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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
x Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File Number: 0-22269
GS Financial Corp.
(Exact Name of Registrant as Specified in its Charter)
Louisiana 72-1341014
(State or Other Jurisdiction (IRS Employer ID Number)
of Incorporation or Organization)
3798 Veterans Blvd.
Metairie, LA 70002
(Address of Principal Executive Offices)
Registrant's Telephone Number: (504) 457-6220
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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.
x Yes No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
As of March 23, 2000, there were 3,438,500 shares of the
Registrant's common stock, par value $.01 per share, issued and
outstanding, of which 2,648,446 are entitled to be voted. The
aggregate market value of such stock, excluding the shares held by
all directors, officers and affiliates of the Registrant, was
$22.6 million at March 22, 2000 based on the per common share
price at closing of $10.88 on that date. The information
presented in this Form 10-K at December 31, 1999 and 1998, and for
the twelve months ended December 31, 1999, 1998, and 1997
represent the financial condition and results of operations of GS
Financial Corp. and its wholly-owned subsidiary, Guaranty Savings
& Homestead Association.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the following documents which have been
incorporated by reference and the Part of the Form 10-K into which
the document is incorporated.
(1) Portions of the Annual Report to Shareholders for the fiscal
year ended December 31, 1999 are incorporated into Part II, Items
5 through 8, and Part IV, Item 14.
(2) Portions of the definitive proxy statement for the 2000
Annual Meeting of Shareholders to be filed within 120 days of the
Registrant's fiscal year end are incorporated into Part III, Items
10 through 13.
PART I.
Item 1 BUSINESS
In addition to historical information, this Annual Report on
Form 10-K includes certain "forward-looking statements," as
defined in the Securities Act of 1933 and the Securities Exchange
Act of 1934, based on current management expectations. The
Company's actual results could differ materially from those
management expectations. Such forward-looking statements include
statements regarding the Company's intentions, beliefs or current
expectations as well as the assumptions on which such statements
are based. Stockholders and potential stockholders are cautioned
that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by
such forward-looking statements. Factors that could cause future
results to vary from current management expectations include, but
are not limited to, general economic conditions, legislative and
regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality
or composition of the Company's loan and investment portfolios,
changes in accounting principles, policies or guidelines, and
other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products,
services and fees. The Company undertakes no obligation to update
or revise any forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to
future operating results over time.
General
GS Financial Corp. (the "Company") was incorporated under
Louisiana law on December 24, 1996 as a thrift holding company.
The Company commenced operations on April 1, 1997 upon the
completion of its initial public offering of common stock, which
trades on the Nasdaq National Market. On that date the Company's
wholly owned subsidiary, Guaranty Savings and Homestead
Association (the "Association") was converted from a Louisiana
chartered mutual savings and loan association to a Louisiana
chartered stock savings and loan association. This was
accomplished through the offer and sale of common stock by the
Company to certain depositors, employees, officers and directors
of the Association as well as the GS Financial Employee Stock
Ownership Plan (the "ESOP"). The Company simultaneously used a
portion of the proceeds of its sale of common stock to acquire
100% of the stock of the Association.
The Company's principal business is conducted through the
Association. Guaranty Savings and Homestead Association was
founded in New Orleans, Louisiana in 1937 as a mutual savings and
loan association. The Association's unconsolidated assets at
December 31, 1999 totaled $155.1 million and comprise 98.2%
of the total consolidated assets of the Company.
The Association provides financial services primarily to
individuals, mainly through the origination of mortgage loans on
1-4 family residences. The Association accepts deposits in
the form of passbook savings, certificates of deposit, demand
deposit accounts and individual retirement accounts. The
Association also invests in short and long term liquid investments
such as US Treasury and Agency securities, mortgage-backed
securities, overnight Federal Funds, money market investments and
qualified thrift grade mutual funds. The balance of the
consolidated assets held by the Company includes $2.7 million in
similar short and long term liquid investments.
Regulation
The Company's primary regulator is the Office of Thrift
Supervision ("OTS"). The OTS regulates all thrifts and thrift
holding companies whose deposits are insured by the Savings
Association Insurance Fund ("SAIF") which is administered by the
Federal Deposit Insurance Corporation ("FDIC"). The Company, by
virtue of its state charter is also subject to the rules and
regulations of the Louisiana Office of Financial Institutions
("OFI"). These two agencies currently examine the Company
approximately every 18 months on an individual basis, relying on
the examination report of the other agency on cycles, alternating
when it is not their year to examine the Association. The nature
of such examinations includes safety and soundness issues or
compliance with applicable laws and regulations.
As a public registrant the Company is also subject to the
rules and regulations of the Securities and Exchange Commission
("SEC"). The Company also is subject to the rules of the NASDAQ
Stock Market.
The Association has been a member of the Federal Home Loan
Bank of Dallas ("FHLB") since 1937. The Federal Home Loan Bank
System is comprised of 12 regional banks which serve thrifts and
banks by offering investment opportunities and sources of funds.
Lending Activities
Loan Portfolio Composition. The following table sets forth the
composition of the Company's loan portfolio by type of loan at the
dates indicated (in thousands):
LOAN PORTFOLIO COMPOSITION
December 31,
----------------------------------------
1999 1998 1997 1996 1995
----------------------------------------
First Mortgage Loans:
One to Four
Family Residential $ 67,424 $ 61,562 $ 52,528 $ 42,660 $ 38,449
FHA and VA 140 237 358 511 675
Construction 646 740 99 298 -
Commercial
Real Estate 1,377 1,157 471 430 484
Other 446 201 123 145 146
-------- -------- --------- ------- ------
Total First
Mortgage Loans 70,033 63,897 53,579 44,044 39,754
Consumer Loans:
Second Mortgage 84 119 172 273 267
Loans on Deposits 367 337 244 183 186
-------- -------- -------- -------- -------
70,484 64,353 53,995 44,500 40,207
Allowance for
Loan Losses (424) (463) (410) (382) (323)
Net Deferred Loan
Origination Costs 6 5 3 7 (4)
--------- --------- -------- -------- ------
Net Loans $ 70,066 $ 63,895 $ 53,588 $ 44,125 $ 39,888
====== ====== ====== ====== ======
Loan Maturities. The following table sets forth certain
information as of December 31, 1999 regarding the
dollar amount of loans maturing in the Company's portfolio, based
on the contractual date of the loan's final maturity, before
giving effect to net items. Loans on deposits have no stated
maturity are reported as due in one year or less. The amounts
shown below do not reflect normal principal amortization;
rather, the balance of each loan outstanding at December 31, 1999
is shown in the appropriate year of the loan's final maturity.
The actual maturity of loans varies primarily on prepayments
which, to a large extent, depend on market interest rates. In
general, if prevailing market rates fall below those of the
portfolio, prepayments accelerate. Conversely, if market interest
rates increase above portfolio rates, early pay-offs tend to
decrease.
Loans receivable as of December 31, 1999 are
scheduled to mature as follows (in thousands):
Amounts at December 31, 1999 Maturing
Over
Under One to Five to Over
One Five Ten 10
Year Years Years Years Total
------ ------ ------- ------ -----
Loans Secured by 1-4 Family
Residential:
Fixed Rate $ 75 $ 2,861 $ 9,023 $ 56,335 $ 68,294
Other Loans Secured by
Real Estate:
Fixed Rate 15 323 962 523 1,823
All Other Loans 367 - - - 367
------ ----- ------ ------- ------
$ 457 $ 3,184 $ 9,985 $ 56,858 $ 70,484
====== ======= ====== ======== ========
Loan Origination Activity. The table below sets forth the
Company's total loan origination and reduction experience during
the periods indicated. Historically, the Company has not
purchased or sold any loans.
Year Ended December 31,
--------------------------------------
1999 1998 1997 1996 1995
--------------------------------------
Loan Originations (in thousands):
1-4 family residential $13,082 $14,697 $14,806 $8,876 $6,400
Construction 1,004 1,663 726 823 -
Commercial real estate 306 526 75 69 -
Consumer 266 283 149 66 150
Other Real Estate 263 732 165 235 -
------- ------ ------ ------ ------
Total Loan Originations 14,921 17,901 15,921 10,069 6,550
Loan principal
repayments (8,790) (7,490) (6,425) (5,776) (6,727)
Increase (decrease)
due to other items 72 (53) - 3 36
------- ------ ------ ------- -------
Net increase (decrease)
in Loan Portfolio $ 6,203 $10,358 $9,496 $4,296 $ (141)
====== ====== ===== ===== =====
Real Estate Lending Standards and Underwriting Policies. The
lending activities of the Company are subject to written
underwriting standards and loan origination procedures established
by the Company's Board of Directors and Management, which are
consistent with safe and sound banking requirements. These
standards and procedures are incorporated into the Company's
Underwriting Standards and Lending Policy which are reviewed
annually by the Board of Directors (the "Board"). The
underwriting standards dictate the manner in which loan
applications are accepted and processed. Such standards are
written to comply with all applicable laws and regulations
including but not limited to Truth-In-Lending (Regulation Z) and
the Real Estate Settlement and Procedures Act ("RESPA"). These
standards pertain to such issues as appraisal guidelines,
disclosure requirements, credit criteria, complete applications,
and title requirements. The Company requires appraisals from
Board-approved state licensed and certified appraisers. The
lending policy establishes the overall direction of the Company's
lending activities within the community and forms the basis for
setting underwriting standards which are designed to limit the
Company's exposure to credit risk. Such factors include loan
amount, debt to income ratios, collateral, and acceptable rates
and terms.
Briefly stated, the loan process consists of applicants
meeting with loan personnel and providing pertinent documentation,
including but not limited to, requested loan amount, property
description, security offered as collateral, intended down
payments and acceptable rate and term consistent with the
Company's then current lending policy. Loan personnel order a
credit report to check the applicant's credit history and an
appraisal to verify the subject property's stated market value.
When the loan application is complete, it is submitted to the Loan
Committee for consideration. All applicants receive written
notification of the Committee's decision to approve or deny the
request. Approved loans are assigned to one of the Company's
approved attorneys for closing. Actions of the Loan Committee are
submitted to the Board of Directors for consideration and
ratification on a monthly basis.
Loan applications are accepted at all three of the Company's
offices and forwarded to the Loan Committee which meets weekly.
The Company requires a title insurance policy on all real estate
loans prior to closing.
The Company's loan portfolio consists primarily of
conventional fixed-rate mortgage loans on 1-4 family residential
dwellings. The terms of these extend to 30 years. Currently, the
minimum cash down payment is 20% of the lesser of purchase price
or appraised value. The Company also makes loans on residential
investment property, commercial real estate, condominiums and
vacant ground. Terms and rates are commensurate with current
market conditions and risk factors.
The Company originates and funds construction loans which
usually convert to permanent, fixed rate mortgage loans. During
the construction period, the Company requires payment of interest
only on the amount of principal disbursed.
Loans are available to depositors of the Company secured by
passbook savings or certificates of deposit at a rate two
percentage points above the savings rate up to 90% of the face
amount of a certificate of deposit or 90% of the current available
balance of a passbook. The minimum amount on such loans is $1,000
and these loans are payable on demand subject to 30 days notice.
Asset Quality
General. The Company has adopted an asset classification policy
which is designed to address substandard assets before collection
becomes a problem, thus maintaining the quality of the Company's
investment as an interest-earning asset. The policy also ensures
the accurate reporting of the Company's assets from a valuation
standpoint.
All of the Company's loans and real estate owned are reviewed
on a quarterly basis. Factors taken into consideration include
the asset's payment history, the value of the underlying
collateral as well as current economic conditions, particularly in
the local real estate market. Assets displaying tendencies which
might hinder full collection of principal are classified as
substandard. Such tendencies include but are not limited to late
payments on loans or deterioration of the underlying collateral.
Assets classified as special mention are those not yet serious
enough to merit the substandard classification but which do
require additional attention from Management.
The Company's Watch List, comprising substandard and special
mention assets, is presented to the Board quarterly and ratified.
The allowance for loan loss ("ALL") is calculated by assigning
various percentages to assets on the watch list, particular types
of mortgage loans, and the mortgage portfolio taken as a whole.
The ALL is maintained at an overall percentage of the mortgage
portfolio deemed appropriate by management considering conditions
in the local real estate market, current economic circumstances
and recent foreclosure or charge-off activity.
Loan collection efforts in the form of past due notices
commence when loan payments are more than 15 days past due. Once
a loan reaches 30 days past due status, the Company's collection
manager initiates personal contact with the borrower. When a loan
becomes 90 days past due, the Company initiates foreclosure
proceedings. At this point, loans are placed on non-accrual
status. All interest and late charges due on such loans are
reversed in the form of reserves for uncollectible interest and
late charges.
Real estate acquired by the Company through foreclosure is
classified as Real Estate Owned until such time as the property is
sold. All such assets are booked at the lower of appraised value
or cost which includes all principal, escrow overdrafts and
attorney fees. All Real Estate Owned is considered substandard.
Delinquent Loans and Non-Performing Assets. The following
tables set forth the Company's delinquent loans and non-performing
assets as of the dates indicated. Balances are indicative of the
total principal balances of such loans rather than the actual
principal past due based on the number of payments past due. At
December 31 of the five years presented all of the Association's
delinquent loans and non-performing assets were either 1-4 family
residential dwellings or loans secured by 1-4 family residences.
DELINQUENT LOANS
(Dollars in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
30-89 Days $ 2,673 $ 2,171 $ 271 $ 175 $ 313
90+ Days 100 266 166 253 206
--- ---- --- --- ---
Total Delinquent Loans $ 2,773 $ 2,437 $ 437 $ 428 $ 519
===== ==== === === ===
During 1998, the Company changed its data processing
parameters to include accounts exactly 30 days past due in the
delinquent 30-89 day category. This is the primary reason for
the marked increase in the amount of loans delinquent 30-89 days
in 1999 and 1998 compared to past years. Under prior years'
parameters, the amount of loans delinquent 30-89 days at December
31, 1999 and 1998 would have been $325,000 and $224,000
respectively.
Non-Performing Assets
(Dollars in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
90+ Day Delinquent Loans $ 100 $ 266 $ 166 $ 253 $ 206
Real Estate Owned 14 - - - 24
--- --- --- --- ---
Total Non-Performing Assets $ 114 $ 266 $ 166 $ 253 $ 230
=== === === === ===
Non-Performing Loans as
a % of Total Loans .14% .42% .31% .57% .51%
Non-Performing Assets as
a % of Total Assets .06% .17% .13% .29% .27%
Classified Assets. The following table presents information
pertaining to the Company's Watch List of classified as of the
dates indicated. All substandard and special mention loans
receivable were on 1-4 family residential mortgage loans.
POTENTIAL PROBLEM LOANS
At December 31,
----------------------------------------
1999 1998 1997 1996 1995
----------------------------------------
(Dollars in thousands)
Substandard $ 1,633 $ 1,970 $ 1,564 $ 1,781 $ 1,900
Special Mention 148 241 298 346 501
----- ----- ----- ----- -----
Total 1,781 2,211 1,862 2,127 2,401
Less Allowance for
Loan Loss (106) (141) (141) (160) (123)
----- ----- ----- ----- -----
Net $ 1,675 $ 2,070 $ 1,721 $ 1,967 $ 2,278
===== ===== ===== ===== =====
LOAN LOSS EXPERIENCE
Provisions for loan losses are charged to earnings to bring
the total allowance for loan losses to a level considered
appropriate by Management based on a quarterly review which is
reflective of each individual loan's performance and condition of
the underlying collateral. Management targets a certain
percentage of the entire portfolio given the current economic
conditions at which the ALL is deemed adequate. The Company
employs the reserve method of accounting for its ALL. The
following table sets forth the Company's loan loss experience
for the years presented.
An analysis of the allowance for loan losses follows (dollars
in thousands):
Years Ended December 31,
------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance, Beginning
of Year $ 463 $ 410 $ 382 $ 323 $ 345
Provision for Losses 6 53 28 59 12
Loans Charged-Off (45) - - - (34)
Recoveries - - - - -
--- --- --- --- ---
Balance, End of Year $ 424 $ 463 $ 410 $ 382 $ 323
=== === === === ===
Allowance for Loan
Losses as a % of
Total Loans Receivable .60% .72% .77% .87% .80%
Allowance for Loan
Losses as a % of
Non-Performing Loans 422.97% 174.01% 247.49% 151.17% 156.80%
Mortgage-Backed Securities
GS Financial has invested in a portfolio of mostly fixed-
rate, mortgage-backed securities that are issued or guaranteed by
the Federal Home Loan Mortgage Corporation (FHLMC), the Federal
National Mortgage Association (FNMA) or the Government National
Mortgage Association (GNMA). The FHLMC and FNMA are enterprises
sponsored by the Federal government while GNMA securities
represent direct obligations of the Federal government. Because
of this, these securities are considered high quality investments
with minimal credit risks.
Mortgage-backed securities represent participating interests
in pools of first mortgage loans originated and serviced by their
prospective issuers. Principal and interest payments of the
underlying mortgage loans are passed through intermediaries
including but not limited to the issuing agencies, or to investors
such as GS Financial Corp. These securities in general offer
slightly higher yields than United States Treasury obligations.
The Company invests in mortgage-backed securities with terms
varying from 5 to 30 years. These securities are subject to
variations in cash flow and yield due to the prepayment rates of
the underlying mortgage loans. All such mortgage-backed
securities meet the requirements of qualified thrifts investments
as later defined.
