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 March 31, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
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 1,984,538
----------------------------- -----------------------------
(Title of class) (outstanding at May 12, 2000)
<PAGE>
GSB FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2000 (Unaudited) and December 31, 1999.............................. 3
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 (Unaudited)........................................... 4
Consolidated Statements of Cash Flows for the three months ended March 31,
2000 and 1999 (Unaudited)..................................................... 5
Notes to Unaudited Consolidated Interim Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk..................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................................. 13
Signatures.................................................................... 15
</TABLE>
2
<PAGE>
GSB Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
(In thousands except shares and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks ......................................... $ 3,383 $ 4,052
Federal funds sold .............................................. 100 100
--------- ---------
Cash and cash equivalents ....................................... 3,483 4,152
Investment securities available for sale ........................ 48,050 46,871
Mortgage-backed securities:
Held to maturity (estimated market values of $1,376 and
$1,471 at March 31, 2000 and December 31, 1999, respectively) 1,402 1,471
Available for sale ............................................ 1,893 2,004
Loans receivable, net ........................................... 117,881 115,273
Banking house and equipment ..................................... 2,970 2,768
Accrued interest receivable ..................................... 1,380 1,315
Prepaid expenses and other assets ............................... 2,073 2,162
--------- ---------
Total assets .............................................. $ 179,132 $ 176,016
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits ...................................................... $ 107,727 $ 106,256
Mortgagors' escrow deposits ................................... 400 503
Federal funds purchased ....................................... 4,750 3,600
Borrowings .................................................... 35,000 35,000
Accrued expenses and other liabilities ........................ 2,259 1,548
--------- ---------
Total liabilities ......................................... $ 150,136 $ 146,907
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, 2000 and December 31, 1999) ... 22 22
Additional paid-in capital .................................... 21,548 21,575
Retained earnings, substantially restricted ................... 14,801 14,518
Accumulated other comprehensive income ........................ (1,323) (1,297)
Treasury stock, at cost ....................................... (4,343) (4,052)
Unearned ISAP stock ........................................... (406) (308)
Unallocated ESOP stock ........................................ (1,303) (1,349)
--------- ---------
Total stockholders' equity ................................ $ 28,996 $ 29,109
--------- ---------
Total liabilities and stockholders' equity ................ $ 179,132 $ 176,016
========= =========
</TABLE>
See accompanying notes to consolidated financial statement.
3
<PAGE>
GSB Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except shares and per share amounts)
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans ............................................... $ 2,153 $ 1,613
Federal funds sold .................................. 7 54
Investment securities ............................... 871 537
Mortgage-backed securities .......................... 58 107
---------- ----------
Total interest income ............................. 3,089 2,311
INTEREST EXPENSE
Deposit accounts .................................... 1,000 864
Borrowings .......................................... 582 166
---------- ----------
Total interest expense ............................ 1,582 1,030
Net interest income ................................. 1,507 1,281
Provision for loan losses ........................... 25 15
---------- ----------
Net interest income after provision for loan losses . 1,482 1,266
NON-INTEREST INCOME
Service charges on deposit accounts ................. 44 44
Other income ........................................ 38 28
Net realized gains on securities .................... -- --
Capital gains distributions ......................... -- --
---------- ----------
Total non-interest income ......................... 82 72
NON-INTEREST EXPENSE
Salaries and employee benefits ...................... 427 380
Occupancy and equipment ............................. 91 94
Data processing expenses ............................ 78 76
Other non-interest expense .......................... 302 311
---------- ----------
Total non-interest expense ........................ 898 861
---------- ----------
Income before income taxes .......................... 666 477
Income tax expense .................................. 264 184
---------- ----------
Net income .......................................... $ 402 $ 293
========== ==========
Basic earnings per share ............................ $ 0.22 $ 0.15
Weighted average shares outstanding - basic ......... 1,792,216 1,926,463
Diluted earnings per share .......................... $ 0.22 $ 0.15
Weighted average shares outstanding - diluted ....... 1,795,535 1,944,691
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GSB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................................... $ 402 $ 293
