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 March 31, 2004.
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 May 13, 2004, 1,470,374 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 March 31, 2004 (unaudited) and
December 31, 2003............................................................................3
Consolidated Statements of Income for the Three-Month Periods Ended
March 31, 2004 and 2003 (unaudited)..........................................................4
Consolidated Statement of Changes in Stockholders' Equity for the
Three-Month Periods Ended March 31, 2004 and 2003 (unaudited)................................5
Consolidated Statements of Cash Flows for the Three-Month Periods Ended
March 31, 2004 and 2003 (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.........................................................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................15
Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities...............15
Item 3. Defaults Upon Senior Securities.................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.............................................15
Item 5. Other Information...............................................................................15
Item 6. Exhibits and Reports on Form 8-K................................................................15
SIGNATURES....................................................................................................16
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF AS OF
MARCH 31, DECEMBER 31,
2004 2003
--------------- ---------------
(Unaudited)
ASSETS
Cash and due from banks $ 1,253,311 $ 1,121,357
Interest bearing deposits 3,666,759 2,671,433
--------------- ---------------
Cash and cash equivalents 4,920,070 3,792,790
Investment securities:
Securities available-for-sale 1,954,598 1,930,421
Securities held-to-maturity (market values of $7,701,344 at
March 31, 2004 and of $8,330,782 at December 31, 2003) 7,668,420 8,333,409
Federal Home Loan Bank stock, at cost 1,750,100 1,732,900
Loans receivable 127,617,642 125,774,932
Allowance for loan losses (618,623) (615,089)
Accrued interest receivable 745,806 731,281
Real estate owned 52,053 131,390
Office property and equipment, net 1,914,414 1,925,300
Goodwill 1,099,588 1,099,588
Other assets 185,647 147,046
--------------- ---------------
Total assets $ 147,289,715 $ 144,983,968
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 122,793,689 $ 121,689,009
Advances from Federal Home Loan Bank 7,734,159 6,899,835
Accrued interest payable 34,713 23,672
Advance payment by borrowers for taxes and insurance 76,120 44,839
Accrued federal income tax 270,400 75,931
Deferred federal income tax 751,225 750,904
Other liabilities 436,653 431,999
--------------- ---------------
Total liabilities 132,096,959 129,916,189
--------------- ---------------
Commitments and contingencies -- --
--------------- ---------------
Preferred stock, 100,000 shares, authorized and unissued Common stock, $.01 par
value, 4,000,000 shares authorized;
1,470,374 and 1,471,686 issued and outstanding, respectively 10,000 10,000
Additional paid-in capital 9,562,522 9,533,759
Retained earnings, substantially restricted 10,541,498 10,453,207
Accumulated other comprehensive income 190,404 174,447
Treasury stock, 529,626 and 528,314 shares, respectively, at cost (4,375,315) (4,354,309)
Incentive Plan Trust, 44,900 shares, at cost (437,999) (437,999)
Unearned Employee Stock Ownership Plan (ESOP) stock (298,354) (311,326)
---------------- ---------------
Total stockholders' equity 15,192,756 15,067,779
--------------- ---------------
Total liabilities and stockholders' equity $ 147,289,715 $ 144,983,968
=============== ===============
See accompanying notes to consolidated financial statements.
