1
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, 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 November 10, 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 September 30, 2004 (unaudited) and
December 31, 2003...................................................................3
Condensed Consolidated Statements of Income for the Nine-Month Periods Ended
September 30, 2004 and 2003 (unaudited) and for the Three-Month Periods Ended
September 30, 2004 and 2003 (unaudited).............................................4
Condensed Consolidated Statement of Changes in Stockholders' Equity for the
Nine-Month Periods Ended September 30, 2004 and 2003 (unaudited)....................5
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods
Ended September 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.........................................................................11
Item 3. Controls and Procedures................................................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................17
Item 2. Unregistered Sale of Securities and Use of Proceeds....................................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 ..............................................................................17
SIGNATURES .......................................................................................18
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CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2004 2003
--------------- ---------------
(UNAUDITED)
ASSETS
Cash and due from banks $ 896,090 $ 1,121,357
Interest bearing deposits 2,358,391 2,671,433
--------------- ---------------
Cash and cash equivalents 3,254,481 3,792,790
Investment securities:
Securities available-for-sale 2,156,511 1,930,421
Securities held-to-maturity (market values of $7,928,107 at
September 30, 2004 and of $8,330,782 at December 31, 2003) 7,967,277 8,333,409
Federal Home Loan Bank stock, at cost 1,786,300 1,732,900
Loans receivable 134,511,772 125,774,932
Allowance for loan losses (644,250) (615,089)
Accrued interest receivable 814,776 731,281
Real estate owned 52,053 131,390
Office property and equipment, net 1,844,502 1,925,300
Goodwill 1,099,588 1,099,588
Other assets 198,487 147,046
--------------- ---------------
Total assets $ 153,041,497 $ 144,983,968
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 118,788,311 $ 121,689,009
Advances from Federal Home Loan Bank 16,667,502 6,899,835
Accrued interest payable 58,305 23,672
Advance payment by borrowers for taxes and insurance 199,624 44,839
Accrued federal income tax 42,424 75,931
Deferred federal income tax 793,928 750,904
Other liabilities 439,118 431,999
--------------- ---------------
Total liabilities 136,989,212 129,916,189
--------------- ---------------
Commitments and contingencies - -
--------------- ---------------
Preferred stock, 100,000 shares, authorized and unissued
Common stock, $.01 par value, 4,000,000 shares authorized;
1,465,528 and 1,471,686 issued and outstanding, respectively 10,000 10,000
Additional paid-in capital 9,583,439 9,533,759
Retained earnings, substantially restricted 11,068,457 10,453,207
Accumulated other comprehensive income 323,667 174,447
Treasury stock, 534,472 and 528,314 shares, respectively, at cost (4,454,062) (4,354,309)
Incentive Plan Trust, 21,200 and 44,900 shares, respectively, at cost (206,806) (437,999)
Unearned Employee Stock Ownership Plan (ESOP) stock (272,410) (311,326)
---------------- ---------------
Total stockholders' equity 16,052,285 15,067,779
--------------- ---------------
Total liabilities and stockholders' equity $ 153,041,497 $ 144,983,968
=============== ===============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------- ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
INTEREST AND DIVIDEND INCOME:
Interest on loans $ 6,063,530 $ 5,821,792 $ 2,068,541 $ 1,905,521
Interest and dividends on investments 278,142 195,477 95,394 80,440
Other interest income 14,603 88,934 5,356 18,576
------------- ------------- ------------- -------------
Total interest and dividend income 6,356,275 6,106,203 2,169,291 2,004,537
------------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits 2,286,615 2,800,504 744,792 872,423
Interest on advances from the FHLB 232,688 172,621 114,164 44,513
------------- ------------- ------------- -------------
Total interest expense 2,519,303 2,973,125 858,956 916,936
------------- ------------- ------------- -------------
NET INTEREST INCOME 3,836,972 3,133,078 1,310,335 1,087,601
Provision for loan losses 45,000 75,000 15,000 15,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 3,791,972 3,058,078 1,295,335 1,072,601
