UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
|_| 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 0-23971
GASTON FEDERAL BANCORP, INC.
----------------------------
(Exact name of registrant as specified in its charter)
United States 56-2063438
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
245 West Main Avenue, Gastonia, North Carolina 28052-4140
---------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (704)-868-5200
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check |X| 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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: There were 4,496,334 shares
of the Registrant's common stock outstanding as of May 6, 1999.
<PAGE>
GASTON FEDERAL BANCORP, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................. 2
Consolidated Statements of Financial Condition as of
March 31, 1999 and September 30, 1998...................... 2
Consolidated Statements of Operations for the three and six
months ended March 31, 1999 and 1998......................... 3
Consolidated Statements of Comprehensive Income for the six
months ended March 31, 1999 and 1998......................... 4
Consolidated Statements of Cash Flows for the six months ended
March 31, 1999 and 1998...................................... 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 7
PART II. OTHER INFORMATION.................................................. 11
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Gaston Federal Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition (unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks ....................................................... $ 2,943 $ 2,697
Interest-earning bank balances ................................................ 3,015 11,101
---------- ----------
Cash and cash equivalents ..................................................... 5,958 13,798
Investment securities available-for-sale, at fair value ....................... 26,377 20,919
Investment securities held-to-maturity, at amortized cost ..................... 13,866 15,588
Mortgage-backed securities available-for-sale, at fair value .................. 6,595 8,350
Mortgage-backed securities held-to-maturity, at amortized cost ................ 5,255 6,357
Loans, net .................................................................... 159,076 136,501
Premises and equipment, net ................................................... 2,429 2,247
Accrued interest receivable ................................................... 1,180 1,238
Federal Home Loan Bank stock .................................................. 1,478 1,300
Other assets .................................................................. 2,050 1,705
---------- ----------
Total assets ............................................................... $ 224,264 $ 208,003
========== ==========
Liabilities and Equity
Deposits ...................................................................... $ 152,586 $ 143,901
Advances from borrowers for taxes and insurance ............................... 718 728
Advances from Federal Home Loan Bank .......................................... 27,500 19,500
Other liabilities ............................................................. 2,052 2,304
---------- ----------
Total liabilities .......................................................... 182,856 166,433
Retained earnings, substantially restricted ................................... 22,044 21,430
Common stock and additional paid in capital, net of ESOP loan ................. 17,875 18,602
Unrealized gain on securities available-for-sale, net of tax .................. 1,489 1,538
---------- ----------
Total equity ............................................................... 41,408 41,570
---------- ----------
Total liabilities and equity .................................................. $ 224,264 $ 208,003
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Gaston Federal Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans................................................... $ 2,964 $2,723 $ 5,814 $5,474
Investment securities .................................. 622 542 1,294 904
Mortgage-backed and related securities ................. 184 145 370 309
---------- -------- ---------- -------
Total interest income ................................ 3,770 3,410 7,478 6,687
Interest Expense
Deposits ............................................... 1,556 1,781 3,136 3,467
Borrowed funds ......................................... 355 56 662 107
---------- -------- ---------- -------
Total interest expense ............................... 1,911 1,837 3,798 3,574
---------- -------- ---------- -------
Net interest income .................................... 1,859 1,573 3,680 3,113
Provision for loan losses .............................. 50 75 65 150
---------- -------- ---------- -------
Net interest income after provision for loan losses .. 1,809 1,498 3,615 2,963
Noninterest Income
Service charges on deposit accounts .................... 85 77 160 136
Gain on sale of securities ............................. 0 105 6 185
Gain on sale of loans .................................. 138 0 138 0
Other income ........................................... 152 91 294 114
---------- -------- ---------- -------
