SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25180
CKF Bancorp, Inc.
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(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
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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 August 7, 2004, 1,465,528 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
Condensed Consolidated Balance Sheets as of June 30, 2004 (unaudited) and
December 31, 2003............................................................................3
Condensed Consolidated Statements of Income for the Six-Month Periods Ended
June 30, 2004 and 2003 (unaudited) and for the Three-Month Periods Ended
June 30, 2004 and 2003 (unaudited)...........................................................4
Condensed Consolidated Statement of Changes in Stockholders' Equity for the
Six-Month Periods Ended June 30, 2004 and 2003 (unaudited)...................................5
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods
Ended June 30, 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.........................................................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................17
Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities...............17
Item 3. Defaults Upon Senior Securities.................................................................17
Item 4. Submission of Matters to a Vote of Security Holders.............................................17
Item 5. Other Information...............................................................................17
Item 6. Exhibits and Reports on Form 8-K................................................................17
SIGNATURES....................................................................................................18
CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
As of As of
June 30, December 31,
2004 2003
--------------- ---------------
(Unaudited)
ASSETS
Cash and due from banks $ 967,924 $ 1,121,357
Interest bearing deposits 1,848,649 2,671,433
--------------- ---------------
Cash and cash equivalents 2,816,573 3,792,790
Investment securities:
Securities available-for-sale 2,093,128 1,930,421
Securities held-to-maturity (market values of $8,133,062 at
June 30, 2004 and of $8,330,782 at December 31, 2003) 8,249,513 8,333,409
Federal Home Loan Bank stock, at cost 1,767,500 1,732,900
Loans receivable 133,544,560 125,774,932
Allowance for loan losses (629,573) (615,089)
Accrued interest receivable 764,591 731,281
Real estate owned 52,053 131,390
Office property and equipment, net 1,878,501 1,925,300
Goodwill 1,099,588 1,099,588
Other assets 225,189 147,046
--------------- ---------------
Total assets $ 151,861,623 $ 144,983,968
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 120,943,583 $ 121,689,009
Advances from Federal Home Loan Bank 13,701,046 6,899,835
Accrued interest payable 48,995 23,672
Advance payment by borrowers for taxes and insurance 126,265 44,839
Accrued federal income tax 65,898 75,931
Deferred federal income tax 783,668 750,904
Other liabilities 414,592 431,999
--------------- ---------------
Total liabilities 136,084,047 129,916,189
--------------- ---------------
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 9,590,498 9,533,759
Retained earnings, substantially restricted 10,993,940 10,453,207
Accumulated other comprehensive income 281,834 174,447
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 (285,382) (311,326)
--------------- ---------------
Total stockholders' equity 15,777,576 15,067,779
--------------- ---------------
Total liabilities and stockholders' equity $ 151,861,623 $ 144,983,968
=============== ===============
See accompanying notes to condensed consolidated financial statements.
3
CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six-Month Periods For the Three-Month Periods
Ended June 30 Ended June 30
------------------------------- ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Interest and dividend income:
Interest on loans $ 3,994,989 $ 3,916,271 $ 2,022,317 $ 1,890,456
Interest and dividends on investments 182,748 115,037 88,670 69,028
Other interest income 9,247 70,358 4,008 36,091
------------- ------------- ------------- -------------
Total interest and dividend income 4,186,984 4,101,666 2,114,995 1,995,575
------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 1,541,823 1,928,081 756,274 921,220
Interest on advances from the FHLB 118,524 128,108 65,366 57,515
------------- ------------- ------------- -------------
Total interest expense 1,660,347 2,056,189 821,640 978,735
------------- ------------- ------------- -------------
