SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1998
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
------------ ------------
Commission File No. 0-24468
GUTHRIE SAVINGS, INC.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Oklahoma 73-1452383
- --------------------------------------------- ------------------
(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
120 North Division, Guthrie, Oklahoma 73044
- --------------------------------------- ------------------
(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (405) 282-2201
---------------
Securities registered under to Section 12(b) of the Exchange Act: None
----
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 .
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $3.9 million
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on an estimate of the average bid and asked price of
the registrant's Common Stock on June 10, 1998, was $5.35 million (estimated at
$18 per share multiplied by 297,391 shares of Common Stock).
As of June 10, 1998, there were issued and outstanding 417,457 shares
of the registrant's Common Stock.
Transition Small Business Disclosure Format (check one):
YES NO X
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended March 31, 1998. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
for the Fiscal Year ended March 31, 1998. (Part III)
<PAGE>
Guthrie Savings, Inc. (the "Company") may from time to time make
written or oral "forward- looking statements", including statements contained in
the Company's filings with the Securities and Exchange Commission (including
this annual report on Form 10-KSB and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
PART I
Item 1. Business
- -----------------
Business of the Company
The Company is an Oklahoma-chartered corporation organized in May 1994
at the direction of Guthrie Federal Savings and Loan Association (the
"Association") in connection with the Association's conversion from the mutual
to stock form. On October 11, 1994, the Association completed its conversion and
changed its name to Guthrie Federal Savings Bank (the "Bank") and became a
wholly owned subsidiary of the Company. The Company is a unitary savings and
loan holding company which, under existing laws, generally is not restricted in
the types of business activities in which it may engage provided the Bank
retains a specified amount of its assets in housing-related investments. At
March 31, 1998, the Company had total consolidated assets of $48.6 million and
stockholders' equity of $7.5 million.
Business of the Bank
The Bank is a federally chartered stock savings bank headquartered in
Guthrie, Oklahoma. The Bank was founded in 1906 with a charter from the
Territory of Oklahoma under the name of "Employees Building and Loan
Association." Employees Building and Loan Association became known as "Guthrie
2
<PAGE>
Savings and Loan Association" in 1968 when it changed its name. In early August
1994, the Bank became a federal association under the name "Guthrie Federal
Savings and Loan Association." The Bank changed its name to Guthrie Federal
Savings Bank in October of 1994 in connection with its conversion from mutual to
stock form. The Bank's deposits have been federally insured by the Savings
Association Insurance Fund ("SAIF") and its predecessor, the Federal Savings and
Loan Insurance Corporation, since 1948, and the Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
The Bank is primarily engaged in attracting deposits from the general
public and using those funds to originate real estate loans on one- to
four-family residences and, to a lesser extent, consumer loans. The Bank has one
office in Guthrie, Oklahoma, which is located in its primary market area of
Logan County, Oklahoma. In addition, the Bank holds interest-bearing deposits in
other financial institutions and invests in mortgage-backed securities and
investment securities. The Bank offers its customers fixed-rate and
adjustable-rate mortgage loans, as well as consumer loans, including home equity
and savings account loans. Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC") fixed-rate mortgage loans and
Federal Housing Administration/Veterans Administration ("FHA/VA") loans are
originated under a correspondent banking relationship with mortgage banking
companies. Adjustable-rate mortgage loans and fixed-rate mortgage loans with
terms of up to 30 years are originated for retention in the Bank's portfolio.
All installment loans are retained in the Bank's portfolio.
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS") and its deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC") under the SAIF. The Bank is a member of
and owns capital stock in the FHLB of Topeka, which is one of the 12 regional
banks in the FHLB System.
The principal sources of funds for the Bank's lending activities are
deposits and the amortization, repayment, and maturity of loans, investment
securities, and mortgage-backed securities. Principal sources of income are
interest and fees on loans, mortgage-backed certificates, investment securities,
and deposits held in other financial institutions. The Bank's principal expense
is interest paid on deposits.
Market Area and Competition
Logan County, Oklahoma is considered to be the Bank's primary market
area. Agriculture and the oil and gas industry dominate the economy. During the
past several years, the economic conditions in this area have stabilized from
the major downturn in activity experienced during the mid- to late-1980s.
For over 90 years, the Bank has focused on serving its customers. These
customers are located in the Oklahoma communities of Guthrie and surrounding
communities in Logan County, and to a lesser extent, the cities of Kingfisher
and Stillwater and parts of the Oklahoma counties of Payne, Kingfisher, and
Oklahoma. The Bank is one of five local thrifts and commercial banks serving
Logan County. Guthrie must also compete with credit unions and mortgage banking
companies located outside of Logan County.
The Bank encounters strong competition both in the attraction of
deposits and origination of real estate and other loans. Competition comes
primarily from five savings institutions and commercial banks with offices in
Logan County. In addition, the Bank competes with credit unions and mortgage
banking companies that operate in Logan County. Due to their size, many of the
Bank's competitors possess greater financial and marketing resources. The Bank
competes for savings accounts by offering depositors competitive interest rates
and a high level of personal service.
3
<PAGE>
Competition for mortgage loans is not limited to local financial
institutions. The Bank competes for loans primarily through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers and contractors.
The Bank's market place has seen moderate unemployment and some
population decline. Because of the lack of economic growth and stagnant
population, the Bank has had to invest in mortgage-backed and investment
securities.
Lending Activities
General. The Bank's loan portfolio predominantly consists of
adjustable-and fixed-rate mortgage loans secured by one- to four-family
residences and, to a lesser extent, land and lot development loans,
non-residential loans, and loans for other dwelling units. The Bank also makes
consumer loans, including automobile and savings account loans.
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Bank's loan portfolio by type of loan and type of
security on the dates indicated:
<TABLE>
<CAPTION>
1997 1998
----------------------------- ---------------------------
$ % $ %
----------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Type of Loan:
- -------------
Real estate loans:
Construction....................................... $ 1,791 7.64% $ 2,098 8.18%
Residential........................................ 18,154 77.38 19,568 76.27
Non-residential.................................... 1,657 7.06 1,763 6.87
Second mortgage and other equity................... 1,223 5.21 1,267 4.94
Consumer loans:
Savings account.................................... 403 1.72 560 2.18
Automobile......................................... 998 4.25 1,457 5.68
Other.............................................. 327 1.39 466 1.82
------ ------ ------ ------
Gross loans...................................... 24,553 104.65 27,179 105.94
Less:
Loans in process................................... (642) (2.74) (1,098) (4.28)
Deferred loan origination fees and costs........... (73) (0.31) (73) (0.28)
Allowance for loan losses.......................... (377) (1.60) (353) (1.38)
------ ------- ------ -------
Total loans, net..................................... $23,461 100.00% $25,655 100.00%
====== ====== ====== ======
Type of Security:
- -----------------
Residential real estate:
1-4 family....................................... $20,288 86.48% $21,961 85.60%
Other dwelling units............................. 301 1.29 244 .95
Land............................................. 579 2.47 728 2.84
Non-residential...................................... 1,657 7.06 1,763 6.87
Savings accounts..................................... 403 1.72 560 2.18
Automobiles.......................................... 998 4.25 1,457 5.68
Other................................................ 327 1.39 466 1.82
Less:
Loans in process................................... (642) (2.74) (1,098) (4.28)
Deferred loan origination fees and costs........... (73) (.31) (73) (0.28)
Allowance for loan losses.......................... (377) (1.61) (353) (1.38)
------ ------ ------ ------
Total loans, net................................. $23,461 100.00% $25,655 100.00%
====== ====== ====== ======
</TABLE>
4
<PAGE>
Loan Maturity Tables
The following table sets forth the maturity of the Company's loan
portfolio at March 31, 1998. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on loans
totalled $5.2 million and $6.2 million for the years ended March 31, 1997 and
1998, respectively. All mortgage loans are shown as maturing based on
contractual maturities.
<TABLE>
<CAPTION>
Other
1-4 Family Residential,
Real Estate Land,
Mortgage Commercial Construction Consumer Total
-------- ---------- ------------ -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Non-performing $ 200 $ -- $ -- $ 4 $ 204
Amounts Due:
1 Year or less.................. 71 40 1,969 814 2,894
After 1 year:
1 to 5 years.................. 997 143 129 1,553 2,822
Over 5 years.................. 18,839 2,308 -- 112 21,259
------ ----- ----- ----- ------
Total due after one year........ 19,836 2,451 129 1,665 24,081
------ ----- ----- ----- ------
Total amount due................ $20,107 $2,491 $2,098 $2,483 $27,179
====== ===== ====== ===== ======
Less:
Allowance for loan loss......... (353)
Loans in process................ (1,098)
Deferred loan fees.............. (73)
Loans receivable, net......... $25,655
======
</TABLE>
5
<PAGE>
The following table sets forth the dollar amount of all loans due after
March 31, 1999 which have pre-determined fixed interest rates or which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Adjustable
Fixed Rates Rates Total
----------- ----- -----
(In Thousands)
<S> <C> <C> <C>
One- to four-family.................. $11,410 $8,426 $19,836
Other residential, land
and commercial..................... 1,433 1,018 2,451
Construction......................... 129 -- 129
Consumer............................. 1,665 -- 1,665
------ ----- -----
Total.............................. $14,637 $9,444 $24,081
====== ===== ======
</TABLE>
Residential Loans. The Bank's primary lending activity consists of the
origination of one- to four-family, owner-occupied, residential mortgage loans
secured by property located in the Bank's primary market area. Management
believes that this policy of focusing on one- to four-family lending has been
effective in contributing to net interest income while keeping loan
delinquencies and losses to a minimum. The Bank also originates a small number
of residential real estate loans secured by multi-family dwellings.
The Bank currently offers, for retention in its portfolio and for
correspondent banks and mortgage banking companies, adjustable-rate mortgages
("ARMs") that adjust every one and three years and have terms from one to 30
years, and fixed-rate mortgage loans with terms of one to 30 years. The interest
rates on ARMs are based on treasury bill rates and the national cost of funds.
The Bank considers the market factors and competitive rates on loans as well as
its own cost of funds when determining the rates on the loans that it offers.
The Bank has a small network of correspondents to whom the Bank refers loans
that it does not wish to originate for its portfolio. The Bank originates
adjustable-rate loans for its own loan portfolio. The Bank originates fixed-rate
loans with terms of 30 years or less for its portfolio. The Bank also refers
FHA/VA loans to its correspondents. Although the Bank only originates fixed rate
and adjustable-rate mortgage loans for its own portfolio, they are generally
underwritten to Federal Home Loan Mortgage Corporation ("FHLMC") standards.
Generally, during periods of rising interest rates, the risk of default
on an ARM is considered to be greater than the risk of default on a fixed-rate
loan due to the upward adjustment of interest costs to the borrower. ARM loans
are made at up to 90% of the loan to value ratio. The Bank does not originate
ARMs with negative amortization.
Regulations limit the amount that a savings association may lend in
relationship to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and 90%
for all other real estate loans. The Bank's lending policies, however, generally
limit the maximum loan-to-value ratio to 80% of the appraised value of the
property, based on an independent or staff appraisal. When the Bank makes a loan
in excess of 80% of the appraised value or purchase price, private mortgage
insurance is required for at least the amount of the loan in excess of 80% of
the appraised value.
The loan-to-value ratio, maturity, and other provisions of the
residential real estate loans made by the Bank reflect the policy of making
loans generally below the maximum limits permitted under
6
<PAGE>
applicable regulations. The Bank requires an independent or staff appraisal,
title insurance or an attorney's opinion with an abstract, flood hazard
insurance (if applicable), and fire and casualty insurance on all properties
securing real estate loans made by the Bank. The Bank reserves the right to
approve the selection of which title insurance companies' policies are
acceptable to insure real estate in loan transactions.
While one- to four-family residential real estate loans are normally
originated with one to 30 year terms, such loans typically remain outstanding
for substantially shorter periods because borrowers often prepay their loans in
full upon sale of the property pledged as security or upon refinancing the
original loan. In addition, substantially all of the fixed-interest rate loans
in the Bank's loan portfolio contain due-on-sale clauses providing that the Bank
may declare the unpaid amount due and payable upon the sale of the property
securing the loan. The Bank enforces these due-on-sale clauses to the extent
permitted by law. Thus, average loan maturity is a function of, among other
factors, the level of purchase and sale activity in the real estate market,
prevailing interest rates and the interest rates payable on outstanding loans.
Second Mortgage Loans. The Bank makes loans on real estate secured by
secondary, or junior, mortgages. Secondary mortgage loans possess greater risk
than primary mortgage loans since the security underlying the second mortgage
loan must first be used to satisfy the obligation under the primary mortgage
loan. The Bank's lending policies for second mortgage loans secured by one- to
four-family residences are similar to those used for residential loans,
including the required loan-to-value ratio. The Bank does not currently
originate any second mortgage loans outside its primary market area.
Land Loans. The Bank makes loans secured by undeveloped land, in
amounts up to 65% of the appraised value of the land. The loans are primarily
secured by lots in the Bank's primary market area. Although those loans are
generally considered to be of a higher credit risk than home loans, the Bank has
not experienced a high rate of delinquencies.
Consumer Loans. Consumer loans consist of personal unsecured loans,
home improvement loans, automobile loans and savings account loans, at fixed
rates.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. In addition, the stability of the applicant's monthly income from primary
employment is considered during the underwriting process. Creditworthiness of
the applicant is of primary consideration; however, the underwriting process
also includes a comparison of the value of the security in relation to the
proposed loan amount.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreational vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. The Bank adds a general provision to its consumer loan loss
allowance, based on general economic conditions, prior loss experience and
management's periodic evaluation.
Commercial Real Estate Loans. Loans secured by commercial real estate
are originated in amounts up to 80% of the appraised value of the property. Such
appraised value is determined by an
7
<PAGE>
independent appraiser previously approved by the Bank. The Bank's commercial
real estate loans are permanent loans secured by improved property such as small
office buildings, retail stores, small strip plazas, and other non-residential
buildings. The Bank originates commercial real estate loans with amortization
periods of one to 20 years, primarily as adjustable-rate mortgages.
Loans secured by commercial real estate generally involve a greater
degree of risk than residential mortgage loans and carry larger loan balances.
This increased credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income-producing properties, and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. At March 31, 1998, the largest commercial real
estate loan was secured by a health care facility and had a balance of $528,000
and was current.
Construction Loans. The Bank primarily makes construction loans to
individuals to construct single-family owner-occupied homes, for which the Bank
also provides permanent financing. Construction financing is generally
considered to involve a higher degree of risk of loss than long-term financing
on improved, occupied real estate. Risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction or development and the estimated cost
(including interest) of construction. During the construction phase, a number of
factors could result in delays and cost overruns. If the estimate of
construction costs proves to be inaccurate, the Bank may be required to advance
funds beyond the amount originally committed to permit completion of the
development. If the estimate of value proves to be inaccurate, the Bank may be
confronted, at or prior to the maturity of the loan, with a project having a
value that is insufficient to assure full repayment.
Loan Purchases and Sales. The Bank did not sell or purchase loans
during the year ended March 31, 1997. During the year ended March 31, 1998, the
Bank purchased no loans and sold $679,000 of loans. The Bank primarily sold 15-
and 30-year fixed rate loans during the year ended March 31, 1998. Rather than
sell loans, the Bank also offers 30-year fixed rate mortgage loans that are
underwritten by correspondent banks and mortgage banking companies. The Bank has
generally not purchased loans during the past five years.
Loan Commitments. The Bank issues written, formal commitments to
prospective borrowers on all real estate approved loans. The commitment requires
acceptance within 10 days of the date of issuance. For commercial real estate
loans or commercial loans in general, the commitment is issued for approximately
10 days and must be closed within 30 days of issuance. Commitments for consumer
loans expire 30 days after issuance. At March 31, 1998, the Bank had $220,500 in
commitments to originate mortgage loans. Also, at March 31, 1998, the Bank had a
$57,600 commitment to sell a loan not yet originated.
Loan Processing Fees. In addition to interest earned on loans, the Bank
recognizes service charges that consist primarily of late charges. The Bank
recognized loan processing fees of $15,000, and $12,000 for the years ended
March 31, 1997, and 1998, respectively.
Loans to One Borrower. A savings association may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of the
association's unimpaired capital and surplus. An additional amount may be lent,
equal to 10% of unimpaired capital and surplus, under certain circumstances.
8
<PAGE>
Loan Delinquencies. Loans are reviewed on a continual basis and are
generally placed on a non-accrual status when the loan becomes more than 90 days
delinquent and, in the opinion of management, the collection of additional
interest is doubtful. Interest accrued and unpaid at the time a loan is placed
on non-accrual status is charged against interest income. Subsequent interest
payments, if any, are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as foreclosed real estate until such time
as it is sold. When foreclosed real estate is acquired, it is recorded at the
lower of fair value or cost. Valuations are periodically performed by management
and subsequent charges to general mortgage loan reserves are taken when it is
determined that the carrying value of the property exceeds the fair value less
estimated costs to sell.
The following table sets forth information regarding non-accrual loans,
real estate owned, and other repossessed assets and loans that are 90 days or
more delinquent but on which the Company was accruing interest at the dates
indicated.
<TABLE>
<CAPTION>
At March 31,
-----------------------
1997 1998
------- -------
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 dwelling units................................... $ 301 $ 200
All other mortgage loans........................................................ 86 --
Non-mortgage loans:
Commercial...................................................................... 0 --
Consumer........................................................................ 32 4
------ ------
Total............................................................................. $ 419 $ 204
====== ======
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
Permanent loans secured by 1-4 dwelling units................................... $ 0 $ 0
All other mortgage loans........................................................ 0 0
------ ------
Total............................................................................. $ 0 $ 0
====== ======
Total non-accrual and accrual loans............................................... $ 419 $ 204
====== ======
Real estate owned................................................................. $ 0 $ 11
====== ======
Total nonperforming assets........................................................ $ 419 $ 215
====== ======
Total non-accrual and accrual loans to net loans.................................. 1.79% .80%
====== =======
Total non-accrual and accrual loans to total assets............................... .85% .42%
====== =======
Total nonperforming assets to total assets........................................ .85% .44%
====== =======
</TABLE>
Interest income that would have been recorded on renegotiated loans and
loans accounted for on a non-accrual basis under the original terms of such
loans was $48,000 and $21,600 for the years ended March 31, 1997 and 1998,
respectively. Amounts foregone and not included in the Bank's interest income
for the years ended March 31, 1997 and 1998 totalled $4,500 and $7,300,
respectively.
9
<PAGE>
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets may be designated "special
mention" because of potential weakness that do not currently warrant
classification in one of the aforementioned categories. In addition, the Bank
maintains an internal "watchlist" of all loans that were removed from
classification during the prior one-year period.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may order the establishment of additional general or specific loss
allowances. A portion of general loss allowances established to cover possible
losses related to assets classified as substandard or doubtful may be included
in determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the lower of the
cost or fair value.
The Bank held $10,500 in real estate owned at March 31, 1998.
Allowance for Loan and Real Estate Losses. It is management's policy to
provide for losses on unidentified loans in its loan portfolio and foreclosed
real estate. A provision for loan losses is charged to operations based on
management's evaluation of the potential losses that may be incurred in the
Bank's loan portfolio. Such evaluation, which includes a review of all loans of
which full collectibility of interest and principal may not be reasonably
assured, considers, among other matters, the estimated net realizable value of
the underlying collateral. During the years ended March 31, 1997 and 1998, the
Bank charged $1,000 and $3,000, respectively, to the provision for loan losses
and $0 and $0, respectively, to the provision for losses on real estate owned
and other repossessed assets.
