UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-30680
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First Federal of Olathe Bancorp, Inc.
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(Exact name of small business issuer as specified in its charter)
Kansas 48-1226075
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
100 East Park Street, Olathe, KS 66061
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(Address of principal executive offices)
( 913 ) 782 - 0026
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 483,815 common stock, par
value $.01 per share, as of October 15, 2002
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and
Item 303 of Regulation S-B is included in this Form 10-QSB as referenced below:
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2002 (Unaudited) and December 31, 2001...3
Consolidated Statements of Income (Unaudited) for the Three Months and
Nine Months Ended September 30, 2002 and 2001.....................................4
Consolidated Statement of Stockholders' Equity (Unaudited) for the
Nine Months Ended September 30, 2002...............................................5
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
September 30, 2002 and 2001........................................................6
Notes to Consolidated Financial Statements (Unaudited)................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................9
ITEM 3. CONTROLS AND PROCEDURES.........................................................15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...............................................................16
ITEM 2. CHANGES IN SECURITIES...........................................................16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................16
ITEM 5. OTHER INFORMATION...............................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................16
Signatures...........................................................................17
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
---------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents
Cash and non-interest earning deposits $ 283,158 $ 317,541
Federal funds sold 8,800,000 8,300,000
Total cash and cash equivalents
Held-to-maturity securities, at cost 4,025,041 5,500,000
Available-for-sale securities 1,825,954 1,847,909
Federal Home Loan Bank stock, at cost 380,000 380,000
Loans, net of deferred loan fees and allowance for loan losses 38,880,178 38,414,852
Accrued interest and dividends 391,586 331,605
Equipment, net of accumulated depreciation 3,708 8,081
Other real estate owned 157,774 217,882
Refundable income taxes -- 117,918
Other assets 74,097 --
Total assets $ 54,821,496 $ 55,435,788
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 37,571,976 $ 37,670,610
Dividends payable -- 93,844
Advances from borrowers for taxes and insurance 368,315 1,190
Interest payable on deposits 321,339 54,044
Advances from the Federal Home Loan Bank 4,000,000 5,000,000
Accrued expenses 155,433 85,530
Deferred income taxes 255,799 289,802
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Total liabilities $ 42,672,862 $ 43,195,020
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See notes to the unaudited consolidated financial statements 4
FIRST FEDERAL OF OLATHE BANCORP, INC.
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 4,000,000 shares authorized,
556,328 shares issued and outstanding in 2002 and 2001 5,563 5,563
Additional paid-in capital 3,382,708 3,336,145
Retained earnings 10,444,855 9,996,392
Unearned ESOP shares (255,724) (291,696)
Deferred compensation (263,447) (340,203)
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes of $293,000 in 2002 and $301,000 in
2001 521,597 535,648
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Treasury stock, at cost, 72,513 and 42,602 shares in 2002
and 2001, respectively (1,686,918) (1,001,081)
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Total stockholders' equity 12,148,634 12,240,768
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Total liabilities and stockholders' equity $ 54,821,496 $ 55,435,788
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See notes to the unaudited consolidated financial statements 5
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
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INTEREST AND DIVIDEND INCOME
Loans $ 855,791 $ 848,923 $ 2,488,159 $ 2,480,652
Investment securities
78,553 151,569 299,034 549,218
Cash and cash equivalents
36,365 43,772 105,883 136,113
Equity securities 9,050 6,705 13,735 20,407
----------- ----------- ------------ ------------
Total interest and dividend income 979,759 1,050,969 2,906,811 3,186,390
----------- ----------- ------------ ------------
INTEREST EXPENSE
Deposits 438,905 478,761 1,329,509 1,334,773
Federal Home Loan Bank advances 60,342 74,295 179,513 264,493
----------- ----------- ------------ ------------
Total interest expense 499,247 553,056 1,509,022 1,599,266
----------- ----------- ------------ ------------
NET INTEREST AND DIVIDEND INCOME 480,512 497,913 1,397,789 1,587,124
----------- ----------- ------------ ------------
NON-INTEREST INCOME