On September 30, 1997 the Company reclassified all of its
mortgage-backed securities as available-for-sale pursuant to
SFAS 115. Management felt that this classification was more
appropriate considering the magnitude of the Company's investment
in these instruments and the liquidity available should other
investment opportunities arise.
The following table sets forth the composition of the
Company's mortgage-backed securities portfolio at each of the
dates indicated (in thousands):
MORTGAGE-BACKED SECURITIES
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
--------------------------------------------
Available for Sale:
FNMA $ 5,255 $ 1 $ 81 $ 5,175
FHLMC 1,328 3 34 1,297
GNMA 10,160 - 357 9,803
------ --- --- ------
$ 16,743 $ 4 $ 472 $ 16,275
====== === === ======
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
--------------------------------------------
Available for Sale:
FNMA $ 7,589 $ 58 $ 31 $ 7,616
FHLMC 2,310 23 5 2,328
GNMA 13,159 106 - 13,265
------ --- -- ------
$ 23,058 $ 187 $ 36 $ 23,209
====== === == ======
The following table sets forth the maturities of the mortgage-
backed security portfolio as of December 31, 1999 (in thousands):
MORTGAGE-BACKED SECURITIES
Weighted
Amortized Fair Average
December 31, 1999 Cost Value Rate
-------- --------
Mortgage-Backed Securities
Maturing:
In One Year or Less $ 112 $ 113 6.20%
After One Year Through Five Years 1,411 1,405 6.55%
After Five Years Through Ten Years 1,403 1,339 5.89%
After Ten Years 13,817 13,418 6.60%
------ ------
$ 16,743 $ 16,275
====== ======
The following table sets forth the purchases, sales and principal
repayments of the Company's mortgage-backed securities during the
periods indicated (in thousands):
MORTGAGE-BACKED SECURITIES
1999 1998 1997
--------------------------------
Mortgage-Backed Securities
Balance at January 1, $ 23,058 $ 41,648 $ 7,520
Purchases - 5,764 38,440
Repayments (6,227) (11,790) (4,310)
Sales (Net of Gains) - (12,388) -
Amortizations of Premiums
/Discounts (Net) (88) (176) (2)
------ ------ -----
Balance at December 31, $ 16,743 23,058 41,648
====== ====== =====
Weighted Average Yield 6.53% 6.34% 6.38%
Investment Securities
GS Financial invests in United States Treasury and Agency
issued obligations ranging in term from 3 months to 10 years. The
investment policy of the Company is reviewed periodically by
Management and ratified annually by the Board of Directors. At
present, the investment policy of the Company strives to maintain
a liquid, conservative portfolio of investments keeping in mind
the cash flow and investment needs of the Company.
The Company also invests its excess cash in two institutional
funds whose principal underlying holdings are qualified thrift
investments. One is an adjustable rate mortgage (ARM) fund while
the other is an intermediate mortgage fund (IMF). Both of these
funds are offered by the First Financial Trust, which is a co-
operative institutional investment group comprised of members of
America's Community Bankers. At December 31, 1999, 90.8% of the
ARM Fund's assets were held in qualified thrift investments while
77.9% of the IMF's holdings were in qualified thrift investments.
This strategy supplements the Company's prior investment in money
market funds or overnight Federal funds. These two funds
typically yield a higher rate of return than money-market and
Federal funds while still providing excellent liquidity.
Interest rates dictate many of the investment decisions and
policies of the Company. It is the policy of the Company
not to engage in speculative purchasing, selling or trading of
investments. However, certain profits may be taken on the sale of
investments. When interest rate spreads reach acceptable levels
the Company may utilize leveraged purchasing of investment
securities. Also, when anticipated earnings permit,
certain portfolio adjustments may be made to enhance the overall
portfolio yield even though losses may be recognized in doing so.
The Company's investment portfolio is classified as
available-for-sale in accordance with SFAS 115. Prior to 1997,
the Company's investment portfolio was largely classified as held-
to-maturity with approximately 5% to 10% of the portfolio being
classified available-for-sale. That amount was determined by
Management as necessary should any emergency liquidity demands
arise. On September 30, 1996, the Company sold investments
classified held-to-maturity, thus "tainting" the portfolio and
forcing 100% of the portfolio to be classified as available-for-
sale. Management felt this was in the best interest of the
Company considering the then current interest rate environment,
high loan demand, capital strength of the company and future
investment avenues which might be pursued in light of the
impending stock conversion.
INVESTMENT SECURITIES
Securities available-for-sale consist of the following (in
thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
--------------------------------------------
U. S. Government
and Federal Agencies $ 4,678 $ 35 $ 30 $ 4,683
Adjustable Rate
Mortgage Mutual Fund 1,390 - 9 1,381
Intermediate
Mortgage Mutual Fund 2,972 - 247 2,725
FHLMC Common Stock 35 1,659 - 1,694
------ ----- --- ------
$ 9,075 $ 1,694 $ 286 $ 10,483
====== ===== === ======
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
--------------------------------------------
U. S. Government
and Federal Agencies $ 10,171 $ 279 $ - $ 10,450
Adjustable Rate
Mortgage Mutual Fund 2,865 - 17 2,848
Intermediate
Mortgage Mutual Fund 5,267 - 8 5,259
FHLMC Common Stock 35 2,285 - 2,320
------ ----- --- ------
$ 18,338 $ 2,564 $ 25 $ 20,877
====== ===== === ======
The following table sets forth the amount of investment
securities which mature during each of the periods indicated at
December 31, 1999:
INVESTMENT SECURITIES
December 31, 1999
Securities
Available-for-Sale
Amortized Fair Wtd.
Cost Value Avg. Rates
Amounts Maturing in:
One Year or Less $ 4,997 $ 6,407 5.62%
After One Year
Through Five Years 1,398 1,416 6.82%
After Five Years
Through Ten Years 2,680 2,660 7.30%
------ ------
$ 9,075 $ 10,483
====== ======
COLLATERALIZED MORTGAGE OBLIGATIONS
Currently, the Company's investment in Collateralized Mortgage
Obligations (CMO's) is limited to first-tranche Real Estate
Mortgage Investment Conduits (REMIC's). A REMIC is a pass through
investment created under the Tax Reform Act of 1986 to issue
multiple class mortgage-backed securities. The mulitiple classes
within a REMIC are known as "tranches." The tranches are paid
principal and/or interest based on an anticipated payment schedule
outlined in the prospectus.
Currently, the Company's investment in REMIC's is limited to those
issued by FNMA, FHLMC and "AAA" rated non-governmental issuers.
These are defined to be within the 20% risk-weighted category for
thrift institutions. The contractual maturity of a REMIC is
defined by the latest maturity date of the underlying group of
mortgage loans. In terms of actual cash flow, the term or
duration of the REMIC's purchased by the Company varies from 2 to
4 years. The cash flow from these investments enhances the
operating income of the Company.
The following table sets forth the composition of the Company's
portfolio of Collateralized Mortgage Obligations indicated (in
thousands):
COLLATERALIZED MORTGAGE OBLIGATIONS
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
--------------------------------------------
Available-for-Sale:
FNMA $ 8,058 $ - $ 474 $ 7,584
FHLMC 17,347 167 690 16,824
Other 28,493 15 836 27,672
------ --- ----- ------
$ 53,898 $ 182 $2,000 $ 52,080
====== === ===== ======
Sources of Funds
General. Deposits have always been the primary source of the
Company's funds for lending and other investment purposes. The
supply of retail deposits has decreased due to more investors
putting their money in alternative investments. As a result the
Company has utilized wholesale sources such as the FHLB which
allows member institutions such as the Company to borrow money at
discounted rates.
Deposits. The Company's deposits are attracted principally from
within its market area. Many depositors are also mortgage loan
customers. The Company offers passbook savings, demand deposit
accounts and certificates of deposit. Terms for certificates vary
from 3 months to 5 years while rates tend to increase with term.
The following table shows the distribution of, and certain
other information relating to the Company's deposits: Deposit
account balances at December 31, 1999, 1998, and 1997 are
summarized as follows (in thousands):
Years Ending December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Balance Rate Balance Rate Balance Rate
Demand Deposit
Accounts $ 44 N/A - N/A - N/A
Passbook Savings
Accounts $ 20,170 3.0% $ 21,512 3.0% $ 22,314 3.5%
Certificates of
Deposit 39,002 5.0% 39,593 5.2% 34,508 5.2%
------ ------ ------
$ 59,216 $ 61,105 $ 56,822
====== ====== ======
The following table sets forth the deposit cash flow of
the Company during the periods indicated (in thousands):
Year Ended December 31,
--------------------------
1999 1998 1997
--------------------------
Increase (decrease) before
Interest Credited $ (3,830) $ 2,392 $ (6,642)
Interest Credited 1,941 1,891 2,043
----- ----- -----
Net increase (decrease) in deposits $ (1,889) $ 4,283 $ (4,599)
======= ===== =======
The Company prices its accounts to remain competitive with
other financial institutions in its market area, while maintaining
its traditional margins. Traditionally the Company has relied on
its passbook savings accounts as a core deposit base. In line
with such policies, the Company does not pay "jumbo" rates for
deposits of $100,000 and over.
The principal methods used by the Company to attract
deposits include its emphasis on personal service, competitive
interest rates and convenient office locations. The Company
does not advertise for deposits outside of its primary market
area. At December 31, 1999, the Company had no deposits that were
obtained through deposit brokers.
The following table presents the amount of certificates of
deposit at December 31, 1999 which mature during the periods
indicated (in thousands).
Amount Percent
------ -------
Certificate Accounts Maturing
Under 12 months $ 30,270 77.61%
12 months to 24 months 7,226 18.53
24 months to 36 months 1,086 2.78
36 months to 48 months 167 .43
48 months to 60 months 253 .65
------ -----
Total Certificates $ 39,002 100.00%
====== ======
The following table sets forth the maturities of the
Company's deposits of $100,000 or more at December 31, 1999 by
time remaining to maturity (in thousands).
DEPOSITS $100,000 AND OVER
(in thousands)
Maturing in 3 months or less $ 1,091
Maturing in 3 to 6 months -
Maturing in 6 months to 1 year 102
Maturing in 1 to 2 years 304
-----
Total Deposits $100,000 and over $ 1,497
=====
Borrowings. During 1999 the Company obtained advances from the
FHLB as part of a leveraged investment program. The Company
borrows the funds which are subsequently reinvested in mortgage-
backed securities, collateralized mortgage obligations and other
investments which earn over the interest charged on the advances.
The advances consist of fully amortizing and balloon advances
which mature between July, 2000 and June, 2008. A summary of the
advances by maturity and interest rate are detailed as follows (in
thousands):
Weighted
Maturing in the Year Average
Ending December 31, Amount Rate
------------------- ------ ---------
2000 14,784 5.71%
2001 11,085 5.73%
2002 12,438 6.15%
2003 3,746 5.50%
Thereafter 11,935 5.50%
-------
$ 53,988
The maximum amount of advances outstanding at any month-end
during 1999 was $56.5 million. The average balance outstanding
during 1999 was $47.6 million. Prior to 1997 the Company had no
material borrowings.
Subsidiaries
Guaranty Savings & Homestead Association is a wholly-owned
subsidiary of the Company. The Company has no other subsidiaries.
Competition
Guaranty Savings & Homestead Association faces significant
competition both in attracting deposits and in originating loans.
Its most direct competition for deposits has come from commercial
banks, credit unions, other savings and loans and mortgage brokers
located in the metropolitan New Orleans market. The Association
also competes for investors' funds with short-term money market
mutual funds and issuers of corporate and government securities.
Guaranty Savings & Homestead Association does not rely on any
individual group or entity for a material portion of its deposits
or mortgage loan portfolio. The Association's primary factors in
competing in the home mortgage loan market are its efficient
personal service and attractive interest rates and terms.
Employees
The Association had 30 full-time employees at December 31,
1999. None of these employees are represented by a collective
bargaining agreement. Guaranty Savings & Homestead
Association believes that it enjoys excellent relations with its
personnel.
Regulation
Set forth below is a brief description of certain laws and
regulations which are applicable to the Company and Guaranty
Savings & Homestead Association. The description of these laws
and regulations, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is
qualified in its entirety by reference to applicable laws and
regulations.
The Company
General. The Company, as a savings and loan holding company
within the meaning of the Home Owners' Loan Act, as amended
("HOLA"), is registered with and subject to OTS regulations,
examinations, supervision and reporting. As a subsidiary of a
savings and loan holding company, Guaranty Savings & Homestead
Association is subject to certain restrictions in its dealings
with the Company and any affiliates thereof.
Activities Restrictions. There are generally no restrictions on
the activities of a savings and loan holding company which holds
only one subsidiary savings institution. However, if the Director
of the OTS determines that there is reasonable cause to believe
that the activity of a savings and loan holding company
constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings institution, the Director may
impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings
institution; (ii) transactions between the savings institution and
its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the liabilities
of the holding company and its affiliates may impose on the
savings institution. Notwithstanding the above rules as to
permissible business activities of unitary savings and loan
holding companies, if the savings institution subsidiary of
such a holding company fails to meet the qualified thrift lender
("QTL") test, as discussed under "- The Association - Qualified
Thrift Lender Test," then such unitary holding company also shall
become subject to the activities restrictions applicable to
multiple savings and loan holding companies and, unless the
savings institution re-qualifies as a QTL within one year
thereafter, it shall register as, and become subject to the
restrictions applicable to, a bank holding company. See "- The
Association - Qualified Thrift Lender Test."
Limitations on Transactions with Affiliates. Transactions between
savings institutions and any affiliate are governed by Sections
23A and 23B of the Federal Reserve Act. An affiliate of a savings
institution is any company or entity which controls, is controlled
by or is under common control with the savings institution. In a
holding company context, the parent holding company of a savings
institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the
savings institution. Generally, Sections 23A and 23B (i) limit
the extent to which the savings institution or its subsidiaries
may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and
surplus, and contain an aggregate limit on all such transactions
with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable, to the
institution or subsidiary as those provided to a non-affiliate.
The term "covered transaction" includes the making of loans,
purchase of assets, issuance of guarantee and other similar
transactions. In addition to the restrictions imposed by Sections
23A and 23B, no savings institution may (i) loan or otherwise
extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding
companies, or (ii) purchase or invest in any stocks, bonds,
debentures, notes or similar obligations of any affiliate, except
for affiliates which are subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve
Act place restrictions on loans to executive officers, directors
and principal stockholders. Under Section 22(h), secured loans to
a director, an executive officer and to a greater than 10%
stockholder of a savings institution, and certain affiliated
interest of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the
savings institution's loans to one borrower limit (generally equal
to 25% of the institution's unimpaired capital and surplus).
Section 22(h) also requires that loans to directors, executive
officers and principal stockholders be made on terms substantially
the same as offered in comparable transactions to other persons
unless the loans are made pursuant to a benefit or compensation
program that (i) is widely available to employees of the
institution and (ii) does not give preference to any director,
executive officer or principal stockholder, or certain affiliated
interests of either, over other employees of the savings
institution. Section 22(h) also requires prior Board approval for
certain loans. In addition, the aggregate amount of extensions of
credit by a savings institution to all insiders cannot exceed the
institution's unimpaired capital and surplus. Furthermore,
Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 1999, Guaranty Savings was in
compliance with the above restrictions.
Restrictions on Acquisitions. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring,
without prior approval of the Director of the OTS, (i) control of
any other savings institution or savings and loan holding company
or substantially all the assets thereof or (ii) more than 5% of
the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior approval
of the Director of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy
or otherwise more than 25% of such company's stock, may acquire
control of any savings institution, other than a subsidiary
savings institution, or of any other savings and loan holding
company.
Federal Securities Laws. The Company's common stock is registered
with the SEC under the Securities and Exchange Act of 1934
("Exchange Act"). The Company is subject to the information,
proxy solicitation, insider trading restrictions and other
requirements under the Exchange Act.
Financial Modernization. Under the Gramm-Leach-Bliley Act enacted
into law on November 12, 1999, no company may acquire control of a
savings and loan holding company after May 4, 1999, unless the
company is engaged only in activities traditionally permitted to a
multiple savings and loan holding company or newly permitted to a
financial holding company under Section 4(k) of the Bank Holding
Company Act. Existing savings and loan holding companies and
those formed pursuant to an application filed with the OTS before
May 4, 1999, may engage in any activity including non-financial or
commercial activities provided such companies control only one
savings and loan association that meets the Qualified Thrift
Lender test. Corporate reorganizations are permitted, but the
transfer of grand-fathered unitary thrift holding company status
through acquisition is not permitted.
The Association
General. As a Louisiana chartered stock savings and loan
association, the OFI is the Association's chartering authority,
and the OTS serves as the Association's primary regulator. As
such, the OFI and the OTS have extensive authority over the
operations of Louisiana-chartered savings institutions. The
Association is subject to periodic examinations and is required to
file monthly, quarterly and annual reports with either or both
parties. The investment and lending authority of savings
institutions are prohibited from engaging in any activities not
permitted by such laws and regulations. Such regulation and
supervision is primarily intended for the protection of
depositors.
