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, 1999
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 of (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, 1999, 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
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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,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Cash and due from banks ................................................ $ 3,184 745
Interest bearing deposits in other financial institutions .............. 3,526 2,374
-------- --------
Cash and cash equivalents ............................... 6,710 3,119
Investment securities at amortized cost, approximate market
value of $500 and $1,502 as of March 31, 1999
and September 30, 1998 ............................................ 500 1,499
Investment securities - available for sale, amortized cost
of $1,500 and $500 as of March 31, 1999
and September 30, 1998 ............................................ 1,489 502
Mortgage-backed securities at cost, approximate market
value of $156 and $191 as of March 31, 1999
and September 30, 1998 ............................................ 149 181
Mortgage-backed securities available for sale, amortized cost
of $7,206 and $3,947 as of March 31, 1999
and September 30, 1998 ............................................ 7,240 3,972
Loans receivable ....................................................... 33,122 36,211
Loans held for sale - at lower of cost or market ....................... 1,319 2,189
Property and equipment, net ............................................ 718 354
Federal Home Loan bank stock - at cost ................................. 512 495
Accrued interest receivable:
Loans ............................................................. 161 204
Mortgage-backed securities ........................................ 32 25
Investment securities ............................................. 25 18
Prepaid expenses and other assets ...................................... 44 80
Prepaid federal income taxes ........................................... -- 22
-------- --------
$ 52,021 48,871
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................... $ 44,459 41,383
Advances from the Federal Home Loan Bank ............................... 2,351 2,429
Accounts payable on mortgage loans serviced for others ................. 206 28
Advances by borrowers for taxes and insurance .......................... 205 220
Other liabilities ...................................................... 47 96
Accrued federal income taxes ........................................... 4 --
Deferred federal income taxes .......................................... 132 151
-------- --------
Total liabilities ....................................... 47,404 44,307
-------- --------
Commitments ............................................................ -- --
</TABLE>
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<TABLE>
<CAPTION>
KENWOOD BANCORP, INC.
STATEMENTS OF FINANCIAL CONDITION
(in Thousands)
March 31 September 30,
1999 1998
-------- --------
(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 ........................................ 1,774 1,774
Retained earnings - substantially restricted ...................... 2,942 2,891
Shares acquired by Management Recognition Plan .................... (17) (17)
Less unearned ESOP shares ......................................... (101) (106)
Unrealized gain on available for sale securities, net of income tax 16 19
-------- --------
Total stockholders' equity .............................. 4,617 4,564
-------- --------
$ 52,021 48,871
======== ========
</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
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income
Loans ................................. $1,388 1,502 650 761
Mortgage-backed securities ............ 138 116 70 57
Investment securities ................. 55 89 35 44
Interest bearing deposits and other ... 124 60 77 29
------ ------ ------ ------
Total interest income ............. 1,705 1,767 832 891
Interest expense
Deposits .............................. 1,121 1,138 552 559
Borrowings ............................ 65 65 32 38
------ ------ ------ ------
Total interest expense ............ 1,186 1,203 584 597
------ ------ ------ ------
Net interest income ............... 519 564 248 294
Provision for losses on loans ............... -- -- -- --
------ ------ ------ ------
Net interest income after provision
for losses on loans ............ 519 564 248 294
------ ------ ------ ------
Other income (expense)
Gain on sale of mortgage loans ........ 280 232 90 128
Loss on sale of investments ........... -- (2) -- (2)
Other operating ....................... 14 13 6 7
------ ------ ------ ------
294 243 96 133
------ ------ ------ ------
General, administrative and other expenses
Employee compensation and benefits .... 391 300 154 156
Occupancy and equipment ............... 81 70 45 38
Federal deposit insurance premiums .... 15 19 6 9
Franchise taxes ....................... 30 37 16 24
Other ................................. 160 161 82 87
------ ------ ------ ------
Total general, administrative and
other expenses ................. 677 587 303 314
------ ------ ------ ------
