<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, 1998
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
-------
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 Identification No.)
incorporation or organization)
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 10, 1998 there were issued and outstanding 888,633 shares of the
Registrant's common stock, no par value.
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Pages
-----
<S> <C>
Item 1. Condensed Financial Statements
Consolidated statements of financial condition at June 30, 1998
(Unaudited) and December 31, 1997 1-2
Consolidated statements of income for the three months ended
June 30, 1998 and June 30, 1997 (Unaudited) 3
Consolidated statements of comprehensive income for the three
months ended June 30, 1998 and June 30, 1997 (Unaudited) 4
Consolidated statements of income for the six months ended
June 30, 1998 and June 30, 1997 (Unaudited) 5
Consolidated statements of comprehensive income for the six
months ended June 30, 1998 and June 30, 1997 (Unaudited) 6
Consolidated statements of cash flows for the six months ended
June 30, 1998 and June 30, 1997 (Unaudited) 7-8
Notes to consolidated financial statements 9-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash and short-term cash investments:
Interest-bearing $ 11,219,725 $ 4,781,687
Noninterest-bearing 968,814 851,102
Investment securities:
Held to maturity, at cost 2,073,755 3,104,261
Available for sale, at fair value 8,572,377 6,427,784
FHLB stock and other nonmarketable equity securities 883,000 790,300
Loans receivable, net 101,086,250 95,002,402
Accrued interest receivable 741,462 689,427
Property and equipment, net 2,175,313 2,133,715
Refundable income taxes - 78,066
Prepaid expenses and other assets 459,514 118,887
----------------------------------
TOTAL ASSETS $ 128,180,210 $ 113,977,631
==================================
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities:
Deposits $ 104,070,137 $ 90,313,658
Advances from Federal Home Loan Bank 8,000,000 8,000,000
Accounts payable and accrued expenses 264,649 302,876
Advance payments by borrowers for taxes and insurance 91,319 48,446
Deferred income taxes 751,674 706,566
Income taxes payable 10,505 -
----------------------------------
TOTAL LIABILITIES 113,188,284 99,371,546
----------------------------------
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 888,633 in
1998 and 885,356 in 1997, respectively - -
Additional paid-in capital 5,265,625 5,225,975
Note receivable, ESOP (234,000) (234,000)
Accumulated other comprehensive income, unrealized gain
on securities available for sale, net of tax effect 804,858 716,197
Retained earnings, substantially restricted 9,155,443 8,897,913
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 14,991,926 14,606,085
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 128,180,210 $ 113,977,631
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 2,200,532 $ 1,992,016
Investment securities 145,418 128,927
Mortgage-backed securities 19,569 24,753
Interest-bearing deposits 164,510 18,562
----------------------------------
TOTAL INTEREST INCOME 2,530,029 2,164,258
Interest expense:
Deposits 1,332,405 1,052,255
Borrowings 121,573 75,625
----------------------------------
TOTAL INTEREST EXPENSE 1,453,978 1,127,880
----------------------------------
NET INTEREST INCOME 1,076,051 1,036,378
Provision for loan losses 5,000 -
----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,071,051 1,036,378
Other income 66,370 36,765
----------------------------------
1,137,421 1,073,143
----------------------------------
Noninterest expense:
Compensation and employee benefits 374,123 281,750
Occupancy 29,161 29,410
Equipment maintenance and expense 27,352 14,188
Data processing and outside service fees 61,537 42,377
Insurance 23,866 19,774
Other 110,361 100,663
----------------------------------
626,400 488,162
----------------------------------
INCOME BEFORE INCOME TAXES 511,021 584,981
----------------------------------
Income taxes:
Current 189,481 223,508
Deferred (4,104) 2,061
----------------------------------
185,377 225,569
----------------------------------
NET INCOME $ 325,644 $ 359,412
==================================
Basic earnings per share $ 0.38 $ 0.42
==================================
Diluted earnings per share $ 0.34 $ 0.38
==================================
Dividends per share $ 0.20 $ 0.11
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 325,644 $ 359,412
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on available for sale
securities arising during the period (10,935) 139,190
----------------------------------
COMPREHENSIVE INCOME 314,709 498,602
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 4,358,564 $ 3,848,379
Investment securities 268,112 251,648
Mortgage-backed securities 39,354 49,614
Interest-bearing deposits 270,275 50,974
----------------------------------
TOTAL INTEREST INCOME 4,936,305 4,200,615
Interest expense:
Deposits 2,536,688 2,069,447
Borrowings 243,146 134,161
----------------------------------
TOTAL INTEREST EXPENSE 2,779,834 2,203,608
----------------------------------
