UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to __________
Commission File Number 0-30680
FIRST FEDERAL OF OLATHE BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
KANSAS 48-1226075
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 EAST PARK STREET, OLATHE, KANSAS 66061
(Address of principal executive offices)
Issuer's telephone number, including area code: (913) 782-0026
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 issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Shares of common stock, par value $.01 per share, outstanding as of July
31, 2000: 556,328
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
SIX MONTHS ENDED JUNE 30, 2000
Part I - Financial Information
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-B is included in this Form 10-QSB as referenced below:
Page
----
Item 1 - Consolidated Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
at June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income and Comprehensive Income
(Unaudited) for the Three Months and Six Months Ended
June 30, 2000 and 1999 4
Consolidated Statement of Stockholders' Equity (Unaudited) for the Six
Months Ended June 30, 2000 5
Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2 - Management's Discussion and Analysis 11
Part II - Other Information
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities and Use of Proceeds 17
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and non-interest earning deposits $ 735,515 $ 90,749
Overnight deposits at Federal Home Loan Bank
and First National Bank of Olathe 200,000 2,514,611
------------ ------------
Total cash and cash equivalents 935,515 2,605,360
Held to maturity securities, at cost 13,579,710 11,000,000
Available for sale securities 535,944 618,966
Federal Home Loan Bank stock, at cost 319,700 308,300
Loans receivable, net of deferred loan fees and loss allowance 34,077,920 31,472,474
Accrued interest and dividend receivable 451,852 420,090
Equipment, net of accumulated depreciation 16,728 19,643
Refundable income taxes -- 21,000
Other assets 24,790 146,258
------------ ------------
Total Assets $ 49,942,159 $ 46,612,091
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 33,209,512 $ 36,203,251
Advance payments from borrowers for taxes and insurance 237,263 13,994
Interest payable on deposits 45,681 51,089
Advances from the Federal Home Loan Bank 2,000,000 1,000,000
Accrued expenses 127,735 106,175
Deferred income taxes 59,882 68,957
Income taxes payable 64,000 --
------------ ------------
Total Liabilities 35,744,073 37,443,466
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, -0- shares issued and outstanding -- --
Common stock, $.01 par value, 4,000,000 shares
authorized, 556,328 shares issued and outstanding 5,563 --
Additional paid in capital 5,036,269 --
Retained earnings 9,280,608 8,796,861
Unearned ESOP shares (445,060) --
Accumulated other comprehensive income 320,706 371,764
------------ ------------
Total Stockholders' Equity 14,198,086 9,168,625
------------ ------------
Total Liabilities and Stockholders' Equity $ 49,942,159 $ 46,612,091
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and Dividend Income:
Loans receivable $ 714,697 $ 659,201 $ 1,398,230 $ 1,292,398
Investment securities 198,537 176,325 388,041 337,158
Cash and cash equivalents 73,418 49,715 114,609 104,339
Capital stock 6,118 5,000 11,483 9,742
----------- ----------- ----------- -----------
Total Interest and Dividend Income 992,770 890,241 1,912,363 1,743,637
----------- ----------- ----------- -----------
Interest Expense:
Deposits 470,475 472,051 941,792 935,793
Federal Home Loan Bank advances 15,843 14,311 30,115 28,464
----------- ----------- ----------- -----------
Total Interest Expense 486,318 486,362 971,907 964,257
----------- ----------- ----------- -----------
Net Interest Income Before Provision for Loan Losses 506,452 403,879 940,456 779,380
Provision for Loan Losses -- -- -- --
----------- ----------- ----------- -----------
Net Interest and Dividend Income
after Provision for Loan Losses 506,452 403,879 940,456 779,380
----------- ----------- ----------- -----------
Non-Interest Income:
Service charges and other fees 2,581 2,049 4,539 2,399
----------- ----------- ----------- -----------
Non-Interest Expense:
Salaries and related payroll expenses 26,982 27,325 54,235 54,638
Directors' fees 13,020 6,970 19,140 12,440
Occupancy of premises 10,361 10,929 20,162 17,960
Professional fees 27,419 6,394 60,989 11,521
Other general and administrative 14,533 14,519 32,722 31,061
----------- ----------- ----------- -----------
Total Non-Interest Expense 92,315 66,137 187,248 127,620
----------- ----------- ----------- -----------
Income Before Income Taxes 416,718 339,791 757,747 654,159
