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Previous: BOLDER TECHNOLOGIES CORP, SB-2, 1997-02-13 |
Next: PIONEER FINANCIAL CORP KY, 10-Q, 1997-02-13 |
<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission File Number 0-20907
KENWOOD BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1457996
- -------- ----------
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification Number)
7711 Montgomery Road
Cincinnati, Ohio 45236
- ------------------------- -----
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (513) 791-2834
Check 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 past 12
months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
As of February 5, 1997, the latest practicable date, 295,170 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 11 pages
<PAGE> 2
KENWOOD BANCORP, INC.
Index
-----
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
- 2 -
<PAGE> 3
KENWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
<TABLE>
<CAPTION>
December 31 September 30,
1996 1996
(Unaudited)
---------
<S> <C> <C>
Assets
------
Cash and due from banks $ 761 588
Interest-bearing deposits in other financial institutions 1,903 1,558
--------- --------
Cash and cash equivalents 2,664 2,146
Certificates of deposit in other financial institutions 380 380
Investment securities at amortized cost, approximate
market value of $1,973 and $1,959 as of December 31, 1996
and September 30, 1996 1,994 1,994
Investment securities - available for sale amortized cost
of $499 and $499 as of December 31, 1996 and
September 30, 1996 491 486
Mortgage-backed securities at cost, approximate market
value of $251 and $250 at December 31, 1996 and September 30, 1996 242 245
Mortgage-backed securities available for sale, amortized cost of $7,649
and $4,499 as of December 31, 1996 and September 30, 1996 7,688 4,529
Loans receivable 30,842 30,009
Loans held for sale - at lower of cost or market 1,019 9,322
Property and equipment 361 362
Federal Home Loan Bank stock - at cost 437 430
Accrued interest receivable
Loans 138 199
Mortgage-backed securities 41 26
Investment securities 58 20
Prepaid expenses and other assets 32 74
Prepaid Federal income taxes - 9
--------- --------
$ 46,387 50,231
========= ========
Liabilities and Stockholders Equity
-----------------------------------
Deposits 40,974 41,636
Advances, from Federal Home Loan Bank 638 3,653
Accounts payable on mortgage loans serviced for others 62 37
Advances by borrowers for taxes and insurance 285 215
Other liabilities 87 417
Deferred Federal income taxes 38 34
--------- --------
Total liabilities 42,084 45,992
========= ========
Commitments - -
Stockholders' equity
Preferred stock - authorized 1,000,000 shares of
$.10 par value, none issued - -
Common stock - authorized 4,000,000 shares of .$.10
par value 295,133 shares issued and outstanding 3 3
Additional paid-in capital 1,772 1,771
Retained earnings - substantially restricted 2,649 2,597
Shares acquired by Management Recognition Plan (18) (18)
Less unearned ESOP shares (124) (126)
Unrealized gain on available for sale securities, net of income tax 21 12
--------- --------
Total stockholders' equity 4,303 4,239
--------- --------
Total liabilities and stockholders' equity $ 46,387 50,231
========= ========
</TABLE>
- 3 -
<PAGE> 4
KENWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31,
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Interest income
Loans $ 687 640
Mortgage-backed securities 82 115
Investment securities 44 47
Interest-bearing deposits and other 50 48
------ ------
Total interest income 863 850
Interest expense
Deposits 593 640
Borrowings 34 3
------ ------
Total interest expense 627 643
------ ------
Net interest income 236 207
Provision for losses on loans - 3
------ ------
Net interest income after provision
for losses on loans 236 204
------ ------
Other income
Gain on sale of mortgage loans 116 45
Gain on sale of investments - 13
Other operating 5 3
------ ------
121 61
------ ------
General, administrative and other expenses
Employee compensation and benefits 126 105
Occupancy and equipment 34 28
Federal deposit insurance premiums 22 25
Franchise taxes 11 10
Other 63 51
------ ------
Total general, administrative and
other expenses 256 219
------ ------
Income before income taxes 101 46
------ ------
Federal income taxes
Current 29 9
Deferred - 3
------ ------
29 12
------ ------
Net income $ 72 34
====== ======
Earnings per share $ 0.25 0.12
====== ======
</TABLE>
- 4 -
<PAGE> 5
KENWOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period $ 72 34
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 13 8
Loans disbursed for sale in the secondary market (2,590) (3,397)
Proceeds from sale of loans in the secondary market 2,735 2,824
