UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25854
GFSB BANCORP, INC.
(Name of Small Business Issuer in its Charter)
Delaware 04-2095007
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
221 West Aztec Avenue, Gallup, New Mexico 87301
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (505) 722-4361
Check whether the issuer (1) 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 [ ]
As of May 2, 1996, there were issued and outstanding 948,750 shares of the
registrant's Common Stock.
<PAGE>
GFSB Bancorp, Inc.
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Statements of Financial Condition
March 31, 1996 and June 30, 1995 3
Consolidated Statements of Earnings
Three months and nine months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Nine months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Page 2
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,783,772 $ 4,914,517
Available-for-sale investment securities, at market value 2,755,848 3,676,955
Mortgage-backed securities:
Held-to-maturity, at amortized cost - 1,079,594
Available for sale, at market value 24,147,942 9,659,475
Stock of Federal Home Loan Bank, at cost,
restricted 542,700 441,700
Loans receivable, net 35,170,160 32,339,124
Accrued interest receivable 404,383 219,964
Premises and equipment, net 496,966 473,419
Prepaid income taxes 61,825 61,825
Prepaid and other assets 58,800 38,194
------------- -------------
TOTAL ASSETS $ 70,422,396 $ 52,904,767
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 43,256,433 $ 36,602,504
Accrued interest payable 110,672 58,143
Advances from Federal Home Loan Bank 10,000,000 -
Advances from borrowers for taxes
and insurance 341,905 266,814
Accounts payable and accrued liabilities 87,869 124,216
Deferred income taxes 135,754 98,337
Accrued income taxes 178,429 -
Dividends declared 94,875 -
------------- -------------
TOTAL LIABILITIES 54,205,937 37,150,014
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 2,000,000
shares authorized; 948,750 issued and
outstanding 94,875 94,875
Preferred stock, $.10 par value, 500,000
shares authorized; no shares issued or
outstanding - -
Additional paid-in-capital 9,027,931 9,020,623
Unearned ESOP stock (541,140) (560,000)
Retained earnings, substantially
restricted 7,400,462 7,037,557
Unrealized gain on available for sale
securities, net of taxes 234,331 161,698
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 16,216,459 15,754,753
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,422,396 $ 52,904,767
============= =============
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
(Unaudited (Unaudited) (Unaudited) (Unaudited)
Interest income
Loans receivable
<S> <C> <C> <C> <C>
Mortgage loans $ 716,700 $ 627,680 $ 2,106,253 $ 1,889,384
Commercial loans 56,441 73,808 157,864 146,409
Share and consumer loans 28,441 20,337 82,503 60,347
Investment securities and
mortgage-backed securities 440,909 184,404 1,097,555 461,512
Other interest-earning assets 38,714 8,464 132,710 47,591
----------- ----------- ----------- -----------
TOTAL INTEREST EARNINGS 1,281,205 914,693 3,576,885 2,605,243
Interest expense
Deposits 518,207 426,077 1,516,409 1,185,115
Advances from Federal Home
Loan Bank 140,727 2,970 188,951 4,207
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 658,934 429,047 1,705,360 1,189,322
----------- ----------- ----------- -----------
NET INTEREST EARNINGS 622,271 485,646 1,871,525 1,415,921
Provision for loan losses - 4,000 28,099 91,000
----------- ----------- ----------- -----------
NET INTEREST EARNINGS AFTER
PROVISION FOR LOAN LOSSES 622,271 481,646 1,843,426 1,324,921
Non-interest earnings
Income from real estate
operations - 2,000 3,300 6,396
Service charge income 6,191 - 11,982 -
Miscellaneous income 446 127 9,627 240
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EARNINGS 6,637 2,127 24,909 6,636
Non-interest expense
Compensation and benefits 177,445 115,224 418,623 337,175
Professional fees 53,307 12,441 122,959 117,480
Occupancy 25,126 17,401 80,677 50,292
Advertising 10,481 2,358 25,649 6,989
Data processing 20,824 17,369 64,664 48,440
Insurance 26,387 25,201 76,541 72,680
Other 42,671 36,041 119,027 90,366
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE 356,241 226,035 908,140 723,422