Income Tax Provision 153,000 143,736 274,000 237,346
----------- ----------- ----------- -----------
Net Income 263,718 196,055 483,747 416,813
Other Comprehensive Income(Loss):
Unrealized gain (loss) on investment securities
available for sale, net of deferred tax benefit (27,258) 6,471 (51,058) (52,070)
----------- ----------- ----------- -----------
Comprehensive Income $ 236,460 $ 202,526 $ 432,689 $ 364,743
=========== =========== =========== ===========
Earnings per share - basic and diluted $ .47 N/A N/A N/A
===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Accumulated
Additional Unearned Other
Common Paid-In ESOP Retained Comprehensive
Stock Capital Shares Earnings Income Total Equity
----------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ -- $ -- $ -- $ 8,796,861 $ 371,764 $ 9,168,625
Net income for the six months ended
June 30, 2000 483,747 483,747
Other comprehensive loss:
Change in unrealized gain on
available for sale securities, net of
deferred taxes (51,058) (51,058)
Proceeds from issuance of common stock 5,563 5,036,269 5,041,832
Acquisition of unearned ESOP shares (445,060) (445,060)
----------- ----------- ----------- ----------- ----------- ------------
Balance, June 30, 2000 (Unaudited) $ 5,563 $ 5,036,269 $ (445,060) $ 9,280,608 $ 320,706 $ 14,198,086
=========== =========== =========== =========== =========== ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Mortgage loan interest received $ 1,375,007 $ 1,224,314
Investment interest and dividends received 505,594 427,467
Other fees 4,539 2,399
----------- -----------
1,885,140 1,654,180
Interest paid 977,315 963,982
Salaries and other administrative expenses 41,308 272,908
Income taxes paid 166,108 253,998
----------- -----------
1,184,731 1,490,888
----------- -----------
Net cash provided by operating activities 700,409 163,292
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of U.S. Government and agency securities (2,579,710) (1,000,000)
Net increase in mortgage loans (2,382,177) (1,258,086)
(Purchase) redemption of FHLB stock (11,400) (8,700)
Purchase of fixed assets -- (2,513)
----------- -----------
Net cash (used) by investing activities (4,973,287) (2,269,299)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (2,993,739) 1,433,000
FHLB advances 1,000,000 --
Proceeds from stock issuance 5,041,832 --
Acquisition of ESOP shares (445,060) --
----------- -----------
Net cash provided by financing activities 2,603,033 1,433,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,669,845) (673,007)
CASH AND CASH EQUIVALENTS, December 31 2,605,360 5,212,508
----------- -----------
CASH AND CASH EQUIVALENTS, June 30 $ 935,515 $ 4,539,501
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 483,747 $ 416,813
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,915 2,347
Deferred income taxes 22,889 (39,709)
Increase in accrued interest receivable (31,762) (91,856)
(Increase) decrease in other assets 121,468 (121,103)
Increase in income taxes payable 85,000 23,057
Increase (decrease) in accrued interest payable (5,408) 275
Increase (decrease) in accrued expenses 21,560 (26,532)
--------- ---------
Net cash provided by operating activities $ 700,409 $ 163,292
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
7
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
In December, 1999, First Federal of Olathe Bancorp, Inc. (the "Company")
was incorporated to facilitate the conversion of First Federal Savings and Loan
Association of Olathe (the "Association") from mutual to stock form (the
"Conversion"). In connection with the Conversion, the Company offered its common
stock to the depositors and borrowers of the Association as of specified dates,
to an employee stock ownership plan, and to members of the general public. The
Conversion was consummated on April 11, 2000, at which time the Company became
the holding company for the Association and issued shares of its stock to the
general public.
The Company filed a Form SB-2 with the Securities and Exchange Commission
("SEC") on December 16, 1999, which as amended was declared effective by the SEC
on February 11, 2000. The Association filed a Form AC with the Office of Thrift
Supervision ("OTS") on or about December 21, 1999. The Form AC and related
offering and proxy materials, as amended, were conditionally approved by the OTS
by a letter dated February 11, 2000. The Company also filed an Application H-(e)
1-S with the OTS on or about December 23, 1999, which was conditionally approved
by the OTS by letter dated February 7, 2000. The members of the Association
approved the Plan at a special meeting held on March 23, 2000, and the
subscription and community offerings closed on March 30, 2000.
