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, 2000
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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.
------------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware
- -------------------------------
(State or Other Jurisdiction of
Incorporation or Organization) 04-2095007
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(I.R.S. Employer
Identification No.)
221 West Aztec Avenue, Gallup, New Mexico
- -----------------------------------------
(Address of Principal Executive Offices)
87301
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(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 April 27, 2000, there were issued and outstanding 940,963 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, 2000 and June 30, 1999 3
Consolidated Statements of Earnings and Comprehensive Earnings
Three months and nine months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows
Nine months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------------ -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,319,541 $ 2,839,479
Interest-bearing deposits with banks 1,248,595 2,307,736
Federal funds sold 0 0
Available-for-sale investment securities 22,906,387 10,295,919
Available-for-sale mortgage-backed securities 25,713,893 31,711,838
Held-to-Maturity investment securities 1,680,250 1,677,144
Stock of Federal Home Loan Bank, at cost, restricted 3,735,400 2,815,100
Loans receivable, net, substantially pledged 106,028,334 96,564,840
Accrued interest and dividends receivable 1,048,232 863,975
Premises and equipment 1,312,952 1,404,616
Other real estate and repossessed property 188,459 150,459
Prepaid and other assets 108,542 54,365
Deferred tax asset 92,269 68,377
------------------ -----------------
TOTAL ASSETS $ 167,382,855 150,753,849
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Transaction and NOW accounts $ 12,707,756 $ 12,874,979
Savings and MMDA deposits 15,705,127 16,962,513
Time deposits 54,245,196 51,391,829
Accrued interest payable 335,159 276,328
Advances from borrowers for taxes and insurance 527,089 329,298
Accounts payable and accrued liabilities 443,135 426,634
Deferred income taxes 64,673 265,317
Dividends declared and payable 90,350 74,748
Advances from Federal Home Loan Bank 70,680,792 55,540,826
Securities sold under agreements to repurchase 271,139 0
Income taxes payable (57,975) 180,069
------------------ -----------------
TOTAL LIABILITIES 155,012,441 138,322,541
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 1,500,000
shares authorized; 993,578 issued and outstanding at June 30, 1999 and 955,713
shares issued and outstanding at March 31, 2000, adjusted for 40,035 shares at
June 30, 1999 and 34,039 shares
at March 31, 2000 for unallocated Management Stock Bonus Plan shares
held by the Company's wholly owned subsidiary, respectively. 92,167 95,354
Preferred stock, $.10 par value, 500,000
shares authorized; no shares issued or
outstanding - -
Additional paid-in-capital 3,007,774 3,432,687
Unearned ESOP stock (335,710) (371,183)
Retained earnings, substantially
restricted 9,480,641 8,759,425
Accumulated other comprehensive
earnings 125,542 515,025
------------------ -----------------
TOTAL STOCKHOLDERS' EQUITY 12,370,414 12,431,308
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 167,382,855 $ 150,753,849
================== =================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------------ -------------------------------
2000 1999 2000 1999
------------------------------ -------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans receivable
Mortgage loans $ 1,965,405 $ 1,684,895 $ 5,688,913 4,807,011
Commercial loans 134,946 126,488 354,540 363,185
Share and consumer loans 121,765 102,616 350,339 298,412
Investment and mortgage-backed securities 787,128 455,300 2,121,319 1,450,586
Other interest-earning assets 70,254 49,280 193,156 152,894
------------ ------------ ------------- ------------
TOTAL INTEREST EARNINGS 3,079,498 2,418,579 8,708,267 7,072,088
Interest expense
Deposits 808,376 787,428 2,385,421 2,438,034
Advances from Federal Home Loan Bank 1,034,046 593,183 2,736,404 1,745,165
Other interest expense 2,189 - 3,101 -
------------ ------------ ------------- ------------
TOTAL INTEREST EXPENSE 1,844,611 1,380,612 5,124,926 4,183,199
------------ ------------ ------------- ------------
NET INTEREST EARNINGS 1,234,887 1,037,967 3,583,341 2,888,889
Provision for loan losses 70,000 25,000 130,000 65,000
------------ ------------ ------------- ------------
NET INTEREST EARNINGS AFTER
PROVISION FOR LOAN LOSSES 1,164,887 1,012,967 3,453,341 2,823,889
Non-interest earnings
Income from real estate operations 2,500 - 5,000 -
Miscellaneous income 5,026 2,805 13,311 14,095
Net gains (losses) from sales of loans and AFS Securitie(60,412) 31,828 (39,891) 41,053
Service charge income 57,247 42,052 187,707 115,246
------------- ------------
------------ ------------
TOTAL NON-INTEREST EARNINGS 4,361 76,686 166,127 170,394
Non-interest expense
Compensation and benefits 431,280 365,635 1,230,279 1,062,061
Insurance 12,233 16,183 50,572 46,005
Stock services 4,169 3,962 10,071 20,606
Occupancy 85,621 79,448 244,736 206,006
Data processing 50,863 50,329 147,720 149,426
Professional fees 20,303 10,170 67,579 37,862
Advertising 13,811 20,224 48,722 55,626
Stationary, printing and office supplies 19,440 17,476 59,154 51,835
ATM Expense 12,045 10,016 37,715 32,374
Supervisosry Exam Fees 10,384 8,992 29,367 27,482
Postage 9,392 11,188 25,363 24,865
Other 57,829 53,812 156,718 163,916
------------ ------------ ------------- ------------
TOTAL NON-INTEREST EXPENSE 727,369 647,435 2,107,997 1,878,063
</TABLE>
4
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------------ -------------------------------
2000 1999 2000 1999
------------------------------ -------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES 441,879 442,218 1,511,471 1,116,220
Income tax expense
Currently payable 148,912 166,159 534,430 418,448
Deferred provision - - - -
------------ ------------ ------------- ------------
148,912 166,159 534,430 418,448
------------ ------------ ------------- ------------
NET EARNINGS $ 292,967 $ 276,058 977,041 697,772
============ ============ ============= ============
Other Comprehensive Earnings
Unrealized gain (loss), net of tax (16,594) (206,486) (389,483) (5,701)
------------ ------------ ------------- ------------
COMPREHENSIVE EARNINGS 276,373 69,572 587,558 692,071
============ ============ ============= ============
Earnings per common share
Basic $ 0.32 0.28 1.06 0.67
============ ============ ============= ============
Weighted average number of common shares outstanding
Basic 914,728 979,857 921,629 1,035,898
============ ============ ============= ============
Earnings per common share
Diluted 0.31 0.27 1.04 0.66
============ ============ ============= ============
Weighted average number of common shares outstanding
Diluted 933,052 1,006,191 939,953 1,064,377
============ ============ ============= ============
Comprehensive earnings per common share
Basic 0.30 0.07 0.64 0.67
============ ============ ============= ============
Diluted 0.30 0.07 0.63 0.65
============ ============ ============= ============
</TABLE>
5
<PAGE>
GFSB Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Nine months ended
March 31,
-----------------------------------------
2000 1999
--------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 977,041 $ 697,772
Adjustments to reconcile net earnings to
net cash provided by operations
Deferred loan origination fees (231,360) (223,663)
Gain on sale of sold loans (26,122) (41,053)
Provision for loan losses 130,000 65,000
Depreciation of premises and equipment 133,468 113,570
Amortization of investment and mortgage-
backed securities premiums (discounts) 126,429 294,702
Stock dividends on FHLB stock (144,400) (95,400)
Release of ESOP stock 72,124 76,724
Stock compensation 48,664 79,883
Provision (benefit) for deferred income taxes (23,892) -
Net changes in operating assets and liabilities
Accrued interest and dividends receivable (184,257) (154,143)
Prepaid taxes - -
Prepaid and other assets (54,177) (26,355)
Accrued interest payable 58,831 20,074
Accounts payable and accrued liabilities (32,163) 112,526
Income taxes payable (238,044) (62,836)
Dividends declared and payable 15,602 (9,992)
--------------- --------------------
Net cash provided by
operating activities 627,744 846,809
Cash flows from investing activities
Purchase of premises and equipment (41,804) (523,208)
Loan originations and principal
repayment on loans, net (9,374,012) (15,413,958)
Principal payments on mortgage-backed
securities 4,341,753 8,207,158
Purchases of mortgage-backed securities - (2,928,670)
Purchases of available-for-sale securities (15,929,426) (6,002,335)
Maturities and proceeds from sale of
available-for-sale securities 4,178,588 2,010,000
Principal payments on available-for-sale securities 76,900 70,000
Purchases of held-to-maturity securities - (1,530,000)
Maturities and proceeds from sale of
held-to-maturity securities - -
Purchase of FHLB stock (775,900) (373,300)
--------------- --------------------
Net cash used by
investing activities (17,523,901) (16,484,313)
</TABLE>
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,
-----------------------------------------
2000 1999
--------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from financing activities
Net increase in transaction accounts, passbook
savings, money market accounts, and
certificates of deposit $ 1,428,758 $ 8,131,524
Net increase (decrease) in mortgage escrow funds 197,791 258,819
Proceeds from FHLB advances 487,058,922 217,685,527
Repayments on FHLB advances (471,918,956) (209,364,245)
Net increase (decrease) in securities sold under
agreements to repurchase 271,139 -
Purchase of GFSB Bancorp stock under the
stock repurchase plan in cash (539,640) (2,058,528)
Dividends paid or to be paid in cash (255,824) (222,984)
Price paid for vested management bonus
stock plan stock 55,463 50,065
Proceeds from exercise of stock options 19,425 -
--------------- --------------------
Net cash provided by
financing activities 16,317,078 14,480,178
--------------- --------------------
Increase (decrease) in cash and cash equivalents (579,079) (1,157,326)
Cash and cash equivalents at beginning of period 5,147,215 4,537,980
--------------- --------------------
Cash and cash equivalents at end of period $ 4,568,136 3,380,654
=============== ====================
Supplemental disclosures
Cash paid during the period for
Interest on deposits and advances $ 5,062,994 $ 4,163,126
Income taxes 772,475 481,284
Change in unrealized gain (loss), net of deferred
taxes on available-for-sale securities (389,483) (5,701)
Dividends declared not yet paid 90,350 72,454
</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 is contained in the notes to the Company's
financial statements filed as part of the Company's June 30, 1999, Form 10-KSB.
