Cash and cash equivalents 8,058,667 13,717,142
Investment securities:
Securities available-for-sale 1,710,379 1,929,282
Securities held-to-maturity (market values of $5,896,450 at
September 30, 2003 and of $1,710,354 at December 31, 2002) 5,867,646 1,633,216
Federal Home Loan Bank stock, at cost 1,715,700 1,665,500
Loans receivable 121,657,781 119,687,711
Allowance for loan losses (599,289) (570,701)
Accrued interest receivable 790,834 928,473
Real estate owned 44,582 88,186
Office property and equipment, net 1,955,438 2,042,121
Goodwill 1,099,588 1,099,588
Other assets 204,038 135,294
--------------- ---------------
Total assets $ 142,505,364 $ 142,355,812
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 120,634,018 $ 120,253,479
Advances from Federal Home Loan Bank 5,935,106 6,680,403
Accrued interest payable 39,209 42,482
Advance payment by borrowers for taxes and insurance 201,358 38,430
Accrued federal income tax 87,124 94,539
Deferred federal income tax 692,907 795,908
Other liabilities 422,374 536,937
--------------- ---------------
Total liabilities 128,012,096 128,442,178
--------------- ---------------
Commitments and contingencies -- --
--------------- ---------------
Preferred stock, 100,000 shares, authorized and unissued
Common stock, $.01 par value, 4,000,000 shares authorized;
735,843, issued and outstanding 10,000 10,000
Additional paid-in capital 9,509,606 9,531,454
Retained earnings, substantially restricted 10,049,433 9,564,805
Accumulated other comprehensive income 45,713 190,189
Treasury stock, 264,157 shares, at cost (4,354,309) (4,354,309)
Incentive Plan Trust, 22,700 and 34,100 shares, respectively, at cost (442,877) (665,291)
Unearned Employee Stock Ownership Plan (ESOP) stock (324,298) (363,214)
--------------- ---------------
Total stockholders' equity 14,493,268 13,913,634
--------------- ---------------
Total liabilities and stockholders' equity $ 142,505,364 $ 142,355,812
=============== ===============
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
-------------------------- ---------------------------
2003 2002 2003 2002
-------- -------- -------- --------
INTEREST AND DIVIDEND INCOME:
Interest on loans $ 5,821,792 $ 6,758,958 $ 1,905,521 $ 2,204,715
Interest and dividends on investments 195,477 145,296 80,440 48,169
Other interest income 88,934 96,882 18,576 29,247
------------- ------------- ------------- -------------
Total interest and dividend income 6,106,203 7,001,136 2,004,537 2,282,131
------------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits 2,800,504 3,611,459 872,423 1,153,071
Interest on advances from the FHLB 172,621 324,839 44,513 83,987
------------- ------------- ------------- -------------
Total interest expense 2,973,125 3,936,298 916,936 1,237,058
------------- ------------- ------------- -------------
NET INTEREST INCOME: 3,133,078 3,064,838 1,087,601 1,045,073
Provision for loan losses 75,000 90,000 15,000 30,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 3,058,078 2,974,838 1,072,601 1,015,073
------------- ------------- ------------- -------------
NON-INTEREST INCOME:
Loan and other service fees 144,691 134,397 47,961 43,609
Gain on foreclosed real estate 1,682 6,693 14 817
Other non-interest income, net 3,442 8,651 1,685 4,178
------------- ------------- ------------- -------------
Total non-interest income 149,815 149,741 49,660 48,604
------------- ------------- ------------- -------------
NON-INTEREST EXPENSE:
Compensation and employee benefits 871,173 860,531 284,208 289,274
Occupancy and equipment expense, net 166,094 156,772 57,797 52,681
Data processing 184,632 176,166 63,493 60,038
Legal and other professional fees 54,186 67,517 12,314 13,068
State franchise tax 109,937 105,164 34,947 33,168
Other non-interest expense 238,063 242,641 75,296 88,053