Income before income taxes ........ 136 220 41 113
</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
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal income taxes
Current ............................... 44 75 12 42
Deferred .............................. -- -- -- --
------ ------ ------ ------
44 75 12 42
------ ------ ------ ------
Net income ........................ $ 92 145 29 71
====== ====== ====== ======
Earnings per share
Basic .......................... $ 0.33 0.52 0.10 0.26
====== ====== ====== ======
Diluted ........................ $ 0.33 0.51 0.10 0.26
====== ====== ====== ======
</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)
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income for the period .................................................. $ 92 145
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ....................................... 17 15
Amortization of ESOP ................................................ 5 4
Amortization of premium and discounts on investments
and mortgage-backed securities ................................... 10 --
Loans disbursed for sale in the secondary market .................... (23,081) (18,261)
Proceeds from sale of loans in the secondary market ................. 24,231 17,423
Gain on sale of mortgage loans ...................................... (280) (232)
Loss on sale of investments ......................................... -- 2
Federal Home Loan Bank dividends .................................... (17) (17)
Increase (decrease) in cash due to changes in:
Deferred loan costs .............................................. 27 (5)
Accrued interest receivable ...................................... 29 9
Prepaid expenses and other assets ................................ 36 (8)
Accounts payable on mortgage loans serviced for others ........... 178 103
Other liabilities ................................................ (49) (4)
Accrued federal income taxes ..................................... 26 38
-------- --------
Net cash provided by (used in) operating activities ........... 1,224 (788)
-------- --------
Cash flows provided by (used in) investing activities:
Principal payments on loans and mortgage-backed securities ................. 11,118 6,612
Loan disbursements ......................................................... (7,028) (6,072)
Purchase of mortgage-backed securities - available for sale ................ (4,284) (492)
Purchase of investment securities - available for sale ..................... (1,500) --
Proceeds from sale of mortgage backed securities - available for sale ...... -- 469
Purchase of office premises and equipment .................................. (381) (10)
Purchase of investment securities - held to maturity ....................... (1,000) --
Maturity of investment securities .......................................... 2,500 500
Decrease in certificates of deposit in other financial institutions ........ -- 380
-------- --------
Net cash provided by (used in) investing activities ........... (575) 1,387
-------- --------
</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)
1999 1998
-------- --------
<S> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits ........................................ 3,076 (71)
Borrowings from FHLB ....................................................... -- 4,500
Repayment of FHLB advances ................................................. (78) (4,573)
Advances by borrowers for taxes and insurance .............................. (15) (8)
Dividends paid on common stock ............................................. (41) (41)
-------- --------
Net cash provided by (used in) financing activities ........... 2,942 (193)
-------- --------
Net decrease in cash and cash equivalents ...................................... 3,591 406
Cash and cash equivalents - beginning of period ................................ 3,119 1,382
-------- --------
Cash and cash equivalents - end of period ...................................... $ 6,710 1,788
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Federal income taxes ................................................... $ 52 37
======== ========
Real estate acquired in settlement of loans ............................ $ -- 77
======== ========
Interest on deposits and borrowings .................................... $ 1,192 1,155
======== ========
</TABLE>
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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, 1999, 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, 1999 and 1998, is computed based on 281,591 and 280,771 weighted
average shares outstanding for Bancorp, respectively. Diluted earnings per
share for the three and six month periods ended March 31, 1999 and 1998,
is computed based on 283,053 and 282,049 weighted average shares
outstanding as adjusted for the stock compensation plan.
4. Effects of Recent Accounting Pronouncements:
--------------------------------------------
In March 1997, the FASB issued Statement of Financial Accounting Standard
(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.
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<PAGE>
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. The Company adopted SFAS
No. 130 beginning October 1, 1998.