</TABLE>
Page 4
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES 272,667 257,738 960,195 608,135
Income tax expense 112,984 93,387 359,795 256,158
----------- ----------- ----------- -----------
NET EARNINGS $ 159,683 $ 164,351 $ 600,400 $ 351,977
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 894,636 - 893,381 -
EARNINGS PER COMMON SHARE $ 0.18 $ - $ 0.67 $ -
=========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 5
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GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Nine months ended
March 31,
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 600,400 $ 351,976
Adjustments to reconcile net earnings to
net cash provided by operations
Deferred loan origination fees (86,330) (59,840)
Gain on sale of sold loans (7,414) (6,460)
Provision for loan losses and losses on
real estate 28,099 91,000
Depreciation of premises and equipment 39,256 24,247
Amortization of investment and mortgage-
backed securities premiums 85,753 34,507
Stock dividends on FHLB stock (49,800) (17,700)
ESOP contribution - compensation
cost - release of ESOP shares 26,168 -
Provision for deferred income taxes - 11,008
Net changes in operating assets and liabilities
Accrued interest receivable (184,419) (30,917)
Prepaid taxes - (45,776)
Prepaid and other assets (20,606) (122,729)
Accrued interest payable 52,529 22,540
Accounts payable and accrued liabilities (36,347) (22,036)
Income taxes payable 178,429 19,925
------------- -------------
Net cash provided by operating activities 625,718 249,745
Cash flows from investing activities
Purchase of premises and equipment (62,803) (12,277)
Loan originations and principal
repayment on loans, net (2,765,391) (2,015,958)
Principal payments and maturities on
mortgage-backed securities 2,342,106 890,713
Purchases of mortgage-backed securities (15,840,882) (1,689,044)
Purchase of FHLB stock (51,200) -
Purchase of U.S. Agency Securities, FHLB
Debentures, and bonds - (1,796,328)
Maturities and proceeds from sale of FHLB
Debentures, U.S. Agency Securities,
and bonds 1,035,000 400,000
------------ -------------
Net cash used by investing activities (15,343,170) (4,222,894)
</TABLE>
Page 6
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Nine months ended
March 31,
1996 1995
(Unaudited) (Unaudited)
------------ -------------
Cash flows from financing activities
Net increase in NOW accounts, business
checking, passbook savings, money market
<S> <C> <C>
accounts, and certificates of deposit $ 6,653,929 $ 2,766,218
Net increase in mortgage escrow funds 75,091 (45,139)
Proceeds from FHLB advances 10,000,000 400,000
Repayments on FHLB advances - (400,000)
Dividends paid in cash (142,313) -
------------ -------------
Net cash provided by financing activities 16,586,707 2,721,079
------------ -------------
Increase in cash and cash equivalents 1,869,255 (1,252,070)
Cash and cash equivalents at beginning of period 4,914,517 2,149,823
------------ -------------
Cash and cash equivalents at end of period $ 6,783,772 $ 897,753
============ =============
Supplemental disclosures
Cash paid during the period for
Interest on deposits and advances $ 1,652,831 $ 1,166,782
Income taxes 161,954 282,000
Unrealized gain (loss), net of deferred taxes
for implementation of FASB #115 72,633 (9,201)
Dividends declared not yet paid 94,875 -
Transfers from/to loans to/from real estate
acquired through foreclosure - 75,377
</TABLE>
See notes to consolidated financial statements.
Page 7
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair statement of the results
for the interim periods. The financial statements included herein have been
prepared by the Bank pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principals have been
condensed or omitted pursuant to such rules and regulations, although the
Bank believes that the disclosures included herein are adequate to make the
information presented not misleading.
The organization and business of the Bank, accounting policies followed by
the Bank and other information are contained in the notes to the Bank's
financial statements filed as part of the Bank's June 30, 1995 Form 10-KSB.
This quarterly report should be read in conjunction with such annual
report.
