<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 December 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
-------------------------
(Issuer's telephone number)
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 [X] No
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, 1997, there were 966,242 shares of the
Registrant's common stock issued and outstanding, including
8,252 shares of restricted stock.<PAGE>
<PAGE>
GFS BANCORP, INC.
INDEX
PART I. FINANCIAL INFORMATION (unaudited) PAGE NO.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997
and June 30, 1997 (Unaudited)....................... 1
Consolidated Statement of Income for the Three
Months and Six Months Ended December 31, 1997
and 1996 (Unaudited)................................ 2
Consolidated Statement of Shareholders' Equity,
for the Six Months Ended December 31, 1997
(Unaudited)......................................... 3
Consolidated Statement of Cash Flows, for the Six
Months Ended December 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................. 9
PART II. OTHER INFORMATION
Signature Page..................................... 21
<PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31 June 30,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions:
Noninterest bearing $ 293,696 $ 334,287
Interest bearing 6,612,159 4,308,632
Securities available for sale 805,735 1,909,490
Securities held to maturity 1,498,069 1,497,785
Mortgage-backed securities held to maturity 2,991,984 3,145,696
Stock in Federal Home Loan Bank, at cost
(approximate fair value) 1,159,000 1,159,000
Loans receivable, net 79,703,968 78,474,914
Real estate acquired in settlement of loans, net 211,828 0
Premises and equipment, net 229,068 223,236
Accrued interest receivable 546,382 520,661
Other assets 494,362 489,552
------------ ------------
Total Assets $ 94,546,251 $ 92,063,253
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 7,743,644 $ 6,273,344
Savings and money market 12,104,362 11,617,756
Certificates of deposit 42,035,023 41,659,676
------------ ------------
Total Deposits 61,883,029 59,550,776
Advances from Federal Home Loan Bank 20,431,697 20,961,466
Advances from borrowers for taxes and insurance 682,174 713,593
Accrued dividends payable 64,756 64,235
Other accrued expenses and liabilities 299,378 236,005
------------ ------------
Total Liabilities $ 83,361,034 $ 81,526,075
------------ ------------
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
December 1,108,720 shares;
June 1,100,720 shares 11,087 11,007
Additional paid-in capital 5,332,530 5,202,310
Retained earnings -substantially restricted 6,981,093 6,523,527
Less:
Unearned employee stock ownership plan (167,651) (197,631)
Unearned retention and recognition plan (1,075) (7,225)
Treasury stock at cost 112,478 shares (1,055,302) (1,055,302)
Unrealized gain on securities
available for sale, net 84,535 60,492
------------ ------------
Total Stockholders' Equity $ 11,185,217 $ 10,537,178
------------ ------------
Total Liabilities and Stockholders' Equity $ 94,546,251 $ 92,063,253
============ ============
</TABLE>
1 <PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six Months Ended
December 31, December 31,
------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,721,402 $1,605,928 $3,465,367 $3,212,764
Mortgage-backed securities 56,584 60,385 114,468 122,872
Other securities and interest-bearing
cash accounts 135,192 101,452 237,433 191,399
---------- ---------- ---------- ----------
1,913,178 1,767,765 3,817,268 3,527,035
---------- ---------- ---------- ----------
Interest expense:
Deposits 779,379 744,059 1,544,571 1,453,749
Advances from Federal Home Loan Bank 318,748 285,419 644,008 580,670
---------- ---------- ---------- ----------
1,098,127 1,029,478 2,188,579 2,034,419
---------- ---------- ---------- ----------
Net interest income 815,051 738,287 1,628,689 1,492,616
Provision for loan losses 24,000 24,000 48,000 73,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 791,051 714,287 1,580,689 1,419,616
Noninterest income:
Gain (loss) on sale of securities
available for sale 91,562 0 88,559 (1,576)
Other 48,743 29,005 97,422 63,536
---------- ---------- ---------- ----------
140,305 29,005 185,981 61,960
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 263,265 237,923 503,047 451,646
Occupancy expenses 26,250 22,264 47,700 41,755
Federal deposit insurance premiums 9,424 30,647 18,652 59,738
FDIC-SAIF Special Assessment 0 0 0 287,568
Data processing services 18,827 16,755 37,665 33,889
Other 174,418 106,885 274,466 186,374
---------- ---------- ---------- ----------
