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 March 31, 1997.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26570
CKF BANCORP, INC.
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(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
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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 April 24, 1997, 950,000 shares of the registrant's common stock were
issued and outstanding.
Page 1 of 13 Pages Exhibit Index at Page N/A
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CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996.................................................................. 3
Consolidated Statements of Income for the Three-Month Periods Ended
March 31, 1997 and 1996 (unaudited)................................................ 4
Consolidated Statements of Cash Flows for the Three-Month Periods Ended
March 31, 1997 and 1996 (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....................................................................... 12
Item 2. Changes in Securities................................................................... 12
Item 3. Defaults Upon Senior Securities......................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..................................... 12
Item 5. Other Information....................................................................... 12
Item 6. Exhibits and Reports on Form 8-K........................................................ 12
SIGNATURES
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
____________________
AS OF AS OF
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------------- ------------
(unaudited)
Cash and due from banks $ 270,152 $ 564,003
Interest bearing deposits 1,307,134 1,655,589
Investment securities:
Securities available-for-sale 719,400 728,475
Securities held-to-maturity 2,707,163 2,714,723
Loans receivable, net 54,035,083 53,181,509
Foreclosed real estate 185,540 227,340
Accrued interest receivable 425,711 378,405
Office property and equipment, net 533,925 540,638
Other assets 12,639 11,778
----------- -----------
Total assets $60,196,747 $60,002,460
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $42,852,850 $42,832,354
Advance from Federal Home Loan Bank 2,242,824 1,252,179
Federal income tax payable 611,323 641,014
Advance payment by borrowers for taxes and insurance 51,868 18,944
Other liabilities 184,193 159,040
----------- -----------
Total liabilities 45,943,058 44,903,531
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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 9,626,060 9,612,331
Retained earnings, substantially restricted 6,283,449 7,147,931
Treasury stock, 50,000 shares, at cost (986,388) (986,388)
Stock Option Trust, 22,825 shares, at cost (457,169) (455,344)
Net unrealized appreciation on securities available-for-sale 457,742 463,732
Unallocated employee stock ownership plan (ESOP) shares (680,005) (693,333)
----------- -----------
Total stockholders' equity 14,253,689 15,098,929
----------- -----------
Total liabilities and stockholders' equity $60,196,747 $60,002,460
=========== ===========
See accompanying notes to consolidated financial statements.
3
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
----------------------
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31
---------------------------
1997 1996
----------- --------------
INTEREST INCOME:
Interest on loans $1,051,564 $ 975,925
Interest and dividends on investments 44,382 27,554
Other interest income 17,372 40,371
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Total interest income 1,113,318 1,043,850
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INTEREST EXPENSE:
Interest on deposits 537,829 513,168
Other interest expense 25,606 4,833
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Total interest expense 563,435 518,001
---------- ----------
NET INTEREST INCOME: 549,883 525,849
Provision for loan losses 6,000
---------- ----------
Net interest income after provision for loan losses 549,883 519,849
---------- ----------
NON-INTEREST INCOME:
Loan and other service fees 13,942 10,260
Other, net 611 827
---------- ----------
Total non-interest income 14,553 11,087
---------- ----------
NON-INTEREST EXPENSE:
Salaries and benefits 144,228 133,237
Federal insurance premium 8,850 24,485
State franchise tax 12,274 12,274
Occupancy expenses, net 12,353 10,700
Data processing expenses 10,948 10,571
Legal fees 4,052 11,353
Loss on foreclosed real estate 41,800
Other operating expenses 53,862 74,130
---------- ----------
Total non-interest expense 288,367 276,750
---------- ----------
Income before income tax expense 276,069 254,186
Provision for income taxes 93,864 87,258
---------- ----------
Net income $ 182,205 $ 166,928
========== ==========
Earnings per share $ 0.21 $ 0.18
========== ==========
See accompanying notes to consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
_____________________
FOR THE THREE-MONTH PERIODS
ENDED MARCH 31
----------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 182,205 $ 166,928
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Provision for loan losses 6,000
Provision for losses on foreclosed real estate 41,800
Amortization of loan fees (2,190) (2,342)
ESOP benefit expense 24,817 25,800
Provision for depreciation 6,713 5,819
FHLB stock dividend (8,300) (7,800)
Amortization of investment premium 796 6,662
Change in:
Interest receivable (47,306) 34,564
Other liabilities and federal income taxes payable (4,277) 46,956
Prepaid expense (861) 8,795
Interest payable 5,068 4,029
----------- -----------
Net cash provided by operating activities 198,465 295,411
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CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations and principal payment on loans, net (851,384) (1,240,859)
Purchase of office equipment (4,770)
Maturity of certificates of deposit 1,000,000
Purchase of securities held-to-maturity (1,017,806)
Principle repayment on mortgage back securities 15,063
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Net cash (used) by investing activities (836,321) (1,263,435)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts 305,309 1,224,613
Net increase (decrease) in certificates of deposit (284,814) 1,033,099
Net increase (decrease) in custodial accounts 32,924
Proceeds from FHLB advances 1,000,000
Payments on FHLB advances (9,355) (8,737)
Dividends paid (1,046,689) (184,967)
Purchase of common stock (1,825) (113,825)
----------- -----------
Net cash provided (used) by financing activities (4,450) 1,950,183
----------- -----------
Increase (decrease) in cash and cash equivalents (642,306) 982,159
Cash and cash equivalents, beginning of period 2,219,592 2,103,757
----------- -----------
Cash and cash equivalents, end of period $ 1,577,286 $ 3,085,916
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 119,708 $ 74,353
=========== ===========
Cash paid for interest $ 558,367 $ 513,972
=========== ===========
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 month period ended March 31, 1997 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending December 31, 1997.