Service charges and other fees 9,564 4,247 20,936 28,759
----------- ----------- ------------ ------------
NON-INTEREST EXPENSE
Salaries and related payroll expenses 84,210 77,213 227,662 280,444
Federal insurance premiums 6,566 6,425 19,931 17,525
Directors' fees 13,820 13,820 41,860 42,260
Occupancy of premises 19,227 16,005 47,663 43,384
Professional fees 25,118 43,910 109,334 160,101
Other general and administrative expenses 25,072 12,429 85,058 42,999
----------- ----------- ------------ ------------
Total non-interest expense 174,013 169,802 531,508 586,713
----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 316,063 332,358 887,217 1,029,170
INCOME TAX PROVISION 125,000 137,000 345,000 384,500
----------- ----------- ------------ ------------
NET INCOME $ 191,063 $ 195,358 $ 542,217 $ 644,670
----------- ----------- ------------ ------------
EARNINGS PER SHARE - BASIC $ .41 $ .40 $ 1.15 $ 1.27
----------- ----------- ------------ ------------
EARNINGS PER SHARE - DILUTED $ .41 $ .39 $ 1.13 $ 1.26
----------- ----------- ------------ ------------
See notes to the unaudited consolidated financial statements 6
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
Accumulated
COMPRE- ADDITIONAL UNEARNED COMPRE-
HENSIVE COMMON PAID-IN RETAINED ESOP DEFERRED HENSIVE TREASURY TOTAL
INCOME STOCK CAPITAL EARNINGS SHARES COMPENSATION INCOME STOCK EQUITY
----------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2002 $5,563 $3,336,145 $ 9,996,392 $(291,696) $(340,203) $ 535,648 $(1,001,081) $12,240,768
Net income $542,217 -- -- 542,217 -- -- -- -- 542,217
Other comprehensive income
Change in unrealized
appreciation on
available for sale
securities, net of
income taxes of $(7,900) (14,051) -- -- -- -- -- (14,051) -- (14,051)
Dividends on common stock
($.20 per share) -- -- -- (90,393) -- -- -- -- (90,393)
Compensation cost on awards
issued under recognition
plan -- -- -- -- -- 76,756 -- -- 76,756
Purchase of 29,911 shares of
common stock for the treasury -- -- -- -- -- -- -- (685,837) (685,837)
ESOP shares released -- -- 46,563 (3,361) 35,972 -- -- -- 79,174
-------- ------ ---------- ----------- --------- ---------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 2002 $528,166 $5,563 $3,382,708 $10,444,855 $(255,724) $ (263,447) $ 521,597 $(1,686,918) $12,148,634
======== ====== ========== =========== ========= ========== ========= =========== ===========
See notes to the unaudited consolidated financial statements 7
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
----------------------------------------
OPERATING ACTIVITIES
Net income $ 542,217 $ 644,670
Items not requiring (providing) cash
Depreciation 4,373 4,373
Accretion of discounts on securities -- (5,939)
Gain on disposal of other real estate (8,347) (14,253)
Deferred income taxes (26,100) (21,221)
Compensation expense recognized on allocated ESOP shares 79,174 36,343
Compensation expense on 2001 Recognition and
Retention Plan 76,756 147,046
Changes in
Accrued interest and dividends (59,981) 24,689
Other assets (74,097) 66
Interest payable on deposits 267,295 323,953
Accrued expenses 69,903 49,195
Income taxes 117,918 (59,236)
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Net cash provided by operating activities 989,111 1,129,686
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INVESTING ACTIVITIES
Net originations of loans (465,326) (2,823,171)
Proceeds from sale of other real estate owned 68,456 147,281
Purchase of FHLB stock -- (50,000)
Purchase of held-to-maturity securities (2,025,041) (750,000)
Proceeds from maturities of held-to-maturity securities 3,500,000 6,600,000
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Net cash provided by investing activities 1,078,089 3,124,110
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FINANCING ACTIVITIES
Net increase (decrease) in deposits (98,634) 8,308,960
FHLB repayments (1,000,000) (1,600,000)
Dividends paid (184,237) (201,675)
Net increase in advances from borrowers for taxes and insurance 367,125 386,447
Purchase of treasury stock (685,837) (1,305,339)
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Net cash provided by (used in) financing activities (1,601,583) 5,588,393
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INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,617,541 132,860
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,083,158 $ 9,975,049
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ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 1,241,727 $ 1,275,313
Income taxes paid 238,599 464,995
NON-CASH FINANCING ACTIVITIES
Conversion of loan to other real estate owned -- 193,136
See notes to the unaudited consolidated financial statements 8
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of only normal
recurring accruals, necessary to present fairly the consolidated financial
position, results of operations, changes in stockholders' equity, and cash
flows for the periods presented.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-KSB annual report for 2001 filed with the SEC. The
consolidated balance sheet of the Company as of December 31, 2001 has been
derived from the audited consolidated balance sheet of the Company as of
that date.