Gain on sale mortgage loans (117) (45)
Gain on sale of investments - (13)
Federal Home Loan Bank dividends (7) (7)
Amortization of deferred loan origination
(fees) costs 6 (3)
Provision for loan losses - 3
Increase (decrease) in cash due to changes in:
Accrued interest receivable 8 (46)
Prepaid expenses and other assets 42 15
Accounts payable on mortgage loans serviced
for others 25 (10)
Other liabilities (351) -
Federal income taxes 30 11
-------- --------
Net cash provided by (used in) operating activities: (134) (626)
-------- --------
Cash flows provided by (used in) investing activities:
Principal payments on loans and
mortgage-backed securities 1,522 2,198
Loan disbursements (2,265) (1,866)
Proceeds from sale of loans 8,322 -
Purchase of mortgage-backed securities -
available for sale (3,293) (513)
Proceeds from sale of investments -
available for sale - 513
Purchase of office premises and equipment (7) (2)
Decrease in certificates of deposit in other
financial institutions - 250
-------- --------
Net cash provided by (used in) investing activities: 4,279 580
-------- --------
Cash flows provided by (used in) financing activities:
Net decrease in deposits (662) (920)
Repayment of FHLB advances (3,015) (4)
Advances by borrowers for taxes and insurance 70 108
Dividends paid on common stock (20) (21)
-------- --------
Net cash provided by (used in)
financing activities (3,627) (837)
-------- --------
Net increase (decrease) in cash and cash equivalents 518 (883)
Cash and cash equivalents - beginning of period 2,146 2,808
-------- --------
Cash and cash equivalents - end of period $ 2,664 1,925
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - -
======== ========
Interest on deposits and borrowings $ 628 639
======== ========
Supplemental disclosure of non-cashing investing activities
Transfer of investment securities to
available for sale classification $ - 7,253
======== ========
</TABLE>
- 5-
<PAGE> 6
KENWOOD BANCORP, INC.
Notes to Consolidated Financial Statements
1. Organizational Summary:
Kenwood Bancorp, Inc. (the "Company" or "Bancorp") is a holding
company formed in March 1996 in conjunction with the second step
conversion of Kenwood Savings and Loan Association from a mutual
holding company format to a stock holding company format. The second
step conversion was completed on June 28, 1996 with all the stock of
the Association canceled and converted into stock of Bancorp.
Bancorp's financial statements include the accounts of its wholly
owned subsidiary, Kenwood Savings Bank (formerly Kenwood Savings and
Loan Association).
2. Basis of Presentation:
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not
include information or footnotes necessary for a complete presentation
of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However,
all adjustments (consisting only of normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of
the financial statements have been included. The results of
operations for the three month period ended December 31, 1996 are not
necessarily indicative of the results which may be expected for the
entire fiscal year.
3. Earnings Per Share:
Earnings per share for three month period ended December 31, 1996 is
computed based on 282,521 weighted average shares outstanding for
Bancorp. Earnings per share for the three month periods ended
December 31, 1995 is computed based on 282,521 weighted average shares
outstanding as adjusted for the reorganization from the mutual holding
company to the stock holding company form for Kenwood Savings and Loan
Association.
Weighted average shares for the three months ended December 31, 1996
include the effect of the completion of the offering of 295,170 shares
on June 26, 1996 of Kenwood Bancorp, Inc. These shares were sold or
converted pursuant to a plan of conversion and agreement and plan of
reorganization whereby, in addition to newly issued shares, each share
of common stock of Kenwood Savings and Loan Association held by
Kenwood Federal Mutual Holding Company were cancelled and each share
of the Association common stock held by the Association's public
stockholders were converted into shares of Kenwood Bancorp, Inc.
4. Effects of Recent Accounting Pronouncements:
In May 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights". This statement requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. A
mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells
or securities those loans with servicing rights retained would
allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans based on their relative fair value.
Statement No. 122 is effective for fiscal years beginning after
December 15, 1995. Management has implemented the standard as of
October 1, 1996, with no material effect on the consolidated financial
statements.
