As filed with the Securities and Exchange Commission on February 6, 1997
Registration No. 333-18841
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GS FINANCIAL CORP.
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(Name of Small Business Issuer in Its Articles of Incorporation)
Louisiana 6711 72-1341014
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(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
3798 Veterans Boulevard
Metairie, Louisiana 70002
(504) 457-6220
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(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Donald C. Scott
President and Chief Executive Officer
GS Financial Corp.
3798 Veterans Boulevard
Metairie, Louisiana 70002
(504) 457-6220
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(Name, Address, and Telephone Number of Agent for Service)
Copies to:
Hugh T. Wilkinson, Esq. Martin L. Meyrowitz, Esq.
Raymond A. Tiernan, Esq. Silver, Freedman & Taff, L.L.P.
Elias, Matz, Tiernan & Herrick L.L.P. and 1100 New York Avenue, N.W.
734 15th Street, N.W., 12th Floor Washington, D.C. 20005
Washington, D.C. 20005
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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DOLLAR PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
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Common Stock, par value
$.01 per share 3,438,500 shares(2) $10.00 $34,385,000 $10,419.70(3)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares that may be issued in the event of a 15% increase in the
maximum size of the offering.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
GS FINANCIAL CORP.
Cross Reference Sheet Showing Location in the Prospectus of Information
Required by Items of Form SB-2
Registration Statement Item and Caption Prospectus Headings
--------------------------------------- ---------------------
1. Front of Registration Statement and Front Cover Page
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and
of Prospectus Outside Back Cover Pages
3. Summary Information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Conversion -- Stock
Pricing and Number of
Shares to be Issued
6. Dilution Not applicable
7. Selling Security-Holders Not applicable
8. Plan of Distribution Front Cover Page; The Conversion -- Subscription Offering; -- Community
Offering; -- Syndicated Community Offering Prospectus
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers, Management of the Company;
Promoters and Control Persons Management of Guaranty Savings
11. Security Ownership of Certain Beneficial Proposed Management Purchases
Owners and Management
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12. Description of Securities Restrictions on Acquisition of the Company and
Guaranty Savings; Description of Capital Stock of the Company
13. Interests of Named Experts and Counsel Not applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not applicable
15. Organization Within Last Five Years Management of Guaranty Savings
16. Description of Business Business; Regulation; Taxation
17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operation of Financial Condition and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Related Transactions Management of Guaranty Savings
20. Market for Common Equity and Related Market for Common Stock
Stockholder Matters
21. Executive Compensation Management of the Company;
Management of Guaranty Savings
22. Financial Statements Statements of Income; Index to Financial Statements
23. Changes in and Disagreements With Accountants Experts
on Accounting and Financial Disclosure
4
PROSPECTUS
GS FINANCIAL CORP.
(Proposed Holding Company for Guaranty Savings and Homestead Association)
2,990,000 Shares (Anticipated Maximum) of Common Stock
$10.00 per Share
GS Financial Corp. (the "Company"), a Louisiana corporation, is offering
up to 2,990,000 shares of its common stock, par value $.01 per share (the
"Common Stock"), in connection with the conversion of Guaranty Savings and
Homestead Association ("Guaranty Savings" or the "Association") from a
Louisiana-chartered mutual association to a Louisiana-chartered stock
association pursuant to the Association's plan of conversion (the "Plan" or
"Plan of Conversion"). Under certain circumstances, the Company may increase
the amount of Common Stock offered hereby to up to 3,438,500 shares. The
simultaneous conversion of the Association to stock form, the issuance of the
Association's stock to the Company and the offer and sale of the Common Stock
by the Company are referred to herein as the "Conversion."
Nontransferable rights to subscribe for the Common Stock have been
granted, in order of priority, to (i) certain depositors of Guaranty Savings,
(ii) the Company's Employee Stock Ownership Plan ("ESOP"), (iii) certain
other depositors and borrowers of the Association, and (iv) directors,
officers and employees of the Association, subject to the limitations
described herein (the "Subscription Offering"). Commencing concurrently with
the Subscription Offering, and subject to the other limitations described
herein, the Company is offering the shares of Common Stock not subscribed for
in the Subscription Offering, if any, for sale in a community offering (the
"Community Offering"). If necessary, any shares of Common Stock not
subscribed for in the Subscription Offering or purchased in the Community
Offering will be offered to members of the general public on a best efforts
basis by a selling group of broker-dealers managed by Charles Webb & Company
("Webb"), a division of Keefe, Bruyette & Woods, Inc. ("Keefe, Bruyette"), in
a syndicated community offering (the "Syndicated Community Offering"). (The
Subscription Offering, Community Offering and Syndicated Community Offering
are referred to collectively as the "Offerings"). The purchase price in the
Offerings is $10.00 per share (the "Purchase Price").
With the exception of the ESOP, the maximum amount that any person may
purchase in any particular priority category in the Offerings is generally
limited to 25,000 shares of Common Stock (subject to adjustment). No person,
together with associates and persons acting in concert with such person, may
purchase in the aggregate more than 70,000 shares of Common Stock in the
Conversion (subject to adjustment). The minimum purchase is 25 shares. See
"The Conversion - Limitations on Common Stock Purchases."
i
THE SUBSCRIPTION OFFERING WILL CLOSE AT 12:00 NOON, CENTRAL TIME, ON
_______ __, 199_ (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE COMPANY AND
THE ASSOCIATION, WITH REGULATORY APPROVAL IF NECESSARY, AS WILL THE
CONCURRENT COMMUNITY OFFERING UNLESS EXTENDED. THE COMMUNITY OFFERING OR ANY
SYNDICATED COMMUNITY OFFERING MUST BE COMPLETED WITHIN 45 DAYS AFTER THE
CLOSE OF THE SUBSCRIPTION OFFERING, OR _______ __, 199_, UNLESS EXTENDED BY
THE COMPANY AND THE ASSOCIATION, WITH REGULATORY APPROVAL IF NECESSARY. No
single extension can exceed 90 days, and the extensions may not go beyond
________ __, 1998. Orders submitted are irrevocable until the completion of
the Conversion; provided that, if the Conversion is not completed within the
45-day period referred to above, unless such period has been extended, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Any extension of the Offerings
will be conducted in accordance with the terms described herein. See
"The Conversion - Subscription Offering and Subscription Rights."
THE COMPANY HAS APPLIED TO THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC. TO HAVE ITS COMMON STOCK QUOTED ON THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS AUTOMATED QUOTATIONS ("NASDAQ") NATIONAL MARKET UNDER THE
SYMBOL "___." PRIOR TO THE OFFERINGS, THERE HAS NOT BEEN A PUBLIC MARKET FOR
THE COMMON STOCK, AND THERE CAN BE NO ASSURANCE THAT AN ACTIVE AND LIQUID
TRADING MARKET FOR THE COMMON STOCK WILL DEVELOP OR THAT THE COMMON STOCK
WILL TRADE AT OR ABOVE THE PURCHASE PRICE IN THE OFFERINGS. SEE "MARKET FOR
COMMON STOCK."
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK SALES CENTER AT
(504) ___-____. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS" AT PAGE 17
HEREOF.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, OR ANY OTHER FEDERAL AGENCY OR STATE SECUR-
ITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR
OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
ii
Estimated
Underwriting Estimated
Subscription Fees and Other Net
Price(1) Expenses(2) Proceeds(3)
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Minimum Per Share $10.00 $0.33 $9.67
Midpoint Per Share $10.00 $0.30 $9.70
Maximum Per Share $10.00 $0.28 $9.72
Maximum Per Share, as adjusted $10.00 $0.24 $9.76
Total Minimum(1) $22,100,000 $727.815 $21,372,185
Total Midpoint(1) $26,000,000 $781,635 $25,218,365
Total Maximum(1) $29,900,000 $825,000 $29,075,000
Total Maximum, as adjusted(4) $34,385,000 $825,000 $33,560,000
(1) Determined in accordance with an independent appraisal prepared
by RP Financial, LC ("RP Financial") dated December 20, 1996, which
states that the estimated pro forma market value of the Common Stock
ranged from $22,100,000 to $29,900,000 (the "Estimated Valuation
Range"), or between 2,210,000 and 2,990,000 shares of Common Stock
at the Purchase Price. See "The Conversion - Stock Pricing and
Number of Shares to be Issued."
(2) Consists of the estimated costs to the Association and the Company
arising from the Conversion, including estimated fixed expenses of
$450,000 and fees to be paid to Webb in connection with the
Subscription and Community Offerings, which fees are estimated to be
$277,815, $331,635, $375,000 and $375,000 at the minimum, mid-point,
maximum and maximum, as adjusted. Webb is not obligated to purchase any
shares of Common Stock in the Offerings. Such fees paid to Webb may be
deemed to be underwriting fees. See "The Conversion - Marketing
Arrangements." The actual fees and expenses may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts.
Includes the purchase of shares of Common Stock by the ESOP, which
initially will be deducted from the Company's stockholders' equity. For
the effects of such purchase, see "Capitalization" and "Pro Forma Data."
(4) Reflects a 15% increase in the Estimated Valuation Range, which may
occur without a resolicitation of subscribers or any right of
cancellation, to reflect changes in market and financial conditions
prior to completion of the Conversion or to fill the order of the ESOP.
_________________________
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
_________________________
The date of this Prospectus is ______ __, 1997.
iii
MAP of Registrant's market area produced here.
iv
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION REGARDING THE ASSOCIATION AND THE FINANCIAL STATEMENTS OF THE
ASSOCIATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
GS FINANCIAL CORP.
GS Financial Corp. is a Louisiana corporation organized in December 1996
by the Association for the purpose of becoming a unitary holding company of
the Association. The Company will purchase all of the capital stock of the
Association to be issued in the Conversion in exchange for 50% of the net
Conversion proceeds and will retain the remaining 50% of the net proceeds as
its initial capitalization. Immediately following the Conversion, the only
significant assets of the Company will be the capital stock of the
Association, the Company's loan to the ESOP, and the remainder of the net
Conversion proceeds retained by the Company. The business and management of
the Company initially will consist primarily of the business and management
of the Association. Initially, the Company will neither own nor lease any
property, but will instead use the premises, equipment and furniture of the
Association. At the present time, the Company does not intend to employ any
persons other than officers of the Association, and the Company will utilize
the support staff of the Association from time to time. Additional employees
will be hired as appropriate to the extent the Company expands or changes its
business in the future. See "Business" and "Management of the Company."
The Company's executive office is located at the home office of the
Association at 3798 Veterans Boulevard, Metairie, Louisiana 70002, and its
telephone number is (504) 457-6220.
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
Guaranty Savings is a Louisiana-chartered mutual savings and loan
association that was originally formed in 1937. Guaranty Savings conducts
business from its main office in Metairie, Louisiana and branch offices in
New Orleans and Mandeville, Louisiana. At September 30, 1996, Guaranty
Savings had $86.5 million of total assets, $62.0 million of total
liabilities, including $60.5 million of deposits, and $23.8 million of
retained earnings (representing 27.5% of total assets).
Guaranty Savings is primarily engaged in attracting deposits from the
general public through its offices and using those and other available
sources of funds to originate loans for portfolio secured primarily by one-to
four-family residences located in the New Orleans, Louisiana metropolitan
area. At September 30, 1996, Guaranty Savings' net loans receivable totalled
$43.1 million or 49.8% of total assets. Conventional first mortgage, one- to
four-family residential loans (excluding construction loans) amounted to
$41.4 million, or 95.4%, of the Association's total loan portfolio at
September 30, 1996. To a much lesser
2
extent, Guaranty Savings also originates consumer loans and construction
loans and, on occasion, commercial real estate loans and consumer loans.
Guaranty Savings is a traditional, community-oriented savings
institution which emphasizes a conservative approach to its operations. The
Association generally has concentrated on building its capital base and
maintaining superior asset quality. In pursuit of these goals, Guaranty
Savings has adopted a business strategy that emphasizes offering a limited
array of loan and deposit products. In recent periods the Association has
experienced limited growth, with its net loans increasing by $2.4 million, or
5.8%, from December 31, 1993 to September 30, 1996. Certain aspects of the
Association's business strategy are briefly noted below.
- CAPITAL POSITION. As of September 30, 1996, the Association had
retained earnings of $23.8 million and exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 27.8%,
27.8% and 80.1%, respectively, as compared to the minimum requirements of
1.5%, 3.0% and 8.0%, respectively. As a result of its highly capitalized
position, the Association's return on average equity historically has been
below industry standards. The Association's return on average equity was
1.99% and 3.72%, respectively, for the nine months ended September 30, 1996
and year ended December 31, 1995. As a result of the Conversion, the
Association's capital will be further increased. See "Risk Factors -
Potential Low Return on Equity Following the Conversion: Uncertainty as to
Future Growth Opportunities," "Regulatory Capital" and "Regulation - The
Association - Regulatory Capital Requirements."
- PROFITABILITY. The Association reported net income of $365,000 for
the nine months ended September 30, 1996, compared to $858,000 for the
comparable period in 1995. The primary reason for the decline in net income
during the 1996 period compared to the 1995 period was $413,000, pre-tax, in
a one time assessment to recapitalize the Savings Association Insurance Fund
("SAIF"). The Association reported net income of $872,000, $994,000 and $1.3
million for 1995, 1994 and 1993, respectively. Subsequent to the Conversion,
the Association's profitability will be affected by, among other things, the
imposition of a shares tax and franchise tax by the state of Louisiana and
increased compensation expenses. See "Risk Factors - Potential Increased
Compensation Expense After the Conversion," "Pro Forma Data" and "Taxation -
State Taxation." See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
- ASSET QUALITY. Management believes that good asset quality is
important to the Association's long-term profitability. The Association's
total nonperforming assets, which consist of non-accruing loans and net real
estate owned ("REO"), amounted to $316,000, or .73%, of total assets at
September 30, 1996. At September 30, 1996, the Association's allowance for
loan losses amounted to $337,000 or 106.7% of total nonperforming loans. See
"Business - Asset Quality."
3
- COMMUNITY ORIENTATION. The Association is committed to meeting the
financial needs of the communities in which it operates. Management believes
that the size of the Association permits it to be able to provide superior
customer service on a personalized and efficient basis. At September 30,
1996, substantially all of the Association's deposits and loans were to
residents of its primary market area. The Association intends to continue
its practice of investing in loans and obtaining deposits from residents of
its primary market area.
The Association is subject to examination and comprehensive regulation
by the Louisiana Office of Financial Institutions ("OFI"), which is the
Association's chartering authority, and by the Office of Thrift Supervision
("OTS"), which is the Association's primary federal regulator. The
Association is also regulated by the Federal Deposit Insurance Corporation
("FDIC"), the administrator of the SAIF. The Association is also subject to
certain reserve requirements established by the Board of Governors of the
Federal Reserve System ("FRB") and is a member of the Federal Home Loan Bank
("FHLB") of Dallas, which is one of the 12 regional banks comprising the FHLB
System.
Guaranty Savings' executive office is located at 3798 Veterans
Boulevard, Metairie, Louisiana 70002, and its telephone number is (504)
457-6220.
THE CONVERSION AND THE OFFERINGS
On October 10, 1996, the Board of Directors of the Association adopted
the Plan of Conversion pursuant to which the Association is converting from a
Louisiana-chartered mutual savings and loan association to a
Louisiana-chartered stock savings and loan association, all the common stock
of which will be acquired by the Company in exchange for 50% of the net
Conversion proceeds. The other 50% of the net Conversion proceeds will be
retained by the Company. The Conversion is subject to OTS and OFI approval,
which have been conditionally received, and is subject to approval of the
Association's members at a special meeting to be held for this purpose on
______ __, 199_. In addition, the Company has received the conditional
approval of the OTS and the OFI to become a savings and loan holding company
and as such will be subject to regulation by the OTS. See "Use of Proceeds"
and "The Conversion - General." By converting to the stock form of
organization, the Association will be structured in the form used by many
other savings institutions, commercial banks and other business entities.
See "The Conversion - Purposes of Conversion."
Pursuant to the Plan and in connection with the Conversion, the Company
is offering up to 2,990,000 shares of Common Stock in the Subscription
Offering, the concurrent Community Offering and, if necessary, in a
Syndicated Community Offering. The Common Stock is first being offered in
the Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to (i) depositors of the
Association with account balances of $50.00 or more as of the close of
business on September 30, 1995 ("Eligible Account Holders"), (ii) the ESOP,
(iii) depositors of the Association with account
4
balances of $50.00 or more as of the close of business on December 31, 1996
("Supplemental Eligible Account Holders"), (iv) depositors and borrowers of
the Association as of the close of business on ________ __, 199_ (other than
Eligible Account Holders and Supplemental Eligible Account Holders), ("Other
Members"), and (v) directors, officers and employees of the Association.
SUBSCRIPTION RIGHTS WILL EXPIRE IF NOT EXERCISED BY 12:00 NOON, CENTRAL TIME,
ON ________ __, 199_, UNLESS EXTENDED.
Subject to the prior rights of holders of subscription rights, Common
Stock not subscribed for in the Subscription Offering is being offered
concurrently in the Community Offering to certain members of the general
public to whom a copy of this Prospectus is delivered, with preference given
to natural persons residing in Orleans, St. Tammany and Jefferson Parishes,
Louisiana. It is anticipated that shares not subscribed for in the
Subscription and Community Offerings will be offered to certain members of
the general public in a Syndicated Community Offering. The Company and the
Association reserve the absolute right to reject or accept any orders in the
Community Offering or the Syndicated Community Offering, in whole or in part,
either at the time of receipt of an order or as soon as practicable following
the Expiration Date or any extension thereof.
Payments for subscriptions made by cash, check or money order will be
placed in a segregated account at the Association and will earn interest at
the Association's passbook rate (______% as of the date of this Prospectus)
from the date of receipt until the Conversion is completed or terminated.
Payments authorized by withdrawal from deposit accounts at the Association
will continue to earn interest at the contractual rate until the Conversion
is completed or terminated; these funds will be otherwise unavailable to the
depositor until such time. If a withdrawal is authorized to fund the
purchase of Common Stock, the funds will be withdrawn upon consummation of
the Conversion without penalty.
The Company and the Association have retained Webb as consultant and
advisor in connection with the Offerings and to assist in soliciting
subscriptions in the Offerings. Webb may also manage a selling group of
broker-dealers in the Syndicated Community Offering to facilitate the
Offerings. Webb is not obligated to take or purchase any shares of Common
Stock in the Offerings. See "The Conversion - Subscription Offering and
Subscription Rights," "- Community Offering" and "- Marketing Arrangements."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS
Prior to the completion of the Conversion, no person may transfer or
enter into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that the purchase of Common
Stock is solely for the purchaser's own account and that there is no
agreement or understanding regarding the sale or transfer of such shares.
See "The Conversion - Restrictions on Transfer of Subscription Rights and
Shares." SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE AND PERSONS FOUND TO BE
ATTEMPTING TO TRANSFER SUBSCRIPTION
5
RIGHTS WILL BE SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER
SANCTIONS AND PENALTIES IMPOSED BY THE OTS. The Company and the Association
will refer to the OTS any situations that they believe may involve a transfer
of subscription rights and will not honor orders known by them to involve the
transfer of such rights.
PURCHASE LIMITATIONS
With the exception of the ESOP, which intends to purchase up to an
aggregate of 8% of the number of shares of Common Stock issued in the
Conversion, or 176,800 shares and 239,200 shares at the minimum and maximum
of the Estimated Valuation Range, respectively, the maximum amount that any
person may purchase in any priority category in the Subscription Offering, as
well as in the Community Offering and any Syndicated Community Offering, is
generally limited to 25,000 shares of Common Stock. No person, together with
associates of or persons acting in concert with such person, may purchase in
the aggregate more than 70,000 shares of Common Stock sold in the Conversion.
For a definition of the terms "associate" and "acting in concert," see "The
Conversion - Limitations on Common Stock Purchases." At any time during the
Offerings, and without further approval by the members of the Association,
the Company and the Association may, in their sole discretion, increase the
individual purchase limitations up to 5% of the shares offered (149,500
shares at the maximum of the Estimated Valuation Range). If a purchase
limitation is increased, persons who submitted an order for 25,000 shares of
Common Stock will be given the opportunity to increase their order. The
purchase limitations may also be decreased to as low as 1% of the shares
offered (22,100 shares at the minimum of the Estimated Valuation Range). In
the event of a decrease in the purchase limitation, any orders in excess of
the revised purchase limitation will be reduced to the extent necessary. The
minimum purchase is 25 shares. See "The Conversion - Limitations on Common
Stock Purchases." In the event of an oversubscription, shares will be
allocated in accordance with the Plan as described in "The Conversion -
Subscription Offering and Subscription Rights" and "- Community Offering."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Federal regulations require the aggregate purchase price of the Common
Stock to be consistent with an independent appraisal of the estimated pro
forma market value of the Common Stock following the Conversion. RP
Financial, an independent appraiser, has advised the Association that, in its
opinion, dated December 20, 1996, the Estimated Valuation Range ranged from
$22,100,000 to $29,900,000, with a midpoint of $26,000,000. THIS APPRAISAL
OF THE COMMON STOCK IS NOT INTENDED AND SHOULD NOT BE CONSTRUED AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH STOCK,
NOR CAN ANY ASSURANCE BE GIVEN THAT PURCHASERS OF THE COMMON STOCK WILL BE
ABLE TO SELL SUCH SHARES AFTER THE CONVERSION AT OR ABOVE THE PURCHASE PRICE.
All shares of Common Stock issued in the Conversion will be sold at the
Purchase Price of $10.00 per share, which was established by the Boards of
Directors of the Company
6
and the Association. The actual number of shares to be issued in the
Conversion will be determined by the Company and the Association based upon
the final updated valuation of the estimated pro forma market value of the
Common Stock, giving effect to the Conversion, at the completion of the
Offerings. The number of shares of Common Stock to be issued is expected to
range from a minimum of 2,210,000 shares to a maximum of 2,990,000 shares.
Subject to approval of the OTS and the OFI, the Estimated Valuation Range may
be increased or decreased to reflect market and economic conditions prior to
the completion of the Conversion or to fill the order of the ESOP, and under
such circumstances the Company and the Association may increase or decrease
the number of shares of Common Stock to be issued in the Conversion. No
resolicitation of subscribers will be made and subscribers will not be
permitted to modify or cancel their subscriptions unless the gross proceeds
from the sale of the Common Stock are less than the minimum or more than 15%
above the maximum of the current Estimated Valuation Range. An affirmative
response to any resolicitation must be received by the Association in order
to confirm subscriptions. In connection with a resolicitation, to the extent
that subscriptions are cancelled, rescinded or reduced, all funds delivered
to the Company or the Association will be promptly returned with interest
earned from the date of receipt, and withdrawal authorizations will be
reduced or cancelled. See "Pro Forma Data," "Risk Factors - Possible
Dilutive Effect of Issuance of Additional Shares" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
BENEFITS OF CONVERSION TO OFFICERS AND DIRECTORS
GENERAL. In connection with the Conversion, the Company's directors and
executive officers as a group (11 persons) have proposed to purchase 181,100
shares of Common Stock, or 8.2% and 6.1% of the Common Stock at the minimum
and maximum of the Estimated Valuation Range, respectively.
THE ESOP. The Company has adopted the ESOP, a tax-qualified benefit
plan for officers and employees of the Company and the Association, which
intends to purchase 8% of the shares of Common Stock offered in the
Conversion, or 176,800 shares ($1,768,000) and 239,200 shares ($2,392,000) at
the minimum and maximum of the Estimated Valuation Range, respectively. The
Company intends to use a portion of the net proceeds retained by it to make a
loan directly to the ESOP to enable the ESOP to purchase such shares. See
"Management of the Company - Benefits - Employee Stock Ownership Plan."
STOCK OPTION PLAN. Following consummation of the Conversion, the
Company intends to adopt a stock option plan for the benefit of the
directors, officers and employees of the Company and the Association (the
"Stock Option Plan"), pursuant to which the Company intends to reserve a
number of shares of Common Stock equal to an aggregate of 10% of the Common
Stock issued in the Conversion (299,000 shares at the maximum of the
Estimated Valuation Range) for issuance pursuant to stock options and stock
appreciation rights. The Stock Option Plan will not be implemented prior to
the receipt of stockholder approval of the plan. It is currently expected
that 30% of the shares available under the Stock Option Plan will be granted
to non-employee directors. With each non-employee director receiving an
option for the same number of shares, in which event
7
options for a total of approximately 12,814 shares would be granted to each
of the seven non-employee directors if the amount of Common Stock sold in the
Conversion is equal to the maximum of the Estimated Valuation Range. In
addition, it is currently expected that stock options will be granted to
Messrs. Donald C. Scott, President and Chief Executive Officer of the
Company and the Association, Bruce A. Scott, Executive Vice President of the
Company and the Association, Ralph E. Weber, Vice President of the Company
and the Association, and Ms. Lettie Ruffin Moll, Vice President and Secretary
of the Company and the Association, although no determination has been made
at this time as to the amount of such stock options. The Stock Option Plan
will provide that no officer would be able to receive a stock option for more
than 25% of the shares available under the Stock Option Plan, or 74,750
shares if the amount of Common Stock sold in the Conversion is equal to the
maximum of the Estimated Valuation Range. See "Management of the Company -
Benefits -Stock Option Plan."
RECOGNITION AND RETENTION PLAN. Following consummation of the
Conversion, the Company intends to adopt a recognition and retention plan for
the benefit of the directors, officers and employees of the Company and the
Association (the "Recognition Plan" or "RRP"). The Recognition Plan will not
be implemented prior to the receipt of stockholder approval of the plan. It
is expected that the Recognition Plan will be submitted to stockholders for
approval at the same time as the Stock Option Plan. Upon the receipt of such
approval, the Recognition Plan is expected to purchase a number of shares of
Common Stock either from the Company or in the open market equal to an
aggregate of 4% of the Common Stock issued in the Conversion (119,600 shares
or $1,196,000 at the maximum of the Estimated Valuation Range). It is
currently expected that 30% of the shares available under the Recognition
Plan will be granted to non-employee directors with each non-employee
director receiving an award for the same number of shares, in which event
awards for a total of approximately 5,125 shares would be granted to each of
the seven non-employee directors if the amount of Common Stock sold in the
Conversion is equal to the maximum of the Estimated Valuation Range. In
addition, it is currently expected that awards will be granted to Messrs.
Donald Scott, Bruce A. Scott, Ralph E. Weber and Ms. Lettie Ruffin Moll,
although no determination has been made at this time as to the amount of such
awards. The Recognition Plan will provide that no officer would be able to
receive an award for more than 25% of the shares available under the
Recognition Plan, or 29,900 shares ($299,000) if the amount of Common Stock
sold in the Conversion is equal to the maximum of the Estimated Valuation
Range. See "Management of the Company - Benefits - Recognition Plan."
Employment Agreements. Upon consummation of the Conversion, the Company
and the Association intend to enter into three-year employment agreements
with Messrs. Donald Scott and Bruce Scott. If the employment of such
officers is terminated as a result of a change in control of the Company,
Messrs. Donald Scott and Bruce Scott would each be entitled to a cash
severance amount equal to three times his average annual compensation over
his most recent five taxable years. At least 30 days prior to each annual
anniversary date of the employment agreement, the Boards of Directors of the
Company and the Association shall determine whether or not to extend the term
of the agreements for an additional one year. See "Management of the
Association - Employment Agreements."
8
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), no Prospectus will be
mailed any later than five days prior to such date or hand delivered any
later than two days prior to such date. Execution of the order form will
confirm receipt or delivery of the Prospectus in accordance with Rule 15c2-8.
Order forms will only be distributed with a Prospectus. The Company and the
Association will accept for processing only orders submitted on original
order forms. Copies of order forms will not be accepted nor will order forms
unaccompanied by an executed certification form. Payment by check, money
order, cash or debit authorization to an existing account at Guaranty Savings
must accompany the order form. No wire transfers will be accepted.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the close of business on the
Eligibility Record Date (September 30, 1995) or the Supplemental Eligibility
Record Date (December 31, 1996), and/or depositors and borrowers as of the
close of business on the Voting Record Date, _______ __, 1997, must list all
accounts on the stock order form giving all names on each account and the
account numbers. See "The Conversion - Procedure for Purchasing Shares in
the Offerings."
USE OF PROCEEDS
The net proceeds from the sale of Common Stock in the Conversion are
estimated to be between $21.4 million and $29.1 million ($33.6 million assuming
a 15% increase in the Estimated Valuation Range), depending on the number of
shares sold and the expenses of the Conversion. See "Pro Forma Data." The
Company will purchase all of the capital stock of the Association to be
issued in the Conversion in exchange for 50% of the net Conversion proceeds
and will retain the remaining 50% of the net proceeds as its initial
capitalization. The Company intends to use a portion of the net proceeds
retained by it to make a loan directly to the ESOP to enable the ESOP to
purchase up to 8% of the Common Stock. The amount of the loan is expected to
be between $1,768,000 and $2,392,000 at the minimum and maximum of the
Estimated Valuation Range, respectively. See "Management of the Company -
Benefits - Employee Stock Ownership Plan." The remaining net proceeds
retained by the Company initially may be used to invest in U.S. Government
and federal agency securities of various maturities, investment securities,
mortgage-backed securities, deposits in either the Association or other
financial institutions, or a combination thereof. Ultimately, the portion of
net proceeds retained by the Company may be used to support the Association's
lending activities, to support the future expansion of operations through
establishment of additional branch offices or other customer facilities,
acquisitions of other financial service organizations, such as other savings
institutions and commercial banks, or diversification into other related
businesses, including, possibly, the insurance business (although no such
transactions are specifically being considered at this time), and for other
business and investment purposes, including the payment of regular cash
dividends and possible repurchases of the Company's Common Stock. See
"Dividend Policy." Funds
9
contributed to the Association from the Company will be used for general
business purposes. The proceeds will be used to support the Association's
lending and investment activities and thereby enhance the Association's
capabilities to serve the borrowing and other financial needs of the
communities it serves. See "Use of Proceeds."
DIVIDENDS
Following consummation of the Conversion, the Board of Directors of the
Company intends to consider implementation of a policy of paying quarterly
cash dividends on the Common Stock. However, there has been no determination
made at this point in time as to the initial rate of dividend, if any, to be
paid on the Common Stock. Declarations of dividends by the Company's Board
of Directors will depend upon a number of factors, including the amount of
the net proceeds retained by the Company in the Conversion, investment
opportunities available to the Company or the Association, capital
requirements, the Company's and the Association's financial condition and
results of operations, tax considerations, statutory and regulatory
limitations, and general economic conditions. There can be no assurances
that dividends will in fact be paid on the Common Stock or that, if paid,
such dividends will not be reduced or eliminated in future periods. For a
more detailed discussion of the factors that may affect the payment of
dividends, see "Dividend Policy."
MARKET FOR COMMON STOCK
The Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Company
[HAS APPLIED] to have the Common Stock listed on the Nasdaq National Market
under the symbol "_______." Keefe, Bruyette has indicated its intention to
act as a market maker in the Common Stock following the consummation of the
Conversion, depending on trading volume and subject to compliance with
applicable laws and regulatory requirements. Furthermore, Webb has agreed to
use its best efforts to assist the Company in obtaining additional market
makers for the Common Stock. No assurance can be given that an active and
liquid trading market for the Common Stock will develop. Further, no
assurance can be given that purchasers will be able to sell their shares at
or above the Purchase Price after the Conversion. See "Risk Factors --
Absence of Market for the Common Stock" and "Market for Common Stock."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors, including, among other factors, the
potential effects of changes in interest rates and the current interest rate
environment, the potential for a low return on equity following the
Conversion and the uncertainty as to future growth opportunities,
competition, the Association's geographic concentration of loans, certain
anti-takeover provisions, recent legislation affecting the deduction for bad
debt reserves, regulatory oversights, the absence of a market for the Common
Stock, a possible increase in the number of shares issued in the Conversion,
the possible dilutive effect of the issuance of additional shares of Common
Stock, potential increased compensation expenses after the Conversion and
possible adverse tax consequences of the distribution of subscription rights
to purchase the Common Stock.
10
SELECTED FINANCIAL AND OTHER DATA
The selected financial and other data of Guaranty Savings set forth
below does not purport to be complete and should be read in conjunction with,
and is qualified in its entirety by, the more detailed information, including
the Financial Statements and related Notes, appearing elsewhere herein. The
data at December 31, 1995, 1994 and 1993 and for the years then ended has
been derived from audited consolidated financial statements of the
Association, including the audited Consolidated Financial Statements and
related Notes included elsewhere herein. The data at September 30, 1996 and
for the nine months ended September 30, 1996 and 1995 has been derived from
the unaudited Consolidated Financial Statements and the related Notes
included elsewhere herein. The results of operations and other data for the
nine months ended September 30, 1996, are not necessarily indicative of the
results of operations which may be expected for the fiscal year ending
December 31, 1996.
At September 30, At December 31,
------------------------
1996 (1) 1995 1994 1993
---------------- ---- ---- ----
(Dollars in Thousands)
SELECTED FINANCIAL DATA:
Total assets $86,521 $86,040 $88,250 $90,100
Cash and cash equivalents 8,698 2,355 2,620 2,883
Investment securities 23,068 33,360 35,496 37,798
Mortgage-backed securities 7,299 6,367 6,063 6,112
Loans receivable, net 43,058 39,888 40,042 40,679
Deposits 60,495 60,945 64,642 67,432
Retained earnings,
substantially restricted 23,822 23,457 22,585 21,591
Full service offices 3 3 3 3
Nine Months Ended
September 30, Year Ended December 31,
----------------- -------------------------
1996(1) 1995(1) 1995 1994 1993
------- ------- ---- ---- ----
(Dollars in Thousands)
SELECTED OPERATING DATA:
Total interest income $4,560 $4,724 $6,260 $6,035 $6,327
Total interest expense 1,963 2,007 2,664 2,408 2,385
----- ----- ----- ----- -----
Net interest income 2,597 2,717 3,596 3,626 3,942
Provision for loan losses 14 -- 12 21 98
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 2,583 2,717 3,584 3,606 3,844
Other income (35) 46 63 109 147
Other expenses 1,938(2) 1,465 2,295 2,191 1,994
----- ----- ----- ----- -----
Income before Federal
income tax expense 610 1,298 1,352 1,524 1,997
Income tax expense 245 440 480 529 722
----- ----- ----- ----- -----
Net income $ 365 $ 858 $ 872 $ 994 $1,275
------ ------ ------ ------ ------
------ ------ ------ ------ ------
SELECTED OPERATING RATIOS(3):
Average yield on
interest-earning assets 7.47% 7.54% 7.52% 6.97% 7.26%
Average rate on interest-
bearing liabilities 4.36 4.26 4.27 3.62 3.52
Average interest rate
spread(4) 3.11 3.28 3.25 3.35 3.74
Net interest margin(4) 4.26 4.34 4.32 4.19 4.52
Interest-earning assets
as a percent of interest-
bearing liabilities 135.61 132.92 133.39 130.39 128.78
Net interest income after
provision for loan losses
as a percent of noninterest
expense 133.28 185.46 156.17 164.58 192.77
Noninterest expense as a
percent of average assets 3.01(2) 2.23 2.63 2.43 2.21
Return on average assets 0.57 1.31 1.00 1.10 1.42
Return on average equity 1.99 4.88 3.70 4.41 6.02
Average equity as a percent
of average assets 28.50 26.76 26.99 25.02 23.54
11
At or For the Nine Months At or For the
Ended September 30, Year Ended December 31,
------------------------- -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
ASSET QUALITY RATIOS(5):
Nonperforming loans as a
percent of total loans
receivable(6) 0.73% 0.57 0.51% 0.49% 1.23%
Nonperforming assets as a
percent of total assets(6) 0.37 0.27 0.27 0.27 0.60
Allowance for loan losses
as a percent of total
loans receivable 0.78 0.83 0.80 0.85 0.90
Allowance for loan losses as
a percent of nonperforming
loans 106.65 145.65 156.80 175.13 73.12
Net charge-offs as a percent
of average loans receivable -- 0.03 0.08 0.15 0.11
CAPITAL RATIOS(5):
Tangible capital ratio 27.79% 27.09% 27.35% 25.90% 24.30%
Core capital ratio 27.79 27.09 27.35 25.90 24.30
Risk-based capital ratio 80.10 91.72 93.60 90.00 89.40
- ----------
(1) In the opinion of management, financial information at September 30,
1996 and for the nine months ended September 30, 1996 and 1995 reflects
all adjustments (consisting only of normal recurring accruals) which are
necessary to present fairly the results of such interim periods.
(2) Includes $413,000, pre-tax, of a one-time assessment to recapitalize the
SAIF. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Exclusive of such one-time assessment, the
ratio of noninterest expense to average assets would have been 2.37% for
the nine months ended September 30, 1996.
(3) With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(4) Average interest rate spread represents the difference between the
average yield on interest-earning assets and the average rate paid on
interest-bearing liabilities, and net interest margin represents net
interest income as a percent of average interest-earning assets.
(5) Asset Quality Ratios and Capital Ratios are end of period ratios, except
for net charge-offs to average loans receivable.
(6) Nonperforming assets consist of non-accruing loans, net REO and net
non-accruing investment securities. Non-accruing loans consist of loans
which are 90 days or more past due, while REO consists of real estate
acquired through foreclosure, real estate acquired by acceptance of a
deed-in-lieu of foreclosure and in-substance foreclosures.
Nonperforming assets totalled $316,093 at September 30, 1996. At
September 30, 1996, the Association had no troubled debt restructurings.
See "Business - Asset Quality."
