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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, 1998
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, 1999, there were 3,438,500 shares of the
Registrant's common stock, par value $.01 per share, issued and
outstanding. The aggregate market value of such stock, excluding
the shares held by all directors and officers of the Registrant,
was $38.5 million at March 23, 1999 based on the per common share
price at closing of $12.13 on that date. The information
presented in this Form 10-K at December 31, 1998 and 1997, and for
the twelve months ended December 31, 1998 and 1997 represent the
financial condition and results of operations of GS Financial
Corp. and its wholly-owned subsidiary, Guaranty Savings &
Homestead Association. The information presented for the twelve
months ended December 31, 1996 represent the results of operations
of Guaranty Savings and Homestead Association alone.
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, 1998 are incorporated into Part II, Items
5 through 8, and Part IV, Item 14.
(2) Portions of the definitive proxy statement for the 1999
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
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, 1998 totaled $150.6 million and comprise 95.6%
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 also takes in deposits in
the form of passbook savings and certificates of deposit. 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 $6.7 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.
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 is a member of the Federal Home Loan Bank of
Dallas ("FHLB"). 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,
----------------------------------------
1998 1997 1996 1995 1994
----------------------------------------
First Mortgage Loans:
One to Four
Family Residential $ 61,562 $ 52,528 $ 42,660 $ 38,449 $ 38,236
FHA and VA 237 358 511 675 854
Construction 740 99 298 - -
Commercial
Real Estate 1,157 471 430 484 601
Other 201 123 145 146 182
-------- -------- --------- ------- ------
Total First
Mortgage Loans 63,897 53,579 44,044 39,754 39,873
Consumer Loans
Second Mortgage 119 172 273 267 350
Loans on Deposits 337 244 183 186 161
-------- -------- -------- -------- -------
64,353 53,995 44,500 40,207 40,384
Allowance for
Loan Losses (463) (410) (382) (323) (345)
Net Deferred Loan
Origination Costs 5 3 7 (4) (3)
--------- --------- -------- -------- ------
Net Loans $ 63,895 $ 53,588 $ 44,125 $ 39,888 $ 40,042
====== ====== ====== ====== ======
Contractual Term to Final Maturities. The following table sets
forth certain information as of December 31, 1998 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. Demand loans and loans having 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, 1998
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 depends 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.
Fixed rate loans receivable as of December 31, 1998 are
scheduled to mature and adjustable rate loans are scheduled to re-
price as follows (in thousands):
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 $ 344 $ 3,861 $ 8,772 $ 49,681 $ 62,658
Other Loans Secured by
Real Estate:
Fixed Rate 5 161 223 969 1,358
All Other Loans 337 - - - 337
------ ----- ------ ------- ------
$ 686 $ 4,022 $ 8,995 $ 50,650 $ 64,353
====== ======= ====== ======== ========
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.
December 31,
--------------------------------------
1998 1997 1996 1995 1994
--------------------------------------
Loan Originations (in thousands):
1-4 family residential $14,697 $14,806 $8,876 $6,400 $6,467
Construction 1,610 726 823 - -
Commercial real estate 526 75 69 - -
Consumer 283 149 66 150 105
Other Real Estate 732 165 235 - -
------- ------ ------ ------ ------
Total Loan Originations 17,848 15,921 10,000 6,550 6,572
Loan principal
repayments (7,490) (6,425) (5,776) (6,727) (7,236)
Increase (decrease)
due to other items (51) (33) 3 23 27
------- ------ ------ ------- -------
Net increase
(decrease) in $10,307 $ 9,463 $4,237 $ (154) $ (637)
Loan portfolio ====== ===== ===== ===== =====
Real Estate Lending Standards and Underwriting Policies. As of
March 19, 1993, the Company was required to adopt and maintain
written real estate lending policies that are consistent with safe
and sound banking practices. The Company is in compliance with
all such standards.
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. 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 include,
but are not limited to, appraisal guidelines, disclosure
requirements of Truth-In-Lending and the Real Estate Settlement
and Procedures Act ("RESPA") Laws and Regulations, credit
criteria, completeness of applications, title requirements and
compliance with local codes and ordinances. 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 limit the
Company's exposure to credit risk. Such factors
include minimum and maximum loan amounts, 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. Upon receipt of a
favorable credit report, an appraisal is obtained with requisite
documentation to support the property's stated market value. Upon
completion the loan package is presented to the Loan Committee for
consideration. Applicants are advised of the decisions of the
Loan Committee by mail. 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.
In general, loan applications for $300,000 or less are considered
in the ordinary course of business. Applications for loans in
excess of this amount are given consideration on a case by case
basis. The Company requires a title insurance policy on all
approved loans prior to closing.
The Company's loan portfolio consists of conventional fixed
rate mortgage loans on 1-4 family residential dwellings. The
terms of these go up to 30 years. In general, down payments of
20% of the purchase price or appraised value are required.
However, the Company does make loans where the loan to
value ratio (LTV) is as high as 90%. The Company also makes loans
on residential investment property, commercial real estate,
condominiums and vacant ground. Terms vary and rates tend to be
slightly higher on these types of mortgage loans than those rates
for residential 1-4 family properties.
The Company originates and funds construction loans which
subsequently convert to permanent, fixed rate mortgage loans.
During the construction period, the company requires payment of
interest only on the amount of principal drawn.
Loans are available to depositors of the Company secured by
passbook savings or certificates of deposit at a rate 2 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 draw attention to assets before collection
becomes a problem thus maintaining the quality of the Company's
investment as an interest earning asset. The policy also insures
the accurate reporting of the Company's assets from a valuation
standpoint.
All of the Company's assets 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 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.
Specific valuation allowances are allocated to those substandard
assets deemed appropriate by Management. Additional general
valuation allowances are assigned to the Company's substandard and
special mention assets over and above the general valuation
allowance assigned to the loan portfolio as a whole.
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. Appraisals are obtained on all such real estate acquired
and the asset is 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 residential
loans.
DELINQUENT LOANS
(Dollars in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
30-89 Days $ 2,171 $ 271 $ 175 $ 313 $ 710
90+ Days 266 166 253 206 197
--- --- --- --- ---
Total Delinquent Loans $ 2,437 $ 437 $ 428 $ 519 $ 907
===== === === === ===
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 accounts for the marked
increase in the amount of loans delinquent 30-89 days in 1998
compared to past years. Under prior years' parameters, the amount
of loans delinquent 30-89 days at December 31, 1998 would have
been $224,000.
Non Performing Assets
(Dollars in thousands)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
90+ Day Delinquent Loans $ 266 $ 166 $ 253 $ 206 $ 197
Real Estate Owned - - - 24 37
--- --- --- --- ---
Total Non Performing Assets $ 266 $ 166 $ 253 $ 230 $ 234
=== === === === ===
Non Performing Loans as
a % of Total Loans .42% .31% .57% .51% .49%
Non Performing Assets as
a % of Total Assets .17% .13% .29% .27% .27%
Classified Assets. The following table presents information
pertaining to the Company's Watch list of classified assets and
associated specific valuation allowances as of the dates
indicated. All substandard and special mention loans receivable
and related specific valuation allowances were on 1-4 family
residential mortgage loans.
POTENTIAL PROBLEM LOANS
(Dollars in thousands)
----------------------------------------
1998 1997 1996 1995 1994
----------------------------------------
Substandard $ 1,970 $ 1,564 $ 1,781 $ 1,900 $ 1,928
Special Mention 241 298 346 501 606
----- ----- ----- ----- -----
Gross 2,211 1,862 2,127 2,401 2,534
Less Specific
Valuation Allowance (141) (141) (160) (123) (143)
----- ----- ----- ----- -----
Net $ 2,070 $ 1,721 $ 1,967 $ 2,278 $ 2,391
===== ===== ===== ===== =====
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 general valuation allowance is deemed
adequate. The Company employs the reserve method of accounting
for its general and specific valuation allowances for loan losses.
The following table sets forth the Company's loan loss experience
for the years presented.
LOAN LOSS EXPERIENCE
An analysis of the allowance for loan losses as follows (dollars
in thousands):
Years Ended December 31,
------------------------------------
1998 1997 1996 1995 1994
Balance, Beginning
of Year $ 410 $ 382 $ 323 $ 345 $ 370
Provision for Losses 53 28 59 12 21
Loans Charged Off - - - (34) (48)
Recoveries - - - - 2
---- ---- ---- ---- ----
Balance, End of Year $ 463 $ 410 $ 382 $ 323 $ 345
=== === === === ===
Allowance for Loan
Losses as a % of
Total Loans Receivable .72% .77% .87% .80% .85%
Allowance for Loan
Losses as a % of
Non Performing Loans 174.01% 247.49% 151.17% 156.80% 175.13%
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. The guaranteed aspect of these
investments results in yields slightly less than the actual yields
on the underlying mortgage loans.
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, on 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. While this does add interest rate
risk to the Company it is an attractive investment for the Company
because mortgage-backed securities are highly liquid qualified
thrift investments.
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 arrive.
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, 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
====== === == ======
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
--------------------------------------------
Available for Sale:
FNMA $ 17,054 $ 320 $ 269 $ 17,105
FHLMC 10,659 582 39 11,202
GNMA 13,935 797 318 14,414
------ ----- --- ------
$ 41,648 $ 1,699 $ 626 $ 42,721
====== ===== === ======
The following table sets forth the maturities of the mortgage-
backed security portfolio as of December 31, 1998 (in thousands):
MORTGAGE-BACKED SECURITIES
Wtd.
Amortized Fair Avg.