2. Dividends. During the quarter ended December 31, 1995, the Board of
Directors declared a cash dividend of $0.15 per share on the Company's
outstanding common stock, payable to stockholders of record as of December
31, 1995. The dividends were paid in January, 1996. As required by SOP
93-6, dividends on unallocated ESOP shares have been recorded as
compensation cost rather than a reduction of retained earnings.
During the quarter ended March 31, 1996, the Board of Directors declared a
quarterly cash dividend of $0.10 per share on the Company's outstanding
common stock, payable to stockholders of record as of March 31, 1996. The
dividends were paid in April, 1996.
3. Employee Stock Option Plan. On December 31, 1995, the Company released
1,886 shares of its common stock owned by the Company's ESOP that were
committed to be released. The release of the shares resulted in $26,168 of
additional compensation cost.
4. Management Stock Bonus Plan. On March 19, 1996, the Company received
approval from the Office of Thrift Supervision to implement the Company's
Stock Bonus Plan. In late April the Plan purchased 37,950 shares of common
stock to be distributed in accordance with the Plan.
Page 8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
GFSB Bancorp, Inc., is the 100% owner of Gallup Federal Savings Bank ("the
Bank"), and the Bank is currently the only entity with which the holding company
has an ownership interest. The Bank is primarily engaged in the business of
accepting deposit accounts from the general public and using such funds to
originate mortgage loans for the purchase and refinancing of one-to four-family
homes located in its primary market area. The Bank also originates multi-family,
commercial real estate, construction, consumer and commercial business loans.
The Bank also purchases mortgage-backed and investment securities. The largest
components of the Bank's net earnings are net interest income, which is the
difference between interest income and interest expense, and noninterest income
derived primarily from fees. Consequently, the Bank's earnings are dependent on
its ability to originate loans, net interest income, and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Bank's net
earnings is also affected by its provision for loan losses and foreclosed real
estate as well as the amount of other expense, such as compensation and benefit
expense, occupancy and equipment expense and deposit insurance premium expenses.
Earnings of the Bank also are affected significantly by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities. The disparity in
premiums paid by BIF and SAIF insured institutions will also adversely impact
the Bank.
Several alternatives to mitigate the effect of the BIF/SAIF insurance premium
disparity have recently been proposed by the U.S. Congress, federal regulators,
industry lobbyists and the Administration. One plan that has gained support of
several sponsors would require all SAIF member institutions, including the Bank,
to pay a one-time assessment of up to 85 to 90 basis points on the amount of
deposits held by the member institution to recapitalize the SAIF. If this
proposal is enacted by Congress, the effect would be to immediately reduce the
capital of the SAIF-member institutions by the amount of the fee, and such
amount would be immediately charged to earnings. If a requirement was
implemented as of March 31, 1995 (the date contained in some recently proposed
legislation for the Bank to pay a one-time assessment of .90% of insured
deposits), the amount of such assessment would be approximately $340,000.
Management of the Bank is unable to predict whether this proposal or any similar
proposal will be enacted or whether ongoing SAIF premiums will be reduced to a
level equal to that of BIF premiums.
Management Strategy
Management's strategy has been to monitor interest rate risk, by asset and
liability management, and maintain asset quality while enhancing earnings and
profitability. The Bank's strategy has been primarily to make loans and
secondarily to invest remaining funds in mortgage-backed securities and
investment securities. The Bank's purchase of mortgage-backed securities and
investment securities is designed primarily for safety of principal and
secondarily for rate of return. The Bank's lending strategy has historically
focused on the origination of traditional one- to four-family mortgage loans
primarily secured by one- to four-family residences in the Bank's primary market
area. These loans typically have fixed rates. The Bank also invests a portion of
its assets in construction, consumer, commercial business, multi-family and
commercial real estate loans as a method of enhancing earnings and profitability
while also reducing interest rate risk. Since 1994, the Bank has actively
originated commercial business loans and increased its origination of commercial
real estate loans and construction loans. These loans typically have adjustable
interest rates and are for shorter terms than residential first mortgage loans.