NET INTEREST INCOME 2,156,471 1,997,007
Provision for loan losses 19,500 -
----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,136,971 1,997,007
Other income 123,034 77,904
----------------------------------
2,260,005 2,074,911
----------------------------------
Noninterest expense:
Compensation and employee benefits 766,528 567,161
Occupancy 55,553 53,021
Equipment maintenance and expense 56,168 28,146
Data processing and outside service fees 125,020 84,789
Insurance 47,732 37,501
Other 235,843 206,420
----------------------------------
1,286,844 977,038
----------------------------------
INCOME BEFORE INCOME TAXES 973,161 1,097,873
----------------------------------
Income taxes:
Current 381,785 419,725
Deferred (9,232) 5,895
----------------------------------
372,553 425,620
----------------------------------
NET INCOME $ 600,608 $ 672,253
==================================
Basic earnings per share $ 0.70 $ 0.79
==================================
Diluted earnings per share $ 0.63 $ 0.72
==================================
Dividends per share $ 0.40 $ 0.22
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 600,608 $ 672,253
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on available for sale
securities arising during the period 88,661 121,004
----------------------------------
COMPREHENSIVE INCOME 689,269 793,257
----------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 600,608 $ 672,253
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 48,856 42,415
Amortization of net premiums (discounts) 1,298 -
Loss on sale of investment securities - 5,994
Gain on sale of real estate acquired in settlement of loans - (89)
Deferred income taxes (9,232) 5,895
Provision for loan losses 19,500 -
ESOP compensation expense credited to paid-in capital 39,650 22,588
Changes in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (52,035) (100,914)
Prepaid expenses and other assets (340,627) (61,420)
Refundable income taxes 78,066 149,558
Increase (decrease) in:
Accrued expenses and other liabilities (38,227) 9,668
Income taxes payable 10,505 29,489
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 358,362 775,437
--------------------------------
Cash Flows From Investing Activities
Proceeds from sales or maturities of available for sale securities 500,000 3,494,006
Proceeds from maturity of held to maturity securities 1,027,616 18,049
Purchase of available for sale securities (2,500,000) (3,311,616)
Purchase of nonmarketable equity securities (92,700) -
Net change in loans receivable (6,103,348) (8,723,033)
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 (90,454) (138,331)
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,258,886) (8,578,372)
--------------------------------
</TABLE>
7
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Financing Activities
Net increase in deposits $ 13,756,479 $ 1,491,131
Advance from Federal Home Loan Bank - 3,000,000
Increase in advance payments by borrowers
for taxes and insurance 42,873 40,330
Cash dividends paid (343,078) (191,357)
Issuance of common stock - 8,740
Repurchase of common stock - (2,640)
--------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,456,274 4,346,204
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,555,750 (3,456,731)
Cash and cash equivalents:
Beginning 5,632,789 6,160,236
--------------------------------
Ending $ 12,188,539 $ 2,703,505
================================
Cash and cash equivalents:
Cash and short-term investments:
Interest-bearing $ 11,219,725 $ 2,290,684
Noninterest-bearing 968,814 412,821
--------------------------------
$ 12,188,539 $ 2,703,505
================================
Supplemental Disclosures of Cash Flow Information
Cash payments (refunds) for:
Interest $ 2,772,307 $ 2,220,864
================================
Income taxes $ 310,091 $ 464,502
================================
Supplemental Disclosure of Noncash Investing and Financial
Activities
Change in unrealized gain (loss) on available for sale
securities, net of tax effect $ 88,661 $ 121,004
================================
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements (except for the
statement of financial condition at December 31, 1997, which is audited) have
been prepared in accordance with generally accepted accounting principles for
interim financial information, with the instructions to Form 10-Q and 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, 1998 are not necessarily indicative of the results of operations that
may be expected for the year ended December 31, 1998.
The accounting policies followed are as set forth in Note 1 of the Notes to
Consolidated Financial Statements in the 1997 KS Bancorp, Inc. annual report.
During the six month period, the Bank adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This statement was
adopted effective January 1, 1998 as explained in Note 4 below.
NOTE 2. ALLOWANCE FOR LOAN LOSSES
The Bank's allowance for loan losses increased by the related provision charged
to operations of $5,000 and $19,500 during the three and six month periods ended
June 30, 1998. There was no provision recorded during the same period in 1997.
