FORM 1O-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 March 31, 1998
--------------
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.
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(Exact name of registrant as specified in its charter)
Delaware 31-1457996
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(State or other jurisdiction or (IRS Employer
incorporation or organization) Identification Number)
7711 Montgomery Road
Cincinnati, Ohio 45236
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(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 May 10, 1998, the latest practicable date, 295,133 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 14 pages
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KENWOOD BANCORP, INC.
Index
Page
----
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 13
SIGNATURES 14
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<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
STATEMENTS OF FINANCIAL CONDITION
(in Thousands)
ASSETS
March 31 September 30,
1998 1997
(unaudited)
<S> <C> <C>
Cash and due from banks ................................................ $ 702 367
Interest bearing deposits in other financial institutions .............. 1,086 1,015
-------- ------
Cash and cash equivalents ................................ 1,788 1,382
Certificates of deposit in other financial institutions ................ -- 380
Investment securities at amortized cost, approximate market
value of $1,495 and $1,991 as of March 31, 1998
and September 30, 1997 ............................................ 1,499 1,997
Investment securities - available for sale, amortized cost
of $500 and $499 as of March 31, 1998
and September 30, 1997 ............................................ 498 495
Mortgage-backed securities at cost, approximate market
value of $230 and $234 as of March 31, 1998
and September 30, 1997 ............................................ 219 223
Mortgage-backed securities available for sale, amortized cost
of $2,897 and $3,487 as of March 31, 1998
and September 30, 1997 ............................................ 2,944 3,537
Loans receivable ....................................................... 36,223 36,220
Loans held for sale - at lower of cost or market ....................... 2,595 1,525
Property and equipment, net ............................................ 342 349
Federal Home Loan bank stock - at cost ................................. 478 461
Accrued interest receivable:
Loans ............................................................. 174 174
Mortgage-backed securities ........................................ 20 27
Investment securities ............................................. 18 20
Foreclosed real estate ................................................. 77 --
Prepaid expenses and other assets ...................................... 65 57
Prepaid federal income taxes ........................................... -- 15
-------- ------
$ 46,940 46,862
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................... $ 40,925 40,996
Advances from the Federal Home Loan Bank ............................... 976 1,049
Accounts payable on mortgage loans services for others ................. 115 12
Advances by borrowers for taxes and insurance .......................... 223 231
Other liabilities ...................................................... 92 96
Accrued federal income taxes ........................................... 23 --
Deferred federal income taxes .......................................... 119 119
-------- ------
Total liabilities ........................................ 42,473 42,503
-------- ------
Commitments ............................................................ -- --
</TABLE>
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<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
STATEMENTS OF FINANCIAL CONDITION
(in Thousands)
(continued)
March 31 September 30,
1998 1997
(unaudited)
<S> <C> <C>
Stockholders' equity
Preferred stock - authorized 1,000,000 shares of $.01 par
value, none issued ............................................. -- --
Common stock - authorized 4,000,000 shares of $.01 par
value; 295,133 shares issued and outstanding ................... 3 3
Additional paid in capital ........................................ 1,771 1,771
Retained earnings - substantially restricted ...................... 2,789 2,685
Shares acquired by Management Recognition Plan .................... (17) (17)
Less unearned ESOP shares ......................................... (111) (115)
Unrealized gain on available for sale securities, net of income tax 32 32
-------- ------
Total stockholders' equity ............................... 4,467 4,359
-------- ------
$ 46,940 46,862
======== ======
</TABLE>
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<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Six Months ended Three Months ended
March 31 March 31
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans ................................. $ 1,502 1,327 761 640
Mortgage-backed securities ............ 116 206 57 124
Investment securities ................. 89 89 44 45
Interest bearing deposits and other ... 60 81 29 31
------- ----- --- ---
Total interest income ............. 1,767 1,703 891 840
Interest expense
Deposits .............................. 1,138 1,153 559 560
Borrowings ............................ 65 49 38 15
------- ----- --- ---
Total interest expense ............ 1,203 1,202 597 575
------- ----- --- ---
Net interest income ............... 564 501 294 265
------- ----- --- ---
Provision for losses on loans ............... -- -- -- --