Net interest income 2,526,637 2,045,477 1,293,355 1,016,840
Provision for loan losses 30,000 60,000 15,000 30,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 2,496,637 1,985,477 1,278,355 986,840
------------- ------------- ------------- -------------
Non-interest income:
Loan and other service fees 89,696 96,730 45,594 49,999
Gain, net on foreclosed real estate 2,843 1,668 400 851
Other non-interest income, net 7,822 1,757 3,197 1,489
------------- ------------- ------------- -------------
Total non-interest income 100,361 100,155 49,191 52,339
------------- ------------- ------------- -------------
Non-interest expense:
Compensation and employee benefits 714,026 586,965 348,914 292,204
Occupancy and equipment expense, net 115,196 108,297 57,873 53,241
Data processing 130,192 121,139 60,015 60,170
Legal and other professional fees 65,194 41,872 39,824 29,924
State franchise tax 69,055 74,990 36,166 39,382
Other non-interest expense 191,903 162,767 101,471 79,647
------------- ------------- ------------- -------------
Total non-interest expense 1,285,566 1,096,030 644,263 554,568
------------- ------------- ------------- -------------
Income before income tax expense 1,311,432 989,602 683,283 484,611
Provision for income taxes 443,204 315,027 230,841 144,709
------------- ------------- ------------- -------------
Net income $ 868,228 $ 674,575 $ 452,442 $ 339,902
============= ============= ============= =============
Basic earnings per common share $ .64 $ .50 $ .34 $ .25
============= ============= ============ =============
Diluted earnings per common share $ .62 $ .50 $ .32 $ .25
============= ============= ============ =============
Dividends declared per common share $ .24 $ .20 $ -- $ --
============= ============= ============ =============
Weighted average common shares
outstanding during the period 1,365,832 1,340,336 1,366,668 1,344,470
============= ============= ============= =============
Weighted average common shares
outstanding after dilutive effect 1,399,199 1,361,894 1,399,728 1,369,968
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six-Month Periods Ended June 30, 2004 and 2003
(unaudited)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury
Stock Capital Earnings Income Stock
---------- ------------ -------------- --------------- ---------------
Balance, December 31, 2002 $ 10,000 $ 9,531,454 $ 9,564,805 $ 190,189 $ (4,354,309)
Comprehensive income:
Net income 674,575
Other comprehensive loss, net
of tax:
Decrease in unrealized gains
on securities (178,547)
Total comprehensive income
Dividend declared ($.20 per (267,209)
share)
ESOP shares release accrual 31,068
Issued under stock option plan
shares (60,019)
-------- ----------- ----------- --------- ------------
Balance, June 30, 2003 $ 10,000 $ 9,502,503 $ 9,972,171 $ 11,642 $ (4,354,309)
======== =========== =========== ========= ============
Balance, December 31, 2003 $ 10,000 $ 9,533,759 $10,453,207 $ 174,447 $ (4,354,309)
Comprehensive income:
Net income 868,228
Other comprehensive gain, net
of tax:
Increase in unrealized gains
on securities 107,387
Total comprehensive income
Dividend declared ($.24 per (327,495)
share)
ESOP shares release accrual 56,739
Purchase of common stock (21,006)
-------- ----------- ------------ ---------- ------------
Balance, June 30, 2004 $ 10,000 $ 9,590,498 $ 10,993,940 $ 281,834 $ (4,375,315)
======== =========== ============ ========== ============
Incentive Unearned Total
Plan ESOP Stockholders'
Trust Shares Equity
---------------- --------------- --------------
Balance, December 31, 2002 $ (665,291) $ (363,214) $ 13,913,634
Comprehensive income:
Net income 674,575
Other comprehensive loss, net
of tax:
Decrease in unrealized gains
on securities (178,547)
------------
Total comprehensive income 496,028
Dividend declared ($.20 per
share) (267,209)
ESOP shares release accrual 25,944 57,012
Issued under stock option plan
shares 183,394 123,375
----------- ----------- ------------
Balance, June 30, 2003 $ (481,897) $ (337,270) $ 14,322,840
=========== =========== ============
Balance, December 31, 2003 $ (437,999) $ (311,326) $ 15,067,779
Comprehensive income:
Net income 868,228
Other comprehensive gain, net
of tax:
Increase in unrealized gains
on securities 107,387
------------
Total comprehensive income 975,615
Dividend declared ($.24 per
share) (327,495)
ESOP shares release accrual 25,944 82,683
Purchase of common stock (21,006)
----------- ----------- ------------
Balance, June 30, 2004 $ (437,999) $ (285,382) $ 15,777,576
============ =========== ============
See accompanying notes to condensed consolidated financial statements.
