SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998.
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
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As of May 7, 1998, 917,555 shares of the registrant's common stock were issued
and outstanding.
Page 1 of 14 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, 1998 (unaudited) and
December 31, 1997 ...................................................... 3
Consolidated Statements of Income for the Three-Month Periods Ended
March 31, 1998 and 1997 (unaudited) .................................... 4
Consolidated Statement of Changes in Stockholders' Equity for the
Three Month Period Ended March 31, 1998 ................................ 5
Consolidated Statements of Cash Flows for the Three-Month Periods Ended
March 31, 1998 and 1997 (unaudited) .................................... 6
Notes to Consolidated Financial Statements ................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..........................................................13
Item 2. Changes in Securities ......................................................13
Item 3. Defaults Upon Senior Securities ............................................13
Item 4. Submission of Matters to a Vote of Security Holders ........................13
Item 5. Other Information ..........................................................13
Item 6. Exhibits and Reports on Form 8-K ...........................................13
SIGNATURES
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
-----------------
As of As of
March 31, December 31,
1998 1997
------------ -------------
ASSETS
Cash and due from banks $ 102,099 $ 134,032
Interest bearing deposits 2,075,546 3,139,525
Investment securities:
Securities available-for-sale 625,416 551,892
Securities held-to-maturity 2,121,549 2,152,020
Loans receivable, net 56,593,088 55,894,811
Foreclosed real estate 53,631
Accrued interest receivable 434,784 430,290
Office property and equipment, net 553,003 548,923
Other assets 8,011 13,854
----------- -----------
Total assets $62,567,127 $62,865,347
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $45,216,731 $43,253,068
Deferred income taxes 338,811 313,814
Advance from Federal Home Loan Bank 3,180,700 5,213,782
Advance payment by borrowers for taxes and
insurance 58,137 30,188
Other liabilities 424,039 291,792
----------- -----------
Total liabilities 49,218,418 49,102,644
----------- -----------
Stockholders' equity:
Common stock, $.01 par value, 4,000,000 shares
authorized; 1,000,000 shares issued 10,000 10,000
Additional paid-in capital 9,593,563 9,638,682
Retained earnings, substantially restricted 7,014,884 7,004,137
Treasury stock, 82,445 and 50,000 shares,
respectively, at cost (1,620,264) (986,388)
Stock Option Trust, 74,200 and 83,000 shares,
respectively, at cost (1,445,633) (1,619,433)
Accumulated other comprehensive income 404,243 355,717
Unearned Employee Stock Ownership Plan (ESOP)
shares (608,084) (640,012)
----------- -----------
Total shareholder's equity 13,348,709 13,762,703
----------- -----------
Total liabilities and shareholders' equity $62,567,127 $62,865,347
=========== ===========
See accompanying notes to consolidated financial statements.
3
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------------
For the Three-Month Periods
Ended March 31
---------------------------
1998 1997
--------------- ----------
Interest income:
Interest on loans $1,112,986 $1,051,564
Interest and dividends on investments 34,227 44,382
Other interest income 22,373 17,372
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Total interest income 1,169,586 1,113,318
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Interest expense:
Interest on deposits 567,855 537,829
Other interest 48,486 25,606
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Total interest expense 616,341 563,435
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Net interest income 553,245 549,883
Provision for loan losses 6,000
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Net interest income after provision for loan
losses 547,245 549,883
---------- ----------
Non-interest income:
Loan and other service fees 18,339 13,942
Other, net 540 611
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Total non-interest income 18,879 14,553
---------- ----------
Non-interest expense:
Compensation and benefits 141,214 144,228
Federal insurance premium 6,717 8,850
Legal 5,816 4,052
State franchise tax 13,231 12,274
Occupancy expense, net 9,408 12,353
Data processing 13,632 10,948
Loss on foreclosed real estate 41,800
Other operating expenses 55,708 53,862
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Total non-interest expense 245,726 288,367
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Income before income tax expense 320,398 276,069
Provision for income taxes 108,627 93,864
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Net income $ 211,771 $ 182,205
========== ==========
Earnings per common share .27 .21
========== ==========
Earnings per common share-assuming dilution .26 .21
========== ==========
See accompanying notes to consolidated financial statements.
