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 September 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 November 1, 1996, 950,000 shares of the registrant's common stock were
issued and outstanding.
Page 1 of 16 Pages Exhibit Index at Page N/A
----
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 ..................................... 3
Consolidated Statements of Income for the Three-Month Periods
Ended September 30, 1996 and 1995 (unaudited) and the
Nine-Month Periods Ended September 30, 1996
and 1995 (unaudited) ...................................... 4
Consolidated Statements of Cash Flows for the Nine-Month
Periods Ended September 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 ...................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 15
Item 2. Changes in Securities ........................................... 15
Item 3. Defaults Upon Senior Securities ................................. 15
Item 4. Submission of Matters to a Vote of
Security Holders .............................................. 15
Item 5. Other Information ............................................... 15
Item 6. Exhibits and Reports on Form 8-K ................................ 15
SIGNATURES
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------
As of As of
September 30, December 31,
1996 1995
ASSETS ------------- ------------
(unaudited)
Cash and due from banks $ 505,385 $ 500,944
Interest bearing deposits 2,188,323 1,602,813
Certificates of deposit 1,000,000
Available-for-sale securities 644,325 818,634
Held-to-maturity securities 2,721,789 1,975,941
Loans receivable, net 52,822,567 49,638,263
Accrued interest receivable 414,402 440,314
Office property and equipment, net 550,020 560,968
Other assets 50,846 11,401
----------- -----------
Total assets $59,897,657 $56,549,278
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $43,486,369 $39,355,841
Advance from Federal Home Loan Bank 261,375 288,040
Federal income tax payable 590,555 680,256
Other liabilities 455,687 96,231
----------- -----------
Total liabilities 44,793,986 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 9,621,623 9,583,408
Retained earnings, substantially restricted 6,951,731 6,767,215
Treasury stock, 50,000 shares, at cost (1,007,588)
Shares acquired by employee benefit plans (173,619)
Net unrealized appreciation on securities
available-for-sale 408,193 514,955
Unallocated employee stock ownership plan (ESOP)
shares (706,669) (746,668)
----------- -----------
Total stockholders' equity 15,103,671 16,128,910
----------- -----------
Total liabilities and stockholders' equity $59,897,657 $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 For the Nine-Month
Periods Ended Periods Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
------------- ---------- ------------ -----------
Interest income:
Interest on loans............................... $1,031,581 $ 967,387 $3,016,521 $2,718,938
Interest and dividends on investments........... 44,604 37,273 120,480 110,005
Other interest income........................... 15,325 44,937 69,257 200,018
---------- ---------- ---------- ----------
Total interest income..................... 1,091,510 1,049,597 3,206,258 3,028,961
---------- ---------- ---------- ----------
Interest expense:.................................
Interest on deposits............................ 548,635 493,081 1,586,437 1,405,525
Other interest expense.......................... 4,528 5,128 14,043 15,813
---------- ---------- ---------- ----------
Total interest expense.................... 553,163 498,209 1,600,480 1,421,338
---------- ---------- ---------- ----------
Net interest income............................... 538,347 551,388 1,605,778 1,607,623
Provision for loan losses......................... 6,000 6,000 18,000 18,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses................. 532,347 545,388 1,587,778 1,589,623
---------- ---------- ---------- ----------
Non-interest income:
Loan and other service fees..................... 13,235 9,666 35,881 30,169
Gain on sale of investment...................... 281,616 - 281,616 -
Other, net...................................... 645 531 2,053 1,447
---------- ---------- ---------- ----------
Total non-interest income................. 295,496 10,197 319,550 31,616
---------- ---------- ---------- ----------
Non-interest expense:
Compensation and benefits....................... 135,120 215,695 400,727 410,934
Federal insurance premium....................... 298,897 24,485 347,866 74,413
State franchise tax............................. 12,274 12,560 36,821 37,680
Occupancy expenses, net......................... 11,500 10,565 31,025 27,106
Data processing expenses........................ 12,135 11,906 32,306 32,855