The results of operations and other data for the three and nine months
ended September 30, 2002 are not necessarily indicative of results to be
expected for the full year.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number
of shares outstanding during each year. Diluted earnings per share is
computed using the weighted average common shares and all potential
dilutive common shares outstanding during the period.
The computation of per share earnings for the three and nine months ended
September 30, 2002 and 2001 are as follows:
2002
THREE MONTHS NINE MONTHS
------------------------------------
(UNAUDITED) (UNAUDITED)
Net income $ 191,063 $ 542,217
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Average common shares outstanding 461,220 472,454
Average common share stock options outstanding 5,731 5,731
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Average diluted common shares 466,951 478,185
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Basic earnings per share $ .41 $ 1.15
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Diluted earnings per share $ .41 $ 1.13
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9
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2001
THREE MONTHS NINE MONTHS
------------------------------------
(UNAUDITED) (UNAUDITED)
Net income $ 195,358 $ 644,670
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Average common shares outstanding 491,828 508,926
Average common share stock options outstanding 6,017 2,883
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Average diluted common shares 497,845 511,809
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Basic earnings per share $ .40 $ 1.27
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Diluted earnings per share $ .39 $ 1.26
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NOTE 3: LOANS
Net loans at September 30, 2002 and December 31, 2001 are summarized as
follows:
2002 2001
-----------------------------
(UNAUDITED)
Gross loans $ 39,431,949 $ 39,014,817
Less: Deferred loan fees, net (376,771) (424,965)
Allowance for loan losses (175,000) (175,000)
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Net loans $ 38,880,178 $ 38,414,852
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NOTE 4: DEPOSITS
Deposits at September 30, 2002 and December 31, 2001 are summarized as
follows:
2002 2001
-----------------------------
(UNAUDITED)
Non-interest bearing $ 49,600 $ 166,689
Money market 1,830,259 1,860,473
Savings accounts 3,376,008 4,108,028
Certificates of deposit 32,316,109 31,535,420
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$ 37,571,976 $ 37,670,610
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10
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion compares the consolidated financial statements of
First Federal of Olathe Bancorp, Inc. and Subsidiary (the "Company") at
September 30, 2002 to December 31, 2001 and the results of operations for
the three and nine months ended September 30, 2002 with the corresponding
periods in 2001. Currently, the business and management of First Federal of
Olathe Bancorp, Inc. is primarily the business and management of First
Federal Savings and Loan Association of Olathe (the "Association"). This
discussion should be read in conjunction with the interim consolidated
financial statements and footnotes included herein.
This quarterly report on Form 10-QSB includes statements that may
constitute forward looking statements, usually containing the words
"believe," "estimate," "expect," "intent" or similar expressions. These
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations include, but are not limited to, the following: changes in
economic conditions (both generally and more specifically in the markets in
which the Company operates); changes in interest rates, accounting
principles, policies or guidelines and in government legislation and
regulation (which change from time to time and over which the Company has
no control); and other risks detailed in this quarterly report on Form
10-QSB and the Company's other Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof.
The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise
after the date hereof.
FINANCIAL CONDITION
Total assets decreased by $.6 million, or 1.1%, to $54.8 million at
September 30, 2002 from $55.4 million at December 31, 2001. Calls on
securities continued into 2002 as market conditions continued to tighten.
There was very little loan growth and a decrease in deposits. In addition,
$1.0 million in advances from the Federal Home Loan Bank were paid off in
January 2002.
Deposits decreased $.1 million, or .3%, to $37.6 million at September 30,
2002 from $37.7 million at December 31, 2001. The average yield on
interest-bearing deposits during that period decreased to 4.7% at September
30, 2002 from 5.3% at December 31, 2001. Thus, even though rates were
declining, consumers continued to leave their money in more stable
interest-earning accounts. This was reflective of deposit interest rates
continuing to drop in the market throughout 2002. Brokered deposits
remained constant at approximately $7.3 million.
Advances from the Federal Home Loan Bank decreased $1.0 million, or 20.0%,
to $4.0 million at September 30, 2002 from $5.0 million at December 31,
2001. The decrease is due to a $1.0 million note advance being paid off at
maturity in January 2002.
