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 March 31, 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 |_| No |X|
Shares of common stock, par value $.01 per share, outstanding as of May 5,
2000: 556,328
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
* The issuer just became subject to the filing requirements of Section 13 or
15(d) when its Form SB-2 was declared effective on February 11, 2000.
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 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 - Financial Statements
Statement of Financial Condition (Unaudited) at March 31, 2000 3
Statement of Income (Unaudited) for the Three Months Ended
March 31, 2000 4
Statement of Cash Flows (Unaudited) for the Three Months Ended
March 31, 2000 5
Notes to Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis or Plan of Operation 7
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 10
Item 4 - Submission of Matters to a Vote of Security Holders 10
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
Statement of Financial Condition
March 31, 2000
(Unaudited)
ASSETS
Assets:
Cash $ --
Other assets
-----------
Total Assets $ --
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities $ --
-----------
Total Liabilities --
-----------
Stockholder's Equity:
Preferred stock, par value $.01, 1,000,000 shares
authorized; 0 shares issued and outstanding --
Common stock, par value $.01, 4,000,000 shares
authorized; 1 share issued and outstanding --
Additional paid-in capital --
Retained earnings --
-----------
Total Stockholder's Equity --
-----------
Total Liabilities and Stockholder's Equity $ --
===========
See accompanying notes to the financial statements.
3
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
Statement of Income
Three Months Ended March 31, 2000
(Unaudited)
Total income $ --
Total expense --
------
Net Income $ --
======
Earnings per share $ --
======
See accompanying notes to the financial statements.
4
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
Statement of Cash Flows
Three Months Ended March 31, 2000
(Unaudited)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities: $ --
Provided by operating activities:
Changes in assets and liabilities:
(Increase) decrease in receivable --
------
Net cash provided by operating activities --
Cash Flows from Investing Activities:
Net cash provided by investing activities --
Cash Flows from Financing Activities:
Issuance of common stock --
------
Net cash provided by financing activities --
Increase in cash and cash equivalents --
Cash and cash equivalents at beginning of period --
------
Cash and cash equivalents at end of period $ --
======
See accompanying notes to the financial statements.
5
<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 will be accounted for under
the pooling of interests method of accounting.
The accompanying unaudited 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.
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 556,328 shares of
common stock at $10 per share. Proceeds from the sale of common stock, net
6
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - FORMATION OF HOLDING COMPANY AND CONVERSION TO STOCK FORM (CONTINUED)
of expenses incurred of $510,480 were $5,052,800, inclusive of $445,060 related
to shares held by the Association's Employee Stock Ownership Plan ("ESOP"). The
financial statements included herein have not been restated as a result of the
consummation of the conversion.
NOTE C - EARNINGS PER SHARE
Earnings per share data is not considered meaningful as the Conversion had
not yet been completed as of March 31, 2000, the Company has not engaged in any
operations other than to facilitate the Conversion, and the one share issued and
outstanding at March 31, 2000 was cancelled upon consummation of the Conversion.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
First Federal of Olathe Bancorp, Inc. (the "Company") 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.
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
7
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
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.
8
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 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. The offering had commenced on February 21, 2000.
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. Trident Securities, a division of McDonald Investments, Inc.,
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
$510,480, 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 $5.1 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
9
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 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
99.1 Information for the Association in the Format of a Form 10-QSB
for the Quarter Ended March 31, 2000.
b. Reports on Form 8-K
None
10
<PAGE>
FIRST FEDERAL OF OLATHE BANCORP, INC.