Following the incorporation of the Company, the Company issued 1 share of
common stock to the Association on March 23, 2000. The share was cancelled upon
consummation of the Conversion, and the Conversion has been accounted for in a
manner similar to the pooling of interests method of accounting.
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the financial statements, have been included. The
results of operations and other data for the three and six months ended June 30,
2000 are not necessarily indications of results that may be expected for the
entire fiscal year ending December 31, 2000.
NOTE B - FORMATION OF HOLDING COMPANY AND CONVERSION TO STOCK FORM
On April 11, 2000, the Company became the holding company for First
Federal Savings and Loan Association of Olathe (the "Association") upon the
Association's conversion from a federally chartered mutual savings association
to a federally chartered capital stock savings association. The conversion was
accomplished through the sale and issuance by the Company of
8
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - FORMATION OF HOLDING COMPANY AND CONVERSION TO STOCK FORM (CONTINUED)
556,328 shares of common stock at $10 per share. Proceeds from the sale of
common stock, net of expenses incurred of $521,448, were $5,041,832, inclusive
of $445,060 related to shares held by the Association's Employee Stock Ownership
Plan ("ESOP").
NOTE C - EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the conversion to stock form, the Association
established an ESOP for the exclusive benefit of eligible employees (all
salaried employees who have completed at least 1000 hours of service in a
twelve-month period and have attained the age of 21). The ESOP borrowed funds
from the Company in an amount sufficient to purchase 44,506 shares (8 percent of
the Common Stock issued in the stock offering). The loan is secured by the
shares purchased and will be repaid by the ESOP with funds from contributions
made by the Association, dividends received by the ESOP, and any other earnings
on ESOP assets. Contributions will be applied to repay interest on the loan
first, then the remainder will be applied to principal. The loan is expected to
be repaid over a period of up to 30 years. Shares purchased with the loan
proceeds are held in a suspense account for allocation among participants as the
loan is repaid. Contributions to the ESOP and shares released from the suspense
account are allocated among participants in proportion to their compensation
relative to total compensation of all active participants. Participants will
vest in their accrued benefits under the employee stock ownership plan at the
rate of 20 percent per year. Vesting is accelerated upon retirement, death or
disability of the participant or a change in control of the Association.
Forfeitures will be reallocated to remaining plan participants. Benefits may be
payable upon retirement, death, disability, separation from service, or
termination of the ESOP. Since the Association's annual contributions are
discretionary, benefits payable under the ESOP cannot be estimated.
The Association will account for its ESOP in accordance with Statement of
Position ("SOP") 93-6, Employers Accounting for Employee Stock Ownership Plans.
Accordingly, the debt of the ESOP is eliminated in consolidation and the shares
pledged as collateral are reported as unearned ESOP shares in the consolidated
statements of financial condition. Contributions to the ESOP shall be sufficient
to pay principal and interest currently due under the loan agreement. As shares
are committed to be released from collateral, the Company reports compensation
expense equal to the average market price of the shares for the respective
period, and the shares become outstanding for earnings per share computations.
Dividends on allocated ESOP shares are recorded as a reduction of debt and
accrued interest.
9
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
A summary of ESOP shares at June 30, 2000 is as follows:
Shares committed for release --
Unreleased shares 44,506
--------
Total 44,506
========
Fair value of unreleased shares $445,060
========
NOTE D - COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Association had outstanding commitments to originate
loans amounting to approximately $818,000.
NOTE E - EARNINGS PER SHARE
The earnings per share for the three months ended June 30, 2000 was $.47.
The earnings per share amount is based upon the weighted average number of
shares outstanding for the three months ended June 30, 2000 and the net income
available to common stockholders. Earnings per share data is not presented for
the three and six months ended June 30, 1999 and the six months ended June 30,
2000, since there were no outstanding shares of common stock until the
reorganization on April 11, 2000.
10
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The following discussion compares the consolidated financial condition of
First Federal of Olathe Bancorp, Inc. and Subsidiary (the "Company") at June 30,
2000 to December 31, 1999 and the results of operations for the three and six
months ended June 30, 2000 with the corresponding periods in 1999. Currently,
the business and management of First Federal of Olathe Bancorp, Inc. is
primarily the business and management of First Federal Savings and Loan
Association of Olathe, Inc. (the "Association"). This discussion should be read
in conjunction with the interim consolidated financial statements and footnotes
included herein.
