<PAGE>
<PAGE>
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, 1997
[ ] 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: No. 0-22742
GFS BANCORP, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 42-1410536
- ----------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
of incorporation or organization Identification No.)
1025 Main Street, Grinnell, Iowa 50112-0030
--------------------------------------------
(Address of principal executive offices)
(515) 236-3121
---------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
State the number of Shares outstanding of each of the
issuer's classes of common equity, as of the latest date:
As of May 1, 1997, there were 987,842 shares of the
Registrant's common stock issued and outstanding, including 9,438
shares of restricted stock.<PAGE>
<PAGE>
GFS BANCORP, INC.
INDEX
PART I. FINANCIAL STATEMENTS (unaudited) PAGE NO.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets, March 31,1997
and June 30, 1996 (Unaudited)....................... 1
Consolidated Statement of Income for the Three
and Nine Months Ended March 31, 1997 and 1996
(Unaudited)......................................... 2
Consolidated Statement of Shareholders' Equity,
for the Nine Months Ended March 31, 1997
(Unaudited)......................................... 3
Consolidated Statement of Cash Flows, for the Nine
Months Ended March 31, 1997 and 1996
(Unaudited)......................................... 4
Notes to Consolidated Financial Statements
(Unaudited)......................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8
PART II. OTHER INFORMATION
Signature Page......................................19
<PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 June 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions:
Noninterest bearing $ 359,038 $ 222,461
Interest bearing 2,733,095 2,048,671
Securities available for sale 1,882,903 1,672,763
Securities held to maturity 1,497,645 1,582,188
Mortgage-backed securities held to maturity 3,203,002 3,435,254
Stock in Federal Home Loan Bank, at cost
(approximate fair value) 1,159,000 1,159,000
Loans receivable, net 76,088,416 71,772,896
Real estate acquired in settlement of loans, net 23,759 226,616
Premises and equipment, net 232,590 234,415
Accrued interest receivable 474,571 439,392
Other assets 499,595 510,960
----------- -----------
Total assets $ 88,153,614 $ 83,304,616
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 6,175,888 $ 4,651,689
Savings and money market 11,023,437 10,140,487
Certificates of deposit 41,127,871 38,330,207
----------- -----------
Total deposits 58,327,196 53,122,383
Advances from Federal Home Loan Bank 18,975,968 19,317,997
Advances from borrowers for taxes and insurance 328,892 432,970
Accrued dividends payable 49,392 51,460
Other accrued expenses and liabilities 275,717 434,915
----------- -----------
Total liabilities $ 77,957,165 $ 73,359,725
=========== ===========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY
Preferred stock, $.01 par value,
authorized 500,000 shares, issued none $ -- $ --
Common stock, $.01 par value,
authorized 2,000,000 shares 10,440 5,501
Additional paid-in capital 5,175,427 5,138,066
Retained earnings -substantially restricted 6,277,465 5,856,546
Less:
Unearned employee stock ownership plan (212,871) (259,781)
Unearned retention and recognition plan (10,765) (32,659)
Treasury stock at cost (1,055,302) (728,800)
Unrealized gain (loss) on securities
available for sale, net 12,055 (33,982)
----------- -----------
Total stockholders' equity $ 10,196,449 $ 9,944,891
----------- -----------
Total liabilities and stockholders' equity $ 88,153,614 $ 83,304,616
=========== ===========
</TABLE>
1 <PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- --------------------
1997 1996 1997 1996
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,607,410 $1,418,640 $4,820,174 $3,953,793
Mortgage-backed securities 59,704 67,088 182,576 207,403
Other securities and interest-
bearing cash accounts 96,262 118,042 287,661 413,287
---------- ---------- ---------- ----------
1,763,376 1,603,770 5,290,411 4,574,483
---------- ---------- ---------- ----------
Interest expense:
Deposits 730,226 631,134 2,183,975 1,878,748
Advances from Federal Home Loan
Bank 281,527 303,756 862,197 882,901
---------- ---------- ---------- ----------
1,011,753 934,890 3,046,172 2,761,649
---------- ---------- ---------- ----------
Net interest income 751,623 668,880 2,244,239 1,812,834
Provision for loan losses 24,000 8,000 97,000 20,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 727,623 660,880 2,147,239 1,792,834
Noninterest income:
Gain/(loss) on sale of securities
available for sale 0 10,928 (1,576) 28,054
Other 32,846 22,778 96,382 68,776
---------- ---------- ---------- ----------
32,846 33,706 94,806 96,830
---------- ---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits 222,148 203,692 673,794 569,770
Investment real estate operations 500 0 500 0
Occupancy expenses 23,631 19,956 65,386 53,638
Federal deposit insurance premiums 2,217 26,807 61,955 78,286
FDIC - SAIF Special Assessment 0 0 287,568 0