492,184 414,474 881,530 1,060,970
---------- ---------- ---------- ----------
Income before provision for income taxes 439,172 328,818 885,140 420,606
Provision for income taxes 153,050 81,500 301,050 137,582
---------- ---------- ---------- ----------
Net income $ 286,122 $ 247,318 $ 584,090 $ 283,024
========== ========== ========== ==========
Basic earnings per common share $ 0.30 $ 0.26 $ 0.62 $ 0.30
Diluted earnings per common share $ 0.27 $ 0.25 $ 0.56 $ 0.28
========== ========== ========== ==========
</TABLE>
2<PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional ESOP
Common Paid-in Retained Stock
Stock Capital Earnings Awards
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 $ 11,007 $5,202,310 $6,523,527 $ (197,631)
Net income 584,090
Dividends (126,524)
ESOP common stock released
for allocation 63,540 29,980
Amortization of RRP
contributions
Common stock issued to fund
stock options exercised
(8,000 shares) 80 66,680
Net change in unrealized
loss on securities
available for sale
-------- ---------- ---------- ----------
Balance, December 31, 1997 $ 11,087 $5,332,530 $6,981,093 $ (167,651)
-------- ---------- ---------- ----------
</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, 1997 $ (7,225) $(1,055,302) $ 60,492 $10,537,178
Net income 584,090
Dividends (126,524)
ESOP common stock released
for allocation 93,520
Amortization of RRP
contributions 6,150 6,150
Common stock issued to fund
stock options exercised
(8,000 shares) 66,760
Net change in unrealized
loss on securities
available for sale 24,043 24,043
-------- ----------- ---------- -----------
Balance, December 31, 1997 $ (1,075) $(1,055,302) $ 84,535 $11,185,217
======== =========== ========== ===========
</TABLE>
3
<PAGE>
<PAGE>
GFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 584,090 $ 283,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,535 17,231
Gain (loss) on sale of available for sale investments (88,559) 1,576
ESOP and RRP expense 99,670 82,856
Deferred loan fees, net (17,214) (3,538)
Provisions for loan losses 48,000 73,000
Purchase of loans for resale (9,926,180) (9,613,683)
Proceeds for the sale of loans 9,926,180 9,613,683
Change in:
Accrued interest receivable (25,721) (30,517)
Other assets (4,810) 36,017
Other liabilities 48,673 (116,576)
---------- ----------
Net cash provided by operating activities 663,664 343,073
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of securities held to maturity 0 85,000
Proceeds from sales of securities available for sale 1,380,773 99,925
Purchase of securities available for sale (150,000) 0
Principal payments received on mortgage-backed
securities 153,712 193,027
Purchase of loans to be held in portfolio (4,920,409) (4,019,583)
Net change in loans outstanding 3,673,841 (174,892)
Proceeds from sale of real estate 0 226,616
Purchase of premises and equipment (25,367) (10,323)
---------- ----------
Net cash (used) by investing activities 112,550 (3,600,230)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,332,253 5,332,814
Advances from Federal Home Loan Bank 1,000,000 500,000
Repayment of advances from the Federal Home Loan Bank (1,529,769) (1,527,776)
Net (decrease) increase in advances from borrowers
for taxes and insurance (31,419) 27,069
Proceeds from the issuance of common stock for stock
options exercised 66,760 0
Purchase of treasury stock 0 (204,875)
Dividends paid (126,003) (96,661)
---------- ----------
Net cash provided by financing activities 1,711,822 4,030,571
---------- ----------
Net(increase) in cash and cash equivalents 2,262,936 773,414
Cash and cash equivalents, beginning of period 4,642,919 2,271,132
---------- ----------
Cash and cash equivalents, end of period $6,905,855 $3,044,546
========== ==========
</TABLE>
4<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 December 31, 1997 and
June 30, 1997, the results of its operations for the three
months and six months ended December 31, 1997 and 1996, changes
in stockholders' equity for the six months ended December 31,
1997 and for the statement of cash flows for the six months
ended December 31, 1997 and 1996.
Operating results for the three months and six months ended
December 31, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 1998.
5<PAGE>
<PAGE>
(2) Earnings Per Share of Common Stock
----------------------------------
The Company adopted FASB No. 128 "earnings per share"
effective January 1, 1998. The previous year computations have
been restated to conform to FASB 128.
The table below sets forth the earnings per share
computation for the three and six months periods ending December
31, 1997 and 1996.
