<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Mark one:
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Quarterly period ended March 31, 1996, or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
Commission File Number: 0-21500
KSB BANCORP, INC.
Delaware 04-3189069
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
Main Street
Kingfield, ME 04947
(Address of Principal Executive Office)
Registrant's telephone number, including area code: 207-265-2181.
Check whether the issuer (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding for the issuer's classes of common stock as of the latest
practicable date.
Common Stock 373,750
(Class) (Outstanding)
<PAGE>
KSB BANCORP, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets, 1
March 31, 1996 and December 31, 1995
Consolidated Statements of Income 3
Three months ended March 31, 1996
and March 31, 1995
Consolidated Statements of Stockholders' 4
Equity, three months ended March 31, 1996
and March 31, 1995
Consolidated Statements of Cash Flows, 5
three months ended March 31, 1996 and
March 31, 1995
Notes to Financial Statements 7-12
Item 2 Management's Discussion and Analysis of 13-18
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 2 Changes in Securities 19
Item 3 Defaults upon Senior Securities 19
Item 4 Submission of Matters to a vote of Security
Holders 19
Item 5 Other information 19
Item 6 Exhibits and Reports on Form 8-KSB 19
Signature Page 20-21
<PAGE>
KSB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
1996 1995
---------- ------------
ASSETS (in thousands)
Cash and Cash Equivalents
and Due from Banks $2,823 $2,500
Interest-bearing Deposits in Banks 0 2,460
Investment Securities
Available for Sale
(at estimated Market Value) 8,139 8,377
Investment Securities to be
Held to Maturity
(estimated market value:
March 31, 1996 - 23,577;
December 31, 1995 - $19,272) 23,545 19,103
------ ------
Loans:
Real Estate Mortgages 45,340 45,913
Home Equity Loans 4,918 5,189
Installment Loans 4,531 4,495
Commercial Loans 29,794 29,220
Other loans 508 1,000
Deferred Loan Fees (189) (186)
Allowance for Loan Losses (903) (867)
------- -------
Total Loans (net) 83,999 84,764
------- -------
Other Real Estate Owned 41 41
Real Estate Loans to be Sold 1,980 1,126
Federal Home Loan Bank Stock 1,321 1,321
Bank Premises and Equipment, net 2,198 2,254
Excess of Cost over Fair Value of
Assets Acquired 697 723
Accrued Interest Receivable 849 815
Deferred Tax Asset 467 435
Cash Surrender Value of Life Insurance 499 494
Other Assets 814 820
------ --------
TOTAL ASSETS $127,372 $125,233
======== ========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
March 31, December 31,
1996 1995
---------- ------------
Deposits:
Regular Savings $21,921 $21,876
Money Market Accounts 5,000 5,763
Certificates of Deposit 57,337 55,516
N.O.W. Accounts 12,867 12,764
Demand Deposits 7,383 7,767
------- -------
Total Deposits 104,508 103,686
------- -------
Advances from FHLB 11,968 10,952
Other borrowed funds:
Escrows and trustee accounts
for sold loans 1,059 1,016
Accrued Income Taxes Payable 103 53
Accrued Expenses and
Other Liabilities 836 867
Deferred Income Taxes 171 161
------- -------
Total Liabilities 118,645 116,735
------- -------
Stockholders' Equity:
Common Stock: $.01 Par Value,
373,750 Shares Issued
and Outstanding 4 4
Additional Paid-in Capital 3,487 3,475
Retained Earnings 5,610 5,360
Net unrealized loss on securities
available for sale (64) (10)
Less: remaining obligation
under employee stock
ownership plan (ESOP) (209) (223)
Less: remaining obligation under Bank
Recognition Plan (BRP) (101) (108)
------ ------
Total Stockholders' Equity 8,727 8,498
------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $127,372 $125,233
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
KSB BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
THREE MONTHS ENDED
March 31,
1996 1995
(In thousands)
Interest and Dividend Income
Interest and Fees on Loans $2,033 $1,634
Interest on Investment Securities 499 573
Dividends 21 23
----- -----
Total Interest and Dividend income 2,553 2,230
----- -----
Interest Expense
Interest on Deposits 1,101 813
Interest on Borrowed Funds 164 338
----- -----
Total Interest Expense 1,265 1,151
----- -----
Net Interest Income 1,288 1,079
Less: provision for loan losses 60 45
----- -----
Net Interest Income after
Provision for Loan Losses 1,228 1,034
----- -----
Non-interest Income
Fees on Sold Loans 12 8
Net Gains on Loans Sold 4 10
Mortgage Servicing Income 84 84
Service charges and fees 159 122
Other 30 28
----- -----
Total Non-interest Income 289 252
----- -----
Non-interest Expense
Salaries and Benefits 526 513
Occupancy 86 86
Equipment 143 144
FDIC Premium 19 46
Advertising & Promotion 27 34
Other 308 320