------------- ------------- ------------- -------------
NON-INTEREST INCOME:
Loan and other service fees 140,721 144,691 51,025 47,961
Gain, net on foreclosed real estate 3,543 1,682 700 14
Other non-interest income, net 13,718 3,442 5,896 1,685
------------- ------------- ------------- -------------
Total non-interest income 157,982 149,815 57,621 49,660
------------- ------------- ------------- -------------
NON-INTEREST EXPENSE:
Compensation and employee benefits 1,068,764 871,173 354,738 284,208
Occupancy and equipment expense, net 172,843 166,094 57,647 57,797
Data processing 197,196 184,632 67,004 63,493
Legal and other professional fees 86,850 54,186 21,656 12,314
State franchise tax 103,494 109,937 34,439 34,947
Other non-interest expense 268,667 238,063 76,764 75,296
------------- ------------- ------------- -------------
Total non-interest expense 1,897,814 1,624,085 612,248 528,055
------------- ------------- ------------- -------------
Income before income tax expense 2,052,140 1,583,808 740,708 594,206
Provision for income taxes 694,776 507,096 251,572 192,069
------------- ------------- ------------- -------------
Net income $ 1,357,364 $ 1,076,712 $ 489,136 $ 402,137
============= ============= ============= =============
Basic earnings per common share $ .99 $ .80 $ .35 $ .30
============= ============= ============= =============
Diluted earnings per common share $ .97 $ .79 $ .35 $ .29
============= ============= ============= =============
Dividends declared per common share $ .54 $ .44 $ .30 $ .24
============= ============= ============= =============
Weighted average common shares
outstanding during the period 1,372,040 1,346,564 1,384,322 1,358,818
============= ============= ============= =============
Weighted average common shares
outstanding after dilutive effect 1,392,169 1,368,556 1,405,711 1,384,306
============= ============= ============= =============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
ACCUMULATED
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED OTHER
STOCK CAPITAL EARNINGS INCOME
---------- ------------ -------------- ---------------
Balance, December 31, 2002 $ 10,000 $ 9,531,454 $ 9,564,805 $ 190,189
Comprehensive income:
Net income 1,076,712
Other comprehensive loss, net of tax: (144,476)
Decrease in unrealized gains on securities
Total comprehensive income
Dividend declared ($.44 per share) (592,084)
ESOP shares release accrual 50,941
Issued under stock option plan shares (72,789)
---------- ------------ -------------- -------------
Balance, September 30, 2003 $ 10,000 $ 9,509,606 $ 10,049,433 $ 45,713
========== ============ ============== =============
Balance, December 31, 2003 $ 10,000 $ 9,533,759 $ 10,453,207 $ 174,447
Comprehensive income:
Net income 1,357,364
Other comprehensive gain, net of tax: 149,219
Increase in unrealized gains on securities
Total comprehensive income
Dividend declared ($.54 per share) (742,113)
ESOP shares release accrual 89,004
Issued under stock option plan shares (39,324)
Purchase of common stock
---------- ------------ -------------- -------------
Balance, September 30, 2004 $ 10,000 $ 9,583,439 $ 11,068,458 $ 323,666
========== ============ ============== =============
INCENTIVE UNEARNED TOTAL
TREASURY PLAN ESOP STOCKHOLDERS'
STOCK TRUST SHARES EQUITY
------------- -------------- ------------- ---------------
Balance, December 31, 2002 $ (4,354,309) $ (665,291) $ (363,214) $ 13,913,634
Comprehensive income:
Net income 1,076,712
Other comprehensive loss, net of tax: (144,476)
-------------
Decrease in unrealized gains on securities
Total comprehensive income 932,236
Dividend declared ($.44 per share) (592,084)
ESOP shares release accrual 38,916 89,857
Issued under stock option plan shares 222,414 149,625
------------ ----------- ----------- -------------
Balance, September 30, 2003 $ (4,354,309) $ (442,877) $ (324,298) $ 14,493,268
============ =========== =========== =============
Balance, December 31, 2003 $ (4,354,309) $ (437,999) $ (311,326) $ 15,067,779
Comprehensive income:
Net income 1,357,364
Other comprehensive gain, net of tax: 149,219
-------------
Increase in unrealized gains on securities
Total comprehensive income 1,506,583
Dividend declared ($.54 per share) (742,113)
ESOP shares release accrual 38,916 127,920
Issued under stock option plan shares 231,193 191,869
Purchase of common stock (99,753) (99,753)
------------ ----------- ----------- -------------
Balance, September 30, 2004 $ (4,454,062) $ (206,806) $ (272,410) $ 16,052,285
============ ========== =========== =============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
------------------------------
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,357,364 $ 1,076,712