2. EARNINGS PER SHARE
Earnings per share for the three month periods ended March 31, 1997 and
1996 amounted to $0.21 and $0.18 per share, respectively, based on weighted
average common stock shares outstanding. The weighted average number of
common shares issued and outstanding for the three month periods ended
March 31, 1997 and 1996 was 883,608 and 934,170 shares, respectively.
6
3. REGULATORY CAPITAL
At March 31, 1997, the Bank's regulatory capital levels exceeded each of
the three regulatory capital requirements. The following table reconciles
the Bank's stockholder equity at March 31, 1997 to its regulatory capital
requirements.
REGULATORY CAPITAL
------------------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
---------- ------------ -----------
(In thousands)
Stockholder equity $ 12,682 $ 12,682 $ 12,682
Net unrealized appreciation on investment
securities available-for-sale (458) (458) (458)
General allowance for loan losses - - 129
---------- ----------- ----------
Regulatory capital 12,224 12,224 12,353
Minimum capital requirement 896 1,793 2,777
---------- ----------- ----------
Excess regulatory capital $ 11,328 $ 10,431 $ 9,576
========== =========== ==========
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 19.2% 17.3% 27.6%/1/
____________________________
/1/Based on risk weighted assets.
4. DIVIDENDS
A cash dividend of $0.22 per share was paid on February 10, 1997 to
stockholders of record as of January 28, 1997. A special dividend of $1.00
per share was paid on February 11, 1997 to stockholders of record as of
January 29, 1997. The total dividends paid by the Company for the quarter
ended March 31, 1997 amounted to $1,046,689.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets increased approximately $195,000, or .3%, from $60.0 million at
December 31, 1996 to $60.2 million at March 31, 1997. The net increase in
assets includes an $854,000, or 1.6%, increase in net loans receivable offset by
a $642,000, or 28.9%, decrease in cash and interest bearing deposits and a
$17,000, or .5%, decrease in investment securities.
The Company's aggregate investment securities portfolio decreased $17,000, or
.5%, to $3.4 million at March 31, 1997. Securities classified as available-for-
sale and recorded at market value per SFAS No. 115 decreased $8,000 due solely
to the decrease in the market value of such securities. Securities held-to-
maturity decreased $9,000 due to principle repayments offset by premium
amortization.
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 March 31, 1997, the Company included net unrealized gains of
approximately $458,000 in stockholders' equity. At December 31, 1996, the
Company included net unrealized gains of approximately $464,000 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 $854,000, or 1.6%, from $53.2 million at December
31, 1996 to $54.0 million at March 31, 1997. The increase in loans during this
three-month period reflects management's success in loan solicitation, which
included the introduction of consumer auto loans in the first quarter of 1997.
Deposits increased by $20,000, or .1%, to $42.9 million at March 31, 1997. This
increase reflects the Company's competitively priced product line within the
local market area.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NET INCOME
Net income for the three months ended March 31, 1997 was $182,000 compared to
$167,000 for the corresponding period in 1996, an increase of $15,000, or 9.2%.
The increase resulted primarily from increases in net interest income of $30,000
partially offset by increases in non-interest expense of $12,000.
INTEREST INCOME
Interest income totaled 7.6% of average assets for the quarter ended March 31,
1997 compared to 7.4% for the quarter ended March 31, 1996. Interest income
increased $69,000, or 6.7%, to $1.1 million for the quarter ended March 31, 1997
from $1.0 million for the quarter ended March 31, 1996. The increase
8
was due to an increase in the effective rate earned on interest-bearing
assets to 7.6% for the quarter ended March 31, 1997 as compared to 7.4% for
the quarter ended March 31, 1996, plus an increase in the average earning
assets of $2.3 million for the quarter ended March 31, 1997 compared to the
same period in 1996.