----- -----
Total Non-interest Expense 1,109 1,143
----- -----
Net Income Before Taxes 408 143
Income Tax Expense 126 41
----- -----
Net Income $282 $102
===== =====
Earnings per share
(based on weighted average
shares outstanding $0.80 $0.30
===== =====
Weighted Average Shares Outstanding 351,453 345,784
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
KSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Net
Unrealized
Loss on
Adj. Adj. Securities
Retained Common Paid-in for for Available
Earnings Stock Capital ESOP BRP for Sale TOTAL
-------- -------- -------- ---- ---- -------- ------
(in Thousands)
Three months ended March 31, 1996
- - ---------------------------------
Beginning
balance $5,360 4 3,475 (223) (108) (10) $8,498
Net Income 282 - - - - - 282
Dividends
Paid (32) - - - - (32)
ESOP
adjustment - - 12 14 - 26
BRP
adjustment - - - - 7 7
Securities
adjustment - - - - - (54) (54)
------- ------- ------ ----- --- ---- ------
Ending
balance $5,610 4 3,487 (209) (101) (64) $8,727
======== ======= ====== ===== === ==== =====
Net
Unrealized
Loss on
Adj. Adj. Securities
Retained Common Paid-in for for Available
Earnings Stock Capital ESOP BRP for Sale TOTAL
-------- -------- -------- ---- ---- -------- ------
(in Thousands)
Three months ended March 31, 1995
- - ---------------------------------
Beginning
balance $4,602 4 3,436 (280) (141) $7,621
Net Income 102 - - - - 102
Dividends
Paid (27) - - - - (27)
ESOP
adjustment - - 8 14 - 22
BRP
adjustment - - - - 9 9
------- ------- ------ ----- --- ------
Ending
balance $4,677 4 3,444 (266) (132) $7,727
======== ======= ====== ===== ==== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
KSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED
CASH FLOWS FROM OPERATING ACTIVITIES March 31,
1996 1995
-------- --------
(In thousands)
Net Income $282 $102
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and Amortization 164 143
Decrease in Obligation under ESOP & BRP 33 31
Provision for loan losses 60 45
Deferred income taxes 4 (12)
Net gains on sales of loans originated
for sale (4) (11)
Originations of Loans To Be Sold (1,915) (1,379)
Sales of Loans To Be Sold 1,065 2,137
Decrease(increase) in:
Interest receivable (32) 31
Prepaid Expenses (68) (58)
Cash Surrender Value
of Life Insurance (6) (3)
Other receivables 40 232
Increase (decrease) in:
Interest payable (9) (4)
Accrued Expenses (32) 58
Accrued taxes payable 50 (34)
Deferred Origination Fees 3 (31)
Other Payables 11 (52)
----- ------
Total Adjustments (636) 1,093
------ ------
Net Cash From Operating Activities (354) 1,195
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities
Held To Maturity (5,364) 0
Proceeds from maturities and
principal payments on investment
securities Held To Maturity 889 0
Proceeds from maturities and principal
payments on investment securities Available
For Sale 152 903
Net (increase) decrease in loans 702 (2,818)
Capital expenditures (31) (107)
Net purchases of FHLB stock 0 (168)
Net decrease (increase) in other assets 20 19
----- -----
Net cash used in investing activities (3,632) (2,171)
------ ------
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
CONTINUED
THREE MONTHS ENDED
CASH FLOWS FROM FINANCING ACTIVITIES March 31,
1996 1995
-------- --------
(In thousands)
Cash received through
branch acquisition,
net of acquisition premium 0 12,314
Net increase in time deposit accounts 1,821 1,894
Net decrease in other deposit accounts (999) (3,265)
Net increase (decrease)
in FHLB advances 1,016 (9,768)
Net increase in escrow accounts 43 266
Cash dividends paid on common
stock(net of ESOP) (32) (27)
------ ------
Net cash provided by financing
activities 1,849 1,414
----- ------
Net increase (decrease) in cash
and cash equivalents (2,137) 438
Cash and cash equivalents,
beginning of period (1) 4,960 2,007
----- ------
Cash and cash equivalents,
end of period (1) $2,823 $2,445
===== ======
(1) Includes Interest-earning
Deposits in Banks
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
KSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore,
do not include all disclosures required by generally accepted accounting
principles for complete presentation of financial statements. In the
opinion of management, the consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the consolidated balance sheets of KSB Bancorp, Inc.,
(the "Company") and Kingfield Savings Bank (the "Bank"), as of March 31,
1996 and December 31, 1995, the consolidated statements of income for
the three months ended March 31, 1996 and March 31, 1995, and the
consolidated statements of stockholders' equity and cash flows for the
three months ended March 31, 1996, and March 31, 1995. All significant
intercompany transactions and balances are eliminated in consolidation.
