KS BANCORP, INC. I N V E S T O R R E L A T I O N S R E P O R T
E Q U I T Y
R E S E A R C H S E R V I C E S
5003 Falls of Neuse Road
Raleigh North Carolina
27609
919-876-8868 ph
919-876-8839 fax
www.equityresearch.com
SYMBOL: KSBI
TOTAL ASSETS: $331 MM HQ: SMITHFIELD, NC CONTACT:
HAROLD T. KEEN, PRES. EARL W. WORLEY, JR., COO REGINA J. SMITH, CFO
(919) 938-3101
3RD QUARTER HIGHLIGHTS:
EARNINGS WERE BETTER THAN WE HAD EXPECTED
EPS: $0.27 VS. $0.25
NET INTEREST INCOME INCREASED 2% AS A RESULT OF AVERAGE EARNING ASSET
GROWTH
NONINTEREST INCOME, EXCLUDING SECURITY GAINS, WAS UP A STRONG 12%
AVAILABLE ON THE WEB AT www.equityresearch.com
KS Bancorp, Inc. (KSBI - OTC BB) John A. Howard, CFA October 26, 2015Price: | $12.14 | EPS* | 2014A: | $0.76 | P/E 2014A: | 16.0x |
52 Wk. Range: | $8.55 - $14.00 | (FY: DEC) | 2015E: | $0.98 | 2015E: | 12.4 x |
Div/Div Yld: | $0.06 / 0.5% | 2016E: | $1.04 | 2016E: | 11.7 x | |
Shrs/Mkt Cap: | 1.3 mm / $15.9 mm | Book Value: | $17.47 | Price/Book Value: | 0.69 x |
* EPS are diluted.
KS Bancorp, Inc. is a Smithfield, North Carolina-based, single bank holding company with approximately $331 million in assets as of September 30, 2015. KS Bank, Inc., a state-chartered savings bank, is KS Bancorp's sole subsidiary. The Bank conducts its operations through nine full service branch offices that are located in Kenly, Goldsboro, Wilson, Garner, Selma, Clayton, Wendell, Four Oaks and Smithfield, North Carolina, as well as a mortgage origination office in Greenville, NC. The Company emphasizes being a community-oriented financial institution and offers a broad range of personal and business banking products and services, mortgage products and wealth management. KS Personal Services offers a complete suite of deposit and loan products that are tailored to specific needs, while KS Business Services includes not only deposit and loan products but also payroll services (through Flex Pay), merchant card services, cash management and remote deposit. KS Mortgage Services offers competitive mortgage products through a responsive team of mortgage specialists who can make decisions within minutes of taking an application. Finally, KS Wealth Management Services offers a broad array of services to help clients manage, protect and build upon their financial resources. Selected wealth management services include investments, college savings programs, lifetime charitable giving, business succession planning, insurance and risk management. In addition, the Company recently launched a Trust Services Division (which has an office in Asheboro and a presence in North Wilkesboro and Wilmington), through which it offers a complete line of trust services, such as money management, IRAs, trust administration and estate administration. Currently, the Company's stock is traded on the over-the-counter bulletin board under the symbol 'KSBI.'
KS Bancorp reported third quarter earnings that were well above our projections, with every major category of the income statement being better than (or in the case of the provision, exactly in line with) what we had expected. Based on the results, we are increasing our earnings estimates for both 2015 and 2016. There were encouraging trends in other areas as well. One of the most notable was in loan growth, which has been in an upward trend for several quarters but was particularly strong in the third quarter. Given how critical loan growth is to a bank's long-term earnings capacity, we were quite encouraged by the improved trends. Lastly, asset quality remained good, and was better than at the year-ago date, though it slipped a bit from June 30, 2015.
Net income available to common shareholders for the third quarter of 2015 was $350,000, or $0.27 per diluted share, compared to $331,000, or $0.25 per diluted share, in 2014's third quarter. (The year-ago quarter included $83,000 in preferred dividend related charges, which were absent in the current quarter.) We had projected EPS of $0.21 per share in 2015's third quarter, so the results were about
$0.05 better than we had anticipated. Net interest income increased modestly (about 2%) to
$2,644,000 in the third quarter of 2015 from $2,584,000 in the year-ago quarter, with essentially all of that increase due to higher average earning assets. Results were also helped by the fact that KS Bancorp did not recognize a provision for loan losses in the quarter, whereas there was a provision of
$59,000 in 2014's third quarter. Noninterest income, excluding security gains, also saw commendable
EARNINGS INCREASED DESPITE A MUCH HIGHER EFFECTIVE TAX RATE
NINE MONTHS HIGHLIGHTS: EARNINGS INCREASED 69% EPS: $0.76 VS. $0.45
LOAN GROWTH SURGED IN THE MOST RECENT QUARTER AND ACCOUNTED FOR MORE THAN HALF OF THE LOAN GROWTH OVER THE PAST YEAR
strength, increasing 12% to $538,000 in the third quarter of 2015. On the expense side of things, noninterest expense increased 6% in 2015's third quarter to $2,633,000, versus $2,483,000 in the year- ago quarter. One final note is that the earnings were taxed at a fairly high effective rate in 2015's third quarter (it was over 36%, versus 25% in the year-ago quarter). The difference in tax rate amounted to about a nickel per share (i.e., EPS would have been $0.05 higher at the year-ago rate).