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Amortization of premiums, net on securities 25,862 13,260
Federal Home Loan Bank stock dividends (53,400) (50,200)
Amortization of premiums on loans 36,900 56,216
Accretion of deferred loan origination fees (19,490) (16,526)
Provision for losses on loans 45,000 75,000
ESOP benefit expense 127,920 89,857
Depreciation expense 101,997 108,369
Amortization of premiums on deposits and FHLB advances (74,804) (103,745)
Loss (gain), net on sale of real estate owned 106 (572)
Deferred income tax benefit (33,847) (28,574)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (83,495) 137,639
Other assets (51,441) (68,744)
Accrued interest payable 34,633 (3,273)
Other liabilities 7,119 (114,563)
Current federal income taxes 2,830 (7,415)
------------- ------------
Net cash provided by operating activities 1,423,254 1,163,441
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of government agency bonds held-to-maturity 500,000 250,000
Purchase of government agency bonds held-to-maturity (987,500) (1,000,157)
Repayments on mortgage backed securities held-to-maturity 827,770 466,660
Purchase of mortgage backed securities held-to-maturity - (3,964,193)
Net increase in loans (8,721,010) (2,007,983)
Purchase of office property and equipment (21,199) (21,686)
Proceeds from sale of (additions to) real estate owned 30,152 (4,013)
------------- ------------
Net cash used by investing activities (8,371,787) (6,281,372)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 948,613 2,169,630
Net decrease in certificates of deposit (3,783,515) (1,697,732)
Proceeds from Federal Home Loan Bank advances 18,000,000 4,000,000
Repayments on Federal Home Loan Bank advances (8,223,325) (4,732,911)
Net increase in custodial accounts 154,785 162,928
Proceeds from the exercise of stock options 155,532 149,625
Purchase of treasury stock (99,753) -
Payment of dividends to stockholders (742,113) (592,084)
------------- ------------
Net cash provided (used) by financing activities 6,410,224 (540,544)
------------- ------------
Decrease in cash and cash equivalents (538,309) (5,658,475)
Cash and cash equivalents, beginning of period 3,792,790 13,717,142
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Cash and cash equivalents, end of period $ 3,254,481 $ 8,058,667
============= ============
(continued)
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CKF BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
------------------------------
2004 2003
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SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for federal income taxes $ 725,793 $ 543,085
Cash paid for interest on deposits and FHLB advances $ 2,594,474 $ 3,080,143
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Real estate owned acquired by foreclosure $ 80,912 $ 262,071
Loans originated to finance sale of foreclosed real estate $ 129,991 $ 310,260
Increase (decrease) in unrealized gains, gross on available-for-sale securities $ 226,090 $ (218,903)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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. 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 nine-month period ended
September 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):
SEPTEMBER 30, 2004
---------------------------------------------------------------------------------
FOR CAPITAL TO BE WELL
ADEQUACY PURPOSES CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
------------------------- ------------------------- --------------------------
ACTUAL REQUIRED REQUIRED
------------------------- ------------------------- --------------------------
AMOUNT % AMOUNT % AMOUNT %
------------------------- ------------------------- --------------------------
Core capital $ 13,770 9.09% $ 6,057 4.00% $ 9,085 6.00%
Tangible capital 13,770 9.09% 6,057 4.00% n/a N/a
Total Risk based capital 14,738 15.61% 7,552 8.00% 9,439 10.00%
Tier 1 Risk based capital 13,770 14.59% n/a n/a 4,720 5.00%
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3. 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 JUNE 30 JUNE 30
------------------------------- -------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
BASIC EARNINGS PER SHARE
Net income $ 1,357,364 $ 1,076,712 $ 489,136 $ 402,137
============ ============ ============ ============
Weighted average shares outstanding 1,372,040 1,346,564 1,384,322 1,358,818
============ ============ ============ ============
Basic earnings per share $ .99 $ .80 $ .35 $ .30
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Net income $ 1,357,364 $ 1,076,712 $ 489,136 $ 402,137
============ ============ ============ ============
