U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
--------------------------------------
Commission File Number 000-22734
KS BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
North Carolina 56-1842707
------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
207 WEST SECOND STREET, KENLY, NC 27542
- --------------------------------------------------------------------------------
(Address of principal executive office)
(919) 284-4157
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 August 8, 2000, 899,962 shares of the issuer's common stock, no par value,
were outstanding.
This report contains 11 pages.
-1-
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
June 30, 2000 and December 31, 1999.............................................. 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2000 and 1999......................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999.......................................... 5
Notes to Consolidated Financial Statements....................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations... 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders................... 10
Item 6. Exhibits and Reports on Form 8-K........................................ 10
-2-
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
- --------------------------------------------------------------------------------
June 30,
2000 December 31,
ASSETS (Unaudited) 1999*
------------------ ------------------
(In Thousands)
Cash and due from banks $ 735 $ 1,839
Interest-earning deposits with banks 2,871 4,288
Investment securities available for sale, at fair value 11,513 10,827
Investment securities held to maturity, at amortized cost 1,141 1,150
Loans receivable, net 124,386 116,363
Accrued interest receivable 1,011 880
Federal Home Loan Bank stock, at cost 942 877
Property and equipment, net 2,358 2,428
Other assets 291 296
------------------ ------------------
TOTAL ASSETS $ 145,248 $ 138,948
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 116,131 $ 116,537
Advances from Federal Home Loan Bank 13,000 6,000
Accrued expenses and other liabilities 877 969
------------------ ------------------
TOTAL LIABILITIES 130,008 123,506
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, 20,000,000 shares authorized;
900,462 and 888,633 shares issued and
outstanding in 2000 and 1999, respectively 4,655 5,006
Unearned ESOP shares (156) (156)
Accumulated other comprehensive income 516 650
Retained earnings, substantially restricted 10,225 9,942
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 15,240 15,442
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 145,248 $ 138,948
================== ==================
* Derived from audited financial statements
See accompanying notes.
-3-
KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months ended
June 30, June 30,
2000 1999 2000 1999
------------- ---------- ----------- ----------
(In Thousands, except per share data)
INTEREST INCOME
Loans $ 2,732 $ 2,364 $ 5,342 $ 4,675
Investments and deposits
in other banks 195 175 384 325
Interest-earning deposits with banks 17 93 34 209
------------- ---------- ----------- ----------
TOTAL INTEREST INCOME 2,944 2,632 5,760 5,209
------------- ---------- ----------- ----------
INTEREST EXPENSE
Deposit accounts 1,438 1,342 2,866 2,674
Advances from Federal Home Loan Bank 160 88 273 175
------------- ---------- ----------- ----------
TOTAL INTEREST EXPENSE 1,598 1,430 3,139 2,849
------------- ---------- ----------- ----------
NET INTEREST INCOME 1,346 1,202 2,621 2,360
PROVISION FOR LOAN LOSSES 8 20 10 32
------------- ---------- ----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,338 1,182 2,611 2,328
------------- ---------- ----------- ----------
NON-INTEREST INCOME 113 94 228 186
------------- ---------- ----------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 589 442 1,126 857
Occupancy and equipment 128 64 259 135
Other 215 240 399 466
------------- ---------- ----------- ----------
TOTAL NON-INTEREST EXPENSE 932 746 1,784 1,458
------------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES 519 530 1,055 1,056
INCOME TAXES 197 204 404 411
------------- ---------- ----------- ----------
NET INCOME $ 322 $ 326 $ 651 $ 645
============= ========== =========== ==========
BASIC NET INCOME PER COMMON SHARE $ 0.36 $ 0.38 $ 0.72 $ 0.75
============= ========== =========== ==========
DILUTED NET INCOME PER COMMON SHARE $ 0.35 $ 0.34 $ 0.70 $ 0.68
============= ========== =========== ==========
DIVIDEND PER COMMON SHARE $ 0.20 $ 0.20 $ 0.40 $ 0.40
============= ========== =========== ==========
See accompanying notes.