11
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total stockholders' equity decreased $.1 million to $12.1 million at
September 30, 2002 from $12.2 million at December 31, 2001. This was mainly
due to net income being offset by a purchase of treasury shares during the
quarter ended September 30, 2002. The Board of Directors authorized the
repurchase of 55,632 shares in both May and October 2001 and another 55,632
shares in September 2002, as part of its capital management strategy. The
Company repurchased 29,911 shares during the nine months ended September
30, 2002 at an average cost of $22.93 per share, or a total cost of
$685,837, in open market transactions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Net income. Net income for the quarter ended September 30, 2002 was
$191,063 compared to net income of $195,358 for the quarter ended September
30, 2001. This represents a $4,295, or 2.2%, decrease. The decrease is
primarily due to a decrease of $17,401 or 3.5% in net interest income,
which was reflective of continued calls on securities during the quarter
and lower rates on deposits.
Basic earnings per share (EPS) was $.41 and $.40 for the three-month
periods ended September 30, 2002 and 2001. The Company's annualized return
on average interest-earning assets for the quarters ended September 30,
2002 and 2001 was 1.4% for each period. The return on average stockholders'
equity amounted to 6.3% and 5.4% for the quarters ended September 30, 2002
and 2001, respectively.
The increase in the return on average stockholders' equity was primarily
due to the payout of a $4.00 per share dividend in the fourth quarter 2001
offset by the repurchase of 41,911 treasury shares from fourth quarter 2001
to third quarter 2002. Thus, quarterly earnings remained consistent from
September 30, 2001 to September 30, 2002 and had a favorable impact on
return due to a decreased amount of equity during the same period.
NET INTEREST INCOME. For the quarter ended September 30, 2002, net interest
income decreased by $17,401, or 3.5%, to $480,512 from $497,913 for the
quarter ended September 30, 2001. The decrease reflects a decrease of
$71,210, or 6.8%, in interest income to $979,759 for the quarter ended
September 30, 2002 from $1,050,969 for the quarter ended September 30,
2001, and a decrease of $53,809, or 9.7%, in interest expense to $499,247
for the quarter ended September 30, 2002 from $553,056 for the quarter
ended September 30, 2001. The net interest margin decreased to 3.3% for the
third quarter of 2002, as compared to 3.6% for the third quarter of 2001.
12
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest income decreased principally as a result of calls on securities
since the quarter ended September 30, 2001, which proceeds were primarily
used to pay debt and distributions, and the decrease in interest rates on
interest-earning assets held during the quarter ended September 30, 2002.
The annualized yield on average interest-earning assets decreased to 7.0%
for the third quarter of 2002 from 7.5% for the third quarter of 2001,
while average interest-earning assets decreased $1.8 million to $53.9
million at September 30, 2002 from $55.7 million at September 30, 2001. The
decrease in rates was partially attributed to the Federal Reserve Bank
lowering rates 11 times in 2001. In addition, the average yield on loans
decreased to 8.5% for the three months ended September 30, 2002 as compared
to 8.6% for the three months ended September 30, 2001.
The interest expense decrease is attributed to the decrease in interest
rates. The average rate paid on interest bearing deposits decreased to 4.7%
for the third quarter of 2002 from 5.4% for the third quarter of 2001,
while average interest bearing deposits increased $1.6 million to $37.1
million at September 30, 2002 from $35.5 million at September 30, 2001.
Interest expense has also decreased due to the payoff of $1.0 million in
advances due to the Federal Home Loan Bank in January 2002. The interest
expense on Federal Home Loan Bank advances decreased $13,953, or 18.8%, to
$60,342 for the third quarter of 2002 from $74,295 for the same period in
2001, which reflected the decrease in the average outstanding balance of
advances from the Federal Home Loan Bank.
PROVISION FOR LOAN LOSSES. The allowance for loan losses was $175,000 at
September 30, 2002 and 2001. Although no additions were made to the
allowance for loan losses during 2002, management continues to closely
assess the loan portfolio for inherent losses and reports all loans greater
than 30 days past due to the Board of Directors. In addition, detail review
and discussion occurs with management and the Board for those loans that
approach the 60 and 90 days past due levels.
At September 30, 2002 and December 31, 2001, the allowance for loan losses
represents .5% of net loans for each period. Non-performing loans at
September 30, 2002 and December 31, 2001, represent 0.0% and 32.8%,
respectively, of the allowance for loan losses. Loans in the over 90-day
category amounted to $0 and $57,400, or 0.0 % and 0.1%, of total assets as
of September 30, 2002 and December 31, 2001, respectively.
