SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1999
-----------------
-OR-
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________.
Commission File Number: 0-24037
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First Kansas Financial Corporation
---------------------------------------------
(Name of Small Business Issuer in Its Charter)
Kansas 48-1198888
- ------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
600 Main Street, Osawatomie, Kansas 66064
- ----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (913) 755-3033
--------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
- ------------------------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 .
-- --
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $9.5 million
------------
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the average bid and asked price of the registrant's
Common Stock on March 3, 2000, was $ 10.7 million.
As of March 3, 2000, there were 1,332,309 outstanding shares of the
registrant's Common Stock.
Transitional Small Business Disclosure Format (check one): YES NO X
-- ---
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year ended
December 31, 1999. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders for
the Fiscal Year ended December 31, 1999. (Part III)
<PAGE>
PART I
Forward-Looking Statements
First Kansas Financial Corporation (the "Company") may from time to
time make written or oral "forward-looking statements", including statements
contained in the Company's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-KSB and the exhibits thereto), in its
reports to stockholders and in other communications by the Company, which are
made in good faith by the Company pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks
resulting from these factors.
The Company cautions that the listed factors are not exclusive. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company.
Item 1. Description of Business
General
The Company is a Kansas corporation organized in February of 1998 at
the direction of First Kansas Federal Savings Association (the "Association") to
acquire all of the capital stock that the Association issued in its conversion
from the mutual to stock form of ownership (the "Conversion"). On June 25, 1998,
the Association completed the Conversion and became a wholly owned subsidiary of
the Company. Pursuant to the Conversion, First Kansas Federal Savings
Association changed its name to First Kansas Federal Savings Bank (the "Bank").
The Company is a unitary savings and loan holding company which, under existing
laws, generally is not restricted in the types of business activities in which
it may engage, provided that the Bank retains a specified amount of its assets
in housing-related investments. The Company conducts no significant business or
operations of its own other than holding all of the outstanding stock of the
Bank and investing the Company's portion of the net proceeds obtained in the
Conversion.
2
<PAGE>
The Bank was originally chartered in 1899 as "The Consolidated Building
and Loan Association" and commenced operations that same year. In 1938, the Bank
became a member of the Federal Home Loan Bank System, obtained a federal charter
and changed its name to "First Federal Savings and Loan Association of
Osawatomie." In 1983, the Bank changed its name to "First Kansas Federal Savings
Association."
The Bank is a federally chartered stock savings bank headquartered in
Osawatomie, Kansas, with six branch offices located in the Kansas counties of
Miami, Bourbon, Mitchell and Phillips. The Bank is subject to examination and
comprehensive regulation by the Office of Thrift Supervision ("OTS") and its
deposits are federally insured by the Savings Association Insurance Fund
("SAIF"). The Bank is a member of and owns capital stock in the FHLB of Topeka,
which is one of the 12 regional banks in the FHLB System.
The Bank operates a traditional savings bank business, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in loans secured by single-family
residential real estate.
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in the Bank's market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers.
3
<PAGE>
Lending Activities
The following table sets forth information concerning the types of
loans held by the Bank.
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of Loans:
Mortgage loans:
One- to four-family.................... $43,760 90.16% $37,884 91.47%
Multi-family........................... 0 0.00 0 0.00
Commercial............................. 567 1.17 471 1.13
Land................................... 278 0.57 264 0.64
Construction........................... 1,079 2.22 151 0.36
------ ----- ------ -----
Total mortgage loans................. 45,684 94.12 38,770 93.60
------ ----- ------ -----
Consumer loans........................... 2,245 4.60 2,115 5.10
Commercial loans......................... 618 1.28 537 1.30
------ ------ ------ ------
Total loan portfolio................. 48,547 100.00% 41,422 100.00%
------ ====== ------ ======
Less:
Loans in process....................... 482 31
Deferred fees, premiums and discounts.. 73 116
Allowance for loan losses.............. 241 206
------ ------
Total loans receivable, net.......... 47,751 $41,069
====== ======
</TABLE>
The following table sets forth the estimated maturity of the Bank's
loan portfolio at December 31, 1999. The table does not include the effects of
possible prepayments or scheduled principal repayments. All mortgage loans are
shown as maturing based on the date of the last payment required by the loan
agreement. All commercial and consumer loans shown in the table below have fixed
interest rates. The mortgage portfolio is comprised of $18,286,000 in fixed rate
loans and $27,398,000 in variable rate loans.
<TABLE>
<CAPTION>
Mortgage Commercial Consumer Total
Loans(1) Loans Loans Loans
-------- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C>
Amounts due:
Within 1 year................ $934 $ 195 $460 $1,589
Over 1 to 5 years............ 1,096 423 1,684 3,203
Over 5 years................. 43,654 0 101 43,755
------ ----- ----- ------
Total amount due........... $45,684 $ 618 $2,245 $48,547
====== ===== ===== ======
</TABLE>
________________________
(1) Includes construction loans.
4
<PAGE>
Mortgage Loans:
One- to Four-Family Residential Loans. The Bank's primary lending
activity consists of originating and purchasing one- to four-family residential
mortgage loans secured by property located in the Bank's market areas. About
sixty percent of the Bank's loan portfolio is comprised of adjustable-rate
mortgage ("ARM") loans which the Bank retains for its portfolio. The remainder
consists of fixed-rate loans which the Bank originates either to resell in the
secondary market or to retain in its portfolio, depending on the yield on the
loan and on its asset/liability management objectives. Residential real estate
loans often remain outstanding for significantly shorter periods than their
contractual terms because borrowers may refinance or repay loans at their
option.
The interest rate on the Bank's ARM loans is based on an index plus a
stated margin. The Bank generally discounts the initial interest rate on ARM
loans. Borrowers qualify for the ARM loans at the initial interest rate,
however, ARM loan borrowers are generally required to meet lower income-to-debt
ratios for approval than those required of fixed-rate borrowers. ARM loans
provide for periodic interest rate adjustments of 1% to 2% annually and 5% to 6%
over the life of the loan, depending on borrower occupancy and size of the
loans. The Banks ARM loans reprice annually after the intial rate period which
may be one year, three years or five years. Most terms are 30 years, however,
shorter terms are available and are utilized. Fixed rate and ARM loans are both
offered indiscriminately, but consumer preference for ARM loans has recently
been increasing due to higher fixed rates.
The Bank's fixed-rate loans generally have terms of 15 or 30 years with
principal and interest payments calculated using up to a 30-year amortization
period. Loans originated with a loan-to-value ratio in excess of 80% require
private mortgage insurance. The maximum loan-to-value ratio on mortgage loans
secured by nonowner occupied properties generally is limited to 80%. The Bank
conforms its fixed rate loans to the standards that are used in the mortgage
industry allowing its loans to be readily sold in the secondary market. The Bank
does not currently retain servicing rights to those loans sold in the secondary
market.
ARM loans decrease the risk associated with changes in interest rates
by periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore is potentially limited in effectiveness during periods
of rapidly rising interest rates.
Mortgage loans originated and held by the Bank generally include
due-on-sale clauses. This gives the Bank the right to deem the loan immediately
due and payable in the event the borrower transfers ownership of the property
securing the mortgage loan without the Bank's consent.
Multi-Family and Commercial Loans. Multi-family and commercial loans
generally have a loan-to-value ratio of 80% or less. These loans do not have
terms greater than 30 years. Commercial real estate loans are secured by office
buildings, churches and other commercial properties.
Multi-family and commercial real estate lending entails significant
additional risks compared to residential property lending. These loans typically
involve large loan balances to single borrowers or groups
5
<PAGE>
of related borrowers. The repayment of these loans typically is dependent on the
successful operation of the real estate project securing the loan. These risks
can be significantly affected by supply and demand conditions in the market for
office and retail space and may also be subject to adverse conditions in the
economy. To minimize these risks, the Bank generally limits this type of lending
to its market area and to borrowers who are otherwise well known to the Bank.
Residential Construction Loans. The Bank makes residential construction
loans/permanent loans on one- to four-family residential property to the
individuals who will be the owners and occupants upon completion of
construction. Only interest payments are required during construction and these
are to be paid from the borrower's own funds. These loans are underwritten using
the same criteria as applied in the underwriting of one- to four-family mortgage
loans. The maximum loan-to-value ratio is 80% during construction. Upon
completion of construction, most loans convert to permanent loans with the Bank.
Land Loans. The Bank also makes land loans which are secured by raw
land in its market area, to be used for agriculture or residential construction.
At December 31, 1999, land loans totaled $278,000 or .57% of the Bank's total
loan portfolio.
Consumer Loans:
The Bank offers consumer loans in order to provide a wider range of
financial services to its customers and because these loans provide higher
interest rates and shorter terms than many of the Bank's other loans. Consumer
loans totaled $2.2 million or 4.60% of the Bank's total loans at December 31,
1999. The Bank's consumer loans consist primarily of direct automobile loans.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Commercial Loans:
The Bank's commercial loan portfolio is comprised of loans to several
local businesses, and at December 31, 1999 represented $618,000, or 1.28% of the
Bank's total loan portfolio.
Loan Approval Authority and Underwriting. The Bank's loan committee,
which is comprised of Larry V. Bailey, Daniel G. Droste and Galen E. Graham,
approves all loans. The loan committee has authority to approve loans in any
category up to $400,000. Loan requests above this amount must be approved by the
Board of Directors.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers. Private mortgage insurance will also be required in
certain instances.
6
<PAGE>
Construction/permanent loans are made on individual properties. Funds
advanced during the construction phase are held in a loans-in-process account
and disbursed at various stages of completion, following physical inspection of
the construction by a loan officer or appraiser.
Either title insurance or a title opinion is generally required on all
real estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the loan application. Loan commitments in excess of
this period may be issued upon payment of a non-refundable fee or upon agreement
on an interest rate float, allowing the Bank to adjust the interest rate on the
loan. As of December 31, 1999, there were outstanding commitments to originate
mortgage loans of $808,000 and to purchase of $2,242,000.
Loans to One Borrower. The maximum amount of loans which the Bank may
make to any one borrower may not exceed the greater of $500,000 or 15% of its
unimpaired capital and unimpaired surplus. The Bank may lend an additional 10%
of its unimpaired capital and unimpaired surplus if the loan is fully secured by
readily marketable collateral. The Bank's maximum loan to one borrower limit was
$2.1 million at December 31, 1999. At December 31, 1999, the outstanding loans
of the Bank's five largest borrowers have balances between $511,000 and
$1,086,000. All of these loans were performing in accordance with their terms.
Non-performing and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 16 days past due, a
notice of nonpayment is sent to the borrower. After the loan becomes 22 days
past due, another notice of nonpayment, accompanied by a personal letter, is
sent to the borrower. If the loan continues in a delinquent status for 90 days
past due and no repayment plan is in effect, foreclosure proceedings will be
initiated. The borrower will be notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in management's opinion, the collection of additional interest is
doubtful. Interest accrued and unpaid at the time a loan is placed on nonaccrual
status is charged against interest income. Subsequent interest payments, if any,
are either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
7
<PAGE>
Non-performing Assets. The following table sets forth information
regarding nonaccrual loans and real estate owned, as of the dates indicated. For
the year ended December 31, 1999, interest income that would have been recorded
on loans accounted for on a nonaccrual basis under the original terms of such
loans was immaterial.
At December 31,
------------------------
1999 1998
---- ----
(In thousands)
Loans accounted for on a non-accrual basis:
One- to four-family......................... $ 72 $ --
Consumer.................................... 10 5
--- ---
Total .................................... 82 5
--- ---
Accruing loans delinquent 90 days or more:
One- to four-family......................... -- --
Consumer.................................... -- --
--- ---
Total..................................... -- --
--- ---
Total non-performing loans.............. 82 5
--- ---
Foreclosed assets:
One- to four-family......................... -- --
Consumer.................................... -- --
--- ---
Total..................................... -- --
--- ---
Total non-performing assets................... $ 82 $ 5
=== ===
Total non-performing loans as a
percentage of net loans..................... 0.01% 0.01%
==== ====
Total non-performing assets as a
percentage of total assets.................. 0.01% 0.01%
==== ====
Classified Assets. OTS regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
the Bank are classified as "substandard", "doubtful", or "loss". An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in full", on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable". Assets classified as loss are those considered "uncollectible" and
of such little value that their continuance as assets without the establishment
of a specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weakness that do not currently warrant
classification in one of the aforementioned categories.