-4-
KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
2000 1999
------------ --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 651 $ 645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 147 56
Amortization, net 1 10
Gain on sale of assets, net - (1)
Release of ESOP shares 27 26
Deferred income taxes - (26)
Provision for loan losses 10 32
Change in assets and liabilities:
Net decrease in loans held for sale - 786
Increase in accrued interest receivable (131) (111)
(Increase) decrease in other assets 86 (184)
Increase (decrease) in accrued expenses and other liabilities (92) 14
------------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 699 1,247
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available for sale investment securities (1,000) (4,729)
Proceeds from sales, maturities, repayments and calls of:
Available for sale investment securities 98 1,063
Held to maturity investment securities 9 363
Purchase of Federal Home Loan Bank stock (65) -
Proceeds from sale of non-marketable equity securities - 2
Net increase in loans (8,033) (4,572)
Proceeds from sale of foreclosed real estate - 82
Purchase of property and equipment (77) (390)
------------ ------------
NET CASH USED BY
INVESTING ACTIVITIES (9,068) (8,181)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (406) 4,792
Increase in borrowed funds 7,000 -
Repurchase of common stock (378) (36)
Cash dividends paid (369) (346)
Proceeds from exercise of stock options 1 -
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 5,848 4,410
------------ ------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (2,521) (2,524)
CASH AND CASH EQUIVALENTS, BEGINNING 6,127 11,671
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 3,606 $ 9,147
============ ============
See accompanying notes.
-5-
KS Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three and
six month periods ended June 30, 2000 and 1999, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
KS Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, KS Bank, Inc.
Operating results for the three and six month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2000.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the consolidated
financial statements filed as part of the Company's 1999 annual report on Form
10-K. This quarterly report should be read in conjunction with such annual
report.
NOTE B - NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. In accordance with generally accepted accounting principles, employee
stock ownership plan shares are only considered outstanding for the basic
earnings per share calculations when they are earned or committed to be
released. The weighted average number of shares outstanding or assumed to be
outstanding are summarized below:
Three months ended Six months ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
Weighted average number of common
shares used in computing basic net
income per share 898,772 864,811 899,992 864,374
Effect of dilutive stock options 23,717 85,463 25,547 85,474
------------ ------------ ------------- ------------
Weighted average number of common
shares and dilutive potential common
shares used in computing diluted net
income per share 922,489 950,274 925,539 949,848
============ ============ ============= ============
NOTE C - COMPREHENSIVE INCOME
For the three months ended June 30, 2000 and 1999, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $262,533 and $254,967, respectively.
For the six months ended June 30, 2000 and 1999, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $516,996 and $417,642, respectively.
-6-
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999
Consolidated total assets increased by $6.3 million during the six months ended
June 30, 2000, from $138.9 million at December 31, 1999 to $145.2 million at
June 30, 2000. During the six months, the Company generated strong loan growth,
as net loans increased by $8.0 million to $124.4 million. This loan growth was
primarily funded by an increase of $7.0 million in advances from the Federal
Home Loan Bank, with the balance of the funding provided from liquid assets. In
the aggregate, liquid assets decreased from $18.1 million at December 31, 1999
to $16.3 million at June 30, 2000.
Total stockholders' equity was $15.2 million at June 30, 2000 as compared with
$15.4 million at December 31, 1999, a decrease of $202,000. During the period,
the Company repurchased 21,266 shares of common stock under it's stock
repurchase plan for $379,000 and paid regular quarterly dividends of $369,000 or
$.40 per share. Additionally, during the six month period, unrealized losses on
available for sale investment securities aggregated $134,000. These decreases to
stockholders' equity were offset by the Company's net income for the six months
of $651,000 and earned ESOP compensation of $27,000, which was credited to
common stock. At June 30, 2000, both the Company and the Bank continued to
significantly exceed all applicable regulatory capital requirements.
Comparison of Results of Operations for the Three Months Ended June 30, 2000 and
1999
Net Income. Net income for the quarter ended June 30, 2000 was $322,000, or $.36
per share, as compared with net income of $326,000, or $.38 per share, for the
three months ended June 30, 1999, a decrease of $4,000 or $.02 per share. An
increase of $144,000 in net interest income for the current quarter was largely
offset by an increase of $186,000 in non-interest expenses.
Net Interest Income. Net interest income for the quarter ended June 30, 2000 was
$1.3 million as compared with $1.2 million during the quarter ended June 30,
1999, an increase of $144,000. This increase resulted principally from an
increased level of interest earning assets during the current quarter, primarily
loans, which have higher yields than do other types of interest earning assets.
Provision for Loan Losses. The provision for loan losses was $8,000 and $20,000
for the quarters ended June 30, 2000 and 1999, respectively. There were net loan
charge-offs of $5,000 during the quarter ended June 30, 2000 as compared with
net charge-offs of $3,000 during the quarter ended June 30, 1999. At June 30,
2000, non-accrual loans aggregated $400,000, while the allowance for loan losses
stood at $414,000.
-7-
Other Income. Other income was $113,000 for the quarter ended June 30, 2000 as
compared with $94,000 for the quarter ended June 30, 1999, an increase of
$19,000.
