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 June 30, 1996
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
SEC File Number: 0-22134
GF BANCORP, INC.
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(Exact name of small business issuer as specified in its Charter)
Delaware 31 - 1383555
---------------------------- ----------------------
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
One North Plum Street, Germantown, Ohio 45327
________________________________________________________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (513) 855-4125
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Common Stock, par value $0.01 per share
(Title of Class)
Check whether the issuer (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 issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes _X_ No ___
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
292,958 common shares, par value $.01, outstanding at August 9, 1996
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Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
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GF BANCORP, INC. AND SUBSIDIARY
FORM 10-QSB
============================================================================
INDEX
Part I Financial Information Page
------
Item 1 Consolidated Statements of Financial Condition .......... 3
Consolidated Statements of Operations ................... 4
Consolidated Statements of Changes in Stockholders'
Equity ............................................... 5
Consolidated Statements of Cash Flows ................... 6
Notes to Unaudited Consolidated Condensed Financial
Statements ........................................... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 10
Part II Other Information
Item 1 Legal Proceedings ........................................ 17
Item 2 Changes in Securities .................................... 17
Item 3 Defaults upon Senior Securities .......................... 17
Item 4 Submission of Matters to a Vote of Security-Holders ...... 17
Item 5 Other Information ........................................ 17
Item 6 Exhibits and Reports on Form 8-K ......................... 17
Signature Page .................................................... 17
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GF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
==========================================================================
ASSETS
June 30, March 31,
1996 1996
------------ ------------
Cash and due from banks ........................ $ 458,725 $ 506,220
Interest-bearing deposits ...................... 2,472,214 2,724,202
Investment securities:
Available-for-sale .......................... 3,993,055 4,492,895
Mortgage-backed securities:
Available-for-sale .......................... 9,919,515 10,264,500
Loans receivable ............................... 30,164,197 29,508,296
Less-Allowance for loan losses ................. 97,329 97,635
------------ ------------
Net loans ................................ 30,066,868 29,410,661
Premises and equipment, net .................... 817,284 830,075
Accrued interest receivable .................... 256,352 271,135
Federal Home Loan Bank stock, at cost .......... 388,400 381,800
Other assets ................................... 88,732 100,685
------------ ------------
Total Assets .......................... $ 48,461,145 $ 48,982,173
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ....................................... $ 40,597,589 $ 41,089,834
Federal Home Loan Bank advances ................ 1,000,000 1,000,000
Advances from borrowers for taxes and insurance. 159,267 86,430
Net federal income tax liability ............... 282,976 376,680
Accrued interest payable ....................... 9,411 10,129
Other liabilities .............................. 59,759 103,402
------------ ------------
Total Liabilities ..................... 42,109,002 42,666,475
Preferred stock, $.01 par value; authorized
250,000 shares; none issued ................. -- --
Common stock, $.01 par value; authorized
1,250,000 shares; issued 308,376 shares ..... 3,084 3,084
Additional paid-in capital ..................... 2,792,445 2,792,445
Retained earnings - substantially restricted ... 3,872,931 3,801,077
Treasury stock, 15,418 shares at cost .......... (213,543) (213,543)
Net unrealized gain/(loss) on
available-for-sale securities ............... (47,267) (5,690)
Unamortized compensation related to
Management Stock Bonus Plan ................. (55,507) (61,675)
------------ ------------
Total Stockholders' Equity ............ 6,352,143 6,315,698
------------ ------------
Total Liabilities and Stockholders' $ 48,461,145 $ 48,982,173
Equity .............................. ============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
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GF BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
======================================================================
Three months ended
June 30
-------------------------
1996 1995
----------- -----------
INTEREST INCOME:
Interest and fees on loans .................... $603,912 $501,466
Interest on mortgage-backed securities ........ 177,407 205,272
Interest on investment securities ............. 53,241 86,859
Interest and dividends on other
earning assets ............................. 42,920 48,050
-------- --------
Total interest income ................... 877,480 841,647
INTEREST EXPENSE:
Interest expense on deposits .................. 425,903 436,044
Interest expense on FHLB advances ............. 14,421 --
-------- --------
Total interest expense .................. 440,324 436,044
Net interest income .................... 437,156 405,603
PROVISION FOR LOAN LOSSES ........................ -- --
-------- --------
Net interest income after
provision for loan losses ............ 437,156 405,603
-------- --------
OTHER INCOME:
Service charges and fees ...................... 30,065 31,169
-------- --------
Total other income ...................... 30,065 31,169
-------- --------
OTHER EXPENSES:
Salaries and employee benefits ................ 164,385 159,436
Occupancy expense ............................. 35,977 32,144