Data processing services 21,831 18,043 55,720 47,408
Other 91,878 68,228 278,252 216,793
---------- ---------- ---------- ----------
362,205 336,726 1,423,175 965,895
---------- ---------- ---------- ----------
Income before provision for
income taxes 398,264 357,860 818,870 923,769
Provision for income taxes 117,918 117,100 255,500 302,969
---------- ---------- ---------- ----------
Net income $ 280,346 $ 240,760 $ 563,370 $ 620,800
========== ========== ========== ==========
Earnings per common share $ 0.28 $ 0.23 $ 0.56 $ 0.59
========== ========== ========== ==========
</TABLE>
On March 31, 1997, the company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock
dividend. All shares and per share data included in this report
have been restated to reflect the stock split.
2
<PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional ESOP
Common Paid-in Retained Stock
Stock Capital Earnings Award
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Balance, June 30, 1996 $ 5,501 $5,138,066 $5,856,546 $(259,781)
Net income 563,370
Dividends (142,451)
Additional Shares issued in
two-for-one stock split
effected in the form of a
stock dividend 4,939 (4,939)
ESOP common stock released
for allocation 50,363 46,910
Amortization of RRP
contributions
Purchase of Treasury Stock
Treasury stock reissued to
fund stock options
exercised (8,063)
Net change in unrealized
loss on securities
available for sale
------- ---------- ---------- ---------
Balance, March 31, 1997 $10,440 $5,175,427 $6,277,465 $(212,871)
======= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Loss on
RRP Available Total
Stock Treasury for Sale Stockholders'
Awards Stock Securities Equity
------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1996 $(32,659) $(728,800) $(33,982) $9,944,891
Net income 563,370
Dividends (142,451)
Additional Shares issued in
two-for-one stock split
effected in the form of a
stock dividend 0
ESOP common stock released
for allocation 97,273
Amortization of RRP
contributions 21,894 21,894
Purchase of Treasury Stock (344,085) (344,085)
Treasury stock reissued to
fund stock options
exercised 17,583 9,520
Net change in unrealized
loss on securities
available for sale 46,037 46,037
-------- ----------- -------- -----------
Balance, March 31, 1997 $(10,765) $(1,055,302)$ 12,055 $10,196,449
======== =========== ======== ===========
</TABLE>
3
<PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 563,370 $ 620,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 27,881 20,017
(Gain) loss on sale of available for sale investments 1,576 (28,054)
FHLB stock dividend 0 (20,800)
ESOP and RRP expense 119,167 129,631
Deferred loan fees, net (5,120) 38,947
Provisions for loan losses 97,000 20,000
Change in:
Accrued interest receivable (35,179) (29,673)
Other assets 11,365 (5,488)
Other liabilities (186,236) 96,382
---------- ----------
Net cash provided by operating activities 593,824 841,762
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of securities held to maturity 85,000 1,200,000
Maturity of securities available for sale 0 150,000
Proceeds from sales of securities available for sale 99,925 2,077,956
Purchase of securities held to maturity 0 (1,085,000)
Purchase of securities available for sale (238,566) (181,500)
Purchase of FHLB stock 0 (306,000)
Principal payments received on mortgage-backed
securities 232,252 415,065
Net (increase) in loans outstanding (4,431,616) (12,549,431)
Proceeds from sale of real estate 226,616 0
Purchase of premises and equipment (26,056) (58,373)
---------- ----------
Net cash (used) by investing activities (4,052,445) (10,337,283)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,204,813 4,968,269
Advances from Federal Home Loan Bank 4,500,000 8,500,000
Repayment of advances from the Federal Home Loan Bank (4,842,029) (3,746,424)
Net (decrease) in advances from borrowers for taxes
and insurance (104,078) (52,542)
Net proceeds from reissuance of treasury stock 9,520 9,520
Purchase of treasury stock (344,085) (509,953)
Dividends paid (144,519) (108,898)
---------- ----------
Net cash provided by financing activities 4,279,622 9,059,972
---------- ----------
Net decrease (increase) in cash and cash equivalents 821,001 (435,549)
Cash and cash equivalents, beginning of period 2,271,132 4,107,346
---------- ----------
Cash and cash equivalents, end of period $ 3,092,133 $ 3,671,797
========== ==========
/TABLE
<PAGE>
<PAGE>
GFS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited Consolidated Financial Statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB and Regulation S-X. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
In the opinion of management, the Consolidated Financial
Statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial
condition of GFS Bancorp, Inc. as of March 31, 1997 and June 30,
1996, the results of its operations for the three and nine months
ended March 31, 1997 and 1996, changes in stockholders' equity
for the nine months ended March 31, 1997 and for the statement of
cash flows for the nine months ended March 31, 1997 and 1996.