Management will continue to review the entire loan portfolio to
determine the extent, if any, to which further additional loss provisions may be
deemed necessary. There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
significant additional provisions for losses will not be required.
10
<PAGE>
The distribution of the Bank's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
At March 31,
-------------------------------------------------------------------
1997 1998
--------------------------------- -------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential real estate................... $256 86.21% $247 84.38%
Commercial real estate.................... 27 6.75 26 6.48
Consumer.................................. 94 7.04 80 9.14
--- ------ --- ------
Total..................................... $377 100.00% $353 100.00%
=== ====== === ======
</TABLE>
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At March 31,
-----------------------------
1997 1998
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
Total loans outstanding, net.................................................. $ 23,461 $25,655
======= ======
Average loans outstanding..................................................... $ 22,895 $24,619
======= ======
Allowance balances (at beginning of period)................................... 391 377
Provision (credit):
Residential................................................................. 0 0
Consumer.................................................................... 1 3
------- ------
1 3
------- ------
Charge-offs:
Residential................................................................. (5) (9)
Consumer.................................................................... (24) (25)
------- ------
(29) (34)
------- ------
Recoveries:
Residential................................................................ 0 0
Consumer.................................................................... 14 7
------- ------
14 7
------- ------
Net (charge-offs) recoveries.................................................. (15) (27)
------- ------
Allowance balance (at end of period).......................................... $ 377 $ 353
======= ======
Allowance for loan losses as a percent of total loans
outstanding, net............................................................ 1.61% 1.38%
Net loans charged off as a percent of average loans
outstanding................................................................. 0.07% 0.11%
</TABLE>
11
<PAGE>
The following table sets forth information with respect to the Bank's
allowance for losses on real estate owned and other repossessed assets at the
dates indicated:
<TABLE>
<CAPTION>
At March 31,
----------------------------
1997 1998
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Total real estate owned and other
repossessed assets, net........................................... $ 0 $ 11
==== ======
Allowance balances-beginning........................................ $ 0 $ 0
Provision........................................................... 0 0
Net charge-offs..................................................... 0 0
---- -----
Allowance balances - ending......................................... $ 0 $ 0
==== =====
Allowance for losses on real estate owned and
other repossessed assets to net real estate
owned and other repossessed assets................................ 0% 0%
==== =====
</TABLE>
Mortgage-Backed Securities and Investment Activities
General. The Bank is required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The Bank has generally maintained a
liquidity portfolio well in excess of regulatory requirements. Liquidity levels
may be increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the attractiveness of the
yields then available in relation to other opportunities and its expectation of
future yield levels, as well as management's projections as to the short-term
demand for funds to be used in the Bank's loan origination and other activities.
At March 31, 1998, the Bank had an investment portfolio of approximately $6.1
million, consisting primarily of U.S. government agency obligations, U.S.
Treasury securities, and FHLB stock, as permitted by the OTS regulations. The
Bank has found its level of investment securities has increased in recent years
as a result of repayments and prepayments on loans and mortgage-backed
securities exceeding loan demand. The Bank has invested in mortgage-backed
securities to offset this excess liquidity principally in Government National
Mortgage Association ("GNMA") ARMs, Federal National Mortgage Association
("FNMA") ARMs, and FHLMC ARMs.
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 requires the Bank to
classify all of its investments in debt and equity securities ("securities")
into three categories. Debt securities which management has the positive intent
and ability to hold until maturity are to be classified as held-to-maturity.
Securities that are bought and held principally for the purpose of selling them
in the near term are to be classified as trading securities. All other
securities are to be classified as available-for-sale securities.
Unrealized holding gains and losses for trading securities are to be
included in earnings. Unrealized gains and losses for available-for-sale
securities are to be excluded from earnings and reported net of income tax
effect as a separate component of shareholders' equity until realized.
Investments classified as held-to-maturity are to be accounted for at amortized
cost. The Bank adopted SFAS No. 115 effective April 1, 1994, and designated its
investment and mortgage-backed securities portfolio into
12
<PAGE>
the required three categories. As a result of SFAS No. 115, the Bank reviewed
and classified its securities as held-for-investment or available-for-sale.
SFAS No. 115 requires the Bank to account for a portion of its holding
of debt securities at market value (as opposed to amortized cost) and may result
in greater volatility in its earnings and capital position. It also may
discourage investment in longer term debt securities, which tend to have higher
yields than short-term debt securities, and hence reduce the earnings of the
Bank. No securities can be moved from a particular category without Board
approval.
The market value of investments and mortgage-backed securities held to
maturity at March 31, 1998, was $3.9 million and $12.7 million, respectively,
resulting in a net unrealized loss on investments held to maturity at such date
of $7,000 and a net realized gain on mortgage-backed securities held-to-
maturity of $129,000 at such date. The Bank anticipates having the ability to
fund all of its investing activities from funds held on deposit at FHLB of
Topeka. The Bank will continue to seek high quality investments with short to
intermediate maturities and duration from one to five years. At March 31, 1998,
the securities classified as available for sale had a carrying value of $2.2
million net of an unrealized loss of $6,000.
The Revenue Reconciliation Act of 1993 added a Section 475 to the
Internal Revenue Code. Section 475 is a mark-to-market tax provision that is
different from SFAS No. 115. The term "securities" in the tax statute includes
not just traditional debt and equity securities, but mortgages as well. Section
475 and the temporary regulations issued thereunder apply to "dealer"
institutions that regularly buy or sell more than a nominal amount of securities
in the ordinary course of a trade or business. Section 475 requires the Bank to
identify securities held for sale within the meaning of the tax code and include
unrealized gains or losses on related security transactions with its fiscal tax
return. The tax reporting of unrealized gains and losses on securities held for
sale as defined by Section 475 and the related regulations, if different from
SFAS No. 115, is a temporary difference as defined under SFAS No. 109 and the
recording of a related deferred tax liability or asset will not affect generally
accepted accounting principles ("GAAP") basis net income. At March 31, 1998, the
Bank did not have any investments subject to Section 475.
Mortgage-Backed Securities
To supplement lending activities in periods of deposit growth and/or
declining loan demand, the Bank has increased its investments in residential
mortgage-backed securities during recent years. Although such securities are
held for investment, they can serve as collateral for borrowings and, through
repayments, as a source of liquidity.
The mortgage-backed securities portfolio as of March 31, 1998,
consisted primarily of adjustable-rate certificates issued by FHLMC ($1.3
million), GNMA ($2.9 million), and FNMA ($1.3 million). To a lesser extent the
mortgage backed securities portfolio also contains fixed-rate certificates
issued by FHLMC, GNMA, and FNMA. At March 31, 1998, the carrying value of
mortgage-backed securities totalled $7.6 million or 15.67% of total assets. The
market value of such securities totalled approximately $7.6 million at March 31,
1998, resulting in a net unrealized gain of $20,000 in this portfolio.
Additionally, as of March 31, 1998, the Bank held investments in collateralized
mortgage obligations amounting to $5.0 million, which had an unrealized gain of
$149,000.
Mortgage-backed securities represent a participation interest in a pool
of single-family or multi-family mortgages, the principal and interest payments
on which are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation
13
<PAGE>
interests in the form of securities, to investors such as the Bank. Such
quasi-governmental agencies, which guarantee the payment of principal and
interest to investors, primarily include FHLMC, FNMA, and GNMA.
FHLMC is a corporation chartered by the United States Government and
owned by the 12 Federal Home Loan Banks and federally insured savings
institutions. FHLMC issues participation certificates backed principally by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal within one year. FHLMC securities are indirect
obligations of the United States Government. FNMA is a private corporation
chartered by Congress with a mandate to establish a secondary market for
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest, and FNMA securities are indirect obligations of the United States
Government. GNMA is a government agency within the Department of Housing and
Urban Development ("HUD") which is intended to help finance government assisted
housing programs. GNMA guarantees the timely payment of principal and interest,
and GNMA securities are backed by the full faith and credit of the United States
Government. Since FHLMC, FNMA and GNMA were established to provide support for
low- and middle-income housing, there are limits to the maximum size of loans
that qualify for these programs. GNMA limits its maximum loan size for Veterans
Administration ("VA") loans and for Federal Housing Authority ("FHA") loans.
FNMA and FHLMC limit their loans. To accommodate larger-sized loans, and loans
that, for other reasons, do not conform to the agency programs, a number of
private institutions have established their own home-loan origination and
securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate mortgages or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result, the interest rate risk characteristics of the underlying pool of
mortgages (i.e., fixed rate or adjustable rate) as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages. Mortgage-backed
securities issued by FHLMC, FNMA, and GNMA make up a majority of the
pass-through market.
The collateralized mortgage obligations ("CMOs") (in the form of real
estate mortgage investment conduits) held by Registrant at March 31, 1998
totaled $5.0 million and consisted of CMOs issued by FHLMC, FNMA and private
issuers. The aggregate book value of CMOs issued by any one private issuer did
not exceed 10% of stockholders' equity at March 31, 1998 or 1997. The portfolio
of CMOs held in the Company's mortgage-backed securities portfolio at March 31,
1998 did not include any residual interests in CMOs. Further, at March 31, 1998,
the Company's mortgage-backed securities portfolio did not include any
"stripped" CMOs (i.e., CMOs that pay interest only and do not repay principal or
CMOs that repay principal only and do not pay interest).
14
<PAGE>
The following table sets forth the carrying value of the Company's
mortgage-backed securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
At March 31, Weighted
------------------------------ Average Rate
1997 1998 March 31, 1998
------- ------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Held to Maturity:
GNMA ARMs.............................. $ 3,163 $2,920 7.07%
FNMA ARMs.............................. 848 1,324 6.21
FHLMC ARMs............................. 1,420 1,255 6.19
FHLMC-fixed rate....................... 1,374 1,253 6.99
FNMA-fixed rate........................ 696 559 6.52
GNMA-fixed rate........................ 388 310 8.00
Collateralized mortgage
obligations-government
agency issue......................... 5,384 4,994 6.73
------- ------
Total mortgage-backed
securities........................... $13,273 $12,615 6.75
====== ======
</TABLE>
Mortgage-Backed Securities Maturity. The following table sets forth the
maturity of the Company's mortgage-backed securities portfolio at March 31,
1998. The table does not include scheduled principal payments or estimated
prepayments. All mortgage-backed securities are shown as maturing based on
contractual maturities.
Contractual
Maturities Due
--------------
(In Thousands)
Less than 1 year.......................................... $ --
1 to 3 years.............................................. 264
3 to 5 years.............................................. 45
5 to 10 years............................................. 363
10 to 20 years............................................ 1,347
Over 20 years............................................. 10,596
------
Total mortgage-backed securities.......................... $12,615
======
Investment Portfolio. The following table sets forth the carrying value
of the Company's investment securities portfolio, short-term investments, and
FHLB stock, at the dates indicated. At March 31, 1998, the market value of the
Company's investment securities portfolio was $6.1 million.
15
<PAGE>
At March 31,
---------------------------
1997 1998
--------- --------
(In Thousands)
Investment Securities:
Held to Maturity:
U.S. Agency Securities (1).....................$ 8,700 $3,900
------ -----
Total Debt Securities....................... 8,700 3,900
------ -----
Available for Sale:
U.S. Agency Securities .......................... 1,430 1,495
FHLB Stock....................................... 632 680
------ -----
2,062 2,175
------ -----
Total Investments..............................$10,762 $6,075
====== =====
- -------------------
(1) Consists of bonds and notes issued by the FHLB and FNMA. FHLB bonds
owned at March 31, 1997 and 1998 included $500,000, at cost, of dual
indexed or inverse floating rate structures whose yield may not move
consistent with general interest rate movements.
16
<PAGE>
Investment Portfolio Maturities
The following table sets forth certain information regarding the
carrying values, weighted average yields, and maturities of the Company's debt
securities portfolio at March 31, 1998.
<TABLE>
<CAPTION>
As of March 31, 1998
--------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Debt Securities
---------------- ----------------- ----------------- ------------------- -----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------ ------- ------- ------- ------- ------- ------- ------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. Agency Securities.... $1,400 5.47% $2,000 6.54% $ 500 7.00% $ -- --% $3,900 6.22% $3,893
Available for Sale:
U.S. Agency Securities.... -- -- 498 6.11 997 6.55 -- -- 1,495 6.39 1,495
----- ----- ----- ---- ----- ---- ------ ----- ----- ---- -----
Total................. $1,400 5.47% $2,498 6.46% $1,497 6.70% $ -- --% $5,395 6.26% $5,388
===== ==== ===== ==== ===== ==== ====== ===== ===== ==== =====
</TABLE>
17
<PAGE>
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. The Bank derives funds from amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities, and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
The Bank may also utilize advances from the FHLB of Topeka and other borrowings
as a source of funds.
Deposits. Consumer and commercial deposits are attracted principally
from within the Bank's primary market area through the offering of a broad
selection of deposit instruments including regular savings, demand and NOW
accounts, and term certificate accounts (including negotiated jumbo certificates
in denominations of $100,000 or more). Deposit account terms vary according to
the minimum balance required, the time period the funds must remain on deposit,
and the interest rate, among other factors.
Jumbo Certificate Accounts. The following table indicates the
approximate amount of the Company's certificate accounts of $100,000 or more by
time remaining until maturity as of March 31, 1998.
Certificates
Accounts
--------
Maturity Period (In Thousands)
- ---------------
Within three months........................ $ 100
Over three through six months.............. 310
Over six through twelve months............. 801
Over twelve months......................... 210
-----
Total................................ $1,421
=====
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Topeka to supplement its supply of lendable funds.
Advances from the FHLB of Topeka would typically be secured by a pledge of the
Bank's stock in the FHLB of Topeka and a portion of the Bank's first mortgage
loans and certain other assets. The Bank, if the need arises, may also access
the Federal Reserve Bank discount window to supplement its supply of lendable
funds and to meet deposit withdrawal requirements. At March 31, 1998 Registrant
had $5.2 million outstanding from the FHLB of Topeka and no borrowings of any
other kind.
To supplement lending activities in periods of deposit growth and/or
declining loan demand, the Bank has increased its investments in residential
mortgage-backed securities. Although such securities are held for investment,
they can serve as collateral for borrowings and, through repayments, as a source
of liquidity.
18
<PAGE>
The following table sets forth certain information regarding short-term
borrowings by the Company at the end of and during the periods indicated,
consisting of amounts borrowed under a line of credit with the FHLB of Topeka.
At or For the Year Ended
March 31,
------------------------
1997 1998
------- ----------
(Dollars in Thousands)
Weighted average rate paid...................... 6.90% 5.66%
Maximum amount of borrowings outstanding
at any month end.............................. $2,000 $2,000
Approximate average short-term
borrowings outstanding........................ $ 326 $ 442
Approximate weighted average rate (1)........... 5.45% 5.66%
- -------------
(1) Average balances represent the arithmetic average of month-end balances.
Subsidiary Activity
The Company has one wholly-owned subsidiary, the Bank. The Bank is
permitted to invest up to 2% of its assets in the capital stock of, or secured
or unsecured loans to, subsidiary corporations, with an additional investment of
1% of assets when such additional investment is utilized primarily for community
development purposes. As of March 31, 1998, the Bank had no subsidiaries.
Employees
Substantially all of the activities of the Company are conducted
through the Bank, therefore, at March 31, 1998, the Company did not have any
salaried employees.
As of March 31, 1998, the Bank had 14 full-time employees and two
part-time employees. None of the Bank's employees are represented by a
collective bargaining group. The Bank believes that its relationship with its
employees is good.
Regulation
Set forth below is a brief description of certain laws which related to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
19
<PAGE>
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test or a somewhat
similar test for domestic building and loan associations. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualifies as a QTL or domestic building and loan association and were acquired
in a supervisory acquisition. See "- Regulation of the Bank - Qualified Thrift
Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal statutory and regulatory requirements. The Bank is
also subject to certain reserve requirements promulgated by the Federal Reserve
Board.
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC, or the
Congress could have a material adverse impact on the Company, the Bank, and
their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for most SAIF members was reduced to
20
<PAGE>
.064% of deposits on an annual basis through the end of 1999. During this same
period, BIF members will be assessed approximately .013% of deposits. After
1999, assessments for BIF and SAIF members should be the same. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Bank declined by approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require
savings associations to meet three capital standards: (1) a tangible capital
requirement of 1.5% of total adjusted assets, (2) a leverage ratio (core
capital) requirement of 3% of total adjusted assets and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory approval. As of
March 31, 1998, the Bank was a Tier 1 institution. In the event the Bank's
capital fell below its fully phased-in requirement or the OTS notified it that
it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Finally, a savings association is prohibited from making a capital
distribution if, after making the distribution, the savings association would be
undercapitalized (not meet any one of its minimum regulatory capital
requirements). In contrast, the Company has fewer restrictions on dividends.
Qualified Thrift Lender Test. Savings institutions must meet either the
QTL test pursuant to OTS regulations or the definition of a domestic building
and loan association in section 7701 of the Code. If the Bank maintains an
appropriate level of certain specified investments (primarily residential
mortgages and related investments, including certain mortgage-related
securities) and otherwise qualifies as a QTL or a domestic building and loan
association, it will continue to enjoy full borrowing privileges from the FHLB
of Topeka. The required percentage of investments under the QTL test is 65% of
assets while the Code requires investments of 60% of assets. A bank must be in
compliance with the QTL test or definition of domestic building and loan
association on a monthly basis in nine out of every 12 months.
21
<PAGE>
As of March 31, 1998, the Bank was in compliance with its QTL requirement and
met the definition of a domestic building and loan association.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. However,
at March 31, 1998, the Bank was in compliance with this requirement.
Item 2. Description of Property
- -------------------------------
(a) Properties.
Currently, the Company does not own real property but utilizes the
offices of the Bank. The Bank operates from its office located at 120 North
Division, Guthrie, Oklahoma. The Bank owns this office facility which was opened
in 1975 and has 6,000 square feet.
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. All of the Bank's investment
policies are reviewed and approved by the Board of Directors of the Bank, and
such policies, subject to regulatory restrictions (if any), can be changed
without a vote of stockholders. The Bank's investments are primarily acquired to
produce income, and to a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities," "Item 1. Business - Regulation of the Bank,"
and "Item 2. Description of Property. (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities" and "Item 1. Business - Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities,"
"Item 1. Business - Regulation of the Bank," and "Item 1. Business - Subsidiary
Activity."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- -------------------------
There are various claims and lawsuits in which the Company or the Bank
are periodically involved, such as claims to enforce liens, condemnation
proceedings on properties in which the Bank holds security interests, claims
involving the making and servicing of real property loans, and other issues
incident to the Bank's business. In the opinion of management, no material loss
is expected from any of such pending claims or lawsuits.
22
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Corporate
Profile and Stock Price Information" on page 2 of the Company's Annual Report to
Stockholders for the fiscal year ended March 31, 1998 (the "Annual Report"), is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 5 to 17 of the Annual Report is incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Registrant's financial statements listed under Item 13 are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants On Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
--------------------
There were no changes in or disagreements with accountants on
accounting and financial disclosure during the last fiscal year.
PART III
Item 9. Directors Executive Officers, Promoters and Control Persons: Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
---------------------------------------
The information contained under the section captioned "I - Information
with Respect to Nominee for Director, Directors Continuing in Office, and
Executive Officers" in the Registrant's definitive proxy statement for the
Registrant's Annual Meeting of Stockholders to be held July 15, 1998 (the "Proxy
Statement") is incorporated herein by reference.
Additional information concerning executive officers is included in the
Proxy Statement in the section captioned "Section 16(a) Beneficial Ownership
Reporting Compliance."