------- ----- --- ---
Net interest income after provision
for losses on loans ............ 564 501 294 265
------- ----- --- ---
Other income (expense)
Gain on sale of mortgage loans ........ 232 137 128 21
Loss on sale of investments ........... (2) -- (2) --
Other operating ....................... 13 10 7 5
------- ----- --- ---
243 147 133 26
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General, administrative and other expenses
Employee compensation and benefits .... 300 261 156 135
Occupancy and equipment ............... 70 67 38 33
Federal deposit insurance premiums .... 19 32 9 10
Franchise taxes ....................... 37 29 24 18
Other ................................. 161 148 87 85
------- ----- --- ---
Total general, administrative and
other expenses ................. 587 537 314 281
------- ----- --- ---
Income before income taxes ........ 220 111 113 10
</TABLE>
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<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
(continued)
Six Months ended Three Months ended
March 31 March 31
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal income taxes
Current ............................... 75 36 42 7
Deferred .............................. -- -- -- --
------- ----- --- ---
75 36 42 7
------- ----- --- ---
Net income ........................ $ 145 75 71 3
======= == == =
Earnings per share
Basic .......................... $ 0.52 0.27 0.26 0.01
======= ==== ==== ====
Diluted ........................ $ 0.51 0.26 0.26 0.01
======= ==== ==== ====
</TABLE>
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<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
(Unaudited)
1998 1997
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period ........................................... $ 145 75
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ................................. 15 15
Amortization of ESOP .......................................... 4 7
Loans disbursed for sale in the secondary market .............. (18,261) (3,851)
Proceeds from sale of loans in the secondary market ........... 17,423 4,675
Gain on sale mortgage loans ................................... (232) (137)
Loss on sale of investments ................................... 2 --
Federal Home Loan Bank dividends .............................. (17) (15)
Increase (decrease) in cash due to changes in:
Deferred loan costs ....................................... (5) 9
Accrued interest receivable ............................... 9 16
Prepaid expenses and other assets ......................... (8) 15
Accounts payable on mortgage loans serviced for others .... 103 4
Other liabilities ......................................... (4) (340)
Accrued federal income taxes .............................. 38 28
-------- ------
Net cash provided by (used in) operating activities .... (788) 501
-------- ------
Cash flows provided by (used in) investing activities:
Principal payments on loans and mortgage-backed securities .......... 6,612 1,995
Loan disbursements .................................................. (6,072) (4,954)
Proceeds from sale of loans ......................................... -- 8,322
Purchase of mortgage-backed securities - available for sale ......... (492) (3,293)
Proceeds from sale of mortgage backed securities - available for sale 469
Purchase of office premises and equipment ........................... (10) (10)
Maturities of investment secutities - held to maturity .............. 500
Decrease in certificates of deposit in other financial institutions . 380 --
-------- ------
Net cash provided by (used in) investing activities .... 1,387 2,060
-------- ------
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits ................................. (71) (694)
Borrowings from FHLB ................................................ 4,500 500
Repayment of FHLB advances .......................................... (4,573) (3,076)
Advances by borrowers for taxes and insurance ....................... (8) (20)
Dividends paid on common stock ...................................... (41) (42)
-------- ------
Net cash provided by (used in) financing activities .... (193) (3,332)
-------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
(Unaudited)
(continued)
1998 1997
-------- ------
<S> <C> <C>
Net decrease in cash and cash equivalents ................................ 406 (771)
Cash and cash equivalents - beginning of period .......................... 1,382 2,146
-------- ------
Cash and cash equivalents - end of period ................................ $ 1,788 1,375
======== ======
Supplemental disclosure of cash flow information
Cash paid during the period for:
Federal income taxes ............................................. $ 37 --
======== ======
Real estate acquired in settlement of loans ...................... $ 77 --
======== ======
Interest on deposits and borrowings .............................. $ 1,155 1,202
======== ======
</TABLE>
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<PAGE>
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 six month
period ended March 31, 1998, are not necessarily indicative of the results
which may be expected for the entire fiscal year.
3. Earnings Per Share:
Basic earnings per share for the three and six month periods ended March
31, 1998 and 1997, is computed based on 280,771 and 282,521 weighted
average shares outstanding for Bancorp, respectively. Diluted earnings per
share for the three and six month periods ended March 31, 1998 and 1997,
is computed based on 282,049 and 283,900 weighted average shares
outstanding as adjusted for the stock compensation plan.
