<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 25049
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22734
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KS BANCORP, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1842707
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
207 West Second Street
P. O. Box 219
Kenly, North Carolina 27542
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(Address of principal executive office) (Zip code)
(919)-284-4157
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(Registrant's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check [X] whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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
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As of May 2, 1997 there were issued and outstanding 664,137 shares of the
Registrant's common stock, no par value.
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KS BANCORP, INC. AND SUBSIDIARY
CONTENTS
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<CAPTION>
PART I - FINANCIAL INFORMATION Pages
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<S> <C>
Item 1. Financial Statements
Consolidated statements of financial condition at
March 31, 1997 (Unaudited) and December 31, 1996 1-2
Consolidated statements of income for the three months ended
March 31, 1997 and March 31, 1996 (Unaudited) 3
Consolidated statements of cash flows for the three months
ended March 31, 1997 and March 31, 1996 (Unaudited) 4-5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
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
</TABLE>
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KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
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<S> <C> <C>
(Unaudited)
Cash and short-term cash investments:
Interest-bearing $ 2,307,393 $ 5,680,182
Noninterest-bearing 435,691 480,054
Investment securities:
Held to maturity, at cost 2,000,657 2,501,080
Available for sale, at fair value 5,970,187 5,751,745
FHLB stock and other nonmarketable 790,300 724,700
equity securities
Mortgage-backed securities, held to 1,383,103 1,392,585
maturity, at cost
Loans receivable, net 85,112,643 81,510,872
Accrued interest receivable 620,979 559,305
Property and equipment, net 1,997,456 1,925,973
Real estate acquired in settlement of 65,714
loans
Prepaid expenses and other assets 135,957 98,268
Refundable income taxes 149,558
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TOTAL ASSETS $ 100,754,366 $ 100,840,036
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</TABLE>
1
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<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
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<S> <C> <C>
(Unaudited)
Liabilities:
Deposits $ 82,010,083 $ 82,345,925
Advances from Federal Home Loan Bank 4,000,000 4,000,000
Accounts payable and accrued expenses 161,269 189,145
Advance payments by borrowers for 53,685 45,609
taxes and insurance
Deferred income taxes 531,006 538,318
Income taxes payable 68,371
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TOTAL LIABILITIES 86,824,414 87,118,997
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Stockholders' equity:
Preferred stock, no par value,
authorized 5,000,000 shares;
none issued
Common stock, no par value, authorized
20,000,000 shares;
issued 663,263 shares in 1997 and
1996
Additional paid-in capital 5,171,450 5,161,212
Note receivable, ESOP (273,000) (273,000)
Unrealized gain on securities 435,927 454,113
available for sale, net of tax effect
Retained earnings, substantially 8,595,575 8,378,714
restricted
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TOTAL STOCKHOLDERS' EQUITY 13,929,952 13,721,039
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TOTAL LIABILITIES AND $ 100,754,366 $ 100,840,036
STOCKHOLDERS' EQUITY
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</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Interest and dividend income:
Loans $ 1,856,363 $ 1,588,032
Investment securities 122,721 149,306
Mortgage-backed securities 24,861 25,600
Interest-bearing deposits 32,412 23,391
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TOTAL INTEREST INCOME 2,036,357 1,786,329
Interest expense:
Deposits 1,017,192 903,118
Borrowings 58,536 44,819
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TOTAL INTEREST EXPENSE 1,075,728 947,937
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NET INTEREST INCOME 960,629 838,392
Provision for loan losses 40,000
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NET INTEREST INCOME AFTER 960,629 798,392
PROVISION FOR LOAN LOSSES
Other income 41,139 34,610
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1,001,768 833,002
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Noninterest expense:
Compensation and employee benefits 285,411 254,631
Occupancy 23,611 20,915
Equipment maintenance and expense 13,958 15,103
Data processing and outside service 42,412 38,076
fees
Insurance 17,727 43,963
Other 105,757 83,059
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488,876 455,747
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INCOME BEFORE INCOME TAXES 512,892 377,255
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Income taxes:
Current 196,217 137,899
Deferred 3,834 (9,405)
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200,051 128,494
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NET INCOME $ 312,841 $ 248,761
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Primary earnings per share $ 0.45 $ 0.36
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</TABLE>
See Notes to Consolidated Financial Statements.
