SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
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 registrant 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)
Registrant's telephone number, including area code: (606) 236-4181
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
--- ---
As of August 1, 1996, 950,000 shares of the registrant's common stock were
issued and outstanding.
Page 1 of 17 Pages Exhibit Index at Page N/A
---
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and
December 31, 1995............................................. 3
Consolidated Statements of Income for the Three-Month Periods Ended
June 30, 1996 and 1995 (unaudited) and the Six-Month Periods
Ended June 30, 1996 and 1995 (unaudited)...................... 4
Consolidated Statements of Cash Flows for the Six-Month Periods
Ended June 30, 1996 and 1995 (unaudited)...................... 5
Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 16
Item 2. Changes in Securities............................................. 16
Item 3. Defaults Upon Senior Securities................................... 16
Item 4. Submission of Matters to a Vote of Security Holders............... 16
Item 5. Other Information................................................. 16
Item 6. Exhibits and Reports on Form 8-K.................................. 16
SIGNATURES
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
-------------------
AS OF AS OF
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------------- ------------
(unaudited)
Cash and due from banks $ 107,040 $ 500,944
Interest bearing deposits 359,441 1,602,813
Certificates of deposit 1,000,000
Available-for-sale securities 838,242 818,634
Held-to-maturity securities 2,730,912 1,975,941
Loans receivable, net 53,739,071 49,638,263
Accrued interest receivable 389,851 440,314
Office property and equipment, net 555,979 560,968
Other assets 13,899 11,401
----------- -----------
Total assets $58,734,435 $56,549,278
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $42,046,912 $39,355,841
Advance from Federal Home Loan Bank 270,415 288,040
Federal income tax payable 634,068 680,256
Other liabilities 146,800 96,231
----------- -----------
Total liabilities 43,098,195 40,420,368
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, 4,000,000 shares authorized;
1,000,000 shares issued 10,000 10,000
Additional paid-in capital 9,608,629 9,583,408
Retained earnings, substantially restricted 6,941,577 6,767,215
Treasury stock, 37,101 shares, at cost (731,860)
Net unrealized appreciation on securities available-for-sale 527,896 514,955
Unallocated employee stock ownership plan (ESOP) shares (720,002) (746,668)
----------- -----------
Total stockholders' equity 15,636,240 16,128,910
----------- -----------
Total liabilities and stockholders' equity $58,734,435 $56,549,278
=========== ===========
See accompanying notes to consolidated financial statements.
3
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
------------------
FOR THE THREE-MONTH PERIODS FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
------------------ ----------- -------------- --------------
Interest income:
Interest on loans...................................... $1,009,015 $ 893,836 $1,984,940 $1,751,551
Interest and dividends on investments.................. 48,321 36,687 75,876 72,732
Other interest income.................................. 13,561 74,455 53,932 155,081
---------- ---------- ---------- ----------
Total interest income..................... 1,070,897 1,004,978 2,114,748 1,979,364
---------- ---------- ---------- ----------
Interest expense:........................................
Interest on deposits................................... 524,634 465,567 1,037,802 912,444
Other interest expense................................. 4,682 5,272 9,515 10,685
---------- ---------- ---------- ----------
Total interest expense.................... 529,316 470,839 1,047,317 923,129
---------- ---------- ---------- ----------
Net interest income...................................... 541,581 534,139 1,067,431 1,056,235
Provision for loan losses................................ 6,000 6,000 12,000 12,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses............................. 535,581 528,139 1,055,431 1,044,235
---------- ---------- ---------- ----------
Non-interest income:
Loan and other service fees............................ 12,386 10,603 22,646 20,504
Other, net............................................. 581 447 1,408 916
---------- ---------- ---------- ----------
Total non-interest income................. 12,967 11,050 24,054 21,420
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and benefits.............................. 132,370 97,663 265,607 195,240
Federal insurance premium.............................. 24,484 24,965 48,969 49,929
State franchise tax.................................... 12,273 12,560 24,547 25,120
Occupancy expenses, net................................ 8,825 8,572 19,525 16,542
Data processing expenses............................... 9,600 10,060 20,171 20,949
Legal fees............................................. 5,651 15,359 17,004 29,597
Other operating expenses............................... 55,616 41,369 129,747 73,005
