<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] 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 0-22742
GFS BANCORP,INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 42-1410536
- --------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification or
organization) Number)
1025 Main Street, Grinnell, Iowa 50112-0030
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(515) 236-3121
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
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 December 31, 1996, there were 499,600 shares of the Registrant's
common stock issued and outstanding, including 9,852 shares of restricted stock.
<PAGE>
GFS BANCORP, INC.
INDEX
-----
PART I. FINANCIAL STATEMENTS (unaudited) PAGE NO.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets, December 31,1996
and June 30, 1996 (Unaudited).................................... 1
Consolidated Statement of Income for the Three Months
and Six Months Ended December 31, 1996 and 1995
(Unaudited)...................................................... 2
Consolidated Statement of Shareholders' Equity,
for the Six Months Ended December 31,1996
(Unaudited)...................................................... 3
Consolidated Statement of Cash Flows, for the Six
Months Ended December 31, 1996 and 1995
(Unaudited)...................................................... 4
Notes to Consolidated Financial Statements
(Unaudited)...................................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7
PART II. OTHER INFORMATION
Signature Page................................................... 19
i
<PAGE>
GFS BANCORP, INC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Dec 31, June 30,
ASSETS 1996 1996
<S> <C> <C>
Cash and amounts due from depository institutions:
Noninterest bearing $296,415 $222,461
Interest bearing 2,748,131 2,048,671
Securities available for sale 1,635,700 1,672,763
Securites held to maturity 1,497,507 1,582,188
Mortgage-backed securities held to maturity 3,242,227 3,435,254
Stock in Federal Home Loan Bank, at cost (approximates fair value) 1,159,000 1,159,000
Loans receivable, net 75,874,543 71,772,896
Real estate acquired in settlement of loans, net --- 226,616
Premises and equipment, net 227,507 234,415
Accrued interest receivable 469,909 439,392
Other assets 474,943 510,960
---------------------------------
Total Assets $87,625,882 $83,304,616
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $5,582,490 $4,651,689
Savings and money market 10,482,510 10,140,487
Certificates of deposit 42,390,197 38,330,207
---------------------------------
Total Deposits 58,455,197 53,122,383
Advances from Federal Home Loan Bank 18,290,221 19,317,997
Advances from borrowers for taxes and insurance 460,039 432,970
Accrued dividends payable 49,960 51,460
Other accrued expenses and liabilities 318,339 434,915
---------------------------------
Total Liabilities $77,573,756 $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;
issued 550,160 shares; 5,501 5,501
Additional paid-in capital 5,171,058 5,138,066
Retained earnings - substantially restricted 6,043,763 5,856,546
Less:
Unearned employee stock ownership plan (228,271) (259,781)
Unearned retention and recognition plan (14,305) (32,659)
Treasury stock, at cost Dec 50,560 shares; June 40,560 shares (933,675) (728,800)
Unrealized Gain (loss) on securities available for sale, net 8,055 (33,982)
---------------------------------
Total Stockholders' Equity $10,052,126 $9,944,891
---------------------------------
Total Liabilities & Stockholders' Equity $87,625,882 $83,304,616
=================================
</TABLE>
1
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,605,928 $1,327,330 $3,212,764 $2,535,153
Mortgage-backed securities 60,385 68,444 122,872 140,315
Other securities and interest-bearing cash accounts 101,452 155,153 191,399 295,245
------------------------------------------------------------
1,767,765 1,550,927 3,527,035 2,970,713
------------------------------------------------------------
Interest expense:
Deposits 744,059 627,410 1,453,749 1,247,614
Advances from Federal Home Loan Bank 285,419 332,509 580,670 579,145
------------------------------------------------------------
1,029,478 959,919 2,034,419 1,826,759
------------------------------------------------------------
Net interest income 738,287 591,008 1,492,616 1,143,954
Provision for loan losses 24,000 6,000 73,000 12,000
------------------------------------------------------------
Net interest income after provision
for loan losses 714,287 585,008 1,419,616 1,131,954
Noninterest income:
Gain/(loss) on sale of securities available for sale 0 3,274 (1,576) 17,126
Other 29,005 23,719 63,536 45,998
