<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25180
CKF BANCORP, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 61-1267810
- ----------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
340 WEST MAIN STREET, DANVILLE, KENTUCKY 40422
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 236-4181
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No ________
-------
As of November 9, 1998, 915,955 shares of the registrant's common stock were
issued and outstanding.
Page 1 of 16 Pages Exhibit Index at Page N/A
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<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997....................................................... 3
Consolidated Statements of Income for the Three-Month Periods Ended
September 30, 1998 and 1997 (unaudited) and the Nine-Month Periods
Ended September 30, 1998 and 1997 (unaudited)........................... 4
Consolidated Statement of Changes in Stockholders' Equity.................... 5
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended
September 30, 1998 and 1997 (unaudited)................................. 6
Notes to Consolidated Financial Statements................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 16
Item 2. Changes in Securities........................................................ 16
Item 3. Defaults Upon Senior Securities.............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders.......................... 16
Item 5. Other Information............................................................ 16
Item 6. Exhibits and Reports on Form 8-K............................................. 16
SIGNATURES
</TABLE>
<PAGE>
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
______________________
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Cash and due from banks $ 390,452 $ 134,032
Interest bearing deposits 2,467,688 3,139,525
Investment securities:
Securities available-for-sale 492,500 551,892
Securities held-to-maturity 2,055,207 2,152,020
Loans receivable, net 56,388,135 55,894,811
Accrued interest receivable 469,342 430,290
Office property and equipment, net 557,045 548,923
Other assets 32,706 13,854
------------- ------------
Total assets $ 62,853,075 $ 62,865,347
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 47,471,559 $ 43,253,068
Deferred income taxes 344,756 313,814
Advance from Federal Home Loan Bank 1,162,016 5,213,782
Advance payment by borrowers for taxes and insurance 128,912 30,188
Other liabilities 270,076 291,791
------------- ------------
Total liabilities 49,377,319 49,102,643
------------- ------------
Stockholders' equity:
Common stock, $0.01 par value, 4,000,000 shares authorized;
1,000,000 shares issued 10,000 10,000
Additional paid-in capital 9,605,822 9,638,682
Retained earnings, substantially restricted 7,191,521 7,004,138
Treasury stock, 84,045 and 50,000 shares, respectively, at cost (1,651,464) (986,388)
Stock Option Trust, 72,600 and 83,000 shares, respectively, at cost (1,414,433) (1,619,433)
Accumulated other comprehensive income 316,518 355,717
Unallocated employee stock ownership plan (ESOP) shares (582,208) (640,012)
------------- ------------
Total stockholders' equity 13,475,756 13,762,704
------------- ------------
Total liabilities and stockholders' equity $ 62,853,075 $ 62,865,347
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
_____________
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIODS FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans...................... $ 1,085,466 $ 1,101,459 $ 3,292,118 $ 3,256,388
Interest and dividends on investments.. 26,974 38,062 93,157 119,932
Other interest income.................. 34,862 19,511 85,701 50,522
------------ ------------ ------------ ------------
Total interest income............... 1,147,302 1,159,032 3,470,976 3,426,842
------------ ------------ ------------ ------------
Interest expense:.......................