The Bank did not incur any loan charge-offs or recoveries during these periods.
The allowance at June 30, 1998 was $344,867 and the Bank's ratio of
nonperforming assets to total assets was .40%.
NOTE 3. EARNINGS PER SHARE (EPS)
The Bank adopted Statement of Financial Accounting Standard (SFAS) No. 128
during the year ended December 31, 1997. This statement requires dual
presentation of basic and diluted EPS with a reconciliation of the numerator and
denominator of the EPS computations. Basic earnings per share amounts are based
on the weighted average shares of common stock outstanding. Diluted earnings per
share assume the conversion, exercise or issuance of all potential common stock
instruments such as options, warrants and convertible securities, unless the
effect is to reduce a loss or increase earnings per share. Accordingly, this
presentation has been adopted for all periods presented. There were no
adjustments required to net income for all periods presented in the computation
of diluted earnings per share. The basic and diluted weighted average shares
outstanding for the three month periods are as follows:
9
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3. EARNINGS PER SHARE (CONTINUED)
Three months:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
WEIGHTED AVERAGE OUTSTANDING SHARES USED FOR BASIC EPS 859,966 851,556
Plus incremental shares from assumed issuance
of stock options 101,365 94,147
--------------------------------
WEIGHTED AVERAGE OUTSTANDING SHARES USED FOR DILUTED EPS 961,331 945,703
================================
</TABLE>
Six months:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
WEIGHTED AVERAGE OUTSTANDING SHARES USED FOR BASIC EPS 858,268 850,330
Plus incremental shares from assumed issuance
of stock options 100,912 86,740
--------------------------------
WEIGHTED AVERAGE OUTSTANDING SHARES USED FOR DILUTED EPS 959,180 937,070
================================
</TABLE>
NOTE 4. ADOPTION OF SFAS STATEMENT NO. 130
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income", which the Bank was required to adopt as of January 1,
1998. The Statement requires the classification of items of other comprehensive
income by their nature in a financial statement and to display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. Other
comprehensive income refers to revenues, expenses, gains and losses that under
generally accepted accounting principles are included in comprehensive income
but excluded from net income, and are therefore included in changes in equity.
Other comprehensive income includes all such changes in equity other than those
resulting from investments by owners and distributions to owners.
SFAS No. 130 does not require a specific format for displaying comprehensive
income and its components in a financial statement, other than it must be
displayed with the same prominence as other financial statements that constitute
a full set of financial statements. The Bank has elected to display
comprehensive income in a separate statement of comprehensive income that begins
with net income. The only item of other comprehensive income that the Bank
currently has is associated with changes in unrealized gains and losses on
securities classified as available for sale.
10
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position for
the three and six month periods ended June 30, 1998 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.
OVERVIEW OF 1998 RESULTS:
Total assets increased by $14.2 million during the six month period ended June
30, 1998 primarily as result of an increase in the Bank's loan portfolio which
was funded primarily through increased deposits of $13.8 million.
Earnings for the six month period totaled approximately $600,000.
Mortgage loans increased by $4 million during the three month period ended June
30, 1998, building on the $2.1 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, decreased by
approximately $200,000 during the second quarter and amounted to $23 million at
June 30, 1998. The market value of the Corporation's available for sale
securities decreased by $16,800 during the quarter, primarily as a result of
movements in market interest rates. During the quarter, the Corporation
purchased available for sale investments for it's portfolio totaling $2 million.
The Corporation's annualized return on assets for the three and six month
periods ended June 30, 1998 was 1.02% and .94%, respectively. For the same
periods in 1997, the annualized return was 1.35% and 1.27%, respectively. The
Corporation's return on equity for the three and six month periods ended June
30, 1998 was 8.69% and 8.01%, respectively, compared to 10.0% and 9.37% for the
same periods in 1997.
During each of the quarters ended March 31, 1998 and June 30, 1998, the
Corporation paid a cash dividend of $ .20, amounting to approximately $171,000
and $172,000, respectively. At June 30, 1998, 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, 1998 was $325,644
($.34 per share) and $600,608 ($.63 per share), respectively. Net income for the
comparable periods in 1997 was $359,412 ($.38 per share) and $672,253 ($.72 per
share), respectively. Net interest income for the three month period ended June
30, 1998 was approximately $40,000 higher than the comparable period of 1997,
while the net interest income for the six month period ended June 30, 1998 was
approximately $159,000 higher than the comparable period for 1997. 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.