Outside services .............................. 44,545 32,555
Deposit insurance ............................. 23,793 23,868
State franchise taxes ......................... 21,064 22,510
Other ......................................... 37,380 43,577
-------- --------
Total other expenses .................... 327,144 314,090
-------- --------
Income before income taxes .................... 140,077 122,682
INCOME TAX PROVISION ............................. 47,715 39,250
-------- --------
Net income .................................... $ 92,362 $ 83,432
======== ========
Earnings per share ............................ $ 0.32 $ 0.27
======== ========
Dividend per share ............................ $ 0.07 --
======== ========
Weighted average shares outstanding ........... 292,958 308,376
======== ========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
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<TABLE>
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GF BANCORP, INC. AND SUBSIDIARY
================================================================================
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
====================================================================================================================================
Net Unrealized
Gain/(Loss) on Common
Additional Available-for Stock Total
Common Paid-In Retained Treasury Sale Acquired Stockholders'
THREE MONTHS ENDED JUNE 30, 1995 Stock Capital Earnings Stock Securities by MSBP Equity
--------- ----------- ----------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995 .............. $ 3,084 $ 2,792,445 $ 3,514,181 $ -- $ -- $(86,345) $ 6,223,365
Amortization of unamortized
compensation related to
Management Stock Bonus Plan ........ -- -- -- -- -- 6,167 6,167
Cash dividends declared
on common shares ..................... -- -- (21,586) -- -- -- (21,586)
Net income ........................... -- -- 83,432 -- -- -- 83,432
-------- ----------- ----------- --------- -------- -------- -----------
Balance, June 30, 1995 ............... $ 3,084 $ 2,792,445 $ 3,576,027 -- -- $(80,178) $ 6,291,378
======== =========== =========== ========= ======== ======== ===========
THREE MONTHS ENDED JUNE 30, 1996
Balance, March 31, 1996 .............. $ 3,084 $ 2,792,445 $ 3,801,077 $(213,543) (5,690) $(61,675) $ 6,315,698
Amortization of unamortized
compensation related to
Management Stock Bonus Plan ....... -- -- -- -- -- 6,168 6,168
Cash dividends declared on
common stock ...................... -- -- (20,508) -- -- -- (20,508)
Change in net unrealized
gain/(loss) on available-
for-sale securities ............... -- -- -- -- (41,577) -- (41,577)
Net income ........................... -- -- 92,362 -- -- -- 92,362
-------- ----------- ----------- --------- -------- -------- -----------
Balance, June 30, 1996 ............... $ 3,084 $ 2,792,445 $ 3,872,931 $(213,543) $(47,267) $(55,507) $ 6,352,143
======== =========== =========== ========= ======== ======== ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
</TABLE>
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================================================================================
GF BANCORP, INC. AND SUBSIDIARY
================================================================================
Consolidated Statements of Cash Flows
(Unaudited)
================================================================================
Three Months Ended
June 30,
-----------------------
1996 1995
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 92,362 $ 83,432
Adjustments to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization .............. 20,502 19,818
Net accretion of securities
premiums/discounts ...................... (874) (680)
FHLB stock dividends ....................... (6,600) (5,800)
Amortization of unamortized compensation
related to MSBP ......................... 6,168 6,167
Loss on sale of premises and equipment ..... 229 --
Decrease (increase) in-
Accrued interest receivable ............. 14,783 6,117
Other assets ............................ 11,953 667
Increase (decrease) in-
Net federal income tax liability ........ (72,284) 23,750
Accrued interest payable ................ (718) (1,074)
Other liabilities ....................... (43,643) (4,225)
----------- -----------
Net cash flows from operating activities. 21,878 128,172
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans ......................... (656,207) (2,126,608)
Principal repayments on available-for-sale
mortgage-backed securities ................. 282,703 --
Principal repayments on held-to-maturity
mortgage-backed securities ................. -- 337,476
Maturities of available-for-sale investment
securities .............................. 500,000 --
Maturities of held-to-maturity investment
securities .............................. -- 500,000
Proceeds from sale of premises and equipment .. 4,172 --
Purchases of premises and equipment ........... (12,113) (19,892)
----------- -----------
Net cash flows from investing activities. 118,555 (1,309,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ........... (492,245) 506,682
Net increase in advances from borrowers
for taxes and insurance ..................... 72,837 65,667
Dividends paid ................................ (20,508) (21,586)
----------- -----------
Net cash flows from financing activities. (439,916) 550,763
----------- ----------
Net cash flows .......................... (299,483) (630,089)
CASH AND CASH EQUIVALENTS, beginning of year ..... 3,230,422 3,193,712
----------- -----------
CASH AND CASH EQUIVALENTS at June 30 ............. $ 2,930,939 $ 2,563,623
=========== ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
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GF BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
==========================================================================
(1) Basis of Presentation
These unaudited consolidated condensed financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission and, therefore, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. It is suggested that these financial statements be read in
conjunction with the audited annual financial statements and notes
thereto for the year ended March 31, 1996.
