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 March 31, 2002
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
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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 April 24, 2002, 1,141,628 shares of the issuer's common stock, no par
value, were outstanding.
This report contains 11 pages.
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Part I. FINANCIAL INFORMATION Page No.
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Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
March 31, 2002 and December 31, 2001 .............................3
Consolidated Statements of Operations
Three Months Ended March 31, 2002 and 2001 .......................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001 .......................5
Notes to Consolidated Financial Statements .......................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................8
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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March 31,
2002 December 31,
ASSETS (Unaudited) 2001*
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(In Thousands)
Cash and due from banks $ 852 $ 933
Interest-earning deposits with banks 6,256 7,041
Investment securities available for sale, at fair value 11,395 12,598
Investment securities held to maturity, at amortized cost 88 91
Loans receivable, net 140,408 136,977
Accrued interest receivable 1,058 1,001
Federal Home Loan Bank stock, at cost 1,007 1,007
Property and equipment, net 3,901 3,947
Other assets 308 295
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TOTAL ASSETS $ 165,273 $ 163,890
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 130,434 $ 128,825
Advances from Federal Home Loan Bank 16,800 16,800
Accrued expenses and other liabilities 1,075 1,466
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TOTAL LIABILITIES 148,309 147,091
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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;
1,139,213 shares issued and outstanding in
2002 and 2001, respectively 4,831 4,815
Unearned ESOP shares (78) (78)
Accumulated other comprehensive income 133 210
Retained earnings, substantially restricted 12,078 11,852
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TOTAL STOCKHOLDERS' EQUITY 16,964 16,799
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 165,273 $ 163,890
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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
March 31,
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2002 2001
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(In Thousands except
per share data)
INTEREST INCOME
Loans $ 2,688 $ 2,999
Investments and deposits in other banks 199 178
Interest-earning deposits with banks 18 17
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TOTAL INTEREST INCOME 2,905 3,194
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INTEREST EXPENSE
Deposit accounts 1,116 1,629
Advances from Federal Home Loan Bank 236 251
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TOTAL INTEREST EXPENSE 1,352 1,880
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NET INTEREST INCOME 1,553 1,314
PROVISION FOR LOAN LOSSES 31 -
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,522 1,314
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NON-INTEREST INCOME 236 208
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NON-INTEREST EXPENSE
Salaries and employee benefits 641 581
Occupancy and equipment 84 134
Other 372 204
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TOTAL NON-INTEREST EXPENSE 1,097 919
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INCOME BEFORE INCOME TAXES 661 603
INCOME TAXES 253 243
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NET INCOME $ 408 $ 360
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BASIC NET INCOME PER COMMON SHARE $ .36 $ .33
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DILUTED NET INCOME PER COMMON SHARE $ .35 $ .32
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DIVIDEND PER COMMON SHARE $ .16 $ .16
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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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Three Months Ended
March 31,
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2002 2001
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 408 $ 360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 73 74
Amortization, net (1) 1
Release of ESOP shares 15 11
Provision for loan losses 31 -
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (57) 67
(Increase) decrease in other assets (13) 16
Increase (decrease) in accrued expenses and other liabilities (342) 253
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 114 782
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available for sale investment securities - (2,750)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 1,078 2,796
Held to maturity investment securities 4 122
Purchase of Federal Home Loan Bank stock - (66)
Net increase in loans (3,462) (804)
Purchase of property and equipment (27) (261)
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NET CASH USED BY
INVESTING ACTIVITIES (2,407) (963)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,609 3,783
Increase in borrowed funds - 1,000
Cash dividends paid (182) (181)
Proceeds from exercise of stock options - 24
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,427 4,626
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (866) 4,445
CASH AND CASH EQUIVALENTS, BEGINNING 7,974 2,367
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CASH AND CASH EQUIVALENTS, ENDING $ 7,108 $ 6,812
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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
month periods ended March 31, 2002 and 2001, in conformity with accounting
principles generally accepted in the United States of America. 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 month
period ended March 31, 2002 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2002.