---------- ---------- ---------- ----------
Total non-interest expense................ 248,819 210,548 525,570 410,382
---------- ---------- ---------- ----------
Income before income tax expense......................... 299,729 328,641 553,915 655,273
Provision for income taxes............................... 107,329 116,662 194,587 228,342
---------- ---------- ---------- ----------
Net income............................................... $ 192,400 $ 211,979 $ 359,328 $ 426,931
========== ========== ========== ==========
Earnings per share....................................... $ .21 $ .23 $ .39 $ .46
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------
FOR THE SIX-MONTH PERIODS
ENDED JUNE 30
----------------------------
1996 1995
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 359,328 $ 426,931
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 12,000 12,000
Amortization of loan fees (3,864) (4,897)
ESOP benefit expense 51,887 34,595
Provision for depreciation 11,918 8,832
FHLB stock dividend (15,800) (13,800)
Amortization of investment premium 7,211 1,391
Change in:
Interest receivable 50,463 (67,337)
Other liabilities and federal income taxes payable (3,900) 51,684
Prepaid expense (2,498) (18,625)
Interest payable 1,614 961
----------- -----------
Net cash provided by operating activities 468,359 431,735
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations and principal payment on loans, net (3,944,944) (2,696,809)
Purchase of office equipment (6,929) (43,023)
Purchase of loans (164,000)
Purchase of held-to-maturity securities (1,017,806)
Matured held-to-maturity securities 250,415
Proceeds from certificates of deposit 1,000,000
Principle repayment on mortgage-backed securities 21,009
----------- -----------
Net cash (used) by investing activities (3,862,255) (2,739,832)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts 971,391 (282,071)
Net increase (decrease) in certificates of deposit 1,719,681 (993,065)
Payments on FHLB advances (17,625) (17,928)
Dividends paid (184,967)
Purchase of common stock (731,860)
----------- -----------
Net cash provided (used) by financing activities 1,756,620 (1,293,064)
----------- -----------
Increase (decrease) in cash and cash equivalents (1,637,276) (3,601,161)
Cash and cash equivalents, beginning of period 2,103,757 7,951,858
----------- -----------
Cash and cash equivalents, end of period $ 466,481 $ 4,350,697
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 161,353 $ 168,532
=========== ===========
Cash paid for interest $ 1,036,189 $ 922,168
=========== ===========
See accompanying notes to consolidated financial statements.
5
NOTES TO UNAUDITED 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, 50% of the net proceeds of the
Conversion, and a note receivable from the Company's Employee Stock Ownership
Plan ("ESOP"), and its sole business is that of the Bank. Accordingly, the
consolidated financial statements and discussions herein include both the
Company and the Bank. On December 29, 1994, the Bank converted from mutual to
stock form as a wholly owned subsidiary of the Company. In conjunction with the
Conversion, the Company issued 1,000,000 shares of its common stock to the
public.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q 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 and six month periods ended June 30, 1996 are not
necessarily indicative of results that may be expected for the entire fiscal
year ending December 31, 1996.
2. EARNINGS PER SHARE
Earnings per share for the three and six month periods ended June 30, 1996
amounted to $0.21 and $0.39 per share, respectively, based on weighted average
common stock shares outstanding. Earnings per share for the three and six month
periods ended June 30, 1995 amounted to $0.23 and $0.46 per share, respectively,
based on weighted average common stock shares outstanding. The weighted average
number of common shares issued and outstanding for the three and six month
periods ended June 30, 1996 was 916,952 and 923,444 shares, respectively. The
weighted average number of common shares issued and outstanding for the three
and six month periods ended June 30, 1995 was 922,667 and 922,000 shares,
respectively.
6
3. REGULATORY CAPITAL
At June 30, 1996, the Bank's regulatory capital levels exceeded each of the
three regulatory capital requirements. The following table reconciles the
Bank's stockholder equity at June 30, 1996 to its regulatory capital
requirements.
REGULATORY CAPITAL
----------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
----------- -------- -----------
(In thousands)
Stockholder equity $12,748 $12,748 $12,748
Net unrealized appreciation on investment
securities available-for-sale (528) (528) (528)
General allowance for loan losses 112
------- ------- -------
Regulatory capital 12,220 12,220 12,332
Minimum capital requirement 873 1,746 2,823
------- ------- -------
Excess regulatory capital $11,347 $10,474 $ 9,509
======= ======= =======
Minimum capital requirement as a
percentage of assets 1.5% 3.0% 8.0%
Regulatory capital in excess of minimum
capital requirements as a percentage
of assets 19.3% 18.0% 29.5%/1/
- - ----------------
/1/Based on risk weighted assets.