------------------------------------------------------------
29,005 26,993 61,960 63,124
------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 237,923 199,563 451,646 366,078
Occupancy expenses 22,264 17,135 41,755 33,682
Federal deposit insurance premiums 30,647 26,311 59,738 51,479
FDIC - SAIF Special Assessment 0 0 287,568 0
Data processing services 16,755 14,587 33,889 29,365
Other 106,885 85,260 186,374 148,565
------------------------------------------------------------
414,474 342,856 1,060,970 629,169
------------------------------------------------------------
Income before provision for income taxes 328,818 269,145 420,606 565,909
Provision for income taxes 81,500 79,469 137,582 185,869
------------------------------------------------------------
Net income $247,318 $189,676 $283,024 $380,040
============================================================
Earnings per common share $0.49 $0.37 $0.56 $0.73
============================================================
</TABLE>
2
<PAGE>
GFS BANCORP, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Additional ESOP RRP Available
Common Paid-in Retained Stock Stock Treasury for Sale
Stock Capital Earnings Awards Awards Stock Securities
------ ---------- -------- ------ ------ -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 $5,501 $5,138,066 $5,856,546 ($259,781) ($32,659) ($728,800) ($33,982)
Net income 283,024
Dividends declared (95,807)
ESOP common stock released
for allocation 32,992 31,510
Amortization of RRP contributions 18,354
Purchase of 10,000 shares of
treasury stock (204,875)
Net change in unrealized loss on
securites available for sale 42,037
------------------------------------------------------------------------------
Balance, December 31, 1996 $5,501 $5,171,058 $6,043,763 ($228,271) ($14,305) ($933,675) $8,055
------------------------------------------------------------------------------
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance, June 30, 1996 $9,944,891
Net income $283,024
Dividends declared ($95,807)
ESOP common stock released
for allocation $64,502
Amortization of RRP contributions $18,354
Purchase of 10,000 shares of
treasury stock ($204,875)
Net change in unrealized loss on
securites available for sale $42,037
-----------
Balance, December 31, 1996 $10,052,126
-----------
</TABLE>
3
<PAGE>
GFS BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $283,024 $380,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 17,231 12,072
(Gain) loss on sale of available for sale investments 1,576 (17,126)
FHLB Stock Dividend 0 (20,800)
ESOP and RRP expense 82,856 87,344
Deferred Loan fees, net (3,538) 39,683
Provisions for loan losses 73,000 12,000
Change in:
Accrued interest receivable (30,517) (67,275)
Other assets 36,017 21,486
Other liabilities (116,576) 65,379
------------------------------
Net cash provided by operating activities 343,073 512,803
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of securities held to maturity 85,000 0
Maturity of securities available for sale 0 150,000
Proceeds from sales of securities available for sale 99,925 1,545,521
Purchase of securities held to maturity 0 (85,000)
Purchase of securities available for sale 0 (181,500)
Purchase of FHLB Stock 0 (306,000)
Principal payments received on mortgage-backed securities 193,027 315,468
Net (increase) in loans outstanding (4,194,475) (10,020,591)
Proceeds from sale of real estate 226,616 0
Purchase of premises and equipment (10,323) (23,003)
------------------------------
Net cash (used) by investing activities (3,600,230) (8,605,105)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,332,814 1,650,829
Advances from Federal Home Loan Bank 500,000 8,500,000
Repayment of advances from the Federal Home Loan Bank (1,527,776) (329,260)
Net increase (decrease) in advances from borrowers for
taxes and insurance 27,069 61,050
Net Proceeds from reissuance of treasury stock 0 9,520
Purchase of treasury stock (204,875) (327,880)
Dividends paid (96,661) (74,508)
------------------------------
Net cash provided by financing activities 4,030,571 9,489,751
Net (increase) decrease in cash and cash equivalents 773,414 1,397,449
Cash and Cash equivalents, beginning of period 2,271,132 4,107,346
------------------------------
Cash and Cash equivalents, end of period $3,044,546 $5,504,795
==============================
</TABLE>
4
<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
December 31, 1996 and June 30, 1996, the results of its operations for the three
months and six months ended December 31, 1996 and 1995, changes in stockholders'
equity for the six months ended December 31, 1996 and for the statement of cash
flows for the six months ended December 31, 1996 and 1995.
