FORM 10-Q.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 quarterly period ended
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File Number 0-22559
GSB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1481061
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE SOUTH CHURCH ST., GOSHEN, N.Y. 10924
(Address of principal executive offices) (Zip Code)
(914) 294-6151
(Registrant's telephone number, including area code)
Indicate by check mark 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. Yes _x_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Shares, $.01 par value 2,135,838
----------------------------- ---------------------
(Title of class) (outstanding at April 30, 1999)
<PAGE>
GSB FINANCIAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1999
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 1999 (Unaudited) and September 30, 1998................. 2
Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998 (Unaudited)............................... 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (Unaudited)......................... 4
Notes to Unaudited Consolidated Interim Financial Statements...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 6
Item 3. Quantitative and Qualitative Disclosure about Market Risk......... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signatures........................................................ 16
1
<PAGE>
GSB Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
(In thousands except shares and per share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
--------- -------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................. $ 1,914 $ 2,818
Federal funds sold ...................................................... 1,850 4,800
--------- ---------
Cash and cash equivalents ............................................... 3,764 7,618
Investment securities available for sale ................................ 43,057 31,474
Mortgage-backed securities:
Held to maturity (estimated market values of $2,158 and
$ 3,965 at March 31,1999 and September 30, 1998,
respectively) ....................................................... 2,133 3,881
Available for sale ...................................................... 3,512 5,804
Loans receivable, net ................................................... 93,885 78,713
Banking house and equipment ............................................. 2,847 2,800
Accrued interest receivable ............................................. 1,062 949
Prepaid expenses and other assets ....................................... 776 696
--------- ---------
Total assets ....................................................... $ 151,036 $ 131,935
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits ................................................................ $ 97,941 $ 88,310
Mortgagors' escrow deposits ............................................. 312 126
Borrowings .............................................................. 20,000 10,000
Accrued expenses and other liabilities .................................. 1,605 2,004
--------- ---------
Total liabilities .................................................. $ 119,858 $ 100,440
Commitments and contingent liabilities
Stockholders' Equity
Preferred stock ($0.01 par value; 500,000 shares
authorized; none issued) ............................................. -- --
Common stock ($0.01 par value; 4,500,000 shares
authorized; 2,248,250 issued at March 31, 1999 and September 30, 1998) 22 22
Additional paid-in capital .............................................. 21,570 21,510
Retained earnings, substantially restricted ............................. 13,309 12,825
Accumulated other comprehensive income .................................. 424 632
Treasury stock, at cost ................................................. (2,305) (1,529)
Unearned ISAP stock ..................................................... (358) (391)
Unallocated ESOP stock .................................................. (1,484) (1,574)
--------- ---------
Total stockholders' equity ......................................... $ 31,178 $ 31,495
--------- ---------
Total liabilities and stockholders' equity ......................... $ 151,036 $ 131,935
========= =========
</TABLE>
2
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GSB Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except shares and per share amounts)
For the Quarter Ended
March 31,
----------------------
1999 1998
---------- ----------
INTEREST INCOME
Loans ............................................. $ 1,613 $ 1,358
Federal funds sold ................................ 54 63
Investment securities ............................. 537 332
Mortgage-backed securities ........................ 107 192
---------- ----------
Total interest income
2,311 1,945
INTEREST EXPENSE
Deposit accounts .................................. 864 765
Other borrowings .................................. 166 6
---------- ----------
Total interest expense .......................... 1,030 771
Net interest income ............................... 1,281 1,174
Provision for loan losses ......................... 15 10
---------- ----------
Net interest income after provision for loan losses 1,266 1,164
NON-INTEREST INCOME
Service charges on deposit accounts ............... 44 31
Other income ...................................... 28 26
Net realized gains on securities .................. -- --
Capital gains distributions ....................... -- --
---------- ----------
Total non-interest income ....................... 72 57
NON-INTEREST EXPENSE
Salaries and employee benefits .................... 380 470
Occupancy and equipment ........................... 94 81
Data processing expenses .......................... 76 45
Other non-interest expense ........................ 311 260
---------- ----------
