<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 June 30, 1997
-----------------------------------------
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 0-22734
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KS BANCORP, INC.
----------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1842707
------------------------------- -------------------
(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
---------------------------
(Address of principal executive office) (Zip code)
(919)-284-4157
--------------
(Registrant's telephone number)
N/A
---
(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
------ ------
As of August 5, 1997 there were issued and outstanding 885,356 shares of the
Registrant's common stock, no par value.
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION Pages
-----
Item 1. Condensed Consolidated Financial Statements
Statements of financial condition at June 30, 1997
(Unaudited) and December 31, 1996 1-2
Statements of income for the three months ended June 30, 1997
and 1996 (Unaudited) 3
Statements of income for the six months ended June 30, 1997
and 1996 (Unaudited) 4
Statements of cash flows for the six months ended June 30, 1997
and 1996 (Unaudited) 5-6
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and short-term cash investments:
Interest-bearing $ 2,290,684 $ 5,680,182
Noninterest-bearing 412,821 480,054
Investment securities:
Held to maturity, at cost 2,000,229 2,501,080
Available for sale, at fair value 6,196,625 5,751,745
FHLB stock and other nonmarketable equity securities 790,300 724,700
Mortgage-backed securities, held to maturity, at cost 1,370,257 1,392,585
Loans receivable, net 90,233,905 81,510,872
Accrued interest receivable 660,219 559,305
Property and equipment, net 2,006,573 1,925,973
Real estate acquired in settlement of loans - 65,714
Prepaid expenses and other assets 159,688 98,268
Refundable income taxes - 149,558
-------------------------------
TOTAL ASSETS $106,121,301 $100,840,036
===============================
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities:
Deposits $ 83,837,056 $ 82,345,925
Advances from Federal Home Loan Bank 7,000,000 4,000,000
Accounts payable and accrued expenses 198,813 189,145
Advance payments by borrowers for taxes and insurance 85,939 45,609
Deferred income taxes 618,377 538,318
Income taxes payable 29,489 -
--------------------------------
TOTAL LIABILITIES 91,769,674 87,118,997
--------------------------------
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 885,356 in 1997 and 884,191 in 1996 - -
Additional paid-in capital 5,189,900 5,161,212
Note receivable, ESOP (273,000) (273,000)
Unrealized gain on securities available for sale, net of tax effect 575,117 454,113
Retained earnings, substantially restricted 8,859,610 8,378,714
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 14,351,627 13,721,039
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $106,121,301 $100,840,036
================================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $1,992,016 $1,659,623
Investment securities 128,927 142,297
Mortgage-backed securities 24,753 28,128
Interest-bearing deposits 18,562 24,413
--------------------------
TOTAL INTEREST INCOME 2,164,258 1,854,461
Interest expense:
Deposits 1,052,255 931,061
Borrowings 75,625 48,966
--------------------------
TOTAL INTEREST EXPENSE 1,127,880 980,027
--------------------------
NET INTEREST INCOME 1,036,378 874,434
Provision for loan losses - 2,000
--------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,036,378 872,434
Other income 36,765 32,360
--------------------------
1,073,143 904,794
--------------------------
Noninterest expense:
Compensation and employee benefits 281,750 253,757
Occupancy 29,410 18,098
Equipment maintenance and expense 14,188 15,473
Data processing and outside service fees 42,377 38,191
Insurance 19,774 43,320
Other 100,663 79,361
--------------------------
488,162 448,200
--------------------------
INCOME BEFORE INCOME TAXES 584,981 456,594
--------------------------
Income taxes:
Current 223,508 153,797
Deferred 2,061 11,125
--------------------------
225,569 164,922
--------------------------
NET INCOME $ 359,412 $ 291,672
==========================
Earnings per share $ 0.38 $ 0.32
==========================
Weighted average common and common equivalent shares 945,703 917,075
==========================
Dividends paid per share $ 0.11 $ 0.11
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $3,848,379 $3,247,655
Investment securities 251,648 291,603
Mortgage-backed securities 49,614 53,728
Interest-bearing deposits 50,974 47,804
-------------------------
TOTAL INTEREST INCOME 4,200,615 3,640,790
Interest expense:
Deposits 2,069,447 1,834,179
Borrowings 134,161 93,785
-------------------------
TOTAL INTEREST EXPENSE 2,203,608 1,927,964
-------------------------
NET INTEREST INCOME 1,997,007 1,712,826
Provision for loan losses - 42,000
-------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,997,007 1,670,826
Other income 77,904 66,970
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2,074,911 1,737,796
-------------------------
