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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 September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-25854
GFSB BANCORP, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 04-2095007
- ------------------------------------------------ -------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
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
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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 November 12, 1996, there were issued and outstanding 901,313 shares of the
registrant's Common Stock.
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<PAGE>
GFSB Bancorp, Inc.
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Statements of Financial Condition
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Earnings
Three months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,598,242 $ 1,671,053
Interest-bearing deposits with banks 1,509,599 1,346,141
Federal funds sold 150,000 150,000
Available-for-sale investment securities 4,195,390 4,572,647
Available-for-sale mortgage-backed securities 29,273,575 25,245,896
Stock of Federal Home Loan Bank, at cost, restricted 808,100 550,600
Loans receivable, net, substantially pledged 41,147,834 38,727,535
Accrued interest and dividend receivable 433,745 400,316
Premises and equipment 539,532 537,042
Prepaid and other assets 52,117 49,405
----------- -----------
TOTAL ASSETS $79,708,134 73,250,635
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Transaction accounts $ 4,117,198 $ 3,239,079
Savings and now deposits 11,386,823 10,758,974
Time deposits 32,496,279 31,991,757
Accrued interest payable 139,219 103,507
Advances from borrowers for taxes and insurance 281,421 174,532
Accounts payable and accrued liabilities 367,600 172,717
Deferred income taxes 125,477 81,087
Dividends declared and payable 90,131 402,577
Advances from Federal Home Loan Bank 15,946,000 10,854,000
Income taxes payable 12,682 108,929
----------- -----------
TOTAL LIABILITIES 64,962,830 57,887,159
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 2,000,000
shares authorized; 901,313 issued and
outstanding 86,336 91,080
Preferred stock, $.10 par value, 500,000
shares authorized; no shares issued or
outstanding - -
Additional paid-in-capital 7,827,969 8,486,822
Unearned ESOP stock (532,000) (541,333)
Retained earnings, substantially
restricted 7,149,282 7,199,360
Unrealized gain on available for sale
securities, net of taxes 213,717 127,547
TOTAL STOCKHOLDERS' EQUITY 14,745,304 15,363,476
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $79,708,134 $73,250,635
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended
September 30,
-----------------------------
1996 1995
-----------------------------
(Unaudited) (Unaudited)
Interest income
Loans receivable
Mortgage loans $ 810,743 $ 684,817
Commercial loans 47,116 52,557
Share and consumer loans 37,926 27,586
Available-for-sale investment securities
and mortgage-backed securities 517,348 313,111
Other interest-earning assets 47,216 45,055
---------- ----------
TOTAL INTEREST EARNINGS 1,460,349 1,123,126
Interest expense
Deposits 580,320 479,608
Advances from Federal Home Loan Bank 205,514 0
---------- ----------
TOTAL INTEREST EXPENSE 785,834 479,608
---------- ----------
NET INTEREST EARNINGS 674,515 643,518
Provision for loan losses 5,288 12,205
---------- ----------
NET INTEREST EARNINGS AFTER
PROVISION FOR LOAN LOSSES 669,227 631,313
Non-interest earnings
Income from real estate operations 0 1,650
Miscellaneous income 695 31
Net gains from sales of loans 4,942 0
Service charge income 8,580 304
---------- ----------
TOTAL NON-INTEREST EARNINGS 14,217 1,985
Non-interest expense
Compensation and benefits 187,324 109,126
Professional fees 28,842 20,910
Occupancy 32,109 23,677
Advertising 10,620 3,720
Data processing 23,498 26,182
Insurance 279,465 25,501
Other 63,193 28,337
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TOTAL NON-INTEREST EXPENSE 625,051 237,453
4
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
Three months ended
September 30,
-----------------------------
1996 1995
-----------------------------
(Unaudited) (Unaudited)
EARNINGS BEFORE INCOME TAXES 58,393 395,845
Income tax expense 23,753 129,365
---------- ----------
NET EARNINGS $ 34,640 $ 266,480
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 874,805 892,750
EARNINGS PER COMMON SHARE $ 0.04 $ 0.30
========== ==========
5
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Three months ended
September 30,
-----------------------------
1996 1995
----------- ----------
(Unaudited) (Unaudited)
Cash flows from operating activities
<S> <C> <C>