4. IMPAIRED LOANS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118, effective January 1, 1995. SFAS No. 114 as amended generally
requires that impaired loans be measured based on the present value of the
loan's expected future cash flows discounted at the loan's effective interest
rate. The measurement of impairment for loans that are collateral dependent
may be based on the fair value of the collateral. If the present value or
the fair value of the collateral is less than the recorded investment in the
loan, an impairment will be recognized. This statement as amended allows a
creditor to use existing methods for recognizing interest income on an
impaired loan.
The Company has defined its population of impaired loans as consisting of all
loans in a non-accrual status. Non-accrual loans, which includes all
impaired loans, are loans which management believes may have defined
weaknesses whereby it is probable that all amounts due under the contractual
terms of the agreement will not be collected. Generally, these are loans
which are past due as to maturity or payment of principal or interest for a
period of more than 90 days unless such loans are well-secured and in the
process of collection. Payments received on these loans are either applied
to the outstanding principal balance or recorded as interest income, or both,
depending on assessment of the collectibillity of the loan.
7
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, combined with sustained
repayment performance by the borrower.
As of June 30, 1996, the total amount of impaired loans was $348,000 for
which no allowance for loan losses has been provided. The average balance of
impaired loans for the six months ended June 30, 1996 was $348,000. Interest
income from cash receipts on impaired loans for the six months ended June 30,
1996 amounted to $198.00. The following summarizes the activity in the
allowance for loan losses for the six months ended June 30, 1996.
ALLOWANCES FOR GENERAL
LOSSES ON ALLOWANCE FOR
IMPAIRED LOANS LOAN LOSSES TOTAL
-------------- ------------- --------
Balance, December 31, 1995 $ $100,000 $100,000
Additions 12,000 12,000
Charge-offs
Recoveries
--------- -------- --------
Balance, June 30, 1996 $ $112,000 $112,000
========= ======== ========
5. TREASURY STOCK
Pursuant to the stock repurchase plan approved by the Board of Directors of
the Company on December 16, 1995, the Company repurchased a total of 37,101
shares at a total price of $731,860 during the six months ended June 30,
1996.
6. SUBSEQUENT EVENT
On July 11, 1996 the Board of Directors of the Company authorized the
increase of the semi-annual dividend from $.20 per share of common stock to
$.22 per share. The dividend is to be paid on August 12, 1996 to
stockholders of record at July 26, 1996.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets increased approximately $2.2 million, or 3.9%, from $56.6 million
at December 31, 1995 to $58.8 million at June 30, 1996. The increase primarily
reflected a $4.1 million, or 8.3%, increase in net loans receivable and a $.7
million, or 27.7%, increase in investment securities offset by a $2.6 million,
or 84.9%, decrease in cash and cash equivalents and certificates of deposit.
The Company's aggregate investment securities portfolio increased $.7 million,
or 27.7%, to $3.6 million at June 30, 1996 from $2.8 million at December 31,
1995. Securities classified as available-for-sale and recorded at market value
per SFAS No. 115 increased $20,000 due solely to the increase in the market
value of such securities. Held-to-maturity securities increased $.7 million due
to the purchase of a mortgage-backed security and a U.S. Treasury Note, based on
management's decision to seek higher yields on funds available for investment.
Under SFAS No. 115, unrealized gains or losses on securities available-for-sale
are recorded net of deferred income tax as a separate component of stockholders'
equity. At June 30, 1996, the Company included net unrealized gains of
approximately $528,000 in stockholders' equity. At December 31, 1995, the
Company included net unrealized gains of approximately $515,000 in stockholders'
equity. Per SFAS No. 115, such gains or losses will not be reflected as a
charge or credit to earnings until the underlying securities are sold, and then
only to the extent of the amount of gain or loss, if any, actually realized at
the time of sale.
Loans receivable increased by $4.1 million, or 8.3%, from $49.6 million at
December 31, 1995 to $53.7 million at June 30, 1996. The increase in loans
during this six-month period reflects management's continued aggressive policy
in loan solicitation as well as the general decline in market interest rates.
In March 1994, the Bank began offering adjustable rate mortgage loans with
initial adjustment periods of one, three, five, and seven years. Prior to this
time, the Bank only offered adjustable rate mortgage loans with an initial
adjustment period of one year. Management intends to continue offering these
loan products as a long-term strategy for expanding the loan portfolio.
Deposits increased by $2.7 million, or 6.8%, from $39.3 million at December 31,
1995 to $42.0 million at June 30, 1996. This increase reflects the Company's
competitively priced product line within the local market area.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
NET INCOME
Net income for the three months ended June 30, 1996 was $192,000 compared to
$212,000 for the corresponding period in 1995, a decrease of $20,000, or 9.4%.