Operating results for the three and nine months ended
March 31, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending June 30, 1997.
(2) Earnings Per Share of Common Stock
----------------------------------
Earnings per share is based on the weighted average number
of shares outstanding during the period, plus the shares that
would be issued assuming the conversion of dilutive stock
options. The weighted average number of common and common stock
equivalents for the three and nine month period ended March 31,
1997 was 1,008,762 shares and 1,016,724 shares, respectively.
(On March 21, 1997, the company's Board of Directors authorized a
two-for-one stock split payable April 25, 1997, to shareholders
of record as of April 11, 1997, in the form of a 100% stock
dividend. All shares and per share data included in this report
have been restated to reflect the stock split.) The amount set
forth above includes 9,438 shares of restricted stock issued in
accordance with the recognition and retention plan established by
the Company. These restricted stock awards are reflected in the
income per share computations in the accompanying financial
statements. In
5<PAGE>
<PAGE>
addition, 84,640 shares of common stock were issued to the
Employee Stock Ownership Plan (ESOP) trust for the benefit of the
employees of the Company and its subsidiaries. In accordance with
American Institute of Certified Public Accountants Accounting
Standards Division statement of position 93-6 on "Employers
Accounting for Employee Stock Ownership Plans", ESOP shares that
have been committed to be released are considered outstanding and
ESOP shares that have not been committed to be released are not
considered outstanding. At March 31, 1997, 42,968 ESOP shares
were committed to be released and were considered in the earnings
per share computations.
(3) Regulatory Capital Requirements
------------------------------
Pursuant to Office of Thrift Supervision Regulations,
savings institutions must meet three separate minimum capital-to-
asset requirements. The following table summarizes, as of March
31, 1997, the capital requirements for Grinnell Federal Savings
Bank (the "Bank") under these regulations. As of March 31, 1997,
the Bank substantially exceeded all current regulatory capital
standards.
<TABLE>
<CAPTION>
Regulatory Actual
Capital Capital
Requirement (Bank Only) Excess Capital
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Risk-Based . . . . . . . $3,997 8.0% $9,160 18.33% $5,163 10.33%
Core Capital . . . . . . 2,604 3.0 8,538 9.83 5,934 6.83
Tangible Capital . . . . 1,302 1.5 8,538 9.83 7,236 8.33
</TABLE>
(4) Pending Accounting Pronouncements
---------------------------------
The Financial Accounting Standards Board (FASB) has
approved, effective for years beginning after December 15, 1995,
Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, Statement No.
122, Accounting for Mortgage Servicing Rights and Statement No.
123, Accounting for Stock-Based Compensation and for transactions
after December 31, 1996, Statement No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. The Company adopted the referenced FASB statements
during fiscal year 1997 and such did not have a material effect
on the Company's financial condition or results of operation when
adopted.
6<PAGE>
<PAGE>
In February 1997, FASB issued Statement No. 128, Earnings
Per Share, which, simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, Earnings per
Share, and makes them comparable to international EPS standards.