Item 10. Executive Compensation
- --------------------------------
The information contained in the section captioned "Directors and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
23
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the chart in the section captioned "Voting
Securities and Principal Holders Thereof" and to the first
chart in the section captioned "I - Information with Respect
to Nominee for Director, Directors Continuing in Office, and
Executive Officers" in the Proxy Statement.
(c) Management of the Registrant knows of no arrangements,
including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date
result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" in the Proxy Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- -----------------------------------------------
(a) The following documents are filed as a part of this report:
1. The following financial statements and the report of
independent accountants of the Registrant included in the Registrant's Annual
Report to Stockholders for the fiscal year ending March 31, 1998, are
incorporated herein by reference and also in Item 7 of this report.
Report of Independent Auditors
Consolidated Statements of Financial Condition as of March 31, 1998 and
1997.
Consolidated Statements of Operations for the Years Ended March 31,
1998, 1997, and 1996.
Consolidated Statements of Stockholders' Equity for the Years Ended
March 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the Years Ended March 31,
1998, 1997, and 1996.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules for which provision is made
in the applicable accounting regulations of the Securities and Exchange
Commission ("SEC") are not required under the related instructions or are
inapplicable and therefore have been omitted.
24
<PAGE>
3. The following exhibits are included in this Report or
incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C>
3(i) Certificate of Incorporation of Guthrie Savings, Inc.*
3(ii) Bylaws of Guthrie Savings, Inc.*
10.1 Employment Agreement with William Cunningham
10.2 Employment Agreement with H. Stephen Ochs
10.3 Employment Agreement with Kathleen A. Warner
10.4 1994 Stock Option Plan**
10.5 Management Stock Bonus Plan**
10.6 Indemnification Agreement from Guthrie Savings, Inc.**
10.7 Indemnification Agreement from Guthrie Federal Savings Bank**
13 Annual Report to Stockholders for the fiscal year ended March 31, 1998
21 Subsidiaries of the Registrant***
23 Consent of Regier Carr & Monroe, L.L.P.
27 Financial Data Schedule****
</TABLE>
(b) A report on Form 8-K (Items 5 and 7), dated January 26, 1998,
was filed during the last quarter of the period covered by
this report.
- ---------------------
* Incorporated by reference to the same exhibit number of the registration
statement on Form S-1 (File No. 33-90286) declared effective by the SEC on
August 12, 1994.
** Incorporated by reference to the same exhibit number of the Annual Report
on Form 10-KSB for the fiscal year ended March 31, 1997 (File No. 0-24468)
filed with the SEC.
*** Incorporated by reference to Exhibit 21 of the Annual Report on Form 10-K
for the fiscal year ended March 31, 1995 (File No. 0-24468) filed with the
SEC.
**** Filed in electronic format only.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GUTHRIE SAVINGS, INC.
Dated: June 22, 1998 By:/s/ William L. Cunningham
-------------------------------
William L. Cunningham
President, Chief Executive
Officer, and Director (Duly
Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/ William L. Cunningham By: /s/ H. Stephen Ochs
----------------------------------- -------------------------------------
William L. Cunningham H. Stephen Ochs
President, Chief Executive Officer, Vice President and Director
and Director (Principal Executive
Officer)
Date: June 22, 1998 Date: June 22, 1998
By: /s/ Keith Camerer By: /s/ James V. Seaman
----------------------------------- -------------------------------------
Keith Camerer James V. Seamans
Director Director
Date: June 22, 1998 Date: June 22, 1998
By: /s/ Alvin R. Powell, Jr. By: /s/ Kimberly D. Walker
----------------------------------- -------------------------------------
Alvin R. Powell, Jr. Kimberly D. Walker
Director Treasurer (Principal Accounting and
and Financial Officer)
Date: June 22, 1998 Date: June 22, 1998
</TABLE>
EXHIBIT 10.1
<PAGE>
Amended and Restated
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 17 th day of March, 1998 ("Effective
Date"), by and between Guthrie Federal Savings Bank (the "Bank") and William L.
Cunningham (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Bank and the Employee have previously entered into an
employment agreement dated October 11, 1994, as amended ("Prior Agreement"), and
WHEREAS, the Board of Directors of the Bank has discussed and reviewed
the job performance of the Employee and determined that it meets and exceeds the
requirements and standards of the Board, and the Board has determined that it is
in the best interest of the Bank that the Prior Agreement be renewed and
extended as contained hereinafter, and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the
President and Managing Officer of the Bank. The Employee shall render such
administrative and management services to the Bank and Guthrie Savings, Inc.
("Parent") as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall promote to the
extent permitted by law the business of the Bank and Parent. The Employee's
other duties shall be such as the Board of Directors for the Bank (the "Board of
Directors" or "Board") may from time to time reasonably direct, including normal
duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
term of this Agreement a salary at the rate of $60,900.00 per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors not less often than annually, and
Employee shall be entitled to receive annually an increase at such percentage or
in such an amount as the Board of Directors in its sole discretion may decide at
such time.
1
<PAGE>
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank, club
memberships, a reasonable expense account, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending thirty-six (36)
months thereafter. Additionally, on, or before, each annual anniversary date
from the Effective Date, the term of employment under this Agreement may be
extended for an additional period beyond the then effective expiration date upon
a determination and resolution of the Board of Directors that the performance of
the Employee has met the requirements and standards of the Board, and that the
term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank
or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Bank or Parent, or, solely as a
passive or minority investor, in any business.
2
<PAGE>
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in
accordance with the policies as are periodically established by the Board of
Directors for senior management employees of the Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
3
<PAGE>
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to compensation or
other benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement and the
cost of Employee obtaining all health, life, disability, and other benefits
which the Employee would be eligible to participate in through such date based
upon the benefit levels substantially equal to those being provided Employee at
the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA)
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
4
<PAGE>
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion, (i)
pay the Employee all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Employee's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Employee returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Paragraph 2 of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
5
<PAGE>
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary except for
Sections 9(a), 9(d), 9(e), 9(f), and 9(h), in the event of the involuntary
termination of Employee's employment under this Agreement, absent Just Cause, in
connection with, or within twenty-four (24) months after, any change in control
of the Bank or Parent, Employee shall be paid an amount equal to the product of
2.99 times the Employee's "base amount" as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "Code") and regulations
promulgated thereunder. Said sum shall be paid in one (1) lump sum within thirty
(30) days of such termination of employment. Such payments shall be in lieu of
any other future payments which the Employee would be otherwise entitled to
receive under Section 9 of this Agreement. Payments due hereunder shall be
obligations of the Bank and shall be primary to any obligations of the Parent
due and payable upon a change in control of Parent. Notwithstanding the
forgoing, all sums payable hereunder shall be reduced in such manner and to such
extent so that no such payments made hereunder when aggregated with all other
payments to be made to the Employee by the Bank or the Parent shall be deemed an
"excess parachute payment" in accordance with Section 280G of the Code and
regulations promulgated thereunder and be subject to the excise tax provided at
Section 4999(a) of the Code. The term "control" shall refer to the ownership,
holding or power to vote more than 25% of the Parent's or Bank's voting stock,
the control of the election of a majority of the Parent's or Bank's directors,
or the exercise of a controlling influence over the management or policies of
the Parent or Bank by any person or by persons acting as a group within the
meaning of Section 13(d) of the Securities Exchange Act of 1934. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twenty-four (24) months following a change in control of the Bank or
Parent, and Employee shall thereupon be entitled to receive the payment
described in Section 12(a) of this Agreement, upon the occurrence, or within
ninety (90) days thereafter, of any of the following events, which have not been
consented to in advance by the Employee in writing: (i) if Employee would be
required to move his personal residence or perform his principal executive
functions more than thirty-five (35) miles from the Employee's primary office as
of the signing of this Agreement; (ii) if in the organizational structure of the
Bank or Parent, Employee would be required to report to a person or persons
other than the Board of the Bank or Parent; (iii) if the Bank or Parent should
fail to maintain the Employee's base compensation and existing employee benefits
plans, including material fringe benefit, stock option and retirement plans,
except to the extent
6
<PAGE>
that such reductions are part of an overall adjustment for all employees and
does not disproportionately adversely impact the Employee; (iv) if Employee
would be assigned duties and responsibilities other than those normally
associated with his position as referenced at Section 1, herein; (v) if Employee
would not be elected or reelected to the Board of Directors of the Bank; or (vi)
if Employee's responsibilities or authority have in any way been materially
diminished or reduced.
(c) Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extend that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall reimburse Employee for all reasonable
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, following the delivery of the decision of the
arbitrator finding in favor of the Employee. Further, a settlement of the matter
approved by the Board of the Bank may include a provision for the reimbursement
by the Bank to the Employee for all reasonable costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
or the Board of the Bank may authorize such reimbursement of such reasonable
costs and expenses by separate action upon a written action and determination of
the Board. Such reimbursement shall be paid within ten (10) days of Employee
furnishing to the Bank evidence, which may be in the form, among other things,
of a canceled check or receipt, of such costs or expenses incurred by Employee.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
7
<PAGE>
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Oklahoma, except to the extent that Federal law shall be
deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceablitiy of the other provisions hereof.
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall amend in its entirety
the Prior Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Guthrie Federal Savings Bank
ATTEST: By: /s/Keith Camerer
-----------------------------------
/s/Deborah Bozarth
- ----------------------------
Secretary
WITNESS:
/s/William L. Cunningham
- ---------------------------- ---------------------------------------
William L. Cunningham, Employee
8
EXHIBIT 10.2
<PAGE>
Amended and Restated
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 17 th day of March 1998 ("Effective
Date"), by and between Guthrie Federal Savings Bank (the "Bank") and H. Stephen
Ochs (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as Vice
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Bank and the Employee have previously entered into an
employment agreement dated October 11, 1994, as amended ("Prior Agreement"), and
WHEREAS, the Board of Director of the Bank has discussed and reviewed
the job performance of the Employee and determined that it meets and exceeds the
requirements and standards of the Board, and the Board has determined that it is
in the best interest of the Bank that the Prior Agreement be renewed and
extended as contained hereinafter, and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Vice
President of the Bank. The Employee shall render such administrative and
management services to the Bank and Guthrie Savings, Inc. ("Parent") as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall promote to the extent permitted
by law the business of the Bank and Parent. The Employee's other duties shall be
such as the Board of Directors for the Bank (the "Board of Directors" or
"Board") may from time to time reasonably direct, including normal duties as an
officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
term of this Agreement a salary at the rate of $45,000.00 per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors not less often than annually, and
Employee shall be entitled to receive annually an increase at such percentage or
in such an amount as the Board of Directors in its sole discretion may decide at
such time.
1
<PAGE>
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank, club
memberships, a reasonable expense account, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending thirty-six (36)
months thereafter. Additionally, on, or before, each annual anniversary date
from the Effective Date, the term of employment under this Agreement may be
extended for an additional period beyond the then effective expiration date upon
a determination and resolution of the Board of Directors that the performance of
the Employee has met the requirements and standards of the Board, and that the
term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank
or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Bank or Parent, or, solely as a
passive or minority investor, in any business.
2
<PAGE>
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in
accordance with the policies as are periodically established by the Board of
Directors for senior management employees of the Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
3
<PAGE>
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to compensation or
other benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement and the
cost of Employee obtaining all health, life, disability, and other benefits
which the Employee would be eligible to participate in through such date based
upon the benefit levels substantially equal to those being provided Employee at
the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA)
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
4
<PAGE>
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion, (i)
pay the Employee all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that the is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Employee's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Employee returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Paragraph 2 of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary except for
Sections 9(a), 9(d), 9(e), 9(f), and 9(h), in the event of the involuntary
termination of Employee's employment under this Agreement, absent Just Cause, in
connection with, or within twenty-
5
<PAGE>
four (24) months after, any change in control of the Bank or Parent, Employee
shall be paid an amount equal to the product of 2.99 times the Employee's "base
amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code") and regulations promulgated thereunder. Said sum shall
be paid in one (1) lump sum within thirty (30) days of such termination of
employment. Such payments shall be in lieu of any other future payments which
the Employee would be otherwise entitled to receive under Section 9 of this
Agreement. Payments due hereunder shall be obligations of the Bank and shall be
primary to any obligations of the Parent due and payable upon a change in
control of Parent. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Employee by
the Bank or the Parent shall be deemed an "excess parachute payment" in
accordance with Section 280G of the Code and regulations promulgated thereunder
and be subject to the excise tax provided at Section 4999(a) of the Code. The
term "control" shall refer to the ownership, holding or power to vote more than
25% of the Parent's or Bank's voting stock, the control of the election of a
majority of the Parent's or Bank's directors, or the exercise of a controlling
influence over the management or policies of the Parent or Bank by any person or
by persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twenty-four (24) months following a change in control of the Bank or
Parent, and Employee shall thereupon be entitled to receive the payment
described in Section 12(a) of this Agreement, upon the occurrence, or within
ninety (90) days thereafter, of any of the following events, which have not been
consented to in advance by the Employee in writing: (i) if Employee would be
required to move his personal residence or perform his principal executive
functions more than thirty-five (35) miles from the Employee's primary office as
of the signing of this Agreement; (ii) if in the organizational structure of the
Bank or Parent, Employee would be required to report to a person or persons
other than the President, Chief Executive Officer or the Board of the Bank or
Parent; (iii) if the Bank or Parent should fail to maintain the Employee's base
compensation and existing employee benefits plans, including material fringe
benefit, stock option and retirement plans, except to the extent that such
reductions are part of an overall adjustment for all employees and does not
disproportionately adversely impact the Employee; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his position as referenced at Section 1, herein; (v) if Employee would not be
elected or reelected to the
6
<PAGE>
Board of Directors of the Bank; or (vi) if Employee's responsibilities or
authority have in any way been materially diminished or reduced.
(c) Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extend that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall reimburse Employee for all reasonable
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, following the delivery of the decision of the
arbitrator finding in favor of the Employee. Further, a settlement of the matter
approved by the Board of the Bank may include a provision for the reimbursement
by the Bank to the Employee for all reasonable costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
or the Board of the Bank may authorize such reimbursement of such reasonable
costs and expenses by separate action upon a written action and determination of
the Board. Such reimbursement shall be paid within ten (10) days of Employee
furnishing to the Bank evidence, which may be in the form, among other things,
of a canceled check or receipt, of such costs or expenses incurred by Employee.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
7
<PAGE>
15. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Oklahoma, except to the extent that Federal law shall be
deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceablitiy of the other provisions hereof.
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall amend in its entirety
the Prior Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Guthrie Federal Savings Bank
ATTEST: By: /s/William L. Cunningham
----------------------------------
/s/Deborah Bozarth
- -----------------------------------
Secretary
WITNESS:
/s/H. Stephen Ochs
- ----------------------------------- --------------------------------------
H. Stephen Ochs, Employee
8
EXHIBIT 10.3
<PAGE>
Amended and Restated
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 17 th day of March, 1998 ("Effective
Date"), by and between Guthrie Federal Savings Bank (the "Bank") and Kathleen A.
Warner (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as Vice
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Bank and the Employee have previously entered into an
employment agreement dated October 11, 1994, as amended ("Prior Agreement"), and
WHEREAS, the Board of Directors of the Bank has discussed and reviewed
the job performance of the Employee and determined that is meets and exceeds the
requirements and standards of the Board, and the Board has determined that it is
in the best interest of the Bank that the Prior Agreement be renewed and
extended as contained hereinafter, and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Vice
President of the Bank. The Employee shall render such administrative and
management services to the Bank and Guthrie Savings, Inc. ("Parent") as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall promote to the extent permitted
by law the business of the Bank and Parent. The Employee's other duties shall be
such as the Board of Directors for the Bank (the "Board of Directors" or
"Board") may from time to time reasonably direct, including normal duties as an
officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
term of this Agreement a salary at the rate of $38,400.00 per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors not less often than annually, and
Employee shall be entitled to receive annually an increase at such percentage or
in such an amount as the Board of Directors in its sole discretion may decide at
such time.
1
<PAGE>
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank, club
memberships, a reasonable expense account, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending thirty-six (36)
months thereafter. Additionally, on, or before, each annual anniversary date
from the Effective Date, the term of employment under this Agreement may be
extended for an additional period beyond the then effective expiration date upon
a determination and resolution of the Board of Directors that the performance of
the Employee has met the requirements and standards of the Board, and that the
term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank
or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Bank or Parent, or, solely as a
passive or minority investor, in any business.
2
<PAGE>
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave in
accordance with the policies as are periodically established by the Board of
Directors for senior management employees of the Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
3
<PAGE>
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to compensation or
other benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement and the
cost of Employee obtaining all health, life, disability, and other benefits
which the Employee would be eligible to participate in through such date based
upon the benefit levels substantially equal to those being provided Employee at
the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA)
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her
designee, at the time that the Director of the OTS, or his or her designee
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
4
<PAGE>
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion, (i)
pay the Employee all or part of the compensation withheld while its contract
obligations were suspended and (ii) reinstate any of its obligations which were
suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Employee's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Employee returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Paragraph 2 of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary except for
Sections 9(a), 9(d), 9(e), 9(f), and 9(h), in the event of the involuntary
termination of Employee's employment under this
5
<PAGE>
Agreement, absent Just Cause, in connection with, or within twenty-four (24)
months after, any change in control of the Bank or Parent, Employee shall be
paid an amount equal to the product of 2.99 times the Employee's "base amount"
as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") and regulations promulgated thereunder. Said sum shall be
paid in one (1) lump sum within thirty (30) days of such termination of
employment. Such payments shall be in lieu of any other future payments which
the Employee would be otherwise entitled to receive under Section 9 of this
Agreement. Payments due hereunder shall be obligations of the Bank and shall be
primary to any obligations of the Parent due and payable upon a change in
control of Parent. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Employee by
the Bank or the Parent shall be deemed an "excess parachute payment" in
accordance with Section 280G of the Code and regulations promulgated thereunder
and be subject to the excise tax provided at Section 4999(a) of the Code. The
term "control" shall refer to the ownership, holding or power to vote more than
25% of the Parent's or Bank's voting stock, the control of the election of a
majority of the Parent's or Bank's directors, or the exercise of a controlling
influence over the management or policies of the Parent or Bank by any person or
by persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twenty-four (24) months following a change in control of the Bank or
Parent, and Employee shall thereupon be entitled to receive the payment
described in Section 12(a) of this Agreement, upon the occurrence, or within
ninety (90) days thereafter, of any of the following events, which have not been
consented to in advance by the Employee in writing: (i) if Employee would be
required to move his personal residence or perform his principal executive
functions more than thirty-five (35) miles from the Employee's primary office as
of the signing of this Agreement; (ii) if in the organizational structure of the
Bank or Parent, Employee would be required to report to a person or persons
other than the President, Chief Executive Officer or the Board of the Bank or
Parent; (iii) if the Bank or Parent should fail to maintain the Employee's base
compensation and existing employee benefits plans, including material fringe
benefit, stock option and retirement plans, except to the extend that such
reductions are part of an overall adjustment for all employees and does not
disproportionately adversely impact the Employee; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his position as referenced at Section 1,
6
<PAGE>
herein; (v) if Employee would not be elected or reelected to the Board of
Directors of the Bank; or (vi) if Employee's responsibilities or authority have
in any way been materially diminished or reduced.
