U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE AC T OF 1934
For the quarterly period ended June 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
For the transition period from ___________ to ____________
Commission File Number 0-24037
FIRST KANSAS FINANCIAL CORPORATION
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(Exact name of Registrant as specified in its Charter)
Kansas 48-1198888
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(State or other Jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
600 Main Street, Osawatomie, Kansas 66064
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913)755-3033
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
X Yes No
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State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date:
As of August 3, 2000, there were 1,265,693 shares of the Registrant's
common stock, par value $0.10 per share, outstanding. The Registrant has no
other classes of common equity outstanding.
Transitional Small Business Disclosure Format (Check one) :
Yes X No
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<PAGE>
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets - as of June 30, 2000 (Unaudited)
and December 31, 1999 2
Consolidated Statements of Earnings - (Unaudited) for
the three and six months ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows - (Unaudited) for
the six months ended June 30, 2000 and 1999 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
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June 30, December 31,
2000 1999
Assets (unaudited)
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<S> <C> <C>
Cash and cash equivalents $ 3,143 4,090
Investment securities held-to-maturity 6,337 6,261
(approximate fair value of $5,882 and $5,963, respectively)
Mortgage-backed securities available-for-sale, at fair value 19,136 20,795
Mortgage-backed securities held-to-maturity 53,950 57,965
(approximate fair value of $51,607 and $55,597, respectively)
Loans receivable, net 63,840 47,751
Stock in Federal Home Loan Bank (FHLB) of Topeka, at cost 2,575 2,114
Premises and equipment, net 2,164 2,213
Real estate held for development 357 357
Accrued interest receivable, prepaid expenses and other assets 1,075 1,000
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Total assets $ 152,577 142,546
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Liabilities and Stockholders' Equity
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Liabilities:
Deposits $ 80,816 82,317
Advances from borrowers for property taxes and insurance 286 142
Borrowings from FHLB of Topeka 51,500 40,500
Accrued interest payable and other liabilities 1,562 714
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Total liabilities 134,164 123,673
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Stockholders' equity:
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 14,851 14,842
Retained earnings 8,725 8,289
Unearned compensation (1,505) (1,623)
Treasury stock (288,244 shares at June 30 , 2000 and
221,629 shares at December 31, 1999) (3,195) (2,495)
Accumulated other comprehensive income (loss) (618) (295)
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Total stockholders' equity 18,413 18,873
Commitments - -
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Total liabilities and stockholders' equity $ 152,577 142,546
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Earnings
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
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For the three months For the six months
ended June 30, ended June 30,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,135 798 2,080 1,599
Investment securities 101 99 201 191
Mortgage-backed securities 1,233 1,210 2,492 2,194
Interest-bearing deposits 8 18 25 78
Dividends on FHLB stock 46 25 83 40
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Total interest income 2,523 2,150 4,881 4,102
Interest expense:
Deposits 864 896 1,722 1,800
Borrowings 670 352 1,209 541
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Total interest expense 1,534 1,248 2,931 2,341
Net interest income 989 902 1,950 1,761
Provision for loan losses 9 9 18 18
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Net interest income after provision for loan losses 980 893 1,932 1,743
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Noninterest income:
Deposit account service fees 239 184 421 357
Gain on sale of loans - 2 - 4
Other 53 39 91 60
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Total noninterest income 292 225 512 421
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Noninterest expense:
Compensation and benefits 403 381 811 729
Occupancy and equipment 101 94 197 178
Federal deposit insurance premiums and assessments 14 20 28 40
Data processing 46 54 94 117
Amortization of premium on deposits assumed 15 15 30 30
Advertising 28 50 66 91
Other 172 161 321 313
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Total noninterest expense 779 775 1,547 1,498
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Earnings before income tax expense 493 343 897 666
Income tax expense 176 131 330 260
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Net earnings $ 317 212 567 406
======= ======== ======== =======
Net earnings per share - basic and diluted $ 0.27 0.15 0.47 0.29