It replaces the presentation of primary EPS with a presentation
of basic EPS. Basic EPS is computed by dividing income available
to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS 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. Diluted EPS is
computed similarly to fully diluted EPS pursuant to Opinion 15.
This Statement is effective for financial statements issued for
periods ending after December 15, 1997, and requires restatement
of all prior-period EPS data presented. The adoption of
Statement No. 128, will not result in a material change in the
EPS presentation.
7<PAGE>
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business
- --------
GFS Bancorp, Inc. (the "Company") was formed to be the
holding company for Grinnell Federal Savings Bank ("Grinnell
Federal" or the "Bank") in connection with the Bank's conversion
to stock form. The Company completed its initial public offering
on January 5, 1994 with the sale of 529,000 shares at $10.00 per
share. On March 21, 1997, the company's Board of Directors
authorized a two-for-one stock split payable April 25, 1997, to
shareholders of record as of April 11, 1997, in the form of a
100% stock dividend. All shares and per share data included in
this report have been restated to reflect the stock split.
The primary activity of the Company is to act as a holding
company for the Bank. As a result, unless otherwise noted, the
following discussion relates primarily to the Bank. The primary
business of savings banks, including Grinnell Federal, has
historically consisted of attracting deposits from the general
public and providing financing for the purchase of residential
properties. The operations of the Bank are significantly
affected by prevailing economic conditions as well as by
government policies and regulations relating to monetary and
fiscal affairs, housing and financial institutions.
Net income is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-
backed and related securities and investments, and the average
rate paid on deposits and borrowings, as well as the relative
amounts of such assets and liabilities. The interest rate spread
is affected by regulatory, economic and competitive factors that
influence interest rates, loan demand and deposit flows. The
Bank, like other thrift institutions, is subject to interest rate
risk to the degree that its interest-bearing liabilities mature
or reprice at different times, or on a different basis, than its
interest-earning assets.
8<PAGE>
<PAGE>
Net income is also affected by, among other things, gains
and losses on sales of real estate and investments, mortgage-
backed and related securities, investment securities and
foreclosed assets, provisions for loan losses, service charges
and other fees, operating expenses and income taxes.
Financial Condition
- -------------------
The Company's total assets increased $4.9 million, or 5.9%,
from $83.3 million at June 30, 1996 to $88.2 million at March 31,
1997. This increase was due primarily to an increase of $4.3
million in net loans receivable, $126,000 in investment
securities and $820,000 in cash. The increases were partially
offset by a $240,000 decrease in mortgage-backed securities and
a $203,000 decrease from the disposition of real estate acquired
in settlement of loans. The increase in loans was funded by a
$5.2 million increase in savings deposits.
Total investment securities increased by $126,000, or 3.9%,
from $3.25 million at June 30, 1996 to $3.38 million at March 31,
1997 due to the purchase of an investment in common stock. At
March 31, 1997 the investment portfolio consisted primarily of
$1.5 million in U.S. agency obligations, $750,000 in mutual
funds, and $1.1 million in equity securities consisting of common
stocks of two bank holding companies and a life insurance company
and preferred stocks of two bank holding companies, a power
company and an automobile manufacturer.
Total mortgage-backed securities decreased $240,000, or
7.0%, from $3.44 million at June 30, 1996 to $3.20 million at
March 31, 1997. The decrease in mortgage-backed securities was
due to amortization of principal and prepayments.
Net loans receivable increased $4.3 million, or 6.0%, from
$71.8 million at June 30, 1996 to $76.1 million at March 31,
1997. Mortgage loans originated during the nine months ended
March 31, 1997, totaled $7.5 million and were secured primarily
by single family dwellings in the Bank's market area. During
this period, the Bank also purchased $4.4 million of loans
secured by one-to-four family dwellings, $13.4 million of multi-
family, $171,000 in land development and $1.8 million of
commercial real estate loans primarily located in the Madison,
Wisconsin area. Of the $19.8 million in one-to-four family,
multi-family, land development and
9<PAGE>
<PAGE>
commercial real estate purchased during the period, $14.3 million
were sold to other financial institutions with the Bank retaining
the servicing.
Total deposits increased by $5.2 million, or 9.8%, from
$53.1 million at June 30, 1996 to $58.3 million at March 31,
1997. This increase was primarily due to growth of $2.4 million
in demand, savings and money market accounts and $2.8 million in
certificate of deposit accounts. Management believes that the
increases in checking, savings and certificate of deposits were
primarily attributable to successful marketing initiatives.
