U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
( ) 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 0-24037
FIRST KANSAS FINANCIAL CORPORATION
------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Kansas 48-1198888
- --------------------------------- ----------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number
600 Main Street, Osawatomie, Kansas 66064
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 755-3033
--------------
Check whether the issuer (1) 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.
X Yes No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
As of May 9, 2003, there were 908,245 shares of the Registrant's common
stock, par value $0.10 per share, outstanding. The Registrant has no other
classes of common equity outstanding.
Transitional Small Business Disclosure Format (Check one) :
Yes X No
--- ---
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - as of March 31, 2003 (Unaudited)
and December 31, 2002 2
Consolidated Statements of Earnings - (Unaudited) for
the three months ended March 31, 2003 and 2002 3
Consolidated Statements of Cash Flows - (Unaudited) for
the three months ended March 31, 2003 and 2002 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Controls and Procedures 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Balance Sheets
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------
March 31, December 31,
2003 2002
Assets (unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 9,918 9,558
Investment securities available-for-sale 12,083 14,181
Mortgage-backed securities available-for-sale 45,334 39,357
Mortgage-backed securities held-to-maturity 18,709 21,548
(approximate fair value of $19,029 and $22,187, respectively)
Loans receivable, net 59,746 57,896
Stock in Federal Home Loan Bank (FHLB) of Topeka, at cost 2,650 2,650
Premises and equipment, net 2,042 2,104
Real estate held for development 347 347
Accrued interest receivable, prepaid expenses and other assets 2,524 2,491
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 153,353 150,132
=====================================================================================================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 84,669 81,954
Advances from borrowers for property taxes and insurance 411 189
Borrowings from FHLB of Topeka 50,000 50,000
Accrued interest payable and other liabilities 1,427 1,150
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 136,507 133,293
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.10 par value, 2,000,000 shares authorized, none issued - -
Common stock, $.10 par value, 8,000,000 shares authorized, 1,553,938
shares issued 155 155
Additional paid-in capital 14,983 14,964
Treasury stock (645,693 and 642,335 shares, respectively, at cost) (8,033) (7,983)
Retained earnings 10,097 10,067
Unearned compensation (854) (913)
Accumulated other comprehensive income 498 549
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 16,846 16,839
Commitments
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 153,353 150,132
=====================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
2
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Earnings
(Unaudited)
(In thousands except per share data)
- ---------------------------------------------------------------------------------------------------------------
For the three months
ended March 31,
---------------------
2003 2002
- ---------------------------------------------------------------------------------------------------------------
Interest income:
Loans $ 953 1,095
Investment securities 128 141
Mortgage-backed securities 636 808
Interest-bearing deposits 21 35
Dividends on FHLB stock 23 32
- ---------------------------------------------------------------------------------------------------------------
Total interest income 1,761 2,111
Interest expense:
Deposits 460 712
Borrowings 672 672
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 1,132 1,384
Net interest income 629 727
Provision for loan losses - -
- ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 629 727
- ---------------------------------------------------------------------------------------------------------------
Noninterest income:
Deposit account service fees 263 236
Gain on sale of investment securities available-for-sale 55 -
Other 52 52
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 370 288
- ---------------------------------------------------------------------------------------------------------------
Noninterest expense:
Compensation and benefits 478 442
Occupancy and equipment 129 122
Federal deposit insurance premiums and assessments 16 15
Data processing 58 67
Amortization of premium on deposits assumed - 15
Advertising 31 32
Other 184 164
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expense 896 857
- ---------------------------------------------------------------------------------------------------------------
Earnings before income tax expense 103 158
Income tax expense 28 50
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 75 108
=========== ============
Net earnings per share - basic and diluted $ 0.08 0.12
===============================================================================================================
See accompanying notes to unaudited consolidated financial statements.
3
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows
For the three months ended March 31, 2003 and 2002
(Unaudited)
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 75 108
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation 68 67
Amortization of premium on deposits assumed - 15
Amortization of loan fees and premiums 1 1
Accretion of discounts and amortization of premiums on
investment and mortgage-backed securities, net 206 121
Loss on sale of REO - 1
Gain on sale of investment securities available-for-sale (55) -
Change in accrued interest receivable, prepaids and other assets (33) 2
Change in accrued interest payable and other liabilities 366 522
Amortization of RSP shares and allocation of ESOP shares 59 59
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 687 896
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in loans, net 1,252 2,497
Loans purchased (3,103) (2,885)
Maturities of investment securities available-for-sale 1,339 665
Paydowns and maturities of mortgage-backed securities available-for-sale 8,092 4,823
Paydowns and maturities of mortgage-backed securities held-to-maturity 2,781 1,641
Proceeds from sale of investment securities available-for-sale 1,055 -
Purchases of mortgage-backed securities available-for-sale (14,284) (4,385)
Purchases of investment securities available-for-sale (295) (1,940)
Investments in cash surrender value of bank owned life insurance - (750)
Proceeds from sale of REO - 14
Purchases of premises and equipment, net (6) (6)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities $ (3,169) (326)
- -------------------------------------------------------------------------------------------------------------------
(Continued)
4
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows, Continued
(Unaudited)
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits $ 2,715 2,450
Net increase in advances from borrowers for taxes and insurance 222 233
Purchases of common stock for treasury (50) (1,601)
Dividends paid (45) (46)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,842 1,036
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 360 1,606
Cash and cash equivalents at beginning of period 9,558 10,694
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 9,918 12,300
===================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
5
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
Notes to Unaudited Consolidated Financial Statements
March 31, 2003 and 2002
(1) Basis of presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-QSB. The consolidated
financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-KSB
for fiscal year ended December 31, 2002.