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ................................................................ 47 43
Provision for loan losses ................................................... 25 15
Fair value provision of ESOP & ISAP shares committed to be released ......... 81 72
Gain in maturity/redemption of investment securities available for sale ..... -- --
Increase (decrease) other assets ............................................ 54 (182)
Net amortization on investment securities - available for sale ............. (4) 16
Net amortization (accretion) on mortgage - backed
Securities - held to maturity ............................................. (3) (3)
Net amortization (accretion) on mortgage - backed
Securities - available for sale ........................................... 1 6
Increase (decrease) in accrued expenses and other liabilities .............. 711 347
-------- --------
Net cash provided by operating activities ................................... 1,314 607
-------- --------
Cash flows from investing activities:
Proceeds from principal paydowns of mortgage - backed
Securities - held to maturity ............................................ 71 298
Purchase of mortgage-backed securities - held to maturity ................... -- --
Proceeds from principal paydowns of mortgage - backed
Securities - available for sale ........................................... 117 745
Proceeds from maturity and redemption of investment
Securities - available for sale ........................................... 850 500
Proceeds from sale of investment securities - available for sale ............ -- --
Purchase of investment securities - available for sale ...................... (2,090) (11,315)
Net (increase) in loans .................................................... (2,633) (9,148)
Capital expenditures ........................................................ (249) (39)
Proceeds from sale of other real estate owned ............................... -- --
-------- --------
Net cash provided (used) by investing activities ............................ (3,934) (18,959)
-------- --------
Cash flow from financing activities:
Net increase (decrease) in demand, statement passbook, money
Market and NOW deposit accounts ........................................... 1,471 4,108
Proceeds from borrowings .................................................... -- 10,000
Proceeds from purchased federal funds ....................................... 1,150 --
Dividends paid .............................................................. (119) (65)
Purchase of treasury stock .................................................. (448) (195)
Increase (decrease) in advances from borrowers for taxes
And insurance ............................................................. (103) 14
-------- --------
Net cash provided by (used in) financing activities ......................... 1,951 13,862
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ (669) (4,490)
Cash and cash equivalents at beginning of year .............................. 4,152 8,254
-------- --------
Cash and cash equivalents at end of year .................................... $ 3,483 $ 3,764
======== ========
Additional Disclosures:
Supplemental disclosures of cash flows information-cash paid during year for:
Interest on other borrowings ........................................... $ 552 $ 131
Income taxes ........................................................... 134 494
Supplemental schedule of non-cash investing activities:
Change in unrealized gains & losses in investment securities -
Available for sale ........................................................ (58) (296)
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GSB Financial Corporation
Notes to Unaudited Consolidated Interim Financial Statements
1. Basis of Presentation
The consolidated financial statements included herein at or for periods ended
March 31, 2000 and 1999, 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 December 31, 1999. 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, 2000, 49,461 shares have been committed
to be released from the lien of the ESOP loan and under AICPA Statement of
Position 93-6; these shares are considered outstanding for purposes of
calculating per share amounts. 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 not considered outstanding and is 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.
The calculations of basic and diluted earnings per share (EPS) for the periods
indicated, are included in exhibit 11 of this report.
6
<PAGE>
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.
Since the conversion, we have worked to implement our strategy of operating the
Bank as a community-based financial institution offering core financial services
to individuals and businesses in strategic locations within the Hudson Valley,
while exploring appropriate opportunities to leverage the additional capital
obtained in the Conversion. The Company has improved its customer service
delivery capability, enabling it to provide better services to existing
customers and seek to expand its customer base. The Company attracts deposits
from its local communities and invests those deposits principally in one-to-four
family residential mortgage loans, commercial mortgages and other 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 real estate secured 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").
Our profitability depends principally on net interest income, which is the
difference between the income earned on loans and investments and our cost of
funds, principally interest paid on deposits and borrowings. Results of
operations are also affected by our provision for loan losses. Other sources of
income 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-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.