Operating results for the three months and six months ended December
31, 1996 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 period ended December 31, 1996 was 506,101
shares. The amount set forth above includes 9,852 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 addition, 42,320
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
5
<PAGE>
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 December 31, 1996, 19,944
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 December 31, 1996, the capital requirements for Grinnell
Federal Savings Bank (the "Bank") under these regulations. As of December 31,
1996, 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............... $3,799 8.0% $8,826 18.59% $5,027 10.59%
Core Capital............. 2,596 3.0 8,231 9.51 5,635 6.51
Tangible Capital......... 1,298 1.5 8,231 9.51 6,933 8.01
</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. FASB Statements No. 121,122,123 and
125 are not expected to have a material effect on the Company's financial
statements when adopted.
6
<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. 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.
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.
7
<PAGE>
Financial Condition
- -------------------
The Company's total assets increased $4.3 million, or 5.2%, from $83.3
million at June 30, 1996 to $87.6 million at December 31, 1996. This increase
was due primarily to an increase of $4.1 million in net loans receivable and
$770,000 in cash. The increases were partially offset by a $120,000 decrease
in investment securities, a $200,000 decrease in mortgage-backed securities and
a $227,000 decrease from the disposition of real estate acquired in settlement
of loans. The increase in loans was funded by a $5.4 million increase in
savings deposits.
Total investment securities decreased by $120,000, or 3.7%, from $3.25
million at June 30, 1996 to $3.13 million at December 31, 1996 due to the sale
of an investment in common stock and the redemption of a maturing certificate of
deposit. At December 31, 1996 the investment portfolio consisted primarily of
$1.5 million in U.S. agency obligations, $800,000 in mutual funds, and $800,000
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 $200,000, or 5.8%, from $3.44
million at June 30, 1996 to $3.24 million at December 31, 1996. The decrease in
mortgage-backed securities was due to amortization of principal and prepayments.
Net loans receivable increased $4.1 million, or 5.7%, from $71.8 million at
June 30, 1996 to $75.9 million at December 31, 1996. Mortgage loans originated
during the six months ended December 31, 1996, totaled $5.9 million and were
secured primarily by single family dwellings in the Bank's market area. During
this period, the Bank also purchased $3.8 million of loans secured by one-to-
four family dwellings, $8.3 million of multi-family, $116,000 in land
development and $ 1.4 million of commercial real estate loans primarily located
in the Madison, Wisconsin area. Of the $13.6 million in one-to-four family,
multi-family, land development and commercial real estate purchased during the
period, $9.6 million were sold to other financial institutions with the Bank
retaining the servicing.
8
<PAGE>
Total deposits increased by $5.4 million, or 10.2%, from $53.1 million at
June 30, 1996 to $58.5 million at December 31, 1996. This increase was
primarily due to growth of $1.3 million in demand, savings and money market
accounts and $4.1 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 $1.0 million, or 5.2%, from
$19.3 million at June 30, 1996 to $18.3 million at December 31, 1996. This net
decrease was primarily due to the payoff of maturing advances.
Total stockholders' equity increased $107,000 from $9.9 million at June 30,
1996 to $10.1 million at December 31, 1996. The increase was primarily due to
$283,000 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 the $205,000 cost to repurchase 10,000 shares of the Company's stock
and by declarations of $.10 per share quarterly dividends in September and
December 1996. (See Consolidated Statement of Shareholders' Equity.)
Comparison of the Three Months ended December 31, 1996 and 1995
- ---------------------------------------------------------------
General. The Company's net income increased $58,000, or 30.7%, to $247,000
--------
for the quarter ended December 31, 1996 from $189,000 for the quarter ended
December 31, 1995. This increase resulted primarily from an increase in net
interest income after provision for loan losses of $129,000 which was partially
offset by a $72,000 increase in non-interest expense.
Net Interest Income. Net interest income, before provision for loan losses,
--------------------
increased $147,000, or 6.9%, from $591,000 at December 31, 1995 to $738,000 at
December 31, 1996 due to increases in average balances of interest-earning
assets. The Company's average spread increased from 2.33% for the three months
ended December 31, 1995 to 2.57% for the three months ended December 31, 1996
due to the fact that yields on interest-earning assets increased more than rates
paid on interest-bearing liabilities.