3
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31
2004 2003
------------- -------------
Interest and dividend income:
Interest on loans $ 1,972,672 $ 2,025,815
Interest and dividends on investments 94,078 46,009
Other interest income 5,239 34,267
------------- -------------
Total interest and dividend income 2,071,989 2,106,091
------------- -------------
Interest expense:
Interest on deposits 785,549 1,006,861
Interest on advances from the FHLB 53,158 70,593
------------- -------------
Total interest expense 838,707 1,077,454
------------- -------------
Net interest income 1,233,282 1,028,637
Provision for loan losses 15,000 30,000
------------- -------------
Net interest income after
provision for loan losses 1,218,282 998,637
------------- -------------
Non-interest income:
Loan and other service fees 44,102 46,731
Gain, net on foreclosed real estate 2,443 817
Other non-interest income, net 4,625 268
------------- -------------
Total non-interest income 51,170 47,816
------------- -------------
Non-interest expense:
Compensation and employee benefits 365,112 294,761
Occupancy and equipment expense, net 57,323 55,056
Data processing 70,177 60,969
Legal and other professional fees 25,370 11,948
State franchise tax 32,889 35,608
Other non-interest expense 90,432 83,120
------------- -------------
Total non-interest expense 641,303 541,462
------------- -------------
Income before income tax expense 628,149 504,991
Provision for income taxes 212,363 170,318
------------- -------------
Net income $ 415,786 $ 334,673
============= =============
Basic earnings per common share $ .30 $ .25
============ =============
Diluted earnings per common share $ .30 $ .25
============ =============
Weighted average common shares
outstanding during the period 1,364,996 1,336,156
============= =============
Weighted average common shares
outstanding after dilutive effect 1,398,644 1,357,918
============= =============
See accompanying notes to consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three-Month Periods Ended March 31, 2004 and 2003
(unaudited)
ACCUMULATED
ADDITIONAL OTHER INCENTIVE UNEARNED
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY PLAN ESOP
STOCK CAPITAL EARNINGS INCOME STOCK TRUST SHARES
---------- ------------ ---------- ------------- ------------ ----------- -----------
Balance, December 31, 2002 $ 10,000 $ 9,531,454 $ 9,564,805 $ 190,189 $ (4,354,309) $ (665,291) $ (363,214)
Comprehensive income:
Net income 334,673
Other comprehensive loss, net
of tax: (128,303)
Decrease in unrealized gains
on securities
Total comprehensive income
Dividend declared ($.20 per (267,209)
share)
ESOP shares release accrual 12,960 12,972
Issued under stock option plan
shares (16,601) 50,726
-------- ----------- ----------- --------- ------------ ---------- ----------
Balance, March 31, 2003 $ 10,000 $ 9,527,813 $ 9,632,269 $ 61,886 $ (4,354,309) $ (614,565) $ (350,242)
======== =========== =========== ========= ============= =========== ===========
Balance, December 31, 2003 $ 10,000 $ 9,533,759 $10,453,207 $ 174,447 $ (4,354,309) $ (437,999) $ (311,326)
Comprehensive income:
Net income 415,786
Other comprehensive loss, net
of tax:
Increase in unrealized gains
on securities 15,957
Total comprehensive income
Dividend declared ($.24 per (327,495)
share)
ESOP shares release accrual 28,763 12,972
Purchase of common stock (21,006)
-------- ----------- ----------- --------- ------------ ---------- ----------
Balance, March 31, 2004 $ 10,000 $ 9,562,522 $ 10,541,498 $ 190,404 $ (4,375,315) $ (437,999) $ (298,354)
======== =========== ============ ========== ============= ============ ===========
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance, December 31, 2002 $ 13,913,634
Comprehensive income:
Net income 334,673
Other comprehensive loss, net
of tax: (128,303)
---------
Decrease in unrealized gain
on securities
Total comprehensive income 206,370
Dividend declared ($.20 per (267,209)
share)
ESOP shares release accrual 25,932
Issued under stock option plan
shares 34,125
------------
Balance, March 31, 2003 $ 13,912,852
============
Balance, December 31, 2003 $ 15,067,779
Comprehensive income:
Net income 415,786
Other comprehensive loss, net
of tax:
Increase in unrealized gain
on securities 15,957
------------
Total comprehensive income 431,743
Dividend declared ($.24 per (327,495)
share)
ESOP shares release accrual 41,735
Purchase of common stock (21,006)
------------
Balance, March 31, 2004 $ 15,192,756
============
See accompanying notes to consolidated financial statements.