Total non-interest expense ...................... 861 856
---------- ----------
Income before income taxes ........................ 477 365
Income tax expense ................................ 184 144
---------- ----------
Net income ........................................ $ 293 $ 221
========== ==========
Basic earnings per share .......................... $ 0.15 $ 0.11
Weighted average shares outstanding (basic) ....... 1,926,463 2,077,433
Diluted earnings per share ........................ $ 0.15 $ 0.11
Weighted average shares outstanding (fully diluted) 1,944,691 2,078,264
3
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GSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
1999 1998
-------- --------
(In Thousands)
Cash flows from operating activities:
Net income (loss) ...................................... $ 293 $ 221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................... 43 33
Provision for loan losses .............................. 15 10
Fair value provision of ESOP shares committed to be
released ............................................... 72 74
Increase (decrease) other assets ....................... (182) (89)
Net amortization on investment securities -
available for sale ..................................... 16 14
Net amortization (accretion) on mortgage - backed
Securities - held to maturity ........................ (3) 1
Net amortization (accretion) on mortgage - backed
Securities - available for sale ...................... 6 4
Increase (decrease) in accrued expenses and other
Liabilities .......................................... 347 (178)
-------- --------
Net cash provided by operating activities .............. 607 90
-------- --------
Cash flows from investing activities:
Proceeds from principal paydowns of mortgage - backed
Securities - held to maturity ....................... 298 445
Proceeds from principal paydowns of mortgage - backed
Securities - available for sale ...................... 745 518
Proceeds from maturity and redemption of investment
Securities - available for sale ...................... 500 5,000
Purchase of investment securities - available for sale . (11,315) (2,066)
Net (increase) in loans ............................... (9,148) (3,180)
Capital expenditures ................................... (39) (59)
Proceeds from sale of other real estate owned .......... -- --
-------- --------
Net cash provided (used) by investing activities ....... (18,959) 658
-------- --------
Cash flow from financing activities:
Net (decrease) in demand, statement passbook, money
Market and NOW deposit accounts ...................... 4,108 517
Dividends paid ......................................... (65) --
Purchase of treasury stock ............................. (195) --
Increase in advances from borrowers for taxes
And insurance ........................................ 14 (7)
Net increase in other borrowings ....................... 10,000 2,000
-------- --------
Net cash provided by ( used in) financing activities ... 13,862 2,510
-------- --------
Net increase (decrease) in cash and cash equivalents ... (4,490) 3,258
Cash and cash equivalents at beginning of year ......... 8,254 6,122
-------- --------
Cash and cash equivalents at end of year ............... $ 3,764 $ 9,380
======== ========
Additional Disclosures:
Supplemental disclosures of cash flows
information-cash paid during year for:
Interest on other borrowings ...................... $ 131 $ 16
Income taxes ...................................... 494 39
Supplemental schedule of non-cash investing
activities:
Change in unrealized gains in investment securities -
available for sale ................................... (296) 64
4
<PAGE>
GSB Financial Corporation
Notes to Unaudited Consolidated Interim Financial Statements
1. Basis of Presentation
GSB Financial Corporation ("GSB Financial" or the "Company") was incorporated
under Delaware law in March 1997 as a holding company to purchase 100% of the
common stock of Goshen Savings Bank (the "Bank"). On July 9, 1997, GSB Financial
completed its initial public offering of 2,248,250 shares of common stock in
connection with the conversion of the Bank from a mutual form institution to a
stock savings bank (the "Conversion"). Concurrently with the Conversion, GSB
Financial acquired all of the Bank's common stock.
The consolidated financial statements included herein at or for periods ended
March 31, 1999 and 1998, have been prepared by the Company without audit. In the
opinion of management, the quarterly unaudited financial statements include all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the consolidated financial position and results of operations
for the periods presented. Certain information and footnote disclosures normally
included in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company believes that the disclosures are adequate to
make the information presented not misleading, however, the results for the
periods presented are not necessarily indicative of the results to be expected
for the entire year.
The unaudited quarterly financial statement presented herein should be read in
conjunction with the annual audited consolidated financial statements of the
Company for the fiscal year ended September 30, 1998. Significant intercompany
transactions and amounts have been eliminated.
2. Earnings Per Share
On July 9, 1997, GSB Financial Corporation completed its initial stock offering
of 2,248,250 shares of common stock. Concurrent with the offering, approximately
8% of the shares sold (179,860) were purchased by the GSB Financial Corporation
Employee Stock Ownership Plan ("ESOP") using the proceeds of a loan from the
Company to the ESOP. Through March 31, 1999, 31,475 shares have been committed
to be released and under AICPA Statement of Position 93-6, these shares will be
considered outstanding for purposes of calculating per share amounts. SFAS No.