------------- ------------- ------------- -------------
Total non-interest expense 1,624,085 1,608,791 528,055 536,282
------------- ------------- ------------- -------------
Income before income tax expense 1,583,808 1,515,788 594,206 527,395
Provision for income taxes 507,096 515,368 192,069 179,314
------------- ------------- ------------- -------------
Net income $ 1,076,712 $ 1,000,420 $ 402,137 $ 348,081
============= ============= ============= =============
Basic earnings per common share $ 1.60 $ 1.53 $ .59 $ .53
============= ============= ============= =============
Diluted earnings per common share $ 1.57 $ 1.50 $ .58 $ .52
============= ============= ============= =============
Weighted average common shares
outstanding during the period 673,282 655,821 679,409 659,782
============= ============= ============= =============
Weighted average common shares
outstanding after dilutive effect 687,520 665,473 695,113 670,204
============= ============= ============= =============
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, 2003 and 2002
(unaudited)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury
Stock Capital Earnings Income Stock
---------- ------------ -------------- --------------- ---------------
Balance, December 31, 2001 $ 10,000 $ 9,555,941 $ 8,727,481 $ 327,117 $ (4,301,010)
Comprehensive income:
Net income 1,000,420
Other comprehensive loss, net
of tax: (204,853)
Decrease in unrealized gains
on securities
Total comprehensive income
Dividend declared ($.75 per share) (490,850)
share)
ESOP shares release accrual 33,306
Purchase of common stock (3,072
shares) (53,299)
Issued under stock option plan
(5,500 shares) (49,335)
--------- ----------- ------------- -------------- -------------
Balance, September 30, 2002 $ 10,000 $ 9,539,912 $ 9,237,051 $ 122,264 $ (4,354,309)
========= =========== ============= ============== =============
Balance, December 31, 2002 $ 10,000 $ 9,531,454 $ 9,564,805 $ 190,189 $ (4,354,309)
Comprehensive income:
Net income 1,076,712
Other comprehensive loss, net
of tax:
Decrease in unrealized gains
on securities (144,476)
Total comprehensive income
Dividend declared ($.88 per share). (592,084)
ESOP shares release accrual 50,941
Issued under stock option
plan (11,400 shares) (72,789)
--------- ----------- ------------- -------------- -------------
Balance, September 30, 2003 $ 10,000 $ 9,509,606 $ 10,049,433 $ 45,713 $ (4,354,309)
========= =========== ============= ============== =============
Incentive Unearned Total
Plan ESOP Stockholders'
Trust Shares Equity
------------------ --------------- --------------
Balance, December 31, 2001 $ (899,411) $ (417,316) $ 13,002,802
Comprehensive income:
Net income 1,000,420
Other comprehensive loss, net
of tax:
Decrease in unrealized gains
on securities (204,853)
------------
Total comprehensive income 795,567
Dividend declared ($.75 per share) (490,850)
ESOP shares release accrual 41,130 74,436
Purchase of common stock (3,072
shares) (53,299)
Issued under stock option plan 175,590 126,255
(5,500 shares)
----------------- -------------- ------------
Balance, September 30, 2002 $ (723,821) $ (376,186) $ 13,454,911
================= ============== ============
Balance, December 31, 2002 $ (665,291) $ (363,214) $ 13,913,634
Comprehensive income:
Net income 1,076,712
Other comprehensive loss, net
of tax:
Decrease in unrealized gains
on securities (144,476)
------------
Total comprehensive income 932,236
Dividend declared ($.88 per share) (592,084)
ESOP shares release accrual 38,916 89,857
Issued under stock option
plan(11,400 shares) 222,414 149,625
----------------- -------------- ------------
Balance, September 30, 2003 $ (442,877) $ (324,298) $ 14,493,268
================= ============== ============
See accompanying notes to consolidated financial statements.