(c) Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Bank, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof, except to the extend that the parties may otherwise reach a mutual
settlement of such issue. The Bank shall reimburse Employee for all reasonable
costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, following the delivery of the decision of the
arbitrator finding in favor of the Employee. Further, a settlement of the matter
approved by the Board of the Bank may include a provision for the reimbursement
by the Bank to the Employee for all reasonable costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
or the Board of the Bank may authorize such reimbursement of such reasonable
costs and expenses by separate action upon a written action and determination of
the Board. Such reimbursement shall be paid within ten (10) days of Employee
furnishing to the Bank evidence, which may be in the form, among other things,
of a canceled check or receipt, of such costs or expenses incurred by Employee.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or Parent which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Parent.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
7
<PAGE>
15. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Oklahoma, except to the extent that Federal law shall be
deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceablitiy of the other provisions hereof.
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall amend in its entirety
the Prior Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Guthrie Federal Savings Bank
By:/s/William L. Cunningham
---------------------------------
ATTEST:
/s/Deborah Bozarth
- --------------------------------
Secretary
WITNESS:
/s/Kathleen A. Warner
- ----------------------------------- ------------------------------------
Kathleen A. Warner, Employee
8
EXHIBIT 13
<PAGE>
[** LOGO **]
Guthrie Savings, Inc.
Annual Report - 1998
<PAGE>
Guthrie Savings, Inc.
ANNUAL REPORT - 1998
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Stockholders............................................... 1
Corporate Profile and Stock Price Information......................... 2
Five-Year Financial Summary........................................... 3
Management's Discussion and Analysis.................................. 5
Independent Auditor's Report.......................................... F-1
Consolidated Financial Statements..................................... F-2
Notes to Consolidated Financial Statements............................ F-7
Corporate Information................................................. 18
<PAGE>
To Our Stockholders:
It is with great pleasure that we bring to you the annual report of Guthrie
Savings, Inc. for the year ended March 31, 1998.
Net income for the year ended March 31, 1998 was $535,595 or $1.36 per share
representing an increase of 40.8% over the year ended March 31, 1997. The
previous year included the one-time special assessment of SAIF insurance.
The Board of Directors declared two $0.50 per share cash dividends during this
year. One in September 1997 for stockholders of record on October 1, 1997 and
the other in January 1998 for stockholders of record on February 3, 1998. The
special cash dividends were paid as a result of continued profitability of the
Company and its wholly owned subsidiary, Guthrie Federal Savings Bank.
We have experienced an increase in loan activity this year which includes
mortgages, construction loans and consumer lending.
Guthrie Federal has also recently entered into an agreement with Transfund to
offer debit cards in an ongoing effort to serve our customers' needs.
My final comment has to do with the Year 2000 and to let you know that Guthrie
Federal management is making the transition into the next millennium a priority.
As Guthrie Federal moves forward, we can assure our employees, customers and
stockholders that we have been working diligently to make a coordinated effort
to becoming Year 2000 compliant. Our efforts, both internal and external, should
be fully tested and operational by December 31, 1998.
We appreciate the loyal support that our stockholders, customers and employees
have given us during the past years and ask for your continued support in the
future.
Sincerely,
William L. Cunningham
President and Chief Executive Officer
- 1 -
<PAGE>
Guthrie Savings, Inc..
Corporate Profile and Related Information
Guthrie Savings, Inc. (the "Company") is the parent company for Guthrie Federal
Savings Bank (the "Bank"). The Company is an Oklahoma corporation organized in
May 1994 at the direction of Guthrie Federal Savings and Loan Association (the
"Association") in connection with the Association's conversion from the mutual
to stock form of ownership (the "Conversion"). On October 11, 1994, the
Association completed its conversion and changed its name to Guthrie Federal
Savings Bank and became a wholly owned subsidiary of the Company. The Company is
a unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which it may engage
provided the Bank retains a specified amount of its assets in housing-related
investments. At the present time, since the Company does not conduct any active
business, the Company does not intend to employ any persons other than officers
but utilizes the support staff and facilities of the Bank from time to time.
Guthrie Federal Savings Bank is a federally chartered stock savings bank
headquartered in Guthrie, Oklahoma. The Bank was founded in 1906 with a charter
from the Territory of Oklahoma under the name of "Employees Building and Loan
Association." Employees Building and Loan Association became known as "Guthrie
Savings and Loan Association" in 1968 when it changed its name. In early August
1994, Guthrie became a federal association under the name "Guthrie Federal
Savings and Loan Association." The Bank changed its name to Guthrie Federal
Savings Bank in October of 1994 in connection with its conversion from mutual to
stock form. The Bank's deposits have been federally insured by the Savings
Association Insurance Fund ("SAIF") and its predecessor, the Federal Savings and
Loan Insurance Corporation, since 1948, and the Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
Guthrie Federal Savings Bank is primarily engaged in attracting deposits from
the general public and using those deposits, together with other funds, to
originate real estate loans on one- to four-family residences and, to a lesser
extent, consumer loans. The Bank has one office in Guthrie, Oklahoma, which is
located in its primary market area of Logan County, Oklahoma. In addition, the
Bank holds interest bearing deposits in other financial institutions and invests
in mortgage-backed securities and investment securities. The Bank offers its
customers fixed-rate and adjustable-rate mortgage loans, as well as consumer
loans, including home equity and savings account loans.
Stock Market Information
There were 417,457 shares of common stock (net of treasury stock) of Guthrie
Savings, Inc. outstanding on March 31, 1998, held by approximately 200
stockholders of record (not including the number of persons or entities holding
the stock in nominee or street name though various brokerage firms). Since its
issuance in October 1994, the Company's common stock has been traded in the
over-the-counter market. The following table reflects high and low bid
information for stock quotations as published by the National Daily Quotation
System "pink sheets". These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Year Ended March 31,
------------------------------------------------------
1998 1997
-------------------------- --------------------------
HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
First Quarter 17 1/8 15 1/2 13 1/2 13
Second Quarter 17 17 13 1/2 13
Third Quarter 18 17 14 13
Fourth Quarter 18 1/4 17 1/2 14 1/2 14
During the year ended March 31, 1998, the Board of Directors declared and paid
two dividends of $0.50 per share. The first $0.50 dividend was paid on October
10, 1997 and the second $0.50 dividend was paid on February 10, 1998. During the
year ended March 31, 1997 the Board of Directors declared and paid a dividend of
$0.50 per share. The Company's ability to pay dividends to shareholders is
largely dependent upon the dividends it receives from the Bank. The Bank is
subject to regulatory limitations on the amount of cash dividends it may pay.
The Bank may not declare or pay a cash dividend on any of its stock if the
effect thereof would cause the Bank's regulatory capital to be reduced below (1)
the amount required for the liquidation account established in connection with
the Bank's conversion from mutual to stock form, or (2) the regulatory capital
requirements imposed by the Office of Thrift Supervision ("OTS").
- 2 -
<PAGE>
Guthrie Savings, Inc.
<TABLE>
<CAPTION>
================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Financial Condition Data (Dollars in Thousands) (*)
===========================================================================================================================
At March 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 48,627 $ 49,047 $ 46,820 $ 44,727 $ 42,839
Loans receivable (1) 25,655 23,461 22,972 23,182 21,630
Investment securities held-to-maturity 3,900 8,700 9,751 8,366 5,485
Investment securities available-for-sale 2,175 2,062 2,133 929 659
Mortgage-backed securities held-to-maturity 12,615 13,273 9,428 9,869 11,145
Cash and cash equivalents 3,307 523 1,402 1,090 2,392
Deposits 35,538 34,293 36,311 34,543 39,084
FHLB borrowings 5,196 6,700 2,000 1,700 -
Stockholders' equity 7,536 7,805 8,049 8,236 3,410
</TABLE>
<TABLE>
<CAPTION>
Summary of Operations (Dollars in Thousands) (*)
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 3,668 $ 3,632 $ 3,416 $ 3,198 $ 3,274
Interest expense 1,877 1,833 1,761 1,489 1,512
------------- ------------- ------------- ------------ ------------
Net interest income 1,791 1,799 1,655 1,709 1,762
Provision for loan losses 3 1 (132) 12 70
------------- ------------- ------------- ------------ ------------
Net interest income after
provision for loan losses 1,788 1,798 1,787 1,697 1,692
Non-interest income 242 251 336 193 215
Non-interest expense (2) 1,179 1,416 1,229 1,095 1,093
------------- ------------- ------------- ------------ ------------
Income before income taxes and
cumulative effect of accounting change 851 633 894 795 814
Provision for income taxes 315 253 309 250 278
------------- ------------- ------------- ------------ ------------
Income before cumulative effect of
accounting change 536 380 585 545 536
Cumulative effect of accounting change - - - - 128
------------- ------------- ------------- ------------ ------------
Net income $ 536 $ 380 $ 585 $ 545 $ 664
============= ============= ============= ============ ============
Basic earnings per share* (3) $ 1.41 $ 0.92 $ 1.28 $ 0.48 $ -
============= ============= ============= ============ ============
Diluted earnings per share* (3) $ 1.36 $ 0.91 $ 1.27 $ 0.48 $ -
============= ============= ============= ============ ============
Dividends per share (3) $ 1.00 $ 0.50 $ 0.50 $ 0.20 $ -
============= ============= ============= ============ ============
Book value per common share
outstanding at March 31 $ 18.05 $ 17.33 $ 16.61 $ 15.99 $ -
============= ============= ============= ============ ============
</TABLE>
- ----------------
* Data presented prior to October 11, 1994, the date of conversion, is for
Guthrie Federal Savings Bank only.
(1) Includes loans held for sale totaling $81,757 at March 31, 1998.
(2) For 1997, includes $225,000 for a special assessment to recapitalize the
federal deposit insurance fund to which Guthrie Federal Savings Bank pays
premiums.
(3) For 1995, only includes period following conversion from mutual to stock on
October 11, 1994 (October 11, 1994 through March 31, 1995).
- 3 -
<PAGE>
Guthrie Savings, Inc.
<TABLE>
<CAPTION>
===========================================================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Ratios and Other Data (*)
===========================================================================================================================
Year Ended March 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.11 % 0.79 % 1.30 % 1.24 % 1.51 %
Return on average equity 7.25 4.89 7.12 10.39 22.53
Average equity to average assets 15.26 16.13 18.18 11.93 6.71
Equity to assets at period end 15.50 15.91 17.19 18.41 7.96
Net interest spread 3.13 3.14 2.98 3.59 3.95
Net yield on average interest earning assets 3.79 3.81 3.78 4.02 4.15
Non-performing loans to total assets 0.42 0.85 1.33 1.80 1.35
Non-performing loans to net loans 0.80 1.79 2.72 3.46 2.68
Non-performing assets to total assets 0.44 0.85 1.33 1.94 1.80
Allowance for loan losses to total loans 1.38 1.61 1.70 2.33 2.58
Dividend payout 72.17 55.32 38.08 17.38
Number of:
Real estate loans outstanding 556 550 576 621 633
Deposit accounts 4,435 4,538 4,772 4,744 5,133
</TABLE>
Net Income Non-Performing Assets/Total Assets
[GRAPHICS OMITTED] [GRAPHICS OMITTED]
Total Assets Stockholder's Equity
[GRAPHICS OMITTED] [GRAPHICS OMITTED]
(*) Data presented prior to October 11, 1994, the date of conversion, is for
Guthrie Federal Savings Bank only.
- 4 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Guthrie Savings, Inc.
The following is a discussion of the financial condition and results of
operations of the Company and its subsidiary Guthrie Federal Savings Bank (the
"Bank"), and should be read in conjunction with the accompanying Consolidated
Financial Statements.
General
The Bank is primarily engaged in the business of accepting deposit accounts from
the general public and using these funds to originate mortgage loans for the
purchase or refinancing of single-family residences located in Logan and
northern counties in Oklahoma, and for the purchase of mortgage-backed and
investment securities. The Bank also originates automobile loans, second
mortgage loans, and deposit loans. The Bank's market has historically provided
an excess of savings deposits over loan demand. Accordingly, in addition to
originating loans in its market the Bank also purchases mortgage-backed
securities and investment securities.
The Company's operations, as with those of the entire banking industry, are
significantly affected by prevailing economic conditions, competition, and the
monetary and fiscal policies of governmental agencies. Lending activities are
influenced by the demand for loans, competition among lenders, the prevailing
market rates of interest, primarily on competing investments, account
maturities, and the levels of personal income and savings in the market area.
The earnings of the Bank depend primarily on its level of net interest income,
which is the difference between interest income and interest expense. The Bank's
net interest income is a function of its interest rate spread, which is
determined by the difference between rates of interest earned on
interest-earning assets, and rates of interest paid on interest-bearing
liabilities. The Bank's earnings are also affected by its provision for losses
on loans, as well as the amount of non-interest income and non-interest expense,
such as compensation and related expenses, deposit insurance premiums, data
processing costs, and income taxes.
The Company's strategy for growth focuses on making loans, increasing deposits
and providing customers with a high level of customer service.
Financial Condition
Consolidated total assets remained consistent during the year, with a balance at
March 31, 1998 of $48,626,898 compared to a balance of $49,047,256 at March 31,
1997, a slight decrease of $420,358 or 0.86%.
Cash and cash equivalents:
The Bank's cash and cash equivalents increased $2,784,590 or 532.6% from
$522,829 at March 31, 1997 to $3,307,419 at March 31, 1998. This substantial
increase is directly related to the decrease in investment securities discussed
in the next paragraph. Several investment securities were called close to year
end and the proceeds on these investments had not yet been reinvested at March
31, 1998.
- 5 -
<PAGE>
Investment securities:
The Bank's securities portfolio provides liquidity for additional lending as
well as additional interest income. The investment securities in the portfolio
have varying maturities of ten years or less. Investment securities, including
available-for-sale, decreased $4,686,976, or 43.55% from $10,761,727 at March
31, 1997 to $6,074,751 at March 31, 1998. This decrease relates primarily to
several investment securities, classified as held-to-maturity, being called
during the year ended March 31, 1998. Securities called during the year ended
March 31, 1998 amounted to $4,800,000.
Mortgage-backed securities:
Mortgage-backed securities decreased $658,236, or 4.96%, from $13,273,398 at
March 31, 1997 to $12,615,162 at March 31, 1998. During the year ended March 31,
1998, the Bank purchased $1,705,880 in mortgage-backed securities and repayments
of mortgage-backed securities amounted to $2,340,044. Repayments included a
$998,746 collateralized mortgage obligation ("CMO") that was called during the
year. During the year ended March 31, 1997, the Bank purchased $5,227,289 in
CMOs in conjunction with FHLB adjustable-rate advances with the intent to match
the interest rate base and repricing dates to establish a desired interest rate
spread. The yield on mortgage-backed securities at March 31, 1998 was 6.75%
compared to a yield on investment securities of 6.39%. Mortgage-backed
securities generally provide for lower returns than loans originated by the Bank
and are utilized when investable funds exceed loan demand.
The Company had net unrealized losses on investment securities held-to-maturity,
not reflected on the consolidated financial statements, of $6,881 and $120,894
at March 31, 1998 and 1997, respectively. The Company had net unrealized losses
on mortgage-backed securities held-to-maturity, not reflected on the
consolidated financial statements, of $87,596 at March 31, 1997 and net
unrealized gains on mortgage-backed securities held-to-maturity of $129,115 at
March 31, 1998. The Bank's portfolio has experienced an overall improvement as
fair market values have become consistent with the amortized cost of these
securities held-to-maturity and the Company has experienced improvement in the
interest rate environment.
Loans receivable:
Net loans receivable increased $2,193,937, or 9.35%, from $23,461,257 at March
31, 1997 to $25,655,194 at March 31, 1998. This growth in the loan portfolio is
attributed to increased lending activity as a result of increased loan demand.
This increase was primarily due to an increase in mortgage loans secured by one-
to four-family residences of $1,485,167 from $17,273,266 at March 31, 1997 to
$18,758,433 at March 31, 1998 and an increase in consumer and other loans of
$806,278 from $2,857,100 at March 31, 1997 to $3,663,378 at March 31, 1998.
The Bank has recognized impaired loans having recorded investments of $440,137
at March 31, 1998 and $366,316 at March 31, 1997. A loan is impaired when, based
on management's evaluation of current and historical information and events, it
is probable that all amounts due according to the contractual terms of the loan
agreement will not be collected. Loans which are classified as impaired are
typically collateral dependent; therefore, impairment is measured based upon the
fair value of the collateral less estimated costs to sell. Impairment is
recognized by creating a valuation allowance with a corresponding charge to
provision for loss on loans.
Management, as a part of the monitoring and evaluation of non-performing loans,
classifies loans in accordance with regulatory provisions as loss, doubtful or
substandard. Total loans classified as of March 31, 1998 and 1997, amounted to
$652,442 and $673,647, respectively, including loans recognized as impaired.
Those loans classified which are not recognized as impaired include loans which
are
- 6 -
<PAGE>
currently past due 90 days or more or have a past history of delinquency. The
level of classified loans has continued to decline primarily as a result of
improving economic conditions and real estate values. Classified loans have been
considered by management in the evaluation of the adequacy of the allowance for
loan loss. The Bank will continue with its existing collection policies to keep
non-performing assets to a minimum, but no assurance can be given that
negotiations with borrowers will continue to be successful. Management is
unaware of any trends which it reasonably expects will materially impact future
operating results, liquidity, or capital resources.
Foreclosed real estate:
The balance in foreclosed assets ("REO") at March 31, 1998 and 1997 was $10,500
and $0, respectively. The March 31, 1998 balance in REO consisted of land. The
balance in REO continues to be substantially lower than that experienced by the
Bank in prior years.
Deposits:
Deposits increased from $34,293,278 at March 31, 1997 to $35,537,831 at March
31, 1998, an increase of $1,244,553, or 3.63%. The Bank continues to offer rates
consistent with rates offered by other financial institutions in the area but
has not focused on offering aggressive rates to increase the deposit base. The
average cost on deposits decreased slightly from 4.42% for the year ended March
31, 1997 to 4.40% for the year ended March 31, 1998.
Of the $23,748,299 in certificates of deposit held by the Bank at March 31,
1998, $20,149,866 of these deposits will mature during the year ended March 31,
1999. The majority of the Bank's time deposits consist of regular deposits from
consumers within the Bank's surrounding community rather than institutional or
brokered deposit accounts. As a result, most of these accounts of local
customers are expected to be renewed.
Advances and other borrowings from Federal Home Loan Bank:
The Bank has continued to utilize advances from the FHLB as a source of funds.
Fixed term advances from the FHLB totaled $5,196,000 and $6,000,000 at March 31,
1998 and 1997, respectively. The advances outstanding at March 31, 1998 were all
adjustable rate advances. Proceeds from the FHLB advances received during fiscal
1998 were used primarily to fund lending activity throughout the year. Of the
fixed term advances outstanding at March 31, 1997, $2,000,000 were fixed rate
advances and $4,000,000 were adjustable rate advances. The funds provided by the
advances received during fiscal 1997 were used primarily to purchase
mortgage-backed securities. The advances and related mortgage-backed security
purchases were initiated together and are intended to match the interest rate
base and repricing dates.
The Bank also has a line of credit with the FHLB with an outstanding balance of
$0 and $700,000 at March 31, 1998 and 1997, respectively. The funds provided by
the line of credit are used to fund lending activity and for regular operations.
The weighted average cost of theses borrowings from the FHLB was 5.58% and 5.50%
for the years ended March 31, 1998 and 1997, respectively. Of the advances and
other borrowings outstanding at March 31, 1998, $2,196,000 matures during the
year ended March 31, 1999.
