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 December 31, 1997
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
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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 February 10, 1998, the latest practicable date, 295,133 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
<PAGE>
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 11
SIGNATURES 12
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<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
STATEMENTS OF FINANCIAL CONDITION
(in Thousands)
December 31 September 30,
1997 1997
-------- --------
(unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks ................................................ $ 441 367
Interest bearing deposits in other financial institutions .............. 1,650 1,015
-------- --------
Cash and cash equivalents ............................... 2,091 1,382
Certificates of deposit in other financial institutions ................ 95 380
Investment securities at amortized cost, approximate market
value of $1,984 and $1,991 as of December 31, 1997
and September 30, 1997 ............................................ 1,997 1,997
Investment securities - available for sale, amortized cost
of $499 and $499 as of December 31, 1997
and September 30, 1997 ............................................ 497 495
Mortgage-backed securities at cost, approximate market
value of $232 and $234 as of December 31, 1997
and September 30, 1997 ............................................ 221 223
Mortgage-backed securities available for sale, amortized cost
of $3,078 and $3,487 as of December 31, 1997
and September 30, 1997 ............................................ 3,137 3,537
Loans receivable ....................................................... 38,171 36,220
Loans held for sale - at lower of cost or market ....................... 1,071 1,525
Property and equipment, net ............................................ 340 349
Federal Home Loan bank stock - at cost ................................. 469 461
Accrued interest receivable:
Loans ............................................................. 159 174
Mortgage-backed securities ........................................ 24 27
Investment securities ............................................. 56 20
Prepaid expenses and other assets ...................................... 27 57
Prepaid federal income taxes ........................................... -- 15
-------- --------
$ 48,355 46,862
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
STATEMENTS OF FINANCIAL CONDITION
(in Thousands)
(continued)
December 31 September 30,
1997 1997
-------- --------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................... $ 41,254 40,996
Advances from the Federal Home Loan Bank ............................... 2,035 1,049
Accounts payable on mortgage loans services for others ................. 60 12
Advances by borrowers for taxes and insurance .......................... 339 231
Other liabilities ...................................................... 106 96
Accrued federal income taxes ........................................... 17 --
Deferred federal income taxes .......................................... 122 119
-------- --------
Total liabilities ....................................... 43,933 42,503
-------- --------
Commitments ............................................................ -- --
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 ...................... 2,739 2,685
Shares acquired by Management Recognition Plan .................... (17) (17)
Less unearned ESOP shares ......................................... (113) (115)
Unrealized gain on available for sale securities, net of income tax 39 32
-------- --------
Total stockholders' equity .............................. 4,422 4,359
-------- --------
$ 48,355 46,862
======== ========
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three Months ended
December 31
1997 1996
---- ----
<S> <C> <C>
Interest income
Loans .......................................... $741 687
Mortgage-backed securities ..................... 59 82
Investment securities .......................... 45 44
Interest bearing deposits and other ............ 31 50
---- ----
Total interest income ....................... 876 863
Interest expense
Deposits ....................................... 579 593
Borrowings ..................................... 27 34
---- ----
Total interest expense ...................... 606 627
---- ----
Net interest income ......................... 270 236
Provision for losses on loans ........................ -- --
---- ----
Net interest income after provision
for losses on loans ..................... 270 236
---- ----
Other income
Gain on sale of mortgage loans ................. 104 116
Gain on sale of investments .................... -- --
Other operating ................................ 6 5
---- ----
110 121
---- ----
General, administrative and other expenses
Employee compensation and benefits ............. 144 126
Occupancy and equipment ........................ 32 34
Federal deposit insurance premiums ............. 10 22
Franchise taxes ................................ 13 11
Other .......................................... 74 63
---- ----
Total general, administrative and
other expenses .......................... 273 256
---- ----
Income before income taxes .................. 107 101
Federal income taxes
Current ........................................ 33 29
Deferred ....................................... -- --
---- ----
33 29
---- ----
Net income .................................. $ 74 72
==== ====
Earnings per share
Basic ................................... $0.26 0.25
==== ====
Diluted ................................. $0.25 0.24
==== ====
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period ........................................... $ 74 72
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ................................ 8 13