December 31, 1998 Cost Value Rate
-------- --------
Mortgage-Backed Securities
Maturing:
In One Year or Less $ 402 $ 403 6.06%
After One Year Through Five Years 2,276 2,315 7.02%
After Five Years Through Ten Years 1,714 1,716 5.83%
After Ten Years 18,666 18,775 7.22%
------ ------
$ 23,058 $ 23,209
====== ======
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
1998 1997 1996
--------------------------------
Mortgage Backed Securities
Balance at January 1, $ 41,648 $ 7,520 $ 6,367
Purchases 5,764 38,440 3,065
Repayments (11,790) (4,310) (1,908)
Sales (Net of Gains) (12,388)
Amortizations of Premiums
/Discounts (Net) (176) (2) (4)
------ ------ -----
Balance at December 31, $ 23,058 41,648 7,520
====== ====== =====
Weighted Average Yield 6.34% 6.38% 5.92%
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 2 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, 1998, 93.3% of the
ARM Fund's assets were held in qualified thrift investments while
86.5% of the IMF's holdings were in qualified thrift investments.
This strategy for the most part supplements the Company's prior
investment in money market funds or overnight Federal Funds.
These 2 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 from time to
time 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. In prior years
the Company's investment portfolio was largely classified as held-
to-maturity with only approximately 5% to 10% 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 in 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, 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
====== ===== === ======
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
--------------------------------------------
U. S. Government
and Federal Agencies $ 12,380 $ 283 $ - $ 12,663
Adjustable Rate
Mortgage Mutual Fund 13,817 - 16 13,801
FHLMC Common Stock 35 1,475 - 1,510
------ ----- --- ------
$ 26,232 $ 1,758 $ 16 $ 27,974
====== ===== === ======
The following table sets forth the amount of investment
securities which mature during each of the periods indicated at
December 31, 1998:
INVESTMENT SECURITIES
December 31, 1998
Securities
Available-for-Sale
Amortized Fair Wtg.
Cost Value Avg. Rates
Amounts Maturing in:
One Year or Less $ 9,066 $ 11,352 6.02%
After One Year
Through Five Years 2,197 2,275 6.98%
After Five Years
Through Ten Years 7,075 7,250 7.30%
------ ------
$ 18,338 $ 20,877
====== ======
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 the payment schedule outlined
in the prospectus. "First traunche" indicates the first class of
securities paid from the principal and interest payments of the
underlying mortgage loans.
Currently, the Company's investment in REMIC's is limited to those
issued by FNMA, FHLMC and "AAA" rated non-governmental agencies.
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. At current payment rates experienced in 1998, all of the
Company's existing CMO's will be paid off by 2000.
The Company considers the high cash flow of these investments to
be attractive, particularly when interest rates are at such low
levels as opposed to investing in longer term instruments. In
addition, the cash flow has facilitated the operating needs of the
Company, particularly considering the high loan demand in 1998.
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, 1998 Cost Gains Losses Value
--------------------------------------------
Available for Sale:
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
====== === == ======
Sources of Funds
General. Deposits have always been the primary source of the
Company's funds for lending and other investment purposes. In
1997 two significant other sources were utilized when first, the
Company completed its initial public offering which raised $30.8
million and secondly, advances from the FHLB also provided the
Company with an additional source of funds as part of the
Company's leveraged investing policy whereby the Company was able
to take advantage of favorable interest rate spreads to borrow
money and reinvest it immediately at a rate higher than its cost.
Deposits. The Company's deposits are attracted principally from
within its market area. Many depositors are also mortgage loan
customers. The Company offers both passbook savings 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:
DEPOSITS
Deposit account balances at December 31, 1998, 1997, and 1996
are summarized as follows (in thousands):
Years Ending
December 31,
-------------------------------------------
1998 1997 1996
-------------------------------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Balance Rate Balance Rate Balance Rate
Regular Savings
Accounts $ 21,512 3.0% $ 22,314 3.5% $ 25,088 4.0%
Certificates of
Deposit 39,593 5.2% 34,508 5.2% 36,333 5.2%
------ ------ ------
$ 61,105 $ 56,822 $ 61,421
====== ====== ======
The following table sets forth the savings cash flow of
the Company during the periods indicated (in thousands):
Year Ended December 31,
--------------------------
1998 1997 1996
--------------------------
Increase (decrease) before
Interest Credited $ 2,392 $ (6,642) $ (1,590)
Interest Credited 1,891 2,043 2,066
----- ----- -----
Net increase (decrease) in deposits $ 4,283 $ (4,599) $ 476
The Company attempts to control the flow of deposits by
pricing its accounts to remain generally competitive with other
financial institutions in its market area, but does not
necessarily seek to match the highest rates in the local market.
Traditionally the Company has priced its passbook savings at
or near the top of such local rates as the holders of these
accounts form the majority of its core depositors. The
Company has taken a more conservative approach in rates paid
for certificate of deposits as the Company feels these
accounts to be more rate conscious and sensitive to market
fluctuations. In line with such policies, the Company does
not pay "jumbo" rates for deposits $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, 1998, the Company has no
deposits that were obtained through deposit brokers.
The following table presents the amount of certificates of
deposit at December 31, 1998 which mature during the periods
indicated (in thousands).
Amount Percent
------ -------
Certificate Accounts Maturing
Under 12 months $ 28,497 71.97%
12 months to 24 months 8,342 21.07
24 months to 36 months 2,458 6.21
36 months to 48 months 99 .25
48 months to 60 months 197 .50
------ -----
Total Certificates $ 39,593 100.00%
====== ======
The following table sets forth the maturities of the
Company's deposits of $100,000 or more at December 31, 1998 by
time remaining to maturity (in thousands).
DEPOSITS 100,000 AND OVER
(in thousands)
Maturing in 3 months or less $ 1,320
Maturing in 3 to 6 months 400
Maturing in 6 months to 1 year 714
-----
Total Deposits 100,000 and over $ 2,434
=====
Borrowings. During 1998 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, 1999 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
------------------- ------ ---------
1999 $ 10,730 5.59%
2000 9,388 5.52%
2001 6,200 5.46%
2002 4,190 5.56%
2003 2,938 5.32%
Thereafter 11,935 5.50%
-------
$ 45,381
The maximum amount of advances outstanding at any month-end
during 1998 was $45.9 million. The average balance outstanding
during 1998 was $27.9 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 31 full-time employees at December 31,
1998. 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 continuation by a savings and loan holding company of an
activity 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 be
imposed 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, shall register as, and become subject to the
restrictions applicable to, a bank holding company. See "- The
Association - Qualified Thrift Lender Test."
If the Company were to acquire control of another savings
institution, other than through merger or other business
combination with Guaranty Savings, the Company would thereupon
become a multiple savings and loan holding company. Except where
such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution
meets the QTL test, as set forth below, the activities of the
Company and any of its subsidiaries (other than Guaranty Savings
or other subsidiary savings institutions) would thereafter be
subject to further restrictions. Among other things, no multiple
savings and loan holding company or subsidiary thereof which is
not a savings institution shall commence or continue for a limited
period of time after becoming a multiple savings and loan holding
company or subsidiary thereof any business activity, other than:
(i)furnishing or performing management services for a subsidiary
savings institution; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings institution;
(iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds
of trust; (vi) those activities authorized by regulation as of
March 5, 1987 to be engaged in by multiple savings and loan
holding companies; or (vii) unless the Director of the OTS by
regulation prohibits or limits such activities for savings and
loan holding companies. Those activities described in clause
(vii) above also must be approved by the Director of the OTS prior
to being engaged in by a multiple savings and loan holding
company.
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), 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 15% 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, 1998 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.
The Director of the OTS may only approve acquisitions
resulting in the formation of a multiple savings and loan holding
company which controls savings institutions in more than one state
if (i) the multiple savings and loan holding company involved
controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as
of March 5, 1987; (ii) the acquirer is authorized to acquire
control of the savings institution pursuant to the emergency
acquisition provisions of the Federal Deposit Insurance Act
("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit
institutions to be acquired by the state-chartered institutions or
savings and loan holding companies located in the state where the
acquiring entity is located (or by a holding company that controls
such state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, the Federal
Reserve Bank ("FRB") is authorized to approve an application by a
bank holding company to acquire control of a savings institution.
In addition, a bank holding company that controls a savings
institution may merge or consolidate the assets and liabilities of
the savings institution with, or transfer assets and liabilities
to, any subsidiary bank which is a member of the Bank Insurance
fund with the approval of the appropriate federal banking agency
and the FRB. As a result of these provisions, there have been a
number of acquisitions of savings institutions by bank holding
companies in recent years.
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.
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. Pursuant to the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), the OTS has established
capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital
requirements imposed on national banks. 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, 1998 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, 1998, Guaranty Savings exceeded all of its
regulatory capital requirements, with tangible, core and risk-
based capital ratios of 26.93%, 26.93% and 72.60% 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, 1998 Guaranty Savings and Homestead
Association's liquidity was 62.8%, or $62.3 million in excess of
the minimum required 4%.
Capital Distributions. OTS regulations govern capital
distributions by savings institutions, which include cash
dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other
transactions charged to the capital account of a savings
institution to make capital distributions. Under these
regulations, a safe harbor is created for specified levels of
capital distributions as long as the savings institution meets
their minimum capital requirements, and as long as such
institutions notify the OTS and receive no objection to the
distribution from the OTS. Savings institutions and distributions
that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.
Under recently adopted amendments to the OTS' regulations
which become effective April 1, 1999, a savings institution that
before and after the proposed distribution would at least be
adequately capitalized may make capital distributions during any
calendar year equal to net income for the applicable calendar year
plus net income for the prior two years less any capital
distribution in those prior periods. Failure to meet minimum
capital requirements will result in further restriction on capital
distributions, including possible prohibition without explicit OTS
approval.