12
SUMMARY OF RECENT DEVELOPMENTS
The selected financial and other data of Guaranty Savings set forth below
does not purport to be complete and should be read in conjunction with, and is
qualified in its entirety by, the more detailed information, including the
Financial Statements and related Notes, appearing elsewhere herein.
At At
December 31, December 31,
1996(1) 1995
----------------- -----------------
(Dollars in Thousands)
Selected Financial Data:
Total assets $87,550 $86,040
Cash and cash equivalents 7,591 2,355
Investment securities 23,566 33,360
Mortgage-backed securities 7,520 6,367
Loans receivable, net 44,125 39,888
Deposits 61,421 60,945
Retained earnings, substantially
restricted 23,862 23,457
Full service offices 3 3
Three Months Ended Year Ended
December 31, December 31,
------------------ -----------------
1996 1995 1996(1) 1995(1)
------------------ -----------------
(Dollars in Thousands)
Selected Operating Data:
Total interest income $1,556 $1,536 $6,116 $6,260
Total interest expense 717 657 2,679 2,664
------- ------- ------- -------
Net interest income 839 879 3,437 3,596
Provision for loan losses 45 12 59 12
------- ------- ------- -------
Net interest income after
provision for loan losses 794 867 3,378 3,584
Other income 18 16 (18) 63
Other expenses 816 829 2,754(2) 2,295
------- ------- ------- -------
Income (loss) before Federal income
tax expense (4) 54 606 1,352
Income tax expense (benefit) (44) 40 201 480
------- ------- ------- -------
Net income $ 40 $ 14 $ 405 $ 872
------- ------- ------- -------
------- ------- ------- -------
Selected Operating Ratios(3):
Average yield on interest-earning
assets 7.56% 7.50% 7.49% 7.52%
Average rate on interest-bearing
liabilities 4.70 4.29 4.45 4.27
Average interest rate spread(4) 2.86 3.21 3.04 3.25
Net interest margin(4) 4.08 4.29 4.21 4.32
Interest-earning assets as a percent of
interest-bearing liabilities 134.97 133.65 135.55 133.40
Net interest income after provision
for loan losses as a percent of
noninterest expense 97.37 104.52 122.63 156.19
Noninterest expense as a percent of
average assets 3.75 3.83 3.20(2) 2.63
Return on average assets 0.18 0.07 0.47 1.00
Return on average equity 0.64 0.24 1.66 3.72
Average equity as a percent of average
assets 28.55 27.53 28.30 26.84
13
At or For the Three Months At or For the Year Ended
Ended December 31, December 31,
--------------------------- -------------------------
1996 1995 1996(1) 1995(1)
------------ ------------ --------- ---------
Asset Quality Ratios(5):
Nonperforming loans as
a percent of total
loans receivable(6) 0.57% 0.52% 0.57% 0.52%
Nonperforming assets
as a percent of
total assets(6) 0.29 0.27 0.29 0.27
Allowance for loan
losses as a
percent of total
loans receivable 0.87 0.81 0.87 0.81
Allowance for loan
losses as a
percent of
nonperforming loans 151.17 156.69 151.17 156.69
Net charge-offs as a
percent of average
loans receivable -- 0.06 -- 0.08
Capital Ratios(5):
Tangible capital ratio 27.72 27.35 27.72 27.35
Core capital ratio 27.72 27.35 27.72 27.35
Risk-based capital ratio 79.19 93.60 79.19 93.60
__________________
(1) In the opinion of management, financial information at December 31, 1996
and for the twelve months ended December 31, 1996 and 1995 reflect all
adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the information as of such date and
for such periods.
(2) Includes $413,000, pre-tax, of a one-time assessment to recapitalize the
SAIF. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Exclusive of such one-time assessment, the ratio
of noninterest expense to average assets would have been 2.72% for the
twelve months ended December 31.
(3) With the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods and are annualized where
appropriate.
(4) Average interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate paid on
interest-bearing liabilities, and net interest margin represents net
interest income as a percent of average interest-earning assets.
(5) Asset Quality Ratios and Capital Ratios are end of period ratios, except
for net charge-offs to average loans.
(6) Nonperforming assets consist of non-accruing loans, net REO and net
non-accruing investment securities. Non-accruing loans consist of loans
which are 90 days or more past due, while REO consists of real estate
acquired through foreclosure, real estate acquired by acceptance of a
deed-in-lieu of foreclosure and in-substance foreclosures.
14
The Association had $87.6 million of total assets at December 31, 1996
compared to $86.0 million of total assets at December 31, 1995. The primary
reasons for the $1.5 million, or 1.76%, increase in total assets during 1996
were increases in cash and cash equivalents and in net loans receivable. The
increase in cash and cash equivalents primarily reflects the proceeds from the
sale of certain investment securities during 1996, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Changes in
Financial Condition--September 30, 1996 and December 31, 1995 - General," while
the increase in net loans receivable primarily was the result of an increase in
new loan originations. At December 31, 1996, the Association's net loans
receivable amounted to $44.1 million compared to $43.1 million at September 30,
1996 and $39.9 million at December 31, 1995. During the three months ended
December 31, 1996, the Association redeployed certain of its cash and cash
equivalents by purchasing additional investment securities and mortgage-backed
securities, which amounted to $23.6 million and $7.5 million, respectively, at
December 31, 1996. At December 31, 1996, the Association's deposits amounted to
$61.4 million compared to $60.5 million at September 30, 1996 and $60.9 million
at December 31, 1995. The increase in deposits during 1996 was due primarily to
an increase in the balance of passbook savings accounts which management
attributes, in part, to an increase in the rate paid on such accounts commencing
in June 1996. See "Business - Sources of Funds - Deposits." The Association's
retained earnings amounted to $23.9 million at December 31, 1996 compared to
$23.5 million at December 31, 1995.
At December 31, 1996, the Association's non-performing assets amounted to
$253,000, or 0.29% of total assets, compared to $316,000, or 0.37% of total
assets, at September 30, 1996 and $230,000, or 0.27% of total assets, at
December 31, 1995. The Association's ratio of its allowances for loan losses as
a percentage of non-performing loans was 151.17% at December 31, 1996 compared
to 106.65% and 156.69%, respectively, at September 30, 1996 and December 31,
1995.
The Association's net income for the three months ended December 31, 1996
increased to $40,000 compared to net income of $14,000 for the three months
ended December 31, 1995. The primary reason for the increase in net income
during the fourth quarter of 1996 was an income tax benefit of $44,000 compared
to income tax expense of $40,000 during the fourth quarter of 1995. The primary
reason for the income tax benefit recorded in the 1996 period was management's
determination that, primarily as a result of the effect of the one-time SAIF
assessment on the Association's 1996 net income, the amount previously accrued
for taxes exceeded Guaranty Savings' 1996 tax liability. For the year ended
December 31, 1996, the Association reported net income of $405,000 compared to
net income of $872,000 for the year ended December 31, 1995. The primary reason
for the $467,000, or 53.6%, decrease in net income in 1996 compared to 1995 was
the one-time SAIF special assessment of $413,000 (pre-tax) recorded in the third
quarter of 1996 and a $100,000 (pre-tax) loss recognized on the sale of
investment securities.
Interest income increased slightly in the three months ended December 31,
1996 compared to the three months ended December 31, 1995 and decreased by
$144,000, or 2.3%, for the year ended December 31, 1996 compared to the year
ended December 31, 1995. The primary reason for the changes in interest income
during the quarter and year
15
ended December 31, 1996 were primarily attributable to decreases in the
average balances of investment securities as the result of $7.0 million of
securities sales during 1996. In addition, decreases in the average yield
earned on the Association's loan portfolio during 1996, primarily as the
result of changes in market rates of interest, more than offset increases in
the average balances thereof.
Interest expense increased by $60,000, or 9.1%, during the three months
ended December 31, 1996 compared to the same period in 1995 and by $15,000 for
the year ended December 31, 1996 compared to 1995. Such increases primarily are
the result of the Association's determination in June 1996 to increase the rate
paid on its passbook accounts.
The Association's provision for loan losses amounted to $45,000 and
$59,000, respectively, for the three-months and year ended December 31, 1996
compared to $12,000 for the three-months and year ended December 31, 1995.
During the three months ended December 31, 1996, management of the Association
deemed it appropriate to increase the amount of the allowance for loan losses
based upon, among other factors, the increased level of new loan originations
during the year and upon consideration of certain loans in the Association's
portfolio. In particular, the Association made specific provisions of $25,000
and $14,000, respectively, during the fourth quarter of 1996 with respect to two
non-accruing loans with outstanding loan balances of $39,000 and $42,000,
respectively, at December 31, 1996.
Other income amounted to $17,000 during each of the three months ended
December 31, 1996 and 1995. For the year ended December 31, 1996 the
Association's other income amounted to a negative $18,000 compared to other
income of $63,000 for the year ended December 31, 1995. The primary difference
in other income in 1996 compared to 1995 was the $100,000 loss on the sale of
investment securities during 1996. Other expenses, which include bonuses and
other items of compensation accrued in the fourth quarter, were relatively
stable in the three months ended December 31, 1996 compared to the same period
in 1995. For the year ended December 31, 1996, other expenses increased to $2.8
million, primarily as the result of the one-time special SAIF assessment,
compared to $2.3 million for the year ended December 31, 1995.
16
RISK FACTORS
THE FOLLOWING RISK FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN
THIS PROSPECTUS, SHOULD BE CAREFULLY CONSIDERED BY INVESTORS IN DECIDING
WHETHER TO PURCHASE THE COMMON STOCK OFFERED HEREBY.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
The operations of the Association are substantially dependent on its net
interest income, which is the difference between the interest income earned
on its interest-earning assets and the interest expense paid on its
interest-bearing liabilities. Like most savings institutions, the
Association's earnings are affected by changes in market interest rates, and
other economic factors beyond its control. The Association's average
interest rate spread decreased from 3.35% for 1994 to 3.25% for 1995 to 3.11%
for the nine months ended September 30, 1996. Continued declines in the
Association's average interest rate spread could adversely affect the
Association's net interest income. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations."
If an institution's interest-earning assets have longer effective
maturities than its interest-bearing liabilities, the yield on the
institution's interest-earning assets generally will adjust more slowly than
the cost of its interest-bearing liabilities and, as a result, the
institution's net interest income generally would be adversely affected by
material and prolonged increases in interest rates and positively affected by
comparable declines in interest rates. The Association attempts to reduce
the vulnerability of its operations to changes in interest rates by
maintaining significant amounts of capital and liquid assets. Based upon
certain repricing assumptions, the Association's interest-earning liabilities
repricing or maturing within one year exceeded its interest-bearing assets
with similar characteristics by $14.2 million or 16.5% of total assets.
Accordingly, a decrease in interest rates generally would result in a
decrease in the Association's average interest rate spread and net interest
income. During the first nine months of 1996, the average yield on the
Association's total interest-earning assets decreased by five basis points,
while the average rate paid on its total interest-bearing liabilities
increased by nine basis points. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset and Liability
Management."
In addition to affecting interest income and expense, changes in
interest rates also can affect the market value of the Association's
interest-earning assets. Generally, the market value of fixed-rate
instruments fluctuates inversely with changes in interest rates. The
Association's mortgage-backed securities held to maturity had an aggregate
carrying value and market value of $7.3 million and $7.0 million,
respectively, at September 30, 1996. The market value is less than the
carrying value due to the below market yields on the securities. While the
Association should ultimately receive the entire principal balance of these
securities by holding them to maturity, the below market yields will result
in the Association recognizing less interest income over the remaining life
of these securities than
17
would be recognized if these securities had yields at current market rates.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Asset and Liability Management."
The OTS has implemented an interest rate risk component into its
risk-based capital rules, which is designed to calculate on a quarterly basis
the extent to which the value of an institution's assets and liabilities
would change if interest rates increase or decrease. If the net portfolio
value of an institution would decline by more than 2% of the estimated market
value of the institution's assets in the event of a 200 basis point increase
or decrease in interest rates, then the institution is deemed to be subject
to a greater than "normal" interest rate risk and must deduct from its
capital 50% of the amount by which the decline in net portfolio value exceeds
2% of the estimated market value of the institution's assets, as of an
effective date to be determined. As of September 30, 1996, if interest rates
increased or decreased by 200 basis points, the Association's net portfolio
value would actually decrease by 10.82% and increase by 6.47%, respectively,
of the estimated market value of the Association's assets, as calculated by
the OTS. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Asset and Liability Management."
Changes in interest rates also can affect the average life of loans and
mortgage-related securities. Decreases in interest rates in recent periods
have resulted in increased prepayments of loans and mortgage-backed
securities, as borrowers refinanced to reduce borrowing costs. Under these
circumstances, the Association is subject to reinvestment risk to the extent
that it is not able to reinvest such prepayments at rates which are
comparable to the rates on the maturing loans or securities. See "Business -
Lending Activities."
POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE CONVERSION; UNCERTAINTY AS TO
FUTURE GROWTH OPPORTUNITIES
At September 30, 1996, the Association's ratio of equity to assets was
28.3%. The Company's equity position will be significantly increased as a
result of the Conversion. On a pro forma basis as of September 30, 1996,
assuming the sale of Common Stock at the midpoint of the Estimated Valuation
Range, the Company's ratio of equity to assets would be 41.7%. The Company's
ability to leverage this capital will be significantly affected by industry
competition for loans and deposits. The Company currently anticipates that
it will take time to prudently deploy such capital. As a result, the
Company's return on equity initially is expected to be below the industry
average after the Conversion.
In an effort to fully deploy post-Conversion capital, in addition to
attempting to increase its loan and deposit growth, the Company may seek to
expand its banking franchise by acquiring other financial institutions or
branches in the Association's market area. The Company's ability to grow
through selective acquisitions of other financial institutions or branches of
such institutions will be dependent on successfully identifying, acquiring
and integrating such institutions or branches. There can be no assurance the
Company will be
18
able to generate internal growth or to identify attractive acquisition
candidates, acquire such candidates on favorable terms or successfully
integrate any acquired institutions or branches into the Company. Neither
the Company nor the Association has any specific plans, arrangements or
understandings regarding any such expansions or acquisitions at this time,
nor have criteria been established to identify potential candidates for
acquisition.
STRONG COMPETITION WITHIN THE ASSOCIATION'S MARKET AREA
Competition in the banking and financial services industry is intense.
In its market area, the Association competes with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies,
mutual funds, insurance companies, and brokerage and investment banking firms
operating locally and elsewhere. Many of these competitors have
substantially greater resources and lending limits than the Association and
may offer certain services that the Association does not or cannot provide.
The profitability of the Association depends upon its continued ability to
successfully compete in its market area.
GEOGRAPHIC CONCENTRATION OF LOANS
The Association's market area consists of Orleans, St. Tammany and
Jefferson Parishes in the New Orleans, Louisiana metropolitan statistical
area. The Association's real estate loans are primarily secured by
properties located in its market area, and all of the Association's loans are
primarily made to residents of its market area. Accordingly, the asset
quality of the Association's loan portfolio is highly dependent upon the
economy and the unemployment rate in its market area. While the local
economy has stabilized in recent years, there is still a significant degree
of volatility in the local economy due to a continued heavy reliance on the
petroleum industry and related industries. No assurance can be given that
downturns in the economy in the Association's market area, due to the oil and
gas industry or otherwise, may not adversely affect the Association's
operations in the future. See "Business - Market Area."
CERTAIN ANTI-TAKEOVER PROVISIONS
PROVISIONS IN THE COMPANY'S GOVERNING INSTRUMENTS AND LOUISIANA LAW.
Certain provisions of the Company's Articles of Incorporation and Bylaws, as
well as certain provisions in Louisiana law, will assist the Company in
maintaining its status as an independent publicly owned corporation.
Provisions in the Company's Articles of Incorporation and Bylaws provide for,
among other things, a 75% supermajority vote requirement to remove directors
without cause and to amend various provisions in the Articles of
Incorporation and Bylaws, a staggered board of directors, noncumulative
voting for directors, limits on the calling of special meetings and, for a
period of five years following the Conversion, limits on acquiring voting
shares in excess of 10% of the outstanding Common Stock. Provisions under
Louisiana law applicable to the Company, among other things, establish
certain uniform price provisions for certain business
19
combinations and provide that persons who acquire more than 20% of the
outstanding voting stock may not vote such shares unless the disinterested
stockholders approve such shares having voting rights. The above provisions
may discourage potential proxy contests and other potential takeover
attempts, particularly those which have not been negotiated with the Board of
Directors, and thus, generally may serve to perpetuate current management.
Based on the proposed purchases of directors and executive officers in the
Conversion, the shares to be acquired by the ESOP, and the proposed purchase
of shares by the Recognition Plan assuming stockholder approval is received,
the directors and officers may be in a position to block certain transactions
requiring a supermajority vote, even if a majority of the stockholders
believe such transactions are in their best interests. See "Restrictions on
Acquisition of the Company and the Association."
VOTING CONTROL OF OFFICERS AND DIRECTORS. Directors and executive
officers of the Company expect to purchase approximately 8.2% or 6.1% of the
shares of Common Stock outstanding based upon the minimum and the maximum of
the Estimated Valuation Range, respectively. See "Proposed Management
Purchases." The directors who act as trustees of the ESOP are also expected
to immediately control the voting of 8% of the shares of Common Stock issued
in the Conversion through the ESOP, at least until an allocation has been
made under the ESOP. Under the terms of the ESOP, after an allocation has
been made, the unallocated shares will be voted by the trustees in the same
proportion as the allocated shares are voted by the ESOP participants.
The Company intends to seek stockholder approval of the Company's
proposed Recognition Plan, which is a non-tax-qualified restricted stock plan
for the benefit of directors, officers and employees of the Company and the
Association. Assuming the receipt of stockholder approval, which stockholder
approval cannot be obtained earlier than six months following the Conversion
pursuant to regulations of the OTS, the Company expects to acquire Common
Stock on behalf of the Recognition Plan, in an amount equal to 4% of the
Common Stock issued in the Conversion, or 88,400 shares and 119,600 shares at
the minimum and maximum of the Estimated Valuation Range, respectively.
These shares will be acquired either through open market purchases, if
permissible, or from authorized but unissued Common Stock. Under the terms
of the Recognition Plan, recipients of awards will be entitled to instruct
the trustee of the Recognition Plan as to how the underlying shares should be
voted, and the trustee will be entitled to vote all unallocated shares in its
discretion. If the shares are purchased in the open market, directors and
executive officers would have effective control over 12.2% or 10.1% of the
Common Stock outstanding at such time based upon the minimum and the maximum
of the Estimated Valuation Range, respectively, before giving effect to the
potential exercise of additional stock options by directors and officers of
the Company and the Association and shares held by the ESOP. If approved by
stockholders at a meeting held no earlier than six months following the
Conversion, the Company intends to reserve for future issuance pursuant to
the Stock Option Plan a number of authorized shares of Common Stock equal to
an aggregate of 10% of the Common Stock issued in the Conversion (299,000
shares, based on the issuance of the maximum 2,990,000 shares). See
"Management of the Company -
20
Benefits." Management's potential voting control could, together with
additional stockholder support, preclude or make more difficult takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management.
PROVISIONS OF STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS. The ESOP
provides for accelerated vesting in the event of a change in control. In
addition, upon consummation of the Conversion, the Company and the
Association will enter into employment agreements with two executive
officers, which agreements will provide for severance pay in the event of a
change in control. These provisions may have the effect of increasing the
cost of acquiring the Company, thereby discouraging future attempts to take
over the Company or the Association. In addition, it is possible that the
Stock Option Plan and the Recognition Plan may not be implemented until more
than one year following completion of the Conversion, and, in such event,
such plans could provide for accelerated vesting in the event of a change in
control of the Company. See "Restrictions on Acquisition of the Company and
the Association - Restrictions in the Company's Articles of Incorporation and
Bylaws," "Management of the Company - Benefits" and "Management of the
Association - Employment Agreements."
LEGISLATION LIMITING DEDUCTION OF BAD DEBT RESERVES
Under Section 593 of the Code, until the first tax year beginning on or
after January 1, 1996, thrift institutions such as the Association generally
were permitted to establish a tax reserve for bad debts and to make annual
additions thereto, which additions, within specified limitations, could be
deducted in arriving at their taxable income. The Association's deduction
with respect to "qualifying loans" were computed using an amount based on the
Association's actual loss experience (the "Experience Method") or a
percentage equal to 8.0% of the Association's taxable income (the "PTI
Method"). Under recently enacted legislation, the PTI Method was repealed.
If an institution is not a "large" thrift institution, i.e., the quarterly
average of the institution's total assets or of the consolidated group of
which it is a member exceeds $500 million for the year, the institution will
continue to be permitted to use the Experience Method. In addition, the
institution is required to recapture (i.e., take into income) over a
multi-year period its "applicable excess reserves," i.e., the balance of its
reserve for losses on qualifying loans and nonqualifying loans, as of the
close of its last tax year beginning before January 1, 1996, over the greater
of (a) balance of such reserves as of December 31, 1987 or (b) in the case of
an institution which is not a "large" institution, an amount that would have
been the balance of such reserves as of the close of its last tax year
beginning before January 1, 1996, had the institution always computed the
additions to its reserves using the experience method. In addition, under
such legislation, the institution will not be required to recapture its
supplemental reserves or its pre-1988 reserves. Under the legislation, such
recapture requirement generally is suspended for each of two successive
taxable years beginning January 1, 1997 if certain lending thresholds are
satisfied. In any event, given the Association's previously established
reserves for taxes, such recapture is not expected to result in any
significant effect upon the Association's net income. See "Taxation -
Federal Taxation."
21
REGULATORY OVERSIGHT AND LEGISLATION
The Association is subject to extensive regulation, supervision and
examination by the OFI, as its chartering authority, by the OTS, its primary
federal regulator, and by the FDIC as insurer of its deposits up to
applicable limits. The Association is a member of the FHLB System and is
subject to certain limited regulations promulgated by the FRB. As the
holding company of the Association, the Company also will be subject to
regulation and oversight by the OTS. Such regulation and supervision govern
the activities in which an institution can engage and are intended primarily
for the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the banking and thrift industries, including the
imposition of restrictions on the operation of an institution, the
classification of assets by the institution and the adequacy of an
institution's allowance for loan losses. Any change in such regulation and
oversight, whether by the OFI, the OTS, the FDIC or Congress, could have a
material impact on the Company, the Association and their respective
operations. See "Regulation."
On September 30, 1996, the Deposit Insurance Funds ("DIF") Act of 1996
was enacted into law. Among other things, the DIF Act authorizes the FDIC to
impose a special one-time assessment on each depository institution with
SAIF-assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Association's assessment was $413,000 on a pre-tax basis, and was
accrued during the quarter ended September 30, 1996. In addition, the DIF
Act provides for the merger of the Bank Insurance Fund ("BIF") and the SAIF
on January 1, 1999, but only if no insured depository institution is a
savings association on that date. The DIF Act contemplates the development
of a common charter for all federally chartered depository institutions and
the abolition of separate charters for national banks and federal savings
associations. It is not known what form the common charter may take and what
effect, if any, the adoption of a new charter would have on the financial
condition or results of operations of the Association. See "Regulation - The
Association - Insurance of Accounts."
Legislation is proposed periodically providing for a comprehensive
reform of the banking and thrift industries, and has included provisions that
would (i) require federal savings associations to convert to a national bank
or a state-chartered bank or thrift, (ii) require all savings and loan
holding companies to become bank holding companies and (iii) abolish the OTS.
It is uncertain when or if any of this type of legislation will be passed,
and, if passed, in what form the legislation would be passed. As a result,
management cannot accurately predict the possible impact of such legislation
on the Association.
ABSENCE OF MARKET FOR THE COMMON STOCK
The Company and the Bank have never issued capital stock. Webb has been
retained to assist in the distribution of the Common Stock on a "best
efforts" basis and are
22
not obligated to purchase any shares of Common Stock in the Offerings. The
Company [HAS APPLIED] to have its Common Stock quoted on the NASDAQ National
Market, there must be, among other things, at least two market makers for the
Common Stock. Keefe, Bruyette has indicated its intention to make a market
on the Common Stock, and the Company anticipates that it will be able to
secure at least one additional market maker for the Common Stock. See
"Market for the Common Stock."
Making a market in securities involves maintaining bid and ask
quotations and being able, as principal, to effect transactions in reasonable
quantities at those quoted prices, subject to various securities laws and
other regulatory requirements. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of
which is not within the control of the Company, the Association, or any
market maker. Because there can be no assurance that buyers and sellers of
the Company's Common Stock can be readily matched, investors may wish to
consider the potential illiquid and long-term nature of an investment in the
Common Stock. There can be no assurance that an active and liquid trading
market for the Common Stock will develop, or once developed, will continue,
nor any assurances that purchasers of the Common Stock will be able to sell
their shares at or above the Purchase Price. The absence of a liquid and
active trading market, or the discontinuance thereof, may have an adverse
effect on both the price and the liquidity of the Common Stock.
POSSIBLE INCREASE IN NUMBER OF SHARES ISSUED IN THE CONVERSION
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Valuation Range of up to 15% to
reflect changes in market and financial conditions prior to completion of the
Conversion or to fill the order of the ESOP. In the event that the Estimated
Valuation Range is so increased, it is expected that the Company will issue
up to 3,438,500 shares of Common Stock at the Purchase Price for an aggregate
price of up to $34,385,000. An increase in the number of shares will
decrease net income per share and stockholders' equity per share on a pro
forma basis and will increase the Company's consolidated stockholders' equity
and net income. Such an increase will also increase the Purchase Price as a
percentage of pro forma stockholders' equity per share and net income per
share.
The ESOP currently intends to purchase 8% of the Common Stock, which
purchase may be increased to up to 10% of the Common Stock. In the event
that the number of shares to be sold in the Conversion are increased as a
result of an increase in the Estimated Valuation Range, the ESOP shall have a
first priority to purchase all of such shares sold in the Conversion in
excess of 2,990,000 shares, up to a maximum of 10% of the total number of
shares issued in the Conversion. See "Pro Forma Data" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
23
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES
If the Recognition Plan is approved by stockholders of the Company, the
Recognition Plan intends to acquire an amount of Common Stock equal to 4% of
the shares of Common Stock issued in the Conversion. If such shares are
acquired at a per share price equal to the Purchase Price, the cost of such
shares would be $1,196,000 , assuming the Common Stock sold in the Conversion
is equal to the maximum of the Estimated Valuation Range. Such shares of
Common Stock may be acquired in the open market with funds provided by the
Company, if permissible, or from authorized but unissued shares of Common
Stock. In the event that the Recognition Plan acquires authorized but
unissued shares of Common Stock from the Company, the interests of existing
stockholders will be diluted. The issuance of authorized but unissued shares
of Common Stock to such plan in an amount equal to 4% of the Common Stock
issued in the Conversion would dilute the voting interests of existing
stockholders by approximately 3.8%, and net income per share and
stockholders' equity per share would be decreased by a corresponding amount.
See "Pro Forma Data" and "Management of the Company - Benefits - Recognition
Plan."
If the Stock Option Plan is approved by stockholders of the Company, the
Company intends to reserve for future issuance pursuant to such plan a number
of shares of Common Stock equal to an aggregate of 10% of the Common Stock
issued in the Conversion (299,000 shares, based on the issuance of the
maximum 2,990,000 shares). Such shares may be authorized but previously
unissued shares, treasury shares or shares purchased by the Company in the
open market or from private sources. If only authorized but previously
unissued shares are used under such plan, the issuance of the total number of
shares available under such plan would dilute the voting interests of
existing stockholders by approximately 9.1%, and net income per share and
stockholders' equity per share would be decreased by a corresponding amount.
See "Pro Forma Data" and "Management of the Company - Benefits."
24
POTENTIAL INCREASED COMPENSATION EXPENSE AFTER THE CONVERSION
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 93-6 entitled "Employers' Accounting
for Employee Stock Ownership Plans" ("SOP 93-6"). SOP 93-6 requires an
employer to record compensation expense in an amount equal to the fair value
of shares committed to be released to employees from an employee stock
ownership plan instead of an amount equal to the cost basis of such shares.
If the shares of Common Stock appreciate in value over time, SOP 93-6 will
result in increased compensation expense with respect to the ESOP as compared
with prior guidance which required the recognition of compensation expense
based on the cost of shares acquired by the ESOP. It is impossible to
determine at this time the extent of such impact on future net income. See
"Pro Forma Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Accounting Developments." In
addition, after consummation of the Conversion, the Company intends to
implement, subject to stockholder approval (which approval cannot be obtained
earlier than six months subsequent to the Conversion), the Recognition Plan.
Upon implementation, the release of shares of Common Stock from the
Recognition Plan will result in additional compensation expense. See "Pro
Forma Data" and "Management of the Company - Recognition Plan."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION OF SUBSCRIPTION RIGHTS
The Company and the Association have received an opinion of RP Financial
that subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have no value. However, this
opinion is not binding on the Internal Revenue Service ("IRS"). If the
subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are deemed to have an
ascertainable value, receipt of such rights would be taxable probably only to
those Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members who exercise the subscription rights (either as capital gain or
ordinary income) in an amount equal to such value. Whether subscription
rights are considered to have ascertainable value is an inherently factual
determination. See "The Conversion - Effects of Conversion" and "- Tax
Aspects."
25
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of the Company's directors and
executive officers and for all of the directors and executive officers as a
group, the proposed purchases of Common Stock, assuming sufficient shares are
available to satisfy their subscriptions. The amounts include shares that
may be purchased through individual retirement accounts.
NUMBER OF
NAME SHARES AMOUNT PERCENT (1)
---- --------- -------- -------------
Kenneth B. Caldcleugh 20,000 $ 200,000 0.77%
Stephen L. Cory 20,000 200,000 0.77
Bradford Glazer 10,000 100,000 0.39
J. Scott Key 25,000 250,000 0.96
Victor Kirschman 25,000 250,000 0.96
Dr. M.D. Paine, Jr. 10,000 100,000 0.39
Bruce A. Scott 25,000 250,000 0.96
Donald C. Scott 25,000 250,000 0.96
Albert J. Zahn, Jr. 20,000 200,000 0.77
Ralph E. Weber 100 1,000 *
Lettie R. Moll 1,000 10,000 *
All directors and executive
officers as a group (11
persons) 181,100 $1,811,000 6.97%
- ---------------------------
* Less than 0.01%.
(1) Based upon the midpoint of the Estimated Valuation Range.
In addition, the ESOP currently intends to purchase 8% of the Common
Stock issued in the Conversion for the benefit of officers and employees.
Stock options and stock grants may also be granted in the future to
directors, officers and employees upon the receipt of stockholder approval of
the Company's proposed stock benefit plans. See "Management of the Company -
Benefits" for a description of these plans.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will be
between $21.4 million and $29.1 million ($33.6 million assuming an increase
in the Estimated Valuation Range by 15%). See "Pro Forma Data" and "The
Conversion - Stock Pricing and Number of Shares to be Issued" as to the
assumptions used to arrive at such amounts.
26
The Company will purchase all of the capital stock of the Association to
be issued in the Conversion in exchange for 50% of the net Conversion
proceeds, and the Company will retain the remaining 50% of the net proceeds.
The Company intends to use a portion of the net proceeds to make a loan
directly to the ESOP to enable the ESOP to purchase up to 8% of the Common
Stock. Based upon the issuance of 2,210,000 shares or 2,990,000 shares at
the minimum and maximum of the Estimated Valuation Range, respectively, the
loan to the ESOP would be $1.8 million and $2.4 million, respectively. See
"Management of the Company - Benefits - Employee Stock Ownership Plan." The
remaining net proceeds retained by the Company initially may be used to
invest in investment securities, mortgage-backed securities, U.S. Government
and federal agency securities of various maturities, deposits in either the
Association or other financial institutions, or a combination thereof. The
portion of the net proceeds retained by the Company may ultimately be used to
support the Association's lending activities, to support the future expansion
of operations through acquisitions of other financial institutions or
diversification into other related businesses, including, possibly, the
insurance business (although no such transactions are specifically being
considered at this time), and for other business and investment purposes,
including the payment of regular or special cash dividends, possible
repurchases of the Common Stock or returns of capital. Management of the
Company may consider expanding or diversifying, should such opportunities
become available. Neither the Association nor the Company has any specific
plans, arrangements, or understandings regarding any acquisitions or
diversification of activities at this time, nor have criteria been
established to identify potential candidates for acquisition.
Following the six-month anniversary of the completion of the Conversion
(to the extent permitted by the OTS), and based upon then existing facts and
circumstances, the Company's Board of Directors may determine to repurchase
some shares of Common Stock, subject to any applicable statutory and
regulatory requirements. Such facts and circumstances may include but not be
limited to (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk
involved in the investment, the ability to increase the book value and/or
earnings per share of the remaining outstanding shares, and an improvement in
the Company's return on equity; (ii) the avoidance of dilution to
stockholders by not having to issue additional shares to cover the exercise
of stock options or to fund employee stock benefit plans; and (iii) any other
circumstances in which repurchases would be in the best interests of the
Company and its stockholders. Any stock repurchases will be subject to the
determination of the Company's Board of Directors that the Association will
be capitalized in excess of all applicable regulatory requirements after any
such repurchases. The payment of dividends or repurchase of stock, however,
would be prohibited if the Association's net worth would be reduced below the
amount required for the liquidation account to be established for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders. As of
the date of this Prospectus, the initial balance of the liquidation account
would be $___ million. See "Dividend Policy," "The Conversion - Liquidation
Rights" and "The Conversion - Certain Restrictions on Purchase or Transfer of
Shares After the Conversion."
27
The Company will be a unitary savings and loan holding company which,
under existing laws, would generally not be restricted as to the types of
business activities in which it may engage, provided that the Association
continues to be a qualified thrift lender ("QTL"). See "Regulation -The
Company" for a description of certain regulations applicable to the Company.
The portion of the net proceeds used by the Company to purchase the
capital stock of the Association will be added to the Association's general
funds to be used for general corporate purposes, including increased lending
activities and purchases of investment and mortgage-backed securities. While
the amount of net proceeds received by the Association will further
strengthen the Association's capital position, which already substantially
exceeds all regulatory requirements, it should be noted that the Association
is not converting primarily to raise capital. After the Conversion, the
Association's tangible capital ratio will be 34.23% (based upon the midpoint
of the Estimated Valuation Range). As a result, the Association will be a
well-capitalized institution. After the Conversion, the Association intends
to emphasize capital strength and growth in assets and earnings.
THE NET PROCEEDS MAY VARY BECAUSE TOTAL EXPENSES OF THE CONVERSION MAY
BE MORE OR LESS THAN THOSE ESTIMATED. The net proceeds will also vary if the
number of shares to be issued in the Conversion is adjusted to reflect a
change in the estimated pro forma market value of the Association. Payments
for shares made through withdrawals from existing deposit accounts at the
Association will not result in the receipt of new funds for investment by the
Association but will result in a reduction of the Association's interest
expense and liabilities as funds are transferred from interest-bearing
certificates or other deposit accounts.
DIVIDEND POLICY
Upon completion of the Conversion, the Board of Directors of the Company
intends to consider implementation of a policy of paying dividends on the
Common Stock, subject to statutory and regulatory requirements. However,
there has been no determination made at this point in time as to the initial
rate of dividend, if any, to be paid on the Common Stock. The initial or
continued payment of dividends thereof will depend upon a number of factors,
including the amount of net proceeds retained by the Company in the
Conversion, investment opportunities available to the Company or the
Association, capital requirements, the Company's and the Association's
financial condition and results of operations, tax considerations, statutory
and regulatory limitations, and general economic conditions. No assurances
can be given that any dividends will be paid or that, if paid, will not be
reduced or eliminated in future periods. Special cash dividends, stock
dividends or returns of capital may be paid in addition to, or in lieu of,
regular cash dividends.
Dividends from the Company may eventually depend, in part, upon receipt
of dividends from the Association, because the Company initially will have no
source of income other than dividends from the Association, earnings from the
investment of proceeds from the sale of Common Stock retained by the Company,
and interest payments with respect to
28
the Company's loan to the ESOP. A regulation of the OTS imposes limitations
on "capital distributions" by savings institutions, including cash dividends,
payments by a savings institution to repurchase or otherwise acquire its
stock, payments to stockholders of another savings institution in a cash-out
merger and other distributions charged against capital. See "Regulation -
The Association -Capital Distributions."
Any payment of dividends by the Association to the Company which would
be deemed to be drawn out of the Association's bad debt reserves would
require a payment of taxes at the then-current tax rate by the Association on
the amount of earnings deemed to be removed from the reserves for such
distribution. The Association does not intend to make any distribution to the
Company that would create such a federal tax liability. See "Taxation."
Unlike the Association, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends may eventually be dependent, in part,
upon dividends from the Association in addition to the net proceeds retained
by the Company and earnings thereon. The Company is subject, however, to the
requirements of Louisiana law, which generally permits the payment of
dividends out of surplus, except when (1) the corporation is insolvent or
would thereby be made insolvent, or (2) the declaration or payment thereof
would be contrary to any restrictions contained in the articles of
incorporation. If there is no surplus available for dividends, a Louisiana
corporation may pay dividends out of its net profits for the then current or
the preceding fiscal year or both, except that no dividend may be paid if the
corporation's assets are exceeded by its liabilities or if its net assets are
less than the amount which would be needed, under certain circumstances, to
satisfy any preferential rights of stockholders.