6
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
--------------------------
2003 2002
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,076,712 $ 1,000,420
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Amortization of premiums, net on securities 13,260 1,602
Federal Home Loan Bank stock dividends (50,200) (56,000)
Amortization of premiums on loans 56,216 71,615
Accretion of deferred loan origination fees (16,526) (29,180)
Provision for losses on loans 75,000 90,000
ESOP benefit expense 89,857 74,436
Depreciation expense 108,369 99,927
Amortization of premiums on deposits and FHLB advances (103,745) (224,095)
Gain, net on sale of real estate owned (572) --
Deferred income tax provision (benefit) (28,574) 25,714
Increase (decrease) in cash due to changes in:
Accrued interest receivable 137,639 33,055
Other assets (68,744) (576)
Accrued interest payable (3,273) 899
Other liabilities (114,563) (78,674)
Current federal income taxes (7,415) 493,025
------------- ------------
Net cash provided by operating activities 1,163,441 1,502,168
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of government agency bonds held-to-maturity 250,000 500,000
Purchase of government agency bonds held-to-maturity (1,000,157) (532,422)
Repayments on mortgage backed securities held-to-maturity 466,660 47,508
Purchase of mortgage backed securities held to maturity (3,964,193) --
Loan originations and purchases, net of principal payments (2,007,983) 2,955,023
Purchase of office property and equipment (21,686) (49,394)
Proceeds from sale of (additions to) real estate owned (4,013) 144,625
------------- ------------
Net cash provided (used) by investing activities (6,281,372) 3,065,340
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 2,169,630 5,651,126
Net decrease in certificates of deposit (1,697,732) (604,705)
Proceeds from Federal Home Loan Bank advances 4,000,000 --
Repayments on Federal Home Loan Bank advances (4,732,911) (4,164,418)
Net increase in custodial accounts 162,928 157,307
Proceeds from the exercise of stock options 149,625 126,255
Purchase of treasury stock -- (53,299)
Payment of dividends to stockholders (592,084) (490,850)
------------- ------------
Net cash provided (used) by financing activities (540,544) 621,416
------------- ------------
Increase (decrease) in cash and cash equivalents (5,658,475) 5,188,924
Cash and cash equivalents, beginning of period 13,717,142 5,520,992
------------- ------------
Cash and cash equivalents, end of period $ 8,058,667 $ 10,709,916
============= ============
(continued)
8
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
--------------------------
2003 2002
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for federal income taxes $ 543,085 $ 260,925
Cash received from federal income tax refunds $ -- $ 264,296
Cash paid for interest on deposits and FHLB advances $ 3,080,143 $ 4,159,494
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Real estate owned acquired by foreclosure $ 262,071 $ 144,625
Mortgage loans originated to finance sale of real estate owned
acquired by foreclosure $ 310,260 $ 144,625
See accompanying notes to consolidated financial statements
9
CKF BANCORP, INC. AND SUBSIDIARY
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 accounting principles generally accepted in the
United States of America ("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 three month period ended September 30,
2003 are not necessarily indicative of results that may be expected for the
fiscal year ending December 31, 2003.
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, 2003
---------------------------------------------------------------------------------
For Capital To be Well
Adequacy Purposes Capitalized Under
Prompt Corrective
Action Provisions
------------------------- ------------------------- --------------------------
Actual Required Required
------------------------- ------------------------- --------------------------
Amount % Amount % Amount %
------------------------- ------------------------- --------------------------
Core capital $ 12,346 8.74% $ 5,653 4.00% $ 8,480 6.00%
Tangible capital 12,346 8.74% 5,653 4.00% n/a n/a
Total Risk based capital 12,991 14.78% 7,030 8.00% 8,788 10.00%
Tier 1 Risk based capital 12,346 14.04% n/a n/a 4,394 5.00%
3. DIVIDENDS
A cash dividend of $.40 per share was paid by the Company on February 10,
2003 to stockholders of record as of January 28, 2003 and of $0.48 per
share on August 11, 2003 to stockholders of record as of July 28, 2003. The
total dividends paid by the Company during the nine-months ended September
30, 2003 amounted to $592,084.
4. COMMON STOCK
The Company issued 11,400 shares of stock at a price of $13.13 per share,
or total proceeds of $149,625, related the exercise of stock options during
the nine-months ended September 30, 2003.