The decrease resulted primarily from increases in non-interest expenses of
$38,000 partially offset by an increase in net interest income of $8,000 and a
decrease in income tax expense of $9,000 as compared to the corresponding period
in 1995.
9
INTEREST INCOME
Interest income totaled 7.3% of average assets for the quarter ended June 30,
1996 compared to 7.4% for the quarter ended June 30, 1995. Interest income
increased $66,000, or 6.6%, to $1.1 million for the quarter ended June 30, 1996
from $1 million for the quarter ended June 30, 1995. The increase was due
primarily to an increase in the average earning assets of $3.4 million for the
quarter ended June 30, 1996 compared to the same period in 1995.
INTEREST EXPENSE
Interest expense totaled $529,000 and $471,000 for the three months ended June
30, 1996 and 1995, respectively. The increase in interest expense of $58,000 or
12.3%, for the three months ended June 30, 1996 as compared to the same period
for 1995 was due to an increase in average interest rates paid on deposits, from
4.4% to 4.8%, plus an increase of $1.1 million in the average deposit balances,
offset by a reduction in the average amount of FHLB borrowings outstanding
during the three months ended June 30, 1996 compared to the same period in 1995.
PROVISION FOR LOAN LOSSES
The Bank established a provision for loan losses of $6,000 for the three month
period ended June 30, 1996 and 1995. Management considers many factors in
determining the necessary level 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. At June 30, 1996 the allowance for loan losses represented
.21% of total loans compared to .18% at June 30, 1995.
There can be no assurance that management will not decide to increase the
allowance for loan losses or that regulators, when reviewing the Bank's loan
portfolios in the future, will not request the Bank to increase such allowance,
either of which could adversely affect bank earnings. Further, there can be no
assurance that the Bank's actual loan losses will not exceed its allowance for
loan losses.
NON-INTEREST INCOME
Non-interest income amounted to $13,000 and $11,000 for the three months ended
June 30, 1996 and 1995, respectively. Non-interest income included primarily
fees charged in connection with loans and service charges on deposit accounts of
$12,000 and $9,000 for the three months ended June 30, 1996 and 1995,
respectively.
NON-INTEREST EXPENSE
Non-interest expense totaled $249,000 and $211,000 for the three months ended
June 30, 1996 and 1995, respectively, an increase of $38,000, or 18.0%, and such
expense amounted to 1.7% and 1.5% of average assets for the three months ended
June 30, 1996 and 1995, respectively. The increase was primarily due to an
increase in compensation and benefits of $35,000 and an increase in other
operating expenses of $14,000 offset by a decrease in legal expenses of $10,000.
The increase of $35,000 in compensation and benefits is due to the addition of
one staff person in 1996 plus normal salary increases, the expense related to
the
10
director's retirement plan in effect in 1996, but not in 1995, and an increase
in the ESOP expense for the 1996 period, which is based on the market value of
the Company's stock. The increase of $14,000 in other operating expenses was
primarily due to additional expenses for the new ATM operation, an increase in
advertising and in professional services. The decrease of $10,000 in legal fees
was due to additional services rendered in 1995 related to adopting employee
benefit plans subsequent to the conversion, which were not incurred in the 1996
period.
INCOME TAXES
The provision for income taxes for the three months ended June 30, 1996 and 1995
was $107,000 and $117,000, respectively, which, as a percentage of income before
income taxes was 35% for both periods.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET INCOME
Net income for the six months ended June 30, 1996 was $360,000, as compared to
$427,000 for the corresponding period in 1995, a decrease of $67,000, or 15.7%.
The decrease resulted primarily from increases in other operating expenses of
$115,000 partially offset by an increase in net interest income of $11,000 and a
decrease in income tax expense of $34,000 as compared to the corresponding
period in 1995.
INTEREST INCOME
Interest income totaled 7.3% of average assets for the six month periods ended
June 30, 1996 and 1995. Interest income increased $135,000, or 6.8%, to
approximately $2.1 million for the six month period June 30, 1996 compared to
approximately $1.9 million for the same period in 1995. The increase was due to
an increase in the effective rate earned on interest-bearing assets to 7.40% for
the six month period ended June 30, 1996 as compared to 7.29% for the same
period in 1995, plus an increase in average earning assets of $2.8 million for
the six months ended June 30, 1996 compared to the same period in 1995.