MARKET FOR COMMON STOCK
The Company and the Association have never issued capital stock, and,
consequently, there is no established market for the Common Stock at this
time. The Company [HAS APPLIED] to have its Common Stock quoted on the
NASDAQ National Market under the symbol "____." Making a market involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at these quoted prices, subject to
various securities laws and other regulatory requirements. Additionally, the
development of a liquid public market depends on the existence of willing
buyers and sellers, the presence of which is not within the control of the
Company, the Association or any market maker. Accordingly, the number of
active buyers and sellers of the Common Stock at any particular time may be
limited. Under such circumstances, investors in the Common Stock could have
difficulty disposing of their shares and should not view the Common Stock as
a short-term investment. Accordingly, there can be no assurance that an
active and liquid trading market for the Common Stock will develop or that,
if developed, it will continue, nor is there any assurance that persons
purchasing shares of Common Stock will be able to sell them at or above the
Purchase Price. In order to be quoted on the NASDAQ National Market, there
must be at least two market makers for the Common
29
Stock, the Company must satisfy certain minimum capitalization requirements
and there must be at least 400 shareholders. Keefe, Bruyette has indicated
its intention to act as a market maker in the Common Stock following the
consummation of the Conversion, depending on trading volume and subject to
compliance with applicable laws and regulatory requirements. Furthermore,
Webb has agreed to use its best efforts to assist the Company in obtaining at
least one additional market maker for the Common Stock. There can be no
assurance there will be two or more market makers for the Common Stock.
There can be no assurance that purchasers will be able to sell their shares
at or above the Purchase Price.
REGULATORY CAPITAL
At September 30, 1996, the Association exceeded all of the regulatory
capital requirements applicable to it. The table on the following page sets
forth the Association's historical regulatory capital at September 30, 1996
and the pro forma regulatory capital of the Association after giving effect
to the Conversion, based upon the sale of the number of shares shown in the
table. The pro forma regulatory capital amounts reflect the receipt by the
Association of 50% of the net Conversion proceeds, minus the amounts to be
loaned to the ESOP and contributed to the RRP. The pro forma risk-based
capital amounts assume the investment of the net proceeds received by the
Association in assets which have a risk-weight of 50% under applicable
regulations, as if such net proceeds had been received and so applied at
September 30, 1996.
30
Pro Forma at September 30, 1996 Based on
------------------------------------------------------------------------------
2,210,000 2,600,000 2,990,000 3,438,500
Shares Sold Shares Sold Shares Sold Shares Sold
Historical at at $10.00 at $10.00 at $10.00 at $10.00
September 30, 1996 Per Share Per Share Per Share Per Share
----------------------- -------------------- -------------------- ------------------- ------------------------
Percent of Percent of Percent of Percent of Percent of
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
-------- ----------- ------- ------------ --------- ----------- ------- ----------- -------- -------------
(Dollars in Thousands)
Tangible capital:
Actual $23,822 27.79% $31,856 33.34% $33,311 34.23% $34,772 35.09% $36,476 36.06%
Requirement 1,298 1.50 1,433 1.50% 1,460 1.50 1,486 1.50% 1,517 1.50%
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
Excess $22,524 26.29% $30,423 31.84% $31,851 32.73% $33,285 33.59% $34,959 34.56%
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
Core capital(2):
Actual $23,822 27.79% $31,856 33.34% $30,311 34.23% $34,772 35.09% $36,476 36.06%
Requirement 2,596 3.00 2,866 3.00% 2,919 3.00% 2,972 3.00% 3,034 3.00%
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
Excess $21,226 24.79% $28,991 30.34% $30,392 31.23% $31,799 32.09% $33,442 33.06%
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
Risk-based
capital(2):
Actual $24,038 80.10% $32,072 91.87% $33,527 93.66% $34,988 95.38% $36,692 97.29%
Requirement 2,408 8.00 2,793 8.00% 2,864 8.00% 2,935 8.00% 3,017 8.00%
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
Excess $21,630 72.10% $29,279 83.87% $30,664 85.66% $32,053 87.38% $33,675 89.29%
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
--------- ---------- --------- ----------- ----------- ---------- ------- -------- ------- ---------
- ----------------------
(1) Adjusted total or adjusted risk-weighted assets, as appropriate.
(2) Does not reflect the interest rate risk component to be added to the
risk-based capital requirements or, in the case of the core capital
requirement, the 4.0% requirement to be met in order for an institution
to be "adequately capitalized" under applicable laws and regulations.
See "Regulation - The Association - Prompt Corrective Action."
31
CAPITALIZATION
The following table presents the historical capitalization of Guaranty
Savings at September 30, 1996, and the pro forma consolidated capitalization
of the Company after giving effect to the Conversion, based upon the sale of
the number of shares shown below and the other assumptions set forth under
"Pro Forma Data."
The Company - Pro Forma
Based Upon Sale at $10.00 Per Share
--------------------------------------------------------------
Guaranty 2,210,000 2,600,000 2,990,000 3,438,500
Savings- Shares Shares Shares Shares(1) (15%
Historical (Minimum of (Midpoint of (Maximum of above Maximum
Capitalization Range) Range) Range) of Range)
--------------- ----------- ------------- ------------- -----------------
(In Thousands)
Deposits(2) $60,495 $60,495 $60,495 $60,495 $60,495
-------------- ------------- ------------ ------------- -----------------
-------------- ------------- ------------ ------------- -----------------
Stockholders' equity:
Preferred Stock, $.01 par
value, 5,000,000 shares
authorized; none to be
issued $ -- $ -- $ -- $ -- $ --
Common Stock, $.01
par value, 20,000,000
shares authorized;
shares to be issued as
reflected(3) -- 22 26 30 34
Additional paid-in
capital(3) -- 21,350 25,192 29,045 33,526
Retained earnings(4) 23,822 23,822 23,822 23,822 23,822
Net unrealied gain on
securities held for sale 678 678 678 678 678
Less:
Common Stock acquired
by the ESOP(5) -- (1,768) (2,080) (2,392) (2,751)
Common Stock to be
acquired by the
RRP(6) -- (884) (1,040) (1,196) (1,375)
--------- --------- ----------- ----------- ---------
Total stockholders' equity
(retained earnings
at September 30, 1996) $24,500 $43,220 $46,598 $49,987 $53,934
-------------- ------------- ------------ ------------- -----------------
-------------- ------------- ------------ ------------- -----------------
(FOOTNOTES ON FOLLOWING PAGE)
32
- -----------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions prior to the
completion of the Conversion or to fill the order of the ESOP.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) The sum of the par value and additional paid-in capital accounts equals
the net Conversion proceeds. No effect has been given to the issuance
of additional shares of Common Stock pursuant to the Company's proposed
Stock Option Plan. The Company intends to adopt a Stock Option Plan and
to submit such plan to stockholders at a meeting of stockholders to be
held at least six months following completion of the Conversion. If the
plan is approved by stockholders, an amount equal to 10% of the shares
of Common Stock will be reserved for issuance under such plan. See "Pro
Forma Data" and "Management of the Company - Benefits - Stock Option
Plan."
(4) The retained earnings of the Association will be substantially
restricted after the Conversion. See "The Conversion - Liquidation
Rights."
(5) Assumes that 8% of the Common Stock will be purchased by the ESOP. The
Common Stock acquired by the ESOP is reflected as a reduction of
stockholders' equity. Assumes the funds used to acquire the ESOP shares
will be borrowed from the Company. See Note 1 to the table set forth
under "Pro Forma Data" and "Management of the Company -Benefits -
Employee Stock Ownership Plan."
(6) Gives effect to the Recognition Plan which is expected to be adopted by
the Company following the Conversion and presented to stockholders for
approval at a meeting of stockholders to be held at least six months
following completion of the Conversion. No shares will be purchased by
the Recognition Plan in the Conversion, and such plan cannot purchase
any shares until stockholder approval has been obtained. If the
Recognition Plan is approved by stockholders, the plan intends to
acquire an amount of Common Stock equal to 4% of the shares of Common
Stock issued in the Conversion, or 88,400, 104,000, 119,600 and 137,540
shares at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively. The table assumes that
stockholder approval has been obtained and that such shares are
purchased in the open market at the Purchase Price. The Common Stock so
acquired by the Recognition Plan is reflected as a reduction in
stockholders' equity. If the shares are purchased at prices higher or
lower than the Purchase Price, such purchases would have a greater or
lesser impact, respectively, on stockholders' equity. If the
Recognition Plan purchases authorized but unissued shares from the
Company, such issuance would dilute the voting interests of existing
stockholders by approximately 3.8%. See "Pro Forma Data" and
"Management of the Company - Benefits - Recognition Plan."
33
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $21.4 million and $29.1 million (or $33.6
million in the event the Estimated Valuation Range is increased by 15%) based
upon the following assumptions: (i) 100% of the shares of Common Stock will
be sold in the Subscription and Community Offerings; and (ii) Conversion
expenses, including the marketing fees paid to Charles Webb, will be
between $728,000 and $825,000. Actual Conversion expenses may vary from
those estimated.
Pro forma net income and stockholders' equity have been calculated for
the year ended December 31, 1995 and the nine months ended September 30, 1996
as if the Common Stock to be issued in the Offerings had been sold at the
beginning of the period and the net proceeds had been invested at 5.69% and
5.14%, respectively, which represents the yield on one-year U.S. Government
securities at September 30, 1996 and December 31, 1995. The use of this
interest rate is viewed to be a more relevant alternative in the current rate
environment than the rate prescribed by OTS regulations, which regulations
call for the use of an arithmetic average of the weighted average yield
earned by the Association on its interest earning assets and the weighted
average rate paid on its deposits during such periods. The effect of
withdrawals from deposit accounts for the purchase of Common Stock has not
been reflected. A combined effective federal and state income tax rate of
34% has been assumed, resulting in an after-tax yield of 3.76% and 3.39%,
respectively, for the periods ending September 30, 1996 and December 31,
1995. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares
of Common Stock, as adjusted to give effect to the shares purchased by the
ESOP with respect to the net income per share calculations. See Notes 2 and
4 to the Pro Forma Data table. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net
proceeds. As discussed under "Use of Proceeds," the Company intends to
retain 50% of the net Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the Conversion at the date on which the Conversion
actually occurs and should not be taken as indicative of future results of
operations. Pro forma stockholders' equity represents the difference between
the stated amount of assets and liabilities of the Company computed in
accordance with generally accepted accounting principles ("GAAP"). The pro
forma stockholders' equity is not intended to represent the fair market value
of the Common Stock and may be different than amounts that would be available
for distribution to stockholders in the event of liquidation. No effect has
been given in the table to the possible issuance of additional shares equal
to 10% of the Common Stock to be reserved for future issuance pursuant to the
Stock Option Plan to be adopted by the Board of Directors of the Company, nor
does book value give any effect to the liquidation account to be established
for the benefit of Eligible Account Holders and Supplemental Eligible
34
Account Holders or to the bad debt reserve. See "Management of the Company
- -Benefits" and "The Conversion - Liquidation Rights." The table below gives
effect to the Recognition Plan, which is expected to be adopted by the
Company following the Conversion and presented (together with the Stock
Option Plan) to stockholders for approval no earlier than six months
subsequent to consummation of the Conversion. If the Recognition Plan is
approved by stockholders, the Recognition Plan intends to acquire an amount
of Common Stock equal to 4% of the shares of Common Stock issued in the
Conversion, either through open market purchases, if permissible, or from
authorized but unissued shares of Common Stock. The table below assumes that
stockholder approval has been obtained and that the shares acquired by the
Recognition Plan are purchased in the open market at $10.00 per share. There
can be no assurance that stockholder approval of the Recognition Plan will be
obtained, that the shares will be purchased in the open market or that the
purchase price will be $10.00 per share.
The table on the following page summarizes historical consolidated data
of the Association and pro forma data of the Company at or for the date and
period indicated based on the assumptions set forth above and in the table
and should not be used as a basis for projections of the market value of the
Common Stock following the Conversion.
35
At or For the Nine Months Ended September 30, 1996
--------------------------------------------------------------
2,210,000 2,600,000 2,990,000 3,438,500
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(9)
-------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
Gross proceeds $ 22,100 $26,000 $29,900 $34,385
Less offering expenses 728 782 825 825
-------- ------ ------ ------
Estimated net Conversion proceeds 21,372 25,218 29,075 33,560
Less: Common Stock acquired by
the ESOP 1,768 2,080 2,392 2,751
Common Stock to be acquired
by the RRP 884 1,040 1,196 1,375
-------- ------ ------ ------
Estimated adjusted net proceeds(1) $ 18,720 $22,098 $25,487 $29,434
-------- ------ ------ ------
-------- ------ ------ ------
Net income:
Historical $ 365 $ 365 $ 365 $ 365
Pro forma adjustments:
Income on adjusted net proceeds(1) 527 622 718 829
State shares tax/franchise tax (183) (190) (197) (205)
ESOP(2) (88) (103) (118) (136)
RRP(3) (88) (103) (118) (136)
-------- ------ ------ ------
Pro forma $ 533 $ 591 $ 650 $ 717
-------- ------ ------ ------
-------- ------ ------ ------
Net income per share(4):
Historical $ 0.18 $ 0.15 $ 0.13 $ 0.11
Pro forma adjustments:
Income on adjusted net proceeds(1) 0.25 0.26 0.25 0.26
State share tax/franchise tax (0.09) (0.08) (0.07) (0.06)
ESOP(2) (0.04) (0.04) (0.04) (0.04)
RRP(3) (0.04) (0.04) (0.04) (0.04)
-------- ------ ------ ------
Pro forma $ 0.26 $ 0.25 $ 0.23 $ 0.23
-------- ------ ------ ------
-------- ------ ------ ------
Pro forma price to earnings
(P/E ratio)(4)(5) 28.85x 30.00x 32.61x 32.61x
-------- ------ ------ ------
-------- ------ ------ ------
Number of shares used in net income
per share calculations(4) 2,046,460 2,407,600 2,768,740 3,184,051
--------- --------- --------- ---------
--------- --------- --------- ---------
Stockholders' equity:
Historical $24,500 $24,500 $24,500 $24,500
Estimated net Conversion proceeds 21,372 25,218 29,075 33,560
Less: Common Stock acquired
by the ESOP(2) (1,768) (2,080) (2,392) (2,751)
Common Stock to be acquired
by the RRP(3) (884) (1,040) (1,196) (1,375)
-------- ------ ------ ------
Pro forma stockholders' equity(6)(7) $ 43,220 $46,598 $49,987 $53,934
-------- ------ ------ ------
-------- ------ ------ ------
Stockholders' equity per share(8):
Historical $ 11.09 $ 9.42 $ 8.19 $ 7.13
Estimated net Conversion proceeds 9.67 9.70 9.72 9.76
Less: Common Stock acquired
by the ESOP(2) (0.80) (0.80) (0.80) (0.80)
Common Stock to be acquired
by the RRP(3) (0.40) (0.40) (0.40) (0.40)
-------- ------ ------ ------
Pro forma stockholders' equity
per share(3)(6)(7) $ 19.56 $17.92 $16.71 $15.69
-------- ------ ------ ------
-------- ------ ------ ------
Pro forma price to book ratio(5)(8) 51.12% 55.80% 59.81% 63.73%
-------- ------ ------ ------
-------- ------ ------ ------
Number of shares used in book value
per share calculations(8) 2,210,000 2,600,000 2,990,000 3,438,500
--------- --------- --------- ---------
--------- --------- --------- ---------
(FOOTNOTES ON FOLLOWING PAGE)
36
____________________
(1) Estimated adjusted net proceeds consist of the estimated net Conversion
proceeds, minus (i) the proceeds attributable to the purchase by the
ESOP and (ii) the value of the shares to be purchased by the Recognition
Plan after the Conversion, subject to stockholder approval, at an
assumed purchase price of $10.00 per share.
(2) It is assumed that 8% of the shares of Common Stock issued in the
Conversion will be purchased by the ESOP. For purposes of this table,
the funds used to acquire such shares are assumed to have been borrowed
by the ESOP from the Company. The Association intends to make quarterly
contributions to the ESOP over a ten-year period in an amount at least
equal to the principal and interest requirement of the debt. The pro
forma net income assumes (i) that the ESOP expense for the period is
equivalent to the principal payment for the period and was made at the
end of the period; (ii) that 13,260, 15,600, 17,940 and 20,631 shares
were committed to be released with respect to the nine months ended
September 30, 1996 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively; (iii) in
accordance with SOP 93-6 entitled "Employers' Accounting for Employee
Stock Ownership Plans," only the ESOP shares committed to be released
during the period were considered outstanding for purposes of the net
income per share calculations; and (iv) the effective tax rate was 34%
for the period. See "Risk Factors - Potential Increased Compensation
Expense Relating to the ESOP," "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Accounting
Pronouncements" and "Management of the Company - Benefits - Employee
Stock Ownership Plan."
(3) The adjustment is based upon the assumed purchases by the Recognition
Plan of 88,400, 104,000, 119,600 and 137,540 shares at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, assuming that: (i) stockholder approval of the Recognition Plan
has been received; (ii) the shares were acquired by the Recognition Plan
at the beginning of the period presented in open market purchases at the
Purchase Price; (iii) the amortized expense for the nine-months ended
September 30, 1996 was 15% of the amount contributed; and (iv) the effective
tax rate applicable to such employee compensation expense was 34%. If the
Recognition Plan purchases authorized but unissued shares instead of
making open market purchases, then (i) the voting interests of existing
stockholders would be diluted by approximately 3.8%, and (ii) the pro
forma net income per share for the nine months ended September 30, 1996
would be $0.26, $0.25, $0.24 and $0.23, and pro forma stockholders' equity
per share at September 30, 1996 would be $19.19, $17.62, $16.46 and
$15.47, in each case at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. See "Management
of the Company - Benefits - Recognition Plan."
37
(4) Net income per share computations are determined by taking the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, subtracting the ESOP shares which have not been committed for
release during the respective period. See Note 2 above. If SOP 93-6
was not required to be implemented with respect to the nine months ended
September 30, 1996, the pro forma P/E ratio would be 31.09x, 32.99x,
34.49x and 35.97x at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(5) Annualized.
(6) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan, which is expected to be adopted
by the Company following the Conversion and presented to stockholders
for approval at a meeting of stockholders to be held at least six months
following completion of the Conversion. If the Stock Option Plan is
approved by stockholders, an amount equal to 10% of the Common Stock
issued in the Conversion, or 221,000, 260,000, 299,000 and 343,850
shares at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock
Option Plan. The issuance of authorized but previously unissued shares
of Common Stock pursuant to the exercise of options under such plan
would dilute existing stockholders' interests. Assuming stockholder
approval of the plan, that all the options were exercised at the end of
the period at an exercise price of $10.00 per share, and that the
Recognition Plan purchases shares in the open market at the Purchase
Price, pro forma net income per share for the nine months ended
September 30, 1996 would be $0.24, $0.22, $0.21 and $0.20, and pro forma
stockholders' equity per share at September 30, 1996 would be $18.69,
$17.20, $16.11, and $15.17, in each case at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively.
(7) The retained earnings of Guaranty Savings will be substantially
restricted after the Conversion. See "Dividend Policy" and "The
Conversion - Liquidation Rights."
(8) Based on the number of shares sold in the Conversion.
(9) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions prior to
completion of the Conversion or to fill the order of the ESOP.
38
At or For the Year Ended December 31, 1995
--------------------------------------------------------------------
2,210,000 2,600,000 2,990,000 3,438,500
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)(8)
------------ ------------ ----------- --------------
(Dollars in Thousands, Except Per Share Amounts)
Gross proceeds $22,100 $26,000 $29,900 $34,385
Less offering expenses 728 782 825 825
------ ------ ------ ------
Estimated net Conversion proceeds 21,372 25,218 29,075 33,560
Less: Common Stock acquired by
the ESOP 1,768 2,080 2,392 2,751
Common Stock to be acquired
by the RRP 884 1,040 1,196 1,375
------ ------ ------ ------
Estimated adjusted net proceeds(1) $18,720 $22,098 $25,487 $29,434
------ ------ ------ ------
------ ------ ------ ------
Net income:
Historical $ 872 $ 872 $ 872 $ 872
Pro forma adjustments:
Income on adjusted net proceeds(1) 635 750 865 999
State share tax/franchise tax (187) (194) (202) (210)
ESOP(2) (117) (137) (158) (182)
RRP(3) (117) (137) (158) (182)
------ ------ ------ ------
Pro forma $ 1,086 $1,154 $1,219 $1,297
------ ------ ------ ------
------ ------ ------ ------
Net income per share(4):
Historical $ 0.43 $ 0.36 $ 0.32 $ 0.27
Pro forma adjustments:
Income on adjusted net proceeds(1) 0.31 0.31 0.31 0.31
State share tax/franchise tax (0.09) (0.08) (0.07) (0.07)
ESOP(2) (0.06) (0.06) (0.06) (0.06)
RRP(3) (0.06) (0.06) (0.06) (0.06)
------ ------ ------ ------
Pro forma $ 0.53 $ 0.47 $ 0.43 $ 0.39
------ ------ ------ ------
------ ------ ------ ------
Pro forma price to earnings
(P/E ratio)(4) 18.87x 21.28x 23.26x 25.64x
------ ------ ------ ------
------ ------ ------ ------
Number of shares used in net
income per share calculations(4)
Stockholders' equity: 2,050,880 2,412,800 2,744,720 3,190,928
--------- --------- --------- ---------
--------- --------- --------- ---------
Historical $23,946 $23,946 $23,946 $23,946
Estimated net Conversion proceeds 21,372 25,218 29,075 33,560
Less: Common Stock acquired
by the ESOP(2) (1,768) (2,080) (2,392) (2,751)
Common Stock to be acquired
by the RRP(3) (884) (1,040) (1,196) (1,375)
------ ------ ------ ------
Pro forma stockholders'
equity(5)(6) $42,666 $46,044 $49,433 $53,380
------ ------ ------ ------
------ ------ ------ ------
Stockholders' equity per share(7):
Historical $ 10.84 $ 9.21 $ 8.01 $ 6.96
Estimated net Conversion proceeds 9.67 9.70 9.72 9.76
Less: Common Stock acquired
by the ESOP(2) (0.80) (0.80) (0.80) (0.80)
Common Stock to be acquired
by the RRP(3) (0.40) (0.40) (0.40) (0.40)
------ ------ ------ ------
Pro forma stockholders' equity
per share(3)(5)(6) $ 19.31 $ 17.71 $ 16.53 $ 15.52
------ ------ ------ ------
------ ------ ------ ------
Pro forma price to book ratio(7) 57.79% 56.47% 60.50% 64.43%
------ ------ ------ ------
------ ------ ------ ------
Number of shares used in book value
per share calculations(7) 2,210,000 2,600,000 2,990,000 3,438,500
--------- --------- --------- ---------
--------- --------- --------- ---------
(FOOTNOTES ON FOLLOWING PAGE)
39
____________________
(1) Estimated adjusted net proceeds consist of the estimated net Conversion
proceeds, minus (i) the proceeds attributable to the purchase by the
ESOP and (ii) the value of the shares to be purchased by the Recognition
Plan after the Conversion, subject to stockholder approval, at an
assumed purchase price of $10.00 per share.
(2) It is assumed that 8% of the shares of Common Stock issued in the
Conversion will be purchased by the ESOP. For purposes of this table,
the funds used to acquire such shares are assumed to have been borrowed
by the ESOP from the Company. The Homestead intends to make quarterly
contributions to the ESOP over a ten-year period in an amount at least
equal to the principal and interest requirement of the debt. The pro
forma net income assumes (i) that the ESOP expense for the period is
equivalent to the principal payment for the period and was made at the
end of the period; (ii) that 17,680, 20,800, 23,920 and 27,508 shares
were committed to be released with respect to the year ended December
31, 1995 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively; (iii) in accordance with
SOP 93-6 entitled "Employers' Accounting for Employee Stock Ownership
Plans," only the ESOP shares committed to be released during the period
were considered outstanding for purposes of the net income per share
calculations; and (iv) the effective tax rate was 34% for the period.
See "Risk Factors - Potential Increased Compensation Expense Relating to
the ESOP," "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Recent Accounting Pronouncements" and
"Management of the Company - Benefits - Employee Stock Ownership Plan."
(3) The adjustment is based upon the assumed purchases by the Recognition
Plan of 88,400, 104,000, 119,600 and 137,540 shares at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, assuming that: (i) stockholder approval of the Recognition Plan
has been received; (ii) the shares were acquired by the Recognition Plan
at the beginning of the period presented in open market purchases at the
Purchase Price; (iii) the amortized expense for the year ended December
31, 1995 was 20% of the amount contributed; and (iv) the effective tax
rate applicable to such employee compensation expense was 34%. If the
Recognition Plan purchases authorized but unissued shares instead of
making open market purchases, then (i) the voting interests of existing
stockholders would be diluted by approximately 3.8%, and (ii) the pro
forma net income per share for the year ended December 31, 1995 would be
$0.52, $0.47, $0.44 and $0.40, and pro forma stockholders' equity per share
at December 31, 1995 would be $18.95, $17.41, $16.28 and $15.31, in each
case at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively. See "Management of the Company
- Benefits - Recognition Plan."
40
(4) Net income per share computations are determined by taking the number of
shares assumed to be sold in the Conversion and, in accordance with SOP
93-6, subtracting the ESOP shares which have not been committed for
release during the respective period. See Note 2 above. If SOP 93-6
was not required to be implemented with respect to the year ended
December 31, 1995, the pro forma P/E ratio would be 20.35x, 22.53x,
24.53x and 26.51x at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(5) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan, which is expected to be adopted
by the Company following the Conversion and presented to stockholders
for approval at a meeting of stockholders to be held at least six months
following completion of the Conversion. If the Stock Option Plan is
approved by stockholders, an amount equal to 10% of the Common Stock
issued in the Conversion, or 221,000, 260,000, 299,000 and 343,850
shares at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock
Option Plan. The issuance of authorized but previously unissued shares
of Common Stock pursuant to the exercise of options under such plan
would dilute existing stockholders' interests. Assuming stockholder
approval of the plan, that all the options were exercised at the end of
the period at an exercise price of $10.00 per share, and that the
Recognition Plan purchases shares in the open market at the Purchase
Price, pro forma net income per share for the year ended December 31,
1995 would be $0.48, $0.43, $0.40 and $0.37, and pro forma stockholders'
equity per share at December 31, 1995 would be $18.46, $17.01, $15.94,
and $15.02, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range, respectively.
(6) The retained earnings of Guaranty Savings will be substantially
restricted after the Conversion. See "Dividend Policy" and "The
Conversion - Liquidation Rights."
(7) Based on the number of shares sold in the Conversion.
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions prior to
completion of the Conversion or to fill the order of the ESOP.
41
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
STATEMENTS OF INCOME
The following Statements of Income of Guaranty Savings for each of the
years ended December 31, 1995 and 1994 have been audited by LaPorte, Sehrt,
Romig & Hand, independent certified public accountants, whose report thereon
appears elsewhere herein. The Statements of Income for the nine months ended
September 30, 1996 and 1995 have not been audited by independent certified
public accountants, but, in the opinion of management, reflect all
adjustments necessary for a fair presentation of the results of operations
for those periods. All adjustments consist of normal recurring accruals.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1996.
For the Nine Months Ended
September 30, Year Ended December 31,
--------------------------- ---------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(Unaudited)
Interest Income:
Loans receivable $2,770,844 $2,793,280 $3,702,893 $3,730,490
Investment securities 1,311,128 1,536,345 2,027,959 1,825,773
Mortgage-backed securities 327,103 287,839 379,700 389,268
Dividends on FHLB stock 30,873 31,786 42,776 29,647
Other interest income 119,897 75,052 106,767 59,557
--------- --------- --------- ---------
Total interest income 4,559,845 4,724,302 6,260,095 6,034,735
--------- --------- --------- ---------
Interest Expense:
Deposits 1,962,507 2,006,688 2,663,904 2,407,008
FHLB advances -- -- -- 1,336
--------- --------- --------- ---------
Total interest expense 1,962,507 2,006,688 2,663,904 2,408,344
--------- --------- --------- ---------
Net interest income before
provision for loan losses 2,597,338 2,717,614 3,596,191 3,626,391
Provision for loan losses 14,027 -- 12,107 20,785
--------- --------- --------- ---------
Net interest income after
provision for loan losses 2,583,311 2,717,614 3,584,084 3,605,606
--------- --------- --------- ---------
Non-Interest Income (Loss):
Late charges 29,170 28,557 38,334 44,395
Loan prepayment charges -- -- -- 36,922
(Loss) on disposal of fixed assets -- (6,168) (6,168) --
(Loss) on sale of loans (363) -- -- (10,168)
Loss on sale of investments (100,464) -- -- --
Gain on sale of foreclosed
real estate 7,325 11,006 11,181 10,065
Other income 29,072 12,776 19,393 27,373
--------- --------- --------- ---------
Total non-interest income (35,260) 46,171 62,740 108,587
--------- --------- --------- ---------
Non-Interest Expenses:
Compensation and employee benefits 945,399 917,344 1,556,906 1,439,178
Advertising 27,594 29,850 36,812 12,862
Office supplies, telephone and postage 62,993 58,501 79,423 85,820
Net occupancy expense 176,947 166,600 212,342 252,168
SAIF recapitalization premium 413,324 -- -- --
Federal insurance premiums 105,394 111,177 147,435 154,372
Data processing expense 50,750 48,607 68,873 57,961
Provision for losses on
foreclosed real estate -- -- -- 7,371
Real estate owned expense - net 3,934 500 85 (3,218)
Other 152,087 133,037 192,760 183,990
--------- --------- --------- ---------
Total non-interest expense 1,938,422 1,465,616 2,294,636 2,190,504
--------- --------- --------- ---------
Income before federal income
tax expense 609,629 1,298,169 1,352,188 1,523,689
Federal income tax expense 244,847 439,958 479,841 529,404
--------- --------- --------- ---------
Net income $ 364,782 $ 858,211 $ 872,347 $ 994,285
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of the Financial Statements.
42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Guaranty Savings is engaged in attracting deposits from the general
public and using those and other available sources of funds to originate
permanent loans for its portfolio secured by one-to four-family residences
located primarily in the New Orleans metropolitan area, which includes the
parishes of Orleans, Jefferson, and St. Tammany. To a much lesser extent,
the Association also originates consumer and other loans (primarily home
equity loans), residential construction loans and, occasionally, loans which
are secured by existing multi-family residential and nonresidential real
estate, as well as invests in interest-bearing deposits in other financial
institutions, U.S. Government and federal agency obligations and
mortgage-backed securities.
The Association's strategy is to operate as a conservative,
well-capitalized, profitable institution dedicated to financing home
ownership and other consumer needs and to provide quality service to all
customers. The Association believes that it has successfully implemented its
strategy by (i) maintaining very strong capital levels, (ii) achieving
profitability under various economic scenarios, (iii) restricting its lending
to local borrowers and emphasizing the origination of fixed-rate,
single-family mortgage loans, and (iv) emphasizing high-quality customer
service with a competitive fee structure.
The profitability of the Association depends primarily on its net
interest income, which is the difference between interest and dividend income
on interest-earning assets, principally loans, investment securities and
mortgage-backed securities and interest expense on savings deposits. The
Association's net income is also affected by the level of its non-interest
income, including prepayment and late charges and other fees, and its
non-interest expense, such as employee compensation and benefits, occupancy
and equipment expense, deposit insurance premiums and miscellaneous other
expenses, as well as federal income tax expense.
In general, financial institutions are vulnerable to an increase in
interest rates to the extent that interest-bearing liabilities mature or
reprice more rapidly than interest-earning assets. The lending activities of
financial institutions, including the Association, have historically
emphasized the origination of long-term, fixed-rate loans secured by
single-family residences, and the primary source of funds of such
institutions has been deposits, which largely mature or are subject to
repricing within a short period of time. This factor, in combination with
substantial investments in long-term, fixed-rate loans, has historically
caused the income earned by the Association on its loan portfolio to adjust
more slowly to changes in interest rates than its cost of funds. While
having liabilities that reprice more frequently than assets is generally
beneficial to net interest income in times of declining interest rates, such
an asset/liability mismatch is generally detrimental during periods of rising
interest rates. To reduce the effect of adverse changes in interest rates on
its operations, the Association has implemented the asset and liability
management policies described below.
43
ASSET AND LIABILITY MANAGEMENT
Consistent net interest income is largely dependent upon the achievement
of a positive interest rate spread that can be sustained during periods of
fluctuating market interest rates. Interest rate sensitivity is a measure of
the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "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 repricing or
maturing within a specified period exceeds the amount of interest-rate
sensitive liabilities repricing or maturing within such period, and is
considered negative when the amount of interest-rate sensitive liabilities
repricing or maturing within a specified period exceeds the amount of
interest-rate sensitive assets repricing or maturing within such period.
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, and during a period of falling interest rates, a negative
gap within shorter maturities would result in an increase in net interest
income while a positive gap within shorter maturities would have the opposite
effect. However, the effects of a positive or negative gap are impacted, to
a large extent, by consumer demand and by discretionary pricing by the
Association's management. In the nine months ended September 30, 1996 and
the years ended December 31, 1995, 1994 and 1993, the Association has
experienced net decreases in deposits. In order to address such net
reductions in deposits, in June 1996, the Association increased the rate paid
on its passbook accounts and, since taking such action, the amount of the
Assocation's deposits has increased slightly.
At September 30, 1996, the Association's one-year gap was a negative
16.5% of total assets, based upon certain repricing assumptions. At
September 30, 1996 the Association's interest-earning assets which are
scheduled to mature or reprice within one year totalled $19.8 million while
the Association's interest-bearing liabilities maturing or repricing within
one year totalled $34.0 million, resulting in a cumulative excess of
interest-bearing liabilities over interest-earning assets of $14.2 million.
At September 30, 1996, the percentage of the Association's interest-bearing
assets to interest-bearing liabilities maturing or repricing within one year
was 62.55%. The interest rate sensitivity of Guaranty Savings' assets and
liabilities in the table set forth below is based upon certain assumptions,
including assumed rates of withdrawal of its passbook accounts, and the
interest rate sensitivity reflected below could vary substantially if
different assumptions are used or if actual experience differs from the
assumptions used. Certain shortcomings are inherent in the repricing
assumptions table used to calculate the Association's gap, as shown in the
table below, as well as the method of calculating the effect of changes in
interest rates on the Association's net portfolio value, as discussed further
below. Although certain assets and liabilities may have similar maturities
or periods within which they will reprice, they may react differently to
changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates.
44
The Association attempts to manage its interest rate risk by maintaining
its highly capitalized position and by retaining a significant investment in
liquid assets, such as investment securities available for sale,
mortgage-backed securities and cash and cash equivalents. While the
Association's operations have been profitable on a consistent basis in recent
periods, an increase in market rates of interest likely would have an adverse
impact on the Association's net interest income and net income. However,
management of the Association believes that by maintaining its high levels of
capital and liquidity, the Association believes it may be in a better
position to withstand changes in interest rates without any material adverse
effect upon its financial condition. In addition, management of the
Association believes that Guaranty Savings' interest rate spread and net
interest margin, which amounted to 3.11% and 4.26%, respectively, at
September 30, 1996, provide the Association with a degree of protection in a
rising interest rate environment. As of September 30, 1996, the
Association's investment securities, all of which were classified as
available-for-sale, amounted to $23.1 million, or 26.7% of total assets, and
its cash and cash equivalents amounted to $8.7 million, or 10.1% of total
assets. At such date, the Association's ratio of equity to assets was 28.3%
and its core capital exceeded minimum regulatory requirements by $21.2
million.
45
The following table presents the difference between Guaranty Savings
interest-earning assets and interest-bearing liabilities within specified
maturities at September 30, 1996. This table does not necessarily indicate
the impact of general interest rate movements on Guaranty Savings' net
interest income, because the repricing of certain assets and liabilities is
subject to competitive and other limitations. As a result, certain assets
and liabilities indicated as maturing or otherwise repricing within a stated
period may in fact mature or reprice at different times and at different
volumes.
September 30, 1996
---------------------------------------------------------------------------------------
Over Three Over One Over Three Over Five
Within Through Through Through Through Over Ten
Three Months 12 Months Three Years Five Years Ten Years Years Total
-------------- ---------- ----------- ---------- ----------- --------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable(1):
One-to four-family residential $ 15 $ 116 $ 493 $ 1,637 $ 8,320 $31,628 $42,209
Construction -- -- -- -- -- 412 412
Commercial real -- 2 21 -- 295 124 442
Consumer 173 -- -- -- -- -- 173
Other -- 5 9 2 94 44 154
Mortgage-backed securities: -- -- -- -- -- -- --
Adjustable-rate -- -- -- -- -- -- --
Fixed-rate -- 107 2,929 931 995 2,337 7,299
Investment securities 5,488 4,834 4,589 6,104 2,053 -- 23,068
FHLB stock 718 -- -- -- -- -- 718
Other interest-earning assets 8,303 -- -- -- -- -- 8,303
------ ------- ------- ------ ------ ------ ------
Total interest-earning assets 14,697 5,064 8,041 8,674 11,757 34,545 82,778
------ ------- ------- ------ ------ ------ ------
Interest-bearing liabilities:
Passbook accounts (2) 2,401 2,401 4,802 4,802 4,802 4,802 24,010
Certificates of deposit (3) 9,035 20,158 7,056 236 -- -- 36,485
------ ------- ------- ------ ------ ------ ------
Total interest-bearing liabilities 11,436 22,559 11,858 5.038 4.802 4,802 60,495
------ ------- ------- ------ ------ ------ ------
Interest rate sensitivity gap $ 3,261 $(17,495) $ (3,817) $ 3,636 $ 6,955 $29,743 $22,283
------ ------- ------- ------ ------ ------ ------
------ ------- ------- ------ ------ ------ ------
Cumulative interest rate
sensitivity gap $ 3,261 $ (14,234) $(15,051) $(14,415) $ (7,460) $22,283
------ ------- ------- ------ ------ ------
------ ------- ------- ------ ------ ------
Percentage of cumulative gap
to total assets 3.77% (16.45)% (20.86)% (16.66)% (8.62)% 25.68%
------ ------- ------- ------ ------ ------
------ ------- ------- ------ ------ ------
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 128.52% 58.13% 60.63% 71.67% 86.61% 136.83%
------ ------- ------- ------ ------ ------
------ ------- ------- ------ ------ ------
(FOOTNOTES ARE ON FOLLOWING PAGE)
46
- -----------------------
(1) Loans receivable are gross of loans in process, deferred fees, unearned
discounts, and allowance for loan losses.