Noninterest expense:
Compensation and employee benefits 567,161 508,388
Occupancy 53,021 39,013
Equipment maintenance and expense 28,146 30,576
Data processing and outside service fees 84,789 76,267
Insurance 37,501 87,283
Other 206,420 162,420
-------------------------
977,038 903,947
-------------------------
INCOME BEFORE INCOME TAXES 1,097,873 833,849
-------------------------
Income taxes:
Current 419,725 291,696
Deferred 5,895 1,720
-------------------------
425,620 293,416
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NET INCOME $ 672,253 $ 540,433
-------------------------
Earnings per share $ 0.72 $ 0.58
=========================
Weighted average common and common equivalent shares 937,070 927,899
=========================
Dividends paid per share $ 0.22 $ 0.22
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 672,253 $ 540,433
Adjustments to reconcile net income to
net
cash provided by operating activities:
Depreciation and amortization 42,415 36,100
Deferred income taxes 5,895 1,720
Loss on sale of investment securities 5,994 7,169
Gain on sale of real estate acquired in
settlement of loans (89) -
Provision for loan losses 42,000
ESOP compensation expense credited to
paid-in capital 22,588 16,819
Changes in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (100,914) (47,060)
Prepaid expenses and other assets (61,420) (43,305)
Refundable income taxes 149,558 41,783
Increase (decrease) in:
Accrued expenses and other liabilities 9,668 20,881
Income taxes payable 29,489 9,019
-------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 775,437 625,559
-------------------------
Cash Flows From Investing Activities
Proceeds from sales and maturities of
investments 3,494,006 2,297,500
Purchase of investments (3,311,616) (1,482,154)
Principal repayments of mortgage-backed
securities 18,049 308,440
Mortgage loans, net (8,723,033) (6,396,762)
Proceeds from sale of real estate
acquired in settlement of loans 65,803 -
Proceeds from sale of property and
equipment 16,750 -
Purchase of property and equipment (138,331) (247,860)
--------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,578,372) (5,520,836)
--------------------------
</TABLE>
5
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Financing Activities
Net increase in deposits $ 1,491,131 $ 5,251,738
Advance from Federal Home Loan Bank 3,000,000 -
Increase in advance payments by
borrowers for taxes and insurance 40,330 20,258
Cash dividends paid (191,357) (193,788)
Issuance of common stock 8,740 -
Repurchase of common stock (2,640) (370,000)
----------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,346,204 4,708,208
----------------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,456,731) (187,069)
Cash and cash equivalents:
Beginning 6,160,236 4,083,414
----------------------------
Ending $ 2,703,505 $ 3,896,345
----------------------------
Supplemental Disclosures of Cash Flow
Information
Cash payments (refunds) for:
Interest $ 2,220,864 $ 1,929,576
----------------------------
Income taxes $ 464,502 $ 247,868
----------------------------
Cash and cash equivalents:
Cash and short-term investments:
Interest-bearing $ 2,290,684 $ 3,448,064
Noninterest-bearing 412,821 448,281
----------------------------
$ 2,703,505 $ 3,896,345
----------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 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 and six month periods ended June 30, 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 at June 30, 1997 was $301,867 and has
remained unchanged during 1997. The Bank's ratio of nonperforming assets to
total assets at June 30, 1997 was .35%.
NOTE 3. STOCK DIVIDEND
On June 25, 1997, the Bank effected a four for three stock split for
shareholders of record on June 10, 1997. As a result of the stock split, the
Bank issued 221,219 shares of common stock. All prior period share information
included in the financial statements has been restated to reflect the stock
split.
7
<PAGE>
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 and six month ended June 30, 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 1997 RESULTS:
Total assets increased by $5.4 million during the three month period ended June
30, 1997 primarily as result of an increase in the Bank's loan portfolio which
was funded primarily through increased deposits of $1.5 million and advances
received from the FHLB of approximately $3 million. Earnings for the period
totaled approximately $359,000.
Mortgage loans increased by $5.1 million during the three month period ended
June 30, 1997, building on the $3.6 million increase during the previous
quarter. The increase resulted primarily from 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, increased by
approximately $210,000 during the second quarter and amounted to $11.3 million
at June 30, 1997. The market value of the Corporation's available for sale
securities increased by $166,000 during the quarter, primarily as a result of
movements in market interest rates. At June 30, 1997, the Corporation's
available for sale portfolio had securities with unrealized gains of $942,000
and unrealized losses of $14,000.