The income reported for 1996 period is not necessarily indicative of the
results that may be expected for the full year.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs, net of recoveries. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic
conditions.
FASB Standard No. 114 was adopted at January 1, 1995. Under this
standard, loans considered to be impaired are reduced to the present
value of expected future cash flows or to the fair value of collateral,
by allocating a portion of the allowance for loan losses to such loans.
If these allocations cause the allowance for loan losses to require an
increase, such increase is reported as bad debt expense. The effect of
adopting this standard is reported as bad debt expense, and was not
significant for 1995. The carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates of
future cash flows, and increases in the present value of expected cash
flows due to the passage of time. Cash payments representing interest
income are reported as such. Other cash payments are reported as
reductions in carrying value, while increases due to changes in
estimates of future payments and due to the passage of time are reported
as bad debt expense and decreases are reported as reductions in bad debt
expense.
Loan Servicing Rights: The company originates mortgage loans for sale
to the secondary market, and sells the loans with servicing retained.
Effective January 1, 1996, the Company adopted FASB Statement 122 (FAS
122) on accounting for mortgage servicing rights, which requires
capitalizing the rights to service originated mortgage loans. Prior to
adoption of FAS 122, only purchased mortgage servicing rights were
capitalized. Beginning in 1996, the total cost of mortgage loans
purchased or originated with the intent to sell is allocated between the
loan servicing right and the mortgage loan without servicing, based on
their relative fair values. The capitalized cost of loan servicing
rights is amortized in proportion to, and over the period of, estimated
net future servicing revenue.
Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the
underlying serviced loans, such as loan type, term, and note rate.
Impairment represents the excess of cost of an individual mortgage
servicing rights stratum over its fair value, and is recognized through
a valuation allowance.
Fair values for individual stratum are based on the present value of
estimate future cash flows using a discount rate commensurate with the
risk involved. Estimates of fair value include assumptions about
prepayment, default and interest rates, and other factors which are
subject to change over time. Changes in these underlying assumptions
could cause the fair value of loan servicing rights, and the related
valuation allowance, to change significantly in the future.
For other accounting policies, refer to the financial statements filed
in the form 10-KSB for the year-end December 31, 1995.
NOTE 2 - INVESTMENT SECURITIES
Investment Securities Available for Sale: Investment securities
available for sale consist of securities that the Bank anticipates could
be made available for sale in response to changes in market interest
rates, liquidity needs, changes in funding sources and other similar
factors. These assets are specifically identified and are carried at
fair value. Amortization of premiums and accretion of discounts are
recognized in interest income using the interest method over the period
to maturity. Unrealized holding gains and losses for these assets, net
of related income taxes, are excluded from earnings and are reported as
a net amount in a separate component of stockholders' equity. When a
decline in market value is considered other than temporary, the loss is
recognized in the consolidated statement of income, resulting in the
establishment of a new cost basis for the security. Mortgage-backed
securities are subject to risk of repayment which can affect the yields
realized on the securities by increasing or decreasing the period over
which premiums and discounts are recognized.
