KS Bancorp, Inc.

What they do

KS Bancorp operates through KS Bank, Inc., a state-chartered savings bank. The bank emphasizes full-service community banking, offering traditional banking products and services. It operates seven full-service branches in Kenly, Selma, Clayton, Garner, Goldsboro, Wilson, and Smithfield, North Carolina.

Revenue drivers

• Net interest income — Earned from loans and deposits; grew 14% year-over-year in Q4 2004, driving quarterly earnings.
• Loans — Net loans increased 17.9% to $178.9 million in 2004, comprising the largest asset category and primary income source.
• Mortgage loan sales — Profits from selling mortgage loans into the secondary market decreased in 2004, contributing to the annual earnings decline.
• Deposits — Total deposits grew 19.0% to $169.3 million in 2004, funding the loan portfolio and generating interest income.

Recent performance

For Q4 2004, consolidated earnings were $429,000, or $0.36 per diluted share, up from $249,000, or $0.21 per diluted share in Q4 2003. The increase was primarily attributed to a 14% increase in net interest income and a lower loan loss provision due to improved non-performing assets. For full-year 2004, net income was $1,290,000, or $1.08 per diluted share, compared with $1,401,000, or $1.19 per diluted share in 2003. The annual decrease of $111,000 was driven by lower profits from mortgage loan sales, higher compensation and benefits from increased staffing, and higher occupancy costs from Smithfield expansion.

Strategy

KS Bancorp continued its balance sheet growth in 2004, with total assets increasing 17.5% to $236.9 million. The company expanded into the Smithfield, NC market, which contributed to increased occupancy costs. Management operates a full-service community bank model through seven branches in North Carolina. The company also pays a quarterly cash dividend, most recently $0.16 per share in January 2005.

Risks

• Declining mortgage banking income — Decreased profits from the sale of mortgage loans into the secondary market reduced overall earnings in 2004.
• Expansion cost pressure — Increased occupancy costs associated with the Smithfield, NC expansion and higher staffing costs weighed on profitability.
• Credit quality — Although non-performing assets improved in Q4 2004, the company remains exposed to credit risk inherent in its loan portfolio.
• Geographic concentration — All seven branches are located in North Carolina, concentrating exposure to local economic conditions.

Outlook

Management did not provide specific forward guidance in the earnings release. The company reported continued balance sheet growth in 2004, with increases in assets, loans, and deposits. The release notes that results are subject to risks and uncertainties and that the company undertakes no obligation to update forward-looking statements.