8
<PAGE>
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At December 31, 1999, the Bank had loans classified as special mention,
substandard, doubtful and loss as follows (in thousands):
Special mention.......................... $ --
Substandard.............................. 91
Doubtful assets.......................... 2
Loss assets.............................. 10
----
Total............................... $ 103
====
Allowances for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses that may be incurred
in the Bank's loan portfolio. The evaluation, including a review of all loans on
which full collectibility of interest and principal may not be reasonably
assured, considers: (i) the Bank's past loan loss experience, (ii) known and
inherent risks in the Bank's portfolio, (iii) adverse situations that may affect
the borrower's ability to repay, (iv) the estimated value of any underlying
collateral, and (v) current economic conditions.
The Bank monitors its allowance for loan losses and makes additions to
the allowance as economic conditions dictate. Although the Bank maintains its
allowance for loan losses at a level that management considers adequate for the
inherent risk of loss in the Bank's loan portfolio, future losses could exceed
estimated amounts and additional provisions for loan losses could be required.
In addition, management's determination as to the amount of allowance for loan
losses is subject to review by the OTS, as part of its examination process.
After a review of the information available, the OTS might require the
establishment of an additional allowance.
9
<PAGE>
The following table illustrates the allocation of the allowance for
loan losses for each category of loans. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the Bank's use of the allowance to absorb losses in other
loan categories.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------
1999 1998
------------------------ ------------------------
Percent of Percent of
Loans in Loans in
Each Each
Category Category
to Total to Total
Amount Loans Amount Loans
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans
One- to four-family................... $173 90.16% $155 91.47%
Multi-family.......................... -- -- -- --
Commercial............................ -- 1.17 -- 1.13
Land.................................. -- .57 -- 0.64
Construction.......................... -- 2.22 -- 0.36
Consumer loans.......................... 68 4.60 51 5.10
Commercial loans........................ -- 1.28 -- 1.30
--- ------ --- ------
Total allowance.................... $241 100.00% $206 100.00%
=== ====== === ======
</TABLE>
10
<PAGE>
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates and for the periods indicated:
At December 31,
--------------------------
1999 1998
--------- ----------
(Dollars in thousands)
Balance at beginning of period................ $ 206 $ 179
------- -------
Charge-offs:
One- to four-family......................... --
Consumer.................................... (1) (5)
------- -------
(1) (5)
------- -------
Recoveries:
One- to four-family......................... --
Consumer ................................... -- 2
------- -------
Net charge-offs............................... (1) (3)
Provision for loan losses..................... 36 30
------- -------
Balance at end of period...................... $ 241 $ 206
======= =======
Allowance for loan losses to total
non-performing loans at end of period....... 293.90% 4,120.0%
======= =======
Allowance for loan losses to net loans at
end of period............................... 0.50% 0.50%
======= =======
Investment Activities
Investment Securities. The Bank is required under federal regulations
to maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. See "Regulation -- Savings
Institution Regulation -- Federal Home Loan Bank System" and "Management's
Discussion and Analysis -- Liquidity and Capital Resources." The level of liquid
assets varies depending upon several factors, including: (i) the yields on
investment alternatives, (ii) management's judgment as to the attractiveness of
the yields then available in relation to other opportunities, (iii) expectation
of future yield levels, (iv) asset/liability management, and (v) the Bank's
projections as to the short-term demand for funds to be used in loan origination
and other activities. The Bank classifies its investment securities as
"available-for-sale" or "held-to-maturity" in accordance with SFAS No. 115. At
December 31, 1999, the Bank's investment portfolio policy permitted investments
in instruments such as: (i) U.S. Treasury obligations, (ii) U.S. federal agency
or federally sponsored agency obligations, (iii) local municipal obligations,
(iv) mortgage-backed securities, (v) banker's acceptances, (vi) certificates of
deposit, (vii) federal funds, including FHLB overnight and term deposits (up to
six months), (viii) collateralized automobile receivables, and (ix) investment
grade corporate bonds, commercial paper and mortgage derivative products. See
"-- Mortgage-Backed Securities." The Board of Directors may authorize additional
investments.
11
<PAGE>
The Bank's investment securities "available-for-sale" and
"held-to-maturity" portfolios at December 31, 1999, did not contain securities
of any issuer with an aggregate book value in excess of 10% of the Bank's
equity, excluding those issued by the United States government agencies.
Mortgage-Backed Securities. To supplement lending activities, the Bank
has invested in residential mortgage-backed securities and collateralized
mortgage obligations ("CMOs"). Mortgage-backed securities can serve as
collateral for borrowings and, through sale, maturity or repayments, as a source
of liquidity. Mortgage-backed securities represent a participation interest in a
pool of single-family or other type of mortgages. Principal and interest
payments are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as the
Bank. The quasi-governmental agencies guarantee the payment of principal and
interest to investors and include the Federal Home Loan Mortgage Corporation
("FHLMC"), the Government National Mortgage Association ("GNMA"), and the
Federal National Mortgage Association ("FNMA").
At December 31, 1999, the Bank's mortgage-backed securities portfolio
classified as "available- for-sale" totaled $20.8 million, and the Bank's
mortgage-backed securities portfolio classified as "held-to- maturity" totaled
$58.0 million. Each security was issued by GNMA, FHLMC or FNMA. Expected
maturities will differ from contractual maturities due to scheduled repayments
and because borrowers may have the right to call or prepay obligations with or
without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
The interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed-rate or adjustable-rate) and the prepayment risk, are passed on to
the certificate holder. The life of a mortgage-backed pass-through security is
equal to the life of the underlying mortgages. Mortgage-backed securities issued
by FHLMC and GNMA make up a majority of the pass-through certificates market.
CMOs have been developed in response to investor concerns regarding the
uncertainty of cash flows associated with the prepayment option of the
underlying mortgagor. A CMO can be collateralized directly by mortgages, but
more often is collateralized by mortgage-backed securities issued or guaranteed
by the GNMA, FNMA or the FHLMC and held in trust for CMO investors. In contrast
to mortgage-backed securities in which the cash flow is received pro rata by all
security holders, the cash flow from the mortgage loans underlying a CMO is
segmented and paid in accordance with a predetermined priority to investors
holding various CMO tranches. Different classes of bonds are created, each with
its own stated maturity, estimated average life, coupon rate, and prepayment
characteristics. Notwithstanding the importance of the CMO structure to an
evaluation of timing and amount of cash flow, it is essential to understand the
coupon rates on the mortgages underlying the CMO to assess the prepayment
sensitivity of the CMO tranches. Most of the CMOs owned by the Bank are
government agency guaranteed. A few of the CMOs consist of small private issues
collateralized by mortgage loans and include extra credit enhancements
sufficient to earn the highest credit ratings from independent rating agencies.
At December 31, 1999, the Bank's CMO portfolio classified as
"available-for-sale" had a carrying value of $13.2 million, and the Bank's CMO
portfolio classified as "held-to-maturity" had a carrying value of $22.7
million.
12
<PAGE>
Investment Portfolio. The following table sets forth the carrying value
of the Bank's investments. See Notes 3, 4 and 5 to the Bank's Financial
Statements.
At December 31,
---------------------
1999 1998
---- ----
(In thousands)
Investments:
U.S. agency securities.............................. $ 4,232 $ 3,139
Mortgage-backed securities held-to-maturity......... 57,965 22,521
Mortgage-backed securities available-for-sale....... 20,795 27,282
State and municipal obligations held-to-maturity.... 1,115 624
Other - held-to-maturity............................ 914 949
Interest-bearing deposits........................... 0 7,000
FHLB stock.......................................... 2,114 509
------ ------
Total investments ............................... $87,135 $62,024
====== ======
13
<PAGE>
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for the Bank's investments at December 31, 1999 by contractual maturity.
The following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
---------------- ----------------- ----------------- ------------------- ---------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Fair
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ----------------- ---------- -------- --------- -------- --------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:
U.S. agency
securities..... $ -- --% $1,000 6.34% $ 2,000 6.30% $ 1,232 8.05% $4,232 6.82% $ 4,061
Mortgage-backed
securities...... -- -- 865 6.28 3,644 6.45 74,251 6.37 78,760 6.36 76,392
Interest-bearing
deposits....... -- -- -- -- -- -- -- -- -- -- --
FHLB stock........ -- -- -- -- -- -- 2,114 7.50 2,114 7.50 2,114
State municipal
obligations..... -- -- -- -- -- -- 1,115 4.67 1,115 4.67 988
Other debt
securities...... -- -- -- -- -- -- 914 6.60 914 6.60 914
------- ----- ------ ---- ------- ---- ------- ---- ------- ---- -------
Total
investments....$ -- --% $1,865 6.31% $ 5,644 6.25% $79,626 6.40% $87,135 6.39% $84,469
======= ===== ====== ==== ======= ==== ======= ==== ======= ==== =======
</TABLE>
14
<PAGE>
Sources of Funds
Deposits are the Bank's major external source of funds for lending and
other investment purposes. Funds are also derived from the receipt of payments
on loans and prepayment of loans and maturities of investment securities and
mortgage-backed securities and, to a much lesser extent, borrowings and
operations. Scheduled loan principal repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a selection
of deposit instruments including checking accounts, regular savings accounts,
money market accounts, and term certificate accounts. IRA accounts are also
offered. Deposit account terms vary according to the minimum balance required,
the time period the funds must remain on deposit, and the interest rate.
The interest rates paid by the Bank on deposits are set weekly at the
direction of the Bank's senior management. Interest rates are determined based
on the Bank's liquidity requirements, interest rates paid by the Bank's
competitors, and the Bank's growth goals and applicable regulatory restrictions
and requirements.
Non-interest bearing demand, regular savings, money market demand and
NOW accounts constituted $31.2 million, or 37.9%, of the Bank's deposit
portfolio at December 31, 1999 and the average interest rate paid on such
interest-bearing accounts at that date was 2.78%. Certificates of deposit
constituted $51.1 million, or 62.1%, of the deposit portfolio, of which $2.46
million, or 3.0%, of the deposit portfolio were certificates of deposit with
balances of $100,000 or more. Such deposits are offered at negotiated rates. The
average interest rates paid on certificates of deposits with deposit balances
under $100,000 and over $100,000 were 5.21% and 5.27%, respectively, at December
31, 1999. As of December 31, 1999, the Bank had no brokered deposits.
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1999.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Within three months $ 670
Three through six months 510
Six through twelve months 587
Over twelve months 691
-----
$2,458
=====
Borrowings. Advances (borrowings) may be obtained from the FHLB of
Topeka to supplement the Bank's supply of lendable funds. Advances from the FHLB
of Topeka are typically secured by a pledge of the Bank's stock in the FHLB of
Topeka, a portion of the Bank's first mortgage loans and other assets. Each FHLB
credit program has its own interest rate (which may be fixed or adjustable) and
range of
15
<PAGE>
maturities. The Bank may borrow up to $58.1 million from the FHLB of Topeka. If
the need arises, the Bank may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. At December 31, 1999, borrowings from the FHLB of Topeka totaled
$40.5 million. The Bank had no other borrowings outstanding.
The following table sets forth the terms of the Bank's short-term FHLB
advances.
At or for the period ended
----------------------------------------
December 31, 1999 December 31, 1998
----------------- ------------------
(Dollars in thousands)
Balance at year end.............. $ 10,500 $650
Average balance outstanding
during the period.............. 3,554 808
Maximum amount outstanding
at any month-end during
the period..................... 11,500 2,550
Weighted average interest rate
during the period.............. 5.66% 5.73%
Personnel
At December 31, 1999, the Bank had 35 full-time employees and 11
part-time employees. None of the Bank's employees are represented by a
collective bargaining group. Management believes that its relationship with the
employees is good.
Subsidiary Activity
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or loans to, subsidiary corporations. An additional investment of 1%
of assets is permitted when the additional investment is utilized primarily for
community development purposes. Pursuant to these limitations, as of December
31, 1999, the Bank was authorized to invest up to approximately $2.9 million in
the stock of, or loans to, service corporations (based upon the 2% limitation).
The Bank has one wholly-owned service corporation, First Enterprises, Inc.
("FEI"). In recent years, FEI has been primarily utilized as an agency for the
sale of credit life insurance, mortgage life insurance and certain fixed- and
variable-rate annuities. However, in August 1995, the Bank purchased for
development through FEI an 8.3 acre tract of land in Paola, Kansas known as
Baptiste Commons. This tract of land consists of as seven commercial sites, one
of which was used for the site of our new office building. The Bank's investment
in this real estate development project will continue to decline as the
remaining lots are sold. At December 31, 1999, the total investment in this real
estate was $357,000.