Amortization of ESOP ......................................... 2 --
Loans disbursed for sale in the secondary market ............. (7,214) (2,590)
Proceeds from sale of loans in the secondary market .......... 7,773 2,735
Gain on sale mortgage loans .................................. (104) (117)
Gain on sale of investments .................................. -- --
Federal Home Loan Bank dividends ............................. (8) (7)
Increase (decrease) in cash due to changes in:
Deferred loan costs ...................................... (7) 6
Accrued interest receivable .............................. (18) 8
Prepaid expenses and other assets ........................ 30 42
Accounts payable on mortgage loans serviced for others ... 48 25
Other liabilities ........................................ 10 (351)
Accrued federal income taxes ............................. 32 30
------- -------
Net cash provided by (used in) operating activities ... 626 (134)
------- -------
Cash flows provided by (used in) investing activities:
Principal payments on loans and mortgage-backed securities .......... 1,187 1,522
Loan disbursements .................................................. (2,721) (2,265)
Proceeds from sale of loans ......................................... -- 8,322
Purchase of mortgage-backed securities - available for sale ......... -- (3,293)
Purchase of office premises and equipment ........................... -- (7)
Decrease in certificates of deposit in other financial institutions . 285 --
------- -------
Net cash provided by (used in) investing activities ... (1,249) 4,279
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KENWOOD BANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
(Unaudited)
1997 1996
------- -------
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits ................................. 258 (662)
Borrowings from FHLB ................................................ 3,000 --
Repayment of FHLB advances .......................................... (2,014) (3,015)
Advances by borrowers for taxes and insurance ....................... 108 70
Dividends paid on common stock ...................................... (20) (20)
------- -------
Net cash provided by (used in) financing activities ... 1,332 (3,627)
------- -------
Net decrease in cash and cash equivalents ................................ 709 518
Cash and cash equivalents - beginning of period .......................... 1,382 2,146
------- -------
Cash and cash equivalents - end of period ................................ $ 2,091 2,664
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for:
Federal income taxes ............................................. $ -- --
======= =======
Interest on deposits and borrowings .............................. $ 604 628
======= =======
</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 three
month period ended December 31, 1997, 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 three month periods ended December 31, 1997
and 1996, is computed based on 280,771 and 282,521 weighted average shares
outstanding for Bancorp, respectively. Diluted earnings per share for the
three month periods ended December 31, 1997 and 1996, is computed based on
294,661 and 296,512 weighted average shares outstanding as adjusted for
stock compensation plan and for the employee stock ownership 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" which
will replace the current 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
will reflect the potential dilution of securities that could share in an
enterprises earnings. The statements will require dual presentation of
basic and diluted earnings per share on the income statements for all
entities having complex capital structures and will be 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 December
31, 1997
At December 31, 1997, the Company had total assets $48.4 million , an increase
of approximately $1.5 million or 3.2% from September 30, 1997. The increase in
assets due to an increase in loans receivable (including loans held for sale)
which was funded by additional FHLB advances and deposit growth.
Cash and cash equivalents increased $709,000 or 51.3% during the three months
ended December 31, 1997, 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 $1.5 million or
4.0% to $39.2 million at December 31, 1997 as compared to $37.7 million at
September 30, 1997. The Company has continued to see loan demand for adjustable
rate loans. The Company normally sells all fixed rate one-to-four family loans
originated on the secondary market. The Company sold $7.7 million of loans in
the secondary market for the three months ended December 31, 1997.
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 decreased $685,000 or 10.3% over
the level maintained at September 30, 1997. The decrease in the investment
portfolio was due to the repayment of mortgage-backed securities and the
maturity of certificates of deposit during the quarter ended December 31, 1997.
The proceeds from the repayments and maturities were invested in interest
bearing deposits.
Deposits totaled $41.3 million at December 31, 1997, an increase of $258,000 or
.6% from the $41.0 million of deposits at September 30, 1997. The increase in
deposits is exclusively in the demand 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 three months ended December 31, 1997 as the Company's
new demand products, established in prior periods, continue to generate deposit
growth.
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, 1997, the Company's
tangible and core capital totaled $4.3 million or 8.8% of adjusted total assets,
which exceeded the respective minimum requirements at that date of 1.5% and 3.0%
by $5.7 million and $2.8 million respectively. The Company's risk-based capital
totaled $4.4 million at December 31, 1997 or 18.8% of risk-weighted assets,
which exceeded the 8.0% by $2.5 million.