Other Expenses. Other expenses increased to $932,000 during the quarter ended
June 30, 2000 as compared with $746,000 for the quarter ended June 30, 1999, an
increase of $186,000. The increase resulted primarily from an increase in
salaries and employee benefits of $147,000 as personnel additions were made
subsequent to the quarter ended June 30, 1999.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 37.9% and 38.5% for the six months ended June
30, 2000 and 1999, respectively.
Comparison of Results of Operations for the Six Months Ended June 30, 2000 and
1999
Net Income. Net income for the six months ended June 30, 2000 was $651,000, or
$.72 per share, as compared with net income of $645,000, or $.75 per share, for
the six months ended June 30, 1999, an increase of $6,000. An increase in net
interest income for the six months ended June 30, 1999 of $261,000 was offset by
an increase of $326,000 in non-interest expenses.
Net Interest Income. Net interest income for the six months ended June 30, 2000
was $2.6 million as compared with $2.4 million during the six months ended June
30, 1999. This increase of $261,000 resulted principally from an increased level
of interest earning assets during the current six months, primarily loans, which
have higher yields than do other types of interest earning assets.
Provision for Loan Losses. The provision for loan losses was $10,000 and $32,000
for the six months ended June 30, 2000 and 1999, respectively. There were net
loan charge-offs of $5,000 during the six months ended June 30, 2000 as compared
with net charge-offs of $3,000 during the six months ended June 30, 1999. At
June 30, 2000, non-accrual loans aggregated $400,000, while the allowance for
loan losses stood at $414,000.
Other Income. Other income was $228,000 for the six months ended June 30, 2000
as compared with $186,000 for the six months ended June 30, 1999, an increase of
$42,000. This increase resulted principally from an increase in transaction and
service fee income.
Other Expenses. Other expenses increased to $1.8 million during the six months
ended June 30, 2000 as compared with $1.5 million for the six months ended June
30, 1999, an increase of $326,000. The increase resulted primarily from an
increase in salaries and employee benefits of $269,000 as personnel additions
were made subsequent to the six-month period ended June 30, 1999. Other
operational and facility costs experienced increases associated with the
Company's continued growth.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 38.3% and 38.9% for the six months ended June
30, 2000 and 1999, respectively.
-8-
Liquidity and Capital Resources
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses KS
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The primary sources of internally generated funds are principal and interest
payments on loans receivable and cash flows generated from operations. External
sources of funds include increases in deposits and advances from the FHLB of
Atlanta.
As a North Carolina-chartered savings bank, KS Bank must maintain liquid assets
equal to at least 10% of assets. The computation of liquidity under North
Carolina regulations allows the inclusion of mortgage-backed securities and
investments with readily marketable value, including investments with maturities
in excess of five years. KS Bank's liquidity ratio at June 30, 2000, as computed
under North Carolina regulations, was approximately 11.2%. On a consolidated
basis, liquid assets also represent approximately 11.2% of total assets.
Management believes that it will have sufficient funds available to meet its
anticipated future loan commitments as well as other liquidity needs.
As a North Carolina-chartered savings bank, KS Bank is subject to the capital
requirements of the Federal Deposit Insurance Corporation ("FDIC") and the North
Carolina Administrator of Savings Institutions ("N. C. Administrator"). The FDIC
requires state-chartered savings banks to have a minimum leverage ratio of Tier
I capital (principally consisting of common shareholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain intangible assets) to total assets of at least 3%;
provided, however, that all institutions, other than those (i) receiving the
highest rating during the examination process and (ii) not anticipating or
experiencing any significant growth, are required to maintain a ratio of 1% or
2% above the stated minimum. The FDIC also requires KS Bank to have a ratio of
total capital to risk-weighted assets of at least 8%, of which at least 4% must
be comprised of Tier I capital. The N. C. Administrator requires a net worth
equal to at least 5% of total assets. At June 30, 2000, KS Bank exceeded the
capital requirements of both the FDIC and the N. C. Administrator.
-9-
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The Annual Meeting of the Stockholders was held on May 2, 2000. Of 921,512
shares entitled to vote at the meeting, 742,011 shares voted. The following
matters were voted on at the meeting:
1. Election of directors:
Robert E. Fields, James C. Parker, and Sidney Ernest Sauls were
all elected to three-year terms with 98.0% of the shares voted.
2. Dixon Odom PLLC was ratified to serve as independent auditor
for the year ending December 31, 2000 with 99.8% of the shares
voted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27) Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 2000.
-10-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KS BANCORP, INC.
Date: August 11, 2000 By: /s/ Harold T. Keen
--------------------------------------
Harold T. Keen
President and Chief Executive Officer
Date: August 11, 2000 By: /s/ Earl W. Worley, Jr.
--------------------------------------
Earl W. Worley, Jr.
Chief Financial Officer
-11-