Net earnings $ 34,640 $ 266,480
Adjustments to reconcile net earnings to
net cash provided (used) by operations
Deferred loan origination fees (34,951) (22,851)
Gain on sale of sold loans (4,942) (4,538)
Provision for loan losses 5,288 12,205
Depreciation of premises and equipment 16,330 11,392
Amortization of investment and mortgage-
backed securities premiums (discounts 36,525 31,004
Stock dividends on FHLB stock (10,800) (7,100)
Stock compensation 14,140 0
ESOP Stock committted to be released 13,533 0
Net changes in operating assets and liabilities
Accrued interest receivable (33,429) (114,018)
Prepaid and other assets (2,713) 21,164
Accrued interest payable 35,712 2,098
Accounts payable and accrued liabilities 180,743 (61,319)
Income taxes payable (96,247) 109,368
Dividends declared and payable (312,444) 0
----------- ----------
Net cash provided (used) by
operating activities (158,615) 243,885
Cash flows from investing activities
Purchase of premises and equipment (18,820) (13,535)
Loan originations and principal
repayment on loans, net (2,385,694) (1,099,463)
Principal payments on mortgage-backed
securities 1,148,390 495,338
Purchases of mortgage-backed securities (5,174,111) (4,257,136)
Purchases of U.S. Agency Securities, FHLB
Debentures, bonds, and mutual funds (30,666) 0
Maturities and proceeds from sale of FHLB
Debentures, U.S. Agency Securities,
certificates of deposit, and bonds 500,000 435,000
Purchase of FHLB stock (246,700) 0
----------- ----------
Net cash provided (used) by
investing activities (6,207,601) (4,439,796)
</TABLE>
6
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Three months ended
September 30,
1996 1995
----------- ----------
(Unaudited) (Unaudited)
Cash flows from financing activities
Net increase in demand deposits, passbook
savings, money market accounts, and
<S> <C> <C>
certificates of deposit $ 2,010,490 $ 1,622,749
Net increase (decrease) in mortgage escrow funds 106,889 81,375
Proceeds from FHLB advances 17,834,910 0
Repayments on FHLB advances (12,742,910) 0
Dividends paid or to be pai (84,718) 0
Purchase of retired treasury stock (667,798) 0
------------ ----------
Net cash provided by
financing activities 6,456,863 1,704,124
Increase (decrease) in cash and cash equivalents 90,647 (2,491,787)
Cash and cash equivalents at beginning of period 3,167,194 4,914,517
Cash and cash equivalents at end of period $ 3,257,841 2,422,730
=========== =========
Supplemental disclosures
Cash paid during the period for
Interest on deposits and advances $ 750,124 $ 477,510
Income taxes 120,000 20,000
Change in unrealized gain (loss), net of deferred
taxes for implementation of FASB #115 86,170 49,867
</TABLE>
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 Company 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 principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures included herein are adequate to make
the information presented not misleading.
The organization and business of the Company, accounting policies followed
by the Company and other information are contained in the notes to the
Company's financial statements filed as part of the Company's June 30,
1996, Form 10-KSB. This quarterly report should be read in conjunction with
such annual report.
2. Dividends
---------
During the quarter ended June 30, 1996, the Board of Directors declared a
cash dividend of $0.10 per share and a special dividend of $0.35 per share,
on the Company's outstanding common stock, payable to stockholders of
record as of June 30, 1996. The dividends were paid in July, 1996.
During the quarter ended September 30, 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 September
30, 1996. The dividends were paid in October, 1996.
As required by SOP 93-6, the dividends on unallocated ESOP shares have been
recorded as an additional $5,000 compensation cost rather than a reduction
of retained earnings.
3. Employee Stock Option Plan
--------------------------
On September 30, 1996, the Company was committed to release 933.333 shares
of its common stock owned by the Company's ESOP. The commitment resulted in
$14,000 of additional compensation cost.
4. Management Stock Bonus Plan
---------------------------
On January 5, 1996, the Company made awards under the Plan in the amount of
20,382 shares. The shares were awarded at a price of $13 7/8 per share. At
June 30, 1996, 17,568 shares remained to be awarded under the Plan. Awards
under the Plan are earned at the rate of one-fifth of the award per year as
of the one-year anniversary of the effective date of the Plan. As a result,
at September 30, 1996, a liability and corresponding compensation cost in
the amount of $14,000 has been recorded under the provisions of the Plan.