128 requires dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with a complex capital structure
and specifies additional disclosure requirements. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Unvested restricted stock is considered outstanding and included in the
computation of basic earnings per share as of the date shares are fully vested.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity, such as the Company's restricted stock and stock
options. SFAS No. 128 requires restatement of all prior period earnings per
share data presented.
5
<PAGE>
The calculation of basic and diluted earnings per share (EPS) calculations for
the periods indicated, are included in exhibit 11 of this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
GSB Financial Corporation (the "Company") was formed in March 1997 to acquire
the common stock of Goshen Savings Bank (the "Bank") upon its conversion from a
mutual savings bank to a stock savings bank. On July 9, 1997, the Company
completed its initial public offering, issuing 2,248,250 shares of $0.01 par
value common stock at $10.00 per share. Net proceeds to the Company were $21.4
million after conversion costs, and $19.6 million excluding the shares acquired
by the Company's Employee Stock Ownership Plan (the "ESOP"), which were
purchased with the proceeds of a loan from the Company. All references to the
Company prior to July 9, 1997, except where otherwise indicated, are to the
Bank.
The Company's last fiscal year ended September 30, 1998. The Company has changed
its fiscal year to a calendar year in order to improve efficiency and reduce
duplication of effort. Therefore, the Company will file quarterly reports for
the quarters ended March 31, June 30, and September 30, 1999 and will end its
current fiscal year on December 31, 1999.
The Company's strategy is to continue to be a community oriented financial
institution offering core financial services to individuals and businesses in
strategic locations within the Hudson Valley. The Company attracts deposits from
its local communities and invests those deposits principally in one-to-four
family residential mortgage loans and business loans. Management seeks to
maintain a high quality loan portfolio with low levels of delinquencies and
non-performing assets by concentrating on residential mortgage loans and
business loans in its local community. Management also considers other loan
types consistent with its mission to serve the local consumer and business
community.
The Bank is a federal savings bank with deposits insured by the Bank Insurance
Fund ("BIF") of the FDIC. The Bank's primary federal banking regulator is the
Office of Thrift Supervision ("OTS").
The financial condition and results of operations of the Company are primarily
dependent upon the operations of the Bank, and the earnings from securities
investments made by the Company with the portion of the net proceeds of its
stock offering retained by it. The Company's results of operations are dependent
principally on its net interest income, representing the difference between the
income earned on its loan and securities portfolios and its cost of funds,
represented principally by interest paid on its deposit accounts. Results of
operations are also affected by the Company's provision for loan losses. In
addition to net interest income, other sources of income for the Company include
deposit account fees, loan and loan servicing fees, gains on the sale of
securities, capital gain distributions on mutual fund investments, and fees for
banking services such as safe deposit boxes. The largest category of non-
6
<PAGE>
interest expense is compensation and benefits expense. Other principal
categories of non-interest expense include occupancy expense, data processing
costs, advertising and marketing expenses, and insurance costs. Results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
The Company's strategy is to continue to operate the Bank as a community-based
financial institution while exploring appropriate opportunities to leverage the
additional capital obtained in the Conversion. The Company is seeking to improve
its customer service delivery capability, enabling it to provide better services
to existing customers and seek to expand its customer base.
7
<PAGE>
Average Balances, Interest Rates and Yield
The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
Average balances are daily average balances. Non-interest-bearing checking
accounts are included in the tables as a component of non-interest-bearing
liabilities.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1999 1998
---- ----
Average Interest Average Average Interest Average
Balance -------- Yield/ Balance -------- Yield/
------- Cost (5) ------- Cost (5)
-------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans receivable (1) ............................... $ 89,168 $ 1,613 7.24% $ 69,963 $ 1,358 7.76%
Mortgage-backed securities ......................... 6,428 107 6.66 11,698 192 6.57
Investment securities .............................. 34,418 537 6.24 23,173 332 5.73
Federal funds sold ................................. 4,943 54 4.37 5,221 63 4.83
-------- -------- -------- --------
Total interest-earning assets .................. 134,957 2,311 6.85 110,055 1,945 7.07
-------- --------
Non-interest-earning assets ........................ 6,643 5,564
-------- --------
Total assets ................................... $141,600 $115,619
======== ========
Interest-bearing liabilities:
Savings accounts ................................... $ 29,168 216 2.96 $ 25,974 191 2.94
Certificates of deposit ............................ 41,675 493 4.73 37,804 479 5.07
Money market ....................................... 13,412 123 3.67 8,580 69 3.22
NOW accounts ....................................... 5,731 32 2.23 4,063 26 2.56
Other .............................................. 12,911 166 5.14 445 6 5.39
-------- -------- -------- --------
Total interest-bearing liabilities ............. 102,897 1,030 4.00 76,866 771 4.01
-------- --------
Non-interest-bearing liabilities ................... 7,228 5,734
-------- --------
Total liabilities .............................. 110,125 82,600
Equity ............................................. 31,475 33,019
-------- --------
Total liabilities and equity ................... $141,600 $115,619
======== ========
Net interest income/spread (2) (3) ................. $ 1,281 2.85% $ 1,174 3.06%
======== ===== ======== ======
Net earning assets/net interest margin (4) ......... $ 32,060 3.80% $ 33,189 4.27%
======== ===== ======== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities ........ 1.31x 1.43x
======== ========
</TABLE>
(1) Average balances include non-accrual loans. Interest on such loans is
recognized as and when received.