3
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KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 312,841 $ 248,761
Adjustments to reconcile net income to
net
cash provided by operating
activities:
Depreciation and amortization 20,326 23,266
Deferred income taxes 3,834 (9,405)
Loss on sale of investment securities 5,994
Gain on sale of real estate acquired (89)
in settlement of loans
Provision for loan losses 40,000
ESOP compensation expense credited 10,238 9,019
to paid-in capital
Changes in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (61,674) (31,015)
Prepaid expenses and other assets (37,689) (36,516)
Refundable income taxes 149,558 41,783
Increase (decrease) in:
Accrued expenses and other (27,876) 13,656
liabilities
Income taxes payable 68,371 103,089
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NET CASH PROVIDED BY OPERATING 443,834 402,638
ACTIVITIES
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Cash Flows From Investing Activities
Proceeds from maturities of investments 1,000,000 500,000
Proceeds from sale of investments 1,994,006
available for sale
Purchase of investments (2,811,616)
Principal repayments of MBS's 7,336 268,915
Mortgage loans, net (3,601,771) (3,377,094)
Proceeds from sale of real estate 65,803
acquired in settlement of loans
Proceeds from sale of property and 16,750
equipment
Purchase of property and equipment (107,748) (63,852)
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NET CASH USED IN INVESTING (3,437,240) (2,672,031)
ACTIVITIES
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</TABLE>
4
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KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash Flows From Financing Activities
Net increase (decrease) in deposits $ (335,842) $ 1,750,735
Advance from Federal Home Loan Bank
Increase (decrease) in advance
payments by borrowers
for taxes and insurance 8,076 (9,617)
Cash dividends paid (95,980) (98,394)
Repurchase of common stock (370,000)
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NET CASH PROVIDED BY (USED IN) (423,746) 1,272,724
FINANCING ACTIVITIES
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NET DECREASE IN CASH AND CASH (3,417,152) (996,669)
EQUIVALENTS
Cash and cash equivalents:
Beginning 6,160,236 4,083,414
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Ending $ 2,743,084 $ 3,086,745
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Supplemental Disclosures of Cash Flow
Information
Cash payments (refunds) for:
Interest $ 1,071,012 $ 930,528
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Income taxes $ $ (6,973)
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Cash and cash equivalents:
Cash and short-term investments:
Interest-bearing $ 2,307,393 $ 2,813,140
Noninterest-bearing 435,691 273,605
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$ 2,743,084 $ 3,086,745
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</TABLE>
See Notes to Consolidated Financial Statements.
5
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KS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (UNAUDITED)
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NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (except for the
statement of financial condition at December 31, 1996, which is audited) have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (none of
which were other than normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included. The results of operations for the three month
period ended March 31, 1997 are not necessarily indicative of the results of
operations that may be expected for the year ended December 31, 1997.
The accounting policies followed are as set forth in Note 1 of the Notes to
Consolidated Financial Statements in the 1996 KS Bancorp, Inc. annual report.
NOTE 2. ALLOWANCE FOR LOAN LOSSES
The Bank's allowance for loan losses increased by the related provision charged
to operations of $-0- and $40,000 during the three month periods ended March 31,
1997 and 1996, respectively. The Bank did not incur any loan charge-offs or
recoveries during these periods. The allowance at March 31, 1997 is $301,867.
The Bank's ratio of nonperforming assets to total assets at March 31, 1997 and
1996 was .42% and .73%, respectively.
