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, 1999
[ ] 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.
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(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
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(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
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(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: $3.7 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 23, 1999, was $4.9 million (estimated at
$18.50 per share multiplied by 265,938 shares of common stock).
As of June 23, 1999, there were issued and outstanding 402,257 shares
of the registrant's common stock.
Transition Small Business Disclosure Format (check one):
YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the annual report to stockholders for the fiscal year
ended March 31, 1999. (Parts II and III)
2. Portions of the proxy statement for the annual meeting of
stockholders for the fiscal year ended March 31, 1999. (Part III)
<PAGE>
Guthrie Savings, Inc. (the "Company" or "we") may from time to time
make written or oral "forward-looking statements", including statements
contained in our filings with the Securities and Exchange Commission (including
this annual report on Form 10-KSB and its exhibits), in our reports to
stockholders and in our other communications, which are made in good faith
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 our plans, objectives, expectations, estimates and intentions,
that are subject to change based on various important factors (some of which are
beyond our control). The following factors, among others, could cause our
financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in the forward-looking
statements: the strength of the United States economy in general and the
strength of the local economies in which we conduct 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 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 our
products and services; our success in gaining regulatory approval of our
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 our success in managing these factors.
This list of important factors is not exclusive. We do not undertake to
update any forward-looking statement, whether written or oral, that we may make
from time to time.
PART I
Item 1. Description of Business
- --------------------------------
Business of the Company
We are an Oklahoma-chartered corporation organized in May 1994 at the
direction of Guthrie Federal Savings and Loan Association in connection with
that 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 our wholly owned subsidiary. We are
a unitary savings and loan holding company which, under existing laws, generally
is not restricted in the types of business activities in which we may engage
provided the Bank retains a specified amount of its assets in housing-related
investments. At March 31, 1999, the Company had total consolidated assets of
$45.8 million and stockholders' equity of $7.4 million. On May 26, 1999, we
signed and announced the execution of a Stock Purchase Agreement with Local
Oklahoma Bank, N.A. ("Local Oklahoma"). The proposal that Local Oklahoma acquire
our stock and merge the Bank into Local Oklahoma will be considered for approval
by our shareholders at our annual meeting which is expected to be held in July
1999.
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
Savings and Loan Association" in 1968 when it changed its name. In early August
1994, the Bank became
2
<PAGE>
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.
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>
1998 1999
------------------------- ------------------------
$ % $ %
--------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Type of Loan:
Real estate loans:
Construction ..................... $ 2,098 8.18% $ 1,630 6.55%
Residential ...................... 19,568 76.27 18,644 78.33
Non-residential .................. 1,763 6.87 1,722 7.23
Second mortgage and other equity . 1,267 4.94 1,121 4.71
Consumer loans:
Savings account .................. 560 2.18 352 1.48
Automobile ....................... 1,457 5.68 1,615 6.79
Other ............................ 466 1.82 445 1.87
-------- ------ ------- ------
Gross loans .................... 27,179 105.94 25,529 107.26
Less:
Loans in process ................. (1,098) (4.28) (1,332) (5.60)
Deferred loan origination fees and (73) (0.28) (56) (0.24)
costs
Allowance for loan losses ........ (353) (1.38) (339) (1.42)
-------- ------ -------- ------
Total loans, net ................... $ 25,655 100.00% $ 23,802 100.00%
======== ====== ======== ======
Type of Security:
Residential real estate:
1-4 family ..................... $ 21,961 85.60% $ 20,081 84.37%
Other dwelling units ........... 244 .95 222 .93
Land ........................... 728 2.84 1,092 4.59
Non-residential .................... 1,763 6.87 1,722 7.23
Savings accounts ................... 560 2.18 352 1.48
Automobiles ........................ 1,457 5.68 1,615 6.79
Other .............................. 466 1.82 445 1.87
Less:
Loans in process ................. (1,098) (4.28) (1,332) (5.60)
Deferred loan origination fees and (73) (0.28) (56) (0.24)
costs
Allowance for loan losses ........ (353) (1.38) (339) (1.42)
-------- ------ -------- ------
Total loans, net ............... $ 25,655 100.00% $ 23,802 100.00%
======== ====== ======== ======
</TABLE>
4
<PAGE>
Loan Maturity Tables
The following table sets forth the maturity of the Company's loan
portfolio at March 31, 1999. The table does not include prepayments or scheduled
principal repayments. Prepayments and scheduled principal repayments on loans
totalled $6.2 million and $ 9.5 million for the years ended March 31, 1998 and
1999, respectively. The increase is partially attributable to increased
construction lending activities. 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 $ 306 $ - $ -- $ 6 $ 312
Amounts Due:
1 Year or less 22 38 1,630 510 2,200
After 1 year:
1 to 5 years 889 766 -- 1,672 3,327
Over 5 years 17,457 2,009 -- 224 19,690
------ ----- ----- ------ ------
Total due after one year 18,346 2,775 -- 1,896 23,017
------ ----- ----- ------ ------
Total amount due $18,674 $2,813 $1,630 $2,412 $25,529
====== ===== ===== ===== ======
Less:
Allowance for loan loss (339)
Loans in process (1,332)
Deferred loan fees (56)
------
Loans receivable, net $23,802
=======
</TABLE>
5
<PAGE>
The following table sets forth the dollar amount of all loans due after
March 31, 2000 which have pre-determined fixed interest rates or which have
floating or adjustable interest rates.
Floating or
Adjustable
Fixed Rates Rates Total
----------- ----- -----
(In Thousands)
One- to four-family........ $11,856 $ 6,490 $18,346
Other residential, land
and commercial........... 1,953 822 2,775
Construction............... -- -- --
Consumer................... 1,896 -- 1,896
----- ----- -----
Total.................... $15,705 $7,312 $23,017
====== ===== ======
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 applicable regulations.
The Bank requires an independent or staff appraisal, title insurance or an
attorney's opinion
6
<PAGE>
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 independent appraiser previously approved by
the Bank. The Bank's commercial real estate loans are
7
<PAGE>
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, 1999, the largest commercial real
estate loan was secured by undeveloped land and had a balance of $500,000 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, 1999 and
1998, the Bank purchased no loans and sold $3,038,000 and $679,000 of loans,
respectively. The Bank primarily sold 15- and 30-year fixed rate loans during
the years ended March 31, 1999 and 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, 1999, the Bank had $210,000 in
commitments to originate mortgage loans.
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 $12,000 and $10,000 for the years ended March
31, 1998, and 1999, 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.
At March 31,
------------
1998 1999
---- ----
(Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Permanent loans secured by 1-4 dwelling units ................ $200 $306
All other mortgage loans ..................................... -- --
Non-mortgage loans:
Commercial ................................................... -- --
Consumer ..................................................... 4 6
---- ----
Total .......................................................... $204 $312
==== ====
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 ............................ 204 $312
==== ====
Real estate owned .............................................. $ 11 $ 0
==== ====
Total nonperforming assets ..................................... $215 $312
==== ====
Total non-accrual and accrual loans to net loans ............... .80% 1.31%
==== ====
Total non-accrual and accrual loans to total assets ............ .42% 0.68%
==== ====
Total nonperforming assets to total assets ..................... .44% 0.68%
==== ====
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 $21,600 and $33,500 for the years ended March 31, 1998 and 1999,
respectively. Amounts foregone and not included in the Bank's interest income
for the years ended March 31, 1998 and 1999 totalled and $7,300 and $8,300,
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 $0 in real estate owned at March 31, 1999.
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, 1998 and 1999, the
Bank charged $3,000 and $6,500, 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:
At March 31,
--------------------------------------------------
1998 1999
------------------------ -----------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loan Amount Total Loans
------ ---------- ------ -----------
(Dollars in Thousands)
Residential real estate $247 84.38% $243 83.80%
Commercial real estate 26 6.48 26 6.75
Consumer .............. 80 9.14 70 9.45
---- ------ --- ------
Total ................. $353 100.00% $339 100.00%
==== ====== === ======
The following table sets forth information with respect to the Bank's
allowance for loan losses at the dates indicated:
At March 31,
-------------------------
1998 1999
---- ----
(Dollars in Thousands)
Total loans outstanding, net ........................ $ 25,655 $ 23,802
======== ========
Average loans outstanding ........................... $ 24,619 $ 25,018
======== ========
Allowance balances (at beginning of period) ......... 377 353
Provision (credit):
Residential ....................................... 0 0
Consumer .......................................... 3 7
-------- --------
3 7
-------- --------
Charge-offs:
Residential ....................................... (9) (8)
Consumer .......................................... (25) (16)
-------- --------
(34) (24)
-------- --------
Recoveries:
Residential ...................................... 0 0
Consumer .......................................... 7 3
-------- --------
7 3
-------- --------
Net (charge-offs) recoveries ........................ (27) (21)
-------- --------
Allowance balance (at end of period) ................ $ 353 $ 339
======== ========
Allowance for loan losses as a percent of total loans
outstanding, net .................................. 1.38% 1.43%
Net loans charged off as a percent of average loans
outstanding ....................................... 0.11% 0.08%
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:
At March 31,
------------------
1998 1999
---- ----
(Dollars in Thousands)
Total real estate owned and other
repossessed assets, net ................... $11 $ 0
=== ===
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%
=== ===
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, 1999, the Bank had an investment portfolio of approximately $1.6
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
12
<PAGE>
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.
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, 1999, was $1.0 million and $11.5 million, respectively,
resulting in a net unrealized loss on investments held to maturity at such date
of $1,000 and a net realized gain on mortgage-backed securities held-to-maturity
of $47,000 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, 1999, the
securities classified as available for sale had a carrying value of $648,000 net
of an unrealized loss of $0.
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, 1999,
consisted primarily of adjustable-rate certificates issued by FHLMC ($1.0
million), GNMA ($2.6 million), and FNMA ($1.6 million). To a lesser extent the
mortgage backed securities portfolio also contains fixed-rate certificates
issued by FHLMC, GNMA, and FNMA. At March 31, 1999, the carrying value of
mortgage-backed securities totalled $7.9 million or 17.37% of total assets. The
market value of such securities totalled approximately $7.9 million at March 31,
1999, resulting in a net unrealized loss of $9,000 in this portfolio.
Additionally, as of March 31, 1999, the Bank held investments in collateralized
mortgage obligations amounting to $3.5 million, which had an unrealized gain of
$56,000.
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 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")
13
<PAGE>
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, 1999
totaled $3.5 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, 1999 or 1998. The portfolio
of CMOs held in the Company's mortgage-backed securities portfolio at March 31,
1999 did not include any residual interests in CMOs. Further, at March 31, 1999,
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:
At March 31, Weighted
------------------- Average Rate
1998 1999 March 31, 1999
-------- --------- --------------
(Dollars in Thousands)
Held to Maturity:
GNMA ARMs .............. $ 2,920 $ 2,589 6.61%
FNMA ARMs .............. 1,324 1,593 6.12
FHLMC ARMs ............. 1,255 1,030 5.95
FHLMC-fixed rate ....... 1,253 886 6.88
FNMA-fixed rate ........ 559 1,690 6.50
GNMA-fixed rate ........ 310 161 8.00
Collateralized mortgage
obligations-government
agency issue ......... 4,994 3,511 6.15
------- -------
Total mortgage-backed
securities ........... $12,615 $11,460 6.37
======= =======
Mortgage-Backed Securities Maturity. The following table sets forth the
maturity of the Company's mortgage-backed securities portfolio at March 31,
1999. 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 ................... 198
3 to 5 years ................... 396
5 to 10 years .................. 200
10 to 20 years ................. 2,370
Over 20 years .................. 8,296
-------
Total mortgage-backed securities $11,460
=======
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, 1999, the market value of the
Company's investment securities portfolio was $1.6 million.