(2) Includes interest-bearing deposit in other financial institution.
(3) Interest-rate spread represents the difference between average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets ("net interest margin") represents net
interest income as a percentage of average interest-earning assets.
(5) Yields for the three month periods have been annualized when appropriate.
8
<PAGE>
Comparison of Financial Condition at March 31, 1999 and September 30, 1998
The Company's total assets were $151.0 million at March 31, 1999 as compared to
$131.9 million at September 30, 1998, representing 14.5% growth in assets.
Loans, net increased $15.2 million, or 19.3%, from $78.7 million to $93.9
million as residential loans increased by $10.5 due to aggressive loan
origination efforts at a time of steady residential mortgage loan demand,
coupled with net commercial mortgage and business loans increases of $4.7
million, as the Company sought to expand its portfolio of such loans. Investment
securities available for sale increased by $11.6 million, while mortgage-backed
securities decreased by $4.0 million, since September 30, 1998. The increase in
investment securities was principally due to the purchase of securities with
borrowings to increase leverage. The decrease in mortgage-backed securities was
mainly due to the acceleration of principal payments due to the low interest
rate environment. Deposits increased by $9.6 million or 10.9% to $97.9 million
at March 31, 1999 as compared to $88.3 million at September 30, 1998. The
deposit increase for the quarter ended March 31, 1999, was $4.1 million.
Included in the gain since September 30, 1998, are deposits of $2.0 million in
the new branch opened in September 1998, in Harriman, New York. The growth in
core deposits (representing deposits other than certificates of deposit) during
the period was $7.2 million or 75.0% of the period gain, which is attributed to
the Company's emphasis on attracting core deposit relationships through its
advertising.
Total equity decreased to $31.2 million at March 31, 1999, from $31.5 million at
September 30, 1998. The $317,000 decrease in equity resulted principally from
the repurchase of $776,000 of the Company's stock. The Company repurchased
91,793 shares of its stock from October 1, 1998 through March 31, 1999 and
completed its program to repurchase 5% of its outstanding stock with the
repurchase of an additional 20,619 shares through April 19, 1999.
Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
Interest Income was $2.3 million for the quarter ended March 31, 1999, compared
to $1.9 million for the same period in 1998, an increase of $366,000 or 15.8%.
The increase in interest income was primarily volume related due to an increase
in average earning assets by $24.9 million or 22.6%, offset by a decrease in the
average yield on earning assets by 22 basis points.
The primary cause for the increase in average earning assets was a $19.2 million
increase in the average balance of loans, as a result of efforts by the Company
to leverage its capital through increased loan originations. The volume increase
was partially offset by a 52 basis point decline in the average yield earned on
loans. The decline in the average yield earned on loans was due to the declining
interest rate environment in late 1998 and early 1999. The two factors combined
to produce an estimated $255,000 increase in interest earned on loans. Interest
earned on mortgage-backed securities decreased by $85,000 due to a $5.3 million
decrease in the average balance of mortgage-backed securities due to accelerated
principal payments, and the sale of small balance mortgage-backed securities in
the latter part of 1998 to improve efficiency. Interest earned on federal funds
decreased by $9,000 due to a decrease in the average balance by $278,000.