Weighted average shares outstanding 1,372,040 1,346,564 1,384,322 1,358,818
Diluted effect of stock option 20,129 21,992 21,389 25,488
------------ ------------ ------------ -----------
Weighted average shares outstanding
after dilutive effect 1,392,169 1,368,556 1,405,711 1,384,306
============ ============ ============ ============
Diluted earnings per share $ .97 $ .79 $ .35 $ .29
============ ============ ============ ============
4. STOCK OPTIONS
At September 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 NINE-MONTH PERIODS FOR THE THREE-MONTH PERIODS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------- -------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net income as reported $ 1,357,364 $ 1,076,712 $ 489,136 $ 402,137
Less: Total stock-based compensation
determined under the fair value method,
net of tax 3,208 2,599 1,069 866
------------ ------------ ------------ ------------
Pro forma net income $ 1,354,156 $ 1,074,113 $ 488,067 $ 401,271
============ ============ ============ ============
Basic earnings per share - as reported $ .99 $ .80 $ .35 $ .30
Basic earnings per share - pro forma $ .99 $ .80 $ .35 $ .30
Diluted earnings per share - as reported $ .97 $ .79 $ .35 $ .29
Diluted earnings per share - pro forma $ .97 $ .78 $ .35 $ .29
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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, and a cash
dividend of $.30 per share was paid on August 10, 2004 to stockholders
of record as of July 28, 2004. The total dividends paid by the Company
during the nine months ended September 30, 2004 amounted to $742,113.
6. COMMON STOCK
The Company purchased 6,158 shares of treasury stock at a total cost of
$99,753 during the nine months ended September 30, 2004.
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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 SEPTEMBER 30, 2004
At September 30, 2004, total assets were $153.0 million, an increase of $8.1
million, or 5.6%, from $145.0 million at December 31, 2003. The increase in
assets included a $8.7 million increase in loans receivable, a $538,000 decrease
in cash and interest-bearing deposits, and a $140,000 decrease in investment
securities. The increase in total assets was primarily funded by a $9.8 million
increase in advances from the Federal Home Loan Bank and by an increase in
stockholders' equity of $985,000. Deposits decreased by $2.9 million during the
period.
Investment securities decreased by $140,000, or 1.4%, to $10.1 million, during
the nine months ended September 30, 2004. Securities classified as
available-for-sale and recorded at market value increased $226,000 due solely to
the increase in the market value of such securities. Securities classified as
held-to-maturity decreased by $366,000 primarily due to principal repayments on
mortgage-backed securities of $828,000, 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 $8.7 million, or 6.9%, to $134.5 million, during
the nine months ended September 30, 2004. The increase was primarily due to loan
originations of $38.4 million and loan purchases of $2.2 million offset by loan
principal repayments of $31.5 million and loans sold of $339,000. The allowance
for loan losses was $644,000 at September 30, 2004 compared to $615,000 at
December 31, 2003. The allowance as a percentage of loans receivable was 0.48%
and 0.49% at September 30, 2004 and December 31, 2003, respectively. Loan
charge-offs, net of recoveries amounted to $16,000 during the nine months ended
September 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 for
loan losses is estimated 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 provisions
will not be incurred in the near term, or that the Bank's regulators or changes
in the Bank's economic environment will not require further increases in the
allowance.
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Deposits decreased by $2.9 million, or 2.4%, to $118.8 million, during the nine
months ended September 30, 2004. The decrease was due to a decrease in
certificates of deposit of $3.8 million, or 4.0%, and by the amortization of
$66,000 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 $929,000,
or 3.6%. The increase in deposit accounts was due to a $361,000 increase in
money market deposit accounts, a $535,000 increase in NOW accounts, a $11,000
decrease in non-interest checking accounts, and a $44,000 increase in savings
accounts. Advances from the Federal Home Loan Bank increased by $9.8 million, or
141.6%, to $16.7 million, during the nine months ended September 30, 2004 due to
$8.2 million in repayments of advances and $18.0 million in proceeds from newly
issued advances.