These unaudited consolidated condensed financial statements reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the periods reported. All such
adjustments are of a normal recurring nature. The results of operations
for the three months ended June 30, 1996, are not necessarily indicative
of the operating results for the full fiscal year or any other period.
(2) Principles of Consolidation
The accompanying unaudited consolidated condensed financial statements
include the accounts of the Bancorp, the Savings Bank, and its wholly
owned subsidiary, GFS Financial Services, Inc. All material intercompany
balances and income and expenses have been eliminated in the
consolidated statements.
(3) Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding for each period presented.
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(4) Investment Securities and Mortgage-backed Securities
The amortized cost and estimated market values of investments in debt
securities, all of which are classified as available-for-sale, by
contractual maturity at June 30, 1996 and March 31, 1996 are as follows:
---------------------------------------------------
Unrealized
Amortized ---------------------- Market
June 30, 1996 Cost Gains (Losses) Value
------------ --------- ---------- -----------
U.S. Treasury
Obligations:
Within one year .......... $ 2,500,947 $ 2,051 $ (4,943) $ 2,489,055
One through five
years .................. 1,498,002 2,345 (5,347) 1,495,000
----------- -------- --------- -----------
Total ............ $ 3,998,949 $ 4,396 $ (10,290) $ 3,993,055
=========== ======== ========= ===========
Mortgage-backed
Securities:
One through five
years .................. $ 640,382 $ 2,987 $ (3,906) $ 639,463
Greater than five
years .................. 9,344,856 128,302 (193,106) 9,280,052
----------- -------- --------- -----------
Total ............ $ 9,985,238 $131,289 $(197,012) $ 9,919,515
=========== ======== ========= ===========
---------------------------------------------------
Unrealized
Amortized ---------------------- Market
March 31, 1996 Cost Gains (Losses) Value
------------ --------- ---------- -----------
U.S. Treasury
Obligations:
Within one year .......... $ 2,499,936 $ -- $ (10,241) $ 2,489,695
One through five
years ................. 1,999,180 7,865 (3,845) 2,003,200
----------- -------- --------- -----------
Total ............ $ 4,499,116 $ 7,865 $ (14,086) $ 4,492,895
=========== ======== ========= ===========
Mortgage-backed
Securities
One through five
years .................. $ 581,334 $ 2,946 $ -- $ 584,280
Greater than five
years .................. 9,685,567 146,564 (151,911) 9,680,220
----------- -------- --------- -----------
Total ............ $10,266,901 $149,510 $(151,911) $10,264,500
=========== ======== ========= ===========
As of June 30, 1996, the Savings Bank held investment securities and
mortgaged-backed securities with unrealized losses of $71,617, with an
offsetting decrease in stockholders' equity of $47,267 (net of tax).
The Savings Bank had no sales of investment securities and
mortgage-backed securities during the quarter ended June 30, 1996 or
1995.
As of June 30, 1996 and 1995, the Savings Bank had no pledged
securities.
(5) Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. Interest on loans is calculated by using the
interest yield method on daily balances of the principal amounts
outstanding. Accrual of interest is discontinued on a loan when
management believes that collection of interest is doubtful. Non-accrual
loans amounted to approximately $184,355 and $107,597 at June 30, 1996
and March 31, 1996, respectively.
The allowance for loan losses is available for charge-off of loan
losses. The provision for loan losses is based on management's evaluation
of several key factors: the current loan portfolio, current economic
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conditions, changes in the mix and levels of the various types of loans,
past charge-off experience and other pertinent information. The allowance
for loan losses is based on estimates, and ultimate losses may vary from
current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the
periods in which they become known. Charge-offs are made against the
allowance for loan losses when management concludes that loan amounts are
likely to be uncollectible.