NOTE 3. EARNINGS PER SHARE
KS Bancorp's earnings per share for the three month periods ended March 31, 1997
and 1996 were based upon the weighted average number of 699,362 and 699,543
shares assumed to be outstanding for the periods, respectively. Stock options
had a dilutive effect on earnings per share in the three month periods ended
March 31, 1997 and March 31, 1996. Earnings per share has been calculated in
accordance with Statement of Position 93-6 "Employers' Accounting for Employee
Stock Ownership Plans."
6
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KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position for
the quarter ended March 31, 1997 of KS Bancorp, Inc. (the Corporation) and its
wholly owned subsidiary, Kenly Savings Bank, SSB (the Bank). This overview
should be read in conjunction with the consolidated financial statements and
supplemental financial data contained herein and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Corporation's 1996 annual report on form 10-K.
OVERVIEW OF FIRST QUARTER RESULTS:
Total assets decreased by $86,000 during the three month period ended March 31,
1997. Earnings for the period totaled approximately $313,000, however payment
of dividends of $96,000 and a decrease in deposits of $336,000, contributed to
the overall decrease in assets during the quarter.
Mortgage loans increased by $3.6 million during the three month period ended
March 31, 1997, primarily as a result of an increase in loan originations
during the quarter brought about by a continued strong loan demand in the Bank's
primary lending areas. The Bank originated these loans for its portfolio.
Investment securities and short-term interest-bearing deposits, decreased by
approximately $3.6 million during the first quarter and amounted to $11.1
million at March 31, 1997. The market value of the Corporation's available for
sale securities decreased by $29,000 during the quarter, primarily as a result
of movements in market interest rates. At March 31, 1997, the Corporation's
available for sale portfolio had securities with unrealized gains of $743,000
and unrealized losses of $40,000. During the quarter, the Corporation received
proceeds from sales and maturities of investments totaling $3.0 million, and
purchased investments totaling $2.8 million. Proceeds from sales and maturities
in excess of purchases and the decrease in short-term interest-bearing deposits
helped to fund the Bank's increased mortgage loan activity during the quarter.
The Corporation's return on assets for the three month periods ended March 31,
1997 and 1996 on an annualized basis was 1.24% and 1.12%, respectively. The
Corporation's return on equity for the three month periods ended March 31, 1997
and 1996 on an annualized basis was 9.05% and 7.24%, respectively.
During the first quarter, the Corporation paid a cash dividend of $ .15 a share,
amounting to approximately $96,000. At March 31, 1997, the Corporation and the
Bank's capital was significantly in excess of regulatory capital requirements.
Net income for the three month periods ended March 31, 1997 and 1996 was
$312,841 ($.45 per share) and $248,761 ($.36 per share), respectively. Net
interest income for the three month period ended March 31, 1997 was
approximately $122,000 higher than the comparable period of 1996. The increase
in net interest income is primarily attributable to a small increase in the
interest rate spread in effect during the periods, and a change in the mix of
interest-earning assets favoring loans receivable instead of
7
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KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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investment securities. The yield on loans receivable is typically higher than
the yield on investment securities.
Noninterest expense increased by approximately $33,000 during the three month
period ended March 31, 1997 versus the comparable period in 1996. The primary
reason for the overall increase was due to increased levels of compensation and
other expenses associated with the operations of the new branch office in Kenly,
North Carolina opened during the fourth quarter of 1996, and the operation of
the Bank's Goldsboro, North Carolina facility as a full service branch.
Renovations of the new Goldsboro office were completed and the facility opened
as a full service branch during the latter part of the quarter ended March 31,
1996. Prior to this, the Bank operated a loan origination office in Goldsboro.
ASSET QUALITY:
Nonperforming assets, which consist of nonaccrual loans and real estate acquired
through foreclosure, amounted to approximately $428,000 and $647,000 at March
31, 1997 and 1996, respectively. The ratio of nonperforming assets to total
assets at March 31, 1997 and 1996 was .42% and .73%, respectively. Based on
management's analysis of the adequacy of its allowances at March 31, 1997, no
provision for loan losses was made during the quarter, positively impacting net
income for the quarter as compared to the same quarter in the previous year.