This quarterly report should be read in conjunction with such annual report.
2. Dividends
---------
During the quarter ended December 31, 1999, the Board of Directors declared a
cash dividend of $0.10 per share on the Company's outstanding common stock,
payable to stockholders of record as of December 31, 1999. The dividends were
paid in January 2000.
During the quarter ended March 31, 2000, 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, 2000. The dividends
were paid in April 2000.
As required by SOP 93-6, the dividends on unallocated ESOP shares have been
recorded as an additional $5,200 compensation cost rather than a reduction of
retained earnings.
3. Employee Stock Ownership Plan
-----------------------------
On December 31, 1999, the Company released 7,021.01 shares of its common stock
owned by the Company's ESOP. On March 31, 2000, the Company was committed to
release 1,852.89 shares of this common stock. The commitment resulted in $25,000
of additional compensation cost for the three months ended March 31, 2000.
4. Management Stock Bonus Plan
---------------------------
On January 5, 1996, the Company made awards under the Plan in the amount of
30,573 shares. The shares were awarded at a price of $9.250 per share. On
January 5, 1998, the Company made awards under the Plan in the amount of 2,250
shares. On November 16, 1998, the Company made awards under the Plan in the
amount of 6,000 shares. The retirement during the quarter ended September 30,
1997 of an officer, to whom an award had been made under the Plan, resulted in a
reduction of 3,000 shares in the total number of shares awarded. Awards under
the Plan are earned at the rate of one-fifth of the award per year. From January
5, 1997 to January 5, 1999, 17,291 shares under the Plan were earned, and the
corresponding liability was paid. On November 16, 1999, 1,200 shares under the
Plan were earned, and the corresponding liability was paid. On January 5, 2000,
5,816 shares under the Plan were earned, and the corresponding liability was
paid.
At March 31, 2000, 22,523 shares remain to be awarded under the Plan, including
1,421 shares earned under the Plan but withheld from vesting to satisfy tax
obligations of recipients. As a result of vesting and the dividends earned on
the vested shares, a liability and corresponding compensation cost in the amount
of $16,200 has been recorded for the three months ended March 31, 2000, under
the provisions of the Plan.
8
<PAGE>
5. Earnings Per Share
------------------
The Company has potential dilutive common stock (stock options to employees and
directors) and accordingly presents basic and diluted earnings per share.
Diluted per share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce a loss or
increase the income per common share
The weighted average number of shares of common stock used to compute the basic
earnings per share was increased by 18,324 for the three month period ended
March 31, 2000, and by 26,334 for the three month period ended March 31, 1999,
in computing the diluted per share data.
The weighted average number of shares of common stock used to compute the basic
earnings per share was increased by 18,324 for the nine month period ended March
31, 2000, and by 28,479 for the nine month period ended March 31, 1999, in
computing the diluted per share data.
6. Comprehensive Earnings
----------------------
Comprehensive earnings, defined as the change in equity of a business enterprise
from transactions and other events and circumstances from non-owner sources. The
only item of other comprehensive earnings for the Company is the unrealized gain
(loss) on available-for-sale securities.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
and purchases participations in one-to-four family and commercial real estate
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 non-interest
income derived primarily from fees. Consequently, the Bank's earnings are
dependent on its ability to originate loans, and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Bank's net
earnings are also affected by its provision for loan losses 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.
GFSB Bancorp, Inc. (the "Company") may from time to time make written or oral
"forward-looking statements", including statements contained in the Company's
filing with the Securities and Exchange Commission (including this quarterly
report on Form 10-QSB and the exhibits thereto), in its reports to stockholders
and in other communication by the Company, which are made in good faith by the
Company pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing these risks.
The Company cautions that this list of important factors is not exclusive. The
Company does not undertake to update forward-looking statements, whether written
or oral, that may be made from time to time by or on behalf of the Company.
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,
secondarily, to invest in mortgage-backed securities and investment securities,
and thirdly, to purchase participations in adjustable rate, one-to-four family
mortgage loans primarily secured by one-to-four family residences. 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-
10
<PAGE>
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, increased its origination of commercial
real estate loans, construction loans, and purchased participations in
commercial real estate loans. These loans typically have adjustable interest
rates and are for shorter terms than residential first mortgage loans. This type
of lending generally has more risk than residential lending. The Bank's purchase
of participations in adjustable rate, one-to-four family mortgage loans is
designed to increase earnings and reduce interest rate risk. These loans have
more risk than loans originated by the Bank, therefore, they have adjustable
rates that are higher than standard. The Bank also purchases automobile loans
from dealers. These loans have risk and terms comparable to automobile loans
originated in the Bank. 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. Automated
Teller Machine access and credit life insurance are additional products offered
by the Bank. 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
provides an opportunity to expand its operations as the only local independent
financial institution. The Bank also believes that it has a unique ability to
grow as a result of the relatively large number of local 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. (See "Management
Strategy" discussed above).
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 increasing interest rates.
FINANCIAL CONDITION
The Bank's total assets increased $16.6 million or 11% from $150.8 million at
June 30, 1999 to $167.4 million at March 31, 2000. This increase is primarily
the result of a $9.5 million increase in the Bank's net loan portfolio and a
$6.6 million increase in the Bank's investment portfolio. The majority of the
increases are directly attributable to efforts of Management to increase
investment and lending activity. During the same period, deposits increased $1.4
million or 1.8% from $81.2 million at June 30, 1999 to $82.7 million at March
31, 2000. This increase is primarily due to an increase in the Bank's volume of
time deposits, offset by a decrease in the Bank's volume of savings and MMDA
accounts. Advances from the FHLB increased $15.1 million from $55.5 million at
June 30, 1999 to $70.7 million at March 31, 2000. These additional borrowings
funded purchases of loans, securities, and mortgage loan participations. The
Bank had $126,000 and $515,000 in unrealized gains (net of deferred taxes) at
March 31, 2000 and June 30, 1999, respectively from market gains on the Bank's
equity securities offset by market losses on the Bank's available-for-sale
investment and mortgage-backed portfolios.
11
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR QUARTER ENDED MARCH 31, 2000 COMPARED TO
QUARTER ENDED MARCH 31, 1999
General
Net earnings increased $17,000 or 6.1% for the quarter ended March 31, 2000 from
the quarter ended March 31, 1999. This increase is primarily the result of an
increase in net interest earnings of $197,000 and a decrease in income tax
expense of $17,000, offset by an decrease in non-interest earnings of $72,000,
an increase in non-interest expense of $80,000 and an increase in provision for
loan losses of $45,000.
Interest Earnings
Total interest income increased $661,000 or 27.3% from $2.4 million for the
quarter ended March 31, 1999 to $3.1 million for the quarter ended March
31,2000. This increase was primarily due to substantial increases in the net
loan portfolio and securities portfolio of the bank.