(2) Guaranty Savings' passbook accounts are generally subject to immediate
withdrawal. However, management considers a significant portion of
these deposits to be core deposits having significantly longer effective
maturities based on Guaranty Savings' retention of such deposits in
changing interest rate environments. For purposes of the above table,
10% of its passbook accounts are assumed to be withdrawn within the
first three months, 10% of such passbook accounts are assumed to be
withdrawn in the period over three months through 12 months, and 20% of
such passbook accounts are assumed to be withdrawn in over one through
three years, over three through five years and over five through ten
year periods.
(3) It is assumed that certificates of deposit will not be withdrawn prior
to maturity.
Management presently monitors and evaluates the potential impact of
interest rate changes upon the market value of Guaranty Savings' portfolio
equity on a quarterly basis, in an attempt to ensure that interest rate risk
is maintained within limits established by the Board of Directors. As
discussed under "Regulation - The Association - Regulatory Capital
Requirements," the OTS adopted a final rule in August 1993 incorporating an
interest rate risk component into the risk-based capital rules. Under the
rule, an institution with a greater than "normal" level of interest rate risk
will be subject to a deduction of its interest rate risk component from total
capital for purposes of calculating the risk-based capital requirement. An
institution with a greater than "normal" interest rate risk is defined as an
institution that would suffer a loss of net portfolio value ("NPV") exceeding
2.0% of the estimated market value of its assets in the event of a 200 basis
point increase or decrease in interest rates. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and
off-balance sheet contracts. A resulting change in NPV of more than 2% of
the estimated market value of an institution's assets will require the
institution to deduct from its risk-based capital 50% of that excess change.
The rule provides that the OTS will calculate the interest rate risk
component quarterly for each institution. The OTS has recently indicated
that no institution will be required to deduct capital for interest rate risk
until further notice. See "Regulation - The Association - Regulatory Capital
Requirements." If the regulation had been effective as of September 30,
1996, the Association would have been subject to a capital deduction of $1.2
million. However, even if such deduction from capital was to be required,
the Association's risk-based capital would amount to $22.8 million, which
would still be well in excess of the minimum regulatory requirement of $2.4
million. The following table presents the Association's NPV as of September
30, 1996, as calculated by the OTS, based on information provided to the OTS
by the Association.
47
Change in Change in
Interest Rates Net Portfolio Value NPV as % of NPV as % of
in Basis Points ----------------------- Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change % Change of Assets of Assets(1)
- --------------- ------ -------- --------- --------------- ---------------
(Dollars in Thousands)
400 $21,221 $(6,063) (22.22)% 25.84% (4.79)%
300 22,758 (4,526) (16.59) 27.13 (3.50)
200 24,332 (2,952) (10.82) 28.40 (2.23)
100 25,887 (1,398) (5.12) 29.60 (1.03)
Static 27,284 -- -- 30.63 --
(100) 28,347 1,062 3.89 31.37 0.74
(200) 29,049 1,765 6.47 31.81 1.18
(300) 29,960 2,676 9.81 32.39 1.76
(400) 30,987 3,703 13.57 33.04 2.41
- -------------------
(1) Based on the portfolio value of the Association's assets assuming no
change in interest rates.
As shown by the table above, increases in interest rates will result in
declines in the Association's net portfolio value, while decreases in
interest rates will result in increases in the Association's net portfolio
value. See "Risk Factors - Potential Effects of Changes in Interest Rates
and the Current Interest Rate Environment."
CHANGES IN FINANCIAL CONDITION--SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
GENERAL. The Association had total assets of $86.5 million at September
30, 1996, an increase of $481,000, or 0.6%, from December 31, 1995. The
increase in assets primarily reflected increases in net loans receivable and
in cash and cash equivalents.
During the nine months ended September 30, 1996, the Association
re-examined its investment securities portfolio and determined to sell a
certain portion of its lower yielding investment securities. Management of
the Association was of the view that the anticipated loss on such sale would
be recouped in a relatively short period of time through the reinvestment of
the sales proceeds in higher yielding assets. In September 1996, the
Association sold $7.0 million of investment securities with a weighted
average yield of 5.21% at a loss of $100,000. As a result of management's
action, the Association's entire investment securities portfolio was
classified as available for sale.
CASH AND INTEREST BEARING DEPOSITS. Liquid assets (i.e., cash,
interest-bearing deposits in other banks and federal funds sold) increased by
$6.3 million during the three months ended September 30, 1996. The increase
in cash and cash equivalents was due to a $4.8 million increase in federal
funds sold together with a $2.1 million increase in deposits in other banks.
Such increase in cash and cash equivalents was due primarily to the cash
48
proceeds from the sale of investment securities in September 1996, which
proceeds had not been fully reinvested as of September 30, 1996. At
September 30, 1996, the Association's regulatory liquidity amounted to 56.9%,
which exceeded the minimum OTS requirement of 5% by $31.5 million. See "-
Liquidity and Capital Resources."
NET LOANS RECEIVABLE. Net loans receivable increased by $3.2 million,
or 8.0%, to a total of $43.1 million at September 30, 1996, as compared to
$39.9 million at December 31, 1995. Loan originations of $7.5 million during
the nine-month period were partially offset by principal repayments of $4.3
million. The Association increased its originations of new loans to $7.5
million during the nine months ended September 30, 1996 compared to new loan
originations of $6.6 million and $6.6 million in 1995 and 1994, respectively.
The increase in net loans receivable also was due to a slowing of loan
principal repayments to $4.3 million during the nine months ended September
30, 1996 compared to $6.7 million and $7.2 million, respectively, in 1995 and
1996.
ALLOWANCE FOR LOAN LOSSES. As of September 30, 1996, the Association's
allowance for loan losses amounted to $337,000, which represented a $14,000
increase over the level maintained at December 31, 1995. The small increase
in the allowance was primarily related to the amount of growth in the loan
portfolio. As of September 30, 1996, the Association's allowance for loan
losses consisted primarily of a general loan loss allowance (which is
includible as a component of regulatory risked-based capital). As of such
date, the Association's allowance for loan losses amounted to .73% of total
loans and 106.7% of total non-performing loans. Management will continue to
monitor its allowance for loan losses and make additions to the allowance
through the provision for loan losses as economic conditions dictate.
Although the Association maintains its allowance for loan losses at a level
which it considers to be adequate to provide for loan losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in the future.
See Note D of Notes to Financial Statements and "Business - Asset Quality."
INVESTMENT SECURITIES. Investment securities (including securities
classified as available for sale) decreased by $10.3 million, or 30.9%,
during the nine months ended September 30, 1996. As previously discussed,
the Association sold $7.0 million of investment securities at a loss of
$100,000 during period. At September 30, 1996, the Association had
classified all of its investment securities as available for sale and had net
unrealized gains with respect to such investment securities of $678,000. See
Note B of the Notes to Financial Statements.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities increased by
$932,000, or 14.6%, during the nine months ended September 30, 1996. This
increase was due to purchases of $2.4 million of mortgage-backed securities
which were partially offset by principal repayments of $1.5 million. As of
September 30, 1996, all of the Association's mortgage-backed securities were
classified as held to maturity.
49
All of the Association's mortgage-backed securities are either issued or
guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC") or the
Federal National Mortgage Association ("FNMA"). Mortgage-backed securities
increase the quality of the Association's assets by virtue of the guarantees
that support them, require fewer personnel and overhead costs than individual
residential mortgage loans, are more liquid than individual mortgage loans
and may be used to collateralize borrowings. However, mortgage-backed
securities typically yield less than individual residential mortgage loans.
DEPOSITS. Deposits totalled $60.5 million at September 30, 1996, a
decrease of $450,000 or 0.7% over the $60.9 million of deposits outstanding
at December 31, 1995. Deposits subject to daily repricing (passbook
accounts) decreased by $110,000, or 0.5%, from December 31, 1995 to September
30, 1996. Management attributes such decrease primarily to customers
withdrawing deposits in order to take advantage of higher rates being paid on
deposits by competing institutions. In an effort to stabilize its deposit
outflows, in June 1996, the Association increased the rate paid on its
passbook accounts from 2.75% to 4.00%. The amount of the Association's
deposits increased slightly from June 1996 to September 30, 1996, which
increase management attributes primarily to the increase in the rate paid on
passbook accounts.
EQUITY CAPITAL. Equity Capital increased by $554,000, or 2.3%, from
December 31, 1995 to September 30, 1996. This increase was due to net income
of $365,000 and an increase of $189,000 in unrealized gain on available for
sale securities (net of taxes).
CHANGES IN FINANCIAL CONDITION--DECEMBER, 1995 AND DECEMBER 31, 1994
GENERAL. The Association had total assets of $86.0 million at December
31, 1995, a decrease of approximately $2.2 million, or 2.5%, from December
31, 1994. The decrease in assets was primarily due to decreases in
investment securities and net loans.
CASH AND CASH EQUIVALENTS. Liquid assets (i.e., cash, interest-bearing
deposits in other institutions and federal funds sold) decreased by $265,000,
or 10.1%, during 1995. Cash and cash equivalents amounted to $2.4 million at
December 31, 1995 compared to $2.6 million at December 31, 1996.
NET LOANS RECEIVABLE. The Association's net loans receivable amounted
to $39.9 million at December 31, 1995 compared to $40.0 million at December
31, 1994. During 1995, new loan originations of $6.6 million were more than
offset by loan principal repayments of $6.7 million.
ALLOWANCE FOR LOAN LOSSES. At December 31, 1995, the Association's
allowance for loan losses amounted to $323,000 compared to $345,000 at
December 31, 1994. During 1995, the Association's provision for loan losses
was $12,000 and its net charge-offs to the allowance for loan losses was
$34,000. At December 31, 1995 the allowance for loan losses amounted to
0.80% of total loans and 156.8% of non-performing loans.
50
INVESTMENT SECURITIES. The Association's total investment securities
decreased by $2.1 million, or 0.6%, to $33.4 million at December 31, 1995
compared to $35.5 million at December 31, 1994.
MORTGAGE-BACKED SECURITIES. The Association's mortgage-backed
securities increased by $304,000, or 5.0%, to $6.4 million at December 31,
1995 compared to $6.1 million at December 31,1994. During 1995, the
Association purchased $855,000 of mortgage-backed securities, which purchases
were partially offset by $552,000 in repayments.
DEPOSITS. Deposits at Guaranty Savings amounted to $60.9 million at
December 31, 1995 compared to $64.6 million at December 31, 1994. During
1995, deposits decreased by $5.7 million before the effect of $2.0 million of
interest credited to depositors' accounts.
EQUITY CAPITAL. The Association's equity capital amounted to $23.9
million at December 31, 1995, an increase of $1.1 million, or 4.8%, from the
$22.8 million of equity capital at December 31, 1994. Equity capital
increased during 1995 as the result of $872,000 of net income and a $235,000
increase in the unrealized gain on securities available for sale.
RESULTS OF OPERATIONS
GENERAL. The Association's net income amounted to $365,000 during the
nine months ended September 30, 1996 compared to $858,000 during the same
period in 1995. The primary reasons for the $493,000 or 57.5%, decrease in
net income during the 1996 period was a $413,000 (pre-tax) one-time SAIF
special assessment recorded in the third quarter of 1996 together with a
$100,000 (pre-tax) loss recognized on the sale of investment securities. Net
income for the year ended December 31, 1995 was $872,000 compared to $994,000
for the year ended December 31, 1994. The primary reasons for the $122,000
or 12.3% decrease in net income in 1995 compared to 1994 were a $104,000
increase in non-interest expense, a $30,000 decrease in net interest income
and a $46,000 decrease in non-interest income.
On October 16, 1996, the FDIC proposed to lower assessment rates for SAIF
members to reduce the disparity in the assessment rates paid by BIF and SAIF
members. Beginning October 1, 1996, effective SAIF members will pay an
assessment equal to 6.4 basis points on their deposits. The Association's
insurance premiums, which have amounted to 23 basis points will be reduced to
6.4 basis points. Based upon the $60.6 million of assessable deposits at
September 30, 1996, the Association would expect to pay $100,000 less as
insurance premiums per quarter during 1997.
51
AVERAGE BALANCES, NET INTEREST INCOME, AND YIELDS EARNED AND RATES PAID.
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest
margin. Tax-exempt income and yields have not been adjusted to a
tax-equivalent basis. All average balances are based on monthly balances.
Nine Months Ended September 30,
---------------------------------------------------------
1996(1) 1995
--------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate(2) Balance Interest Rate(2)
--------- -------- ------- -------- -------- --------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable(3) $41,031 $2,771 9.00% $40,114 $2,793 9.28%
Investment securities(4) 28,308 1,311 6.17 34,707 1,536 5.90
Mortgage-backed securities 7,311 327 5.96 6,313 288 6.08
Other interest-earning
assets 4,705 151 4.28 2,417 107 5.90
------- ------ ------- ------
Total interest-earning
assets 81,355 4,560 7.47 83,551 4,724 7.54
------ -------
Noninterest-earning assets 4,380 3,972
------- -------
Total assets $85,735 $87,523
------- -------
------- -------
Interest-bearing liabilities:
Passbook accounts $23,371 584 3.33 $25,275 680 3.59
Certificates of deposit 36,622 1,379 5.02 37,581 1,327 4.71
------- ------ ------- ------
Total interest-bearing
liabilities 59,993 1,963 4.36 62,856 2,007 4.26
Noninterest-bearing
liabilities(5) 1,309 1,244
------- -------
Total liabilities 61,302 64,100
Retained earnings 24,433 23,423
------- -------
Total liabilities and
retained earnings $85,735 $87,523
------- -------
------- -------
Net interest-earning assets $21,362 $20,695
------- -------
------- -------
Net interest income;
average interest
rate spread $2,597 3.11% $2,717 3.28%
-------- ------ -------- -------
-------- ------ -------- -------
Net interest margin(6) 4.26% 4.34%
------ ------
------ ------
Average interest-earning
assets to average
interest-bearing liabilities 135.61% 132.92%
------- -------
------- -------
Year Ended December 31,
-------------------------------------------------------
1995 1994
--------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- -------- -------- -------- -------- --------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable(3) $40,196 $3,703 9.21% $40,298 $3,730 9.26%
Investment securities(4) 34,227 2,028 5.93 37,983 1,826 4.81
Mortgage-backed securities 6,267 380 6.06 6,447 389 6.03
Other interest-earning
assets 2,561 149 5.82 1,897 90 4.74
-------- ------- ------- ------
Total interest-earning
assets 83,251 6,260 7.52 86,625 6,035 6.97
Noninterest-earning assets 4,096 ------ 3,489 ------
-------- --------
Total assets $87,347 $90,114
-------- --------
-------- --------
Interest-bearing liabilities:
Passbook accounts $25,013 880 3.52 $26,975 898 3.33
Certificates of deposit 37,397 1,784 4.77 39,462 1,510 3.83
-------- ------- ------- ------
Total interest-bearing
liabilities 62,410 2,664 4.27 66,437 2,408 3.62
------- -------
Noninterest-bearing
liabilities(5) 1,363 1,133
--------- --------
Total liabilities 63,773 67,570
Retained earnings 23,574 22,544
--------- ---------
Total liabilities and
retained earnings $87,347 $90,114
---------- ----------
---------- ----------
Net interest-earning
assets $20,841 $20,188
---------- ----------
---------- ----------
Net interest income;
average interest
rate spread $3,596 3.25% $3,626 3.35%
--------- ------ -------- -------
--------- ------ -------- -------
Net interest margin(6) 4.32% 4.19%
--------- ---------
--------- ---------
Average interest-earning
assets to average
interest-bearing liabilities 133.39% 130.39%
--------- ---------
--------- ---------
- ----------------------------
(1) At September 30, 1996, the weighted average yields earned and rates paid
were as follows: loans receivable, 8.97%; mortgage-backed securities,
5.96%; investment securities, 5.95%; total interest-earning assets,
7.45%; deposits, 4.36%; and interest rate spread, 3.09%.
(2) Annualized.
(3) Includes nonaccrual loans during the respective periods. Calculated net
of deferred fees and discounts, loans in process and allowance for loan
losses.
(4) Includes non-accruing investment securities during the respective
periods.
(5) Includes noninterest-bearing deposits.
(6) Net interest margin is net interest income divided by average
interest-earning assets.
52
RATE/VOLUME ANALYSIS. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets
and liabilities have affected Guaranty Savings' interest income and expense
during the periods indicated. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in rate (change in rate multiplied by prior year
volume), (ii) changes in volume (change in volume multiplied by prior year
rate), and (iii) total change in rate and volume. The combined effect of
changes in both rate and volume has been allocated proportionately to the
change due to rate and the change due to volume.
Nine Months Ended September 30, 1996
Compared to Nine Months Ended
September 30, 1995 1995 vs. 1994
-------------------------------------- -------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
------------------------------------- --------------------------------------
Total Total
Increase Increase
Rate Volume (Decrease) Rate Volume Decrease)
----------- ----------- ----------- -------- ---------- -------------
(In Thousands)
Interest income:
Loans receivable $(110) $ 88 $ (22) $ (19) $ (8) $(28)
Mortgage-backed securities (15) 54 39 2 (11) (9)
Investment securities 124 (349) (225) 404 (202) 202
Other interest-earning
assets (65) 109 44 24 35 60
--------- ------------ ----------- --------- ----------- --------------
Total interest income (66) (98) (164) 411 (186) 225
--------- ------------ ----------- --------- ----------- --------------
Interest expense:
Passbook accounts (47) (49) (96) 49 (67) (19)
Certificates of deposit 106 (54) 52 362 (88) 274
---------- ----------- ----------- --------- ----------- --------------
Total interest expense 59 (103) (44) 411 (155) 255
--------- ------------ ----------- --------- ----------- --------------
Increase (decrease) in net
interest income $ (125) $ 5 $ (120) $ -- $ (31) $ (30)
--------- ------------ ----------- --------- ----------- --------------
--------- ------------ ----------- --------- ----------- --------------
53
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Guaranty Savings reported $365,000 of net income for the nine
months ended September 30, 1996 compared to $858,000 for the same period in
1995. Net income decreased in the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 primarily as the result
of a $413,000 one-time SAIF special assessment during the 1996 period as well
as $100,000 loss recognized on the Association's sale of $7.0 million of
investment securities. The Association's return on average assets was 0.57%
and 1.31%, respectively, during the nine months ended September 30, 1996 and
1995, while its return on average equity was 1.99% and 4.88% during the
respective periods.
NET INTEREST INCOME. Total interest income amounted to $4.6 million
during the nine months ended September 30, 1996 compared to $4.7 million
during the same period in 1995. The primary reason for the $164,000, or
3.5%, decrease in total interest income during the first nine months of 1996
was a $225,000, or 14.6%, decrease in interest from investment securities as
the result of $6.4 million, or 18.4%, decrease in the average balance of
investment securities together with a 27 basis point (100 basis points being
equal to 1.0%) decrease in the average yield earned on investment securities.
The decrease in the average balance of investment securities was due
primarily to the sale of $7.0 million of investment securities during the
nine months ended September 30, 1996. Interest income from loans receivable
decreased by $22,000, or 0.8%, in the nine months ended September 30, 1996
compared to the same period in 1995. While the average balance of loans
receivable increased by $917,000, or 2.3%, such increase was more than offset
by a 28 basis point decline on the average yield earned on loans. Interest
income on mortgage-backed securities increased by $39,000, or 13.5%, in the
nine months ended September 30, 1996 compared to the same period in 1995 as
the result of a $998,000, or 15.8%, increase in the average balance to
mortgage-backed securities which offset a 12 basis point decline in the
average yield. Interest income on other interest-earning assets decreased by
$44,000 in the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995.
Total interest expense decreased by $44,000, or 2.2%, in the nine months
ended September 30, 1996 compared to the same period in 1995. During the
1996 period, the average balance of both the Association's passbook accounts
and its certificate of deposit accounts decreased due to deposit outflows
which management of the Association attributes primarily to customers' moving
deposits to competing depository institutions which were offering higher
rates on their deposits during the period. The average balance of the
Association's passbook accounts decreased by $1.9 million, or 7.5%, during
the nine months ended September 30, 1996 compared to the same period in 1995
and the average balance of its certificate of deposit accounts decreased by
$959,000, or 2.6%, during the same period. During the nine months ended
September 30, 1996, the average rate paid by Guaranty Savings on its passbook
accounts decreased by 26 basis points to 3.33% while the average rate paid on
its certificates of deposit increased by 31 basis points to 5.02%.
54
As the result of the foregoing changes in interest income and interest
expense, net interest income decreased by $120,000, or 4.4%, during the nine
months ended September 30, 1996 compared to the nine months ended September
30, 1995. The Association's interest rate spread decreased from 3.28% to
3.11% during the nine months ended September 30, 1996, while the net interest
margin decreased from 4.34% to 4.26% during the same period. The decrease in
the Association's interest rate spread and net interest margin resulted from
a faster increase in the rates paid by the Association on its
interest-bearing liabilities than in the yields earned on its
interest-bearing assets partially due to the Association's negative gap
position. See" - Asset and Liability Management."
PROVISION FOR LOAN LOSSES. The Association made a $14,000 provision for
loan losses during the nine months ended September 30, 1996 compared to no
provision during the nine months ended September 30, 1995.
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 methodology implemented by the Association, which is designed to
assess, among the things experience, the volume and type of lending conducted
by the Association, the amount of the Association's classified assets (see
"Business -Asset Quality") the status of past due principal and interest
payments, loan-to-value ratios of loans in the Association's loan portfolio,
general economical conditions, particularly as they relate to the
Association's market area, and other factors to the collectibility of the
Association's loan portfolio. Management of the Association assesses the
allowance for loan losses on a quarterly basis and will make provisions for
loan losses as deemed appropriate by management in order to maintain the
adequacy of the allowance for loan losses.
Although management of the Association believes that the Association's
allowance for loan losses was adequate at September 30, 1996, based on facts
and circumstances available to it, there can be no assurances that additions
to such allowance will not be necessary in future periods, which would
adversely affect the Association's results of operations. In addition,
various regulatory agencies, as an integral part of the examination process,
periodically review the Association's provision for loan losses and the
carrying value of its other non-performing assets based on their judgments
about information available to them at the time of their examination. No
assurance can be given whether any of such agencies might require that the
Association make additional provisions for loan losses in the future.
NON-INTEREST INCOME. During the nine months ended September 30, 1996,
Guaranty Savings recognized a loss of $35,000 from non-interest income
sources compared to non-interest income of $46,000 during the nine months
ended September 30, 1995. Such loss during the 1996 period primarily was the
result of the $100,000 loss on the sale of investment securities in June
1996. Such loss more than offset a $16,000 increase in other income and a
slight increase in late charges during the 1996 period. In addition, during
the nine months ended September 30, 1996, the Association's gain on the sale
of foreclosed real
55
estate was $4,000 less than in the comparable period in 1995 and the
Association also recognized a minimal loss on the sale of loans during the
nine months ended September 30, 1996.
The ability to recognize gains from the sale of loans and investments is
dependent on market and economic conditions and, accordingly, there can be no
assurance that gains can be achieved in the future or that there will not be
significant inter-period variations in the results of such activities.
NON-INTEREST EXPENSE. Non-interest expense increased by $473,000, or
32.3% in the nine months ended September 30, 1996 compared to the same period
in 1995. The primary reason for the increase in non-interest expense during
the 1996 period was the one-time SAIF special assessment of $413,000. In
addition, during the nine months ended September 30, 1996, the Association's
compensation and employee benefits costs, the largest component of
non-interest expense, increased by $28,000, or 3.1%, to $945,000 compared to
$917,000 in the 1995 period. Compensation and employee benefit costs
increased during the 1996 period primarily as the result of normal merit
increases and cost-of-living salary adjustments. Upon consummation of the
Conversion, the Company and the Association will become subject to a
Louisiana share tax and franchise tax which, assuming the issuance of 2.6
million shares of Common Stock, will amount to approximately $194,000 on an
annual basis. See "Pro Forma Data" and "Taxation - State Taxation." In
addition, there is expected to be an increase in compensation expense
following the Conversion. See "Risk Factors - Potential Increased
Compensation Expense After the Conversion" and "Pro Forma Data."
FEDERAL INCOME TAXES. The provision for federal income taxes decreased
by $195,000, or 44.3%, during the nine months ended September 30, 1996 as
compared to the same period in the prior year. The decrease in income taxes
was due primarily to a reduction in income before taxes of 688,000, or 53.0%.
The Association's effective tax rates amounted to 34.0% during each of the
nine month periods ended September 30, 1996 and 1995.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994.
GENERAL. Guaranty Savings reported $872,000 of net income for the year
ended December 31, 1995 compared to $994,000 in 1994. Net income decreased
in 1995 compared to 1994 primarily as the result of a $104,000 increase in
non-interest expenses, a $30,000 decrease in net interest income and a
$46,000 decrease in non-interest income in 1995. The Association's return on
average assets was 1.00% and 1.10%, respectively, during 1995 and 1994, while
its return on average equity was 3.70% and 4.41% during the respective
periods.
NET INTEREST INCOME. Total interest income amounted to $6.3 million
during the year ended December 31, 1995 compared to $6.0 million during 1994.
The primary reason for the $225,000, or 3.7%, increase in total interest
income during 1995 was a $202,000 increase in interest from investment
securities due to a 112 basis point increase in the average yield
56
earned on investment securities which more than offset a $3.8 million
decrease in the average balance of investment securities during 1995.
Interest income on loans decreased by $27,000, or 0.7%, in 1995 as the result
of a 5 basis point decline in the average yield together with a $102,000
decrease in the average balance of loans outstanding. Interest income from
mortgage-backed securities decreased by $9,000 and interest income from other
interest-earning assets increased by $59,000 in 1995 compared to 1994.
Total interest expense increased by $256,000, or 10.6%, to $2.7 million
in 1995 compared to $2.4 million in 1994. The primary reason for the
increase in interest expense in 1995 was a $274,000 increase in interest paid
on certificates of deposit as the result of a 94 basis point increase in the
average rate paid which more than offset a $2.1 million decrease in the
average balance of the Association's certificates of deposit. During 1995,
interest paid on passbook accounts decreased by $18,000 as the result of a
$2.0 million decrease in the average balance of passbook accounts which more
than offset a 19 basis point increase in the rates paid thereon.
As a result of the foregoing changes in interest income and interest
expense, net interest income decrease by $30,000 in 1995 compared to 1994.
The Association's interest rate spread decreased from 3.35% in 1994 to 3.25%
in 1995 while its interest rate margin, given the decrease in average
interest earning assets and the increase in interest income, increased from
4.19% in 1994 to 4.32% in 1995.
PROVISION FOR LOAN LOSSES. The Association's provision for loan losses
was $12,000 in 1995 compared to $21,000 in 1994. Based upon its assessment
of the risk elements associated with the loan portfolio, and giving
consideration to the overall decrease in the amount of loans outstanding,
management of the Association determined that a provision of $12,000 was
appropriate during 1995.
NON-INTEREST INCOME. Non-interest income amounted to $63,000 in 1995
compared to $109,000 in 1994. The primary reason for the $46,000, or 42.2%,
decrease in non-interest income during 1995 was the absence of $37,000 of
loan prepayment charges recorded in 1994. In addition, during 1995, late
charges decreased by $6,000, the Association recognized a $6,000 loss on the
disposal of fixed assets and other income decreased by $8,000.
NON-INTEREST EXPENSE. Non-interest expenses increased by $104,000, or
4.7%, in 1995 compared to 1994. The primary reason for the increase in
non-interest expenses in 1995 was a $118,000 increase in employee
compensation and benefits.
FEDERAL INCOME TAXES. The Association's provision for federal income
taxes decreased by $49,000 in 1995 compared to 1994. The decrease in income
tax expense during 1995 was due to a $172,000 decrease in income before
taxes. The Association's effective tax rates amounted to 34.0% during the
years ended December 31, 1995 and 1994.
57
LIQUIDITY AND CAPITAL RESOURCES
Guaranty Savings is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five
years or less. Current OTS regulations require that a savings institution
maintain liquid assets of not less than 5% of its average daily balance of
net withdrawable deposit accounts and borrowings payable in one year or less,
of which short-term liquid assets must consist of not less than 1%. At
September 30, 1996, Guaranty Savings' liquidity was 56.9% or $31.5 million in
excess of the minimum OTS requirement.
The Association's liquidity, represented by cash and cash equivalents,
is a product of its operating, investing and financing activities. The
Association's primary sources of funds are deposits, amortization,
prepayments and maturities of outstanding loans and mortgage-backed
securities, maturities of investment securities and other short-term
investments and funds provided from operations. While scheduled payments
from the amortization of loans and mortgage-backed securities and maturing
investment securities and short-term investments are relatively predictable
sources of funds, deposits flows and loan prepayments are greatly influenced
by general interest rates, economic conditions and competition. In addition,
the Association invests excess funds in overnight deposits and other
short-term interest-earning assets which provide liquidity to meet lending
requirements. The Association has been able to generate sufficient cash
through its deposits and historically has had a very limited use of
borrowings as a source of funds.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Association
maintains a strategy of investing in various lending products as described in
greater detail under "Business - Lending Activities." The Association uses
its sources of funds primarily to meet its ongoing commitments, to pay
maturing savings certificates and savings withdrawals, fund loan commitments
and maintain a portfolio of mortgage-backed and investment securities.
At September 30, 1996, Guaranty Savings had outstanding commitments to
originate $967,000 of one- to four-family residential loans (including
undisbursed construction loans). At the same date, the total amount of
certificates of deposit which were scheduled to mature in the following 12
months was $29.2 million. Guaranty Savings believes that it has adequate
resources to fund all of its commitments and that it can adjust the rate on
certificates of deposit to retain deposits to the extent desired. If
Guaranty Savings requires funds beyond its internal funding capabilities,
advances from the FHLB of Dallas are available as an additional source of
funds.
Guaranty Savings is required to maintain regulatory capital sufficient
to meet tangible, core and risk-based capital ratios of 1.5%, 3.0% and 8.0%,
respectively. At September 30, 1996, Guaranty Savings exceeded each of its
capital requirements, with
58
tangible, core and risk-based capital ratios of 27.79%, 27.79% and 80.10%,
respectively. See "Regulation - The Association -Regulatory Capital
Requirements" and Note M of Notes to Financial Statements.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein
have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operating results in terms of historical dollars, without considering changes
in relative purchasing power over time due to inflation. Unlike most
industrial companies, virtually all of Guaranty Savings' assets and
liabilities are monetary in nature. As a result, interest rates generally
have a more significant impact on Guaranty Savings' performance than does
the effect of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, since
such prices are affected by inflation to a larger extent than interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1990, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions." SFAS No. 106 requires that certain postretirement benefits
provided to former employees, their beneficiaries, and covered dependents be
recognized over those employees' service period. Postretirement benefits
include health care, life insurance and other welfare benefits. This
statement became effective for the Association for fiscal years beginning
after December 15, 1994. The Association does not provide any of the
benefits covered by SFAS No. 106.
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair
Value of Financial Investments." SFAS No. 107 requires all entities to
disclose, in financial statements or the notes thereto, the fair value of
financial instruments, both assets and liabilities recognized and not
recognized in the statement of financial condition, for which it is
practicable to estimate fair value. SFAS No. 107 is effective for financial
statements of institutions with assets greater than $150 million issued for
years ending after December 15, 1992 (December 15, 1995 for smaller
institutions). Substantially all of the assets and liabilities of the
Association are financial instruments and, as a result, SFAS No. 107 requires
the fair value of such assets and liabilities to be disclosed to the extent
the institution meets the size criteria specified in the statement. Because
such assets and liabilities are monetary in nature, their fair values may
fluctuate significantly over time.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting
for Post-Employment Benefits." SFAS No. 112 requires accrual of the expected
cost of providing post-employment benefits to an employee and employee's
beneficiaries and covered dependents during the years that the employee
renders the necessary services. Such benefits include salary continuation,
supplemental unemployment benefits, severance benefits, job training and
counseling, and continuation of health care benefits. SFAS No. 112 is
effective
59
for fiscal years beginning after December 15, 1993. The Association does not
provide any of the benefits covered by SFAS No. 112.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is effective for years beginning after
December 15, 1994, and earlier adoption is encouraged. The Statement
establishes accounting measurement, recognition and reporting standards for
impaired loans. SFAS No. 114 provides that a loan is impaired when, based on
current information and events, it is probable that the creditor will be
unable to collect all amounts due according to the contractual terms (both
principal and interest). SFAS No. 114 requires that when a loan is impaired,
impairment should be measured based on the present value of the expected cash
flows, discounted at the loan's effective interest rate. If the loan is
collateral dependent, as a practical expedient, impairment can be based on a
loan's observable market price or the fair value of the collateral. The
value of the loan is adjusted through a valuation allowance created through a
charge against income. Residential mortgages, consumer installment
obligations and credit cards are excluded. Loans that were treated as
in-substance foreclosures under previous accounting pronouncements are
considered to be impaired loans and remain in the loan portfolio under SFAS
No. 114. SFAS No. 114 was amended in October 1994 by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 118 amended SFAS No. 114 primarily to remove its
income recognition requirements and add some disclosure requirements. The
adoption of SFAS No. 114, as amended by SFAS No. 118, did not materially
affect the Association's financial condition or results of operations in
1995.
In November 1993, the AICPA issued SOP 93-6, Employers' Accounting for
Employee Stock Ownership Plans, which is effective for years beginning after
December 15, 1993. SOP 93-6 requires the application of its guidance for
shares acquired by ESOPs after December 31, 1992 but not yet committed to be
released as of the beginning of the year SOP 93-6 is adopted. SOP 93-6 will,
among other things, change the measure of compensation expense recorded by
employers for leveraged ESOPs from the cost of ESOP shares to the fair value
of ESOP shares. The Company and the Association have adopted an ESOP in
connection with the Conversion, which is expected to purchase 8% of the
Common Stock sold in the Conversion. Under SOP 93-6, the Company will
recognize compensation cost equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the extent
that the fair value of the Company's ESOP shares differ from the cost of such
shares, this differential will be charged or credited to equity. Employers
with internally leveraged ESOPs such as the Company will not report the loan
receivable from the ESOP as an asset and will not report the ESOP debt from
the employer as a liability. For information on the pro forma effect of the
ESOP on the Company's results of operations and stockholders' equity, see
"Pro Forma Data." However, the effects of SOP 93-6 on future operating
results cannot be determined at this time. See "Risk Factors - Potential
Increased Compensation Expense Relating to the ESOP." For additional
information on the ESOP, see "Management of the Company - Benefits - Employee
Stock Ownership Plan."
60
In October 1994, the FASB issued SFAS No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments,"
which is effective for years ending after December 15, 1994. SFAS No. 119
expands the disclosure requirements for derivative financial instruments,
which are defined to include futures, forwards, swaps or options contracts or
other instruments with similar characteristics. It excludes all such
instruments whose financial effects are recorded on the balance sheet. SFAS
No. 119 also makes certain modifications to SFAS No. 107. The Association
had no financial instruments which would require additional disclosure under
SFAS No. 119.
In December 1994, the AICPA issued SOP 94-6, "Disclosure of Certain
Significant Risks and Uncertainties," which addresses risk and uncertainties
that could significantly affect the amounts reported in the financial
statements in the near term or the near-term functioning of the reporting
entity. The risk and uncertainties the SOP addresses result from the nature
of the entity's operations, from the necessary use of estimates in the
preparation of the entity's financial statements and from significant
concentrations in certain aspects of the entity's operations. Near term is
defined as a period of time not to exceed one year from the date of the
financial statements. This SOP is effective for financial statements issued
for fiscal years ending after December 15, 1995 and for financial statements
for interim periods in fiscal years subsequent to the year for which this SOP
is to be first applied. Management has implemented the SOP in the financial
statement disclosures.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used for long-lived assets and certain
identifiable intangibles to be disposed of. This statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be
based on the fair value of the asset. This statement does not apply to
financial instruments, long-term customer relationships of a financial
institution (for example, core deposit intangibles), mortgage and other
servicing rights, deferred policy acquisition costs, or deferred tax assets.
This statement is effective for financial statements for fiscal years
beginning after December 15, 1995. Management anticipates that the effect of
the adoption of SFAS No. 121 will not have any significant impact on the
financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for transactions entered into
after December 15, 1995. This Statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. This
Statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
61
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Bulletin Opinion No. 25. "Accounting for
Stock Issued to Employees." Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Management presently anticipates that it will elect to use the intrinsic
value based method if the Stock Option Plan is approved by stockholders
following the Conversion.
In June 1996, the Financial Accounting Standards
Board released Statement of Financial Accounting Standards No. 125 ("SFAS No.
125""), "Accounting for Transfers and Extinguishments of Liabilities." SFAS
No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. SFAS No.