Stockholders' equity:
Stockholders' equity decreased $268,912, from $7,805,040 at March 31, 1997 to
$7,536,128 at March 31,
- 7 -
<PAGE>
1998. The Company was granted approval by the OTS to purchase up to 15% of the
Company's outstanding shares. At March 31, 1998 the Company had repurchased
97,668 shares of its common stock as part of a plan to enhance stockholder
value. The book value per common share outstanding at March 31, 1998 was $18.05,
up from $17.33 at March 31, 1997 and $16.61 at March 31, 1996. As noted in the
Stock Price Information section of this report the Company has also been
consistently paying dividends to stockholders. The Company's stock price has
increased from $14.13 at March 31, 1997 to $18.50 at March 31, 1998, an increase
of $4.37 or 30.93%.
Implementation of New Accounting Pronouncements
During fiscal year 1998, the Company adopted the provisions of Statement No. 128
titled "Changes in Earnings Per Share" and Statement No. 123 titled "Accounting
for Stock-Based Compensation." See Notes 1 and 11 to the Consolidated Financial
Statements for a discussion of this new accounting pronouncements and their
effect on the Company.
Asset and Liability Management
The ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates over a period of time. A gap is
considered positive when the amount of interest-rate sensitive assets maturing,
or repricing over a specified period of time, exceeds the amount of
interest-rate sensitive liabilities maturing or repricing within that period and
is considered negative when the amount of interest-rate sensitive liabilities
maturing or repricing over a specified period of time exceeds the amount of
interest-rate sensitive assets maturing or repricing within that period.
Generally, during a period of rising interest rates, a negative gap within a
given period of time would adversely affect net interest income, while a
positive gap within a given period of time would result in an increase in net
interest income; during a period of falling interest rates, a negative gap
within a given period of time would result in an increase in net interest income
while a positive gap within a given period of time would have the opposite
effect.
In an effort to reduce interest rate risk and protect it from the negative
effect of increases in interest rates, the Bank has instituted certain asset and
liability management measures. The primary elements of this strategy include:
(i) balance sheet restructuring, and (ii) asset/liability management.
Management's strategy for asset/liability management has consisted of (i)
minimizing the origination of fixed rate mortgage loans with maturities of more
than 15 years, (ii) originating adjustable rate mortgage loans for portfolio
where maturities exceed 15 years, (iii) originating consumer and equity loans
that are short-term or adjustable, (iv) collecting fee income from fixed rate
loans with terms of more than 15 years that the Bank refers to other financial
institution, and (v) focusing marketing efforts and pricing to extend the
average maturities on deposits.
Quarterly, the OTS prepares a report on the interest rate sensitivity of the net
portfolio value ("NPV") from information provided by Bank. The OTS adopted a
rule in August 1993 incorporating an interest rate risk ("IRR") component into
the risk-based capital rules. Implementation of the rule has been delayed until
the OTS has tested the process under which institutions may appeal such capital
deductions. The IRR component is a dollar amount that will be deducted from
total capital for the purpose of
- 8 -
<PAGE>
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its NPV to changes in interest rates. The NPV is the
difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off-balance sheet contracts. An institution's IRR is measured
as the change to its NPV as the result of a hypothetical 200 basis point change
in market interest rates. A resulting change in NPV of more than 2% of the
estimated market value of its assets will require the institution to deduct from
its capital 50% of that excess change. The rule provides that the OTS will
calculate the IRR component quarterly for each institution. The following tables
present the Bank's NPV as well as other data as of March 31, 1998, as calculated
by the OTS, based on information provided to the OTS by the Bank.
<TABLE>
<CAPTION>
Change in Interest
Rates in Basis
Points (Rate Shock) Net Portfolio Value NPV as % of Present Value of Assets
--------------------------------------------------------------------------------------- ------------------------------------
$ Amount $ Change Change % NPV Ratio Change
------------- ------------------- -------------- ---------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 bp $ 4,526 (3,271) (42) % 9.98% -582 bp
+300 bp $ 5,479 (2,318) (30) % 11.78% -401 bp
+200 bp (1) $ 6,401 (1,396) (18) % 13.45% -235 bp
+100 bp $ 7,214 (583) (7) % 14.85% -95 bp
0 bp $ 7,797 15.79%
-100 bp $ 8,121 325 4 % 16.29% +49 bp
-200 bp $ 8,314 517 7 % 16.54% +75 bp
-300 bp $ 8,735 938 12 % 17.17% +137 bp
-400 bp $ 9,316 1,519 19 % 18.03% +224 bp
--------------------
(1) Denotes rate shock used to compute interest rate risk capital component.
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
Risk Measures (200 Basis Point Rate Shock):
<S> <C>
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 15.79 %
Exposure Measure: Post-Shock NPV Ratio 13.45 %
Sensitivity Measure: Change in NPV Ratio -235 bp
Calculation of Capital Component:
Change in NPV as % of Present Value of Assets 2.83 %
</TABLE>
Utilizing the data above, the Bank, at March 31,1998, would have been considered
by the OTS to have been subject to "above normal" interest rate risk and a
deduction from risk-based capital would have been required.
Set forth below is a breakout, by basis points of the Bank's NPV as of March 31,
1998 by assets, liabilities and off-balance
sheet items.
<TABLE>
<CAPTION>
No
Net Portfolio Value -400 bp -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp +400 bp
- ------------------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $ 51,665 $ 50,883 $ 50,266 $ 49,880 $ 49,366 $ 48,596 $ 47,600 $ 46,497 $ 45,367
- -Liabilities 42,379 42,173 41,971 41,772 41,576 41,383 41,195 41,008 40,826
+Off Balance Sheet 30 25 19 13 7 1 (4) (10) (15)
---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net Portfolio Value $ 9,316 $ 8,735 $ 8,314 $ 8,121 $ 7,797 $ 7,214 $ 6,401 $ 5,479 $ 4,526
========== ========== =========== ========== ========== ========== ========== ========== ==========
</TABLE>
- 9 -
<PAGE>
Certain assumptions utilized by the OTS in assessing the interest rate risk of
savings associations were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above.
Certain shortcomings are inherent in the preceding NPV tables because the data
reflect hypothetical changes in NPV based upon assumptions used by the OTS to
evaluate the Bank as well as other institutions. However, net interest income
should decline with instantaneous increases in interest rates while net interest
income should increase with instantaneous declines in interest rates. Generally,
during periods of increasing interest rates, the Bank's interest rate sensitive
liabilities would reprice faster than its interest rate sensitive assets causing
a decline in the Bank's interest rate spread and margin. This would result from
an increase in the Bank's cost of funds that would not be immediately offset by
an increase in its yield on earning assets. An increase in the cost of funds
without an equivalent increase in the yield on earning assets would tend to
reduce net interest income.
In times of decreasing interest rates, fixed rate assets could increase in value
and the lag in repricing of interest rate sensitive assets could be expected to
have a positive effect on the Bank's net interest income.
- 10 -
<PAGE>
Average Balances, Interest and Average Yields and Rates
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid. Such yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily average balances
has caused any material difference in the information presented.
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------------------------------------------
At March 31,
1998 1998 1997 1996
------------ -------------------------- -------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
-------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) 8.55% $ 24,619 $ 2,218 9.01% $ 22,895 $ 2,087 9.12% $ 22,729 $ 2,087 9.19%
Mortgage-backed securities 6.75% 12,213 800 6.55% 12,146 775 6.38% 9,507 599 6.31
Investment securities (2) 6.39% 8,923 583 6.53% 11,224 735 6.55% 9,385 616 6.57
Other interest-earning assets 5.62% 1,514 67 4.43% 866 35 4.04% 2,170 114 5.27
-------- ---------- --------- --------- -------- ------- ------ ---------- -------- -------
Total interest-earning 7.61% $ 47,269 $ 3,668 7.76% $ 47,131 $ 3,632 7.71% $ 43,791 $ 3,416 7.80
assets: ======== ========== ========= ========= ======== ======= ====== ========== ======== =======
Non-interest-earning assets: 1,165 1,151 1,376
--------- -------- ---------
Total assets $ 48,434 $ 48,282 $ 45,167
========= ======== =========
Interest-bearing liabilities:
Savings accounts 2.60% $ 2,895 $ 75 2.59% $ 3,136 $ 81 2.58% $ 3,481 $ 102 2.94
Demand deposits 2.28% 8,278 198 2.39% 8,249 201 2.44% 8,083 235 2.90
Certificates of deposit 5.41% 23,351 1,266 5.42% 23,187 1,247 5.38% 24,653 1,405 5.69
Other borrowed funds 5.14% 6,057 338 5.58% 5,545 305 5.50% 348 19 5.46
-------- ---------- --------- --------- -------- ------- ------ ---------- -------- -------
Total interest-bearing 4.50% $ 40,581 $ 1,877 4.63% $ 40,117 $ 1,834 4.57% $ 36,565 $ 1,761 4.82
liabilities ======== ========== ========= ========= ======== ======= ====== ========== ======== =======
Non-interest bearing 464 379 394
liabilities ---------- -------- ---------
Total liabilities $ 41,045 $ 40,496 $ 36,959
========== ======== =========
Stockholder's equity 7,389 7,786 8,208
---------- -------- ---------
Total liabilities and $ 48,434 $ 48,282 $ 45,167
stockholders' equity ========== ======== =========
Net interest income $ 1,791 $ 1,798 $ 1,655
========== ======= ========
Interest rate spread (3) 3.11% 3.13% 3.14% 2.98
======== ======== ======= =======
Net yield on interest- 3.79% 3.81% 3.78
earning assets (4) ======== ======= ======
Ratio of average
interest earning assets 116.48% 117.48% 119.79
to average interest- ======== ======= =======
bearing liabilities
</TABLE>
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
-11 -
<PAGE>
The following Rate/Volume Analysis table presents, for the periods indicated,
information regarding changes in interest income and interest expense (in
thousands) of the Bank. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume multiplied by old rate); (ii)
changes in rates (changes in rate multiplied by old average volume); and (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume).
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------------ --------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------ --------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
---------- ------- --------- ----- ------ ------ ------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $ 157 $ (25) $ (1) $ 131 $ 15 $ (15) $-- $--
Mortgage-backed securities 4 21 -- 25 167 7 2 176
Investment securities (150) (2) -- (152) 121 (1) (1) 119
Other interest-earning assets 26 3 3 32 (69) (26) 16 (79)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets $ 37 $ (3) $ 2 $ 36 $ 234 $ (35) $ 17 $ 216
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
Savings accounts $ (6) $-- $-- $ (6) $ (10) $ (13) $ 2 $ (21)
Demand deposits 1 (4) -- (3) 4 (37) (1) (34)
Certificates of deposits 9 9 1 19 (84) (77) 3 (158)
Other borrowed funds 28 4 1 33 283 -- 3 286
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing liabilities $ 32 $ 9 $ 2 $ 43 $ 193 $(127) $ 7 $ 73
===== ===== ===== ===== ===== ===== ===== =====
Net change in interest income $ 5 $ (12) $-- $ (7) $ 41 $ 92 $ 10 $ 143
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Comparison of Operating Results for the Years Ended March 31, 1998 and 1997
General:
Net income increased $155,215, or 40.81%, from $380,380 for the year ended March
31, 1997 to $535,595 for the year ended March 31, 1998. As discussed in the
following paragraphs, the net income for the year ended March 31, 1997 included
a one-time special SAIF assessment of $225,433, which net of tax effect,
resulted in decreasing fiscal year 1997 net income by approximately $149,000.
Without the special assessment during the year ended March 31, 1997 net income
would have been approximately $530,000, which is consistent with net income for
the year ended March 31, 1998.
On September 30, 1996, President Clinton signed into law a bill that provided
for a special assessment of SAIF insured institutions amounting to 65.7 basis
points applied to the Bank's deposit base measured as of March 31, 1995. The
total amount of the special assessment for the Bank was included in expense and
paid during the year ended March 31, 1997.
Beginning January 1, 1997, deposit insurance assessments for most SAIF members
were reduced to approximately 6.4 basis points of deposits on an annual basis
and are expected to remain at that rate through the end of 1999, down from the
previous level of 23 basis points, a reduction in the rate of deposit insurance
assessed the Bank of approximately 70%. Through 1999 BIF members are expected to
be assessed at approximately 1.3 basis points on deposits. Thereafter,
assessments for BIF and SAIF members should be the same and SAIF and BIF may be
merged. It is expected that these continuing assessments for both SAIF and BIF
members will be used to repay outstanding Financing Corporation bond
obligations.
- 12 -
<PAGE>
The operating results of the Company depend to a great degree on its net
interest income, which is the difference between interest income on
interest-earning assets, primarily loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities,
primarily deposits and borrowings. The Company's net income is also affected by
the level of its provision for losses on loans, non-interest income and
non-interest expense.
Interest income:
Total interest income increased $35,771, or 0.98%, from $3,631,987 for the year
ended March 31, 1997 to $3,667,758 for the year ended March 31, 1998. This
slight increase resulted primarily from an increase in the average balance of
loans receivable. As reflected in the rate/volume analysis, the change in
interest income due to the volume of loans receivable was an increase of
$157,000 during fiscal year 1998 from fiscal year 1997. This increase is offset
by a decrease in interest income due to the volume of investment securities of
$150,000 during fiscal year 1998 from fiscal year 1997.
Interest expense:
Total interest expense increased $43,371 or 2.37%, from $1,833,583 for the year
ended March 31, 1997 to $1,876,954 for the year ended March 31, 1998. This
increase was due to the increase in borrowed funds throughout the fiscal year.
Approximately $28,000 of the increase in interest expense was due to an increase
in the volume of other borrowed funds which consists of advances and borrowings
from the FHLB. The average cost for interest-bearing liabilities increased
slightly from 4.57% for the year ended March 31, 1997 to 4.63% for the year
ended March 31, 1998.
Net interest income:
As a result of the above, net interest income decreased $7,600 or 0.42% from
$1,798,404 for the year ended March 31, 1997 to $1,790,804 for the year ended
March 31, 1998. Net interest income declined $12,000 as a result of rising
interest rates. This was partially offset by an increase in net interest income
attributable to an increase in the volume of interest bearing assets over
interest bearing liabilities of $5,000.
Provision for losses on loans:
The Bank currently maintains, and the Board of Directors monitors, allowances
for possible loan losses. These allowances are established based upon
management's periodic evaluation of known and inherent risks in the loan
portfolio, review of significant individual loans and collateral, review of
delinquent loans, past loss experience, adverse situations that may affect the
borrowers' ability to repay loans, current and expected market conditions and
other factors management deems important. Determining the appropriate level of
reserves involves a high degree of management judgment and is based upon
historical and projected losses in the loan portfolio and the collateral value
of specifically identified problem loans. Additionally, allowance strategies and
policies are subject to periodic review and revision in response to current
market conditions, actual loss experience and management's expectations.
The provision for losses on loans is the method by which the allowance for
losses is adjusted during the period. The provision for losses on loans directly
impacts net interest income; the amount of the provision for losses on loans
reduces net interest income by the same amount. Likewise, if a provision for
losses on loans is regularly recorded in prior periods and a smaller, or no,
provision for losses on loans is recorded during a subsequent period, the amount
of the reduction has the effect of increasing net interest income by that same
amount.
The provision for loan losses was $3,186 and $763 for the years ended March 31,
1998 and 1997, respectively. The provision for loan losses increased $2,423 for
the year ended March 31, 1998 as a result of management's evaluation of the
adequacy of the allowance in relation to the increase in the Bank's loan
portfolio, including increases in non-mortgage lending. Historical
non-performing loan rations are presented with the five-year
- 13 -
<PAGE>
financial summary information. The allowance for loan losses as a percent of
non-performing assets 164.6% at March 31, 1998 compared to 89.9% at March 31,
1997.
While the Bank maintains its allowance for losses at a level that it considers
to be adequate to provide for potential losses, there can be no assurance that
further additions will not be made to the loss allowance and that such losses
will not exceed the estimated amounts.
Non-interest income:
Non-interest income decreased $8,841 from $251,277 for the year ended March 31,
1997 to $242,436 for the year ended March 31, 1998. This decrease is the result
of a $46,528 gain on the sale of certain equity investments realized during
fiscal 1997. This decrease was offset by an increase in income from service
charges of $18,770 or 11.41%. Service and late charges increased primarily due
to more strict enforcement of fee policies throughout fiscal year 1998.
Non-interest expense:
Total non-interest expense decreased $236,751 from $1,415,875 for the year ended
March 31, 1997 to $1,179,124 for the year ended March 31, 1998. This decrease
was primarily the result of the special one-time SAIF assessment of $225,433
during fiscal 1997. Federal insurance premium expense also decreased $41,341 or
65.71% from $62,913 for the year ended March 31, 1997 to $21,572 for the year
ended March 31, 1998. The decrease in regulatory insurance and assessments was
substantially due to the revised rate structure on insured deposits adopted by
the FDIC after the recapitalization of the SAIF. The Bank's annual deposit
insurance rate in effect prior to this recapitalization was 0.23% of insured
deposits, declining to 0.18% of insured deposits for the quarter ended December
31, 1996, and reduced to 0.064% of insured deposits effective January 1, 1997.
Income tax expense:
The Company's income tax expense increased $62,672 or 24.80%, from $252,663 for
the year ended March 31, 1997 to $315,335 for the year ended March 31, 1998. The
principal reason for the increase was the increase in pre-tax income.
Comparison of Operating Results for the Years Ended March 31, 1997 and 1996
General:
Net income decreased $204,578 or 34.97%, from $584,958 at March 31, 1997 to
$380,380 for the year ended March 31, 1997. This decrease related primarily to a
special one-time SAIF assessment of $225,433.
Net interest income:
The Bank's net interest income for the year ended March 31, 1997 increased
$143,107, or 8.65%, from $1,655,297 for the year ended March 31, 1996 to
$1,798,404 for the year ended March 31, 1997. Interest income increased $215,600
and interest expense increased $72,493. Yields on the Company's interest-earning
assets declined by 9 basis points during the year ended March 31, 1997, and the
rates paid on the Company's interest-bearing liabilities decreased by 25 basis
points resulting in a slight increase in the interest rate spread to 3.14% for
the year ended March 31, 1997 from 2.98% for the year ended March 31, 1996.
The $215,600 increase in total interest income is primarily the result of the
$175,716 increase in interest on mortgage-backed securities and $40,031 increase
in interest on investment securities. The increase in mortgage-backed
securities, as reflected in the Bank's rate/volume analysis, resulting from an
increase in the volume of mortgage-backed securities was $167,000.
- 14 -
<PAGE>
The $72,493 increase in total interest expense consists primarily of a $285,501
increase in interest on borrowed funds offset by a $213,008 decrease in interest
expense on deposits. As reflected in the Bank's rate/volume analysis, the
increase in interest expense resulting from the increased volume of borrowed
funds was $283,000, while the net decrease in interest expense on deposits
resulting from the changes in rate was $127,000 and in volume was $90,000.
Provision for losses on loans:
The provision for loan losses was $763 and ($131,875) for the years ended March
31, 1997 and 1996, respectively. The provision for loan losses decreased
significantly during the year ended March 31, 1996, as a result of management's
evaluation of the adequacy of the allowance for losses on loans after
considering the loan portfolio in conjunction with current and expected market
conditions. This decrease in the provision for losses on loans is primarily
attributable to an improving economy and real estate market in the primary
market area, resulting in a decrease in non-performing loans. The allowance for
loan losses as a percent of non-performing assets was 1.61% at March 31, 1997
and 1.70% at March 31, 1996. Charge-offs, net of recoveries, remained comparable
between 1997 and 1996, consisting of approximately $15,260 in 1997 and $16,372
in 1996.