15
<PAGE>
At March 31,
------------
1998 1999
---- ----
(In Thousands)
Investment Securities:
Held to Maturity:
U.S. Agency Securities (1).. $3,900 $1,000
------ ------
Total Debt Securities.... 3,900 1,000
------ ------
Available for Sale:
U.S. Agency Securities ....... 1,495 --
FHLB Stock ................... 680 648
------ ------
2,175 648
------ ------
Total Investments .......... $6,075 $1,648
====== ======
- -------------------
(1) Consists of bonds and notes issued by the FHLB and FNMA.
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, 1999.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------------------------------------------------------------------------------------
More than
One Year or Less One to Five Years Five to Ten Years 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..... $ -- --% $500 5.93% $500 7.00% $ -- --% $1,000 6.46% $999
-------- --- ---- ---- ---- ---- ---- --- ------ ---- ----
Total.................. $ -- --% $500 5.93% $500 7.00% $ -- --% $1,000 6.46% $999
======== === ==== ==== === ==== ==== === ====== ==== ===
</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, 1999.
Certificates
Accounts
--------
Maturity Period (In Thousands)
---------------
Within three months .......... $ 343
Over three through six months 300
Over six through twelve months 723
Over twelve months ........... 310
-----
Total .................. $1,676
======
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, 1999 Registrant
had $3.0 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,
----------------------
1998 1999
---- ----
(Dollars in Thousands)
Weighted average rate paid ............. 5.66% -- %
Maximum amount of borrowings outstanding
at any month end ..................... $ 2,000 $ --
Approximate average short-term
borrowings outstanding ............... $ 442 $ --
Approximate weighted average rate (1) .. 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, 1999, the Bank had no subsidiaries.
Employees
Substantially all of the activities of the Company are conducted
through the Bank, therefore, at March 31, 1999, the Company did not have any
salaried employees.
As of March 31, 1999, the Bank had 15 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 is not 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
19
<PAGE>
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.
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.
A member of the SAIF pays an annual insurance premium to the FDIC of at
least 0.064% of total deposits of that member. The FDIC also maintains another
insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. Most members of BIF pay a lower premium to the FDIC.
20
<PAGE>
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.
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. Beginning April 1, 1999,
the core capital requirement was raised to 4% of total adjusted assets for most
savings associations. Regulations that enable the OTS to take prompt corrective
action against savings associations effectively impose higher capital
requirements on savings associations.
Dividend and Other Capital Distribution Limitations. The Bank must 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 dividend would (1) reduce the
regulatory capital of the Bank below the amount required for the liquidation
account established in connection with the conversion from mutual to stock form
or (2) reduce the amount of capital of the Bank below the amounts required in
accordance with other OTS regulations. 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. As of March 31,
1999, the Bank was in compliance with its QTL requirement and met the definition
of a domestic building and loan association.
Item 2. Description of Property
- -------------------------------
(a) Properties.
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. Description of Business - Lending Activities," "Item 1. Description of
Business - Regulation of the Bank," and "Item 2. Description of Property. (a)
Properties" above.
21
<PAGE>
(2) Investments in Real Estate Mortgages. See "Item 1. Description of
Business - Lending Activities" and "Item 1. Description of Business - Regulation
of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Description of Business -
Lending Activities," "Item 1. Description of Business - Regulation of the Bank,"
and "Item 1. Description of 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 we are periodically
involved, such as claims to enforce liens, condemnation proceedings on
properties in which we hold security interests, claims involving the making and
servicing of real property loans, and other issues incident to our business. In
the opinion of management, no material loss is expected from any pending claims
or lawsuits.
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, 1999 (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 6 to 18 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.
22
<PAGE>
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 "Proposal I -
Election of Director --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
expected to be held in July 1999 (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.
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 "Information with Respect
to the Nominee for Director, Directors Continuing in Office,
and Executive Officers" in the Proxy Statement.
(c) Information required by this item is incorporated herein by
reference to the section captioned "Proposal III - Proposal to
Approve Stock Purchase Agreement" in the Proxy Statement.
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:
23
<PAGE>
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, 1999, 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, 1999 and
1998.
Consolidated Statements of Operations for the Years Ended March 31,
1999, 1998, and 1997.
Consolidated Statements of Comprehensive Income for the Years Ended
March 31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the Years Ended
March 31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows for the Years Ended March 31,
1999, 1998, and 1997.
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.
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***
10.8 Severance Agreement with William Cunningham
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.9 Severance Agreement with H. Stephen Ochs
10.10 Severance Agreement with Kathleen A. Warner
13 Annual Report to Stockholders for the fiscal year ended March 31, 1999
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 (Item 7), dated January 14, 1999, was
filed during the last quarter of the fiscal year to report the
declaration of a special cash dividend ($0.50 per share).
- ---------------------
* 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, 1998 (File No. 0-24468)
filed with the SEC.
*** 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 28, 1999 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:
- --------------------------------------------- --------------------------------------------
William L. Cunningham H. Stephen Ochs
President, Chief Executive Officer, Vice President and Director
and Director (Principal Executive
Officer)
Date: June 28, 1999 Date: ______________
By: /s/ Keith Camerer By: /s/ James V. Seaman
- --------------------------------------------- --------------------------------------------
Keith Camerer James V. Seamans
Director Director
Date: June 28, 1999 Date: June 28, 1999
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 28, 1999 Date: June 28, 1999
</TABLE>
EXHIBIT 10.8
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 11th day of February, 1997 ("Effective Date"), by and between Guthrie
Savings, Inc. (the "Company") and William L. Cunningham (the "Employee").
WHEREAS, the Employee is currently an officer and an employee of the
Company and its subsidiary, Guthrie Federal Savings Bank ("Subsidiary") as
President and is experienced in all phases of the business of the Company and
the Subsidiary; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Company and Employee if the Company should undergo a
Change in Control (as defined hereinafter in the Agreement) after the Effective
Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the
President of the Company and the Subsidiary. The Employee shall render such
administrative and management services to the Company and the Subsidiary as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee's other duties shall be such as the
Board of Directors for the Company (the "Board of Directors" or "Board") may
from time to time reasonably direct, including normal duties as an officer of
the Company and the Subsidiary.
2. Term of Agreement. The term of 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 this Agreement may be extended for an additional one
year 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.
3. Termination of Employment in Connection with or
-----------------------------------------------
Subsequent to a Change in Control.
---------------------------------
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment during the term of this
Agreement following any Change in Control of the Company or Subsidiary, absent
Just Cause, Employee shall be paid an amount equal to the product of 2.99 times
the Employee's
1
<PAGE>
"base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of
1986, as amended (the "Code") and regulations promulgated thereunder.
Calculation of the "base amount" shall include compensation paid by the Company
and the Subsidiary. Said sum shall be paid, at the option of Employee, either in
one (1) lump sum within thirty (30) days of such termination discounted to the
present value of such payment using as the discount rate the "prime rate" as
published in the Wall Street Journal Eastern Edition as of the date of such
payment, or in periodic payments over the next 36 months or the remaining term
of this Agreement whichever is less, as if Employee's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Employee would be otherwise entitled to receive. 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 Company or the Subsidiary shall be
deemed an "excess parachute payment" in accordance with Section 280G of the Code
and be subject to the excise tax provided at Section 4999(a) of the Code. The
term "Change in Control" shall mean: (i) the execution of an agreement for the
sale of all, or a material portion, of the assets of the Company; (ii) the
execution of an agreement for a merger or recapitalization of the Company or any
merger or recapitalization whereby the Company is not the surviving entity;
(iii) a change of control of the Company, as otherwise defined or determined by
the Office of Thrift Supervision or regulations promulgated by it; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of that term as it is used in Section 13(d) of the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five
percent (25%) or more of the outstanding voting securities of the Company by any
person, trust, entity or group. The term "person" refers to 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 except as provided at Sections 4(b), 4(c), 4(d), 4(e) and 5, Employee
may voluntary terminate his employment under this Agreement within twelve (12)
months following a Change in Control, and Employee shall thereupon be entitled
to receive the payment described in Section 3(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
2
<PAGE>
signing of this Agreement; (ii) if in the organizational structure of the
Company or Subsidiary, Employee would be required to report to a person or
persons other than the President of the Company or the Subsidiary; (iii) if the
Company or Subsidiary should fail to maintain existing employee benefits plans,
including material fringe benefit, stock option and retirement plans, except to
the extent that such reduction in benefit programs is part of an overall
adjustment in benefits for all employees of the Company or Subsidiary and does
not disproportionately adversely impact the Employee; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his or her position as referenced at Section 1, herein; (v) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced; or (vi) if Employee would not be elected or reelected to the Board of
Directors of the Company.
4. Other Changes in Employment Status.
(a) Except as provided for at Section 3, herein, 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.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Subsidiary'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 Company under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(c) If the Subsidiary is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement may in its discretion terminate as of
the date of default, but this paragraph shall not affect any vested rights of
the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement
3
<PAGE>
is necessary for the continued operation of the Subsidiary: (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") or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Subsidiary 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 Subsidiary or when the
Subsidiary 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.
(e) 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.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Subsidiary'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 Company'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 Company 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.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Company.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Company.
7. 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.
4
<PAGE>
8. 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.
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. 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 Company, 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 Company 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 Company may include a
provision for the reimbursement by the Company 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 Company 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 Company
evidence, which may be in the form, among other things, of a canceled check or
receipt, of such costs or expenses incurred by Employee.
11. 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
GUTHRIE SAVINGS, INC.
ATTEST: By:/s/Keith Camerer
/s/Deborah K. Bozarth
Secretary
WITNESS:
/s/Colleen Freeman /s/William L. Cunningham
William L. Cunningham, Employee
EXHIBIT 10.9
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 11th day of February, 1997 ("Effective Date"), by and between Guthrie
Savings, Inc. (the "Company") and H. Stephen Ochs (the "Employee").
WHEREAS, the Employee is currently an officer and an employee of the
Company and its subsidiary, Guthrie Federal Savings Bank ("Subsidiary") as Vice
President and is experienced in all phases of the business of the Company and
the Subsidiary; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Company and Employee if the Company should undergo a
Change in Control (as defined hereinafter in the Agreement) after the Effective
Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Vice
President of the Company and the Subsidiary. The Employee shall render such
administrative and management services to the Company and the Subsidiary as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee's other duties shall be such as the
Board of Directors for the Company (the "Board of Directors" or "Board") may
from time to time reasonably direct, including normal duties as an officer of
the Company and the Subsidiary.
2. Term of Agreement. The term of 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 this Agreement may be extended for an additional one
year 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.
3. Termination of Employment in Connection with or
-----------------------------------------------
Subsequent to a Change in Control.