10
5. EARNINGS PER SHARE
The following table reflects the calculation of basic and diluted earnings
per common share:
FOR THE NINE-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------------- ----------------------------
2003 2002 2003 2002
---------- ---------- ---------- --------
Basic earnings per share
Net income $ 1,076,712 $ 1,000,420 $ 402,137 $ 348,081
============ ============ ============ ============
Weighted average shares outstanding 673,282 655,821 679,409 659,782
============ ============ ============ ============
Basic earnings per share $ 1.60 $ 1.53 $ .59 $ .53
============ ============ ============ ============
Diluted earnings per share
Net income $ 1,076,712 $ 1,000,420 $ 402,137 $ 348,081
============ ============ ============ ============
Weighted average shares outstanding 673,282 655,821 679,409 659,782
Diluted effect of stock option 14,238 9,652 15,704 10,422
------------ ------------ ------------ ------------
Weighted average shares outstanding
after dilutive effect 687,520 665,473 695,113 670,204
============ ============ ============ ============
Diluted earnings per share $ 1.57 $ 1.50 $ .58 $ .52
============ ============ ============ ============
6. STOCK OPTIONS
At September 30, 2003, the Company has stock-based compensation plans which
are described more fully in the notes to the Company's December 31, 2002
audited financial statements contained in the Company's Annual Report on
Form 10-KSB. The Company accounts for the plan under the recognition and
measurement principles of Accounting Principals Board Opinion No 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price that was equal to
or greater to the market value of the underlying common stock on the grant
date. The following table illustrates the effect on net income and earnings
per share if the Company had applied fair value provisions of Financial
Accounting Standards Board Statement 123, Accounting for Stock -Based
Compensation, to stock based employee compensation.
FOR THE NINE-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------------- ---------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net income as reported $ 1,076,712 $ 1,000,420 $ 402,137 $ 348,081
Less: Total stock-based compensation
determined under the fair value method 4,961 6,749 1,654 2,250
------------ ------------ ------------ ------------
Pro forma net income $ 1,071,751 $ 993,671 $ 400,483 $ 345,831
============ ============ ============ ============
Basic earnings per share - as reported $ 1.60 $ 1.53 $ .59 $ .53
Basic earnings per share - pro forma $ 1.59 $ 1.52 $ .59 $ .52
Diluted earnings per share - as reported $ 1.57 $ 1.50 $ .58 $ .52
Diluted earnings per share - pro forma $ 1.56 $ 1.49 $ .58 $ .52
11
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, 2002 TO SEPTEMBER 30, 2003
At September 30, 2003, total assets were $142.5 million, an increase of
$150,000, or 0.1%, from $142.4 million at December 31, 2002. The increase in
assets included a $2.0 million increase in loans receivable, a $4.0 million
increase in investment securities, and a $5.7 million decrease in cash and
interest-bearing deposits. The increase in total assets was related to a
$381,000 increase in deposits, a $745,000 decrease in advances from the Federal
Home Loan Bank, and an increase in stockholders' equity of $580,000.
Investment securities increased by $4.0 million, or 112.7%, to $7.6 million,
during the nine months ended September 30, 2003. Securities classified as
available-for-sale and recorded at market value decreased $219,000 due solely to
the decrease in the market value of such securities. Securities classified as
held-to-maturity increased by $4.2 million due to the purchase of mortgage
backed securities totaling $4.0 million and government agency bonds totaling
$1.0 million offset by principal repayments on mortgage-backed securities of
$467,000 and by proceeds from the maturity of a government agency bond of
$250,000.
Loans receivable increased by $2.0 million, or 1.6%, to $121.7 million, during
the nine months ended September 30, 2003. The increase was primarily due to loan
originations of $46.7 million and loan purchases of $4.4 million offset by loan
principal repayments of $49.1 million. The allowance for loan losses was
$599,000 at September 30, 2003 compared to $571,000 at December 31, 2002. The
allowance as a percentage of loans receivable was 0.49% and 0.48% at September
30, 2003 and December 31, 2002, respectively. Loan charge-offs, net of
recoveries amounted to $46,000 during the nine months ended September 30, 2003.
The determination of the allowance for loan losses is based on management's
analysis, done no less frequently than on a quarterly basis, of various factors,
including market value of the underlying collateral, growth and composition of
the loan portfolio, the relationship of the allowance for loan losses to
outstanding loans, historical loss experience, delinquency trends and prevailing
economic conditions. Although management believes its allowance of loan losses
is in accordance with generally accepted accounting principles and reflects
current regulatory and economic considerations, there can be no assurance that
additional losses will not be incurred, or that the Bank's regulators or changes
in the Bank's economic environment will not require further increases in the
allowance.