The Corporation's annualized return on assets for the three and six month
periods ended June 30, 1997 was 1.35% and 1.27%, respectively. For the same
periods in 1996, the annualized return was 1.27% and 1.19%, respectively. The
Corporation's return on equity for the three and six month periods ended June
30, 1997 was 10.0% and 9.37%, respectively, compared to 8.50% and 7.85% for the
same periods in 1996.
During each of the quarters ended March 31, 1997 and June 30, 1997, the
Corporation paid a cash dividend of $ .11, amounting to approximately $96,000
and $95,000, respectively. At June 30, 1997, the Corporation and the Bank's
capital was significantly in excess of regulatory capital requirements.
Net income for the three and six month periods ended June 30, 1997 was $359,412
or $.38 per share and $672,253 or $.72 per share, respectively. Net income for
the comparable periods in 1996 was $291,672 or $.32 per share and $540,433 or
$.58 per share, respectively. Net interest income for the three month period
ended June 30, 1997 was approximately $162,000 higher than the comparable period
of 1996, while the net interest income for the six month period ended June 30,
1997 was approximately $284,000 higher than the comparable period for 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 investment
securities. The yield on loans receivable is typically higher than the yield on
investment securities.
8
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Noninterest expense increased by approximately $40,000 and $73,000 during the
three and six month periods ended June 30, 1997, respectively, compared to the
comparable periods in 1996. The primary reason for the overall increases were
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. The increases were offset by lower
deposit insurance premiums in 1997 as a result of recapitalization of the
Savings Associations Insurance Fund.
ASSET QUALITY:
Nonperforming assets, which consist of nonaccrual loans and real estate acquired
through foreclosure, amounted to approximately $375,000 and $274,000 at June 30,
1997 and December 31, 1996, respectively. The ratio of nonperforming assets to
total assets at June 30, 1997 and December 31, 1996 was .35% and .34%,
respectively. Based on management's analysis of the adequacy of its allowances
at June 30, 1997, no provision for loan losses was made during 1997. 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. The balance of the Bank's allowance for loan
losses amounted to approximately $302,000 at June 30, 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 such portfolio, if need be, would not have accounting
implications on the Corporation's equity under SFAS No. 115. The Bank exceeded
its requirements at June 30, 1997 and management believes that the Bank's
liquidity is adequate to fund all outstanding commitments and other anticipated
cash needs.
9
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
CAPITAL RESOURCES AND ADEQUACY:
KS Bancorp, Inc's stockholders' equity was $14.3 million, or 13.53% of total
assets at June 30, 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 June 30, 1997.
10
<PAGE>
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
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) 27. Financial Data Schedule
(b) No reports on Form 8-K were filed for the period covered by this
report.
11
<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.
KS BANCORP, INC.
Dated August 5, 1997 By: /s/ Harold T. Keen
------------------------------ ---------------------------
Harold T. Keen
President and CEO
Dated August 5, 1997 By: s/s Helen B. Pollock
------------------------------ ---------------------------
Helen B. Pollock
Treasurer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 412,821
<INT-BEARING-DEPOSITS> 2,290,684
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,986,925
<INVESTMENTS-CARRYING> 3,370,486
<INVESTMENTS-MARKET> 3,410,205
<LOANS> 90,535,772
<ALLOWANCE> 301,867
<TOTAL-ASSETS> 106,121,301
<DEPOSITS> 83,837,056
<SHORT-TERM> 7,000,000
<LIABILITIES-OTHER> 932,618
<LONG-TERM> 0
0
0
<COMMON> 5,189,900
<OTHER-SE> 9,161,727
<TOTAL-LIABILITIES-AND-EQUITY> 106,121,301
<INTEREST-LOAN> 3,848,379
<INTEREST-INVEST> 251,648
<INTEREST-OTHER> 100,588
<INTEREST-TOTAL> 4,200,615
<INTEREST-DEPOSIT> 2,069,447
<INTEREST-EXPENSE> 2,203,608
<INTEREST-INCOME-NET> 1,997,007
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 977,038
<INCOME-PRETAX> 1,097,873
<INCOME-PRE-EXTRAORDINARY> 1,097,873
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672,253
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 9.8
<LOANS-NON> 375,000
<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>