Total borrowed funds had a net decrease of $340,000, or
1.8%, from $19.3 million at June 30, 1996 to $19.0 million at
March 31, 1997. This net decrease was primarily due to the
payoff of maturing advances.
Total stockholders' equity increased $252,000 from $9.9
million at June 30, 1996 to $10.2 million at March 31, 1997. The
increase was primarily due to $563,000 in net income,
amortization of Recognition and Retention Plan ("RRP"),
allocations to the Employee Stock Ownership Plan ("ESOP"), and a
decrease in unrealized loss on available for sale securities.
The increase was partially offset by $344,000 which was the cost
to repurchase shares of the Company's stock. (See Part II.
Other Information, Item 6. Reports on 8-K regarding stock
repurchases) and by declarations of $.05 per share quarterly
dividends in September 1996, December 1996 and March 1997. (See
Consolidated Statement of Shareholders' Equity.)
On January 8, 1997, the Company announced its intention to
repurchase an additional 5% or 49,734 of its outstanding shares
for general corporate purposes, primarily for the issuance of
shares in connection with the exercise of stock options.
Comparison of the Three Months ended March 31, 1997 and 1996
- ------------------------------------------------------------
General. The Company's net income increased $39,000, or
16.2%, to $280,000 for the quarter ended March 31, 1997 from
$241,000 for the quarter ended March 31, 1996. This increase
resulted primarily from an increase in net interest income after
provision for loan losses of $67,000 which was partially offset
by a $25,000 increase in non-interest expense.
10<PAGE>
<PAGE>
Net Interest Income. Net interest income, before provision
for loan losses, increased $83,000, or 12.4%, from $669,000 at
March 31, 1996 to $752,000 at March 31, 1997 due to increases in
average balances of interest-earning assets. The Company's
average spread was 2.68% for the three months ended March 31,
1996 and 1997.
Interest Income. Interest income increased by $159,000, or
9.9%, from $1,604,000 at March 31, 1996 to $1,763,000 at March
31, 1997. This increase was primarily due to an increase of .04%
in the average rate earned on interest-earning assets and an
increase of $7.4 million in the average balance of such assets.
The average balance of such assets increased due to an increase
in the average balance of loans as a result of increased
originations and purchases.
Interest Expense. Interest expense increased by $77,000, or
8.2%, from $935,000 for the quarter ended March 31, 1996 to
$1,012,000 for the quarter ended March 31, 1997. This increase
was primarily due to $5.1 million increase in the average balance
of total deposits and borrowed funds and by a .04% increase in
the average rate paid on interest-bearing liabilities.
Provision for Loan Losses. The provision for loan losses is
determined by management as the amount to be added to the
allowance for loan losses after net charge-offs have been
deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in
accordance with generally accepted accounting principles. A
$24,000 provision for loan losses was established for the quarter
ended March 31, 1997, as compared to an $8,000 provision for the
quarter ended March 31, 1996. The increase in loan loss
provisions was due to further increases in the mortgage loan
portfolio. Although the Company maintains its allowance for loan
losses at a level which it considers to be adequate to provide
for potential losses, there can be no assurance that future
losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required for future
periods.
Non-Interest Income. Non-interest income decreased from
$34,000 at March 31, 1996 to $33,000 at March 31, 1997.
11<PAGE>
<PAGE>
Non-Interest Expense. Non-interest expense increased by
$25,000 from $337,000 in the quarter ended March 31, 1996 to
$362,000 in the quarter ended March 31, 1997. This increase was
primarily due to an $18,000 increase in compensation and employee
benefits and a $24,000 increase in miscellaneous other operating
expenses. The increase was partially offset by a $25,000
reduction in federal deposit insurance premiums.