16
<PAGE>
Regulation
Set forth below is a brief description of certain laws which are
related to the regulation of the Company and the Bank. The following description
does not purport to be complete and is qualified in its entirety by reference to
all applicable laws and regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. The Company files reports with the
OTS and is subject to regulation and examination by the OTS. In addition, the
OTS has enforcement authority over the Company and its non- savings association
subsidiaries, should such subsidiaries be formed, which also permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association. This regulation and oversight is intended
primarily for the protection of the depositors of the Bank and not for the
benefit of stockholders of the Company.
Federal law was recently amended to effectively prohibit the Company
from affiliating in any way with a non-financial company. In connection with the
amendment to federal law, the Company may now become affiliated with securities
firms and insurance companies. These changes to federal law do not impact the
current business of the Company. Unlike savings and loan holding companies that
may be created in the future, the Company generally is not restricted in the
type of business in which it may engage, provided that the Bank maintains a
specified amount of its assets in housing related investments.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
savings association insured by the Savings Association Insurance Fund (the
"SAIF")) would become subject to restrictions applicable to bank holding
companies unless such other associations each also qualify as a QTL and were
acquired in a supervisory acquisition.
Bank Regulation
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation (the "FDIC"). Lending activities and other investments
must comply with various federal statutory and regulatory requirements. The Bank
is also subject to certain reserve requirements promulgated by the FRB.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as
17
<PAGE>
mergers with or acquisitions of other savings institutions. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the SAIF
and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulations, whether by the OTS, the
FDIC, or the U.S. Congress could have a material adverse impact on the Company,
the Bank, and their operations.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured member (as defined by law
and regulation). Insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
institution's primary regulator. The FDIC may also prohibit an insured
depository institution from engaging in any activity the FDIC determines to pose
a serious threat to the SAIF.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular institution poses to its deposit insurance fund,
depending upon the institution's risk classification. This risk classification
is based on an institution's capital group and supervisory subgroup assignment.
In addition, the FDIC is authorized to increase deposit insurance rates on a
semi-annual basis if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. The FDIC may impose
special assessments on SAIF members to repay amounts borrowed from the U.S.
Treasury or for any other reason deemed necessary by the FDIC.
As a member of SAIF, the Bank paid an annual insurance assessment of at
least 0.064% of its total deposits. The FDIC also maintains another insurance
fund, the Bank Insurance Fund (the "BIF"), which primarily insures commercial
bank deposits. Most members of BIF pay a lower premium to the FDIC.
After 1999, assessments for BIF and SAIF members should be the same. It
is expected that these continuing assessments for both SAIF and BIF members will
be used to repay outstanding Financing Corporation bond obligations.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 4% of total adjusted assets for most savings institutions, and (3) a
risk-based capital requirement equal to 8.0% of total risk-weighted assets. The
Bank exceeded these minimum standards at December 31, 1999. The Bank's capital
ratios are set forth in Note 12 to the Company's Consolidated Financial
Statements. Regulations that enable the OTS to take prompt corrective action
against savings institutions may effectively impose higher capital requirements
on the Bank.
Savings associations with a greater than "normal" level of interest
rate exposure may, in the future, be subject to a deduction for an interest rate
risk ("IRR") component from capital for purposes of calculating their risk-based
capital requirement.
Dividend and Other Capital Distribution Limitations. The Bank must give
the OTS 30 days advance notice of any proposed distribution of capital, such as
a declaration of dividends to the Company,
18
<PAGE>
and the OTS has the authority under its supervisory powers to prohibit any
payment of dividends to the Company that it deems to constitute an unsafe or
unsound practice. In addition, the Bank may not declare or pay a dividend on its
capital stock if the dividend would (1) reduce the regulatory capital of the
Bank below the amount required for the liquidation account established in
connection with the conversion from mutual to stock form or (2) reduce the
amount of capital of the Bank below the amounts required in accordance with
other OTS regulations. In contrast, the Company has fewer restrictions on its
payment of dividends to its stockholders.
During 1999, the Company declared three $.05 per share quarterly
dividends to its share holders resulting in a dividend payout ratio of 25.8%. No
dividends were declared in 1998.
Qualified Thrift Lender Test. Savings institutions must meet a QTL
test. If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily residential mortgages and related investments, including certain
mortgage-related securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of Topeka. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the institution in conducting its
business and liquid assets equal to 20% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying QTIs. As of December 31, 1999, the Bank was in compliance with its
QTL requirement.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Topeka, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e.,advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Topeka in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year.
Federal Reserve System. The FRB requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW, and Super NOW checking accounts)
and non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy the
liquidity requirements that are imposed by the OTS.
Proposed Regulation. The OTS has announced that it will consider
amending its capital standards so as to more closely conform its requirements to
those of the other federal banking agencies. The impact of this possible change
is not expected to materially impact the Bank. The impact on the Company cannot
yet be determined.
19
<PAGE>
Item 2. Description of Property
(a) Properties.
The Bank owns 5 of its 6 offices and leases 1 of them. The net book
value of this real property at December 31, 1999, was $1,648,000. The Bank's
total investment in office equipment had a net book value of $565,000 at
December 31, 1999.
Leased Year Year Net Book Value Of
or Leased or Lease Real Property at
Location Owned Acquired Expires December 31, 1999
-------- ----- -------- ------- -----------------
MAIN OFFICE:
600 Main Street Owned 1974 N/A $ 198,000
Osawatomie, Kansas 66064
2205 South Main Owned 1981 N/A $ 144,000
Fort Scott, Kansas 66701
100 West Amity Owned 1974 N/A $ 379,000
Louisburg, Kansas 66053
125 North Mill Owned 1999 N/A $ 35,000
Beloit, Kansas 67420
762 4th Street Leased 1984 2004 $ --
Phillipsburg, Kansas 67661
1310 Baptiste Drive Owned 1998 N/A $ 892,000
Paola, Kansas 66071
(b) Investment Policies.
See "Item 1. Description of Business" above for a general description
of the Bank's investment policies and any regulatory or Board of Directors'
percentage of assets limitations regarding certain investments. The Bank's
investments are primarily acquired to produce income, and to a lesser extent,
possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Description of Business - Lending Activities and - Bank Regulation," and
"Item 2. Description of Property."
(2) Investments in Real Estate Mortgages. See "Item 1. Description of
Business - Lending Activities and - Bank Regulation."
20
<PAGE>
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Description of Business -
Lending Activities and -Bank Regulation."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any of such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information contained under the section captioned "Stock Price
Information" of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1999 (the "Annual Report") is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Annual Report is incorporated herein by reference.
Item 7. Financial Statements
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants On Accounting and
Financial Disclosure.
Not applicable.
21
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
with Section 16(a) of the Exchange Act.
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Proposal I - Election of
Directors" in the Company's Proxy Statement for the Annual Meeting of
Stockholders for the Fiscal Year ended December 31, 1999 (the "Proxy Statement")
is incorporated herein by reference.
Item 10. Executive Compensation
The information contained in the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the first chart in the section captioned
"Proposal I - Election of Directors" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the first chart in the section captioned
"Proposal I - Election of Directors" in the Proxy Statement.
(c) Management of the Registrant knows of no arrangements,
including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date
result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, List, and Reports on Form 8-K
(a) Listed below are all financial statements and exhibits filed as
part of this report.
1. The consolidated balance sheets of First Kansas
Financial Corporation as of December 31, 1999 and 1998
and the related consolidated statements of earnings,
changes in stockholders' equity and cash flows for the
years then ended, together with the related notes and
the independent auditors' report of KPMG LLP,
independent certified public accountants.
2. Schedules omitted as they are not applicable.
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3. The following exhibits are included in this Report or incorporated herein by reference:
(a) List of Exhibits:
3(i) Articles of Incorporation of First Kansas Financial Corporation *
3(ii) Bylaws of First Kansas Financial Corporation *
10 Employment Agreement with Larry V. Bailey
13 Annual Report to Stockholders for the fiscal year ended December 31, 1999
21 Subsidiaries of the Registrant
23 Consent of KPMG LLP
27 Financial Data Schedule (electronic filing only)
</TABLE>
---------------
* Incorporated by reference to the Company's Registration
Statement on Form SB-2 (File No. 333- 48093) declared
effective by the SEC on May 8, 1998.
** Incorporated by reference to the Company's Form 10-KSB
for the fiscal year ended December 31, 1998.
(b) Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized as of
March 24, 2000.
FIRST KANSAS FINANCIAL CORPORATION
By: /s/Larry V. Bailey
-------------------------------------
Larry V. Bailey
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of March 24, 2000.
/s/J. Darcy Domoney /s/James E. Breckenridge
- ----------------------------- --------------------------------
J. Darcy Domoney James E. Breckenridge
Chairman Director
/s/William R. Butler, Jr. /s/Roger L. Coltrin
- ----------------------------- --------------------------------
William R. Butler, Jr Roger L. Coltrin
Director Director
/s/Donald V. Meyer /s/Larry V. Bailey
- ----------------------------- --------------------------------
Donald V. Meyer Larry V. Bailey
Director Director, President, CEO and CFO
EXHIBIT 13
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION
1999 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION
ANNUAL REPORT
TABLE OF CONTENTS
Page
----
Letter to Stockholders.........................................................1
Corporate Profile..............................................................2
Stock Price Information........................................................3
Selected Financial Ratios and Other Data.......................................3
Management's Discussion and Analysis...........................................4
Report of Independent Auditors...............................................F-1
Consolidated Financial Statements............................................F-2
Notes to Consolidated Financial Statements...................................F-7
Corporate Information.................................................Back Cover
<PAGE>
To Our Stockholders:
On behalf of our Board of Directors and employees, we are pleased to
present the Annual Report to Stockholders of First Kansas Financial Corporation
(the "Company"). As you will see from the Annual Report, 1999 was an eventful
year for the Company and its wholly-owned subsidiary, First Kansas Federal
Savings Bank (the "Bank").
The Company continues to invest the net proceeds from its public
offering. We expect that the investment of these proceeds will generate
increased core earnings in future periods.
For the fiscal year ended December 31, 1999, the Company earned
$855,000 or $.63 per share, as compared to net income of $720,000, or $.50 per
share, for the fiscal year ended December 31, 1998.
At December 31, 1999, the Company's assets totalled $142.5 million, as
compared to $107.2 million at December 31, 1998. Stockholders' equity was $18.9
million or $14.17 per share at December 31, 1999, as compared to stockholders'
equity of $21.4 million or $13.80 per share at December 31, 1998.
We have accomplished much this year in terms of growth, earnings,
market share and service. Our employees are top notch and are dedicated to the
tasks ahead of us. We appreciate your support and, with you, we look forward to
our future.
Sincerely,
/s/ Larry V. Bailey
------------------------------------
Larry V. Bailey
President and Chief Executive Officer
<PAGE>
Corporate Profile
The Company is a Kansas corporation organized in February of 1998 at
the direction of First Kansas Federal Savings Association (the "Association") to
acquire all of the capital stock that the Association issued in its conversion
from the mutual to stock form of ownership (the "Conversion"). On June 25, 1998,
the Association completed the Conversion and became a wholly owned subsidiary of
the Company. Pursuant to the Conversion, First Kansas Federal Savings
Association changed its name to First Kansas Federal Savings Bank (the "Bank").
The Company is a unitary savings and loan holding company which, under existing
laws, generally is not restricted in the types of business activities in which
it may engage, provided that the Bank retains a specified amount of its assets
in housing-related investments. The Company conducts no significant business or
operations of its own other than holding all of the outstanding stock of the
Bank and investing the Company's portion of the net proceeds obtained in the
Conversion.
The Bank was originally chartered in 1899 as "The Consolidated Building
and Loan Association" and commenced operations that same year. In 1938, the Bank
became a member of the Federal Home Loan Bank System, obtained a federal charter
and changed its name to "First Federal Savings and Loan Association of
Osawatomie." In 1983, the Bank changed its name to "First Kansas Federal Savings
Association."
The Bank is a federally chartered stock savings bank headquartered in
Osawatomie, Kansas, with six branch offices located in the Kansas counties of
Miami, Bourbon, Mitchell and Phillips. The Bank is subject to examination and
comprehensive regulation by the Office of Thrift Supervision ("OTS") and its
deposits are federally insured by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is a
member of and owns capital stock in the Federal Home Loan Bank ("FHLB") of
Topeka, which is one of the 12 regional banks in the FHLB System.
The Bank operates a traditional savings bank business, attracting
deposit accounts from the general public and using those deposits, together with
other funds, primarily to originate and invest in loans secured by single-family
residential real estate and investment securities, including mortgage-backed
securities.