5
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31
------------------------------
2004 2003
------------- -------------
Cash flows from operating activities:
Net income $ 415,786 $ 334,673
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of premiums, net on securities 9,340 1,681
Federal Home Loan Bank stock dividends (17,200) (16,400)
Amortization of premiums on loans 15,093 20,088
Accretion of deferred loan origination fees (3,209) (3,362)
Provision for losses on loans 15,000 30,000
ESOP benefit expense 41,735 25,932
Depreciation expense 33,999 36,123
Amortization of premiums on deposits and FHLB advances (24,944) (40,092)
Loss, net on sale of real estate owned 106 --
Deferred income tax benefit (7,899) (28,067)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (14,525) 61,281
Other assets (38,601) (27,646)
Accrued interest payable 11,041 14,881
Other liabilities 4,654 (69,928)
Current federal income taxes 194,469 165,300
------------- ------------
Net cash provided by operating activities 634,845 504,464
------------- ------------
Cash flows from investing activities:
Proceeds from maturity of government agency bonds held-to-maturity 500,000 --
Repayments on mortgage backed securities held-to-maturity 155,649 13,648
Net (increase) decrease in loans (1,816,981) 6,284,764
Purchase of office property and equipment (23,113) (8,739)
Proceeds from sale of (additions to) real estate owned 30,152 (1,402)
------------- ------------
Net cash provided (used) by investing activities (1,154,293) 6,288,271
------------- ------------
Cash flows from financing activities:
Net increase in deposit accounts 1,898,998 1,693,065
Net decrease in certificates of deposit (772,468) (1,365,838)
Proceeds from Federal Home Loan Bank advances 2,000,000 --
Repayments on Federal Home Loan Bank advances (1,162,582) (659,715)
Net increase in custodial accounts 31,281 38,617
Proceeds from the exercise of stock options -- 34,125
Purchase of treasury stock (21,006) --
Payment of dividends to stockholders (327,495) (267,209)
-------------- ------------
Net cash provided (used) by financing activities 1,646,728 (526,955)
------------- ------------
Increase in cash and cash equivalents 1,127,280 6,265,780
Cash and cash equivalents, beginning of period 3,792,790 13,717,142
------------- ------------
Cash and cash equivalents, end of period $ 4,920,070 $ 19,982,922
============= ============
(continued)
6
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31
------------------------------
2004 2003
------------- -------------
Supplemental disclosures of cash flows information:
Cash paid for federal income taxes $ 25,793 $ 33,085
Cash paid for interest on deposits and FHLB advances $ 852,610 $ 1,102,665
Supplemental disclosures of non-cash activities:
Real estate owned acquired by foreclosure $ 80,912 $ --
Loans originated to finance sale of foreclosed real estate $ 129,991 $ --
Increase (decrease) in unrealized gains, gross on available-for-sale
securities $ 24,177 $ (194,399)
See accompanying notes to consolidated financial statements
7
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 March 31, 2004
are not necessarily indicative of results that may be expected for the
fiscal year ending December 31, 2004. The consolidated balance sheet of the
Company, as of December 31, 2003, has been derived from the audited
consolidated balance sheet of the Company as of that date.
2. REGULATORY CAPITAL
The Bank's actual capital and its statutory required capital levels are as
follows (in thousands):
March 31, 2004
---------------------------------------------------------------------------------
For Capital To be Well
Adequacy Purposes Capitalized Under
Prompt Corrective
Action Provisions
------------------------- ------------------------- --------------------------
Actual Required Required
------------------------- ------------------------- --------------------------
Amount % Amount % Amount %
------------------------- ------------------------- --------------------------
Core capital $ 12,970 8.89% $ 5,834 4.00% $ 8,752 6.00%
Tangible capital 12,970 8.89% 5,834 4.00% n/a n/a
Total Risk based capital 13,779 15.04% 7,329 8.00% 9,162 10.00%
Tier 1 Risk based capital 12,970 14.16% n/a n/a 4,581 5.00%
3. DIVIDENDS
A cash dividend of $.24 per share was paid by the Company on February 10,
2004 to stockholders of record as of January 28, 2004. The total dividends
paid by the Company during the three months ended March 31, 2004 amounted
to $327,495.
8
4. COMMON STOCK
The Company purchased 1,312 shares of treasury stock at a total cost of
$21,006 during the three months ended March 31, 2004.
5. EARNINGS PER SHARE
The following table reflects the calculation of basic and diluted earnings
per common share:
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31
2004 2003
------------- -------------
Basic earnings per share
Net income $ 415,786 $ 334,673
============ ============
Weighted average shares outstanding 1,364,996 1,336,156
============ ============
Basic earnings per share $ .30 $ .25
============ ============
Diluted earnings per share
Net income $ 415,786 $ 334,673
============ ============
Weighted average shares outstanding 1,364,996 1,336,156
Diluted effect of stock option 33,648 21,762
------------ ------------
Weighted average shares outstanding
after dilutive effect 1,398,644 1,357,918
============ ============
Diluted earnings per share $ .30 $ .25
============ ============
6. STOCK OPTIONS
At March 31, 2004, the Company has stock-based compensation plans which are
described more fully in the notes to the Company's December 31, 2003
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 THREE-MONTH PERIODS
ENDED MARCH 31
2004 2003
------------- -------------
Net income as reported $ 415,786 $ 334,673
Less: Total stock-based compensation
determined under the fair value method 1,066 865
------------ ------------
Pro forma net income $ 414,720 $ 333,808
============ ============
Basic earnings per share - as reported $ .30 $ .25
Basic earnings per share - pro forma $ .30 $ .25
Diluted earnings per share - as reported $ .30 $ .25
Diluted earnings per share - pro forma $ .30 $ .25
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, and competition 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, 2003 TO MARCH 31, 2004
At March 31, 2004, total assets were $147.3 million, an increase of $2.3
million, or 1.6%, from $145.0 million at December 31, 2003. The increase in
assets included a $1.8 million increase in loans receivable, a $641,000 decrease
in investment securities, and a $1.1 million increase in cash and
interest-bearing deposits. The increase in total assets was primarily related to
a $1.1 increase in deposits, a $834,000 increase in advances from the Federal
Home Loan Bank, and an increase in stockholders' equity of $125,000.