Interest on deposits................... 610,215 546,804 1,774,058 1,626,471
Other interest expense................. 24,608 45,825 109,168 109,983
------------ ------------ ------------ ------------
Total interest expense.............. 634,823 592,629 1,883,226 1,736,454
------------ ------------ ------------ ------------
Net interest income..................... 512,479 566,403 1,587,750 1,690,388
Provision for loan losses............... 6,000 6,000 18,000 12,000
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses........... 506,479 560,403 1,569,750 1,678,388
------------ ------------ ------------ ------------
Non-interest income:
Loan and other service fees............ 20,672 16,255 59,056 44,197
Gain on sale of investment............. 137,067 137,067 420,575
Other, net............................. 973 810 2,733 2,137
------------ ------------ ------------ ------------
Total non-interest income........... 158,712 17,065 198,856 466,909
------------ ------------ ------------ ------------
Non-interest expense:
Compensation and benefits.............. 137,879 144,591 411,095 426,028
Federal insurance premium.............. 7,049 4,669 20,593 22,369
State franchise tax.................... 13,231 12,274 39,692 36,821
Occupancy expenses, net................ 19,551 10,653 39,193 33,598
Data processing expenses............... 14,304 12,401 43,161 36,400
Legal and professional fees............ 103,326 1,108 128,719 14,327
Loss on real estate owned.............. 5,004 41,813
Other operating expenses............... 49,765 51,266 173,847 166,340
------------ ------------ ------------ ------------
Total non-interest expense.......... 345,105 236,962 861,304 777,696
------------ ------------ ------------ ------------
Income before income tax expense........ 320,086 340,506 907,302 1,367,601
Provision for income taxes.............. 107,935 115,772 308,175 464,984
------------ ------------ ------------ ------------
Net income.............................. $ 212,151 $ 224,734 $ 599,127 $ 902,617
============ ============ ============ ============
Earnings per common share............... $ .27 $ .26 $ .76 $ 1.05
============ ============ ============ ============
Earnings per common share
assuming dilution...................... $ .26 $ .26 $ .74 $ 1.02
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(UNAUDITED)
_____________
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 10,000 $ 9,638,682 $7,004,138 $ 355,717 $ (986,388)
Comprehensive income:
Net income 599,127
Other comprehensive loss, net of tax
increase in unrealized gains on securities,
net of reclassification adjustment
(see disclosure) (39,199)
Total comprehensive income
Dividend declared (411,744)
ESOP shares earned 35,640
Purchase of common stock, 34,045 shares (665,076)
Shares issued upon exercise of options (68,500)
---------- ----------- ---------- ------------ -----------
Balance, September 30, 1998 $ 10,000 $ 9,605,822 $7,191,521 $ 316,518 $(1,651,464)
========== =========== ========== ============ ===========
Disclosure of reclassification amount:
Unrealized holding gains arising during
the period $ 60,065
Less: Reclassification adjustment for gains
included in net income, net of tax $ (99,264)
------------
Net change in unrealized gains on securities $ (39,199)
===========
<CAPTION>
Stock Unearned Total
Option ESOP Stockholders'
Trust Shares Equity
--------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1997 $(1,619,433) $ (640,012) $ 13,762,704
------------
Comprehensive income:
Net income 599,127
Other comprehensive loss, net of tax
increase in unrealized gains on securities,
net of reclassification adjustment
(see disclosure) (39,199)
------------
Total comprehensive income 559,928
Dividend declared (411,744)
ESOP shares earned 57,804 93,444
Purchase of common stock, 34,045 shares (665,076)
Shares issued upon exercise of options 205,000 136,500
------------ ---------- ------------
Balance, September 30, 1998 $(1,414,433) $ (582,208) $ 13,475,756
============ ========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
_____________
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 599,127 $ 902,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 18,000 12,000
Loss on real estate owned 5,004
Amortization of loan fees (10,153) (7,586)
ESOP benefit expense 74,231 76,298
Realized gain on sale of investment (137,067) (420,575)
Provision for depreciation 20,610 19,537
FHLB stock dividend (28,400) (26,000)
Amortization of investment premium 2,668 2,249
Change in:
Interest receivable (39,052) (81,208)
Other liabilities and federal income taxes payable (5,577) (63,244)
Prepaid expense (18,853) (22,998)
Interest payable (6,765) 13,609
---------- ----------
Net cash provided by operating activities 473,773 404,699
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations and principal payment on loans, net (501,171) (1,744,067)
Purchase of office equipment (28,733) (37,744)
Proceeds from sale of real estate owned 33,627
Purchase of held-to-maturity securities (500,000)
Matured held-to-maturity securities 500,000 500,000
Proceeds from sale of securities available-for-sale 140,203 433,500
Principle repayment on mortgage-backed securities 122,545 62,818
---------- ----------
Net cash (used) by investing activities (233,529) (785,493)
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CKF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
_____________
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts 1,142,095 (91,849)
Net increase (decrease) in certificates of deposit 3,076,395 (59,100)
Net increase (decrease) in custodial accounts 98,724 104,340
Proceeds from FHLB advances 2,000,000
Payments on FHLB advances (4,051,766) (1,028,550)
Dividends paid (411,744) (1,260,675)
Purchase of common stock (665,076) (528,335)
Additional principal payment on ESOP loan 19,211
Proceeds from exercise of stock options 136,500 42,000
------------ ------------
Net cash (used) by financing activities (655,661) (822,169)
------------ ------------
Increase (decrease) in cash and cash equivalents (415,417) (1,202,963)
Cash and cash equivalents, beginning of period 3,273,557 2,219,592
------------ ------------
Cash and cash equivalents, end of period $ 2,858,140 $ 1,016,629
============ ============
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 327,219 $ 569,708
============ ============
Cash paid for interest $ 1,889,991 $ 1,726,976
============ ============
Mortgage loans originated to finance sale of foreclosed real estate $ 15,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CKF Bancorp, Inc. (the "Company") was formed in August 1994 at the
direction of Central Kentucky Federal Savings Bank (the "Bank") to become
the holding company of the Bank upon the conversion of the Bank from mutual
to stock form (the "Conversion"). Since the Conversion, the Company's
primary assets have been the outstanding capital stock of the Bank, cash on
deposit with the Bank, and a note receivable from the Company's Employee
Stock Ownership Plan ("ESOP"), and its sole business is that of the Bank.