Stock Price Information
The Company's common stock is traded on the Nasdaq National Market
under the trading symbol of "FKAN." The following table reflects high and low
sale closing prices as published by the Nasdaq National Market for the calendar
quarters indicated. The prices reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
2
<PAGE>
High Low Dividends
---- --- ---------
1998
Second quarter (from June 25, 1998) $12.38 $10.00 --
Third quarter $12.50 $10.00 --
Fourth quarter $10.75 $ 9.00 --
1999
First Quarter $11.00 $10.25 --
Second Quarter $11.00 $10.00 $.05/share
Third Quarter $11.38 $10.69 $.05/share
Fourth Quarter $11.75 $11.00 $.05/share
The number of shareholders of record of common stock as of March 3,
2000 was approximately 552. This does not reflect the number of persons or
entities who held stock in nominee or "street" name through various brokerage
firms. At March 3, 2000, there were 1,332,309 shares of the Company's common
stock outstanding.
The Company's ability to pay dividends to stockholders is largely
dependent upon the dividends it receives from the Bank. The Bank may not declare
or pay a cash dividend on any of its stock if the effect thereof would cause the
Bank's regulatory capital to be reduced below (1) the amount required for the
liquidation account established in connection with the Conversion, or (2) the
regulatory requirements imposed by the OTS.
Selected Financial Ratios and Other Data
At or For the Years Ended
December 31,
-------------------------
1999 1998
---- ----
Return on average assets .63% .71%
Return on average equity 4.20 4.93
Average equity to average assets ratios 14.87 14.33
Equity to assets at period end 13.24 20.00
Net interest rate spread 2.26 2.55
Net yield on average interest-earning
assets 6.63 7.00
Non-performing loans to total assets .01 .01
Allowance for loan loss to total loans .50 .50
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company and the Bank, and should be read in conjunction with
the accompanying Consolidated Financial Statements.
General
The Company was formed in 1998. Its results from operations consist
primarily of interest income from the investing of funds from the proceeds
generated by the sale of common stock.
The Bank's results of operations depend primarily on net interest
income, which is determined by (i) the difference between rates of interest the
Bank earns on its interest-earning assets and the rates the Bank pays on
interest-bearing liabilities (interest rate spread), and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities. The Bank's
results of operations are also affected by noninterest income, including,
primarily, income from customer deposit account service charges, gains and
losses from the sale of investments and mortgage-backed securities and
noninterest expense, including, primarily, compensation and employee benefits,
federal deposit insurance premiums, office occupancy cost, and data processing
cost. The Bank's results of operations are also affected significantly by
general and economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities, all
of which are beyond the Bank's control.
Market Risk Analysis
Qualitative Analysis. The Bank's assets and liabilities may be analyzed
by examining the extent to which they are interest rate sensitive and by
monitoring the expected effects of interest rate changes on the Bank's net
portfolio value.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Bank's
assets mature or reprice more quickly or to a greater extent than its
liabilities, the Bank's net portfolio value and net interest income would tend
to increase during periods of rising interest rates but decrease during periods
of falling interest rates. Conversely, if the Bank's assets mature or reprice
more slowly or to a lesser extent than its liabilities, the Bank's net portfolio
value and net interest income would tend to decrease during periods of rising
interest rates but increase during periods of falling interest rates. The Bank's
policy has been to address the interest rate risk inherent in the historical
savings institution business of originating long-term loans funded by short-term
deposits by maintaining sufficient liquid assets for material and prolonged
changes in interest rates and by originating loans with shorter terms to
maturity such as construction, commercial and consumer loans. In addition, the
Bank has invested in adjustable-rate mortgage-backed securities as an interest
rate risk management strategy.
Quantitative Analysis. In order to encourage savings associations to
reduce their interest rate risk, the OTS adopted a rule incorporating an
interest rate risk ("IRR") component into the risk-
4
<PAGE>
based capital rules. The IRR component is a dollar amount that will be deducted
from total capital for the purpose of calculating an institution's risk-based
capital requirement and is measured in terms of the sensitivity of its net
portfolio value ("NPV") to changes in interest rates. NPV is the difference
between incoming and outgoing discounted cash flows from assets, liabilities,
and off-balance sheet contracts. An institution's IRR is measured as the change
to its NPV as a result of a hypothetical 200 basis point ("bp") change in market
interest rates. A resulting change in NPV of more than 2% of the estimated
present value of total assets ("PV") will require the institution to deduct from
its capital 50% of that excess change. The rules provide that the OTS will
calculate the IRR component quarterly for each institution. Based on the Bank's
asset size and risk-based capital, the Bank has been informed by the OTS that it
is exempt from this rule. Nevertheless, the following table presents the Bank's
NPV at December 31, 1999, as calculated by the OTS, based on quarterly
information voluntarily provided to the OTS.
Changes
in Market Net Portfolio Value
---------------------------------
Interest Rates $ Amount $ Change % Change NPV Ratio(1)
-------------- -------- -------- -------- ------------
(basis points) (Dollars in Thousands)
+ 300 $5,238 $(9,085) - 63% 4.13%
+ 200 $8,781 $(5,542) - 39% 6.67%
+ 100 $11,820 $(2,503) - 17% 8.69%
0 $14,323 $ -- -- 10.23%
- 100 $16,272 $1,949 + 0.14 11.34%
- 200 $16,702 $2,379 + 17% 11.48%
- 300 $16,514 $2,191 + 15% 11.24%
- ---------------
(1) Calculated as the estimated NPV divided by present value of total assets.
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments and deposit run-offs and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react at different times and in
different degrees to changes in market rates of interest. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while rates on other types of assets and liabilities may
lag behind changes in market interest rates. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making the calculations set forth above.
Additionally, an increased credit risk may result as many borrowers may be
unable to service their debt in the event of an interest rate increase.
The Bank's board of directors reviews the Bank's asset and liability
policies on an annual basis. The board of directors meets quarterly to review
interest rate risk and trends, as well as
5
<PAGE>
liquidity and capital ratios and requirements. Management administers the
policies and determinations of the board of directors with respect to the Bank's
asset and liability goals and strategies. The Bank expects that its asset and
liability policies and strategies will continue as described so long as
competitive and regulatory conditions in the financial institution industry and
market interest rates continue as they have in recent years.
Financial Condition
Total assets increased $35.3 million or 33.0% to $142.5 million at December 31,
1999 from $107.2 million at December 31, 1998. The increase was primarily
attributable to an increase of $35.4 million in mortgage-backed securities held
to maturity, a $6.7 million increase in our loan portfolio and a $1.5 million
increase in our investment securities held to maturity, partially offset by a
$4.1 million redeployment of cash and cash equivalents and a $6.5 million
paydown in mortgage backed securities available for sale. Total liabilities
increased $37.9 million or 44.2% to $123.7 million at December 31, 1999 from
$85.8 million at December 31, 1998. The increase was primarily attributable to a
$39.9 million increase in FHLB borrowings offset by a $2.1 million decrease in
our deposits. The growth in mortgage-backed securities was part of our arbitrage
strategy with the FHLB borrowings as the underlying source of funds. The growth
in the loan portfolio was the result of our success in purchasing loans to meet
our asset mix needs throughout the year.
6
<PAGE>
Average Balance Sheet
The following table sets forth a summary of average balances of assets
and liabilities as well as average yield and rate information. Average balances
are based upon month-end balances, however, we do not believe the use of
month-end balances differs significantly from an average based upon daily
balances. There has been no tax equivalent adjustments made to yields.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1999 1998
------------------------------------------- --------------------------------------
Average Average
Outstanding Interest Outstanding Interest
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
------- ----------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 43,655 $3,345 7.66% $ 43,978 $3,528 8.02%
Investment securities 6,155 391 6.35% 3,979 259 6.51%
Mortgage-backed securities 77,427 4,692 6.06% 42,240 2,570 6.08%
Interest-bearing deposits 1,733 121 6.98% 6,200 389 6.27%
FHLB stock 1,594 108 6.78% 650 48 7.38%
-------- ------ ----- -------- ------ -----
Total interest-earning assets(1) 130,564 8,657 6.63% 97,047 6,794 7.00%
------ ----- ------ -----
Noninterest-earning assets 6,222 4,513
-------- --------
Total assets $136,786 $101,560
======== =======
Interest-bearing liabilities:
NOW and investment deposits $24,194 574 2.37% $ 23,593 561 2.38%
Savings and certificate accounts 60,733 2,965 4.88% 60,901 3,185 5.23%
FHLB borrowings 30,096 1,486 4.94% 808 52 6.44%
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities 115,023 5,025 4.37% 85,302 3,798 4.45%
------ ----- ------ -----
Noninterest-bearing liabilities: 1,427 1,708
-------- --------
Total liabilities 116,450 87,010
-------- --------
Equity 20,336 14,550
-------- --------
Total liabilities and equity $136,786 $101,560
======== =======
Net interest income $3,632 $2,996
====== =====
Net interest rate spread(2) 2.26% 2.55%
===== ======
Net earning assets $ 15,541 $ 11,745
======== =======
Net yield on interest-earning assets(3) 2.78% 3.09%
===== ======
Average interest-earning assets to average
interest-bearing liabilities 113.51% 113.77%
======= ======
</TABLE>
- ------------------------
(1) Includes non-accrual loans and loans held-for-sale. Calculated net of
deferred loan fees, loan discounts, loans in process and loan loss
reserves.
(2) Net interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
7
<PAGE>
The table below sets forth certain information regarding changes in
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 vs. 1998
-----------------------------------------
Increase/(Decrease)
Due to
-----------------------------------------
Rate/
Volume Rate Volume Total
------ ---- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)...................................... $ (26) $ (158) $ 1 $ (183)
Investment securities.................................... 142 (6) (3) 132
Mortgage-backed securities............................... 2,141 (10) (9) 2,122
Interest-bearing deposits................................ (280) 44 (32) (268)
FHLB stock............................................... 70 (4) (6) 60
------- ------ ------ ------
Total interest-earning assets 2,046 (135) (48) 1,863
------- ------ ------ ------
Interest-bearing liabilities:
NOW and money market deposits............................ 14 (1) (0) 13
Savings and certificate accounts......................... (9) (212) 1 (220)
FHLB borrowings.......................................... 1,885 (12) (439) 1,434
------- ------ ------ ------
Total interest-bearing liabilities.................... 1,890 (225) (438) 1,227
------- ------ ------ ------
Increase in net interest income............................ $ 156 $ 90 $ 390 $ 636
------- ------ ------ ------
</TABLE>
8
<PAGE>
Results of Operations for the Years Ended December 31, 1999 and 1998
Net Income. Our net income increased $135,000 for the year ended
December 31, 1999, to $855,000 as compared to $720,000 for the year ended
December 31, 1998. This increase was primarily attributable to a $636,000
increase in net interest income and a $61,000 increase in noninterest income,
partially offset by a $506,000 increase in noninterest expense.
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on interest-earning assets, primarily loans,
investment and mortgage-backed securities and interest we pay on
interest-bearing liabilities, primarily deposits and borrowings. Net interest
income depends on the volume of and rates earned on interest-earning assets and
the volume of and rates paid on interest-bearing liabilities.
Our net interest income increased $636,000 or 21.2% to $3,632,000 for
the year ended December 31, 1999, compared to $2,996,000 for the same period in
1998. The increase was primarily due to the increase in average net earning
assets from $11.7 million in 1998 to $15.5 million in 1999 as well as the spread
earned on the $38 million of arbitrage transactions executed in 1999.
The increase in our average interest-bearing liabilities from $85.3
million in 1998 to $115 million in 1999 reflects the growth in FHLB advances to
fund the arbitrage transactions.
Our net interest rate spread decreased from 2.55% for the year ended
December 31, 1998 to 2.26% for the year ended December 31, 1999 primarily due to
the smaller margins received on the arbitrage transactions compared to the
remainder of the asset/liability portfolio.
Provision for Loan Losses. Our provision for loan loss was $36,000 for
the year ended December 31, 1999 compared to $30,000 for the same period in
1998. The allowance for loan losses was $241,000 or .50% of net loans
outstanding at December 31, 1999 compared to $206,000 or .50% of net loan
outstanding at December 31, 1998.
Historically, we have emphasized our loss experience over other factors
in establishing the provision for loan losses. We review the allowance for loan
losses in relation to (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions. Management believes the allowance for loan losses
is at a level that is adequate to provide for estimated losses. However, there
can be no assurance that further additions will not be made to the allowance and
that such losses will not exceed the estimated amount. See "Business of First
Kansas Federal Savings Bank -- Non-performing and Problem Assets -- Allowance
for Loan Losses."