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 2001 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 March 31,
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2002 2001
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Weighted average number of common shares used
in computing basic net income per share 1,127,297 1,109,598
Effect of dilutive stock options 27,670 26,084
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Weighted average number of common shares
and dilutive potential common shares used
in computing diluted net income per share 1,154,967 1,135,682
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NOTE C - COMPREHENSIVE INCOME
For the three months ended March 31, 2002 and 2001, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $331,000 and $458,000, respectively.
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KS Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations entered into after June 30, 2001 be accounted for under
the purchase method. SFAS No. 142 requires that all intangible assets, including
goodwill that results from business combinations, be periodically (at least
annually) evaluated for impairment, with any resulting impairment loss being
charged against earnings. Also, under SFAS No. 142, goodwill resulting from any
business combination accounted for according to SFAS No. 141 will not be
amortized, and the amortization of goodwill related to business combinations
entered into prior to June 30, 2001 will be discontinued effective, for the
Company, January 1, 2002. The adoption of the provisions of SFAS No. 141 and
SFAS 142 effective January 1, 2002 did not affect the Company's financial
statements.
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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 March 31, 2002 and December 31, 2001
Consolidated total assets increased by $1.4 million during the three months
ended March 31, 2002, from $163.9 million at December 31, 2001 to $165.3 million
at March 31, 2002. This growth in total assets resulted from an increase in our
loan portfolio during the quarter of $3.4 million to $140.4 million. Funding for
this loan growth was provided primarily from the utilization of our liquid
assets, (consisting of cash and cash equivalents and investment securities)
which decreased $2.1 million, from $20.7 million at December 31, 2001 to $18.6
million at March 31, 2002. This growth was also funded by an increase of $1.6 in
customer deposits.
Total stockholders' equity increased $165,000 from $16.8 million at December 31,
2001 to $17.0 million at March 31, 2002. This increase resulted principally from
net income of $408,000 for the three months, net of unrealized losses on
available for sale investment securities during the period of $77,000 and the
Company's regular quarterly dividend during the period of $182,000, or $.16 per
share.
Comparison of Results of Operations for the Three months ended March 31, 2002
and 2001
Net Income. Net income for the quarter ended March 31, 2002 was $408,000, or
$.36 per share, as compared with net income of $360,000, or $.33 per share, for
the three months ended March 31, 2001, an increase of $48,000. Increases in net
interest income and non-interest income for the quarter ended March 31, 2002 of
$239,000 and $28,000, respectively, were offset by an increase of $178,000 in
non-interest expenses. The provision for loan losses increased by $31,000 during
the quarter.
Net Interest Income. Net interest income for the quarter ended March 31, 2002
increased $239,000 due to an increased level of interest earning assets. The
increase in interest-earning assets resulted primarily from the aforementioned
increase in our loan portfolio.
Provision for Loan Losses. The provision for loan losses was $31,000 and $0 for
the quarters ended March 31, 2002 and 2001, respectively. There were no net loan
charge-offs during either quarter. At March 31, 2002, nonaccrual loans
aggregated $941,000, while the allowance for loan losses stood at $606,000.
Management believes that the allowance is adequate to absorb losses inherent in
the loan portfolio.
Non-Interest Income. Non-interest income was $236,000 for the quarter ended
March 31, 2002 as compared with $208,000 for the quarter ended March 31, 2001,
an increase of $28,000.
Non-Interest Expenses. Non-interest expenses increased to $1.1 million during
the quarter ended March 31, 2002 as compared with $919,000 for the quarter ended
March 31, 2001, an increase of $181,000. The increase resulted primarily from an
increase in salaries and employee benefits of $60,000. The remainder of the
increase was attributable to the continued overall growth of the Company.
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Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 38.3% and 40.3% for the three months ended March
31, 2002 and 2001, respectively.
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 March 31, 2002, as
computed under North Carolina regulations, was approximately 11.3%. 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 March 31, 2002, 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.
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2002.
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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: May 10, 2002 By: /s/ Harold T. Keen
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Harold T. Keen
President and Chief Executive Officer
Date: May 10, 2002 By: /s/ Earl W. Worley, Jr.
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Earl W. Worley, Jr.
Chief Financial Officer
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