4. Effects of Recent Accounting Pronouncements:
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 and therefore
applied to fiscal year ended September 30, 1997. The adoption of this
standard did not have a material impact on the financial statements.
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<PAGE>
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share" to
replace the presentation on "primary" and "full diluted" earnings per
share with newly defined "basic" and "diluted" earnings per share. "Basic"
earnings per share will not include the dilutive effect of certain common
stock equivalents on earnings. Diluted earnings per share reflects the
potential dilution of securities that could share in an enterprise's
earnings. The statements requires dual presentation of basic and diluted
earnings per share on the income statements for all entities having
complex capital structures and is effective for financial statements
issued for periods ending after December 15, 1997. SFAS No. 128 was
adopted for the period ending December 31, 1997. Prior year earnings per
share information was restated to conform with the new pronouncement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in financial statements. This statement requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
This statement requires that (a) items of other comprehensive income be
classified by their nature in a financial statement and (b) the
accumulated balance of other comprehensive income be displayed separately
from retained earnings and additional paid in capital in the equity
section of the statement of condition. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Management is currently
assessing the impact that adoption will have on the Bancorp's financial
statements.
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<PAGE>
KENWOOD BANCORP INC.
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
Discussion of Financial Condition Changes from September 30, 1997 to March 31,
1998
At March 31, 1998, the Company had total assets $46.9 million, an increase of
approximately $78,000 or .2% from September 30, 1997. The increase in assets was
due to an increase in loans receivable (including loans held for sale) which was
funded by sales and maturities of investment securities and mortgage backed
securities.
Cash and cash equivalents increased $406,000 or 29.4% during the six months
ended March 31, 1998, as the repayments from mortgage-backed securities plus
maturity of certificates of deposit were invested in interest bearing deposits.
Loans receivable (including loans held for sale) increased by $1.1 million or
2.8% to $38.8 million at March 31, 1998 as compared to $37.7 million at
September 30, 1997. The Company has continued to see loan demand for adjustable
rate loans. The Company predominately sells all fixed rate one-to-four family
loans originated in the secondary market. The Company sold $17.2 million of
loans in the secondary market for the six months ended March 31, 1998.
The Company's investment portfolio consists of, investment securities, and
mortgage-backed securities (held to maturity and available for sale). The
investment portfolio decreased $1.5 million or 22.2% over the level maintained
at September 30, 1997. The decrease in the investment portfolio was due to the
repayment of mortgage-backed securities, the maturity of certificates of deposit
and investment securities and the sale of mortgage backed securities during the
six months ended March 31, 1998. The proceeds from the repayments and maturities
were invested in interest bearing deposits and in the origination of mortgage
loans.
Deposits totaled $40.9 million at March 31, 1998, a decrease of $71,000 or .2%
from the $41.0 million of deposits at September 30, 1997. The decrease in
deposits is exclusively in the certificate of deposit accounts. The Company
continues to see a reduction in certificates of deposit due to high competition
for the funds and other savings vehicles available to customers. 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,
as noted, 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 increased during the six months ended March 31, 1998 as the
Company's new demand products, established in prior periods, continue to
generate deposit growth.
The Company is required to meet each of two minimum capital standards
promulgated by the Office of Thrift Supervision. The capital standards generally
require the maintenance of regulatory capital sufficient to meet a core and
risk-based capital requirement. At March 31, 1998, the Company's core capital
totaled $4.3 million or 9.2% of adjusted total assets, which exceeded the
respective minimum requirements at that date of 4.0% by $2.5 million. The
Company's risk-based capital totaled $4.4 million at March 31, 1998 or 19.6% of
risk-weighted assets, which exceeded the 8.0% minimum requirement by $2.6
million.
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<PAGE>
Comparison of Operating Results for the Six Months Ended March 31, 1998 and 1997
General
Net income for the six months ended March 31, 1998 totaled $145,000, an increase
of $70,000 or 93.3% from the $75,000 recorded for the six months ended March 31,
1997. The increase in net income resulted primarily from higher net interest
income and higher gain on loan sales which was partially offset by an increase
in operating expenses and income taxes.