The Bank has limited experience with these types of loans, and this type of
lending generally has more risk than residential lending. Investment securities
in the Bank's portfolio typically have shorter terms to maturity than
residential first mortgage loans. As part of its asset/liability management
strategy, the Bank sells its fixed rate mortgage loans with terms over 15 years
into the secondary market. The Bank has sought to remain competitive in its
market by offering a variety of products. The Bank attempts to manage the
interest rates it pays on deposits while maintaining a stable deposit base and
providing quality services to its customers.
During the past few years the competing financial institutions located in
Gallup have all been acquired by statewide and regional bank holding companies.
As a result, as of 1995, the Bank is the only local institution headquartered
and managed in Gallup, New Mexico. The Bank believes that its "hometown"
advantage will provide an opportunity to expand its operations as the only local
independent financial institution and that the reorganization to the holding
Page 9
<PAGE>
company format and the capital raised from the conversion will enable it
to take advantage of this opportunity. It intends to use the new structure and
capital to expand both the amount and scope of its current lending and
investment activities. The Bank also believes that it has a unique ability to
grow as a result of the relatively large retail and wholesale businesses
specializing in Indian jewelry. In addition, the Bank is exploring methods of
increasing its business with the large Native American population located in the
nearby Navajo and Zuni Pueblo Indian reservations.
Asset and Liability Management
In an effort to reduce interest rate risk and protect it from the negative
effect of rapid increases and decreases in interest rates, the Bank has
instituted certain asset and liability management measures including selling
fixed rate mortgage loans with terms over 15 years. See "-Management Strategy."
The Bank, like many other thrift institutions, is exposed to interest rate risk
as a result of the difference in the maturity of interest-bearing liabilities
and interest-earning assets and the volatility of interest rates. Most deposit
accounts react more quickly to market interest rate movements than do the
existing mortgage loans because of their shorter terms to maturity; sharp
decreases in interest rates would typically positively affect the Bank's
earnings. Conversely, this same mismatch will generally adversely affect the
Bank's earnings during periods of inclining interest rates. Generally, market
interest rates declined between 1991 and 1993. By the latter part of 1993,
interest rates on U.S. treasury bonds and home mortgage loans had declined to
lower levels than had been experienced in the prior ten years. During 1994
general market interest rates, including rates charged on mortgage loans and
rates paid on deposits, increased. General market interest rates decreased
during 1995, and then showed an increase during the first quarter of 1996.
During the low interest rate environment that existed from 1991 through 1993,
the Bank, like other financial institutions, experienced a significant increase
in homeowners seeking to refinance their existing mortgages. This trend resulted
in a decrease in the yield on the Bank's interest earning assets, namely the
loan portfolio and mortgage-backed securities portfolios. The net interest rate
spread may decrease if deposits reprice upward more rapidly than interest
earning assets.
FINANCIAL CONDITION
The Bank's total assets increased $17.5 million or 33% from $52.9 million at
June 30, 1995 to $70.4 million at March 31, 1996. This increase is the result of
a $13.4 million increase in mortgage-backed securities, and a $2.7 million
increase in the Bank's net loan portfolio. These increases are offset by a
decrease in cash and cash equivalents of $1.8 million. The majority of the
increases are directly attributable to efforts of Management to take advantage
of the increased capital infusion made as a result of the conversion from a
mutual to stock form of ownership through increased investment and lending
activity. During the same period, deposits increased $6.6 million from $36.6
million at June 30, 1995 to $43.2 million at March 31, 1996. This increase is
primarily due to the Bank now offering NOW accounts and business checking
accounts to its customers. The Bank had $234,000 and $162,000 in unrealized
gains (net of deferred taxes) at March 31, 1996 and June 30, 1995, respectively
from market gains on the Bank's investment and mortgage-backed portfolios.
Unrealized gains and losses do not impact the Bank's financial statements until
they are realized.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR QUARTER ENDED MARCH 31, 1996 COMPARED TO
QUARTER ENDED MARCH 31, 1995
General
Net earnings decreased $5,000 or 3% for the quarter ended March 31, 1996 from
the quarter ended March 31, 1995. This decrease is primarily the result of an
increase in non-interest expense of $130,000 offset by an increase in net
interest earnings of $141,000 and an increase in income taxes of $20,000.