NON-INTEREST EXPENSE. Non-interest expense increased $4,211 to $174,013 for
the quarter ended September 30, 2002 from $169,802 for the quarter ended
September 30, 2001. The slight increase was primarily due to more
compensation cost recognized in the quarter ended September 30, 2002 as
compared to September 30, 2001 associated with the release of additional
shares on the ESOP.
INCOME TAXES. Income taxes decreased by $12,000 to $125,000 for the three
months ended September 30, 2002 from $137,000 for the three months ended
September 30, 2001. The effective tax rates were 39.5% and 41.2% for the
three months ended September 30, 2002 and 2001, respectively.
13
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESUlTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
NET INCOME. Net income for the nine months ended September 30, 2002 was
$542,217, as compared to net income of $644,670 for the nine months ended
September 30, 2001. This represents a $102,453, or 15.9%, decrease. This
decrease was due principally to the decrease of net interest income of
$189,335 or 11.9%, driven by continued calls on securities during 2002, and
a drop in the net interest margin from 3.9% to 3.4%, offset by the decrease
in compensation expense related to the Recognition and Retention Plan that
was approved by the Company's stockholders on April 25, 2001. Total
compensation expense recognized under this Plan amounted to $76,756 for the
nine months ended September 30, 2002 and $147,046 for the nine months ended
September 30, 2001. The large expense in 2001 was due to the 20% immediate
vesting of the shares awarded under the Plan.
Basic earnings per share (EPS) amounted to $1.15 for the nine months ended
September 30, 2002 down from $1.27 in the same period of 2001. The
Company's annualized return on average interest-earning assets for the nine
months ended September 30, 2002 and 2001 was 1.3% and 1.6%, respectively.
The return on average stockholders' equity amounted to 6.0% and 5.8% for
the nine months ended September 30, 2002 and 2001, respectively.
NET INTEREST INCOME. For the nine months ended September 30, 2002, net
interest income decreased by $189,335, or 11.9%, to $1,397,789 from
$1,587,124 for the nine months ended September 30, 2001. The decrease
reflects a decrease of $279,579, or 8.8%, in interest income to $2,906,811
for the nine months ended September 30, 2002 from $3,186,390 for the nine
months ended September 30, 2001, and a decrease of $90,244, or 5.6% in
interest expense, to $1,509,022 for the nine months ended September 30,
2002 from $1,599,266 for the nine months ended September 30, 2001.
Interest income decreased principally as a result of calls on securities
during the period, which proceeds were primarily used to pay debt and
distributions, and the decrease in interest rates on interest-earning
assets. The annualized yield on average interest-earning assets decreased
to 7.1% for the nine months ended September 30, 2002 from 7.9% for the nine
months ended September 30, 2001, while average interest-earning assets
increased $.3 million to $54.3 million at September 30, 2002 from $54.0
million at September 30, 2001. The decrease in rates was partially
attributed to the Federal Reserve Bank lowering rates 11 times in 2001. In
addition, the average yield on loans decreased to 8.6% for the nine months
ended September 30, 2002 as compared to 8.8% for the nine months ended
September 30, 2001.
The interest expense decrease is mainly attributed to the payoff of $1.0
million in advances, at an average interest rate of 7.0%, due to the
Federal Home Loan Bank in January 2002. The interest expense on Federal
Home Loan Bank advances decreased $84,980, or 32.1%, to $179,513 for the
nine months ended September 30, 2002 from $264,493 for the same period in
2001, which reflects the decrease in the average outstanding balance of
advances from the Federal Home Loan Bank as well as the drop in the average
interest rate paid on those advances to approximately 6.0%.
14
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decrease in interest expense also includes a decrease in interest
expense on deposits of $5,264, or .4%, to $1,329,509 for the nine months
ended September 30, 2002 from $1,334,773 for the nine months ended
September 30, 2001, which reflects the increase in the average outstanding
deposit balances to $37.7 million in 2002 from $32.5 million in 2001 and
the decrease in the average yield on deposits to 4.7% during the nine
months ended September 30, 2002 from 5.5% for the nine months ended
September 30, 2001. The decrease in the interest rates on deposits is
primarily a result of the Federal Reserve Bank cutting rates during 2001.
