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, 1999
( ) 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
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(Exact name of Registrant as specified in its Charter)
Kansas 48-1198888
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(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization)
600 Main Street, Osawatomie, Kansas 66064
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 755-3033
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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
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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 13, 1999, there were 1,553,938 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
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FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - as of March 31, 1999 (Unaudited)
and December 31, 1998 1
Consolidated Statements of Earnings - (Unaudited) for
The three months months ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows - (Unaudited) for
The three months ended March 31, 1999 and 1998 3
Notes to (unaudited) Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Balance Sheets
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March 31 December 31,
1999 1998
Assets (unaudited)
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Cash and cash equivalents $ 6,716 8,143
Investment securities held-to-maturity 6,215 4,712
Mortgage-backed securities available-for-sale 25,333 27,282
Mortgage-backed securities held-to-maturity 43,784 22,521
Loans receivable, net 40,997 41,069
Stock in Federal Home Loan Bank (FHLB) of Topeka, at cost 1,048 509
Premises and equipment, net 1,901 1,775
Real estate held for development 357 361
Accrued interest receivable, prepaid expenses and other assets 1,005 844
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Total assets $ 127,356 107,216
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Liabilities and Stockholders' Equity
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Liabilities:
Deposits $ 84,838 84,436
Advances from borrowers for property taxes and insurance 285 134
Borrowings from FHLB of Topeka 20,000 650
Accrued interest payable and other liabilities 1,305 556
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Total liabilities 106,428 85,776
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Stockholders' equity:
Common stock, $.10 par value, 8,000,000 shares authorized, 1,553,938
shares issued and outstanding at March 31, 1999 155 155
Additional paid-in capital 14,834 14,834
Retained earnings 7,849 7,655
Unrealized loss on available-for-sale securities, net of tax (110) (23)
Unearned compensation (1,800) (1,181)
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Total Stockholders' equity 20,928 21,440
Commitments
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Total liabilities and Stockholders' equity $ 127,356 107,216
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See accompanying notes to consolidated financial statements.
1
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Earnings
(Unaudited)
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For the three months
ended March 31,
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1999 1998
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Interest income:
Loans $ 801 933
Investment securities 92 58
Mortgage-backed securities 984 598
Interest-bearing deposits 60 60
Dividends on FHLB stock 15 12
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Total interest income 1,952 1,661
Interest expense:
Deposits 904 965
Borrowings 189 24
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Total interest expense 1,093 989
Net interest income 859 672
Provision for loan losses 9 7
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Net interest income after provision for loan losses 850 665
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Noninterest income:
Deposit account service fees 173 165
Gain on sales of loans 2 3
Gain on sales of available-for-sale mortgage-backed securities - 3
Other 21 18
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Total noninterest income 196 189
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Noninterest expense:
Compensation and benefits 348 290
Occupancy and equipment 84 66
Federal deposit insurance premiums and assessments 20 21
Data processing 63 45
Amortization of premium on deposits assumed 15 15
Advertising 41 29
Other 152 103
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Total noninterest expense 723 569
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Earnings before income tax expense 323 285
Income tax expense 129 113
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Net earnings $ 194 172
Net earnings per share - basic and diluted $ 0.14 0.12
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See accompanying notes to consolidated financial statements.
2
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows For the three months ended March 31, 1999
and 1998
(Unaudited)
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1999 1998
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Cash flows from operating activities:
Net earnings $ 194 172
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for loan losses 9 7
Depreciation 37 29
Amortization of premium on deposits assumed 15 15
FHLB stock dividends (15) (12)
Amortization of loan fees (9) (19)
Accretion of discounts and amortization of premiums on
investment and mortgage-backed securities, net (4) (25)
Gain on sales of loans, net 2 3
Gain on sales of mortgage-backed securities available-for-sale - 3
Proceeds from sales of loans 92 133
Origination of loans for sale (94) (136)
Change in accrued interest receivable, prepaids and other assets (176) (52)
Change in accrued interes payable and other liabilities 835 389
Earnest deposit forfeiture on Baptiste Commons 4 -
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Net cash provided by operating activities 890 507
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Cash flows from investing activities:
Decrease in loans, net 635 1,972
Loans purchased (563) (89)
Maturities of investment securities held-to-maturity 10 1,000
Paydowns and maturities of mortgage-backed securities available-for-sale 3,308 460
Paydowns and maturities of mortgage-backed securities held-to-maturity 2,915 1,152
Purchases of investment securities held-to-maturity (1,490) (1,000)
Purchases of mortgage-backed securities available-for-sale (1,496) (1,640)
Purchases of mortgage-backed securities held-to-maturity (24,192) (748)
Proceeds from sales of mortgage-backed securities available-for-sale - 1,422
Acquisition and development of real estate held for development - (7)
Additions of premises and equipment, net (163) (182)
FHLB stock acquisition (524) -
RSP stock option purchased (660) -
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Net cash provided by investing activities $ (22,220) 2,340
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3
(Continued)
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows, Continued
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1999 1998
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Cash flows from financing activities:
Net decrease (increase) in deposits $ 402 (262)
Repayment of borrowings from FHLB (650) (1,900)
Increase in borrowings from FHLB 20,000 -
Net decrease in advances from borrowers for taxes and insurance 151 179
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Net cash provided by (used in) financing activities 19,903 (1,983)
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Net increase (decrease) in cash and cash equivalents (1,427) 864
Cash and cash equivalents at beginning of year 8,143 4,600
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Cash and cash equivalents at end of year $ 6,716 5,464
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See accompanying notes to consolidated financial statements.