Noninterest income. Our noninterest income increased $61,000 or 7.5%
from $811,000 in 1998 to $872,000 in 1999. The increase in our noninterest
income was primarily due to an increase in our deposit account service fees
generated by our Totally Free Checking program.
9
<PAGE>
Noninterest expense. Our noninterest expense increased $506,000 or
19.6% from $2,585,000 in 1998 to $3,091,000 in 1999. The increase in our
non-interest expense was due primarily to a $221,000 increase in our
compensation and benefits, a $146,000 increase in other expense (most notably a
full year's expense related to the costs of a public company) and a $76,000
increase in occupancy and equipment. Costs associated with our Restricted Stock
and Employee Stock Ownership Plans were the primary components of the increase
in compensation and benefits. Occupancy and equipment expense increased as a
result of the expenses at our new Paola branch facility and the major remodeling
of our Louisburg office.
Income Tax Expense. Our income tax expense increased $50,000 from
$472,000 in 1998 to 522,000 in 1999. Our effective tax rate was 37.9% and 39.6%
for the years ended December 31, 1999 and 1998, respectively.
Liquidity and Capital Resources
We are required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of our
deposits and short-term borrowings. The required ratio currently is 4% and our
regulatory liquidity ratio average was 50.81% and 26.67% at December 31, 1999
and 1998, respectively.
Our primary sources of funds are deposits, repayment of loans and
mortgage-backed securities, maturities of investment securities and
interest-bearing deposits with other banks, advances from the FHLB of Topeka,
and funds provided by operations. While scheduled repayments of loans and
mortgage-backed securities and maturities of investment securities are
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. We use our liquidity resources principally to fund existing and
future loan commitments, maturing certificates of deposit and demand deposit
withdrawals, to invest in other interest-earning assets, to maintain liquidity,
and to meet operating expenses.
Net cash provided by our operating activities (the cash effects of
transactions that enter into our determination of net income e.g. non-cash
items, amortization and depreciation, provision for loan losses) for the year
ended December 31, 1999 was $1,250,000 as compared to $757,000 for the year
ended December 31, 1998.
Net cash used in our investing activities (i.e. cash payments and cash
receipts, primarily from our investment securities and mortgage-backed
securities portfolio and our loan portfolio) for the year ended December 31,
1999 totaled $39.7 million, a change of $31.8 million from December 31, 1998.
The change was primarily attributable to purchases of investment and
mortgage-backed securities of $50.8 million in 1999 as compared to $28.7 million
in 1998 and an increase in loans purchased of $8.5 million from $213,000 in 1998
to $8.7 million in 1999. These changes were offset by an increase on paydown of
mortgage-backed securities from $10.8 million in 1998 to $19.8 million in 1999.
10
<PAGE>
Net cash provided by our financing activities for 1999 totaled $34.4
million, an increase of $23.7 million from 1998. This change was attributable to
net increase of FHLB Advances of $39.9 million which were used as the underlying
source of funds for $38 million in arbitrage transactions. This change was
partially offset by our stock buy backs for the Treasury and Restricted Stock
Plan totaling $3.2 million.
Year 2000
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts were concerned
that on January 1, 2000, some computers might not be able to interpret the new
year properly, causing computer malfunctions. Some banking industry experts
remain concerned that some computers may not be able to interpret additional
dates in the year 2000 properly. We have operated and evaluated our computer
operating systems following January 1, 2000 and have not identified any errors
or experienced any computer system malfunctions. We will continue to monitor our
information systems to assess whether our systems are at risk of misinterpreting
any future dates and will develop appropriate contingency plans to prevent any
potential system malfunction or correct any system failures. The Company has not
been informed of any such problem experienced by its vendors or its customers,
nor by any of the municipal agencies that provide services to the Company.
Nevertheless, it is too soon to conclude that there will not be any
problems arising from the Year 2000 problem, particularly at some of the
Company's vendors. The Company will continue to monitor its significant vendors
of goods and services with respect to Year 2000 problems they may encounter as
those issues may effect the Company's ability to continue operations, or might
adversely affect the Company's financial position, results of operations and
cash flows. The Company does not believe at this time that these potential
problems will materially impact the ability of the Company to continue its
operations, however, no assurance can be given that this will be the case. Total
costs to become Year 2000 compliant amounted to $62,000 through December 31,
1999.
The expectations of the Company contained in this section on Year 2000
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve substantial risks and uncertainties
that may cause actual results to differ materially from those indicated by the
forward looking statements. All forward looking statements in this section are
based on information available to the Company on the date of this document, and
the Company assumes no obligation to update such forward looking statements.
Impact of Recently Issued Accounting Standards
The FASB issued SFAS No. 133, Accounting for Derivative Financial
Instruments and Hedging Activities, in June 1998. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000 and will be adopted by the Company
January 1, 2001. The adoption of SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial statements.
11
<PAGE>
[KPMG LETTERHEAD]
1000 Walnut, Suite 1600
P.O. Box 13127
Kansas City, MO 64199
Independent Auditors' Report
The Board of Directors
First Kansas Financial Corporation:
We have audited the accompanying consolidated balance sheets of First
Kansas Financial Corporation and subsidiary (the Company) as of December
31, 1999 and 1998 and the related consolidated statements of earnings,
stockholders' equity and comprehensive income, and cash flows for the years
then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Kansas Financial Corporation and subsidiary as of December 31, 1999 and
1998 and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Kansas City, Missiouri
March 3, 2000
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
Assets 1999 1998
----------- ----------
<S> <C> <C>
Cash and cash equivalents (note 3) $ 4,090 8,143
Investment securities held-to-maturity
(approximate fair value of $5,963 and $4,729, respectively) (note 4) 6,261 4,712
Mortgage-backed securities available-for-sale (note 5) 20,795 27,282
Mortgage-backed securities held-to-maturity
(approximate fair value of $55,597 and $22,664, respectively) (note 5) 57,965 22,521
Loans receivable, net (note 6) 47,751 41,069
Stock in Federal Home Loan Bank (FHLB) of Topeka, at cost 2,114 509
Premises and equipment, net (note 7) 2,213 1,775
Real estate held for development (note 8) 357 361
Accrued interest receivable:
Investment and mortgage-backed securities 506 295
Loans receivable 230 190
Prepaid expenses and other assets 264 359
----------- ----------
Total assets $ 142,546 107,216
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 10) $ 82,317 84,436
Advances from borrowers for property taxes and insurance 142 134
Borrowings from FHLB of Topeka (note 11) 40,500 650
Accrued interest payable and other liabilities (note 12) 714 556
----------- ----------
Total liabilities 123,673 85,776
----------- ----------
Stockholders' equity (note 13):
Preferred stock, $.10 par value; 2,000,000 shares authorized, none issued -- --
Common stock, $.10 par value; 8,000,000
shares authorized, 1,553,938 shares issued 155 155
Additional paid-in capital 14,842 14,834
Treasury stock, 221,629 shares at December 31, 1999 at cost (2,495) --
Retained earnings 8,289 7,655
Unearned compensation (1,623) (1,181)
Accumulated other comprehensive income (loss) (295) (23)
----------- ----------
Total stockholders' equity 18,873 21,440
Commitments (note 6)
----------- ----------
Total liabilities and stockholders' equity $ 142,546 107,216
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Earnings
Years ended December 31, 1999 and 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Interest income:
Loans $ 3,345 3,528
Investment securities 391 259
Mortgage-backed securities 4,692 2,570
Interest-bearing deposits 121 389
Dividends on FHLB stock 108 48
-------- --------
Total interest income 8,657 6,794
-------- --------
Interest expense:
Deposits (note 10) 3,539 3,746
Borrowings 1,486 52
-------- --------
Total interest expense 5,025 3,798
-------- --------
Net interest income 3,632 2,996
Provision for loan losses (note 6) 36 30
-------- --------
Net interest income after provision for loan losses 3,596 2,966
-------- --------
Noninterest income:
Deposit account service fees 744 671
Other 128 140
-------- --------
Total noninterest income 872 811
-------- --------
Noninterest expense:
Compensation and benefits (note 13) 1,525 1,304
Occupancy and equipment 377 301
Federal deposit insurance premiums and assessments 83 85
Data processing 233 188
Deposit account processing fees 210 196
Amortization of premium on deposits assumed 61 61
Supplies expense 75 76
Advertising 167 160
Other 360 214
-------- --------
Total noninterest expense 3,091 2,585
-------- --------
Earnings before income tax expense 1,377 1,192
Income tax expense (note 12) 522 472
-------- --------
Net earnings $ 855 720
======== ========
Net earnings per share - basic and diluted $ 0.63 0.50
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
Accumu-
lated
other
compre-
Additional Unearned hensive
Preferred Common paid-in Treasury Retained compen- income
stock stock capital stock earnings sation (loss) Total
---------- ------- ---------- ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ -- -- -- -- 6,935 -- (325) 6,610
Proceeds from issuance of common
stock -- 155 14,833 -- -- (1,243) -- 13,745
Net earnings 720 720
Change in unrealized loss on available-
for-sale securities, net of tax 302 302
--------
Total comprehensive income 1,022
--------
Allocation of Employee Stock
Ownership Plan (ESOP) shares -- -- 1 -- -- 62 -- 63
-------- --------- ------------- ---------- ----------- ----------- ---------- --------
Balance, December 31, 1998 -- 155 14,834 -- 7,655 (1,181) (23) 21,440
Net earnings 855 855
Change in unrealized loss on available-
for-sale securities, net of tax (272) (272)
--------
Total comprehensive income 583
--------
Purchase of 221,629 shares of
stock for the treasury -- -- -- (2,495) -- -- -- (2,495)
Purchase of 62,158 shares of stock
for the restricted stock plan (RSP) -- -- -- -- -- (660) -- (660)
Allocation of ESOP shares -- -- 8 -- -- 124 -- 132
Amortization of RSP shares -- -- -- -- -- 94 -- 94
Cash dividends paid ($.15 per share) -- -- -- -- (221) -- -- (221)
-------- --------- ------------- ---------- ----------- ----------- ---------- --------
Balance, December 31, 1999 $ -- 155 14,842 (2,495) 8,289 (1,623) (295) 18,873
======== ========= ============= ========== =========== =========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 855 720
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for loan losses 36 30
Depreciation 160 139
Amortization of premium on deposits assumed 61 61
FHLB stock dividends (108) (48)
Amortization of loan fees (41) (56)
Accretion of discounts and amortization of premiums on
investment and mortgage-backed securities, net (19) 207
Gain on sales of loans, net (5) (13)
Gain on sales of mortgage-backed securities available-for-sale -- (3)
Allocation of ESOP shares and amortization of RSP shares 226 63
Proceeds from sales of loans 247 798
Origination of loans for sale (242) (785)
Change in accrued interest receivable, prepaids,
and other assets (217) (41)
Change in accrued interest payable and
other liabilities 297 (315)
----------- -----------
Net cash provided by operating activities 1,250 757
----------- -----------
Cash flows from investing activities:
Decrease in loans, net 1,883 5,733
Loans purchased (8,702) (213)
Maturities/calls of investment securities held-to-maturity 34 3,800
Paydowns and maturities of mortgage-backed securities available-for-sale 8,532 3,991
Paydowns and maturities of mortgage-backed securities held-to-maturity 11,291 6,817
Proceeds from sales of mortgage-backed securities available-for-sale -- 1,430
Purchases of investment securities held-to-maturity (1,490) (4,587)
Purchases of mortgage-backed securities available-for-sale (2,496) (15,571)
Purchases of mortgage-backed securities held-to-maturity (46,769) (8,519)
Proceeds from sale of real estate owned 142 --
Redemption of FHLB stock -- 200
Purchase of FHLB stock (1,497) --
Decrease (increase) in real estate held for development 4 (6)
Additions of premises and equipment, net (598) (925)
----------- -----------
Net cash used in investing activities $ (39,666) (7,850)
----------- -----------
</TABLE>
F-5
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Net decrease in deposits $ (2,119) (1,215)
Repayment of borrowings from FHLB (3,150) (1,900)
Increase in borrowings from the FHLB 43,000 --
Proceeds from issuance of common stock, net of costs -- 13,745
Purchases of stock for the treasury and for the RSP (3,155) --
Cash dividends paid on common stock (221) --
Net decrease in advances from borrowers
for taxes and insurance 8 6
----------- -----------
Net cash provided by financing activities 34,363 10,636
----------- -----------
Net (decrease) increase in cash and cash equivalents (4,053) 3,543
Cash and cash equivalents at beginning of year 8,143 4,600
----------- -----------
Cash and cash equivalents at end of year $ 4,090 8,143
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 378 854
=========== ===========
Cash paid during the year for interest $ 4,847 3,846
=========== ===========
Noncash activities - loans transferred to real estate owned $ 142,000 --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
First Kansas Financial Corporation and its wholly owned
subsidiary, First Kansas Federal Savings Bank (the "Bank" and,
collectively, the "Company"). Intercompany balances and
transactions have been eliminated. The Company is principally
engaged in single family home lending in the State of Kansas. The
Company also makes consumer and commercial loans depending on the
demand and management's assessment of the quality of such loans.