---------------------------------
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment during the term of this
Agreement following any Change in Control of the Company or Subsidiary, absent
Just Cause, Employee shall be paid an amount equal to the product of 2.00 times
the Employee's
1
<PAGE>
cash compensation received during the twelve month period prior to termination
of employment in accordance with Section 3 of this Agreement. Said sum shall be
paid, at the option of Employee, either in one (1) lump sum within thirty (30)
days of such termination discounted to the present value of such payment using
as the discount rate the "prime rate" as published in the Wall Street Journal
Eastern Edition as of the date of such payment, or in periodic payments over the
next 24 months or the remaining term of this Agreement whichever is less, as if
Employee's employment had not been terminated, and such payments shall be in
lieu of any other future payments which the Employee would be otherwise entitled
to receive. Notwithstanding the forgoing, all sums payable hereunder shall be
reduced in such manner and to such extent as may be required so that no such
payments made hereunder when aggregated with all other payments to be made to
the Employee by the Company or the Subsidiary shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code") and regulations promulgated thereunder and be
subject to the excise tax provided at Section 4999(a) of the Code. Calculation
of the "base amount" shall include compensation paid by the Company and the
Subsidiary. The term "Change in Control" shall mean: (i) the execution of an
agreement for the sale of all, or a material portion, of the assets of the
Company; (ii) the execution of an agreement for a merger or recapitalization of
the Company or any merger or recapitalization whereby the Company is not the
surviving entity; (iii) a change of control of the Company, as otherwise defined
or determined by the Office of Thrift Supervision or regulations promulgated by
it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Company by any person, trust, entity or group. The term
"person" refers to 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 except as provided at Sections 4(b), 4(c), 4(d), 4(e) and 5, Employee
may voluntary terminate his employment under this Agreement within twelve (12)
months following a Change in Control, and Employee shall thereupon be entitled
to receive the payment described in Section 3(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
2
<PAGE>
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 Company or Subsidiary,
Employee would be required to report to a person or persons other than the
President of the Company or the Subsidiary; (iii) if the Company or Subsidiary
should fail to maintain existing employee benefits plans, including material
fringe benefit, stock option and retirement plans, except to the extent that
such reduction in benefit programs is part of an overall adjustment in benefits
for all employees of the Company or Subsidiary and does not disproportionately
adversely impact the Employee; (iv) if Employee would be assigned duties and
responsibilities other than those normally associated with his or her position
as referenced at Section 1, herein; (v) if Employee's responsibilities or
authority have in any way been materially diminished or reduced; or (vi) if
Employee would not be elected or reelected to the Board of Directors of the
Company.
4. Other Changes in Employment Status.
(a) Except as provided for at Section 3, herein, 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.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Subsidiary'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 Company under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(c) If the Subsidiary is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement may in its discretion terminate as of
the date of default, but this paragraph shall not affect any vested rights of
the contracting parties.
3
<PAGE>
(d) 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 Subsidiary: (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") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Subsidiary 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 Subsidiary or when the Subsidiary
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.
(e) 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.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Subsidiary'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 Company'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 Company 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.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Company.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Company.
7. 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.
4
<PAGE>
8. 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.
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. 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 Company, 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 Company 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 Company may include a
provision for the reimbursement by the Company 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 Company 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 Company
evidence, which may be in the form, among other things, of a canceled check or
receipt, of such costs or expenses incurred by Employee.
11. 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
GUTHRIE SAVINGS, INC.
ATTEST: By:/s/Keith Camerer
/s/Deborah K. Bozarth
Secretary
WITNESS:
/s/Colleen Freeman /s/H. Stephen Ochs
H. Stephen Ochs, Employee
EXHIBIT 10.10
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 11th day of February, 1997 ("Effective Date"), by and between Guthrie
Savings, Inc. (the "Company") and Kathleen A. Warner (the "Employee").
WHEREAS, the Employee is currently an officer and an employee of the
Company and its subsidiary, Guthrie Federal Savings Bank ("Subsidiary") as Vice
President and is experienced in all phases of the business of the Company and
the Subsidiary; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Company and Employee if the Company should undergo a
Change in Control (as defined hereinafter in the Agreement) after the Effective
Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Vice
President of the Company and the Subsidiary. The Employee shall render such
administrative and management services to the Company and the Subsidiary as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee's other duties shall be such as the
Board of Directors for the Company (the "Board of Directors" or "Board") may
from time to time reasonably direct, including normal duties as an officer of
the Company and the Subsidiary.
2. Term of Agreement. The term of 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 this Agreement may be extended for an additional one
year 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.
3. Termination of Employment in Connection with or
-----------------------------------------------
Subsequent to a Change in Control.
---------------------------------
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment during the term of this
Agreement following any Change in Control of the Company or Subsidiary, absent
Just Cause, Employee shall be paid an amount equal to the product of 2.00 times
the Employee's
1
<PAGE>
cash compensation received during the twelve month period prior to termination
of employment in accordance with Section 3 of this Agreement. Said sum shall be
paid, at the option of Employee, either in one (1) lump sum within thirty (30)
days of such termination discounted to the present value of such payment using
as the discount rate the "prime rate" as published in the Wall Street Journal
Eastern Edition as of the date of such payment, or in periodic payments over the
next 24 months or the remaining term of this Agreement whichever is less, as if
Employee's employment had not been terminated, and such payments shall be in
lieu of any other future payments which the Employee would be otherwise entitled
to receive. Notwithstanding the forgoing, all sums payable hereunder shall be
reduced in such manner and to such extent as may be required so that no such
payments made hereunder when aggregated with all other payments to be made to
the Employee by the Company or the Subsidiary shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code") and regulations promulgated thereunder and be
subject to the excise tax provided at Section 4999(a) of the Code. Calculation
of the "base amount" shall include compensation paid by the Company and the
Subsidiary. The term "Change in Control" shall mean: (i) the execution of an
agreement for the sale of all, or a material portion, of the assets of the
Company; (ii) the execution of an agreement for a merger or recapitalization of
the Company or any merger or recapitalization whereby the Company is not the
surviving entity; (iii) a change of control of the Company, as otherwise defined
or determined by the Office of Thrift Supervision or regulations promulgated by
it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of twenty-five percent (25%) or more of the outstanding voting
securities of the Company by any person, trust, entity or group. The term
"person" refers to 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 except as provided at Sections 4(b), 4(c), 4(d), 4(e) and 5, Employee
may voluntary terminate his employment under this Agreement within twelve (12)
months following a Change in Control, and Employee shall thereupon be entitled
to receive the payment described in Section 3(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
2
<PAGE>
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 Company or Subsidiary,
Employee would be required to report to a person or persons other than the
President of the Company or the Subsidiary; (iii) if the Company or Subsidiary
should fail to maintain existing employee benefits plans, including material
fringe benefit, stock option and retirement plans, except to the extent that
such reduction in benefit programs is part of an overall adjustment in benefits
for all employees of the Company or Subsidiary and does not disproportionately
adversely impact the Employee; (iv) if Employee would be assigned duties and
responsibilities other than those normally associated with his or her position
as referenced at Section 1, herein; or (v) if Employee's responsibilities or
authority have in any way been materially diminished or reduced.
4. Other Changes in Employment Status.
(a) Except as provided for at Section 3, herein, 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.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Subsidiary'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 Company under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(c) If the Subsidiary is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement may in its discretion terminate as of
the date of default, but this paragraph shall not affect any vested rights of
the contracting parties.
3
<PAGE>
(d) 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 Subsidiary: (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") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Subsidiary 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 Subsidiary or when the Subsidiary
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.
(e) 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.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Subsidiary'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 Company'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 Company 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.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Company.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Company.
7. 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.
4
<PAGE>
8. 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.
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. 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 Company, 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 Company 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 Company may include a
provision for the reimbursement by the Company 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 Company 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 Company
evidence, which may be in the form, among other things, of a canceled check or
receipt, of such costs or expenses incurred by Employee.
11. 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
GUTHRIE SAVINGS, INC.
ATTEST: By:/s/Keith Camerer
/s/Deborah K. Bozarth
Secretary
WITNESS:
/s/Colleen Freeman /s/Kathleen A. Warner
Kathleen A. Warner, Employee
EXHIBIT 13
<PAGE>
[** LOGO **]
Guthrie Savings, Inc.
Annual Report - 1999
<PAGE>
Guthrie Savings, Inc.
ANNUAL REPORT - 1999
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to
Stockholders............................................................... 1
Corporate Profile and Stock Price Information.............................. 2
Five-Year Financial Summary................................................ 4
Management's Discussion and Analysis....................................... 6
Independent Auditor's Report............................................... F-1
Consolidated Financial Statements.......................................... F-2
Notes to Consolidated Financial Statements................................. F-8
Corporate Information...................................................... 19
<PAGE>
To Our Stockholders:
With great pleasure, we have announced that as of May 26, 1999 the Company and
its subsidiary, Guthrie Federal Savings Bank, have signed a stock purchase
agreement with Local Oklahoma Bank, N.A. If you, our stockholders, approve the
agreement, then the Company and the Bank will be acquired by Local Oklahoma Bank
through a share acquisition of all of the shares of the Company and the Bank
will be owned by Local Oklahoma Bank. All current stockholders of the Company
will receive a cash payment for their shares. We feel this move will provide our
customers the opportunity to grow with a larger banking entity, which offers a
broader range of products and services.
As for the year ended March 31, 1999, net income was $414,320 or $1.06 per
share, this is a decrease of 22.64% from the year ended March 31, 1998. This
decrease related to an overall decrease in net interest income and an increase
in operating expenses.
The Board of Directors declared two $0.50 per share cash dividends during the
year. The first dividend was declared in September 1998 for stockholders of
record on October 5, 1998 and the other in January 1999 for stockholders of
record on February 1, 1999. The special cash dividends were paid as a result of
continued profitability of the Company and its wholly owned subsidiary, the
Bank.
Guthrie Federal management is continuing to make the transition into the next
millennium a priority. As Guthrie Federal moves forward, we can assure our
employees, customers and stockholders that we are working diligently to make a
coordinated effort to becoming Year 2000 compliant. Our efforts, both internal
and external, are under going testing, and contingency plans are in place in the
event of significant data processing delays, mistakes or failures.
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.
The Company and the Bank have signed a stock purchase agreement, subject to
stockholder approval, with Local Oklahoma Bank, N.A. Upon consummation of the
agreement, the Company and the Bank will be acquired by Local Oklahoma Bank
through a share acquisition procedure. All of the shares of common stock of the
Company and the Bank will be owned by Local Oklahoma Bank and all current
stockholders of the Company will receive a cash payment for their shares. See
further discussion at Management's Discussion and Analysis of Financial
Condition and Results of Operations.
- 2 -
<PAGE>
Stock Market Information
There were 402,257 shares of common stock (net of treasury stock) of Guthrie
Savings, Inc. outstanding on March 31, 1999, 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,
------------------------------------------------------
1999 1998
-------------------------- --------------------------
HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
First Quarter 18 9/16 17 5/8 17 1/8 15 1/2
Second Quarter 19 1/4 18 9/16 17 17
Third Quarter 19 1/2 17 18 17
Fourth Quarter 19 1/2 16 1/2 18 1/4 17 1/2
During the year ended March 31, 1999, the Board of Directors declared and paid
two dividends of $0.50 each per share. The first $0.50 dividend was paid on
October 15, 1998 and the second $0.50 dividend was paid on February 10, 1999.
During the year ended March 31, 1998 the Board of Directors declared and paid
two dividends totaling $1.00 per share. A $0.50 dividend was paid on October 10,
1997 and another $0.50 dividend was paid on February 10, 1998. 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"). The stock purchase agreement with Local
Oklahoma Bank, N.A. further restricts the Company's ability to pay dividends.
- 3 -
<PAGE>
Guthrie Savings, Inc.