Non-interest income:
Non-interest income decreased $84,888 from $336,165 for the year ended March 31,
1996 to $251,277 for the year ended March 31, 1997. During the year ended March
31, 1997, the Bank realized gains of $46,528 from the sale of certain equity
investments. This gain was offset by a decrease in gain from real estate
operations. During the year ended March 31, 1996 the Company experienced
$134,788 income from real estate operations from a gain on the sale of a parcel
of land that the bank obtained through foreclosure of a participation loan.
Non-interest expense:
Non-interest expense increased $186,506 or 15.17% for the year ended March 31,
1997 compared to March 31, 1996. The increase was primarily the result of the
special one-time SAIF assessment of $225,433, discussed earlier.
Exclusive of the special SAIF assessment incurred during the year ended March
31, 1997, non-interest expense decreased $39,000 from $1,229,369 for the year
ended March 31, 1996 to $1,190,442 for the year ended March 31, 1997. This
relates to decreases in professional fees and federal insurance premiums.
Federal insurance premiums decreased $19,354 or 23.53% due to the decrease in
insurance assessments which were effective January 1, 1997, as discussed
earlier.
Income taxes:
The Bank's income tax expense decreased $56,347, or 18.23%, from $309,010 for
the year ended March 31, 1996 to $252,663 for the year ended March 31, 1997.
This decrease in income tax resulted from a decrease in pre-tax income largely
attributable to the accrual of the special SAIF assessment. Tax benefit
attributable to the SAIF assessment was approximately $75,000.
Liquidity and Capital Resources
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital or the sale of highly marketable
assets such as available-for-sale securities. Additional sources of liquidity,
including cash flow from both repayment of loans and maturity of investment
securities, are also included in determining whether liquidity is satisfactory.
During fiscal 1998, cash and cash equivalents increased by $2,784,590, primarily
as a result of investment and mortgage-backed securities classified as
held-to-maturity being called during the year ended March 31, 1998
- 15 -
<PAGE>
resulting in total funds provided by investing activities of $3,281,508. The
Company also had net cash provided by operating activities of $710,136. The cash
provided by investing and operating activities were partially offset by cash
used by financing activities of $1,207,054. Cash and cash equivalents used by
financing activities resulted primarily from the repayment of FHLB advances and
other borrowings.
During the year ended March 31, 1997, cash and cash equivalents decreased by
$879,280 as compared to March 31, 1996. The decrease was the result of cash used
in investing activities of $3,237,915 off set by cash generated from operating
activities of $588,693 and financing activities of $1,769,942. The increase in
cash and cash equivalents used by investing activities resulted primarily from
the acquisition of held-to-maturity mortgage-backed securities. The increase in
cash provided by financing activities was largely attributable to an increase in
FHLB advances and borrowings of $4,700,000. As of March 31, 1997, the Bank had
an existing line of credit with the FHLB of $2,500,000 against which the Bank
had an outstanding balance of $700,000 that could serve as an additional source
of liquidity.
The Bank is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S. Government, federal
agency and other investments having maturities of five years or less. Current
OTS regulations require that a savings bank maintain liquid assets of not less
than 4% of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less, of which short-term liquid assets must
consist of not less than 1%. At March 31, 1998, the Bank met its liquidity
requirement and expects to meet this requirement in the future. The Bank adjusts
liquidity as appropriate to meet its asset/liability objectives.
OTS has also set minimum capital requirements for savings banks such as the
Bank. The capital standards generally require the maintenance of regulatory
capital sufficient to meet a tangible capital requirement, a core capital
requirement and a risk-based capital requirement. At March 31, 1998 the Bank
exceeded all of the minimum capital requirements as currently required. Please
refer to Note 12 of the accompanying Notes to Consolidated Financial Statements
for more information regarding the Bank's regulatory capital position at March
31, 1998.
Impact of Inflation and Changing Prices
The financial statements of Guthrie Savings, Inc. and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Bank's operations.
Nearly all the assets and liabilities of the Bank are monetary. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
Year 2000 Issue
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operation of the Bank. Data
processing is also essential to most other financial institutions and many other
companies.
- 16 -
<PAGE>
The most significant data processing applications of the Bank that could be
affected by this problem are provided by a third party service bureau. The Bank
is currently in the process of evaluating its situation as it relates to the
year 2000 issue and the Bank's service center. The Bank is evaluating their
internal data processing applications and is in the process of updating all
computer terminals and installing a network system. The Bank has estimated the
cost of addressing the Year 2000 issue to be approximately $100,000, consisting
of $60,000 for new bank computer equipment, $30,000 relating to service bureau
fees and approximately $10,000 for various other training and consulting fees.
The Bank's data service center currently has a target date of not later than
December 31, 1998 for external and internal testing of modifications to critical
systems. This testing is to include testing of interfaces between the bank
computer network, yet to be installed, and the data service center. If there is
a problem with the service center or the Bank relating to the year 2000 issue
the Bank would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on the financial condition and results of operation of the Bank.
- 17 -
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders of
Guthrie Savings, Inc.
Guthrie, Oklahoma
We have audited the accompanying consolidated statements of financial condition
of Guthrie Savings, Inc. and subsidiary as of March 31, 1998 and 1997 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended March 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guthrie Savings, Inc. and
subsidiary as of March 31, 1998 and 1997, and the results of their operations
and cash flows for each of the three years in the period ended March 31, 1998 in
conformity with generally accepted accounting principles.
Regier Carr & Monroe, L.L.P.
April 23, 1998
Wichita, Kansas
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Financial Condition
March 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
--------------- ---------------
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 2,995,502 $ 311,624
Non-interest bearing 311,917 211,205
--------------- ---------------
Total cash and cash equivalents 3,307,419 522,829
Investment securities held-to-maturity (estimated market
value of $3,893,119 and $8,579,106 at March 31,
1998 and 1997, respectively) 3,900,000 8,700,000
Investment securities available-for-sale 2,174,751 2,061,727
Mortgage-backed securities held-to-maturity (estimated
market value of $12,744,277 and $13,185,802 at
March 31, 1998 and 1997, respectively) 12,615,162 13,273,398
Loans receivable, net 25,573,437 23,461,257
Loans held-for-sale 81,757
Accrued income receivable 262,853 330,277
Real estate owned and other repossessed assets, net 10,500
Office properties and equipment, net 569,093 598,633
Prepaid expenses and other assets 131,926 99,135
--------------- ---------------
Total assets $ 48,626,898 $ 49,047,256
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 35,537,831 $ 34,293,278
Advances and other borrowings from
Federal Home Loan Bank 5,196,000 6,700,000
Advances from borrowers for taxes and insurance 48,988 32,830
Other liabilities and accrued expenses 109,081 60,805
Deferred income 50,824 57,956
Income taxes payable, current 26,840 17,816
Deferred income taxes 121,206 79,531
--------------- ---------------
Total liabilities 41,090,770 41,242,216
--------------- ---------------
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock, $0.01 par value; 3,000,000 shares
authorized; 515,125 shares issued and outstanding 5,151 5,151
Additional paid-in capital 4,811,997 4,779,668
Retained income, substantially restricted 4,541,553 4,392,507
Unrealized loss on available-for-sale securities (3,443) (46,379)
Unamortized stock acquired by Employee Stock
Ownership Plan (267,865) (309,075)
Unamortized compensation related to Management
Stock Bonus Plan (103,490) (134,836)
Treasury stock, at cost, 97,668 and 64,766 shares
at March 31, 1998 and 1997, respectively (1,447,775) (881,996)
--------------- ---------------
Total stockholders' equity 7,536,128 7,805,040
--------------- ---------------
Total liabilities and stockholders' equity $ 48,626,898 $ 49,047,256
=============== ===============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these statements.
F-2
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Operations
Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest on loans $ 2,217,831 $ 2,087,179 $ 2,087,326
Interest on mortgage-backed securities 800,182 774,790 599,074
Interest and dividends on investment securities 649,745 770,018 729,987
-------------- ------------- ----------------
Total interest income 3,667,758 3,631,987 3,416,387
-------------- ------------- ----------------
Interest expense:
Deposits 1,538,585 1,528,658 1,741,666
Borrowed funds 338,369 304,925 19,424
-------------- ------------- ----------------
Total interest expense 1,876,954 1,833,583 1,761,090
-------------- ------------- ----------------
Net interest income 1,790,804 1,798,404 1,655,297
Provision for losses on loans 3,186 763 (131,875)
-------------- ------------- ----------------
Net interest income after provision for
losses on loans 1,787,618 1,797,641 1,787,172
-------------- ------------- ----------------
Non-interest income:
Service charges 183,331 164,561 166,907
Gain on sale of loans 4,813
Net gain on sale of investments 46,528
Gain from real estate operations 4,289 12 134,788
Other 50,003 40,176 34,470
-------------- ------------- ----------------
Total non-interest income 242,436 251,277 336,165
-------------- ------------- ----------------
Non-interest expense:
Compensation and related expenses 624,197 589,319 581,507
Occupancy expense 63,715 63,368 62,947
Professional fees 110,740 118,628 134,744
Federal insurance premium 21,572 62,913 82,267
SAIF special assessment 225,433
Data processing 82,873 83,210 93,594
Bank charges 52,534 57,922 52,438
Other expense 223,493 215,082 221,872
-------------- ------------- ----------------
Total non-interest expense 1,179,124 1,415,875 1,229,369
-------------- ------------- ----------------
Income before income taxes 850,930 633,043 893,968
-------------- ------------- ----------------
Income taxes:
Currently payable 295,447 211,499 205,832
Deferred tax expense 19,888 41,164 103,178
-------------- ------------- ----------------
Total income taxes 315,335 252,663 309,010
-------------- ------------- ----------------
Net income $ 535,595 $ 380,380 $ 584,958
============== ============= ================
Basic:
Earnings per share $ 1.41 $ 0.92 $ 1.28
============== ============= ================
Weighted average common shares outstanding 380,544 413,112 458,475
============== ============= ================
Diluted:
Earnings per share $ 1.36 $ 0.91 $ 1.27
============== ============= ================
Weighted average common shares outstanding 392,522 417,485 459,888
============== ============= ================
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized Unamortized
Loss on Common Unamortized Total
Additional Available- Stock Compensation Stock-
Common Paid-In Retained for-Sale Acquired Related to Treasury holders'
Stock Capital Earnings Securities by ESOP MSBP Stock Equity
-------- ------------ ----------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995 $ 5,151 $4,763,293 $3,860,335 $ (915) $ (391,495) $ - $ - $ 8,236,369
Acquisition of 20,605
shares of common stock
by Management Stock
Bonus Plan, 15,863
shares awarded,
4,742 held in treasury (9,518) (202,253) (63,312) (275,083)
Allocation of shares by
Employees' Stock
Ownership Plan 11,741 41,210 52,951
Amortization of compensation
related to Management
Stock Bonus Plan 26,967 26,967
Net income for the year
ended March 31, 1996 584,958 584,958
Cash dividend paid ($0.50
per share) (222,740) (222,740)
Net change in unrealized
loss on available-for-
sale securities (9,001) (9,001)
Purchase of 25,756
treasury shares (345,766) (345,766)
--------------------- ----------- ---------- ------------ ------------ ------------ -------------
Balance, March 31, 1996 5,151 4,765,516 4,222,553 (9,916) (350,285) (175,286) (409,078) 8,048,655
Allocation of shares by
Employees' Stock
Ownership Plan 14,152 41,210 55,362
Amortization of
compensation related
to Management Stock
Bonus Plan 40,450 40,450
Net income for the year
ended March 31, 1997 380,380 380,380
Cash dividend paid ($0.50
per share) (210,426) (210,426)
Net change in unrealized
loss on available-for-
sale securities (36,463) (36,463)
Purchase of 34,268
treasury shares (472,918) (472,918)
--------------------- ----------- ---------- ------------ ------------ ------------ -------------
Balance, March 31, 1997 5,151 4,779,668 4,392,507 (46,379) (309,075) (134,836) (881,996) 7,805,040
Allocation of shares
by Employees' Stock
Ownership Plan 21,813 41,210 63,023
Management Stock Bonus
Plan shares awarded
(618 shares) 2,255 (10,506) 8,251 -
Compensation related to
stock options issued 3,090 3,090
Amortization of
compensation related
to Management Stock
Bonus Plan 5,171 41,852 47,023
Net income for the year
ended March 31, 1998 535,595 535,595
Cash dividend paid
($1.00 per share) (386,549) (386,549)
Net change in unrealized
loss on available-
for-sale securities 42,936 42,936
Purchase of 33,520
treasury shares (574,030) (574,030)
-------- ------------ --------- ------------ ------------ ------------ ------------ ------------
Balance, March 31, 1998 $ 5,151 $4,811,997 $4,541,553 $ (3,443) $ (267,865) $ (103,490) $(1,447,775) $ 7,536,128
======== ============ ========= ============ ============ ============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Cash Flows
Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 535,595 $ 380,380 $ 584,958
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments (46,528)
(Gain) loss on sale of real estate acquired in
settlement of loans 1,698 (114,611)
Depreciation 31,593 37,027 48,245
Amortization of premiums and discounts
on investments and loans (3,437) 3,660 24,535
Provision for losses on loans and real
estate owned 3,186 763 (131,875)
Origination of loans held-for-sale (755,957)
Sale of loans held-for-sale 679,013
Gain on sale of loans held-for-sale (4,813)
(Increase) decrease in accrued interest
receivable 67,424 33,251 (7,506)
(Increase) decrease in other assets (32,791) 11,710 3,368
Increase (decrease) in accrued expenses 48,276 (17,979) 18,332
Increase in accrued and deferred income taxes 28,911 90,738 123,516
Amortization related to ESOP and MSBP 110,046 95,812 79,918
Other non-cash items, net 3,090 (1,839) (25,646)
----------- ------------- -------------
Net cash provided by operating activities 710,136 588,693 603,234
----------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans
held-for-investment (2,102,303) (485,968) 254,832
Proceeds from maturities and calls of investment
securities held-to-maturity 5,300,000 1,550,000 2,850,000
Proceeds from sales of investment securities
available-for-sale 102,347
Proceeds from maturities and calls of investment
securities available-for-sale 300,000
Acquisition of investment securities held-to-maturity (500,000) (500,000) (4,250,000)
Acquisition of investment securities available-for-sale (48,300) (39,700) (1,518,100)
Repayment of mortgage-backed securities
held-to-maturity 2,340,044 1,357,171 1,415,997
Acquisition of mortgage-backed securities
held-to-maturity (1,705,880) (5,227,289) (1,000,965)
Acquisition of fixed assets (2,053) (7,824) (12,800)
Proceeds from sale of foreclosed real estate 13,348 286,122
Other investing activities, net 50
----------- ------------- -------------
Net cash provided (used) by investing activities 3,281,508 (3,237,915) (1,674,864)
----------- ------------- -------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these statements.
F-5
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Cash Flows (Continued)
Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 1,241,367 $ (2,016,506) $ 1,764,923
Net increase (decrease) in escrow accounts 16,158 (7,468) (60,808)
Proceeds from FHLB advance and other borrowings 11,300,000 12,000,000 2,300,000
Repayment of FHLB advance and other borrowings (12,804,000) (7,300,000) (2,000,000)
Purchase of treasury stock (574,030) (472,918) (345,766)
Purchase of company stock by MSBP held in treasury (63,312)
Purchase of company stock by MSBP
awarded to participants (211,771)
Cash dividends paid (386,549) (433,166)
------------ ------------ ------------
Net cash provided (used) by financing activities (1,207,054) 1,769,942 1,383,266
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,784,590 (879,280) 311,636
Cash and cash equivalents at beginning of year 522,829 1,402,109 1,090,473
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,307,419 $ 522,829 $ 1,402,109
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest on deposits, advances and other
borrowings $ 1,873,167 $ 1,835,422 $ 1,760,621
============ ============ ============
Income taxes $ 237,703 $ 189,059 $ 226,170
============ ============ ============
Transfers from loans to foreclosed real estate $ 19,690 $ 54,446 $ 107,333
============ ============ ============
Transfers from foreclosed real estate to
deferred income $ -- $ -- $ (351)
============ ============ ============
Loans to facilitate the sale of foreclosed real estate $ -- $ 39,400 $ 32,500
============ ============ ============
Dividend declared and payable $ -- $ -- $ 222,740
============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these statements.
F-6
<PAGE>
Guthrie Savings, Inc.
Notes to Consolidated Financial Statements
March 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
Nature of operations:
Guthrie Savings, Inc. (the Company) is an Oklahoma corporation and is
the parent company of its wholly-owned subsidiary, Guthrie Federal
Savings Bank (the Bank). At the present time, the Company does not
conduct any active business.
Guthrie Federal Savings Bank is primarily engaged in attracting deposits
from the general public and using those deposits, together with other
funds, to originate real estate loans on one- to four-family residences,
and, to a lesser extent, consumer loans. The Bank has one office in
Guthrie, Oklahoma, which is located in its primary market area of Logan
County, Oklahoma. In addition, the Bank holds interest-bearing deposits
in other financial institutions and invests in mortgage-backed securities
and investment securities. The Bank offers its customers fixed-rate and
adjustable-rate mortgage loans, as well as consumer loans, including home
equity and savings account loans.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of Guthrie Savings, Inc. and its wholly-owned subsidiary, Guthrie Federal
Savings Bank. Significant intercompany transactions and balances have
been eliminated.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
loan losses and the valuation of assets acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and the valuation of
assets acquired by foreclosure, management obtains independent appraisals
for significant properties.
Management believes that the allowances for losses on loans and
valuations of assets acquired by foreclosure are adequate and
appropriate. While management uses available information to recognize
losses on loans and assets acquired by foreclosure, future loss may be
accruable based on changes in economic conditions, particularly in
central Oklahoma. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Bank's allowances for losses on loans and valuations of assets acquired
by foreclosure. Such agencies may require the Bank to recognize
additional losses based on their judgment of information available to
them at the time of their examination.
F-7
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Cash and cash equivalents:
Cash and cash equivalents include unrestricted cash on hand, demand
deposits maintained in depository institutions and other readily
convertible investments with original contractual terms to maturity of
three months or less.
Investment and mortgage-backed securities:
Investments, including mortgage-backed securities, are classified as
either held-to-maturity, trading, or available-for-sale. Held-to-maturity
securities are securities for which the Bank has the positive intent and
ability to hold to maturity and are reported at amortized cost. Trading
securities are securities held principally for resale and are reported at
fair value, with unrealized changes in value reported in the
institution's income statement as part of its earnings.
Available-for-sale securities are securities not classified as trading
nor as held-to-maturity securities and are also reported at fair value,
but any unrealized appreciation or depreciation, net of tax effects, are
reported as a separate component of stockholders' equity until realized.
Gains or losses on sales of available-for-sale securities are determined
using the specific-identification method. All sales are made without
recourse.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Loans receivable:
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal balances, net of deferred income on loans,
undisbursed loan proceeds and the allowance for loss on loans. Premiums
and discounts on loans are amortized into income using the interest
method.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, current level of non-performing
assets, and current economic conditions.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
Loan origination fees and certain direct costs are capitalized and
recognized as an adjustment of the yield of the related loan.
Loans held-for-sale:
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.
F-8
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Foreclosed real estate:
Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. Valuations are periodically
performed by management, and an allowance for losses is established by a
charge to operations if the carrying value of a property exceeds the fair
value less estimated costs to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in gain or loss on
foreclosed real estate. The historical average holding period for such
property is approximately one year.
Financial instruments:
All derivative financial instruments previously held or issued by the
Company were held or issued for purposes other than trading. The Company
did not hold or issue any derivative financial instruments during the
years ended March 31, 1998, 1997 and 1996.