Total noninterest income ............................. 375 273 598 435
Noninterest Expense
Compensation and benefits .............................. 685 611 1,361 1,224
Occupancy and equipment expense ........................ 124 119 210 213
Other expenses ......................................... 537 381 978 704
---------- -------- ---------- -------
Total noninterest expense ............................ 1,346 1,111 2,549 2,141
Income before income taxes ............................. 838 660 1,664 1,257
Provision for income taxes ............................. 301 232 601 451
---------- -------- ---------- -------
Net income ............................................. $ 537 $ 428 $ 1,063 $ 806
========== ======== ========== =======
Earnings per share ..................................... $ 0.12 NA $ 0.24 NA
Weighted average outstanding shares .................... 4,448,098 NA 4,465,911 NA
Dividends paid per share ............................... $ 0.05 NA $ 0.10 NA
</TABLE>
3
<PAGE>
Gaston Federal Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
1999 1998
---------- ----------
(in thousands)
<S> <C> <C>
Net income .................................................................... $ 1,063 $ 806
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains/(losses) arising during period .............. (45) 371
Reclassification adjustment for (gains)/losses included in net income . (4) (118)
---------- ----------
Other comprehensive income ................................................ (49) 253
---------- ----------
Comprehensive income .......................................................... $ 1,014 $ 1,059
---------- ----------
</TABLE>
4
<PAGE>
Gaston Federal Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------------
1999 1998
----------- -----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 1,063 $ 806
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ............................................... 65 150
Depreciation ............................................................ 219 158
(Gain) loss on sale of investment securities ............................ (6) (185)
(Gain) loss on sale of other assets ..................................... (138) 0
(Increase) decrease in other assets ..................................... (335) 96
Increase (decrease) in other liabilities ................................ (252) (816)
----------- -----------
Net cash provided by (used for) operating activities .................. 616 209
---------- ----------
Cash flows from investing activities:
Net (increase) in loans receivable .......................................... (22,354) (1,841)
Sale of investment securities ............................................... 2,000 2,128
Maturities and prepayments of investment securities ......................... 4,225 5,200
Maturities and prepayments of mortgage-backed securities .................... 2,332 1,937
Purchases of investments .................................................... (7,994) (8,268)
Purchases of mortgage-backed securities ..................................... (1,485) 0
Net cash flows from other investing activities .............................. (603) (237)
----------- -----------
Net cash provided by (used for) investment activities ................. (23,879) (1,081)
----------- -----------
Cash flows from financing activities:
Dividends to stockholders ................................................... (449) 0
Repurchase of common stock .................................................. (803) 0
Net increase (decrease) in deposits ......................................... 8,685 118,145
Net increase (decrease) in borrowed money ................................... 8,000 0
Increase (decrease) in advances from borrowers for insurance and taxes ...... (10) (594)
----------- -----------
Net cash provided by (used for) financing activities .................. 15,423 117,551
---------- ----------
Net increase (decrease) in cash and cash equivalents .......................... (7,840) 116,679
Cash and cash equivalents at beginning of period .............................. 13,798 4,626
---------- ----------
Cash and cash equivalents at end of period .................................... $ 5,958 $ 121,305
========== ==========
</TABLE>
5
<PAGE>
GASTON FEDERAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
In management's opinion, the financial information, which is unaudited,
reflects all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial information as of and for the
three and six month periods ended March 31, 1999 and 1998, in conformity with
generally accepted accounting principles. The financial statements include the
accounts of Gaston Federal Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Gaston Federal Bank (the "Bank"). Operating results for the three
and six month periods ended March 31, 1999, are not necessarily indicative of
the results that may be expected for future periods.
The organization and business of the Company, accounting policies
followed, and other information are contained in the notes to the consolidated
financial statements of the Company as of and for the years ended September 30,
1998 and 1997, filed as part of the Company's annual report on Form 10-KSB.
These consolidated financial statements should be read in conjunction with the
annual consolidated financial statements.