<TABLE>
<CAPTION>
============================================================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Financial Condition Data (Dollars in Thousands) (*)
============================================================================================================================
At March 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $45,768 $48,627 $49,047 $46,820 $44,727
Loans receivable (1) 23,802 25,655 23,461 22,972 23,182
Investment securities held-to-maturity 1,000 3,900 8,700 9,751 8,366
Investment securities available-for-sale 648 2,175 2,062 2,133 929
Mortgage-backed securities held-to-maturity 11,460 12,615 13,273 9,428 9,869
Cash and cash equivalents 7,186 3,307 523 1,402 1,090
Deposits 35,079 35,538 34,293 36,311 34,543
FHLB borrowings 3,000 5,196 6,700 2,000 1,700
Stockholders' equity 7,393 7,536 7,805 8,049 8,236
Summary of Operations (Dollars in Thousands) (*)
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Interest income $ 3,442 $ 3,668 $ 3,632 $ 3,416 $ 3,198
Interest expense 1,721 1,877 1,833 1,761 1,489
------------ ------------ ------------ ------------- -------------
Net interest income 1,721 1,791 1,799 1,655 1,709
Provision for loan losses 7 3 1 (132) 12
------------ ------------ ------------ ------------- -------------
Net interest income after
provision for loan losses 1,714 1,788 1,798 1,787 1,697
Non-interest income 257 242 251 336 193
Non-interest expense (2) 1,295 1,179 1,416 1,229 1,095
------------ ------------ ------------ ------------- -------------
Income before income taxes and
cumulative effect of accounting change 676 851 633 894 795
Provision for income taxes 262 315 253 309 250
------------ ------------ ------------ ------------- -------------
Income before cumulative effect of
accounting change 414 536 380 585 545
Cumulative effect of accounting change - - - - -
------------ ------------ ------------ ------------- -------------
Net income $ 414 $ 536 $ 380 $ 585 $ 545
============ ============ ============ ============= =============
Basic earnings per share* (3) $ 1.10 $ 1.41 $ 0.92 $ 1.28 $ 0.48
============ ============ ============ ============= =============
Diluted earnings per share* (3) $ 1.06 $ 1.36 $ 0.91 $ 1.27 $ 0.48
============ ============ ============ ============= =============
Dividends per share (3) $ 1.00 $ 1.00 $ 0.50 $ 0.50 $ 0.20
============ ============ ============ ============= =============
Book value per common share
outstanding at March 31 $ 18.38 $ 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).
- 4 -
<PAGE>
Guthrie Savings, Inc.
<TABLE>
<CAPTION>
============================================================================================================================
FIVE-YEAR FINANCIAL SUMMARY
Selected Ratios and Other Data (*)
============================================================================================================================
Year Ended March 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 0.88 % 1.11 % 0.79 % 1.30 % 1.24 %
Return on average equity 5.61 7.25 4.89 7.12 10.39
Average equity to average assets 15.66 15.26 16.13 18.18 11.93
Equity to assets at period end 16.15 15.50 15.91 17.19 18.41
Net interest spread 3.11 3.13 3.14 2.98 3.59
Net yield on average interest earning assets 3.74 3.79 3.81 3.78 4.02
Non-performing loans to total assets 0.68 0.42 0.85 1.33 1.80
Non-performing loans to net loans 1.31 0.80 1.79 2.72 3.46
Non-performing assets to total assets 0.68 0.44 0.85 1.33 1.94
Allowance for loan losses to total loans 1.43 1.38 1.61 1.70 2.33
Dividend payout 90.62 72.17 55.32 38.08 17.38
Number of:
Real estate loans outstanding 512 556 550 576 621
Deposit accounts 4,326 4,435 4,538 4,772 4,744
</TABLE>
[NET INCOME GRAPHICS OMITTED]
[NON-PERFORMING ASSETS/TOTAL ASSETS GRAPHICS OMITTED]
[TOTAL ASSETS GRAPHICS OMITTED]
[STOCKHOLDERS' EQUITY GRAHICS OMITTED]
(*) Data presented prior to October 11, 1994, the date of conversion, is for
Guthrie Federal Savings Bank only.
- 5 -
<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.
Subsequent to the end of the fiscal year, the Company and the Bank signed a
stock purchase agreement, subject to stockholder approval, with Local Oklahoma
Bank, N.A. Upon consummation of the agreement, the Company and the Bank will be
acquired by Local Oklahoma Bank through a share acquisition of all of the shares
of common stock of the Company and the Bank will be owned by Local Oklahoma
Bank. All current stockholders of the Company will receive a cash payment for
their shares. Although the parties will remain separate until the share
acquisition procedure, the Company and the Bank may, prior to the share
acquisition procedure, begin to change the way they categorize and account for
certain items that are reflected in the consolidated financial statements to
reduce the number of changes that are made following the share acquisition
procedure. It is not expected that these changes will result in any material
differences from current practice until immediately prior to the share
acquisition procedure. In the event the share acquisition procedure does not
occur, there will be no material change in the operations of the Bank and the
Company although there would be a one-time charge to cover expenses incurred in
preparing for the acquisition. This charge could total approximately $150,000.
Under certain circumstances if Local Oklahoma Bank, N.A. breaches the agreement
with the Company, the Company could be entitled to receive a $500,000 earnest
money deposit, which was paid by Local Oklahoma Bank, and any interest earned.
- 6 -
<PAGE>
Financial Condition
Consolidated total assets decreased 5.88% from $48,626,898 at March 31, 1998 to
$45,768,401 at March 31, 1999. This decrease is the result of the continued
maturity of investment and mortgage-backed securities held-to-maturity. The
proceeds from these maturities were used to decrease borrowings from the Federal
Home Loan Bank and purchase treasury stock.
Cash and cash equivalents:
The Bank's cash and cash equivalents increased $3,878,695 or 117.27% from
$3,307,419 at March 31, 1998 to $7,186,114 at March 31, 1999. This substantial
increase is directly related to the decrease in investment and mortgage-backed
securities discussed in the next two paragraphs.
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 $4,426,351, or 72.86% from 6,074,751 at March 31,
1998 to $1,648,400 at March 31, 1999. This decrease was directly related to the
decrease in borrowings from FHLB and purchase of treasury stock discussed above.
Securities called during the year ended March 31, 1999 totaled $3,900,000.
Mortgage-backed securities:
Mortgage-backed securities decreased $1,154,701, or 9.15%, from $12,615,162 at
March 31, 1998 to $11,460,461 at March 31, 1999. The Company did not have any
mortgage-backed securities classified as available-for-sale at March 31, 1999 or
1998. During the year ended March 31, 1999, the Bank purchased $2,523,109 in
mortgage-backed securities and repayments of mortgage-backed securities amounted
to $3,647,283. Mortgage-backed securities generally provide for lower returns
than loans originated by the Bank and are utilized when investable funds exceed
loan demand.
Loans receivable:
Net loans receivable decreased $1,852,969, or 7.22%, from $25,655,194 at March
31, 1998 to $23,802,225 at March 31, 1999. This decline in the loan portfolio is
related to an increase in loans originated for sale during the year. The Bank
originated loans held-for-sale of $2,932,925 during fiscal 1999 compared to
originations of $755,957 in fiscal 1998. Proceeds from the sale of loans
classified as held-for-sale amounted to $3,038,784 in fiscal 1999 compared to
sales of $679,013 in fiscal 1998. The Bank has supplemented its lending activity
by originating and selling loans that are not consistent with the Bank's loan
portfolio objectives.
The Bank has recognized impaired loans having recorded investments of $511,042
at March 31, 1999 and $440,137 at March 31, 1998. 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 that 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, 1999 and 1998, amounted to
$731,093 and $652,442, respectively, including loans recognized
- 7 -
<PAGE>
as impaired. Those loans classified that are not recognized as impaired include
loans which are currently past due 90 days or more or have a past history of
delinquency. The level of classified loans have remained relatively constant 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 that 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, 1999 and 1998 was $0 and
$10,500, respectively. The March 31, 1998 balance in REO consisted of
undeveloped land. The balance in REO continues to be substantially lower than
that experienced by the Bank in prior years.
Deposits:
Deposits remained fairly consistent, decreasing only 1.29% from $35,537,831 at
March 31, 1998 to $35,078,760 at March 31, 1999. 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 4.46% for the year ended
March 31, 1998 to 4.29% for the year ended March 31, 1999.
Of the $22,910,213 in certificates of deposit held by the Bank at March 31,
1999, $19,604,566 of these deposits will mature during the year ended March 31,
2000. 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 $3,000,000 and $5,196,000 at March 31,
1999 and 1998, respectively. There was one advance outstanding at March 31,
1999, this advance was an adjustable rate advance. The Bank did not receive any
proceeds from FHLB advances during fiscal 1999. Of the $5,196,000 in fixed term
advances outstanding at March 31, 1998, all were adjustable rate advances. The
funds provided by the advances received during fiscal 1998 were used primarily
to fund lending activity throughout the year.
The Bank also has a line of credit with the FHLB with no outstanding balance at
March 31, 1999 or 1998. The funds available under the line of credit can be used
to fund lending activity or for regular operations.
The weighted average cost of these borrowings from the FHLB was 5.08% and 5.58%
for the years ended March 31, 1999 and 1998, respectively. The advance
outstanding at March 31, 1999 matures during the year ended March 31, 2008.
Stockholders' equity:
Stockholders' equity decreased $143,034, from $7,536,128 at March 31, 1998 to
$7,393,094 at March 31, 1999. The Company adopted a plan to purchase up to 15%
of the Company's outstanding shares. At March 31, 1999 the Company had
repurchased 112,868 shares of its common stock as part of a plan to enhance
stockholder value. The book value per common share outstanding at March 31, 1999
was $18.38, up from $18.05 at March 31, 1998 and $17.33 at March 31, 1997. As
noted in the Stock Price Information section of this report the Company has also
been consistently paying dividends to stockholders.
- 8 -
<PAGE>
Implementation of New Accounting Pronouncements
During fiscal year 1999, the Company adopted the provisions of Statement No. 129
titled "Disclosure of Information about Capital Structure" and Statement No. 130
titled "Reporting Comprehensive Income." See Note 1 of the Consolidated
Financial Statements for a discussion of these 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 that 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 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.
- 9 -
<PAGE>
The following tables present the Bank's NPV as well as other data as of March
31, 1999, 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> <C>
+300 bp $7,341 (973) (12) % 16.18 % -158 bp
+200 bp (1) $7,861 (453) (5) % 17.07 % -69 bp
+100 bp $8,172 (142) (2) % 17.57 % -19 bp
0 bp $8,314 17.76 %
-100 bp $8,485 171 2 % 18.00 % +24 bp
-200 bp $8,698 385 5 % 18.31 % +54 bp
-300 bp $9,096 782 9 % 18.92 % +116 bp
</TABLE>
- --------------------
(1) Denotes rate shock used to compute interest rate risk capital component.
March 31, 1999
--------------
Risk Measures (200 Basis Point Rate Shock):
Pre-Shock NPV Ratio: NPV as % of Present Value of Assets 17.76 %
Exposure Measure: Post-Shock NPV Ratio 17.07 %
Sensitivity Measure: Change in NPV Ratio 69 bp
Set forth below is a breakout, by basis points of the Bank's NPV as of March 31,
1999 by assets, liabilities and off-balance sheet items.
<TABLE>
<CAPTION>
No
Net Portfolio Value -300 bp -200 bp -100 bp Change +100 bp +200 bp +300 bp
- ------------------------ ---------- ---------- ---------- --------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $48,081 $47,517 $47,139 $46,807 $46,506 $46,039 $45,367
- -Liabilities 19,019 38,843 38,670 38,501 38,335 38,170 38,009
+Off Balance Sheet 34 24 16 8 1 (8) (17)
---------- ---------- ---------- --------------------------------- ----------
Net Portfolio Value $29,096 $ 8,698 $ 8,485 $ 8,314 $ 8,172 $ 7,861 $ 7,341
========== ========== ========== ================================= ==========
</TABLE>
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 would 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
- 10 -
<PAGE>
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. However, changes in
only certain rates, such as shorter term interest rate declines without longer
term interest rate declines, could reduce or reverse the expected benefit from
decreasing interest rates.
