United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the three months ended September 30, 1998
Commission File Number: 0-22269
GS Financial Corp.
(Exact Name of Registrant as Specified in its Charter)
Louisiana 72-1341014
(State or Other Jurisdiction (IRS Employer ID Number)
of Incorporation or Organization)
3798 Veterans Blvd.
Metairie, LA 70002
(Address of Principal Executive Offices)
Registrant's Telephone Number: (504) 457-6220
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
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.
x Yes No
As of September 30, 1998, there were 2,947,446 shares of the
Registrant's Common stock outstanding. The financial statements
contained within this Form 10-Q for the three months ended September
30, 1998 and 1997 and for the nine months ended September 30, 1998
represent the consolidated financial position and results of
operations of GS Financial Corp. The results of operations for the
nine months ended September 30, 1997 represent the consolidated
results of operations of GS Financial Corp. for the six months ended
September 30, 1997, and the singular results of operations of its
wholly owned subsidiary, Guaranty Savings and Homestead Association,
for the three months ended March 31, 1997.
GS Financial Corp.
Form 10-Q
Three Months ended September 30, 1998
Table of Contents
Part I - Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets
(as of September 30, 1998 Unaudited and December 31, 1997) 3
Consolidated Statements of Operations
(For the three and nine months ended September 30, 1998 and 1997 Unaudited) 4
Consolidated Statements of Comprehensive Income
(For the three and nine months ended September 30, 1998 and 1997 Unaudited) 5
Consolidated Statements of Equity Capital
(For the nine months ended September 30, 1998 and 1997 Unaudited) 6
Consolidated Statements of Cash Flows
(For the nine months ended September 30, 1998 and 1997 Unaudited) 7-8
Notes to Consolidated Financial Statements 8-13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-17
Item 3 Quantitative and Qualitative Disclosures about
Market Risk 17
Part II Other Information 17
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
GS Financial Corp.
Consolidated Balance Sheets
(Dollars in Thousands)
ASSETS
September 30, 1998 December 31, 1997
(Unaudited)
-------------- -----------------
Cash and Due from Banks $ 431 $ 376
Interest Bearing Deposits
in Other Institutions 1,347 1,186
Federal Funds Sold 550 1,050
Investment Securities 20,916 27,974
Loans (Net) 62,159 53,588
Mortgage-Backed Securities 26,477 42,721
Collateralized Mortgage
Obligations 26,830 -
Accrued Interest Receivable 727 587
Premises & Equipment 2,587 2,715
Other Assets 2,280 1,199
----------- ----------
TOTAL ASSETS $ 144,304 $ 131,396
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Interest Bearing Deposits $ 57,173 $ 56,822
Non-Interest Bearing Dep. 722 899
Borrowings 36,484 16,157
Other Liabilities 1,860 1,471
----------- ----------
TOTAL LIABILITIES 96,239 75,349
STOCKHOLDERS' EQUITY
Common Stock & Additional
Paid in Capital 33,898 33,692
Treasury Stock (8,324) -
Unrealized Gain on Securities
Available for Sale 1,641 1,858
Unearned ESOP Shares (2,235) (2,516)
Unearned RRP Trust Stock (2,410) (2,076)
Other Stockholders' Equity 25,495 25,089
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 48,065 56,047
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 144,304 $ 131,396
=========== ==========
GS Financial Corp.