Stockholders' equity increased by $985,000, to $16.1 million, during the nine
months ended September 30, 2004. The increase during the period was due to net
income of $1.4 million, the release of shares related to the employee stock
ownership plan of $128,000, an increase in the net unrealized gain on
available-for-sale securities, net of tax of $149,000, and the issue of
additional shares under the stock option plan of $192,000, which were offset by
payments of dividends to stockholders of $742,000 and by the purchase of
treasury shares of $100,000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
NET INCOME
Net income for the nine months ended September 30, 2004 was $1.4 million
compared to $1.1 million for the same period in 2003, an increase of $281,000,
or 26.1%. The increase resulted from an increase in net interest income of
$704,000, an increase in non-interest income of $8,000, and a decrease in the
provision for loan losses of $30,000, which were offset by an increase in
non-interest expense of $274,000 and an increase in the provision for income tax
of $187,000.
INTEREST AND DIVIDEND INCOME
Interest and dividend income increased by $250,000, or 4.1%, to $6.4 million,
for the nine months ended September 30, 2004 compared to the same period in
2003. The increase in interest and dividend income was due to a $8.5 million, or
6.2%, increase from 2003 to 2004 in the weighted-average balance of
interest-earning assets offset by a 12 basis point decrease in the average yield
on interest-earning assets, to 5.85% in 2004 from 5.97% in 2003.
INTEREST EXPENSE
Interest expense decreased by $454,000, or 15.3%, to $2.5 million, for the nine
months ended September 30, 2004 compared to the same period in 2003. The
decrease in interest expense was due to a 63 basis point decrease in the average
yield of interest-bearing liabilities, to 2.54% in 2004 from 3.17% in 2003
offset by a $6.8 million, or 5.4%, increase from 2003 to 2004 in the weighted
average balance of interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased by $704,000, or 22.5%, to $3.8 million, for the
nine months ended September 30, 2004 compared to same period in 2003. The change
in net interest income attributable to volume was favorable by $574,000,
attributable to rate was favorable by $126,000, and attributable to rate/volume
was favorable by $4,000. The interest rate spread amounted to 3.30% and 2.80%
during the nine months ended September 30, 2004 and 2003, respectively, while
the interest margin amounted to 3.53% and 3.06% during the nine months ended
September 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 90.3% of total
interest-earning assets for the nine months ended September 30, 2004 compared to
85.1% for the nine months ended September 30, 2004.
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PROVISION FOR LOAN LOSSES
Provision for loan losses decreased by $30,000, or 40.0%, to $45,000 for the
nine months ended September 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 increased by $8,000, or 5.5%, to $158,000, for the nine
months ended September 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 nine-month periods ended September 30, 2004 and 2003. The increase in
non-interest income was related to an increase of $10,000 in other non-interest
income, net and an increase of $2,000 in gain, net on foreclosed real estate,
which were offset by a decrease of $4,000 in fees charged in connection with
loans and service charges on deposit accounts.
NON-INTEREST EXPENSE
Non-interest expense increased by $274,000, or 16.9%, to $1.9 million, for the
nine months ended September 30, 2004 compared to the same period in 2003, and
such expense amounted to, on an annualized basis, 1.69% and 1.53% of average
assets for the nine months ended September 30, 2004 and 2003, respectively. The
increase was due to increases in compensation and employee benefits of $197,000,
in occupancy and equipment expense, net of $7,000, in data processing expense of
$12,000, in legal and other professional fees of $33,000, and in other
non-interest expense of $31,000, which were offset by a decrease in state
franchise tax of $6,000.
INCOME TAXES
The provision for income taxes for the nine months ended September 30, 2004 and
2003 was $695,000 and $507,000, respectively, which as a percentage of income
before taxes was 33.9% for the nine months ended September 30, 2004 and 32.0%
for the nine months ended September 30, 2003.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
NET INCOME
Net income for the three months ended September 30, 2004 was $489,000 compared
to $402,000 for the same period in 2003, an increase of $87,000, or 21.6%. The
increase resulted from an increase in net interest income of $223,000 and an
increase in non-interest income of $8,000, which were offset by an increase in
non-interest expense of $84,000 and an increase in the provision for income tax
of $60,000.
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INTEREST AND DIVIDEND INCOME
Interest and dividend income increased by $165,000, or 8.2%, to $2.2 million,
for the three months ended September 30, 2004 compared to the same period in
2003. The increase in interest and dividend income was due to an $11.2 million,
or 8.2%, increase from 2003 to 2004 in the weighted-average balance of
interest-earning assets while the average yield on interest-earning assets
remained level in 2004 compared to 2003, at 5.83%.