Off-balance sheet instruments:
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commercial letters of credit, and standby letters of credit. Such
financial instruments are recorded in the financial statements when they
are funded or related fees are incurred or received.
Office properties and equipment:
Office properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line basis or
accelerated methods over the estimated useful lives of five to fifty
years for buildings and improvements and three to twenty years for
furniture, fixtures, equipment and automobiles.
Income taxes:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Stock-based compensation:
In October, 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. This Statement establishes a fair-value-based
method of accounting for stock compensation plans with employees and
others. It applies to all arrangements under which employees receive
shares of stock or other equity instruments of the employer, or the
employer incurs liabilities to employees in amounts based on the price of
the employer's stock. Although encouraged to do so, entities are not
required to adopt the recognition and measurement aspects of SFAS No.
123, and may continue to account for stock-based compensation plans in
accordance with APB Opinion 25. The Company has adopted the recognition
and measurement provisions of SFAS No. 123 effective for the fiscal year
beginning April 1, 1997. SFAS No. 123 will effect the Company's stock
options granted after April 1, 1997. These options are recognized and
measured in accordance with the fair-value-based method of accounting.
F-9
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Impact of new accounting standards:
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 establishes standards of disclosure and financial
statement display for reporting total comprehensive income and the
individual components thereof. This Statement requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This Statement is effective
for fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative
purposes is required. SFAS No. 130 provisions are only of a disclosure
nature and at present the only significant item having an impact on the
Company's financial statements is the inclusion of unrealized gain or
loss, net of tax, on available-for-sale securities as a component of
comprehensive income.
FASB issued Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, in June 1997. SFAS 131 establishes
new standards for determining a reportable segment and for disclosing
information regarding each such segment. This Statement requires that a
public business enterprise report financial and descriptive information
about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
This Statement requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense
items, and segment assets. However, this Statement does not require an
enterprise to report information that is not prepared for internal use if
reporting it would be impracticable. Statement 131 is effective for
financial statements for periods beginning after December 15, 1997. In
the initial year of application, comparative information for earlier
years is to be restated. SFAS No. 131 provisions are only of a disclosure
nature and the Bank currently does not have any components that would be
considered separate operating segments.
In February 1998, FASB issued Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. SFAS 132 revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
It standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful as they were when FASB
Statements No. 87, 88 and 106 were issued. The Statement is effective for
fiscal years beginning after December 15, 1997 earlier application is
encouraged. SFAS No. 132 will not have a material effect on the Company's
financial statements.
Earnings per share:
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock (potential common stock) were exercised or converted
to common stock. For the periods presented potential common stock
includes outstanding stock options and nonvested stock awarded under the
Management Stock Bonus Plan.
F-10
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Financial statement presentation:
Certain items in prior year financial statements have been reclassified
to conform to the 1998 presentation.
2. Investment Securities
The amortized cost and estimated market values of investment securities
at March 31 are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $3,900,000 $ 1,292 $ 8,173 $3,893,119
---------- ---------- ---------- ----------
Total held-to-maturity $3,900,000 $ 1,292 $ 8,173 $3,893,119
========== ========== ========== ==========
Available-for-sale:
Government Agency Securities $1,500,000 $ -- $ 5,549 $1,494,451
Stock in Federal Home Loan Bank,
at cost 680,300 -- -- 680,300
---------- ---------- ---------- ----------
Total available-for-sale $2,180,300 $ -- $ 5,549 $2,174,751
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $8,700,000 $ 18,323 $ 139,217 $8,579,106
---------- ---------- ---------- ----------
Total held-to-maturity $8,700,000 $ 18,323 $ 139,217 $8,579,106
========== ========== ========== ==========
Available-for-sale:
Government Agency Securities $1,500,000 $ -- $ 70,273 $1,429,727
Stock in Federal Home Loan Bank,
at cost 632,000 -- -- 632,000
---------- ---------- ---------- ----------
Total available-for-sale $2,132,000 $ -- $ 70,273 $2,061,727
========== ========== ========== ==========
</TABLE>
Government agency securities above include bonds and notes issued by
various government agencies. Those agencies include the following:
Federal Home Loan Bank, Fannie Mae, and Freddie Mac.
Government Agency Securities at March 31, 1998 and 1997 include $500,000
and $1,000,000, respectively, of Federal Home Loan Bank bonds, at cost,
with dual indexed or inverse floating rate structures whose yield may not
move consistent with general interest rate movements.
F-11
<PAGE>
2. Investment Securities (Continued)
Federal Home Loan Bank members are required to maintain an investment in
stock at an amount equal to a percentage of outstanding home loans. Such
stock is assumed to have a market value which is equal to cost.
The amortized cost and estimated market value of debt securities at March
31, 1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. The equity securities, including Federal Home Loan Bank Stock,
have been excluded from the maturity table below because they do not have
contractual maturities associated with debt securities.
Amortized Estimated
Cost Market Value
---------- ------------
Held-to-maturity:
Due in one year or less $1,400,000 $1,392,461
Due after one year through five years 2,000,000 1,999,440
Due after five years through ten years 500,000 501,218
---------- ----------
Total held-to-maturity $3,900,000 $3,893,119
========== ==========
Available-for-sale:
Due after one year through five years $ 500,000 $ 497,686
Due after five years through ten years 1,000,000 996,765
---------- ----------
Total available-for-sale $1,500,000 $1,494,451
========== ==========
There were no sales of investment securities available-for-sale during
the year ended March 31, 1998. During the year ended March 31, 1997,
there were realized gains on sales of investment securities
available-for-sale of $46,528. Proceeds from sales during the year ended
March 31, 1997 totaled $102,347 and consisted of equity securities and an
interest in an entity related to the Bank's prior data processor. There
were no realized gains or losses on sales of investment securities during
the year ended March 31, 1996.
3. Mortgage-Backed Securities
Mortgage-backed securities, all of which were classified as
held-to-maturity at March 31, 1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
FHLMC - fixed rate $ 1,252,544 $ 10,226 $ -- $ 1,262,770
FHLMC - ARM's 1,254,724 772 18,935 1,236,561
GNMA - ARM's 2,920,533 16,944 4,905 2,932,572
FNMA - ARM's 1,324,286 -- 29,363 1,294,923
GNMA - fixed rate 309,791 12,869 -- 322,660
FNMA - fixed rate 559,283 -- 7,144 552,139
Collateralized mortgage obligations-
government agency issue 4,994,001 151,962 3,311 5,142,652
----------- ----------- ----------- -----------
$12,615,162 $ 192,773 $ 63,658 $12,744,277
=========== =========== =========== ===========
</TABLE>
F-12
<PAGE>
3. Mortgage-Backed Securities (Continued)
<TABLE>
<CAPTION>
March 31, 1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FHLMC - fixed rate $ 1,374,266 $ 5,320 $ 28,561 $ 1,351,025
FHLMC - ARM's 1,420,037 -- 48,564 1,371,473
GNMA - ARM's 3,163,609 10,285 27,539 3,146,355
FNMA - ARM's 847,681 -- 31,481 816,200
GNMA - fixed rate 388,256 8,020 -- 396,276
FNMA - fixed rate 695,621 -- 29,167 666,454
Collateralized mortgage obligations-
government agency issue 5,383,928 54,091 -- 5,438,019
----------- ----------- ----------- -----------
$13,273,398 $ 77,716 $ 165,312 $13,185,802
=========== =========== =========== ===========
</TABLE>
Collateralized mortgage obligations consist of floating rate notes with
varying contractual principal maturities. The Bank has no principal only,
interest only, or residual collateralized mortgage obligations.
There were no realized gains or losses on sales of mortgage-backed
securities during the years ended March 31, 1998, 1997 and 1996.
There were no mortgage-backed securities classified as available-for-sale
as of March 31, 1998 and 1997.
4. Loans Receivable
Loans receivable at March 31 are summarized as follows:
March 31,
----------------------------
1998 1997
------------ ------------
First mortgage loans:
Secured by one to four family residences $ 18,758,433 $ 17,273,266
Secured by other properties 1,763,895 1,958,081
Construction loans 2,097,800 1,790,945
Other 727,864 579,276
------------ ------------
23,347,992 21,601,568
Less: Undisbursed loan proceeds (1,092,005) (641,971)
Unearned discounts and loan fees (72,674) (72,996)
Allowance for loan losses (273,254) (282,444)
------------ ------------
Total first mortgage loans 21,910,059 20,604,157
------------ ------------
Consumer and other loans:
Home equity and second mortgage 1,267,008 1,222,531
Loans on deposits 560,014 403,099
Other 1,923,108 1,325,718
------------ ------------
3,750,130 2,951,348
Less: Undisbursed loan proceeds (6,770)
Allowance for loan losses (79,982) (94,248)
------------ ------------
Total consumer and other loans 3,663,378 2,857,100
------------ ------------
Net loans receivable $ 25,573,437 $ 23,461,257
============ ============
F-13
<PAGE>
4. Loans Receivable (Continued)
The following is an analysis of the allowance for loss on loans:
March 31,
-----------------------------------
1998 1997 1996
---------- --------- ---------
Balance, beginning of year $ 376,692 $ 391,189 $ 539,436
Provision charged to operations 3,186 763 (131,875)
Loans charged off (33,844) (29,056) (30,113)
Recoveries 7,202 13,796 13,741
--------- --------- ---------
Balance, end of year $ 353,236 $ 376,692 $ 391,189
========= ========= =========
Impairment of loans having recorded investments of $440,137 at March 31,
1998 and $366,316 at March 31, 1997 has been recognized in conformity
with FASB Statement No. 114, as amended by FASB Statement No. 118. The
average recorded investment in impaired loans during the years ended
March 31, 1998 and 1997, was $403,227 and $357,606, respectively. The
total allowance for loan losses related to theses loans was $106,625 and
$109,397 at March 31, 1998 and 1997. Allowances for loss on these loans
are included in the above analysis of the overall allowance for loss on
loans. Interest income on impaired loans of $46,105 and $45,964 was
recognized for cash payments received for the years ended March 31, 1998
and 1997, respectively.
It is Bank policy not to modify interest rates on loans associated with
troubled debt restructuring. The Bank is not committed to lend additional
funds to debtors whose loans have been modified.
See Note 17 for disclosure of loans to related parties.
5. Accrued Income Receivable
Accrued interest receivable at March 31 is summarized as follows:
1998 1997
-------- --------
Mortgage-backed securities $ 61,121 $ 62,345
Loans receivable 144,236 127,419
Investments 57,496 140,513
-------- --------
$262,853 $330,277
======== ========
6. Foreclosed Real Estate
Real estate owned or in judgment and other repossessed assets consist of
the following:
1998 1997
------- -------
Real estate acquired by foreclosure $10,500 $ --
======= =======
F-14
<PAGE>
6. Foreclosed Real Estate (Continued)
The following is a statement of changes in the allowance for loss account
for the years ended March 31:
1998 1997 1996
------- ------- -------
Balance at beginning of year $ - $ - $ 7,888
Provision charged (credited) to income
Losses charged to allowance (7,888)
------- ------- -------
Balance at end of year $ - $ - $ -
======= ======= =======
Income (loss) from real estate operations for the years ended March 31 is
as follows:
1998 1997 1996
--------- --------- ---------
Gain on sale of real estate owned $ 7,131 $ 1,439 $ 139,158
Rental income -- -- 500
Operating expenses (2,842) (1,427) (4,870)
--------- --------- ---------
$ 4,289 $ 12 $ 134,788
========= ========= =========
7. Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation as follows:
March 31,
1998 1997
------------ -----------
Land $ 398,332 $ 398,332
Building and improvements 622,292 622,292
Furniture and equipment 246,501 245,791
Automobiles 13,103 13,103
----------- -----------
1,280,228 1,279,518
Less accumulated depreciation (711,135) (680,885)
----------- -----------
$ 569,093 $ 598,633
=========== ===========
Depreciation expense (1996 - $48,245) $ 31,593 $ 37,027
=========== ===========
8. Deposits
Deposits at March 31 are summarized as follows:
1998 1997
----------- -----------
Demand deposits $ 8,862,808 $ 8,099,082
Savings deposits 2,926,724 2,991,923
Certificates of deposit 23,748,299 23,202,273
----------- -----------
$35,537,831 $34,293,278
=========== ===========
F-15
<PAGE>
8. Deposits (Continued)
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $1,420,654 and $1,918,481 at March 31,
1998 and 1997, respectively.
At March 31, 1998, scheduled maturities of certificates of deposit are as
follows:
Year Ending March 31,
---------------------------
1999 $ 20,149,866
2000 2,373,249
2001 603,442
2002 429,676
Thereafter 192,066
------------
$ 23,748,299
============
9. Advances and Other Borrowings from Federal Home Loan Bank
Advances and other borrowings from the Federal Home Loan Bank at March 31
are summarized as follows:
1998 1997
---------- ----------
Advances $5,196,000 $6,000,000
Line of credit -- 700,000
---------- ----------
$5,196,000 $6,700,000
========== ==========
At March 31, 1998 the Bank had $0 outstanding under a $3,000,000 line of
credit with the Federal Home Loan Bank. The existing line of credit
expires August 15, 1998. At March 31, 1997, the Bank had $700,000
outstanding under a $2,500,000 line of credit, due August 15, 1997. The
line of credit bears interest at the line of credit rate established by
the Federal Home Loan Bank. This rate is adjusted from time to time.
Advances from the Federal Home Loan Bank are subject to fixed and
adjustable interest rates and at March 31 consist of the following:
1998 1997
Fiscal -------------------------- ----------------------------
Year Weighted Weighted
Maturity Amount Average Rate Amount Average Rate
- ------------- ---------- ------------ ------------- ------------
1998 $ -- % $5,304,000 5.55%
1999 2,196,000 5.64 696,000 5.69
2008 3,000,000 4.78
---------- ---- ---------- ----
$5,196,000 5.14% $6,000,000 5.56%
========== ==== ========== ====
F-16
<PAGE>
9. Advances and Other Borrowings from Federal Home Loan Bank (Continued)
The advances and line of credit are collateralized by a blanket pledge
agreement, including all stock in Federal Home Loan Bank, qualifying
mortgage loans, certain mortgage-related securities and other
investments.
10. Income Taxes
The Company and subsidiary file consolidated federal income tax returns.
The Company's effective income tax rate was different than the statutory
federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
March 31,
---------------------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Statutory federal income tax 34.0 % 34.0 % 34.0 %
Increase (reductions) resulting from:
Oklahoma income tax 1.5
Adjust tax bad debt reserves 0.8 5.4
Non-deductible items 0.4 0.3 0.1
Other 0.4 0.2 0.5
------------ ------------ ----------
37.1 % 39.9 % 34.6 %
============ ============ ==========
</TABLE>
Deferred taxes are included in the accompanying Statement of Financial
Condition at March 31, 1998 and 1997 for the estimated future tax effects
of differences between the financial statement and federal income tax
basis of assets and liabilities given the provisions of currently enacted
tax laws. The net deferred tax asset (liability) at March 31, 1998 and
1997 was comprised of the following:
1998 1997
--------- ---------
Deferred tax assets:
Deferred loan fees and costs $ 9,319 $ 11,184
Allowance for loan losses 93,614 90,880
Unrealized loss on available-for-sale securities 2,106 23,893
Accrued compensation 15,911 13,275
--------- ---------
Total deferred tax assets 120,950 139,232
--------- ---------
Deferred tax liabilities:
Accumulated depreciation (11,155) (9,402)
Special bad debt deduction (76,353) (87,267)
FHLB stock dividends (154,648) (122,094)
--------- ---------
Total deferred tax liabilities (242,156) (218,763)
--------- ---------
Net liability $(121,206) $ (79,531)
========= =========
No valuation allowance was recorded against deferred tax assets at March
31, 1998 or 1997.
Prior to the year ended March 31, 1997, the Bank was allowed a special
bad debt deduction based on a percentage of taxable income (8%) or on
specified experience formulas, subject to certain limitations based upon
aggregate loan balances at the end of the year. The Bank used the
percentage-of-taxable income method in 1996.
F-17
<PAGE>
10. Income Taxes (Continued)
Effective with the tax year beginning April 1, 1996, the Bank is no
longer able to use the percentage of taxable income method and began to
recapture tax bad debt reserves of $377,949 over a six year period. The
Bank recaptured $62,992 in tax bad debt reserves during each of the year
ended March 31, 1998 and 1997. The reserves to be recaptured consist of
bad debt deductions after December 31, 1987. If the amounts deducted
prior to December 31, 1987 are used for purposes other than for loan
losses, such as in a distribution in liquidation or otherwise, the
amounts deducted would be subject to federal income tax at the then
current corporate tax rate. The Bank has recorded a deferred tax asset
related to the allowance for loan losses reported for financial
reporting purposes and a deferred tax liability for special bad debt
deductions after December 31, 1987. The Bank, in accordance with SFAS
No. 109 had not recorded a deferred tax liability of approximately
$372,000 related to approximately $979,000 of cumulative special bad
debt deductions prior to December 31, 1987.
At March 31,1998, the Company has net operating loss carryforward for
state income tax purposes of $163,000, which will expire March 31, 2006.
The Company is currently protesting a notice of additional income tax due
to the State relating to the taxation of interest received on certain
U.S. government securities for the tax years 1994, 1995 and 1996.
Management of the Company believes its protest is with merit; however, if
the Company is unsuccessful in its protest the additional expense to the
Company is estimated to be approximately $80,000.
11. Earnings Per Share
Effective for the year ended March 31, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128,
Earnings per Share. The Statement is to be applied to financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. The Statement
requires restatement of all prior-period earnings per share (EPS) data
presented.
FAS No. 128 simplifies the standards for computing EPS and makes them
comparable to international EPS standards. It replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. Basic EPS excludes
dilution and 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 company. Diluted EPS
is computed similarly to the previously presented fully diluted earnings
per share.
March 31,
-----------------
1997 1996
------- -------
Earnings per share, as originally reported $ 0.89 $ 1.25
Earnings per share, after restatement
Basic $ 0.92 $ 1.28
Diluted $ 0.91 $ 1.27
F-18
<PAGE>
12. Regulatory and Capital Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary--actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of core capital (as defined in the
regulations) to assets (as defined) and core and total capital to risk
weight assets (as defined). Management believes, as of March 31, 1998,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of March 31, 1998, the most recent notification from the Office of
Thrift Supervision (OTS) categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the Bank's category.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------------- --------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ --------- ------------ ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 7,080 33.4% $ 1,696 8.0% $ 2,120 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 6,833 32.2% N/A 1,272 6.0%
Core (Tier I) Capital - leverage
(to Assets) 6,833 14.1% 1,943 4.0% 2,428 5.0%
As of March 31, 1997:
Tangible Capital (to Assets) $ 6,586 13.4% $ 735 1.5% $ N/A
Total (Risk-Based) Capital
(to Risk Weighted Assets) 6,839 33.8% 1,618 8.0% 2,023 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 6,586 32.6% N/A 1,214 6.0%
Core (Tier I) Capital - leverage
(to Assets) 6,586 13.4% 1,471 3.0% 2,452 5.0%
</TABLE>
F-19
<PAGE>
12. Regulatory and Capital Matters (Continued)
The following is a reconciliation of net worth to regulatory capital as
reported in the March 31, 1998 and 1997 reports to the Office of
Thrift Supervision:
March 31,
--------------------------
1998 1997
----------- -----------
Bank net worth per report
to Office of Thrift Supervision $ 6,830,000 $ 6,540,000
Rounding (584) 251
----------- -----------
Net worth as reported in accompanying
financial statements (Bank only) 6,829,416 6,540,251
Adjustments to arrive at Core (Tier I)
and Tangible Capital:
Unrealized losses (gains) on certain
available-for-sale securities 3,000 46,000
----------- -----------
Core (Tier I) and Tangible Capital 6,832,416 6,586,251
Adjustments to arrive at Total Capital:
Allowable portion of general
allowance for loan losses 247,000 253,000
----------- -----------
Total Capital $ 7,079,416 $ 6,839,251
=========== ===========
13. Employee Benefits Plans
Employee Retirement Plan:
The Bank adopted a 401(k) defined contribution savings plan during the
year ended March 31, 1997. Substantially all employees are covered under
the contributory plan. Pension costs attributable to the year ended March
31, 1998 and 1997 were $9,748 and $6,221, respectively, including all
current service costs.