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<PAGE>
Total Interest Earnings
Total interest income increased $367,000 or 40.11% from $915,000 for the quarter
ended March 31, 1995 to $1.3 million for the quarter ended March 31, 1996. The
increase was primarily due to a $13.4 million increase in the Bank's
mortgage-backed securities portfolio and some general increases in interest
rates.
Interest Expense
Total interest expense increased $230,000 or 53.61% from $429,000 for the
quarter ended March 31, 1995 to $659,000 for the quarter ended March 31, 1996.
This increase was due to a general increase in the deposit base including the
addition of NOW accounts, higher rates on deposit products, and a substantial
increase in borrowings.
Provision for Losses on Loans
The Bank maintains an allowance for loan losses based upon management's periodic
evaluation of known and inherent risks in the loan portfolio, past loss
experience, adverse situations that may affect the borrowers' ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The allowance for loan losses was $311,000 and $307,000 at
March 31, 1996 and 1995, respectively. The provision for loans was $0.00 and
$4,000 for the quarters ended March 31, 1996 and 1995, respectively. Based on a
historical trend of limited losses on residential loans, the amount of the loan
loss provision allocated to residential loans remained relatively stable for the
two periods. While the Bank maintains its allowance for losses at a level which
it considers to be adequate, there can be no assurance that further additions
will not be made to the loss allowances and that such losses will not exceed the
estimated amounts. The establishment of a loan loss provision each period
adversely impacts the Bank's net earnings.
Non-Interest Expense
Total non-interest expense increased $130,000 or 57.52% from $226,000 for the
quarter ended March 31, 1995 to $356,000 for the quarter ended March 31, 1996.
This increase was primarily due to an increase in compensation and benefits of
$62,000, an increase in professional fees of $41,000, an increase in other
expenses of $7,000, and an increase in occupancy costs of $7,000. The increase
in professional fees is due to the increased reporting requirements resulting
from the conversion. The increase in compensation and benefits was the result of
the addition of a senior operating officer. The increase in other expenses is
due to increased supplies, travel, and phone expenses due to the conversion.
COMPARISON OF OPERATING RESULTS FOR NINE MONTH PERIOD ENDED MARCH 31, 1996
COMPARED TO NINE MONTH PERIOD ENDED MARCH 31, 1995
General
Net earnings increased $248,000 or 70.45% for the nine month period ended March
31, 1996 from the nine month period ended March 31, 1995. This increase is
primarily the result of an increase in interest earnings of $971,000 and a
decrease in the provision for loan losses of $63,000, offset by an increase in
interest expense of $516,000 and an increase in non-interest expense of
$185,000.
Total Interest Earnings
Total interest income increased $971,000 or 36% from $2.6 million for the nine
month period ended March 31, 1995 to $3.6 million for the nine month period
ended March 31, 1996. The increase was primarily due to a $13.4 million increase
in the Bank's mortgage-backed securities portfolio, a $2.7 million increase in
loan portfolio and some general increases in interest rates.
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<PAGE>
Interest Expense
Total interest expense increased $516,000 or 43% from $1.2 million for the nine
month period ended March 31, 1995 to $1.7 million for the nine month period
ended March 31, 1996. This increase was due to a general increase in the deposit
base including the addition of NOW accounts, higher rates on deposit products,
and a substantial increase in borrowings.
Non-Interest Expense
Total non-interest expense increased $185,000 or 26% from $723,000 for the nine
month period ended March 31, 1995 to $908,000 for the nine month period ended
March 31, 1996. This increase was primarily due to an increase in compensation
and benefits of $81,000, an increase in other expenses of $29,000, an increase
in data processing costs of $17,000, an increase in advertising costs of
$18,000, and an increase in occupancy costs of $31,000. The increase in
compensation and benefits was the result of the addition of a senior operating
officer. The increase in other expense, advertising, and occupancy is due to
increased activity due to the conversion.