Insurance of Accounts. The deposits of Guaranty Savings and
Homestead Association are insured to the maximum permitted by the
SAIF, which is administered by the FDIC, and are backed by the
full faith and credit of the U.S. Government. As insurer, the
FDIC is authorized to conduct examinations of, and to require
reporting by, FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the
FDIC. The FDIC also has the authority to initiate enforcement
actions against savings institutions, after giving the OTS an
opportunity to take such action.
The FDIC may terminate the deposit insurance of any insured
depository institution, including Guaranty Savings and Homestead
Association, if it determines after a hearing that the institution
has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition
imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the
permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the
accounts at the institution at the time of the termination, less
subsequent withdrawals, shall continue to be insured for a period
of six months to two years, as determined by the FDIC. Management
is aware of no existing circumstances which would result in
termination of the Association's deposit insurance.
Regulatory Capital Requirements. Federally insured savings
institutions are required to maintain minimum levels of regulatory
capital. The OTS has established capital standards applicable to
all savings institutions. The OTS also is authorized to impose
capital requirements in excess of these standards on individual
institutions on a case-by-case basis.
Current OTS capital standards require savings institutions to
satisfy three different capital requirements. Under these
standards, savings institutions must maintain tangible capital
(1.5%), core capital (3.0%), and risk based capital (8.0%). Core
capital includes generally recognized capital such as common
stockholders' equity and retained earnings plus other items such
as qualifying goodwill. Tangible capital is essentially the same
but does not include qualifying supervisory goodwill. At December
31, 1999 the Association had no goodwill or other intangible
assets which are deducted in computing its tangible capital.
In determining risk-based capital, a savings institution is
allowed to include both core capital and supplementary capital.
Assets are assigned to particular risk-weighted categories and
subsequently multiplied by that particular percentage (cash and US
Treasury and Agency securities equal 0%, 20% for high quality
mortgage-backed securities including those issued by US Government
Agencies and "AAA" rated private companies, state and local
obligations, claims on FHLB's and claims on domestic depository
institutions, 50% for single family mortgage loans and
100% for all other loans and investments). The sum of these
calculations becomes the total of risk-weighted assets which are
then used to calculate the Association's risk-based capital ratio.
At December 31, 1999, Guaranty Savings exceeded all of its
regulatory capital requirements, with tangible, core and risk-
based capital ratios of 17.68%, 17.68% and 49.15% respectively.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year
or less. As of December 31, 1999 Guaranty Savings and Homestead
Association's liquidity was 64.1%, or $67.7 million in excess of
the minimum required 4%.
Capital Distributions. Under OTS regulations, savings
associations that would be well capitalized following a capital
distribution are not subject to any requirement for notice or
application unless the total amount of all capital distributions,
including any proposed capital distribution, for the applicable
calendar year would exceed an amount equal to the savings
association's net income for that year to date plus the savings
association's retained net income for the preceding two years.
However, because the Association is a subsidiary of a savings and
loan holding company, the Association is required to give the OTS
at least 30 days notice prior to any capital distribution to the
Company.
Community Reinvestment. Under the Community Reinvestment Act of
1977, as amended ("CRA"), as implemented by OTS regulations, a
savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the
credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in
connection with its examination of a savings institution, to
assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation
of certain applications by such institution. The CRA requires
public disclosure of an institution's CRA rating and requires the
OTS to provide a written evaluation of an institution's CRA
performance utilizing a rating system which identifies four levels
of performance that may describe an institution's record of
meeting community needs: outstanding, satisfactory, needs to
improve and substantial noncompliance. The CRA also requires all
institutions to make public disclosure of their CRA ratings. The
Association's current CRA rating is satisfactory.
Qualified Thrift Lender Test. The Qualified Thrift Lender (QTL)
Test measures the Association's level of qualified thrift
investments compared to its total portfolio assets (total assets
less intangibles, property used by a savings association in its
business and liquidity investments in an amount not to exceed 20%
of assets). Generally, qualified thrift investments ("QTI's")are
residential housing related assets. The Internal Revenue Service
(IRS) requires a savings institution to have at least 65% of its
assets in "QTI's" to qualify for tax treatment as a building and
loan association. At December 31, 1999, 74.63% of the
Association's assets were invested in QTI's which was in excess of
the percentage required to qualify the Association under the QTL
test.
Year 2000. Having thoroughly tested its systems in preparation for
the century date change, the Company was not expecting any
problems as a result of the rollover to Year 2000. Nevertheless,
the Company had a staff member on site each day of the New Year's
weekend to test each of our mission-critical systems, and all
systems passed the tests. On Monday, January 3, 2000, we opened
our doors with our computer systems up and running and able to
meet any customer request. We will continue to monitor our
systems throughout the year to ensure total Year 2000 compliance.
Federal Home Loan Bank System. Guaranty Savings and Homestead
Association is a member of the FHLB of Dallas. Each FHLB serves
as a reserve or central bank for its members within its assigned
region. It is funded primarily from proceeds derived from the
sale of FHLB agency issued obligations. As a member, the
Association is required to maintain stock in the FHLB of Dallas in
an amount equal to at least 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of its advances from the FHLB of
Dallas, whichever is greater. At December 31, 1999, Guaranty
Savings and Homestead Association had $2.9 million in FHLB stock,
which was in compliance with this requirement.
Federal Taxation
General. The Company and the Association are subject to the
generally applicable corporate tax provisions of the Internal
Revenue Code (the "Code"), and the Association is subject to
certain additional provisions of the Code which apply to thrifts
and other types of financial institutions. The following
discussion of federal taxation is intended only to summarize
certain pertinent federal income tax matters relevant to the
taxation of the Company and the Association and is not a
comprehensive discussion of the tax rules applicable to the
Company and the Association.
Year. The Company files a consolidated federal tax return on the
basis of a calendar year ending on December 31.
Bad Debt Reserves. A small financial institution (one with an
adjusted basis of assets of less than $500 million), such as
the Association, is required in tax years beginning after 1995
to determine additions to its bad debt reserves under the
experience method. Under the experience method, the deductible
annual addition to the institution's bad debt reserves is the
amount necessary to increase the balance of the reserve at the
close of the taxable year to the greater of (a) the amount which
bears the same ratio to loans outstanding at the close of the
taxable year as the total net bad debts sustained during the
current and five preceding taxable years bear to the sum of loans
outstanding at the close of the same six years, or (b) the lower
of (i) the balance of the reserve account at the close of the
Association's "base year," which was its tax year ended December
31, 1987, or (ii) if the amount of loans outstanding at close of
the taxable year is less than the amount of loans outstanding at
the close of the base year, the amount which bears the same ratio
to loans outstanding at the close of the taxable year as the
balance of the reserve at the close of the base year bears to the
amount of loans outstanding at the close of the base year.
In 1996, the Association was required to change its method
of computing its bad debt deduction from other methods previously
allowable to the experience method. As a result of the change in
law, the Association is required to include an amount into
taxable income over a six-year period beginning in 1998. The
amount required to be included in taxable income is the difference
between its bad debt reserves at December 31, 1995, as determined
under previously allowable bad debt methods, and the reserve
allowable under the experience method at December 31, 1995. The
amount to be included in the Association's taxable income over the
six-year period beginning with 1998 is $145,346, or $24,224 per
year.
At December 31, 1998, the federal income tax reserves of
the Association included $5.5 million for which no federal income
tax has been provided. Because of these federal income tax
reserves and the liquidation account established for the
benefit of certain depositors of the Association in connection
with the conversion of the Association to stock form, the retained
earnings of the Association are substantially restricted.
Distributions. If the Association were to distribute cash or
property to its sole stockholder, and the distribution was treated
as being from its accumulated bad debt reserves, the distribution
would cause the Association to have additional taxable income. A
distribution is deemed to have been made from accumulated bad debt
reserves to the extent that (a) the reserves exceed the amount
that would have been accumulated on the basis of actual loss
experience, and (b) the distribution is a "non-qualified
distribution." A distribution with respect to stock is a non-
qualified distribution to the extent that, for federal income tax
purposes, (i) it is in redemption of shares, (ii) it is pursuant
to a liquidation of the institution, or (iii) in the case of a
current distribution, together with all other such distributions
during the taxable year, it exceeds the institutions current and
post-1951 accumulated earnings and profits. The amount of
additional taxable income created by a non-qualified distribution,
is an amount that, when reduced by the tax attributable to it, is
equal to the amount of the distribution.
Minimum Tax. The Internal Revenue Code imposes an alternative
minimum tax at a rate of 20% on corporations with average annual
gross receipts in excess of $7.5 million for the prior three tax
years. Average annual gross receipts of GS Financial, Inc. is in
excess of $7.5 million and as a result, GS Financial is subject to
the provisions of the alternative minimum tax provisions of the
Code. The alternative minimum tax generally applies to a base of
regular taxable income plus certain tax preferences ("alternative
minimum taxable income" or "AMTI") and is payable to the extent
such AMTI is in excess of an exemption amount. The Code provides
items of tax preference including (a) tax exempt interest on newly
issued (generally, issued after August 8, 1986) private activity
bonds other than certain qualified bonds, (b) certain accelerated
depreciation amounts and (c) 75% of the excess if any of (i)
adjusted current earnings as defined in the Code, over (ii) AMTI
(defined without regard to this preference and prior to reduction
by net operating losses).
Net Operating Loss Carryovers. A financial institution may carry
back net operating losses ("NOLs") to the preceding three taxable
years and forward to the succeeding fifteen taxable years. This
provision applies to losses incurred in taxable years beginning
after 1986. At December 31, 1999, the Association had no NOL
carry-forwards for federal income tax purposes.
Capital Gains and Corporate Dividends-Received Deduction.
Corporate net capital gains are taxed at a maximum rate of 35%.
The corporate dividends-received deduction is 80% in the case of
dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, and
corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received
or accrued on their behalf. However, a corporation may deduct
100% of dividends from a member of the same affiliated group of
corporations.
Other Matters. Federal legislation is introduced from time to
time that would limit the ability of individuals to deduct
interest paid on mortgage loans. Individuals are currently not
permitted to deduct interest on consumer loans. Significant
increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the
Association.
The Association's federal income tax returns for the tax
years ended December 31, 1996 forward are open under the statute
of limitations and are subject to review by the IRS.
State Taxation
Any non-banking subsidiaries of the Association ( as well as
the Company) are subject to the Louisiana Corporation Income Tax
based on their Louisiana taxable income, as well as franchise
taxes. The Corporation Income Tax applies at graduated rates from
4% upon the first $25,000 of Louisiana taxable income to 8% on all
Louisiana taxable income in excess of $200,000. For these
purposes, "Louisiana taxable income" means net income which is
earned within or derived from sources within the State of
Louisiana, after adjustments permitted under Louisiana law
including a federal income tax deduction and an allowance for net
operating losses, if any. As a stock thrift, the Association is
subject to the Louisiana Shares Tax. The formula for deriving the
assessed value is to; (a) calculate 15% of the sum of 20% of the
company's capitalized earnings, plus (b) 80% of the company's
taxable stockholders' equity, and to subtract from that figure 50%
of the company's real and personal property assessment. Various
items may also be subtracted in calculating a company's
capitalized earnings.
Franchise Tax
The Company is also subject to the Louisiana franchise tax,
which is imposed upon equity and certain borrowings (the franchise
base) at a rate of $3 for every $1,000 of franchise base.
Financial institution holding companies are allowed to reduce the
franchise base to the extent of investments in and advances to
subsidiary financial institutions.
Item 2. PROPERTIES
The following table sets forth certain information relating
to the Company's offices at December 31, 1999. All properties are
owned by the Company. All amounts are in thousands.
Net
Book Total
Location Value Deposits
- -------- ------- --------
3798 Veterans Blvd., Metairie $1,800 $ 51,341
2111 N. Causeway Blvd., Mandeville 331 970
3915 Canal St., New Orleans 256 6,905
----- ------
$2,387 $ 59,216
===== ======
Item 3. LEGAL PROCEEDINGS
The Company and the Association are not involved in any
pending legal proceedings other than non-material legal
proceedings occurring in the ordinary course of business.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders during
the quarter ending December 31, 1999.
Part II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required herein, to the extent applicable, is
incorporated by reference from page 2 of the Registrant's
1999 Annual Report to Stockholders ("Annual Report") which is
Exhibit 13 to this Form 10-K.
Item 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference
from pages 3 to 4 of the Registrant's Annual Report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required herein is incorporated by reference
from pages 4 to 11 of the Registrant's Annual Report.
Item 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required herein is incorporated by reference
from pages 12 to 16 of the Registrant's Annual Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is incorporated by reference
from pages 17 to 54 of the Registrant's Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
Part III.
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference
from pages 2-5 of the Registrant's definitive proxy statement for
the 1999 Annual Meeting of Stockholders ("Proxy Statement").
Item 11 EXECUTIVE COMPENSATION
The information required herein is incorporated by reference
from pages 8-10 of the Registrant's Proxy Statement.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required herein is incorporated by reference
from pages 6-7 of the Registrant's Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference
from page 2 and page 10 of the Registrant's Proxy Statement.
Part IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this Report.
(1) The following financial statements are incorporated by
reference from Item 8 hereof (see Exhibit 13):
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999
and 1998
Consolidated Statements of Income for the Fiscal
Periods Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders'
Equity for the Fiscal Periods Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the
Fiscal Periods Ended December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the
applicable accounting regulation of the SEC are
omitted because of the absence of conditions under
which they are required or because the required
information is included in the consolidated financial
statements and related notes thereto.
(3) The following exhibits are filed as part of this form
10-K, and this list includes the Exhibit Index.
Exhibit Index
3.1* Articles of Incorporation of GS Financial Corp.
3.2* Bylaws of GS Financial Corp.
4.1* Stock Certificate of GS Financial Corp.
10.1** GS Financial Corp. Stock Option Plan
10.2** GS Financial Corp. Recognition and Retention Plan and Trust
Agreement for Employees and Non-Employee Directors.
10.3* Employment Agreement among GS Financial Corp. Guaranty
Savings and Homestead Association and Donald C. Scott
Dated February 13, 1997
10.4* Employment Agreement among GS Financial Corp. Guaranty
Savings and Homestead Association and Bruce A. Scott
Dated February 13, 1997
13.0 1999 Annual Report to Stockholders
21.0 Subsidiaries of the Registrant - Reference is made to
"Item 2" Business for the required information
27.0 Financial Data Schedule (Electronic Version Only)
* Incorporated herein by reference from the Registration
Statement on Form SB-2 (Registration number 333-18841) filed by
the Registrant with the SEC on December 26, 1996, as
subsequently amended.
** Incorporated herein by reference from the definitive proxy
statement, dated September 16, 1997, filed by the Registrant with
the SEC (Commission File No. 000-22269)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GS FINANCIAL CORP.
March 18, 2000 By: /s/ Donald C. Scott
-------------------
Donald C. Scott
Chairman of the Board, President
And Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title
- ---- -----
/s/ Donald C. Scott Chairman of the Board, March 18, 2000
- ------------------- President and Chief
Donald C. Scott Executive Officer
(principal executive officer)
/s/ Bruce A. Scott Executive Vice March 18, 2000
- ------------------ President and Director
Bruce A. Scott
/s/ Glenn R. Bartels Controller March 18, 2000
- -------------------- (principal financial
Glenn R. Bartels and accounting officer)
/s/ J. Scott Key Director March 18, 2000
- ----------------
J. Scott Key
/s/ M.D. Paine, Jr. Director March 18, 2000
- -------------------
M.D. Paine, Jr.
/s/ Victor Kirschman Director March 18, 2000
- --------------------
Victor Kirschman
/s/ Bradford A. Glazer Director March 18, 2000
- ----------------------
Bradford A. Glazer
/s/ Stephen L. Cory Director March 18, 2000
- -------------------
Stephen L. Cory
/s/ Albert J. Zahn, Jr. Director March 18, 2000
- -----------------------
Albert J. Zahn, Jr.
/s/ Kenneth B. Caldcleugh Director March 18, 2000
- -------------------------
Kenneth B. Caldcleugh
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
TO OUR SHAREHOLDERS
As we review our third year performance as a publicly traded
company, we can point to some notable achievements. The growth of
approximately 10% in our mortgage loan portfolio (for the 4th.
consecutive year) was a significant factor in the over 11%
increase in interest income. Our ongoing efforts to reduce non-
interest expense have been successful. Asset quality remains very
strong; non-performing assets totaled $114,000 at year-end 1999.
Our business is truly customer service oriented. As a small
community financial institution, we have the opportunity to expand
relationships with existing customers and attract new business.
In 1999, we began offering checking accounts and, as an added
convenience to our customers, we installed ATM machines at all of
our locations with membership in national and regional networks.
We will continue to explore new product lines and services.
During 1999 we purchased 299,000 shares of the outstanding common
stock of the Company at an approximate cost of $3.7 million. We
continue to strive for an expedient balance between our strong
capital position and current levels of market capitalization.
We look forward to the new millennium and the many opportunities
it will offer. We thank the members of our Y2K committee and all
of our employees for their time and effort in making the
transition from 1999 to the year 2000 a tranquil one.
We believe that our business philosophy and family atmosphere will
continue to appeal to our community and that our past successes
will guide us in our strategies to enhance overall performance.
Thank you for your confidence in and continued support of our
Company.