12
Deposits increased by $381,000, or 0.3%, to $120.6 million, during the nine
months ended September 30, 2003. The increase was due to an increase in deposit
accounts (demand, savings, NOW and money market deposit accounts) of $2.2
million, or 9.2%. The increase in deposit accounts was offset by a decrease in
certificates of deposit of $1.7 million, or 1.8%, and by the amortization of
$91,000 related to the premium paid on certificates of deposit assumed in the
acquisition of First Lancaster. The increase in deposit accounts was due to a
$739,000 increase in money market deposit accounts, a $590,000 increase in NOW
accounts, a $590,000 increase in savings accounts, and a $251,000 increase in
non-interest checking accounts. Advances from the Federal Home Loan Bank
decreased by $745,000, or 11.2%, to $5.9 million, during the nine months ended
September 30, 2003 due to $4.7 million in repayments of advances and $4.0
million in new advances.
Stockholders' equity increased by $580,000, to $14.5 million, during the nine
months ended September 30, 2003. The increase during the period was due to net
income of $1.1 million, the release of shares related to the employee stock
ownership plan of $90,000 and the issuance of shares upon the exercise of stock
options of $150,000, which were offset by payments of dividends to stockholders
of $592,000 and a decrease in the net unrealized gain on available-for-sale
securities, net of tax of $145,000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
NET INCOME
Net income for the nine months ended September 30, 2003 was $1.1 million
compared to $1.0 million for the same period in 2002, an increase of $76,000, or
7.6%. The increase resulted from an increase in net interest income of $68,000,
a decrease in the provision of loan losses of $15,000, and a decrease in the
provision for income tax of $8,000, which were offset by an increase in
non-interest expense of $15,000.
INTEREST AND DIVIDEND INCOME
Interest and dividend income decreased by $895,000, or 12.8%, to $6.1 million,
for the nine months ended September 30, 2003 compared to the same period in
2002. The decrease in interest and dividend income was due to a $583,000, or
0.4%, decrease from 2002 to 2003 in the weighted-average balance of
interest-earning assets and by an 84 basis point decrease in the average yield
on interest-earning assets, to 5.97% in 2003 from 6.81% in 2002.
INTEREST EXPENSE
Interest expense decreased by $963,000, or 24.5%, to $3.0 million, for the nine
months ended September 30, 2003 compared to the same period in 2002. The
decrease in interest expense was due to a $1.6 million, or 1.3%, decrease from
2002 to 2003 in the weighted average balance of interest-bearing liabilities and
by a 97 basis point decrease in the average yield of interest-bearing
liabilities, to 3.17% in 2003 from 4.14% in 2002.
NET INTEREST INCOME
Net interest income increased by $68,000, or 2.2%, to $3.1 million for the nine
months ended September 30, 2003 compared to same period in 2002. The interest
rate spread amounted to 2.80% and 2.68% during the nine months ended September
30, 2003 and 2002, respectively, while the interest margin amounted to 3.06% and
2.98% during the nine months ended September 30, 2003 and 2002, respectively.
13
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased by $15,000, or 16.7%, to $75,000 for the
nine months ended September 30, 2003 compared to the same period in 2002.
Management considers many factors in determining the necessary levels of the
allowance for loan losses, including an analysis of specific loans in the
portfolio, estimated value of the underlying collateral, assessment of general
trends in the real estate market, delinquency trends, prospective economic and
regulatory conditions, inherent loss in the loan portfolio, and the relationship
of the allowance for loan losses to outstanding loans. Loans in the portfolio
are categorized according to their perceived inherent level of risk. The
categories include 1- to 4- dwelling unit mortgage loans, other mortgage loans,
non-mortgage commercial loans, and consumer loans. An estimate of the
appropriate level of allowance for loan losses is calculated by applying
risk-weighting factors to the aggregate balances of these loan categories.
Within a given category, loans classified as non-performing are assigned a
higher risk weighting than performing loans. Management reviews the level of
each risk factor periodically and makes appropriate adjustments based on changes
in conditions that may impact the portfolio. Provisions for loan losses are
booked so as to maintain the allowance within a reasonable range of the
estimate.
NON-INTEREST INCOME
Non-interest income remained level, at $150,000, for the nine months ended
September 30, 2003 compared to the same period in 2002, and such income amounted
to, on an annualized basis, 0.14% of average assets for each of the nine month
periods ended September 30, 2003 and 2002. Changes in non-interest income items
were an increase of $10,000 in fees charged in connection with loans and service
charges on deposit accounts and decreases of $5,000 in gain on foreclosed real
estate and of $5,000 in other non-interest income, net.