9
<PAGE>
Interest Income. Interest income increased by $220,000, or 14.2%, from
----------------
$1,550,000 at December 31, 1995 to $1,770,000 at December 31, 1996. This
increase was primarily due to an increase of 0.05% in the average rate earned on
interest-earning assets and an increase of $10.6 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 $70,000, or 7.3%, from
-----------------
$960,000 for the quarter ended December 31, 1995 to $1,030,000 for the quarter
ended December 31, 1996. This increase was primarily due to $6.7 million
increase in the average balance of total deposits and borrowed funds, which was
partially offset by a .19% decrease 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 December 31, 1996, as
compared to a $6,000 provision for the quarter ended December 31, 1995. 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 increased from $27,000 at December
--------------------
31, 1995 to $29,000 at December 31, 1996.
Non-Interest Expense. Non-interest expense increased by $71,000 from
---------------------
$343,000 in the quarter ended December 31, 1995 to $414,000 in the quarter ended
December 31, 1996. This increase was primarily due to a $38,000 increase in
compensation and benefits due to staff additions and fiscal year-end salary
increases and to a $22,000 increase in miscellaneous other operating expenses.
10
<PAGE>
Provision for Income Taxes. Income tax expense was $79,000 for the
---------------------------
quarter ended December 31, 1995 compared to $82,000 for the quarter ended
December 31, 1996.
Comparison of the Six Months ended December 31, 1996 and December 31, 1995
- --------------------------------------------------------------------------
General. Net income decreased $97,000, or 25.5%, from $380,000 for the six
--------
months ended December 31, 1995 to $283,000 for the six months ended December 31,
1996. 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 more than offset other increases in non-interest expense and provision for
loan losses.
Net Interest Income. Net interest income increased $350,000, from
--------------------
$1,140,000 for the six months ended December 31, 1995 to $1,490,000 at December
31, 1996. The Company's average spread increased from 2.31% for the six months
ended December 31, 1995 to 2.63% for the six months ended December 31, 1996 due
to the fact that yields on interest-earning assets increased more than rates
paid on interest-bearing liabilities.
Interest Income. Interest income increased $560,000, or 18.9%, from
----------------
$2,970,000 for the six months ended December 31, 1995 to $3,530,000 for the same
period in 1996. This increase was primarily due to an increase of .10% in the
average rate earned on interest-earning assets and an increase of $11.8 million
in the average balance of such assets. Interest income on loans increased
$680,000, which was primarily due to an increase in the Bank's loan portfolio.
Interest income on mortgage-backed securities decreased by $20,000 due to
principal payments and prepayments. Interest income on cash and investment
securities decreased by $100,000 due to a decrease in average balances and
average rate.
11
<PAGE>
Interest Expense. Interest expense increased by $200,000 or 10.9%, from
-----------------
$1,830,000 for the six months ended December 31, 1995 to $2,030,000 for the six
months ended December 31, 1996. This increase was primarily due to a $9.4
million increase in the average balance of interest-bearing liabilities and a
.22% increase 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 $73,000 provision
for loan losses was established for the six months ended December 31, 1996, as
compared to a $12,000 provisions for the six months ended December 31, 1995.
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 $63,000 for the
--------------------
six months ended December 31, 1995 to $62,000 for the six months ended December
31, 1996.
Non-Interest Expense. Non-interest expense increased from $630,000 in the
---------------------
six months ended December 31, 1995 to $1,060,000 for the six months ended
December 31, 1996. This $430,000 increase, or 68.3%, 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 $86,000
increase in compensation and benefits due to staff additions and fiscal year-end
salary increases and a $38,000 increase in other expenses due to telephone,
postage, advertising and other miscellaneous operating expenses
Provision for Income Taxes. Income tax expense was $186,000 for the six
---------------------------
months ended December 31, 1995 as compared to $138,000 for the six months ended
December 31, 1996. The $48,000 decrease was due to a decrease in income subject
to taxes.
12
<PAGE>
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 December 31, 1996 was $713,000, or 0.9% of the
total loans. The June 30, 1996 allowance for loan losses was $641,000, or 0.9%
of total loans.
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 $483,000 from $962,000,
or 1.15% of total assets at June 30, 1996, to $1,445,000, or 1.65% of total
assets at December 31, 1996. This $1,445,000 consisted primarily of ten loans
totaling $186,000 secured by single-family homes, three loans totaling $750,000
secured by multi-family real estate located in Madison, Wisconsin, one non-
mortgage commercial loan for $50,000, two consumer loans totaling $22,000 and a
$437,000 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 will record a
charge-off of approximately $115,000 against the allowance for loan losses. The
Company had previously established loss reserves of approximately $130,000 for
the Bennett Group equipment leases.