Accordingly, the consolidated financial statements and discussions herein
include both the Company and the Bank. On December 29, 1994, the Bank
converted from mutual to stock form as a wholly owned subsidiary of the
Company. In conjunction with the Conversion, the Company issued 1,000,000
shares of its common stock to the public.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for fair
presentation have been included. The results of operations and other data
for the nine month period ended September 30, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending December 31, 1998.
2. EARNINGS PER SHARE
Earnings per common share for the three month periods ended September 30,
1998 and 1997 amounted to $0.27 and $0.26 per share, respectively, based on
weighted average common stock shares outstanding of 784,380 and 877,096
shares respectively. Earnings per common share, assuming dilution for
common stock equivalents for the three month periods ended September 30,
1998 and 1997 amounted to $0.26 per common share, based on weighted average
common shares outstanding after dilutive effect of 803,133 and 848,652,
respectively. Earnings per common share for the nine month periods ended
September 30, 1998 and 1997 amounted to $0.76 and $1.05 per share,
respectively, based on weighted average common stock shares outstanding of
785,710 and 881,903, respectively. Earnings per common share, assuming
dilution for common stock equivalents for the nine month periods ended
September 30, 1998 and 1997 amounted to $0.74 and $1.02, based on weighted
average common shares outstanding after dilutive effect of 807,750 and
854,958.
8
<PAGE>
3. REGULATORY CAPITAL
At September 30, 1998, the Bank's regulatory capital levels exceeded each
of the three regulatory capital requirements. The following table
reconciles the Bank's stockholder equity at September 30, 1998 to its
regulatory capital requirements.
<TABLE>
<CAPTION>
REGULATORY CAPITAL
-------------------------
CORE RISK-BASED
CAPITAL CAPITAL
--------- ----------
(In thousands)
<S> <C> <C>
Stockholder equity $ 11,211 $ 11,211
Net unrealized appreciation on investment
securities available-for-sale 317 317
General allowance for loan losses - 142
--------- ----------
Regulatory capital 10,894 11,036
Minimum capital requirement 2,495 2,915
--------- ----------
Excess regulatory capital $ 8,399 $ 8,121
========= ==========
Minimum capital requirement as a percentage of assets 4.0% 8.0%
Regulatory capital in excess of minimum capital
requirements as a percentage of assets 13.4% 22.3%/1/
</TABLE>
___________________________________
/1/ Based on risk weighted assets.
4. DIVIDENDS
For the nine months ended September 30, 1998, the Company paid the regular
semi-annual dividends to stockholders of record on January 28, 1998 and
July 28, totaling $.25 and $.27 per share, respectively. The total
dividends paid by the Company for the nine month period ended September 30,
1998 amounted to $411,744.
5. COMMON STOCK
During the nine months ended September 30, 1998, options to acquire 10,400
shares at $13.125 per share were exercised with the Company receiving total
proceeds of $136,500. In addition, the Company purchased 34,045 shares of
treasury stock at a cost of $665,076 during the nine months ended September
30, 1998.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets decreased approximately $12,000 from $62.9 million at December 31,
1997 to $62.8 million at September 30, 1998. The net decrease in assets includes
a $493,000, or .9%, increase in net loans receivable, and a $66,000, or 6.6%,
increase in other assets offset by a $156,000, or 5.8%, decrease in investment
securities and a $415,000, or 12.7% decrease in cash and interest bearing
deposits.