Legal fees...................................... 2,344 22,268 19,348 51,865
Other operating expenses........................ 45,694 43,052 175,441 116,059
---------- ---------- ---------- ----------
Total non-interest expense................ 517,964 340,531 1,043,534 750,912
---------- ---------- ---------- ----------
Income before income tax expense.................. 309,879 215,054 863,794 870,327
Provision for income taxes........................ 105,151 76,374 299,738 304,716
---------- ---------- ---------- ----------
Net income........................................ $ 204,728 $ 138,680 $ 564,056 $ 565,611
========== ========== ========== ==========
Earnings per share................................ $ .23 $ .15 $ .61 $ .61
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine-Month Periods
Ended September 30
--------------------------
1996 1995
----------- ------------
Cash flows from operating activities:
Net income $ 564,056 $ 565,611
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 18,000 18,000
Amortization of loan fees (6,098) (6,439)
ESOP benefit expense 78,214 55,582
Provision for depreciation 18,075 13,248
FHLB stock dividend (23,900) (21,400)
Amortization of investment premium 8,040 2,085
Gain on sale of investments (281,616)
Change in:
Interest receivable 25,912 (131,770)
Other liabilities and federal income taxes payable 318,835 116,965
Prepaid expense (39,445) 23,988
Interest payable 5,919 3,009
----------- -----------
Net cash provided by operating activities 685,992 638,879
----------- -----------
Cash flows from investing activities:
Loan originations and principal payment on loans,
net (3,032,206) (4,519,137)
Purchase of office equipment (7,127) (80,127)
Purchase of loans (164,000)
Proceeds from available-for-sale securities 294,165
Purchase of held-to-maturity securities (1,017,806)
Matured securities 250,415
Proceeds from certificates of deposit 1,000,000
Principle repayment on mortgage-backed securities 37,403
----------- -----------
Net cash (used) by investing activities (2,639,156) (4,599,264)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW
accounts and savings accounts 884,920 (550,714)
Net increase (decrease) in certificates of deposit 3,245,609 (504,157)
Payments on FHLB advances (26,665) (26,371)
Dividends paid (379,542) (200,000)
Purchase of common stock (1,181,207)
----------- -----------
Net cash provided (used) by financing activities 2,543,115 (1,281,242)
----------- -----------
Increase (decrease) in cash and cash equivalents 589,951 (5,241,627)
Cash and cash equivalents, beginning of period 2,103,757 7,951,858
----------- -----------
Cash and cash equivalents, end of period $ 2,693,708 $ 2,710,231
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 248,353 $ 169,810
=========== ===========
Cash paid for interest $ 1,594,561 $ 1,418,329
=========== ===========
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 nine month periods ended September 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 nine month periods ended September 30,
1996 amounted to $0.23 and $0.61 per share, respectively, based on weighted
average common stock shares outstanding. Earnings per share for the three
and nine month periods ended September 30, 1995 amounted to $0.15 and $0.61
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 nine month periods ended September 30, 1996
was 904,321 and 927,361 shares, respectively. The weighted average number
of common shares issued and outstanding for the three and nine month
periods ended September 30, 1995 was 923,334 and 921,778 shares,
respectively.
6
3. Regulatory Capital
At September 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 September 30, 1996 to its
regulatory capital requirements.
Regulatory Capital
------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
--------- --------- ---------
(In thousands)
Stockholder equity $ 12,849 $ 12,849 $ 12,849
Net unrealized appreciation on
investment securities
available-for-sale (408) (408) (408)
General allowance for loan losses 118
--------- --------- ---------
Regulatory capital 12,441 12,441 12,559
Minimum capital requirement 892 1,785 2,731
--------- --------- ---------
Excess regulatory capital $ 11,549 $ 10,656 $ 9,828
========= ========= =========
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 19.4% 17.9% 28.8%/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 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 collectibility of
the loan. Loans may be returned to accrual status when all principal and
interest amounts contractually due
7
(including arrearages) are reasonably assured of repayment within an
acceptable period of time, combined with sustained repayment performance by
the borrower.