- 6 -
<PAGE> 7
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and
reporting standards for stock-based employee compensation plans. SFAS
No. 123 encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans
based on the estimated fair value of the award at the date it is
granted. Companies are, however, allowed to continue to measure
compensation cost of those plans using the intrinsic value based
method of accounting, which generally does not result in compensation
expense recognition for most plans. Companies that elect to remain
with the existing accounting are required to disclose in a footnote to
the financial statements pro forma net income and if presented,
earnings per share, as if SFAS No. 123 had been adopted. The
accounting requirements of SFAS No. 123 are effective for transactions
entered into during fiscal years that begin after December 15, 1995.
Companies are required, however, to disclose information for awards
granted in their first fiscal year ending after December 15, 1994.
SFAS No. 123 had no effect on the financial statements for the periods
presented.
In June 1996 the FASB issued SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Entinguishments of Liabilities"
which established accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. The
standards are based on a consistent application of a financial
components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS N.
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. SFAS No. 125 supersedes SFAS No. 122. SFAS No. 125 is
effective for transactions occurring after December 31, 1996.
Management does not expect a material effect on its statements of
income and financial condition.
- 7 -
<PAGE> 8
KENWOOD BANCORP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1996 to December
31, 1996
At December 31, 1996, the Company had total assets $46.4 million , a decrease
of approximately $3.8 million or 7.65% from September 30, 1996. The reduction
in assets was due to the sale of $8.2 million in adjustable rate loans with the
proceeds from the sale primarily being used to repay FHLB advances of $3
million and to purchase $3.2 million of mortgage-backed securities.
Cash and cash equivalents increased $518,000 or 24.1% during the three months
ended December 31, 1996, as the excess cash from the loan sale was invested in
liquid assets to fund future loan demand.
Loans receivable (including loans held for sale) decreased by $7.5 million or
19.0% to $31.9 million at December 31, 1996 as compared to $39.3 million at
September 30, 1996. As noted, the Company sold during the quarter ended
December 31, 1996, $8.2 million of adjustable rate loans to a third party. The
Company sold the loans to repay FHLB advances which had funded the past loan
growth and to reinvest the additional proceeds from the loan sale in
mortgage-backed securities. The FHLB advances were short term advances which
for the most part repriced daily and had a negative effect on the Company's
interest rate risk. The Company also sold $2.7 million of loans in the
secondary market for the three months ended December 31, 1996. The Company
continues to sell the majority of fixed rate one-to-four family loan
originations.
The Company's investment portfolio consisting of certificates of deposits,
investment securities, and mortgage-backed securities (held to maturity and
available for sale). The investment portfolio increased $3.1 million or 41.4%
over the level maintained at September 30, 1996. The increase in the
investment portfolio was due exclusively to the purchase of mortgage-backed
securities with the funds from the aforementioned loan sale.
Deposits totaled $41.0 million at December 31, 1996, a decrease of $662,000 or
1.6% from the $41.6 million of deposits at September 30, 1996. The reduction
in deposits is due to the decrease in certificates of deposit as consumers
continue to look for alternative savings vehicles. The Company does not offer
special rates or terms to attract deposits unless the terms and rates are
favorable for the Company for the long term. The current local market for
certificate of deposits has been competitive and the Company has priced its
certificates of deposit to remain competitive with the market. Demand accounts
have remained stable during the three months ended December 31, 1996 as the
Company has added new products in the prior periods and remains competitive to
the current market rates.
The Company is required to meet each of three minimum capital standards
promulgated by the Office of Thrift Supervision. The capital standards
generally require the maintenance of regulatory capital sufficient to meet a
tangible, core and risk-based capital requirement. At December 31, 1996, the
Company's tangible and core capital totaled $4.1 million or 8.7% of adjusted
total assets, which exceeded the respective minimum requirements at that date
of 1.5% and 3.0% by $3.4 million and $2.7 million respectively. The Company's
risk-based capital totaled $4.2 million at December 31, 1996 or 22.1% of
risk-weighted assets, which exceeded the 8.0% by $2.7 million.
Comparison of Operating Results for the Three Months Ended December 31, 1996
and 1995
General
Net income for the three months ended December 31, 1996 totaled $72,000, an
increase of $38,000 or 112% from the $34,000 recorded for the three months
ended December 31, 1995. The increase in net income resulted primarily from
the gain on sale of loans of $116,000, and higher net interest income which was
partially offset by an increase in operating expenses and income taxes.