Statements of Operations
(Dollars in Thousands)
(Unaudited)
For the three Months For the nine Months
ended September 30, ended September 30,
1998 1997 1998 1997
----------------------------------------
INTEREST INCOME (from)
Loans $ 1,295 $ 1,028 $ 3,669 $ 3,006
Mortgage-Backed Securities 438 655 1,452 1,112
Investment Securities 314 452 1,175 1,259
Collateralized Mortgage
Obligations 370 0 602 0
Other Interest Income 48 146 154 649
----- ----- ----- -----
TOTAL INTEREST INCOME 2,465 2,281 7,052 6,026
----- ----- ----- -----
INTEREST EXPENSE (on)
Deposits 610 621 1,828 1,960
FHLB Advances 472 175 1,028 188
----- ----- ----- -----
TOTAL INTEREST EXPENSE 1,082 796 2,856 2,148
----- ----- ----- -----
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 1,383 1,485 4,196 3,878
PROVISION FOR LOAN LOSSES 0 3 53 8
----- ----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,383 1,482 4,143 3,870
----- ----- ----- -----
NON-INTEREST INCOME
Gain/(Loss) on Investments (33) 0 215 (12)
Other Income 5 11 17 21
----- ----- ----- -----
TOTAL NON-INTEREST INCOME (28) 11 232 9
OTHER EXPENSES
Compensation and Benefits 397 427 1,690 1,183
Net Occupancy Expense 70 71 213 228
Other Expenses 253 135 775 333
----- ----- ----- -----
TOTAL OTHER EXPENSES 720 633 2,678 1,744
----- ----- ----- -----
INCOME BEFORE TAX EXPENSE 635 860 1,697 2,135
INCOME TAX EXPENSE (219) (331) (605) (779)
----- ----- ----- -----
NET INCOME $ 416 $ 529 $1,092 $1,356
===== ===== ===== =====
EARNINGS PER SHARE $ .16 $ .17 $ .38 n/a
GS Financial Corp.
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)
For the three Months For the nine Months
ended September 30, ended September 30,
1998 1997 1998 1997
----------------------------------------
Net Income $ 416 $ 529 $ 1,092 $ 1,356
Other comprehensive income,
Net of income tax:
Unrealized gains/
(losses) on securities 268 (869) 255 (1,030)
--- ----- --- -----
Comprehensive income $ 684 $ (340) $ 1,347 $ 326
=== === ===== ===
<TABLE>
GS Financial Corp.
Consolidated Statements of Changes in Stockholders' Equity
For The Nine Months Ended September 30, 1998, and 1997
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Unrealized Gain
on Securities
Available for
Sale Net of
Additional Unearned Unearned Applicable Total
Common Paid-In Treasury ESOP RRP Trust Retained Deferred Stockholders'
Stock Capital Stock Shares Stock Earnings Income Tax Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1996 $ - $ - $ - $ - $ - $ 23,862 $ 917 $ 24,779
Net Income-9 months
Ended September 30, 1997 - - - - - 1,356 - 1,356
Sale of Common Stock 34 33,500 (2,751) 30,783
Retirement of ESOP Debt 109 109
Decrease in Unrealized
Gain on Securities
Available for Sale - - - - - - (262) (262)
Cash Dividends Paid (240) (240)
BALANCE AT
SEPTEMBER 30, 1997 34 33,500 - (2,642) - $ 24,978 $ 655 $ 56,525
BALANCE AT
DECEMBER 31, 1997 $ 34 $ 33,658 $ - $ (2,516) $ (2,076) $ 25,089 $ 1,858 $ 56,047
Net Income-9 months
Ended September 30, 1998 - - - - - 1,092 - 1,092
Decrease in Unrealized
Gain on Securities
Available for Sale - - - - - - (217) (217)
Purchase of Treasury Stock - - (8,324) - - - - (8,324)
Purchase of RRP Trust
Stock - - - - (334) - - (334)
Retirement of ESOP Debt - 206 - 281 - - - 487
Cash Dividends Paid - - - - - (686) - (686)
BALANCE AT
SEPTEMBER 30, 1998 $ 34 $ 33,864 $ (8,324) (2,235) $ (2,410) $ 25,495 $ 1,641 $ 48,065
</TABLE>
GS Financial Corp.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
For the Nine Months Ended
September 30,
-----------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,092 $ 1,356
Adjustments to Reconcile Net Income
to Net Cash Provided
by Operating Activities:
Depreciation 94 100
Premiums/(Discounts) (Net) 160 (18)
Provision for Loan Losses 53 8
Loss on Sale of Loans 5
Net Loan Fees (2)
ESOP Expense 430 90
Gain/(Loss) on Sale of Investments (216) 8
(Increase)/Decrease in Prepaid Income Tax 402
Changes in Deferred Income Tax 193 6
Changes in Operating Assets and Liabilities:
(Increase)/Decrease in
Accrued Interest Receivable (141) (183)
(Increase)/Decrease in Deferred Charges (69) (50)
Increase/(Decrease) in Accrued Income Tax (64) 103
Increase/(Decrease) in Other Liabilities 563 76
(Increase)/Decrease in Other Assets 9 170