5. BIF/SAIF Insurance Premium
--------------------------
As a result of Congress' ruling in September, 1996, all SAIF member
institutions, including the Bank, are to pay a one-time assessment. The
effect of this is to immediately reduce the capital of the SAIF member
institution by the amount of the fee, and such amount is immediately
charged to earnings. The estimated assessment amount the Bank will pay is
$250,000. This amount has been charged to earnings for the quarter ended
September 30, 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
8
<PAGE>
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 as well as the amount
of other expense, such as compensation and benefit expense, occupancy 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
has also adversely impacted the Bank.
In September, 1996, Congress enacted a plan to mitigate the effect of the
BIF/SAIF insurance premium disparity. This plan requires all SAIF member
institutions, including the Bank, to pay a one-time assessment to recapitalize
the SAIF. The effect of this is to immediately reduce the capital of the SAIF
member institution by the amount of the fee, and such amount is immediately
charged to earnings. The estimated assessment amount the Bank will pay is
$250,000 which is 65.7 basis points on the amount of deposits held by the Bank.
The amount has been charged to earnings for the quarter ended September 30,
1996.
Beginning January 1, 1997, deposit insurance assessments for SAIF members are
expected to be reduced to approximately .064% of deposits on an annual basis
through the end of 1999. During this same period, BIF members (predominantly
composed of commercial banks) are expected to be assessed approximately .013% of
deposits. Thereafter, assessments for BIF and SAIF members should be the same
and SAIF and BIF may be merged. As a result of these changes, beginning January
1, 1997, the rate of deposit insurance assessed the Bank will decline by
approximately 70%.
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
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
9
<PAGE>
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.
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 $6.4 million or 8.7% from $73.3 million at
June 30, 1996 to $79.7 million at September 30, 1996. This increase is the
result of a $4.0 million increase in mortgage-backed securities, a $2.4 million
increase in the Bank's net loan portfolio, and an increase in cash and cash
equivalents of $91,000. 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 and from FHLB borrowings.
During the same period, deposits increased $2.0 million from $46.0 million at
June 30, 1996, to $48.0 million at September 30, 1996. This increase is
primarily due to an increase in the Bank's volume of NOW accounts and business
checking accounts. The Bank had $214,000 and $128,000 in unrealized gains (net
of deferred taxes) at September 30, 1996 and June 30, 1996, 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 SEPTEMBER 30, 1996 COMPARED
TO QUARTER ENDED SEPTEMBER 30, 1995
General
Net earnings decreased $232,000 or 87.0% for the quarter ended September 30,
1996 from the quarter ended September 30, 1995. This decrease is primarily the
result of an increase in non-interest expense of $388,000 offset by an increase
in net interest earnings of $31,000 and a decrease in income taxes of $105,000.
Interest Earnings
Total interest income increased $337,000 or 30.6% from $1.1 million for the
quarter ended September 30, 1995 to $1.5 million for the quarter ended September
30, 1996. The increase in this twelve month period was primarily due to a $14.7
million increase in the Bank's mortgage-backed securities portfolio and some
general increases in interest rates.
Interest Expense
Total interest expense increased $306,000 or 63.8% from $480,000 for the quarter
ended September 30, 1995
10
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to $786,000 for the quarter ended September 30, 1996. This increase was due to a
substantial increase in FHLB borrowings, a general increase in the deposit base
including the increase in volume of NOW accounts and higher rates on deposit
products.
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 borrower's ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The allowance for loan losses was $312,000 and $327,000 at
September 30, 1996 and 1995, respectively. The provision for loans was $5,000
and $12,000 for the quarters ended September 30, 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 $388,000 or 163.7% from $237,000 for the
quarter ended September 30, 1995 to $625,000 for the quarter ended September 30,
1996. This increase was primarily due to an increase in compensation and
benefits of $78,000, an increase in professional fees of $8,000, an increase in
other expenses of $35,000 an increase in occupancy costs of $8,000 and an
increase in insurance costs of $254,000. 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, additional staff and current year accruals for stock-based
compensation plans. The increase in other expenses is due to increased supplies,
travel and phone expenses and stock services due to the conversion. The increase
in insurance is due to the one-time assessment of $250,000 due to be paid by the
Bank to meet the requirements set forth by Congress to recapitalize the SAIF.
Income Tax Expense
Income tax expense decreased $105,000 or 81.4% from $129,000 for the quarter
ended September 30, 1995 to $24,000 for the quarter ended September 30, 1996.