The Company's aggregate investment securities portfolio decreased $156,000, or
5.8% to $2.5 million at September 30, 1998. Securities classified as available-
for-sale and recorded at market value per SFAS No. 115 decreased $59,000, which
consisted of a $150,000 decrease due to the sale of 3,200 shares of Federal Home
Loan Mortgage Corporation stock offset by an increase of $91,000 in the market
value of the remaining securities. Securities held-to-maturity decreased $97,000
due primarily to principle repayments.
Under SFAS No. 115, unrealized gains or losses on securities available-for-sale
are recorded net of deferred income tax as a separate component of stockholders'
equity. At September 30, 1998, the Company included net unrealized gains of
approximately $316,000 in stockholders' equity. At December 31, 1997, the
Company included net unrealized gains of approximately $356,000 in stockholders'
equity. Per SFAS No. 115, such gains or losses will not be reflected as a charge
or credit to earnings until the underlying securities are sold, and then only to
the extent of the amount of gain or loss, if any, actually realized at the time
of sale.
Loans receivable increased by $493,000, or .9%, from $55.9 million at December
31, 1997 to $56.4 million at September 30, 1998 as management continued its
efforts to be competitive in meeting the loan demand in the Bank's market area.
Deposits increased by $4.2 million, or 9.8%, to $47.5 million at September 30,
1998. This increase reflects the Company's competitively priced product line
within the local market area.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
Net income for the three months ended September 30, 1998 was $212,000 compared
to $225,000 for the corresponding period in 1997, a decrease of $13,000, or
5.6%. The decrease resulted from a decrease in net interest income of $54,000,
and an increase in non-interest expenses of $108,000 offset by an increase of
$141,000 in non-interest income and a decrease of $8,000 in income tax expense.
INTEREST INCOME
Interest income totaled 7.5% of average assets for the quarter ended September
30, 1998 compared to 7.9% for the quarter ended September 30, 1997. Interest
income was $1.2 million for both quarters ended September 30, 1998 and 1997.
Interest income remained comparable as the effect of the increase of $3.1
million in the average earning assets was offset by the impact of the decrease
of 47 basis points in the effective rate earned on interest bearing assets.
10
<PAGE>
INTEREST EXPENSE
Interest expense totaled $635,000 and $593,000 for the nine months ended
September 30, 1998 and 1997, respectively. The increase in interest expense of
$42,000 or 7.1%, for the three months ended September 30, 1998 as compared to
the same period for 1997 was due to an increase in average interest rates paid
on deposits from 5.1% to 5.2%, plus an increase of $2.6 million in interest
bearing liabilities for the quarter ended September 30, 1998 compared to the
same period in 1997.
PROVISION FOR LOAN LOSSES
The Bank established a provision for loan losses of $6,000 for the three month
periods ended September 30, 1998 and 1997. Management established the Bank's
existing level of its allowance for loan losses based upon its analysis of
various factors, including the market value of the underlying collateral,
composition of the loan portfolio, the Bank's historical loss experience,
delinquency trends, and prevailing and projected economic conditions in the
Bank's market area.
NON-INTEREST INCOME
Non-interest income amounted to $158,000 and $17,000 for the three months ended
September 30, 1998 and 1997, respectively. The increase was due primarily to a
$137,000 gain resulting from the sale of investments classified as available-
for-sale in the 1998 period.
NON-INTEREST EXPENSE
Non-interest expense totaled $345,000 and $237,000 for the three months ended
September 30, 1998 and 1997, respectively, an increase of $108,000, or 45.6%,
and such expense amounted to 2.0% and 1.7% of average assets for the three
months ended September 30, 1998 and 1997, respectively. The increase was
primarily due to an increase of $102,000 in legal and professional fees, plus
immaterial increases totaling $6,000 in various other non-interest expense
categories. The increase of $102,000 in legal and professional fees were
attributed to professional services provided in connection with the Bank's
exploration of strategic capital employment.
INCOME TAXES
The provision for income taxes for the three months ended September 30, 1998 and
1997 was $108,000 and $116,000, respectively, which, as a percentage of income
before income taxes was 34% for both periods.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
Net income for the nine months ended September 30, 1998 was $599,000, as
compared to $903,000 for the corresponding period in 1997, a decrease of
$304,000, or 33.6%. The decrease of $304,000 resulted primarily from a decrease
of $103,000 in net interest income, a decrease of $268,000 in non-interest
income, an increase of $84,000 in non-interest expense, and an increase of
$6,000 in the provision for loan losses offset by a decrease of $157,000 in
income tax expense.