Net Interest Income
Interest income on loans for the six months ended March 31, 1998 increased
$175,000 or 13.2% 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, which reduced interest income for the first quarter of
1997. Interest income on mortgage-backed securities decreased $90,000 or 43.7%,
due primarily to a lower average balance outstanding during the six months ended
March 31, 1998 as compared to the six months ended March 31, 1997. The Company
sold mortgage-backed securities to repay FHLB advances, the advances were used
to fund the loan growth. Interest income on investment securities have remained
relatively stable. Interest income on interest bearing deposits decreased
$21,000 to $60,000 for the six months ended March 31, 1998 as compared to
$81,000 for the six months ended March 31, 1997. The Company has used interest
bearing deposits to fund loan growth.
Interest expense on deposits decreased $15,000 or 1.3% during the six months
ended March 31, 1998 as compared to the prior six month period. This decrease
was due to a decrease in the average yield on deposits during the six month
period. The decrease in the yield is due to changes in the mix of deposits, an
increase in lower rate demand deposit accounts and the reduction in higher rate
certificates of deposit. Interest expense on borrowings increased $16,000 as the
Company had a higher average balance outstanding during the six months ended
March 31, 1998 as compared to the prior six month period. The proceeds from the
adjustable rate loans sold in November 1996 were used to repay FHLB advances in
1997.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $63,000 or 12.6% during the six months ended
March 31, 1998 as compared to the six months ended March 31, 1997.
Provision for Losses on Loans
The Company's did not record a provision for losses on loans for the six month
periods ended March 31, 1998 and 1997. The provision for loan losses is based on
the loan portfolio characteristics, the amount of delinquent and classified
loans and management's assessment of the inherent risk in lending.
Other Income
Other income increased by $96,000 during the six months ended March 31, 1998 as
compared to the six month period ended March 31, 1997. This increase was due to
the $95,000 increase in gain on
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<PAGE>
sale of mortgage loans. In November 1996 the Company sold $8.2 million in
adjustable rate mortgage loans generating a net gain of $72,000. Excluding this
gain, income from the sale of fixed rate mortgage loans for the six months ended
March 31, 1997 was $65,000. All loan sales during the six months ended March 31,
1998 are fixed rate mortgage loans and FHA and VA secured loans. Gain on sale of
fixed rate mortgage loans have increased $167,000 or 256.9% for the six months
ended March 31, 1998 as compared to the six months ended March 31, 1997. The
Company has seen an increase in loans sold on the secondary market as consumer
demand for fixed rate loans has increased due to the low interest rate
environment.
General, Administrative and Other Expenses
General, administrative and other expenses increased by $50,000 or 9.3% during
the six months ended March 31, 1998 as compared to the same six month period in
1997. This increase was due primarily to an increase of $39,000 or 14.9% in
compensation and benefits. The increase resulted from additional costs relating
to the Company's mortgage loan origination office due to the higher level of
loan sales for the six month period as compared to the prior six month period.
Other general, administrative and other expenses have increased slightly
including an $8,000 increase in franchise taxes and a $3,000 increase in
occupancy and equipment. These increases are due to increased capital levels for
franchise tax purposes and additional occupancy costs.
Federal Income Taxes
The provision for federal income taxes increased $39,000 during the six months
ended March 31, 1998 as compared to the same period in 1997. 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 34.0% and 32.4%
during the six month periods ended March 31, 1998 and 1997, respectively.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997
General
Net income for the three months ended March 31, 1998 totaled $71,000, an
increase of $68,000 from the $3,000 in net income for the three months ended
March 31, 1997. The increase was due primarily to a increase in net interest
income of $29,000 and an increase in other income of $107,000 partially offset
by an increase in general, administrative and other expenses of $33,000 and an
increase in the provision for income taxes of $35,000.
Net Interest Income
Interest income on loans for the three months ended March 31, 1998 was $761,000
which is an increase of $121,000 as compared to the three month period ended
March 31, 1997. The Company has seen an increase in average loans outstanding
period to period due to the increased demand for mortgage loans. Interest income
on mortgage-backed securities decreased $67,000 due to a lower level of average
mortgage-backed securities during the period to $3.5 million for the six months
ended March 31, 1998, from $7.5 million for the three months ended March 31,
1997. Interest income on investment securities and interest bearing deposits
have remained stable between the two periods.
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<PAGE>
Interest expense on deposits totaled $559,000 for the three months ended March
31, 1998, a decrease of $1,000 as compared to the three months ended March 31,
1997. The decrease was due to the lower average deposits outstanding period to
period. Interest expense on FHLB advances totaled $38,000 for the three months
ended March 31, 1998, an increase of $23,000 over the same period for 1997. This
increase was due to higher level of advances period to period. The Company has
used FHLB advances to fund loan growth.