- 11 -
<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,
----------------------------------------------------------------------------------------
March 31,
1999 1999 1998 1997
-------- ----------------------------- ----------------------------- ----------------------------
Average Average Average Average Average Average
Yield/ Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- -------- ---------- ---------- --------- -------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) 8.37 % $ 25,018 $ 2,208 8.83 % $ 24,619 $ 2,218 9.01 % $ 22,895 $ 2,087 9.12 %
Mortgage-backed securities 6.37 % 12,414 772 6.22 % 12,213 800 6.55 % 12,146 775 6.38 %
Investment securities (2) 6.96 % 3,371 217 6.44 % 8,923 583 6.53 % 11,224 735 6.55 %
Other interest-earning assets 4.78 % 5,174 245 4.74 % 1,514 67 4.43 % 866 35 4.04 %
-------- --------- -------- ---------- ---------- --------- -------- --------- --------- --------
Total interest-earning assets 7.21 % $ 45,977 $ 3,442 7.49 % $ 47,269 $ 3,668 7.76 % $ 47,131 $ 3,632 7.71 %
======== ========= ======== ========== ========== ========= ======== ========= ========= ========
Non-interest-earning assets: 1,180 1,165 1,151
--------- ---------- ---------
Total assets $ 47,157 $ 48,434 $ 48,282
========= ========== =========
Interest-bearing liabilities:
Savings accounts 2.41 % $ 2,961 $ 76 2.57 % $ 2,895 $ 75 2.59 % $ 3,136 $ 81 2.58 %
Demand deposits 2.17 % 8,818 202 2.29 % 8,278 198 2.39 % 8,249 201 2.44 %
Certificates of deposit 4.97 % 23,218 1,224 5.27 % 23,351 1,266 5.42 % 23,187 1,247 5.38 %
Other borrowed funds 4.78 % 4,313 219 5.08 % 6,057 338 5.58 % 5,545 305 5.50 %
-------- --------- -------- ---------- ---------- --------- -------- --------- --------- --------
Total interest-bearing
liabilities 4.08 % $ 39,310 $ 1,721 4.38 % $ 40,581 $ 1,877 4.63 % $ 40,117 $ 1,834 4.57 %
======== ========= ======== ========== ========== ========= ======== ========= ========= ========
Non-interest bearing liabilities 464 464 379
--------- ---------- ---------
Total liabilities $ 39,774 $ 41,045 $ 40,496
========= ========== =========
Stockholder's equity 7,383 7,389 7,786
--------- ---------- ---------
Total liabilities and
stockholders' equity $ 47,157 $ 48,434 $ 48,282
========= ========== =========
.
Net interest income $ 1,721 $ 1,791 $ 1,798
======== ========= =========
Interest rate spread (3) 3.13 % 3.11 % 3.13 % 3.14 %
======== ========== ======== ========
Net yield on interest-earning
assets (4) 3.74 % 3.79 % 3.81 %
========== ======== ========
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 116.96 % 116.48 % 117.48 %
========== ======== ========
</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.
- 12 -
<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,
--------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
------------------------------------------ ------------------------------------------
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 $ 35 $ (44) $ (1) $(10) $ 157 $ (25) $ (1) $ 131
Mortgage-backed securities 13 (40) (1) (28) 4 21 - 25
Investment securities (362) (8) 5 (365) (150) (2) - (152)
Other interest-earning assets 161 5 11 177 26 3 3 32
--------- ---------- -------- --------- --------- ---------- --------- ---------
Total interest-earning assets $(153) $ (87) $ 14 $(226) $ 37 $ (3) $ 2 $ 36
========= ========== ======== ========= ========= ========== ========= =========
Interest expense:
Savings accounts $ 2 $ (1) $ - $ 1 $ (6) $ - $ - $ (6)
Demand deposits 13 (8) (1) 4 1 (4) - (3)
Certificates of deposits (7) (35) - (42) 9 9 1 19
Other borrowed funds (97) (30) 8 (119) 28 4 1 33
--------- ---------- -------- --------- --------- ---------- --------- ---------
Total interest-bearing liabilities $(89) $ (74) $ 7 $(156) $ 32 $ 9 $ 2 $ 43
========= ========== ======== ========= ========= ========== ========= =========
Net change in interest income $(64) $ (13) $ 7 $(70) $ 5 $ (12) $ - $ (7)
========= ========== ======== ========= ========= ========== ========= =========
</TABLE>
Comparison of Operating Results for the Years Ended March 31, 1999 and 1998
General:
Net income decreased $121,275 or 22.64%, from $535,595 at March 31, 1998 to
$414,320 for the year ended March 31, 1999. This decrease relates to an overall
decrease in net interest income and an increase in operating expenses.
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.
Net interest income:
The Bank's net interest income for the year ended March 31, 1999 decreased
$70,272, or 3.92%, from $1,790,804 for the year ended March 31, 1998 to
$1,720,532 for the year ended March 31, 1999. Interest income decreased
$226,224, or 6.17%, and interest expense decreased $155,952, or 8.31%. Yields on
the Company's interest-earning assets declined by 27 basis points during the
year ended March 31, 1999, and the rates paid on the Company's interest-bearing
liabilities decreased by 25 basis points resulting in a slight decrease in the
interest rate spread to 3.11% for the year ended March 31, 1999 from 3.13% for
the year ended March 31, 1998.
- 13 -
<PAGE>
The $226,224 decrease in total interest income is primarily the result of the
$187,851 decrease in interest on investment securities resulting from the
overall decrease in the Company's investment portfolio. The decrease in
investment securities, as reflected in the Bank's rate/volume analysis,
resulting from a decrease in the volume of investment securities was $362,000.
The $155,952 decrease in total interest expense consists primarily of a $119,020
decrease in interest on borrowed funds as proceeds from investment securities
were used to reduce advances from FHLB. As reflected in the Bank's rate/volume
analysis, the decrease in interest expense resulting from the decreased volume
of borrowed funds was $97,000, accompanied with the net decrease in the rate on
total interest-bearing liabilities of $74,000.
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 allowance for loan losses was $339,290 and $353,236 at March 31, 1999 and
1998, respectively. The provision for loan losses was $6,511 and $3,186 for the
years ended March 31, 1999 and 1998, respectively. The provision for loan losses
remained fairly consistent during the year ended March 31, 1999, 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 continuation in the level of allowance for loan losses
is primarily attributable to the continued improving economy and real estate
market in the primary market area, and the resulting low level of non-performing
loans. Historical non-performing loan rations are presented with the five-year
financial summary information. The allowance for loan losses as a percent of
total loans was 1.43% at March 31, 1999 and 1.38% at March 31, 1998. While
non-performing loans to net loans experienced a moderate increase in fiscal 1999
from 1998, both the fiscal 1999 and 1998 levels are the lowest in the past five
years. Charge-offs, net of recoveries, remained comparable between 1998 and
1997, consisting of approximately $20,457 in 1999 and $26,642 in 1998.
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 increased $15,252 from $242,436 for the year ended March 31,
1998 to $257,688 for the year ended March 31, 1999. This was primarily due to an
increase in the net gain on the sale of loans of $19,289, from $4,813 during
fiscal 1998 to $24,102 during fiscal 1999. The increase in loan sales results
largely from an effort to supplement the Bank's traditional portfolio lending
activity by making available to customers a broader array of loan products.
- 14 -
<PAGE>
Non-interest expense:
Non-interest expense increased $116,219 or 9.86% for the year ended March 31,
1999 compared to March 31, 1998. The increase was primarily the result of
increased occupancy expenses resulting from remodeling of the Bank facilities,
additional non-capital expenses incurred to become Year 2000 compliant and an
increase in professional fees relating to various tax and strategic planning
issues arising during the year.
Income taxes:
The Bank's income tax expense decreased $53,289, or 22.64%, from $315,335 for
the year ended March 31, 1998 to $262,046 for the year ended March 31, 1999.
This decrease in income tax resulted from a decrease in pre-tax income.
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.
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.
- 15 -
<PAGE>
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 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. The allowance for loan
losses as a percent of non-performing assets was 164.6% at March 31, 1998
compared to 89.9% at March 31, 1997.
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.
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 1999, cash and cash equivalents increased by $3,878,695, primarily
as a result of investment securities being called or maturing during the year
ended March 31, 1999 resulting in total funds provided by investing activities
of $6,680,849. The Company also had net cash provided by operating activities of
$529,418. The cash provided by investing and operating activities were partially
offset by cash used by financing activities of $3,331,572. Cash and cash
equivalents used by financing activities resulted primarily from the repayment
of FHLB advances.
- 16 -
<PAGE>
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 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.
The Company's principal asset is its investment in the capital stock of the
Bank, and because it does not generate any significant revenues independent of
the Bank, the Company's liquidity is dependent on the extent to which it
receives dividends from the Bank. The Bank's ability to pay dividends to the
Company is dependent on its ability to generate earnings and is subject to a
number of regulatory restrictions, the liquidation account and tax
considerations. Under capital distribution regulations of the OTS, a savings
institution that, immediately prior to, and on a proforma basis after giving
effect to, a proposed dividend, has total capital that is at least equal to the
amount of its fully phased-in capital requirements (a "Tier I Association") is
permitted to pay dividends during a calendar year in an amount equal to the
greater of (i) 75.0% of its net income for the recent four quarters, or (ii)
100.0% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year. At March 31, 1999, the Bank qualified as a Tier
I Association. See Notes 10, 13 and 19 of Notes to Consolidated Financial
Statements for additional information on capital levels and compliance, tax bad
debt reserves and the liquidation account.
These capital distribution regulations were revised on April 1, 1999.
Cash dividends paid by the parent company to its common stock shareholders
totaled $375,471 and $386,549 during the fiscal years 1999 and 1998,
respectively. The payment of dividends on the common stock is subject to the
direction of the Board of Directors of the Company and depends on a variety of
factors, including operating results and financial condition, liquidity,
regulatory capital limitations and other factors. It is the intention of the
Bank to continue to pay dividends to the parent company, subject to regulatory,
income tax and liquidation account considerations, to cover cash dividends on
common stock when and as declared by the parent company.
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. At
March 31, 1999, 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, 1999 the Bank
exceeded all of the minimum capital requirements as currently required.
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.
- 17 -
<PAGE>
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.
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
has developed a plan to evaluate and test critical systems as they relate to the
Year 2000 issues and the Bank's service center. The Bank is evaluating their
internal data processing applications and has updated all computer terminals and
installed 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. As of March 31, 1999 the
Bank has expended $40,000 for upgraded computer equipment. This expenditure has
been capitalized and will be depreciated over a three-year period. Data
processing costs and conversion costs of $22,730 associated with Year 2000
expenses have been expensed as of March 31, 1999 and $600 per month of data
processing costs will continue through the end of 1999. Expenses relating to
training costs for the Year 2000 have been $3,500 as of March 31, 1999. The
Bank's data service center currently has started external and internal testing
of modifications to critical systems. This testing includes testing of
interfaces between the Bank computer network, installed in October 1998, and the
data service center. The Bank has also been evaluating its non-information
technology systems (vault timers, electronic door lock and heating, ventilation
and air conditioning controls, etc.). The Bank has examined all of its
non-information technology systems and have either received certifications of
Year 2000 compliance for systems controlled by third party providers or
determined that the systems should not be impacted by the Year 2000. The Bank
expects to further test the systems it controls and receive third party
certification, where appropriate, that they will function. The Bank does not
expect any material costs to address the non-information technology systems and
has not had any material costs to date. The Bank has determined that the
information technology systems it uses have substantially more Year 2000 risk
than non-information technology systems it uses.
The Bank has evaluated most of its borrowers and does not believe that the Year
2000 problem should, on an aggregate basis, impact their ability to make
payments to the Bank. Most of the Bank's residential borrowers are not dependent
on their home computers for income and none of the commercial borrowers are so
large that a Year 2000 problem would render them unable to collect revenue or
rent and, in turn, continue to make loan payments to the Bank. As a result, the
Bank has not contacted residential borrowers concerning this issue and does not
consider this issue in the residential loan underwriting process. The Bank has
contacted all commercial borrowers and considered this issue during commercial
loan underwriting. The Bank does not expect any material costs to address this
risk area.