11
<PAGE>
INTEREST INCOME
Interest income totaled $3.4 million for the nine months ended September 30,
1998 and 1997. Total interest income increased $44,000, or 1.3%, for the nine
months ended September 30, 1998 as compared to the same period for 1997. The
increase was due primarily to an increase of $2.3 million in the average balance
of interest earning assets offset by the impact of the decrease of 20 basis
points in the effective rate earned on interest bearing assets in the 1998
period compared to 1997.
INTEREST EXPENSE
Interest expense totaled $1.9 million and $1.7 million for the nine months ended
September 30, 1998 and 1997, respectively. The increase in interest expense of
$147,000, or 8.4%, for the nine months ended September 30, 1998 as compared to
the same period in 1997 was due to an increase of 13 basis points in the average
interest rate paid on interest bearing liabilities, plus an increase of $2.6
million in the balance of average deposits during the nine months ended
September 30, 1998 compared to the same period in 1997.
PROVISION FOR LOAN LOSSES
The Bank established a provision for loan losses of $18,000 and $12,000 for the
nine month period ended September 30, 1998 and 1997, respectively. Management
considers many factors in determining the necessary level of the allowance for
loan losses, including an analysis of specific loans in the portfolio, estimated
value of the underlying collateral, assessment of general trends in the real
estate market, delinquency trends, prospective economic and regulatory
conditions, inherent loss in the loan portfolio, and the relationship of the
allowance for loan losses to outstanding loans.
NON-INTEREST INCOME
Non-interest income amounted to $199,000 and $467,000 for the nine months ended
September 30, 1998 and 1997, respectively. The decrease of $268,000 was due
primarily to a $420,000 gain resulting from the sale of investments classified
as available-for-sale in the 1997 period as compared to a $137,000 gain in the
1998 period.
NON-INTEREST EXPENSE
Non-interest expense totaled $861,000 and $777,000 for the nine months ended
September 30, 1998 and 1997, respectively, an increase of $84,000, or 10.8%, and
such expense amounted to 1.8% and 1.7% of average assets for the nine months
ended September 30, 1998 and 1997, respectively. The increase of $84,000 was due
to an increase of $114,000 in legal and professional fees offset by a decrease
of $37,000 in the loss on real estate plus other net immaterial increases
totaling $7,000 in other non-interest expense categories. The increase of
$114,000 in legal professional fees was attributed to services provided in
connection with the Bank's exploration of strategic capital employment.
12
<PAGE>
INCOME TAXES
The provision for income taxes for the nine months ended September 30, 1998 and
1997 was $308,000 and $465,000, respectively, and, as a percentage of income
before income taxes was 34% for both periods.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(amounts in thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:/1/
Real Estate:
Residential $ 100 $ 54
Commercial
Consumer 13 12
------------- ------------
Total $ 113 $ 66
============= ============
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential 390 227
Commercial
Consumer 24
------------- ------------
Total 414 227
============= ============
Total of loans accounted for as non-accrual or as accruing past
due 90 days or more $ 527 $ 293
============= ============
Percentage of total loans .93% .52%
============= ============
Other non-performing assets/2/ $ - $ -
============= ============
Restructured loans $ - $ -
============= ============
</TABLE>
/1/ Non-accrual status denotes any mortgage loan past due 90 days and whose loan
balance, plus accrued interest exceeds 90% of the estimated loan collateral
value, and any consumer or commercial loan more than 90 days past due. Payments
received on a non-accrual loan are either applied to the outstanding principal
balance or recorded as interest income, or both, depending on assessment of the
collectibility of the loan.
/2/ Other non-performing assets represent property acquired by the Bank through
foreclosure or repossession. Such property is carried at the lower of its fair
market value or the principal balance of the related loan.
During the nine months ended September 30, 1998, additional interest income of
$4,420 would have been recorded on loans accounted for on a non-accrual basis if
the loans had been current throughout the year. Interest on such loans actually
included in income during the nine months ended September 30, 1998 totaled
$2,614.
At September 30, 1998, there were no loans identified by management, which were
not reflected in the preceding table, but as to which known information about
possible credit problems of borrowers caused management to have serious doubts
as to the ability of the borrowers to comply with present loan repayment terms.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds for operations are deposits from its
primary market area, principal and interest payments on loans, and proceeds from
maturing investment securities. The principal uses of funds by the Bank include
the origination of mortgage and consumer loans and the purchase of investment
securities.