5
CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six-Month Periods
Ended June 30
------------------------------
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 868,228 $ 674,575
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
by operating activities:
Amortization of premiums, net on securities 18,294 6,394
Federal Home Loan Bank stock dividends (34,600) (33,100)
Amortization of premiums on loans 27,737 38,796
Accretion of deferred loan origination fees (14,226) (12,157)
Provision for losses on loans 30,000 60,000
ESOP benefit expense 82,683 57,012
Depreciation expense 67,998 72,246
Amortization of premiums on deposits and FHLB advances (49,865) (73,841)
Loss (gain), net on sale of real estate owned 106 (558)
Deferred income tax benefit (22,556) (8,419)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (33,310) 104,826
Other assets (78,143) (85,490)
Accrued interest payable 25,323 1,196
Other liabilities (17,407) (137,110)
Current federal income taxes (10,033) (79,639)
------------- ------------
Net cash provided by operating activities 860,229 584,731
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of government agency bonds held-to-maturity 500,000 --
Purchase of government agency bonds held-to-maturity (987,500) (1,000,157)
Repayments on mortgage backed securities held-to-maturity 553,102 45,871
Purchase of mortgage backed securities held-to-maturity -- (3,964,193)
Net (increase) decrease in loans (7,749,576) 5,107,480
Purchase of office property and equipment (21,199) (11,727)
Proceeds from sale of (additions to) real estate owned 30,152 (3,256)
------------- ------------
Net cash provided (used) by investing activities (7,675,021) 174,018
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 2,043,155 1,631,287
Net decrease in certificates of deposit (2,744,802) (2,086,265)
Proceeds from Federal Home Loan Bank advances 12,000,000 4,000,000
Repayments on Federal Home Loan Bank advances (5,192,703) (4,690,804)
Net increase in custodial accounts 81,426 93,490
Proceeds from the exercise of stock options -- 123,375
Purchase of treasury stock (21,006) --
Payment of dividends to stockholders (327,495) (267,209)
------------- ------------
Net cash provided (used) by financing activities 5,838,575 (1,196,126)
------------- ------------
Decrease in cash and cash equivalents (976,217) (437,377)
Cash and cash equivalents, beginning of period 3,792,790 13,717,142
------------- ------------
Cash and cash equivalents, end of period $ 2,816,573 $ 13,279,765
============= ============
(continued)
6
CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Six Month Periods
Ended June 30
------------------------------
2004 2003
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for federal income taxes $ 475,793 $ 403,085
Cash paid for interest on deposits and FHLB advances $ 1,684,889 $ 2,128,834
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Real estate owned acquired by foreclosure $ 80,912 $ 155,078
Loans originated to finance sale of foreclosed real estate $ 129,991 $ 92,000
Increase (decrease) in unrealized gains, gross on
available-for-sale securities $ 162,707 $ (270,525)
See accompanying notes to condensed consolidated financial statements
7
CKF Bancorp, Inc. and Subsidiary
Notes to Condensed 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 condensed 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 condensed 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.
Certain information and note disclosures normally included in the company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
(consolidated) financial statements should be read in conjunction with the
(consolidated) financial statements and notes thereto included in the
company's Form 10-K (or 10-KSB) annual report for 2003 filed with
Securities and Exchange Commission. 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 six month period ended June 30, 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):
June 30, 2004
---------------------------------------------------------------------------------
For Capital To be Well
Adequacy Purposes Capitalized Under
Prompt Corrective
Action Provisions
------------------------- ------------------------- --------------------------
Actual Required Required
------------------------- ------------------------- --------------------------
Amount % Amount % Amount %
------------------------- ------------------------- --------------------------
Core capital $ 13,476 8.97% $ 6,012 4.00% $ 9,018 6.00%
Tangible capital 13,476 8.97% 6,012 4.00% n/a n/a
Total Risk based capital 14,388 15.20% 7,573 8.00% 9,467 10.00%
Tier 1 Risk based capital 13,476 14.23% N/a n/a 4,733 5.00%
8
3. EARNINGS PER SHARE
The following table reflects the calculation of basic and diluted earnings
per common share:
FOR THE SIX-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED JUNE 30 JUNE 30
------------------------------- -------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
BASIC EARNINGS PER SHARE
Net income $ 868,228 $ 674,575 $ 452,442 $ 339,901
============ ============ ============ ============
Weighted average shares outstanding 1,365,832 1,340,336 1,366,668 1,344,470
============ ============ ============ ============
Basic earnings per share $ .64 $ .50 $ .34 $ .25
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Net income $ 868,228 $ 674,575 $ 452,442 $ 339,901
============ ============ ============ ============
Weighted average shares outstanding 1,365,832 1,340,336 1,366,668 1,344,470
Diluted effect of stock option 33,367 21,558 33,060 25,228
------------ ------------ ------------ ------------
Weighted average shares outstanding
after dilutive effect 1,399,199 1,361,894 1,399,728 1,369,698
============ ============ ============ ============
Diluted earnings per share $ .62 $ .50 $ .32 $ .25
============ =========== ============ ============
4. STOCK OPTIONS
At June 30, 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 SIX-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED JUNE 30 ENDED JUNE 30
------------------------------- -------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net income as reported $ 868,228 $ 674,575 $ 452,442 $ 339,902
Less: Total stock-based compensation
determined under the fair value method,
net of tax 2,139 1,733 1,073 868
------------ ------------ ------------ ------------
Pro forma net income $ 866,089 $ 672,842 $ 451,369 $ 339,034
============ ============ ============ ============
Basic earnings per share - as reported $ .64 $ .50 $ .34 $ .25
Basic earnings per share - pro forma $ .63 $ .50 $ .33 $ .25
Diluted earnings per share - as reported $ .62 $ .50 $ .32 $ .25
Diluted earnings per share - pro forma $ .62 $ .49 $ .32 $ .24
9
5. 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 six months ended June 30, 2004 amounted to
$327,495.