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. If the Bank's service bureau would fail, which is not anticipated,
the Bank would enter deposit and loan transactions by hand in the general ledger
and compute loan payments and deposit balances and interest with the existing
computer system. The Bank could do this because of the relatively small number
of loan and deposit accounts and it's internal bookkeeping system. The computer
systems are independently able to generate label and mailings for all of the
Bank's customers and the Bank periodically tests this system and prints and
stores this material. If this labor-intensive approach would be necessary,
management and the employees would become much less efficient. However, the Bank
believes that it would be able to operate in this manner indefinitely, until the
Bank's existing service bureau would be able to again provide data processing
services.
- 18 -
<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, 1999 and 1998 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, 1999.
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, 1999 and 1998, and the results of their operations
and cash flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
/s/Regier Carr & Monroe, L.L.P
Regier Carr & Monroe, L.L.P.
April 23, 1999
(except for Note 23, as to
which the date is May 26, 1999)
Wichita, Kansas
F-1
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Financial Condition
March 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
-------------------- -------------------
<S> <C> <C>
Cash and cash equivalents:
Interest bearing $ 6,778,318 $ 2,995,502
Non-interest bearing 407,796 311,917
-------------------- -------------------
Total cash and cash equivalents 7,186,114 3,307,419
Time deposits in other financial institutions 500,000
Investment securities held-to-maturity (estimated market
value of $999,380 and $3,893,119 at March 31,
1999 and 1998, respectively) 1,000,000 3,900,000
Investment securities available-for-sale 648,400 2,174,751
Mortgage-backed securities held-to-maturity (estimated
market value of $11,507,649 and $12,744,277 at
March 31, 1999 and 1998, respectively) 11,460,461 12,615,162
Loans receivable, net 23,802,225 25,573,437
Loans held-for-sale 81,757
Accrued income receivable 229,454 262,853
Real estate owned and other repossessed assets, net 10,500
Office properties and equipment, net 716,549 569,093
Income taxes receivable, current 89,231
Prepaid expenses and other assets 135,967 131,926
-------------------- -------------------
Total assets $ 45,768,401 $ 48,626,898
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 35,078,760 $ 35,537,831
Advances and other borrowings from
Federal Home Loan Bank 3,000,000 5,196,000
Advances from borrowers for taxes and insurance 57,312 48,988
Other liabilities and accrued expenses 70,940 109,081
Deferred income 43,153 50,824
Income taxes payable, current 26,840
Deferred income taxes 125,142 121,206
-------------------- -------------------
Total liabilities 38,375,307 41,090,770
-------------------- -------------------
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 4,845,752 4,811,997
Retained income, substantially restricted 4,580,402 4,541,553
Accumulated other comprehensive income (3,443)
Unamortized stock acquired by Employee Stock
Ownership Plan (226,655) (267,865)
Unamortized compensation related to Management
Stock Bonus Plan (60,938) (103,490)
Treasury stock, at cost, 112,868 and 97,668 shares
at March 31, 1999 and 1998, respectively (1,750,618) (1,447,775)
-------------------- -------------------
Total stockholders' equity 7,393,094 7,536,128
-------------------- -------------------
Total liabilities and stockholders' equity $ 45,768,401 $ 48,626,898
==================== ===================
</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, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest on loans $2,207,776 $2,217,831 $2,087,179
Interest on mortgage-backed securities 771,864 800,182 774,790
Interest and dividends on investment securities 461,894 649,745 770,018
---------------- ---------------- ----------------
Total interest income 3,441,534 3,667,758 3,631,987
---------------- ---------------- ----------------
Interest expense:
Deposits 1,501,653 1,538,585 1,528,658
Borrowed funds 219,349 338,369 304,925
---------------- ---------------- ----------------
Total interest expense 1,721,002 1,876,954 1,833,583
---------------- ---------------- ----------------
Net interest income 1,720,532 1,790,804 1,798,404
Provision for losses on loans 6,511 3,186 763
---------------- ---------------- ----------------
Net interest income after provision for
losses on loans 1,714,021 1,787,618 1,797,641
---------------- ---------------- ----------------
Non-interest income:
Service charges 172,449 183,331 164,561
Gain on sale of loans 24,102 4,813
Net gain on sale of investments 46,528
Gain from real estate operations 5,730 4,289 12
Other 55,407 50,003 40,176
---------------- ---------------- ----------------
Total non-interest income 257,688 242,436 251,277
---------------- ---------------- ----------------
Non-interest expense:
Compensation and related expenses 636,463 624,197 589,319
Occupancy expense 84,093 63,715 63,368
Professional fees 144,669 110,740 118,628
Federal insurance premium 21,182 21,572 62,913
SAIF special assessment 225,433
Data processing 108,669 82,873 83,210
Bank charges 59,401 52,534 57,922
Other expense 240,866 223,493 215,082
---------------- ---------------- ----------------
Total non-interest expense 1,295,343 1,179,124 1,415,875
---------------- ---------------- ----------------
Income before income taxes 676,366 850,930 633,043
---------------- ---------------- ----------------
Income taxes:
Currently payable 260,216 295,447 211,499
Deferred tax expense 1,830 19,888 41,164
---------------- ---------------- ----------------
Total income taxes 262,046 315,335 252,663
---------------- ---------------- ----------------
Net income $ 414,320 $ 535,595 $ 380,380
================ ================ ================
Basic:
Earnings per share $ 1.10 $ 1.41 $ 0.92
================ ================ ================
Weighted average common shares outstanding 374,994 380,544 413,112
================ ================ ================
Diluted:
Earnings per share $ 1.06 $ 1.36 $ 0.91
================ ================ ================
Weighted average common shares outstanding 389,234 392,522 417,485
================ ================ ================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Comprehensive Income
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- --------------- ---------------
<S> <C> <C> <C>
Net income $ 414,320 $ 535,595 $ 380,380
------------- --------------- ---------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period 3,443 42,936 (5,755)
Less: reclassification adjustment for
gains included in net income (30,708)
------------- --------------- ---------------
Total other comprehensive income 3,443 42,936 (36,463)
------------- --------------- ---------------
Comprehensive income $ 417,763 $ 578,531 $343,917
============= =============== ===============
</TABLE>
F-4
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Changes in Stockholders'
Equity Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unamortized Unamoritzed
Accumulated Common Compensation
Additional Other Stock Related Total
Common Paid-In Retained Comprehensive Acquired by to Treasury Stockholders'
Stock Capital Earnings Income ESOP MSBP Stock Equity
------ --------- ---------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Allocation of shares by Employees' Stock
Ownership Plan 24,329 41,210 65,539
Amortization of compensation related to
Management Stock Bonus Plan 9,426 42,552 51,978
Net income for the year ended March 31, 1999 414,320 414,320
Cash dividend paid ($1.00 per share) (375,471) (375,471)
Net change in unrealized loss
on available-for-sale securities 3,443 3,443
Purchase of 15,200 treasury shares (302,843) (302,843)
------ ---------- ---------- -------- ----------- ----------- ----------- ----------
Balance, March 31, 1999 $5,151 $4,845,752 $4,580,402 $ - $ (226,655) $ (60,938)$(1,750,618) $7,393,094
====== ========== ========== ======== ============ =========== =========== ==========
</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
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 414,320 $ 535,595 $ 380,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments (46,528)
Loss on sale of real estate acquired in
settlement of loans 1,848 1,698
Depreciation 38,162 31,593 37,027
Amortization of premiums and discounts
on investments and loans (7,721) (3,437) 3,660
Provision for losses on loans and real
estate owned 6,511 3,186 763
Origination of loans held-for-sale (2,932,925) (755,957)
Sale of loans held-for-sale 3,038,784 679,013
Gain on sale of loans held-for-sale (24,102) (4,813)
Decrease in accrued interest receivable 33,399 67,424 33,251
(Increase) decrease in other assets (4,041) (32,791) 11,710
Increase (decrease) in accrued expenses (38,141) 48,276 (17,979)
(Decrease) increase in accrued and deferred
income taxes (104,815) 28,911 90,738
Amortization related to ESOP and MSBP 108,091 110,046 95,812
Other non-cash items, net 48 3,090 (1,839)
--------------- --------------- ---------------
Net cash provided by operating activities 529,418 710,136 588,693
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans
held-for-investment 1,757,425 (2,102,303) (485,968)
Proceeds from maturities and calls of investment
securities held-to-maturity 3,400,000 5,300,000 1,550,000
Proceeds from sales of investment securities
available-for-sale 81,800 102,347
Proceeds from maturities and calls of investment
securities available-for-sale 1,500,000
Acquisition of investment securities held-to-maturity (1,000,000) (500,000) (500,000)
Acquisition of investment securities available-for-sale (49,900) (48,300) (39,700)
Repayment of mortgage-backed securities
held-to-maturity 3,647,283 2,340,044 1,357,171
Acquisition of mortgage-backed securities
held-to-maturity (2,523,109) (1,705,880) (5,227,289)
Acquisition of fixed assets (186,278) (2,053) (7,824)
Proceeds from sale of foreclosed real estate 53,016 13,348
Other investing activities, net 612
--------------- --------------- ---------------
Net cash provided (used) by investing activities 6,680,849 3,281,508 (3,237,915)
--------------- --------------- ---------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-6
<PAGE>
Guthrie Savings, Inc.
Consolidated Statements of Cash Flows (Continued)
Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (465,582) $ 1,241,367 $ (2,016,506)
Net increase (decrease) in escrow accounts 8,324 16,158 (7,468)
Proceeds from FHLB advance and other borrowings 11,300,000 12,000,000
Repayment of FHLB advance and other borrowings (2,196,000) (12,804,000) (7,300,000)
Purchase of treasury stock (302,843) (574,030) (472,918)
Cash dividends paid (375,471) (386,549) (433,166)
------------ ------------ ------------
Net cash provided (used) by financing activities (3,331,572) (1,207,054) 1,769,942
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 3,878,695 2,784,590 (879,280)
Cash and cash equivalents at beginning of year 3,307,419 522,829 1,402,109
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,186,114 $ 3,307,419 $ 522,829
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest on deposits, advances and other
borrowings $ 1,716,966 $ 1,873,167 $ 1,835,422
============ ============ ============
Income taxes $ 410,410 $ 237,703 $ 189,059
============ ============ ============
Transfers from loans to foreclosed real estate $ 51,776 $ 19,690 $ 54,446
============ ============ ============
Loans to facilitate the sale of foreclosed real estate $ -- $ -- $ 39,400
============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-7
<PAGE>
Guthrie Savings, Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
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-8
<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:
Regulations require the Bank to maintain liquidity for maturities of
deposits and other short-term borrowings in cash, U.S. Government and other
approved 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-9
<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 six months.
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, 1999, 1998 and 1997.
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.
Advertising costs:
Advertising costs are expensed as incurred and included in other
non-interest expense. Advertising expenses totaled $22,181, $24,382 and
$25,425 for the years ended March 31, 1999, 1998 and 1997, respectively.
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-10
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Comprehensive income:
Effective April 1, 1998, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130 entitled
Reporting Comprehensive Income. This statement requires disclosures of the
components of comprehensive income and the accumulated balance of other
comprehensive income with consolidated stockholders' equity. The adoption
of the provisions of SFAS No. 130, which are only of a disclosure nature,
did not effect the Corporation's consolidated financial position, results
of operations or liquidity.
Earnings per share:
Effective for the year ended March 31, 1998, the Company adopted the
provisions of SFAS No. 128, entitled Earnings Per Share, and accordingly,
restated all prior period earnings per share to conform with SFAS No. 128.
This statement requires dual presentation with equal prominence of basic
and diluted earnings per share (EPS) for income from continuing operations
and for net income on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. 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 entity. See Note 12 for additional information.
Impact of new accounting standards:
In June 1998, FASB issued SFAS No. 133 entitled Accounting for Derivative
Instruments and Hedging Activities. This statement requires the recognition
of all derivative financial instruments as either assets or liabilities in
the statement of financial position and measurement of those instruments at
fair value. The accounting for gains and losses associated with changes in
the fair value of a derivative and the effect on the consolidated financial
statements will depend on its hedge designation and whether the hedge is
highly effective in achieving offsetting changes in the fair value or cash
flows of the asset or liability hedged. Under the provisions of SFAS No.