The consolidated financial statements include the accounts of First Kansas
Financial Corporation and its wholly-owned subsidiary, First Kansas Federal
Savings Bank (the "Bank" and, collectively, the "Company"). Intercompany
balances and transactions have been eliminated. The December 31, 2002
consolidated balance sheet has been derived from the audited consolidated
financial statements as of that date. In the opinion of management, all
adjustments, including normal recurring accruals, considered necessary for
a fair presentation of financial statements have been reflected herein. The
results of the interim period ended March 31, 2003 are not necessarily
indicative of the results expected for the year ending December 31, 2003 or
for any other period.
(2) Earnings Per Common Share
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding during the period. Common shares issued to the
employee stock ownership plan are not included in the computation until
they are allocated to plan participants. Diluted earnings per share
includes the effect of potential dilutive common shares outstanding during
the period.
The following schedule summarizes the number of average shares and
equivalents used in the computation of earnings per share:
For the three months
Ended March 31,
----------------------
2003 2002
----------------------
Basic shares outstanding 843,729 880,726
Dilutive effect of stock options 41,238 30,516
----------------------
Diluted shares outstanding 884,967 911,242
======================
(3) Stock Buy Back
The Company purchased 3,358 shares of common stock in the first quarter of
2003. Cost of the shares purchased in the quarter equaled $50,471. Such
shares have been recorded as treasury stock in the accompanying
consolidated balance sheet at March 31, 2003.
6
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
Notes to Unaudited Consolidated Financial Statements
March 31, 2003 and 2002
(4) Total Comprehensive Income
Total comprehensive income is as follows:
Three months
ended March 31
------------------
2003 2002
------------------
(in thousands)
Net earnings $75 $108
Reclassification adjustment
for gain included in net
earnings, net of income tax (36) -
Other comprehensive income-
change in unrealized gain
or loss on available-for-sale
securities, net of income tax (15) 114
------------------
Total comprehensive income (loss) $24 $ (6)
==================
7
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. First Kansas Financial Corporation (the "Company") was formed on
February 9, 1998, to become the holding company for First Kansas Federal Savings
Association (the "Bank") in the conversion of the Bank from a federal mutual
savings association to a federal stock savings bank (the "Conversion"). The
Conversion to a federal stock savings bank was completed on June 25, 1998, and
the Bank now operates as the First Kansas Federal Savings Bank, which accounts
for virtually all of the Company's business.
The Company's results of operations depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense from interest-bearing liabilities. The Company's operations are
also affected by noninterest income, such as service charges, loan fees and
gains and losses from the sale of loans. The Company's principal operating
expenses, aside from interest expense, consist of compensation and employee
benefits, occupancy costs, provisions for loan losses and general and
administration expenses.
Net Earnings. Net earnings for the first three months of 2003 decreased $33,000,
or 30.6%, as compared to the same period in 2002. Net interest income decreased
$98,000, or 13.5%, for the first three months of 2003 compared to the same
period in 2002 primarily due to accelerated repayments of loans and securities
in a declining rate environment partially offset by declining interest rates
paid on the deposit portfolio. Noninterest income increased due to the gain on
the sale of an investment security while compensation expense was the key
component for the increase in noninterest expense.
Interest Income. Interest income decreased $350,000 or 16.6%, to $1.8 million
for the first quarter of 2003. This decrease resulted from the general decline
in interest rates in all portfolios.
Interest Expense. Interest expense decreased $252,000, or 18.2%, to $1.1 million
during the first quarter of 2003. Interest expense on deposits decreased due to
a decline in market interest rates as well as a $2.1 million decrease in
deposits. Interest expense on FHLB advances remained unchanged for the two
periods involved.
Provision for Loan Losses. The allowance for loan losses at March 31, 2003 was
$260,000 or .44% of total loans receivable, slightly less than the reserve
percentage of .45% at December 31, 2002.
Noninterest income. Noninterest income increased $82,000, or 28.5%, to $370,000
for the first three months of 2003 compared to the same period in 2002. This
increase resulted from gain on the sale of an investment security as well as an
increase in deposit account service fees.