Provisions which are charged to operations, and the resulting loan loss
allowances are amounts the Bank's management believes will be adequate to absorb
losses on existing loans that may become uncollectible. Loans are charged off
against the allowance when management believes that collectibility is unlikely.
The evaluation to increase or decrease the provision and resulting allowances is
based both on prior loan loss experience and other factors, such as changes in
the nature and volume of the loan portfolio, overall portfolio quality, and
current economic conditions. Due to the slightly higher ratio of nonperforming
assets to total assets and an increased balance of loans outstanding at March
31, 1996, the Bank added $40,000 to its allowance for loan losses during the
quarter ended March 31, 1996. The balance of the Bank's allowance for loan
losses amounted to approximately $302,000 at March 31, 1997 and is considered
adequate by management to absorb existing losses, either known or as yet
undetected.
LIQUIDITY:
The term "liquidity" generally refers to an organization's ability to generate
adequate amounts of funds to meet its needs for cash. More specifically for
financial institutions, liquidity ensures that adequate funds are available to
meet deposit withdrawals, fund loan and capital expenditure commitments,
maintain reserve requirements, pay operating expenses, and provide funds for
debt service and other institutional commitments. Funds are primarily provided
through financial resources from operating activities, expansion of the deposit
base, borrowings, through the sale or maturity of investments, or maintenance of
shorter term interest-bearing deposits.
The Bank is required by regulations to maintain liquid assets, essentially cash,
short-term interest bearing deposits, substantially all investments, and
mortgage-backed securities, of at least 10% of total assets. A substantial
portion of the Bank's investment portfolio is classified as available for sale,
and liquidation of
8
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KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
such portfolio, if need be, would not have accounting implications on the
Corporation's equity under SFAS No. 115. The Bank exceeded such requirements at
March 31, 1997 and management believes that the Bank's liquidity is adequate to
fund all outstanding commitments and other anticipated cash needs.
CAPITAL RESOURCES AND ADEQUACY:
KS Bancorp, Inc's stockholders' equity was $13,929,952, or 13.83% of total
assets at March 31, 1997. As a state chartered stock savings bank, the Bank is
required to meet three separate capital standards as established by the Federal
Deposit Insurance Corporation and an additional capital requirement established
by the State Administrator of the Savings Institutions Division. The Bank was
substantially in excess of all such capital requirements at March 31, 1997.
9
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings at the present
time. From time to time, the Bank is a party to legal proceedings
within the normal course of business wherein it enforces its
security interest in loans made by it, and other matters of a like
kind.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable
(b) Not applicable
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KS BANCORP, INC.
Dated May 2, 1997 By: /s/ Harold T. Keen
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Harold T. Keen
President and CEO
Dated May 2, 1997 By: /s/ Helen B. Pollock
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Helen B. Pollock
Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 435,691
<INT-BEARING-DEPOSITS> 2,307,393
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 2,000,657
<INVESTMENTS-MARKET> 1,978,000
<LOANS> 85,414,510
<ALLOWANCE> 301,867
<TOTAL-ASSETS> 100,754,366
<DEPOSITS> 82,010,083
<SHORT-TERM> 4,000,000
<LIABILITIES-OTHER> 814,331
<LONG-TERM> 0
0
0
<COMMON> 5,171,450
<OTHER-SE> 8,758,502
<TOTAL-LIABILITIES-AND-EQUITY> 100,754,366
<INTEREST-LOAN> 1,856,363
<INTEREST-INVEST> 122,721
<INTEREST-OTHER> 57,273
<INTEREST-TOTAL> 2,036,357
<INTEREST-DEPOSIT> 1,017,192
<INTEREST-EXPENSE> 1,075,728
<INTEREST-INCOME-NET> 960,629
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 488,876
<INCOME-PRETAX> 512,892
<INCOME-PRE-EXTRAORDINARY> 512,892
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,841
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.35
<LOANS-NON> 428,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 301,867
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 301,867
<ALLOWANCE-DOMESTIC> 301,867
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