<PAGE>
The following is a summary of investment securities at amortized cost
and estimated market values ($ in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- --------- ------
March 31, 1996
AVAILABLE FOR SALE
U.S. Government Agency
securities 3,999 2 16 3,985
Corporate Bonds - - - -
Mortgage-backed Securities 4,236 - 82 4,154
REMIC - - - -
--------- --------- --------- ---------
Total Available for Sale 8,235 2 98 8,139
========== ========= ========= =========
TO BE HELD TO MATURITY
U.S. Government Agency
securities - - - -
Corporate Bonds 75 1 - 76
Mortgage-backed Securities 21,435 182 170 21,447
REMIC 2,035 19 - 2,054
--------- -------- -------- -------
Total to be Held
to Maturity 23,545 202 170 23,577
========== ======== ======== ========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- --------- -----
December 31,1995
AVAILABLE FOR SALE
U.S. Government Agency
securities 3,999 3 9 3,993
Corporate Bonds - - - -
Mortgage-backed Securities 4,393 - 9 4,384
REMIC - - - -
--------- --------- ----- -------
Total Available
for Sale 8,392 3 18 8,377
========== ========= ===== =======
TO BE HELD TO MATURITY
U.S. Government Agency
securities - - - -
Corporate Bonds 95 1 - 96
Mortgage-backed Securities 16,968 236 96 17,108
REMIC 2,039 29 - 2,068
--------- --------- --------- ---------
Total to be Held
to Maturity 19,102 266 96 19,272
======== ========= ========= =========
<PAGE>
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows for the three
months ended March 31, 1996:
Balance at January 1, 1996 $866,770
Provision for loan losses 60,000
Charged-off loans (24,083)
Recoveries 0
----------
$902,687
==========
Impaired loan period information:
Information regarding impaired loans is as follows for the three months
ended March 31, 1996:
Average investment in impaired loans: 1,236,968
Interest Income recognized on
impaired loans including
interest income recognized
on cash basis 30,305
Interest Income recognized on
impaired loans on cash basis 30,305
Impaired loan period end information:
Information regarding impaired loans at March 31, 1996 is as follows:
Balance of impaired loans 1,243,113
Less: portion for which no allowance
for loan losses is allocated (832,232)
-----------
Portion of impaired loan balance for
which an allowance for credit
losses is allocated 410,881
===========
Portion of allowance for loan losses
allocated to the impaired loan
balance 284,639
Note 4 - LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized in a valuation
allowance by charges to income.
NOTE 5 - EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED (Goodwill)
The excess of cost over fair value of net assets acquired in branch
acquisitions is amortized to expense using the straight line method over
ten years.
<PAGE>
NOTE 6 - EARNINGS PER COMMON SHARE
The earnings per share computation is based upon the weighted average
number of shares of stock outstanding during the period. Only ESOP
shares that have been committed to be released are considered
outstanding.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off balance sheet risk
in the normal course of business to meet financing needs of its
customers. The financial instruments include commitments to make loans
and unused lines of credit. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument
for commitments to make loans and unused lines of credit is represented
by the contractual amount of those instruments. The Bank follows the
same credit policy to make such commitments as it follows for those
loans recorded in the financial statements. At March 31, 1996 and
December 31, 1995, the Bank had commitments to make loans totalling
$1,417,190 and $2,637,400 respectively and unused lines of credit
totalling $9,755,032 and $10,152,295 respectively. Commitments to make
loans may expire without being used, therefore the amount does not
necessarily represent future cash commitments.
Note 8 - INTEREST RATE SWAPS
The Bank is a party to an interest rate swap agreement having a
"notional" amount of $2,000,000 on which it is obligated to pay interest
based on the 3-month LIBOR rate, adjusting quarterly, and receives a
fixed-rate payment. The contract matures November 1997. The Bank
receives a fixed rate of 4.91% and, as of March 31, 1996, pays at the
rate of 5.25%. Net interest expense for the period ending March 31,
1996 was $3,043. The Bank has utilized interest rate swaps to partially
protect its net interest income stream against the effects of falling
rates on prime-based loans. The "notional" amount is a figure used to
calculate settlement payments and does not represent exposure to credit
loss. The estimated market value of the Bank's interest rate swap at
March 31, 1996 was ($33,469).