NON-INTEREST EXPENSE
Non-interest expense increased by $15,000, or 1.0%, to $1.6 million, for the
nine months ended September 30, 2003 compared to the same period in 2002, and
such expense amounted to, on an annualized basis, 1.53% and 1.51% of average
assets for the nine months ended September 30, 2003 and 2002, respectively. The
increase was due to increases in compensation and employee benefits of $11,000,
in occupancy and equipment expense, net of $9,000, in data processing expense of
$8,000, and in state franchise tax of $5,000, which were offset by decreases in
legal and other professional fees of $13,000 and in other non-interest expense
of $5,000.
INCOME TAXES
The provision for income taxes for the nine months ended September 30, 2003 and
2002 was $507,000 and $515,000, respectively, which as a percentage of income
before taxes was 32.0% for the nine months ended September 30, 2003 and 34.0%
for the nine months ended September 30, 2002. The percentage of income before
taxes was less than the 34% statutory tax rate in 2003 due to the exercise of
non-incentive stock options during that period.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
NET INCOME
Net income for the three months ended September 30, 2003 was $402,000 compared
to $348,000 for the same period in 2002, an increase of $54,000, or 15.5%. The
increase resulted from an increase in net interest income of $43,000, a decrease
in the provision for loan losses of $15,000, an increase in non-interest income
of $1,000, and a decrease in non-interest expense of $8,000, offset by an
increase in the provision for income tax of $13,000.
14
INTEREST AND DIVIDEND INCOME
Interest and dividend income decreased by $277,000, or 12.2%, to $2.0 million,
for the three months ended September 30, 2003 compared to the same period in
2002. The decrease in interest and dividend income was due to a 92 basis point
decrease in the average yield on interest-earning assets, to 5.83% in 2003 from
6.75% in 2002 offset by a $2.4 million, or 1.8%, increase from 2002 to 2003 in
the weighted-average balance of interest-earning assets.
INTEREST EXPENSE
Interest expense decreased by $320,000, or 25.9%, to $917,000, for the three
months ended September 30, 2003 compared to the same period in 2002. The
decrease in interest expense was due to a 107 basis point decrease in the
average yield of interest-bearing liabilities, to 2.91% in 2003 from 3.98% in
2002 offset by a $1.7 million, or 1.4%, increase from 2002 to 2003 in the
weighted average balance of interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased by $43,000, or 4.1%, to $1.1 million for the three
months ended September 30, 2003 compared to same period in 2002. The interest
rate spread amounted to 2.92% and 2.78% during the three months ended September
30, 2003 and 2002, respectively, while the interest margin amounted to 3.16% and
3.09% during the three months ended September 30, 2003 and 2002, respectively.
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased by $15,000, or 50.0%, to $15,000 for the
three months ended September 30, 2003 compared to the same period in 2002.
Management considers many factors in determining the necessary levels of the
allowance for loan losses, including an analysis of specific loans in the
portfolio, estimated value of the underlying collateral, assessment of general
trends in the real estate market, delinquency trends, prospective economic and
regulatory conditions, inherent loss in the loan portfolio, and the relationship
of the allowance for loan losses to outstanding loans. Loans in the portfolio
are categorized according to their perceived inherent level of risk. The
categories include 1- to 4- dwelling unit mortgage loans, other mortgage loans,
non-mortgage commercial loans, and consumer loans. An estimate of the
appropriate level of allowance for loan losses is calculated by applying
risk-weighting factors to the aggregate balances of these loan categories.
Within a given category, loans classified as non-performing are assigned a
higher risk weighting than performing loans. Management reviews the level of
each risk factor periodically and makes appropriate adjustments based on changes
in conditions that may impact the portfolio. Provisions for loan losses are
booked so as to maintain the allowance within a reasonable range of the
estimate.
NON-INTEREST INCOME
Non-interest income increased by $1,000, or 2.8%, to $50,000, for the three
months ended September 30, 2003 compared to the same period in 2002, and such
income amounted to, on an annualized basis, 0.14% of average assets for each of
the three month periods ended September 30, 2003 and 2002. The increase in
non-interest income was related to an increase of $4,000 in fees charged in
connection with loans and service charges on deposit accounts offset by a
decrease of $1,000 in gain on foreclosed real estate and a decrease of $2,000 in
other non-interest income, net.
