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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
[_] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended ____________
Commission File Number 000-22734
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KS BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1842707
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
207 WEST SECOND STREET, KENLY, NC 27542
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(Address of principal executive office)
(919) 284-4157
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 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
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No _____
As of May 11, 2000, 921,512 shares of the issuer's common stock, no par value,
were outstanding.
This report contains 10 pages.
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Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
March 31, 2000 and December 31, 1999........................... 3
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999..................... 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999..................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................... 9
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
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<CAPTION>
March 31,
2000 December 31,
ASSETS (Unaudited) 1999*
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(In Thousands)
<S> <C> <C>
Cash and due from banks $ 712 $ 1,839
Interest-earning deposits with banks 4,310 4,288
Investment securities available for sale, at fair value 11,649 10,827
Investment securities held to maturity, at amortized cost 1,147 1,150
Loans receivable, net 121,834 116,363
Accrued interest receivable 937 880
Federal Home Loan Bank stock, at cost 942 877
Property and equipment, net 2,393 2,428
Other assets 382 296
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TOTAL ASSETS $144,306 $138,948
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $117,772 $116,537
Advances from Federal Home Loan Bank 10,000 6,000
Accrued expenses and other liabilities 1,008 969
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TOTAL LIABILITIES 128,780 123,506
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STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, 20,000,000 shares authorized;
921,578 and 888,633 shares issued and
outstanding in 2000 and 1999, respectively 5,019 5,006
Unearned ESOP shares (156) (156)
Accumulated other comprehensive income (loss) 575 650
Retained earnings, substantially restricted 10,088 9,942
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TOTAL STOCKHOLDERS' EQUITY 15,526 15,442
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $144,306 $138,948
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* Derived from audited financial statements
See accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
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Three Months Ended
March 31,
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2000 1999
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(In Thousands except
per share data)
<S> <C> <C>
INTEREST INCOME
Loans $2,610 $2,310
Investments and deposits in other banks 189 150
Interest-earning deposits with banks 17 116
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TOTAL INTEREST INCOME 2,816 2,576
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INTEREST EXPENSE
Deposit accounts 1,429 1,332
Advances from Federal Home Loan Bank 113 87
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TOTAL INTEREST EXPENSE 1,542 1,419
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NET INTEREST INCOME 1,274 1,157
PROVISION FOR LOAN LOSSES 2 12
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,272 1,145
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NON-INTEREST INCOME 115 92
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NON-INTEREST EXPENSE
Salaries and employee benefits 536 416
Occupancy and equipment 130 71
Other 184 225
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TOTAL NON-INTEREST EXPENSE 850 712
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INCOME BEFORE INCOME TAXES 537 525
INCOME TAXES 207 207
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NET INCOME $ 330 $ 318
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BASIC NET INCOME PER COMMON SHARE $ .37 $ .37
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DILUTED NET INCOME PER COMMON SHARE $ .36 $ .34
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DIVIDEND PER COMMON SHARE $ .20 $ .20
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See accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
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<CAPTION>
Three Months Ended
March 31,
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2000 1999
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 330 $ 318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 73 28
Amortization, net 3 5
Gain on sale of assets, net - (1)
Release of ESOP shares 13 13
Proceeds from sale of loans held for sale - 640
Deferred income taxes - 12
Provision for loan losses 2 (11)
Change in assets and liabilities:
Increase in accrued interest receivable (57) (52)
Increase in other assets (41) (106)
Decrease in accrued expenses and other liabilities 39 109
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 362 955
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of:
Available for sale investment securities (1,000) (1,729)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 58 500
Held to maturity investment securities - 193
Purchase of Federal Home Loan Bank stock (65) -
Net increase in loans (5,473) (3,160)
Proceeds from sale of foreclosed real estate - 82
Purchase of property and equipment (38) (212)
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NET CASH USED BY
INVESTING ACTIVITIES (6,518) (4,326)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,235 2,405
Increase in borrowed funds 4,000 -
Cash dividends paid (184) (173)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 5,051 2,232
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NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,105) (1,139)
CASH AND CASH EQUIVALENTS, BEGINNING 6,127 11,671
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CASH AND CASH EQUIVALENTS, ENDING $ 5,022 $10,532
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</TABLE>
See accompanying notes.
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KS Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three
month periods ended March 31, 2000 and 1999, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
KS Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, KS Bank, Inc.
Operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the consolidated
financial statements filed as part of the Company's 1999 annual report on Form
10-K. This quarterly report should be read in conjunction with such annual
report.
NOTE B - NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. In accordance with generally accepted accounting principles, employee
stock ownership plan shares are only considered outstanding for the basic
earnings per share calculations when they are earned or committed to be
released. The weighted average number of shares outstanding or assumed to be
outstanding are summarized below:
Three months ended March 31,
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2000 1999
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Weighted average number of common shares used
in computing basic net Income per share 901,211 863,933
Effect of dilutive stock options 25,378 85,484
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Weighted average number of common shares
and dilutive potential common shares used
in computing diluted net income per share 926,589 949,417
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NOTE C - COMPREHENSIVE INCOME
For the three months ended March 31, 2000 and 1999, total comprehensive income,
consisting of net income and unrealized securities gains and losses, net of
taxes, was $255,000 and $163,000, respectively.