(6) Impairment of Long-Lived Assets
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which
addresses accounting for impairment of long-lived assets, including
certain identifiable intangibles and the goodwill related to those
assets. SFAS No. 121 requires that assets to be held and used be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The adoption of
SFAS No. 121 in fiscal 1997 did not have a material impact on the Savings
Bank's financial statements.
(7) Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("SFAS No. 125"), "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities," which
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is
to be applied prospectively.
SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
"financial-components approach" that focuses on control. Under that
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS No. 125
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings.
The Savings Bank is required to adopt this new method of accounting
in fiscal 1997, affecting transactions involving transfers and servicing
of financial assets and extinguishments of liabilities occurring after
December 31, 1996. Management anticipates that the adoption of SFAS No.
125 will not have a material impact on the Savings Bank's financial
statements.
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GF BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
==========================================================================
FORWARD-LOOKING STATEMENTS
There are statements made in the course of this Management's Discussion
and Analysis of Financial Condition and Results of Operations that state the
Bancorp's or management's beliefs, intentions, expectations or predictions of
the future and are considered to be forward-looking statements. It is
important to note that because the Bancorp uses estimates and assumptions in
making such forward-looking statements, actual results could differ materially
from those projected.
Material differences between projected and actual results could be caused
by many factors. The Savings Bank's principal source of earnings is net
interest income which is generated primarily from interest revenue from
mortgage loans, consumer loans and investments, which, in turn, are funded by
deposits and borrowings. Changes in levels of current market interest rates,
local area competition, general and local economic conditions, technology and
volatility of loan demand all affect the Savings Bank's ability to generate
and collect loans as well as its ability to attract deposits.
GENERAL
The Bancorp recorded net income of $92,362 for the quarter ended June 30,
1996, compared to $83,432 for the quarter ended June 30, 1995. Earnings per
share were $0.32 and $0.27, respectively. The improvement in net income was
primarily from an increase in net interest income, as the Savings Bank
continued to use lower yielding short-term investments to fund higher yielding
mortgage and consumer loans. Although loan originations decreased to $2.1
million during the quarter ended June 30, 1996, compared to $2.8 million
during the quarter ended June 30, 1995, the loan portfolio balance increased
approximately $656,000. An increase in market interest rates during the
quarter ended June 30, 1996, contributed to the decrease in loan demand.
The Savings Bank introduced a no fee basic checking account and a debit
card program during the quarter ended June 30, 1996. The two programs are
being offered by the Savings Bank in an effort to increase its share of the
transaction account market. Transaction accounts (NOW accounts and checking
accounts) comprise only 8.7% of the Savings Bank's total deposits at June 30,
1996. The Savings Bank is also in the process of installing its second
Automatic Teller Machine ("ATM"), this one to be located at the branch office
in New Lebanon, Ohio. Management hopes that the new ATM, which is to be
installed in the second quarter of fiscal 1997, will improve the Savings
Bank's market share of transaction accounts.
Management considers transaction accounts to be an excellent source of
core deposits. The intent of management's efforts to increase the Savings
Bank's transaction account base is twofold. First, increased transaction
account balances provide a source of low cost deposits which can be used to
fund mortgage and consumer loan originations, and second, an increase in the
number of customers provides a larger base for the Savings Bank to market its
loan products. Transaction accounts are also a potential source of fee income
for the Savings Bank.
The Bancorp paid a cash dividend in the amount of $20,507 ($0.07 per
share) on May 23, 1996, to shareholders of record as of May 6, 1996.
The deposit accounts of the Savings Bank and other savings associations
are insured by the FDIC in the Savings Association Insurance Fund ("SAIF").
Because a significant portion of the assessments paid into the fund by savings
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associations are used to pay the cost of prior thrift failures, the reserves
of the SAIF are below the level required by law. The deposit accounts of
commercial banks are insured by the FDIC in the Bank Insurance Fund ("BIF"),
except to the extent such banks have acquired SAIF deposits. The reserves of
the BIF met the level required by law in May 1995. As a result of the
respective reserve levels of the funds, deposit insurance assessments paid by
healthy savings associations exceeded those paid by healthy commercial banks
by approximately $.19 per $100 in deposits for 1995, and in 1996 no BIF
assessments are required for healthy commercial banks except for a $2,000
minimum fee. This premium disparity could have a negative competitive impact
on the Savings Bank and other savings associations.