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 567 406
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for loan losses 18 18
Depreciation 91 75
Amortization of premium on deposits assumed 30 30
FHLB stock dividends - (40)
Amortization of loan fees (12) (17)
Accretion of discounts and amortization of premiums on
investment and mortgage-backed securities, net (40) (1)
Gain on sales of loans, net - 4
Proceeds from sales of loans - 234
Origination of loans for sale - (238)
Increase in accrued interest receivable, prepaids and other assets (105) (206)
Increase in accrued interest payable and other liabilities 1,015 1,149
Amortization of RSP shares and allocation of ESOP shares 126 99
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Net cash provided by operating activities 1,690 1,513
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Cash flows from investing activities:
(Increase) decrease in loans, net (2,722) 914
Loans purchased (13,373) (1,766)
Maturities of investment securities held-to-maturity 20 19
Paydowns and maturities of mortgage-backed securities available-for-sale 1,171 5,231
Paydowns and maturities of mortgage-backed securities held-to-maturity 4,005 6,113
Purchases of investment securities held-to-maturity (47) (1,490)
Purchases of mortgage-backed securities available-for-sale - (2,496)
Purchases of mortgage-backed securities held-to-maturity - (38,789)
Additions of premises and equipment, net (42) (392)
Purchase of FHLB stock (461) (1,001)
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Net cash used by investing activities $ (11,449) (33,657)
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(Continued)
</TABLE>
4
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIARY
OSAWATOMIE, KANSAS
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
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2000 1999
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<S> <C> <C>
Cash flows from financing activities:
Net decrease in deposits $ (1,501) (987)
Repayment of borrowings from FHLB - (650)
Increase in borrowings from FHLB 11,000 30,000
Purchases of stock for the Treasury and for the RSP (700) (1,510)
Dividends paid (131) (78)
Net increase in advances from borrowers for taxes and insurance 144 35
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Net cash provided by financing activities 8,812 26,810
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Net decrease in cash and cash equivalents (947) (5,334)
Cash and cash equivalents at beginning of period 4,090 8,143
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Cash and cash equivalents at end of period $ 3,143 2,809
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
FIRST KANSAS FINANCIAL CORPORATION
OSAWATOMIE, KANSAS
Notes to Unaudited Consolidated Financial Statements
June 30, 2000 and 1999
(1) Basis of presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-QSB. The consolidated
financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-KSB
for fiscal year ended December 31, 1999.
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 December 31, 1999
consolidated balance sheet has been derived from the audited consolidated
financial statements as of that date. In the opinion of management, all
adjustments, including normal recurring accruals, considered necessary for
a fair presentation of financial statements have been reflected herein. The
results of the interim period ended June 30, 2000 are not necessarily
indicative of the results expected for the year ending December 31, 2000 or
for any other period.
(2) Earnings Per Common Share
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the periods presented. Common shares
issued to the employee stock ownership plan are not included in the
computation until they are allocated to plan participants. Basic earnings
per share excludes dilution and is computed by dividing income available to
common stock holders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share includes the
effect of potential dilutive common shares outstanding during the period.
The following schedule summarizes the number of average shares and
equivalents used in the computation of earnings per share:
<TABLE>
<CAPTION>
For the three months For the six months Ended
Ended June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average shares 1,169,710 1,399,562 1,199,212 1,418,630
Common stock equivalents/ stock options - - - -
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Diluted weighted average shares 1,169,710 1,399,562 1,199,212 1,418,630
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</TABLE>
(3) Pending Accounting Pronouncements
The FASB recently issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation. The Interpretation, which is
effective July 1, 2000, clarifies the application of APB Opinion No. 25,
Accounting for Stock Issued to Employees. Management does not expect that
the Interpretation will have a significant impact on the Company's
financial statement.
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. SFAS No. 138, an
amendment of SFAS No. 133, which addresses various implementation issues,
will also be adopted at the time. The adoption of the new Statements is not
expected to have a material impact on the Company's consolidated financial
statements.