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Comparison of Financial Condition at March 31, 2000 and March 31, 1999
Consolidated total assets increased by $5.4 million during the three months
ended March 31, 2000, from $138.9 million at December 31, 1999 to $144.3 million
at March 31, 2000. This growth in total assets resulted from an increase in net
loans receivable during the quarter of $5.4 million to $121.8 million. This
loan growth was primarily funded by an increase of $4.0 in advances from the
Federal Home Loan Bank, with the balance of the funding provided from an
increase in customer deposits of $1.3 million. The overall increase in customer
deposits during the quarter resulted from an increase of $1.8 million in demand
deposits. In the aggregate, liquid assets decreased from $18.1 million at
December 31, 1999 to $17.8 million at March 31, 2000.
Total stockholders' equity increased $100,000 from $15.4 million at December 31,
1999 to $15.5 million at March 31, 2000. This overall increase resulted
principally from net income of $330,000 for the three months, net of the regular
quarterly dividend during the period of $184,000, or $.20 per share, and a
decrease in the unrealized gains on available for sale investment securities
during the period of $75,000.
Comparison of Results of Operations for the Three months ended March 31, 2000
and 1999
Net Income. Net income for the quarter ended March 31, 2000 was $330,000, or
$.37 per share, as compared with net income of $318,000, or $.37 per share, for
the three months ended March 31, 1999, an increase of $12,000. Increases in net
interest income and non-interest income for the quarter ended March 31, 2000 of
$117,000 and $23,000, respectively, were offset by an increase of $138,000 in
non-interest expenses. The provision for loan losses decreased by $10,000
during the quarter.
Net Interest Income. Net interest income for the quarter ended March 31, 2000
was $1.3 million as compared with $1.2 million during the quarter ended March
31, 1999, an increase of $117,000 that resulted principally from an increased
level of interest earning assets during the current quarter, primarily in loans
receivable.
Provision for Loan Losses. The provision for loan losses was $2,000 and $12,000
for the quarters ended March 31, 2000 and 1999, respectively. There were no net
loan charge-offs during either quarter. At March 31, 2000, nonaccrual loans
aggregated $245,000, while the allowance for loan losses stood at $394,000.
Other Income. Other income was $115,000 for the quarter ended March 31, 2000 as
compared with $92,000 for the quarter ended March 31, 1999, an increase of
$23,000
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Other Expenses. Other expenses increased to $850,000 during the quarter ended
March 31, 2000 as compared with $712,000 for the quarter ended March 31, 1999,
an increase of $138,000. The increase resulted primarily from an increase in
salaries and employee benefits of $120,000 as personnel additions were made
subsequent to the three month period ended March 31, 1999.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 38.5% and 39.4% for the three months ended March
31, 2000 and 1999, respectively.
Liquidity and Capital Resources
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses KS
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The primary sources of internally generated funds are principal and interest
payments on loans receivable and cash flows generated from operations. External
sources of funds include increases in deposits and advances from the FHLB of
Atlanta.
As a North Carolina-chartered savings bank, KS Bank must maintain liquid assets
equal to at least 10% of assets. The computation of liquidity under North
Carolina regulations allows the inclusion of mortgage-backed securities and
investments with readily marketable value, including investments with maturities
in excess of five years. KS Bank's liquidity ratio at March 31, 2000, as
computed under North Carolina regulations, was approximately 12.4%. On a
consolidated basis, liquid assets also represent approximately 12.4% of total
assets. Management believes that it will have sufficient funds available to meet
its anticipated future loan commitments as well as other liquidity needs.
As a North Carolina-chartered savings bank, KS Bank is subject to the capital
requirements of the Federal Deposit Insurance Corporation ("FDIC") and the North
Carolina Administrator of Savings Institutions ("N. C. Administrator"). The FDIC
requires state-chartered savings banks to have a minimum leverage ratio of Tier
I capital (principally consisting of common shareholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain intangible assets) to total assets of at least 3%;
provided, however, that all institutions, other than those (i) receiving the
highest rating during the examination process and (ii) not anticipating or
experiencing any significant growth, are required to maintain a ratio of 1% or
2% above the stated minimum. The FDIC also requires KS Bank to have a ratio of
total capital to risk-weighted assets of at least 8%, of which at least 4% must
be comprised of Tier I capital. The N. C. Administrator requires a net worth
equal to at least 5% of total assets. At March 31, 2000, KS Bank exceeded the
capital requirements of both the FDIC and the N. C. Administrator.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27) Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KS BANCORP, INC.
Date: May 10, 2000 By: /s/ Harold T. Keen
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Harold T. Keen
President and Chief Executive Officer
Date: May 10, 2000 By: /s/ Earl W. Worley, Jr.
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Earl W. Worley, Jr.
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 712
<INT-BEARING-DEPOSITS> 4,310
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,649
<INVESTMENTS-CARRYING> 1,147
<INVESTMENTS-MARKET> 1,155
<LOANS> 122,228
<ALLOWANCE> 394
<TOTAL-ASSETS> 144,306
<DEPOSITS> 117,772
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 1,008
<LONG-TERM> 0
0
0
<COMMON> 5,019
<OTHER-SE> 10,507
<TOTAL-LIABILITIES-AND-EQUITY> 144,306
<INTEREST-LOAN> 2,610
<INTEREST-INVEST> 189
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 2,816
<INTEREST-DEPOSIT> 1,429
<INTEREST-EXPENSE> 1,542
<INTEREST-INCOME-NET> 1,274
<LOAN-LOSSES> 2
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 850
<INCOME-PRETAX> 537
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 3.73
<LOANS-NON> 245
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 392
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 394
<ALLOWANCE-DOMESTIC> 394
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
