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 September 30, 2000
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended_______________
Commission File Number 000-22734
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KS BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-1842707
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
207 WEST SECOND STREET, KENLY, NC 27542
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(Address of principal executive office)
(919) 284-4157
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(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
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As of September 30, 2000, 903,198 shares of the issuer's common stock, no par
value, were outstanding.
This report contains 11 pages.
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Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999......................................... 3
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 2000 and 1999................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K........................................ 10
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Part I. Financial Information
Item 1 - Financial Statements
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
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September 30,
2000 December 31,
ASSETS (Unaudited) 1999*
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(In Thousands)
Cash and due from banks $ 730 $ 1,839
Interest-earning deposits with banks 1,651 4,288
Investment securities available for sale, at fair value 10,460 10,827
Investment securities held to maturity, at amortized cost 983 1,150
Loans receivable, net 130,945 116,363
Accrued interest receivable 1,105 880
Federal Home Loan Bank stock, at cost 943 877
Property and equipment, net 2,614 2,428
Other assets 626 296
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TOTAL ASSETS $ 150,057 $ 138,948
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 116,372 $ 116,537
Advances from Federal Home Loan Bank 17,000 6,000
Accrued expenses and other liabilities 1,073 969
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TOTAL LIABILITIES 134,445 123,506
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STOCKHOLDERS' EQUITY
Preferred stock, authorized 5,000,000 shares;
no shares issued - -
Common stock, no par value, authorized
20,000,000 shares; issued and outstanding
903,198 in 2000 and 888,733 in 1999 4,688 5,006
Unearned ESOP shares (156) (156)
Accumulated other comprehensive income (loss) (84) 650
Retained earnings, substantially restricted 11,164 9,942
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TOTAL STOCKHOLDERS' EQUITY 15,612 15,442
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 150,057 $ 138,948
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* Derived from audited financial statements
See accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
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Three Months Ended Nine Months ended
September 30, September 30,
2000 1999 2000 1999
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(In Thousands, except per share data)
INTEREST INCOME
Loans $ 2,854 $ 2,391 $ 8,196 $ 7,066
Investments and deposits
in other banks 172 186 556 511
Interest-earning deposits with banks 19 91 53 300
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TOTAL INTEREST INCOME 3,045 2,668 8,805 7,877
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INTEREST EXPENSE
Deposit accounts 1,508 1,353 4,374 4,027
Advances from Federal Home Loan Bank 245 87 518 263
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TOTAL INTEREST EXPENSE 1,753 1,440 4,892 4,290
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NET INTEREST INCOME 1,292 1,228 3,913 3,587
PROVISION FOR LOAN LOSSES 54 - 64 32
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,238 1,228 3,849 3,555
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NON-INTEREST INCOME
Gain on sale of investments 1,262 - 1,262 -
Other 133 80 361 266
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TOTAL NON-INTEREST INCOME 1,395 80 1,623 266
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NON-INTEREST EXPENSE
Salaries and employee benefits 535 451 1,661 1,309
Occupancy and equipment 130 31 389 90
Other 164 258 563 799
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TOTAL NON-INTEREST EXPENSE 829 740 2,613 2,198
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INCOME BEFORE INCOME TAXES 1,804 568 2,859 1,623
INCOME TAXES 685 194 1,089 604
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NET INCOME $ 1,119 $ 374 $ 1,770 $ 1,019
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BASIC NET INCOME PER COMMON SHARE $ 1.27 $ 0.43 $ 1.98 $ 1.18
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DILUTED NET INCOME PER COMMON SHARE $ 1.24 $ 0.39 $ 1.93 $ 1.07
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DIVIDEND PER COMMON SHARE $ 0.20 $ 0.20 $ 0.60 $ 0.60
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See accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
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Nine Months Ended
September 30,
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2000 1999
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,770 $ 1,019
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net 221 127
Gain on sale of assets, net (1,262) (1)
Release of ESOP shares 36 41
Deferred income taxes - (36)
Provision for loan losses 64 32
Change in assets and liabilities:
Net decrease in loans held for sale - 761
Increase in accrued interest receivable (225) (162)
(Increase) decrease in other assets 120 (111)
Increase in accrued expenses and other liabilities 104 85
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 828 1,755
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available for sale investment securities (2,000) (5,229)
Proceeds from sales, maturities, repayments and calls of:
Available for sale investment securities 2,445 1,135
Held to maturity investment securities 167 369
Purchase of Federal Home Loan Bank stock (66) -
Proceeds from sale of non-marketable equity securities - 2
Net increase in loans (14,646) (8,148)
Proceeds from sale of foreclosed real estate - 82
Purchase of property and equipment (407) (490)
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NET CASH USED BY
INVESTING ACTIVITIES (14,507) (12,279)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (165) 6,586
Increase in borrowed funds 11,000 -
Repurchase of common stock (379) (296)
Cash dividends paid (548) (518)
Proceeds from exercise of stock options 25 -
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 9,933 5,772
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NET DECREASE IN CASH
AND CASH EQUIVALENTS (3,746) (4,752)
CASH AND CASH EQUIVALENTS, BEGINNING 6,127 11,671
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CASH AND CASH EQUIVALENTS, ENDING $ 2,381 $ 6,919
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See accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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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
nine month periods ended September 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 nine month periods ended
September 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 Nine months ended
September 30, September 30,
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2000 1999 2000 1999
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Weighted average number of common
shares used in computing basic net
income per share 883,569 860,568 894,476 863,092
Effect of dilutive stock options 21,645 87,413 23,471 86,122
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Weighted average number of common
shares and dilutive potential common
shares used in computing diluted net
income per share 905,214 947,981 917,947 949,214
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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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 September 30, 2000 and December 31, 1999
Consolidated total assets increased by $11.1 million during the nine months
ended September 30, 2000, from $138.9 million at December 31, 1999 to $150.0
million at September 30, 2000. During the nine months, the Company continued to
generate strong loan growth, as net loans increased by $14.5 million to $130.9
million. This loan growth was primarily funded by an increase of $11.0 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 $13.8 million at September 30, 2000.