125 requires a consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, and derecognizes liabilities when
extinguished. SFAS No. 125 also supersedes SFAS No. 122 and requires that
servicing assets and liabilities be subsequently measured by amortization in
proportion to and over the period of estimated net servicing income or loss
and requires assessment for asset impairment or obligation increases based on
their fair values. SFAS No. 125 applies to transfers and extinguishments
occurring after December 31, 1996 and early or retroactive application is
not permitted. Management anticipates that the adoption of SFAS No. 125 will
not have a material impact on the financial condition or operations of the
Association.
BUSINESS
MARKET AREA
The Association's market area consists of Orleans, Jefferson and St.
Tammany Parishes in the New Orleans, Louisiana metropolitan statistical area.
The traditional components of the area's economic base have consisted of
tourism, the port of New Orleans and related shipbuilding, and the petroleum
industry. Slowdowns in the petroleum industry had a material negative impact
on the area's economy in the early 1980s, which were compounded by
defense-related cutbacks in recent years. The area's economy has stabilized
in recent years due to development of tourism and convention activities and
related service-oriented companies, as well as the gaming industry. In
addition, the New Orleans economic base has diversified into areas such as
health services, the aerospace industry and research and technology.
However, there is still a significant degree of potential volatility in the
local economy due to a continued heavy reliance on the same industries that
led to the decline in the 1980s, and there has been a decline in the
population since the early 1980s. Competition for deposits and lending in
the greater New Orleans market is substantial.
62
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. At September 30, 1996, Guaranty Savings'
net loan portfolio totalled $43.1 million, representing approximately 49.8%
of the Association's $86.5 million of total assets at that date. The
principal lending activity of Guaranty Savings is the origination of one- to
four-family, fixed-rate residential loans for retention in its portfolio. At
September 30, 1996, conventional first mortgage, one- to four-family
residential loans (excluding construction loans) amounted to $41.4 million or
95.4% of the total loan portfolio, before net items. To a much lesser
extent, the Association originates construction loans, pursuant to a program
initiated during 1996, and consumer loans. On occasion, the Association
originates loans secured by commercial real estate and loans secured by
improved residential lots. At September 30, 1996, construction loans
amounted to $412,000 or 0.95% of the total loan portfolio, commercial real
estate loans totalled $442,000 or 1.02% of the total loan portfolio, and
consumer loans amounted to $463,000 or 1.07% of the total loan portfolio, in
each case before net items.
63
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of Guaranty Savings' loan portfolio by type of loan at the dates
indicated.
September 30, December 31,
-------------------------------------------------------
1996 1995 1994 1993
--------------- ----------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------ ------ ------ ------- ------ ------ ------ ------
(Dollars in Thousands)
Real estate loans:
One- to four-family residential:
Conventional $41,378 95.36% $38,449 95.63% $38,236 94.68% $38,205 93.08%
FHA and VA 541 1.25 675 1.68 854 2.11 1,018 2.48
Construction 412 .95 -- -- -- -- -- --
Commercial real estate 442 1.02 484 1.20 601 1.49 654 1.59
Other real estate 154 0.35 146 0.36 182 0.45 418 1.02
------ ------ ------ ------ ------ ------ ------ ------
Total real estate loans 42,927 98.93 39,754 98.87 39,873 98.73 40,295 98.17
------ ------ ------ ------ ------ ------ ------ ------
Consumer loans:
Second mortgage 290 0.67 267 0.67 350 0.87 440 1.07
Loans on deposits 173 0.40 186 0.46 161 0.40 313 0.76
------ ------ ------ ------ ------ ------ ------ ------
Total consumer loans 463 1.07 453 1.13 511 1.27 753 1.83
------ ------ ------ ------ ------ ------ ------ ------
Total loans $43,390 100.00% $40,207 100.00% $40,384 100.00% $41,048 100.00%
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
Less:
Deferred loan fees (costs) (6) (4) (3) (1)
Allowance for loan losses 337 323 345 370
------ ------ ------ ------
Net loans $43,058 $39,888 $40,042 $40,679
------ ------ ------ ------
------ ------ ------ ------
64
CONTRACTUAL TERMS TO FINAL MATURITIES. The following table sets forth
certain information as of September 30, 1996 regarding the dollar amount of
loans maturing in the Association'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 schedule of repayments and 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 September 30, 1996 is shown in the appropriate year of the
loan's final maturity.
One-to Other
four-family Commercial real
residential Construction real estate estate Consumer Total
----------- ------------ ----------- ------ -------- -----
(In Thousands)
Amounts due after September 30, 1996 in:
One year or less $ 131 -- $ 2 $ 5 $173 $311
After one year through two years 318 -- -- 9 -- 327
After two years through three years 175 -- 21 2 -- 198
After three years through five years 1,637 -- -- -- -- 1,637
After five years through ten years 8,320 -- 295 94 -- 8,709
After ten years through fifteen years 15,611 -- 124 26 -- 15,761
After fifteen years 16,017 412 -- 18 -- 16,447
------ --- --- --- --- ------
Total(1) $42,209 $412 $442 $154 $173 $43,390
------ --- --- --- --- ------
------ --- --- --- --- ------
- ----------
(1) Gross of loans in process, deferred fees, unearned discounts and interest,
and allowance for loan losses.
The following table sets forth the dollar amount of all loans, before
net items, due after one year from September 30, 1996 as shown in the
preceding table, which have fixed interest rates or which have floating or
adjustable interest rates.
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In Thousands)
One- to four-family residential $42,621 $ -- $42,621
Commercial real estate 442 -- 442
Consumer -- 173 173
Other real estate 154 -- 154
------ ------- ------
Total $43,217 $ 173 $43,390
------ ------- ------
------ ------- ------
65
Scheduled contractual maturities of loans do not necessarily reflect the
actual term of Guaranty Savings' portfolio. The average life of mortgage
loans is substantially less than their average contractual terms because of
loan prepayments and enforcement of due-on-sale clauses, which give the
Association the right to declare a loan immediately due and payable in the
event, among other things, that the borrower sells the real property subject
to the mortgage and the loan is not repaid. The average life of mortgage
loans tends to increase, however, when current mortgage loan rates
substantially exceed rates on existing mortgage loans and, conversely,
decrease when rates on existing mortgage loans substantially exceed current
mortgage loan rates.
ORIGINATION OF LOANS. Guaranty Savings' lending efforts are
concentrated on the origination for portfolio of one-to four-family,
fixed-rate residential mortgage loans. It has not been the Association's
practice to either buy or sell loans. The lending activities of Guaranty
Savings are subject to the written underwriting standards and loan
origination procedures established by Guaranty Savings' Board of Directors
and management. Loan originations are obtained through a variety of sources,
including referrals from real estate brokers, builders and existing
customers. Written loan applications are taken by lending personnel, and the
loan department supervises the procurement of credit reports, appraisals and
other documentation involved with a loan. Property valuations are performed
by independent outside appraisers approved by the Association's Board of
Directors.
Under Guaranty Savings' real estate lending policy, a title opinion
signed by an approved attorney must be obtained for each real estate loan.
In certain cases, the Association also requires the borrower to obtain a
title insurance policy. Guaranty Savings also requires fire and extended
coverage casualty insurance, in order to protect the properties securing its
real estate loans. Borrowers must also obtain flood insurance policies when
the property is in a flood hazard area as designated by the Department of
Housing and Urban Development. Borrowers may be required to advance funds on
a monthly basis together with each payment of principal and interest to a
escrow account from which Guaranty Savings makes disbursements for items such
as real estate taxes, hazard insurance premiums and private mortgage
insurance premiums as they become due.
Guaranty Savings' loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the
adequacy of the value of the property that will secure the loan. The
Association's lending policies require that all mortgage loans to be
originated by the Association be approved in advance by the Association's
Loan Committee (which is comprised of directors Donald Scott and Zahn and
Vice President Weber) and thereafter ratified by the Board of Directors.
66
The following table shows total loans originated and repaid during
the periods indicated. No loans were purchased or sold during the periods
shown.
Nine Months Ended
September 30, Year Ended December 31,
------------------ --------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(In Thousands)
Loan originations:
One-to-four family residential $7,005 $4,729 $6,400 $6,467 $3,161
Construction 412 -- -- -- --
Commercial real estate -- -- -- -- --
Consumer 59 94 150 105 228
Other real estate -- -- -- -- --
----- ----- ----- ----- -----
Total loan originations 7,476 4,823 6,550 6,572 3,389
Loan principal repayments (4,294) (4,822) (6,727) (7,236) (9,887)
Increase (decrease) due to other
items, net(1) (12) (11) 23 27 49
----- ----- ----- ----- -----
Net increase (decrease) in
loan portfolio $3,170 $ (10) $ (154) $ (637) $(6,449)
----- ----- ----- ----- -----
----- ----- ----- ----- -----
____________________
(1) Other items consist of loans in process, deferred fees and discounts,
and allowance for loan losses.
REAL ESTATE LENDING STANDARDS AND UNDERWRITING POLICIES. Effective March
19, 1993, all financial institutions were required to adopt and maintain
comprehensive written real estate lending policies that are consistent with
safe and sound banking practices. These lending policies must reflect
consideration of the Interagency Guidelines for Real Estate Lending Policies
adopted by the federal banking agencies, including the OTS, in December 1992
("Guidelines"). The Guidelines set forth uniform regulations prescribing
standards for real estate lending. Real estate lending is defined as
extensions of credit secured by liens on interests in real estate or made for
the purpose of financing the construction of a building or other improvements
to real estate, regardless of whether a lien has been taken on the property.
An institution's lending policy must address certain lending
considerations set forth in the Guidelines, including loan-to-value ("LTV")
limits, loan administration procedures, underwriting standards, portfolio
diversification standards, and documentation, approval and reporting
requirements. The policy must also be appropriate to the size of the
institution and the nature and scope of its operations, and must be reviewed
and approved by the institution's board of directors at least annually. The
LTV ratio framework, with the LTV ratio being the total amount of credit to
be extended divided by the appraised value or purchase price of the property
at the time the credit is originated, must be established for each category
of real estate loans. If a loan is not secured by a first lien, the lender
must
67
combine all senior liens when calculating this ratio. The Guidelines,
among other things, establish the following supervisory LTV limits: raw land
(65%); land development (75%); construction (commercial, multi-family and
nonresidential) (80%); improved property and one- to four-family residential
construction (85%); and one- to four-family (owner occupied) and home equity
(no maximum ratio; however, any LTV ratio in excess of 90% should require
appropriate insurance or readily marketable collateral).
Certain institutions can make real estate loans that do not conform with
the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one-to-four family residential
properties should not exceed 30% of total capital. An institution will come
under increased supervisory scrutiny as the total of such loans approaches
these levels. Certain loans are exempt from the LTV ratios (e.g., those
guaranteed by a government agency, loans to facilitate the sale of real
estate owned, loans renewed, refinanced or restructured by the original
lender(s) to the same borrower(s) where there is no advancement of new funds,
etc.).
Guaranty Savings is in compliance with the above standards.
Although Louisiana laws and regulations permit state-chartered savings
institutions, such as Guaranty Savings, to originate and purchase loans
secured by real estate located throughout the United States, Guaranty
Savings' present lending is done primarily within Orleans, Jefferson and St.
Tammany Parishes in Louisiana, although it will make loans secured by
properties within a 100 mile radius of the Association's main office.
Subject to the Association's loans-to-one borrower limitation, Guaranty
Savings is permitted to invest without limitation in residential mortgage
loans and up to 400% of its capital in loans secured by non-residential or
commercial real estate. Guaranty Savings may also invest in secured and
unsecured consumer loans in an amount not exceeding 35% of the Association's
total assets. This 35% limitation may be exceeded for certain types of
consumer loans, such as home equity and property improvement loans secured by
residential real property. In addition, the Association may invest up to 10%
of its total assets in secured and unsecured loans for commercial, corporate,
business or agricultural purposes. At September 30, 1996, Guaranty Savings
was well within each of the above lending limits.
As required by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), a savings institution generally may not
make loans to one borrower and related entities in an amount which exceeds
15% of its unimpaired capital and surplus, although loans in an amount equal
to an additional 10% of unimpaired capital and surplus may be made to a
borrower if the loans are fully secured by readily marketable securities. At
September 30, 1996, the Association's regulatory limit on loans-to-one
borrower was $3.6 million, however, the Board of Directors has determined to
implement a loan-to-one borrower limit of $1.5 million. The Association's
largest loan or largest group of loans-to-one borrower amounted to $1.4
million at September 30, 1996 and consisted of 13 loans to an investor
secured by residential fourplexes in the Association's market area. All of
such
68
loans were current at September 30, 1996. No other loan to one borrower
or group of loans to one borrower and related persons or entities exceeded
$300,000 at September 30, 1996.
LOANS ON EXISTING RESIDENTIAL PROPERTIES. The primary real estate
lending activity of Guaranty Savings is the origination of fixed-rate loans
secured by first mortgage liens on one- to four-family residences. At
September 30, 1996, $41.4 million or 95.4% of Guaranty Savings total loan
portfolio, before net items, consisted of conventional first mortgage, one-
to four-family residential loans (excluding construction loans).
The loan-to-value ratio, maturity and other provisions of the loans made
by Guaranty Savings generally have reflected the policy of making less than
the maximum loan permissible under applicable regulations, in accordance with
sound lending practices, market conditions and underwriting standards
established by the Association. Guaranty Savings' lending policies on one-
to four-family residential mortgage loans generally limit the maximum
loan-to-value ratio to 90% of the lesser of the appraised value or purchase
price of the property, and one- to four-family residential loans in excess of
an 80% loan-to-value ratio require private mortgage insurance. Prior to 1996
the maximum loan-to-value mortgage loan offered by the Association was 80%.
Residential mortgage loans are amortized on a monthly basis with principal
and interest due each month and customarily include "due-on-sale" clauses,
which are provisions giving the Association the right to declare a loan
immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage or the loan is not
repaid. Guaranty Savings enforces due-on-sale clauses to the extent
permitted under applicable laws.
Various legislative and regulatory changes have given Guaranty Savings
the authority to originate and purchase mortgage loans which provide for
periodic interest rate adjustments subject to certain limitations. To date,
Guaranty Savings has offered only fixed-rate mortgage loans and has not
offered adjustable-rate mortgage loans ("ARMs"). Guaranty Savings has no
current plan to originate ARMs.
CONSTRUCTION LOANS. At September 30, 1996, $412,000 or 0.95% of
Guaranty Savings' total loan portfolio, before net items, consisted of loans
for the construction of one- to four-family residences. In March 1996, the
Association commenced a program of offering loans for construction of
single-family residences. The Association's construction loans are
structured as construction/permanent loans whereby there is one closing for
both the construction loan and the permanent financing. During the
construction phase, which typically lasts for four to six months, officers of
the Association make periodic inspections of the construction site and loan
proceeds are disbursed directly to the contractors as construction
progresses. Typically, disbursements are made in four to six draws during
the construction period. The Association's construction loans require
payment of interest only during the construction phase and are structured to
be converted to fixed-rate permanent loans at the end of the construction
phase.
69
Construction lending is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate because of the uncertainties of construction, including the
possibility of costs exceeding the initial estimates and the need to obtain a
tenant or purchaser if the property will not be owner-occupied. Guaranty
Savings generally attempts to mitigate the risks associated with construction
lending by, among other things, lending only in its market area, using
conservative underwriting guidelines, disbursing funds directly to the
contractors, and closely monitoring the construction process.
COMMERCIAL REAL ESTATE LOANS. The Association's commercial real estate
loan portfolio primarily consists of loans secured by multi-use properties,
small retail establishments and churches located within the Association's
primary market area. Commercial real estate loans amounted to $442,000 or
1.02% of the total loan portfolio at September 30, 1996. The largest
commercial real estate loan at September 30, 1996 was $82,000, and the
average balance of such loans at such date was $32,000.
Nonresidential real estate loans generally have terms not exceeding 15
years and have fixed-rates of interest. All loans are based on the appraised
value of the secured property and loans are generally not made in amounts in
excess of 70% of the appraised value of the secured property. All appraisals
are performed by an independent appraiser designated by the Association and
are reviewed by management. In originating nonresidential loans, the
Association considers the quality of the property, the credit of the
borrower, the historical and projected cash flow of the project, the location
of the real estate and the quality of the property management. Guaranty
Savings has not originated any commercial real estate loans in more than
three years.
Commercial real estate lending is generally considered to involve a
higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition,
the payment experience on loans secured by income-producing properties is
typically dependent on the success of the operation of the related project
and thus is typically affected by adverse conditions in the real estate
market and in the economy. Guaranty Savings generally attempts to mitigate
the risks associated with commercial real estate lending by, among other
things, lending primarily in its market area and using low LTV ratios in the
underwriting process.
OTHER REAL ESTATE LOANS. At September 30, 1996, the Association had
$154,000 of other real estate loans. Such other real estate loans primarily
consist of loans secured by residential lots in the Association's market
area. The Association limits its lot loans to a LTV of 70% and such loans
amortize over a period not exceeding 15 years. Land lending generally
involves additional risks compared to loans secured by improved single-family
properties. Loans on lots may run the risk of adverse zoning changes, or
environmental or other restrictions on future use.
70
CONSUMER LOANS. The Association's consumer loans consist of loans on
deposits and second mortgage loans. The consumer loans are not being
actively marketed and are offered primarily as a service to existing
customers. At September 30, 1996, loans on deposits amounted to $173,000,
representing 37.4% of total consumer loans and 0.4% of the total loan
portfolio, before net items. Loans secured by deposit accounts are generally
offered with an interest rate equal to 2.0% above the rate on the deposit
account.
The Association's second mortgage loans amounted to $290,000 or 0.67% of
the total loan portfolio at September 30, 1996. The second mortgages are
secured by one- to four-family residences, are for a fixed amount and a fixed
term, and are made to individuals for a variety of purposes. All of the
second mortgages at September 30, 1996 have fixed- interest rates and
amortize over a 10- or 15-year period. The Association limits its
originations of loans secured by second mortgages to properties upon which it
has an existing first lien. The maximum loan amount of the Association's
second mortgage loans is $50,000 and the combined amounts outstanding under
the first and second mortgage loans cannot exceed 80% of the appraised value
of the security property. In addition, the Association requires that the
borrower maintain at least 10% cash equity in the subject property.
LOAN FEES AND SERVICING INCOME. In addition to interest earned on
loans, Guaranty Savings receives income through loan fees charged in
connection with inspections of properties securing construction loans, late
payments, prepayments and for miscellaneous services related to its loans.
Income from these activities varies from period-to-period with the volume and
type of loans made.
Guaranty Savings does not charge loan origination fees or "points,"
which most lenders compute as a percentage of the principal amount of the
mortgage loan and charge to the borrower in connection with the origination
of the loan. The Association believes that not charging origination fees or
points provides it with a marketing advantage compared to other financial
institutions.
71
ASSET QUALITY
DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at September 30, 1996, in dollar amounts and as a
percentage of Guaranty Savings' total loan portfolio. The amounts presented
represent the total outstanding principal balances of the related loans,
rather than the actual payment amounts which are past due.
September 30, 1996
-------------------------------------------------------------------
30-59 90 or More Days
Days Overdue 60-89 Days Overdue Overdue
------------------- ------------------- -------------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ ---------
(Dollars in Thousands)
One- to four-family
residential real estate
loans $267 0.62% $52 0.12% $316 0.73%
Commercial real estate
loans -- -- -- -- -- --
Consumer loans -- -- -- -- -- --
Other real estate -- -- -- -- -- --
--- ---- -- ---- --- ----
Total delinquent loans $267 0.62% $52 0.12% $316 0.73%
--- ---- -- ---- --- ----
--- ---- -- ---- --- ----
NON-PERFORMING ASSETS. When a borrower fails to make a required loan
payment, Guaranty Savings attempts to cause the default to be cured by
contacting the borrower. In general, contacts are made after a payment is
more than 20 days past due. The Association's loans generally provide for a
15 day grace period, and no late charge is assessed on these loans until the
payment is 16 days past due. Typically, delinquencies are promptly brought
current after contact by the Association. If the delinquency on a mortgage
loan exceeds 90 days and is not cured through Guaranty Savings' normal
collection procedures, or an acceptable arrangement is not worked out with
the borrower, Guaranty Savings will commence foreclosure action.
Any property acquired by the Association as a result of foreclosure is
included in Guaranty Savings' "real estate owned" account until it is sold.
Guaranty Savings is permitted under applicable regulations to finance sales
of real estate owned by "loans to facilitate" which may involve more
favorable interest rates and terms than generally would be granted under
Guaranty Savings' underwriting guidelines. At September 30, 1996, Guaranty
Savings had $364,000 in loans to facilitate the sale of real estate owned.
The Association places loans on non-accrual status when the payment of
interest becomes 90 days past due or when interest payments are otherwise
deemed uncollectible.
72
The following table sets forth the amount of Guaranty Savings'
nonperforming assets at the dates indicated.
December 31,
September 30, ------------------------
1996 1995 1994 1993
------------- ---- ---- ----
(Dollars in Thousands)
Total nonperforming assets:
Non-accruing loans $316 $206 $197 $506
Real estate owned, net -- 24 37 38
--- --- --- ---
Total nonperforming assets $316 $230 $234 $544
--- --- --- ---
--- --- --- ---
Troubled debt restructurings $ -- $ -- $ -- $ --
--- --- --- ---
--- --- --- ---
Total nonperforming loans as a
percentage of total loans .73% .51% .49% 1.23%
--- --- --- ----
--- --- --- ----
Total nonperforming assets as a
percentage of total assets .37% .27% .27% .60%
--- --- --- ---
--- --- --- ---
CLASSIFIED ASSETS AND OTHER POTENTIAL PROBLEM ASSETS. Federal
regulations require that the Association classify its assets on a regular
basis. In addition, in connection with examinations of insured institutions,
federal examiners have authority to identify problem assets and, if
appropriate, classify them in their reports of examination. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized
by the distinct possibility that the insured institution will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible
and of such little value that continuance as an asset of the institution is
not warranted.All loans are reviewed on a regular basis under the
Association's asset classification policy. The Association's total
classified assets at September 30, 1996 (excluding loss assets specifically
reserved for) amounted to $1.8 million, all of which was classified as
substandard, and none of which was classified as doubtful or loss. In
addition to its classified assets, the Association designates certain assets
as "special mention," due primarily to such assets previously being
classified. As of September 30, 1996, $355,000 of the Association's assets
were designated as special mention and, as such, were closely monitored by
management of the Association.
ALLOWANCE FOR LOAN LOSSES. At September 30, 1996, Guaranty Savings'
allowance for loan losses amounted to $337,000 or 0.78% of the total loan
portfolio. Guaranty Savings' loan portfolio consists primarily of one- to
four-family residential loans and, to a lesser extent, commercial real estate
loans, construction loans and consumer loans. The loan loss
73
allowance is maintained by management at a level considered adequate to cover
possible losses that are currently anticipated based on prior loan loss
experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, general economic conditions, and other factors and
estimates which are subject to change over time. Although management
believes that it uses the best information available to make such
determinations, future adjustments to allowances may be necessary, and net
income could be significantly affected, if circumstances differ substantially
from the assumptions used in making the initial determinations.
The following table summarizes changes in the allowance for loan losses
and other selected statistics for the periods presented. During all periods
presented, all loan charge-offs and recoveries were related to one-to
four-family residential mortgage loans. For a discussion of the reasons for
the credit for loan losses, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations -
Provision for Loan Losses."
At or
For the Nine Months At or For the Year Ended
Ended September 30, December 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
Total loans outstanding $43,390 $40,479 $40,207 $40,384 $41,048
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for loan losses,
beginning of period $ 323 $ 345 $ 345 $ 370 $ 321
Provision (credit) for loan
losses 14 -- 12 21 98
Loans charged-off -- (10) (34) (48) (50)
Recoveries -- -- -- 2 1
------ ------ ------ ------ ------
Allowance for loan losses,
end of period $ 337 $ 335 $ 323 $ 345 $ 370
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for loan losses
as a percent of total
loans outstanding .78% .83% .80% .85% .90%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for loan losses
as a percent of
nonperforming loans 106.65% 145.65% 156.80% 175.13% 73.12%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net charge-offs
during the period to
average loans outstanding
during the period N/A .03% .08% .15% .11%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
74
The following table presents the allocation of Guaranty Savings'
allowance for loan losses by type of loan at each of the dates indicated.
December 31,
---------------------------------------------------------------------------
September 30, 1996 1995 1994 1993
----------------------- ---------------------- ---------------------- ----------------------
Loan Loan Loan Loan
Category Category Category Category
Amount as a % Amount as a % Amount as a % Amount as a %
of of Total of of Total of of Total of of Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- --------- --------- -------- --------- --------- --------- ---------
(Dollars in Thousands)
One- to four-family
residential $337 96.61% $323 97.31% $345 96.79% $370 95.56%
Construction -- .95 -- -- -- -- -- --
Commercial real
estate -- 1.02 -- 1.2 -- 1.49 -- 1.59
Consumer -- 1.07 -- 1.13 -- 1.27 -- 1.83
Other real estate -- .35 -- .36 -- .45 -- 1.02
--- ----- --- ---- --- ---- --- -----
Total $337 100% $323 100% $345 100% $370 100%
--- ----- --- ---- --- ---- --- -----
--- ----- --- ---- --- ---- --- -----
75
MORTGAGE-BACKED SECURITIES
Guaranty Savings has invested in a portfolio of fixed-rate,
mortgage-backed securities that are issued or guaranteed by the FHLMC or the
FNMA. Mortgage-backed securities (which also are known as mortgage
participation certificates or pass-through certificates) represent a
participation interest in a pool of one- to four-family or multi-family
residential mortgages, the principal and interest payments on which are
passed from the mortgage originators, through intermediaries (generally U.S.
government agencies and government sponsored enterprises) that pool and
repackage the participation interests in the form of securities, to investors
such as the Homestead. FHLMC is a public corporation chartered by the U.S.
government and guarantees the timely payment of interest and the ultimate
return of principal. FHLMC mortgage-backed securities are not backed by the
full faith and credit of the United States, but because FHLMC is a U.S.
government sponsored enterprise, these securities are considered high quality
investments with minimal credit risks. The FNMA guarantees the timely
payment of principal and interest, and FNMA securities are indirect
obligations of the U.S. government.
All of the $7.3 million of mortgage-backed securities at September 30,
1996 were accounted for as held to maturity and had an aggregate market value
of $7.0 million at such date. For additional information relating to the
Association's mortgage-backed securities, see Note C of Notes to Financial
Statements.
Mortgage-backed securities generally yield less than the loans that
underlie such securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. In addition,
mortgage-backed securities are more liquid than individual mortgage loans and
may be used to collateralize obligations of the Association. In general,
mortgage-backed pass-through securities are weighted at no more than 20% for
risk-based capital purposes, compared to an assigned risk weighting of 50% to
100% for whole residential mortgage loans. As a result, these types of
securities allow the Association to optimize regulatory capital to a greater
extent than non-securitized whole loans. While mortgage-backed securities
carry a reduced credit risk as compared to whole loans, such securities
remain subject to the risk that a fluctuating interest rate environment,
along with other factors such as the geographic distribution of the
underlying mortgage loans, may alter the prepayment rate of such mortgage
loans and so affect both the prepayment speed, and value, of such securities.
76
The following table sets forth the composition of Guaranty Savings'
mortgage-backed securities portfolio at each of the dates indicated.
December 31,
September 30, --------------------------
1996 1995 1994 1993
------------ ------ ------ ------
(In Thousands)
Mortgage-backed
securities:
FNMA $3,065 $1,772 $1,909 $1,067
FHLMC 4,234 4,595 4,154 5,045
----- ----- ----- -----
Total $7,299 $6,367 $6,063 $6,112
----- ----- ----- -----
----- ----- ----- -----
Information regarding the contractual maturities and weighted average
yield of Guaranty Savings' mortgage-backed securities portfolio at September
30, 1996 is presented below. Due to repayments of the underlying loans, the
actual maturities of mortgage-backed securities generally are substantially
less than the scheduled maturities.
Amounts at September 30, 1996 Which Mature In
--------------------------------------------------------------
After Five
One Year After One to to Over 10
or Less Five Years 10 Years Years Total
-------- ------------ ----------- ------- -----
(Dollars in Thousands)
Total mortgage-backed
securities:
FNMA $ -- $1,030 $506 $1,525 $3,065
FHLMC 107 2,830 489 808 4,234
--- ----- --- ----- -----
Total $107 $3,860 $995 $2,337 $7,299
--- ----- --- ----- -----
--- ----- --- ----- -----
Weighted average
yield 7.0% 5.51% 6.75% 5.83% 5.80%
--- ----- --- ----- -----
--- ----- --- ----- -----
77
The following table sets forth the purchases, sales and principal
repayments of Guaranty Savings' mortgage-backed securities during the periods
indicated.
At or For the Nine At or For the
Months Ended Year Ended December 31,
September 30, ---------------------------------
1996 1995 1994 1993
------------------- -------- -------- --------
(Dollars in Thousands)
Mortgage-backed securities
at beginning of period $6,367 $6,063 $6,112 $3,444
Purchases 2,436 855 980 4,472
Repayments (1,514) (552) (1,031) (1,814)
Amortization of premiums
and discounts, net 10 1 2 10
----- ----- ----- -----
Mortgage-backed securities at
end of period $7,299 $6,367 $6,063 $6,112
----- ----- ----- -----
----- ----- ----- -----
Weighted average yield at
end of period 5.80% 5.98% 5.97% 6.29%
----- ----- ----- -----
----- ----- ----- -----
INVESTMENT SECURITIES
The investment policy of the Association, which is established by the
Board of Directors, is designed primarily to maintain liquidity within
regulatory limits, maintain a balance of high-quality investments to minimize
risk, provide collateral for pledging requirements, provide alternative
investments when loan demand is low, maximize returns while preserving
liquidity and safety, and manage interest rate risk. Guaranty Savings is
required to maintain certain liquidity ratios and does so by investing in
securities that qualify as liquid assets under OTS regulations. See
"Regulation - The Association - Liquidity Requirements" for a description of
such regulations. Such securities include obligations issued or fully
guaranteed by the United States government, certain federal agency
obligations and certificates of deposit.
Investment securities totalled $23.1 million or 26.7% of total assets at
September 30, 1996. At September 30, 1996, $21.2 million of the
Association's investment securities consisted of debt obligations of the U.S.
Government and Federal agencies, $1.0 million was invested in an adjustable
rate mortgage mutual fund and $900,000 was invested in FHLMC stock. While the
adjustable rate mortgage mutual fund securities owned by the association are
not insured or guaranteed by the U.S. government or any Federal agency,
management, based on its assessment of, among other things, the risk and
returns of such portfolio, believes its investment in such mutual fund is
prudent. At such date, all of the Association's investment securities were
classified as available-for-sale. Of the Association's investment securities
at September 30, 1996, $11.0 million were scheduled to mature in one year or
less and $10.7 million was scheduled to mature in more than one year and less
than five years.
78
The following table sets forth certain information relating to Guaranty
Savings' investment securities and certain other assets at the dates
indicated.
December 31,
-----------------------------------------------------------------------
September 30, 1996 1995 1994 1993
-------------------- -------------------- -------------------- ---------------------
Carrying Market Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value Value Value
-------- ------ -------- ------ -------- ------ -------- -------
(In Thousands)
Available for sale:
U.S. Government and
Federal Agency
securities $21,153 $21,153 $ 2,207 $ 2,207 $ 2,735 $ 2,735 $ 3,321 $ 3,321
Other 1,915 1,915 1,053 1,053 454 454 448 448
------ ------ ------ ------ ------ ------ ------ ------
Total available for sale 23,068 23,068 3,260 3,260 3,189 3,189 3,769 3,769
------ ------ ------ ------ ------ ------ ------ ------
Held to maturity:
U.S. Government and
Federal Agency
securities -- -- 30,100 30,440 32,307 31,746 34,029 34,365
Other -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total held to maturity -- -- 30,100 30,440 32,307 31,746 34,029 34,365
------ ------ ------ ------ ------ ------ ------ ------
Total $23,068 $23,068 $33,360 $33,700 $35,496 $34,935 $37,798 $38,134
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
The following table sets forth the amount of investment securities and
certain other assets which mature during each of the periods indicated and
the weighted average yields for each range of maturities at September 30,
1996. No tax-exempt yields have been adjusted to a tax-equivalent basis.
Amounts at September 30, 1996 Which Mature In
-------------------------------------------------------------------------------------
Over One
Weighted Year Weighted Over Weighted
One Year Average Through Average Five Average
or Less Yield Five Years Yield Years Yield
-------- --------- ----------- --------- ------- ---------
(Dollars in Thousands)
Bonds and other debt
securities available for
sale:
U.S. Government and
Federal Agency securities $8,407 6.27% $10,693 6.75% $2,053 7.38%
Other 1,915 6.87 -- -- -- --
Equity securities held to
maturity:
FHLB stock(1) 718 5.74 -- -- -- --
------ ---- ------ ---- ----- ----
Total $11,040 6.30% $10,693 6.75% $2,053 7.38%
------ ---- ------ ---- ----- ----
------ ---- ------ ---- ----- ----
___________________________
(1) As a member of the FHLB of Dallas, Guaranty Savings is required to
maintain its investment in FHLB stock, which has no stated maturity.
79
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Guaranty Savings' funds
for lending and other investment purposes. In addition to deposits, the
Association derives funds primarily from principal repayments and interest on
loans and mortgage-backed securities. Loan repayments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings
may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They may also be used on a
longer-term basis for general business purposes.
DEPOSITS. Guaranty Savings' deposits are attracted principally from
within its market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds
must remain on deposit and the interest rate.
Guaranty Savings' ability to attract and maintain deposits is affected
by the rate consciousness of its customers and their willingness to move
funds into higher-yielding accounts. Guaranty Savings' cost of funds has
been, and will continue to be, affected by money market conditions.
80
The following table shows the distribution of, and certain other
information relating to, Guaranty Savings' deposits by type of deposit, as of
the dates indicated.
September 30, December 31,
----------------------------------------------------------------
1996 1995 1994 1993
---------------- ------------------ ---------------- ----------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Certificate accounts:
2.00% - 2.99% $ -- --% $ -- --% $ -- --% $ 295 .44%
3.00% - 3.99% 15 .03 78 .13 8,409 13.01 27,043 40.10
4.00% - 4.99% 10,995 18.17 20,156 33.12 25,366 39.24 9,736 14.44
5.00% - 5.99% 24,494 35.53 12,602 20.71 3,600 5.57 2,257 3.35
6.00% - 6.99% 3,981 6.58 3,989 6.52 706 1.09 1,232 1.83
7.00% - 7.99% -- -- -- -- 110 .17 206 .31
8.00% or more -- -- -- -- 87 .13 275 .40
------ ----- ------ ----- ------ ----- ------ -----
Total certificate
accounts 36,485 60.31 36,825 60.42 38,277 59.21 41,044 60.87
------ ----- ------ ----- ------ ----- ------ -----
Passbook savings
accounts 24,010 39.69 24,120 39.58 26,365 40.79 26,388 39.13
------ ----- ------ ----- ------ ----- ------ -----
Total deposits $60,495 100.00% $60,945 100.00% $64,642 100.00% $67,432 100.00%
------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ -----
The following table presents the average balance of each type of deposit
and the average rate paid on each type of deposit for the periods indicated.
Nine Months
Ended
September 30, Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993
------------------- ------------------- ------------------ ------------------
Average Average Average Average
Average Rate Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid Balance Paid
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Passbook savings accounts $23,371 3.33% $25,013 3.52% $26,975 3.33% $26,188 3.02%
Certificates of deposit 36,622 5.02 37,397 4.77 39,462 3.83 41,513 3.84
------ ---- ------ ---- ------ ---- ------ ----
Total interest-bearing
deposits $59,993 4.36% $62,410 4.27% $66,437 3.62% $67,701 3.52%
------ ---- ------ ---- ------ ---- ------ ----
------ ---- ------ ---- ------ ---- ------ ----
81
The following table sets forth the savings flows of Guaranty Savings
during the periods indicated.
Nine Months
Ended
September 30, Year Ended December 31,
------------------------
1996 1995 1994 1993
------------- ------ ------ ------
(In Thousands)
Increase (decrease) before
interest credited $(1,953) $(5,743) $(4,703) $(4,274)
Interest credited 1,503 2,046 1,913 2,225
------- ------- ------- -------
Net increase (decrease) in
deposits $ (450) $(3,697) $(2,790) $(2,049)
------- ------- ------- -------
------- ------- ------- -------
Guaranty Savings 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
paid by competing institutions. Guaranty Savings has generally priced its
passbook accounts in the upper parameters among its competitors and, on
occasion, will take a position of price leadership in its markets with
respect to passbook accounts. The Association generally has been more
conservative in the pricing of its certificates of deposit, and generally has
not priced its certificates of deposit in the upper parameters among its
competitors. Deposits at Guaranty Savings decreased in the nine months ended
September 30, 1996 and during 1995 and 1994 partially due to the higher rates
offered by competitors, particularly with respect to certificates of deposit.
In June 1996, in an effort to stem the outflow of its deposits, the
Association increased the rate paid on its passbook accounts from 2.75% to
4.00%. The Association's deposits increased slightly from June 30, 1996 to
September 30, 1996, which increase management attributes to the increase in
the rate paid on passbook accounts.
The principal methods used by the Association to attract deposit include
its emphasis on personal services, competitive interest rates and convenient
office locations. Guaranty Savings does not advertise for deposits outside
of its primary market area. At September 30, 1995, the Association had no
deposits that were obtained through deposit brokers.