------ -------
Net Cash Provided by Operating Activities 2,102 2,073
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Redemption of
Mutual Funds 8,901
Purchase of CMO's (34,248)
Proceeds from Maturities of CMO's 7,461
Purchase of Available-for-Sale
Securities (12,347)
Proceeds from Maturities of Available-
For-Sale Securities 2,210 7,000
Purchases of Mortgage-Backed
Securities (5,764) (38,440)
Proceeds from Maturities of
Mortgage-Backed Securities 8,722 2,116
Purchase of IMF Mutual Fund (3,683) (5,430)
Proceeds from Sales of Mortgage-
Backed Securities 12,646 5,564
Net Loan (Originations) or
Principal Repayments (8,622) (3,683)
Purchases of Premises and Equipment (23) (81)
Investment in Foreclosed Real Estate (15)
Dividend on ARM Fund (529) (91)
Dividend on IMF Fund (19)
Purchase of FHLB Stock (539) (110)
Non-Cash Dividend - FHLB (57) (33)
---------- -------
Net Cash Used in Investing Activities (13,544) (45,550)
---------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Net Increase/(Decrease) in Deposits 354 (5,371)
Sale of Common Stock 30,813
Purchases of Treasury Stock (8,324)
Net Increase/(Decrease) in
Unapplied Loan Payments 6 4
Payment of Cash Stock Dividends (687) (241)
Net Increase/(Decrease) in Advance
Payments by Borrowers for Taxes
and Insurance (185) 65
Purchase of Stock for Recognition &
Retention Plan Trust (334)
Net Increase/(Decrease) in
FHLB Advances 20,328 17,045
---------- ---------
Net Cash Provided by Financing
Activities 11,158 42,315
---------- ---------
NET CASH EQUIVALENTS (284) (1,162)
CASH AND CASH EQUIVALENTS - January 1, 2,612 7,591
---------- ---------
CASH AND CASH EQUIVALENTS - September 30 $ 2,328 $ 6,429
========== =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GS Financial Corp. (the "Company") was organized and
incorporated under the laws of the State of Louisiana on December 24,
1996, for the purpose of becoming the holding company of Guaranty
Savings and Homestead Association, (the "Association"). The Company
registered its initial public offering ("IPO") of its common stock on
Form SB-2 with the Securities and Exchange Commission ("SEC") on
December 26, 1996, which as amended on February 6, 1997, was declared
effective by the SEC on February 11, 1997. The Association filed an
Application for Conversion ("Application") with the Office of Thrift
Supervision ("OTS") and the Louisiana Office of Financial
Institutions ("OFI"), the two primary regulators of the Association.
The Association received approval for its Application along with
related proxy materials from both the OTS and OFI by letters dated
February 7, 1997 and April 11, 1997, respectively.
Pursuant to the Plan of Conversion, which, in part, provided for
the Association's conversion from the mutual to stock form (the
"Conversion"), the Company opened its subscription offering on
February 24, 1997 and closed the offering on March 17, 1997. The
Conversion was approved by the members of the Association at a
special meeting held March 25, 1997.The IPO was completed on April 1,
1997.
The accompanying financial statements represent the consolidated
financial position, results of operations and cash flows of the
Company except for those figures for the nine months ended September
30, 1997, which represent the results of operations and cash flows of
the Association exclusively from January 1, 1997 to March 31, 1997
and the consolidated results of operations and cash flows of the
Company from April 1, 1997 to September 30, 1997. The accompanying
financial statements were prepared in accordance with instructions to
Form 10-Q, and therefore, do not include information or footnotes
necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted
accounting principles. However, all adjustments, consisting only of
normally recurring accruals, which, in the opinion of management are
necessary for a fair presentation of the financial statements, have
been included.
The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results to
be expected for the year ending December 31, 1998. The unaudited
consolidated financial statements and the notes included herein
should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31, 1997.