INTEREST EXPENSE
Interest expense decreased by $58,000, or 6.3%, to $859,000, for the three
months ended September 30, 2004 compared to the same period in 2003. The
decrease in interest expense was due to a 37 basis point decrease in the average
yield of interest-bearing liabilities, to 2.54% in 2004 from 2.91% in 2003
offset by a $9.2 million, or 7.3%, increase from 2003 to 2004 in the weighted
average balance of interest-bearing liabilities.
NET INTEREST INCOME
Net interest income increased by $223,000, or 20.5%, to $1.3 million, for the
three months ended September 30, 2004 compared to same period in 2003. The
change in net interest income attributable to volume was favorable by $194,000,
attributable to rate was favorable by $40,000, and attributable to rate/volume
was unfavorable by $11,000. The interest rate spread amounted to 3.29% and 2.92%
during the three months ended September 30, 2004 and 2003, respectively, while
the interest margin amounted to 3.52% and 3.16% during the three months ended
September 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 90.4% of total
interest-earning assets for the three months ended September 30, 2004 compared
to 86.1% for the three months ended September 30, 2004.
PROVISION FOR LOAN LOSSES
Provision for loan losses remained level at $15,000 for the three months ended
September 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 increased by $8,000, or 16.0%, to $58,000, for the three
months ended September 30, 2004 compared to the same period in 2003, and such
income amounted to, on an annualized basis, 0.15% and 0.14% of average assets
for the three months ended September 30, 2004 and 2003, respectively. The
increase in non-interest income was related to an increase of $3,000 in fees
charged in connection with loans and service charges on deposit accounts, an
increase of $1,000 in gain, net on foreclosed real estate, and an increase of
$4,000 in other non-interest income, net.
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NON-INTEREST EXPENSE
Non-interest expense increased by $84,000, or 15.9%, to $612,000, for the three
months ended September 30, 2004 compared to the same period in 2003, and such
expense amounted to, on an annualized basis, 1.60% and 1.48% of average assets
for the three months ended September 30, 2004 and 2003, respectively. The
increase was due to increases in compensation and employee benefits of $71,000,
in data processing expense, net of $4,000, in legal and other professional fees
of $9,000, and in other non-interest expense of $1,000, which were offset by a
decrease in state franchise tax of $1,000.
INCOME TAXES
The provision for income taxes for the three months ended September 30, 2004 and
2003 was $252,000 and $192,000, respectively, which as a percentage of income
before taxes was 34.0% for the three months ended September 30, 2004 and 32.3%
for the three months ended September 30, 2003.
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,
2004 2003
------------- -------------
Loans accounted for on a non-accrual basis:/1/
Real estate mortgage:
One-to-four family residential $ 298,988 $ 391,576
Multi-family residential, non-residential, and land 84,608 121,179
Commercial non-mortgage - -
Consumer 46,936 24,269
------------- -------------
Total $ 430,532 $ 537,024
============= =============
Accruing loans which are contractually past due 90 days or more:
Real estate mortgage:
One-to-four family residential $ 1,126,263 $ 1,094,486
Multi-family residential, non-residential, and land 1,301 -
Commercial non-mortgage 1,639 -
Consumer 20,229 -
------------- -------------
Total $ 1,149,432 $ 1,094,486
============= =============
Total of loans accounted for as non-accrual or as accruing past
due 90 days or more $ 1,579,964 $ 1,631,510
============= =============
Percentage of loans receivable 1.17% 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 nine months ended September 30, 2004, interest income of $24,301
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, 2004
totaled $10,770.
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At September 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 September 30, 2004.
At September 30, 2004, the Bank had outstanding commitments to originate loans
totaling $1.2 million, excluding $1.2 million in unused home equity lines of
credit and $3.6 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, 2004,
totaled $64.6 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.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None
Item 2. UNREGISTERED SALE OF 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
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CKF BANCORP, INC.
Date: November 12, 2004 /s/ John H. Stigall
--------------------------------------------
John H. Stigall, President and Chief
Executive Officer
(Duly Authorized Officer)
Date: November 12, 2004 /s/ Russell M. Brooks
--------------------------------------------
Russell M. Brooks, Vice President
and Treasurer
(Principal Financial and Accounting Officer)
18