82
The following table presents, by various interest rate categories, the
amount of certificates of deposit at September 30, 1996 and the amounts at
September 30, 1996 which mature during the periods indicated.
Balance at September 30, 1996
Maturing in the 12 Months Ending September 30,
----------------------------------------------
Certificates of Deposit 1997 1998 1999 Thereafter Total
- ----------------------- ---- ---- ---- ---------- -----
(In Thousands)
2.00% - 2.99% $ -- $ -- $ -- $ -- $ --
3.00% - 3.99% 15 -- -- -- 15
4.00% - 4.99% 10,829 147 19 -- 10,995
5.00% - 5.99% 15,217 3,757 2,412 108 21,494
6.00% - 6.99% 3,132 721 -- 128 3,981
7.00% - 7.99% -- -- -- -- --
8.00% or more -- -- -- -- --
------ ------ ------ ----- ------
Total certificate
accounts $29,193 $4,625 $2,431 $236 $36,485
------ ----- ----- --- ------
------ ----- ----- --- ------
The following table sets forth the maturities of Guaranty Savings'
certificates of deposit of $100,000 or more at September 30, 1996 by time
remaining to maturity.
Maturing During Quarter Ending: Amounts
- ------------------------------- -----------------
(In Thousands)
December 31, 1996 $326
March 31, 1997 100
June 30, 1997 401
September 30, 1997 536
After September 30, 1997 --
------
Total certificates of
deposit with balances of
$100,000 or more $1,363
------
------
BORROWINGS. Guaranty Savings may obtain advances from the FHLB of
Dallas upon the security of the common stock it owns in that bank and certain
of its residential mortgage loans, investment securities and mortgage-backed
securities, provided certain standards related to credit worthiness have been
met. See "Regulation - The Association - Federal Home Loan Bank System."
Such advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Such advances are generally
available to meet seasonal and other withdrawals of deposit accounts and to
permit
83
increased lending. At September 30, 1996, Guaranty Savings had no
advances from the FHLB of Dallas.
SUBSIDIARY
At September 30, 1996, the Association had no subsidiaries. Under
Louisiana law, a state-chartered association may invest up to 10% of its
assets in service organizations or corporations.
COMPETITION
Guaranty Savings faces significant competition both in attracting
deposits and in originating loans. Its most direct competition for deposits
has come historically from commercial banks, credit unions, mortgage brokers
and other savings institutions located in its primary market area, including
many large financial institutions which have greater financial and marketing
resources available to them. In addition, Guaranty Savings faces additional
significant competition for investors' funds from short-term money market
mutual funds and issuers of corporate and government securities. Guaranty
Savings does not rely upon any individual group or entity for a material
portion of its deposits. The Association estimates that its market share of
total deposits in Orleans, St. Tammany and Jefferson Parishes, Louisiana is
less than 1%.
Guaranty Savings' competition for real estate loans comes principally
from mortgage banking companies, commercial banks, other savings institutions
and credit unions. Guaranty Savings competes for loan originations primarily
through the interest rates and loan fees it charges, and the efficiency and
quality of services it provides borrowers and real estate brokers. Factors
which affect competition include general and local economic conditions,
current interest rate levels and volatility in the mortgage markets.
EMPLOYEES
Guaranty Savings had 33 full-time employees at September 30, 1996. None
of these employees are represented by a collective bargaining agent, and
Guaranty Savings believes that it enjoys good relations with its personnel.
PROPERTIES
At September 30, 1996, Guaranty Savings conducted its business from its
main office in Metairie, Louisiana and two branch offices in Mandeville and
New Orleans, Louisiana. The following table sets forth the net book value
(including furnishings and equipment) and certain other information with
respect to the offices of Guaranty Savings at September 30, 1996.
84
Lease Net Book
Expiration Value of Amount of
Description/Address Leased/Owned Date Property Deposits
- ------------------- ------------ ---------- --------- ---------
(In Thousands)
Main Office:
3798 Veterans Blvd.
Metairie, LA 70002 Owned N/A $2,012 $55,502
Branch Offices:
2111 North Causeway
Blvd.
Mandeville, LA Owned N/A 379 116(1)
3915 Canal Street
New Orleans, LA Owned N/A 278 4,877
----- -----
Total(2) $2,669 $60,495
----- ------
----- ------
- ----------
(1) Opened in May 1996.
(2) In addition, the Association continues to own the site of a former
branch office at 1700 Veterans Boulevard, Metairie, Louisiana, which
office had a net book value of $95,000 at September 30, 1996 and was
being leased to a third party.
LEGAL PROCEEDINGS
Guaranty Savings is involved in routine legal proceedings occurring in
the ordinary course of business which, in the aggregate, are believed by
management to be immaterial to the financial condition and results of
operations of Guaranty Savings.
REGULATION
SET FORTH BELOW IS A BRIEF DESCRIPTION OF CERTAIN LAWS AND REGULATIONS
WHICH ARE APPLICABLE TO THE COMPANY AND GUARANTY SAVINGS. THE DESCRIPTION OF
THE LAWS AND REGULATIONS HEREUNDER, 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"), will be required
to register with the OTS and will be subject to OTS regulations,
examinations, supervision and reporting
85
requirements. As a subsidiary of a savings and loan holding company,
Guaranty Savings will be subject to certain restrictions in its dealings with
the Company and 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 requalifies 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
authorized by the FRB as permissible for bank 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.
86
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 a
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 interests 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 September
30, 1996, 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
87
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 acquiror 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 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 to 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 BIF 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 has filed with the SEC a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of the Common Stock to be issued
pursuant to the Conversion. Upon completion of the Conversion, the Company's
Common Stock will be registered with the SEC under Section 12(g) of the
Exchange Act. The Company will then be subject to the proxy and tender offer
rules, insider trading reporting requirements and restrictions, and certain
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares.
Shares of Common Stock purchased by persons who are not affiliates of the
Company may be sold without registration. Shares purchased by an affiliate
of the Company will be subject to the resale restrictions of Rule 144 under
the Securities Act. If the Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the
Company who complies with the other conditions of Rule 144 (including those
that require the affiliate's sale to be aggregated with those of certain
other persons) would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period,
the greater of (i) 1% of the outstanding shares of the Company or (ii) the
average weekly volume of trading in such shares during the preceding four
calendar weeks.
88
THE ASSOCIATION
GENERAL. As part of the Conversion, the Association will convert from a
Louisiana-chartered mutual savings and loan association to a
Louisiana-chartered stock savings and loan association. The OFI will be the
Association's chartering authority, and the OTS will be the Association's
primary federal regulator. The OFI and the OTS have extensive authority over
the operations of Louisiana-chartered savings institutions. As part of this
authority, Louisiana-chartered savings institutions are required to file
periodic reports with the OFI and the OTS and are subject to periodic
examinations by the OFI, the OTS and the FDIC. The investment and lending
authority of savings institutions are prescribed by federal laws and
regulations, and such 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.
The OTS' enforcement authority over all savings institutions and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action,
including misleading or untimely reports filed with the OTS.
INSURANCE OF ACCOUNTS. The deposits of Guaranty Savings are insured to
the maximum extent 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, 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.
The FDIC is authorized to establish separate assessment rates for
deposit insurance for members of the BIF and the SAIF. The FDIC may increase
assessment rates for either
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fund to restore the fund's ratio of reserves to insured deposits to its
statutorily set target level within a reasonable time, and may decrease such
assessment rates if such target level has been met. Until the SAIF fund
meets its target level, savings associations may not transfer to the BIF
fund. Furthermore, any such transfers, when permitted, would be subject to
exit and entrance fees. Under current FDIC regulations, institutions are
assigned to one of three capital groups which are based solely on the level
of an institution's capital- "well capitalized," "adequately capitalized,"
and "undercapitalized" - which are defined in the same manner as the
regulations establishing the prompt corrective action system under Section 38
of the Federal Deposit Insurance Act ("FDIA") as discussed below. These
three groups are then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered to be healthy
to those which are considered to be of substantial supervisory concern. The
matrix so created results in nine assessment risk classifications, with rates
ranging from .23% for well capitalized, healthy institutions to .31% for
undercapitalized institutions with substantial supervisory concerns. The
insurance premiums for the Association for the first semi-annual period in
calendar 1996 was .23%.
The BIF fund met its target reserve level in September 1995, but the
SAIF was not expected to meet its target reserve level until at least 2002.
Consequently, in late 1995, the FDIC approved a final rule regarding deposit
insurance premiums which, effective with respect to the semiannual premium
assessment beginning January 1, 1996, reduced deposit insurance premiums for
BIF member institutions to zero basis points (subject to an annual minimum of
$2,000) for institutions in the lowest risk category. Deposit insurance
premiums for SAIF members were maintained at their existing levels (23 basis
points for institutions in the lowest risk category).
On September 30, 1996, President Clinton signed into law legislation
which will eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions by recapitalizing the SAIF's
reserves to the required ratio. The legislation provides that all SAIF
member institutions pay a one-time special assessment to recapitalize the
SAIF, which in the aggregate will be sufficient to bring the reserve ratio in
the SAIF to 1.25% of insured deposits. The legislation also provides for the
merger of the BIF and the SAIF, with such merger being conditioned upon the
prior elimination of the thrift charter.
Effective October 8, 1996, FDIC regulations imposed a one-time special
assessment equal to 65.7 basis points for all SAIF-assessable deposits as of
March 31, 1995, which was collected on November 27, 1996. The Association's
one-time special assessment amounted to $413,000. Net of related tax
benefits, the one-time special assessment amounted to $273,000. The payment
of such special assessment will have the effect of immediately reducing the
Association's capital by such an amount. Nevertheless, management does not
believe that this one-time special assessment will have a material adverse
effect on the Association's consolidated financial condition or cause
non-compliance with the Association's regulatory capital requirements.
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On October 16, 1996, the FDIC proposed to lower assessment rates for
SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members
will pay 6.4 basis points to fund the Financing Corporation while BIF member
institutions will pay approximately 1.3 basis points. The Association's
insurance premiums, which have amounted to 23 basis points will be reduced to
6.4 basis points. Based upon the $60.5 million of assessable deposits at
September 30, 1996, the Association would expect to pay $100,000 less in
insurance premiums per quarter during 1997.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings institutions
are required to maintain minimum levels of regulatory capital. Pursuant to
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 equal to at least 1.5% of
adjusted total assets, "core" capital equal to at least 3.0% of adjusted
total assets and "total" capital (a combination of core and "supplementary"
capital) equal to at least 8.0% of "risk-weighted" assets. For purposes of
the regulation, core capital generally consists of common stockholders'
equity (including retained earnings), noncumulative perpetual preferred stock
and related surplus, minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill." Tangible capital is given
the same definition as core capital but does not include qualifying
supervisory goodwill and is reduced by the amount of all the savings
institution's intangible assets, with only a limited exception for purchased
mortgage servicing rights. At September 30, 1996, Guaranty Savings had no
goodwill or other intangible assets which are deducted in computing its
tangible capital. Both core and tangible capital are further reduced by an
amount equal to a savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national banks (other
than subsidiaries engaged in activities undertaken as agent for customers or
in mortgage banking activities and subsidiary depository institutions or
their holding companies). At September 30, 1996, the Association had no
subsidiaries.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary
capital included does not exceed the savings institution's core capital.
Supplementary capital generally consists of hybrid capital instruments;
perpetual preferred stock which is not eligible to be included as core
capital; subordinated debt and intermediate-term preferred stock; and general
allowances for loan losses up to a maximum of 1.25% of risk-weighted assets.
In determining the required amount of risk-based capital, total assets,
including certain off-balance sheet items, are
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multiplied by a risk weight based on the risks inherent in the type of
assets. The risk weights assigned by the OTS for principal categories of
assets are (i) 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S. Government;
(ii) 20% for securities (other than equity securities) issued by U.S.
Government-sponsored agencies and mortgage-backed securities issued by, or
fully guaranteed as to principal and interest by, the FNMA or the FHLMC,
except for those classes with residual characteristics or stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan-to-value ratio of not more than 80% at
origination unless insured to such ratio by an insurer approved by the FNMA
or the FHLMC, qualifying residential bridge loans made directly for the
construction of one- to four-family residences and qualifying multi-family
residential loans; and (iv) 100% for all other loans and investments,
including consumer loans, commercial loans, and one- to four-family
residential real estate loans more than 90 days delinquent, and for
repossessed assets.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under
the rule, an institution with a greater than "normal" level of interest rate
risk will be subject to a deduction of its interest rate risk component from
total capital for purposes of calculating its risk-based capital requirement.
As a result, such an institution will be required to maintain additional
capital in order to comply with the risk-based capital requirement. An
institution with greater than "normal" interest rate risk is defined as an
institution that would suffer a loss of net portfolio value exceeding 2.0% of
the estimated market value of its assets in the event of a 200 basis point
increase or decrease (with certain minor exceptions) in interest rates. The
interest rate risk component will be calculated, on a quarterly basis, as
one-half of the difference between an institution's measured interest rate
risk and 2.0%, multiplied by the market value of its assets. The rule also
authorizes the Director of the OTS, or his designee, to waive or defer an
institution's interest rate risk component on a case-by-case basis. The
final rule was originally effective as of January 1, 1994, subject however to
a three quarter "lag" time between the reporting date of the data used to
calculate an institution's interest rate risk and the effective date of each
quarter's interest rate risk component. However, in October 1994 the
Director of the OTS indicated that it would waive the capital deductions for
associations with a greater than "normal" risk until the OTS publishes an
appeals process. The OTS has recently indicated that no savings association
will be required to deduct capital for interest rate risk until further
notice.
At September 30, 1996, Guaranty Savings exceeded all of its regulatory
capital requirements, with tangible, core and risk-based capital ratios of
27.79%, 27.79% and 80.10%, respectively. The following table sets forth
Guaranty Savings' compliance with each of the above-described capital
requirements as of September 30, 1996.
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Tangible Core Risk-Based
Capital Capital(1) Capital (2)
-------- ---------- -----------
(Dollars in Thousands)
Capital under GAAP $24,500 $24,500 $24,500
Less non-allowable assets
Additional capital items:
General valuation
allowances(3) -- -- 216
Net unrealized gain on
securities available for sale (678) (678) (678)
------ ------ ------
Regulatory capital 23,822 23,822 24,038
Minimum required
regulatory capital(4) 1,298 2,596 2,408
------ ------ ------
Excess regulatory capital $22,524 $21,226 $21,630
------ ------ ------
------ ------ ------
Regulatory capital as a
percentage(4) 27.79% 27.79% 80.10%
Minimum capital required
as a percentage(4) 1.50% 3.00% 8.00%
------ ------ ------
Regulatory capital as a
percentage in excess of
requirements 26.29% 24.79% 72.10%
------ ------ ------
------ ------ ------
______________________
(1) Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized." See "-Prompt Corrective
Action."
(2) Does not reflect the interest-rate risk component in the risk-based
capital requirement, the effective date of which has been postponed as
discussed above.
(3) General valuation allowances are only used in the calculation of
risk-based capital. Such allowances are limited to 1.25% of
risk-weighted assets.
(4) Tangible and core capital are computed as a percentage of adjusted total
assets of $86.5 million. Risk-based capital is computed as a percentage
of adjusted risk-weighted assets of $30.0 million.
Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment
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of a conservator or receiver. The OTS' capital regulation provides that such
actions, through enforcement proceedings or otherwise, could require one or
more of a variety of corrective actions.
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. The liquidity
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings institutions. At the
present time, the required minimum liquid asset ratio is 5%. At September
30, 1996, Guaranty Savings' liquidity ratio was 56.9%.
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. Generally, the regulation creates
a safe harbor for specified levels of capital distributions from institutions
meeting at least their minimum capital requirements, so 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.
Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements (Tier
1 institutions) may make capital distributions during any calendar year equal
to the higher of (i) 100% of net income for the calendar year-to-date plus
50% of its "surplus capital ratio" at the beginning of the calendar year or
(ii) 75% of net income over the most recent four-quarter period. The
"surplus capital ratio" is defined to mean the percentage by which the
institution's ratio of total capital to assets exceeds the ratio of its fully
phased-in capital requirement to assets. "Fully phased-in capital
requirement" is defined to mean an institution's capital requirement under
the statutory and regulatory standards applicable on December 31, 1994, as
modified to reflect any applicable individual minimum capital requirement
imposed upon the institution. Failure to meet fully phased-in or minimum
capital requirements will result in further restrictions on capital
distributions, including possible prohibition without explicit OTS approval.
See "- Regulatory Capital Requirements."
In order to make distributions under these safe harbors, Tier 1 and Tier
2 institutions must submit 30 days written notice to the OTS prior to making
the distribution. The OTS may object to the distribution during that 30-day
period based on safety and soundness concerns. At September 30, 1996,
Guaranty Savings was a Tier 1 institution for purposes of this regulation.
In December 1994, the OTS published a notice of proposed rulemaking to
amend its capital distribution regulation. Under the proposal, institutions
would be permitted to
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only make capital distributions that would not result in their capital
being reduced below the level required to remain "adequately capitalized."
Because the Association will be a subsidiary of a holding company, the
proposal would require the Association to provide notice to the OTS of its
intent to make a capital distribution. The Association does not believe that
the proposal will adversely affect its ability to make capital distributions
if it is adopted substantially as proposed.
LOANS TO ONE BORROWER. The permissible amount of loans-to-one borrower
now generally follows the national bank standard for all loans made by
savings institutions, as compared to the pre-FIRREA rule that applied that
standard only to commercial loans made by federally chartered savings
institutions. The national bank standard generally does not permit
loans-to-one borrower to exceed the greater of $500,000 or 15% of unimpaired
capital and surplus. Loans in an amount equal to an additional 10% of
unimpaired capital and surplus also may be made to a borrower if the loans
are fully secured by readily marketable securities. For information about
the largest borrowers from Guaranty Savings, see "Business - Lending
Activities - Real Estate Lending Standards and Underwriting Policies."
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 require 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.
QUALIFIED THRIFT LENDER TEST. Under Section 2303 of the Economic Growth
and regulatory Paperwork Reduction Act of 1996, a savings association can
comply with the QTL test by either meeting the QTL test set forth in the HOLA
and implementing regulations or qualifying as a domestic building and loan
association as defined in Section 7701(a)(19) of the Internal Revenue Code of
1986, as amended ("Code"). A savings institution that does not comply with
the QTL test must either convert to a bank charter or comply with the
following restrictions on its operations: (i) the institution may not engage
in any new activity or make any new investment, directly or indirectly,
unless such activity or investment is permissible for a national bank; (ii)
the branching powers of the institution shall be
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restricted to those of a national bank; (iii) the institution shall not be
eligible to obtain any advances from its FHLB; and (iv) payment of dividends
by the institution shall be subject to the rules regarding payment of
dividends by a national bank. Upon the expiration of three years from the
date the savings institution ceases to meet the QTL test, it must cease any
activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
The QTL Test set forth in the HOLA requires that Qualified Thrift
Investments ("QTIs") represent 65% of portfolio assets. Portfolio assets are
defined as total assets less intangibles, property used by a savings
association in its business and liquidity investments in an amount not
exceeding 20% of assets. Generally, QTIs are residential housing related
assets. The 1996 amendments allow small business loans, credit card loans,
student loans and loans for personal, family and household purposes to be
included without limitation as qualified investments. At September 30, 1996,
approximately 77.5% of the Association's assets were invested in QTIs, which
was in excess of the percentage required to qualify the Association under the
QTL Test in effect at that time.
ACCOUNTING REQUIREMENTS. Applicable OTS accounting regulations and
reporting requirements apply the following standards: (i) regulatory reports
will incorporate GAAP when GAAP is used by federal banking agencies; (ii)
savings institution transactions, financial condition and regulatory capital
must be reported and disclosed in accordance with OTS regulatory reporting
requirements that will be at least as stringent as for national banks; and
(iii) the Director of the OTS may prescribe regulatory reporting requirements
more stringent than GAAP whenever the Director determines that such
requirements are necessary to ensure the safe and sound reporting and
operation of savings institutions.
The accounting principles for depository institutions are currently
undergoing review to determine whether the historical cost model or
market-based measure of valuation is the appropriate measure for reporting
the assets of such institutions in their financial statements. Such issue is
controversial because any change in applicable accounting principles which
requires depository institutions to carry mortgage-backed securities and
mortgage loans at fair market value could result in substantial losses to
such institutions and increased volatility in their liquidity and operations.
Currently, it cannot be predicted whether there may be any changes in the
accounting principles for depository institutions in this regard beyond those
imposed by SFAS No. 115 or when any such changes might become effective.
FEDERAL HOME LOAN BANK SYSTEM. Guaranty Savings is a member of the FHLB
of Dallas, which is one of 12 regional FHLBs that administers the home
financing credit function of savings institutions. 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 consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of
Directors
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of the FHLB. The Association had no FHLB advances at September 30, 1996 and
has not utilized FHLB advances as a source of funds for several years.
As a member, Guaranty Savings is required to purchase and 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 September 30, 1996, Guaranty Savings had
approximately $718,000 in FHLB stock, which was in compliance with this
requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community
investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of FHLB dividends paid in the
past and could continue to do so in the future. These contributions also
could have an adverse effect on the value of FHLB stock in the future.
FEDERAL RESERVE SYSTEM. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. As of September 30,
1996, Guaranty Savings was in compliance with applicable requirements.
However, because required reserves must be maintained in the form of vault
cash or a noninterest-bearing account at a Federal Reserve Bank, the effect
of this reserve requirement is to reduce an institution's earning assets.
LOUISIANA REGULATION
As a Louisiana-chartered savings association, the Association also is
subject to regulation and supervision by the OFI. The Association is
required to file periodic reports with and is subject to periodic
examinations at least once every two years by the OFI. The lending and
investment authority of the Association is prescribed by Louisiana laws and
regulations, as well as applicable federal laws and regulations, and the
Association is prohibited from engaging in any activities not permitted by
such laws and regulations.
The Association is required by Louisiana law and regulations to comply
with certain reserve and capital requirements. At September 30, 1996, the
Association was in compliance with all applicable reserve and capital
requirements.
Louisiana law and regulations also restrict the lending and investment
authority of Louisiana-chartered savings institutions. Such laws and
regulations restrict the amount a Louisiana-chartered savings association can
lend to any one borrower to an amount which, in the aggregate, does not
exceed the lesser of (i) 10% of the association's savings deposits or (ii)
the sum of the association's paid-in capital, surplus, reserves for losses,
and undivided profits. FIRREA imposes more restrictive limitations. See
"Business - Lending Activities."
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Notwithstanding the foregoing, Louisiana and federal law permits any such
association to lend to any one borrower an aggregate amount of at least
$500,000.
In addition, Louisiana law restricts the ability of Louisiana-chartered
savings associations to invest in, among other things, (i) commercial real
estate loans (including commercial construction real estate loans) up to 40%
of total assets; (ii) real estate investments for other than the
association's offices up to 10% of total assets; (iii) consumer loans,
commercial paper and corporate debt securities up to 30% of total assets;
(iv) commercial, corporate, business or agricultural loans up to 10% of total
assets; and (v) capital stock, obligations and other securities of service
organizations up to 10% of total assets. Louisiana law also sets forth
maximum loan-to-value ratios with respect to various types of loans.
Applicable federal regulations impose more restrictive limitations in certain
instances. See "Business - Lending Activities - Real Estate Lending
Standards and Underwriting Policies."
The investment authority of Louisiana-chartered savings associations is
broader in many respects than that of federally-chartered savings and loan
associations. However, since the enactment of FIRREA, state-chartered
savings associations, such as the Association, are generally prohibited from
acquiring or retaining any equity investment, other than certain investments
in service corporations, of a type or in an amount that is not permitted for
a federally-chartered savings association. This prohibition applies to
equity investments in real estate, investments in equity securities and any
other investment or transaction that is in substance an equity investment,
even if the transaction is nominally a loan or other permissible transaction.
At September 30, 1996, the Association was in compliance with such
provisions.
Furthermore, effective January 1, 1990, a state-chartered savings
association may not engage as principal in any activity not permitted for
federal associations unless the FDIC has determined that such activity would
pose no significant risk to the affected deposit insurance fund and the
association is in compliance with the fully phased-in capital standards
prescribed under FIRREA. When certain activities are permissible for a
federal association, the state association may engage in the activity in a
higher amount if the FDIC has not determined that such activity would pose a
significant risk of loss to the affected deposit insurance fund and the
association meets the fully phased-in capital requirements. This increased
investment authority does not apply to investments in nonresidential real
estate loans. At September 30, 1996, the Association had NO investments
which were affected by the foregoing limitations.
Under Louisiana law, a Louisiana-chartered savings association may
establish or maintain a branch office anywhere in Louisiana with prior
regulatory approval. In addition, an out-of-state savings association or
holding company may acquire a Louisiana-chartered savings association or
holding company if the OFI determines that the laws of such other state
permit a Louisiana-chartered savings association or holding company to
acquire a
98
savings association or holding company in such other state. Any
such acquisition would require the out-of-state entity to apply to the OFI
and receive OFI approval.
TAXATION
FEDERAL TAXATION
GENERAL. The Company and Guaranty Savings are subject to the generally
applicable corporate tax provisions of the Code, and Guaranty Savings is
subject to certain additional provisions of the Code which apply to thrift
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. Guaranty Savings files a federal income tax return on the basis
of a calendar year ending on December 31. Following the Conversion, the
Company and Guaranty Savings may elect to file a consolidated tax return.
BAD DEBT RESERVES. Savings institutions, such as Guaranty Savings,
which meet certain definitional tests primarily relating to their assets and
the nature of their businesses, are permitted to establish a reserve for bad
debts and to make annual additions to the reserve. These additions may,
within specified formula limits, be deducted in arriving at the institution's
taxable income. For purposes of computing the deductible addition to its bad
debt reserve, the institution's loans are separated into "qualifying real
property loans" (i.e., generally those loans secured by certain interests in
real property) and all other loans ("non-qualifying loans"). The deduction
with respect to non-qualifying loans must be completed under the experience
method as described below. The following formulas may be used to compute the
bad debt deduction with respect to qualifying real property loans: (i)
actual loss experience, or (ii) a percentage of taxable income. Reasonable
additions to the reserve for losses on non-qualifying loans must be based
upon actual loss experience and would reduce the current year's addition to
the reserve for losses on qualifying real property loans, unless that
addition is also determined under the experience method. The sum of the
additions to each reserve for each year is the institution's annual bad debt
deduction.
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 the loans outstanding at the
close of the 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 the
close of the taxable year is less than the amount of
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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.
Under the percentage of taxable income method, the bad debt deduction
equals 8% of taxable income determined without regard to that deduction and
with certain adjustments. The availability of the percentage of taxable
income method permits a qualifying savings institution to be taxed at a lower
effective federal income tax rate than that applicable to corporations in
general. This resulted generally in an effective federal income tax rate
payable by a qualifying savings institution fully able to use the maximum
deduction permitted under the percentage of taxable income method, in the
absence of other factors affecting taxable income, of 31.3% exclusive of any
minimum tax or environmental tax (as compared to 34% for corporations
generally). For tax years beginning on or after January 1, 1993, the maximum
corporate tax rate was increased to 35%, which increased the maximum
effective federal income tax rate payable by a qualifying savings institution
fully able to use the maximum deduction to 32.2%. Any savings institution at
least 60% of whose assets are qualifying assets, as described in the Code,
will generally be eligible for the full deduction of 8% of taxable income.
As of December 31, 1995, over 71% of the assets of Guaranty Savings were
"qualifying assets" as defined in the Code, and Guaranty Savings anticipates
that at least 60% of its assets will continue to be qualifying assets in the
immediate future. If this ceases to be the case, the institution may be
required to restore some portion of its bad debt reserve to taxable income in
the future.
Under the percentage of taxable income method, the bad debt deduction
for an addition to the reserve for qualifying real property loans cannot
exceed the amount necessary to increase the balance in this reserve to an
amount equal to 6% of such loans outstanding at the end of the taxable year.
The bad debt deduction is also limited to the amount which, when added to the
addition to the reserve for losses on non-qualifying loans, equals the amount
by which 12% of deposits at the close of the year exceeds the sum of surplus,
undivided profits and reserves at the beginning of the year. Based on
experience, it is not expected that these restrictions will be a limiting
factor for Guaranty Savings in the foreseeable future. In addition, the
deduction for qualifying real property loans is reduced by an amount equal to
all or part of the deduction for non-qualifying loans.
Pursuant to certain legislation which was recently enacted and which
will be effective for tax years beginning after 1995, a small thrift
institution (one with an adjusted basis of assets of less than $500 million),
such as Guaranty Savings, would no longer be permitted to make additions to
its tax bad debt reserve under the percentage of taxable income method. Such
institutions would be permitted to use the experience method in lieu of
deducting bad debts only as they occur. Such legislation will require
Guaranty Savings to realize increased tax liability over a period of at least
six years, beginning in 1996. Specifically, the legislation will require a
small thrift institution to recapture (i.e., take into income) over a
multi-year period the balance of its bad debt reserves in excess of the
lesser of (i) the balance of such reserves as of the end of its last taxable
year ending before 1988
100
or (ii) an amount that would have been the balance of such reserves had the
institution always computed its additions to its reserves using the
experience method. The recapture requirement would be suspended for each of
two successive taxable years beginning January 1, 1996 in which Guaranty
Savings originates an amount of certain kinds of residential loans which in
the aggregate are equal to or greater than the average of the principal
amounts of such loans made by Guaranty Savings during its six taxable years
preceding 1996. It is anticipated that any recapture of Guaranty Savings'
bad debt reserves accumulated after 1987 would not have a material adverse
effect on Guaranty Savings' financial condition and results of operations.
At December 31, 1995, 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
shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in
the case of a current distribution, together with all other such
distributions during the taxable year, it exceeds the institution's 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 Code imposes an alternative minimum tax at a rate of
20%. 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 that an item of tax preference is the
excess of the bad debt deduction allowable for a taxable year pursuant to the
percentage of taxable income method over the amount allowable under the
experience method. Other items of tax preference that constitute AMTI
include (a) tax-exempt interest on newly issued (generally, issued on or
after August 8, 1986) private activity bonds other than certain qualified
bonds and (b) 75% of the excess (if any) of (i) adjusted current earnings as
defined in the Code, over (ii) AMTI (determined 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
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taxable years. This provision applies to losses incurred in taxable years
beginning after 1986. At December 31, 1995, 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, 1993 forward are open under the statute of limitations and are
subject to review by the IRS.
STATE TAXATION
Any nonbanking 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. In addition,
following the Conversion the Association will be subject to the Louisiana
Shares Tax, which will be imposed on the assessed value of its stock. The
formula for deriving the assessed value is to calculate 15% of the sum of (a)
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.
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The Bylaws of the Company authorize nine directors. The directors will
be elected by the stockholders of the Company for staggered three-year terms,
or until their successors
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are elected and qualified. One class of directors, consisting of Messrs.
Donald Scott, Kirschman and Paine, has a term of office expiring at the
first annual meeting of stockholders following the Conversion (which is
expected to be held in April 1998), a second class, consisting of Messrs.
Bruce Scott, Caldcleugh and Glazer, has a term of office expiring at the
second annual meeting of stockholders following the Conversion, and a third
class, consisting of Messrs. Key, Zahn and Cory, has a
term of office expiring at the third annual meeting of stockholders following
the Conversion. No director is related to any other director or executive
officer by first cousin or closer, except that Donald C. Scott and Bruce A.
Scott are brothers. Their names and biographical information are set forth
under "Management of the Association -Directors."
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names.
Name Position Held With Company
---------------- -----------------------------------
Donald C. Scott Chairman of the Board, President
and Chief Executive Officer
Bruce A. Scott Executive Vice President
Lettie Rufin Moll Vice President and Secretary
Ralph E. Weber Vice President
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, retirement, resignation or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from
the Company. Information concerning the principal occupations and employment
of the directors and officers of the Company during the past five years is
set forth under "Management of Guaranty Savings - Directors" and "- Executive
Officers Who Are Not Directors." Following the Conversion, the directors of
the Company will be compensated by the Company in amounts to be determined,
and the Company will reimburse the Association for its pro rata share of the
compensation of their common officers and employees. The executive officers
of the Company initially will not be directly compensated by the Company but
will serve and be compensated by the Association. See "Management of
Guaranty Savings - Director Compensation" and " - Executive Compensation."
BENEFITS
EMPLOYEE STOCK OWNERSHIP PLAN. The Company has established the ESOP for
employees of the Company and the Association to become effective upon the
Conversion. Full-time employees of the Company and the Association who have
been credited with at
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least 1,000 hours of service during a twelve month period and who have
attained age 18 are eligible to participate in the ESOP.
As part of the Conversion, in order to fund the purchase of up to 8% of
the Common Stock to be issued in the Conversion, it is anticipated that the
ESOP will borrow funds from the Company. It is anticipated that such loan
will equal 100% of the aggregate purchase price of the Common Stock acquired
by the ESOP. The loan to the ESOP will be repaid principally from the
Company's and the Association's contributions to the ESOP over a period OF
10 YEARS, and the collateral for the loan will be the Common Stock purchased
by the ESOP. The interest rate for the ESOP loan is expected to be a fixed
rate of ____%. The Company may, in any plan year, make additional
discretionary contributions for the benefit of plan participants in either
cash or shares of Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders, upon the
original issuance of additional shares by the Company or upon the sale of
treasury shares by the Company. Such purchases, if made, would be funded
through additional borrowings by the ESOP or additional contributions from
the Company. The timing, amount and manner of future contributions to the
ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations and market
conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held
in a suspense account and released on a pro rata basis as debt service
payments are made. Discretionary contributions to the ESOP and shares
released from the suspense account will be allocated among participants on
the basis of compensation. Forfeitures will be reallocated among remaining
participating employees and may reduce any amount the Company might otherwise
have contributed to the ESOP. The account balances of participants within
the ESOP will become 20% vested at the end of one year of service, and the
vesting will increase by 20% per year so that participants are 100% vested
upon the completion of five years of service. Credit is given for years of
service with the Association prior to adoption of the ESOP. In the case of a
"change in control," as defined, however, participants will become
immediately fully vested in their account balances. Benefits may be payable
upon retirement or separation from service. The Company's contributions to
the ESOP are not fixed, so benefits payable under the ESOP cannot be
estimated.
Messrs. Bruce Scott and Ralph Weber, and Ms. Lettie R. Moll will serve
as trustees of the ESOP. Under the ESOP, the trustees must vote all
allocated shares held in the ESOP in accordance with the instructions of the
participating employees, and unallocated shares will be voted in the same
ratio on any matter as those allocated shares for which instructions are
given.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Accounting Pronouncements" for a discussion of
SOP 93-6, which addresses the measure of compensation expense recorded by
employers for leveraged ESOPs from the cost of ESOP shares to the fair value
of ESOP shares.
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GAAP requires that any third party borrowing by the ESOP be reflected as
a liability on the Company's statement of financial condition. Since the
ESOP is borrowing from the Company, such obligation is not treated as a
liability, but will be excluded from stockholders' equity. If the ESOP
purchases newly issued shares from the Company, total stockholders' equity
would neither increase nor decrease, but per share stockholders' equity and
per share net earnings would decrease as the newly issued shares are
allocated to the ESOP participants.
The ESOP will be subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the regulations of the
IRS and the Department of Labor thereunder.
STOCK OPTION PLAN. Following consummation of the Conversion, the Board
of Directors of the Company intends to adopt a Stock Option Plan, which will
be designed to attract and retain qualified personnel in key positions,
provide directors, officers and key employees with a proprietary interest in
the Company as an incentive to contribute to the success of the Company and
reward key employees for outstanding performance. The Stock Option Plan will
provide for the grant of incentive stock options intended to comply with the
requirements of Section 422 of the Code ("incentive stock options"),
non-incentive or compensatory stock options, and stock appreciation rights
(collectively "Awards"). Awards may be granted to key employees of the
Company and any subsidiaries. The Stock Option Plan will be administered and
interpreted by a committee of the Board of Directors ("Committee") which is
"disinterested" pursuant to applicable regulations under the federal
securities laws. Non-employee directors will only be entitled to receive
compensatory stock options pursuant to a formula governing the amount and
timing of such options. Unless sooner terminated, the Stock Option Plan
shall continue in effect for a period of 10 years from the date the Stock
Option Plan is adopted by the Board of Directors.
Under the Stock Option Plan, the Committee will determine which officers
and key employees will be granted Awards, whether options will be incentive
or compensatory options, the number of shares subject to each Award, the
exercise price of each option, whether options may be exercised by delivering
other shares of Common Stock and when such options become exercisable. The
per share exercise price of an incentive or compensatory stock option must at
least equal the fair market value of a share of Common Stock on the date the
option is granted.
Stock options will become exercisable in the manner specified by the
Committee, provided that all options will become fully exercisable in the
event of a change in control of the Company if the plan is implemented
following the one-year anniversary of the Conversion. If the plan is
implemented within the first year following the Conversion, current OTS
regulations would require the stock options to vest at a rate not in excess
of 20% per year and prohibit accelerated vesting except in the case of
disability or death. Each stock option or portion thereof will be
exercisable at any time on or after it vests and will be exercisable until 10
years after its date of grant or for periods of up to one year
105
following the death, disability or other termination of the optionee's
employment. However, failure to exercise incentive stock options within three
months after the date on which the optionee's employment terminates may
result in adverse tax consequences to the optionee. Stock options are
non-transferable except by will or the laws of descent and distribution.