Interest Expense
Total interest expense increased $464,000 or 33.6% from $1.4 million for the
quarter ended March 31, 1999 to $1.8 million for the quarter ended March 31,
2000. This increase was primarily due to an increase in FHLB 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 borrower's ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The allowance for loan losses was $535,000 and $422,000 at
March 31, 2000 and 1999, respectively. The provision for loan loss was $70,000
and $25,000 for the quarters ended March 31, 2000 and 1999, respectively. 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.
Recent substantial increases in the loan portfolio of the Bank may result in an
increase of provision for losses on loans. The establishment of a loan loss
provision each period adversely impacts the Bank's net earnings.
Non-Interest Income
Total non-interest income decrease of $72,000 or 94.3% from $77,000 for the
quarter ended March 31, 1999 to $4,000 for the quarter ended March 31, 2000 was
primarily due to net losses of $66,000 from the sale of available-for-sale
securities and a decrease in net gains from sales of loans of $25,000, offset by
increased service and NSF charges on NOW and checking accounts of $15,000 and an
increase in income from real estate operations of $5,000. Funds received by the
Bank from the sale of available-for-sale securities were used to purchase higher
yielding available-for-sale securities to enhance future earnings.
Non-Interest Expense
Total non-interest expense increased $80,000 or 12.3% from $647,000 for the
quarter ended March 31, 1999 to $727,000 for the quarter ended March 31, 2000.
This increase was primarily due to an increase in compensation and benefits of
$66,000 from general salary increases, increases in accruals for stock-based
compensation programs, increases in employee health insurance and retirement
benefits and a gross receipts tax paid to the State of New Mexico for directors
fees. Other factors contributing to this increase were increases in professional
fees of $10,000 and occupancy costs of $6,000.
12
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR NINE MONTH PERIOD ENDED MARCH 31, 2000
COMPARED TO NINE MONTH PERIOD ENDED MARCH 31, 1999
General
Net earnings increased $279,000 or 40% for the nine-month period ended March 31,
2000 from the nine-month period ended March 31, 1999. This increase is primarily
the result of an increase in net-interest earnings of $694,000, offset by a
decrease in non-interest earnings of $4,000, an increase in non-interest expense
of $230,000, an increase in provision for loan loss of $65,000 and an increase
in provision for income taxes of $116,000.
Interest Earnings
Total interest income increased $1.6 million or 23.1% from $7.1 million for the
nine-month period ended March 31, 1999, to $8.7 million for the nine-month
period ended March 31, 2000. This increase was primarily due to substantial
increases in the net loan portfolio and securities portfolio of the bank.
Interest Expense
Total interest expense increased $942,000 or 22.5% from $4.2 million for the
nine-month period ended March 31, 1999 to $5.1 million for the nine-month period
ended March 31, 2000. This increase was primarily due to an increase in FHLB
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 borrower's ability to repay
loans, estimated value of the underlying collateral and current and expected
market conditions. The allowance for loan losses was $535,000 and $422,000 at
March 31, 2000 and 1999, respectively. The provision for loan loss was $130,000
and $65,000 for the nine-month period ended March 31, 2000 and 1999,
respectively. 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. Recent substantial increases in the loan portfolio of the
Bank may result in an increase of provision for losses on loans. The
establishment of a loan loss provision each period adversely impacts the Bank's
net earnings.
Non-Interest Income
Total non-Interest income decreased by $4,000 or 2.5% from $170,000 for the
nine-month period ended March 31, 1999 to $166,000 for the nine-month period
ended March 31, 2000. This decrease was primarily due to net losses from the
sale of available- for-sale securities of $66,000 and a decrease in net gains
from sales of loans of $16,000, offset by increased service and NSF charges on
NOW and checking accounts of $72,000 and an increase in income from real estate
operations of $5,000. Funds received by the Bank from the sale of
available-for-sale securities were used to purchase higher yielding
available-for-sale securities to enhance future earnings.
Non-Interest Expense
Total non-interest expense increased $230,000 or 12.2% from $1,878,000 for the
nine-month period ended March 31, 1999 to $2,108,000 for the nine-month period
ended March 31, 2000. This increase was primarily due to an increase in
compensation and benefits of $168,000 from the hiring of additional staff to
handle growth, salary expense for a full time data processing systems
administrator for Year 2000 administration, general salary increases, increases
due to accruals for stock-based compensation programs, increases in
13
<PAGE>
employee health insurance and retirement benefits and a gross receipts tax paid
to the State of New Mexico for directors fees. Other factors were increases in
occupancy costs of $39,000, professional fees of $30,000, stationary, printing
and office supplies of $7,000, Automated Teller Machine expense of $5,000,
insurance expense of $5,000, offset by a decrease in stock services of $11,000.
The increase in occupancy costs is primarily due leasehold improvement expense
and janitorial expense for the Loan Center and furniture, fixtures, and
equipment expense. The decrease in stock services is primarily due to a fee paid
to the OTS for filing a change of control application for the quarter ended
September 30, 1998.
Liquidity and Capital Resources
The Bank is required under applicable federal regulations to maintain "liquid"
investments in qualifying types of U.S. Government, federal agency and other
investments of not less than 4% of its average daily balance of net withdrawable
deposit account and borrowing payable in one year or less. At March 31, 2000,
the Bank's liquidity, as measured for regulatory purposes, was 5.23%. 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 and
deposit fluctuations.
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, 2000, cash and cash equivalents totaled
$4.6 million. The Bank has other sources of liquidity if a need for additional
funds arises. Additional sources of funds include FHLB of Dallas advances and
the ability to borrow against mortgage-backed and other securities. At March 31,
2000, the Bank had $70.7 million in outstanding borrowings from the FHLB of
Dallas. Some of these outstanding borrowings were used to purchase additional
investment securities and mortgage loan participations 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 2000, the Bank
originated $11 million in total loans (including loan participations purchased),
of which $5.7 million were mortgage loans. Another investment activity of the
Bank is the investment of funds in U.S. Government Agency securities,
mortgage-backed securities, collateralized mortgage obligations, federal funds
and FHLB-Dallas overnight funds and readily marketable equity securities. During
periods when the loan demand of the Bank 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 net earnings,
provision for loan losses, amortization of investment and mortgage backed
securities premiums and discounts, stock based compensation costs and income
taxes less disbursements of interest and dividends, and loan origination fees
were $628,000 and $847,000 for the nine month period ended March 31, 2000 and
1999 respectively. Net cash used for investing activities consisted primarily of
disbursement of loan originations and investment and mortgage-backed security
purchases, offset by principal collections on loans and principal collections
and proceeds from the maturities of investment securities and mortgage-backed
securities, were $17.5 million and $16.5 million for the nine month period ended
March 31, 2000 and 1999, respectively. Net cash provided from financing
activities consisting primarily of net activity in deposit and escrow accounts
and new FHLB borrowings, offset by repayments on FHLB borrowings, were $16.3
million and $14.5 million for the nine month period ended March 31, 2000 and
1999, respectively.
The Bank anticipates that it will have sufficient funds available to meet its
current commitments. As of March 31, 2000, the Bank had commitments to fund
loans of $10 million. Certificates of deposit scheduled to mature
14
<PAGE>
in one year or less totaled $38.6 million. Based on historical withdrawals and
outflows, on internal daily deposit reports monitored by management, and the
fact that the Bank does not accept any brokered deposits, management believes
that a majority of deposits will remain with the Bank. As a result, no adverse
liquidity effects are expected.
Pursuant to Financial Accounting Standards Bulletin No. 130, the Bank is
required to record unrealized gains and losses in its investment portfolio that
may result from movements in interest rates. The Bank showed unrealized losses,
net of tax effect, totaling $17,000, due to increases in interest rates during
the three months ended March 31, 2000. Management does not anticipate the
realization of this loss. The unrealized loss negatively impacts the Bank's
capital. However, the unrealized losses combined with net operating income of
$293,000 yielded a net increase in the Bank's capital of $276,000, net of
applicable taxes, during the three months ended March 31, 2000. During the nine
months ended March 31, 2000, the unrealized losses in the investment portfolio
totaled $389,000.
At March 31, 2000, the Bank exceeded each of the three OTS capital requirements
on a fully-phased-in basis.
Subsequent Events
None
Stock Repurchase Program
On May 20, 1999 the Company issued a press release announcing its intention to
repurchase up to 5% (49,965 shares) of the Company's common stock. The
repurchase was completed on March 24, 2000. On March 24, 2000 the Company issued
a press release announcing its intention to repurchase up to 5% (47,785 shares)
of the Company's common stock. As of April 24, 2000, 16,175 shares have been
repurchased and retired as authorized but unissued. 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 Principles ("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.