Provision for Income Taxes. Income tax expense was $117,000
for the quarter ended March 31, 1996 compared to $118,000 for the
quarter ended March 31, 1997.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 31,
1996
General. Net income decreased $58,000, or 9.3%, from
$621,000 for the nine months ended March 31, 1996 to $563,000 for
the nine months ended March 31, 1997. This decrease resulted
primarily from a one time after-tax special assessment of
$181,000 ($287,568 before the effect of federal and state income
taxes) levied by the Federal Deposit Insurance Corporation (the
"FDIC") in order to capitalize the Savings Association Insurance
Fund. (See Regulatory Developments.) The effect of the special
assessment was partially mitigated by increases in net interest
income and a reduction in provision for income tax, which
together more than offset increases in non-interest expense and
provision for loan losses.
Net Interest Income. Net interest income increased
$431,000, from $1,813,000 for the nine months ended March 31,
1996 to $2,244,000 at March 31, 1997. The Company's average
spread increased from 2.44% for the nine months ended March 31,
1996 to 2.72% for the nine months ended March 31, 1997 due to the
fact that yields on interest-earning assets increased more than
rates paid on interest-bearing liabilities.
Interest Income. Interest income increased $716,000, or
15.7%, from $4,574,000 for the nine months ended March 31, 1996
to $5,290,000 for the same period in 1997. This increase was
primarily due to an increase of .11% in the average rate earned
on interest-earning assets and an increase of $10.0 million in
the average balance of such assets. Interest income on loans
increased $866,000, which was primarily due to an increase in the
Bank's loan portfolio. Interest income on mortgage-backed
securities decreased
12<PAGE>
<PAGE>
by $25,000 due to principal payments and prepayments. Interest
income on cash and investment securities decreased by $126,000
due to a decrease in average balances and average rate.
Interest Expense. Interest expense increased by $284,000
or 10.3%, from $2,762,000 for the nine months ended March 31,
1996 to $3,046,000 for the nine months ended March 31, 1997.
This increase was primarily due to a $9.1 million increase in the
average balance of interest-bearing liabilities and a .17%
decrease in the average rates paid on such liabilities.
Provision for Loan Losses. The provision for loan losses is
determined by management as the amount to be added to the
allowance for loan losses after net charge-offs have been
deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in
accordance with general accepted accounting principles. A
$97,000 provision for loan losses was established for the nine
months ended March 31, 1997, as compared to a $20,000 provisions
for the nine months ended March 31, 1996. The increase in loan
loss provisions was due to further increases in the mortgage loan
portfolio. Although the Company maintains its allowance for loan
losses at a level which it considers to be adequate to provide
for potential losses, there can be no assurance that future
losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required for future
periods.
Non-Interest Income. Non-interest income decreased from
$97,000 for the nine months ended March 31, 1996 to $95,000 for
the nine months ended March 31, 1997.
Non-Interest Expense. Non-interest expense increased from
$966,000 in the nine months ended March 31, 1996 to $1,423,000
for the nine months ended March 31, 1997. This $457,000
increase, or 47.3%, was primarily due to a $287,568 special one
time FDIC-SAIF insurance assessment (See Results of Operations -
General above and Regulatory Developments below), an $104,000
increase in compensation and benefits due to staff additions and
fiscal year-end salary increases and a $61,000 increase in other
miscellaneous operating expenses.
13<PAGE>
<PAGE>
Provision for Income Taxes. Income tax expense was $303,000
for the nine months ended March 31, 1996 as compared to $256,000
for the nine months ended March 31, 1997. The $47,000 decrease
was due to a decrease in income subject to taxes.
Allowance for Loan Losses. The allowance for loan losses is
calculated based upon an evaluation of pertinent factors
underlying the types and qualities of the Company's loans.
Management considers such factors as the repayment status of a
loan, the estimated fair value of the underlying collateral, the
borrower's ability to repay the loan, current and anticipated
economic conditions which might affect the borrower's ability to
repay the loan and the Company's past statistical history
concerning charge-offs. The Company's allowance for loan losses
as of March 31, 1997 was $622,000, or 0.8% of total loans. The
June 30, 1996 allowance for loan losses was $641,000, or 0.9% of
total loans. This $19,000 decline was due to a $115,000 charge
off on equipment leases (see Non-Performing Assets below) which
was offset by the addition of $97,000 to the allowance for loan
losses. The ratio of non-performing assets to the allowance for
loan losses declined from 67% of non-performing assets at June
30, 1996 to 46% of non-performing assets at March 31, 1997, due
to the combination of a $362,000 increase in non-performing
assets with the $19,000 decline in allowance for loan losses
referenced above. Management believes, upon consideration of the
pertinent factors described above, that the current allowance for
loan losses is adequate.