(4) Stock Buy Back The Company purchased 66,615 shares of common stock in the
second quarter of 2000 as part of its stock buy back plan. Cost of such
shares aggregating $699,986 has been recorded as treasury stock on the
accompanying balance sheet at June 30, 2000.
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<PAGE>
FIRST KANSAS FINANCIAL CORPORATION AND SUBSIDIDARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. First Kansas Financial Corporation (the "Company") was formed on
February 9, 1998, to become the holding company for First Kansas Federal Savings
Association (the "Bank") in the conversion of the Bank from a federal mutual
savings association to a federal stock savings bank (the "Conversion"). The
Conversion to a federal stock savings bank was completed on June 25, 1998, and
the Bank now operates as the First Kansas Federal Savings Bank, which accounts
for virtually all of the Company"s business.
The Company"s results of operations depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense from interest-bearing liabilities. The Company"s operations are
also affected by noninterest income which is primarily comprised of service
charges and loan fees. The Company"s principal operating expenses, aside from
interest expense, consists of compensation and employee benefits, occupancy
costs, provisions for loan losses and general and administration expenses.
Net earnings for the first half of 2000 increased $161,000, or 39.7%, as
compared to the same period in 1999. Net earnings for the second quarter of 2000
increased $105,000, or 49.5%, as compared to the second quarter of 1999. Net
interest income increased $189,000 for the first six months of 2000 compared to
the same period in 1999. Net interest income for the second quarter of 2000
increased $87,000 compared to the second quarter of 1999. These increases in net
interest income were primarily due to growth in the loan portfolio as well as a
September 1999 arbitrage transaction. Loan growth was primarily due to loan
purchases of $13.4 million which were principally funded by the Company's FHLB
line of credit. The arbitrage transaction consisted of purchasing certain
mortgage-backed securities of approximately $8.0 million, using funds borrowed
from the FHLB under a long term advance of a similar amount. An increase in
deposit account fee-generating activity was reflected in the increase in
noninterest income for the two periods involved, while compensation expense was
the key component for the increase in noninterest expense.
Interest Income. Interest income increased $779,000, or 19.0%, to $4.9 million
for the first two quarters of 2000. Interest income increased $373,000, or
17.3%, for the second quarter of 2000 compared to the same period in 1999. This
increase resulted from an arbitrage transaction of approximately $8.0 million
completed in September 1999, as well as a $22.1 million increase in the loan
portfolio from June 30, 1999 to June 30, 2000. Paydowns on other interest
earning assets partially offset the increase in income.
Interest Expense. Interest expense increased $590,000, or 25.2%, to $2.9 million
during the first half of 2000. Interest expense increased $286,000, or 22.9%,
for the second quarter of 2000 compared to the same period in 1999. Interest
expense on FHLB advances increased substantially as such instruments were used
to fund the Company's arbitrage transaction and the FHLB line of credit was
activated to fund growth in mortgage loan balances. A reduction in the deposit
portfolio partially offset the increase in expense.
Provision for Loan Losses. The provision for loan losses was $18,000 for the
first half of 2000 and $9,000 for the second quarter alone, representing no
change from the same periods involved in 1999. The loan loss reserve at June 30,
2000, was $253,000, or .40% of total loans receivable, as compared to $241,000,
or .50% of total loans receivable at December 31, 1999. Net charge offs for the
six months ended June 30, 2000 were $6,000.
7
<PAGE>
Noninterest income. Noninterest income increased $91,000, or 21.6%, to $512,000
for the first half of 2000. Noninterest income increased $67,000, or 29.8%, for
the second quarter of 2000 compared to the same period in 1999. This increase
was the result of the combined increases of deposit account fees and other
miscellaneous fees received for the periods ended June 30, 2000.
Noninterest expense. Noninterest expense increased $49,000, or 3.3%, to $1.5
million for the first half of 2000. Noninterest expense increased $4,000, or
0.5%, for the second quarter of 2000 compared to the same period in 1999. The
increase resulted from an increase in compensation expense partially offset by
decreases in advertising and data processing costs.