Recapture of Post 1987 Bad Debt Reserves
The Small Business Job Protection Act of 1996, among other things, equalized 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 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, 1999, the Bank had $46,613 of post 1987 bad-debt reserves of which
1/6th or $9,323 was recaptured into taxable income for the year ended June 30,
1999. Future recapture of the Bank's bad-debt reserves may have an adverse
effect on net earnings. Management does not believe such future recapture of the
Bank's bad debt reserves will have a material impact on the Bank's financial
condition.
15
<PAGE>
Impact of Certain Accounting Standards
In October, 1995, the FASB issued SFAS No. 123 "Statement of Accounting for
Stock-Based Compensation" which defines a "fair value based method" of
accounting for an employee stock option whereby compensation cost is measured at
the grant date based on the value of the award and is recognized over the
service period. The FASB encouraged all entities to adopt the fair value based
method, however, it allows entities to continue the use of the "intrinsic value
based method" prescribed by Accounting Principles Board ("APB") Opinion No. 25.
Under the intrinsic value based method, compensation cost is the excess of the
market price of the stock at the grant date over the amount an employee must pay
to acquire the stock. However, most stock option plans have no intrinsic value
at the grant date and, as such, no compensation cost is recognized under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The Bank has continued to use the "intrinsic
value based method" as prescribed by APB Opinion No. 25.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way that public entities report information about operating segments in
annual financial statements and requires that selected information about
operating segments be reported in interim financial reports as well. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This Statement is effective for fiscal
years beginning after December 31, 1997, except for interim financial statements
in the initial year of its application.
In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures about
Pensions and Other Postretirement Benefits. This statements revises disclosures
about pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. This statement eliminates certain
disclosures from SFAS No.'s 87, 88, and 106. This statement is effective for
fiscal years beginning after December 15, 1997. This statement is currently not
applicable to the Bank.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. This statement is effective for fiscal
years beginning after June 15, 1999. Earlier application of this statement is
encouraged. This statement is currently not applicable to the Bank.
In October 1998, the FASB issued SFAS No. 134, Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise. This statement amends SFAS No. 65 to require that
after the securitization of a mortgage loan an entity engaged in mortgage
banking activities classify the resulting mortgage backed security as a trading
or held-for-sale based on the intent to sell or hold the investments. This
statement is effective for the first fiscal quarter beginning after December 15,
1998. This statement is currently not applicable to the Bank.
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.3 Directors Deferred Compensation Agreements
10.4 Directors Stock Compensation Plan
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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 8, 2000 /s/Jerry R. Spurlin
-----------------------------------------------
Jerry R. Spurlin
Assistant Secretary and Chief Financial Officer
(Duly Authorized Representative and
Principal Financial Officer)
EXHIBIT 10.3
<PAGE>
GALLUP FEDERAL SAVINGS BANK
DIRECTORS DEFERRED COMPENSATION AGREEMENT
THIS DIRECTOR DEFERRED COMPENSATION AGREEMENT (the "Agreement") made
this 22nd day of March, 2000, by and between Gallup Federal Savings Bank (the
"Company"), a corporation organized under the laws of the United States of
America and __________________________ (the "Director").
WITNESSETH THAT:
In consideration of the agreements contained herein, the parties hereto
agree as follows:
1. The Company agrees to permit the Director to serve as a member of
its Board of Directors, and the Director agrees to serve the Company in such
capacity as the Company may designate from time to time, until terminated by
either party at any time or for any reason.
2. During the term of his/her service as director, the Director shall
devote his/her time, attention, skill, and efforts to the performance of his/her
duties for the Company.
3. The Company shall pay the Director during the term of his/her
service as a director hereunder, any fees payable to the Director for service as
a director (as the Company may from time to time determine) together with
deferred compensation (payable as provided in paragraph 5 below), unless such
amounts are forfeited pursuant to paragraph 7 below.
4. (a) The Company shall credit to a book reserve (the "Deferred
Compensation Account") established for this purpose, an amount
("Deferred Compensation") as specified on a form ("Deferral
Election Form") provided to the Director by the Company for such
purposes. For calendar years beginning on or after January 1, 2001,
such Deferral Election Form must be completed by the Director and
returned to the Company prior to the first day of any calendar year
to which such Deferral Election Form relates in order to be
effective. For calendar year 2000, such Deferral Election Form must
be completed by the Director and returned to the Company as of
March 22,
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2000, the date of Board adoption of such program in order to be
effective for compensation earned and payable after such date.
(b) Any such amounts credited on the books of the Company to the
Deferred Compensation Account will be credited with investment
earnings and losses as if such amounts had been invested in a
certificate of deposit with a five-year maturity date on deposit at
Gallup Federal Savings Bank within 30 days of such credit to the
Deferred Compensation Account (the "Investment Option"). The
Company may, if it chooses, actually invest assets equal to amounts
in the Deferred Compensation Account but shall not be obligated to
do so, or to make any other investment of its assets in connection
with its obligation to pay Deferred Compensation hereunder.
(c) The Director agrees on behalf of himself/herself and the
designated beneficiary to assume all risk in connection with any
fluctuation in value of any Deferred Compensation amounts.
(d) Title to and beneficial ownership of any assets of the Company,
whether cash or investments which the Company may earmark to pay
the Deferred Compensation hereunder, shall at all times remain the
property of the Company; and the Director and his/her designated
beneficiary shall not have any property interest whatsoever in any
specific assets of the Company.
(e) The Company shall notify the Directors not less than once per
calendar year as to the status of the Deferred Compensation
Account, including the number of shares of Common Stock previously
credited to such account and any cash or account earnings awaiting
investment in Common Stock.
(f) If on the date of death of a Participant no designated
beneficiary has been designated in writing on a form previously
received by the Company, the designated beneficiary of such
Participant shall be the estate of the Participant.
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5. The amounts to be paid as Deferred Compensation, unless they are
forfeited pursuant to paragraph 7 below, are as follows:
(a) If the Director's service as a director hereunder is terminated
on or after he/she attains the age of 70, the Company shall pay to
the Director (in either five annual installments, not to exceed the
Director's life expectancy or in one lump sum as such payment
schedule is specified in the Director's Deferral Election Form) an
amount equal to the value of the Director's Deferred Compensation
Account as of such date. The Deferred Compensation amount payable
to the Director shall be appropriately increased or decreased to
reflect the appreciation or depreciation in value of the Investment
Option and the net income or loss of the Deferred Compensation
Account. If the Director should die on or after the date set forth
above, any unpaid balance will be paid to the Director's designated
beneficiary in the same manner as set forth in this paragraph 5(a).
(b) If the Director's service as a director hereunder is terminated
for any reason other than death and disability but before the date
set forth in paragraph 5(a) above, then the value of the Deferred
Compensation Account: (i) shall be paid to the Director in the same
manner as set forth in paragraph 5(a) above, and (ii) shall
continue to be invested or held in cash as the Company in its
discretion may determine and no payments shall be made until the
date set forth in paragraph 5(a) above. Notwithstanding the
foregoing, if prior to the date set forth in paragraph 5(a) above,
the Director should die, or the Director should become disabled,
then payments shall be made in the same manner and to the same
extent as set forth in paragraph 5(c) below.
(c) If the Director's service as a director is terminated because
of disability or death before reaching the date set forth in
paragraph 5(a) above, while the Director is performing services for
the Company, then the Company shall make payments to the Director
in the event of the Director's disability, or to the Director's
designated beneficiary in the event of the Director's
Page 3
<PAGE>
death to the same extent as set forth in paragraph 5(a) above.
(d) If the Director is receiving payments from the Company and
subsequently dies before the total payments are made by the
Company, then the remaining value of the Deferred Compensation
Account shall be determined as of the date of the death of the
Director and shall be paid as promptly as possible in one lump sum
to the Director's designated beneficiary.
(e) The Director's designated beneficiary referred to in this
paragraph 5 may be designated or changed by the Director, without
the consent of any prior designated beneficiary, on a form provided
to the Director by the Company and delivered to the Company before
the Director's death. If no such beneficiary shall have been
designated or if no designated beneficiary shall survive the
Director, the payments payable under paragraph 5(d) above, shall be
payable to the Director's estate.
(f) The Director shall be deemed to have become disabled for
purposes of paragraph 5(c) above, if the Company shall find on the
basis of medical evidence satisfactory to the Company that the
Director is totally disabled, mentally or physically, so as to be
prevented from engaging in further service as a director of the
Company and that such disability will be permanent and continuous
during the remainder of the Director's life.
(g) The payment(s) to be made to the Director under paragraphs 5(a)
and 5(c) above, shall commence on the first day of the month
following the date of the Director's termination of service as a
director, and the payment(s) to be made to the Director under
paragraph 5(b) above, shall commence on the first day of the month
next following the date set forth in paragraph 5(a) above. The
payment(s) to be made to the Director's designated beneficiary
under the provisions of this paragraph 5 shall commence on a date
to be selected by the Company but within six months from the date
of death of the Director.