6. COMMON STOCK
The Company purchased 1,312 shares of treasury stock at a total cost of
$21,006 during the six months ended June 30, 2004.
10
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 JUNE 30, 2004
At June 30, 2004, total assets were $151.9 million, an increase of $6.9 million,
or 4.7%, from $145.0 million at December 31, 2003. The increase in assets
included a $7.8 million increase in loans receivable, a $79,000 increase in
investment securities, and a $976,000 decrease in cash and interest-bearing
deposits. The increase in total assets was primarily funded by a $6.8 million
increase in advances from the Federal Home Loan Bank and by an increase in
stockholders' equity of $710,000. Deposits decreased by $745,000.
Investment securities increased by $79,000, or 0.8%, to $10.3 million, during
the six months ended June 30, 2004. Securities classified as available-for-sale
and recorded at market value increased $163,000 due solely to the increase in
the market value of such securities. Securities classified as held-to-maturity
decreased by $84,000 primarily due to principal repayments on mortgage-backed
securities of $553,000, which was offset by an increase in government agency
bonds related to purchases of $988,000 and maturities of $500,000.
Loans receivable increased by $7.8 million, or 6.2%, to $133.5 million, during
the six months ended June 30, 2004. The increase was primarily due to loan
originations of $26.4 million and loan purchases of $2.1 million offset by loan
principal repayments of $20.4 million and loans sold of $339,000. The allowance
for loan losses was $630,000 at June 30, 2004 compared to $615,000 at December
31, 2003. The allowance as a percentage of loans receivable was 0.47% and 0.49%
at June 30, 2004 and December 31, 2003, respectively. Loan charge-offs, net of
recoveries amounted to $16,000 during the six months ended June 30, 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.
Deposits decreased by $745,000, or 0.6%, to $120.9 million, during the six
months ended June 30, 2004. The decrease was due to a decrease in certificates
of deposit of $2.7 million, or 2.9%, and by the amortization of $44,000 related
to the premium paid on certificates of deposit assumed in the acquisition of
First Lancaster, which were offset by an increase in deposit accounts (demand,
savings, NOW and money market deposit accounts) of $2.0 million, or 7.8%. The
increase in deposit accounts was due to an $866,000 increase in money market
deposit accounts, a $629,000 increase in NOW accounts, a $302,000 increase in
non-interest checking accounts, and a $246,000 increase in savings accounts.
Advances from the Federal Home Loan Bank increased by $6.8 million, or 98.6%, to
$13.7 million, during the six months ended June 30, 2004 due to $5.2 million in
repayments of advances and $12.0 million in proceeds from newly issued advances.
11
Stockholders' equity increased by $710,000, to $15.8 million, during the six
months ended June 30, 2004. The increase during the period was due to net income
of $868,000, the release of shares related to the employee stock ownership plan
of $83,000, and an increase in the net unrealized gain on available-for-sale
securities, net of tax of $107,000, which were offset by payments of dividends
to stockholders of $327,000 and by the purchase of treasury shares of $21,000.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
NET INCOME
Net income for the six months ended June 30, 2004 was $868,000 compared to
$675,000 for the same period in 2003, an increase of $193,000, or 28.7%. The
increase resulted from an increase in net interest income of $481,000 and a
decrease in the provision for loan losses of $30,000, which were offset by a
decrease in non-interest income of less than $1,000, an increase in non-interest
expense of $190,000, and an increase in the provision for income tax of
$128,000.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased by $85,000, or 2.1%, to $4.2 million, for
the six months ended June 30, 2004 compared to the same period in 2003. The
increase in interest and dividend income was due to a $7.1 million, or 5.2%,
increase from 2003 to 2004 in the weighted-average balance of interest-earning
assets offset by an 18 basis point decrease in the average yield on
interest-earning assets, to 5.86% in 2004 from 6.04% in 2003.