This quarterly report on Form 10-QSB includes statements that may
constitute forward-looking statements, usually containing the words "believe",
"estimate", "expect", "intent" or similar expressions. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that could cause future
results to vary from current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and more specifically
in the markets in which the Company operates); changes in interest rates,
accounting principles, policies or guidelines and in government legislation and
regulation (which change from time to time and over which the Company has no
control); and other risks detailed in this quarterly report on Form 10-QSB and
the Company's other Securities and Exchange Commission filings. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof.
First Federal of Olathe Bancorp, Inc. is a Kansas corporation organized in
December, 1999, by the Association for the purpose of becoming a holding company
of the Association. On April 11, 2000, the Company acquired all of the capital
stock of the Association in exchange for 50 percent of the net conversion
proceeds and issued shares of its common stock to persons who submitted orders
in the subscription and community offerings. Immediately following the
Conversion, the only significant assets of the Company were the capital stock of
the Association, the Company's loan to the ESOP, and the remainder of the net
Conversion proceeds retained by the Company. Initially, the business and
management of the Company will primarily consist of the business and management
of the Association. Initially, the Company will neither own nor lease any
property, but the Company will instead use the premises, equipment and furniture
of the Association. At the present time, the Company does not intend to employ
any persons other than officers of the Association, and the Company will utilize
the support staff of the Association from time to time. Additional employees
will be hired as appropriate to the extent the Company expands or changes its
business in the future.
11
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements, written or oral, regarding any such opportunities
or transactions, the Company will be in a position, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
opportunities that may arise. The initial activities of the Company are
anticipated to be funded by the proceeds retained by the Company and earnings
thereon or, alternatively, through dividends from the Association.
To date, the Company has not engaged in any business activities other than
those related to the Conversion.
Financial Condition
Total assets increased $3.3 million, or 7.1%, to $49.9 million at June 30,
2000 from $46.6 million at December 31, 1999. This increase was primarily the
result of an increase of $2.6 million in mortgage loans and an increase of $2.6
million in securities held to maturity, offset by a decrease of $1.7 million in
cash and cash equivalents and a decrease of $.1 million in other assets. These
increases reflected the proceeds raised in the stock conversion and the
Association's decision to pursue opportunities for growth during recent time
periods.
Mortgage loans increased $2.6 million, or 8.3%, to $34.1 million at June
30, 2000 from $31.5 million at December 31, 1999. The increase reflected the
Association's controlled growth strategy, including capitalizing on the strong
housing market in the Association's market area.
Securities held to maturity increased $2.6 million, or 23.6%, to $13.6
million at June 30, 2000 from $11.0 million at December 31, 1999, reflecting the
purchase of federal agency debt securities.
Deposits decreased $3.0 million, or 8.3%, to $33.2 million at June 30,
2000 from $36.2 million at December 31, 1999. The decrease in deposits resulted
primarily from account holders at First Federal Savings using deposits to buy
the Company's stock issued on April 11, 2000.
FHLB advances increased $1.0 million, or 100%, to $2.0 million at June 30,
2000 from $1.0 million at December 1, 1999. The increase was used to fund
additional mortgage loans originated.
12
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Total stockholders' equity increased $5.0 million, or 54.3%, to $14.2
million at June 30, 2000 from $9.2 million at December 31, 1999, due primarily
to the net proceeds from the stock offering on April 11, 2000 partially offset
by the purchase of the ESOP shares and the Company's net income during the six
months ended June 30, 2000.
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
1999
Performance Summary. Comprehensive income increased $33,000 from $203,000
for the three months ended June 30, 1999, to $236,000 for the three months ended
June 30, 2000. The increase was due primarily to an increase of $68,000 in net
income offset by a decrease of $34,000 in unrealized gain on available for sale
securities.
Net Income. Net income for the three months ended June 30, 2000 increased
by $68,000, or 34.7%, to $264,000 from $196,000 for the three months ended June
30, 1999. The increase reflected the combined effects of a $102,000 increase in
net interest income partially offset by a $26,000 increase in non-interest
expense and an increase of $9,000 in the income tax provision for the 2000
period compared to the 1999 period.