As of September 30, 1996, the total amount of impaired loans was $338,000 for
which no allowance for loan losses has been provided. The average balance of
impaired loans for the nine months ended September 30, 1996 was $214,000.
Interest income from cash receipts on impaired loans for the nine months
ended September 30, 1996 amounted to $1,863. The following summarizes the
activity in the allowance for loan losses for the nine months ended
September 30, 1996.
Allowances for General
Losses on Allowance for
Impaired Loans Loan Losses Total
-------------- ----------- -----------
Balance, December 31, 1995 $ $ 100,000 $ 100,000
Additions 18,000 18,000
Charge-offs
Recoveries
------------- ----------- -----------
Balance, September 30, 1996 $ $ 118,000 $ 118,000
============= =========== ============
5. Stock Transactions
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 50,000
shares at a total price of $1,007,588 during the nine months ended September
30, 1996.
Pursuant to the 1995 Stock Option and Incentive Plan approved by the
shareholders on July 5, 1995, the Company repurchased a total of 8,700 shares
at a total price of $173,619 during the nine months ended September 30, 1996.
The stock is being held in a trust account for the purpose of awarding stock
as outstanding stock options granted under the Plan are exercised. For the
nine months ended September 30, 1996, the Company awarded additional options
to acquire 2,000 common shares at $20 per share. In addition, options to
acquire 3,400 shares of common stock at $13.125 per share were exercised.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
Total assets increased approximately $3.3 million, or 5.9%, from $56.6 million
at December 31, 1995 to $59.9 million at September 30, 1996. The increase
primarily reflected a $3.2 million, or 6.4%, increase in net loans receivable
and a $.5 million, or 20.5%, increase in investment securities offset by a $.4
million, or 13.2%, decrease in cash and cash equivalents.
8
The Company's aggregate investment securities portfolio increased $.5 million,
or 20.5%, to $3.4 million at September 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 decreased $174,000 due to the sale of 3,204 shares of
Federal Home Loan Mortgage Company (FHLMC) stock, which had a recorded value of
$274,000 offset by an increase of $100,000 due 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 September 30, 1996, the Company included net unrealized gains of
approximately $408,000 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 $3.2 million, or 6.4%, from $49.6 million at
December 31, 1995 to $52.8 million at September 30, 1996. The increase in loans
during this nine-month period reflects management's continuation of its
marketing strategy initiated in 1994 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 $4.1 million, or 10.5%, from $39.3 million at December 31,
1995 to $43.4 million at September 30, 1996. This increase reflects the
Company's competitively priced product line within the local market area.
Stockholders equity decreased $1.0 million or 6.4% from $16.1 million at
December 31, 1995 to $15.1 million at September 30, 1996. The decrease was due
to stock repurchases made by the Company totaling $1.2 million, dividend
payments of $.3 million, a decrease in the unrealized appreciation on available-
for-sale securities of $.1 million offset by net income of $.6 million.
Results of Operations for the Three Months Ended September 30, 1996 and 1995
Net Income
Net income for the three months ended September 30, 1996 was $205,000 compared
to $139,000 for the corresponding period in 1995, an increase of $66,000, or
47.6%. The increase resulted primarily from increases in non-interest income of
$285,000 partially offset by an decrease in net interest income of $13,000, an
increase of non-interest expense of $177,000, and an increase in income tax
expense of $29,000 as compared to the corresponding period in 1995.
9
Interest Income
Interest income totaled 7.4% of average assets for the quarter ended September
30, 1996 compared to 7.5% for the quarter ended September 30, 1995. Interest
income increased $42,000, or 4.0%, to $1.1 million for the quarter ended
September 30, 1996 from $1 million for the quarter ended September 30, 1995.