(b) Cash Equivalents
Cash equivalents consist of interest-bearing deposits in the
Federal Home Loan Bank (FHLB) of Topeka and other financial
institutions with an original maturity of three months or less.
(c) Investment Securities
The Company accounts for its investment securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, investments are classified as held-to-maturity, which
are carried at amortized cost, or available-for-sale, which are
carried at fair value with unrealized gains and losses excluded
from earnings and reported in a separate component of other
comprehensive income, net of related income taxes.
Amortization and accretion of premiums and discounts are computed
using the interest method over the estimated life of the related
security and are recorded as an adjustment of interest income.
Gains and losses on sales are calculated using the specific
identification method.
(d) Loans
Loans receivable that management has the intent and ability to
hold until maturity or pay off are reported at their outstanding
principal balance adjusted for any charge-offs, the allowance for
loan losses and any deferred fees or costs on originated loans,
and unamortized premiums or discounts on purchased loans.
The Company determines at the time of origination whether mortgage
loans will be held for the Company's portfolio or sold in the
secondary market. Loans originated and intended for sale in the
secondary market are recorded at the lower of aggregate cost or
estimated market value. Fees received on such loans are deferred
and recognized in income as part of the gain or loss on sale.
Loan origination, commitment and related fees, and certain direct
origination costs related to loans for the Company's portfolio are
deferred. The deferred fees and costs are amortized as an
adjustment of yield over the contractual term of the individual
loans using the interest method.
F-7
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(e) Mortgage Banking Activities
At December 31, 1999 and 1998, the Company was servicing loans for
others amounting to $450,000 and $663,000, respectively. Loan
servicing fees include servicing fees from investors and certain
charges collected from borrowers, such as late payment fees, which
are recorded when received. The amount of escrow balances held for
borrowers at December 31, 1999 and 1998 was insignificant.
SFAS No. 122, Accounting for Mortgage Servicing Rights, as amended
by SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, requires that
originated servicing rights be valued and recorded as assets when
the loan is originated, and subsequently amortized as a component
of servicing cost over the expected life of the loan. Because the
Company has not retained any servicing rights on loans originated
and sold since the adoption of SFAS No. 122, the Company has not
recorded any mortgage servicing rights in its financial
statements.
(f) Provisions for Losses on Loans and Interest Receivable
Provisions for losses on loans receivable are based upon
management's estimate of the amount required to maintain an
adequate allowance for losses, relative to the risks in the loan
portfolio. This estimate is based on reviews of the loan
portfolio, including assessment of the estimated net realizable
value of the related underlying collateral, and consideration of
historical loss experience, current economic conditions, and such
other factors which, in the opinion of management, deserve current
recognition. Loans are charged off when the probability of loss is
established, taking into consideration such factors as the
borrower's financial condition, underlying collateral, and
guarantees. Loans are also subject to periodic examination by
regulatory agencies. Such agencies may require charge-offs or
additions to the allowance based upon their judgments about
information available at the time of their examination.
Accrual of interest income on loans is discontinued for those
loans with interest more than ninety days delinquent or sooner if
management believes collectibility of the interest is not
probable. Management's assessment of collectibility is primarily
based on a comparison of the estimated value of underlying
collateral to the related loan and accrued interest receivable
balances. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Nonaccruing loans are returned to
accrual status when principal and interest is reasonably assured
and a consistent record of performance has been demonstrated.
Payments received on impaired or nonaccrual loans are applied to
principal and interest in accordance with the contractual terms of
the loan unless full payment of principal is not expected, in
which case both principal and interest payments received are
applied as a reduction of the carrying value of the loan.
F-8
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
A loan is considered impaired when it is probable the Company will
be unable to collect all amounts due - both principal and interest
- according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an
impaired loan are discounted at the loan's effective interest
rate. Impairment may also be measured by reference to an
observable market price, if one exists, or the fair value of the
collateral for a collateral-dependent loan. Regardless of the
historical measurement method used, the Company measures
impairment based on the fair value of the collateral when it
determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected
future cash flows at the loan's effective rate of interest as
stated in the original loan agreement.
The Company applies the methods described above to multifamily
real estate loans, commercial real estate loans, and restructured
loans. Smaller balance, homogeneous loans, including
one-to-four-family residential and construction loans and consumer
loans, are collectively evaluated for impairment.
(g) Real Estate Owned and Held for Development
Real estate properties acquired through foreclosure are initially
recorded at the lower of cost or estimated fair value, less
selling costs, at the date of foreclosure. Costs relating to
development and improvement of property are capitalized, whereas
holding costs are expensed when incurred. Valuations are
periodically performed by management and an allowance for losses
is established by a charge to operations if the carrying value of
a property exceeds its estimated fair value, less selling costs.
Real estate held for development consists of a parcel of land and
improvements zoned for commercial development. The development is
carried at cost that is less than the estimated market value.
Direct costs, including interest, are capitalized as property
costs during the development period. Gains on sales are recognized
by allocating costs to parcels sold using the relative fair value
method.
(h) Stock in FHLB of Topeka
The Company is a member of the FHLB system. As a member, the
Company is required to purchase and hold stock in the FHLB of
Topeka in an amount equal to the greater of (a) 1% of unpaid
residential loans, (b) 5% of outstanding FHLB advances, or (c) .3%
of total assets. FHLB stock is carried at cost in the accompanying
consolidated balance sheets.
(i) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using both straight-line
and accelerated methods over the estimated useful lives of the
assets, which range from three to thirty-five years. Major
replacements and betterments are capitalized while normal
maintenance and repairs are charged to expense when incurred.
Gains or losses on dispositions are reflected in current
operations.
F-9
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
consolidated financial statement carrying amounts of existing
assets and liabilities and their respective income tax bases. The
effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that includes the
enactment date.
(k) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could
differ from those estimates.
(l) New Accounting Pronouncements
The Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Financial Instruments and Hedging
Activities, in June 1998. This statement establishes accounting
and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000 and will be adopted by the Company January 1, 2001.
The adoption of SFAS No. 133 is not expected to have a material
impact on the Company's consolidated financial statements.
(m) Earnings Per Common Share
Basic earnings per share is based upon the weighted average number
of common shares outstanding during the periods presented. Basic
earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share includes the potential dilutive common shares
outstanding during the period. Earnings per share for the year
ended December 31, 1998 is pro forma as if the conversion and
acquisition occurred on January 1, 1998. Unallocated shares of
common stock held by the employee stock ownership plan are not
included in the weighted average shares outstanding computation.
The following schedule summarizes the number of average shares and
equivalents used in the computation of earnings per share:
1999 1998
------------- -------------
Basic shares outstanding 1,361,335 1,429,640
Dilutive effect of stock options 1,698 --
------------- -------------
Diluted shares outstanding 1,363,033 1,429,640
============= =============
F-10
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(2) Initial Public Offering
On June 25, 1998, the Company completed an initial public offering of
common stock, selling 1,553,938 shares of its common stock at $10.00 per
share. Total expenses of the offering approximated $548,000.
(3) Cash and Cash Equivalents
A summary of cash and cash equivalents follows (in thousands):
1999 1998
-------- --------
Cash on hand $ 1,923 644
Deposits at other financial institutions 2,167 499
Overnight FHLB deposits -- 7,000
-------- --------
$ 4,090 8,143
======== ========
F-11
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(4) Investment Securities
A summary of investment securities held-to-maturity and information
relating to amortized cost, approximate fair values, and unrealized
gains (losses) at December 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999
-------------------------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
U. S. government and agency obligations
maturing after one year but within five years $ 1,000 -- (11) 989
U. S. government and agency obligations
maturing after five years but within ten years 2,000 -- (111) 1,889
U. S. government and agency obligations
maturing after ten years 1,232 -- (49) 1,183
State and municipal obligations maturing
after ten years 1,115 -- (127) 988
Other debt securities maturing after
ten years 914 -- -- 914
------------- -------------- -------------- --------
$ 6,261 -- (298) 5,963
============= ============== ============== ========
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
U. S. government and agency obligations
maturing after one year but within five years $ 1,000 4 -- 1,004
U. S. government and agency obligations
maturing after five years but within ten years 1,000 -- -- 1,000
U. S. government and agency obligations
maturing after ten years 1,139 5 -- 1,144
State and municipal obligations maturing
after ten years 624 8 -- 632
Other debt securities maturing after
ten years 949 -- -- 949
------------- -------------- ------------- ---------
$ 4,712 17 -- 4,729
============= ============== ============== ========
</TABLE>
F-12
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(5) Mortgage-backed Securities
A summary of mortgage-backed securities and information relating to
amortized cost, approximate fair values, and unrealized gains (losses)
at December 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Government agency mortgage- backed securities:
Federal Home Loan Mortgage
Corporation (FHLMC) $ 1,538 -- (27) 1,511
Federal National Mortgage
Association (FNMA) 2,658 19 (35) 2,642
Government National Mortgage
Association (GNMA) 3,411 21 -- 3,432
Collateralized mortgage obligations 13,634 17 (441) 13,210
------------- -------------- -------------- ----------
$ 21,241 57 (503) 20,795
============= ============== ============== ==========
Held-to-maturity:
Government agency mortgage-
backed securities:
FHLMC $ 66 1 -- 67
FNMA 15,677 5 (816) 14,866
GNMA 19,489 16 (895) 18,610
Collateralized mortgage obligations 22,733 -- (679) 22,054
------------- -------------- -------------- ----------
$ 57,965 22 (2,390) 55,597
============= ============== ============== ==========
</TABLE>
F-13
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
cost gains losses value
------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
Government agency mortgage- backed securities:
FHLMC $ 2,121 21 (2) 2,140
FNMA 4,303 11 (15) 4,299
GNMA 4,128 27 -- 4,155
Collateralized mortgage obligations 16,765 33 (110) 16,688
------------- -------------- -------------- ----------
$ 27,317 92 (127) 27,282
============= ============== ============== ==========
Held-to-maturity:
Government agency mortgage-
backed securities:
FHLMC $ 90 2 -- 92
FNMA 3,092 43 (1) 3,134
GNMA 339 25 -- 364
Collateralized mortgage obligations 19,000 95 (41) 19,054
------------- -------------- -------------- ----------
$ 22,521 165 (42) 22,644
============= ============== ============== ==========
</TABLE>
The Company's portfolio of government agency mortgage-backed securities
and federal agency-backed collateralized mortgage obligations consists
primarily of first and second tranche securities with expected
maturities of three to five years. At December 31, 1999, the government
agency mortgage-backed securities had a carrying value of $42,817,000
and consisted of approximately $34,954,000 of fixed rate securities and
$7,863,000 of variable rate securities. The collateralized mortgage
obligations had a carrying value of $35,943,000 and consisted of
approximately $18,996,000 of fixed rate securities and $16,947,000 of
variable rate securities. Collateralized mortgage obligations of the
Company are generally government agency guaranteed. There were no sales
of mortgage-backed securities during 1999.
At December 31, 1999 and 1998, mortgage-backed securities with a
carrying value of approximately $1,125,000 and $1,850,000, respectively,
were pledged to secure public funds on deposit.
F-14
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) Loans Receivable
Loans receivable consist of the following at December 31, 1999 and 1998
(in thousands):
1999 1998
---------- ----------
Mortgage loans:
One-to-four-family $ 43,760 37,884
Commercial 567 471
Land 278 264
Construction 1,079 151
---------- ----------
Total mortgage loans 45,684 38,770
Consumer loans 2,245 2,115
Commercial loans 618 537
---------- ----------
Total 48,547 41,422
Less:
Unearned premiums, discounts, and deferred fees 73 116
Allowance for loan losses 241 206
Undisbursed portion of loans in process 482 31
---------- ----------
Total, net $ 47,751 41,069
========== ==========
The Company evaluates each customer's creditworthiness on a case-by-case
basis. Residential loans with a loan-to-value ratio exceeding 80% are
required to have private mortgage insurance. The Company's primary
lending area is in the State of Kansas.