Interest income on investment securities
9
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increased by $205,000 due to an increase in the average balance of $11.2
million, as the Company invested in investment securities to leverage the
balance sheet with borrowings. The average yield earned on investment securities
increased by 51 basis points, caused by the purchase of callable government
agency bonds which tend to have a higher market interest rate.
Interest Expense was $1.0 million for the quarter ended March 31, 1999 as
compared to $771,000 for the same quarter in 1998. The increase in interest
expense was primarily volume related due to an increase of $18.3 million, or
23.8%, in interest-bearing liabilities offset by a slight decrease in the
average cost of funds between the comparable quarters. The increase in the
volume of interest bearing liabilities, as with the increase in loan volume, was
part of the Company's program to leverage its capital through growth. Interest
on borrowings which were undertaken to improve leverage increased by $160,000
from the quarter ended March 31, 1998 to the quarter ended March 31, 1999.
Interest paid on deposits increased by $99,000 from the 1998 to the 1999
quarter, because average interest bearing deposits increased by $13.6 million,
offset by a decrease of 16 basis points in the average rate paid on deposits.
The average balance in money market accounts increased by $4.8 million or 56.3%
for the comparable quarters and the average cost of those accounts increased by
45 basis points as the Company offered higher rates for large balance account to
attract additional deposits. The average balance of certificates of deposit
increased by $3.9 million, offset by a 34 point decrease in the average rate
paid due to the gradual turnover of certificates of deposits at lower rates
during periods of low market interest rate conditions.
Provision for Loan Losses was $15,000 for the quarter of March 31, 1999 compared
to $10,000 in the comparable quarter in 1998. The Company increased its
provision for loan losses due to increases in the loan portfolio and efforts to
develop a commercial lending portfolio. Non-performing loans at March 31, 1999,
were $92,000, or 0.10% of total loans, and were represented by one residential
mortgage. At March 31, 1999, the allowance for loan losses was $230,
representing 0.25% of period end loans. Net charge-offs during the quarter were
zero.
Non-interest income was $72,000 for the quarter ended March 31, 1999 as compared
to $58,000 for the same quarter in 1998. The increase of $14,000 is principally
caused by an increase of $12,000 in service charges on deposits due to the
increasing of account fees and an increase in new transaction accounts opened
during the last year.
Non-interest expense was $861,000 for the quarter ended March 31, 1999, compared
to $856,000 for the comparable quarter in 1998. The Company worked to control
costs without sacrificing growth and diversification, thus improving its
efficiency ratio. The primary cost reduction was a $90,000 reduction in salary
and benefits expense due to the Voluntary Early Employment Termination Program,
in which 11 employees participated at December 31, 1998. The program allowed the
Company to reduce full time equivalent employees by one person to 36 full time
equivalent employees for the quarter ended March 31, 1999. This occurred even
though the Company opened a new branch in September 1998 and began to offer
commercial loans. The Company also incurred expenses of $7,500 to upgrade its
ATM network, which should increase the services available to customers, decrease
future monthly charges and increase fee income from ATM usage by non-customers.
Despite these expense increases and other increased costs necessarily flowing
from growth, the Company improved its efficiency ratio from 70.1% for the
quarter ended March 31, 1998 to 64.3% for the quarter ended March 31, 1999.
10
<PAGE>
Income tax expense was $184,000 for the quarter ended March 31, 1999, compared
to $144,000 for the comparable quarter in 1998. The increase of $40,000 was
principally caused by the increase in the income before taxes of $112,000.
Basic earnings per share for the quarters ended March 31, 1999, and 1998, were
$0.15 and $0.11, while diluted earnings per share for the same periods were
$0.15 and $0.11 respectively, calculated in each case by dividing reported net
income by weighted average shares for the respective periods, excluding
unallocated ESOP stock.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds from the principal
and interest payments on loans, mortgage-backed and debt securities and capital
gain distributions on its mutual fund investment. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
outflows, mortgage prepayments and mortgage loan and securities sales are
greatly influenced by general interest rates, economic conditions and
competition.
The Bank closely monitors its liquidity position on a regular basis. Excess
short-term liquidity is invested in overnight federal funds sold. If the Bank
requires funds beyond its ability to generate them internally, additional
sources of funds are available through the use of borrowings. At March 31, 1999,
the Bank had available lines of credit with the Federal Home Loan Bank of New
York of $12.4 million. The Bank may, from time to time, use borrowings to
satisfy funding needs rather than increase the rates paid on new deposits,
because the latter could have a greater adverse effect on the overall cost of
funds. The Bank had outstanding Federal Home Loan Bank borrowings of $20.0
million at the end of the quarter, which were not against the line of credit.