Employee Stock Ownership Plan:
Upon conversion from mutual to stock form, the Bank established an
employee stock ownership plan (ESOP). The original acquisition of 41,210
shares of Company stock by the plan was funded by a loan from the Company
to the ESOP, in the amount of $412,100. The loan, together with interest,
is to be repaid over a ten year period. The debt, which is accounted for
as a liability of the Bank and a receivable for the Company, has been
eliminated in consolidation.
The Bank makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by
the ESOP are used to pay debt service. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from the collateral and will be allocated to active employees,
based on the proportion of debt service paid in the year. The Bank
accounts for its ESOP in accordance with Statement of Position No. 93-6.
Accordingly, the debt of the ESOP is recorded as debt of the Bank and the
shares pledged as collateral are reported as unearned ESOP shares in the
Statement of Financial Condition. As of March 31, 1998, the balance of
indebtedness from the ESOP to the Company was $267,865, which is shown as
a deduction from stockholders' equity on the consolidated statement of
financial condition. As shares are released from collateral, the Company
reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings per share (EPS)
computations. Dividends on allocated ESOP shares are recorded as a
F-20
<PAGE>
13. Employee Benefits Plans (Continued)
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as compensation expense. ESOP compensation expense was $52,721,
$29,606 and $72,526 for the years ended March 31, 1998, 1997 and 1996,
respectively. As of March 31, 1998, of the 41,210 shares of Company stock
acquired by the ESOP, 14,423 shares were allocated and 26,787 shares were
unallocated. The 26,787 unallocated shares had an estimated market value
of $488,863 at March 31, 1998.
Management Stock Bonus Plan:
During the year ended March 31, 1996, the Bank adopted a Management Stock
Bonus Plan (MSBP), the objective of which is to enable the Bank to retain
personnel of experience and ability in key positions of responsibility.
All employees of the Bank are eligible to receive benefits under the
MSBP. Benefits may be granted at the sole discretion of a committee
appointed by the Board of Directors. The MSBP is managed by trustees who
are non-employee directors and who have the responsibility to invest all
funds contributed by the Bank to the trust created for the MSBP.
The MSBP has purchased 20,605 shares of the Company's stock for $275,083.
Of these shares, 16,481 shares were granted in the form of restricted
stock payable over a five-year period at the rate of one-fifth of such
shares per year following the date of grant of the award. Compensation
expense, in the amount of the fair market value of the common stock at
the date of the grant to the employee, will be recognized pro rata over
the five years during which the shares are payable. A recipient of such
restricted stock will be entitled to all voting and other stockholder
rights, except that the shares, while restricted, may not be sold,
pledged or otherwise disposed of and are required to be held in escrow.
If a holder of such restricted stock terminates employment for reasons
other than death, disability or retirement, the employee forfeits all
rights to shares under restriction. If the participant's service
terminates as a result of death, disability, retirement or a change in
control of the Bank, all restrictions expire and all shares become
unrestricted. The 4,124 shares that have not been granted are accounted
for as treasury stock. The Board of Directors can terminate the MSBP at
any time, and if it does so, any shares not allocated will revert to the
Company.
14. Stock Option Plan
The Company's Board of Directors and stockholders ratified, effective
July 27, 1995, the 1994 Stock Option Plan (the Option Plan). Pursuant to
the Option Plan, 51,512 shares of common stock are reserved for issuance
by the Company upon exercise of stock options granted to officers,
directors and employees of the Company and Bank from time to time under
the Option Plan. The purpose of the Option Plan is to provide additional
incentive to certain officers, directors and key employees by
facilitating their purchase of a stock interest in the Company. The
Option Plan provides for the granting of incentive and non-incentive
stock options with a duration of ten years, after which no awards may be
made, unless earlier terminated by the Board of Directors pursuant to the
Option Plan. Stock to be offered under the Plan may be authorized but
unissued common stock or previously issued shares which have been
reacquired by the Company and held as Treasury shares.
The Option Plan will be administered by a committee of at least three
non-employee directors designated by the Board of Directors (the Option
Committee). The Option Committee will select the employees to whom
options are to be granted and the number of shares to be granted. The
option price may not be less than 100% of the fair market value of the
shares on the date of the
F-21
<PAGE>
14. Stock Option Plan (Continued)
grant, and no option shall be exercisable after the expiration of ten
years from the grant date. In the case of any employee who owns more than
10% of the outstanding common stock at the time the option is granted,
the option price may not be less than 110% of the fair market value of
the shares on the date of the grant, and the option shall not be
exercisable after the expiration of five years from the grant date. The
exercise price may be paid in cash, shares of the common stock, or a
combination of both.
Effective with ratification of the Option Plan, the Option Committee
granted 39,661 shares of common stock, at an exercise price of $12.63 per
share. Except as otherwise noted, all such options shall be exercisable
at the rate of 20% on the one-year anniversary and 20% annually
thereafter, except that in the event that the fair market value of the
common stock subject to such grant to any one individual exceeds
$100,000, the amount in excess of $100,000 shall not be considered
exercisable until the next calendar year.
Notwithstanding anything herein to the contrary, in no event shall any
options granted be exercisable for a period of six months from the date
of grant, except in the event of the death or disability of the option
holder. Options shall be immediately exercisable in the event of the
retirement following not less than 10 years of service, death or
disability of the option holder, or upon change of control in the Company
as provided in the plan. As of March 31, 1998, no options have been
exercised and all options granted remain outstanding.
The Company accounts for the fair value of its grants issued under the
plan subsequent to April 1, 1997 in accordance with FASB Statement 123.
The compensation cost that has been charged against income for the plan
was $3,090 for the year ended March 31, 1998.
In accordance with SFAS No. 123, the fair value of each option grant is
estimated on the date of grant based on discussions with management and
various assumptions relating to the dividend yield, expected volatility,
risk-free interest rate and expected life. Common stock options granted
during the year ended March 31, 1998 had an exercise price of $17.00 per
share and an estimated fair value of $2.00 per share.
Certain information for the years ended March 31, 1998 and 1997 relative
to stock options are comprised of the following:
<TABLE>
<CAPTION>
March 31,
----------------------------------------------
1998 1997
-------------------------------- ------------
Weighted-Average
Fixed Options Shares Exercise Price Shares
- ------------- ------- ---------------- ------
<S> <C> <C> <C>
Outstanding at beginning of year 39,661 $ 12.63 39,661
Granted 1,545 17.00
Canceled
Exercised
------- ------- ------
Outstanding at end of year 41,206 $ 12.79 39,661
====== ======= ======
Exercisable at end of year 41,206 39,661
====== ======
Number of shares available for future grant:
Beginning of year 11,851 11,851
====== ======
End of year 10,306 11,851
====== =======
</TABLE>
F-22
<PAGE>
15. Financial Instruments with Off-Balance-Sheet Risk/Commitments
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financial needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit,
standby letters of credit and commitments to sell loans. These
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the Statement of
Financial Condition. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
At March 31, 1998 and 1997, the Bank had outstanding commitments to fund
real estate loans of $220,500 and $0, respectively. Of the commitments
outstanding at March 31, 1998, $81,400 were for fixed rate loans with
rates of 8.00%. Commitments for adjustable rate loans amounted to
$139,100 with initial rates of 6.00% to 7.50% at March 31, 1998.
At March 31, 1998, the Bank had outstanding a standby letter of credit
of $150,000 with a fixed interest rate of 8.00%. The Bank had no standby
letters of credit outstanding at March 31, 1997.
Loan commitments are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral held is primarily residential real estate, but may include
autos, accounts receivable, inventory, property, plant and equipment.
The Bank had an outstanding commitment to a mortgage banking concern to
sell a $57,600 loan yet to be originated at March 31, 1998. The Bank has
an outstanding commitment to originate the loan at an approximately
equivalent interest rate. The Bank had no commitments to sell loans at
March 31, 1997.
At March 31, 1998 and 1997, loans with a carrying value of $81,757 and
$0, respectively, have been classified by management as held-for-sale.
The carrying value of these loans is at the lower of cost or market value
as of March 31, 1998 and 1997.
The Bank had no commitments to purchase mortgage-backed securities or
investment securities at March 31, 1998 and 1997.
16. Significant Concentrations of Credit Risk
The Bank grants mortgage, consumer and business loans primarily to
customers within the state. Although the Bank has a diversified loan
portfolio, a substantial portion of its customers' ability to honor their
contracts is dependent upon the agribusiness and energy sectors of the
economy. The Bank's net investment in loans is subject to a significant
concentration of credit risk given that the investment is primarily
within a specific geographic area.
F-23
<PAGE>
16. Significant Concentrations of Credit Risk (Continued)
As of March 31, 1998, the Bank had a net investment of $25,655,194 in
loans receivable. These loans possess an inherent credit risk given the
uncertainty regarding the borrower's compliance with the terms of the
loan agreement. To reduce credit risk, the loans are secured by varying
forms of collateral, including first mortgages on real estate, liens on
personal property, savings accounts, etc. It is generally Bank policy to
file liens on titled property taken as collateral on loans, such as real
estate and autos. In the event of default, the Bank's policy is to
foreclose or repossess collateral on which it has filed liens.
In the event that any borrower completely failed to comply with the terms
of the loan agreement and the related collateral proved worthless, the
Bank would incur a loss equal to the loan balance.
17. Related Party Transactions
Directors and primary officers of the Company were customers of, and had
transactions with, the Bank in the ordinary course of business during the
years ended March 31, 1998 and 1997, and similar transactions are
expected in the future. All loans included in such transactions were made
on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
persons and did not involve more than normal risk of loss or present
other unfavorable features.
The following analysis is of loans made to principal officers, directors
and principal holders of equity securities which individually exceeded
$60,000 in aggregate during the year ended March 31, 1998:
Balance, March 31, 1997 $ 76,278
New loans 20,055
Repayments 4,999
========
Balance, March 31, 1998 $ 91,334
========
18. Restrictions on Retained Earnings
Office of Thrift Supervision regulations require that upon conversion
from mutual to stock form of ownership, a "liquidation account" be
established by restricting a portion of net worth for the benefit of
eligible savings account holders who maintain their savings accounts with
the Bank after conversion. In the event of complete liquidation (and only
in such event) each savings account holder who continues to maintain
their savings account shall be entitled to receive a distribution from
the liquidation account after payment to all creditors but before any
liquidation distribution with respect to common stock. The initial
liquidation account was established at $3,534,000. This account may be
proportionately reduced for any subsequent reduction in the eligible
holder's savings accounts.
The Bank may not declare or pay a cash dividend to the Company if the
effect would cause the net worth of the Bank to be reduced below either
the amount required for the "liquidation account" or the net worth
requirement imposed by the OTS. If all capital requirements continue to
be met, the Bank may not declare or pay a cash dividend in an amount in
excess of the Bank's net earnings for the fiscal year in which the
dividend is declared plus one-half of the surplus over the capital
requirements, without prior approval of the OTS.
F-24
<PAGE>
19. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
Cash and cash equivalents:
For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investment securities and mortgage-backed securities:
Fair values are based on quoted market prices or dealer quotes, if
available. If a quoted market price or dealer quote is not available,
fair value is estimated using quoted market prices for similar
securities.
Loans receivable:
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposit liabilities:
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit are estimated
using the rates currently offered for deposits of similar remaining
maturities.
Advances and other borrowings from Federal Home Loan Bank:
The fair value of advances from the Federal Home Loan Bank are estimated
using the rates offered for similar borrowings.
Commitments to extend credit:
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates.
<PAGE>
19. Disclosures about Fair Value of Financial Instruments (Continued)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
--------------------------- ---------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ------------ ------------ ------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents:
Interest bearing $ 2,996 $ 2,996 $ 312 $ 312
Non-interest bearing 312 312 211 211
Investment securities held-to-maturity 3,900 3,893 8,700 8,579
Investment securities available-for-sale 2,175 2,175 2,062 2,062
Mortgage-backed securities held-to-maturity 12,615 12,744 13,273 13,186
Loans receivable 25,573 26,249 23,461 23,874
Loans held-for-sale 82 82
Financial liabilities:
Deposits 35,538 35,541 34,293 34,203
Advances and borrowings from FHLB 5,196 5,161 6,700 6,677
</TABLE>
<TABLE>
<CAPTION>
Par Value Fair Value Par Value Fair Value
------------ ------------ ------------ ------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Unrecognized financial instruments:
Commitments to extend credit $ 221 $ 228 $ - $ -
</TABLE>
F-26
<PAGE>
20. Parent Company Financial Information
Condensed financial statements of Guthrie Savings, Inc. (Parent Company)
are shown below. The Parent Company has no significant operating
activities.
Condensed Statement of Financial Condition
As of March 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
Assets 1998 1997
------- -------
<S> <C> <C>
Cash and cash equivalents $ 86 $ 82
Investment in subsidiary 3,148 2,859
Loans receivable (subsidiary and ESOP) 548 1,139
Other 73 44
------- -------
Total assets $ 3,855 $ 4,124
======= =======
Stockholders' equity
Common stock $ 5 $ 5
Additional paid-in capital 4,812 4,779
Retained income 861 712
Net unrealized loss on available-for-sale securities (4) (46)
Unamortized amounts related to ESOP and MSBP (371) (444)
Treasury stock (1,448) (882)
------- -------
Total stockholders' equity $ 3,855 $ 4,124
======= =======
</TABLE>
Condensed Statement of Operations
Year Ended March 31, 1998, 1997 and 1996
(In Thousands)
1998 1997 1996
----- ----- -----
Equity earnings of subsidiary $ 605 $ 419 $ 598
Interest income 48 77 130
----- ----- -----
Total income 653 496 728
----- ----- -----
Other expenses 147 128 140
----- ----- -----
Income before income taxes 506 368 588
Income tax expense (benefit) (30) (12) 3
----- ----- -----
Net income $ 536 $ 380 $ 585
===== ===== =====
F-27
<PAGE>
20. Parent Company Financial Information (Continued)
Condensed Statement of Cash Flows
Year Ended March 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 536 $ 380 $ 585
Adjustments to reconcile net income to net cash
provided (used for) operating activities:
Equity in net income of subsidiary (605) (419) (598)
Increase in other assets (29) (39) (5)
(Decrease) increase in other liabilities -- (242) 2
Other non-cash items, net 22
------- ------- -------
Net cash used by operating activities (76) (320) (16)
------- ------- -------
Cash flow from investing activities:
Reduction of investment in subsidiary 450 250
Loans to subsidiary and ESOP, net 591 761 367
------- ------- -------
Net cash provided by investing activities 1,041 1,011 367
------- ------- -------
Cash flows from financing activities:
Cash dividends paid (387) (210)
Purchase of treasury stock (574) (473) (346)
------- ------- -------
Net cash provided used by financing activities (961) (683) (346)
------- ------- -------
Increase in cash and cash equivalents 4 8 5
Cash at beginning of year 82 74 69
------- ------- -------
Cash at end of year $ 86 $ 82 $ 74
======= ======= =======
</TABLE>
21. Deposit Insurance
Deposits of the Bank are insured by the SAIF as administered by the
FDIC. As a member of the SAIF, the Bank formerly paid an insurance
premium to the FDIC equal to a minimum of 0.23% of its total deposits.
The FDIC also maintains another insurance fund, the Bank Insurance Fund
(BIF), which primarily insures commercial bank deposits. Effective
September 30, 1995, the FDIC lowered the insurance premium of BIF
insured deposits to range of between 0.04% and 0.31% of deposits, with
the result that most commercial banks would pay the lower rate of 0.04%.
Effective January 1, 1996, the annual insurance premium for most BIF
members was lowered to $2,000. These reductions in insurance premiums
for BIF members placed SAIF members at a competitive disadvantage to BIF
members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment of SAIF members such as the Bank of
approximately 0.657% of deposits held on March 31, 1995. The Bank
reflected a $225,433 pre-tax expense for this assessment for the year
ended March 31, 1997. Beginning January 1, 1997, deposit insurance
assessments for SAIF members were reduced to approximately 0.064% of
deposits on an annual basis and are expected to remain at that rate
through the end of 1999. During this same period, BIF members are
expected to be assessed approximately 0.013% of deposits. Thereafter,
assessments for BIF and SAIF members should be the same and SAIF and BIF
may be merged. It is expected that these continuing assessments for both
SAIF and BIF members will be used to repay outstanding Financing
Corporation bond obligations. Based on this reduction, beginning January
1, 1997, the rate of deposit insurance assessed the Bank declined from
prior levels by approximately 70%.
F-28
<PAGE>
OFFICE LOCATION
CORPORATE OFFICE
Guthrie Savings, Inc.
120 North Division
Guthrie, Oklahoma 73044
Board of Directors of Guthrie Savings, Inc.
William L. Cunningham H. Stephen Ochs
President and Chief Executive Officer Vice President
Keith Camerer James V. Seamans
Retired Dentist
Alvin R. Powell, Jr.
Self Employed, Theater Owner/Real Estate Broker
Executive Officers of Guthrie Savings, Inc.
William L. Cunningham H. Stephen Ochs
President and Chief Executive Officer Vice President
Kathleen Ann Warner Kimberly D. Walker
Vice President Treasurer
- --------------------------------------------------------------------------------
Corporate Counsel: Independent Auditors:
Brian W. Pierson Law Offices, Inc. Regier Carr & Monroe, L.L.P.
109 E. Oklahoma 300 West Douglas
P.O. Box 1459 Suite 100
Guthrie, Oklahoma 73044 Wichita, Kansas 67202
Special Counsel: Transfer Agent and Registrar:
Malizia, Spidi, Sloane & Fisch, P.C. American Securities Transfer &
One Franklin Square Trust, Inc.
1301 K Street, N.W., Suite 700 East 1825 Lawrence Street, Suite 444
Washington, D.C. 20005 Denver, Colorado 80202-1817
The Company's Annual Report for the year ended March 31, 1998 filed with the
Securities and Exchange Commission on Form 10-KSB is available without charge
upon written request. For a copy of the Form 10-KSB or any other investor
information, please write or call Deborah K. Bozarth, Secretary, at the
Company's corporate office in Guthrie, Oklahoma. The annual meeting of
stockholders will be held on July 15, 1998 at 5:00 p.m. at Guthrie Federal
Savings Bank, located on 120 N. Division , Guthrie, Oklahoma.
- 18 -
EXHIBIT 23
<PAGE>
[LETTERHEAD OF REGIER CARR & MONROE, L.L.P.]
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement on
Form S-8 of Guthrie Savings, Inc., filed with the Securities and Exchange
Commission on March 1, 1996, of our report dated April 23, 1998 in this Annual
Report on Form 10-KSB of Guthrie Savings, Inc. for the fiscal year ended March
31, 1998.
/s/ Regier Carr & Monroe, L.L.P.
June 24, 1998
Wichita, Kansas
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
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