Note 9 - LOAN SERVICING
The unpaid principal balance of mortgage loans serviced for others,
which are not included on the balance sheet, was $79,195,748 and
$81,219,879 at March 31, 1996 and December 31, 1995, respectively. The
balance of loans serviced for others related to servicing rights that
have been capitalized was $1,065,165 and $0 at March 31, 1996 and
December 31, 1995, respectively. The remaining balance of loans
serviced for others also have servicing rights associated with them;
however, these servicing rights arose prior to adoption of FAS 122, and
accordingly, have not been capitalized on the balance sheet.
The carrying value and fair value of capitalized loan servicing rights
at March 31, 1996 was $9,000. No valuation allowance has yet been
established.
<PAGE>
KSB BANCORP, INC.
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
I. GENERAL
The Company's results of operations are dependent primarily on the Bank.
The Bank's primary source of earnings is its net interest income, which
is the difference between the interest income earned on its loans,
mortgage-backed securities and investment portfolio versus its cost of
funds, which consists of the interest paid on deposits and borrowings.
To a lesser extent but still significant is the effect of the Bank's
secondary mortgage market activities in which the Bank originates
residential mortgage loans for the secondary mortgage market and
subsequently sells the loans while retaining servicing rights and fees.
The Company's operating expenses consist principally of employee
compensation and benefits, occupancy and equipment expenses, Federal
Deposit Insurance Corporation premiums and other general and
administrative expenses. The Company's results of operations are
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, as well as government
policies and actions of regulatory authorities.
II. INTEREST RATE SENSITIVITY
At March 31, 1996, the Bank's total interest-bearing assets maturing or
repricing within one year exceeded total interest-earning liabilities
maturing or repricing in the same period by $1.1 million representing a
positive one-year cumulative interest rate sensitivity gap ratio of 0.9%
of total assets. This "positive" gap position compares to a cumulative
"positive" one-year gap position of $6.6 million or 5.2% of total assets
at December 31, 1995. The decrease in the "positive" dollar gap is, in
part, the result of the deployment of the cash received from the
December, 1995 sale of $4,000,000 in securities into short-lived
mortgage-backed securities carrying slightly higher yields. In
addition, the Bank has seen some net paydown ($1.0 million) of
adjustable-rate mortgages and construction loans, much of which was
reinvested in commercial loans repricing in 2-5 years. The net decrease
in one-year assets was coupled with a net increase in one-year
liabilities due to an influx of 6-12 month Certificates of Deposit and
short-term Federal Home Loan Bank borrowings. The "gap" measurement is
based on an internal analysis by Bank management, which includes
subjective evaluation of the rate sensitivity of the Bank's money market
and other short-term deposit accounts, and certain assumptions regarding
prepayments on the Bank's loan and mortgage-backed security portfolio.
(Refer to Interest Rate Sensitivity Table which follows).
<PAGE>
KSB BANCORP, INC.
INTEREST RATE SENSITIVITY TABLE
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at March 31, 1996 which
are anticipated by the Bank, based upon certain assumptions, to reprice
or mature in each of the future time periods shown. Except as stated
below, the amount of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
earlier of term to repricing or the contractual terms of the asset or
liability. Fixed-rate Passbook Savings and NOW accounts, which totalled
$20.0 million at March 31, 1996 are assumed to be withdrawn at the
annual percentage rates of 17% and 37%, respectively. Money market
accounts are assumed to reprice in three months or less. Certificate
accounts are assumed to reprice at the date of contractual maturity.
Fixed- rate mortgages totalling $19.0 million (included in the "Mortgage
Loans" category) are amortized using a constant prepayment rate ("CPR")
of 8.0 which approximates the Bank's prior experience. Fixed-rate loans
in "other loans" are amortized with the assumption of no prepayment.
Mortgage backed securities are amortized primarily using a CPR of 15.0.
