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, 2001
[_] 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 July 23, 2001, 909,054 shares of the issuer's common stock, no par value,
were outstanding.
This report contains 11 pages.
Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
June 30, 2001 and December 31, 2000.................................................. 3
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2001 and 2000............................. 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000.............................................. 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
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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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June 30,
2001 December 31,
ASSETS (Unaudited) 2000*
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(In Thousands)
Cash and due from banks $ 714 $ 1,694
Interest-earning deposits with banks 4,651 673
Investment securities available for sale, at fair value 12,681 10,589
Investment securities held to maturity, at amortized cost 108 895
Loans receivable, net 136,124 133,312
Accrued interest receivable 962 1,128
Federal Home Loan Bank stock, at cost 1,008 942
Property and equipment, net 3,858 2,736
Other assets 592 328
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TOTAL ASSETS $160,698 $152,297
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $123,911 $120,073
Advances from Federal Home Loan Bank 19,800 15,800
Accrued expenses and other liabilities 732 581
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TOTAL LIABILITIES 144,443 136,454
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STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, 20,000,000 shares authorized;
909,054 and 905,598 shares issued and
outstanding in 2001 and 2000, respectively 4,768 4,718
Unearned ESOP shares (117) (117)
Accumulated other comprehensive income 168 36
Retained earnings, substantially restricted 11,436 11,206
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TOTAL STOCKHOLDERS' EQUITY 16,255 15,843
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $160,698 $152,297
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* Derived from audited financial statements
Se accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
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Three Months Ended Six Months ended
June 30, June 30,
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2001 2000 2001 2000
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(In Thousands, except per share data)
INTEREST INCOME
Loans $2,930 $2,732 $5,929 $5,342
Investments securities 212 195 390 384
Interest-earning deposits with banks 51 17 68 34
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TOTAL INTEREST INCOME 3,193 2,944 6,387 5,760
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INTEREST EXPENSE
Deposits 1,621 1,438 3,249 2,866
Advances from Federal Home Loan Bank 243 160 495 273
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TOTAL INTEREST EXPENSE 1,864 1,598 3,744 3,139
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NET INTEREST INCOME 1,329 1,346 2,643 2,621
PROVISION FOR LOAN LOSSES 23 8 23 10
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,306 1,338 2,620 2,611
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NON-INTEREST INCOME 136 113 343 228
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NON-INTEREST EXPENSE
Salaries and employee benefits 602 589 1,184 1,126
Occupancy and equipment 151 128 284 259
Other 319 215 522 399
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TOTAL NON-INTEREST EXPENSE 1,072 932 1,990 1,784
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INCOME BEFORE INCOME TAXES 370 519 973 1,055
INCOME TAXES 137 197 380 404
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NET INCOME $ 233 $ 322 $ 593 $ 651
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BASIC NET INCOME PER COMMON SHARE $ 0.26 $ 0.36 $ 0.67 $ 0.72
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DILUTED NET INCOME PER COMMON SHARE $ 0.26 $ 0.35 $ 0.65 $ 0.70
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DIVIDEND PER COMMON SHARE $ 0.20 $ 0.20 $ 0.40 $ 0.40
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See accompanying note.
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
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Six Months Ended
June 30,
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2001 2000
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 593 $ 651
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 145 147
Amortization, net 2 1
Release of ESOP shares 24 27
Provision for loan losses 23 10
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 166 (131)
(Increase) decrease in other assets (264) 86
Increase (decrease) in accrued expenses and other liabilities 70 (92)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 759 699
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available for sale investment securities (4,750) (1,000)
Proceeds from sales, maturities, repayments and calls of:
Available for sale investment securities 2,869 98
Held to maturity investment securities 787 9
Purchase of Federal Home Loan Bank stock (66) (65)
Net increase in loans (2,835) (8,033)
Purchase of property and equipment (1,267) (77)
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NET CASH USED BY
INVESTING ACTIVITIES (5,262) (9,068)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,838 (406)
Increase in borrowed funds 4,000 7,000
Repurchase of common stock - (378)
Cash dividends paid (363) (369)
Proceeds from exercise of stock options 26 1
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 7,501 5,848
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NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 2,998 (2,521)
CASH AND CASH EQUIVALENTS, BEGINNING 2,367 6,127
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CASH AND CASH EQUIVALENTS, ENDING $ 5,365 $ 3,606
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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
six month periods ended June 30, 2001 and 2000, 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, 2001 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 2001.
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 2000 annual report on Form
10-KSB. 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,
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2001 2000 2001 2000
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Weighted average number of common
shares used in computing basic net
income per share 889,888 898,772 887,898 899,992
Effect of dilutive stock options 20,363 23,717 20,590 25,547
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Weighted average number of common
shares and dilutive potential common
shares used in computing diluted net
income per share 910,251 922,489 908,488 925,539
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NOTE C - COMPREHENSIVE INCOME
For the three months ended June 30, 2001 and 2000, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $266,290 and $262,533, respectively.
For the six months ended June 30, 2001 and 2000, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $724,830 and $516,996, respectively.