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,
----------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(5) Balance Interest Cost(5)
------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans receivable (1) ...................... $116,389 $ 2,153 7.40% $ 89,168 $ 1,613 7.24%
Mortgage-backed securities ................ 3,465 58 6.66 6,428 107 6.66
Investment securities ..................... 50,427 871 6.91 34,418 537 6.24
Federal funds sold ........................ 1,268 7 2.21 4,943 54 4.37
-------- -------- -------- --------
Total interest-earning assets ......... 171,549 3,089 7.20 134,957 2,311 6.85
-------- --------
Non-interest-earning assets ............... 5,492 6,643
-------- --------
Total assets ......................... $177,041 $141,600
======== ========
Interest-bearing liabilities:
Savings accounts .......................... $ 31,400 234 2.98 $ 29,168 216 2.96
Certificates of deposit ................... 45,664 554 4.85 41,675 493 4.73
Money market .............................. 15,824 174 4.41 13,412 123 3.67
NOW accounts .............................. 6,788 38 2.21 5,731 32 2.23
Other ..................................... 39,157 582 5.95 12,911 166 5.14
-------- -------- -------- --------
Total interest-bearing liabilities .... 138,833 1,582 4.56 102,897 1,030 4.00
-------- --------
Non-interest-bearing liabilities .......... 9,306 7,228
-------- --------
Total liabilities ..................... 148,139 110,125
Equity .................................... 28,902 31,475
-------- --------
Total liabilities and equity ......... $177,041 $141,600
======== ========
Net interest income/spread (2)(3) ......... $ 1,507 2.64% $ 1,281 2.85%
======== ===== ======== =====
Net earning assets/net interest margin (4) $ 32,716 3.51% $ 32,060 3.80%
======== ===== ======== =====
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.24x 1.31x
======== ========
</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 institutions.
(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, 2000 and December 31, 1999
Total assets were $179.1 million at March 31, 2000 as compared to $176.0 million
at December 31, 1999, representing 1.8% growth in assets. The growth was a
result of the Company's efforts to leverage its capital, partially offset by the
use of funds to repurchase stocks. Loans, net increased $2.6 million, or 2.3%,
from $115.3 million to $117.9 million. Residential loans increased by $2.1
million because of origination efforts at a time of slower residential mortgage
loan demand due to rising interest rates. The Company also increased its
commercial mortgage and other business loans by $400,000. Investment securities
available for sale increased by $1.2 million, while mortgage-backed securities
decreased by $180,000, since December 31, 1999. 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 scheduled principal payments. Deposits increased by $1.5 million or 1.4% to
$107.7 million at March 31, 2000 as compared to $106.3 million at December 31,
1999. The increase includes a $1.1 million increase in deposits in the Harriman
branch this past quarter. Core deposits (representing deposits other than
certificates of deposit) increased by $2.2 million to $62.8 million at March 31,
2000, as compared to $60.6 million at December 31, 1999, which is attributed to
the Company's emphasis on attracting core deposit relationships through its
advertising.
Total equity decreased to $29.0 million at March 31, 2000, from $29.1 million at
December 31, 1999. The $113,000 decrease in equity resulted principally from the
repurchase of $448,000 of the Company's stock and a $26,000 adverse change in
the net unrealized value of securities held for sale, partially offset by
retained earnings. The Company repurchased 38,300 shares of its stock from
December 31, 1999 through March 31, 2000. The Company announced on October 21,
1999 a stock repurchase program of 103,492 shares, with 85,300 shares purchased
in that program through March 31, 2000.
Comparison of Operating Results For the Three Months Ended March 31, 2000 and
1999
Interest Income was $3.1 million for the first quarter of fiscal 2000 as
compared to $2.3 million for the same period in 1999, an increase of $778,000 or
33.7%. The increase in the quarterly interest income was primarily volume
related due to a $36.6 million or 27.1%, increase in average earning assets,
augmented by a 35 basis point increase in the average yield on earnings assets.
The volume increase was enhanced by a 16 basis point increase in the average
yield on loans. Our aggressive efforts to increase our loan portfolio resulted
in a $27.2 million increase in the average balance of loans, which was the
principal contributor to our $540,000 increase in interest income on loans.