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<PAGE>
(h) Notwithstanding anything herein contained to the contrary, the
Company shall have the right in its sole discretion to vary the
manner and time of making the distribution(s) provided in this
paragraph 5 and may make such distributions in lump sums or over a
shorter or longer period of time as it may find appropriate.
6. (a) Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Director, the Director's
designated beneficiary or any other person. Any funds which may be
invested under the provisions of this Agreement shall continue for
all purposes to be a part of the general funds of the Company. No
person other than the Company shall, by virtue of the provisions of
this Agreement, have any interest in such funds. The Company shall
not be under any obligation to use such funds solely to provide
amounts hereunder, and no representations have been made to the
Director that such funds can or will be used only to provide
amounts hereunder. To the extent that any person acquires a right
to receive payments from the Company under this Agreement, such
rights shall be no greater than the right of any unsecured general
creditor of the Company.
(b) In order to facilitate the accumulation of funds necessary to
meet the costs of the Company under this Agreement to make payments
to a Director or his or her beneficiary as and when the same are
due under the Plan, the Company may enter into a Trust Agreement.
The Board of Directors of the Company shall have the power to
appoint and remove the Trustee under such Trust Agreement in its
sole discretion. The Company, in its discretion, may elect to place
assets of the Company into the Trust as may from time to time be
approved by the Board of Directors of the Company in its sole
discretion. To the extent that the assets of said Trust are not
sufficient to pay benefits accrued under this Plan, such payments
shall be made from the general assets of the Company.
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<PAGE>
7. Notwithstanding anything contained herein to the contrary, no
payment of any unpaid installments of Deferred Compensation shall be made, and
all rights under this Agreement of the Director, the Director's designated
beneficiary, executors, or administrators, or any other person, to receive
payments thereof shall be forfeited if the Director shall engage, as determined
by the Company, in any activity or conduct inimical to the best interests of the
Company.
8. The right of the Director or any other person to the payment of
Deferred Compensation or other amounts under this Agreement shall not be
assigned, transferred, pledged, or encumbered except by will or by the laws of
descent and distribution.
9. If the Company shall find that any person to whom any amount is
payable under this Agreement is unable to care for his or her personal affairs
because of illness or accident, or is a minor, any payment due (unless a prior
claim therefor shall have been made by a duly appointed guardian, committee, or
other legal representative) may be paid to the spouse, a child, a parent, or a
brother or sister, or to any person deemed by the Company to have incurred
expense for such person otherwise entitled to payment, in such manner and
proportions as the Company may determine. Any such payments shall be a complete
discharge of the liabilities of the Company under this Agreement.
10. Nothing contained herein shall be construed as conferring upon the
Director the right to continue in his/her service as a director of the Company
or in any other capacity.
11. Any Deferred Compensation payable under this Agreement shall not be
deemed as salary or other compensation to the Director for the purpose of
computing benefits to which the Director may be entitled under any retirement
plan or other arrangement of the Company for the benefit of its employees or
directors.
12. The Company shall have full power and authority to interpret,
construe, and administer this Agreement and the Company's interpretations and
construction thereof, and actions thereunder, including any valuation of the
Deferred Compensation Account, or the amount or recipient of the payment to be
made under this Agreement, shall be binding and conclusive on all persons for
Page 6
<PAGE>
all purposes. The directors of the Company shall not be liable to any person for
any action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to his/her own willful
misconduct or lack of good faith.
13. The Company may appoint an administrative committee ("Committee")
to provide administrative services or perform duties required by this Agreement.
The Committee shall have only the authority granted to it by the Company.
14. This Agreement shall be binding upon and inure to the benefit of
the Company, its successors, and assigns and the Director and the Director's
heirs, executors, administrators, and legal representatives.
15. This Agreement shall be construed in accordance with and governed
by the laws of the State of New Mexico.
16. No right or benefit under the Agreement shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and
any attempt to anticipate alienate, sell, assign, pledge, encumber, or charge
the same shall be void. No right or benefit under this Agreement shall be liable
for or subject to the debts, contracts, liabilities, or torts of the person
entitled to such benefits. If the Director or the Director's designated
beneficiary should become bankrupt, or attempt to anticipate, sell, assign,
pledge, encumber, or charge any right or benefit hereunder, then such right or
benefit shall, in the discretion of the Committee, cease and terminate, and in
such event the Company may hold or apply the same or any part thereof for the
benefit of the Director or beneficiary, his/her spouse, children, or other
dependents, or any of them in such manner and in such proportion as the
Committee may deem proper.
17. The Company's Board of Directors may amend or terminate this
Agreement at any time, provided however, that no termination or amendment of
this Agreement shall, without the consent of the Director, adversely affect the
Director's right to any amounts previously deferred by the Director and credited
to the Deferred Compensation Account.
Page 7
<PAGE>
18. The Company shall bear all costs and expenses associated with
administration of the Agreement. No contributions to the Deferred Compensation
Account or any Trust under this Agreement will be permissible by the Director.
Page 8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Director has hereunto set
his/her hand and seal as of the date first above written.
Gallup Federal Savings Bank (Company)
By:
- ---------------------------------- -------------------------------
Date Its _______________________________
"DIRECTOR"
-------------------------------
By:
- ---------------------------------- -------------------------------
Date
By:
- ---------------------------------- -------------------------------
Date Witness
<PAGE>
GFSB BANCORP, INC.
DIRECTORS DEFERRED COMPENSATION AGREEMENT
THIS DIRECTOR DEFERRED COMPENSATION AGREEMENT (the "Agreement") made
this 22nd day of March, 2000, by and between GFSB Bancorp, Inc. (the "Company"),
a corporation organized under the laws of the State of Delaware and
__________________________ (the "Director").
WITNESSETH THAT:
In consideration of the agreements contained herein, the parties hereto
agree as follows:
1. The Company agrees to permit the Director to serve as a member of
its Board of Directors, and the Director agrees to serve the Company in such
capacity as the Company may designate from time to time, until terminated by
either party at any time or for any reason.
2. During the term of his/her service as director, the Director shall
devote his/her time, attention, skill, and efforts to the performance of his/her
duties for the Company.
3. The Company shall pay the Director during the term of his/her
service as a director hereunder, any fees payable to the Director for service as
a director (as the Company may from time to time determine) together with
deferred compensation (payable as provided in paragraph 5 below), unless such
amounts are forfeited pursuant to paragraph 7 below.
4. (a) The Company shall credit to a book reserve (the "Deferred
Compensation Account") established for this purpose, an amount
("Deferred Compensation") as specified on a form ("Deferral
Election Form") provided to the Director by the Company for such
purposes. For calendar years beginning on or after January 1, 2001,
such Deferral Election Form must be completed by the Director and
returned to the Company prior to the first day of any calendar year
to which such Deferral Election Form relates in order to be
effective. For calendar year 2000, such Deferral Election Form must
be completed by the Director and returned to the Company as of
March 22,
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<PAGE>
2000, the date of Board adoption of such program in order to be
effective for compensation earned and payable after such date.
(b) Any such amounts credited on the books of the Company to the
Deferred Compensation Account will be credited with investment
earnings and losses as if such amounts had been invested in a
certificate of deposit with a five-year maturity date on deposit at
Gallup Federal Savings Bank within 30 days of such credit to the
Deferred Compensation Account (the "Investment Option"). The
Company may, if it chooses, actually invest assets equal to amounts
in the Deferred Compensation Account but shall not be obligated to
do so, or to make any other investment of its assets in connection
with its obligation to pay Deferred Compensation hereunder.
(c) The Director agrees on behalf of himself/herself and the
designated beneficiary to assume all risk in connection with any
fluctuation in value of any Deferred Compensation amounts.
(d) Title to and beneficial ownership of any assets of the Company,
whether cash or investments which the Company may earmark to pay
the Deferred Compensation hereunder, shall at all times remain the
property of the Company; and the Director and his/her designated
beneficiary shall not have any property interest whatsoever in any
specific assets of the Company.
(e) The Company shall notify the Directors not less than once per
calendar year as to the status of the Deferred Compensation
Account, including the number of shares of Common Stock previously
credited to such account and any cash or account earnings awaiting
investment in Common Stock.
(f) If on the date of death of a Participant no designated
beneficiary has been designated in writing on a form previously
received by the Company, the designated beneficiary of such
Participant shall be the estate of the Participant.