11
<PAGE>
KS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Noninterest expense increased by approximately $138,000 and $310,000 during the
three and six month periods ended June 30, 1998 versus the comparable period in
1997. The primary reason for the overall increase was due to increased levels of
compensation and other expenses associated with the operations of the new loan
production office in Knightdale opened during the third quarter of 1997 and a
full-service branch in Garner opened during the fourth quarter, 1997.
ASSET QUALITY:
Nonperforming assets, which consist of nonaccrual loans and real estate acquired
through foreclosure, amounted to approximately $512,000 and $533,000 at June 30,
1998 and December 31, 1997, respectively. The ratio of nonperforming assets to
total assets at June 30, 1998 and December 31, 1997 was .4% and .41%,
respectively. Based on management's analysis of the adequacy of its allowances
at June 30, 1997, a provision for loan losses was made of $5,000 and $19,500
during the three and six months ended June 30, 1998. 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 allowance for loan losses amounted to approximately $345,000 at June 30,
1998 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, 1998 and management believes that the Bank's
liquidity is adequate to fund all outstanding commitments and other anticipated
cash needs.
12
<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 $15 million, or 11.7% of total assets
at June 30, 1998. 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, 1998.
YEAR 2000 ISSUE
The Year 2000 Issue relates to whether computer systems will properly recognize
and process date sensitive information on or after January 1, 2000. Systems that
do not properly recognize such information could generate erroneous data or
fail. The Bank is heavily dependent on computer systems in the conduct of
substantially all of its business activities. Substantially all of the data
processing functions of the Bank which could be effected by this problem are
provided by an outside third party service bureau. That service bureau has
advised the Bank that they expect to have resolved this issue before the year
2000. However, if the service bureau is unable to modify their computer systems
to become Year 2000 compliant before that time, the Bank would likely experience
significant data processing delays, mistakes, or failures. These delays,
mistakes, or failures could have a material adverse impact on the financial
condition, liquidity and results of operations of the Bank. Additionally, costs
incurred with the resolution of the Year 2000 issue must be expensed. Based upon
current assessments and information provided by the service bureau, management
does not believe that such costs will be material to the Bank's financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank has not experienced any substantive change in it's portfolio risk
during the 3 month period ended June 30, 1998.
13
<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 and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 5, 1998, the annual meeting of stockholders was held to consider
and vote upon the election of three directors of the Company, and to
ratify the appointment of McGladrey & Pullen LLP as independent auditors
for the Company for the fiscal year ending December 31, 1998. All items
were approved by the stockholders as shown below:
Vote concerning the election of directors of the Company:
<TABLE>
<CAPTION>
For Withheld Total
----------------------------------------------------
<S> <C> <C> <C>
Hinnant 728,535 7,141 735,676
Parrish 728,469 7,207 735,676
Coleman 728,535 7,141 735,676
</TABLE>
Vote concerning ratification of McGladrey & Pullen, LLP as
independent auditors for the year ended December 31, 1998:
<TABLE>
<CAPTION>
For Withheld Total
----------------------------------------------------
735,676 0 735,676
<S> <C> <C>
</TABLE>
Item 5. Other Information
Not applicable
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.
14
<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 10, 1998 By: /s/ Harold T. Keen
-------------------------- -------------------------
Harold T. Keen
President and CEO
Dated August 10, 1998 By: /s/ Helen B. Pollock
-------------------------- -------------------------
Helen B. Pollock
Treasurer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 968,814
<INT-BEARING-DEPOSITS> 11,219,725
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 2,956,755
<INVESTMENTS-MARKET> 3,004,007
<LOANS> 101,431,117
<ALLOWANCE> 344,867
<TOTAL-ASSETS> 128,180,210
<DEPOSITS> 104,070,137
<SHORT-TERM> 8,000,000
<LIABILITIES-OTHER> 1,118,147
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 14,991,926
<TOTAL-LIABILITIES-AND-EQUITY> 128,180,210
<INTEREST-LOAN> 2,200,532
<INTEREST-INVEST> 145,418
<INTEREST-OTHER> 184,079
<INTEREST-TOTAL> 2,530,029
<INTEREST-DEPOSIT> 1,332,405
<INTEREST-EXPENSE> 1,453,978
<INTEREST-INCOME-NET> 1,076,051
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 626,400
<INCOME-PRETAX> 511,021
<INCOME-PRE-EXTRAORDINARY> 511,021
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,644
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 3.46
<LOANS-NON> 512,177
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 339,867
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 344,867
<ALLOWANCE-DOMESTIC> 344,867
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