In order to make distributions under this safe harbor,
institutions which are subsidiaries of savings and loan holding
companies must submit 30 day written notice to the OTS prior to
making the distribution. The OTS may object to the distribution
during the 30-day period based on safety and soundness concerns.
The Association does not anticipate making any such distributions
at the current time nor does it expect this regulation to have any
adverse impact on the Association at any time in the future.
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, 1998, 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. Guaranty Savings and Homestead Association employs a
service bureau, NCR Corporation of Dayton, Ohio as its data
processor. NCR has been addressing the Year 2000 issue in its
last several software releases, and it has conducted national
and regional testing in 1998 and has declared itself Year 2000
ready. Guaranty has contacted other computer hardware and
software vendors and equipment vendors to ensure that their
products are either Year 2000 compliant now or will be by the end
of this year. The Association does not anticipate that Year 2000
expenditures will be material.
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, 1998, Guaranty
Savings and Homestead Association had $2.3 million in FHLB stock,
which was in compliance with this requirement.
Federal Taxation
General. The Company and Guaranty Savings are subject to the
generally applicable corporate tax provisions of the Internal
Revenue Code (the "Code"), and Guaranty Savings 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 Guaranty Savings and is not a
comprehensive discussion of the tax rules applicable to the
Company and Guaranty Savings.
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 bases of assets of less than $500 million), such as
Guaranty Savings, 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, Guaranty Savings 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, Guaranty Savings 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 Guaranty Savings' 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
Guaranty Savings included $5.5 million for which no federal income
tax has been provided. Because of these federal income tax
reserves and the liquidation account to be established for the
benefit of certain depositors of Guaranty Savings in connection
with the conversion of the Association to stock form, the retained
earnings of Guaranty Savings are substantially restricted.
Distributions. If Guaranty Savings 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 Guaranty Savings 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 share, (ii) it is pursuant to
a liquidation of the institution, or (iii) in the case of a
current distribution, together will 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 15 taxable years. This
provision applies to losses incurred in taxable years beginning
after 1986. At December 31, 1998, Guaranty Savings had no NOL
carryforwards 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 Guaranty
Savings.
Guaranty Savings' 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.
Item 2. PROPERTIES
The following table sets forth certain information relating
to the Company's offices at December 31, 1998. All properties are
owned by the Company. All amounts are in thousands.
Net
Book Total
Location Value Deposits
- -------- ------- --------
3798 Veterans Blvd., Metairie $1,902 $ 53,685
2111 N. Causeway Blvd., Mandeville 344 894
3915 Canal St., New Orleans 259 6,526
----- ------
$2,505 $ 61,105
===== ======
Item 3. LEGAL PROCEEDINGS
The Company and the Association are not involved in any
pending legal proceedings other than nonmaterial 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, 1998.
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 11 of the Registrant's
1998 Annual Report to Stockholders ("Annual Report").
Item 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference
from pages 12 to 13 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 13 to 21 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 21 to 25 of the Registrant's Annual Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is incorporated by reference
from pages 26 to 64 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 1998 Annual Meeting of Stockholders ("Proxy Statement").
Item 11 EXECUTIVE COMPENSATION
The information required herein is incorporated by reference
from pages 8-11 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, 1998 and
1997
Consolidated Statements of Income for the Fiscal Periods
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders'
Equity for the Fiscal Periods Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the Fiscal
Periods Ended December 31, 1998, 1997 and 1996
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 1998 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
* 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 11, 1999 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 11, 1999
- ------------------- President and Chief
Donald C. Scott Executive Officer
(principal executive officer)
/s/ Bruce A. Scott Executive Vice March 11, 1999
- ------------------- President and Director
Bruce A. Scott
/s/ Glenn R. Bartels Controller March 11, 1999
- ------------------- (principal financial
Glenn R. Bartels and accounting officer)
/s/ J. Scott Key Director March 11, 1999
- -------------------
J. Scott Key
/s/ M. D. Paine, Jr. Director March 17, 1999
- ------------------
M.D. Paine, Jr.
/s/ Victor Kirschman Director March 22, 1999
- -------------------
Victor Kirschman
/s/ Bradford A. Glazer Director March 11, 1999
- -------------------
Bradford A. Glazer
/s/ Stephen L. Cory Director March 11, 1999
- -------------------
Stephen L. Cory
/s/ Albert J. Zahn, Jr. Director March 11, 1999
- -------------------
Albert J. Zahn, Jr.
/s/ Kenneth B. Caldcleugh Director March 11, 1999
- -------------------
Kenneth B. Caldcleugh
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
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
The Company's stock price is reported under the symbol GSLA
on the National Association of Securities Dealers Automated
Quotation (NASDAQ) system. The Company's stock traded in the
range shown below. At December 31, 1998 the closing price was
$13.00 per share and there were approximately 1,700 shareholders.
1998
QUARTER ENDING HIGH LOW Cash Dividend
- ------------------ ------ ------ -------
March 31, 1998 20.88 18.50 $.07
June 30, 1998 20.50 16.13 $.07
September 30, 1998 17.25 12.00 $.07
December 31, 1998 13.88 10.38 $.07
1997
QUARTER ENDING HIGH LOW Cash Dividend
- ------------------ ------ ------ -------
March 31, 1997 n/a n/a -
June 30, 1997 15.63 13.00 -
September 30, 1997 16.38 14.88 $.07
December 31, 1997 20.88 16.00 $.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 27, 1999 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
P.O. Box 1010
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 Forrester, Compliance Officer or, Glenn R. Bartels, Controller
GS Financial Corp.
3798 Veterans Blvd.
Metairie, LA 70002
(504) 457-6220
TO OUR SHAREHOLDERS
Our physical presence and our slogan "we build a better mortgage"
have contributed to the growth of the Association's reputation and
recognition within the communities we serve. Our policy of being
a conservative portfolio lender, focused on financing and
servicing the home ownership needs of our customers in a friendly,
professional manner, has attracted the attention of many
homeowners who realize that there must be a better way. They are
drawn to us in search of a "better built" mortgage. As a result,
the refinancing of existing mortgage loans has become a primary
source of new loan originations.
Personal service is what ultimately differentiates Guaranty
from the many competitors servicing our market area. With mergers
and acquisitions having placed the financial services industry in
a state of flux, we are presented with new opportunities to entice
the members of our community to experience our family business
philosophy. The anticipated expansion of services and the
convenience of our locations provide additional incentives. As
word continues to spread about what we offer and how we do
business, we are confident that our market share will continue to
grow in future years.
During 1998, under the stock repurchase program, GS Financial
purchased 491,054 shares of its outstanding common stock at a cost
of $8.3 million.
The Board and Management are committed to being the best we
can be. This translates into our continuing efforts to increase
earnings, reduce costs and maintain asset quality while enhancing
shareholder value.
We hope that, as you read over the enclosed financial
results, you share our enthusiasm about what has been accomplished
in two short years. We appreciate your continued support and
confidence.
Sincerely,
/s/ Donald C. Scott
___________________
Donald C. Scott
President and Chairman of the Board
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,
1998 1997 1996 1995 1994
Selected Financial
Condition:
Total Assets 157,534 131,396 87,550 86,040 88,250
Cash and Cash
Equivalents 1,810 2,612 7,591 2,355 2,620
Loans Receivable, Net 63,895 53,588 44,125 39,888 40,042
Investment Securities 20,877 27,974 23,566 33,360 35,496
Mortgage-Backed
Securities 23,209 42,721 7,520 6,367 6,063
Collateralized Mortgage
Obligations 41,726 - - - -
Deposit accounts 61,105 56,822 61,721 60,945 64,642
Borrowings 45,381 16,157 - - -
Equity 48,509 56,047 24,779 23,946 22,839
Selected Operating Data:
Interest Income 9,585 8,347 6,155 6,298 6,035
Interest Expense 4,087 3,014 2,669 2,653 2,409
Net Interest Income 5,498 5,333 3,486 3,645 3,626
Provision for Loan Losses 53 28 59 12 21
Net Interest Income after
Provision for Loan Losses 5,445 5,305 3,427 3,633 3,605
Non-Interest Income 233 73 (74) 8 109
Non-Interest Expense (3,453) (2,708) (2,747) (2,289)(2,191)
Net Income before Taxes 2,225 2,670 606 1,352 1,523
Income Tax expense 870 1,000 201 480 529
Net Income 1,355 1,670 405 872 994
Net Income Per Share $ 0.49 $ 0.53 n/a n/a n/a
Dividends declared Per
Share $ 0.28 $ 0.14 n/a n/a n/a
Other Data:
Profitability
Average Yield on
Interest Earning Assets 7.16% 7.21% 7.57% 7.57% 6.97%
Average Rate on Interest
Bearing Liabilities 4.76 4.60 4.43 4.25 3.62
Average Interest
Rate Spread 2.40 2.61 3.14 3.32 3.35
Net Interest Margin 4.11 4.60 4.29 4.38 4.19
Interest-Earning Assets
as a % of Interest
Bearing Liabilities 156.04 176.66 134.92 133.39 130.39
Net Interest Income
after Provision for
Loan Loss as a % of
Non Interest Expense 157.68 195.90 124.75 158.72 164.58
Non Interest Expense as
a % of Average Assets 2.47 2.23 3.19 2.62 2.43
Return on Average Assets 0.97 1.38 0.47 1.00 1.10
Return on Average Equity 2.62 3.19 1.65 3.70 4.41
Capital Ratio's:
Average Equity as a %
of Total Assets 37.03% 40.76% 28.30% 26.99% 25.02%
Tangible Capital Ratio 27.62 32.61 27.72 27.35 25.90
Core Capital Ratio 27.62 32.61 27.72 27.35 25.90
Risk-Based Capital Ratio 72.60 79.41 79.19 93.60 90.00
Asset Quality Ratios:
Non Performing Loans as
a % of Total Loans 0.42% 0.31% 0.57% 0.51% 0.49%
Non Performing Assets as
a % of Total Assets 0.17 0.13 0.29 0.27 0.27
Allowance for Loan Losses
as a % of Total Loans
Receivable 0.72 0.77 0.87 0.80 0.85
Allowance for Loan Losses
as a % of Non-
Performing Loans 174.01 247.49 151.17 156.80 175.13
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, 1994 through
1998 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 difference 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 cost and 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 $26.1 million,
or 20%, from $131.4 million at December 31, 1997, to $157.5
million at December 31, 1998. The increase was primarily due to a
$41.7 million increase in collarteralized mortgage obligations and
a $10.3 million increase in loans receivable. The increase was
funded primarily by an increase in advances from the Federal Home
Loan Bank and a slight increase in deposits.