Under the Stock Option Plan, the Committee may grant rights to optionees
("stock appreciation rights") under which an optionee may surrender any
exercisable incentive stock option or compensatory stock option or part
thereof in return for payment by the Company to the optionee of cash or
Common Stock in an amount equal to the excess of the fair market value of the
shares of Common Stock subject to option at the time over the option price of
such shares, or a combination of cash and Common Stock. Stock appreciation
rights may be granted concurrently with the stock options to which they
relate or, for those which relate to compensatory stock options, at any time
thereafter which is prior to the exercise or expiration of such options.
At the time an Award is granted pursuant to the Stock Option Plan, the
recipient will not be required to make any payment in consideration for such
grant. With respect to incentive or compensatory stock options, the optionee
will be required to pay the applicable exercise price at the time of exercise
in order to receive the underlying shares of Common Stock. If a stock
appreciation right is exercised, the holder of the right is entitled to
receive an amount equal to the excess of the fair market value of the
underlying shares of Common Stock over the applicable exercise price, without
having to pay the exercise price.
A number of shares of Common Stock equal to an aggregate of 10% of the
Common Stock sold in the Conversion will be reserved for issuance pursuant to
the Stock Option Plan (299,000 shares, based on the sale of 2,990,000 shares
at the maximum of the Estimated Valuation Range). Such shares may be
authorized but previously unissued shares, treasury shares, or shares
purchased by the Company on the open market or from private sources. In the
event of a stock split, reverse stock split or stock dividend, the number of
shares of Common Stock under the Stock Option Plan, the number of shares to
which any Award relates and the exercise price per share under any option or
stock appreciation right shall be adjusted to reflect such increase or
decrease in the total number of shares of Common Stock outstanding. In the
event the Company declares a special cash dividend or return of capital
following the implementation of the Stock Option Plan in an amount per share
which exceeds 10% of the fair market value of a share of Common Stock as of
the date of declaration, the per share exercise price of all previously
granted options which remain unexercised as of the date of such declaration
shall be proportionately adjusted to give effect to such special cash
dividend or return of capital as of the date of payment of such special cash
dividend or return of capital; provided, however, that the per share exercise
price of outstanding incentive stock options shall not be adjusted if such
adjustment would result in new incentive stock options being deemed to be
granted under the Code.
Under current provisions of the Code, the federal income tax treatment
of incentive stock options and compensatory stock options is different. As
regards incentive stock
106
options, an optionee who meets certain holding period requirements will not
recognize income at the time the option is granted or at the time the option
is exercised, and a federal income tax deduction generally will not be
available to the Company at any time as a result of such grant or exercise.
With respect to compensatory stock options, the difference between the fair
market value on the date of exercise and the option exercise price generally
will be treated as compensation income upon exercise, and the Company will be
entitled to a deduction in the amount of income so recognized by the
optionee. Upon the exercise of a stock appreciation right, the holder will
realize income for federal income tax purposes equal to the amount received
by him, whether in cash, shares of stock or both, and the Company will be
entitled to a deduction for federal income tax purposes in the same amount.
It is currently expected that 30% of the shares available under the
Stock Option Plan will be granted to non-employee directors, with each
non-employee director receiving an option for the same number of shares, in
which event options for a total of approximately 12,814 shares would be
granted to each of the seven non-employee directors if the amount of Common
Stock sold in the Conversion is equal to the maximum of the Estimated
Valuation Range. In addition, it is currently expected that stock options
will be granted to Messrs. Donald C. Scott and Bruce A. Scott, although no
determination has been made at this time as to the amount of such stock
options. The Stock Option Plan will provide that no officer would be able to
receive a stock option for more than 25% of the shares available under the
Stock Option Plan, or 74,750 shares if the amount of Common Stock sold in the
Conversion is equal to the maximum of the Estimated Valuation Range. The
Company does not expect to grant any stock appreciation rights in the first
year following completion of the Conversion.
The Stock Option Plan will not be implemented prior to the receipt of
stockholder approval of the plan. The Company currently intends to submit
the Stock Option Plan to stockholders for approval following the one-year
anniversary of the Conversion. However, the Company reserves the right to
submit such plans to stockholders at a special meeting of stockholders,
provided that such meeting is at least six months following the Conversion.
In such event, the proposed Stock Option Plan would need to be revised to
include a mandatory five-year vesting schedule and a prohibition on
accelerated vesting in the event of retirement or a change in control, which
provisions are required by current OTS regulations for plans implemented
within one year following the Conversion, as well as any other revisions
necessary to comply with then applicable OTS regulations and policies.
RECOGNITION PLAN. Following consummation of the Conversion, the Board
of Directors of the Company intends to adopt a Recognition Plan for
directors, officers and employees. The objective of the Recognition Plan
will be to enable the Company to provide directors, officers and employees
with a proprietary interest in the Company as an incentive to contribute to
its success.
107
The Recognition Plan will be administered by a committee of the Board of
Directors, which will have the responsibility to invest all funds contributed
to the trust created for the Recognition Plan (the "Trust"). The Company
will contribute sufficient funds to the Trust so that the Trust can purchase,
following the receipt of stockholder approval, a number of shares equal to an
aggregate of 4% of the Common Stock sold in the Conversion (119,600 shares,
based on the sale of 2,990,000 shares at the maximum of the Estimated
Valuation Range). Shares of Common Stock granted pursuant to the Recognition
Plan generally will be in the form of restricted stock and will vest at the
rate of 20% per year over the five years following the date of grant. For
accounting purposes, compensation expense in the amount of the fair market
value of the Common Stock at the date of the grant to the recipient will be
recognized pro rata over the period during which the shares are payable. A
recipient will be entitled to all voting and other stockholder rights, except
that the shares, while restricted, may not be sold, pledged or otherwise
disposed of and are required to be held in the Trust. Under the terms of the
Recognition Plan, recipients of awards will be entitled to instruct the
trustee of the Recognition Plan as to how the underlying shares should be
voted, and the trustee will be entitled to vote all unallocated shares in its
discretion. If a recipient terminates employment for reasons other than
death or disability, the recipient will forfeit all rights to the allocated
shares under restriction. If the recipient's termination is caused by death
or disability, all restrictions will expire and all allocated shares will
become unrestricted. All restrictions also will expire and all allocated
shares will become unrestricted in the event of retirement or a change in
control of the Company, as defined in the Recognition Plan. However, if the
plan is implemented within the first year following the Conversion, current
OTS regulations would prohibit accelerated vesting except in the event of
disability or death. The Board of Directors of the Company can terminate the
Recognition Plan at any time, and if it does so, any shares not allocated
will revert to the Company. Recipients of grants under the Recognition Plan
will not be required to make any payment at the time of grant or when the
underlying shares of Common Stock become vested, other than payment of
withholding taxes.
It is currently expected that 30% of the shares available under the
Recognition Plan will be granted to non-employee directors, with each
non-employee director receiving an award for the same number of shares, in
which event awards for a total of approximately 5,125 shares would be granted
to each of the seven non-employee directors if the amount of Common Stock
sold in the Conversion is equal to the maximum of the Estimated Valuation
Range. In addition, it is currently expected that awards will be granted to
Messrs. Donald C. Scott and Bruce A. Scott, although no determination has
been made at this time as to the amount of such awards. The Recognition Plan
will provide that no officer would be able to receive an award for more than
25% of the shares available under the Recognition Plan, or 29,900 shares if
the amount of Common Stock sold in the Conversion is equal to the maximum of
the Estimated Valuation Range.
The Recognition Plan will not be implemented prior to the receipt of
stockholder approval of the plan. The Company currently intends to submit
the Recognition Plan to stockholders for approval following the one-year
anniversary of the Conversion. However,
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the Company reserves the right to submit such plan to stockholders at a
special meeting following the Conversion, provided that such meeting is held
at least six months following the Conversion. In such event, the Recognition
Plan would need to be revised to include a prohibition on accelerated vesting
in the event of retirement or a change in control, since such accelerated
vesting is not permitted by current OTS regulations applicable to plans
implemented within one year following the Conversion. If the Recognition
Plan is implemented within one year of the Conversion, it would also need to
be revised to remove the provisions permitting recipients of grants to vote
the underlying shares of Common Stock and receive dividends on such shares
prior to the dates such shares vest, as well as any other revisions necessary
to comply with then applicable OTS regulations and policies.
MANAGEMENT OF THE ASSOCIATION
DIRECTORS
The direction and control of the Association is vested in its Board of
Directors, which currently consists of nine members. The Association's
mutual Articles of Incorporation require the Board of Directors to be elected
each year. Following the Conversion, the Association's stock Articles of
Incorporation will require the Board of Directors to be divided into three
classes as nearly equal in number as possible. The members of each class are
elected for a term of three years or until their successors are elected and
qualified, with one class of directors elected annually. No director is
related to any other director or executive officer by first cousin or closer,
except that Donald C. Scott and Bruce A. Scott are brothers and Bruce A.
Scott and Stephen L. Cory are brothers-in-law. The following table sets
forth certain information regarding the Board of Directors of the
Association.
Positions Held
With the Director
Name Age(1) Association Since
- ------------------------ ----- -------------------------- --------
Kenneth B. Caldcleugh 47 Director 1996
Stephen L. Cory 46 Director 1995
Bradford A. Glazer 40 Director 1991
J. Scott Key 44 Director 1991
Victor Kirschman 73 Director 1977
Mannie D. Paine, Jr., M.D. 79 Director 1976
Bruce A. Scott 43 Director and Executive Vice
President 1982
Donald C. Scott 45 Chairman, President and
Chief Executive Officer 1982
Albert J. Zahn, Jr. 45 Director 1992
____________________
(1) As of September 30, 1996.
109
Set forth below is information with respect to the principal occupations
of the directors of the Association during the last five years.
KENNETH B. CALDCLEUGH. Mr. Caldcleugh is a Vice President and Regional
Manager of Glazer Wholesale Spirit & Wine Distributors.
STEPHEN L. CORY. Mr. Cory is an insurance agent and President of the
Cory, Tucker & Lorrowe Insurance Agency in Metairie, Louisiana.
BRADFORD A. GLAZER. Mr. Glazer is the Chairman of Glazer Steel
Corporation, a metal service center in New Orleans, Louisiana and Knoxville,
Tennessee. He is also Chairman and President of Glazer Enterprises,
Cincinnati, Ohio, an enterprise with diversified business management and
investment interests.
J. SCOTT KEY. Mr. Key is the President of Kencoil, Inc. (previously D&S
Industries), an electric motor coil manufacturer and its subsidiary Scott
Armature, a provider of sales and service of electrical apparatus, in Belle
Chasse, Louisiana.
VICTOR KIRSCHMAN. Mr. Kirschman is the Chairman of M. Kirschman & Co.,
Inc., a a retail furniture business with its main office in New Orleans,
Louisiana,
MANNIE D. PAINE. Dr. Paine is a retired physician. Dr. Paine has
provided consulting services to Blue Cross and Blue Shield of Louisiana since
1990 and Unisys.
BRUCE A. SCOTT. Mr. Scott is an attorney and Executive Vice President
of the Association. Mr. Scott is legal counsel and Personnel Manager for the
Association. Mr. Scott also performs certain legal services for the
Association and its borrowers in connection with real estate loan closings
and receives fees from the borrowers in connection therewith.
DONALD C. SCOTT. Mr. Scott has served as President of the Association
since 1985, prior thereto he served in various management and other
positions at Guaranty Savings.
ALBERT J. ZAHN, JR. Mr. Zahn is a certified public accountant and
partner in the firm of Zahn, Kenney & Bresette in Metairie, Louisiana.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information with respect to the
one executive officer of the Association who is not a director. There are no
arrangements or understandings between the Association and such person
pursuant to which such person was elected an executive officer of the
Association, and such officer is not related to any director or officer of
the Association by blood, marriage or adoption.
110
Name Age(1) Position(s)
- ----------------- ------ -----------------------------
Lettie Rufin Moll 42 Vice President and Secretary
Ralph E. Weber 52 Vice President
____________________
(1) As of September 30, 1996.
Set forth below is information with respect to the principal occupations
of the above executive officer during the last five years.
LETTIE RUFIN MOLL. Ms. Moll currently is Vice President and corporate
Secretary of Guaranty Savings. She has been an employee of the Association
since 1975.
RALPH WEBER. Mr. Weber has primary responsibility for the Association's
data processing requirements and currently serves as Vice President. Mr.
Weber has been employed at Guaranty Savings since 1977.
BOARD MEETINGS AND COMMITTEES
Regular meetings of the Board of Directors of the Association are held
on at least a monthly basis and special meetings of the Board of Directors
are held from time-to-time as needed. There were 12 meetings of the Board of
Directors held during the year ended December 31, 1995. NO DIRECTOR
ATTENDED FEWER THAN 75% OF THE TOTAL NUMBER OF MEETINGS OF THE BOARD OF
DIRECTORS OF GUARANTY SAVINGS DURING 1995 AND THE TOTAL NUMBER OF MEETINGS
HELD BY ALL COMMITTEES OF THE BOARD ON WHICH THE DIRECTOR SERVED DURING SUCH
YEAR.
The Board of Directors of the Association has established various
committees, including Executive, Compensation, Real Estate, Nominating and
Audit Committees.
DIRECTOR COMPENSATION
During the year ended December 31, 1995, each member of the Board of
Directors of the Association was paid $700 per Board meeting and $__ per
committee meeting.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Association
for services rendered in all capacities during the year ended December 31,
1995 to the President and Chief Executive Officer of the Association and the
one other executive officer of the Association whose total cash compensation
during the year exceeded $100,000.
Annual Compensation
Name and Principal --------------------------------------
Position Year Salary Bonus Other(1)
-------------------------- ---- ------- ------- ----------
Donald C. Scott
President and Chief
Executive Officer 1995 $97,127 $16,552 $13,642
Bruce A. Scott
Executive Vice President 1995 $88,650 $15,106 $12,451
______________________
(1) Amounts reflect Association's contribution to its defined contributory
pension plan on behalf of the employee. See "- Defined Contributory
Pension Plan." Annual compensation does not include amounts
attributable to other miscellaneous benefits received by the executive
officers. The costs to the Association of providing such benefits
during 1995 did not exceed 10% of the total salary and bonus paid to
or accrued for the benefit of such individual executive officer.
EMPLOYMENT AGREEMENTS
The Company and the Association (collectively the "Employers") intend
to enter into employment agreements with Messrs. Donald Scott and Bruce Scott
effective upon consummation of the Conversion. The Employers have agreed to
employ Messrs. Donald Scott and Bruce Scott for a term of three years and
following consummation of the Conversion in their current position at their
current salary levels. At least 30 days prior to each annual anniversary
date of each of the employment agreements, the Boards of Directors of the
Company and the Association shall determine whether or not to extend the term
of each agreement for an additional one year. Any party may elect not to
extend the agreements for an additional year by providing written notice at
least 30 days prior to any annual anniversary date.
The employment agreements will be terminable with or without cause by
the Employers. The officers shall have no right to compensation or other
benefits pursuant to the employment agreements for any period after voluntary
termination or termination by the Employers for cause, disability, retirement
or death, provided, however, that (i) in the
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event that an officer terminates his employment because of failure of the
Employers to comply with any material provision of the employment agreement
or (ii) the employment agreement is terminated by the Employers other than
for cause, disability, retirement or death or by the officer as a result of
certain adverse actions which are taken with respect to the officer's
employment following a Change in Control of the Company, as defined, Messrs.
Donald Scott and Bruce Scott will each be entitled to a cash severance amount
equal to three times his average annual compensation over his most recent
five taxable years. In addition, the officer will be entitled to a
continuation of benefits similar to those he is receiving at the time of such
termination for the remaining term of the agreement or until the officer
obtains full-time employment with another employer, whichever occurs first.
A Change in Control is generally defined in the employment agreement
to include any change in control required to be reported under the federal
securities laws, as well as (i) the acquisition by any person of 25% or more
of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any two-year period without
the approval of at least two-thirds of the persons who were directors of the
Company at the beginning of such period.
The employment agreements will provide that in the event that any of
the payments to be made thereunder or otherwise upon termination of employment
are deemed to constitute a "parachute payment" within the meaning of Section
280G of the Code, then such payments and benefits received thereunder shall
be reduced, in the manner determined by the employee, by the amount, if any,
which is the minimum necessary to result in no portion of the payments and
benefits being non-deductible by the Employers for federal income tax
purposes. Parachute payments generally are payments equal to or exceeding
three times the base amount, which is defined to mean the recipient's average
annual compensation from the employer includable in the recipient's gross
income during the most recent five taxable years ending before the date on
which a change in control of the employer occurred. Recipients of parachute
payments are subject to a 20% excise tax on the amount by which such
payments exceed the base amount, in addition to regular income taxes, and
payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes.
Although the above-described employment agreements could increase the
cost of any acquisition of control of the Company, management of the Company
does not believe that the terms thereof would have a significant
anti-takeover effect.
DEFINED CONTRIBUTORY PENSION PLAN
The Association maintains a Simplified Employee Pension-Individual
Retirement Account Agreement (the "SEP-IRA") for its employees. Each
employee who (i) is at least age 18 and (ii) has performed services for the
Association in at least one year of the immediately preceding five years is
eligible to participate. Under the SEP-IRA, a participant may defer up to
15% of his compensation. The Association may make
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discretionary contributions to participants' accounts on an annual basis.
During 1995 and 1994, the Association made contributions to the SEP-IRA in
amounts equaling [12%] of participants' compensation. The Association's
contributions to the SEP-IRA amounted to $128,000 and $125,000 for 1995 and
1994, respectively. Participants are immediately vested in employer
contributions as well as their elective deferrals and may withdraw either at
any time. Amounts withdrawn, however, are includible in a participant's
income and may be subject to a 10% penalty tax.
INDEBTEDNESS OF MANAGEMENT
In the ordinary course of business, the Association makes loans
available to its directors, officers and employees. Such loans are made on
the same terms as comparable loans to other borrowers. It is the belief of
management that these loans neither involve more than the normal risk of
collectibility nor present other unfavorable features. At December 31, 1995,
the Association had four loans outstanding to directors and executive
officers of the Association, or members of their immediate families, all of
which were secured by their primary residences. These loans totalled
approximately $209,000 or less than 1% of the Association's total net worth
at September 30, 1996.
THE CONVERSION
THE BOARD OF DIRECTORS OF THE COMPANY AND THE ASSOCIATION HAVE APPROVED
THE PLAN OF CONVERSION, AS HAS THE OTS AND THE OFI, SUBJECT TO APPROVAL BY
THE MEMBERS OF GUARANTY SAVINGS ENTITLED TO VOTE ON THE MATTER AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH OTS AND OFI APPROVALS,
HOWEVER, DO NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY
EITHER OF SUCH AGENCIES.
GENERAL
On October 10, 1996, the Board of Directors of the Association
unanimously adopted the Plan, pursuant to which the Association will be
converted from a Louisiana-chartered mutual savings and loan association to a
Louisiana-chartered stock savings and loan association to be known as
"Guaranty Savings and Homestead Association," and the Company will offer and
sell the Common Stock. It is intended that all of the common stock of the
Association following the Conversion will be held by the Company, which is
incorporated under Louisiana law. The Plan has been approved by the OTS and
the OFI, subject to, among other things, approval of the Plan by the members
of the Association. A Special Meeting has been called for this purpose to be
held on _____ __, 1996.
In adopting the Plan, the Board of Directors of the Association
determined that the Conversion was advisable and in the best interests of its
members and the Association and further determined that the interests of
certain holders of its deposit accounts in the net
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worth of the Association would be equitably provided for and that the
Conversion would not have any adverse impact on the reserves and net worth of
the Association.
The Company has received approval from the OTS and the OFI to become a
savings and loan holding company and to acquire all of the common stock of
the Association to be issued in connection with the Conversion. The Company
plans to retain 50% of the net proceeds from the sale of the Common Stock,
with all the remaining proceeds used to purchase all of the then to be issued
and outstanding capital stock of the Association. Based on the minimum and
maximum of the Estimated Valuation Range, approximately $1,768,000 and
$2,392,000, respectively, of the net proceeds retained by the Company are
intended to be used to loan funds to the ESOP to enable the ESOP to purchase
up to 8% of the Common Stock. The Conversion will be effected only upon
completion of the sale of all of the shares of Common Stock to be issued
pursuant to the Plan.
The Plan provides generally that, in connection with the Conversion, the
Company will offer shares of Common Stock for sale in the Subscription
Offering to the Association's Eligible Account Holders, ESOP, Supplemental
Eligible Account Holders, Other Members, officers, directors and employees of
the Association and in a concurrent Community Offering to certain members of
the general public, subject to the prior rights of holders of subscription
rights. See "- Subscription Offering and Subscription Rights" and
"- Community Offering." It is anticipated that all shares not subscribed for
in the Subscription and Community Offerings will be offered for sale by the
Company to the general public in a Syndicated Community Offering. See
"- Syndicated Community Offering." The Company and the Association have the
right to accept or reject, in whole or in part, any orders to purchase shares
of Common Stock received in the Community Offering or in the Syndicated
Community Offering.
The aggregate price of the shares of Common Stock to be issued in the
Conversion within the Estimated Valuation Range, currently estimated to be
between $22,100,000 and $29,900,000, will be determined based upon an
independent appraisal of the estimated pro forma market value of the Common
Stock. All shares of Common Stock to be issued and sold in the Conversion
will be sold at the same price. The independent appraisal will be affirmed
or, if necessary, updated at the completion of the Subscription and Community
Offerings, if all shares are subscribed for, or at the completion of the
Syndicated Community Offering. The appraisal has been performed by RP
Financial, a consulting firm experienced in the valuation and appraisal of
savings institutions. See "- Stock Pricing and Number of Shares to be
Issued" for more information as to the determination of the estimated pro
forma market value of the Common Stock.
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of
the Plan. A copy of the Plan is available for inspection at the offices of
the Association and at the offices of the OTS. The Plan is also filed as an
exhibit to the Registration Statement of which this
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Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
PURPOSES OF CONVERSION
The Association, as a Louisiana-chartered mutual savings and loan
association, does not have stockholders and has no authority to issue capital
stock. By converting to the capital stock form of organization, the
Association will be structured in the form used by commercial banks, most
business entities and a growing number of savings institutions. The
Conversion will result in an increase in the capital base of the Association
and the Company, which will support the operations of the Association and
Company.
The Conversion will permit the Association's customers and members of
the local community and of the general public to become equity owners and to
share in the future of the Company and the Association. The Conversion will
also provide additional funds for lending and investment activities,
facilitate future access to the capital markets, enhance the ability of the
Company to diversify and expand into other markets and enable the Association
to compete more effectively with other financial institutions.
The holding company form of organization will provide additional
flexibility to diversify the Company's and the Association's business
activities through existing or newly formed subsidiaries, or through
acquisition of or mergers with other financial institutions, as well as other
companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be in a
position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any such opportunities
that may arise.
After completion of the Conversion, the unissued common and preferred
stock authorized by the Company's Articles of Incorporation will permit the
Company, subject to market conditions and applicable regulatory approvals, to
raise additional equity capital through further sales of securities, and to
issue securities in connection with possible acquisitions. At the present
time, the Company has no plans with respect to additional offerings of
securities, other than the possible issuance of additional shares to the
Recognition Plan or upon exercise of stock options. Following the
Conversion, the Company will also be able to use stock-related incentive
programs to attract and retain executive and other personnel for itself and
its subsidiaries. See "Management of the Company - Benefits."
EFFECTS OF CONVERSION
GENERAL. Prior to the Conversion, each depositor in the Association has
both a deposit account in the institution and a pro rata ownership interest
in the net worth of the Association based upon the balance in his account,
which interest may only be realized in the event of a liquidation of the
Association. However, this ownership interest is tied to the
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depositor's account and has no tangible market value separate from such
deposit account. Any person who opens a deposit account obtains a pro rata
ownership interest in the net worth of the Association without any additional
payment beyond the amount of the deposit. A depositor who reduces or closes
his account receives a portion or all of the balance in the account but
nothing for his ownership interest in the net worth of the Association, which
is lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Association normally have no way to
realize the value of their ownership interest, which has realizable value
only in the unlikely event that the Association is liquidated. In such
event, the depositors of record at that time, as owners, would share pro rata
in any residual surplus and reserves of the Association after other claims,
including claims of depositors to the amount of their deposits, are paid.
When the Association converts to stock form, permanent nonwithdrawable
capital stock will be created to represent the ownership of the net worth of
the Association, and the Association will become a wholly owned subsidiary of
the Company. THE COMMON STOCK OF THE ASSOCIATION AND THE COMPANY IS SEPARATE
AND APART FROM DEPOSIT ACCOUNTS OF THE ASSOCIATION AND CANNOT BE AND IS NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Certificates are
issued to evidence ownership of the permanent stock of the Association and
the Company. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Association.
CONTINUITY. While the Conversion is being accomplished, the normal
business of the Association of accepting deposits and making loans will
continue without interruption. The Association will continue to be subject
to regulation by the OTS, the OFI and the FDIC. After the Conversion, the
Association will continue to provide services for depositors and borrowers
under current policies by its present management and staff.
The directors and officers of the Association at the time of the
Conversion will continue to serve as directors and officers of the
Association after the Conversion. The directors and officers of the Company
consist of individuals currently serving as directors and officers of the
Association, and they will retain their positions in the Association after
the Conversion.
EFFECT ON DEPOSIT ACCOUNTS. Under the Plan, each depositor in the
Association at the time of the Conversion will automatically continue as a
depositor after the Conversion, and each such deposit account will remain the
same with respect to deposit balance, interest rate and other terms, except
to the extent that funds in the account are withdrawn to purchase the Common
Stock and except with respect to voting and liquidation rights. Each such
account will be insured by the FDIC to the same extent as before the
Conversion. Depositors will continue to hold their existing certificates,
passbooks and other evidences of their accounts.
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EFFECT ON LOANS. No loan outstanding from the Association will be
affected by the Conversion, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to
the Conversion.
EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors and
certain borrowers of the Association are members of, and have voting rights
in, the Association as to all matters requiring membership action. Upon
completion of the Conversion, depositors and borrowers will cease to be
members and will no longer be entitled to vote at meetings of the
Association. Upon completion of the Conversion, all voting rights in the
Association will be vested in the Company as the sole stockholder of the
Association. Exclusive voting rights with respect to the Company will be
vested in the holders of Common Stock. Depositors of and borrowers from the
Association will not have voting rights in the Company after the Conversion,
except to the extent that they become stockholders of the Company.
TAX EFFECTS. Consummation of the Conversion is conditioned on prior
receipt by the Company and the Association of rulings or opinions with regard
to federal and Louisiana income taxation which indicate that the adoption and
implementation of the Plan of Conversion described herein will not be taxable
for federal or Louisiana income tax purposes to the Company and the
Association or the Association's Eligible Account Holders or Supplemental
Eligible Account Holders, except as discussed below. The Association has
received favorable opinions regarding the federal and Louisiana income tax
consequences of the Conversion. See "- Tax Aspects."
EFFECT ON LIQUIDATION RIGHTS. Were the Association to liquidate, all
claims of the Association's creditors (including those of depositors, to the
extent of their deposit balances) would be paid first. Thereafter, if there
were any assets remaining, members of the Association would receive such
remaining assets, pro rata, based upon the deposit balances in their deposit
accounts at the Association immediately prior to liquidation. In the
unlikely event that the Association were to liquidate after the Conversion,
all claims of creditors (including those of depositors, to the extent of
their deposit balances) would also be paid first, followed by distribution of
the "liquidation account" to certain depositors (see "- Liquidation Rights"),
with any assets remaining thereafter distributed to the Company as the holder
of the Association's capital stock. Pursuant to the rules and regulations of
the OTS, a post-Conversion merger, consolidation, sale of bulk assets or
similar combination or transaction with another insured savings institution
would not be considered a liquidation and, in such a transaction, the
liquidation account would be required to be assumed by the surviving
institution.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common
Stock, as determined on the basis of an independent valuation. The
Association has retained RP Financial to
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make such valuation. For its services in making such appraisal, RP
Financial's fees and out-of-pocket expenses are estimated to be $15,250. The
Association has agreed to indemnify RP Financial and any employees of RP
Financial who act for or on behalf of RP Financial in connection with the
appraisal against any and all loss, cost, damage, claim, liability or expense
of any kind (including claims under federal and state securities laws)
arising out of any misstatement or untrue statement of a material fact or an
omission to state a material fact in the information supplied by the
Association to RP Financial, unless RP Financial is determined to be
negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon the
information contained in this Prospectus, including the Financial Statements.
RP Financial also considered the following factors, among others: the
present and projected operating results and financial condition of the
Company and the Association and the economic and demographic conditions in
the Association's existing marketing area; certain historical, financial and
other information relating to the Association; a comparative evaluation of
the operating and financial statistics of the Association with those of other
similarly situated publicly traded savings institutions located in Louisiana
and other regions of the United States; the aggregate size of the offering of
the Common Stock; the impact of the Conversion on the Association's net worth
and earnings potential; the proposed dividend policy of the Company and the
Association; and the trading market for securities of comparable institutions
and general conditions in the market for such securities. In its review of
the appraisal provided by RP Financial, the Board of Directors reviewed the
methodologies and the appropriateness of the assumptions used by RP Financial
in addition to the factors enumerated above, and the Board of Directors
believes that such assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised the Company and
the Association that in its opinion, dated December 20, 1996, the estimated
pro forma market value of the Common Stock ranged from a minimum of
$22,100,000 to a maximum of $29,900,000 with a midpoint of $26,000,000. The
Boards of Directors of the Company and the Association determined that the
Common Stock should be sold at $10.00 per share, resulting in a range of
2,210,000 to 2,990,000 shares of Common Stock being offered. The Estimated
Valuation Range may be amended with the approval of the OTS and the OFI, if
required, or if necessitated by subsequent developments in the financial
condition of the Company and the Association or market conditions generally,
or to fill the order of the ESOP. In the event the Estimated Valuation Range
is updated to amend the value of the Association below $22,100,000 or above
$34,385,000 (the maximum of the Estimated Valuation Range, as adjusted by
15%), the new appraisal will be filed with the SEC by post-effective
amendment.
Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event the Company receives orders for Common
Stock in excess of $29,900,000 (the maximum of the Estimated Valuation Range)
and up to $34,385,000 (the maximum of the Estimated Valuation Range, as
adjusted by 15%), the Company may be
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required by the OTS to accept all such orders. No assurances, however, can
be made that the Company will receive orders for Common Stock in excess of
the maximum of the Estimated Valuation Range or that, if such orders are
received, that all such orders will be accepted because the Company's final
valuation and number of shares to be issued are subject to the receipt of an
updated appraisal from RP Financial which reflects such an increase in the
valuation and the approval of such increase by the OTS. In addition, an
increase in the number of shares above 2,990,000 shares will first be used,
if necessary, to fill the order of the ESOP. There is no obligation or
understanding on the part of management to take and/or pay for any shares in
order to complete the Conversion.
RP FINANCIAL'S VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH
SHARES. RP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS
AND OTHER INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID RP FINANCIAL VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE ASSOCIATION. THE VALUATION
CONSIDERS THE ASSOCIATION AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS
AN INDICATION OF THE LIQUIDATION VALUE OF THE ASSOCIATION. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO
ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING COMMON STOCK IN THE CONVERSION
WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE
PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA
MARKET VALUE THEREOF.
Prior to completion of the Conversion, the maximum of the Estimated
Valuation Range may be increased up to 15% and the number of shares of Common
Stock may be increased to up to 3,438,500 shares to reflect changes in market
and financial conditions or to fill the order of the ESOP, without the
resolicitation of subscribers. See "- Limitations on Common Stock Purchases"
as to the method of distribution and allocation of additional shares that may
be issued in the event of an increase in the Estimated Valuation Range to
fill unfilled orders in the Subscription Offering.
No sale of shares of Common Stock in the Conversion may be consummated
unless prior to such consummation RP Financial confirms that nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause it to conclude that the Purchase Price is materially incompatible
with the estimate of the pro forma market value of a share of Common Stock
upon consummation of the Conversion. If such is not the case, a new
Estimated Valuation Range may be set and a new Subscription and Community
Offering and/or Syndicated Community Offering may be held or such other
action may be taken as the Company and the Association shall determine and
the OTS and the OFI may permit or require.
Depending upon market or financial conditions following the commencement
of the Subscription Offering, the total number of shares of Common Stock may
be increased or decreased without a resolicitation of subscribers, provided
that the product of the total number of shares times the Purchase Price is
not below the minimum or more than 15%
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above the maximum of the Estimated Valuation Range. In the event market or
financial conditions change so as to cause the aggregate Purchase Price of
the shares to be below the minimum of the Estimated Valuation Range or more
than 15% above the maximum of such range, purchasers will be resolicited
(i.e., permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Association's passbook rate of interest, or be permitted
to modify or rescind their subscriptions). Any change in the Estimated
Valuation Range must be approved by the OTS. If the number of shares of
Common Stock issued in the Conversion is increased due to an increase of up
to 15% in the Estimated Valuation Range to reflect changes in market or
financial conditions or to fill the order of the ESOP, persons who subscribed
for the maximum number of shares will be given the opportunity to subscribe
for the adjusted maximum number of shares. See "- Limitations on Common
Stock Purchases."
An increase in the number of shares of Common Stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Company's pro forma net income and
stockholders' equity on a per share basis while increasing pro forma net
income and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Common Stock would increase both a subscriber's ownership
interest and the Company's pro forma net income and stockholders' equity on a
per share basis while decreasing pro forma net income and stockholders'
equity on an aggregate basis. See "Risk Factors - Possible Increase in
Number of Shares Issued in the Conversion" and "Pro Forma Data."
Copies of the appraisal report of RP Financial, including any amendments
thereto, and the detailed report of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Association and the other locations specified under "Additional
Information."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to
the following persons in the following order of descending priority: (1)
Eligible Account Holders, (2) the ESOP, (3) Supplemental Eligible Account
Holders, (4) Other Members, and (5) directors, officers and employees of the
Association. All subscriptions received will be subject to the availability
of Common Stock after satisfaction of all subscriptions of all persons having
prior rights in the Subscription Offering and to the maximum and minimum
purchase limitations set forth in the Plan of Conversion and as described
below under "- Limitations on Common Stock Purchases."
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder
will receive, without payment therefor, first priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of (i) $250,000 of Common Stock, (ii) one-
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tenth of one percent (0.10%) of the total offering of shares of Common Stock
or (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction, of which the numerator is the amount of the Eligible
Account Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Eligible Account Holders, in each case
as of the close of business on September 30, 1995 (the "Eligibility Record
Date"), subject to the overall purchase limitations. See "- Limitations on
Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing Eligible
Account Holders so as to permit each such Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Thereafter, any shares remaining after each subscribing Eligible
Account Holder has been allocated the lesser of the number of shares
subscribed for or 100 shares will be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unfilled in the proportion that
the amounts of their respective eligible deposits bear to the total amount of
eligible deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled, provided that no fractional shares shall be
issued. Subscription Rights of Eligible Account Holders will be subordinated
to the priority rights of Tax-Qualified Employee Stock Benefit Plans to
purchase shares in excess of the maximum of the Estimated Valuation Range.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. The subscription rights
of Eligible Account Holders who are also directors or officers of the
Association or their associates will be subordinated to the subscription
rights of other Eligible Account Holders to the extent attributable to
increased deposits in the year preceding September 30, 1995.
PRIORITY 2: EMPLOYEE STOCK OWNERSHIP PLAN. The ESOP will receive,
without payment therefor, second priority, nontransferable subscription
rights to purchase, in the aggregate, up to 10% of the Common Stock,
including any increase in the number of shares of Common Stock after the date
hereof as a result of an increase of up to 15% in the maximum of the
Estimated Valuation Range. The ESOP intends to purchase 8% of the shares of
Common Stock, or 176,800 shares and 239,200 shares based on the minimum and
maximum of the Estimated Valuation Range, respectively. Subscriptions by the
ESOP will not be aggregated with shares of Common Stock purchased directly by
or which are otherwise attributable to any other participants in the
Subscription and Community Offerings, including subscriptions of any of the
Association's directors, officers, employees or associates thereof. In the
event that the total number of shares offered in the Conversion is increased
to an amount greater than the number of shares representing the maximum of
the Estimated Valuation Range ("Maximum Shares"), the ESOP will have a
priority right to purchase any such shares exceeding the Maximum Shares up to
an aggregate of 10% of
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the Common Stock. See "Management of the Company -Benefits - Employee Stock
Ownership Plan."
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the ESOP, each Supplemental Eligible Account
Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) $250,000 of Common Stock, (ii) one-tenth of
one percent (0.10%) of the total offering of shares of Common Stock or (iii)
15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction, of which the numerator is the amount of the Supplemental Eligible
Account Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders,
in each case as of the close of business on December 31, 1996 (the
"Supplemental Eligibility Record Date"), subject to the overall purchase
limitations. See "- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders, available shares
first will be allocated among subscribing Supplemental Eligible Account
Holders so as to permit each such Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his
total allocation equal to the lesser of the number of shares subscribed for
or 100 shares. Thereafter, any shares remaining available will be allocated
among the Supplemental Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled,
provided that no fractional shares shall be issued.
PRIORITY 4: OTHER MEMBERS. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP and Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority,
nontransferable subscription rights to subscribe for Common Stock in the
Subscription Offering up to the greater of (i) $250,000 of Common Stock or
(ii) one-tenth of one percent (0.10%) of the total offering of shares of
Common Stock, subject to the overall purchase limitations. See
"- Limitations on Common Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders, is in excess of the total number
of shares of Common Stock offered in the Conversion, available shares first
will be allocated so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Thereafter, any remaining shares will be allocated among such
subscribing Other Members on a pro rata basis in the same proportion as each
Other Member's
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subscription bears to the total subscriptions of all subscribing Other
Members, provided that no fractional shares shall be issued.