4
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the three month period ended March 31, 1998
------------------
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income
------------- --------------- ------------ ---------------
Balance, December 31, 1997 $ 10,000 $ 9,638,682 $ 7,004,138 $ 355,717
Comprehensive income:
Net income 211,771
Other comprehensive income, net of tax
unrealized gains on securities 48,526
Total comprehensive income
Dividend declared (201,025)
ESOP shares earned 13,181
Purchase of common stock, 32,445 shares
Shares issued upon exercise of options (58,300)
------------- --------------- ------------ ---------------
Balance, March 31, 1998 $ 10,000 $ 9,593,563 $ 7,014,884 $ 404,243
============= =============== ============ ===============
Stock Unearned Total
Treasury Option ESOP Stockholders'
Stock Trust Shares Equity
------------- --------------- ------------ ---------------
Balance, December 31, 1997 $ (986,388) $ (1,619,433) $ (640,012) $ 13,762,704
---------------
Comprehensive income:
Net income 211,771
Other comprehensive income, net of tax
unrealized gains on securities 48,526
---------------
Total comprehensive income 260,297
Dividend declared (201,025)
ESOP shares earned 31,928 45,109
Purchase of common stock, 32,445 shares (633,876) (633,876)
Shares issued upon exercise of options 173,800 115,500
------------- --------------- ------------ ---------------
Balance, March 31, 1998 $ (1,620,264) $ (1,445,633) $ (608,084) $ 13,348,709
============= =============== ============ ===============
The accompanying notes are an integral part of the consolidated
financial statements.
5
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
---------------------
For the Three-Month Periods
Ended March 31
-------------------------------
1998 1997
----------------- -----------
Cash flows from operating activities:
Net income $ 211,771 $ 182,205
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 (5,371) (2,190)
ESOP benefit expense 25,895 24,817
Provision for depreciation 6,870 6,713
FHLB stock dividend (9,200) (8,300)
Amortization of investment premium 859 796
Change in:
Interest receivable (4,494) (47,306)
Other liabilities and federal income taxes payable 135,247 (4,277)
Prepaid expense 5,842 (861)
Interest payable (2,999) 5,068
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Net cash provided by operating activities 370,420 198,465
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Cash flows from investing activities:
Loan originations and principal payment on
loans, net (752,536) (851,384)
Purchase of office equipment (10,950)
Principle repayment on mortgage back securities 38,812 15,063
----------- -----------
Net cash (used) by investing activities (724,674) (836,321)
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Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW
accounts and savings accounts 722,992 305,309
Net increase (decrease) in certificates of deposit 1,240,672 (284,814)
Net increase (decrease) in custodial accounts 27,949 32,924
Proceeds from FHLB advances 1,000,000
Payments on FHLB advances (2,033,082) (9,355)
Dividends paid (201,024) (1,046,689)
Purchase of common stock (633,876) (1,825)
Additional principal payment on ESOP loan 19,211
Proceeds from exercise of stock option 115,500
----------- -----------
Net cash provided (used) by financing activities (741,658) (4,450)
----------- -----------
Increase (decrease) in cash and cash equivalents (1,095,912) (642,306)
Cash and cash equivalents, beginning of period 3,273,557 2,219,592
----------- -----------
Cash and cash equivalents, end of period $ 2,177,645 $ 1,577,286
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 13,219 $ 119,708
=========== ===========
Cash paid for interest $ 613,342 $ 558,367
=========== ===========
See accompanying notes to consolidated financial statements.
6
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, cash on
deposit with the Bank, and a note receivable from the Company's Employee
Stock Ownership Plan ("ESOP"), and its sole business is that of the Bank.
Accordingly, the 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, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending December 31, 1998.
2. Earnings Per Share
Earnings per share for the three month periods ended March 31, 1998 and
1997 amounted to $0.27 and $0.21 per share, respectively, based on weighted
average common stock shares outstanding of 792,309 and 858,319,
respectively. Earnings per common share, assuming dilution for common stock
equivalents for the three month periods ended March 31, 1998 and 1997
amounted to $0.26 and $0.21 per common share, based on weighted average
common shares outstanding after dilutive effect of 818,652 and 883,426,
respectively.
7
3. Regulatory Capital
At March 31, 1998, 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, 1998 to its regulatory capital
requirements.
Regulatory Capital
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Core Risk-Based
Capital Capital
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(In thousands)
Stockholder equity $10,848 $ 10,848
Net unrealized appreciation on
investment securities available-for-sale (404) (404)
General allowance for loan losses - 130
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Regulatory capital 10,444 10,574
Minimum capital requirement 2,478 2,921
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Excess regulatory capital $ 7,966 $ 7,653
======= =========
Minimum capital requirement as a
percentage of assets 4.0% 8.0%
Regulatory capital in excess of minimum
capital requirements as a percentage of assets 16.9% 29.0%/1/
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/1/Based on risk weighted assets.
4. Dividends
A cash dividend of $0.25 per share was paid on February 10, 1998 to
stockholders of record as of January 28, 1998. The total dividends paid by
the Company for the quarter ended March 31, 1998 amounted to $201,024.
5. Common Stock
During March 1998, options to acquire 8,800 shares at $13.125 per share
were exercised with the Company receiving total proceeds of $115,500. In
addition, the Company purchased 32,445 shares of treasury stock at a cost
of $633,876 during the three months ended March 31, 1998.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total assets decreased approximately $298,000, or .5%, from $62.9 million at
December 31, 1997 to $62.6 million at March 31, 1998. The net decrease in assets
includes a $698,000, or 1.3%, increase in net loans receivable, a $54,000
increase in foreclosed real estate plus a $43,000, or 1.6% increase in
investment securities offset by a $1.1 million, or 33.5%, decrease in cash and
interest bearing deposits.