Comprehensive income for the six months ended March 31, 1999 and 1998 was
$89 and $147, respectively. The difference between net income and
comprehensive income consists solely of the effect of the unrealized gains
and losses, net of tax, on available for sale securities.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 significantly changes
the way that public business enterprises report information about
operating segments in annual and interim financial statements issued to
shareholders. SFAS No. 131 uses a "management approach" to disclose
financial and descriptive information about an enterprise's reportable
operating segments which is based on management's method for making
operating decisions and assessing performance. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997.
There was no effect from the adoption of this pronouncement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for
derivative instruments, including derivative instruments imbedded in other
contracts, and for hedging activities. It requires that an entire
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management is currently assessing the impact that the
adoption of this standard will have on the Company'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, 1998 to March 31,
1999
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At March 31, 1999, the Company had total assets $52.0 million , an increase of
approximately $3.2 million or 6.4% from September 30, 1998. The increase in
assets was due to an increase in cash and cash equivalents partially offset by a
decrease in loans receivable (including loans held for sale) which was funded by
deposit growth and accounts payable to mortgages serviced for others.
Cash and cash equivalents increased $3.6 million or 115.1% during the six months
ended March 31, 1999, as the repayments from loans receivable and the funds from
the increase in deposits were invested in interest bearing deposits.
Loans receivable (including loans held for sale) decreased by $4.0 million or
10.3% to $34.4 million at March 31, 1999 as compared to $38.4 million at
September 30, 1998. The Company normally sells all fixed rate one-to-four family
loans originated in the secondary market. The current consumer demand for fixed
rate loans has impacted the Company's adjustable rate portfolio as ARM loans
refinanced to fixed rate products. The Company sold $23.9 million of loans in
the secondary market for the six months ended March 31, 1999.
The Company's investment portfolio consists of, investment securities, and
mortgage-backed securities (held to maturity and available for sale). The
investment portfolio increased $3.2 million or 52.4% over the level maintained
at September 30, 1998. The increase in the investment portfolio was due to the
purchase of $4.3 million of mortgage-backed securities during the six months
ended March 31, 1999 partially offset by repayments on mortgage-backed
securities. The Company has purchased adjustable rate mortgage-backed securities
as a means to reduce interest rate risk.
Deposits totaled $44.5 million at March 31, 1999, an increase of $3.1 million or
7.4% from the $41.4 million of deposits at September 30, 1998. 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. Demand accounts have increased
during the six months ended March 31, 1999 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, 1999, the Company's core capital
totaled $4.4 million or 8.5% of adjusted total assets, which exceeded the
respective minimum requirements at that date of 4.0% by $2.3 million. The
Company's risk-based capital totaled $4.5 million at March 31, 1999 or 20.9% of
risk-weighted assets, which exceeded the 8.0% minimum requirement by $2.8
million.
-8-
<PAGE>
Comparison of Operating Results for the Six Months Ended March 31, 1999 and 1998
- --------------------------------------------------------------------------------
General
- -------
Net income for the six months ended March 31, 1999 totaled $92,000, a decrease
of $53,000 or 36.6% from the $145,000 recorded for the six months ended March
31, 1998. The decrease in net income resulted primarily from lower net interest
income and higher operating expenses which was partially offset by an increase
in gain on loan sales and lower income taxes.
Net Interest Income
- -------------------
Interest income on loans for the six months ended March 31, 1999 decreased
$114,000 or 7.6% due to a decrease in the average balance of loans outstanding
period-to-period. As noted, the Company usually sells all fixed rate loans on
the secondary market, and the current consumer demand for fixed rate products
has reduced the Company's loan portfolio accordingly. Interest income on
mortgage-backed securities increased $22,000 or 19.0%, due primarily to a higher
average balance outstanding during the six months ended March 31, 1999 as
compared to the six months ended March 31, 1998. The Company has purchased
mortgage-backed securities with the excess funds from repayments on the loan
portfolio. Interest income on investment securities decreased $34,000 or 38.2%
due to the reduction in the average balance outstanding period to period.