Note B - Plan of Reorganization and Stock Offering
On April 9, 1998, the Bank converted from a federally chartered mutual
savings and loan association to a federally chartered stock savings bank and
became the wholly-owned subsidiary of Gaston Federal Bancorp, Inc., a Federal
corporation (the "Reorganization"). The Company was incorporated on March 18,
1998, to serve as the Bank's holding company, and prior to April 9, 1998, had no
operations and insignificant assets and liabilities. In addition, the Company
sold 2,113,355 shares of its common stock to the Bank's customers for $10.00 per
share (the "Offering"), and issued 2,383,145 shares of its common stock to
Gaston Federal Holdings, MHC (the "Mutual Holding Company"), a federal mutual
holding company formed as part of the Reorganization. At the conclusion of the
Offering, the Mutual Holding Company owned 53.0% of the Company's outstanding
shares of common stock and purchasers in the Offering owned 47.0%. Gross
proceeds of the Offering totaled $21,133,550, expenses totaled approximately
$853,000, and purchases by the Bank's employee stock ownership plan formed in
connection with the Offering totaled $1,690,680 for net proceeds of
approximately $18,590,000.
Note C - Earnings per Share
Earnings per share has been determined under the provisions of the
Statement of Financial Accounting Standards No. 128, Earnings Per Share. For the
quarter ended March 31, 1999, earnings per share has been computed based upon
the weighted average common shares outstanding of 4,448,098. For the six months
ended March 31, 1999, earnings per share has been computed based on the weighted
average common shares outstanding of 4,465,911. Earnings per share for the
period ended March 31, 1998, is not presented since there was no common stock
issued or outstanding.
At March 31, 1999, the Company has no outstanding potential stock as
defined in the Statement of Financial Accounting Standards No. 128, Earnings Per
Share.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements provided that the Company notes that a variety of
factors could cause the Company's actual results to differ materially from the
anticipated results expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, and results
of the Company's business include, but are not limited to, changes in economic
conditions, changes in interest rates, and changes in laws and regulations.
Accordingly, past results and trends should not be used by investors to
anticipate future results or trends. Statements included in this report should
be read in conjunction with the Company's Annual Report on Form 10-KSB and are
incorporated into this discussion by this reference.
Comparison of Financial Condition
Assets. Total assets of the Company increased by $16.3 million, or 7.8%,
from $208.0 million as of September 30, 1998, to $224.3 million as of March 31,
1999. The primary reason for the increase was a $22.6 million, or 16.6%,
increase in total loans from $136.5 million to $159.1 million. Mortgage loans
increased by $18.2 million, or 15.0%, to $139.3 million, and nonmortgage loans
increased by $4.4 million, or 28.6%, to $19.8 million. These loans were funded
from existing interest-earning bank balances, additional deposit accounts, and
additional advances from the Federal Home Loan Bank of Atlanta. Management plans
to continue to grow the loan portfolio in a safe and sound manner with an
emphasis on short-term, high-yielding nonmortgage loans. Also, leverage
strategies totaling $8.0 million were implemented whereby borrowed funds were
used to purchase or fund investment securities, mortgage-backed securities, and
loans. As a result of the leverage strategies, investment securities increased
by $3.8 million, or 10.4%, to $40.2 million. Mortgage-backed securities
decreased $2.9 million, or 19.6% to $11.9 million due to regular principal
amortization and principal prepayments. Management plan to pursue attractive
leverage strategies, which will increase the Company's total assets.
Liabilities. Total liabilities increased by $16.4 million, or 9.9%, from
$166.4 million as of September 30, 1998, to $182.9 million as of March 31, 1999.
The primary reasons for the change was an $8.7 million, or 6.0%, increase in
total deposits from $143.9 million to $152.6 million and an $8.0 million, or
41.0%, increase in borrowed money from $19.5 million to $27.5 million. The
increase in deposits was primarily the result of the introduction of a new menu
of personal and business demand accounts, which have been marketed aggressively
in order to gain market share in the local community. Management plans to
continue in its efforts to gain deposit market share through new product
development and aggressive marketing. The additional borrowed money was part of
a leverage strategy in which the funds were used to purchase or fund investment
securities, mortgage-backed securities, and loans. The borrowed money is
comprised of various callable and fixed-term Federal Home Loan Bank advances at
fixed interest rates ranging from 4.69% to 5.75%.