The increase was due primarily to an increase in the average earning assets of
$3.6 million for the quarter ended September 30, 1996 compared to the same
period in 1995 offset by a decrease in the effective rate earned on interest
bearing assets from 7.69% for the quarter ended September 30, 1995 to 7.50% for
the quarter ended September 30, 1996.
Interest Expense
Interest expense totaled $553,000 and $498,000 for the three months ended
September 30, 1996 and 1995, respectively. The increase in interest expense of
$55,000 or 11.0%, for the three months ended September 30, 1996 as compared to
the same period for 1995 was due to an increase in average interest rates paid
on deposits, from 4.6% to 4.8%, plus an increase of $2.8 million in the average
deposit balances, offset by a reduction in the average amount of FHLB borrowings
outstanding during the three months ended September 30, 1996 compared to the
same period in 1995.
Provision for Loan Losses
The Bank recorded a provision for loan losses of $6,000 for the three month
period ended September 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 September 30, 1996 the allowance for loan losses
represented .22% of total loans compared to .19% at September 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 $295,000 and $10,000 for the three months ended
September 30, 1996 and 1995, respectively. The increase of $285,000 resulted
primarily from the $282,000 gain generated from the sale of available-for-sale
securities.
Non-interest Expense
Non-interest expense totaled $518,000 and $341,000 for the three months ended
September 30, 1996 and 1995, respectively, an increase of $177,000, or 52.1%,
and such expense amounted to 3.5% and 2.4% of average assets for the three
months ended September 30, 1996 and 1995, respectively. The increase was
primarily due to an increase in federal insurance premium of $274,000 offset in
part by a decrease of
10
$81,000 in compensation and benefits and a decrease of $20,000 in legal fees.
The increase in federal insurance premiums of $274,000 was due to a one-time
special assessment of .657% of the Bank's deposit base as of March 31, 1995 for
the purpose of recapitalizing the Savings Association Insurance Fund ("SAIF") as
a result of a new law signed by the President on September 30, 1996. The
decrease of $81,000 in compensation and benefits was due primarily to $105,000
in connection with the establishment of the director's retirement plan during
the three months ended September 30, 1995 offset by $13,000 expense for the
director's retirement plan in 1996, $6,000 in normal salary increases and a
$6,000 increase in the ESOP expense for the 1996 period. The decrease of $20,000
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 September 30, 1996 and
1995 was $105,000 and $76,000, respectively, which, as a percentage of income
before income taxes was 34% and 35%, respectively.
Results of Operations for the Nine Months Ended September 30, 1996 and 1995
Net Income
Net income for the nine months ended September 30, 1996 was $564,000, as
compared to $566,000 for the corresponding period in 1995, a decrease of $2,000,
or .27%. The decrease resulted primarily from a decrease of $2,000 in net
interest income and increases in other operating expenses of $293,000 partially
offset by an increase in non-interest income of $288,000 and a decrease in
income tax expense of $5,000 as compared to the corresponding period in 1995.
Interest Income
Interest income totaled 7.3% of average assets for the nine month periods ended
September 30, 1996 and 1995. Interest income increased $177,000, or 5.9%, to
approximately $3.2 million for the nine month period September 30, 1996 compared
to approximately $3.0 million for the same period in 1995. The increase was due
to an increase in average earning assets of $3.1 million for the nine months
ended September 30, 1996 compared to the same period in 1995.
Interest Expense
Interest expense totaled $1.6 million and $1.4 million for the nine months ended
September 30, 1996 and 1995, respectively. The increase in interest expense of
$179,000, or 12.6%, for the nine months ended September 30, 1996 was due to an
increase of .42% in average interest rates paid on deposits, plus an increase of
$1.2 million in the average deposit balances offset by a reduction in the
average amount of FHLB borrowings outstanding during the nine months ended
September 30, 1996 compared to the same period in 1995.