Increases in average rates earned on loans also had a positive, but much less
significant, effect on interest income. The yields on our loans increased as we
sought to increase levels of higher-yielding commercial loans. In addition, new
residential mortgage loans were originated at higher rates because of higher
market rates, and the yields on adjustable rate loans increased for the same
reason. Interest income on investment securities increased by $334,000 for the
quarter, due to increases in the average balances of $16.0 million for the
period. The Company borrowed funds and invested those funds in investment
securities to leverage its balance sheet. The average yield earned on investment
securities increased by 67 basis points in comparable quarters, caused by higher
market interest rates and because the purchase of callable government agency
bonds which tend to have a higher market interest rate than U.S. Treasury
securities. Interest earned on mortgage-backed securities decreased by $49,000
due to a $3.0 million decrease in the average
9
<PAGE>
balance of mortgage-backed securities resulting from accelerated principal
payments. Interest earned on federal funds sold decreased by $47,000 for the
quarter ended March 31, 2000, compared to the same period in 1999, due to
decreases in the average balances of $3.7 million. The reason for the decrease
in average balances was that liquid assets previous sold in the federal funds
market were invested in loans as loan growth exceeded the growth in deposits.
Interest Expense was $1.6 million for the quarter ended March 31, 2000 as
compared to $1.0 million for the same quarter in 1999. The primary cause of the
increase was the tripling of the average balance of borrowings undertaken to
fund asset growth and improve leverage. Borrowings, which are the Company's
highest cost funding source, increased from an average balance of $12.9 million
in the quarter ended March 31, 1999 to $39.2 million in the 2000 quarter. The
average cost of borrowings also increased by 81 basis points between the
quarters due to an increase in market rates. The $416,000 increase in interest
paid on borrowings represented more than 75% of the total $552,000 increase in
interest paid. Interest paid on deposits increased $136,000 from the 1999 to the
2000 quarter because average interest bearing deposits increased by $9.7
million, and the average rate paid on deposits increased by 17 basis points. The
Company has emphasized lower cost deposit products in order to improve leverage
while reducing upward pressures on its cost of funds. Core deposits to total
deposits increased to 58.3% at March 31, 2000 compared to 57.4% at March 31,
1999.
Provision for Loan Losses was $25,000 for the quarter of March 31, 2000 compared
to $15,000 in the comparable quarter in 1999. The provision for loan losses
increased due to the increase in the loan portfolio. There were no
non-performing loans at March 31, 2000. At March 31, 2000, the allowance for
loan losses was $376,000 representing 0.32% of period end loans. Net charge-offs
during the quarter were zero. The Company had one commercial loan in the amount
of $48,000 in which the borrower was in bankruptcy at March 31, 2000, and one
residential mortgage loan with a principal balance of $19,000, referred for
foreclosure due to nonpayment of real estate taxes, but both loans are current.
The Company considered the status of these loans when evaluating the appropriate
provision for loan losses.
Non-interest income was $82,000 for the quarter ended March 31, 2000 as compared
to $72,000 for the same quarter in 1999. The increase of $10,000 is principally
caused by an increase in ATM fees from non-customers and commission income from
the sale of non-bank investments through Salomon Smith Barney, which started an
investment center in the Bank in January.
Non-interest expense was $898,000 for the quarter ended March 31, 2000, compared
to $861,000 for the comparable quarter in 1999. The increase in non-interest
expenses reflects a $47,000 increase in salaries and benefits, the largest
component of this increase was a $25,000 increase in the expense of restricted
stock award's as the Company used such awards as part of an incentive program
for officers. The additional $22,000 represents increases in salaries and
medical expenses. As a result of the effort to control expenses during a period
of growth, the Company improved its efficiency ratio from 64.3% for the quarter
ended March 31, 1999 to 57.4% for the quarter ended March 31, 2000.
Income tax expense was $264,000 for the first quarter ended March 31, 2000, as
compared to $184,000 for the comparable period for 1999. The increases were
principally caused by increases in income before taxes.
10
<PAGE>
Warwick Implied Offer. On April 20, 2000, the Company received a letter from
Warwick Community Bancorp, Inc. ("WCBI"), which implied a willingness to offer
$18 per share to acquire the Company. WCBI simultaneously filed an amendment of
its Schedule 13D with the Securities and Exchange Commission which included a
copy of the letter. The Board of Directors of the Company is reviewing its
alternatives with its investment bankers and legal counsel. Regardless of the
results of the Board of Directors review, this situation is likely to increase
the Company's expenses for professional fees and similar costs in the immediate
future. In addition, as a result of Warwick's actions, the Company has
determined that it is not permitted to repurchase its own stock at this time.