December 31, 1997
Basic EPS Diluted EPS
--------- -----------
3 months 6 months 3 months 6 months
-------- -------- -------- --------
Weighted
Avg Shares 996,242 992,242 996,242 992,242
Unallocted
ESOP & RRP
Shares (42,370) (44,012) (34,182) (35,794)
Options -- -- 89,983 85,772
--------- --------- ---------- ---------
Total Shares 953,872 948,230 1,052,043 1,042,220
Net Income for
the periods $ 286,122 $ 584,090 $ 286,122 $ 584,090
Earnings Per
Share $0.30 $0.62 $0.27 $0.56
December 31, 1996
Basic EPS Diluted EPS
--------- -----------
3 months 6 months 3 months 6 months
-------- -------- -------- --------
Weighted
Avg Shares 1,004,418 1,006,907 1,004,418 1,006,907
Unallocted
ESOP & RRP
Shares (66,022) (67,739) (47,718) (49,738)
Options -- -- 51,153 51,256
--------- --------- ---------- ---------
Total Shares 938,396 939,168 1,007,853 1,008,425
Net Income for
the periods $ 247,318 $ 283,024 $ 247,318 $ 283,024
Earnings Per
Share $0.26 $0.30 $0.25 $0.28
6<PAGE>
<PAGE>
(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, 1997, the capital requirements for Grinnell Federal
Savings Bank (the "Bank") under these regulations. As of
December 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 . . . . . . . $4,178 8.0% $10,118 19.37% $5,940 11.37%
Core Capital . . . . . . 2,801 3.0 9,526 10.20 6,725 7.20
Tangible Capital . . . . 1,401 1.5 9,526 10.20 8,125 8.70
</TABLE>
(4) Pending Accounting Pronouncements
---------------------------------
The Financial Accounting Standards Board (FASB) has
approved, effective for years beginning after December 15, 1997,
Statement No. 129, "Disclosure of Information About Capital
Structure", Statement No. 130, "Reporting Comprehensive Income
and Statement No. 131, "Disclosure About Segments of an
Enterprise and Related Information". FASB Statements No. 129,
130 and 131 are not expected to have a material effect on the
Company's financial statements when adopted.
(5) Pending Acquisition by First Federal Savings Bank of
Siouxland
----------------------------------------------------
On October 16, 1997, the Company entered into an Agreement
and Plan of Reorganization (the "Agreement"), providing for the
acquisition of the Company by First Federal Savings Bank of
Siouxland ("First Federal"), a mutual holding company
headquartered in Sioux City, Iowa. The Agreement provides for
the conversion of each issued and outstanding share of the
Company's common stock into the right to receive $17.65 per
share in cash
7<PAGE>
<PAGE>
from First Federal. The acquisition is subject to receipt of
regulatory approvals, approval by the Company's shareholders (at
a meeting scheduled for March 12, 1998) and other conditions.
Management currently expects the acquisition to be completed in
late March or April 1998.
8<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. 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.
9<PAGE>
<PAGE>
Financial Condition
- -------------------
The Company's total assets increased $2.4 million, or 2.6%,
from $92.1 million at June 30, 1997 to $94.5 million at December
31, 1997. This increase was due primarily to an increase of
$2.3 million in cash, $1.2 million in net loans receivable and
$212,000 in real estate acquired in settlement of loans. The
increases were partially offset by a $1.1 million decrease in
investment securities and a $154,000 decrease in mortgage-backed
securities. The increase in loans was funded by a $2.4 million
increase in savings deposits.
Total investment securities decreased by $1.1 million, or
32.4%, from $3.4 million at June 30, 1997 to $2.3 million at
December 31, 1997 due to the sale of investment in common stocks
and mutual funds. At December 31, 1997 the investment portfolio
consisted primarily of $1.5 million in U.S. agency obligations,
$800,000 in equity securities consisting of common stock of one
bank holding company and preferred stocks of a real estate
investment trust, an automobile manufacturer and two utility
companies.
Total mortgage-backed securities decreased $154,000, or
5.0%, from $3.1 million at June 30, 1997 to $3.0 million at
December 31, 1997. The decrease in mortgage-backed securities
was due to amortization of principal and prepayments.
Net loans receivable increased $1.2 million, or 1.5%, from
$78.5 million at June 30, 1997 to $79.7 million at December 31,
1997. Mortgage loans originated during the six months ended
December 31, 1997, totaled $5.5 million and were secured
primarily by single family dwellings in the Bank's market area.