INTEREST EXPENSE
Interest expense decreased by $396,000, or 19.3%, to $1.7 million, for the six
months ended June 30, 2004 compared to the same period in 2003. The decrease in
interest expense was due to a 75 basis point decrease in the average yield of
interest-bearing liabilities, to 2.55% in 2004 from 3.30% in 2003 offset by a
$5.6 million, or 4.5%, increase from 2003 to 2004 in the weighted average
balance of interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased by $481,000, or 23.5%, to $2.5 million, for the
six months ended June 30, 2004 compared to same period in 2003. The change in
net interest income attributable to volume was favorable by $396,000,
attributable to rate was favorable by $86,000, and attributable to rate/volume
was unfavorable by $1,000. The interest rate spread amounted to 3.31% and 2.74%
during the six months ended June 30, 2004 and 2003, respectively, while the
interest margin amounted to 3.54% and 3.01% during the six months ended June 30,
2004 and 2003, respectively. A significant portion of the increase in the
interest rate spread in 2004 compared to 2003 is related to the mix of
interest-earning assets. Average loans receivable equaled 90.2% of total
interest-earning assets for the six months ended June 30, 2004 compared to 84.6%
for the six months ended June 30, 2004.
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased by $30,000, or 50.0%, to $30,000 for the six
months ended June 30, 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
12
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 less than $1,000, or 0.2%, to $100,000, for the
six months ended June 30, 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 six month periods ended June 30, 2004 and 2003. The increase in non-interest
income was related to an increase of $6,000 in other non-interest income, net
and an increase of $1,000 in gain, net on foreclosed real estate, which were
offset by a decrease of $7,000 in fees charged in connection with loans and
service charges on deposit accounts.
NON-INTEREST EXPENSE
Non-interest expense increased by $190,000, or 17.3%, to $1.3 million, for the
six months ended June 30, 2004 compared to the same period in 2003, and such
expense amounted to, on an annualized basis, 1.74% and 1.56% of average assets
for the six months ended June 30, 2004 and 2003, respectively. The increase was
due to increases in compensation and employee benefits of $127,000, in occupancy
and equipment expense, net of $7,000, in data processing expense of $9,000, in
legal and other professional fees of $24,000, and in other non-interest expense
of $29,000, which were offset by a decrease in state franchise tax of $6,000.
INCOME TAXES
The provision for income taxes for the six months ended June 30, 2004 and 2003
was $443,000 and $315,000, respectively, which as a percentage of income before
taxes was 33.8% for the six months ended June 30, 2004 and 31.8% for the six
months ended June 30, 2003.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
NET INCOME
Net income for the three months ended June 30, 2004 was $452,000 compared to
$340,000 for the same period in 2003, an increase of $112,000, or 33.1%. The
increase resulted from an increase in net interest income of $276,000 and a
decrease in the provision for loan losses of $15,000, which were offset by a
decrease in non-interest income of $3,000, an increase in non-interest expense
of $90,000, and an increase in the provision for income tax of $86,000.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased by $119,000, or 6.0%, to $2.1 million,
for the three months ended June 30, 2004 compared to the same period in 2003.
The increase in interest and dividend income was due to a $9.4 million, or 7.0%,
increase from 2003 to 2004 in the weighted-average balance of interest-earning
assets offset by a five basis point decrease in the average yield on
interest-earning assets, to 5.85% in 2004 from 5.90% in 2003.
INTEREST EXPENSE
Interest expense decreased by $157,000, or 16.1%, to $822,000, for the three
months ended June 30, 2004 compared to the same period in 2003. The decrease in
interest expense was due to a 66 basis point decrease in the average yield of
interest-bearing liabilities, to 2.49% in 2004 from 3.15% in 2003 offset by a
$7.9 million, or 6.3%, increase from 2003 to 2004 in the weighted average
balance of interest-bearing liabilities.