Equity. Total equity decreased by $162,000, or 0.4%, from $41.6 million as
of September 30, 1998, to $41.4 million as of March 31, 1999. This decrease was
primarily due to the payment of $449,000 in dividends ($0.10 per share) and the
repurchase of 58,200 shares of common stock for $803,000. The Company has been
authorized to repurchase a total of 105,668 shares of common stock, or 48,468
additional shares. This decrease in equity was partly offset by $1,063,000 in
earnings.
7
<PAGE>
Comparison of Results of Operations for the Three Months Ended March 31, 1999
and 1998
General. Net income for the Company for the three months ended March 31,
1999, amounted to $537,000, as compared to $428,000 for the three months ended
March 31, 1998. This represents an increase of $109,000, or 25.5%.
Net interest income. Net interest income amounted to $1.9 million for the
three months ended March 31, 1999, as compared to $1.6 million for the three
months ended March 31, 1998. This represents an increase of $286,000, or 18.2%.
This increase was due to a $360,000 increase in total interest income that was
offset by a $74,000 increase in interest expense. Interest income improved as a
result of an increase in the amount of interest-earning assets. This increase
was due to the deployment of $18.6 million from the proceeds of the stock
offering and the investment of $24.0 million in additional borrowed money. The
increase in interest expense was primarily due to the $24.0 million increase in
borrowed money. This resulted in a $299,000 increase in interest expense.
Interest expense on deposits decreased by $225,000 due to a reduction in the
average rate of interest paid on deposit accounts during the period.
Provision for loan losses. The provision for loan losses amounted to
$50,000 for the three months ended March 31, 1999, as compared to $75,000 for
the three months ended March 31, 1998. This represents a decrease of $25,000.
The ratio of loan loss reserves to gross loans was 0.92% as of March 31, 1999,
and 0.87% as of March 31, 1998. The provision for loan losses is expected to
increase as the Company grows its loan portfolio.
Noninterest income. Total noninterest income amounted to $375,000 for the
three months ended March 31, 1999, as compared to $273,000 for the three months
ended March 31, 1998. This represents an increase of $102,000, or 37.4%. Gains
on sale of assets amounted to $138,000 in 1999 and $105,000 in 1998. Without
these nonrecurring items, noninterest income would have increased by $69,000, or
41.1%. This increase was primarily due to additional fee income derived from
loan and deposit products and commissions on the sale of financial products
through the Bank's wholly-owned subsidiary.
Noninterest expense. Total noninterest expense amounted to $1.3 million
for the three months ended March 31, 1999, as compared to $1.1 million for the
three months ended March 31, 1998. This represents an increase of $235,000 or
21.1%. This difference was primarily due to an increase in the cost of
professional services as a result of being a public company and additional
expenses associated with implementing new products and services.
Income taxes. Income taxes amounted to $301,000, or 35.9% of taxable
income, for the three month period ended March 31, 1999, as compared to
$232,000, or 35.2% of taxable income, for the three month period ended March 31,
1998. This represents an increase of $69,000, or 29.7%. This difference was
primarily due to a $178,000 increase in net income before taxes for the three
months ended March 31, 1999.
8
<PAGE>
Comparison of Results of Operations for the Six Months Ended March 31, 1999 and
1998
General. Net income for the Company for the six months ended March 31,
1999, amounted to $1,063,000, as compared to $806,000 for the six months ended
March 31, 1998. This represents an increase of $257,000, or 31.9%.
Net interest income. Net interest income amounted to $3.7 million for the
six months ended March 31, 1999, as compared to $3.1 million for the six months
ended March 31, 1998. This represents an increase of $567,000, or 18.2%. This
increase was due to a $791,000 increase in total interest income that was offset
by a $224,000 increase in interest expense. Interest income improved as a result
of an increase in the amount of interest-earning assets. This increase was due
to the deployment of $18.6 million from the proceeds of the stock offering and
the investment of $24.0 million in additional borrowed money. The increase in
interest expense was primarily due to the $24.0 million increase in borrowed
money.