The Company's aggregate investment securities portfolio increased $43,000, or
1.6%, to $2.7 million at March 31, 1998. Securities classified as available-for-
sale and recorded at market value per SFAS No. 115 increased $73,000 due solely
to the increase in the market value of such securities. Securities held-to-
maturity decreased $30,000 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, 1998, the Company included net unrealized gains of
approximately $404,000 in stockholders' equity. At December 31, 1997, the
Company included net unrealized gains of approximately $356,000 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 $698,000, or 1.3%, from $55.9 million at December
31, 1997 to $56.6 million at March 31, 1998 as management continued its efforts
to be competitive in meeting the loan demand in the Bank's market area.
Deposits increased by $2.0 million, or 4.5%, to $45.2 million at March 31, 1998.
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, 1998 was $212,000 compared to
$182,000 for the corresponding period in 1997, an increase of $30,000, or 16.2%.
The increase resulted primarily from decreases in non-interest expense of
$42,000 partially offset by increases in income tax expense of $15,000.
Interest Income
Interest income totaled 7.7% of average assets for the quarter ended March 31,
1998 compared to 7.6% for the quarter ended March 31, 1997. Interest income
increased $56,000, or 5.1%, to $1.2 million for the quarter ended March 31, 1998
from $1.1 million for the quarter ended March 31, 1997. The increase was due to
an increase in the effective rate earned on interest-bearing assets to 7.7% for
the quarter ended March 31, 1998 as compared to 7.6% for the quarter ended March
31, 1997, plus an increase in the average earning assets of $2.1 million for the
quarter ended March 31, 1998 compared to the same period in 1997.
9
Interest Expense
Interest expense totaled $616,000 and $563,000 for the three months ended March
31, 1998 and 1997, respectively. The increase in interest expense of $53,000 or
9.4%, for the three months ended March 31, 1998 as compared to the same period
for 1997 was due to an increase in average interest rates paid on deposits from
4.9% to 5.1%, plus an increase of $2.3 million in interest bearing liabilities
for the quarter ended March 31, 1998 compared to the same period in 1997.
Provision for Loan Losses
The Bank established a provision for loan losses of $6,000 and $-0- for the
three month period ended March 31, 1998 and 1997, 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 $19,000 and $15,000 for the three months ended
March 31, 1998 and 1997, respectively. Non-interest income included primarily
fees charged in connection with loans and service charges on deposit accounts of
$16,000 and $14,000 for the three months ended March 31, 1998 and 1997,
respectively.
Non-interest Expense
Non-interest expense totaled $246,000 and $288,000 for the three months ended
March 31, 1998 and 1997, respectively, a decrease of $42,000, or 14.8%, and such
expense amounted to 1.6% and 1.9% of average assets for the three months ended
March 31, 1998 and 1997, respectively. The decrease was primarily due to a
decrease in the loss on foreclosed real estate of $42,000. The $42,000 decrease
in the loss on foreclosed real estate was due to an increase in the valuation
allowance established by management during the quarter ended March 31, 1997 to
reflect the fair value of the real estate owned net of estimated selling
expenses.
Income Taxes
The provision for income taxes for the three months ended March 31, 1998 and
1997 was $109,000 and $94,000, respectively, which, as a percentage of income
before income taxes was 34% for both periods.
10
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, December 31,
1998 1997
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(amounts in thousands)
Loans accounted for on a non-accrual basis:/1/
Real Estate:
Residential $ $ 54
Commercial
Consumer 12
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Total $ $ 66
========== ==========
Accruing loans which are contractually past due 90
days or more:
Real Estate:
Residential 256 227
Commercial
Consumer 10
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Total 266 227
========== ==========
Total of loans accounted for as non-accrual or as
accruing past due 90 days or more $ 266 $ 293
========== ==========
Percentage of total loans .47% .52%
========== ==========
Other non-performing assets/2/ $ 54 $ -
========== ==========
Restructured loans $ - $ -
========== ==========
/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.
At March 31, 1998, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the six months ended March 31, 1998 on the
loans in the table above has been included in income.
At March 31, 1998, 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.
11
The Bank is required by current OTS regulations to maintain specified liquid
assets of at least 4% 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 1998, 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 two capital standards, as set by the OTS. These standards
include a ratio of core capital to adjusted total assets of 4.0%, and a
combination of core and "supplementary" capital equal to 8.0% of risk-weighted
assets.
At March 31, 1998, the Bank had outstanding commitments to originate loans
totaling $1.6 million, excluding $674,000 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, 1998 totaled
$22.0 million. Management believes that a significant percentage of such
deposits will remain with the Bank.
12
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 March 31, 1998.
13
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: May 7, 1998
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John H. Stigall, President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 7, 1998
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Ann L. Hooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
14