Cash and Cash Equivalents - Cash and cash equivalents, consisting
of interest and non-interest bearing deposits decreased $.8
million, or 31%, from $2.6 million at December 31, 1997, to $1.8
million at December 31, 1998. Cash and cash equivalents are
utilized in the daily operations of the Company. During stable
economic periods, the Company attempts to keep these assets at a
minimum, instead choosing to invest excess cash 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 $10.3
million or 19%, from $53.6 million at December 31, 1997, to $63.9
million at December 31, 1998. The increase consisted of a $9.1
million increase in loans on 1-4 family dwellings, a $.6 million
increase in construction loans and a $.7 million increase in
commercial real estate loans.
Investment Securities - Investment securities decreased $7.1
million or 25%, from $28.0 million at December 31, 1997, to $20.9
million at December 31, 1998. 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) preferred
stock.
Mortgage-Backed Securities - Mortgage-backed securities decreased
$19.5 million or 46%, from $42.7 million at December 31, 1997, to
$23.2 million at December 31, 1998. In 1998 the Company sold
$12.4 million in mortgage-backed securities which netted a
realized gain of $.3 million. On September 30, 1997, the Company
reclassified all of its mortgage-backed securities from held to
maturity to available for sale. At December 31, 1998 and 1997, 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). 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 its investment in CMO's were funded by
advances from the Federal Home Loan Bank.
LIABILITIES AND STOCKHOLDERS' EQUITY
General - The Company's deposits, borrowings and equity represent
sources of funds.
Deposits - The Company's deposits increased $4.3 million or 8%,
from $56.8 million at December 31, 1997, to $61.1 million at
December 31, 1998. The change was due to the net result of a $5.1
million increase in certificates of deposit and a $.8 million
decrease in passbook savings accounts.
Borrowings - The Company's borrowings increased $29.2 million or
180% from $16.2 million at December 31, 1997 to $45.4 million at
December 31, 1998. The Company's borrowings consist of fully
amortizing and balloon advances from the Federal Home Loan Bank of
Dallas which mature between 1999 and 2008. These borrowings
represent the continuation of the Company's wholesale growth
strategy of leveraged investing.
Stockholders' Equity - Stockholders' equity decreased $7.5 million
or 13%, from $56 million at December 31, 1997, to $48.5 million at
December 31, 1998. The net decrease was due to the net effects of
stock buybacks of $8.3 million, net income of $1.4 million, $.8
million in dividends paid out along with other minor adjustments.
COMPARISON OF RESULTS OF OPERATIONS
General - The Company reported net income of $1.4 million, $1.7
million and $.4 million for the years ended December 31, 1998,
1997 and 1996. The $.3 million decrease from 1997 to 1998 was due
to an increase in non-interest expenses of $.8 million which was
partially offset by a $.2 million increase in net interest income.
The results for 1997 reflected the net influx of $30 million in
capital raised in the Company's initial public offering (IPO). In
1996, operating as a mutual thrift, Guaranty Savings & Homestead
generated net income of $.4 million which was after the effects of
the one time SAIF re-capitalization premium of $.4 million.
Average Balances, Net Interest Income, and Yields Earned and Rates Paid
For the Years Ending December 31,
1998 1997 1996
Avg. Avg. Avg. Avg. Avg. Avg.
Bal. Int. Rate Bal. Int. Rate Bal. Int. Rate
Interest Earning Assets ------ ----- ----- ------ ----- ------ ------ ----- -----
Loans 59,511 4,912 8.25% 46,773 4,085 8.73% 41,443 3,760 9.07%
Mortgage-Backed
Securities 28,918 1,833 6.34% 28,854 1,841 6.38% 7,368 436 5.92%
Investment Securities 20,423 1,499 7.34% 25,972 1,724 6.64% 27,430 1,689 6.16%
Collateralized Mortgage
Obligations 17,662 1,118 6.33%
Other Interest
Earning Assets 7,363 223 3.03% 14,251 697 4.89% 5,049 270 5.35%
------ ----- ------ ------ ------ ----- ------ ----- -----
Total Interest
Earning Assets 133,877 9,585 7.16% 115,850 8,347 7.21% 81,290 6,155 7.57%
Non Interest Earning
Assets 5,894 5,592 4,864
------- ------ ------
Total Assets 139,771 121,442 86,154
Interest Bearing
Liabilities
Passbooks 22,284 680 3.05% 23,735 854 3.60% 23,672 833 3.52%
Certificates of Deposits 35,636 1,791 5.03% 34,397 1,721 5.00% 36,577 1,836 5.02%
Borrowings 27,879 1,616 5.80% 7,445 439 5.90%
------ ----- ----- ------ ----- ----- ------ ----- -----
Total Interest Bearing
Liabilities 85,799 4,087 4.76% 65,577 3,014 4.60% 60,249 2,669 4.43%
Non Interest Bearing
Liabilities 4,932 3,457 1,393
------ ------ ------
Total Liabilities 90,731 69,034 61,642
Retained Earnings 49,040 52,408 24,512
------- ------- ------
Total Liabilities and
Retained Earnings 139,771 121,442 86,154
Net Interest
Earning Assets 48,078 50,273 21,041
Net Interest Income 5,498 5,333 3,486
Net Interest Spread 2.40% 2.61% 3.14%
Net Interest Margin 4.11% 4.60% 4.29%
Interest Income - Interest income increased $1.3 million or 16%,
from $8.3 million for 1997 compared to $9.6 million in 1998. The
most significant contributing factors for this increase were
interest on CMO's, a new investment vehicle for the Company, of
$1.1 million, and interest on loans which increased 20% or $.8
million from $4.1 million in 1997 to $4.9 million in 1998.
The yield on loans receivable decreased form 8.73% in 1997 to
8.25% in 1998. This, however, was offset by an increase in the
average balance of net loans receivable of $12.7 million from 1997
to 1998 resulting in an increase in interest income from net loans
receivable of $.8 million or 20%, from $4.1 million in 1997,
compared to $4.9 million in 1998.
Interest income on investment securities decreased $.2
million or 12% from $1.7 million in 1997 to $1.5 million in 1998.
While the yield on investment securities went up from 6.6% in 1997
to 7.34% in 1998, the average balance of investments decreased
$5.6 million or 22% from 1997 to 1998. Both the increase in
yield and decrease in balance were due to the Company's redemption
of some of its holdings in short term liquid mutual funds. These
monies were re-deployed to CMO's, loans and utilized to buyback
stock.
Interest on Mortgage-backed securities remained relatively
unchanged as interest income on mortgage-backed securities was
$1.8 million for 1998 and 1997 with an approximate yield of 6.34%.
Interest income from other interest earning assets decreased
$.5 million or 71%, from $.7 million for the 12 months ending
December 31, 1997, compared to $.2 million for the 12 months
ending December 31, 1998. This decrease was due to a sharp drop
in the average balance of the Company's overnight Federal Funds
sold. During the Company's 1997 IPO the accumulation of cash
during the subscription period and subsequent redeployment caused
the Company to rely substantially on Federal Funds which was not
the case in 1998.
Interest Expense - Interest expense increased $1.1 million or 37%,
from $3.0 million in 1997, compared to $4.1 million in 1998.
Interest expense on deposits decreased $.1 million due to a
decrease in the cost of passbook savings deposits from 3.6% in
1997 to 3.05% in 1998. Interest on FHLB advances increased $1.2
million to $1.6 million in 1998 compared to $.4 million in 1997.
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 both FHLB advances and the
Company's certificates of deposits remained relatively unchanged
from 1997 to 1998.
INTEREST RATE/VOLUME ANALYSIS
--------------------------------------------
12/31/98 to 12/31/97 12/31/97 to 12/31/96
Rate Volume Total Rate Volume Total
Interest Income
Loans (247) 1,074 827 (141) 466 325
MBS 95 (103) (8) 34 1,371 1,405
Invest 145 (370) (225) 132 (97) 35
CMO's - 1,118 1,118 - - -
Other (176) (298) (474) (23) 450 427
---- ----- ----- ---- ---- -----
Total (184) 1,421 1,238 1 2,190 2,192
Interest Expense
Passbook (131) (44) (174) 19 2 21
Certificates 10 60 70 (18) (97) (115)
Borrowings (25) 1,203 1,177 - 439 439
---- --- --- --- ---- ---
Total (145) 1,218 1,073 1 345 345
Increase/(Decrease)
in Net Interest (38) 202 165 1 1,846 1,847
Income
Provision for Loan Losses -The Company had a provisions for loan
loss of $.05 million in 1998 compared to $.03 million and $.06
million for the years ending December 31, 1997 and 1996.