Sincerely,
/s/ Donald C. Scott
- -------------------
Donald C. Scott
President and Chairman of the Board
The Company
GS Financial Corp. (the "Company") is a thrift holding
company which was organized and incorporated under the laws of the
State of Louisiana on December 24, 1996. The Company's primary
business is conducted through its wholly-owned subsidiary,
Guaranty Savings & Homestead Association at its three locations in
the metropolitan New Orleans area.
Market Information
GS Financial Corp's common stock trades on The NASDAQ Stock
Market under the symbol GSLA. The Company's stock traded in the
range shown below. At December 31, 1999, the closing price was
$12.25 per share and there were approximately 1,700 shareholders
of record.
1999
QUARTER ENDING HIGH LOW Cash Dividend
- ------------------ ------ ------ -------
March 31, 1999 13.380 10.875 $.07
June 30, 1999 10.750 10.580 $.09
September 30, 1999 11.500 10.630 $.09
December 31, 1999 12.880 10.000 $.09
1998
QUARTER ENDING HIGH LOW Cash Dividend
- ------------------ ------ ------ -------
March 31, 1998 20.880 18.500 $.07
June 30, 1998 20.500 16.130 $.07
September 30, 1998 17.250 12.000 $.07
December 31, 1998 13.880 10.380 $.07
Notice of Annual Meeting
The Annual Meeting of Shareholders of GS Financial Corp. will
be held at the offices of Guaranty Savings & Homestead
Association, 3798 Veterans Blvd., Metairie, Louisiana on Tuesday,
April 25, 2000 at 10:00 a.m. CST.
Shareholder Services
Shareholders desiring to change the name, address or
ownership of stock, to report lost certificates, or to consolidate
accounts should contact our transfer agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
Investor Relations
Shareholders and others seeking financial information or
copies of the Company's financial information should contact:
Amy Mashburn, Compliance Officer or, Glenn R. Bartels, Controller
GS Financial Corp.
3798 Veterans Blvd.
Metairie, LA 70002
(504) 457-6220
SELECTED CONSOLIDATED FINANCIAL DATA
December 1995 - 1999
The following selected consolidated financial and other data of
the Company does not purport to be complete and should be read in
conjunction with, and is qualified in its entirety by, the more
detailed financial information, including the Consolidated
Financial Statements of the Company and Notes thereto, contained
elsewhere herein.
At December 31,
1999 1998 1997 1996 1995
SELECTED FINANCIAL CONDITION
Total Assets 157,982 157,534 131,396 87,550 86,040
Cash and Cash Equivalents 2,504 1,810 2,612 7,591 2,355
Loans Receivable, Net 70,066 63,895 53,588 44,125 39,888
Investment Securities 10,483 20,877 27,974 23,566 33,360
Mortgage-Backed
Securities 16,275 23,209 42,721 7,520 6,367
Collateralized Mortgage
Obligations 52,080 41,726 - - -
Deposit Accounts 59,216 61,105 56,822 61,721 60,945
Borrowings 53,988 45,381 16,157 - -
Equity 43,548 48,509 56,047 24,779 23,946
SELECTED OPERATING DATA:
Interest Income 10,658 9,585 8,347 6,155 6,298
Interest Expense 5,221 4,087 3,014 2,669 2,653
Net Interest Income 5,437 5,498 5,333 3,486 3,645
Provision for Loan Losses 6 53 28 59 12
Net Interest Income after
Provision for Loan Losses 5,431 5,445 5,305 3,427 3,633
Non-Interest Income (5) 233 73 (74) 8
Non-Interest Expense (3,301) (3,453) (2,708) (2,747)(2,289)
Net Income before Taxes 2,125 2,225 2,670 606 1,352
Income Tax expense 750 870 1,000 201 480
Net Income 1,375 1,355 1,670 405 872
Net Income Per Share-Basic
$ .58 $ 0.49 $ 0.53 n/a n/a
Net Income Per Share-Diluted
$ .58 $ 0.49 $ 0.53 n/a n/a
Dividends Declared Per
Share $ .34 $ 0.28 $ 0.14 n/a n/a
OTHER DATA:
Profitability
Average Yield on
Interest-Earning Assets 7.09 7.16 7.21 7.57 7.57
Average Rate on Interest-
Bearing Liabilities 4.85 4.76 4.60 4.43 4.25
Average Interest
Rate Spread 2.24 2.40 2.61 3.14 3.32
Net Interest Margin 3.62 4.11 4.60 4.29 4.38
Interest-Earning Assets
as a % of Interest
Bearing Liabilities 139.62 156.04 176.66 134.92 133.39
Net Interest Income
after Provision for
Loan Loss as a % of
Non Interest Expense 164.51 157.68 195.90 124.75 158.72
Non Interest Expense as
a % of Average Assets 2.12 2.47 2.23 3.19 2.62
Return on Average Assets 0.88 0.97 1.38 0.47 1.00
Return on Average Equity 3.16 2.62 3.19 1.65 3.70
CAPITAL RATIO'S:
Average Equity as a %
of Total Assets 27.92 37.03 40.76 28.30 26.99
Tangible Capital Ratio 17.68 27.62 32.61 27.72 27.35
Core Capital Ratio 17.68 27.62 32.61 27.72 27.35
Risk-Based Capital Ratio 49.15 72.60 79.41 79.19 93.60
ASSET QUALITY RATIO'S:
Non Performing Loans as
a % of Total Loans .14 0.42 0.31 0.57 0.51
Non Performing Assets as
a % of Total Assets .06 0.17 0.13 0.29 0.27
Allowance for Loan Losses
as a % of Total Loans
Receivable .60 0.72 0.77 0.87 0.80
Allowance for Loan Losses
as a % of Non-
Performing Loans 422.97 174.01 247.49 151.17 156.80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition
and results of operations of GS Financial Corp. (the "Company")
and its subsidiary for the years ended December 31, 1997 through
1999 is designed to assist readers in their understanding of the
Company. This review should be read in conjunction with the
audited consolidated financial statements, accompanying footnotes
and supplemental financial data included herein.
FORWARD-LOOKING STATEMENTS
In addition to the historical information contained herein, the
following discussion contains forward-looking statements that
involve risk and uncertainties. Economic circumstances, the
Company's operations and actual results could differ significantly
from those discussed in the forward-looking statements. The major
factors that could cause or contribute to such differences include
but are not limited to changes in the local economy as well as
national interest rates. Other forward-looking statements are
made concerning the amount of and adequacy of the allowance for
loan losses and the potential impact of the effect of the year
2000 on the Company's management information system.
COMPARISON OF FINANCIAL CONDITION
ASSETS
General - Total assets of the Company increased by $.5 million
from $157.5 million at December 31, 1998, to $158.0 million at
December 31, 1999. The increase was primarily due to $10.4
million in additional collateralized mortgage obligations and a
$6.2 million increase in loans receivable. The increase was
funded primarily advances from the Federal Home Loan Bank.
Cash and Cash Equivalents - Cash and cash equivalents, consisting
of interest and non-interest bearing deposits increased $.7
million, or 39%, from $1.8 million at December 31, 1998, to $2.5
million at December 31, 1999. Cash and cash equivalents are
utilized in the daily operations of the Company. As much cash as
possible is invested in short term investments which yield higher
returns than overnight Federal Funds or other interest-earning
deposits.
Loans Receivable, Net - Loans receivable, net, increased by $6.2
million, or 10%, from $63.9 million at December 31, 1998, to $70.1
million at December 31, 1999. The increase consisted primarily of
a $5.8 million increase in loans on 1-4 family dwellings, from
$61.6 million in 1998 to $67.4 million in 1999.
Investment Securities - Investment securities decreased $10.4
million, or 50%, from $20.9 million at December 31, 1998, to $10.5
million at December 31, 1999. The Company's investment securities
consist of United States Treasury and Agency issues, short term
mutual funds consisting primarily of qualified thrift investments
and Federal Home Loan Mortgage Corporation (FHLMC) common stock.
Mortgage-Backed Securities - Mortgage-backed securities decreased
$6.9 million, or 30%, from $23.2 million at December 31, 1998, to
$16.3 million at December 31, 1999. In 1998 the Company sold
$12.4 million in mortgage-backed securities which netted a
realized gain of $.2 million. At December 31, 1999 and 1998, all
of the Company's mortgage-backed securities were FHLMC, FNMA, or
GNMA issued instruments. FHLMC and FNMA are enterprises sponsored
by the Federal government while GNMA securities represent direct
obligations of the Federal Government.
Collateralized Mortgage Obligations - Collateralized Mortgage
Obligations (CMO's) are multiple class mortgage-backed securities
whereby an underlying pool of mortgages held by the issuer serves
as collateral for the debt. Principal and interest payments from
the pool of mortgages are used to retire the CMO's. Currently,
the Company's investment in CMO's is limited to first-tranche Real
Estate Mortgage Investment Conduits (REMIC's) which pay principal
and interest monthly. The Company has REMIC's issued by FNMA,
FHLMC and "AAA" rated non-governmental agencies. The Company has
found these instruments to be ideal for its wholesale growth
strategy due to their rapid repayment and attractive yields. The
expected life of these REMIC's varies from 2 to 4 years. Most of
the Company's investment in CMO's were funded by advances from the
Federal Home Loan Bank. During 1999, the Company's investment in
CMO's increased $10.4 million, or 25%, from $41.7 million at
December 31, 1998, to $52.1 million at December 31, 1999.
LIABILITIES AND STOCKHOLDERS' EQUITY
General - The Company's deposits, borrowings and equity represent
sources of funds.
Deposits - The Company's deposits decreased $1.9 million, or 3%,
from $61.1 million at December 31, 1998, to $59.2 million at
December 31, 1999. The change was due to the net result of a $.6
million decrease in certificates of deposit and a $1.3 million
decrease in passbook savings accounts.
Borrowings - The Company's borrowings increased $8.6 million, or
19%, from $45.4 million at December 31, 1998 to $54.0 million at
December 31, 1999. The Company's borrowings consist of fully
amortizing and balloon advances from the Federal Home Loan Bank of
Dallas which mature between 2000 and 2008. These borrowings
represent the continuation of the Company's wholesale growth
strategy of leveraged investing.
Stockholders' Equity - Stockholders' equity decreased $5.0
million, or 10%, from $48.5 million at December 31, 1998, to $43.5
million at December 31, 1999. The net decrease was due to the net
effects of stock buybacks of $3.7 million, net income of $1.4
million, $.8 million in dividends paid, a reduction in accumulated
other comprehensive income of $2.3 million along with other minor
adjustments.
COMPARISON OF RESULTS OF OPERATIONS
General - The Company reported net income of $1.4 million, $1.4
million and $1.7 million for the years ended December 31, 1999,
1998 and 1997 respectively. The results for 1999 reflected a $1.1
million increase in interest income from 1998 along with a $1.1
million increase in interest expense and a decrease of $.1 million
in non-interest expense. During 1998 the Company sold mortgage-
backed securities which generated a $.2 million gain. The results
for 1997 reflected the net influx of $30 million in capital raised
in the Company's initial public offering (IPO).
Interest Income - Interest income increased $1.1 million, or 11%,
from $9.6 million for 1998 compared to $10.7 million in 1999.
Overall results for 1999 reflected a yield of 7.09% on average
earning assets of $150.3 million compared to average earning
assets of $133.9 million in 1998 yielding 7.16%. Interest on
CMO's increased $1.8 million, or 164%, in 1999 to $2.9 million
compared to $1.1 million in 1998. Interest on loans increased for
the fourth consecutive year. Interest on loans increased to $5.3
million in 1999, up from $4.9 million in 1998. This increase of
$.4 million represented growth of 8%.
The yield on loans receivable decreased from 8.25% in 1998 to
7.99% in 1999. This, however, was offset by an increase in the
average balance of net loans receivable of $7.3 million from 1998
to 1999. In 1999, loss of interest income on loans due to lower
yields amounted to $.1 million while the gain in interest income
from higher balances was $.5 million.
Interest income on investment securities decreased $.5
million, or 33%, from $1.5 million in 1998 to $1.0 million in
1999. The yield on investment securities went down from 7.34% in
1998 to 6.30% in 1999. The reduction in yield was due to the fact
that the Company's investment in mortgage-based mutual funds
increased proportionately to the Company's portfolio of U.S.
Treasury and Agency securities. The Company's portfolio of U.S.
Treasury and Agency securities yielded approximately 7.25% due to
the fact that it consists primarily of securities purchased at
least two years ago when interest rates were significantly higher
than they are today. The Company's mortgage-based mutual funds
typically yield between 5.5% and 6.0% and act as a short-term
investment for the Company. The average balance of investments
decreased $5.0 million, or 25%, from 1998 to 1999. The decrease
in balance was due to the Company's redemption of some of its
holdings in short-term liquid mutual funds and subsequent
redeployment to CMO's and mortgage loans.
Interest on Mortgage-backed securities decreased $.5 million
from $1.8 million in 1998 to $1.3 million in 1999. This
represents a decrease of 28%. While the yield increased in 1999
to 6.53%, compared to 6.34% in 1998, the average balance decreased
$9.8 million from $28.9 million in 1998 to $19.1 million in 1999,
accounting for the decrease in income.
The $1.8 million increase in interest on CMO's was primarily
due to the increase in average balance from $17.7 million compared
to $44.5 million in 1999. Yields on CMO's increased from 6.33% in
1998 to 6.44% in 1999.
Interest income from other interest earning assets remained
relatively unchanged at $.2 million. Interest income from other
interest earning assets consists of dividends from Federal Home
Loan Bank stock, interest on Fed funds and interest-bearing
deposits in other financial institutions.
Interest Expense - Interest expense increased $1.1 million, or
27%, from $4.1 million in 1998, compared to $5.2 million in 1999.
Interest on FHLB advances increased $1.1 million to $2.7 million
in 1999 compared to $1.6 million in 1998. The increase was due to
the continuation of the Company's wholesale growth program whereby
FHLB advances are utilized to fund various investments. The cost
of the Company's FHLB advances were 5.62% in 1999 compared to
5.80% in 1998. The reduction in cost was offset by an increase in
the average balance of $19.7 million, or 71%, from $27.9 million
in 1998 compared to $47.6 million in 1999. Interest expense on
the Company's retail deposits was unchanged from 1998 to 1999 at
$2.5 million. The cost of passbook savings deposits was unchanged
while the cost of certificates of deposit decreased to 4.88% in
1999 from 5.03% in 1998.
Provision for Loan Losses -The Company had a negligible provision
for loan loss in 1999 compared to $.05 million and $.03 million
for the years ending December 31, 1998 and 1997. Provisions for
loan losses are charged to earnings to bring the total allowance
for loan losses to a level considered appropriate by management
based on a quarterly review which is reflective of each individual
loan's performance and condition of the underlying collateral.
Management targets a certain percentage of the entire mortgage
portfolio given the current economic conditions at which the
allowance for loan loss is deemed adequate. The Company
employs the reserve method of accounting for its allowances for
loan losses. For the twelve months ended December 31, 1999, 1998
and 1997 the above-mentioned provisions were necessary to bring
the allowance for loan loss in line with management's targets
mainly due to growth in the mortgage portfolio.
The allowance for loan losses may be adversely affected by
loans charged off. For the three years ended December 31, 1999,
1998 and 1997 the Company had charge-offs of $.05 million, $0 and
$0. This low level of charge-offs could continue as long as the
local economy remains strong with unemployment low. Due to the
Company's policy of requiring cash equity for all mortgage loans,
the Company does not anticipate any material adverse effect on its
results of operations in the event of a downturn in the local
economy.
Average Balances, Net Interest Income, and Yields Earned and Rates
Paid
The following table represents for the periods indicated the
total dollar amount of interest income from average interest-
earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in
dollars and rates, and the net interest margin. The table does
not reflect any effect of income taxes.
For the Years Ended December 31,
----------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------
Avg. Avg. Avg. Avg. Avg. Avg.
Bal. Int. Rate Bal. Int. Rate Bal. Int. Rate
------ ----- ----- ------ ----- ----- ------ ----- -----
Interest Earning Assets
Loans Receivable 66,773 5,334 7.99% 59,511 4,912 8.25% 46,773 4,085 8.73%
Mortgage-Backed
Securities 19,174 1,253 6.53% 28,918 1,833 6.34% 28,854 1,841 6.38%
Investment Securities 15,427 972 6.30% 20,423 1,499 7.34% 25,972 1,724 6.64%
Collateralized Mortgage
Obligations 44,480 2,863 6.44% 17,662 1,118 6.33%
Other Interest
Earning Assets 4,495 236 5.25% 7,363 223 3.03% 14,251 697 4.89%
-------- ----- ------- ----- -------- -----
Total Interest
Earning Assets 150,349 10,658 7.09% 133,877 9,585 7.16% 115,850 8,347 7.21%
Non Interest Earning
Assets 5,277 5,894 5,592
------- ------ ------
Total Assets 155,626 139,771 121,442
Interest Bearing Liabilities
Passbooks Deposits 20,633 621 3.01% 22,284 680 3.05% 23,735 854 3.60%
Certificates of Deposit 39,456 1,926 4.88% 35,636 1,791 5.03% 34,397 1,721 5.00%
Borrowings 47,592 2,674 5.62% 27,879 1,616 5.80% 7,445 439 5.90%
------ ----- ------ ----- ------ -----
Total Interest Bearing
Liabilities 107,681 5,221 4.85% 85,799 4,087 4.76% 65,577 3,014 4.60%
Non Interest Bearing
Liabilities 4,499 4,932 3,457
------- ------ ------
Total Liabilities 112,180 90,731 69,034
Retained Earnings 43,446 49,040 52,408
------- ------- --------
Total Liabilities and
Retained Earnings 155,626 139,771 121,442
Net Interest
Earning Assets 42,668 48,078 50,273
Net Interest Income 5,437 5,498 5,333
Net Interest Spread 2.24% 2.40% 2.61%
Net Interest Margin 3.62% 4.11% 4.60%
RATE/VOLUME ANALYSIS
The following table shows the extent to which changes in
interest rates and changes in volume of interest-related assets
and liabilities affected interest income and expense during the
periods indicated. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on
changes attributable to (i) changes in volume (change in volume
multiplied by prior year rate) and (ii) changes in rate (change in
rate multiplied by prior year volume). The combined effect of
changes in both rate and volume has been allocated proportionately
to the change due to rate and the change due to volume.