During this period, the Bank also purchased $2.4 million of
loans secured by one-to-four family dwellings, $9.7 million of
multi-family and $2.1 million of commercial real estate loans
primarily located in the Madison, Wisconsin area. Of the $14.2
million in one-to-four family, multi-family, land development
and commercial real estate purchased during the period, $9.9
million were sold to other financial institutions with the Bank
retaining the servicing.
Total deposits increased by $2.4 million, or 4.0%, from
$59.5 million at June 30, 1997 to $61.9 million at December 31,
1997. This increase was primarily due to growth of $2.0 million
in
10<PAGE>
demand, savings and money market accounts and $400,000 in
certificate of deposit accounts. Management believes that this
increases was primarily attributable to successful marketing
initiatives and competitive pricing.
Total borrowed funds consisted of advances from the Federal
Home Loan Bank ("FHLB") of Des Moines. FHLB advances decreased
by $530,000, or 2.5%, from $20.96 million at June 30, 1997 to
$20.43 million at December 31, 1997.
Total stockholders' equity increased $648,000 from $10.54
million at June 30, 1997 to $11.19 million at December 31, 1997.
The increase was primarily due to $584,000 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 in stockholders' equity was partially offset by
declarations of $.065 dividend per share on common stock during
the September and December 1997 quarters. (See Consolidated
Statement of Shareholders' Equity.)
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
- ---------------------------------------------------------------
General. The Company's net income increased $39,000, or
15.8%, to $286,000 for the quarter ended December 31, 1997 from
$247,000 for the quarter ended December 31, 1996. This increase
resulted primarily from an increase in net interest income of
$77,000 and a $92,000 increase in gain on sale of securities
available for sale. The increase was partially offset by a
$78,000 increase in non-interest expense and a $71,000 increase
in provisions for income taxes.
Net Interest Income. Net interest income increased
$77,000, or 10.4%, from $738,000 at December 31, 1996 to
$815,000 at December 31, 1997 due to increases in average
balances of interest-earning assets. The Company's average
spread increased from 2.57% for the three months ended December
31, 1996 to 2.75% for the three months ended December 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 by $145,000, or
8.2%, from $1,768,000 at December 31, 1996 to $1,913,000 at
11<PAGE>
<PAGE>
December 31, 1997. This increase was primarily due to an
increase of 0.03% in the average rate earned on interest-earning
assets and an increase of $6.4 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 $69,000,
or 6.7%, from $1,029,000 for the quarter ended December 31, 1996
to $1,098,000 million for the quarter ended December 31, 1997.
This increase was primarily due to a $5.2 million increase in
the average balance of total deposits and borrowed funds, which
was partially offset by a .15% 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
quarters ended December 31, 1997 and 1996. Future additions to
the allowance for loan losses are dependent upon the performance
and composition of the loan portfolio, the economy, changes in
real estate values and interest rates, the view of the
regulatory authorities towards adequate reserve levels and
inflation. 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
$29,000 at December 31, 1996 to $140,000 at December 31, 1997.
This increase was primarily due to a $92,000 gain on sale of
securities available for sale.
Non-Interest Expense. Non-interest expense increased by
$78,000 from $414,000 in the quarter ended December 31, 1996 to
$492,000 in the quarter ended December 31, 1997. This increase
was primarily due to a $25,000 increase in compensation and
benefits and to a $68,000 increase in miscellaneous other
operating expenses. The increase in miscellaneous other
operating expenses resulted primarily from legal and other
expenses related
12<PAGE>
<PAGE>
to the pending merger with First Federal Savings Bank of
Siouxland.
Provision for Income Taxes. Income tax expense increased
from $82,000 for the quarter ended December 31, 1996 to $153,000
for the quarter ended December 31, 1997. The $71,000 increase
was due to a increase in the income subject to taxes.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
- --------------------------------------------------------
General. Net income increased $301,000, or 106.4%, from
$283,000 for the six months ended December 31, 1996 to $584,000
for the six months ended December 31, 1997. This increase
resulted primarily from a one time after-tax special
assessment in September 1996 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. Results for
the period ended December 31, 1997, were also favorably impacted
by a $161,000 increase in net interest income after provision
for loan losses and a $90,000 increase in gain on sale of
securities available for sale, which were partially offset by
increases of $108,000 in non-interest expense (excluding the
deposit insurance assessment) and $163,000 in provision for
income taxes.