The Bank is required by current OTS regulations to maintain specified liquid
assets of at least 4% of its net withdrawable accounts plus short-term
borrowings. Short-term liquid assets (those maturing in one year or less) may
not be less than 1% of the Bank's liquidity base. During the first nine months
of fiscal year 1998, the Bank satisfied all regulatory liquidity requirements,
and management believes that the liquidity levels maintained are adequate to
meet potential deposit outflows, loan demand, and normal operations.
The Bank must satisfy two capital standards, as set by the OTS. These standards
include a ratio of core capital to adjusted total assets of 4.0%, and a
combination of core and "supplementary" capital equal to 8.0% of risk-weighted
assets. The Bank has exceeded all regulatory capital requirements as of
September 30, 1998.
At September 30, 1998, the Bank had outstanding commitments to originate loans
totaling $1.2 million, excluding $802,000 in approved but unused home equity
lines of credit. Management believes that the Bank's sources of funds are
sufficient to fund all of its outstanding commitments. Certificates of deposits
which are scheduled to mature in one year or less from September 30, 1998
totaled $21.5 million. Management believes that a significant percentage of such
deposits will remain with the Bank.
YEAR 2000
In accordance with regulatory guidance, Central Kentucky Federal Savings Bank
has been reviewing the possible effects of the arrival of the Year 2000 and the
potential risks it presents. An action plan was developed and approved by the
Board of Directors, with quarterly updates being provided to allow the Board to
assess progress. All electronic data exchange systems, including both in-house
applications and service bureau providers, have been inventoried and assessed
for Year 2000 compliance. Systems classified as mission critical have either
been verified as Y2K compliant, replaced with compliant updates or scheduled for
replacement and testing.
The Bank is heavily dependent upon one major data processing service provider.
This service provider's current plan calls for them to be certified Y2K ready by
the end of 1998. The bureau has completed migration of all core systems to a new
Y2K ready mainframe computer. Proxy testing was completed in October 1998 and
end-to-end testing is scheduled to be completed in November 1998 for those
subscribers that are at that point in their plan. The Bank, however, will be
replacing its on-line system with a Y2K compliant network in March 1999, at
which time this equipment will then be tested and certified.
To date, the Bank has spent approximately $8,000 for Y2K compliance efforts. An
additional $56,000 is budgeted through 1999. These future costs are expected to
be spent as follows: $24,000 for hardware changes, $27,000 for software upgrades
and an additional $5,000 for labor.
The most critical element of the Bank's Year 2000 preparation is the performance
of its major data processing service provider. Should this provider not meet
deadlines or fail to successfully modify its systems, the Bank would face the
prospect of having to revert to manual posting and processing of customer
accounts. Based upon the number of accounts and activity volume, it is possible
to continue operations for a reasonable period of time.
14
<PAGE>
On August 1, 1998, the Bank issued a Year 2000 contingency plan. Each core
business process was evaluated and prioritized for Year 2000 impact. Those
systems identified as mission critical have a business recovery/contingency
plan. Some of the key contingency items are: maintaining machine-readable copies
of master files, printed and microfiche copies of record/trial balances, off-
site storage of back-up records and computer hardware redundancy. If mainframe
processing is unavailable to the Bank, a plan for manual posting and processing
is in place. With electronic records as of December 29, 1999, downloaded via
diskettes to a stand alone PC at the Bank, processing will continue through a
spreadsheet (Excel) application. It is expected that this manual process will be
adequate to maintain operations during a worst case scenario.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None
Item 3. DEFAULTS UPON SENIOR SECURITIES None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
Item 5. OTHER INFORMATION None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CKF BANCORP, INC.
Date: November 9, 1998 /s/ John H. Stigall
________________________________________________
John H. Stigall, President and Chief Executive
Officer (Duly Authorized Officer)
Date: November 9, 1998 /s/ Ann L. Hooks
________________________________________________
Ann L. Hooks, Vice President and Treasurer
(Principal Financial and Accounting Officer)
17
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<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 390
<INT-BEARING-DEPOSITS> 2,468
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<ALLOWANCE> 142
<TOTAL-ASSETS> 62,853
<DEPOSITS> 47,472
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 744
<LONG-TERM> 162
0
0
<COMMON> 10
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<NET-INCOME> 599
<EPS-PRIMARY> .76
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<LOANS-NON> 113
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<LOANS-TROUBLED> 0
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