At March 31, 1996
(dollars in thousands)
Over Over
1 year 1 Year- 3 Years- More than
or less 3 Years 5 Years 5 Years TOTAL
Interest-earning assets:
Mortgage loans(1) (2) $45,163 $7,324 $3,268 $9,714 $65,469
Other loans(1) 9,926 6,909 2,801 1,966 21,602
Interest-bearing Deposits 0 0 0 0 0
Mortgage-backed
Securities 8,718 7,675 5,006 6,226 27,625
Investment
Securities(3) 4,381 1,000 0 0 5,381
----- ------ ----- ----- ------
Total Interest-
earning assets 68,188 22,908 11,075 17,906 120,077
----- ------ ----- ----- ------
Less:
Non-performing loans (1,573) (339) (37) (198) (2,147)
Unearned discount
and deferred fees (130) (21) (9) (28) (189)
----- ------ ----- ----- ------
Net interest
earning assets 66,485 22,548 11,029 17,680 117,741
----- ------ ----- ----- ------
<PAGE>
Interest-bearing liabilities:
Fixed- and variable-rate
Passbook accounts 16,635 1,849 1,274 2,821 22,579
NOW accounts 4,761 4,889 1,940 1,277 12,867
Money market accounts 5,000 0 0 0 5,000
Certificate & club
accounts 28,482 17,333 11,656 0 57,471
Borrowings 8,516 2,000 1,452 0 11,968
----- ------ ----- ----- ------
Total interest-bearing
liabilities 63,394 26,071 16,322 4,098 109,885
------ ------ ----- ----- ------
Effect of Interest
Rate Swaps(4) (2,000) 2,000
------ -----
Interest sensitivity
gap per period 1,091 (1,523) (5,293) 13,582
====== ===== ===== ======
Cumulative interest
sensitivity gap 1,091 (432) (5,725) 7,857
====== ===== ===== ======
Cumulative interest
sensitivity gap
as a percentage
of total assets 0.9% -0.3% -4.5% 6.2%
Cumulative net
interest-earning
assets as a percentage
of interest-sensitive
liabilities 101.7% 99.5% 94.6% 107.1%
(1) For purposes of the GAP analysis, mortgage and other loans are not
reduced by the allowance for loan losses.
(2) Includes Loans Held for Sale of $1,980,000 which are placed in the
1 Year or less" repricing category.
(3) Non-amortizing U.S. Government agency investments. Includes Federal
Home Loan Stock of $1,321,000
(4) Includes $2,000,000 swap maturing Nov., 1997.
III. FINANCIAL CONDITION
Total assets increased $2.1 million or 1.7% to $127.4 million at March
31, 1996.
Total portfolio loans decreased by $0.8 million while Real Estate Loans
to Be Sold increased by $0.9 million to $2.0 million. Residential
mortgage volume decreased further from 1995 levels. The Bank took steps
in the first quarter to spur demand through various marketing efforts
which have yielded good results. The Bank's commercial loan demand is
strong as the Bank continues to establish itself as an important
community lender in the Lewiston market.
Total deposits increased $0.8 million with a continued shift from lower
cost demand and money market deposits into short-term (6-12 month)
Certificates of Deposit.
Borrowed funds at March 31, 1996 totalling $12.0 million includes $7.0
million of short-term, fixed-rate borrowings from the Federal Home Loan
Bank of Boston, all of which matures in the second quarter of 1996, and
$1.5 million of variable-rate daily borrowings.
Investment securities To Be Held to Maturity and Available for Sale
consist primarily of U.S. Government-Agency and Agency-backed notes and
Mortgage-backed securities which are predominantly of the type issued by
U. S. Government agencies. $4.0 million are variable-rate securities
adjusting annually. The remainder are fixed-rate in nature.
Non-performing loans increased from $1,645,000, or 1.9% of total loans
at December 31, 1995, to $2,145,000, or 2.5% of total loans at March 31,
1996. The increase is represented by loans well-secured by real estate
and/or loans carrying SBA or Finance Authority of Maine (FAME)
guarantees. Currently, the SBA, VA or FAME guarantee $416,000 of the
$2,145,000 total. Also included in non-performing loans are loans which
are less than ninety days past due, but whose interest is recognized on
a cash basis only. These loans are restructured loans or were non-
accrual loans in the recent past and have not yet demonstrated the
ability to stay current. Amounts are $710,000 and $1,299,000 at
December 31, 1995 and March 31, 1996, respectively.