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 general valuation allowance is deemed adequate. The
Association employs the reserve method of accounting for its
general and specific valuation allowances for loan losses.
For the twelve months ended December 31, 1998, 1997 and 1996 the
above-mentioned provisions were necessary to bring the general
valuation allowance 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, 1998,
1997 and 1996 the Company had no such charge-offs. This trend
could continue as long as the local economy remains strong with
unemployment low. Because of its policy of requiring cash equity
for all mortgage loans and its existing allowance for loan losses,
the Company does not anticipate any material adverse effect on its
results of operations in the event of a downturn in the local
economy.
Non-Interest Income - Non-interest income increased $.1 million in
1998 to $.2 million, compared to $ .1 million in the twelve months
ended December 31, 1997. The one major contributing factor to
this difference was the gain on sale of investments in 1998 of $.2
million compared to the 1997 gain on sale of investments of $.05
million.
Other Expenses - Other expenses increased $.7 million or 26%, from
$2.7 million for the twelve months ended December 31, 1997,
compared to $3.4 million for the twelve months ended December 31,
1998. The principal contributing factors were the addition of the
Louisiana shares tax along with increases in compensation and
employee benefits, advertising and other operating expenses. As a
newly chartered stock thrift, the Company was required to pay the
Louisiana shares tax which is based on the Company's income stream
and physical holdings. For 1998 this amounted to $.4 million for
the Company. The increase in employee benefits ($.2 million) was
due to an increase in the expenses related to the ESOP which were
triggered by the rapid increase of the Company's stock price in
1997.
During 1998 the increase in other expenses was due in part to
the elevated price of the Company's stock plus other one-time
expenses such as charged-off bank acquisition costs. Due to the
anticipated lower stock price, the avoidance of one time charges,
and cost cutting measures instituted by the Company over the last
six months, it is expected that other expenses will be lower in
1999.
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 paydowns 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. Regularly scheduled
payments are somewhat predictable but the prepayments of many of
the Company's assets in recent years has facilitated the Company's
investment in short term funds which typically earn yields above
overnight rates which can be easily converted to cash.
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, 1998, the Association's
liquidity stood at 62.9% or $61.3 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, 1998,
the Association's tangible and core capital amounted to $39.8
million or 26.9% of adjusted total assets, while the Association's
risk-based capital was $40.2 million, or 72.6% of total adjusted
risk-weighted assets.
Year 2000
The Company has had a year 2000 Project (the "Project") ongoing
since 1997. The oversight of the Project was elevated to the
Board of Directors in March, 1998 with the establishment of a
three member committee.
The project addresses the potential problems associated
with the possibility that the Company's data processing systems
which control the customer accounts as well as much of the
infrastructure of the Company may not be programmed to read four
digit codes. If that were the case, upon the arrival of the year
2000 one or more of these systems may recognize "00" as the year
1900 causing system failure or the generation of erroneous data
such as the maturity date of a certificate of deposit.
The Company has focused its efforts on (1) its data
processor, NCR Corp. of Dayton, Ohio, which provides on-line
banking services through its data center in Irving, Texas; (2) the
Company's personal computers ("PC's"), which serve both as
terminals for processing customer transactions and accessing
customer account information, and as computers for general
business functions using word processing, spreadsheets, and
database software; (3) other hardware such as the Company's
telephone, alarms or HVAC equipment, and (4) other software, such
as Fedline, accounting and payroll.
NCR held two testing sessions for customers in 1998 and has
stated that it is year 2000 ready. All PC's have been tested and
are either year 2000 compliant or can be manually reset on the
first business day of 2000 to the correct date. Some older PC's
will be replaced in 1999 as part of a normal process of upgrading
outdated equipment.
The Company has either tested other applications or received
written assurances from vendors that their products are year 2000
compliant. The Company expects to continue its testing in 1999 to
ensure that all of its processes will function properly after
1999. The estimated costs of year 2000 compliance are not
expected to be material.
As part of its year 2000 planning, the Company is developing
a business continuity plan to be used in the event that a process
fails after December 31, 1999, even though the process has been
certified as year 2000 compliant. This plan will be completed and
tested during 1999.
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 whicheither 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, 1998, the ratio of the
Association's cumulative one-year gap to total assets was a
negative 4.4% and its ratio of interest-earning assets to
interest-bearing liabilities maturing or re-pricing within one
year was 86.6%.
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 lends itself 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 100 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 2 to 4 years.
Quantitative Risk Analysis Presented below, as of December 31,
1998 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 400 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)
+400 31,713 -12,991 -29%
+300 35,089 -9,615 -22%
+200 38,583 -6,121 -14%
+100 41,952 -2,753 -6%
0 44,704
-100 46,694 1,990 +4%
-200 48,391 3,687 +8%
-300 50,337 5,633 +13%
-400 52,262 7,558 +17%
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. Based upon the above-described changes in the
Association's NPV, the Association could be required to deduct
$5.2 million from the calculation of its total regulatory capital
if certain OTS regulations were applicable, although the
Association would continue to be deemed a "well capitalized"
institution.
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, 1998, 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
Months Months Years Years Years Total
Interest-Earning assets
Cash and interest-
earning deposits $1,343 $ - $ - $ - $ - $ 1,343
U.S. Government and
Agency Securities (4) 899 1,697 500 7,075 10,171
FHLMC & FHLB Stock 5,097 5,097
Mortgage-based
Mutual Funds 4,540 4,540
Mortgage Loans (1) 1,950 5,850 15,600 15,600 25,016 64,016
Mortgage-Backed
Securities (1) 2,490 7,470 11,458 - - 21,418
Collateralized Mortgage
Obligations (1) 3,300 9,900 26,400 2,138 - 41,738
Consumer Loans 337 - - - - 337
TOTAL INTEREST-EARNING
ASSETS 19,057 24,119 55,155 18,238 32,091 148,660
Interest Bearing Liabilities
Passbook Savings (3) 2,250 5,850 13,407 - - 21,507
Certificates of
Deposits (2) 7,475 22,028 9,674 369 - 39,546
FHLB Advances (2) 3,368 8,898 17,567 5,548 10,000 45,381
TOTAL INTEREST-BEARING
LIABILITIES $13,093 $36,776 $40,648 $5,917 $10,000 $106,434
Excess/(deficiency) of
interest-earning assets
over interest-bearing
liabilities 5,964 (12,657) 14,507 12,321 22,091 42,226
Cumulative excess/
(deficiency) of interest-
earning assets over
interest-bearing
liabilities 5,964 (6,693) 7,814 20,135 42,226
Cumulative excess/
(deficiency) of interest-
earning assets over
interest-bearing
liabilities as a percent
of total assets 3.96% (4.44%) 5.19% 13.37% 28.04%
Ratio of interest-earning
assets to interest-bearing
liabilities 145.55% 65.58% 135.69% 308.23% 320.91%
(1) Based on average monthly payments for 1998
(2) Based on contractual maturities
(3) Based on 1998 average monthly withdrawals
(4) Includes callable securities of $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 sheet
of GS FINANCIAL CORP. and its wholly-owned subsidiary, GUARANTY
SAVINGS AND HOMESTEAD ASSOCIATION as of December 31, 1998 and
1997, 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,
1998. 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, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/LaPorte, Sehrt, Romig and Hand
---------------------------------
A Professional Accounting Corporation
January 19, 1999
Metairie, LA.
GS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
December 31,
-----------------
1998 1997
-----------------
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from
Depository Institutions $ 171 $ 376
Interest-Bearing Deposits in Other Banks 839 1,186
Federal Funds Sold 800 1,050
Total Cash and Cash Equivalents 1,810 2,612
Securities Available-for-Sale,
at Fair Value 20,877 27,974
Mortgage-Backed Securities
Available-for-Sale, at Fair Value 23,209 42,721
Collateralized Mortgage Obligations
Available-for-Sale, at Fair Value 41,726 -
Loans, Net 63,895 53,588
Accrued Interest Receivable 689 587
Premises and Equipment, Net 2,620 2,715
Real Estate Held-for-Investment 216 218
Stock in Federal Home Loan Bank, at Cost 2,327 884
Prepaid Income Tax 69 -
Deferred Charges 57 46
Other Assets 39 51
------- ------
Total Assets $157,534 $131,396
======= ======
The accompanying notes are an integral part of these financial
statements
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
------------------
1998 1997
------------------
LIABILITIES
Deposits $ 61,105 $56,822
Advance Payments by Borrowers
for Taxes and Insurance 690 899
FHLB Advances 45,381 16,157
Accrued Interest - FHLB Advances 211 83
Accrued Income Tax - 92
Deferred Income Tax 1,192 1,178
Other Liabilities 446 118
------ ------
Total Liabilities 109,025 75,349
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 33,810 33,658
Unearned ESOP Shares (2,208) (2,516)
Unearned RRP Trust Stock (2,193) (2,076)
Treasury Stock(491,054 Shares at Cost) (8,324) -
Retained Earnings 25,622 25,089
Accumulated Other Comprehensive Income 1,768 1,858
------ ------
Total Stockholders' Equity 48,509 56,047
------- ------
Total Liabilities and
Stockholders' Equity $ 157,534 $131,396
======= ======
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,
----------------------------------
1998 1997 1996
----------------------------------
INTEREST INCOME
Loans Receivable $ 4,912 $ 4,085 $ 3,760
Investment Securities 1,499 1,724 1,689
Mortgage Backed Securities 1,833 1,841 436
Collateralized Mortgage
Obligations 1,118 - -
Dividends on Federal Home
Loan Bank Stock 88 47 41
Other Interest Income 135 650 229
----- ----- -----
Total Interest Income 9,585 8,347 6,155
----- ----- -----
INTEREST EXPENSE
Deposits 2,471 2,575 2,669
Advances from Federal Home
Loan Bank 1,616 439 -
----- ----- -----
Total Interest Expense 4,087 3,014 2,669
----- ----- -----
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 5,498 5,333 3,486
PROVISION FOR LOAN LOSSES 53 28 59
----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,445 5,305 3,427
----- ----- -----
NON-INTEREST INCOME
Gain (Loss) on Sale of
Investments 208 53 (100)
Other Income 25 20 26
----- ----- -----
Total Non-Interest Income 233 73 (74)
The accompanying notes are an integral part of these financial
statements
GS Financial Corp.