The Bank undertook these borrowings as one method of leveraging the additional
capital obtained in its conversion to stock form.
Residential mortgage loan commitments and commercial loan commitments
totaled $7.0 million, and $1.3 million at March 31, 1999, respectively, and the
Bank had $1.7 million of unused home equity lines of credit and $712,000 and
$268,000 of unused commercial line of credit and consumer overdraft checking
lines of credit, respectively. Management anticipates that the Bank will have
sufficient funds available to meet its current loan commitments. Certificates of
deposit, which are scheduled to mature in one year or less from March 31, 1999,
totaled $36.9 million. Management anticipates that the Bank will be able to
retain substantially all of such deposits if the Bank decides to do so to fund
loans and other investments.
At March 31, 1999, the Bank exceeded all regulatory capital requirements of
the OTS applicable to it, with tangible and core capital of $22.9 million, or
15.8% of adjusted assets and total risk-based capital of $23.1 million, or
32.45% of risk-weighted assets. The Bank was classified as "well capitalized" at
March 31, 1999 under OTS regulations.
The Bank is subject to the minimum liquidity regulations of the OTS. At
March 31, 1999, OTS regulations required that the Bank maintain liquid assets
equal to at least 4% of its net withdrawable accounts plus short term
borrowings, measured on a monthly basis. The Bank has satisfied this requirement
throughout the period during which it has been a federal savings bank, and at
March 31, 1999 had liquid assets equal to 11.8% of net withdrawable accounts
plus short term borrowings.
11
<PAGE>
The following table sets forth information regarding the regulatory capital
ratios of the Bank at March 31, 1999.
Actual Minimum Capital For Classification
as Well Capitalized
Bank Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
Tangible Capital $22,858 15.83% 2,166 1.50% -- --
Tier 1 (Core) Capital 22,858 15.83% 4,332 3.00% $ 7,220 5.0%
Risk Based Capital:
Tier 1 22,858 32.13% -- -- 4,269 6.0%
Total 23,088 32.45% 5,692 8.00% 7,115 10.0%
Forward-Looking Statements
When used in this report on form 10Q, in our future filings with the
Securities and Exchange Commission, in our press releases or other public or
stockholder communications, or in oral statements made with the approval of an
authorized officer, words and phrases such as " will likely result" "are
expected to," "will continue," "are estimated," "are anticipated" and other
similar expressions, are intended to identify "forward-looking statements" under
the Private Securities Litigation Reform Act. In particular, certain information
customarily disclosed by financial institutions, such as estimates of interest
rate sensitivity and the adequacy of the loan loss allowance, are inherently
forward-looking statements because, by their nature, they represent attempts to
estimate what will occur in the future.
A wide variety of factors could cause our actual results and experiences to
differ materially from the anticipated results or other expectations expressed
in our forward-looking statements. Some of the risks and uncertainties that may
affect our financial condition or results of operations include but are not
limited to: (i) deterioration in local, regional, national or global economic
conditions which could result, among other things, in an increase in loan
delinquencies, a decrease in property values, or a change in the housing
turnover rate; (ii) changes in market interest rates or changes in the speed at
which market interest rates change; (iii) changes in laws and regulations
affecting the financial services industry; (iv) changes in competition; and (v)
changes in consumer preferences. Year 2000 non-compliance by any business
providing services to us could have a negative effect on our ability to operate
profitably.
Furthermore, changes in the economic circumstances of individual borrowers
could have a material adverse effect on their ability to repay their loans
regardless of general economic conditions. Likewise, financial adversity
experienced by any one major business in our market area could have a
significant adverse effect on those of our customers who are employees of that
business or otherwise rely upon it for their economic well being. This could
affect their ability to honor their loan obligations and their ability to
maintain deposit balances.
For these reasons, we caution readers not to place undue reliance upon any
forward-looking statements. Forward-looking statements speak only as of the date
made and we assume no obligation to update or revise any such statements upon
any change in applicable circumstances.