Investment securities decreased by $641,000, or 6.2%, to $9.6 million, during
the three months ended March 31, 2004. Securities classified as
available-for-sale and recorded at market value increased $24,000 due solely to
the increase in the market value of such securities. Securities classified as
held-to-maturity decreased by $665,000 primarily due to principal repayments on
mortgage-backed securities of $156,000 and to the maturity of a government
agency bond of $500,000.
Loans receivable increased by $1.8 million, or 1.5%, to $127.6 million, during
the three months ended March 31, 2004. The increase was due to loan originations
of $11.4 million and loan purchases of $255,000 offset by loan principal
repayments of $9.5 million and loans sold of $339,000. The allowance for loan
losses was $619,000 at March 31, 2004 compared to $615,000 at December 31, 2003.
The allowance as a percentage of loans receivable was 0.48% and 0.49% at March
31, 2004 and December 31, 2003, respectively. Loan charge-offs, net of
recoveries amounted to $11,000 during the three months ended March 31, 2004. 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 accounting principles generally accepted in the United
States of America 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.
10
Deposits increased by $1.1 million, or 0.9%, to $122.8 million, during the three
months ended March 31, 2004. The increase was due to an increase in deposit
accounts (demand, savings, NOW and money market deposit accounts) of $1.9
million, or 7.3%, which was offset by a decrease in certificates of deposit of
$794,000, or 0.8%, and by the amortization of $22,000 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 $632,000 increase in money market
deposit accounts, a $1.0 million increase in NOW accounts, an $85,000 increase
in savings accounts, and a $176,000 increase in non-interest checking accounts.
Advances from the Federal Home Loan Bank increased by $834,000, or 12.1%, to
$7.7 million, during the three months ended March 31, 2004 due to $1.2 million
in repayments of advances and $2.0 million in proceeds from newly issued
advances.
Stockholders' equity increased by $125,000, to $15.2 million, during the three
months ended March 31, 2004. The increase during the period was due to net
income of $416,000, the release of shares related to the employee stock
ownership plan of $42,000, and an increase in the net unrealized gain on
available-for-sale securities, net of tax of $16,000, which were offset by
payments of dividends to stockholders of $328,000 and by the purchase of
treasury shares of $21,000.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
NET INCOME
Net income for the three months ended March 31, 2004 was $416,000 compared to
$335,000 for the same period in 2003, an increase of $81,000, or 24.2%. The
increase resulted from an increase in net interest income of $205,000, a
decrease in the provision for loan losses of $15,000, and an increase in
non-interest income of $3,000, which were offset by an increase in non-interest
expense of $100,000 and an increase in the provision for income tax of $42,000.
INTEREST AND DIVIDEND INCOME
Interest and dividend income decreased by $34,000, or 1.6%, to $2.1 million, for
the three months ended March 31, 2004 compared to the same period in 2003. The
decrease in interest and dividend income was due to a 31 basis point decrease in
the average yield on interest-earning assets, to 5.87% in 2004 from 6.18% in
2003 offset by a $4.8 million, or 3.5%, increase from 2003 to 2004 in the
weighted-average balance of interest-earning assets.