Non-Performing Assets. Total non-performing assets (defined
as non-accruing loans for which payments have been due and
uncollected for a period in excess of 90 days plus foreclosed
assets) increased $397,000 from $962,000, or 1.15% of total
assets at June 30, 1996, to $1,359,000, or 1.54% of total assets
at March 31, 1997. This $1,359,000 consisted primarily of
$24,000 of real estate acquired in settlement of loans, seven
loans totaling $234,000 secured by single-family homes, three
loans totaling $750,000 secured by multi-family real estate
located in Madison, Wisconsin, two consumer loans totaling
$29,000 and a $322,000 package of equipment leases owned by the
Bank. The referenced equipment leases were sold and serviced by
Bennett Funding Group and its affiliates (the "Bennett Group"),
certain of which companies have been charged by the Securities
and Exchange Commission with, among other things, the illegal
sale of fictitious equipment leases. On April 1, 1996, the
Bennett Group filed for Chapter 11 Bankruptcy, resulting in the
suspension of payments on the Bank's leases. On February 5,
1997, management entered into an agreement with the Bankruptcy
Trustee whereby the Company will receive a pre-determined
percentage of all amounts collected on the underlying equipment
leases, up to a specified percentage of the current outstanding
principal balance. Based on management's estimate of the present
value of this settlement the Company recorded a charge-off of
$115,000 against the allowance for loan losses.
14<PAGE>
<PAGE>
The $397,000 increase in non-performing assets primarily
reflects the addition of the three loans totaling $750,000
secured by multi-family real estate located in Madison,
Wisconsin, which was partially offset by the redemption of a
$227,000 parcel of real estate in judgment, which had been non-
performing at June 30, 1996.
In addition, at March 31, 1997, other assets of concern
totaled $497,000 and included eight loans totaling $169,000
secured by single-family residences, a $278,000 single-family
home in Houston, Texas and one $50,000 non-mortgage commercial
loan. While these loans raise concerns as to timely
collectibility, based upon information currently available,
management does not anticipate any material loss on these assets.
Assets classified pursuant to the Office of Thrift
Supervision ("OTS") regulations and assets designated special
mention totaled $1.8 million at March 31, 1997 as compared to
$2.5 million at June 30, 1996. At March 31, 1997, all classified
assets were included in non-performing assets or other assets of
concern.
For all periods presented the Company had no significant
troubled debt restructurings. The following table sets forth the
amount of non-performing assets at the periods indicated.
15<PAGE>
<PAGE>
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans ................... $1,335 $ 735
Foreclosed Assets .................... 24 227
Total Non-Performing Assets .......... $1,359 $ 962
Percentage of Total Assets......... 1.54% 1.15%
</TABLE>
Liquidity and Capital Resources. The Company's primary
sources of funds are deposits, principal and interest payments on
loans and mortgage-backed securities, FHLB-Des Moines advances
and funds provided by operations. While scheduled loan and
mortgage-backed security repayments and maturity of short-term
investments are a relatively predictable source of funds, deposit
flows are greatly influenced by general interest rates, economic
conditions and competition. Current Office of Thrift Supervision
regulations require the Bank to maintain cash and eligible
investments in an amount equal to at least 5% of customer
accounts and short-term borrowings to assure its ability to meet
demands for withdrawals and repayments of short-term borrowings.
For March 31, 1997 the Bank's average monthly liquidity ratio was
6.6% which exceeded the minimum regulatory requirements.
The Company uses its capital resources principally to meet
its ongoing commitments to fund maturing certificates of deposits
and loan commitments, maintain its liquidity and meet operating
expenses. At March 31, 1997, the Company had commitments to
purchase or originate loans totaling $645,000. The Company
considers its liquidity and capital resources to be adequate to
meet its foreseeable short- and long-term needs. The Company
expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
Regulatory standards impose the following capital
requirements: a risk-based capital standard expressed as a
percent of risk-adjusted assets, a leverage ratio of core capital
to total adjusted assets, and a tangible capital ratio expressed
as a percent of total adjusted assets. As of March 31, 1997, the
Bank exceeded all fully phased-in regulatory capital standards.