Congress is considering legislation to recapitalize the SAIF and eliminate the
significant premium disparity. Currently, it is expected that such
recapitalization plan would include a special assessment of approximately $.69
to $.71 per $100 of SAIF deposits held at March 31, 1995, in order to increase
SAIF reserves to the level required by law. In addition, the cost of prior
thrift failures would be shared by both the SAIF and the BIF, which would
likely increase BIF assessments by $.02 to $.025 per $100 in deposits. SAIF
assessments would initially be set at a significantly lower level but could
never be reduced below that level. These projected assessment levels may
change if commercial banks holding SAIF deposits are provided some relief from
the special assessment or are allowed to transfer their SAIF deposits to the
BIF. The recapitalization plan provides for the merger of the SAIF and the BIF
on January 1, 1998. The SAIF recapitalization legislation currently provides
for an elimination of the thrift charter or separate thrift regulation under
federal law prior to the merger of the deposit insurance funds. As a result,
the Savings Bank would be regulated as a bank under federal law, which would
subject it to the more restrictive activity limits imposed on national banks.
If the Savings Bank is required to convert to a bank charter or under separate
tax legislation passed by Congress but not yet enacted into law, the Savings
Bank may be required to recapture approximately $152,195 of its bad debt
reserve and would be unable to utilize the percentage of taxable income method
to compute its reserve in the future. For tax purposes, the Savings Bank will
be permitted to amortize the recapture of its bad debt reserve over six years.
If the Savings Bank becomes a bank, the Bancorp would become a bank holding
company, which would become subject to more restrictive activity limits and
capital requirements similar to those imposed on the Savings Bank.
The Savings Bank had $41,332,000 in deposits at March 31, 1995. If a special
assessment of $.69 to $.71 per $100 in deposits as of March 31, 1995, is
imposed, the Savings Bank will pay an additional assessment of $285,191 to
$293,457. This assessment is expected to be tax-deductible, but it will reduce
earnings and capital for the quarter in which it is recorded. It is expected
that, subsequent to a special assessment, the quarterly SAIF assessments will
be reduced to approximately $.06 to $.065 per $100 in deposits.
No assurances can be given that either the SAIF recapitalization plan or the
proposed tax legislation will be enacted into law or in what form they may be
enacted. In addition, the Savings Bank can give no assurances that the
disparity between BIF and SAIF assessments will be eliminated and cannot be
certain of the impact of its being regulated as or converted to a bank until
the legislation requiring such change is enacted.
Management is not aware of any current recommendations by the regulatory
authorities which if they were to be implemented, will have, or that are
reasonably likely to have, a material effect on the liquidity, capital
resources or operations of the Bancorp.
RESULTS OF OPERATIONS
Net Income. Net income for the three months ended June 30, 1996 and 1995 was
$92,362 and $83,432, respectively, a $8,930, or 10.7%, increase. The increase
in net income for the quarter ended June 30,1996, compared to the same period
in 1995, was from an increase in interest income, while interest expense
remained relatively unchanged. The Bancorp's annualized return on average
assets was 0.76% and 0.71% for the three months ended June 30, 1996 and 1995,
respectively. The annualized return on average equity was 5.74% and 5.28%,
respectively, for the same periods.
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The calculation of earnings per share is based on net income of $92,362 and
$83,432 for the three-month periods ended June 30, 1996 and 1995,
respectively. Based on weighted average shares outstanding of 292,958 and
308,376 for the same periods, the earnings per share were $0.32 and $0.27,
respectively.
Net Interest Income. Net interest income, the difference between total
interest income and total interest expense, is the Bancorp's principal source
of earnings. The amount of net interest income is determined by the volume of
interest-earning assets and the rates earned on those interest-earning assets,
compared to the volume of interest-bearing liabilities and the rates paid on
those interest-bearing liabilities. The Bancorp's net interest income is
affected by a variety of regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows.