Interest income on interest bearing deposits increased $64,000 to $124,000 for
the six months ended March 31, 1999 as compared to $60,000 for the six months
ended March 31, 1998. The Company has utilized interest bearing deposits for
excess funds.
Interest expense on deposits decreased $17,000 or 1.5% during the six months
ended March 31, 1999 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 has remained relatively
stable.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $45,000 or 8.0% during the six months ended
March 31, 1999 as compared to the six months ended March 31, 1998.
Provision for Losses on Loans
- -----------------------------
The Company did not record a provision for losses on loans for the six month
periods ended March 31, 1999 and 1998. 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.
<PAGE>
Other Income
- ------------
Other income increased by $51,000 during the six months ended March 31, 1999 as
compared to the six month period ended March 31, 1998. This increase was due to
the $48,000 increase in gain on sale of mortgage loans. The Company experienced
an increase in loans sold on the secondary market in the first quarter of the
fiscal year as consumer demand for fixed rate loans has increased due to the low
interest rate environment. During the second quarter of the fiscal year there
was a decrease in loans sold due as the Company experienced a reduction in
mortgage loan refinances.
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<PAGE>
General, Administrative and Other Expenses
- ------------------------------------------
General, administrative and other expenses increased by $90,000 or 15.3% during
the six months ended March 31, 1999 as compared to the same six month period in
1998. This increase was due primarily to an increase of $91,000 or 30.3% 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.
Occupancy and equipment expenses have increased $11,000 due primarily to higher
data processing fees. Other general, administrative and other expenses have
remained relatively stable to slight decreases due to timing of payments and
lower premiums.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased $31,000 during the six months
ended March 31, 1999 as compared to the same period in 1998. The decrease in the
federal income tax was due to the lower level of taxable income during the
current period. The Company's effective tax rates amounted to 32.3% and 34.1%
during the six month periods ended March 31, 1999 and 1998, respectively.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
- --------------------------------------------------------------------------------
General
- -------
Net income for the three months ended March 31, 1999 totaled $29,000, a decrease
of $42,000 from the $71,000 in net income for the three months ended March 31,
1998. The decrease was due primarily to a decrease in net interest income of
$46,000 and a decrease in other income of $37,000, partially offset by a
decrease in general, administrative and other expenses of $11,000 and a decrease
in the provision for income taxes of $30,000.
Net Interest Income
- -------------------
Interest income on loans for the three months ended March 31, 1999 was $650,000
which is a decrease of $111,000 as compared to the three month period ended
March 31, 1998. The Company has seen a decrease in average loans outstanding
period to period due to the increased demand for fixed rate mortgage loans which
the Company is normally selling on the secondary market. Interest income on
mortgage-backed securities increased $13,000 due to a higher level of average
mortgage-backed securities during the period to $5.4 million for the six months
ended March 31, 1999, from $3.5 million for the three months ended March 31,
1998. Interest income on investment securities for the three months ended March
31, 1999 was $35,000, which is a decrease of $9,000 as compared to the three
month period ended March 31, 1998. The decrease is due to lower average balances
outstanding period to period. Interest income on interest bearing deposits have
increased $48,000 to $77,000 for the three months ended March 31, 1999 as
compared to $29,000 for the three months ended March 31, 1998. The Company has
invested excess funds in interest bearing deposits.
-10-
<PAGE>
Interest expense on deposits totaled $552,000 for the three months ended March
31, 1999, a decrease of $7,000 as compared to the three months ended March 31,
1998. The decrease was due to a decrease in the average yield on deposits during
the three month period as compared to the three month period ended March 31,
1998. The decrease in yield is due to the changes in the mix of deposits, an
increase in lower rate demand deposit accounts and a reduction in higher rate
certificates of deposit. Interest expense on Federal Home Loan Bank (FHLB)
advances totaled $32,000 for the three months ended March 31, 1999, a decrease
of $6,000 over the same period for 1998. This decrease was due to a lower level
of advances period to period. The Company had used FHLB advances to fund loan
growth.