133, the method that will be used for assessing the effectiveness of a
hedging derivative, as well as the measurement approach for determining the
ineffective aspects of the hedge, must be established at the inception of
the hedge. The methods must be consistent with the entity's approach to
managing risk.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999, with initial application as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of this
Statement. Earlier application is encouraged, but is permitted only as of
the beginning of any fiscal quarter beginning after June 15, 1999.
Retroactive application to financial statements of prior periods is
prohibited. Management of the Company has not determined the quarter in
which to adopt the provisions of this statement and does not believe that
such adoption will have a material effect on the Company's financial
position, liquidity or results of operations.
The Financial Accounting Standards Board has issued a proposed SFAS that,
if issued, would defer the effective date of SFAS No. 133 to all fiscal
years beginning after June 15, 2000.
F-11
<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, 1999
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Held-to-maturity:
Government Agency Securities $1,000,000 $ 953 $ 1,573 $ 999,380
----------------- -------------- -------------- -----------------
Total held-to-maturity $1,000,000 $ 953 $ 1,573 $ 999,380
================= ============== ============== =================
Available-for-sale:
Stock in Federal Home Loan Bank,
at cost $ 648,400 648,400
----------------- -------------- -------------- -----------------
Total available-for-sale $ 648,400 $ - $ - $ 648,400
================= ============== ============== =================
</TABLE>
<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>
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 included $500,000 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.
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.
F-12
<PAGE>
2. Investment Securities (Continued)
The amortized cost and estimated market value of debt securities at March
31, 1999, 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 after one year through five years $ 500,000 $ 498,882
Due after five years through ten years 500,000 500,498
---------------- ----------------
Total held-to-maturity $1,000,000 $ 999,380
================ ================
There were no sales of investment securities available-for-sale during the
years ended March 31, 1999 and 1998. During the year ended March 31, 1997,
there were realized gains on sales of investment securities
available-for-sale of $46,528.
Investment securities with a carrying amount of $500,000 and $0 as of
March 31, 1999 and 1998, respectively, were pledged as collateral for
public funds as discussed in Note 8.
3. Mortgage-Backed Securities
Mortgage-backed securities, all of which were classified as
held-to-maturity at March 31, 1999 and 1998, consist of the following:
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------ ------------- -------------- ------------------
<S> <C> <C> <C> <C>
FHLMC - fixed rate $ 885,819 $ 17,628 $ 903,447
FHLMC - ARM's 1,029,788 32,712 997,076
GNMA - ARM's 2,589,492 12,792 5,776 2,596,508
FNMA - ARM's 1,593,211 18,290 16,703 1,594,798
GNMA - fixed rate 161,296 8,638 169,934
FNMA - fixed rate 1,690,175 694 12,230 1,678,639
Collateralized mortgage obligations-
government agency issue 3,510,680 56,849 282 3,567,247
------------------ ------------- -------------- -----------------
$ 11,460,461 $114,891 $ 67,703 $ 11,507,649
================== ============= ============== =================
</TABLE>
F-13
<PAGE>
3. Mortgage-Backed Securities (Continued)
<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>
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, 1999, 1998 and 1997.
There were no mortgage-backed securities classified as available-for-sale
as of March 31, 1999 and 1998.
4. Loans Receivable
Loans receivable at March 31 are summarized as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------------
1999 1998
--------------- -----------------
Real estate loans:
<S> <C> <C>
Residential $18,644,037 $19,486,296
Construction 1,630,000 2,097,800
Non-residential 1,721,601 1,763,895
Second mortgage and other equity 1,120,530 1,267,008
Consumer 2,412,920 2,483,123
--------------- -----------------
Gross loans 25,529,088 27,098,122
Less: Loans in process (1,331,517) (1,098,775)
Deferred loan fees and costs (56,056) (72,674)
Allowance for loan losses (339,290) (353,236)
--------------- -----------------
Net loans receivable $23,802,225 $25,573,437
=============== =================
</TABLE>
F-14
<PAGE>
4. Loans Receivable (Continued)
The following is an analysis of the allowance for loss on loans:
<TABLE>
<CAPTION>
March 31,
----------------------------------------------------
1999 1998 1997
-------------- ---------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year $ 353,236 $ 376,692 $ 391,189
Provision charged to operations 6,511 3,186 763
Loans charged off (23,475) (33,844) (29,056)
Recoveries 3,018 7,202 13,796
-------------- ---------------- ---------------
Balance, end of year $ 339,290 $ 353,236 $ 376,692
============== ================ ===============
</TABLE>
Impairment of loans having recorded investments of $511,042 at March 31,
1999 and $440,137 at March 31, 1998 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, 1999 and 1998, was $475,590 and $403,227, respectively. The
total allowance for loan losses related to these loans was $111,258 and
$106,625 at March 31, 1999 and 1998. 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 $48,484 and $46,105 was
recognized for cash payments received for the years ended March 31, 1999
and 1998, 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 18 for disclosure of loans to related parties.
5. Accrued Income Receivable
Accrued interest receivable at March 31 is summarized as follows:
1999 1998
----------------- -----------------
Mortgage-backed securities $ 53,224 $ 61,121
Loans receivable 151,107 144,236
Investments 25,123 57,496
----------------- -----------------
$ 229,454 $ 262,853
================= =================
6. Foreclosed Real Estate
Real estate owned or in judgment and other repossessed assets consist of
the following:
1999 1998
----------------- -----------------
Real estate acquired by foreclosure $ - $ 10,500
================= =================
There was no activity in the allowance for loss account for the years
ended March 31, 1999, 1998 and 1997.
F-15
<PAGE>
6. Foreclosed Real Estate (Continued)
Income (loss) from real estate operations for the years ended March 31 is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net gain on sale of real estate owned $ 5,823 $ 7,131 $ 1,439
Operating expenses (93) (2,842) (1,427)
----------------- ----------------- -----------------
$ 5,730 $ 4,289 $ 12
================= ================= =================
</TABLE>
7. Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation as follows:
March 31,
--------------------------------
1999 1998
----------------- -------------
Land $ 398,332 $ 398,332
Building and improvements 680,285 622,292
Furniture and equipment 264,434 246,501
Automobiles 13,103 13,103
----------------- -------------
1,356,154 1,280,228
Less accumulated depreciation (639,605) (711,135)
----------------- -------------
$ 716,549 $ 569,093
================= =============
Depreciation expense (1997 - $37,027) $ 38,162 $ 31,593
================= =============
8. Deposits
Deposits at March 31 are summarized as follows:
1999 1998
----------------- -----------------
Demand deposits $9,156,846 $8,862,808
Savings deposits 3,011,701 2,926,724
Certificates of deposit 22,910,213 23,748,299
----------------- -----------------
$35,078,760 $35,537,831
================= =================
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $1,675,829 and $1,420,654 at March 31, 1999
and 1998, respectively. Deposit accounts as of March 31, 1999 and 1998
included public funds of $400,000 and $0, respectively. Public funds were
collateralized by investment securities as discussed in Note 2.
At March 31, 1999, scheduled maturities of certificates of deposit are as
follows:
Year Ending March 31,
- ----------------------------
2000 $19,604,566
2001 2,425,957
2002 498,830
2003 221,029
2004 159,831
-----------------
$22,910,213
=================
F-16
<PAGE>
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:
1999 1998
---------------- ---------------
Advances $3,000,000 $5,196,000
================ ===============
At March 31, 1999 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 13, 1999. At March 31, 1998, the Bank had $0 outstanding
under a $3,000,000 line of credit, due August 15, 1998. 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:
<TABLE>
<CAPTION>
Fiscal 1999 1998
------------------------------------- -------------------------------------
Year Weighted Weighted
Maturity Amount Average Rate Amount Average Rate
- -------------- ---------------- ----------------- --------------- ------------------
<S><C> <C> <C> <C> <C>
1999 $ - % $2,196,000 5.64 %
2008 3,000,000 4.78 3,000,000 4.78
---------------- ----------------- --------------- ------------------
$3,000,000 4.78 % $5,196,000 5.14 %
================ ================= =============== ==================
</TABLE>
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,
---------------------------------------------------------------
1999 1998 1997
------------------- --------------------- ---------------------
<S> <C> <C> <C>
Statutory federal income tax 34.0 % 34.0 % 34.0 %
Increase resulting from:
Oklahoma income tax 3.9 1.5
Adjust tax bad debt reserves 0.8 5.4
Non-deductible items 0.8 0.4 0.3
Other 0.4 0.2
------------------- --------------------- ---------------------
38.7 % 37.1 % 39.9 %
=================== ===================== =====================
</TABLE>
F-17
<PAGE>
10. Income Taxes (Continued)
Deferred taxes are included in the accompanying Statement of Financial
Condition at March 31, 1999 and 1998 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, 1999 and 1998 was
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees and costs $ 6,119 $ 9,319
Allowance for loan losses 86,560 93,614
Unrealized loss on available-for-sale securities 2,106
Accrued compensation 17,186 15,911
------------- -------------
Total deferred tax assets 109,865 120,950
------------- -------------
Deferred tax liabilities:
Accumulated depreciation (15,028) (11,155)
Special bad debt deduction (55,353) (76,353)
Increase in value of insurance contract (10,294)
FHLB stock dividends (154,332) (154,648)
------------- -------------
Total deferred tax liabilities (235,007) (242,156)
------------- -------------
Net liability $ (125,142) $ (121,206)
============= =============
</TABLE>
No valuation allowance was recorded against deferred tax assets at March
31, 1999 and 1998.
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, 1999 and 1998. 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.
F-18
<PAGE>
11. Comprehensive Income
Accumulated comprehensive income as of March 31, 1999, 1998 and 1997
consists of unrealized gains and losses on available-for-sale
securities. Classification of comprehensive income and the related
income tax (expense) or benefit for the years ended March 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
--------------- --------------- ---------------
<S> <C> <C> <C>
Year Ended March 31, 1999
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 5,549 $ (2,106) $ 3,443
Less: reclassification adjustment
for gains included in net income - - -
--------------- --------------- ---------------
Total other comprehensive
income $ 5,549 $ (2,106) $ 3,443
=============== =============== ===============
Year Ended March 31, 1998
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 64,724 $ (21,788) $ 42,936
Less: reclassification adjustment
for gains included in net income - - -
--------------- --------------- ---------------
Total other comprehensive
income $ 64,724 $ (21,788) $ 42,936
=============== =============== ===============
Year Ended March 31, 1997
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (8,719) $ 2,964 $ (5,755)
Less: reclassification adjustment
for gains included in net income (46,528) 15,820 (30,708)
--------------- --------------- ---------------
Total other comprehensive
income $ (55,247) $ 18,784 $(36,463)
=============== =============== ===============
</TABLE>
F-19
<PAGE>
12. Earnings Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for income:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
------------------- ------------------- ------------
<S> <C> <C> <C>
Year ended March 31, 1999:
Basic EPS
Income available to common stockholders $ 414,320 374,994 $ 1.10
============
Effect of dilutive securities
MSBP shares 1,168
Stock options 13,072
------------------- -------------------
Diluted EPS $ 414,320 389,234 $ 1.06
=================== =================== ============
Year ended March 31, 1998:
Basic EPS
Income available to common stockholders $ 535,595 380,544 $ 1.41
============
Effect of dilutive securities
MSBP shares 1,446
Stock options 10,532
------------------- -------------------
Diluted EPS $ 535,595 392,522 $ 1.36
=================== =================== ============
Year ended March 31, 1997:
Basic EPS
Income available to common stockholders $ 380,380 413,112 $ 0.92
============
Effect of dilutive securities
MSBP shares 624
Stock options 3,749
------------------- -------------------
Diluted EPS $ 380,380 417,485 $ 0.91
=================== =================== ============
</TABLE>
13. 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.