This decrease is directly attributable to the decrease in pre-tax earnings of
$337,000.
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 September 30, 1996, the Bank's liquidity,
as measured for regulatory purposes, was 10.13%. 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 September 30, 1996, cash and cash equivalents
totaled $3.3 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 September 30, 1996, the Bank had $15.9 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 September 30, 1996, the Bank
originated $3.7 million in total loans, of which $2.8 million were
11
<PAGE>
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 provided in operating activities, consisting principally of disbursements
of interest and dividends less interest paid on deposits, were $244,000 for the
three month period ended September 30, 1995 and cash flows provided by operating
activities were $159,000 for the three month period ended September 30, 1996.
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 $6.2 million and $4.4 million for the three month
periods ended September 30, 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 $6.5 million and $1.7 million for the
three month periods ended September 30, 1996 and 1995 respectively.
The Bank anticipates that it will have sufficient funds available to meet its
current commitments. As of September 30, 1996, the Bank had commitments to fund
loans of $1.8 million. Certificates of deposit scheduled to mature in one year
or less totaled $19.7 million. Based on historical withdrawals and outflows, and
on internal monthly deposit 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 September 30, 1996, the Bank exceeded each of the three OTS capital
requirements on a fully-phased-in basis.
Stock Repurchase Program
In August, 1996, the Company repurchased 47,347 shares, or 5%, of the Company's
common stock. The Company has decided to retire these shares at the advice of
special counsel.
On October 11, the Company issued a press release announcing its intention to
repurchase up to 15% (142,312 shares) of the Company's common stock. The press
release indicated that the repurchased shares will either be retired or become
treasury shares to be utilized for general corporate and other purposes,
including the issuance of shares in connection with the exercise of stock
options.
On November 8, 1996, the Company received regulatory approval to repurchase
those shares of common stock before June 28, 1997. The Company believes that it
has sufficient capital to complete the repurchase and that the repurchase will
not cause the Bank to fail to meet its regulatory capital requirements.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with Generally
Accepted Accounting Principals ("GAAP"), which require the measurement of
financial position and operating results primarily 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 Company's operations. Unlike most industrial companies,
nearly all the assets and liabilities of the Company are financial. As a result,
interest rates have a greater impact on the Company'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 prices of goods and services.
Recent legislation - Recapture of Post 1987 Bad Debt Reserves
The Small Business Job Protection Act of 1996 will, among other things, equalize
the taxation of thrifts and banks. The bill no longer allows thrifts a choice
between the percentage of taxable income method and the experience method in
determining additions to their bad debt reserves. Smaller thrifts with $500
million of assets or less are only allowed to use the experience method, which
is generally available to small banks currently. Larger thrifts must use the
specific charge off method regarding its bad debts. Any reserve
12
<PAGE>
amounts added after 1987 will be taxed over a six year period beginning in 1996;
however, bad debt reserves set aside through 1987 will generally not be taxed.
Institutions can delay these taxes for two years if they meet a residential -
lending test. At June 30, 1996, the Bank had $55,936 of post 1987 bad-debt
reserves. Any recapture of the Bank's bad-debt reserves may have an adverse
effect on net earnings. The Bank is currently evaluating the legislation to
determine its effect.
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
is currently effective for the Bank. 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. Adoption of this
Statement has not had and 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 beginning the current fiscal year. The Bank currently does not retain
servicing rights on sold loans, therefore, the adoption of this Statement has
not had and 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 September 30, 1996.
13
<PAGE>
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: November 14, 1996 /s/Jerry R. Spurlin
---------------------------------------
Jerry R. Spurlin
President
(Duly Authorized Representative and
Principal Financial Officer)
14
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,598
<INT-BEARING-DEPOSITS> 1,510
<FED-FUNDS-SOLD> 150
<TRADING-ASSETS> 0
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<ALLOWANCE> 312
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<DEPOSITS> 48,000
<SHORT-TERM> 15,946
<LIABILITIES-OTHER> 1,017
<LONG-TERM> 0
0
0
<COMMON> 86
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<TOTAL-LIABILITIES-AND-EQUITY> 79,708
<INTEREST-LOAN> 896
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<EXPENSE-OTHER> 625
<INCOME-PRETAX> 58
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<NET-INCOME> 35
<EPS-PRIMARY> 0.04
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<YIELD-ACTUAL> 3.66
<LOANS-NON> 196
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