Net Interest Income. Net interest income increased
$137,000, from $1,493,000 for the six months ended December 31,
1996 to $1,629,000 at December 31, 1997. The Company's average
spread increased from 2.63% for the six months ended December
31, 1996 to 2.76% for the six months ended December 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 $290,000, or
8.2%, from $3,527,000 for the six months ended December 31, 1996
to $3,817,000 for the same period in 1997. This increase was
primarily due to an increase of .04% in the average rate earned
on interest-earning assets and an increase of $7.0 million in
the average balance of such assets. Interest income on loans
increased $250,000, which was primarily due to an increase in
the Bank's loan portfolio. Interest income on mortgage-backed
securities decreased by $10,000 due to principal payments and
13<PAGE>
<PAGE>
prepayments. Interest income on cash and investment securities
decreased by $50,000 primarily due to a increase in average
balances.
Interest Expense. Interest expense increased by $155,000
or 7.6%, from $2,034,000 for the six months ended December 31,
1996 to $2,189,000 for the six months ended December 31, 1997.
This increase was primarily due to a $5.8 million increase in
the average balance of interest-bearing liabilities and a .09%
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
$48,000 provision for loan losses was established for the six
months ended December 31, 1997, as compared to a $73,000
provisions for the six months ended December 31, 1996. The
higher level of loan loss provision in the year earlier period
reflects management's assessment based on the performance and
the composition of the loan portfolio at that time. Future
additions to the allowance for loan losses are dependent upon
the performance and composition of the loan portfolio, the
economy, changes in real estate values and interest rates, the
view of the regulatory authorities toward adequate reserve
levels and inflation. There can be no assurances 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
$62,000 for the six months ended December 31, 1996 to $186,000
for the six months ended December 31, 1997. The $124,000
increase was primarily due to a $90,000 increase in gains on
sale of securities available for sale.
Non-Interest Expense. Non-interest expense decreased from
$1,060,000 in the six months ended December 31, 1996 to $882,000
for the six months ended December 31, 1997. This decrease was
primarily due to a $287,568 special one time FDIC-SAIF insurance
assessment in September 1996 (See Results of Operations -
General above) and a $41,000 decrease in the quarterly FDIC-SAIF
premiums.
14<PAGE>
<PAGE>
Partially offsetting the decrease was a $51,000 increase in
compensation and benefits due to fiscal year-end salary
increases and a $88,000 increase in other noninterest expenses
resulting primarily from legal and other expenses related to the
pending merger with First Federal Savings Bank of Siouxland.
Provision for Income Taxes. Income tax expense increased
from $138,000 for the six months ended December 31, 1996 to
$301,000 for the six months ended December 31, 1997. The
$163,000 increase was due to a increase 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 December 31, 1997 was $652,000, or 0.8% of total loans.
The June 30, 1997 allowance for loan losses was $646,000, or
0.8% of total loans. This $6,000 increase reflects the net
effect of a $40,000 charge off on multi-family real estate
located in Madison, Wisconsin (see Non-Performing Assets below),
a $2,000 charge off of a consumer loan and the addition of
$48,000 to the allowance for loan losses. The ratio of the
allowance for loan losses to non-performing assets decreased
from 70% of non-performing assets at June 30, 1997 to 44% of
non-performing assets at December 31, 1997, due to the
combination of a $549,000 increase in non-performing assets
with the $6,000 increase in allowance for loan losses referenced
above. Management believes that the current allowance for loan
losses is adequate to protect against the risk inherent in
Grinnell Federal's loan portfolio based on all current available
information.
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 $549,000 from $922,000, or 1.00% of
total assets at June 30, 1997, to $1,471,000, or 1.56% of total
assets at December 31, 1997. This $1,471,000 consisted
primarily of seven loans totaling $205,000 secured by single-
family homes, two loans
15<PAGE>
<PAGE>
totaling $498,000 secured by multi-family real estate located in
Madison, Wisconsin, one loan totaling $537,000 secured by
commercial real estate located in Grinnell, Iowa, four consumer
loans totaling $19,000 and $212,000 in real estate acquired in
settlement of loans located in Madison, Wisconsin.