12
<PAGE>
Year 2000 Compliance
In the Company's annual report on Form 10-K, we provided information regarding
our activities to protect against the adverse effects of the Year 2000 computer
problem. Since our last 10-Q filing, we have continued the process of reviewing,
testing and upgrading our systems to make them Year 2000 compliant. We have
completed the upgrading of all internal software that required upgrades so that
the software is now functioning properly. Our Primary data processing provider,
NCR Corporation, reports that it is qualified and has satisfactorily completed
its own internal software and hardware testing and upgrading and is in the
process of verifying that all of its vendors are likewise compliant, which
verification is expected by June 30. We also changed our ATM provider in March
1999 to increase customer service and provide additional income opportunities,
with the additional positive effect of improved Y2K compliance through the new
system. However, the Company remains reliant upon the ability of major
utilities, such as electric and telephone companies, to continue to provide
service. Although plans have been made to continue to operate in the event of a
failure of core utility service delivery systems, any such plans are necessarily
temporary and if such services as telephone or electric service are not
delivered for an extended period, operations would be adversely affected.
The Bank intends to take appropriate steps prior to the end of the calendar year
to maintain sufficient liquidity so that additional customer demands for cash
can be met. However, any substantial unusual withdrawal activity caused by
customer panic could have a short term adverse income statement effect because
the cost of alternative sources of funds, such as borrowings, is normally higher
than the cost of deposits. This is a Year 2000 Readiness Disclosure under the
Year 2000 Information and Readiness Disclosure Act.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
For information concerning GSB Financial Corporation's quantitative and
qualitative disclosures about market risk, refer to Item 7A of the GSB Financial
Corporation Annual Report on Form 10-K for the year ended September 30, 1998, as
filed with the Securities and Exchange Commission on December 29, 1998, and the
sections of the Annual Report to Stockholders referenced therein and included in
such report on Form 10-K, particularly the discussion at pages 8 through 10 of
the Annual Report to Stockholders under the Captions "Gap Analysis" and
"Analysis of Market Risk".
Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of business, the Company and the Bank are subject to
legal actions which involve claims for monetary relief. Management, based on
advice of counsel, does not believe that any currently known legal actions,
individually or in the aggregate will have a material effect on its consolidated
financial condition or results of operation.
Item 2. Changes in Securities
None
13
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Meeting") on January
27, 1999. The purpose of the Meeting was to vote on the following proposals:
1. The election of one director for term of three years;
2. The ratification of the appointment of Nugent & Hauessler, P.C. as
independent auditors of the Company for the year ending December 31, 1999.
The results of the vote on the Proposals were as follows:
Proposal 1: Stephen O. Hopkins For 1,667,182
Withheld 133,262
Proposal 2: For 1,783,428
Against 13,392
Abstain 3,624
In addition to Mr. Hopkins, directors, Gene J. Gengel, Thomas V. Guarino,
Clifford E. Kelsey, Roy L. Lippincott and Herbert C. Mueller will continue to
serve after the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule*
(b) Reports on Form 8-K
None
- ----------
* Submitted only with filing in electronic format.
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.
GSB Financial Corporation
--------------------------
Principal Executive Officers:
Date: May 17, 1999 /s/ Stephen W. Dederick
Stephen W. Dederick
Chief Financial Officer & Treasurer
(Principal Financial and
Accounting Officer)
/s/ Rolland B. Peacock III
Rolland B. Peacock III
Vice President
/s/ Barbara A. Carr
Barbara A. Carr
Secretary
15
Exhibit 11
Computation of Net Income Per Share
(In thousands, except share and earnings per share)
For the Quarter Ended
-------------------------
March 31, March 31,
1999 1998
---------- ----------
Net Income Per Share - Basic
Net income applicable to common stock $ 293,000 $ 221,000
Weighted average common shares 1,926,463 2,077,433
Earnings per common share $ 0.15 $ 0.11
Net Income Per Share - Diluted
Net income applicable to common stock $ 293,000 $ 221,000
Weighted average common shares 1,926,463 2,077,433
Dilutive common stock options 18,228 831
---------- ----------
Weighted average common shares - diluted 1,944,691 2,078,264
Earnings per common share $ 0.15 $ 0.11
.........
15
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<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM " THE
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REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,914
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,850
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<INVESTMENTS-CARRYING> 2,133
<INVESTMENTS-MARKET> 2,158
<LOANS> 93,885
<ALLOWANCE> 230
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<DEPOSITS> 97,941
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 1,605
<LONG-TERM> 0
0
0
<COMMON> 21,592
<OTHER-SE> 9,586
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<LOANS-PAST> 92
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