RATE/VOLUME ANALYSIS
For December 31, 1997 - 1999
--------------------------------------------
12/31/99 to 12/31/98 12/31/98 to 12/31/97
Rate Volume Total Rate Volume Total
Interest Income
Loans (124) 546 422 (247) 1,074 827
MBS (46) (534) (580) 95 (103) (8)
Invest (182) (345) (527) 145 (370) (225)
CMO's 19 1,726 1,745 - 1,118 1,118
Other 123 (110) 13 (176) (298) (474)
---- ----- ----- ---- ---- -----
Total (210) 1,283 1,073 (184) 1,421 1,238
Interest Expense
Passbook (9) (50) (59) (131) (44) (174)
Certificates (54) 189 135 10 60 70
Borrowings 17 1,041 1,058 (25) 1,203 1,177
---- --- --- --- ---- ---
Total (46) 1,180 1,134 (145) 1,218 1,073
Increase/(Decrease)
in Net Interest (164) 103 (61) (38) 202 165
Income
Non-Interest Income - Non-interest income decreased $.2 million in
1999 to $0 for the current year compared to $ .2 million in the
twelve months ended December 31, 1998. The one major contributing
factor to this difference was the gain on sale of investments in
1998 of $.2 million compared to negligible losses and other income
in 1999.
Other Expenses - Other expenses decreased $.2 million, or 6%, from
$3.5 million for the twelve months ended December 31, 1998,
compared to $3.3 million for the twelve months ended December 31,
1999. Compensation expense decreased $.1, million or 5%, to $2.0
million in 1999 compared to $2.1 million in 1998. This was due to
a reduction in the Company's ESOP expense due to the decrease in
market value of the Company's stock.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures the Company's ability to meet its
financial commitments and obligations on a timely basis. These
commitments and obligations include loan disbursements, savings
withdrawals by customers, the payment of dividends and the daily
operating expenses of the Company. Liquidity management involves
the daily monitoring of cash on hand, non-interest bearing
operating accounts, overnight Federal funds Sold, short-term
investments and the Company's ability to convert these assets into
cash without incurring a loss. Monthly pay-downs on mortgage
loans, mortgage-backed securities and collateralized mortgage
obligations are anticipated and channeled to either cash on hand,
overnight Federal funds Sold or short-term investments in order to
meet the Company's demands and maximize interest earned on these
funds.
The Company's primary sources of funds are interest bearing
customer deposits, advances from the Federal Home Loan Bank and
maturities of its existing investments including mortgage loans,
mortgage-backed securities, investment securities and
collateralized mortgage obligations. The Company maintains
competitive interest rates to maintain its core deposit of
passbook savings and certificates of deposit. The Company does
not utilize brokered deposits nor does it offer special rates for
"jumbo" deposits of $100,000 or more. Gradual increases in
interest rates have slowed prepayments of many of the Company's
assets during 1999. This has helped boost yields, particularly
for mortgage loans, CMO's and mortgage-backed securities.
The Company, through the Association, is required under
Federal regulations to maintain certain levels of liquid
investments. Qualifying investments include United States
Treasury and Federal Agency securities and other similar
instruments having maturities of five years or less. The level of
such investments may not be less than 4% of the Associations
average withdrawable obligations as defined by the OTS. As of
December 31, 1999, the Association's liquidity stood at 64.10%, or
$67.7 million, in excess of the minimum requirement.
Guaranty Savings & Homestead Association, the Company's
wholly-owned subsidiary, is required to maintain regulatory
capital sufficient to meet all three of the regulatory capital
requirements, those being tangible capital (1.5%), core capital
(3.0%), and risk-based capital (8.0%). As of December 31, 1999,
the Association's tangible and core capital amounted to $27.6
million, or 17.7% of adjusted total assets, while the
Association's risk-based capital was $28.0 million, or 49.2% of
total adjusted risk-weighted assets.
Year 2000
Having thoroughly tested its systems in preparation for the
century date change, the Company was not expecting any problems as
a result of the rollover to Year 2000. Nevertheless, the Company
had a staff member on site each day of the New Year's weekend to
test each of our mission-critical systems, and all systems passed
the tests. On Monday, January 3, 2000, we opened our doors with
our computer systems up and running and able to meet any customer
request. We will continue to monitor our systems throughout the
year to ensure total Year 2000 compliance.
MARKET RISK ANALYSIS - ASSET LIABILITY MANAGEMENT
Qualitative Risk Analysis. The ability to maximize net
interest income is largely dependent upon the achievement of a
positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities which
either re-price or mature within a given period of time. The
difference or the interest rate re-pricing "gap" provides an
indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. A gap is
considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-rate sensitive liabilities,
and is considered negative when the amount of interest-rate
sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely
affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income.
During a period of falling interest rates, a negative gap with
shorter maturities would result in an increase in net interest
income while a positive gap within shorter maturities would have
the opposite effect. As of December 31, 1999, the ratio of the
Association's cumulative one-year gap to total assets was a
negative 4.9% and its ratio of interest-earning assets to
interest-bearing liabilities maturing or re-pricing within one
year was 84.3%.
In order to minimize the potential for adverse effects of
material and prolonged increases in interest rates on the
Association's results of operations, the Association has adopted
asset and liability management policies including an interest rate
risk policy to better enable management to match the re-pricing
and maturities of its interest-earning assets and interest-bearing
liabilities. President Scott and Controller Bartels review
monthly the re-pricing gap on an internal model specifically
designed for the assets and liabilities currently being held by
the Association. On a quarterly basis the entire Board of
Directors receives an interest rate risk report which analyzes
changes to the net portfolio value ("NPV") and net interest
income. The net portfolio value is the difference between the
market value of the Association's assets and the market value of
the Association's liabilities and off balance sheet commitments.
The Board reviews the internal model and a standard thrift
industry model prepared by the OTS from the Association's
quarterly Consolidated Maturity and Rate Report.
The nature of thrifts such as Guaranty Savings & Homestead
Association lend themselves to the creation of negative gaps over
the short term since the Association is invested primarily in home
mortgage loans varying in length usually from 15 to 25 years while
its longest term interest-bearing liabilities are five-year
certificates of deposit and two 9 year balloon FHLB advances.
Therefore it is vital that the Association utilize its other
investments to offset in the short-term (12-month) horizon the
substantial negative re-pricing gap which arises from one to five
years while at the same time maximizing net interest income. This
is why the Association places much of its ready cash in short-term
investments such as mortgage-based mutual funds through its
primary broker, Shay Financial. These types of investments
provide the benefit of overnight availability while producing
yields approximately 50 basis points higher than overnight Federal
Funds sold. The Association also places a high emphasis on cash
flows in its portfolio of CMO REMIC's. The duration of the
Association's CMO REMIC's varies from two to four years.
Quantitative Risk Analysis. Presented below, as of December 31,
1999 is an analysis of Guaranty Savings & Homestead Association's
interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis
point increments, up and down 300 basis points in accordance with
OTS regulations. As illustrated in the table, NPV is more
sensitive to and may be more negatively impacted by rising rates
than declining rates. This occurs principally because as rates
rise, the market value of fixed-rate loans declines due to both
the rate increase and slowing prepayments. When rates decline,
the Association does not experience a significant rise in market
value for these loans because borrowers prepay at relatively high
rates. The value of the Association's deposits and borrowings
change in approximately the same proportion in rising or falling
rate scenarios.
Net Portfolio Value
-------------------------------------
Change (in Basis Points) in
Interest Rates $ Amount $ Change % Change
- --------------------------- ---------- ---------- ---------
(Dollars in Thousands)
+300 17,666 -12,914 -42%
+200 21,565 -9,015 -29%
+100 25,852 -4,728 -15%
0 30,580
-100 36,376 5,796 +19%
-200 42,764 12,184 +40%
-300 49,822 19,242 +63%
The assumptions used by management to evaluate the
vulnerability of the Association's operations to changes in
interest rates in the table above are based on assumptions
utilized in the gap table below. Although management finds these
assumptions reasonable, the interest rate sensitivity of the
Association's assets and liabilities and the estimated effects of
changes in interest rates on the Association's net interest income
and NPV indicated in the above table could vary substantially if
different assumptions were used or actual experience differs from
such assumptions.
The table on the following pages summarizes the anticipated
maturities or re-pricing of the Association's interest-earning
assets and interest-bearing liabilities as of December 31, 1999,
based on the information and assumptions set forth in the notes
below.
SENSITIVITY ANALYSIS
The following table summarizes the anticipated maturities or
re-pricing of the Association's interest-earning assets and
interest-bearing liabilities as of December 31, 1999, based on the
information and assumptions set forth in the notes below.
More More
Than Than
One Three
Within Three to Year to Years Over
Three Twelve Three to Five Five
(Dollars in Thousands) Months Months Years Years Years Total
Interest-Earning Assets
Cash and Interest-
Earning Deposits $1,934 $ - $ - $ - $ - $ 1,934
U.S. Government and
Agency Securities (4) 300 300 1,098 - 2,980 4,678
FHLMC & FHLB Stock 5,097 - - - - 5,097
Mortgage-Based
Mutual Funds 4,066 - - - - 4,066
Mortgage Loans (2) 17 60 827 1,517 67,696 70,117
Mortgage-Backed
Securities (1) - 112 408 1,003 13,449 14,972
Collateralized Mortgage
Obligations (1) 6,843 20,529 26,526 - - 53,898
Consumer Loans 367 - - - - 367
----- ------ ------ ----- ------ ------
TOTAL INTEREST-EARNING
ASSETS 18,624 21,001 28,859 2,520 84,125 155,129
Interest Bearing Liabilities
Passbook Savings (3) 2,017 - - - 18,153 20,170
Certificates of
Deposit (2) 8,842 21,381 8,312 420 - 38,955
FHLB Advances (2) 3,693 11,092 17,891 4,123 17,190 53,989
------ ------ ------ ----- ------ ------
TOTAL INTEREST-BEARING
LIABILITIES $14,552 $32,473 $26,203 $4,543 $35,343 $113,114
Excess/(Deficiency) of
Interest-Earning Assets
Over Interest-Bearing
Liabilities 4,072 (11,472) 2,656 2,023 48,782 42,015
Cumulative Excess/
(Deficiency) of Interest-
Earning Assets Over
Interest-Bearing
Liabilities 4,072 (7,400) (4,744) (6,767) 42,015
Cumulative Excess/
(Deficiency) of Interest-
Earning Assets Over
Interest-Bearing
Liabilities as a Percent
of Total Assets 2.70% -4.91% -3.15% -4.49% 27.90%
Ratio of Interest-Earning
Assets to Interest-
Bearing Liabilities 127.98% 64.67% 110.14% 55.47% 238.02%
Ratio of Cumulative Interest-
Earning Assets to Interest-
Bearing Liabilities 127.98% 84.26% 93.52% 91.30% 137.14%
(1) Based on average monthly payments for 1999
(2) Based on contractual maturities
(3) Based on 1999 average monthly withdrawals
(4) Includes callable securities of $1.2 million
Impact of Inflation
The consolidated financial statements of the Company and
notes thereto, presented elsewhere herein, have been prepared in
accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of
money over time 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.
To The Board of Directors
GS Financial Corp. and Subsidiaries
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets
of GS FINANCIAL CORP. and its wholly-owned subsidiary, GUARANTY
SAVINGS AND HOMESTEAD ASSOCIATION as of December 31, 1999 and
1998, and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the
Company's Management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of GS FINANCIAL CORP. and its wholly-owned
subsidiary, GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION as of
December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/LaPorte, Sehrt, Romig and Hand
---------------------------------
A Professional Accounting Corporation
January 13, 2000
Metairie, LA.
GS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
December 31,
-----------------
1999 1998
-----------------
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from
Depository Institutions $ 145 $ 171
Interest-Bearing Deposits in Other Banks 1,759 839
Federal Funds Sold 600 800
Total Cash and Cash Equivalents 2,504 1,810
Securities Available-for-Sale,
at Fair Value 10,483 20,877
Mortgage-Backed Securities
Available-for-Sale, at Fair Value 16,275 23,209
Collateralized Mortgage Obligations
Available-for-Sale, at Fair Value 52,080 41,726
Loans, Net 70,066 63,895
Accrued Interest Receivable 750 689
Premises and Equipment, Net 2,646 2,620
Real Estate Held-for-Investment 213 216
Stock in Federal Home Loan Bank, at Cost 2,866 2,327
Prepaid Income Tax - 69
Deferred Charges 49 57
Other Assets 50 39
------- ------
Total Assets $157,982 $157,534
======= ======
The accompanying notes are an integral part of these financial
statements
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
------------------
1999 1998
------------------
LIABILITIES
Deposits $ 59,216 $61,105
Advance Payments by Borrowers
for Taxes and Insurance 767 690
FHLB Advances 53,988 45,381
Accrued Interest - FHLB Advances 261 211
Accrued Income Tax 32 -
Deferred Income Tax 17 1,192
Other Liabilities 153 446
------ ------
Total Liabilities 114,434 109,025
STOCKHOLDERS' EQUITY
Preferred Stock - $.01 Par Value;
5,000,000 Shares Authorized
- 0 - Shares Issued and Outstanding - -
Common Stock - $.01 Par Value;
20,000,000 Shares Authorized
3,438,500 Shares Issued and Outstanding 34 34
Additional Paid-in Capital 33,822 33,810
Unearned ESOP Shares (1,927) (2,208)
Unearned RRP Trust Stock (1,974) (2,193)
Treasury Stock(790,054 Shares in 1999
and 491,054 Shares in 1998) (11,978) (8,324)
Retained Earnings 26,151 25,622
Accumulated Other Comprehensive Income (580) 1,768
------ ------
Total Stockholders' Equity 43,548 48,509
------- ------
Total Liabilities and
Stockholders' Equity $ 157,982 $157,534
======= ======
The accompanying notes are an integral part of these financial
statements
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
For The Years Ended
December 31,
----------------------------------
1999 1998 1997
----------------------------------
INTEREST INCOME
Loans Receivable $ 5,334 $ 4,912 $ 4,085
Investment Securities 972 1,499 1,724
Mortgage-Backed Securities 1,253 1,833 1,841
Collateralized Mortgage
Obligations 2,863 1,118 -
Dividends on Federal Home
Loan Bank Stock 139 88 47
Other Interest Income 97 135 650
----- ----- -----
Total Interest Income 10,658 9,585 8,347
----- ----- -----
INTEREST EXPENSE
Deposits 2,547 2,471 2,575
Advances from Federal Home
Loan Bank 2,674 1,616 439
----- ----- -----
Total Interest Expense 5,221 4,087 3,014
----- ----- -----
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 5,437 5,498 5,333
PROVISION FOR LOAN LOSSES 6 53 28
----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,431 5,445 5,305
----- ----- -----
NON-INTEREST INCOME
Gain (Loss) on Sale of
Investments (18) 208 53
Other Income 13 25 20
----- ----- -----
Total Non-Interest Income (5) 233 73
The accompanying notes are an integral part of these financial
statements
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Dollars in Thousands, except per share data)
For The Years Ended
December 31,
----------------------------------
1999 1998 1997
----------------------------------
NON-INTEREST EXPENSES
Compensation and Employee
Benefits 2,010 2,115 1,923
Advertising 69 78 33
Office Supplies, Telephone
and Postage 119 126 91
Net Occupancy Expense 293 291 308
Legal Fees 38 21 35
Audit and Consulting Fees 41 86 53
Supervisory Fees 80 72 56
Federal Insurance Premiums 35 35 38
Data Processing Expense 82 77 65
Real Estate Owned Expense - Net (24) (1) 8
Ad Valorem Taxes 450 376 -
Other 108 177 98
----- ----- -----
Total Non-Interest Expenses 3,301 3,453 2,708
----- ----- -----
INCOME BEFORE INCOME TAX EXPENSE 2,125 2,225 2,670
INCOME TAX EXPENSE 750 870 1,000
----- ----- -----
NET INCOME $ 1,375 $ 1,355 $ 1,670
===== ===== =====
EARNINGS PER SHARE - BASIC $ .58 $ .49 $ .53
EARNINGS PER SHARE - DILUTED $ .58 $ .49 $ .53
The accompanying notes are an integral part of these financial
statements.