16<PAGE>
<PAGE>
At March 31, 1997, the Bank's tangible capital was $8.5
million, or 9.8%, of adjusted total assets, which is in excess of
the 1.5% requirement by $7.2 million. In addition, at March 31,
1997, the Bank had core capital of $8.5 million , or 9.8%, of
adjusted total assets, which exceeds the 3% requirement by $5.9
million. The Bank had risk-based capital of $9.2 million at March
31, 1997 or 18.3% of risk-adjusted assets which exceeds the 8%
risk-based capital requirement by $5.2 million.
The OTS requires every savings association with more than
normal interest rate risk to deduct from its total capital, for
purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied
by the present value of its assets. Any savings association with
less than $300 million in assets and a total capital ratio in
excess of 12% is exempt from this requirement unless the OTS
determines otherwise. The Bank meets the criteria for an
exemption from this requirement and has not been advised by the
OTS that it is otherwise subject to this rule.
Regulatory Developments
- -----------------------
Pursuant to recently enacted legislation, the FDIC has
levied an assessment on institutions with deposits insured by the
SAIF in order to recapitalize the SAIF. The assessment, set by
the FDIC at approximately 0.65% of SAIF-insured deposits as of
March 31, 1995, was paid on November 27, 1996. The effect of
this assessment was to reduce the company's net income for the
nine months ended March 31, 1997, by $181,000. As a result of
this legislation, on January 1, 1997 the Company's deposit
insurance premiums declined from .23% of insured deposits to .06%
of insured deposits.
In addition to numerous regulatory relief provisions
contained in the recent legislation, the legislation provides for
a merger of the SAIF and the Bank Insurance Fund effective
January 1, 1999 if there are no insured savings associations
remaining on that date, and directed the Secretary of Treasury to
make recommendations to the Congress by March 31, 1997 with
respect to establishment of a common charter for banks and thrift
institutions.
17<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security-holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
No. 27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K filed March 24, 1997, to report a 2-for-1
stock split to be effected as a 100% stock dividend
on the company's outstanding common stock. The
dividend shares were paid on April 25, 1997, to
shareholders of record as of April 11, 1997.
Form 8-K filed January 8, 1997, reported the
completion of a 5% repurchase of 52,528 shares of
the company's outstanding common stock and the
company's intention to repurchase an additional 5%
or 49,734 shares of common stock. The repurchased
shares will be used for general corporate purposes,
including the issuance of shares in connection with
the exercise of stock options.
18
<PAGE>
<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.
GFS BANCORP, INC.
Dated: May 12, 1997 /s/ Steven L. Opsal
-------------------------------------
Steven L. Opsal, President
and Chief Executive Officer
Dated: May 12, 1997 /s/ Katherine A. Rose
-------------------------------------
Katherine A. Rose, Vice President
and Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 359,038
<INT-BEARING-DEPOSITS> 2,733,095
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,882,903
<INVESTMENTS-CARRYING> 4,700,647
<INVESTMENTS-MARKET> 0
<LOANS> 76,088,416
<ALLOWANCE> 0
<TOTAL-ASSETS> 88,153,614
<DEPOSITS> 58,327,196
<SHORT-TERM> 6,559,546
<LIABILITIES-OTHER> 654,001
<LONG-TERM> 12,416,422
<COMMON> 10,440
0
0
<OTHER-SE> 10,186,009
<TOTAL-LIABILITIES-AND-EQUITY> 88,153,614
<INTEREST-LOAN> 4,820,174
<INTEREST-INVEST> 470,237
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,290,411
<INTEREST-DEPOSIT> 2,183,975
<INTEREST-EXPENSE> 3,046,172
<INTEREST-INCOME-NET> 2,244,239
<LOAN-LOSSES> 97,000
<SECURITIES-GAINS> (1,576)
<EXPENSE-OTHER> 1,423,175
<INCOME-PRETAX> 818,870
<INCOME-PRE-EXTRAORDINARY> 818,870
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563,370
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 0
<LOANS-NON> 1,359,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 497,000
<ALLOWANCE-OPEN> 641,000
<CHARGE-OFFS> 115,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 622,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