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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 June 30, 2001 and December 31, 2000
Consolidated total assets increased by $8.5 million during the six months ended
June 30, 2001, from $152.2 million at December 31, 2000 to $160.7 million at
June 30, 2001. During the six months, the Company generated loan growth of $2.8
million, as loans increased to $136.1 million. Liquid assets (in the aggregate)
increased by $4.3 million from $13.9 million at December 31, 2000 to $18.1
million at June 30, 2001. Both the loan and liquid asset growth was funded by
an increase of $4.0 million in advances from the Federal Home Loan Bank and an
increase in customer deposits of $3.8 million.
Total stockholders' equity was $16.3 million at June 30, 2001 as compared with
$15.8 million at December 31, 2000, an increase of $412,000. This increase
resulted principally from net income and unrealized gains on available for sale
investment securities during the six months ended June 30, 2001, of $593,000 and
$132,000, respectively. These increases were partially offset by dividends paid
to shareholders during the period of $363,000, or $.40 per share. Stockholders
equity increased additionally by $50,000 during this same period as a result of
the exercise of stock options and earned ESOP compensation. At June 30, 2001,
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, 2001 and
2000
Net Income. Net income for the quarter ended June 30, 2001 was $233,000, or
$.26 per share, as compared with net income of $322,000, or $.36 per share, for
the three months ended June 30, 2000, a decrease of $89,000 or $.10 per share.
An increase of $249,000 in interest income for the current quarter was offset by
increases of $266,000 in interest expense and $140,000 in non-interest expenses.
Net Interest Income. Net interest income for the quarter ended June 30, 2001
decreased $17,000 due to the increased level of interest-bearing liabilities.
The increase in interest-earning assets was offset by the increase in both
deposits and advances from the Federal Home Loan Bank.
Provision for Loan Losses. The provision for loan losses was $23,000 and $8,000
for the quarters ended June 30, 2001 and 2000, respectively. There were net loan
charge-offs of $13,000 during the quarter ended June 30, 2001 as compared with
net charge-offs of $5,000 during the quarter ended June 30, 2000. At June 30,
2001, non-accrual loans aggregated $897,000, while the allowance for loan losses
stood at $499,000.
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Non-interest Income. Non-interest income was $136,000 for the quarter ended
June 30, 2001 as compared with $113,000 for the quarter ended June 30, 2000, an
increase of $23,000.
Non-interest Expenses. Non-interest expenses increased to $1.1 million during
the quarter ended June 30, 2001 as compared with $932,000 for the quarter ended
June 30, 2000, an increase of $140,000. The increase resulted primarily from an
increase in other operational and facility costs of $104,000 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 37.1% and 38.0% for the three months ended June
30, 2001 and 2000, respectively.
Comparison of Results of Operations for the Six Months Ended June 30, 2001 and
2000
Net Income. Net income for the six months ended June 30, 2001 was $593,000, or
$.67 per share, as compared with net income of $651,000, or $.72 per share, for
the six months ended June 30, 2000, a decrease of $58,000. An increase in net
interest income for the six months ended June 30, 2001 of $20,000 and an
increase in non-interest income of $116,000 for the same period, was offset by
an increase of $207,000 in non-interest expenses.
Net Interest Income. Net interest income for the six months ended June 30, 2001
increased $22,000 due to the 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 $23,000 and
$10,000 for the six months ended June 30, 2001 and 2000, respectively. There
were net loan charge-offs of $13,000 during the six months ended June 30, 2001
as compared with net charge-offs of $5,000 during the six months ended June 30,
2000. At June 30, 2001, non-accrual loans aggregated $897,000, while the
allowance for loan losses stood at $499,000.
Non-interest Income. Non-interest income was $343,000 for the six months ended
June 30, 2001 as compared with $228,000 for the six months ended June 30, 2000,
an increase of $115,000. This increase resulted principally from an increase in
transaction and service fee income.
Non-interest Expenses. Non-interest expenses increased to $2.0 million during
the six months ended June 30, 2001 as compared with $1.8 million for the six
months ended June 30, 2000, an increase of $206,000. The increase resulted
primarily from an increase in other operational and facility costs of $123,000
associated with the Company's continued growth. Salaries and employee benefits
and occupancy and equipment expenses also increased.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 39.0% and 38.3% for the six months ended June
30, 2001 and 2000, 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 June 30, 2001, as computed
under North Carolina regulations, was approximately 11.2%. On a consolidated
basis, liquid assets also represent approximately 11.3% 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, 2001, KS Bank exceeded the
capital requirements of both the FDIC and the N. C. Administrator.
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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 1, 2001. Of 908,834
shares entitled to vote at the meeting, 766,351 shares voted. The following
matters were voted on at the meeting:
1. Election of directors:
R. Harold Hinnant, R. Elton Parrish and A. Carroll Coleman were
all elected to three-year terms with 84.3% of the shares voted.
2. Dixon Odom PLLC was ratified to serve as independent auditor for
the year ending December 31, 2001 with 83.9% of the shares voted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 2001.
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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: August 9, 2001 By: /s/ Harold T. Keen
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Harold T. Keen
President and Chief Executive
Officer
Date: August 9, 2001 By: /s/ Earl W. Worley, Jr.
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Earl W. Worley, Jr.
Chief Financial Officer
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