Net Interest Income. For the three months ended June 30, 2000 net interest
income increased by $102,000, or 25.4%, to $506,000 from $404,000 for the three
months ended June 30, 1999. The increase reflected an increase of $103,000 in
interest income to $993,000 for the 2000 period from $890,000 for the 1999
period, combined with no change in interest expense for the 2000 period as
compared to the 1999 period. The increase in interest income reflected increased
average balances of loans receivable and investment securities. The no change in
interest expense reflected a slight decrease in balances of deposits offset by a
slight increase in interest paid on deposits.
Provision for Loan Losses. There was no provision for loan losses for
either the three months ended June 30, 2000 or the three months ended June 30,
1999. The absence of a provision for loan losses during these periods reflected
management's overall assessment that the inherent losses in First Federal
Savings' loan portfolio had not increased from the previous respective period.
Non-Interest Expense. Non-interest expense increased by $26,000 to $92,000
for the three months ended June 30, 2000 from $66,000 for the three months ended
June 30, 1999 reflecting increases in professional expenses and directors' fees
associated with the Company operating as a public company.
Income Taxes. Income taxes increased by $9,000 to $153,000 for the three
months ended June 30, 2000 from $144,000 for the three months ended June 30,
1999. The effective tax rates were 36.7% and 42.3% for the three months ended
June 30, 2000 and 1999, respectively.
13
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999
Performance Summary. Comprehensive income increased by $68,000 from
$365,000 for the six months ended June 30, 1999 to $433,000 for the six months
ended June 30, 2000. The increase was a result of an increase of $1,000 in
unrealized gain on available for sale securities and an increase of $67,000 in
net income for the six months ended June 30, 2000 as compared to the six months
ended June 30, 1999.
Net Income. Net income for the six months ended June 30, 2000 increased by
$67,000, or 16.1%, to $484,000 from $417,000 for the six months ended June 30,
1999. The increase was primarily due to an increase in net interest income of
$161,000, or 20.7%, from $779,000 for the six months ended June 30, 1999 to
$940,000 for the six months ended June 30, 2000. Non-interest expenses increased
$59,000 from $128,000 for the six months ended June 30, 1999 to $187,000 for the
six months ended June 30, 2000. These improvements were partially offset by an
increase in income tax expense of $37,000 from $237,000 for the six months ended
June 30, 1999 to $274,000 for the six months ended June 30, 2000.
Net Interest Income. For the six months ended June 30, 2000 net interest
income increased by $161,000, or 20.7%, to $940,000 from $779,000 for the six
months ended June 30, 1999. The increase included an increase of $169,000 in
interest income to $1.9 million for the six months ended June 30, 2000 from $1.7
million for the six months ended June 30, 1999, with a small increase of $8,000
in interest expense for the six months ended June 30, 2000 as compared to the
six months ended June 30, 1999. The increase in interest income reflected an
increase in the balance of loans receivable due to favorable economic conditions
and increased demand for single-family homes in Johnson County, Kansas, and an
increase in the average balance of other interest-earning assets, comprised of
the combined average balances of investment securities and interest-earning
deposits with the FHLB of Topeka. Interest expense increased $8,000 as a result
of increased borrowings to meet loan demand and a slight increase interest paid
on deposits, which was partially offset by a decrease in deposits. Net interest
income increased primarily as a result of the increase in the average balance of
interest-earning assets in the six months ended June 30, 2000 as compared to the
increase in the average balance of interest-bearing liabilities.
Provision for Loan Losses. During the six months ended June 30, 2000 and
June 30, 1999, First Federal Savings did not make a provision for loan losses.
The absence of a provision for loan losses during these periods reflected
management's overall assessment that the inherent losses in First Federal
Savings' loan portfolio had not increased from the previous respective year.
Non-Interest Income. Non-interest income increased to $5,000 for the six
months ended
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<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
June 30, 2000 from $2,000 for the six months ended June 30, 1999 due to higher
service charges and other fees.
Non-Interest Expense. Non-interest expense increased by $59,000 to
$187,000 for the six months ended June 30, 2000 from $128,000 for the six months
ended June 30, 1999. The increase was due to increased professional expenses and
directors' fees as they relate to the Company operating as a public company.
Income Taxes. Income taxes increased by $37,000 to $274,000 for the six
months ended June 30, 2000 from $237,000 for the six months ended June 30, 1999.
The effective tax rates were 36.2% and 36.3% for the six months ended June 30,
2000 and 1999, respectively.
Liquidity and Capital Resources
The Association's primary sources of funds are deposits, FHLB advances,
repayments on loans, the maturity of investment securities, and interest income.