13
NET INTEREST INCOME
Net interest income increased by $276,000, or 27.2%, to $1.3 million, for the
three months ended June 30, 2004 compared to same period in 2003. The change in
net interest income attributable to volume was favorable by $229,000,
attributable to rate was favorable by $36,000, and attributable to rate/volume
was favorable by $11,000. The interest rate spread amounted to 3.36% and 2.75%
during the three months ended June 30, 2004 and 2003, respectively, while the
interest margin amounted to 3.58% and 3.01% during the three months ended June
30, 2004 and 2003, respectively. A significant portion of the increase in the
interest rate spread in 2004 compared to 2003 is related to the mix of
interest-earning assets. Average loans receivable equaled 90.5% of total
interest-earning assets for the three months ended June 30, 2004 compared to
83.2% for the three months ended June 30, 2004.
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased by $15,000, or 50.0%, to $15,000 for the
three months ended June 30, 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 decreased by $3,000, or 6.0%, to $49,000, for the three
months ended June 30, 2004 compared to the same period in 2003, and such income
amounted to, on an annualized basis, 0.13% and 0.15% of average assets for the
three months ended June 30, 2004 and 2003, respectively. The decrease in
non-interest income was related to a decrease of $4,000 in fees charged in
connection with loans and service charges on deposit accounts offset by an
increase of $1,000 in other non-interest income, net.
NON-INTEREST EXPENSE
Non-interest expense increased by $90,000, or 16.2%, to $644,000, for the three
months ended June 30, 2004 compared to the same period in 2003, and such expense
amounted to, on an annualized basis, 1.73% and 1.58% of average assets for the
three months ended June 30, 2004 and 2003, respectively. The increase was due to
increases in compensation and employee benefits of $57,000, in occupancy and
equipment expense, net of $4,000, in legal and other professional fees of
$10,000, and in other non-interest expense of $22,000, 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 June 30, 2004 and 2003
was $231,000 and $145,000, respectively, which as a percentage of income before
taxes was 33.8% for the three months ended June 30, 2004 and 29.9% for the three
months ended June 30, 2003.
14
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.
JUNE 30, DECEMBER 31,
2004 2003
------------- -------------
Loans accounted for on a non-accrual basis(1):
Real estate mortgage:
One-to-four family residential $ 181,552 $ 391,576
Multi-family residential, non-residential, and land 122,395 121,179
Commercial non-mortgage -- --
Consumer 18,505 24,269
------------- -------------
Total $ 322,452 $ 537,024
============= =============
Accruing loans which are contractually past due 90 days or more:
Real estate mortgage:
One-to-four family residential $ 1,054,779 $ 1,094,486
Multi-family residential, non-residential, and land -- --
Commercial non-mortgage 15,000 --
Consumer 85,360 --
------------- -------------
Total $ 1,155,139 $ 1,094,486
============= =============
Total of loans accounted for as non-accrual or as accruing past
due 90 days or more $ 1,477,591 $ 1,631,510
============= =============
Percentage of loans receivable 1.11% 1.30%
============= =============
Other non-performing assets(2) $ 52,053 $ 131,390
============= =============
(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.
During the six months ended June 30, 2004, interest income of $12,871 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 six months ended June 30, 2004 totaled $5,914.
At June 30, 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 June 30, 2004.
15
At June 30, 2004, the Bank had outstanding commitments to originate loans
totaling $1.5 million, excluding $1.2 million in unused home equity lines of
credit and $1.3 million in other lines of credit and standby letters of credit.
Additionally, the Bank had undisbursed commitments on construction loans closed
totaling $4.4 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 June 30, 2004, totaled
$68.1 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.
16
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None
Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS,
AND ISSUER PURCHASES OF EQUITY
SECURITIES None
Item 3. DEFAULTS UPON SENIOR SECURITIES None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 20,
2004. 1,324,262 shares of CKF Bancorp, Inc. common stock were
represented at the Annual Meeting in person or by proxy.
Stockholders voted in favor of the election of three nominees for
director. The voting results for each nominee were as follows:
Votes In Votes
Nominee Favor of Election Withheld
------------------------ ------------------- ------------
W. Irvine Fox, Jr. 1,323,762 500
Warren O. Nash 1,323,762 500
John H. Stigall 1,323,564 698
There were no broker non-votes in the election of directors.
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
-------------- ---------------- --------------------------
April 13, 2004 7, 12 N/A
17
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: August 12, 2004 /s/ John H. Stigall
----------------------------------------------
John H. Stigall, President and Chief Executive
Officer
(Duly Authorized Officer)
Date: August 12, 2004 /s/ Russell M. Brooks
----------------------------------------------
Russell M. Brooks, Vice President and
Treasurer
(Principal Financial and Accounting Officer)
18