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
For The Years Ended
December 31,
----------------------------------
1999 1998 1997
----------------------------------
NET INCOME $ 1,375 $ 1,355 $ 1,670
OTHER COMPREHENSIVE INCOME,
NET OF TAX
Unrealized Holding Gains
(Losses) Arising During
the Period (2,361) (79) 901
Reclassification Adjustment
for (Gains) Losses Included
In Net Income 13 (11) 40
Total Other Comprehensive Income (2,348) (90) 941
COMPREHENSIVE INCOME $ (973) $ 1,265 $ 2,611
The accompanying notes are an integral part of these financial
statements.
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
Unearned Accumulated
Addl --------------- Other Total
Common Paid-in Treasury ESOP RRP Trust Retained Comprehensive Stockholders'
Stock Capital Stock Shares Stock Earnings Income Equity
BALANCES AT
DECEMBER 31, 1996 23,862 917 24,779
Common Stock Issued
in Conversion 34 33,530 (2,751) 30,813
Common Stock Released
by ESOP Trust 128 235 363
Common Stock Acquired
by RRP Trust (2,076) (2,076)
Dividends Declared (443) (443)
Net Income Year Ended
December 31, 1997 1,670 1,670
Other Comprehensive
Income Net of Tax 941 941
BALANCES AT ---- ------- ----- ------ ------- ------ ---- ------
DECEMBER 31, 1997 $ 34 $ 33,658 $ (2,516) $ (2,076) $ 25,089 $ 1,858 $ 56,047
Distribution of
RRP Trust Stock 19 217 236
Common Stock Released
by ESOP Trust 133 308 441
Common Stock Acquired
By RRP Trust (334) (334)
Purchase of Treasury Stock (8,324) (8,324)
Dividends Declared (822) (822)
Net Income Year Ended
December 31, 1998 1,355 1,355
Other Comprehensive
Income Net of Tax (90) (90)
BALANCES AT ------ ------ ------ ------- ------ ------ ------ -------
DECEMBER 31, 1998 $ 34 $ 33,810 $(8,324) $ (2,208) $ (2,193) $ 25,622 $ 1,768 $ 48,509
Distribution of
RRP Trust Stock (62) 219 157
Common Stock Released
by ESOP Trust 74 281 355
Purchase of Treasury Stock (3,654) (3,654)
Dividends Declared (846) (846)
Net Income Year Ended
December 31, 1999 1,375 1,375
Other Comprehensive
Income Net of Tax (2,348) (2,348)
BALANCES AT ------ ------ ------ ------- ------ ------ ------ -------
DECEMBER 31, 1999 $ 34 $ 33,822$(11,978) $ (1,927) $ (1,974) $ 26,151 $ (580) $ 43,548
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended
December 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,375 1,355 $ 1,670
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation 114 123 135
Discounts Accretion Net
of Premium Amortization 136 158 (8)
Provision for Losses 6 53 28
Loss on Sale of Loans - - 5
Loss on Disposal of Fixed Assets 3 - -
Net Loan Fees (1) (2) -
Dividend on ARM Fund (86) (587) (280)
Dividend on IMF Fund (322) (98) -
ESOP Expense 355 521 363
RRP Expense 156 103 92
(Gain) Loss on Sale of Foreclosed
Real Estate (23) - 8
(Gain) Loss on Sale of Investments 13 (208) (53)
(Increase) Decrease in Prepaid
Income Taxes 69 (69) 398
Deferred Income Tax 23 60 (22)
Changes in Operating Assets
and Liabilities:
(Increase) in Accrued
Interest Receivable (61) (102) (51)
Decrease (Increase) in
Deferred Charges 8 (11) (22)
Increase (Decrease) in
Accrued Income Tax 32 (93) 92
Increase (Decrease) in
Other Liabilities (293) 328 (80)
Increase in Accrued Interest
on FHLB Advances 50 128 83
Decrease in Other Assets 3 12 166
--- ----- ---
Net Cash Provided by
Operating Activities 1,557 1,671 2,524
The accompanying notes are an integral part of these financial
statements.
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Continued)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of CMO's (31,362) (51,302) -
Proceeds from Maturities of CMO's 19,175 9,589 -
Purchase of Available-for-Sale
Securities - - (12,347)
Proceeds from Maturities of
Available-for-Sale Securities 5,472 2,209 10,300
Purchases of Mortgage-Backed
Securities - (5,764)(38,440)
Proceeds from Maturities of
Mortgage-Backed Securities 6,226 11,790 4,310
Proceeds from Sale of Mortgage-
Backed Securities - 12,646 -
(Purchase)/Redemption of
ARM Mutual Fund 1,561 11,539 (12,482)
(Purchase)/Redemption of
IMF Mutual Fund 2,617 (5,169) -
Proceeds from Sales of Available-
for-Sale Securities - - 10,815
Loan (Originations) - Net (6,203) (10,358) (9,496)
Purchases of Premises and Equipment (142) (28) (92)
Proceeds from Sales of Foreclosed
Real Estate 41 - 7
Investment in Foreclosed Real Estate (4) - (15)
Purchase of Federal Home Loan Bank Stock (400) (1,355) (110)
Non-Cash Dividend - FHLB (139) (88) (46)
Investment in Real Estate Held-
for-Investment - - (130)
----- ----- -----
Net Cash (Used in)
Investing Activities (3,158) (26,291)(47,726)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Sale
of Common Stock - - 33,564
Purchase of ESOP Shares - - (2,750)
Purchase of Treasury Stock (3,654) (8,324) -
Advances from Federal Home Loan Bank 8,607 29,224 16,157
Payment of Cash Stock Dividends (846) (822) (443)
The accompanying notes are an integral part of these financial
statements.
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Continued)
Purchase of Stock for Recognition
and Retention Plan - (334) (2,076)
Net Increase (Decrease) in Deposits (1,889) 4,283 (4,599)
Net Increase (Decrease) in
Non-Interest Bearing Deposits 77 (209) 370
------- ------ ------
Net Cash Provided by
Financing Activities 2,295 23,818 40,223
------ ------ ------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 694 (802) (4,979)
CASH AND CASH EQUIVALENTS
- Beginning of Year 1,810 2,612 7,591
------ ----- -----
CASH AND CASH EQUIVALENTS
- End of Year $2,504 $1,810 $2,612
===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $5,168 $4,095 $2,931
Income Taxes 622 878 727
Loans Transferred to Foreclosed
Real Estate During the Year 27 - 15
Market Value Adjustment for
Gain/(Loss) on Securities
Available-for-Sale (878) 2,679 2,815
The accompanying notes are an integral part of these financial
statements.
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
GS Financial Corp. (the "Company") was organized as a
Louisiana corporation on December 24, 1996 for the purpose of
becoming the holding company of Guaranty Savings and Homestead
Association (the "Association") in anticipation of converting the
Association from a Louisiana chartered mutual savings and loan
association to a Louisiana chartered stock savings and loan
association. Other than steps related to the reorganization
described below, the Company was essentially inactive until April
1, 1997, when it acquired the Association in a business
reorganization of entities under common control in a manner
similar to a pooling of interest. The acquired Association became
a wholly-owned subsidiary of the Company as part of the conversion
through the exchange of 1,000 shares of common stock that consists
of 100 percent of the outstanding stock of the Association. The
Association operates in the savings and loan industry and as such
provides financial services primarily to individuals, mainly
through the origination of loans on one to four family residences,
and the acceptance of deposits in the form of passbook savings,
certificates of deposit, and demand deposit accounts.
The Association is subject to competition from other
financial institutions, and is also subject to the regulations of
certain Federal and State agencies and undergoes periodic
examinations by those regulatory authorities.
The accompanying financial statements for 1997 are based on
the assumption that the companies were combined for the full year.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary,
Guaranty Savings and Homestead Association. In consolidation,
significant inter-company accounts, transactions, and profits have
been eliminated.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of financial condition
and revenues and expenses for the year. Actual results could
differ significantly from those estimates.
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF FINANCIAL STATEMENT PRESENTATION (Continued)
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for losses on loans and valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.
Management independently determines the allowance for losses on
loans based on an evaluation of the loan history and the condition
of the underlying properties. In connection with the
determination of the allowances for losses on foreclosed real
estate, management obtains independent appraisals for all
properties.
While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to
the allowances may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part
of their examination process, periodically review the
Association's allowances for losses on loans and foreclosed real
estate. Such agencies may require the Association to recognize
additions to the allowances based on their judgements about
information available to them at the time of their examination.
CASH AND CASH EQUIVALENTS
For the purposes of presentation in the consolidated
statements of cash flows, cash and cash equivalents include all
cash and amounts due from depository institutions, interest-
bearing deposits in other banks, and Federal funds sold.
INVESTMENT SECURITIES
Marketable securities are classified as available-for-sale
and are carried at fair value. Unrealized gains and losses on
securities available-for-sale are recognized as direct increases
or decreases in comprehensive income. The cost of securities sold
is recognized using the specific identification method. Premiums
and discounts are being amortized over the life of the securities
as a yield adjustment.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent participating interests
in pools of first mortgage loans originated and serviced by
issuers of the securities. During 1997, the Association
transferred securities from the held-to-maturity category to the
available-for-sale category. Unrealized gains and losses on
mortgage-backed securities are recognized as direct increases or
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
MORTGAGE-BACKED SECURITIES (Continued)
decreases in comprehensive income. The cost of securities sold is
recognized using the specific identification method. Premiums and
discounts are being amortized over the life of the securities as a
yield adjustment.
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized Mortgage Obligations (CMO's) are multiple
class mortgage-backed securities. An underlying pool of mortgages
held by the issuer serves as collateral for the debt obligations,
and principal and interest payments from the pool of mortgages are
used to retire the CMO's.
Currently, the Company's investment in CMO's is limited to
first-tranche Real Estate Mortgage Investment Conduits (REMIC's).
A REMIC is a pass-through investment vehicle created under the Tax
Reform Act of 1986 to issue multiple class mortgage-backed
securities. The multiple classes in a REMIC are known as
"tranches". The tranches are paid principal and/or interest based
on the payment schedule outlined in the prospectus.
Currently, the Company's investment in REMIC's is limited to
those issued by FNMA, FHLMC and "AAA" rated non-governmental
issuers. These are defined to be within the 20% risk-weighted
category for thrift institutions. Prior to investing, the Company
receives a prospectus that is analyzed and kept on file.
Unrealized gains and losses on CMO's are recognized as direct
increases or decreases in comprehensive income. The cost of
securities sold is recognized using the specific identification
method. Premiums and discounts are being amortized over the life
of the securities as a yield adjustment.
LOANS
Loans are stated at unpaid principal balances, less the
allowance for loan losses and net deferred loan fees. Loan
origination and commitment fees, as well as certain direct
origination costs, are deferred and amortized as a yield
adjustment over the contractual lives of the related loans using
the interest method.
Loans are placed on non-accrual when principal or interest is
delinquent for 90 days or more. Any unpaid interest previously
accrued on those loans is reversed from income, and thereafter
interest is recognized only to the extent of payments received.
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS (Continued)
A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. Interest payments on impaired loans
are typically applied to principal unless collectibility of the
principal amount is fully assured, in which case interest is
recognized on the cash basis. Residential mortgage loans and
consumer installment loans are considered to be groups of smaller
balance homogeneous loans and are collectively evaluated for
impairment and are not subject to SFAS 114 measurement criteria.
The allowance for loan losses is maintained at a level that,
in management's judgement, is adequate to absorb probable losses
inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific
impaired loans, and economic conditions. The allowance is
increased by a provision for loan losses, which is charged to
expense, and reduced by charge-offs, net of recoveries. Changes
in the allowance relating to impaired loans are charged or
credited to the provision for loan losses.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation computed principally on the straight-line and
modified accelerated cost recovery methods over the estimated
useful lives of the assets which range from 5 to 10 years for
furniture and equipment, and 31 to 39 years for buildings.
Maintenance and repairs are expensed as incurred, while major
additions and improvements are capitalized.
When these assets are retired or otherwise disposed of, the
cost and related accumulated depreciation or amortization are
removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
FORECLOSED REAL ESTATE
Foreclosed real estate includes real estate acquired in
settlement of loans. At the time of foreclosure, foreclosed real
estate is recorded at the lower of the Association's cost or the
asset's fair value, less estimated selling costs, which becomes
the property's new basis. After foreclosure, valuations are
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FORECLOSED REAL ESTATE (Continued)
periodically performed by management and the real estate is
carried at the lower of cost or fair value less estimated selling
costs. Costs incurred in maintaining foreclosed real estate are
included in income (loss) on foreclosed real estate.
REAL ESTATE HELD-FOR-INVESTMENT
Real estate held-for-investment consists of a former branch
location of the Association and is carried at amortized costs.
Due to regulatory considerations, the Association sold this
property to the Company during 1998 at fair value. The gain on
the sale realized by the Association is eliminated through
consolidation.
INCOME TAXES
The Company and its wholly-owned subsidiary file a
consolidated Federal income tax return on a calendar year basis.
Each entity pays its pro rata shares of income taxes in accordance
with a written tax-sharing agreement.
Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related to differences
between the basis of assets and liabilities for financial and
income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of the
deferred tax asset will not be realized. Deferred tax assets and
liabilities are adjusted for the effect of changes in tax laws and
rates on the date of enactment.
The Association is exempt from Louisiana income tax.
NON-DIRECT RESPONSE ADVERTISING COSTS
The Association expenses advertising costs as incurred.
Advertising cost were $69,000, $78,000 and $33,000 at December 31,
1999, 1998 and 1997, respectively.
RECLASSIFICATIONS
Certain reclassifications of previously reported amounts have
been made to conform with the 1999 presentation. Such
reclassifications had no effect on net income.
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 137 (SFAS
137), Accounting for Derivative Instruments and Hedging Activities,
an amendment extending the effective date of SFAS 133, is effective
for the quarter beginning after June 15, 2000. This statement will
require all derivatives to be recognized at fair value as either
assets or liabilities in the consolidated balance sheets. Changes
in the fair value of derivatives not designated as hedging
instruments are to be recognized currently in earnings. Gains or
losses on derivatives designated as hedging instruments are either
to be recognized currently in earnings or are to be recognized as a
component of other comprehensive income, depending on the intended
use of the derivatives and the resulting designation. The
Company's use of derivatives has been minimal, and management
anticipates no material impact on its financial position or results
of operations from the adoption of this new statement.
NOTE B
POOLING OF INTEREST
Details of the unaudited results of operations of the
previously separate entities for the periods prior to the
combination (January 1, 1997 - March 31, 1997) follows (in
thousands):
Guaranty
Savings and
Homestead
GS Financial Association
Operating Income $ - $ 1,685
Net Income $ - $ 308
As discussed in Note A, GS Financial Corp. had essentially no
activity prior to April 1, 1997, the acquisition date. The
Proforma data reflects certain estimated values and assumptions.
Proforma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
pooling occurred at the beginning of the fiscal years, or of the
results that may occur in the future.
NOTE C
INVESTMENT SECURITIES
Securities available-for-sale consist of the following (in
thousands):
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Government
and Federal Agencies $4,678 $ 35 $ 30 $ 4,683
Adjustable Rate Mortgage
Mutual Fund 1,390 - 9 1,381
Intermediate Mortgage
Mutual Fund 2,972 - 247 2,725
FHLMC Common Stock 35 1,659 - 1,694
$9,075 $1,694 $286 $10,483
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Government
and Federal Agencies $10,171 $ 279 $ - $10,450
Adjustable Rate Mortgage
Mutual Fund 2,865 - 17 2,848
Intermediate Mortgage
Mutual Fund 5,267 - 8 5,259
FHLMC Common Stock 35 2,285 - 2,320
$18,338 $2,564 $ 25 $20,877
NOTE C
INVESTMENT SECURITIES (Continued)
The following is a summary of maturities of securities available-
for-sale (in thousands):
December 31, 1999 1998
Securities Securities
Available-for-Sale Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
Amounts Maturing in:
One Year or Less $ 4,997 $ 6,407 $ 9,066 $ 11,352
After One Year
Thru Five Years 1,398 1,416 2,197 2,275
After Five Years
Thru Ten Years 2,680 2,660 7,075 7,250
$ 9,075 $ 10,483 $ 18,338 $ 20,877
The Association is holding various securities in the amount
of $1,200,000 that are callable in 2000.
During 1999, the Company realized losses of $13,387 through
the redemption of $3.1 million of its Adjustable Rate Mortgage
Fund. During 1998, the Company realized losses of $57,565 through
the net redemption of $11.5 million of its Adjustable Rate
Mortgage Fund. During 1997, the Association sold investment
securities available-for-sale with a book value of $10,762,000 for
$10,815,000. This resulted in gross realized gains of $63,000,
and gross realized losses of $10,000.
Included in other assets are two equity securities being
carried at cost of $27,000. The fair value for these securities
approximates cost.
NOTE D
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following (in
thousands):
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
FNMA $ 5,255 $ 1 $ 81 $ 5,175
FHLMC 1,328 3 34 1,297
GNMA 10,160 - 357 9,803
$16,743 $ 4 $472 $16,275
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
FNMA $ 7,589 $ 58 $ 31 $ 7,616
FHLMC 2,310 23 5 2,328
GNMA 13,159 106 - 13,265
$23,058 $ 187 $ 36 $23,209
The amortized cost and fair value of mortgage-backed
securities at December 31, 1999 and December 31, 1998, by
contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without
call or prepayment penalties.