IV. COMPARISON OF OPERATING RESULTS
The Company reported net income of $282,000 for the three month period
ended March 31, 1996, which represents a $180,000 or 176% increase from
the $102,000 net income reported for the comparable three month period
in 1995. Net interest income after provision for loan losses increased
by $194,000, or 18.8%, non-interest income increased by $37,000 or 14.7%
and operating expenses decreased by $34,000, or 3.0%, for the three
months ended March 31, 1996 compared to the same period of 1995.
The increase in net interest income is attributable to the increase in
earning assets for the 1996 period compared to 1995 due to the
acquisition of 4 branches from Fleet Bank of Maine in March, 1995 and an
increase of approximately 38 basis points in the Bank's interest margin.
Non-interest income relating to the Bank's secondary mortgage market
activities was virtually the same as for the three months ended March
31, 1995. Continued low demand for the Bank's mortgage products was the
cause. Management expects increased activity for the second and third
quarters. Included in the Net Gains on Loans Sold for the 1996 period
is $9,000 (increased gain) attributable to accounting changes
implemented under FAS 122 which went into effect this year (see Notes to
Financial Statements). Other service charges, fees and other income
increased by $37,000 reflecting the acquisition of accounts in March,
1995 from Fleet.
Non-interest expense decreased by $34,000 or 3.0% from the March 31,
1995 period to the 1996 period. This decrease is largely attributable
to a decrease in fees assessed by the FDIC. A portion ($35.1 million)
of the Bank's deposits are insured by the Savings Association Insurance
Fund (SAIF) arm of the FDIC (connected with the Bank's acquisition of
First Federal Savings Association of Lewiston from the Resolution Trust
Corporation). Under an FDIC recapitalization plan being considered in
the U.S. Congress, the SAIF deposits would be assessed a one-time fee
(currently estimated at $230,000) by SAIF which would be charged to
current income. Future assessments would be reduced substantially under
the plan. 1996 expenses reflect a full three months of operating the
acquired branches, however the Bank also instituted cost-cutting
measures in 1995 including staff reductions, the closure of its
Waterville office and modification of its seasonal branch operations at
Sugarloaf/USA. Also included in 1995 first quarter expenses are the
one-time start-up costs associated with the branch acquisitions.
V. LIQUIDITY AND CAPITAL RESOURCES
The primary objective of the Bank's mortgage-backed securities and
investment securities portfolios is to provide for liquidity needs of
the Company and to contribute to profitability by providing a stable
cash flow of dependable earnings. While the Bank may sell securities
Available For Sale to generate liquidity, the Bank also has in place
available lines of credit secured by these securities, as well as by
Held to Maturity securities. In addition, the Bank currently has access
to substantial additional funds through its borrowing capacity at the
Federal Home Loan Bank of Boston.
Stockholder's equity at March 31, 1996 was $8.73 million, an increase of
$229,000 or 2.7% over total equity at December 31, 1995. The increase
resulted from net income of $282,000 for the period, the $33,000
quarterly adjustment to the ESOP and BRP, less a $37,000 dividend paid
to stockholders plus a $5,000 return of accumulated dividends on
unallocated shares of the ESOP. The net unrealized loss on securities
available for sale (net of Deferred tax asset of $33,000) increased by
$54,000 for the quarter, bringing the net increase in reported equity to
$229,000.
At March 31, 1996, the Company's ratio of core capital to total assets
equalled 6.3%. This represents an increase from the December 31, 1995
ratio of 6.2%
At March 31, 1996, the Bank's ratio of core capital to total assets
equalled 6.2% compared to 6.0% at December 31, 1995. The Bank's net
earnings of $282,000 accounted for the increase.
The ratio of the Bank's risk-based capital to risk-weighted assets at
March 31, 1996 was 11.4% compared to 11.0% at December 31, 1995. The
increase is due primarily to the increase in the Bank's equity from
operations. The Bank's capital ratios are derived from data presented
in the Bank's FDIC call reports.<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
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) None
b) None
<PAGE>
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.
KSB BANCORP, INC.
Dated: May 15, 1996 \s\ John E. Thien
John E. Thien, Chief Financial
Officer and duly Authorized Officer
of the Registrant
<PAGE>
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.
KSB BANCORP, INC.
Dated: May 15, 1996 By:
John E. Thien, Chief Financial
Officer and duly Authorized Officer
of the Registrant