PROVISION FOR LOAN LOSSES. The allowance for loan losses was $175,000 at
September 30, 2002 and 2001. Management deemed no additional provision was
necessary for the nine months ended September 30, 2002 and 2001.
NON-INTEREST EXPENSE. Non-interest expense decreased $55,205 to $531,508
for the nine months ended September 30, 2002 from $586,713 for the nine
months ended September 30, 2001. This decrease was principally due to
compensation expense recognized for the nine months ended September 30,
2002 in the amount of $76,756 on the 2001 Recognition and Retention Plan
compared to $147,046 for the same period in 2001.
INCOME TAXES. Income taxes decreased by $39,500 to $345,000 for the nine
months ended September 30, 2002 from $384,500 for the nine months ended
September 30, 2001. The effective tax rates were 38.9% and 37.4% for the
nine months ended September 30, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, FHLB advances,
repayments on loans, the maturity of investment securities and interest
income. Although maturity and scheduled amortization of loans are
relatively predictable sources of funds, deposit flows and prepayments on
loans are influenced significantly by general interest rates, economic
conditions and competition.
The Association is required to maintain minimum levels of liquid assets
under the OTS regulations. It is the Association's policy to maintain its
liquidity portfolio in excess of regulatory requirements.
The Association's most liquid assets are cash and cash equivalents, which
include overnight deposits at First National Bank of Olathe and the FHLB of
Topeka. The levels of these assets are dependent on the Association's
operating, financing, lending and investment activities during any given
period. At September 30, 2002 and December 31, 2001, cash and cash
equivalents were $9.1 million and $8.6 million, respectively. The increase
in cash and cash equivalents at September 30, 2002, compared to December
31, 2001, resulted primarily from proceeds from calls on securities during
the period not reinvested or used to pay distributions, offset by the
payoff of a $1.0 million Federal Home Loan Bank advance in January 2002.
15
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity management for the Association is both an ongoing and long-term
function of the Association's asset/liability management strategy. Excess
funds generally are invested in overnight deposits at the FHLB of Topeka
and the First National Bank of Olathe. Should the Association require funds
beyond its ability to generate them internally, additional sources of funds
are available through FHLB advances. The Association could pledge its
mortgage loans, FHLB stock or certain other assets as collateral for such
advances. At September 30, 2002, the Association had a balance of $4.0
million in FHLB advances. The Association had unused FHLB advances of
approximately $29.2 million at September 30, 2002.
The Association is required to maintain regulatory capital sufficient to
meet tangible, core and risk-based capital ratios of at least 1.5%, 4.0%
and 8.0%, respectively. At September 30, 2002, the Association exceeded
each of its capital requirements, with tangible, core and risk-based
capital ratios of 20.9%, 20.9% and 49.0%, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing
power over time due to inflation. Unlike industrial companies, virtually
all of the Association's assets and liabilities are monetary in nature. As
a result, interest rates generally have a more significant impact on the
Association's performance than does the effect of inflation. Interest rates
do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services.
16
FIRST FEDERAL OF OLATHE BANCORP, INC.
ITEM 3: CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date
(the "Evaluation Date") within 90 days prior to the filing date of this report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to us (or our consolidated subsidiaries) required to be included in our
periodic SEC filings.
(b) Changes in internal controls.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
17
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE MONTHS ENDED SEPTEMBER 30, 2002
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Neither the Company nor the Association is a party to any material legal
proceedings at this time. From time-to-time, the Association may be involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2: CHANGES IN SECURITIES
Not applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5: OTHER INFORMATION
Not applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 99.1 Officer's Certification
b. Reports on Form 8-K
None
18
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST FEDERAL OF OLATHE BANCORP, INC.
Date: November 13, 2002 By /s/ Mitch Ashlock
----------------- -----------------
Mitch Ashlock, President and
Chief Executive Officer
(Duly authorized officer and principal
executive and financial officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mitch Ashlock, President and Chief Executive Officer, certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of First Federal of
Olathe Bancorp, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
November 13, 2002 /s/ Mitch Ashlock
- ---------------------------- -----------------
Date Mitch Ashlock
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mitch Ashlock, Chief Financial Officer, certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of First Federal of
Olathe Bancorp, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
November 13, 2002 /s/ Mitch Ashlock
- ---------------------- ----------------
Date Mitch Ashlock
Chief Financial Officer