4
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
Notes to Unaudited Consolidated Financial Statements
March 31, 1999 and 1998
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 Form 10-KSB for the Fiscal Year Ended December 31,
1998.
The consolidated financial statements include the accounts of First
Kansas Financial Corporation (the "Company") and its wholly owned subsidiary,
First Kansas Federal Savings Bank (the "Bank"). Intercompany balances and
transactions have been eliminated. The December 31, 1998 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, 1999 are not necessarily indicative of the results expected for the
year ended December 31, 1999 or for any other period.
2. Earnings for Common Share
Earnings per share are computed in accordance with SFAS No. 128,
Earnings Per Share. Basic earnings per share is based upon the weighted average
number of common shares outstanding during the periods presented. Common shares
issued to the Employee Stock Ownership Plan are not included in this computation
until they are allocated to plan participants. For the periods ended March 31,
1999 and 1998, there were no dilutive potential common shares outstanding.
3. Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", in
the first quarter of 19998. SFAS No. 130 requires the reporting of comprehensive
income and its components. Comprehensive income is defined as the change in
equity from transactions and other events and circumstances from non-owner
sources and excludes investments by and distributions to owners. Comprehensive
income includes net income and other items of comprehensive income meeting the
above criteria. The Company's only component of other comprehensive income is
the unrealized holding gains and losses on available for sale securities.
5
For the three months ended March 31,
1999 1998
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Net Income $ 194,000 $ 172,000
Change in unrealized security loss, net (87,000) 171,000
Comprehensive Income $ 107,000 $ 343,000
4. Restricted Stock Plan
The Company purchased 62,158 shares of common stock during March 1999
for the restricted stock plan. The cost of such shares, aggregating $660,429,
has been recorded as unearned compensation in the accompanying consolidated
balance sheet at March 31, 1999. 52,826 of such shares were awarded to key
officers and directors in March 1999 and will be amortized to expense over their
five year vesting period. The Company recognized approximately $10,000 of
additional compensation expense related to the shares awarded in the three
months ended March 31, 1999.
6
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIDARY
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. It should be noted that the Company
had no assets prior to the Conversion on June 25, 1998, and all prior financial
statements refer to the Bank.
The Company's results of operations depend primarily on net interest income,
which is the difference between interest income from interest-bearing 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 newly originated 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 (G&A) expenses.
Net earnings for the first three months of 1999 increased $22,000, or 12.79%, as
compared to the same period in 1998. Net interest margin increased by $187,000
primarily due to the investment of the proceeds of the Conversion. Noninterest
income was constant for the two periods involved while compensation expense was
the key component for the increase in noninterest expense.
Interest Income. Interest income increased $291,000, or 17.52%, to $1.95 million
during the first quarter of 1999. This increase resulted from the investment of
the stock proceeds from the Conversion and a $20 million arbitrage executed in
January 1999. A continued, gradual decrease in the rates earned on mortgages and
mortgage-backed securities partially offset the increase in income.
Interest Expense. Interest expense increased $104,000, or 10.52% to $1.1 million
during the first three months of 1999. An increase in the FHLB advances needed
to implement the $20 million arbitrage in January 1999 more than offset a
downward rate trend in the deposit portfolio.
Provision for Loan Losses. The provision for loan losses was $9,000 for the
first quarter of 1999. The loan loss reserve at March 31, 1999 was $209,000, or
.51% of total loans receivable as compared to a reserve of .50% of total loans
receivable at December 31, 1998.