Liquidity and Capital Resources
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 institution maintain liquid assets of not
less than 5% of its average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less, of which short-term liquid assets
must consist of not less than 1%. At March 31, 1996, the Bank's liquidity, as
measured for regulatory purposes, was 13.25%. The Bank adjusts liquidity as
appropriate to meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities, maturities of investment securities and
funds provided from operations. While scheduled loan repayments are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed security
prepayments are significantly influenced by general interest rates, economic
conditions and competition. In addition, the Bank invests excess funds in
overnight deposits which provide liquidity to meet lending requirements.
The Bank's most liquid assets are cash and cash equivalents, which include
investments in highly liquid short-term investments. The level of these assets
are dependent on the Bank's operating, financing, and investing activities
during any given period. At March 31, 1996, cash and cash equivalents totaled
$6.8 million. The Bank has other sources of liquidity if a need for additional
funds arise. Additional sources of funds include FHLB of Dallas advances and the
ability to borrow against mortgage-backed and other securities. At March 31,
1996, the Bank had $10 million in outstanding borrowings from the FHLB of
Dallas. These outstanding borrowings were used to purchase additional
mortgage-backed securities as a means of enhancing earnings.
The primary investment activity of the Bank is the origination of loans,
primarily mortgage loans. During the quarter ended March 31, 1996, the Bank
originated $5.7 million in total loans, of which $3.6 million were mortgage
loans. Another investment activity of the Bank is the investment of funds in
U.S. Government Agency securities, mortgage-backed securities, federal funds and
FHLB-Dallas overnight funds. During periods when the Bank's loan demand is
limited, the Bank may purchase short-term investment securities to obtain a
higher yield than otherwise available.
The Bank's cash flows are comprised of three primary classifications: cash flows
from operating activities, investing activities and financing activities. Cash
flows from operating activities, consisting principally of interest and
dividends received less interest paid on deposits, were $626,000 and $244,000
for the nine month periods ended March 31, 1996 and 1995, respectively. Net cash
used for investing activities consisted primarily of disbursement of loan
originations and investment in mortgage-backed security purchases, offset by
principal collections on loans and proceeds from the maturities of investment
securities. Such uses were $15.3 million and $4.2 million for the nine month
periods ended March 31, 1996 and 1995, respectively. Net cash provided from
financing activities consisting primarily of net activity in deposit and escrow
accounts and new FHLB borrowings, were $16.6 million and $2.7 million for the
nine month periods ended March 31, 1996 and 1995, respectively.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. As of March 31, 1996, the Bank had commitments to fund
loans of $3.3 million. Certificates of deposit scheduled to mature in one year
or less totaled $17.8 million. Based on historical withdrawals and outflows, and
on internal monthly deposit
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reports monitored by management, management believes
that a majority of deposits will remain with the Bank. As a result, no adverse
liquidity effects are expected.
At March 31, 1996, the Bank exceeded each of the three OTS capital requirements
on a fully-phased-in basis.
Impact of Certain Accounting Standards
Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to be Disposed of." This Statement
will be effective for the Bank for the fiscal year ended June 30, 1997. This
statement established standards for the impairment of long-lived assets and
requires that long-lived assets held by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. The Statement also requires that long-lived
assets to be disposed of be reported at the lower of carrying value or fair
value less cost to sell. This Statement is not anticipated to have a material
impact on the Bank's financial condition.
Accounting for Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights." This Statement amends FASB No. 65, "Accounting for Certain Mortgage
Banking Activities." This Statement requires that mortgage banking enterprises
recognize as separate assets right to service mortgage loans for others, however
those servicing rights are acquired. Mortgage banking enterprises that acquire
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values if it is practicable to estimate those fair values. This Statement
applies to fiscal years beginning after December 31, 1995. The Bank currently
does not retain servicing rights on sold loans, therefore, this Statement is not
anticipated to have a material impact on the Bank's financial condition.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
Page 13
<PAGE>
GFSB BANCORP, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GFSB BANCORP, INC.
Date: May 13, 1996 \s\ Jerry R. Spurlin
Jerry R. Spurlin
President
(Duly Authorized Representative and
Principal Financial Officer)
Page 14
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<ARTICLE> 9
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-END> MAR-31-1996 JUN-30-1995
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0 0
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