Total stockholders' equity was $15.6 million at September 30, 2000 as compared
with $15.4 million at December 31, 1999, an increase of $170,000. 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 $548,000 or
$.60 per share. Additionally, during the nine month period, accumulated other
comprehensive income, which consists of net unrealized gains and losses on
available for sale investment securities, decreased $735,000 due to the
realization of previously unrealized gains on securities net of a decrease in
the net unrealized loss on securities held throughout the period. These
decreases to stockholders' equity were offset by the Company's net income for
the nine months of $1.8 million and earned ESOP compensation of $36,000, which
was credited to common stock. At September 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 September 30,
2000 and 1999
Net Income. Net income for the quarter ended September 30, 2000 was $1.1
million, or $1.27 per share, as compared with net income of $374,000, or $.43
per share, for the three months ended September 30, 1999, an increase of
$745,000 or $.84 per share. This increase resulted principally from the gain on
sale of investments discussed in the Other Income caption below.
Net Interest Income. Net interest income for the quarter ended September 30,
2000 was $1.3 million as compared with $1.2 million during the quarter ended
September 30, 1999, an increase of $64,000. 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 $54,000 for the
quarter ended September 30, 2000 while there were net loan charge-offs of
$14,000. There was no provision for loan losses and only minimal net loan
charge-offs during the quarter ended September 30, 1999. At September 30, 2000,
non-accrual loans aggregated $452,000, while the allowance for loan losses stood
at $441,000.
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Other Income. Other income was $1.4 million for the quarter ended September 30,
2000 as compared with $80,000 for the quarter ended September 30, 1999, an
increase of $1.3 million, which resulted from gains realized on the sale of
investment securities.
Other Expenses. Other expenses increased to $829,000 during the quarter ended
September 30, 2000 as compared with $740,000 for the quarter ended September 30,
1999, an increase of $89,000. The increase resulted primarily from an increase
in salaries and employee benefits of $84,000 as personnel additions were made
subsequent to the quarter ended September 30, 1999.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 37.9% and 34.2% for the three months ended
September 30, 2000 and 1999, respectively.
Comparison of Results of Operations for the Nine Months Ended September 30, 2000
and 1999
Net Income. Net income for the nine months ended September 30, 2000 was $1.8
million, or $1.98 per share, as compared with net income of $1.0 million, or
$1.18 per share, for the nine months ended September 30, 1999, an increase of
$751,000. This increase resulted primarily from the gain on sale of investment
securities of $1.3 million, net of taxes of approximately $480,000.
Net Interest Income. Net interest income for the nine months ended September 30,
2000 was $3.9 million as compared with $3.6 million during the nine months ended
September 30, 1999. This increase of $326,000 resulted principally from an
increased level of interest earning assets during the current nine 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 $64,000 and $32,000
for the nine months ended September 30, 2000 and 1999, respectively. There were
net loan charge-offs of $15,000 during the nine months ended September 30, 2000.
Net charge-offs during the nine months ended September 30, 1999 were minimal. At
September 30, 2000, non-accrual loans aggregated $452,000, while the allowance
for loan losses stood at $441,000.
Other Income. Other income was $1.6 million for the nine months ended September
30, 2000 as compared with $266,000 for the nine months ended September 30, 1999,
an increase of $1.4 million resulting principally from gains on the sale of
investment securities of $1.3 million.
Other Expenses. Other expenses increased to $2.6 million during the nine months
ended September 30, 2000 as compared with $2.2 million for the nine months ended
September 30, 1999, an increase of $415,000. The increase resulted primarily
from an increase in salaries and employee benefits of $352,000 as personnel
additions were made subsequent to the nine-month period ended September 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 38.1% and 37.2% for the nine months ended
September 30, 2000 and 1999, respectively.
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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 September 30, 2000, as
computed under North Carolina regulations, was approximately 9.2%. On a
consolidated basis, liquid assets also represent approximately 9.2% 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 September 30, 2000, KS Bank exceeded
the capital requirements of both the FDIC and the N. C. Administrator.
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Part II. OTHER INFORMATION
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 September 30, 2000.
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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: November 8, 2000 By: /s/ Harold T. Keen
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Harold T. Keen
President and Chief Executive Officer
Date: November 8, 2000 By: /s/ Earl W. Worley, Jr.
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Earl W. Worley, Jr.
Chief Financial Officer
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