December 31, 1999 Amortized Fair
Cost Value
Mortgage-Backed Securities Maturing:
In One Year or Less $ 112 $ 113
After One Year Thru Five Years 1,411 1,405
After Five Years Thru Ten Years 1,403 1,339
After Ten Years 13,817 13,418
$16,743 $16,275
NOTE D
MORTGAGE-BACKED SECURITIES (Continued)
December 31, 1998 Amortized Fair
Cost Value
Mortgage-Backed Securities Maturing:
In One Year or Less $ 402 $ 403
After One Year Thru Five Years 2,276 2,315
After Five Years Thru Ten Years 1,714 1,716
After Ten Years 18,666 18,775
$23,058 $23,209
During 1998, the Company sold mortgage-backed securities with
a book value of $12,387,568 for $12,646,040. This resulted in a
realized gain of $258,471. There were no sales of mortgage-backed
securities in 1999 or 1997.
NOTE E
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized Mortgage Obligations (CMO's) consist of the
following (in thousands):
December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
FNMA $ 8,058 $ - $ 474 $ 7,584
FHLMC 17,347 167 690 16,824
Other 28,493 15 836 27,672
$53,898 $ 182 $2,000 $52,080
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
FNMA $18,987 $ - $ 33 $18,954
FHLMC 17,928 35 8 17,955
Other 4,823 - 6 4,817
$41,738 $ 35 $ 47 $41,726
NOTE E
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
At December 31, 1999, CMO's are classified as available-for-
sale, and are reported on the financial statements at their fair
value. Also, all of the CMO's held as of December 31, 1999 have
maturities of greater than ten years. There were no sales of
CMO's during 1999, 1998, or 1997.
NOTE F
LOANS
Loans at December 31, 1999 and 1998 are summarized as follows
(in thousands):
December 31,
1999 1998
Loans Secured by First
Mortgages on Real Estate:
1 - 4 Family Residential $67,424 $61,562
FHA and VA 140 237
Construction 646 740
Commercial Real Estate 1,377 1,157
Other 446 201
Total Real Estate Loans 70,033 63,897
Consumer Loans
Second Mortgage 84 119
Loans on Deposits 367 337
Total Consumer Loans 451 456
70,484 64,353
Allowance for Loan Losses (424) (463)
Net Deferred Loan Origination
Costs 6 5
$70,066 $63,895
An analysis of the allowance for loan losses as follows (in
thousands):
Years Ended December 31,
1999 1998 1997
Balance, Beginning of Year $463 $410 $382
Provision for Losses 6 53 28
Loans Charged-off 45 - -
Balance, End of Year $424 $463 $410
NOTE F
LOANS (Continued)
Fixed rate loans receivable as of December 31, 1999 are
scheduled to mature and adjustable rate loans are scheduled to
reprice as follows (in thousands):
Under One to Six GT
One Five to Ten 10
Year Years Years Years Total
Loans Secured by 1 - 4 Family
Residential:
Fixed Rate $75 $2,861 $9,023 $56,335 $68,294
Other Loans Secured by
Real Estate:
Fixed Rate 15 323 962 523 1,823
All Other Loans 367 - - - 367
$457 $3,184 $9,985 $56,858 $70,484
At December 31, 1999 and 1998, the Association had loans
totaling approximately $254,000 and $310,000, respectively, for
which impairment had been recognized. The allowance for loan
losses related to these loans totaled $64,000 and $141,000 at
December 31, 1999 and 1998, respectively. The amount of interest
income that would have been recorded on loans in non-accrual
status at December 31, 1999, had such loans performed in
accordance with their terms, was approximately $3,000. Such
interest foregone for the year ended December 31, 1998 was
approximately $29,000.
In the ordinary course of business, the Association has and
expects to continue to have transactions, including borrowings,
with its officers and directors. In the opinion of management,
such transactions were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time of
comparable transactions with other persons and did not involve
more than a normal risk of collectibility or present any other
unfavorable features to the Association.
Loans to such borrowers are summarized as follows (in
thousands):
December 31,
1999 1998
Balance, Beginning of Year $ 949 $ 1,059
Additions - 33
Payments and Renewals (45) (143)
Balance, End of Year $ 904 $ 949
NOTE F
LOANS (Continued)
The Association's lending activity is concentrated within the
metropolitan New Orleans area and surrounding parishes, with its
major emphasis in the origination of permanent single-family
dwelling loans. Such loans comprise the majority of the
Association's loan portfolio.
NOTE G
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 1999 and 1998
consists of the following (in thousands):
December 31,
1999 1998
-----------------
Loans $ 267 $ 214
Mortgage-Backed Securities 97 133
Collateralized Mortgage Obligations 300 232
Investments and Other 86 110
Totals $ 750 $ 689
NOTE H
PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
December 31,
1999 1998
Land $ 781 $ 781
Buildings and Improvements 2,071 2,066
Furniture, Fixture and Equipment 537 466
3,389 3,313
Accumulated Depreciation
and Amortization (743) (693)
$ 2,646 $ 2,620
Depreciation expense for the years ended December 31, 1999,
1998 and 1997 was approximately $112,000, $123,000 and $129,000,
respectively.
NOTE I
REAL ESTATE HELD-FOR-INVESTMENT
Real estate held-for-investment consists of a former branch
location as summarized below (in thousands):
December 31,
1999 1998
Land $ 200 $ 200
Building and Improvements 17 17
217 217
Accumulated Depreciation (4) (1)
$ 213 $ 216
Depreciation expense for each of the years ended December 31,
1999, 1998 and 1997 was $3,000, $1,000 and $6,000, respectively.
The Company leased this property on a month-to-month basis
for $1,600 per month. The lease was terminated in March, 1999.
Total rental income recognized was approximately $1,700, $20,000,
and $20,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
On February 20, 1998, in response to regulatory
considerations, the Company purchased from the Association a
former branch location and adjoining property for $453,000. The
purchase price was based on the appraised value of the property at
the time of the transaction. This inter-company transaction
resulted in a gain to the Association of approximately $178,000,
which is eliminated for the purposes of these consolidated
financial statements.
NOTE J
DEPOSITS
Deposit account balances at December 31, 1999 and 1998 are
summarized as follows:
Years Ended December 31,
Weighted ------------------------
Average Rate at 1999 1998
----- ----- ------ ------- ------ -------
12/31/99 12/31/98 Amount Percent Amount Percent
----- ----- ------ ------- ------ -------
Balance by
Interest Rate:
Demand Deposit
Accounts N/A% N/A% $ 44 0.08% $ - - %
Regular Savings
Accounts 3.00% 3.00% 20,170 34.06 21,512 35.20
Certificates of
Deposit 5.00% 5.17% 39,002 65.86 39,593 64.80
------ ----- ------ -----
$ 59,216 100.00% $ 61,105 100.00%
====== ====== ====== ======
Certificate Accounts
Maturing
Under 12 months $ 30,270 77.61% $ 28,497 71.98%
12 months to 24 months 7,226 18.53 8,342 21.07
24 months to 36 months 1,086 2.78 2,458 6.20
36 months to 48 months 167 0.43 99 0.25
48 months to 60 months 253 0.65 197 0.50
------ ----- ------ -----
$ 39,002 100.00% $ 39,593 100.00%
====== ====== ====== ======
The aggregate amount of deposits with a minimum balance of
$100,000 was approximately $1,497,000 and $2,434,000 at December
31, 1999 and 1998, respectively.
Interest expense for each of the following periods is as
follows (in thousands):
Years Ended December 31,
1999 1998 1997
Certificates $ 1,926 $ 1,790 $ 1,721
Passbook Savings 621 681 854
$ 2,547 $ 2,471 $ 2,575
The Association held deposits of approximately $575,000 and
$640,000 for officers and directors at December 31, 1999 and 1998,
respectively.
NOTE K
ADVANCES FROM FEDERAL HOME LOAN BANK
Pursuant to collateral agreements with the Federal Home Loan
Bank (FHLB), advances are secured by a blanket floating lien on
first mortgage loans. Total interest expense recognized in 1999,
1998 and 1997, respectively, was $2,674,000, $1,616,000 and
$439,000.
Advances at December 31, 1999 consisted of the following (in
thousands):
Contract Rate Advance Total
4.00% to 4.99% $ 4,262
5.00% to 5.99% 29,942
6.00% to 6.99% 19,784
$ 53,988
Maturities of Advances at December 31, 1999 for each of the
next five years are as follows (in thousands):
Year Ending December 31, Amount
2000 $ 14,784
2001 11,085
2002 12,438
2003 3,746
Thereafter 11,935
$ 53,988
NOTE L
INCOME TAX EXPENSE
The provision for income taxes for 1999, 1998 and 1997 consists of
the following (in thousands):
Years Ended December 31,
1999 1998 1997
Current Tax Expense $ 718 $ 808 $ 978
Deferred Tax Expense 32 62 22
$ 750 $ 870 $ 1,000
NOTE L
INCOME TAX EXPENSE (Continued)
The provision for Federal income taxes differs from that
computed by applying Federal statutory rates to income (loss)
before Federal income tax expense, as indicated in the following
analysis (in thousands):
Years Ended December 31,
1999 1998 1997
Expected Tax Provision at a 34% Rate $ 722 $ 735 $ 908
Expected State Corporate Tax 8 28 41
Effect of Tax Exempt Income (5) (3) (3)
Effect of Net Loan and R/E/O Losses
Charged Directly to Tax
Bad Debt Reserve - - 38
Employee Stock Ownership Plan 25 73 44
Other - 37 (28)
$ 750 $ 870 $ 1,000
Deferred tax liabilities have been provided for the temporary
differences related to unrealized gains on available-for-sale
securities, deferred loan costs, depreciation, and non-cash
Federal Home Loan Bank dividends. Deferred tax assets have been
provided for the temporary differences related to the Company's
Recognition and Retention Plan and Employee Stock Ownership Plan,
unrealized losses on available-for-sale securities, the allowance
for loan losses, reserves for uncollected interest and late
charges, deferred loan fees, and the allowance for losses on
foreclosed real estate. The net deferred tax assets or
liabilities in the accompanying statements of financial condition
include the following components (in thousands):
NOTE L
INCOME TAX EXPENSE (Continued)
Years Ended December 31,
1999 1998
Deferred Tax Assets
Recognition and Retention Plan $ 13 $ 13
Employee Stock Ownership Plan 65 44
Market Value Adjustment to
Available-for-Sale Securities 299 -
Other 4 14
Total Deferred Tax Assets 381 71
Deferred Tax Liabilities
FHLB Stock Dividends 154 107
Market Value Adjustment to
Available-for-Sale Securities - 911
Allowance for Loan Losses 191 229
Other 53 16
Total Deferred Tax Liabilities 398 1,263
Deferred Tax Liabilities -
Net of Deferred Tax Assets $ 17 $ 1,192
Included in retained earnings at December 31, 1999 and 1998
is approximately $3,800,000 in bad debt reserves for which no
deferred Federal income tax liability has been recorded. These
amounts represent allocations of income to bad debt deductions for
tax purposes only. Reduction of these reserves for purposes other
than tax bad-debt losses or adjustments arising from carry-back of
net operating losses would create income for tax purposes, which
would be subject to the then-current corporate income tax rate.
The unrecorded deferred liability on these amounts was
approximately $1,292,000 for December 31, 1999 and 1998,
respectively.
NOTE M
EMPLOYEE STOCK OWNERSHIP PLAN
During 1997, GS Financial Corp. instituted an employee stock
ownership plan (the "ESOP") that covers all employees of Guaranty
Savings and Homestead Association who have completed one year of
service and have attained the age of 21. The ESOP purchased the
statutory limit of eight percent of the shares offered in the
initial public offering of the Company (275,080 shares). This
purchase was facilitated by a loan from the Company to the ESOP in
the amount of $2,750,800. The loan is secured by a pledge of the
ESOP shares. The shares pledged as collateral are reported as
NOTE M
EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
unearned ESOP shares in the statements of financial condition.
The corresponding note is to be paid back in 40 equal quarterly
payments of $103,000 on the last business day of each quarter,
beginning June 30, 1997 at the rate of 8.5%. The note payable and
the corresponding note receivable have been eliminated for
consolidation purposes.
The Association may contribute to the plan, in the form of
debt service, at the discretion of its board of directors.
Dividends received on ESOP shares are either utilized to service
the debt or credited to participant accounts at the discretion of
the trustees of the Plan. Shares are released for allocation to
plan participants based on principal and interest payments of the
note. Compensation expense is recognized based on the number of
shares allocated to plan participants and the average market price
of the stock for the current year. Released ESOP shares become
outstanding for earnings per share computations.
As compensation expense is incurred, the Unearned ESOP Shares
account is reduced based on the original cost of the stock. The
difference between the cost and average market price of shares
released for allocation is applied to Additional Paid-in Capital.
ESOP compensation expense was approximately $355,000, $521,000 and
$363,000 for the years ended December 31, 1999, 1998 and 1997
respectively.
The ESOP shares as of December 31, 1999 and 1998 were as follows:
December 31,
1999 1998
Allocated Shares 52,268 53,367
Shares Released for Allocation 28,132 -
Unreleased Shares 192,715 220,847
Total ESOP Shares 273,115 274,214
Fair Value of Unreleased Shares
(in thousands) $ 2,361 $ 2,871
Total ESOP shares decreased in 1999 and 1998 due to the
liquidation of shares for employees who terminated their
employment in 1999 and 1998.
NOTE N
RECOGNITION AND RETENTION PLAN
On October 15, 1997, the Company established a Recognition
and Retention Plan (the "Plan") as an incentive to retain
personnel of experience and ability in key positions. The Company
approved a total of 137,540 shares of stock to be acquired for the
Plan, of which 125,028 shares have been allocated for distribution
to key employees and directors. As shares are acquired for the
plan, the purchase price of these shares is recorded as unearned
compensation, a contra equity account. As the shares are
distributed, the contra equity account is reduced.
During 1998, by unanimous approval of the Plan participants,
the Plan was amended as a direct effort to reduce the Company's
expenses resulting from the Plan. Prior to the amendment to the
Plan, Plan share awards were earned by recipients at a rate of 20%
of the aggregate number of shares covered by the Plan over five
years. The amended Plan stipulates that Plan share awards are
earned by recipients at a rate of 10% of the aggregate number of
shares covered by the plan over ten years. If the employment of
an employee or service as a non-employee director is terminated
prior to the tenth anniversary of the date of grant of Plan share
award for any reason (except for death, disability or retirement),
the recipient shall forfeit the right to any shares subject to the
award which have not been earned.
The total cost associated with the Plan is based on a per
share value of $12.50, the market price of the Company's stock as
of the date on which the Plan was amended. This cost is being
amortized over ten years. Compensation expense pertaining to the
Recognition and Retention plan was $156,000, $103,000, and $91,000
for the years ended December 31, 1999, 1998, and 1997,
respectively.
A summary of the changes in restricted stock follows:
Unawarded Shares Awarded Shares
Balance at January 1, 1998 (5,028) 125,028
Purchased by Plan 17,500 -
Granted - -
Forfeited - -
Earned and Issued - (12,499)
Balance at December 31, 1998 12,472 112,529
Purchased by Plan - -
Granted - -
Forfeited - -
Earned and Issued - (12,501)
Balance at December 31, 1999 12,472 100,028
NOTE O
STOCK OPTION PLAN
In 1997, the Company adopted a stock option plan for the
benefit of directors, officers, and other key employees. The
number of shares of common stock reserved for issuance under the
stock option plan was equal to 343,850 shares, or ten percent, of
the total number of shares of common stock sold in the Company's
initial public offering of its common stock. The option exercise
price cannot be less than the fair value of the underlying common
stock as of the date of the option grant and the maximum option
term cannot exceed ten years.
The stock option plan also permits the granting of Stock
Appreciation Rights ("SAR's"). SAR's entitle the holder to
receive, in the form of cash or stock, the increase in the fair
value of Company stock from the date of grant to the date of
exercise. No SAR's have been issued under the plan.
The following table summarizes the activity related to stock
options:
Exercise Available Options
Price for Grant Outstanding
At Inception $17.18 343,850 -
Granted (275,076) 275,076
Canceled - -
Exercised - -
At December 31, 1999 68,774 275,076
In October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 requires the
disclosure of the compensation cost for stock-based incentives
granted after January 31, 1995 based on the fair value at grant
date for awards. Applying SFAS 123 would result in pro forma net
income and earnings per share amounts as follows:
1999
Net Income (In thousands)
As Reported $1,375
Pro forma $1,056
Basic Diluted
Earnings per Share
As Reported $ .58 $ .58
Pro forma .44 .44
NOTE O
STOCK OPTION PLAN (Continued)
The fair value of each option is estimated on the date of
grant using an option-pricing model with the following weighted-
average assumptions used for 1999 cumulative options earned and
outstanding. Dividend yields of 3.40 percent; expected volatility
of 25.3 percent; risk-free interest rate of 5.00 percent; and
expected lives of 10 years for all options.
NOTE P
COMPREHENSIVE INCOME
Comprehensive income was comprised of changes in the
Company's unrealized holding gains or losses on securities
available-for-sale during 1999, 1998, and 1997. The following
represents the tax effects associated with the components of
comprehensive income.