-8-
<PAGE>
Comparison of Operating Results for the Three Months Ended December 31, 1997 and
1996
General
Net income for the three months ended December 31, 1997 totaled $74,000, an
increase of $2,000 or 1.4% from the $72,000 recorded for the three months ended
December 31, 1996. The increase in net income resulted primarily from higher net
interest income which was offset by an increase in operating expenses and income
taxes.
Net Interest Income
Interest income on loans for the three months ended December 31, 1997 increased
$54,000 or 7.9% 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
1996. Interest income on mortgage-backed securities decreased $23,000 or 28.0%,
due primarily to a lower average balance outstanding during the three months
ended December 31, 1997 as compared to the three months ended December 31, 1996.
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 $19,000 to $31,000 for the three months ended December 31, 1997 as
compared to $50,000 for the three months ended December 31, 1996. The Company
has used interest bearing deposits to fund loan growth and reductions in
deposits.
Interest expense on deposits decreased $14,000 or 2.4% during the three months
ended December 31`, 1997 as compared to the prior three month period. This
decrease was due to a decrease in the average yield on deposits during the three
month period. The decrease in the yield is due 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 decreased $7,000 as
the Company had lower average balance outstanding during the three months ended
December 31, 1997 as compared to the prior three month period. The proceeds from
the adjustable rate loans sold in 1996 were used to repay FHLB advances in 1996.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $34,000 or 14.4% during the three months ended
December 31, 1997 as compared to the three months ended December 31, 1996.
Provision for Losses on Loans
The Company's did not record a provision for losses on loans for the three month
periods ended December 31, 1997 and 1996. 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 decreased by $11,000 during the three months ended December 31,
1997 as compared to the three month period ended December 31, 1996. This
decrease was due to the $12,000 decrease in
- 9 -
<PAGE>
gain on 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 sale of fixed rate mortgage loans for the three months
ended December 31, 1996 was $44,000. All loan sales during the three months
ended December 31, 1997 are fixed rate mortgage loans. Gain on sale of fixed
mortgage loan have increased $60,000 or 136.4% for the three months ended
December 31, 1996. 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 rate environment.
General, Administrative and Other Expenses
General, administrative and other expenses increased by $17,000 or 6.6% during
the three months ended December 31, 1997 as compared to the same three month
period in 1996. This increase was due primarily to an increase of $18,000 or
14.3% in compensation and benefits. The increase resulted from additional costs
relating to the Company's mortgage loan origination office due the higher level
of loan sales for the quarter as compared to the prior quarter.
Federal Income Taxes
The provision for federal income taxes increased $4,000 during the three months
ended December 31, 1997 as compared to the same period in 1996. 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 30.8% and 28.7%
during the three month periods ended December 31, 1997 and 1996, respectively.
- 10 -
<PAGE>
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
Not applicable
<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
Not applicable
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<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: February 17, 1998 By: /s/ THOMAS W. BURNS
-------------------
Thomas W. Burns
Executive Vice President,
Chief Executive Officer and
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 441
<INT-BEARING-DEPOSITS> 1,650
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,634
<INVESTMENTS-CARRYING> 2,218
<INVESTMENTS-MARKET> 2,216
<LOANS> 39,242
<ALLOWANCE> 95
<TOTAL-ASSETS> 48,355
<DEPOSITS> 41,254
<SHORT-TERM> 2,035
<LIABILITIES-OTHER> 644
<LONG-TERM> 0
0
0
<COMMON> 3
<OTHER-SE> 4,419
<TOTAL-LIABILITIES-AND-EQUITY> 48,355
<INTEREST-LOAN> 741
<INTEREST-INVEST> 104
<INTEREST-OTHER> 31
<INTEREST-TOTAL> 876
<INTEREST-DEPOSIT> 579
<INTEREST-EXPENSE> 606
<INTEREST-INCOME-NET> 270
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 273
<INCOME-PRETAX> 107
<INCOME-PRE-EXTRAORDINARY> 107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> .26
<EPS-DILUTED> .25
<YIELD-ACTUAL> 2.38
<LOANS-NON> 77
<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>