INTEREST EXPENSE
Interest expense decreased by $239,000, or 22.2%, to $839,000, for the three
months ended March 31, 2004 compared to the same period in 2003. The decrease in
interest expense was due to a 82 basis point decrease in the average yield of
interest-bearing liabilities, to 2.61% in 2004 from 3.43% in 2003 offset by a
$3.3 million, or 2.6%, increase from 2003 to 2004 in the weighted average
balance of interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased by $205,000, or 19.9%, to $1.2 million for the
three months ended March 31, 2004 compared to same period in 2003. The change in
net interest income attributable to volume was favorable by $166,000,
attributable to rate was favorable by $48,000, and attributable to rate/volume
was unfavorable by $9,000. The interest rate spread amounted to 3.26% and 2.75%
during the three months ended March 31, 2004 and 2003, respectively, while the
interest margin amounted to 3.49% and 3.02% during the three months ended March
31, 2004 and 2003, respectively.
11
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased by $15,000, or 50.0%, to $15,000 for the
three months ended March 31, 2004 compared to the same period in 2003.
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 $3,000, or 7.0%, to $51,000, for the three
months ended March 31, 2004 compared to the same period in 2003, and such income
amounted to, on an annualized basis, 0.14% of average assets for each of the
three month periods ended March 31, 2004 and 2003. The increase in non-interest
income was related to an increase of $2,000 in gain, net on foreclosed real
estate and an increase of $4,000 in other non-interest income, net, which were
offset by a decrease of $3,000 in fees charged in connection with loans and
service charges on deposit accounts.
NON-INTEREST EXPENSE
Non-interest expense increased by $100,000, or 18.4%, to $641,000, for the three
months ended March 31, 2004 compared to the same period in 2003, and such
expense amounted to 1.76% and 1.53% of average assets for the three months ended
March 31, 2004 and 2003, respectively. The increase was due to increases in
compensation and employee benefits of $71,000, in occupancy and equipment
expense, net of $2,000, in data processing expense of $9,000, in legal and other
professional fees of $14,000, and in other non-interest expense of $7,000, which
were offset by a decrease in state franchise tax of $3,000.
INCOME TAXES
The provision for income taxes for the three months ended March 31, 2004 and
2003 was $212,000 and $170,000, respectively, which as a percentage of income
before taxes was 33.8% for the three months ended March 31, 2004 and 33.7% for
the three months ended March 31, 2003.
12
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.
MARCH 31 , DECEMBER 31,
2004 2003
------------- -------------
Loans accounted for on a non-accrual basis:1 Real estate mortgage:
One-to-four family residential $ 64,102 $ 391,576
Multi-family residential, non-residential, and land 213,328 121,179
Commercial non-mortgage -- --
Consumer 20,733 24,269
------------- -------------
Total $ 298,163 $ 537,024
============= =============
Accruing loans which are contractually past due 90 days or more:
Real estate mortgage:
One-to-four family residential $ 1,159,528 $ 1,094,486
Multi-family residential, non-residential, and land 71,811 --
Commercial non-mortgage 48,707 --
Consumer 33,000 --
------------- -------------
Total $ 1,313,046 $ 1,094,486
============= =============
Total of loans accounted for as non-accrual or as accruing past
due 90 days or more $ 1,611,209 $ 1,631,510
============= =============
Percentage of loans receivable 1.26% 1.30%
============= =============
Other non-performing assets2 $ 52,053 $ 131,390
============= =============
1Non-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.
2Other 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.
During the three months ended March 31, 2004, interest income of $4,889 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 reduced
interest income during the three months ended March 31, 2004 by $2,334.
At March 31, 2004 and December 31, 2003, 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 March 31, 2004.
13
At March 31, 2004, the Bank had outstanding commitments to originate loans
totaling $3.1 million, excluding $1.2 million in unused home equity lines of
credit and $3.0 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 March 31, 2004, totaled
$68.5 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.
14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None
Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
The following table sets forth information regarding the
Company's repurchases of its Common Stock during the quarter
ended March 31, 2004.
Total Number
of Shares
Purchased Maximum
as Part of Number of Shares
Total Publicly that May Yet Be
Number of Average Announced Purchased Under
Shares Price Paid Plans or the Plans or
Period Purchased per Share Programs Programs
------ --------- ---------- ------------ ----------------
March 2004 1,312 (1) $ 16.01 -- --
Beginning date: March 1
Ending date: March 31
(1) Shares were purchased from former employees who received
stock distribution from the Company's employee stock
ownership plan.
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
3.2 Bylaws of CKF Bancorp, Inc.
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
-------------- ---------------- --------------------------
April 13, 2004 7, 12 N/A
15
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: May 13, 2004 /s/ John H. Stigall
----------------------------------------------------
John H. Stigall, President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 13, 2004 /s/ Russell M. Brooks
------------------------------------------------------
Russell M. Brooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
16