Noninterest income. Noninterest income increased $7,000, or 3.70% to $196,000
for the first three months of 1999. This increase was entirely attributable to
the increase in deposit account service fees for the quarter ended.
Noninterest expense. Noninterest expense increased by $154,000, or 27.07% to
$723,000 for the first quarter in 1999. Primary factors for the increase include
compensation expense, Year 2000 compliance expenses and audit and legal expenses
associated with being a public company.
Income Tax Expense. Income tax expense was relatively stable in 1999 versus 1998
with effective tax rates or 39.94% and 39.65% respectively.
Asset Quality & Distribution. The Company's assets grew $20.8 million from
December 31, 1998 to March 31, 1999 as a direct result of the $20 million
arbitrage. The Company's primary ongoing 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
7
competition.
The primary investing activities of the Company are the origination of mortgage
loans and the purchase of investment securities. During the first three months
of 1999, gross loan purchases and mortgage originations totaled $2.3 million
compared to $1.1 million for the first three months of 1998, as the Bank was
able to purchase several loans in the first quarter. Gross consumer and
commercial loans originated were $744,000 for the first quarter in 1999 compared
to $629,000 in the first quarter of 1998. Also in the first quarter of 1999, the
Bank purchased $25.7 million of mortgage pools and collateralized mortgage
obligations ("CMOs"). In January 1999, the Company purchased $20 million of
mortgage-backed securities with proceeds received from two $10 million advances
from the Federal Home Loan Bank. The assets purchased and their underlying
liabilities are fixed-rate through five years.
Liability distribution. Deposits increased $402,000 from December 31, 1998 to
March 31, 1999. FHLB advances increased by $19.4 million as a result of the
arbitrage.
Liquidity. The Company's most liquid assets are cash equivalents and short-term
government agency investments. It has also invested in liquidity qualifying
mortgage backed securities. The Bank's liquidity as of March 31, 1999 was $35
million, or 42.39%.
Capital. At March 31, 1999, the Bank had a Tier 1 capital ratio of 10.58% and a
risk based capital ratio of 35.48%. As shown by the following table, the Bank's
capital exceeded the minimum capital requirement: (Dollars in thousands)
March 31, 1999 March 31, 1998
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Amount Percent Required Amount Percent
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Tier I Capital $13,491 10.58% 4.00% $ 6,468 6.88%
Risk Based Capital 13,700 35.48% 8.00% 6,633 19.27%
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.
Year 2000 Compliance Readiness Disclosure. In 1997, the Company initiated a
review and assessment of all hardware and software to determine its Year 2000
readiness. The Company utilizes and is dependent upon data processing systems
and software to conduct its business. The data processing systems and software
include those developed and maintained by the Company's data processing provider
and other commercial software. The Company's data processing provider and other
"mission critical" vendors have indicated that their hardware and/or software is
now Year 2000 compliant. The Company's state of readiness: The Company has now
completed the installation of its renovated hardware and software applications
and has completed the first stage of testing. A second test is planned early in
the second quarter of 1999. The costs to address the Company's Year 2000 issues:
While there will be additional expenses incurred before the end of the year, the
Company has not identified any situations at this time that will require
material cost expenditures to become fully compliant. Total costs to become Year
2000 compliant are estimated to be less than $100,000. The risks of the
Company's Year 2000 issues: A "worst case" Year 2000 scenario for the Company
would be the absence of electrical power and/or communications to the data
processing center which supports the majority of the "mission critical" systems
to the Company . The Company has considered this and other scenarios in plans
for Year 2000 readiness. The Company's Contingency Plans: The Company has
developed a Contingency Plan to address "mission critical" systems failures
caused by the Year 2000. The plan provides for procedures and resources
necessary for the Company to provide continued services to its customers for a
period of time under a "worst case" scenario.
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
8
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 will be 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.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
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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, 1999, 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
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Not Applicable
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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On February 2, 1999, the Company held a Special Meeting of
Stockholders (the "Meeting"). At the Meeting, stockholders
approved the Company's 1999 Stock Option Plan by a vote of
941,288 votes for, 106,185 votes against and 19,849 votes
abstaining. In addition, stockholders approved the Bank's
Restricted Stock Plan by a vote of 903,338 votes for, 139,335
votes against and 24,649 votes abstaining. No other matters were
presented for a vote at the Meeting.
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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(27) Financial Data Schedule (electronic filing only)
9
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, 1999 By: /s/ Larry V. Bailey
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Larry V. Bailey, President
Date: May 13, 1999 By: /s/ James J. Casaert
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James J. Casaert
Vice President and Treasurer
(Principal Accounting Officer)