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<PAGE>
5. The amounts to be paid as Deferred Compensation, unless they are
forfeited pursuant to paragraph 7 below, are as follows:
(a) If the Director's service as a director hereunder is terminated
on or after he/she attains the age of 70, the Company shall pay to
the Director (in either five annual installments, not to exceed the
Director's life expectancy or in one lump sum as such payment
schedule is specified in the Director's Deferral Election Form) an
amount equal to the value of the Director's Deferred Compensation
Account as of such date. The Deferred Compensation amount payable
to the Director shall be appropriately increased or decreased to
reflect the appreciation or depreciation in value of the Investment
Option and the net income or loss of the Deferred Compensation
Account. If the Director should die on or after the date set forth
above, any unpaid balance will be paid to the Director's designated
beneficiary in the same manner as set forth in this paragraph 5(a).
(b) If the Director's service as a director hereunder is terminated
for any reason other than death and disability but before the date
set forth in paragraph 5(a) above, then the value of the Deferred
Compensation Account: (i) shall be paid to the Director in the same
manner as set forth in paragraph 5(a) above, and (ii) shall
continue to be invested or held in cash as the Company in its
discretion may determine and no payments shall be made until the
date set forth in paragraph 5(a) above. Notwithstanding the
foregoing, if prior to the date set forth in paragraph 5(a) above,
the Director should die, or the Director should become disabled,
then payments shall be made in the same manner and to the same
extent as set forth in paragraph 5(c) below.
(c) If the Director's service as a director is terminated because
of disability or death before reaching the date set forth in
paragraph 5(a) above, while the Director is performing services for
the Company, then the Company shall make payments to the Director
in the event of the Director's disability, or to the Director's
designated beneficiary in the event of the Director's
Page 3
<PAGE>
death to the same extent as set forth in paragraph 5(a) above.
(d) If the Director is receiving payments from the Company and
subsequently dies before the total payments are made by the
Company, then the remaining value of the Deferred Compensation
Account shall be determined as of the date of the death of the
Director and shall be paid as promptly as possible in one lump sum
to the Director's designated beneficiary.
(e) The Director's designated beneficiary referred to in this
paragraph 5 may be designated or changed by the Director, without
the consent of any prior designated beneficiary, on a form provided
to the Director by the Company and delivered to the Company before
the Director's death. If no such beneficiary shall have been
designated or if no designated beneficiary shall survive the
Director, the payments payable under paragraph 5(d) above, shall be
payable to the Director's estate.
(f) The Director shall be deemed to have become disabled for
purposes of paragraph 5(c) above, if the Company shall find on the
basis of medical evidence satisfactory to the Company that the
Director is totally disabled, mentally or physically, so as to be
prevented from engaging in further service as a director of the
Company and that such disability will be permanent and continuous
during the remainder of the Director's life.
(g) The payment(s) to be made to the Director under paragraphs 5(a)
and 5(c) above, shall commence on the first day of the month
following the date of the Director's termination of service as a
director, and the payment(s) to be made to the Director under
paragraph 5(b) above, shall commence on the first day of the month
next following the date set forth in paragraph 5(a) above. The
payment(s) to be made to the Director's designated beneficiary
under the provisions of this paragraph 5 shall commence on a date
to be selected by the Company but within six months from the date
of death of the Director.
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<PAGE>
(h) Notwithstanding anything herein contained to the contrary, the
Company shall have the right in its sole discretion to vary the
manner and time of making the distribution(s) provided in this
paragraph 5 and may make such distributions in lump sums or over a
shorter or longer period of time as it may find appropriate.
6. (a) Nothing contained in this Agreement and no action taken
pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Director, the Director's
designated beneficiary or any other person. Any funds which may be
invested under the provisions of this Agreement shall continue for
all purposes to be a part of the general funds of the Company. No
person other than the Company shall, by virtue of the provisions of
this Agreement, have any interest in such funds. The Company shall
not be under any obligation to use such funds solely to provide
amounts hereunder, and no representations have been made to the
Director that such funds can or will be used only to provide
amounts hereunder. To the extent that any person acquires a right
to receive payments from the Company under this Agreement, such
rights shall be no greater than the right of any unsecured general
creditor of the Company.
(b) In order to facilitate the accumulation of funds necessary to
meet the costs of the Company under this Agreement to make payments
to a Director or his or her beneficiary as and when the same are
due under the Plan, the Company may enter into a Trust Agreement.
The Board of Directors of the Company shall have the power to
appoint and remove the Trustee under such Trust Agreement in its
sole discretion. The Company, in its discretion, may elect to place
assets of the Company into the Trust as may from time to time be
approved by the Board of Directors of the Company in its sole
discretion. To the extent that the assets of said Trust are not
sufficient to pay benefits accrued under this Plan, such payments
shall be made from the general assets of the Company.
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<PAGE>
7. Notwithstanding anything contained herein to the contrary, no
payment of any unpaid installments of Deferred Compensation shall be made, and
all rights under this Agreement of the Director, the Director's designated
beneficiary, executors, or administrators, or any other person, to receive
payments thereof shall be forfeited if the Director shall engage, as determined
by the Company, in any activity or conduct inimical to the best interests of the
Company.
8. The right of the Director or any other person to the payment of
Deferred Compensation or other amounts under this Agreement shall not be
assigned, transferred, pledged, or encumbered except by will or by the laws of
descent and distribution.
9. If the Company shall find that any person to whom any amount is
payable under this Agreement is unable to care for his or her personal affairs
because of illness or accident, or is a minor, any payment due (unless a prior
claim therefor shall have been made by a duly appointed guardian, committee, or
other legal representative) may be paid to the spouse, a child, a parent, or a
brother or sister, or to any person deemed by the Company to have incurred
expense for such person otherwise entitled to payment, in such manner and
proportions as the Company may determine. Any such payments shall be a complete
discharge of the liabilities of the Company under this Agreement.
10. Nothing contained herein shall be construed as conferring upon the
Director the right to continue in his/her service as a director of the Company
or in any other capacity.
11. Any Deferred Compensation payable under this Agreement shall not be
deemed as salary or other compensation to the Director for the purpose of
computing benefits to which the Director may be entitled under any retirement
plan or other arrangement of the Company for the benefit of its employees or
directors.
12. The Company shall have full power and authority to interpret,
construe, and administer this Agreement and the Company's interpretations and
construction thereof, and actions thereunder, including any valuation of the
Deferred Compensation Account, or the amount or recipient of the payment to be
made under this Agreement, shall be binding and conclusive on all persons for
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<PAGE>
all purposes. The directors of the Company shall not be liable to any person for
any action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to his/her own willful
misconduct or lack of good faith.
13. The Company may appoint an administrative committee ("Committee")
to provide administrative services or perform duties required by this Agreement.
The Committee shall have only the authority granted to it by the Company.
14. This Agreement shall be binding upon and inure to the benefit of
the Company, its successors, and assigns and the Director and the Director's
heirs, executors, administrators, and legal representatives.
15. This Agreement shall be construed in accordance with and governed
by the laws of the State of New Mexico.
16. No right or benefit under the Agreement shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and
any attempt to anticipate alienate, sell, assign, pledge, encumber, or charge
the same shall be void. No right or benefit under this Agreement shall be liable
for or subject to the debts, contracts, liabilities, or torts of the person
entitled to such benefits. If the Director or the Director's designated
beneficiary should become bankrupt, or attempt to anticipate, sell, assign,
pledge, encumber, or charge any right or benefit hereunder, then such right or
benefit shall, in the discretion of the Committee, cease and terminate, and in
such event the Company may hold or apply the same or any part thereof for the
benefit of the Director or beneficiary, his/her spouse, children, or other
dependents, or any of them in such manner and in such proportion as the
Committee may deem proper.
17. The Company's Board of Directors may amend or terminate this
Agreement at any time, provided however, that no termination or amendment of
this Agreement shall, without the consent of the Director, adversely affect the
Director's right to any amounts previously deferred by the Director and credited
to the Deferred Compensation Account.
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<PAGE>
18. The Company shall bear all costs and expenses associated with
administration of the Agreement. No contributions to the Deferred Compensation
Account or any Trust under this Agreement will be permissible by the Director.
Page 8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Director has hereunto set
his/her hand and seal as of the date first above written.
GFSB Bancorp, Inc. (Company)
By:
- ---------------------------------- -------------------------------
Date Its _______________________________
"DIRECTOR"
-------------------------------
By:
- ---------------------------------- -------------------------------
Date
By:
- ---------------------------------- -------------------------------
Date Witness
EXHIBIT 10.4
<PAGE>
GFSB BANCORP, INC.