Net interest income increased $31,553, or 7.8%, in the quarter ended June 30,
1996, compared to the same quarter in 1995. The Savings Bank experienced a
decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities to 113.1% at June 30, 1996, from 113.5% at June
30, 1995. The decrease of 0.4% was primarily due to the increase in average
interest-bearing deposit balances outpacing the increase in interest-earning
assets between June 30, 1996 and June 30, 1995. The interest rate spread
increased to 3.23% at June 30, 1996, from 3.03% at June 30, 1995. The 20 basis
point increase in interest rate spread was the result of the yield on the
Savings Bank's average interest-earning assets improving to 7.47% at June 30,
1996, from 7.37% at June 30, 1995, while the cost of average interest-bearing
liabilities decreased to 4.24% from 4.34% for the same periods. The improved
yield on interest-earning assets is primarily the result of reinvesting
low-yield short-term funds in higher yielding mortgage and consumer loans and
mortgage-backed securities during the past year. The increase in the interest
rate spread combined with the slight decrease in volume of interest-earning
assets to interest-bearing liabilities resulted in an increase in net interest
income of $31,553 for the three-month period ended June 30, 1996, compared to
the same period in 1995.
Provision for Loan Losses. There was no provision for loan losses for the
three months ended June 30, 1996 and 1995. The Savings Bank continues to
experience a low rate of loan charge-offs. There were charge-offs of $2,175
for the quarter ended June 30, 1996 and none for the quarter ended June 30,
1995. The Savings Bank is continuing to record recoveries of loans charged-off
in prior periods.
Other Income. Non-interest income decreased by $1,104, or 3.5%, for the three
months ended June 30, 1996, compared to the same period in 1995. Non-interest
income is comprised primarily of service charges and fees collected by the
Savings Bank.
Other Expense. Non-interest expense increased by $13,054, or 4.2%, for the
three months ended June 30, 1996, compared to the same period in 1995. The
increase is primarily from an increase in costs from outside services between
years. During the quarter ended June 30, 1996, the Savings Bank incurred
consulting fees associated with the preparation of a three-year business plan
for the Savings Bank, and an evaluation of the Bancorp's common stock in
conjunction with plans to repurchase 5% of the outstanding shares. The Savings
Bank also incurred start-up costs and network fees associated with its ATM and
debit card programs discussed previously.
Income Tax Provision. The income tax provision increased by $8,465 for the
quarter ended June 30, 1996, compared to the same period in 1995. The changes
in the provision for income taxes is primarily attributable to the increase in
net income before taxes for the quarter ended June 30, 1996, compared to the
quarter ended June 30, 1995.
-12-
<PAGE>
FINANCIAL CONDITION
Total assets decreased $521,028 to $48,461,145 at June 30, 1996, from
$48,982,173 at March 31, 1996. The 1.1% decrease was primarily attributable to
a decrease in funds from deposit withdrawals.
Investment Securities. Investment securities, which are comprised entirely of
U.S. Treasury obligations, decreased from $4,492,895 at March 31, 1996, to
$3,993,055 at June 30, 1996, a decrease of 11.1%. The investment securities in
the portfolio have varying maturities of five years or less. During the first
three months of fiscal 1997, the investment securities portfolio experienced
$500,000 in maturities with a weighted-average yield of 4.3%. The Savings Bank
did not purchase or sell any investment securities during the three months
ended June 30, 1996.
Mortgage-backed Securities. The mortgage-backed securities portfolio decreased
$344,985 to $9,919,515 at June 30, 1996, from $10,264,500 at March 31, 1996.
The decrease was a result of prepayments and repayments of principal on
existing securities. The Savings Bank did not purchase or sell any
mortgage-backed securities during the first three months of fiscal 1997.
Loans Receivable. Net loans receivable increased $656,207 from $29,410,661 at
March 31, 1996, to $30,066,868 at June 30, 1996. The 2.2% increase was the
result of new loan originations. Although the Savings Bank experienced an
increase in loan balances during the quarter ended June 30, 1996, loan
originations decreased compared to the same quarter in 1995. Management
believes the decrease in originations between years is the result of an
increase in market interest rates. The Savings Bank originated $2.1 million in
loans during the three months ended June 30, 1996. Of the loans originated,
66.7% were mortgage loans secured by single-family residential real estate and
the remaining 33.3% were consumer loans. All loans originated were retained
for the Savings Bank's portfolio.
Allowance for Loan Losses. The allowance for loan losses was $97,329 at June
30, 1996, and $97,635 at March 31, 1996, which represents 0.32% and 0.33%
respectively, of net loans. The allowance as a percentage of nonperforming
loans was 52.8% at June 30, 1996, compared to 90.7% at March 31, 1996.
The following table provides a summary of activity in the allowance for loan
losses account by type of loan.