Provision for loan losses. The provision for loan losses amounted to
$65,000 for the six months ended March 31, 1999, as compared to $150,000 for the
six months ended March 31, 1998. This represents a decrease of $85,000. The
ratio of loan loss reserves to gross loans was 0.92% as of March 31, 1999, and
0.87% as of March 31, 1998. The provision for loan losses is expected to
increase as the Company grows its loan portfolio.
Noninterest income. Total noninterest income amounted to $598,000 for the
six months ended March 31, 1999, as compared to $435,000 for the six months
ended March 31, 1998. This represents an increase of $163,000, or 37.5%. Gains
on sale of assets amounted to $144,000 in 1999 and $185,000 in 1998. Without
these nonrecurring items, noninterest income would have increased by $204,000,
or 81.6%. This increase was primarily due to additional fee income derived from
loan and deposit products and commissions on the sale of financial products
through the Bank's wholly-owned subsidiary.
Noninterest expense. Total noninterest expense amounted to $2.5 million
for the six months ended March 31, 1999, as compared to $2.1 million for the six
months ended March 31, 1998. This represents an increase of $408,000 or 19.1%.
This difference was primarily due to an increase in the number of personnel,
increased cost of professional services as a result of being a public company,
and additional expenses associated with implementing new products and services.
Income taxes. Income taxes amounted to $601,000, or 36.1% of taxable
income, for the six month period ended March 31, 1999, as compared to $451,000,
or 35.9% of taxable income, for the six month period ended March 31, 1998. This
represents an increase of $150,000, or 33.3%. This difference was primarily due
to a $407,000, or 32.4%, increase in net income before taxes for the six months
ended March 31, 1999.
9
<PAGE>
Subsequent Events
On April 12, 1999, the Company's shareholders, among other actions,
approved the Gaston Federal Bank 1999 Recognition and Retention Plan.
Subsequently, 84,534 shares of common stock were awarded under the plan to
directors and management. All such awards vested during the quarter ended June
30, 1999, resulting in an aftertax expense of approximately $650,000, or $0.14
per share for the quarter. This expense was offset by sales during the quarter
of certain available for sale securities resulting in an aftertax gain of
approximately $656,000, or $0.15 per share.
Liquidity and Capital Resources
The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The Bank's primary sources of internally generated funds are principal and
interest payments on loans receivable and cash flows generated from operations.
External sources of funds include increases in deposits and advances from the
Federal Home Loan Bank of Atlanta.
The Bank is required under applicable federal regulations to maintain
specified levels of liquid investments in qualifying types of investments having
maturities of five years or less. Current OTS regulations require that a savings
bank maintain liquid assets of not less that 4% of its average daily balance of
net withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet applicable liquidity
requirements. At March 31, 1999, the Bank's liquidity, as measured for
regulatory purposes, was 20.1%, or $25.9 million in excess of the minimum OTS
requirement.
The Bank is subject to various regulatory capital requirements
administered by the banking regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly discretionary actions
by the regulators that, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are subject
to qualitative judgments by the regulators about components, risk-weightings,
and other factors. As of March 31, 1999, Gaston Federal Bank's level of capital
substantially exceeded all applicable regulatory requirements.