This has the effect of reducing the Company's ability to use stock repurchases
as a tool to manage its relatively high level of capital.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, borrowings, 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 funds
are available through borrowings. At December 31, 1999, the Bank had available
lines of credit with the Federal Home Loan Bank of New York of $15.8 million,
with $9.8 million outstanding as of March 31, 2000. The Bank also had Federal
Home Loan Bank borrowings of $30 million at March 31, 2000, 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. 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.
Residential mortgage loan commitments and commercial loan commitments totaled
$3.2 million, and $2.9 million at March 31, 2000, respectively, and the Bank had
$1.7 million of unused home equity lines of credit and $2.3 million and $370,000
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, 2000, totaled
$42.2 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.
The Bank is subject to the minimum liquidity regulations of the OTS. At March
31, 2000, 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 for March 31,
2000, the Bank had liquid assets equal to 6.1% 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, 2000.
<TABLE>
<CAPTION>
Actual Minimum Capital For Classification as
Well Capitalized
Bank Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $24,977 14.06% 2,664 1.50% -- --
Tier 1 (Core) Capital 24,977 14.06% 5,328 3.00% $8,880 5.0%
Risk Based Capital:
Tier 1 24,977 28.33% -- -- 5,388 6.0%
Total 25,353 28.23% 7,184 8.00% 8,980 10.0%
</TABLE>
The Bank was classified as "well capitalized" at March 31, 2000 under OTS
regulations.
Forward-Looking Statements
When used in this report on form 10-Q, in future filings by the Company with the
Securities and Exchange Commission, in the Company's 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 the Company's actual results and
experiences to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. Some of the
risks and uncertainties that may affect operations, performance, results of the
Company's business, the interest rate sensitivity of its assets and liabilities,
and the adequacy of its loan loss allowance, 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.
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 the Company's market area could have a significant adverse
effect on those of the Company's 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, the Company cautions readers not to place undue reliance upon
any forward-looking statements. Forward-looking statements speak only as of the
date made and the Company assumes no obligation to update or revise any such
statements upon any change in applicable circumstances.
12
<PAGE>
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 December 31, 1999, as
filed with the Securities and Exchange Commission on March 30, 2000, 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 9 through 11 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
Item 6. Exhibits and Reports on Form 8-K
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.
13
<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 12, 2000 /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
14
Exhibit 11
Computation of Net Income Per Share
(In thousands, except share and earnings per share)
For the Quarter Ended
--------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
Net Income Per Share - Basic
Net income applicable to common stock $ 402,000 $ 293,000
Weighted average common shares 1,792,216 1,926,463
Earnings per common share $ 0.22 $ 0.15
Net Income Per Share - Diluted
Net income applicable to common stock $ 402,000 $ 293,000
Weighted average common shares 1,792,216 1,926,463
Dilutive common stock options 3,319 18,228
---------- ----------
Weighted average common shares - diluted 1,795,535 1,944,691
Earnings per common share $ 0.22 $ 0.15
(1) Dilutive common stock options (includes restricted stock under the
Company's ISAP plan and options under its stock option plan) are based on
the treasury stock method using average market price. The treasury stock
method recognizes the use of assumed proceeds upon the exercise of option,
and the amount of unearned compensation attributed to future services under
the Company's restricted stock plan, including any tax benefits, will be
used to purchase the Company's common stock at the average market price
during the period.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM " THE
CONSOLIDATED FINANCIAL STATEMENTS" AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,383
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,943
<INVESTMENTS-CARRYING> 1,402
<INVESTMENTS-MARKET> 1,376
<LOANS> 117,881
<ALLOWANCE> 376
<TOTAL-ASSETS> 179,132
<DEPOSITS> 107,727
<SHORT-TERM> 33,750
<LIABILITIES-OTHER> 2,659
<LONG-TERM> 6,000
0
0
<COMMON> 21,570
<OTHER-SE> 7,426
<TOTAL-LIABILITIES-AND-EQUITY> 179,132
<INTEREST-LOAN> 2,153
<INTEREST-INVEST> 936
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,089
<INTEREST-DEPOSIT> 1,000
<INTEREST-EXPENSE> 1,582
<INTEREST-INCOME-NET> 1,507
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 898
<INCOME-PRETAX> 666
<INCOME-PRE-EXTRAORDINARY> 666
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 3.51
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 351
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 376
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 376
</TABLE>