Allowance for Loan Losses Three months ended
June 30,
-----------------------
1996 1995
-------- --------
Balance - beginning of period ........... $ 97,635 $ 94,682
Charge-offs:
Consumer ............................. 2,175 --
----------- ------------
Recoveries:
Consumer ............................. 1,869 1,310
----------- ------------
Net charge-offs .................. 306 (1,310)
----------- ------------
Provision credited to operations ........ -- --
----------- ------------
Balance - end of period ................. $ 97,329 $ 95,992
=========== ============
Average net loans .......................... $29,479,424 $ 23,306,193
=========== ============
Ratio of net charge-offs to
average net loans outstanding
during the period ........................ 0.01% (0.01)%
=========== ============
-13-
<PAGE>
Nonperforming assets consisted entirely of nonperforming loans at June 30,
1996 and March 31, 1996. Nonperforming loans increased from $107,597 at March
31, 1996, to $184,355 at June 30, 1996. There were no loans past-due 90 days
or more and still accruing interest at June 30, 1996, or March 31, 1996.
Nonperforming loans are comprised primarily of delinquent residential mortgage
loans, an area of minimal loan loss experience for the Savings Bank. A
significant portion of the allowance has been established to cover losses from
consumer loans. Consumer loan balances increased approximately $147,700, or
6.3%, during the first three months of fiscal 1997, while nonperforming
consumer loans were $5,275 at June 30, 1996 and March 31, 1996. Management is
aware that consumer loans tend to carry a higher level of credit risk than
residential mortgage loans. However, the increase in consumer loans was
primarily from second mortgages and equity lines of credit secured by real
estate.
The following table sets forth information regarding loans which are 90 days
or more delinquent at the dates indicated.
June 30, March 31,
1996 1996
---------- -----------
(in thousands)
Loans accounted for on a
non-accrual basis:
Residential mortgage loans .......................... $ 179 $103
Consumer loans ...................................... 5 5
----- ----
Total ............................................... $ 184 $108
===== ====
Accruing loans which are contractually
past due 90 days or more:
Residential mortgage loans .......................... $-- $--
===== ====
Total nonperforming loans ........................... $ 184 $108
===== ====
Ratio of nonperforming loans
to net loans ..................................... 0.61% 0.37%
===== ====
Ratio of nonperforming loans
to total assets .................................. 0.38% 0.22%
===== ====
Loans are reviewed on a regular basis and are generally placed on non-accrual
status when the loan becomes 90 days delinquent and, in the opinion of
management, the collection of additional interest is doubtful. Interest
accrued and unpaid at the time a loan is placed on non-accrual status is
charged against income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan.
The Savings Bank currently maintains an allowance for loan losses based upon
management's periodic evaluation of known and inherent risks in the loan
portfolio, the Savings Bank's past loan loss experience, adverse situations
that may affect borrowers' ability to repay loans, estimated value of
underlying collateral and current market conditions. Because nonperforming
loans consist primarily of residential mortgage loans and because of the
adequacy of the estimated value of their underlying collateral, management
believes the Savings Bank's risk of loan loss has not increased and that the
allowance is adequate at June 30, 1996. Although the Savings Bank maintains
its allowance for loan losses at a level which it considers to be adequate to
provide for potential loss, there can be no assurance that such losses will
not exceed estimated amounts.
Deposits. Total deposits decreased $492,245 to $40,597,589 at June 30, 1996,
compared to $41,089,834 at March 31, 1996. The 1.2% decrease was primarily due
to disintermediation of deposit balances as a result of increases in market
interest rates during the quarter ended June 30, 1996, and a non-aggressive
pricing strategy by the Savings Bank.
-14-
<PAGE>
LIQUIDITY
The Savings Bank is required to maintain minimum levels of liquid assets as
defined by the regulations of the Office of Thrift Supervision (OTS). This
requirement, which may be varied from time to time depending upon economic
conditions and deposit flows, is based upon a percentage of deposits and
short-term borrowings. The required ratio is currently 5%. The Savings Bank
has historically maintained a level of liquid assets in excess of regulatory
requirements. The Savings Bank's liquidity ratio was 17.3% at June 30, 1996,
compared to 17.9% at March 31, 1996. The Savings Bank adjusts liquidity as
appropriate to meet its asset/liability objectives.
The Savings Bank's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities and funds provided
from operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Savings Bank invests excess funds in overnight deposits that provide liquidity
to meet lending requirements.