F-20
<PAGE>
13. Regulatory and Capital Matters (Continued)
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, 1999, that the Bank meets all capital
adequacy requirements to which it is subject.
As of March 31, 1999, 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, 1999:
Total (Risk-Based) Capital
(to Risk Weighted Assets) $ 7,217 35.3% $ 1,632 8.0% $ 2,042 10.0%
Core (Tier I) Capital
(to Risk Weighted Assets) 6,989 34.2% N/A 1,225 6.0%
Core (Tier I) Capital - leverage
(to Assets) 6,989 15.3% 1,825 4.0% 2,282 5.0%
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%
</TABLE>
F-21
<PAGE>
13. Regulatory and Capital Matters (Continued)
The following is a reconciliation of net worth to regulatory capital as
reported in the March 31, 1999 and 1998 reports to the Office of Thrift
Supervision:
<TABLE>
<CAPTION>
March 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Bank net worth per report
to Office of Thrift Supervision $ 6,989,000 $ 6,830,000
Rounding (339) (584)
------------------ ------------------
Net worth as reported in accompanying
financial statements (Bank only) 6,988,661 6,829,416
Adjustments to arrive at Core (Tier I)
and Tangible Capital:
Unrealized losses on certain
available-for-sale securities 3,000
------------------ ------------------
Core (Tier I) and Tangible Capital 6,988,661 6,832,416
Adjustments to arrive at Total Capital:
Allowable portion of general
allowance for loan losses 228,000 247,000
------------------ ------------------
Total Capital $ 7,216,661 $ 7,079,416
================== ==================
Risk weight assets $20,422,000 $21,202,000
================== ==================
</TABLE>
14. 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, 1999 and 1998 were $10,184 and $9,748, 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, 1999, the balance of
indebtedness from the ESOP to the Company was $226,655, 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
F-22
<PAGE>
14. Employee Benefits Plans (Continued)
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 reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as
compensation expense. ESOP compensation expense was $51,370, $52,721 and
$29,606 for the years ended March 31, 1999, 1998 and 1997, respectively.
As of March 31, 1999, of the 40,589 ESOP shares, 17,924 shares were
allocated and 22,665 shares were unallocated. The 22,665 unallocated
shares had an estimated market value of $419,303 at March 31, 1999.
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 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.
15. 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 is administered by a committee of at least three
non-employee directors designated by the Board of Directors (the Option
Committee). The Option Committee selects 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-23
<PAGE>
15. 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. Generally, options are exercisable at the rate of 20% on the
one-year anniversary and 20% annually thereafter. 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, 1999, 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 $0 and $3,090 for the years ended March 31, 1999 and 1998,
respectively.
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. The Company did not grant any
stock options during the year ended March 31, 1999. 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, 1999 and 1998 relative to
stock options are as follows:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------
1999 1998
-------------------------------- ------------------------------
Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price
-------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 41,206 $ 12.79 39,661 $ 12.63
Granted 1,545 17.00
Canceled
Exercised
-------------- -------------- ------------- -------------
Outstanding at end of year 41,206 $ 12.79 41,206 $ 12.79
============== ============== ============= =============
Exercisable at end of year 41,206 41,206
============== =============
Number of shares available for future grant:
Beginning of year 10,306 11,851
============== =============
End of year 10,306 10,306
============== =============
</TABLE>
F-24
<PAGE>
16. 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, 1999 and 1998, the Bank had outstanding commitments to fund
real estate loans of $209,835 and $220,500, respectively. All of the
commitments outstanding at March 31, 1999 were for fixed rate loans with
rates of 7.25% to 7.75%.
The Bank had no standby letters of credit outstanding at March 31, 1999.
At March 31, 1998, the Bank had outstanding a standby letter of credit of
$150,000 with a fixed interest rate of 8.00%.
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 no commitments to sell loans at March 31, 1999. 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.
At March 31, 1999 and 1998, loans with a carrying value of $0 and
$81,757, 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, 1999 and 1998.
The Bank had no commitments to purchase mortgage-backed securities or
investment securities at March 31, 1999 and 1998.
17. 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-25
<PAGE>
17. Significant Concentrations of Credit Risk (Continued)
As of March 31, 1999, the Bank had a net investment of $23,802,225 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.
18. 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, 1999 and 1998, 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, 1999:
Balance, March 31, 1998 $ 91,334
New loans 14,055
Repayments (77,169)
Adjust for balances less than $60,000 (28,220)
----------
Balance, March 31, 1999 $ -
==========
19. 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-26
<PAGE>
20. 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.
Time deposits in financial institutions:
The fair value of fixed maturity certificates of deposit are estimated
using the rates currently offered for deposits of similar remaining
maturities.
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.
F-27
<PAGE>
20. 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, 1999 March 31, 1998
--------------------------- ---------------------------
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 $6,785 $6,785 $2,996 $2,996
Non-interest bearing 408 408 312 312
Time deposits in other financial institutions 500 500
Investment securities held-to-maturity 1,000 999 3,900 3,893
Investment securities available-for-sale 649 649 2,175 2,175
Mortgage-backed securities held-to-maturity 11,460 11,508 12,615 12,744
Loans receivable 23,802 24,319 25,573 26,249
Loans held-for-sale 82 82
Financial liabilities:
Deposits 35,078 35,123 35,538 35,541
Advances and borrowings from FHLB 3,000 2,925 5,196 5,161
Par Value Fair Value Par Value Fair Value
------------ ------------ ------------ ------------
(In Thousands) (In Thousands)
Unrecognized financial instruments:
Commitments to extend credit $ 210 $ 218 $ 221 $ 228
</TABLE>
21. Deposit Insurance
The Deposit Insurance Funds Act of 1996 authorized the recapitalization
of the Savings Associations Insurance Fund (SAIF) by imposing a one time
special assessment on institutions with SAIF assessable deposits. Such
assessment was at the rate of 0.657% and was imposed in order to
increase the reserve levels of the SAIF to 1.25% of insured deposits. On
September 30, 1996, the Bank recorded a pre-tax expense for this
assessment of $225,433. The Bank's annual deposit insurance rate in
effect prior to this recapitalization was 0.23% of insured deposits,
declining to 0.064% of insured deposits effective January 1, 1997.
F-28
<PAGE>
22. 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, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>
Assets 1999 1998
----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 86 $ 86
Investment in subsidiary 6,988 6,829
Loans receivable (subsidiary and ESOP) 227 548
Other 92 73
----------------- -----------------
Total assets $ 7,393 $ 7,536
================= =================
Stockholders' equity
Common stock $ 5 $ 5
Additional paid-in capital 4,846 4,812
Retained income 4,580 4,542
Net unrealized loss on available-for-sale securities (4)
Unamortized amounts related to ESOP and MSBP (287) (371)
Treasury stock (1,751) (1,448)
----------------- -----------------
Total stockholders' equity $ 7,393 $ 7,536
================= =================
</TABLE>
Condensed Statement of Operations
Year Ended March 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Equity earnings of subsidiary $ 511 $ 605 $ 419
Interest income 34 48 77
----------------- ----------------- -----------------
Total income 545 653 496
----------------- ----------------- -----------------
Other expenses 185 147 128
----------------- ----------------- -----------------
Income before income taxes 360 506 368
Income tax expense (benefit) (54) (30) (12)
----------------- ----------------- -----------------
Net income $ 414 $ 536 $ 380
================= ================= =================
</TABLE>
F-29
<PAGE>
22. Parent Company Financial Information (Continued)
Condensed Statement of Cash Flows
Year Ended March 31, 1999, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 414 $ 536 $ 380
Adjustments to reconcile net income to net cash
provided (used for) operating activities:
Equity in net income of subsidiary (511) (605) (419)
Increase in other assets (19) (29) (39)
Decrease in other liabilities (242)
Other non-cash items, net 23 22
--------------- --------------- ---------------
Net cash used by operating activities (93) (76) (320)
--------------- --------------- ---------------
Cash flow from investing activities:
Reduction of investment in subsidiary 450 450 250
Loans to subsidiary and ESOP, net 321 591 761
--------------- --------------- ---------------
Net cash provided by investing activities 771 1,041 1,011
--------------- --------------- ---------------
Cash flows from financing activities:
Cash dividends paid (375) (387) (210)
Purchase of treasury stock (303) (574) (473)
--------------- --------------- ---------------
Net cash provided used by financing activities (678) (961) (683)
--------------- --------------- ---------------
Increase in cash and cash equivalents - 4 8
Cash at beginning of year 86 82 74
--------------- --------------- ---------------
Cash at end of year $ 86 $ 86 $ 82
=============== =============== ===============
</TABLE>
23. Subsequent Event
The Company and the Bank have signed a stock purchase agreement, subject
to stockholder approval, with Local Oklahoma Bank, N.A. Upon
consummation of the agreement, the Company and the Bank will be acquired
by Local Oklahoma Bank through a share acquisition of all of the shares
of common stock of the Company and the Bank will be owned by Local
Oklahoma Bank and all current stockholders of the Company will receive a
cash payment for their shares.
F-30
<PAGE>
OFFICE LOCATION
CORPORATE OFFICE
Guthrie Savings, Inc.
120 North Division
Guthrie, Oklahoma 73044
<TABLE>
<CAPTION>
<S> <C>
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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 & Fisch, PC American Securities Transfer
One Franklin Square &
1301 K Street, N.W., Suite 700 East Trust, Inc.
Washington, D.C. 20005 1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
</TABLE>
The Company's Annual Report for the year ended March 31, 1999 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 20, 1999 at 5:00 p.m. at Guthrie Federal
Savings Bank, located on 120 N. Division , Guthrie, Oklahoma.
EXHIBIT 23
<PAGE>
MEMBERS OF
THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
[LOGO] REGIER CARR & MONROE, L.L.P. THE DIVISION FOR CPA FIRMS
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS POLARIS TM
INTERNATIONAL
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, 1999 in this Annual
Report on Form 10-KSB of Guthrie Savings, Inc. for the fiscal year ended March
31, 1999.
/s/Regier Carr & Monroe, L.L.P.
June 28, 1999
Wichita, Kansas
<TABLE>
<CAPTION>
<S> <C> <C> <C>
300 WEST DOUGLAS, SUITE 100 - WICHITA, IANSAS 67202-2994 - 316 264-2335 - FAX 316 264-1489
TUCSON - WICHITA - TULSA
www.rcmllp.com
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 408
<INT-BEARING-DEPOSITS> 7,278
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 648
<INVESTMENTS-CARRYING> 12,460
<INVESTMENTS-MARKET> 13,507
<LOANS> 24,142
<ALLOWANCE> 339
<TOTAL-ASSETS> 45,768
<DEPOSITS> 35,079
<SHORT-TERM> 0
<LIABILITIES-OTHER> 296
<LONG-TERM> 3,000
0
0
<COMMON> 5
<OTHER-SE> 7,388
<TOTAL-LIABILITIES-AND-EQUITY> 45,768
<INTEREST-LOAN> 2,208
<INTEREST-INVEST> 1,234
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,442
<INTEREST-DEPOSIT> 1,502
<INTEREST-EXPENSE> 1,721
<INTEREST-INCOME-NET> 1,721
<LOAN-LOSSES> 7
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,295
<INCOME-PRETAX> 676
<INCOME-PRE-EXTRAORDINARY> 676
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414
<EPS-BASIC> 1.10
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 3.74
<LOANS-NON> 312
<LOANS-PAST> 0
<LOANS-TROUBLED> 728
<LOANS-PROBLEM> 619
<ALLOWANCE-OPEN> 353
<CHARGE-OFFS> 23
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 339
<ALLOWANCE-DOMESTIC> 339
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 228
</TABLE>