(2) EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1997 the Association terminated its
Simplified Employee Pension Plan ("SEP") and formally adopted an
Employee Stock Ownership Plan ("ESOP") for the benefit of its
employees. The ESOP purchased 8% or 275,080 shares of the Company's
common stock in the Conversion. The purchase of this stock was
financed through a loan from the Company which is secured by the
above-mentioned shares. The balance of that loan was $2.4 million at
September 30, 1998. The Company accounts for the ESOP in accordance
with SOP 93-6 and, as such, approximately 23,465 shares had been
earned by plan participants at December 31, 1997. The Association
bears the cost of the ESOP as compensation expense which is based on
principal and interest payments on the corresponding debt as well as
the market value of the stock.
The Company filed a private letter ruling request with the
Internal Revenue Service ("IRS") regarding a proposed extension of
the amortization schedule for the ESOP Debt. No determination or
finding has been made by the IRS as of this date.
(3) EARNINGS PER SHARE AND PAYMENTS OF DIVIDENDS
Earnings per share are computed using the weighted average
number of shares outstanding as prescribed in SFAS 128. During the
third quarter of fiscal 1998, the Company declared and paid dividends
in the amount of $.07 per common share.
(4) STOCK CONVERSION
On April 1, 1997 the Company completed its IPO in which
3,438,500 shares of common stock were sold, par value $.01 per share,
at a cost of $10 per share. Costs totaling $821,000 were netted
against proceeds of approximately $34.3 million.
(5) INVESTMENTS
September 30, 1998 December 31, 1997
-------------- -----------------
(Dollars in thousands)
Amortized Market Amortized Market
AVAILABLE FOR SALE Cost Value Cost Value
US Government and
Agency Obligations $ 10,172 $ 10,517 $ 12,380 $ 12,663
ARM Mutual Fund 4,917 4,888 13,817 13,801
IMF Mutual Fund 3,683 3,724
FHLMC Stock 35 1,787 35 1,510
------ ------ ------ ------
Total $ 18,807 $ 20,916 $ 26,232 $ 27,974
====== ====== ====== ======
(6) LOANS
September 30, December 31,
1998 1997
(Dollars in Thousands) -------- -----------
Total Loans $ 62,617 $ 53,995
Allowance for Loan Losses (463) (410)
Net Unearned Fees 5 3
-------- --------
TOTAL NET LOANS $ 62,159 $ 53,588
======== ========
Permanent Mortgages (1-4 family) $ 59,987 $ 53,058
Construction (1-4 family) 1,128 99
Commercial Mortgages 809 471
Other Mortgages 426 123
Consumer (secured by deposits) 267 244
---------- ----------
TOTAL LOANS $ 62,617 $ 53,995
======== ========
Allowance for Loan Losses
1998 1997
(Dollars in Thousands) ----- -----
Beginning Balance, June 30 $ 463 $ 387
Provision for Losses 0 3
Loans Charged Off 0 0
----- -----
Ending Balance, September 30 $ 463 $ 390
===== =====
(7) MORTGAGE BACKED SECURITIES
September 30, December 31,
1998 1997
--------- ------------
(Dollars in thousands)
Amortized Market Amortized Market
AVAILABLE FOR SALE Cost Value Cost Value
------ ----- ------ -----
GNMA Fixed Rate (1-4 family) $ 14,595 $ 14,819 $ 13,935 $ 14,414
FHLMC Fixed Rate (1-4 family) 2,686 2,720 10,659 11,202
FNMA Fixed Rate (1-4 family) 8,892 8,938 17,054 17,105
------ ------ ------ ------
TOTAL MORTGAGE BACKED SECURITIES $ 26,173 $ 26,477 $ 41,648 $ 42,721
====== ====== ====== ======
(8) INTEREST BEARING DEPOSITS
September 30, December 31,
1998 1997
--------- -----------
(Dollars in thousands)
Passbook Savings $ 21,960 $ 22,314
Certificates of Deposits 35,213 34,508
------- ------
TOTAL INTEREST BEARING DEPOSITS $ 57,173 $ 56,822
======= ======
(9) Stock Option Plan
On October 15, 1997, the stockholders approved the adoption of
the GS Financial Corp. 1997 Stock Option Plan for the benefit of
directors, officers and other key employees. Under this plan,
343,850 shares of common stock have been reserved for issuance
pursuant to the exercise of stock options granted under the Stock
Option Plan. The Company has followed all disclosure requirements
set forth in SFAS 123, "Accounting for Stock-Based Compensation." As
of September 30, 1998, options covering 275,076 shares had been
granted, however, due to the 5 year vesting requirement, no options
had been earned.