15
NON-INTEREST EXPENSE
Non-interest expense decreased by $8,000, or 1.5%, to $528,000, for the three
months ended September 30, 2003 compared to the same period in 2002, and such
expense amounted to 1.48% and 1.53% of average assets for the three months ended
September 30, 2003 and 2002, respectively. The decrease was due to decreases in
compensation and employee benefits of $5,000, in legal and other professional
fees of $1,000, and in other non-interest expense of $11,000, which were offset
by increases in occupancy and equipment expense, net of $5,000, in data
processing expense of $3,000 and in state franchise tax of $2,000.
INCOME TAXES
The provision for income taxes for the three months ended September 30, 2003 and
2002 was $192,000 and $179,000, respectively, which as a percentage of income
before taxes was 32.3% for the three months ended September 30, 2003 and 34.0%
for the three months ended September 30, 2002. The percentage of income before
taxes was less than the 34% statutory tax rate in 2003 due to the exercise of
non-incentive stock options during that period.
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,
2003 2002
------------- ------------
Loans accounted for on a non-accrual basis: (1)
Real estate mortgage:
One-to-four family residential $ 179,819 $ 262,279
Multi-family residential, non-residential, and land 120,588 --
Commercial non-mortgage -- --
Consumer 24,200 --
------------- -------------
Total $ 324,607 $ 262,279
============= =============
Accruing loans which are contractually past due 90 days or more:
Real estate mortgage:
One-to-four family residential $ 1,175,843 $ 1,417,872
Multi-family residential, non-residential, and land -- 130,629
Commercial non-mortgage -- --
Consumer -- 19,331
------------- -------------
Total $ 1,175,843 $ 1,567,832
============= =============
Total of loans accounted for as non-accrual or as accruing past
due 90 days or more $ 1,500,450 $ 1,830,111
============= =============
Percentage of loans receivable 1.23% 1.53%
============= =============
Other non-performing assets (2) $ 44,582 $ 88,186
============= =============
(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.
16
During the nine months ended September 30, 2003, interest income of $18,616
would have been recorded on loans accounted for on a non-accrual basis if the
loans had been current throughout the period. Interest on such loans actually
included in interest income during the nine months ended September 30, 2003
totaled $1,094.
At September 30, 2003 and December 31, 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.
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, 2003.
At September 30, 2003, the Bank had outstanding commitments to originate loans
totaling $2.3 million, excluding $1.3 million in unused home equity lines of
credit and $2.5 million in other lines of credit and standby letters of credit.
Additionally, the Bank had undisbursed commitments on construction loans closed
totaling $4.0 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, 2003,
totaled $62.0 million. Management believes that a significant percentage of such
deposits will remain with the Bank.
ITEM 3: CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management of the Company
carried out an evaluation, under the supervision and with the participation of
the Company's principal executive officer and principal financial officer, of
the effectiveness of the Company's disclosure controls and procedures. Based on
this evaluation, the Company's principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. It should be noted that the design of the Company's disclosure controls
and procedures is based in part upon certain reasonable assumptions about the
likelihood of future events, and there can be no reasonable assurance that any
design of disclosure controls and procedures will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote,
but the Company's principal executive and financial officers have concluded that
the Company's disclosure controls and procedures are, in fact, effective at a
reasonable assurance level.
In addition, there have been no changes in the Company's internal control over
financial reporting (to the extent that elements of internal control over
financial reporting are subsumed within disclosure controls and procedures)
identified in connection with the evaluation described in the above paragraph
that occurred during the Company's last fiscal quarter, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
17
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
31.1 Rule 13a-14(a) Certification of the Chief Executive Officer
31.2 Rule 13a-14(a) Certification of the Chief Financial Officer
32 Certification pursuant to 18 USC Section 1350
b) Reports on Form 8-K
Date of Report Item(s) Reported Financial Statements Filed
-------------- ---------------- --------------------------
July 14, 2003 7, 12 N/A
18
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.
/s/ John H. Stigall
Date: November 13, 2003 -------------------------------------------------
John H. Stigall, President and Chief Executive
Officer
(Duly Authorized Officer)
/s/ Russell M. Brooks
Date: November 13, 2003 -------------------------------------------------
Russell M. Brooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
19