Although maturity and scheduled amortization of loans are relatively predictable
sources of funds, deposit flows and prepayments on loans are influenced
significantly by general interest rates, economic conditions, and competition.
The Association is required to maintain minimum levels of liquid assets
under the OTS regulations. Savings institutions are required to maintain an
average daily balance of liquid assets (including cash, certain time deposits,
and specified U.S. Government, state, or federal agency obligations) of not less
than 4.0% of its average daily balance of net withdrawal accounts plus
short-term borrowings. It is the Association's policy to maintain its liquidity
portfolio in excess of regulatory requirements.
The Association's most liquid assets are cash and cash equivalents, which
include overnight deposits at First National Bank of Olathe and the FHLB of
Topeka. The levels of these assets are dependent on the Association's operating,
financing, lending, and investment activities during any given period. At June
30, 2000 and at December 31, 1999, cash and cash equivalents were $936,000 and
$2.6 million, respectively. The decrease in cash and cash equivalents at June
30, 2000, compared to December 31, 1999, resulted primarily from a transfer to
securities held to maturity.
Liquidity management for the Association is both an ongoing and long-term
function of the Association's asset/liability management strategy. Excess funds
generally are invested in overnight deposits at the FHLB of Topeka and the First
National Bank of Olathe. Should the Association require funds beyond its ability
to generate them internally, additional sources of funds are available through
FHLB advances. The Association would pledge its FHLB stock or certain other
assets as collateral for such advances. At June 30, 2000, the Association had a
balance of $2.0 million in FHLB advances.
15
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The Association is required to maintain regulatory capital sufficient to
meet tangible, core and risk-based capital ratios of at least 1.5%, 4.0% and
8.0%, respectively. At June 30, 2000, the Association exceeded each of its
capital requirements, with tangible, core, and risk-based capital ratios of
27.8%, 27.8%, and 66.18%, respectively.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles, which
generally require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in relative purchasing
power over time due to inflation. Unlike most industrial companies, virtually
all of the Association's assets and liabilities are monetary in nature. As a
result, interest rates generally have a more significant impact on the
Association's performance than does the effect of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than by interest rates.
16
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
SIX MONTHS ENDED JUNE 30, 2000
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Association is a party to any material legal
proceedings at this time. From time to time the Association may be involved in
various claims and legal actions arising in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. and b. Not applicable
c. On March 23, 2000, the Company issued one share of common stock to
the Association at a price of $.01. The share was sold in reliance
upon the exemption set forth in section 4(2) of the Securities Act
of 1933 and no underwriter was used. This one share was cancelled
upon completion of the Conversion.
d. Use of Proceeds. On April 11, 2000, the Company completed an
offering of securities registered pursuant to the Securities Act of
1933, as amended. In connection with the offering:
1. The effective date of the registration Statement on Form SB-2,
as amended (File No. 333-92929) was February 11, 2000.
2. The offering of securities was not underwritten. Trident
Securities, Inc., a division of McDonald Investments, acted as
marketing agent for the offering.
3. The class of securities registered was common stock, $0.01 par
value per share. The amount of such securities registered was
859,625 shares at an offering price of $10.00 per share,
solely for the account of the Company. The offering terminated
on April 11, 2000 with the sale of 556,328 shares at a price
of $10.00 per share.
4. The total offering expenses incurred by the Company were
$521,448, none of which were paid directly or indirectly to
directors or officers of the Company or their associates. The
total offering expenses included $143,530 paid to Trident
Securities, Inc..
5. The net proceeds of the offering were $5.0 million of which
$445,060 was loaned to the Association's employee stock
ownership plan to purchase stock in the offering. One-half of
the net proceeds were invested in the subsidiary Association
and the remaining was invested in short-term securities. These
uses
17
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FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
SIX MONTHS ENDED JUNE 30, 2000
of proceeds do not represent a material change in the use of
proceeds described in the Company's Prospectus dated February
11, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.0 Financial Data Schedule
b. Reports on Form 8-K
None
18
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
SIX MONTHS ENDED JUNE 30, 2000
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Federal of Olathe Bancorp, Inc.
Date: August 5, 2000 By: /s/ Mitch Ashlock
-------------------------------------
Mitch Ashlock
President and Chief Executive Officer
(Duly authorized officer and principal
executive and financial officer
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