DIRECTORS STOCK COMPENSATION PLAN
1. Purpose of the Plan. The Plan shall be known as the GFSB Bancorp,
-------------------
Inc. ("Company") Directors Stock Compensation Plan (the "Plan"). The purpose of
the Plan is to retain and reward qualified personnel for positions of
substantial responsibility as members of the Board of Directors of the Company
or any present or future parent or subsidiary of the Company to promote the
success of the business. The Plan is intended to provide for the grant of Stock
Options that are not "Incentive Stock Options," within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Definitions. The following words and phrases when used in this Plan
-----------
with an initial capital letter, unless the context clearly indicates otherwise,
shall have the meaning as set forth below. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural.
"Award" means the grant by the Committee or in accordance with
the terms of the Plan of a Stock Option.
"Board" shall mean the Board of Directors of the Company, or
any successor or parent corporation thereto.
"Change in Control" shall mean: (i) the sale of all, or a
material portion, of the assets of the Company; (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in 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. This limitation shall not apply to the purchase
of shares by underwriters in connection with a public offering of Company stock,
or the purchase of shares of up to 25% of any class of securities of the Company
by a tax-qualified employee stock benefit plan. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and regulations promulgated thereunder.
"Committee" shall mean members of the Board as a whole.
"Common Stock" shall mean the common stock of the Company, or
any successor or parent corporation thereto.
"Company" shall mean the GFSB Bancorp, Inc., the parent
corporation of the Bank, or any successor or Parent thereof.
"Director" shall mean a member of the Board of the Company, or
any successor or parent corporation thereto.
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<PAGE>
"Disability" means any physical or mental impairment which
renders the Participant incapable of continuing in the employment or service of
the Bank or the Parent in his then current capacity as determined by the
Committee.
"Effective Date" shall mean March 22, 2000.
"Employee" shall mean any person employed by the Company or
any present or future Parent or Subsidiary of the Company. "Non-Employee" shall
mean an individual not employed by the Company or any present or future Parent
or Subsidiary of the Company.
"Fair Market Value" shall mean: (i) if the Common Stock is
traded otherwise than on a national securities exchange, then the Fair Market
Value per Share shall be equal to the mean between the last bid and ask price of
such Common Stock on such date or, if there is no bid and ask price on said
date, then on the immediately prior business day on which there was a bid and
ask price. If no such bid and ask price is available, then the Fair Market Value
shall be determined by the Committee in good faith; or (ii) if the Common Stock
is listed on a national securities exchange, then the Fair Market Value per
Share shall be not less than the average of the highest and lowest selling price
of such Common Stock on such exchange on such date, or if there were no sales on
said date, then the Fair Market Value shall be not less than the mean between
the last bid and ask price on such date.
"Option" or "Stock Option" shall mean an Award granted
pursuant to this Plan providing the holder of such Option with the right to
purchase Common Stock.
"Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
"Optionee" shall mean any person who receives an Option or
Award pursuant to the Plan.
"Parent" shall mean any present or future corporation which
would be a "parent corporation" as defined in Sections 424(e) and (g) of the
Code.
"Participant" means any a director of the Company or any
Parent or Subsidiary of the Company or any other person providing a service to
the Company who is selected by the Committee to receive an Award, or who by the
express terms of the Plan is granted an Award.
"Plan" shall mean the GFSB Bancorp, Inc. Directors Stock
Compensation Plan.
"Savings Bank" or "Bank" shall mean Gallup Federal Savings
Bank, or any successor corporation thereto.
"Share" shall mean one share of the Common Stock.
"Subsidiary" shall mean any present or future corporation
which constitutes a "subsidiary corporation" as defined in Sections 424(f) and
(g) of the Code.
3. Shares Subject to the Plan. Except as otherwise required by the
---------------------------
provisions of Section 11 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 9,557 Shares.
Such Shares may either be from authorized but unissued shares or shares
purchased in the market for Plan purposes. If an Award shall expire, become
unexercisable, or be forfeited for any reason prior to its exercise, new Awards
may be granted under the Plan with respect to the number of Shares as to which
such expiration has occurred.
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<PAGE>
4. Six Month Holding Period.
------------------------
Except in the event of the death or disability of the Optionee
or a Change in Control of the Company, a minimum of six months must elapse
between the date of the grant of an Option and the date of the sale of the
Common Stock received through the exercise of such Option.
5. Administration of the Plan.
--------------------------
(a) Composition of the Committee. The Plan shall be
administered by the Board of Directors of the Company.
(b) Powers of the Committee. The Committee is authorized (but
only to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The President of the Company and such other officers as shall
be designated by the Committee are hereby authorized to execute written
agreements evidencing Awards on behalf of the Company and to cause them to be
delivered to the Participants. Such agreements shall set forth the Option
exercise price, the number of shares of Common Stock subject to such Option, the
expiration date of such Options, and such other terms and restrictions
applicable to such Award as are determined in accordance with the Plan or the
actions of the Committee.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.
6. Eligibility for Awards and Limitations.
--------------------------------------
(a) The Committee shall from time to time determine the
Participants who shall be granted Awards under the Plan and the number of Awards
to be granted to each such persons. In selecting Participants and in determining
the number of Shares of Common Stock to be granted to each such Participant, the
Committee may consider the nature of the prior and anticipated future services
rendered by each such Participant, each such Participant's current and potential
contribution to the Company and such other factors as the Committee may, in its
sole discretion, deem relevant. Participants who have been granted an Award may,
if otherwise eligible, be granted additional Awards.
(b) In no event shall Shares subject to Options granted to any
Participant exceed more than 22% of the total number of Shares authorized for
delivery under the Plan.
7. Term of the Plan. The Plan shall continue in effect for a term of
----------------
ten (10) years from the Effective Date, unless the Plan is terminated by the
Board in accordance with the Plan.
8. Terms and Conditions of Stock Options. Stock Options may be granted
-------------------------------------
or awarded only to Participants. Each Stock Option granted pursuant to the Plan
shall be evidenced by an instrument in such form as the Committee shall from
time to time approve. Each Stock Option granted pursuant to the Plan shall
comply with, and be subject to, the following terms and conditions:
-3-
<PAGE>
(a) Option Price. The price per Share at which each Stock
Option granted by the Committee under the Plan may be exercised shall not, as to
any particular Stock Option, be less than the Fair Market Value of the Common
Stock on the date that such Stock Option is granted.
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Stock Option granted under the Plan shall be
made at the time of exercise of each such Stock Option and shall be paid in cash
(in United States Dollars), Common Stock or a combination of cash and Common
Stock. Common Stock utilized in full or partial payment of the exercise price
shall be valued at the Fair Market Value at the date of exercise. The Company
shall accept full or partial payment in Common Stock only to the extent
permitted by applicable law. No Shares of Common Stock shall be issued until
full payment has been received by the Company, and no Optionee shall have any of
the rights of a stockholder of the Company until Shares of Common Stock are
issued to the Optionee.
(c) Term of Stock Option. The term of exercisability of each
Stock Option granted pursuant to the Plan shall be not more than ten (10) years
from the date each such Stock Option is granted.
(d) Exercise Generally. Except as otherwise provided by
the terms of the Plan or by action of the Committee at the time of the grant of
the Options, the Options granted will be first exercisable as of the date of
grant of such options.
(e) Cashless Exercise. Subject to vesting requirements, if
applicable, an Optionee who has held an Stock Option for at least six months may
engage in the "cashless exercise" of the Option. Upon a cashless exercise, an
Optionee shall give the Company written notice of the exercise of the Option
together with an order to a registered broker-dealer or equivalent third party,
to sell part or all of the Optioned Stock and to deliver enough of the proceeds
to the Company to pay the Option exercise price and any applicable withholding
taxes. If the Optionee does not sell the Optioned Stock through a registered
broker-dealer or equivalent third party, the Optionee can give the Company
written notice of the exercise of the Option and the third party purchaser of
the Optioned Stock shall pay the Option exercise price plus any applicable
withholding taxes to the Company.
(f) Transferability. A Stock Option granted pursuant to the
Plan shall be exercised during an Optionee's lifetime only by the Optionee to
whom it was granted and shall not be assignable or transferable otherwise than
by will or by the laws of descent and distribution.
9. Awards to Directors.
-------------------
Stock Options to purchase shares of Common Stock (subject to
adjustment for any stock dividends or stock splits between the Effective Date
and the date of grant) will be granted to each Director of the Company as of
April 28, 2000, as follows:
Participant Number of Options
----------- -----------------
Richard C. Kauzlaric 2,046
James Nechero, Jr. 1,467
George S. Perce 1,332
Dr. Wallace R. Phillips 1,178
Vernon I. Hamilton 1,178
Charles L. Parker, Jr. 1,313
Michael Mataya 1,043
-----
TOTALS 9,557
------ =====
-4-
<PAGE>
Such Options shall be exercisable at a price equal to the Fair Market Value of
the Common Stock as of the date of grant of such options. Such Options will be
first exercisable as of the date of grant. Such Options shall continue to be
exercisable for a period of ten years following the date of grant. In the event
of the Optionee's death, such Options may be exercised by the personal
representative of his estate or person or persons to whom his rights under such
Option shall have passed by will or by the laws of descent and distribution for
a period of one year from such death. Unless otherwise inapplicable, or
inconsistent with the provisions of this paragraph, the Options to be granted to
Directors hereunder shall be subject to all other provisions of this Plan.