The Savings Bank has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include Federal Home Loan Bank ("FHLB") of
Cincinnati advances and the ability to borrow against mortgage-backed and
other securities. At June 30, 1996, the Savings Bank had advances of
$1,000,000 outstanding from FHLB of Cincinnati. The advance was used to help
fund mortgage loan originations. At maturity, the advance will either be
repaid or renewed depending on the Savings Bank's cash demands at that time.
CAPITAL RESOURCES
The Bancorp's retained earnings increased by $71,854 from $3,801,077 at March
31, 1996, to $3,872,931 at June 30, 1996. The total stockholders' equity
increased by $36,445 to $6,352,143 at June 30, 1996, from $6,315,698 at March
31, 1996.
OTS capital regulations require savings institutions to meet three capital
standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) a
leverage ratio (core capital) equal to 3.0% of total adjusted assets and (3) a
risk-based capital requirement equal to 8.0% of total risk-weighted assets.
Under these capital requirements at June 30, 1995, the Savings Bank had:
Tangible Capital Core Capital Risk-based Capital
-------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent
---------- -------- --------- ------- ---------- -------
Actual $5,259,000 10.85% $5,259,000 10.85% $5,356,000 26.99%
Required 728,000 1.50% 1,455,000 3.00% 1,588,000 8.00%
---------- ------- ---------- ------ ---------- -------
Excess $4,531,000 9.35% $3,804,000 7.85% $3,768,000 18.99%
========== ======= ========== ====== ========== ======
The Savings Bank's tangible capital consists solely of stockholders' equity.
Core capital consists of tangible capital plus certain intangible assets, of
which the Savings Bank has none. Risk-based capital consists of core capital
plus general loan loss allowances.
-15-
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121"), "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," which addresses accounting for
impairment of long-lived assets, including certain identifiable intangibles
and the goodwill related to those assets. SFAS No. 121 requires that assets to
be held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS No. 121 in fiscal 1997 did not have a
material impact on the Savings Bank's financial statements.
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125 ("SFAS No. 125"), "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities," which is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a "financial-components
approach" that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. SFAS No. 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings.
The Savings Bank is required to adopt this new method of accounting in fiscal
1997, affecting transactions involving transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
Management anticipates that the adoption of SFAS No. 125 will not have a
material impact on the Savings Bank's financial statements based on current
practices.
SFAS No. 125 could have an impact on future financial statements if the
Savings Bank started selling or purchasing loans and/or servings rights. The
Savings Bank currently does not have any plans to purchase or sell loans or
servings rights in the immediate future.
-16-
<PAGE>
GF BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
==========================================================================
Item 1 Legal Proceedings
Not applicable
Item 2 Changes in Securities
Not applicable
Item 3 Defaults upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security-Holders
Not applicable
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits filed:
None
(b) There were no reports on Form 8-K filed by the Company during
the quarter ended June 30, 1996.
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.
GF BANCORP, INC.
August 13, 1996
- -------------------------
Date JOHN T. BAKER
CHAIRMAN, PRESIDENT, and
CHIEF EXECUTIVE OFFICER
August 13, 1996
- -------------------------
Date THOMAS L. FOX
VICE PRESIDENT and CHIEF
FINANCIAL OFFICER
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Statements of Financial Conditions and the Consolidated
Statements of Operations, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 458,725
<INT-BEARING-DEPOSITS> 2,472,214
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,912,570
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 30,164,197
<ALLOWANCE> 97,329
<TOTAL-ASSETS> 48,461,145
<DEPOSITS> 40,597,589
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 511,413
<LONG-TERM> 0
0
0
<COMMON> 3,084
<OTHER-SE> 6,349,059
<TOTAL-LIABILITIES-AND-EQUITY> 48,461,145
<INTEREST-LOAN> 603,912
<INTEREST-INVEST> 230,648
<INTEREST-OTHER> 42,920
<INTEREST-TOTAL> 877,480
<INTEREST-DEPOSIT> 425,903
<INTEREST-EXPENSE> 440,324
<INTEREST-INCOME-NET> 437,156
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 327,144
<INCOME-PRETAX> 140,077
<INCOME-PRE-EXTRAORDINARY> 92,362
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,362
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 3.72
<LOANS-NON> 184,355
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 97,635
<CHARGE-OFFS> 2,175
<RECOVERIES> 1,870
<ALLOWANCE-CLOSE> 97,329
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 97,329
</TABLE>