Consolidated Statements of Income (Continued)
(Dollars in Thousands)
For The Years Ended
December 31,
----------------------------------
1998 1997 1996
----------------------------------
NON-INTEREST EXPENSES
Compensation and Employee
Benefits 2,115 1,923 1,579
Advertising 78 33 38
Office Supplies, Telephone
and Postage 126 91 83
Net Occupancy Expense 291 308 293
SAIF Recapitalization Premium - - 413
Legal Fees 21 35 7
Audit and Consulting Fees 86 53 56
Supervisory Fees 72 56 47
Federal Insurance Premiums 35 38 140
Data Processing Expense 77 65 67
Real Estate Owned Expense - Net (1) 8 (3)
Ad Valorem Taxes 376 - -
Other 177 98 27
----- ----- -----
Total Non-Interest Expenses 3,453 2,708 2,747
----- ----- -----
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 2,225 2,670 606
INCOME TAX EXPENSE 870 1,000 201
----- ----- -----
NET INCOME $ 1,355 $ 1,670 $ 405
===== === ===
EARNINGS PER SHARE - BASIC $ .49 $ .53 $ -
EARNINGS PER SHARE - DILUTED $ .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,
----------------------------------
1998 1997 1996
----------------------------------
NET INCOME $ 1,355 $ 1,670 $ 405
OTHER COMPREHENSIVE INCOME,
NET OF TAX
Unrealized Holding Gains
(Losses) Arising During
the Period (79) 901 276
Reclassification Adjustment
for (Gains) Losses Included
In Net Income (11) 40 152
Total Other Comprehensive Income (90) 941 428
COMPREHENSIVE INCOME $ 1,265 $ 2,611 $ 833
GS FINANCIAL CORP.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1998, 1997, and 1996
(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, 1995 23,457 489 23,946
Net Income
Year Ended
December 31, 1996 405 405
Other Comprehensive
Income Net of Tax 428 428
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 128 235 363
ESOP Trust
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 133 308 441
ESOP Trust
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
Increase in
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
GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended
December 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,355 1,670 $ 405
Adjustments to Reconcile Net Income
to Net Cash
Provided by Operating Activities:
Depreciation 123 135 125
Discounts Accretion Net
of Premium Amortization 158 (8) (331)
Provision for Losses 53 28 59
Loss on Sale of Loans - 5 -
Net Loan Fees (2) - -
Dividend on ARM Fund (587) (280) -
Dividend on IMF Fund (98) - -
ESOP Expense 521 363 -
RRP Expense 103 92 -
(Gain) Loss on Sale of Foreclosed
Real Estate - 8 (7)
(Gain) Loss on Sale of Investments (208) (53) 100
(Increase) Decrease in Prepaid
Income Taxes (69) 398 (376)
Deferred Income Tax 60 (22) 198
Changes in Operating Assets
and Liabilities:
(Increase) in Accrued
Interest Receivable (102) (51) (30)
(Increase) in Deferred Charges (11) (22) (2)
Increase (Decrease) in
Accrued Income Tax (93) 92 -
Increase (Decrease) in
Other Liabilities 328 (80) (141)
Increase in Accrued Interest
on FHLB Advances 128 83 -
(Increase) Decrease in
Other Assets 12 166 (174)
--- ----- ---
Net Cash Provided by (Used in)
Operating Activities 1,671 2,524 (174)
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 (51,302) - -
Proceeds from Maturities of CMO's 9,589 - -
Proceeds from Sale of Held-to-Maturity
Securities - - 6,888
Purchase of Available-for-Sale
Securities - (12,347) (20,458)
Proceeds from Maturities of
Available-for-Sale Securities 2,209 10,300 25,000
Purchases of Mortgage-Backed
Securities (5,764) (38,440) (3,065)
Proceeds from Maturities of
Mortgage-Backed Securities 11,790 4,310 1,908
Proceeds from Sale of Mortgage-
Backed Securities 12,646 - -
(Purchase)/Redemption of
ARM Mutual Fund 11,539 (12,482) (754)
(Purchase)/Redemption of
IMF Mutual Fund (5,169) - -
Proceeds from Sales of Available-
for-Sale Securities - 10,815 -
Loan (Originations) or Principal
Repayments - Net (10,358) (9,496) (4,296)
Purchases of Premises and Equipment (28) (92) (201)
Proceeds from Sales of Foreclosed
Real Estate - 7 46
Investment in Foreclosed Real Estate - (15) (15)
Purchase of Federal Home Loan Bank Stock(1,355) (110) -
Non-Cash Dividend - FHLB (88) (46) (41)
Investment in Real Estate Held-
for-Investment - (130) (4)
----- ----- -----
Net Cash Provided by (Used in)
Investing Activities (26,291) (47,726) 5,008
CASH FLOWS FROM FINANCING ACTIVITIES Net Proceeds from Sale
of Common Stock - 33,564 -
Purchase of ESOP Shares - (2,750) -
Purchase of Treasury Stock (8,324) - -
Advances from Federal Home Loan Bank 29,224 17,320 -
Payments on Advances from Federal
Home Loan Bank - (1,163) -
Payment of Cash Stock Dividends (822) (443) -
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 4,283 (4,599) 476
Net Increase (Decrease) on
Non-Interest Bearing Deposits (209) 370 (75)
------- ------ ------
Net Cash Provided by
Financing Activities 23,818 40,223 401
------ ------ ------
NET INCREASE (DECREASE)
IN CASH AND CASH (802) (4,979) 5,235
EQUIVALENTS
CASH AND CASH EQUIVALENTS
- Beginning of Year 2,612 7,591 2,356
------ ----- -----
CASH AND CASH EQUIVALENTS
- End of Year $1,810 $2,612 $7,591
===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $4,095 $2,931 $2,679
Income Taxes 878 727 270
Loans Transferred to Foreclosed
Real Estate During the Year - 15 -
Unrealized Gain on Securities
Available-for-Sale Credited to
Equity Capital as a Result of the
Adoption of SFAS 115 2,679 2,815 1,390
GS FINANCIAL CORP.
NOTES TO CONSOLIDATED 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 which 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 and certificates of
deposit.
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, and
the financial statements of prior years have been restated to give
effect to the combination.
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.
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 judgments about
information available to them at the time of their examination.
All dollar amounts on the financial statements and within the
footnotes of the financial statements are in thousands, and the
zeros have been omitted.
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 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 agencies.
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.
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 which, in
Management's judgment, 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
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) or 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 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 $78,000, $33,000 and $38,000 at December 31,
1998, 1997 and 1996, respectively.
RECLASSIFICATIONS
Certain reclassifications of previously reported amounts have been
made to conform with 1998 presentation. Such reclassifications had
no effect on net income.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
Accounting for Derivative Instruments and Hedging Activities, will
require all derivatives to be recognized as either assets or
liabilities in the consolidated balance sheets and measured at fair
value. This statement is effective beginning with the quarter
ending September 30, 1999. 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.
Statement of Financial Accounting Standards No. 134 ("SFAS 134"),
Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise, requires that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed securities based
on the entity's ability and intent to sell or hold those
investments. This statement is effective for fiscal years
beginning on or after January 1, 1999. Adoption of this
pronouncement is not expected to have an effect on the financial
position and results of operations of the Company.
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 which may occur in the future.
NOTE C
INVESTMENT SECURITIES
Securities available-for-sale consist of the following
(in thousands):
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
====== ===== === ======
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
U. S. Government
and Federal Agencies $ 12,380 $ 283 $ - $ 12,663
Adjustable Rate Mortgage
Mutual Fund 13,817 - 16 13,801
FHLMC Common Stock 35 1,475 - 1,510
------ ----- --- ------
$ 26,232 $ 1,758 $ 16 $ 27,974
====== ===== === ======
The following is a summary of maturities of securities available-
for-sale (in thousands):
December 31,
1998 1997
Securities Securities
Available-for-Sale Available-for-Sale
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Amounts Maturing in:
One Year or Less $ 9,066 $ 11,352 $ 14,852 $ 16,314
After One Year
Thru Five Years 2,197 2,275 3,805 3,909
After Five Years
Thru Ten Years 7,075 7,250 7,575 7,751
------ ------ ------ ------
$ 18,338 $ 20,877 $ 26,232 $ 27,974
====== ====== ====== ======
The Association is holding various securities in the amount of
$2,000,000 that are callable from 1999 to 2000.
Accrued interest receivable on available-for-sale investment
securities at December 31, 1998 was $110,000. Accrued interest
receivable on available-for-sale investment securities at December
31, 1997 was $156,000.
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 market for these securities
approximates cost.