11
Provision for Loan Losses
The Bank recorded a provision for loan losses of $18,000 for the nine month
period ended September 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.
Non-interest Income
Non-interest income amounted to $320,000 and $32,000 for the nine months ended
September 30, 1996 and 1995, respectively. The increase of $288,000 resulted
primarily from the $282,000 gain generated from the sale of available-for-sale
securities. In addition, non-interest income included service fees charged in
connection with loans and service charges on deposit accounts of $36,000 and
$30,000 for the nine months ended September 30, 1996 and 1995, respectively.
Non-interest Expense
Non-interest expense totaled $1,044,000 and $751,000 for the nine months ended
September 30, 1996 and 1995, respectively, an increase of $293,000, or 39.0%,
and such expense amounted to 1.8% of average assets for both the nine months
ended September 30, 1996 and 1995. The increase was primarily due to increase in
Federal insurance premiums of $273,000, an increase of $59,000 in other
operating expense and a $4,000 increase in occupancy expenses offset in part by
a decrease of $32,000 in legal expenses and a $10,000 decrease in compensation
and benefits. The increase in federal insurance premiums of $273,000 was due to
a one-time special assessment of .657% of the Bank's deposit base as of March
31, 1995 to for the purpose of recapitalizing the Savings Association Insurance
Fund ("SAIF") as a result of a new law signed by the President on September 30,
1996. The increase of $59,000 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 increase of
$4,000 in occupancy expenses was due to increased depreciation expense for
equipment purchased late in 1995. The decrease of $32,000 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. The decrease of $10,000 in compensation and benefits was
due to additional expense in 1995 related to the establishment of the director's
retirement plan offset by the addition of one staff member in 1996 plus normal
salary increases and an increase in the ESOP expense during the 1996 period.
Income Taxes
The provision for income taxes for the nine months ended September 30, 1996 and
1995 was $300,000 and $305,000, 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.
September 30, 1996 December 31 1995
------------------- -----------------
(amounts in thousands)
Non-performing loans:
Loans accounted for on a non-accrual
basis:(1)
Real Estate:
Residential......................... $ 50 $ 49
Commercial.......................... 290
Consumer.............................. 9
------ ------
Total.......................... 340 58
------ ------
Accruing loans which are contractually
past due 90 days or more:
Real Estate:
Residential........................ 530 482
Commercial......................... 6
Consumer............................. 3 7
------ ------
Total.......................... 539 489
------ ------
Total non-performing loans........... 879 547
Other non-performing assets (2)........ ------ ------
Total non-performing assets.......... $ 879 $ 547
====== ======
Non-performing loans to total loans.... 1.66% 1.10%
====== ======
Non-performing assets to total assets.. 1.47% 1.00%
====== ======
Allowance for loan losses to
non-performing loans................ 13.42% 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.
During the nine-month period ended September 30, 1996, additional interest
income of $28,200 would have been recorded on loans accounted for on a non-
accrual basis if the loans had been current throughout
13
the year. Interest on such loans actually included in income during the nine-
months ended September 30, 1996 totaled $1,863.
At September 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 nine 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 September 30, 1996, the Bank's capital was in excess of these
requirements (see Note 3).
At September 30, 1996, the Bank had outstanding commitments to originate loans
totaling $147,000, excluding $571,000 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 September 30, 1996 totaled $20.1
million. Management believes that a significant percentage of such deposits will
remain with the Bank.
Bad Debt Recapture
In September of 1996, legislation was passed by Congress which repealed the bad
debt deduction under the percentage of taxable income method of the Internal
Revenue Code for savings banks. Savings associations, like the Bank, which have
previously used the percentage of taxable income method in computing its bad
debt deduction for tax purposes will 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 nine 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 impact of this legislation will not have a material impact on the
financial statements of the Company.
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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 September 30, 1996.
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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 1, 1996 ------------------------------------------------------
John H. Stigall, President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 1, 1996 ------------------------------------------------------
Ann L. Hooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
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