For the nine months ended September 30, 2015, net income available to common shareholders was
$999,000, or $0.76 per diluted share, up from $591,000, or $0.45 per diluted share (after $213,000 in dividend related charges) in the year-ago period. Net interest income increased 5%, while noninterest income excluding security gains grew 6% and noninterest expense was up less than 1%.
From September 30, 2014 to September 30, 2015, assets increased 6%, while deposits grew 8% and gross loans increased more than 10%. As was stated previously, gross loan growth was especially strong in the most recent quarter. In fact, of the $22 million in gross loan growth over the past 12 months, $13 million of that (or 59%) came in the most recent quarter. The Company's capitalization remains strong, as KS Bancorp had an equity-to-assets ratio of 6.92% at September 30, 2015.
The FDIC market share data recently came out and reflects that KS Bancorp has done an excellent job building its market share over the past year. As can be
KS BANCORP GREW ITS DEPOSITS IN EACH OF ITS COUNTY MARKETS OVER THE PAST YEAR…. …
…MOREOVER, IT BOOSTED ITS MARKET SHARE IN EACH OF THESE COUNTIES AS WELL
county, KS Bancorp's market share increased. It is also | Wayne | 35 | 37 | 6% |
noteworthy that the county where the Company has the | Wilson | 18 | 20 | 7% |
seen from the table below, KS Bancorp operates in four counties: Johnston, Wake, Wayne and Wilson. KS Bancorp's deposits in each of these markets grew between 6% and 10% over the past year, and in each
second largest concentration of deposits is Wake County, which obviously is a large and highly sought after market. And while KS Bancorp's market share in Wake County is small, the small scale represents an opportunity for continued expansion. A bank's ability
DEPOSIT AND DEPOSIT MARKET SHARE GROWTH, BY COUNTY*
Deposits ($MM) 6/14 6/15 % Chg Johnston 131 143 9%
Wake 51 56 10%
Deposit Share (%) 6/14 6/15 Johnston 8.62 9.85
Wake 0.23 0.24
Wayne 2.50 2.64
Wilson 1.73 1.90
to build market share is important in that it provides key sources of funding, can lead to new noninterest income opportunities, and represents new lending relationships.
NPAS-TO-ASSETS: 1.55%
RESERVES-TO-LOANS: 1.42%
EPS:
2014A: $0.76
2015E: $0.98
2016E: $1.04
Nonperforming Assets Increased From June 30, 2015 But Remain Well Below Year-Ago LevelsNPAs+90 Days Past Due ($MM)
8.5
6.8
5.1
3.4
1.7
0.0
9/14 12/14 3/15 6/15 9/15
Nonperforming assets inched up at September 30, 2015, but are still well below the year-ago level. Total NPAs at September 30, 2015 were $5.1 million, or 1.55% of assets, versus $3.7 million, or 1.15% of total assets, at June 30, 2015, and $7.7 million, or 2.48% of total assets, at September 30, 2014. The allowance for loan losses was
$3.4 million, or 1.42% of total loans at September 30, 2015, versus $3.5 million, or 1.57% of total loans at September 30, 2014.
We are increasing our earnings projections for 2015 to $1.3 million, or $0.98 per diluted share, and for 2016, we project earnings of $1.4 million, or $1.04 per diluted share. Note that these projections do not include any preferred dividends and could vary widely based on changing economic conditions.
ADDITIONAL INFORMATION UPON REQUEST
Copyright © 2015 Equity Research Services, Inc. All rights reserved. This material is for your information only and is not a solicitation, or an offer, to buy or sell securities mentioned. Equity Research Services, Inc. ('ERS') is a firm involved in financial advisory, equity research, valuation and investor relations services. All reports generated by ERS for the purpose of investor relations are designated 'Investor Relations Report,' and ERS receives a fee (from the company whose securities are described) for producing such reports. ERS may also act in a financial advisory role to the company. The information contained herein has been obtained from sources we believe reliable but in no way is guaranteed by us. Furthermore, this report contains forward-looking statements and projections that are based on certain assumptions and expectations. Accordingly, actual results may differ considerably from those reflected in this report due to such factors as those which are listed in the Company's SEC filings. Any non-factual information in the report is our opinion and is subject to change without notice.
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