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 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: May 12, 2000 By: /s/ Mitch Ashlock
------------------
Mitch Ashlock
President and Chief Executive Officer
(Duly authorized officer and principal
executive and financial officer)
11
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from First
Federal of Olathe Bancorp, Inc. and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 0
<CASH> 0
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 0
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
0
<INVESTMENT-INCOME> 0
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and non-interest earning deposits $ 72,540 $ 90,749
Overnight deposits at Federal Home Loan Bank
and First National Bank of Olathe 6,600,000 2,514,611
----------- -----------
Total cash and cash equivalents 6,672,540 2,605,360
Held to maturity securities, at cost 11,000,000 11,000,000
Available for sale securities 580,266 618,966
Federal Home Loan Bank stock, at cost 308,300 308,300
Loans receivable, net of deferred loan fees and loss allowance 32,209,488 31,472,474
Accrued interest and dividend receivable 402,913 420,090
Equipment, net of accumulated depreciation 18,185 19,643
Refundable income taxes -- 21,000
Other assets 306,610 146,258
----------- -----------
Total Assets $51,498,302 $46,612,091
=========== ===========
LIABILITIES AND EQUITY
Deposits $40,316,584 $36,203,251
Advance payments from borrowers for taxes and insurance 184,910 13,994
Interest payable on deposits 388,024 51,089
Advances from the Federal Home Loan Bank 1,000,000 1,000,000
Accrued expenses 89,876 106,175
Deferred income taxes 64,681 68,957
Income taxes payable 89,376 --
----------- -----------
Total Liabilities 42,133,451 37,443,466
Commitments and contingencies -- --
Equity:
Retained earnings 9,016,887 8,796,861
Accumulated other comprehensive income 347,964 371,764
----------- -----------
Total Equity 9,364,851 9,168,625
----------- -----------
Total Liabilities and Equity $51,498,302 $46,612,091
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three Months Ended
March 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
Interest and Dividend Income:
Loans receivable $ 683,533 $ 633,197
Investment securities 189,504 160,833
Cash and cash equivalents 41,191 54,624
Capital stock 5,365 4,742
--------- ---------
Total Interest and Dividend Income 919,593 853,396
--------- ---------
Interest Expense:
Deposits 471,317 463,742
Federal Home Loan Bank advances 14,272 14,153
--------- ---------
Total Interest Expense 485,589 477,895
--------- ---------
Net Interest Income Before Provision for Loan Losses 434,004 375,501
Provision for Loan Losses -- --
--------- ---------
Net Interest and Dividend Income
after Provision for Loan Losses 434,004 375,501
--------- ---------
Non-Interest Income:
Service charges and other fees 1,958 350
--------- ---------
Non-Interest Expense:
Salaries and related payroll expenses 27,253 27,313
Federal insurance premium 9,036 5,242
Occupancy of premises 9,801 7,031
Office supplies and related expenses 4,207 2,776
Other general and administrative 44,639 19,121
--------- ---------
Total Non-Interest Expense 94,936 61,483
--------- ---------
Income Before Income Taxes 341,026 314,368
Income Tax Provision 121,000 93,610
--------- ---------
Net Income 220,026 220,758
Other Comprehensive (Loss):
Unrealized (loss) on investment securities
available for sale, net of deferred tax benefit (23,800) (58,541)
--------- ---------
Comprehensive Income $ 196,226 $ 162,217
========= =========
See accompanying notes to the financial statements.
2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF EQUITY
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income Total Equity
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1999 $ 8,796,861 $ 371,764 $ 9,168,625
Net income for the three months ended
March 31, 2000 220,026 -- 220,026
Other comprehensive loss:
Change in unrealized gain on
available for sale securities, net of
deferred taxes -- (23,800) (23,800)
-------------- -------------- --------------
Balance, March 31, 2000 (Unaudited) $ 9,016,887 $ 347,964 $ 9,364,851
============== ============== ==============
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Mortgage loan interest received $ 696,300 $ 601,185
Investment interest and dividends received 240,470 185,347
Other fees 1,958 350
----------- -----------
938,728 786,882
Interest paid 148,654 146,457
Salaries and other administrative expenses 270,129 103,909
Income taxes paid -- 46,761
----------- -----------
418,783 297,127
----------- -----------
Net cash provided by operating activities 519,945 489,755
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of U.S. Government and agency securities -- (1,000,000)
Net increase in mortgage loans (566,098) (1,197,641)
(Purchase) redemption of FHLB stock -- 29,200
----------- -----------
Net cash (used) by investing activities (566,098) (2,168,441)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 4,113,333 312,098
----------- -----------
Net cash provided by financing activities 4,113,333 312,098
----------- -----------
Net increase (decrease) in cash and cash equivalents 4,067,180 (1,366,588)
CASH AND CASH EQUIVALENTS, December 31 2,605,360 5,212,508
----------- -----------
CASH AND CASH EQUIVALENTS, March 31 $ 6,672,540 $ 3,845,920
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 220,026 $ 220,758
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,458 1,173
Deferred income taxes 10,624 (10,898)
(Increase) decrease in accrued interest receivable 17,177 (66,864)
(Increase) decrease in other assets (160,352) (8,967)
Increase (decrease) in income taxes payable 110,376 57,747
Increase (decrease) in accrued interest payable 336,935 331,438
Increase (decrease) in accrued expenses (16,299) (34,632)
----------- -----------
Net cash provided by operating activities $ 519,945 $ 489,755
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Significant Accounting Policies
The accounting and reporting policies followed by First Federal Savings
and Loan Association of Olathe (the "Association") are in accordance with
generally accepted accounting principles and conform to general practices within
the savings and loan industry.
The accompanying unaudited 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. Management believes that all normal recurring
adjustments that are necessary for a fair presentation of interim period
financial information have been reflected in these financial statements.
6
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The profitability of First Federal Savings and Loan Association of Olathe
(the "Association") depends primarily on its net interest income, which is the
difference between interest and dividend income on interest-earning assets,
principally mortgage loans, investment securities and interest-earning deposits
in other institutions, and interest expense on interest-bearing deposits and
Federal Home Loan Bank ("FHLB") advances. Net interest income is dependent upon
the level of interest rates and the extent to which such rates are changing. The
Association's profitability also is dependent, to a lesser extent, on the level
of its noninterest income, provision for loan losses, and noninterest expense,
such as employee compensation and benefits, deposit insurance premiums,
occupancy and administrative cost, and income taxes.