The weighted average annual interest rates on mortgage loans
approximated 7.32% and 7.51% at December 31, 1999 and 1998,
respectively. Adjustable rate loans have interest rate adjustment
limitations and are generally indexed to the national average-cost of
funds. Future market factors may affect the correlation of the interest
rate adjustment with the rates the Company pays on the short-term
deposits that have been primarily utilized to fund these loans.
At December 31, 1999, the Company had outstanding commitments to
originate mortgage loans of $808,000 and outstanding commitments to
purchase loans of $2,242,000.
F-15
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Loans made to directors and executive officers of the Company
approximated $619,000 and $579,000 at December 31, 1999 and 1998,
respectively. Such loans were made in the ordinary course of business.
Changes in such loans for 1999 are as follows (in thousands):
Balance at January 1, 1999 $ 579
Additions 235
Amounts collected (195)
-------
Balance at December 31, 1999 $ 619
=======
A summary of the activity in the allowance for loan losses follows (in
thousands):
1999 1998
------- -------
Balance at beginning of year $ 206 179
Provision 36 30
Charge-offs (1) (5)
Recoveries -- 2
------- -------
Balance at end of year $ 241 206
======= =======
Loans delinquent ninety days or more at December 31, 1999 and 1998
aggregated $82,000 and $5,000, respectively. Impaired loans, exclusive
of delinquent loans, were insignificant at December 31, 1999 and 1998.
(7) Premises and Equipment
Premises and equipment consist of the following (in thousands):
1999 1998
--------- --------
Land $ 217 217
Buildings and improvements 2,068 1,688
Construction in progress -- 38
Furniture and equipment 1,357 1,114
--------- --------
Total 3,642 3,057
Less accumulated depreciation 1,429 1,282
--------- --------
Total $ 2,213 1,775
========= ========
F-16
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(8) Real Estate Held for Development
The Company's subsidiary acquired a parcel of land in 1996 in Paola,
Kansas for the purpose of development and sale. Total cost incurred
through December 31, 1999, including capitalized interest of $37,000,
aggregated $658,000. There were no sales or transfers associated with
the parcel of land during 1999 or 1998.
(9) Premium on Deposits Assumed
In accordance with the FSLIC Transfer Agreement dated November 19, 1982,
the Company assumed certain deposits of the former North Kansas Savings
Company, paying a premium on deposits assumed of $1,212,000. The Company
is amortizing the premium over twenty years on the straight-line method.
Accumulated amortization on such premium was $1,034,000 and $973,000,
respectively, at December 31, 1999 and 1998.
(10) Deposits
Deposits are summarized as follows (in thousands):
1999 1998
---------- ----------
Noninterest bearing demand $ 2,612 2,477
Savings and interest-bearing demand 28,570 28,312
Time 51,135 53,647
---------- ----------
$ 82,317 84,436
========== ==========
The weighted average interest rates on deposits approximated 4.47% and
4.68% at December 31, 1999 and 1998, respectively.
Scheduled maturities of time deposits at December 31, 1999 are as
follows (in thousands):
2000 $ 36,071
2001 8,883
2002 3,612
2003 1,408
2004 484
Thereafter 677
----------
Total $ 51,135
==========
F-17
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
A summary of interest expense is as follows (in thousands):
1999 1998
--------- --------
Passbook and certificate accounts $ 2,965 3,185
NOW 574 561
--------- --------
$ 3,539 3,746
========= ========
Certificates of deposit in amounts greater than or equal to $100,000
amounted to $2,458,000 and $3,300,000 at December 31, 1999 and 1998,
respectively. Individual deposit amounts in excess of $100,000 are not
federally insured.
(11) Borrowings from FHLB of Topeka
Borrowings outstanding from the FHLB of Topeka at December 31, 1999 and
1998 are as follows:
1999 1998
---------- -------
Advance from FHLB of Topeka with an adjustable rate
based on one month LIBOR, maturing in 2002 $ -- 650
Advance from FHLB of Topeka at 4.92% interest and
maturity date in January 2009 10,000 --
Advance from FHLB of Topeka at 4.88% interest and
maturity date in January 2009 10,000 --
Advance from FHLB of Topeka at 5.30% interest and
maturity date in May 2009 10,000 --
Advance from FHLB of Topeka with an adjustable rate
based on one month LIBOR rate on two basis points
(6.44% at December 31, 1999) and maturity date
in September 2000 8,000 --
Borrowing under $8 million FHLB of Topeka line of credit
with an adjustable interest rate (5.0% at December 31,
1999) and maturity date in May 2000 2,500 --
---------- -------
$ 40,500 650
========== =======
F-18
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
FHLB borrowings are secured by all unpledged single and multifamily
first mortgage loans, mortgage-backed securities, United States
government and agency obligations, interest-bearing deposits in other
financial institutions, stock in FHLB, and FHLB overnight deposits.
Weighted average interest rates for the years ended December 31, 1999
and 1998 were 5.03% and 5.73%, respectively, on such borrowings.
Principal maturities of borrowings from FHLB of Topeka at December 31,
1999 are as follow (in thousands):
Year Amount
-------- ----------
2000 $ 10,500
2009 30,000
----------
$ 40,500
==========
(12) Income Taxes
The components of income tax expense from operations are as follows for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------------------- ----------------------------------
Federal State Total Federal State Total
----------- ------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Current $ 466 54 520 452 67 519
Deferred 2 -- 2 (34) (13) (47)
----------- ------- -------- ----------- ----------- -------
$ 468 54 522 418 54 472
=========== ======= ======== =========== =========== =======
</TABLE>
The reasons for the differences between the effective tax rates and the
expected federal income tax rate of 34% are as follows:
Percentage
of earnings
before
income taxes
-------------------
1999 1998
------- --------
Expected federal income tax rate 34.0 % 34.0
State taxes, net of federal tax benefit 3.0 3.0
Other, net 0.9 2.6
------- --------
Effective income tax rate 37.9 % 39.6
======= ========
F-19
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Temporary differences that give rise to a significant portion of
deferred tax assets and liabilities at December 31, 1999 and 1998 are as
follows (in thousands):
1999 1998
-------- --------
Unrealized loss on available-for-sale securities $ 151 12
Loan origination fees 2 7
Employee benefits 29 10
Other, net 4 4
-------- --------
Deferred tax asset 186 33
-------- --------
Premises and equipment (104) (85)
FHLB dividends (162) (125)
-------- --------
Allowance for loan losses (30) (70)
State taxes (21) (21)
-------- --------
Deferred tax liability (317) (301)
-------- -------
Net deferred tax liability, included
in other liabilities $ (131) (268)
======== ========
There was no valuation allowance required for deferred tax assets at
December 31, 1999 or 1998. Management believes that it is more likely
than not the results of future operations will generate sufficient
taxable income to realize the deferred tax assets.
Prior to 1996, the Company was allowed to deduct the greater of an
experience method bad debt deduction based on actual charge-offs or a
statutory bad debt deduction based on a percentage (8%) of taxable
income before such deduction. For income tax purposes, the Company used
the experience methods in 1997 and 1998. Under the Small Business Job
Projection Act (the Act) of 1996, the allowable deduction under the
percentage of taxable income method was terminated for tax years
beginning after 1995 and will not be available to the Company for future
years. The Act also provides that federal income tax bad debt reserves
accumulated since 1988 (the base year reserve) must be recaptured and
included in taxable income over a six-year inclusion period beginning
1998. Included in the deferred income tax liability at December 31, 1999
and 1998 are $112,000 and $140,000, respectively, for this recapture.
Retained earnings at December 31, 1999 and 1998 include approximately
$718,000 for which no provision for federal income tax has been made.
This amount represents allocations of income to bad debt deductions in
years prior to 1988 for tax purposes only. Reduction of amounts
allocated for purposes other than tax bad debt losses will create income
for tax purposes only, which will be subject to the then current
corporate income tax rate.
F-20
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(13) Benefit Plans
Pension and Retirement
The Company participates in a multiemployer, noncontributory defined
benefit pension plan which covers all employees who have met eligibility
requirements. The multiemployer plan does not provide information at the
single employer level and the Company does not make disclosures similar
to those of single employer plans. Qualified part-time and full-time
employees over age twenty-one are eligible for participation after one
year of service. Pension costs associated with the plan amounted to
$3,000 and $2,000 for the years ended December 31, 1999 and 1998,
respectively.
The Company has a defined contribution plan that covers substantially
all employees. Employees may contribute up to 15% of their salary,
subject to limitations under the Internal Revenue Code, and the Company
matches 50% of the employee's contribution up to 6% of compensation. The
Company's expense under the plan for 1999 and 1998 was $24,000 and
$22,000, respectively. In addition, the Company made an additional
discretionary contribution to the plan of $21,000 in 1998.
In December 1997, the Company implemented a supplemental executive
retirement plan (SERP) for the benefit of the Company's president that
will provide enhanced benefits at retirement. Accruals under the SERP
commenced during 1998, resulting in expenses of $37,000 and $29,000 for
the years ended December 31, 1999 and 1998, respectively.
Employee Stock Ownership Plan
In connection with the offering described in note 2, the Company
established an employee stock ownership plan (ESOP). Through a loan from
the Company, the ESOP acquired 124,315 shares of the Company's common
stock. Employees age twenty-one or older who have completed one year of
service with the Company are eligible to participate in the ESOP.
Participants become 100% vested after five years. Contributions made by
the Company to the ESOP will be used to repay the loan, and shares are
allocated to participants by a formula based on total compensation. The
cost of unallocated shares is presented as unearned compensation in the
accompanying December 31, 1999 and 1998 consolidated balance sheets. The
Company recognizes additional compensation expense equal to the fair
value of shares allocated. In connection with a principal reduction on
the ESOP loan, 6,216 shares were released and the Company recognized
$63,000 of compensation expense during 1998 and 12,432 shares were
released and the Company recognized $132,000 of compensation expense
during 1999. The fair value of the remaining 105,667 unallocated shares
at December 31, 1999 aggregated approximately $1,162,000.
F-21
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Stock Option Plan - Restricted Stock Plan (RSP)
In February 1999, the Company instituted an RSP and a stock option plan.
Pursuant to the RSP, the Company purchased 62,158 shares of common stock
during March 1999. The cost of such shares, aggregating $660,429, has
been recorded as unearned compensation in the accompanying consolidated
balance sheet at December 31, 1999. During March 1999, the Company
awarded 52,826 shares of common stock to key officers and directors. The
fair value of the shares ($561,276) will be amortized to expense over
their five-year vesting period. The Company recognized approximately
$94,000 of additional compensation expense related to the amortization
of the shares awarded for the year ended 1999.
Pursuant to the stock option plan, the Company granted options to
acquire 132,079 shares of common stock to certain key officers and
directors in February 1999. The options enable the participants to
purchase stock at an exercise price equal to the fair market value of
the stock at the date of grant ($10.75 per share). The options vest over
five years and expire in 2008. During 1999, there were no options
exercised.
The Company applies Accounting Principles Board (APB) No 25 and related
interpretations in accounting for the stock option plan. Accordingly, no
compensation expense has been recognized in the accompanying
consolidated financial statements. SFAS No. 123 requires pro forma
disclosures for companies that do not adopt its fair value method of
accounting for stock-based employer compensation. Accordingly, the
following pro forma information presents net income and earnings per
share information for 1999 as if the fair value method required by SFAS
No. 123 has been used to measure compensation cost for stock options
granted:
Net income - as reported $ 855,000
===========
Net income - pro forma $ 819,000
===========
Basic earnings per share as reported $ 0.63
===========
Basic earnings per share - pro forma $ 0.60
===========
The fair value of options granted of $326,000 was estimated using the
following weighted average information: risk-free interest rate of 6.5%
expected life of five years, expected volatility of stock price of 16.6%
and expected dividends of 2.0% per year.
(14) Regulatory Capital Requirements
The Financial Institution Reform, Recovery and Enforcement Act of 1989
(FIRREA) and the capital regulations of the Office of Thrift Supervision
(OTS) promulgated thereunder require institutions to have a minimum
regulatory tangible capital equal to 1.5% of total assets, a minimum 4%
leverage capital ratio, and a minimum 8% risk-based capital ratio. These
capital standards set forth in the capital regulations must generally be
no less stringent than the capital standards applicable to national
banks. FIRREA also specifies the required ratio of housing-related
assets in order to qualify as a savings institution.
F-22
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established additional capital requirements that require
regulatory action against depository institutions in one of the
undercapitalized categories defined in implementing regulations.