INTEREST EXPENSE
Interest expense totaled $563,000 and $518,000 for the three months ended
March 31, 1997 and 1996, respectively. The increase in interest expense of
$45,000 or 8.8%, for the three months ended March 31, 1997 as compared to
the same period for 1996 was due to an increase in average interest rates
paid on deposits from 4.8% to 4.9%, plus an increase of $2.3 million in
interest bearing liabilities for the quarter ended March 31, 1997 compared
to the same period in 1996.
PROVISION FOR LOAN LOSSES
The Bank established a provision for loan losses of $-0- and $6,000 for the
three month period ended March 31, 1997 and 1996, respectively. Management
established the Bank's existing level of its allowance for loan losses
based upon its analysis of various factors, including the market value of
the underlying collateral, composition of the loan portfolio, the Bank's
historical loss experience, delinquency trends and prevailing and projected
economic conditions in the Bank's market area.
NON-INTEREST INCOME
Non-interest income amounted to $15,000 and $11,000 for the three months
ended March 31, 1997 and 1996, respectively. Non-interest income included
primarily fees charged in connection with loans and service charges on
deposit accounts of $14,000 and $10,000 for the three months ended March
31, 1997 and 1996, respectively.
NON-INTEREST EXPENSE
Non-interest expense totaled $288,000 and $276,000 for the three months
ended March 31, 1997 and 1996, respectively, an increase of $12,000, or
4.2%, and such expense amounted to 1.9% of average assets for the three
months ended March 31, 1997 and 1996. The increase was due to an increase
in salaries and benefits of $11,000 and an increase in the loss on
foreclosed real estate of $42,000 offset by a decrease of $15,000 in
federal insurance premiums, a decrease of $7,000 in legal expense and a
decrease of $19,000 in other operating expenses. The increase of $11,000 in
salaries and benefits relates mainly to normal salary increases. The
$42,000 increase in the loss on foreclosed real estate was due to an
increase in the valuation allowance established by management to reflect
the fair value of the real estate owned net of estimated selling expenses.
In April of 1997 management agreed to sell the foreclosed real estate
property held at March 31, 1997 at a price that approximated carrying value
after the increase in the valuation allowance. The decrease of $15,000 in
federal insurance premiums was the result of the reduction of the insurance
assessment rate on the Bank's deposits after the special assessment on
September 30, 1996 to recapitalize the Savings Association Insurance Fund.
The decrease in legal fees of $7,000 was due to special services related to
employee benefit plans provided in 1996, but not in 1997. Other operating
expenses decreased $19,000 primarily due to decreases in advertising
expense and franchise taxes.
9
INCOME TAXES
The provision for income taxes for the three months ended March 31, 1997
and 1996 was $94,000 and $87,000, respectively, which, as a percentage of
income before income taxes was 34% for both periods.
NON-PERFORMING ASSETS
The following table sets forth information with respect to the Bank's non-
performing assets at the dates indicated. No loans were recorded as
restructured loans within the meaning of SFAS No. 15 at the dates
indicated.
MARCH 31, 1997 DECEMBER 31 1996
--------------- -----------------
(amounts in thousands)
Loans accounted for on a non-accrual basis:(1)
Real Estate:
Residential.................................... $ 67 $ 87
Commercial.....................................
Consumer.......................................... 8
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Total...................................... $ 75 $ 87
========== ==========
Accruing loans which are contractually past due
90 days or more:
Real Estate:
Residential.................................... 349 359
Commercial.....................................
Consumer.......................................... 6
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Total...................................... 355 359
========== ===========
Total of loans accounted for as non-accrual or as
accruing past due 90 days or more................. $ 430 $ 446
========== ===========
Percentage of total loans.......................... .79% .82%
========== ===========
Other non-performing assets (2).................... $ 185 $ 227
========== ===========
Restructured loans................................. $ 274 $ 271
========== ===========
(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.
10
During the quarter end March 31, 1997, additional interest income of $5,288
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 quarter ended March 31, 1997 totaled
$642.
At March 31, 1997, 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 quarter of fiscal year 1997, 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. The risk-based capital standard currently addresses only
the credit risk inherent in the assets in a thrift's portfolio and does not
address other risks that thrifts face, such as operating, liquidity, and
interest rate risks. The OTS recently finalized regulations that add an
interest rate risk component to capital requirements under certain
circumstances. The Bank does not believe that this new regulation will
require additional capital.
At March 31, 1997, the Bank had outstanding commitments to originate loans
totaling $876,000, excluding $661,000 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 March 31,
1997 totaled $21.6 million. Management believes that a significant
percentage of such deposits will remain with the Bank.
11
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. Form 8-K, Item 5 filed on January 16, 1997 relating to the
Company's announcement of the declaration of a cash dividend.
12
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: April 24, 1997 ______________________________________________________
John H. Stigall, President and Chief Executive Officer
(Duly Authorized Officer)
Date: April 24, 1997 ______________________________________________________
Ann L. Hooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
13