NOTE D
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following
(in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 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
====== ===== === ======
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
FNMA $ 17,054 $ 320 $ 269 $ 17,105
FHLMC 10,659 582 39 11,202
GNMA 13,935 797 318 14,414
------ ----- --- ------
$ 41,648 $ 1,699 $ 626 $ 42,721
====== ===== === ======
During 1997, the Association transferred mortgage-backed
securities from the held-to-maturity category to the available-
for-sale category. The amortized costs of the transferred
securities was $43,854,000 and the related unrealized loss was
$611,000.
At December 31, 1998 and 1997, mortgage-backed securities are
classified as available-for-sale, and are reported on the
financial statements at their fair value.
The amortized cost and fair value of mortgage-backed
securities at December 31, 1998 and December 31, 1997, 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.
Amortized Fair
December 31, 1998 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
====== ======
Amortized Fair
December 31, 1997 Cost Value
Mortgage-Backed Securities Maturing:
In One Year or Less $ 918 $ 1,009
After One Year Thru Five Years 6,861 6,874
After Five Years Thru Ten Years 6,333 6,591
After Ten Years 27,536 28,247
------ ------
$ 41,648 $ 42,721
====== ======
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 1997 or 1996.
NOTE E
COLLATERALIZED MORTGAGE OBLIGATIONS
Collateralized Mortgage Obligations (CMO's) consist of the
following (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 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
====== ===== === ======
There was no investment in CMO's as of December 31, 1997.
At December 31, 1998, 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, 1998 have
maturities of greater than ten years. There were no sales of
CMO's during 1998, 1997, or 1996.
NOTE F
LOANS
Loans at December 31, 1998 and 1997 are summarized as follows
(in thousands):
December 31,
------------
1998 1997
Loans Secured by First Mortgages
on Real Estate:
One to Four Family Residential $ 61,562 $ 52,528
FHA and VA 237 358
Construction 740 99
Commercial Real Estate 1,157 471
Other 201 123
------ ------
Total Real Estate Loans 63,897 53,579
Consumer Loans
Second Mortgage 119 172
Loans on Deposits 337 244
------ ------
64,353 53,995
------ ------
Allowance for Loan Losses (463) (410)
Net Deferred Loan Origination Costs 5 3
------ ------
$ 63,895 $ 53,588
====== ======
An analysis of the allowance for loan losses as follows (in
thousands):
Years Ended
December 31,
1998 1997 1996
Balance, Beginning of Year $ 410 $ 382 $ 323
Provision for Losses 53 28 59
Loans Charged Off - - -
------- ------ -------
Balance, End of Year $ 463 $ 410 $ 382
======= ====== =======
Fixed rate loans receivable as of December 31, 1998 are
scheduled to mature and adjustable rate loans are scheduled to
reprice as follows (in thousands):
Under One Six GT
One to Five to Ten 10
Year Years Years Years Total
Loans Secured by 1 - 4
Family Residential:
Fixed Rate $ 344 $ 3,861 $8,772 $49,681 $62,658
Other Loans Secured by
Real Estate
Fixed Rate 5 161 223 969 1,358
All Other Loans 337 - - - 337
----- ------ ------ ------ ------
$ 686 $ 4,022 $8,995 $50,650 $64,353
===== ===== ===== ====== ======
At December 31, 1998 and 1997, the Association had loans totaling
approximately $310,000 and $318,000, respectively, for which
impairment had been recognized. The allowance for loan losses
related to these loans totaled $141,000 and $141,000 at December
31, 1998 and 1997, respectively. The amount of interest income
that would have been recorded on loans in non-accrual status at
December 31, 1998, had such loans performed in accordance with
their terms, was approximately $29,000. Such interest foregone
for the year ended December 31, 1997 was approximately $19,000.
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,
1998 1997
Balance, Beginning of Year $ 1,059 $ 179
Additions 33 1,087
Payments and Renewals (143) (207)
--------- ---------
Balance, End of Year $ 949 $ 1,059
========= =========
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, 1998 and 1997
consists of the following (in thousands):
December 31,
1998 1997
Loans $ 214 $ 197
Mortgage-Backed Securities 133 234
Collateralized Mortgage Obligations 232 -
Investments and Other 110 156
------ ------
Totals $ 689 $ 587
====== ======
NOTE H
PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
December 31,
1998 1997
Land $ 781 $ 781
Buildings and Improvements 2,066 2,066
Furniture, Fixtures and Equipment 466 473
------- --------
3,313 3,320
Accumulated Depreciation and
Amortization (693) (605)
------- --------
$ 2,620 $ 2,715
======= ========
Depreciation expense for the years ended December 31, 1998,
1997, and 1996 was approximately $123,000, $129,000, and $119,000,
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,
1998 1997
---------------------
Land $ 200 $ 200
Building and Improvements 17 118
------- ------
217 318
Accumulated Depreciation (1) (100)
------- ------
216 218
Allowance for Losses - -
------- ------
$ 216 $ 218
======= ======
Depreciation expense for each of the years ended December 31,
1998, 1997, and 1996 was $1,000, $6,000 $6,000, respectively.
The Company currently leases this property on a month-to-month
basis for $1,600 per month. Total rental income recognized was
approximately $20,000, $20,000, and $15,000 for the years ended
December 31, 1998, 1997 and 1996, 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, 1998 and 1997
are summarized as follows:
Years Ended December 31,
Weighted ------------------------
Average Rate at 1998 1997
----- ----- ------ ------- ------ -------
12/31/98 12/31/97 Amount Percent Amount Percent
----- ----- ------ ------- ------ -------
Balance by Interest Rate:Regular Savings
Accounts 3.00% 3.50% $ 21,512 35.20% $ 22,314 39.30%
Certificate of
Deposit 5.17% 5.18% 39,593 64.80 34,508 60.70
------ ----- ------ -----
$ 61,105 100.00% $ 56,822 100.00%
====== ====== ====== ======
Certificate Accounts
Maturing
Under 12 months $ 28,497 71.98 $ 26,531 76.90%
12 months to 24 months 8,342 21.07 5,586 16.20
24 months to 36 months 2,458 6.20 2,303 6.67
36 months to 48 months 99 0.25 6 0.02
48 months to 60 months 197 0.50 82 0.21
------ ----- ------ -----
$ 39,593 100.00% $ 34,508 100.00%
====== ====== ====== ======
The aggregate amount of certificates with a minimum balance
of $100,000 was approximately $2,434,000 and $2,281,000 at
December 31, 1998 and 1997, respectively.
Interest expense for each of the following periods is as
follows (in thousands):
Years Ended
December 31,
1998 1997 1996
-----------------------------------
Certificates $ 1,790 $ 1,721 $ 1,836
Passbook Savings 681 854 833
----- ----- -----
$ 2,471 $ 2,575 $ 2,669
===== ===== =====
The Association held deposits of approximately $640,000 and
$530,000 for officers and directors at December 31, 1998 and
1997, 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 1998
and 1997, respectively, was $1,616,000 and $439,000.
Advances at December 31, 1998 consisted of the following (in
thousands):
Contract Rate Advance Total
4.00% to 4.99% 5,206
5.00% to 5.99% 31,833
6.00% to 6.99% 8,342
------
$ 45,381
======
Maturities of Advances at December 31, 1998 for each of the next
five years are as follows (in thousands):
Year Ending December 31 Amount
----------------------- ------
1999 $ 10,730
2000 9,388
2001 6,200
2002 4,190
2003 2,938
Thereafter 11,935
------
$ 45,381
======
NOTE L
INCOME TAX EXPENSE
The provision for income taxes for 1998, 1997 and 1996
consists of the following (in thousands):
Years Ended
December 31,
------------------
1998 1997 1996
---- ---- ----
Current Federal Tax Expense $ 808 $ 978 $ 4
Deferred Federal Tax Expense 62 22 197
------ --- ---
$ 870 $1,000 $ 201
====== ===== ===
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,
------------------
1998 1997 1996
------------------
Expected Tax Provision at a 34% Rate $ 735 $ 908 $ 206
Expected State Corporate Tax 28 41 -
Effect of Tax-Exempt Income (3) (3) (3)
Effect of Net Loan and R/E/O
Losses Charged Directly to Tax
Bad Debt Reserve - 38 33
Employee Stock Ownership Plan 73 44 -
Other 37 (28) (35)
--- ----- ---
$ 870 $1,000 $ 201
=== ===== ===
Deferred tax liabilities have been provided for taxable or
deductible 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 taxable or deductible temporary
differences related to the reserves for uncollected interest and
late charges, deferred loan fees, allowance for loan losses, the
allowance for losses on foreclosed real estate and the allowance
for losses on real estate held-for-investment. The net deferred
tax assets or liabilities in the accompanying statements of
financial condition include the following components (in
thousands):
1998 1997
Deferred Tax Assets
Recognition and Retention Plan $ 13 $ 31
Employee Stock Option Plan 44 21
Other 14 10
--- ---
Total Deferred Tax Assets 71 62
=== ===
1998 1997
Deferred Tax Liabilities
FHLB Stock 107 77
Market Value Adjustment
to Available-for-Sale Securities 911 957
Allowance for Loan Losses 229 195
Other 16 11
--- ---
Total Deferred Tax Liabilities 1,263 1,240
----- -----
Deferred Tax Liabilities
- Net of Deferred Tax Assets $1,192 1,178
===== =====
Included in retained earnings at December 31, 1998 and 1997 is
approximately $3,800,000 and $3,800,000, respectively, 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 carryback 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 and
$1,292,000 for December 31, 1998 and 1997, 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 $2,750,000. The loan is secured by a pledge of the
ESOP shares. The shares pledged as collateral are reported as
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 $521,000 and $363,000
for the years ended December 31, 1998 and 1997, respectively.