- 8 -
<PAGE> 9
Net Interest Income
Interest income on loans for the three months ended December 31, 1996 increased
$47,000 or 7.3% due to an increase in the average balance of loans outstanding
period-to-period. The Company sold in late November 1996, $8.2 million of
adjustable rate loans. The effect of this sale on interest income on loans
will have a greater impact in future quarters. Interest income on
mortgage-backed securities decreased $33,000 or 28.7%, due primarily to a lower
average balance outstanding during the three months ended December 31, 1996 as
compared to the three months ended December 31, 1995. The Company purchased
$3.3 million of mortgage-backed securities in December 1996 with the proceeds
from the sale of the above mentioned loans. Interest income on investment
securities and interest bearing deposits have remained relatively stable.
Interest expense on deposits decreased $47,000 or 7.3% during the three months
ended December 31, 1996 as compared to the prior three month period. This
decrease was due to a decrease in the average balance outstanding during the
three month period. Interest expense on borrowings increased $31,000 as the
Company has utilized FHLB deposits as an alternative source of funding for loan
growth. The Company repaid in December 1996 $3 million of the outstanding debt
with the proceeds form the aforementioned loan sale.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $32,000 or 15.7% during the three months ended
December 31, 1996 as compared to the three months ended December 31, 1995.
Provision for Losses on Loans
The Company's did not record a provision for losses on loans for the three
month period ended December 31, 1996. The provision for loan losses in the
three month period ended December 31, 1995 was the result of loan portfolio
growth during the period and management's assessment of the inherent risk in
lending.
Other Income
Other income increased by $60,000 during the three months ended December 31,
1996 as compared to the three month period ended December 31, 1996. This
increase was due to the a $71,000 increase in gain on sale of mortgage loans.
The Company, as discussed, sold $8.2 million of loans to a third party during
the quarter generating a gain on the sale of approximately $72,000. The
Company has continued to sell loans on the secondary market as consumer demand
for fixed rate loans has continued. The Company had no sales of investments
during the current period as compared to a gain of $13,000 to the same period
in 1995.
General, Administrative and Other Expenses
General, administrative and other expenses increased by $37,000 or 16.9% during
the three months ended December 31, 1996 as compared to the same three month
period in 1995. This increase was due primarily to an increase of $21,000 or
20% in compensation and benefits and a $12,000 or 23.5% increase in other
operating expenses. Such increases resulted from additional costs relating to
the Company's mortgage loan origination office.
Federal Income Taxes
The provision for federal income taxes increased $17,000 during the three
months ended December 31, 1996 as compared to the same period in 1995. The
increase in the federal income tax was due to the higher level of taxable
income during the current period. The Company's effective tax rates amounted
to 28.7% and 26.1% during the three month periods ended December 31, 1996 and
1995, respectively.
- 9 -
<PAGE> 10
KENWOOD BANCORP, INC.
PART II
<TABLE>
<S> <C>
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities
---------------------
Not applicable
ITEM 3. Defaults Upon Senior securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Not applicable
</TABLE>
- 10 -
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date February 10, 1997 By /s/ THOMAS W. BURNS
--------------------------------- ----------------------------
Thomas W. Burns
Executive Vice President,
Chief Executive Officer and
Chief Financial Officer
- 11 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 761
<INT-BEARING-DEPOSITS> 1,903
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,179
<INVESTMENTS-CARRYING> 2,236
<INVESTMENTS-MARKET> 2,224
<LOANS> 31,861
<ALLOWANCE> 95
<TOTAL-ASSETS> 46,387
<DEPOSITS> 40,974
<SHORT-TERM> 638
<LIABILITIES-OTHER> 87
<LONG-TERM> 0
0
0
<COMMON> 3
<OTHER-SE> 4,300
<TOTAL-LIABILITIES-AND-EQUITY> 46,387
<INTEREST-LOAN> 687
<INTEREST-INVEST> 126
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 863
<INTEREST-DEPOSIT> 593
<INTEREST-EXPENSE> 627
<INTEREST-INCOME-NET> 236
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 256
<INCOME-PRETAX> 101
<INCOME-PRE-EXTRAORDINARY> 101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 1.81
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 95
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 95
<ALLOWANCE-DOMESTIC> 95
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 95
</TABLE>
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