Income Tax Expense. Income tax expense increased in the first half of 2000
compared to the first half of 1999 due primarily to higher levels of pre-tax
income. The effective tax rates for the three and six month periods ended June
30, 2000 were 35.7% and 36.8%, compared to effective rates of 38.2% and 39.0% in
the prior periods.
Asset Quality & Distribution. The Company's assets grew $10.1 million from
$142.5 million at December 31, 1999 to $152.6 million at June 30, 2000 as a
result of the Company's efforts to expand its loan portfolio. The Company's
primary ongoing sources of funds are deposits, FHLB advances and proceeds from
principal and interest payments on loans and mortgage backed securities. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The primary investing activity of the Company for the first half of 2000 was the
purchase of mortgage loans for its portfolio. The Company utilized several
mortgage outlets and invested in 1-4 family loans. During the first six months
of 2000, gross loan purchases and mortgage originations totaled $19.2 million
compared to $5.9 million for the same period of 1999. Mortgage loan purchases
were $13.3 million during the first two quarters of 2000. Gross consumer and
commercial loans originated were $1.7 million for the first half of 2000
compared to $1.8 million during the first six months of 1999.
Liability distribution Deposits decreased $1.5 million from December 31, 1999 to
June 30, 2000. The Company also increased its FHLB advances by $11.0 million
during the first half of 2000 by accessing its existing line of credit. The
advances were used to fund purchases of mortgage loans.
Liquidity. The Company's most liquid assets are cash equivalents and short-term
government agency investments. It has also invested in liquidity qualifying
mortgage-backed securities. The Company's liquidity as of June 30, 2000 was
$43.9 million, or 45.92%.
Capital. At June 30, 2000, the Bank had a Tier 1 capital ratio of 9.41% and a
risk based capital ratio of 29.61%. As shown by the following table, the Bank's
capital exceeded the minimum capital requirement: (Dollars in thousands)
June 30, 2000 December 31, 1999
----------------- ------------------
Amount Percent Required Amount Percent
------ ------- -------- ------ -------
Tier I Capital $14,375 9.41% 4.00% $13,668 9.61%
Risk Based Capital 14,624 29.61% 8.00% 13,898 33.21%
8
<PAGE>
Savings associations and their holding companies are generally expected to
operate at or above the minimum capital requirements and the above ratios are
well in excess of regulatory minimums.
Cautionary Statement. This Quarterly Report on Form 10-QSB contains or may
contain forward-looking statements with respect to the financial condition,
results of operations, plans, objectives, future performance and business of the
Company, including statements preceded by, followed by or that include the
words, "believes", "expects", "anticipates" or similar expressions. These
forward-looking statements involve certain risks and uncertainties and may
relate to future operating results of the company. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities: (1) a significant
increase in competitive pressures among depository and other financial
institutions; (2) changes in the interest rate environment resulting in reduced
margins; (3) general economic or business conditions, either nationally or in
the states in which the Company will be doing business, being less favorable
than expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit; (4) legislative or regulatory changes
adversely affecting the businesses in which the Company will be engaged; (5)
changes in the securities markets; and (6) changes in the banking industry
including the effects of consolidation resulting from possible mergers of
financial institutions.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
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From time to time, the Company and its subsidiaries may be a
party to various legal proceedings incident to its or their
business. At June 30, 2000, there were no legal proceedings to
which the Company or any subsidiary was a party, or to which
any of their property was subject, which were expected by
management to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
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Not Applicable
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) (27) Financial Data Schedule (electronic filing only)
(b) There were no current reports on Form 8-K filed during the
quarter ended June 30, 2000.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST KANSAS FINANCIAL CORPORATION
Date: By: /s/Larry V. Bailey
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Larry V. Bailey, President
Date: By: /s/James J. Casaert
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James J. Casaert
Vice President and Treasurer
(Principal Accounting Officer)
10