The ESOP shares as of December 31, 1998 and 1997 were as follows:
1998 1997
-------- --------
Allocated Shares 53,367 23,465
Shares Released for Allocation - -
Unreleased Shares 220,847 251,615
-------- --------
Total ESOP Shares 274,214 275,080
======= =======
Fair Value of Unreleased Shares
(in thousands) $ 2,871 $ 5,254
======= =======
Total ESOP shares decreased in 1998 due to the liquidation of
shares for two employees who terminated their employment in 1998
NOTE N
PENSION PLAN
The Association established a Simplified Employee Pension
(SEP) plan in 1993, covering substantially all employees. The
plan was terminated during 1997 when the Employee Stock Ownership
Plan was implemented.
The plan (SEP) was funded prior to 1997 at 12% of total
compensation of plan participants. The total expense amounted to
$0, $0 and $140,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
NOTE O
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 $103,000 and $91,000 for the
years ended December 31, 1998 and 1997, respectively.
A summary of the changes in restricted stock follows:
Unawarded Awarded
Shares Shares
--------- -------
Balance at January 1, 1997 - -
Purchased by Plan 120,000 -
Granted (125,028) 125,028
Forfeited - -
Earned and Issued - -
-------- -------
Balance at December 31, 1997 (5,208) 125,028
Purchased by Plan 17,500 -
Granted - -
Forfeited - -
Earned and Issued - (12,499)
-------- -------
Balance at December 31, 1998 12,472 112,529
======= =======
NOTE P
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, 1998 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:
1998
----
Net Income (In thousands)
As Reported $1,355
Pro forma $1,085
Basic Diluted
----- -------
Earnings per Share
As Reported $.49 $.49
Pro forma .39 .39
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 1998 grants: Dividend yields of 1.59
percent; expected volatility of 33.7 percent; risk-free interest
rate of 5.14 percent; and expected lives of 10 years for all
options.
NOTE Q
COMPREHENSIVE INCOME
Comprehensive income was comprised of changes in the Company's
unrealized holding gains or losses on securities available-for-
sale during 1998, 1997, and 1996. The following represents the
tax effects associated with the components of comprehensive
income.
Years Ended
December 31,
1998 1997 1996
----------------------
Gross Unrealized Holding Gains (Losses)
Arising During the Period $ (120) $ 1,365 $ 418
Tax (Expense) Benefit 41 (464) (142)
----- ------ -----
(79) 901 276
Reclassification Adjustment for Gains
(Losses) Included in Net Income (17) 61 231
Tax (Expense) Benefit 6 (21) (79)
----- ------ -----
(11) 40 152
----- ------ -----
Net Unrealized Holding Gains (Losses)
Arising During the Period $ (90) $ 941 $ 428
===== ====== =====
NOTE R
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
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
non-investment 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 4% 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, 1998, and December 31, 1997.
1998 1997
Dollars Percentage Dollars Percentage
(Thousands) (Thousands)
Tangible Capital $ 39,843 26.93% $ 35,930 31.82%
Tangible Equity $ 39,843 26.93% $ 35,930 31.82%
Core/Leverage Capital $ 39,843 26.93% $ 35,930 31.82%
Tier 1 Risk-Based
Capital $ 39,843 72.02% $ 35,930 78.82%
Total Risk-Based
Capital $ 40,164 72.60% $ 35,981 78.93%
As of December 31, 1998, 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 S
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.
Net Income Capital
for the Year Ended as of
December 31, 1998 December 31, 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
====== ====== ======
Net Income Capital
for the Year Ended as of
December 31, 1997 December 31, 1997
(In Thousands)
Per GAAP $ 1,126 $ 37,675
Total Assets $ 115,546
Capital Ratio 32.61%
Core/ Tier 1 Total
Tangible Tangible Leverage Risk-Based Risk-Based
Capital Equity Equity Capital Capital
Per GAAP $ 37,675 $37,675 $37,675 $37,675 $37,675
Assets Required
to be Deducted
Unrealized Gain
on Securities
Available-for-Sale (1,745) (1,745) (1,745) (1,745) (1,745)
General Valuation
Allowance - - - - 269
Regulatory Capital
Measure $35,930 $35,930 $35,930 $35,930 $36,199
Adjusted Total
Assets $115,546 $115,546 $115,546
Risk-Weighted Assets $45,584 $45,584
Capital Ratio 31.10% 31.10% 31.10% 78.82% 79.41%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
Required Capital $ 1,733 $ 3,466 $ 3,647
Excess Capital $34,197 $32,464 $32,552
====== ====== ======
NOTE T
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, 1998 and 1997, outstanding loan commitments were
approximately $1,642,000 and $2,721,000, 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, 2001. The contracts were amended
effective July 1, 1997, to increase the base salaries. The
agreements cover compensation and termination.
NOTE U
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 R). 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 and is based on
Management's credit evaluation of the counterparty.
NOTE V
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 W
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, collateralized mortgage obligations and
mortgage-backed securities, 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.
Estimated fair values of the financial instruments are as follows
(in thousands):
December 31, 1998 December 31, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets
Cash and Short-Term
Investment $ 1,810 $ 1,810 $ 2,612 $ 2,612
Investment Securities 20,877 20,877 27,974 27,974
Mortgage-Backed
Securities 23,209 23,209 42,721 42,721
Collateral Mortgage
Obligations 41,726 41,726 - -
Loans (Net of Loan
Allowance) 63,895 68,270 53,588 57,110
Financial Liabilities
Deposits $ 61,105 $ 56,045 $ 56,822 $ 55,544
Advances from Federal
Home Loan Bank 45,381 45,018 16,157 15,903
Unrecognized Financial
Instruments
Commitments to Extend
Credit $ 1,278 $ 1,350 $ 2,361 $ 2,447
Unfunded Construction
Loan Commitments $ 364 $ 380 $ 360 $ 387
NOTE X
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.
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 Y
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following sets forth condensed results of operations for 1998
and 1997 (dollar amounts in thousands, except per share data):
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.
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
------------------------------------
Interest Income $ 1,678 $ 2,068 $ 2,281 $ 2,318
Interest Expense 694 658 796 866
----- ----- ----- -----
Net Interest Income 984 1,410 1,485 1,452
Provision for Loan Losses - 5 3 19
Other Income - (3) 11 61
Other Expense 515 597 633 958
Income Tax Expense 161 286 331 222
----- ----- ----- -----
Net Income $ 308 $ 519 $ 529 $ 314
===== ===== ===== =====
Net Income per
Common Share (2)
Basic $ n/a $ .16 $ .17 $ .10
Dilluted $ n/a $ .16 $ .17 $ .10
Dividends Per Share $ n/a $ - $ .07 $ .07
(2) Quarterly per share amounts do not add to total for the year
ended since shares were issued subsequent to the first quarter of
1997.
NOTE Z
EARNINGS PER COMMON SHARE
Earnings per share are computed using the weighted average number
of shares outstanding, which was 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 AA
CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
GS FINANCIAL CORP.
CONDENSED FINANCIAL CONDITON
December 31, 1998
(Dollars in Thousands)
ASSETS
Cash and Cash Equivalents $ 625
Investments - Available-for-Sale at Fair Value 3,601
Mortgage-Backed - Securities - Available-for-Sale -
at Fair Value 2,442
Investment in Subsidiary 39,191
Loan Receivable 2,408
Other Assets 520
------
$ 48,787
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Income Tax $ 92
Deferred Tax Liability 8
Stockholders' Equity 48,687
------
$ 48,787
======
GS FINANCIAL CORP.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(Dollars in Thousands)
INTEREST INCOME
Mortgage-Backed Securities $ 291
Loans 210
Investment Securities 327
Other Interest Income 26
---
Total Interest Income 854
---
NON-INTEREST INCOME
Undistributed Earnings of Subsidiary 1,161
Gain on Sale of Mortgage-Backed Securities 87
Income from Real Estate Held-For-Investment 17
-----
Total Non-Interest Income 1,265
-----
NON-INTEREST EXPENSES
General and Administrative 129
Intercompany Personnel Expense 106
Taxes 60
Loss on Sale of Investments 31
Bank Acquistion Costs Charged Off 42
-----
Total Non-Interest Expenses 368
-----
INCOME BEFORE INCOME TAX 1,751
PROVISION FOR INCOME TAX 217
-----
NET INCOME $ 1,534
=====
GS FINANCIAL CORP.
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1998
(Dollars in Thousands)
OPERATING ACTIVITIES
Net Income $ 1,534
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation Expense 3
Loss on Sale of Investments 31
Gain on Sale of Mortgage-Backed Securities (87)
Equity in Undistributed Income
of Subsidiary (1,161)
Accretion of Investment Premium 32
Dividend on IMF Fund (10)
Dividend on ARM Fund (316)
Decrease in Accrued Interest Receivable 34
Increase in Deferred Charges (67)
Increase in Deferred Taxes 90
Increase in Accrued Income Tax 57
-----
Net Cash Provided by Operating Activities 140
INVESTING ACTIVITIES
Purchase of IMF Mutual Fund (744)
Redemption of ARM Mutual Fund 4,445
Sale of Mortgage-Backed Securities - Available-for-Sale 4,181
Principal Paydowns on Mortgage-Backed Securities
- Available 1,832
Investment in Real Estate (453)
------
Net Cash Provided by Investing Activities 9,261
FINANCING ACTIVITIES
Purchase of Treasury Stock (8,324)
Payment of Dividends (822)
-------
Net Cash Used in Financing Activities (9,146)
NET INCREASE IN CASH AND CASH EQUIVALENTS 255
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 370
CASH AND CASH EQUIVALENTS - END OF YEAR $ 625
=====