10. Withholding Tax. The Company shall have the right to deduct from
----------------
all amounts paid in cash with respect to the cashless exercise of Options under
the Plan any taxes required by law to be withheld with respect to such cash
payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option, the Company shall have the right to
require the Participant or such other person to pay the Company the amount of
any taxes which the Company is required to withhold with respect to such Shares,
or, in lieu thereof, to retain, or to sell without notice, a number of such
Shares sufficient to cover the amount required to be withheld.
11. Recapitalization, Merger, Consolidation, Change in Control and
--------------------------------------------------------------
Other Transactions.
- -------------------
(a) Adjustment. Subject to any required action by the
stockholders of the Company, within the sole discretion of the Committee, the
aggregate number of Shares of Common Stock for which Options may be granted
hereunder, the number of Shares of Common Stock covered by each outstanding
Option, and the exercise price per Share of Common Stock of each such Option,
shall all be proportionately adjusted for any increase or decrease in the number
of issued and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt or payment of consideration by the Company (other
than Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a Change in Control of the Company, as
determined by the Committee. In the event of such a Change in Control, the
Committee and the Board of Directors will take one or more of the following
actions to be effective as of the date of such Change in Control:
(i) provide that such Options shall be assumed,
or equivalent options shall be substituted, ("Substitute Options") by the
acquiring or succeeding corporation (or an affiliate thereof), provided that:
the shares of stock issuable upon the exercise of such Substitute Options shall
constitute securities registered in accordance with the Securities Act of 1933,
as amended, ("1933 Act") or such securities shall be exempt from such
registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act,
(collectively, "Registered Securities"), or in the alternative, if the
securities issuable upon the exercise of such Substitute Options shall not
constitute Registered Securities, then the Optionee will receive upon
consummation of the Change in Control transaction a cash payment for each Option
surrendered equal to the difference between (1) the Fair Market Value of the
consideration to be received for each share of Common Stock in the Change in
Control transaction times the number of shares of Common Stock subject to such
surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options, or
(ii) in the event of a transaction under the terms
of which the holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment (the "Merger Price") for each share of
Common Stock exchanged in the Change in Control transaction, to make or to
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<PAGE>
provide for a cash payment to the Optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
Options held by each Optionee (to the extent then exercisable at prices not in
excess of the Merger Price) and (B) the aggregate exercise price of all such
surrendered Options in exchange for such surrendered Options.
(c) Extraordinary Corporate Action. Notwithstanding any
provisions of the Plan to the contrary, subject to any required action by the
stockholders of the Company, in the event of any Change in Control,
recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, partial or complete liquidation or other
extraordinary corporate action or event, the Committee, in its sole discretion,
shall have the power, prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of Common
Stock subject to each Option, the Option exercise price per Share of Common
Stock, and the consideration to be given or received by the Company upon the
exercise of any outstanding Option;
(ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in connection
therewith; and/or
(iii) make such other adjustments in connection with
the Plan as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable.
(d) Acceleration. The Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.
(e) Non-recurring Dividends. Upon the payment of a special
or non-recurring cash dividend that has the effect of a return of capital to the
stockholders, the Option exercise price per share shall be adjusted
proportionately.
Except as expressly provided in Sections 11(a), 11(b) and 11(e) hereof,
no Optionee shall have any rights by reason of the occurrence of any of the
events described in this Section 11.
12. Time of Granting Options. The date of grant of an Option under the
------------------------
Plan shall, for all purposes, be the date specified in accordance with the Plan
or the date on which the Committee makes the determination of granting such
Option. Notice of the grant of an Option shall be given to each individual to
whom an Option is so granted within a reasonable time after the date of such
grant in a form determined by the Committee.
13. Modification of Options. At any time and from time to time, the
------------------------
Board may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on the Optionee by the grant of a
new Option at such time, or shall not materially decrease the Optionee's
benefits under the Option without the consent of the holder of the Option,
except as otherwise permitted under Section 14 hereof.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Action by the Board. The Board may alter, suspend or
discontinue the Plan.
(b) Change in Applicable Law. Notwithstanding any other
provision contained in the Plan, in the event of a change in any federal or
state law, rule or regulation which would make the exercise of all or part of
any previously granted Option unlawful or subject the Company to any penalty,
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<PAGE>
the Committee may restrict any such exercise without the consent of the Optionee
or other holder thereof in order to comply with any such law, rule or regulation
or to avoid any such penalty.
15. Conditions Upon Issuance of Shares; Limitations on Option Exercise;
-------------------------------------------------------------------
Cancellation of Option Rights.
- -------------------------------
(a) Shares shall not be issued with respect to any Option granted under
the Plan unless the issuance and delivery of such Shares shall comply with all
relevant provisions of applicable law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities laws and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) The inability of the Company to obtain any necessary
authorizations, approvals or letters of non-objection from any regulatory body
or authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares issuable hereunder shall relieve the Company of
any liability with respect to the non-issuance or sale of such Shares.
(c) As a condition to the exercise of an Option, the Company may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(d) Notwithstanding anything herein to the contrary, upon the
termination of employment or service of an Optionee by the Company or its
Subsidiaries for "cause" within the sole discretion of the Board, all Options
held by such Participant shall cease to be exercisable as of the date of such
termination of employment or service.
(e) Upon the exercise of an Option by an Optionee (or the Optionee's
personal representative), the Committee, in its sole and absolute discretion,
may make a cash payment to the Optionee, in whole or in part, in lieu of the
delivery of shares of Common Stock. Such cash payment to be paid in lieu of
delivery of Common Stock shall be equal to the difference between the Fair
Market Value of the Common Stock on the date of the Option exercise and the
exercise price per share of the Option. Such cash payment shall be in exchange
for the cancellation of such Option. Such cash payment shall not be made in the
event that such transaction would result in liability to the Optionee or the
Company under Section 16(b) of the Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder.
16. Reservation of Shares. During the term of the Plan, the Company
----------------------
will reserve and keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
17. Unsecured Obligation. No Participant under the Plan shall have any
--------------------
interest in any fund or special asset of the Company by reason of the Plan or
the grant of any Option under the Plan. No trust fund shall be created in
connection with the Plan or any grant of any Option hereunder and there shall be
no required funding of amounts which may become payable to any Participant.
18. No Employment Rights. No Director, Employee or other person shall
---------------------
have a right to be selected as a Participant under the Plan. Neither the Plan
nor any action taken by the Committee in administration of the Plan shall be
construed as giving any person any rights of employment or retention as an
Employee, Director or in any other capacity with the Company, the Bank or other
Subsidiaries.
19. Governing Law. The Plan shall be governed by and construed in
--------------
accordance with the laws of the State of New Mexico, except to the extent that
federal law shall be deemed to apply.
-7-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,320
<INT-BEARING-DEPOSITS> 1,249
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,620
<INVESTMENTS-CARRYING> 1,680
<INVESTMENTS-MARKET> 0
<LOANS> 106,028
<ALLOWANCE> 535
<TOTAL-ASSETS> 167,383
<DEPOSITS> 82,658
<SHORT-TERM> 70,952
<LIABILITIES-OTHER> 1,402
<LONG-TERM> 0
0
0
<COMMON> 92
<OTHER-SE> 12,278
<TOTAL-LIABILITIES-AND-EQUITY> 167,383
<INTEREST-LOAN> 6,394
<INTEREST-INVEST> 2,121
<INTEREST-OTHER> 193
<INTEREST-TOTAL> 8,708
<INTEREST-DEPOSIT> 2,385
<INTEREST-EXPENSE> 5,125
<INTEREST-INCOME-NET> 3,583
<LOAN-LOSSES> 130
<SECURITIES-GAINS> (66)
<EXPENSE-OTHER> 2,108
<INCOME-PRETAX> 1,511
<INCOME-PRE-EXTRAORDINARY> 1,511
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 977
<EPS-BASIC> 1.06
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 3.18
<LOANS-NON> 761
<LOANS-PAST> 5
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,618
<ALLOWANCE-OPEN> 443
<CHARGE-OFFS> 40
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 535
<ALLOWANCE-DOMESTIC> 535
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