(10) Recognition and Retention Plan
On October 15, 1997 the Company established the 1997 Recognition
and Retention Plan and Trust ("RRP") as an incentive to retain
personnel of experience and ability in key positions. Stockholders
approved a total of 137,540 shares of stock to be granted pursuant to
the RRP, or 4% of the common stock issued in the Conversion. By
January 16, 1998, the Company had acquired in open market
transactions a total of 137,500 shares of common stock for issuance
under the RRP. During the quarter ending September 30, 1998, RRP
participants voted unanimously to extend the vesting period from its
original five year period to 10 years. The effect of this extension
reduces the annual compensation expense to the Company associated
with the RRP. The Company is accruing this expense commensurate with
the expiration of the vesting period based on the price of the stock
($17.187/share) on the date the RRP was approved.
(11) Treasury Stock
As of September 30, 1998, the Company had repurchased 491,054
shares for an average price of $16.95 per share or $8.3 million.
This represents approximately 15% of the original shares issued and
was the maximum repurchase allowed by the OTS. During the three
months ended September 30, 1998, the Company acquired 319,129 shares
at a total cost of $4.9 million.
(12) Other Expenses
Listed below are major recurring components comprising other
expenses.
For the three Months
ended September 30, 1998
----------------------
Office Supplies & Telephone $ 38,782
Franchise Tax 95,723
Data Processing 17,922
Advertising 16,387
Supervisory Fees 18,630
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
The Company's principal business is conducted through its wholly
owned subsidiary, Guaranty Savings and Homestead Association. The
Association, founded in New Orleans, Louisiana in 1937, provides
financial services primarily to individuals. It's principal products
include mortgage loans, passbook savings accounts and certificates of
deposit. The Association also invests in short-term and long-term
liquid investments such as overnight Federal Funds, United States
Treasury and Agency issued securities and mortgage-backed securities.
The Company has also adopted a strategy of growth on the
institutional or wholesale level. As a member of the Federal Home
Loan Bank ("FHLB"), the Company is able to borrow funds through
advances from the FHLB under terms and rates which allow for the
investment of these funds at higher yields than the cost of the
related advances. This allows the Company to supplement its retail
growth and earnings.
The following discussion compares the financial condition of GS
Financial Corp. at September 30, 1998 to December 31, 1997 and the
results of operations for the three and nine months ended September
30, 1998 and 1997.
CHANGES IN FINANCIAL CONDITION
At September 30, 1998, the assets of the Company totaled $144.3
million, an increase of $12.9 million, or 9.8%, from December 31,
1997. Net loans receivable increased by $8.6 million, or 16.0%, to
$62.2 million at September 30, 1998 compared to $53.6 million at
December 31, 1997. The increase came primarily in loans on 1-4
family residential dwellings which, fueled by continued low rates,
increased $6.9 million or 13.0%, from $53.1 million at December 31,
1997 to $60.0 million at September 30, 1998. This growth over the
nine months ended September 30, 1998 was funded through the
liquidation of various short-term investments and mortgage-backed
securities.
Mortgage-backed securities decreased $16.2 million, or 37.9%, to
$26.5 million at September 30, 1998 compared to $42.7 million at
December 31, 1997. The change was the net result of $12.4 million of
mortgage-backed securities sold, $5.0 million in new purchases and
$8.8 million in monthly principal payments for the nine months ended
September 30, 1998. The sales, which took place in February, 1998,
were executed to both reposition these funds into shorter term
investments and realize some gains. The principal repayments have
also been heavier than expected due to prepayments of the underlying
mortgages caused by lower interest rates.