The Association's operations and profitability are subject to changes in
interest rates, applicable statutes and regulations and general economic
conditions, as well as other factors beyond the Association's control.
Changes in Financial Condition
Total assets increased by $4.9 million or 10.5% from December 31, 1999 to
March 31, 2000. The increase was primarily due to a $4.2 million or 166.4%
increase in interest-earning deposits at The Federal Home Loan Bank and First
National Bank of Olathe in the first quarter of 2000. The increase in interest
earning deposits was due primarily to the Association receiving an additional
$4.5 million of funds from subscriptions for the stock offering of First Federal
of Olathe Bancorp, Inc. In addition, loans receivable increased $700,000 or 2.3%
primarily reflecting increases in residential mortgage loans.
Deposits increased by $4.1 million or 11.4% in the first quarter of 2000,
and interest payable on deposits increased by $300,000 or 659.5% in the same
period. The increase in interest payable on deposits was due to the fact that
the Association pays interest on its deposit accounts on June 30 and December 31
of each year. Advance payments from borrowers increased $200,000 or 1,221.4%
because the Association makes the majority of the payments out of these accounts
on an annual basis on or about December 31. Total equity increased by $196,000
from December 31, 1999 to March 31, 2000 due to net income of $220,000 for the
first quarter of 2000 offset by a decrease of $24,000 in other comprehensive
income.
7
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total interest and dividend income increased by $66,000, or 7.8%, in the
first quarter of 2000 from the comparable 1999 quarter, primarily due to a
$50,000 increase in interest on loans. The increased income on loans was due to
increases in one- to four-family residential loans. Interest income on
investment securities increased $29,000 or 17.8% primarily due to higher average
balances of investment securities as compared to the comparable 1999 quarter of
the previous year.
Total interest expense increased by $8,000 or 1.6% in the first quarter of
2000 from the comparable 1999 quarter. Interest on deposits increased by $8,000,
or 1.6%, and interest on borrowings increased nominally in the first quarter of
2000. The increase in interest expense on deposits was due to an increase in the
average balance of deposits, partially offset by declines in the average rates
paid.
Net interest income increased by $59,000, or 15.6%, in the first quarter
of 2000 from the comparable 1999 quarter, primarily due to an increase in net
average interest-earning assets and a small increase in the average interest
rate on loans receivable.
The Association did not make a provision for loan losses for the quarters
ended March 31, 2000 and 1999, respectively. The absence of a provision for loan
losses during these periods reflected management's overall assessment that the
inherent losses in the portfolio had not increased in these periods.
Total non-interest income increased by $1,600 in the first quarter of 2000
from the comparable 1999 quarter, primarily due to increases in service charges.
Total non-interest expense increased by $33,000, or 54.4%, in the first
quarter of 2000 from the comparable 1999 quarter, as each category of
noninterest expense increased except salaries and related payroll cost, which
were stable. The largest increase was in other general and administrative
expense of $25,500, or 133.5%. The largest increase in general and
administrative expense was legal and accounting fees.
Income before income taxes increased by $26,700, or 8.5%, in the March 31,
2000 quarter from the comparable 1999 quarter, as the higher interest income
more than offset increases in noninterest expense. The increase in tax expense
primarily reflected the increase in pre-tax income and an under-accrual of
income tax expense in 1999.
Net income decreased by $700, or 0.3%, in the March 31, 2000 quarter from
the comparable 1999 quarter.
8
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
First Federal Savings' 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.
First Federal Savings 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 First Federal Savings' policy to maintain its
liquidity portfolio in excess of regulatory requirements.
First Federal Savings' 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 First Federal Savings'
operating, financing, lending, and investment activities during any given
period. At March 31, 2000 and at December 31, 1999, cash and cash equivalents
were $6.7 million and $2.6 million, respectively. The increase in cash and cash
equivalents at March 31, 2000, compared to December 31, 1999, resulted primarily
from the funds received from the subscriptions for the stock offering of First
Federal of Olathe Bancorp, Inc.
Liquidity management for First Federal Savings is both an ongoing and
long-term function of First Federal Savings' 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 First Federal Savings
require funds beyond its ability to generate them internally, additional sources
of funds are available through FHLB advances. First Federal Savings would pledge
its FHLB stock or certain other assets as collateral for such advances. For the
three months ended March 31, 2000, First Federal Savings had an average balance
of $1.0 million in FHLB advances.
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 March 31, 2000, the Association exceeded each of its
capital requirements, with tangible, core, and risk-based capital ratios of
17.5%, 17.5 %, and 44.0%, 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
9
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FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF OLATHE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Impact of Inflation and Changing Prices, continued
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 interest rates.
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