Institutions such as the Company, which are defined as well capitalized,
must generally have a leverage (core) capital ratio of at least 5%, a
Tier 1 risk-based capital ratio of at least 6%, and a total risk-based
capital ratio of at least 10%. FDICIA also provides for increased
supervision by federal regulatory agencies, increased reporting
requirements for insured depository institutions, and other changes in
the legal and regulatory environment for such institutions.
The Bank met all regulatory capital requirements at December 31, 1999.
The Bank's actual and required capital amounts and ratios as of December
31, 1999 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
To be well-
capitalized
under prompt
For capital corrective
adequacy actions
Actual purposes provisions
--------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- -------- ---------- -------- ---------- --------
Tangible capital
<S> <C> <C> <C> <C> <C> <C>
(to tangible assets) $ 13,668 9.61 % $ 2,134 1.50 % $ -- -- %
Tier 1 leverage (core) capital
(to adjusted tangible assets) 13,668 9.61 5,692 4.00 7,114 5.00
Risk-based capital
(to risk-weighted assets) 13,898 33.21 3,348 8.00 4,184 10.00
Tier 1 leverage risk-based capital
(to risk-weighted assets) 13,668 32.61 -- -- 2,511 6.00
========== ======== ========== ======== ========== ========
</TABLE>
At the time of conversion, the Bank established a liquidation account in
an amount equal to $7,038,000. The liquidation account will be
maintained for the benefit of eligible account holders who continue to
maintain their deposit accounts in the Bank after conversion. In the
event of a complete liquidation of the Bank, and only in such an event,
eligible depositors who continue to maintain accounts shall be entitled
to receive a distribution from the liquidation account before any
liquidation may be made with respect to common stock. The Bank may not
declare or pay a cash dividend if the effect thereof would cause its net
worth to be reduced below either the amount required for the liquidation
account discussed below, or the regulatory capital requirements imposed
by the OTS.
F-23
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(15) Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, in the
first quarter of 1998. SFAS No. 130 requires the reporting of
comprehensive income and its components. Comprehensive income is defined
as the change in equity from transactions and other events and
circumstances from nonowner sources, and excludes investments by and
distributions to owners. Comprehensive income includes net income and
other items of comprehensive income meeting the above criteria. The
Company's only component of other comprehensive income is the unrealized
holding gains and losses on available-for-sale securities.
For the
year ended
December 31,
-----------------
1999 1998
------- -------
(In thousands)
Net change in unrealized holding (losses) gains $ (411) 460
Less reclassification adjustment for
gains included in net income -- 3
------- -------
Net unrealized (losses) gains on securities (411) 457
Income taxes 139 (155)
------- -------
Other comprehensive income (loss) $ (272) 302
======= =======
(16) Financial Instruments With Off-balance Sheet Risk and Concentrations of
Credit Risk
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet customer financing needs.
These financial instruments consist principally of commitments to extend
credit. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party is represented by the contractual amount of those
instruments. The Company does not generally require collateral or other
security on unfunded loan commitments until such time that loans are
funded.
F-24
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
In addition to financial instruments with off-balance sheet risk, the
Company is exposed to varying risks associated with concentrations of
credit relating primarily to lending activities in specific geographic
areas. The Company's primary lending area consists of the State of
Kansas, and substantially all of the Company's loans are to residents of
or secured by properties located in its principal lending area.
Accordingly, the ultimate collectibility of the Company's loan portfolio
is dependent upon market conditions in that area. This geographic
concentration is considered in management's establishment of the
allowance for loan losses.
The Company grants mortgage and consumer loans to customers primarily
throughout its target market of the State of Kansas. Although the
Company has a diversified loan portfolio, a substantial portion of the
borrower's ability to honor their contracts is dependent upon the
general economic condition of the target market.
(17) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, and
SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments, require that the Company disclose
estimated fair values for its financial instruments, both assets and
liabilities recognized and not recognized in the consolidated financial
statements. Fair value estimates have been made as of December 31, 1999
and 1998 based on current economic conditions, risk characteristics of
the various financial instruments, and other subjective factors at such
date.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value.
Cash and Cash Equivalents
The carrying amounts approximate fair value because of the short
maturity of these instruments.
Investment and Mortgage-backed Securities
The fair values of investment securities are estimated based on
published bid prices or bid quotations received from securities dealers.
Loans Receivable
The fair values of loans receivable are estimated using the option-based
approach. Cash flows consist of scheduled principal, interest, and
prepaid principal. Loans with similar characteristics were aggregated
for purposes of these calculations.
Stock of FHLB
The carrying amount of such stock is estimated to approximate fair
value.
Accrued Interest
The carrying amount of accrued interest is assumed to be its carrying
value because of the short-term nature of these items.
F-25
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Deposits
The fair values of deposits with no stated maturity are deemed to be
equivalent to amounts payable on demand. The fair values of certificates
of deposit are estimated based on the static discounted cash flow
approach using rates currently offered for deposits of similar remaining
maturities.
Borrowings From FHLB of Topeka
The fair values of FHLB advances are estimated based on discounted
values of contractual cash flows using the rates currently available to
the Company on advances of similar remaining maturities.
F-26
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The approximate carrying value and estimated fair value of the Company's
financial instruments are as follows (in thousands):
December 31, 1999
---------------------------
Carrying Fair
value value
------------ -------------
Financial assets:
Cash and interest-bearing deposits
in other financial institutions $ 4,090 4,090
Investment securities (see note 4) 6,261 5,963
Mortgage-backed securities (see note 5) 78,760 76,392
Loans receivable 47,751 46,253
Stock in FHLB 2,114 2,114
Accrued interest receivable 736 736
Financial liabilities:
Deposits 82,317 81,877
FHLB borrowings 40,500 38,286
Accrued interest payable 234 234
============ =============
December 31, 1998
---------------------------
Carrying Fair
value value
------------ -------------
Financial assets:
Cash and interest-bearing deposits
in other financial institutions $ 8,143 8,143
Investment securities (see note 4) 4,712 4,729
Mortgage-backed securities (see note 5) 49,803 49,926
Loans receivable 41,069 41,524
Stock in FHLB 509 509
Accrued interest receivable 485 485
Financial liabilities:
Deposits 84,436 84,858
FHLB borrowings 650 650
Accrued interest payable 56 56
============ =============
F-27
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates. Fair value estimates are based
on existing balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
(18) Parent Company Condensed Financial Statements
Condensed Balance Sheet
December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
Assets 1999 1998
--------- ----------
<S> <C> <C>
Cash and cash equivalents $ 95 279
Loan to ESOP 1,057 1,181
Investment in and loan to subsidiary 17,709 20,044
Other assets 18 --
--------- ----------
Total assets $ 18,879 21,504
========= ==========
Liabilities and Stockholders' Equity
Accrued interest payable and other liabilities $ 6 64
Stockholders' equity 18,873 21,440
--------- ----------
Total liabilities and stockholders' equity $ 18,879 21,504
========= ==========
</TABLE>
F-28
(Continued)
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Condensed Statement of Income
Years ended December 31, 1999 and 1998
(In thousands)
1999 1998
--------- ----------
Income:
Equity in earnings of subsidiary $ 770 619
Interest on loans 261 148
Interest on deposits -- 54
--------- ----------
Total income 1,031 821
Expense, including income tax expense 176 101
--------- ----------
Net income $ 855 720
========= ==========
F-29
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Condensed Statement of Income
Years ended December 31, 1999 and 1998
(In thousands)
Condensed Statement of Cash Flows
Years ended December 31, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Operating activities:
Net income $ 855 720
Less equity in earnings of subsidiary (770) (619)
Adjustments to reconcile net income to net cash provided
by operating activities:
Release of unallocated ESOP shares and
amortization of RSP 226 63
(Decrease) increase in payables (45) 51
Change in current taxes payable (31) 13
--------- ----------
Net cash provided by operating activities 235 228
--------- ----------
Investing activities:
Decrease in investment in and loan to subsidiary, net 2,833 --
Decrease in loan to ESOP 124 --
Investment in and loan to subsidiary -- (13,695)
Loan to ESOP -- (1,243)
--------- ----------
Net cash provided by (used in) investing activities 2,957 (14,938)
--------- ----------
Financing activities - proceeds from issuance
of common stock -- 14,989
Purchases of stock for the treasury and for the RSP (3,155) --
Cash dividends paid on common stock (221) --
--------- ----------
(Decrease) increase in cash (184) 279
Cash at beginning of year 279 --
--------- ----------
Cash at end of year $ 95 279
========= ==========
</TABLE>
The Company's ability to pay dividends to stockholders is largely
dependent upon the dividends it receives from the Bank. The Bank may not
declare or pay a cash dividend on any of its stock if the effect thereof
would cause the Bank's regulatory capital to be reduced below (1) the
amount required for the liquidation account established in connection
with the conversion, or (2) the regulatory requirements imposed by the
OTS.
F-30
<PAGE>
Corporate Information
First Kansas Financial Corporation
600 Main Street
Osawatomie, Kansas 66064
(913) 755-3033
First Kansas Federal Savings Bank
Main Office Paola Office
600 Main Street 1310 Baptiste Drive
Osawatomie, Kansas Paola, Kansas
Fort Scott Office Louisburg Office
2205 South Main 100 West Amity
Fort Scott, Kansas Louisburg, Kansas
Beloit Office Phillipsburg Office
125 North Mill 762 4th Street
Beloit, Kansas Phillipsburg, Kansas
Board of Directors
J. Darcy Domoney Larry V. Bailey
Chairman of the Board President and Chief Executive Officer
Donald V. Meyer James E. Breckendridge
Director Director
William R. Butler, Jr. Roger L. Coltrin
Director Director
Executive Officers
Larry V. Bailey
President and Chief Executive Officer
Daniel G. Droste
Senior Vice President and Treasurer
Galen E. Graham
Senior Vice President and Secretary
-----------------------
<TABLE>
<CAPTION>
<S> <C>
Local Counsel Independent Auditor
Winkler, Lee, Tetwiler, Domoney & Schultz KPMG LLP
133 South Pearl Street 1600 Commerce Bank Building
Paola, Kansas 66071 Kansas City, Missouri 64106
Special Counsel Transfer Agent and Registrar
Malizia Spidi & Fisch, PC American Securities Transfer & Trust, Inc.
One Franklin Square 1825 Lawrence Street, Suite 444
1301 K Street, N.W., Suite 700 East Denver, Colorado 80201
Washington, D.C. 20005
</TABLE>
----------------------
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999 is available without charge upon written request. For a copy
of the Form 10-KSB, please write or call the Company's Corporate Secretary at
the Company's main office. The Annual Meeting of Stockholders will be held on
April 18, 2000 at 1:00 p.m. at the Company's office.
EXHIBIT 23
<PAGE>
Accountants' Consent
Board of Directors
First Kansas Financial Corporation:
We consent to the incorporation by reference in the registration statement on
Form S-8 of First Kansas Financial Corporation and subsidiary of our report
dated March 3, 2000 relating to the consolidated balance sheets of First Kansas
Financial Corporation and subsidiary as of December 31, 1999 and 1998 and the
related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for the years then ended, which report
appears in the December 31, 1999 annual report on Form 10-KSB of First Kansas
Financial Corporation and subsidiary.
/s/ KPMG LLP
--------------------------
March 24, 2000
Kansas City, Missouri
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,090
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,795
<INVESTMENTS-CARRYING> 87,135
<INVESTMENTS-MARKET> 84,469
<LOANS> 47,751
<ALLOWANCE> 241
<TOTAL-ASSETS> 142,546
<DEPOSITS> 82,317
<SHORT-TERM> 10,500
<LIABILITIES-OTHER> 856
<LONG-TERM> 30,000
0
0
<COMMON> 155
<OTHER-SE> 18,718
<TOTAL-LIABILITIES-AND-EQUITY> 142,546
<INTEREST-LOAN> 3,345
<INTEREST-INVEST> 5,083
<INTEREST-OTHER> 229
<INTEREST-TOTAL> 8,657
<INTEREST-DEPOSIT> 3,539
<INTEREST-EXPENSE> 5,025
<INTEREST-INCOME-NET> 3,632
<LOAN-LOSSES> 36
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,091
<INCOME-PRETAX> 1,377
<INCOME-PRE-EXTRAORDINARY> 855
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 855
<EPS-BASIC> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 2.78
<LOANS-NON> 81
<LOANS-PAST> 190
<LOANS-TROUBLED> 81
<LOANS-PROBLEM> 103
<ALLOWANCE-OPEN> 206
<CHARGE-OFFS> 1
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 241
<ALLOWANCE-DOMESTIC> 11
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 230
</TABLE>