Investment securities decreased $7.1 million, or 25.4%, to $20.9
million at September 30, 1998 compared to $28.0 million at December
31, 1997. The Company used these funds to meet current loan demand
and repurchase stock.
At September 30, 1998, the Company's investment in
Collateralized Mortgage Obligations was $26.8 million. Part of this
investment was funded by the sale of $12.4 million of mortgage-backed
securities in February, 1998 and part of it was funded from Federal
Home Loan Bank Advances executed throughout 1998. These first tranch
instruments provide the Company with short-term availability at
yields over money market rates.
Interest bearing deposits remained relatively unchanged from
December 31, 1997 to September 30, 1998 at approximately $57.0
million.
The Company's borrowings increased $20.3 million or 125.3% to
$36.5 million at September 30, 1998 compared to $16.2 million at
December 31, 1997. This was due to the Company expanding its
leveraged investing program. The Company's borrowings consist of
$21.3 million of fully amortizing advances from the Federal Home Loan
Bank (FHLB) as well as $15.2 million in balloon obligations from the
FHLB.
Equity capital decreased $7.9 million, or 14.1%, to $48.1
million at September 30, 1998 compared to $56.0 million at December
31, 1997. The decrease was due to the net effects of $8.3 million in
purchases of Treasury Stock; $.3 million in the purchase of stock by
the Recognition and Retention Plan Trust; $1.1 million in net income
for the nine months ended September 30, 1998; $.5 million due to the
retirement of ESOP debt; $.7 million in cash dividends paid and a $.2
million reduction in unrealized gain on securities available for
sale.
RESULTS OF OPERATIONS
GENERAL
The Company reported net income for the nine months ended
September 30, 1998 of $1.1 million which was a decrease of $.3
million compared to $1.4 million for the nine months ended September
30, 1997. The decrease was due primarily to an increase in other
expenses of $1.0 million, or 58.8%, to $2.7 million for the nine
months ended September 30, 1998 compared to $1.7 million for the nine
months ended September 30, 1997.
Three month results reflect largely the same trend with third
quarter 1998 net income down $.1 million compared to the same period
in 1997.
INTEREST INCOME
Total interest income increased $.2 million, or 8.7%, to $2.5
million for the three months ended September 30, 1998 compared to
$2.3 million for the three months ended September 30, 1997. This was
due primarily to increases in interest on loans.
Interest on loans increased $.3 million, or 30.0%, to $1.3
million for the three months ended September 30, 1998 compared to
$1.0 million for the three months ended September 30, 1997. This was
due primarily to growth in the loan portfolio. The average balance
of the loan portfolio for the nine months ended September 30, 1998
was $58.6 million (net) compared to $45.5 million (net) for the nine
months ended September 30, 1997. The average annualized yield on
loans for the nine months ended September 30, 1997 was 8.8% compared
to 8.3% for the nine months ended September 30, 1998.
Interest on mortgage-backed securities decreased $.2 million, or
33.3%, to $.4 million for the three months ended September 30, 1998
compared to $.6 million for the three months ended September 30,
1997. For the nine months ending September 30, 1998 the average
balance was $30.3 million which for the same period in 1997 the
average balance was $22.9 million. The average annualized yield of
mortgage-backed securities was 6.4% for the nine months ending
September 30, 1998 and 6.5% for the same period in 1997.
In 1998 the Company has utilized first-tranch Collateralized
Mortgage Obligations as an alternative, shorter-term investment than
mortgage loans or securities. To date in 1998 the Company has earned
$.6 million in such interest on an average balance of $12.9 million
yielding 6.2%. Most of these investments are part of the Company's
wholesale growth strategy of leveraged investing.
Other interest income consists mainly of interest income on
overnight Fed Funds sold and interest bearing deposits in other
financial institutions. Other interest income decreased $.1 million
or 66.7%, from $.15 million for the three months ending September
30,1997 compared to $.05 million for the three months ending
September 30, 1998. This was due to the large investment in
overnight Fed Funds in 1997 due to the temporary investment of stock
subscription funds. The average balance in Fed Funds was $4.9
million for the three months ending September 30, 1997 and $.9
million for the same period in 1998.