INTEREST EXPENSE
Interest expense totaled $1,047,000 and $923,000 for the six months ended June
30, 1996 and 1995, respectively. The increase in interest expense of $124,000,
or 13.5%, for the six months ended June 30, 1996 was due to an increase of .52%
in average interest rates paid on deposits, plus an increase of $530,000 in the
average deposit balances offset by a reduction in the average amount of FHLB
borrowings outstanding during the six months ended June 30, 1996 compared to the
same period in 1995.
PROVISION FOR LOAN LOSSES
The Bank established a provision for loan losses of $12,000 for the six month
period ended June 30, 1996 and 1995. Management considers many factors in
determining the necessary level 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.
11
NON-INTEREST INCOME
Non-interest income amounted to $24,000 and $21,000 for the six months ended
June 30, 1996 and 1995, respectively. Non-interest income included primarily
service fees charged in connection with loans and service charges on deposit
accounts of $22,000 and $16,000 for the six months ended June 30, 1996 and 1995,
respectively.
NON-INTEREST EXPENSE
Non-interest expense totaled $525,000 and $410,000 for the six months ended June
30, 1996 and 1995, respectively, an increase of $115,000, or 28.0%, and such
expense amounted to 1.8% and 1.5% of average assets for the six months ended
June 30, 1996 and 1995, respectively. The increase was primarily due to an
increase in compensation and benefits of $70,000 and an increase in other
operating expenses of $57,000 partially offset by a decrease in legal expenses
of $13,000. The increase of $70,000 in compensation and benefits is due to the
addition of one staff person in 1996 plus normal salary increases, the expense
related to the director's retirement plan in effect in 1996, but not in 1995,
and an increase in the ESOP expense for the 1996 period, which is based on the
market value of the company's stock. The increase of $57,000 in other operating
expenses was primarily due to additional expenses for the new ATM operations, an
increase in advertising, professional services, and license fees and franchise
taxes. The decrease of $13,000 in legal fees was due to additional professional
services rendered in 1995 related to adoption of employee benefit plans
subsequent to the conversion, which were not incurred during the 1996 period.
INCOME TAXES
The provision for income taxes for the six months ended June 30, 1996 and 1995
was $194,000 and $228,000, respectively, and, as a percentage of income before
income taxes was 35% for both periods.
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.
JUNE 30, 1996 DECEMBER 31 1995
-------------- -----------------
(amounts in thousands)
Non-performing loans:
Loans accounted for on a non-accrual basis:(1)
Real Estate:
Residential.................................... $ 49 $ 49
Commercial..................................... 290
Consumer......................................... 9 9
------ ------
Total....................................... 348 58
------ ------
Accruing loans which are contractually past due
90 days or more:
Real Estate:
Residential.................................... 418 482
Commercial..................................... 112
Consumer........................................ 4 7
------ ------
Total....................................... 534 489
Total non-performing loans...................... 882 547
Other non-performing assets (2)...................
------ ------
Total non-performing assets...................... $ 882 $ 547
====== ======
Non-performing loans to total loans................ 1.56% 1.10%
====== ======
Non-performing assets to total assets.............. 0.15% 0.10%
====== ======
Allowance for loan losses to
non-performing loans............................. 12.70% 18.28%
====== ======
(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.
13
During the six-month period ended June 30, 1996, additional interest income of
$21,760 would have been recorded on loans accounted for on a non-accrual basis
if the loans had been current throughout the year. Interest on such loans
actually included in income during the six-months ended June 30, 1996 totaled
$198.
At June 30, 1996, 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 of mortgage and consumer loans and the purchase of investment
securities.
The Bank is required by current OTS regulations to maintain specified liquid
assets of at least 5% of its net withdrawable accounts plus short-term
borrowings. Short-term liquid assets (those maturing in one year or less) may
not be less than 1% of the Bank's liquidity base. During the first six months
of fiscal year 1996, the Bank satisfied all regulatory liquidity requirements,
and management believes that the liquidity levels maintained are adequate to
meet potential deposit outflows, loan demand, and normal operations.
The Bank must satisfy three capital standards, as set by the OTS. These
standards include a ratio of core capital to adjusted total assets of 3.0%, a
tangible capital standard expressed as 1.5% of total adjusted assets, and a
combination of core and "supplementary" capital equal to 8.0% of risk-weighted
assets. At June 30, 1996, the Bank's capital was in excess of these
requirements (see Note 3).