As a result of the above changes in interest income and interest expense, net
interest income increased $29,000 or 10.9% during the three months ended March
31, 1998, as compared to the three months ended March 31, 1997.
Provision for Losses on Loans
The Company had no provision for losses on loans for the three months ended
March 31, 1998 and 1997. The provision for losses on loans is based on the loan
portfolio characteristics, the amount of delinquent and classified loans and
management's assessment of the inherent risk in lending.
Other Income
Other income increased by $107,000 during the three months ended March 31, 1998,
as compared to the same period in 1997. This increase was due to a increase in
gains on sales of mortgage loans. The Company's secondary market activities have
increased significantly during the current period versus the prior period,
primarily as a result of the current interest rate environment and consumer
demand.
General, Administrative and Other Expenses
General, administrative and other expenses increased by $33,000 or 11.7% to
$314,000 for the three month period ended March 31, 1998, as compared to
$281,000 for the three month period ended March 31, 1997. The increase was due
primarily to a $21,000 increase in compensation and benefits due to higher
salaries relating to the Company's loan origination office from the increased
secondary market activity. Other general, administrative and other expenses have
increased slightly including a $6,000 increase in franchise taxes and a $5,000
increase in occupancy and equipment. These increase are due to increased capital
levels for franchise tax purposes and additional occupancy costs.
Federal Income Taxes
The provision for federal income taxes increased by $35,000 during the three
months ended March 31, 1998, as compared to the same period in 1997, due
primarily to an increase in income before taxes of $103,000.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
In addition to historical information, forward-looking statements are contained
herein that are subject to risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, includes but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which the Company
operates), the impact of competition for the Company's customers from
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other providers of financial services, the impact of governmental legislation
and regulation (which changes from time to time and over which the Company has
no control), and other risks detailed in this Form 10-QSB and in the Company's
other Securities and Exchange Commission ("SEC") filings. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the SEC.
Year 2000 Issues
As with all financial institutions, the Company's operations depend almost
entirely on computer systems. The Company is addressing the potential problems
associated with the possibility that the computers which control or operate the
Company's operating systems, facilities and infrastructure may not be programmed
to read four digit date codes and, upon arrival of the year 2000, may recognize
the two-digit code "00" as the year 1900, causing systems to fail to function or
to generate erroneous data. The Company is working with the companies that
supply or service its computer-operated or dependent systems to identify and
remedy any year 2000 problems.
At this time, the Company has not identified any specific expenses which are
reasonably likely to be incurred in connection with this issue and does not
expect to incur significant expenses to implement corrective measures. No
assurance can be given, at this time, that significant expenses will not be
incurred in future periods. In the unlikely event that the Company is ultimately
required to purchase replacement computer systems, programs and equipment, or
that substantial expense must be incurred to make the Company's current systems,
programs and equipment year 2000 compliant, the Company's net income and
financial condition could be adversely affected.
In addition to possible expense related to its own systems, the Company could
incur losses if loan payments are delayed due to the year 2000 problems
affecting any of its significant borrowers or impairing the payroll systems of
large employers in the Company's primary market area. Because the Company's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and its primary market area is not significantly dependent on one
employer or industry, the Company does not expect any significant or prolonged
difficulties that could affect net earnings or cash flow.
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KENWOOD BANCORP, INC.
PART II
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
On January 29, 1998, the Company held its 1998 Annual Meeting of
Stockholders. At the annual meeting, stockholders of the Company
elected two directors of the Company and ratified the appointment
of the Company's independent auditors for the year ending
September 30, 1998. The votes received on such proposals were as
follows:
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C> <C>
1. Election of Robert P. Isler 260,195 - 100 34,838
2. Election of Donald G. Ashcraft 260,195 - 100 34,838
3. Ratification of independent auditors 258,695 1,600 - 34,838
</TABLE>
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibit 27: Financial Data Schedule
b. No Form 8-K reports were filed during the quarter.
- 13 -
<PAGE>
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 May 11, 1998 By /s/ THOMAS W. BURNS
-------------------
Thomas W. Burns
Executive Vice President,
Chief Executive Officer and
Chief Financial Officer
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