The Year 2000
Like all financial institutions, the Bank relies upon computers for
conducting its daily operations. There is concern among industry experts that on
January 1, 2000, computers will be unable to "read" the new year and, as a
consequence, there may be widespread computer malfunctions. Since the Bank
processes all of its loan, deposit, and accounting operations on an internal
data processing system, the Year 2000 issue could have a material adverse effect
on the operations of the Bank if proper modifications and conversions are not
made in a timely manner. As a result, Management has conducted a comprehensive
review of its computer systems to identify systems that could be affected by the
Year 2000, and has developed a Year 2000 Plan to modify or replace the affected
systems and test them for Year 2000 readiness. To date, the Company has taken
the following actions to mitigate the potential effects of the Year 2000 issue:
10
<PAGE>
o The Bank has upgraded its mainframe computer system (including hardware
and software) to be Year 2000 ready. Management has successfully tested
the new computer system to ensure that there are no material Year 2000
problems. These tests are currently in the process of being validated by a
qualified third party;
o The Board of Directors has adopted a Year 2000 Plan that has been
implemented by Management. The Plan addresses the overall status of the
Year 2000 project, details the Bank's contingency plan, describes mission
critical systems and non-mission critical systems, and identifies test
dates. The Company also has a written Year 2000 Business Resumption
Contingency Plan which contains all mission critical systems and services
and details policy, public relations statements, and workaround procedures
for each system.
A general contingency plan has been developed for non-mission critical
systems;
o The Board of Directors has engaged an outside technology consultant to
assist Management in identifying any and all exposures that the Bank may
have and help make all appropriate changes necessary to allow a smooth
transition to the new millennium;
o The Bank's Year 2000 Business Resumption Contingency Plan has been
completed and is in the process of being validated;
o The Company has established a Year 2000 Committee consisting of members of
senior management that currently meets regularly to discuss progress on
the Year 2000 Plan; and
o A Year 2000 budget has been developed which estimates the cost associated
with Year 2000 readiness to be less than $250,000. To date, the Company
has expensed approximately $175,000 on Year 2000 readiness, including
$125,000 for a new mainframe computer system (hardware and software) which
is being depreciated over a three-year period.
While the Bank expects to complete its Year 2000 plan on a timely basis,
there can be no assurance that the systems of the other companies on which the
Bank's systems may rely also will be completed in a timely fashion. The failure
of such outside entities to address the Year 2000 issue adequately could have an
adverse effect on the Bank's ability to conduct its business. Workaround
procedures for these possible scenarios are detailed in the Company's Year 2000
Business Resumption Contingency Plan.
PART II. OTHER INFORMATION
Legal Proceedings
There are various claims and lawsuits in which the Bank is periodically
involved incidental to the Bank's business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.
Changes in Securities
Not applicable.
Defaults Upon Senior Securities
Not applicable.
Submission of Matters to a Vote of Security Holders
There were no meetings of the Company's stockholders during the fiscal
quarter ended March 31, 1999.
11
<PAGE>
Exhibits and Report on Form 8-K.
No Form 8-K reports were filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
GASTON FEDERAL BANCORP, INC.
Date: May 12, 1999 By:
-------------------------------------
Kim S. Price
President and Chief Executive Officer
Date: May 12, 1999 By:
-------------------------------------
Gary F. Hoskins
Treasurer and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,943
<INT-BEARING-DEPOSITS> 3,015
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,377
<INVESTMENTS-CARRYING> 13,866
<INVESTMENTS-MARKET> 13,835
<LOANS> 159,076
<ALLOWANCE> 1,476
<TOTAL-ASSETS> 224,264
<DEPOSITS> 152,586
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 2,770
<LONG-TERM> 17,500
0
0
<COMMON> 17,875
<OTHER-SE> 23,533
<TOTAL-LIABILITIES-AND-EQUITY> 224,264
<INTEREST-LOAN> 5,814
<INTEREST-INVEST> 1,294
<INTEREST-OTHER> 370
<INTEREST-TOTAL> 7,478
<INTEREST-DEPOSIT> 3,136
<INTEREST-EXPENSE> 3,798
<INTEREST-INCOME-NET> 3,680
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 2,549
<INCOME-PRETAX> 1,664
<INCOME-PRE-EXTRAORDINARY> 1,664
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
<YIELD-ACTUAL> 2.5
<LOANS-NON> 245
<LOANS-PAST> 0
<LOANS-TROUBLED> 263
<LOANS-PROBLEM> 1,756
<ALLOWANCE-OPEN> 1,428
<CHARGE-OFFS> 17
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,476
<ALLOWANCE-DOMESTIC> 1,476
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