13
<PAGE>
The $483,000 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 December 31, 1996, other assets of concern totaled $488,000
and included ten loans totaling $208,000 secured by single-family residences and
a $280,000 single-family home in Houston, Texas. 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
December 31, 1996 as compared to $2.5 million at June 30, 1996. At December 31,
1996, 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.
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Dollars in Thousands)
<S> <C> <C>
Non-Accruing Loans................ $1,445 $ 735
Foreclosed Assets................. -- 227
Total Non-Performing Assets....... $1,445 $ 962
Total Non-Performing Assets as a
Percentage of Total Assets..... 1.65% 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
14
<PAGE>
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 December
31, 1996 the Bank's average monthly liquidity ratio was 6.3% 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 December 31, 1996, the
Company had commitments to purchase or originate loans totalling $379,000. 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 December 31, 1996,
the Bank exceeded all fully phased-in regulatory capital standards.
At December 31, 1996, the Bank's tangible capital was $8.2 million, or
9.5%, of adjusted total assets, which is in excess of the 1.5% requirement by
$6.9 million. In addition, at December 31, 1996, the Bank had core capital of
$8.2 million , or 9.5%, of adjusted total assets, which exceeds the 3%
requirement by $5.6 million. The Bank had risk-based capital of $8.8 million at
December 31, 1996 or 18.6% of risk-adjusted assets which exceeds the 8.0% risk-
based capital requirement by $5.0 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
15
<PAGE>
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 six months ended
December 31, 1996, by $181,000. As a result of this legislation, the Company's
deposit insurance premiums will decline from the current 0.23% of insured
deposits to 0.06% of insured deposits commencing on January 1, 1997.
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 directs 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.
16
<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
---------------------------------------------------
The Annual Meeting of Shareholders (the"Meeting") of GFS Bancorp, Inc.
was held on October 25,1995. Shareholders approved the election of
Donald M. Howig, Scott A. Jensen and David S. Clay as directors of the
Company for a three year term and ratification of the appointment of
McGladrey & Pullen, LLP as auditors of the Company for the fiscal year
ending June 30, 1996.
The following is a record of the votes cast in the election of
directors of the Company:
Donald M. Howig: For 445,292
Withheld 2,837
Broker Non-votes 17,738
Scott A. Jensen: For 445,419
Withheld 2,710
Broker Non-votes 17,738
David S. Clay: For 445,419
Withheld 2,710
Broker Non-votes 17,738
17
<PAGE>
The following is a record of the votes cast in respect of the proposal
to ratify the appointment of McGladrey & Pullen, LLP as the Company's
auditors for the fiscal year ending June 30, 1996.
For 446,579
Against 800
Abstain 750
Broker Non-votes 17,738
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirement 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.
Registrant
Date: February 11, 1997 /s/ Steven L. Opsal
-----------------------------
Steven L. Opsal, President
and Chief Executive Officer
Date: February 11, 1997 /s/ Katherine A. Rose
-----------------------------
Katherine A. Rose, Vice President
and Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 296,415
<INT-BEARING-DEPOSITS> 2,748,131
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,635,700
<INVESTMENTS-CARRYING> 4,739,734
<INVESTMENTS-MARKET> 0
<LOANS> 75,874,543
<ALLOWANCE> 0
<TOTAL-ASSETS> 87,625,882
<DEPOSITS> 58,455,197
<SHORT-TERM> 5,858,523
<LIABILITIES-OTHER> 828,338
<LONG-TERM> 12,431,698
0
0
<COMMON> 5,501
<OTHER-SE> 10,046,625
<TOTAL-LIABILITIES-AND-EQUITY> 87,625,882
<INTEREST-LOAN> 3,212,764
<INTEREST-INVEST> 314,271
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,527,035
<INTEREST-DEPOSIT> 1,453,749
<INTEREST-EXPENSE> 2,034,419
<INTEREST-INCOME-NET> 1,492,616
<LOAN-LOSSES> 73,000
<SECURITIES-GAINS> (1,576)
<EXPENSE-OTHER> 1,060,970
<INCOME-PRETAX> 420,606
<INCOME-PRE-EXTRAORDINARY> 283,024
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,024
<EPS-PRIMARY> 56
<EPS-DILUTED> 56
<YIELD-ACTUAL> 0
<LOANS-NON> 1,445,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 488,000
<ALLOWANCE-OPEN> 641,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 713,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