Years Ended December 31,
1999 1998 1997
Gross Unrealized Holding Gains (Losses)
Arising During the Period $(3,577) $ (120) $ 1,365
Tax (Expense) Benefit 1,216 41 (464)
(2,361) (79) 901
Reclassification Adjustment for Gains
(Losses) Included in Net Income 20 (17) 61
Tax (Expense) Benefit (7) 6 (21)
13 (11) 40
Net Unrealized Holding Gains (Losses)
Arising During the Period $(2,348) $ (90) $ 941
NOTE Q
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
(FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND
ENFORCEMENT ACT OF 1989 (FIRREA)
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA
became effective on December 19, 1992. In addition to the prompt
corrective action requirements, FDICIA includes significant
changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance
coverage for certain kinds of deposits, increased supervision by
the Federal regulatory agencies, increased reporting requirements
NOTE Q
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
(FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND
ENFORCEMENT ACT OF 1989 (FIRREA) (Continued)
for insured institutions, and new regulations concerning internal
controls, accounting and operations.
FIRREA was signed into law on August 9, 1989. Regulations
for savings institutions' minimum capital requirements went into
effect on December 7, 1989. In addition to its capital
requirements, FIRREA includes provisions for changes in the
Federal regulatory structure for institutions, including a new
deposit insurance system, increased deposit insurance premiums,
and restricted investment activities with respect to noninvestment
grade corporate debt and certain other investments. FIRREA also
increases the required ratio of housing-related assets in order to
qualify as a savings institution.
The regulations require institutions to have a minimum
regulatory tangible capital equal to 1.5% of adjusted total
assets, a minimum 3% core/leverage capital ratio, a minimum 4%
tier 1 risk-based ratio, and a minimum 8% total risk-based capital
ratio to be considered "adequately capitalized." An institution
is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less. The ability to include qualifying
supervisory goodwill for purposes of the core/leverage capital and
tangible capital was phased out by July 1, 1995.
The following table sets out the Association's various
regulatory capital categories at December 31, 1999 and December
31, 1998.
1999 1998
Dollars Percentage Dollars Percentage
(Thousands) (Thousands)
Tangible Capital $27,570 17.68% $39,843 26.93%
Tangible Equity $27,570 17.68% $39,843 26.93%
Core/Leverage Capital $27,570 17.68% $39,843 26.93%
Tier 1 Risk-Based Capital $27,570 48.40% $39,843 72.02%
Total Risk-Based Capital $27,994 49.15% $40,164 72.60%
As of December 31, 1999, the most recent notification from
the FDIC categorized the Association as "well capitalized" under
the regulatory framework for prompt corrective action. To be
"well capitalized", the Association must maintain minimum leverage
capital ratios and minimum amounts of capital to "risk-weighted"
assets, as defined by banking regulators.
NOTE R
REGULATORY CAPITAL
The following is a reconciliation of generally accepted
accounting principles (GAAP) net income and capital to regulatory
capital for the Association. The following reconciliation also
compares the capital requirements as computed to the minimum
capital requirements for the Association.
1999
Net Income for the Capital as
Year Ended of December 31,
December 31, 1999 1999
(In Thousands)
Per GAAP $1,244 $27,007
Total Assets $155,057
Capital Ratio 17.42%
Core/ Tier 1 Total
Tangible Tangible Leverage Risk-Based Risk-Based
Capital Equity Equity Capital Capital
Per GAAP $27,007 $27,007 $27,007 $27,007 $27,007
Assets Required
to be Added:
Unrealized Loss
on Securities
Available-for-Sale 563 563 563 563 563
General Valuation
Allowance - - - - 424
Regulatory Capital
Measure $ 27,570 $ 27,570 $ 27,570 $ 27,570 $ 27,994
Adjusted Total
Assets $155,911 $155,911 $155,911
Risk-Weighted
Assets $ 56,958 $ 56,958
Capital Ratio 17.68% 17.68% 17.68% 48.40% 49.15%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
Required Capital $ 2,339 $ 4,677 $ 4,557
Excess Capital $25,231 $22,893 $23,437
NOTE R
REGULATORY CAPITAL (Continued)
1998
Net Income for the Capital as
Year Ended of December 31,
December 31, 1998 1998
(In Thousands)
Per GAAP $1,161 $41,598
Total Assets $150,615
Capital Ratio 27.62%
Core/ Tier 1 Total
Tangible Tangible Leverage Risk-Based Risk-Based
Capital Equity Equity Capital Capital
Per GAAP $41,598 $41,598 $41,598 $41,598 $41,598
Assets Required
to be Deducted:
Unrealized Gain
on Securities
Available-for-Sale(1,755) (1,755) (1,755) (1,755) (1,755)
General Valuation
Allowance - - - - 321
Regulatory Capital
Measure $ 39,843 $ 39,843 $ 39,843 $ 39,843 $ 40,164
Adjusted Total
Assets $147,955 $147,955 $147,955
Risk-Weighted
Assets $ 55,320 $ 55,320
Capital Ratio 26.93% 26.93% 26.93% 72.02% 72.60%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
Required Capital $ 2,219 $ 4,439 $ 4,425
Excess Capital $37,624 $35,404 $35,739
NOTE S
COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Association has various
outstanding commitments and contingent liabilities that are not
reflected in the accompanying financial statements.
The principal commitments of the Association consists of
outstanding mortgage and construction loan commitments. As of
December 31, 1999 and 1998, outstanding loan commitments were
approximately $2,301,000 and $1,642,000, respectively. These
commitments, normally extended for thirty days, are for first
mortgage or construction loans at a fixed rate ranging from 6.75%
to 9.00%.
The chief executive officer and the executive vice-president
of the Association serve under employment contracts that were
approved by the Board of Directors on February 13, 1997. The
contracts expire February 13, 2002. The contracts were amended
effective February 11, 1999, to increase the base salaries. The
agreements cover compensation and termination.
NOTE T
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
consist of commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the statements of
financial condition.
The Association's exposure to credit loss in the event of
nonperformance by the other party to these financial instruments
for commitments to extend credit is represented by the contractual
notional amount of those instruments (see Note S). The
Association uses the same credit policies making commitments as it
does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements. The
Association evaluates each customer's creditworthiness on a case-
by-case basis. The amount and type of collateral obtained varies
NOTE T
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Continued)
and is based on management's credit evaluation of the
counterparty.
NOTE U
CONCENTRATION OF CREDIT RISK
The Association's lending activity is concentrated within the
southeastern part of Louisiana. In accordance with industry
practices, the Association has deposits in other financial
institutions for more than the insured limit. These deposits in
other institutions do not represent more than the normal industry
credit risk.
NOTE V
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it
is practicable to estimate the value:
The carrying amount of cash and short-term investments
approximate the fair value.
For investment securities, mortgage-backed securities, and
collateralized mortgage obligations, fair value is based on quoted
market prices.
For mortgage loan receivables the fair values are based on
discounted cash flows using current rates at which similar loans
with similar maturities would be made to borrowers with similar
credit risk.
The fair value of savings deposits is calculated using average
rates in the market place at the date of the financial statements.
For certificates of deposit, fair value is estimated based on
current rates for deposits of similar remaining maturities.
The fair value of loan commitments is estimated using fees that
would be charged to enter similar agreements, taking into account
(1) the remaining terms of the agreement, (2) the creditworthiness
of the borrowers, and (3) for fixed rate commitments, the difference
between current interest rates and committed rates.
NOTE V
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Estimated fair values of the financial instruments are as
follows (in thousands):
December 31, 1999 December 31, 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Cash and Short-Term
Investment Securities $ 2,504 $ 2,504 $ 1,810 $ 1,810
Investment Securities 10,483 10,483 20,877 20,877
Mortgage-Backed Securities 16,275 16,275 23,209 23,209
Collateral Mortgage
Obligations 52,080 52,080 41,726 41,726
Loans (Net of Loan
Allowance) 70,066 68,284 63,895 68,270
Financial Liabilities
Deposits $ 59,216 $ 58,315 $ 61,105 $ 56,045
Advances from Federal
Home Loan Bank 53,988 51,809 45,381 45,018
Unrecognized Financial
Instruments
Commitments to Extend
Credit $ 1,380 $ 1,379 $ 1,278 $ 1,350
Unfunded Construction Loan
Commitments 921 926 364 380
NOTE W
CONVERSION FROM A MUTUAL TO A STOCK ASSOCIATION
On April 1, 1997, Guaranty Savings and Homestead Association
converted from a Louisiana-chartered mutual savings and loan
association to a Louisiana-chartered stock savings and loan
association. The Company issued and sold 3,438,500 shares of stock
at $10 per share. The Company's ESOP purchased 275,080 shares,
financed by a loan from the Company. The net proceeds from the
sale of this stock was $33,564,000. The cost associated with the
stock conversion was approximately $821,000. Approximately
$15,407,000 was invested by the Company in the Association in
exchange for 1,000 shares of stock issued by the Association as
part of the conversion.
NOTE W
CONVERSION FROM A MUTUAL TO A STOCK ASSOCIATION (Continued)
In accordance with regulations, at the time that the
Association converted from a mutual association to a stock savings
association, the Association established a liquidation account in
the amount of approximately $24,500,000. The liquidation accounts
will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain
their accounts at Association after the Conversion. The
liquidation accounts will be reduced annually to the extent that
eligible account holders and supplemental eligible account holders
have reduced their qualifying deposits. Subsequent increase will
not restore an eligible account holder's and supplemental eligible
account holder's interest in the liquidation account. In the event
of a complete liquidation of the Association, each eligible account
holder and supplemental eligible account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for the
accounts then held. The Association may not pay a dividend on
their common stock if the dividend would bring regulatory capital
below the balance of the liquidation account.
NOTE X
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following sets forth condensed results of operations for
1999 and 1998 (dollar amounts in thousands, except per share
data):
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
------------------------------------
Interest Income $ 2,590 $ 2,508 $ 2,710 $ 2,850
Interest Expense 1,237 1,212 1,363 1,409
----- ----- ----- -----
Net Interest Income 1,353 1,296 1,347 1,441
Provision for Loan Losses - - - 6
Other Income (3) (8) 5 1
Other Expense 802 818 802 879
Income Tax Expense 200 161 130 259
----- ----- ----- -----
Net Income $ 348 $ 309 $ 420 $ 298
===== ===== ===== =====
Net Income per
Common Share (1)
Basic $ .13 $ .13 $ .18 $ .13
Dilluted $ .13 $ .13 $ .18 $ .13
Dividends Per Share $ .07 $ .09 $ .09 $ .09
(1) Quarterly per share amounts do not add to total for the year
ended due to rounding.
NOTE X
SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (Continued)
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
------------------------------------
Interest Income $ 2,303 $ 2,284 $ 2,465 $ 2,532
Interest Expense 835 939 1,082 1,231
----- ----- ----- -----
Net Interest Income 1,468 1,345 1,383 1,301
Provision for Loan Losses 19 35 - -
Other Income 264 (4) (28) 2
Other Expense 928 1,030 720 775
Income Tax Expense 286 99 219 265
----- ----- ----- -----
Net Income $ 499 $ 177 $ 416 $ 263
===== ===== ===== =====
Net Income per
Common Share (1)
Basic $ .16 $ .06 $ .16 $ .10
Dilluted $ .16 $ .06 $ .16 $ .10
Dividends Per Share $ .07 $ .07 $ .07 $ .07
(1) Quarterly per share amounts do not add to total for the year
ended due to rounding.
NOTE Y
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average
number of shares outstanding, which was 2,383,168 in 1999,
2,793,247 in 1998, and 3,112,153 in 1997.
In February 1997, the FASB issued Statement No. 128, Earnings
Per Share, effective for financial statements issued for periods
ending after December 31, 1997. This statement establishes
standards for computing and presenting earnings per share. It
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. Adoption of this
statement had no impact on the Company's computation of earnings
per share.
NOTE Z
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
GS FINANCIAL CORP.
CONDENSED FINANCIAL CONDITION
December 31, 1999
(Dollars in Thousands)
ASSETS
Cash and Cash Equivalents $ 570
Investments - Available-for-Sale at Fair Value 309
Mortgage-Backed-Securities - Available-for-Sale
at Fair Value 1,772
Investment in Subsidiary 27,007
Loans Receivable 2,193
Dividend Receivable from Subsidiary 11,370
Deferred Tax Asset 5
Other Assets 501
------
$ 43,727
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Income Tax $ 1
Stockholders' Equity 43,726
------
$ 43,727
======
NOTE Z
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY -
(Continued)
GS FINANCIAL CORP.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(Dollars in Thousands)
INTEREST INCOME
Mortgage-Backed Securities $ 147
Dividend from Subsidiary 250
Loans 192
Investment Securities 63
Other Interest Income 27
---
Total Interest Income 679
---
NON-INTEREST INCOME
Undistributed Earnings of Subsidiary 994
Income from Real Estate Held-For-Investment 2
---
Total Non-Interest Income 996
---
NON-INTEREST EXPENSES
General and Administrative 68
Intercompany Personnel Expense 110
Taxes 34
Loss on Sale of Investments 13
---
Total Non-Interest Expenses 225
-----
INCOME BEFORE INCOME TAX 1,450
PROVISION FOR INCOME TAX 75
-----
NET INCOME $ 1,375
=====
NOTE Z
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY -
(Continued)
GS FINANCIAL CORP.
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1999
(Dollars in Thousands)
OPERATING ACTIVITIES
Net Income $ 1,375
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation Expense 4
Loss on Sale of Investments 13
Equity in Undistributed Income of Subsidiary (994)
Amortization of Investment Premium 13
Dividend on IMF Fund (23)
Dividend on ARM Fund (40)
Decrease in Accrued Interest Receivable 4
Decrease in Tax Receivable 15
Decrease in Deferred Charges 2
Decrease in Accrued Income Tax (91)
-----
Net Cash Provided by Operating Activities 278
INVESTING ACTIVITIES
Redemption of IMF Mutual Fund 536
Redemption of ARM Mutual Fund 2,809
Principal Paydowns Note Receivable
GS Financial ESOP 215
Principal Paydowns on Mortgage-Backed Securities
- Available-for-Sale 607
------
Net Cash Provided by Investing Activities 4,167
FINANCING ACTIVITIES
Purchase of Treasury Stock (3,654)
Payment of Dividends (846)
-------
Net Cash Used in Financing Activities (4,500)
NET DECREASE IN CASH AND CASH EQUIVALENTS (55)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 625
CASH AND CASH EQUIVALENTS - END OF YEAR $ 570
=====
BOARD OF DIRECTORS
Donald C. Scott
Mr. Scott (Age 48) has served as President and Chief
Executive Officer of the Company since February 1997 and President
of the Association since March 1985; prior thereto, he served in
various management and other positions at the Association. He has
been a director since 1982.
Kenneth B. Caldcleugh
Mr. Caldcleugh (Age 50) is the President and Owner of The
Cellars of River Ridge, a fine wine and spirit retail outlet in
Louisiana. Prior thereto, Mr. Caldcleugh was the Vice President
and Regional Manager of Glazer Companies of Louisiana (formerly
Glazer Wholesale Spirit & Wine Distributors), from 1973 to 1996.
He has been a director since 1996.
Stephen L. Cory
Mr. Cory (Age 50) is an insurance agent and President of the
Cory, Tucker & Larrowe Agency in Metairie, Louisiana. He has been
a director since 1995.
Bradford A. Glazer
Mr. Glazer (Age 44) is President of Glazer Enterprises, Inc.,
Cincinnati, Ohio, an independent freight agency for Landstar
Ligon. Formerly, Mr. Glazer was Senior Vice President of Espy &
Straus, Inc., Cincinnati, Ohio. Prior thereto, Mr. Glazer was the
Chairman of Glazer Steel Corporation, in New Orleans, Louisiana
(and Knoxville, Tennessee). He has been a director since 1991.
J. Scott Key
Mr. Key (Age 47) is the President and Chief Operating Officer
of Kencoil, Inc. (previously D & S Industries), an electric motor
coil manufacturer and its subsidiary Scott Armature, a provider of
sales and services of electrical apparatus, in Belle Chasse,
Louisiana. He has been a director since 1991.
Victor Kirschman
Mr. Kirschman (Age 76) is the Chairman of M. Kirschman &
Co.,Inc., retail furniture business with its main office in New
Orleans, Louisiana. He has been a director since 1977.
Mannie D. Paine, Jr.
Dr. Paine (Age 83) is a retired physician. Dr. Paine has
provided consulting services for various companies. He is a
former Medical Director for Blue Cross of Louisiana, Medicaid and
Pan American Insurance Company. He has been a director since
1976.
Bruce A. Scott
Mr. Scott (Age 47) is an attorney and has served as Executive
Vice President of the Company since February 1997 and Executive
Vice President of the Association since 1985. Mr. Scott also
serves as legal counsel and Personnel Manager of the Association,
and performs certain legal services for the Association and its
borrowers in connection with real estate loan closings and
receives fees from the borrowers in connection therewith. He has
been a director since 1982.
Albert J. Zahn,Jr.
Mr. Zahn (Age 48) is a certified public accountant and
partner in the firm of Zahn and Kenney in Metairie, Louisiana. He
has been a director since 1992.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Lettie R. Moll
Ms. Moll has served as Vice President and Secretary of the
Company since 1997 and Vice President and Secretary of the
Association since March 1987 and March 1982, respectively.
Ralph E. Weber
Mr. Weber has primary responsibility for the Association's
data processing requirements and has served as Vice President of
the Company and the Association since February 1997 and March
1997, respectively.
59