At June 30, 1996, the Bank had outstanding commitments to originate loans
totaling $637,000, excluding $589,000 in approved but unused home equity lines
of credit. Management believes that the Bank's sources of funds are sufficient
to fund all of its outstanding commitments. Certificates of deposits which are
scheduled to mature in one year or less from June 30, 1996 totaled $19.3
million. Management believes that a significant percentage of such deposits
will remain with the Bank.
14
BIF/SAIF PREMIUM DISPARITY
As a result of a recent reduction by the FDIC of deposit insurance rates
applicable to commercial banks, savings institutions could be at a significant
disadvantage in competing with banks. Generally, commercial banks are insured
by and pay their premiums to the Bank Insurance Fund ("BIF") and savings
associations are insured by and pay their premiums to the Savings Association
Insurance Fund ("SAIF"). Both the BIF and the SAIF are administered by the
FDIC. Both BIF and SAIF members had been paying deposit insurance premiums at
the same rates which ranged from 0.23% for the most highly rated institutions to
0.31% for the lowest rated institutions. On August 8, 1995, the FDIC approved a
decrease in the minimum insurance premium charged to BIF-insured institutions
from 0.23% to 0.04% while leaving the level of premiums intact for SAIF-insured
institutions. This new rate structure is effective for the quarter ended
September 30, 1995. Furthermore, in November 1995, the FDIC further lowered BIF
premiums whereby a significant portion of BIF institutions now pay only the
statutory minimum of $2,000 annually. As a result of this premium disparity,
BIF-insured institutions could have a significant competitive advantage over
SAIF-insured institutions in attracting and retaining deposits. This premium
disparity could have a material effect on the results of operation and financial
condition of the Bank in future periods.
A number of proposals have been considered to recapitalize the SAIF in order to
eliminate this premium disparity. One proposal which had been approved by the
United States Senate and House of Representatives, but vetoed by the President
for reasons unrelated to the SAIF recapitalization, required a one-time
assessment of .85% of deposits to be imposed on all SAIF-insured institutions.
The legislation would have allowed the FDIC to establish the rate of assessment,
which was anticipated to be as high as 0.85% and 0.90%. Assuming an assessment
of 0.85% on the Bank's deposit base as of March 31, 1995, the assessment would
result, on a pro forma basis as of June 30, 1996, in a one-time charge to the
Bank of up to approximately $353,000 ($233,000 net of income tax benefit
assuming such charge would be tax deductible). If the Bank is required to pay
the proposed special assessment, future deposit insurance premiums are expected
to be reduced from 0.23% to approximately 0.06%. Based upon the Bank's deposits
as of June 30, 1996, the Bank's deposit insurance expense would decrease by
approximately $49,000 per year after taxes. Management is unable to predict
whether this proposal or any similar proposal will be enacted or whether ongoing
SAIF premiums will be reduced to a level comparable to that of BIF premiums. A
number of other related proposals are also under consideration in Congress,
including those relating to merger of the SAIF and BIF, elimination of the
thrift charter and the federal tax consequences of thrifts' conversion to
national banks. The Company is unable to accurately predict whether these
proposals will be adopted in their current form or the impact of such proposals
on the Company's consolidated financial statements.
BAD DEBT RECAPTURE
Legislation being considered by Congress would repeal the bad debt deduction
under the percentage of taxable income method of the Internal Revenue Code.
Savings associations, like the Bank, which have previously used the percentage
of taxable income method in computing its bad debt deduction for tax purposes
would be required to recapture into taxable income post-1987 reserves over a
six-year period beginning with the 1996 taxable year. The start of such
recapture may be delayed until the 1998 taxable year if the dollar amount of the
institution's residential loan originations in each year is not less than the
average dollar amount of residential loan originated in each of the six most
recent years disregarding the years with the highest and lowest originations
during such period. For purposes of this test, residential loan originations
would not include refinancing and home equity loans. The Company cannot predict
at this time if such legislation will be enacted, or if enacted, the amount of
bad debt reserves the Company will be required to recapture.
15
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None
Item 2. CHANGES IN SECURITIES None
Item 3. DEFAULTS UPON SENIOR SECURITIES None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
Item 5. OTHER INFORMATION None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter ended June 30, 1996.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CKF BANCORP, INC.
Date: August 1, 1996 /s/ John H. Stigall
--------------------------------------
John H. Stigall, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: August 1, 1996 /s/ Ann L. Hooks
--------------------------------------
Ann L. Hooks, Vice President and Treasurer
(Principal Financial and
Accounting Officer)
17