As a result of the above changes in interest income and interest expense, net
interest income decreased $46,000 or 15.6% during the three months ended March
31, 1999, as compared to the three months ended March 31, 1998.
Provision for Losses on Loans
- -----------------------------
The Company had no provision for losses on loans for the three months ended
March 31, 1999 and 1998. 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 decreased by $37,000 during the three months ended March 31, 1999,
as compared to the same period in 1998. This decrease was due to a decrease in
gains on sales of mortgage loans. The Company's secondary market activities have
decreased during the current period versus the prior period, primarily as a
result of the decrease in mortgage loan refinances in the market.
General, Administrative and Other Expenses
- ------------------------------------------
General, administrative and other expenses decreased by $11,000 or 3.5% to
$303,000 for the three month period ended March 31, 1999, as compared to
$314,000 for the three month period ended March 31, 1998. The decrease was due
primarily to an $8,000 decrease in franchise taxes due to a change in the State
of Ohio's method of assessing tax on holding companies Other general,
administrative and other expenses decreased $5,000 in comparison to the prior
period.
Federal Income Taxes
- --------------------
The provision for federal income taxes decreased by $30,000 during the three
months ended March 31, 1999, as compared to the same period in 1998, due
primarily to a decrease in income before taxes of $72,000.
<PAGE>
"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, include, 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
- 11 -
<PAGE>
from other providers of financial services, the impact of governmental
legislation and regulation (which changes from time to time and 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 has addressed 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 has developed an action plan which assesses the magnitude of the
Year 2000 problem, provides a strategy that neutralizes the impact of these
problems, develops a contingency plan to be implemented if critical systems do
not become Year 2000 compliant and develop testing procedures to ensure that the
systems are Year 2000 compliant. The status of this effort is reported to the
Board of Directors on a regular basis.
All third party providers of software have either certified their product as
compliant or have indicated that they will be compliant by the end of the second
quarter of calendar 1999. The major provider of data processing services to the
Company has completed its migration to a Year 2000 ready platform operating
system and data base. Customer transaction testing was completed during the
fourth quarter of 1998. All computer equipment has been tested for Year 2000
compliance and any necessary replacements have been made.
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.
- 12 -
<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
---------------------------------------------------
On January 28, 1999, the Company held its 1999 Annual Meeting of
Stockholders. At the annual meeting, stockholders of the Company
elected one director of the Company and ratified the appointment
of the Company's independent auditors for the year ending
September 30, 1999. The votes received on such proposals were as
follows:
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C>
1. Election of Richard C. Kent 165,378 1,394 - 128,361
2. Ratification of independent auditors 165,722 900 150 128,361
</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, 1999 By /s/ THOMAS W. BURNS
------------ -------------------
Thomas W. Burns
Executive Vice President,
Chief Executive Officer
Date May 11, 1999 By /s/ MICHAEL W. KELLEY
------------ ---------------------
Michael W. Kelley
Chief Financial Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,184
<INT-BEARING-DEPOSITS> 3,526
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,729
<INVESTMENTS-CARRYING> 649
<INVESTMENTS-MARKET> 656
<LOANS> 34,441
<ALLOWANCE> 95
<TOTAL-ASSETS> 52,021
<DEPOSITS> 44,459
<SHORT-TERM> 2,351
<LIABILITIES-OTHER> 594
<LONG-TERM> 0
3
0
<COMMON> 0
<OTHER-SE> 4,614
<TOTAL-LIABILITIES-AND-EQUITY> 52,021
<INTEREST-LOAN> 1,388
<INTEREST-INVEST> 193
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 1,705
<INTEREST-DEPOSIT> 1,121
<INTEREST-EXPENSE> 1,186
<INTEREST-INCOME-NET> 519
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 677
<INCOME-PRETAX> 136
<INCOME-PRE-EXTRAORDINARY> 136
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 2.18
<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>