Noninterest expense. Noninterest expense increased $39,000, or 4.6%, to $896,000
for the first quarter of 2003 compared to first quarter of 2002. The increase
was primarily due to the increase in compensation expense resulting from an
increase in employee benefit expense.
Income Tax Expense. Income tax expense decreased for first quarter 2003 compared
to first quarter 2002 with effective tax rates of 27.2% and 31.6% respectively.
The decrease in the effective tax rate is due to the increase in income from our
bank-owned life insurance investment.
Asset Distribution. The Company's assets grew from $150.1 million at December
31, 2002 to $153.4 million at March 31, 2003. The Company's primary ongoing
8
sources of funds are deposits, FHLB advances and proceeds from principal and
interest payments on loans and mortgage-backed securities. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
During the first three months of 2003, gross loan purchases and mortgage
originations totaled $5.3 million compared to $4.5 million for the same period
of 2002. The Company purchased $3.1 million of loans in the first quarter of
2003 compared to $2.9 million in 2002. In the first three months of 2003, the
Company purchased $14.6 million in mortgage-backed and investment securities
compared to $6.3 million for the same period in 2002. Gross consumer and
commercial loans originated were $559,000 for the first quarter of 2003 compared
to $512,000 for the first three months of 2002.
Liability distribution Deposits increased $2.7 million from December 31, 2002 to
March 31, 2003 primarily due to increases in noninterest bearing checking
accounts, transaction accounts and statement savings. FHLB advances remained
unchanged from December 31, 2002.
Capital. At March 31, 2003 the Bank had a Tier 1 capital ratio of 9.95% and a
risk based capital ratio of 28.24%. As shown by the following table, the Bank's
capital exceeded the minimum capital requirement: (Dollars in thousands)
March 31, 2003 December 31, 2002
--------------------------- ------------------
Amount Percent Required Amount Percent
------- ------- -------- -------- -------
Tier I Capital $15,160 9.95% 4.00% $15,090 10.13%
Risk Based Capital 15,403 28.24% 8.00% 15,333 29.03%
Savings associations and their holding companies are generally expected to
operate at or above the minimum capital requirements and the above ratios are
well in excess of regulatory minimums.
Cautionary Statement. This Quarterly Report on Form 10-QSB contains or may
contain forward-looking statements with respect to the financial condition,
results of operations, plans, objectives, future performance and business of the
Company, including statements preceded by, followed by or that include the
words, "believes", "expects", "anticipates" or similar expressions. These
forward-looking statements involve certain risks and uncertainties and may
relate to future operating results of the company. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities: (1) a significant
increase in competitive pressures among depository and other financial
institutions; (2) changes in the interest rate environment resulting in reduced
margins; (3) general economic or business conditions, either nationally or in
the states in which the Company will be doing business, being less favorable
than expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit; (4) legislative or regulatory changes
adversely affecting the businesses in which the Company is engaged; (5) changes
in the securities markets; and (6) changes in the banking industry including the
effects of consolidation resulting from possible mergers of financial
institutions.
Item 3. Controls and Procedures
-----------------------
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-QSB, the Registrant's principal
executive officer and principal financial officer have concluded
9
that the Registrant's disclosure controls and procedures (as
defined in Rules 13a-14 (c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to
ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.
(b) Changes in internal controls. There were no significant changes
in the Registrant's internal controls or other factors that could
significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and its subsidiaries may be a party to
various legal proceedings incident to its or their business. At March
31, 2003, there were no legal proceedings to which the Company or any
subsidiary was a party, or to which any of their property was subject,
which were expected by management to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not Applicable
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) Exhibits.
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) There were no current reports on Form 8-K filed during the
quarter ended March 31, 2003.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST KANSAS FINANCIAL CORPORATION
Date: May 13, 2003 By: /s/ Larry V. Bailey
-----------------------------------
Larry V. Bailey, President
Date: May 13, 2003 By: /s/ James J. Casaert
-----------------------------------
James J. Casaert
Vice President and Treasurer
(Principal Accounting Officer)
11
CERTIFICATION
Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
I, Larry V. Bailey, President and Chief Executive Officer of First Kansas
Financial Corporation (the "Company"), hereby certify that:
1. I have reviewed the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 of the Company;
2. Based on my knowledge, the report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in the report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within the
Company, particularly during the period in which the report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
report (the "Evaluation Date"); and
(c) presented in the report my conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in the report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Lary V. Bailey
--------------------------------------
Larry V. Bailey
President and Chief Executive Officer
CERTIFICATION
Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
I, James J. Casaert, Vice President and Treasurer of First Kansas Financial
Corporation (the "Company"), hereby certify that:
1. I have reviewed the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 of the Company;
2. Based on my knowledge, the report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in the report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to me by others within the
Company, particularly during the period in which the report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
report (the "Evaluation Date"); and
(c) presented in the report my conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in the report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ James J. Casaert
-------------------------------
James J. Casaert
Vice President and Treasurer