The property securing the $537,000 commercial real estate
loan located in Grinnell, Iowa, consists of a combination
office and manufacturing facility. On November 26, 1997, the
borrower filed for Chapter 11 Bankruptcy protection. In
January 1998, the borrower announced it would be vacating the
facility's premises by March 31, 1998. The property was
appraised at $980,000 when originated in 1982. Management
inspected the property in November 1997 and January 1998, and
noted no evidence of deterioration. The Bank has applied for
relief from the automatic stay and will initiate foreclosure
action when the stay is lifted. While, on the basis of the
most recent appraisal, the inspections and other information
available at this time, management does not currently expect
this event to have a material adverse effect on the Company's
earnings or financial condition, this conclusion may be altered
by future developments in this matter. Write-downs of this
asset may be necessary, though the size of any such write-downs
cannot be predicted with accuracy at this time.
The two loans totaling $498,000 secured by multi-family
real estate located in Madison, Wisconsin consist of two 96 unit
apartment complexes. The Bank owns a 10% participation interest
in each loan.
The Madison, Wisconsin real estate acquired in settlement
of loans consists of a 104 unit apartment property. The Bank
owns a 9% interest in this property based on its participation
interest in the original underlying loan. As discussed above,
this asset was written down to its approximate fair value on
September 30, 1997 through a $40,000 charge-off to its Allowance
for Loan Losses.
In addition, at December 31, 1997, other assets of concern
totaled $546,000 and included seven loans totaling $217,000
secured by single-family residences in the Bank's market area, a
$270,000 loan secured by a single-family home in Houston,
Texas, one $53,000 commercial business loan and two consumer
loans totaling $6,000. While these loans raise concerns as to
timely
16<PAGE>
<PAGE>
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 $2.0 million at December 31, 1997 and June 30,
1997. At December 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 restructuring. The following table sets forth the
amount of non-performing assets at the periods indicated.
December 31, June 30,
1997 1997
------------ ------------
(Dollars in Thousands)
Non-Accruing Loans ................ $1,259 $ 922
Foreclosed Assets ................. 212 --
------ ------
Total Non-Performing Assets........ $1,471 $ 922
Total Non-Performing Assets as a
Percentage of Total Assets...... 1.56% 1.00%
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. At December 31, 1997 the Bank's average
monthly liquidity ratio was 10.48% 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
17<PAGE>
<PAGE>
expenses. At December 31, 1997, the Company had commitments to
purchase or originate loans totaling $261,000 and $608,000 in
commitments for unused lines of credit. 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, 1997, the Bank exceeded all fully phased-in regulatory
capital standards.
At December 31, 1997, the Bank's tangible capital was $9.5
million, or 10.2%, of adjusted total assets, which is in excess
of the 1.5% requirement by $8.1 million. In addition, at
December 31, 1997, the Bank had core capital of $9.5 million ,
or 10.2%, of adjusted total assets, which exceeds the 3%
requirement by $6.7 million. The Bank had risk-based capital of
$10.1 million at December 31, 1997 or 19.4% of risk-adjusted
assets which exceeds the 8.0% risk-based capital requirement by
$5.9 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.
18<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
---------------------------------------------------
The Annual Meeting of Shareholders (the"Meeting") of
GFS Bancorp, Inc. was held on October 23,1997.
Shareholders approved the election of LeRoy E. Meredith
and Katherine A. Rose 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, 1998.
The following is a record of the votes cast in the
election of directors of the Company:
LeRoy E. Meredith: For 834,742
Withheld 31,638
Katherine A. Rose: For 832,742
Withheld 33,638
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, 1998.
For 862,139
Against 2,641
Abstain 1,600
19<PAGE>
<PAGE>
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
On October 27, 1997, the Registrant filed a Form 8-K
reporting that on October 16, 1997, the Registrant had
entered into an Agreement and Plan of Reorganization
(the "Agreement"), providing for the acquisition of the
Registrant by First Federal Savings Bank of Siouxland
("First Federal"). The Agreement provides for the
conversion of each issued and outstanding share of the
Registrant's common stock into the right to receive
$17.65 per share in cash from First Federal.
20<PAGE>
<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 12, 1998 /s/ Steven L. Opsal
---------------------------------
Steven L. Opsal, President
and Chief Executive Officer
Date: February 12, 1998 /s/ Katherine A. Rose
---------------------------------
Katherine A. Rose, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 293,696
<INT-BEARING-DEPOSITS> 6,612,159
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<SHORT-TERM> 4,812,726
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<INCOME-PRETAX> 885,140
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<NET-INCOME> 584,090
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