PROVISION FOR LOAN LOSSES
The Company had no provision for loan loss for the quarter ended
September 30, 1998 compared to $.003 million provision for the three
months ending September 30, 1997. The general valuation allowance is
reviewed quarterly and is based on each individual loan's performance
as well as value of the underlying collateral. Management has set .5%
of the entire mortgage portfolio as an appropriate allowance given
the current economic conditions. The Company employs the reserve
method of accounting for its general and specific valuation
allowances for loan losses.
INTEREST EXPENSE
The Company's total interest expense increased $.8 million, or
38.1%, to $2.9 million for the nine months ended September 30, 1998
compared to $2.1 million for the nine months ended September 30,
1997. The increase was due to the effect of additional interest
expense of $.8 million in advances from the Federal Home Loan Bank in
conjunction with the initiation of the Company's wholesale growth
strategy of leveraged investing. The Company's overall cost of funds
increased from 4.5% (annualized) for the nine months ending September
30, 1997 to 4.7% (annualized) for the same period in 1998.
OTHER EXPENSES
Other expenses for the three months ended September 30, 1998
were $.7 million compared to $.6 million for the three months ended
September 30, 1997. This represents an increase of $.1 million or
16.7% from September 30, 1997 to September 30, 1998. The increase
was largely due to state taxes which prior to 1998 had not been
accrued and are a direct result of converting from a mutual to a
stock thrift.
Other expenses for the third quarter 1998 were reduced (30%)
from the quarter ending June 30, 1998 where other expenses were $1.0
million. The reduction in the third quarter was caused by 3 main
reasons. The full time staff was reduced from 33 to 31 via
attrition. Secondly, the extension of the vesting period of the RRP
Trust from 5 years to 10 years halved the cost of that benefit
program. Finally, the market value of the Company's stock price
along with the decision to apply dividends received on ESOP shares to
the regular quarterly ESOP note payments helped reduce ESOP expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures the Company's ability to meet its short-term
obligations with ready cash. The Company is required under Federal
regulations to maintain certain levels of "liquid" investments,
specifically not less than 5% of its average daily balance of net
withdrawable deposit accounts. For its liquid investments, the
Company utilizes a combination of cash on hand, certain money market
investments and deposits in other financial institutions as well as
U.S. Government and Agency issued securities. As of September 30,
1998, the Company's liquidity stood at 58.43% or $54.7 million in
excess of the minimum requirement.
The Company is required to maintain regulatory capital
sufficient to meet all three of the regulatory capital requirements,
those being tangible capital (1.5%), core capital (3.0%), and risk
- -based capital (8.0%). As of September 30, 1998, the Company's
tangible and core capital amounted to $39.4 million or 29.25% of
adjusted total assets, while the Company's risk-based capital was
$39.7 million or 75.17% of total adjusted risk-weighted assets.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures about market risk are
presented at December 31, 1997 in the Company's Annual Report on Form
10-K, filed with the SEC on March 30, 1998. Management believes
there have been no material changes in the Company's market risk
since December 31, 1997.
Part II - Other Information
Item 1 - Legal Proceedings
There are no matters required to be reported under this item.
Item 2 - Changes in Securities
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders
There are no matters required to be reported under this item.
Item 5 - Other Information
Deadlines for Shareholder Proposals
Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934, as amended,
effective June 29, 1998:
(1) The deadline for submitting proposals for inclusion in the
Company's proxy statement and for of proxy for the Company's
1999 annual Meeting of Stockholders pursuant to Rule 14a-8 is
November 30, 1998.
(2) The date after which notice of a shareholder proposal
submitted outside the processes of Rule 14a-8 is considered
untimely is January 29, 1999.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits
27.0 Financial Data Schedule
(b) No Form 8-K reports were filed during the quarter.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GS FINANCIAL CORP.
DATE: NOVEMBER 13, 1998 BY:/s/Donald C. Scott
---------------------
DONALD C. SCOTT, CHAIRMAN OF THE
BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
DATE: NOVEMBER 13, 1998 BY:/s/Glenn R. Bartels
----------------------
GLENN R. BARTELS
CONTROLLER
18
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