PRIORITY 5: DIRECTORS, OFFICERS AND EMPLOYEES. To the extent that
there are sufficient shares remaining after satisfaction of all subscriptions
by Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders
and Other Members, then directors, officers and employees of the Association
will receive, without payment therefor, fifth priority, nontransferable
subscription rights to subscribe for, in this category, an aggregate of up to
20% of the shares of Common Stock offered in the Subscription Offering. The
ability of directors, officers and employees to purchase Common Stock under
this category is in addition to rights which are otherwise available to them
under the Plan as they may fall within higher priority categories, and the
Plan generally allows such persons to purchase in the aggregate up to 34% of
Common Stock sold in the Conversion. See "- Limitations on Common Stock
Purchases."
In the event of an oversubscription in this category, subscription
rights will be allocated among the individual directors, officers and
employees on a point system basis, whereby such individuals will receive
subscription rights in the proportion that the number of points assigned to
each of them bears to the total points assigned to all directors, officers
and employees, provided that no fractional shares shall be issued. One point
will be assigned for each year of service with the Association, one point for
each salary increment of $5,000 per annum and five points for each office
presently held in the Association, including directorships. For information
as to the number of shares proposed to be purchased by certain of the
directors and officers, see "Proposed Management Purchases."
EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING. The Subscription
Offering will expire at 12:00 noon, Central Time, on _________ __, 199_ (the
"Subscription Expiration Date"), unless extended for up to 45 days or for
such additional periods by the Company and the Association as may be approved
by the OTS and the OFI. The Subscription Offering may not be extended beyond
_______ __, 199_. Subscription rights which have not been exercised prior to
the Subscription Expiration Date (unless extended) will become void.
The Company and the Association will not execute orders until at least
the minimum number of shares of Common Stock (2,210,000 shares) have been
subscribed for or otherwise sold. If all shares have not been subscribed for
or sold within 45 days after the Subscription Expiration Date, unless such
period is extended with the consent of the OTS and the OFI, all funds
delivered to the Association pursuant to the Subscription Offering will be
returned promptly to the subscribers with interest and all withdrawal
authorizations will be cancelled. If an extension beyond the 45-day period
following the Subscription Expiration Date is granted, the Company and the
Association will notify subscribers of the extension of time and of any
rights of subscribers to modify or rescind their subscriptions.
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COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders, Other Members and directors, officers
and employees of the Association, the Company and the Association have
determined to offer shares pursuant to the Plan to certain members of the
general public, with preference given to natural persons residing in Orleans,
St. Tammany and Jefferson Parishes, Louisiana (such natural persons referred
to as "Preferred Subscribers"). Such persons, together with associates of
and persons acting in concert with such persons, may purchase up to the
greater of (i) $250,000 or 25,000 shares of Common Stock, or (ii) one-tenth
of one percent (0.10%) of the total offering of shares of Common Stock,
subject to the maximum purchase limitations. See "- Limitations on Common
Stock Purchases." THIS AMOUNT MAY BE INCREASED AT THE SOLE DISCRETION OF THE
COMPANY AND THE ASSOCIATION UP TO 5% OR DECREASED TO AS LOW AS 1% OF THE
TOTAL OFFERING OF SHARES IN THE SUBSCRIPTION OFFERING. THE OPPORTUNITY TO
SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS
SUBJECT TO THE RIGHT OF THE COMPANY AND THE ASSOCIATION, IN THEIR SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
SUBSCRIPTION EXPIRATION DATE.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber
whose order is accepted by the Company, in an amount equal to the lesser of
100 shares or the number of shares subscribed for by each such Preferred
Subscriber, if possible. Thereafter, unallocated shares will be allocated
among the Preferred Subscribers whose accepted orders remain unsatisfied in
the same proportion that the unfilled subscription of each (up to 2% of the
total offering) bears to the total unfilled subscriptions of all Preferred
Subscribers whose accepted orders remains unsatisfied, provided that no
fractional shares shall be issued. Orders for Common Stock in the Community
Offering will first be filled to a maximum of 2% of the total number of
shares of Common Stock sold in the Conversion and thereafter any remaining
shares shall be allocated on an equal number of shares basis per order until
all orders have been filled. If there are any shares remaining, shares will
be allocated to other members of the general public who subscribe in the
Community Offering applying the same allocation described above for Preferred
Subscribers.
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SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings may be offered for sale to the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
formed. The Company and the Association expect to market any shares which
remain unsubscribed after the Subscription and Community Offerings through a
Syndicated Community Offering. The Company and the Association have the
right to reject orders in whole or part in their sole discretion in the
Syndicated Community Offering. Neither Webb nor any registered broker-dealer
shall have any obligation to take or purchase any shares of Common Stock in
the Syndicated Community Offering; however, Webb has agreed to use its best
efforts in the sale of shares in the Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be the same price at which shares are offered and sold in the
Subscription and Community Offerings. No person will be permitted to
subscribe in the Syndicated Community Offering for more than $250,000 or
25,000 shares of Common Stock, subject to the maximum purchase limitations.
See "- Limitations on Common Stock Purchases." This amount may be increased
to up to 5% of the total offering of shares in the Subscription Offering,
provided that orders for Common Stock in the Syndicated Community Offering
will first be filled to a maximum of 2% of the total number of shares of
Common Stock sold in the Conversion. Thereafter, any remaining shares will
be allocated on an equal number of shares basis per order until all orders
have been filled. The purchase limit may also be decreased to as low as 1%
of the total offering of shares.
Webb may enter into agreements with broker-dealers ("Selected Dealers")
to assist in the sale of the shares in the Syndicated Community Offering,
although no such agreements exist as of the date of this Prospectus. No
orders may be placed or filled by or for a Selected Dealer during the
Subscription Offering. After the close of the Subscription Offering, Webb
will instruct Selected Dealers as to the number of shares to be allocated to
each Selected Dealer. Only after the close of the Subscription Offering and
upon allocation of shares to Selected Dealers may Selected Dealers take
orders from their customers. During the Subscription and Community
Offerings, Selected Dealers may only solicit indications of interest from
their customers to place orders with the Company as of a certain date ("Order
Date") for the purchase of shares of Common Stock. When and if Webb and the
Company believe that enough indications of interest and orders have not been
received in the Subscription and Community Offerings to consummate the
Conversion, Webb will request, as of the Order Date, Selected Dealers to
submit orders to purchase shares for which they have previously received
indications of interest from their customers. Selected Dealers will send
confirmations of the orders to such customers on the next business day after
the Order Date. Selected Dealers will debit the accounts of their customers
on the "Settlement Date" which date will be three business days from the
Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the
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funds for payment in their account on but not before the Settlement Date. On
the Settlement Date, Selected Dealers will remit funds to the account
established by the Association for each Selected Dealer. Each customer's
funds so forwarded to the Association, along with all other accounts held in
the same title, will be insured by the FDIC up to $100,000 in accordance with
applicable FDIC regulations. After payment has been received by the
Association from Selected Dealers, funds will earn interest at the
Association's passbook rate until the consummation or termination of the
Conversion. Funds will be promptly returned, with interest, in the event the
Conversion is not consummated as described above.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company
and the Association with the approval of the OTS and the OFI. See "- Stock
Pricing and Number of Shares to be Issued in the Conversion" above for a
discussion of rights of subscribers, if any, in the event an extension is
granted.
PERSONS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
The Company and the Association will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for stock pursuant to the Plan reside. However, the
Company and the Association are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or
resides in a state of the United States with respect to which: (a) the
number of persons otherwise eligible to subscribe for shares under the Plan
who reside in such jurisdiction is small; (b) the granting of subscription
rights or the offer or sale of shares of Common Stock to such persons would
require any of the Company and the Association or their officers, directors
or employees, under the laws of such jurisdiction, to register as a broker,
dealer, salesman or selling agent or to register or otherwise qualify its
securities for sale in such jurisdiction or to qualify as a foreign
corporation or file a consent to service of process in such jurisdiction; and
(c) such registration, qualification or filing in the judgment of the Company
and the Association would be impracticable or unduly burdensome for reasons
of costs or otherwise. Where the number of persons eligible to subscribe for
shares in one state is small, the Company and the Association will base their
decision as to whether or not to offer the Common Stock in such state on a
number of factors, including but not limited to the size of accounts held by
account holders in the state, the cost of registering or qualifying the
shares or the need to register the Company, its officers, directors or
employees as brokers, dealers or salesmen.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased in the Conversion:
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(1) No fewer than 25 shares of Common Stock may be purchased, to
the extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the greater of (i) $250,000 or 25,000
shares of Common Stock, (ii) one-tenth of one percent (0.10 %) of the
total offering of shares of Common Stock or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued by a fraction, of
which the numerator is the amount of the qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Eligible Account Holders, in each case as of
the close of business on the Eligibility Record Date, subject to the
overall limitation in clause (7) below;
(3) The ESOP may purchase in the aggregate up to 10% of the shares
of Common Stock, including any additional shares issued in the event of
an increase in the Estimated Valuation Range; although at this time it
intends to purchase only 8% of such shares;
(4) Each Supplemental Eligible Account Holder may subscribe for
and purchase in the Subscription Offering up to the greater of (i)
$250,000 or 25,000 shares of Common Stock, (ii) one-tenth of one percent
(0.10%) of the total offering of shares of Common Stock or (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction, of which the numerator is the amount of the qualifying deposit
of the Supplemental Eligible Account Holder and the denominator is the
total amount of qualifying deposits of all Supplemental Eligible Account
Holders, in each case as of the close of business on the Supplemental
Eligibility Record Date, subject to the overall limitation in clause (7)
below;
(5) Each Other Member or any Person purchasing shares of Common
Stock in the Community Offering may subscribe for and purchase in the
Subscription Offering or Community Offering, as the case may be, up to
the greater of (i) $250,000 or 25,000 shares of Common Stock or (ii)
one-tenth of one percent (0.10%) of the total offering of shares of
Common Stock, subject to the overall limitation in clause (7) below;
(6) Persons purchasing shares of Common Stock in the Community
offering or Syndicated Community Offering may purchase in the Community
Offering or Syndicated Community Offering up to $250,000 or 25,000
shares of Common Stock, subject to the overall limitation in clause
(7) below;
(7) Except for the ESOP and certain Eligible Account Holders and
Supplemental Eligible Account Holders whose subscription rights are
based upon the amount of their deposits, the maximum number of shares of
Common Stock
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subscribed for or purchased in all categories of the Conversion by any
person, together with associates of and groups of persons acting in
concert with such persons, shall not exceed $700,000 or 70,000 of
shares of Common Stock issued in the Conversion; and
(8) No more than 24% of the total number of shares offered for
sale in the Subscription Offering may be purchased by directors and
officers of the Association in the fourth priority category in the
Subscription Offering. No more than 34% of the total number of shares
offered for sale in the Conversion may be purchased by directors and
officers of the Association and their associates in the aggregate,
excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members
of the Association, the individual amount permitted to be subscribed for may
be increased up to a maximum of 5% of the number of shares sold in the
Conversion and both the individual and the overall purchase limitations may
be decreased to a minimum of 1% of the number of shares sold in the
Conversion at the sole discretion of the Company and the Association. If
such amount is increased, subscribers for the maximum amount will be, and
certain other large subscribers in the sole discretion of the Company and the
Association may be, given the opportunity to increase their subscriptions up
to the then applicable limit.
The term "associate" of a person is defined to mean (i) any corporation
or other organization (other than the Company and the Association or a
majority-owned subsidiary of the Association) of which such person is a
director, officer or partner or is directly or indirectly the beneficial
owner of 10% or more of any class of equity securities; (ii) any trust or
other estate in which such person has a substantial beneficial interest or as
to which such person serves as trustee or in a similar fiduciary capacity,
provided, however, that such term shall not include any tax-qualified
employee stock benefit plan of the Company and the Association in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person,
or any relative of such spouse, who either has the same home as such person
or who is a director or officer of the Company and the Association or any of
their subsidiaries.
The term "acting in concert" is defined to mean (1) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement, or (2)
a combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise.
The Company and the Association may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and
the fact that such persons have filed joint Schedules 13D with the SEC with
respect to other companies.
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MARKETING ARRANGEMENTS
The Company and the Association have retained Webb to consult with and
to advise the Association and the Company, and to assist the Company, on a
best efforts basis, in the distribution of the shares of Common Stock in the
Subscription and Community Offering. The services that Webb will provide
include, but are not limited to (i) training the employees of the Association
who will perform certain ministerial functions in the Subscription and
Community Offering regarding the mechanics and regulatory requirements of the
stock offering process, (ii) managing the Stock Information Center by
assisting interested stock subscribers and by keeping records of all stock
orders, (iii) preparing marketing materials, and (iv) assisting in the
solicitation of proxies from the Association's members for use at the Special
Meeting. For its services, Webb will receive a management fee of $30,000 and
a success fee of 1.5% of the aggregate Actual Purchase Price of the shares of
Common Stock sold in the Subscription Offering and Community Offering
excluding shares purchased by the ESOP and officers, directors and employees
of the Association and members of their immediate families. The success fee
paid to Webb will be reduced by the amount of the management fee and, in any
event, the success fee shall not exceed $375,000. In the event that selected
dealers are used to assist in the sale of shares of Common Stock in the
Community Offering, such dealers will be paid a fee of up to 5.5% of the
aggregate Purchase Price of the shares sold by such dealers. The Company and
the Association have agreed to reimburse Webb for its out-of-pocket expenses,
and its legal fees up to a total of $40,000, and to indemnify Webb against
certain claims or liabilities, including certain liabilities under the
Securities Act, and will contribute to payments Webb may be required to make
in connection with any such claims or liabilities.
Sales of shares of Common Stock will be made primarily by registered
representatives affiliated with Webb or by the broker-dealers managed by
Webb. A Stock Information Center will be established at the main office of
the Association. The Company will rely on Rule 3a4-1 of the Exchange Act and
sales of Common Stock will be conducted within the requirements of such Rule,
so as to permit officers, directors and employees to participate in the sale
of the Common Stock in those states where the law so permits. No officer,
director or employee of the Company or the Association will be compensated
directly or indirectly by the payment of commissions or other remuneration in
connection with his or her participation in the sale of Common Stock.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Subscription Expiration Date (unless extended) in accordance with
Rule 15c2-8 of the Exchange Act, no prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior
to such date. Execution of the order form will confirm receipt or delivery
in accordance with Rule 15c2-8. Order forms will only be distributed with a
prospectus.
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To purchase shares in the Subscription and Community Offerings, an
executed order form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from a deposit account at
the Association (which may be given by completing the appropriate blanks in
the order form), must be received by the Association by 12:00 noon, Central
Time, on the Subscription Expiration Date (unless extended). In addition,
the Company and the Association will require a prospective purchaser to
execute a certification in the form required by applicable OTS regulations in
connection with any sale of Common Stock. Order forms which are not received
by such time or are executed defectively or are received without full payment
(or appropriate withdrawal instructions) are not required to be accepted. In
addition, the Association will not accept orders submitted on photocopied or
facsimilied order forms nor order forms unaccompanied by an executed
certification form. The Company and the Association have the right to waive
or permit the correction of incomplete or improperly executed forms, but do
not represent that they will do so. Once received, an executed order form
may not be modified, amended or rescinded without the consent of the Company
and the Association, unless the Conversion has not been completed within 45
days after the end of the Subscription Offering, unless such period has been
extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (September 30, 1995) or the Supplemental Eligibility Record Date
(December 31, 1996) and depositors and borrowers as of the close of business on
the Voting Record Date (______ __, 199_) must list all accounts on the stock
order form giving all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person
at the main office of the Association, (ii) by check or money order, or (iii)
by authorization of withdrawal from deposit accounts maintained with the
Association. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check or money order at the Association's passbook
rate of interest from the date payment is received until completion or
termination of the Conversion. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates
until completion or termination of the Conversion, but a hold will be placed
on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion.
If a subscriber authorizes the Association to withdraw the amount of the
purchase price from his deposit account, the Association will do so as of the
effective date of the Conversion. The Association will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum
balance requirement at the time that the funds actually are transferred under
the authorization, the certificate will be cancelled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at
the passbook rate.
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If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed
for by it at the Purchase Price upon consummation of the Subscription and
Community Offerings, if all shares are sold, or upon consummation of the
Syndicated Community Offerings if shares remain to be sold in such offering,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the
Company to lend to the ESOP, at such time, the aggregate Purchase Price of
the shares for which it subscribed.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of Common Stock in the Subscription and Community Offerings, provided
that such IRAs are not maintained at the Association. Persons with IRAs
maintained at the Association must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, ERISA provisions and IRS
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the
Subscription and Community Offerings make such purchases for the exclusive
benefit of the IRAs. Any interested parties wishing to use IRA funds for
stock purchases are advised to contact the Stock Sales Center at (504)
___-____ for additional information.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Association, or to such other address as may be specified in
properly completed order forms, as soon as practicable following consummation
of the Conversion. Any certificates returned as undeliverable will be
disposed of in accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding
to transfer the legal or beneficial ownership of the subscription rights
issued under the Plan or the shares of Common Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for
his own account and that he has no agreement or understanding regarding the
sale or transfer of such shares. Federal regulations also prohibit any
person from offering or making an announcement of an offer or intent to make
an offer to purchase such subscription rights or shares of Common Stock prior
to the completion of the Conversion.
THE COMPANY AND THE ASSOCIATION WILL REFER TO THE OTS ANY SITUATIONS
THAT THEY BELIEVE MAY INVOLVE A TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT
HONOR ORDERS KNOWN BY THEM TO INVOLVE THE TRANSFER OF SUCH RIGHTS.
132
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Association in
its present mutual form, each depositor of the Association would receive his
pro rata share of any assets of the Association remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Association at
the time of liquidation. After the Conversion, each depositor, in the event
of a complete liquidation of the Association, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Association. However, except as described below, his claim
would be solely in the amount of the balance in his deposit account plus
accrued interest. He would not have an interest in the value or assets of
the Association above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal
to the Association's net worth as of the date of its latest statement of
financial condition contained in the final prospectus utilized in the
Conversion. As of the date of this Prospectus, the initial balance of the
liquidation account would be $____ million. Each Eligible Account Holder and
Supplemental Eligible Account Holder, if he were to continue to maintain his
deposit account at the Association, would be entitled, upon a complete
liquidation of the Association after the Conversion, to an interest in the
liquidation account prior to any payment to the Company as the sole
stockholder of the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
NOW accounts, money market deposit accounts, and certificates of deposit,
held in the Association at the close of business on September 30, 1995 or
December 31, 1996, as the case may be. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a pro rata interest in the
total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the September 30,
1995 eligibility record date (or the December 31, 1996 supplemental eligibility
record date, as the case may be) bore to the balance of all deposit accounts
in the Association on such dates.
If, however, on any September 30 annual closing date of the Association,
commencing September 30, 1996, the amount in any deposit account is less than
the amount in such deposit account on September 30, 1995 or December 31, 1996,
as the case may be, or any other annual closing date, then the interest in
the liquidation account relating to such deposit account would be reduced by
the proportion of any such reduction, and such interest will cease to exist
if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase
in the related deposit account. Any assets remaining after the claims of
general creditors (including the claims of all depositors to the withdrawal
value of their accounts) and the above liquidation
133
rights of Eligible Account Holders and Supplemental Eligible Account Holders
are satisfied would be distributed to the Company as the sole stockholder of
the Association.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling or an opinion of counsel with respect to federal
tax laws, and either a ruling or an opinion with respect to Louisiana tax
laws, to the effect that consummation of the transactions contemplated hereby
will not result in a taxable reorganization under the provisions of the
applicable codes or otherwise result in any adverse tax consequences to the
Association, the Company or to account holders receiving subscription rights,
except to the extent, if any, that subscription rights are deemed to have
fair market value on the date such rights are issued.
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., has issued an
opinion to the Company and the Association to the effect that, for federal
income tax purposes: (i) the Association's change in form from mutual to
stock ownership will constitute a reorganization under Section 368(a)(1)(F)
of the Code and neither the Association nor the Company will recognize any
gain or loss as a result of the Conversion; (ii) no gain or loss will be
recognized by the Association or the Company upon the purchase of the
Association's capital stock by the Company; (iii) no gain or loss will be
recognized by Eligible Account Holders and Supplemental Eligible Account
Holders upon the issuance to them of deposit accounts in the Association in
its stock form plus their interests in the liquidation account in exchange
for their deposit accounts in the mutual Association; (iv) assuming the
non-transferable subscription rights to purchase Common Stock have no value,
the tax basis of the depositors' deposit accounts in the Association
immediately after the Conversion will be the same as the basis of their
deposit accounts immediately prior to the Conversion; (v) assuming the
non-transferable subscription rights to purchase Common Stock have no value,
the tax basis of each Eligible Account Holder's and Supplemental Eligible
Account Holder's interest in the liquidation account will be zero; and (vi)
the tax basis to the stockholders of the Common Stock of the Company
purchased in the Conversion will be the amount paid therefor, and the holding
period for the shares of Common Stock purchased by such persons will begin on
the date of consummation of the Conversion if purchased through the exercise
of subscription rights and on the day after the date of purchase if purchased
in the Community Offering. LaPorte, Sehrt, Romig & Hand, Metairie,
Louisiana, has also rendered an opinion to the effect that the foregoing tax
effects of the Conversion under Louisiana law are substantially the same as
they are under federal law.
In the opinion of RP Financial, the subscription rights do not have any
value, based on the fact that such rights are acquired by the recipients
without cost, are nontransferable and of short duration, and afford the
recipients the right only to purchase the Common Stock at a price equal to
its estimated fair market value, which will be the same price as the Purchase
Price for the unsubscribed shares of Common Stock. If the subscription
rights granted to eligible subscribers are deemed to have an ascertainable
value, receipt of such
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rights would be taxable probably only to those eligible subscribers who
exercise the subscription rights (either as a capital gain or ordinary
income) in an amount equal to such value, and the Company and the Association
could recognize gain on such distribution. Eligible subscribers are
encouraged to consult with their own tax advisor as to the tax consequences
in the event that such subscription rights are deemed to have an
ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS, and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
DELIVERY OF CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to the persons entitled thereto at the
addresses of such persons appearing on the stock order form as soon as
practicable following consummation of the Conversion. Any certificates
returned as undeliverable will be held by the Company until claimed by
persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for Common Stock are available and
delivered to subscribers, such subscribers may not be able to sell the shares
of Common Stock for which they have subscribed, even though trading of the
Common Stock may have commenced.
REQUIRED APPROVALS
Various approvals of the OTS and OFI are required in order to consummate
the Conversion. The OTS and OFI have approved the Plan of Conversion,
subject to approval by the Association's members and other standard
conditions. The Company's holding company application is currently pending.
The Company is required to make certain filings with state securities
regulatory authorities in connection with the issuance of Common Stock in the
Conversion.
JUDICIAL REVIEW
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion may obtain review
of such action by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of such person is located,
or in the United States Court of Appeals for the District of Columbia, a
written petition praying that the final action of the OTS be modified,
terminated or set aside. Such petition must be filed within 30 days after
the publication of notice of such final action in the Federal Register, or 30
days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. Section 563b.6(c), whichever is later. The further
procedure for review is as follows: A copy of the petition is forthwith
transmitted to the OTS by the clerk of the court and thereupon the OTS files
in the court
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the record in proceeding, as provided in Section 2112 of Title 28 of the
United States Code. Upon the filing of the petition, the court has
jurisdiction, which upon the filing of the record is exclusive, to affirm,
modify, terminate, or set aside in whole or in part, the final action of the
OTS. Review of such proceedings is as provided in Chapter 7 of Title 5 of
the United States Code. The judgment and decree of the court is final,
except that they are subject to review by the Supreme Court upon certiorari
as provided in Section 1254 of Title 28 of the United States Code.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER THE CONVERSION
All shares of Common Stock purchased in connection with the Conversion
by a director or an executive officer of the Company and the Association will
be subject to a restriction that the shares not be sold for a period of one
year following the Conversion, except in the event of the death of such
director or executive officer or pursuant to a merger or similar transaction
approved by the OTS. Each certificate for restricted shares will bear a
legend giving notice of this restriction on transfer, and instructions will
be issued to the effect that any transfer within such time period of any
certificate or record ownership of such shares other than as provided above
is a violation of the restriction. Any shares of Common Stock issued at a
later date within this one year period as a stock dividend, stock split or
otherwise with respect to such restricted stock will be subject to the same
restrictions.
Purchases of Common Stock of the Company by directors, executive
officers and their associates during the three-year period following
completion of the Conversion may be made only through a broker or dealer
registered with the SEC, except with the prior written approval of the OTS.
This restriction does not apply, however, to negotiated transactions
involving more than 1% of the Company's outstanding Common Stock or to
certain purchases of stock pursuant to an employee stock benefit plan.
Pursuant to OTS regulations, the Company will generally be prohibited
from repurchasing any shares of the Common Stock within one year following
consummation of the Conversion, although the OTS under its current policies
may approve a request to repurchase shares of Common Stock following the
six-month anniversary of the Conversion. During the second and third years
following consummation of the Conversion, the Company may not repurchase any
shares of its Common Stock other than pursuant to (i) an offer to all
stockholders on a pro rata basis which is approved by the OTS; (ii) the
repurchase of qualifying shares of a director, if any; (iii) purchases in the
open market by a tax-qualified or non-tax-qualified employee stock benefit
plan in an amount reasonable and appropriate to fund the plan; or
(iv) purchases that are part of an open-market stock repurchase program not
involving more than 5% of its outstanding capital stock during a 12-month
period, if the repurchases do not cause the Association to become
undercapitalized and the Association provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken
and such program is not disapproved by the Regional Director.
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The OTS may permit stock repurchases in excess of such amounts prior to the
third anniversary of the Conversion if exceptional circumstances are shown to
exist.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE ASSOCIATION
GENERAL
As described below, certain provisions in the Company's Articles of
Incorporation and Bylaws and in the Company's and the Association's proposed
benefit plans, together with provisions of Louisiana corporate law and OTS
regulations, may have anti-takeover effects. In addition, regulatory
restrictions may make it difficult for persons or companies to acquire
control of either the Company or the Association.
RESTRICTIONS IN THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of the Company's Articles of
Incorporation and Bylaws deal with matters of corporate governance and
certain rights of stockholders. The following discussion is a general
summary of certain provisions of the Company's Articles of Incorporation and
Bylaws which might be deemed to have a potential "anti-takeover" effect.
These provisions may have the effect of discouraging a future takeover
attempt which is not approved by the Board of Directors but which individual
Company stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions will also render the removal of the current Board of Directors or
management of the Company more difficult. The following description of
certain of the provisions of the Articles of Incorporation and Bylaws of the
Company is necessarily general and reference should be made in each case to
such Articles of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.
LIMITATION ON VOTING RIGHTS. Article 10.A of the Company's Articles of
Incorporation provides that for a period of five years from the date of the
Conversion, no person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of (i) more than 10% of the issued and
outstanding shares of any class of an equity security of the Company, or (ii)
any securities convertible into, or exercisable for, any equity securities of
the Company if, assuming conversion or exercise by such person of all
securities of which such person is the beneficial owner which are convertible
into, or exercisable for, such equity securities (but of no securities
convertible into, or exercisable for, such equity securities of which such
person is not the beneficial owner), such person would be the beneficial
owner of more than 10% of any class of an equity security of the Company.
The term "person" is broadly defined to prevent circumvention of this
restriction.
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The foregoing restrictions do not apply to (i) any offer with a view
toward public resale made exclusively to the Company by underwriters or a
selling group acting on its behalf, (ii) any tax-qualified employee benefit
plan or arrangement established by the Company or the Association and any
trustee of such a plan or arrangement, and (iii) any other offer or
acquisition approved in advance by the affirmative vote of two-thirds of the
Company's entire Board of Directors. In the event that shares are acquired
in violation of Article 10.A, all shares beneficially owned by any person in
excess of 10% shall be considered "Excess Shares" and shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matters submitted to stockholders for a
vote, and the Board of Directors may cause such Excess Shares to be
transferred to an independent trustee for sale on the open market or
otherwise, with the expenses of such trustee to be paid out of the proceeds
of sale.
BOARD OF DIRECTORS. Article 6.B of the Articles of Incorporation of the
Company contains provisions relating to the Board of Directors and provides,
among other things, that the Board of Directors shall be divided into three
classes as nearly equal in number as possible, with the term of office of one
class expiring each year. See "Management of the Company." The classified
Board is intended to provide for continuity of the Board of Directors and to
make it more difficult and time consuming for a stockholder group to fully
use its voting power to gain control of the Board of Directors without the
consent of the incumbent Board of Directors of the Company. Cumulative
voting in the election of directors is not permitted.
Directors may be removed without cause at a duly constituted meeting of
stockholders called expressly for that purpose upon the vote of the holders
of at least 75% of the total votes eligible to be cast by stockholders, and
with cause by the affirmative vote of a majority of the total votes eligible
to be cast by stockholders. Cause for removal shall exist only if the
director whose removal is proposed has been either declared of unsound mind
by an order of a court of competent jurisdiction, convicted of a felony or of
an offense punishable by imprisonment for a term of more than one year by a
court of competent jurisdiction, or deemed liable by a court of competent
jurisdiction for gross negligence or misconduct in the performance of such
director's duties to the Company. Any vacancy occurring in the Board of
Directors for any reason (including an increase in the number of authorized
directors) may be filled by the affirmative vote of a majority of the
remaining directors, whether or not a quorum of the Board of Directors is
present, and a director appointed to fill a vacancy shall serve until the
expiration of the term to which he was appointed.
Article 6.F of the Articles of Incorporation governs nominations for
election to the Board, and requires all nominations for election to the Board
of Directors other than those made by the Board to be made by a stockholder
eligible to vote at an annual meeting of stockholders who has complied with
the notice provisions in that section. Written notice of a stockholder
nomination must be delivered to, or mailed to and received at, the principal
executive offices of the Company not later than 60 days prior to the
anniversary date of the
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immediately preceding annual meeting, provided that, with respect to the
first scheduled annual meeting following completion of the Conversion, notice
must be received no later than the close of business on the 10th day
following the date on which notice of such meeting is mailed to stockholders,
and provided further that the notice by the stockholder must be delivered or
received no later than the close of business on the fifth day preceding the
date of the meeting. Each such notice shall set forth (a) as to each person
whom the stockholder proposes to nominate as a director, (i) the name, age,
business address and residence address of such person; (ii) the principal
occupation or employment of such person; (iii) the class and number of shares
of the Company's stock beneficially owned by such person on the date of the
stockholder notice; and (iv) such other information regarding such person as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the SEC; and (b) as to the stockholder giving the notice, (i)
such stockholder's name and address, as they appear on the Company's books,
and, to the extent known by the stockholder giving the notice, (ii) the name
and address of any other stockholders supporting such nominees; and (iii) the
class and number of shares of the Company's stock beneficially owned by any
other stockholders supporting such nominees, on the date of such stockholder
notice.
Article 8.A of the Articles of Incorporation provides that a director or
officer of the Company will not be personally liable for monetary damages for
any action taken, or any failure to take any action, as a director or officer
except to the extent that by law a director's or officer's liability for
monetary damages may not be limited. This provision does not eliminate or
limit the liability of the Company's directors and officers for (a) any
breach of the director's or officer's duty of loyalty to the Company or its
stockholders, (b) any acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) any unlawful
dividend, stock repurchase or other distribution, payment or return of assets
to stockholders, or (d) any transaction from which the director or officer
derived an improper personal benefit. This provision may preclude
stockholder derivative actions and may be construed to preclude other
third-party claims against the directors and officers.
The Company's Articles of Incorporation also provide that the Company
shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
including actions by or in the right of the Company, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Such indemnification is furnished to the full extent provided by
law against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding. The indemnification provisions also
permit the Company to pay reasonable expenses in advance of the final
disposition of any action, suit or proceeding as authorized by the Company's
Board of Directors, provided
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that the indemnified person undertakes to repay the Company if it is
ultimately determined that such person was not entitled to indemnification.
The rights of indemnification provided in the Company's Articles of
Incorporation are not exclusive of any other rights which may be available
under the Company's Bylaws, any insurance or other agreement, by vote of
stockholders or directors (regardless of whether directors authorizing such
indemnification are beneficiaries thereof) or otherwise. In addition, the
Articles of Incorporation authorize the Company to maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Company, whether or not the Company would have the power to provide
indemnification to such person. By action of the Board of Directors, the
Company may create and fund a trust fund or other fund or form of
self-insurance arrangement of any nature, and may enter into agreements with
its officers, directors, employees and agents for the purpose of securing or
insuring in any manner its obligation to indemnify or advance expenses
provided for in the provisions in the Articles of Incorporation and Bylaws
regarding indemnification. These provisions are designed to reduce, in
appropriate cases, the risks incident to serving as a director, officer,
employee or agent and to enable the Company to attract and retain the best
personnel available.
The provisions regarding director elections and other provisions in the
Articles of Incorporation and Bylaws are generally designed to protect the
ability of the Board of Directors to negotiate with the proponent of an
unfriendly or unsolicited proposal to take over or restructure the Company by
making it more difficult and time-consuming to change majority control of the
Board, whether by proxy contest or otherwise. The effect of these provisions
will be to generally require at least two (and possibly three) annual
stockholders' meetings, instead of one, to effect a change in control of the
Board of Directors of the Company even if holders of a majority of the
Company's capital stock believed that a change in the composition of the
Board of Directors was desirable. Because a majority of the directors at any
given time will have prior experience as directors, these requirements will
help to ensure continuity and stability of the Company's management and
policies and facilitate long-range planning for the Company's business. The
provisions relating to removal of directors and filling of vacancies are
consistent with and supportive of a classified board of directors.
The procedures regarding stockholder nominations will provide the Board
of Directors with sufficient time and information to evaluate a stockholder
nominee to the Board and other relevant information, such as existing
stockholder support for the nominee. The proposed procedures, however, will
provide incumbent directors advance notice of a dissident slate of nominees
for directors, and will make it easier for the Board to solicit proxies
resisting such nominees. This may make it easier for the incumbent directors
to retain their status as directors, even when certain stockholders view the
stockholder nominations as in the best interests of the Company or its
stockholders.
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AUTHORIZED SHARES. Article 4 of the Articles of Incorporation
authorizes the issuance of 25,000,000 shares of stock, of which 5,000,000
shares shall be shares of serial Preferred Stock, and 20,000,000 shall be
Common Stock. The shares of Common Stock and Preferred Stock were authorized
in an amount greater than that to be issued in the Conversion to provide the
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized
shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of the Company. The
Board of Directors also has sole authority to determine the terms of any one
or more series of Preferred Stock, including voting rights, conversion rates,
and liquidation preferences. As a result of the ability to fix voting rights
for a series of Preferred Stock, the Board has the power, to the extent
consistent with its fiduciary duty, to issue a series of Preferred Stock to
persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. The Company's Board
currently has no plans for the issuance of additional shares, other than the
issuance of additional shares pursuant to stock benefit plans.
SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. Article 9.B
of the Articles of Incorporation provides that special meetings of the
Company's stockholders may only be called by (i) the President, (ii) a
majority of the Board of Directors, and (iii) by persons who beneficially own
an aggregate of at least 50% of the outstanding voting shares, except as may
otherwise be provided by law. The Articles of Incorporation also provide
that any action permitted to be taken at a meeting of stockholders may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is given by the holders of all outstanding shares entitled to vote and
filed with the Secretary of the Company.
Article 9.D of the Company's Articles of Incorporation provides that
only such business as shall have been properly brought before an annual
meeting of stockholders shall be conducted at the annual meeting. In order
to be properly brought before an annual meeting following completion of the
Conversion, business must be (a) brought before the meeting by or at the
direction of the Board of Directors or (b) otherwise properly brought before
the meeting by a stockholder who has given timely and complete notice thereof
in writing to the Company. For stockholder proposals to be included in the
Company's proxy materials, the stockholder must comply with all the timing
and informational requirements of Rule 14a-8 of the Exchange Act. With
respect to stockholder proposals to be considered at the annual meeting of
stockholders but not included in the Company's proxy materials, the
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting; provided,
however, that with respect to the first scheduled annual meeting following
completion of the Conversion, such written notice must be received by the
Company not later than the close of business on the 10th day following the
day on which notice of the meeting was first mailed to stockholders; and
provided further, that the written notice must be received by the Company not
later than the close
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of business on the fifth day preceding the date of the meeting. A
stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of the
proposal desired to be brought before the annual meeting, (b) the name and
address, as they appear on the Company's books, of the stockholder proposing
such business, and, to the extent known, any other stockholders known by such
stockholder to be supporting such proposal, (c) the class and number of
shares of the Company which are beneficially owned by the stockholder and, to
the extent known, by any other stockholders known by such stockholder to be
supporting such proposal on the date of such stockholder notice, and (d) any
financial interest of the stockholder in such proposal (other than interests
which all stockholders would have). Any stockholder proposal which is not
made in accordance with the provisions of Article 9.D shall not be acted upon
at the annual meeting.
The procedures regarding stockholder proposals are designed to provide
the Board with sufficient time and information to evaluate a stockholder
proposal and other relevant information, such as existing stockholder support
for the proposal. The proposed procedures, however, will give incumbent
directors advance notice of a stockholder proposal. This may make it easier
for the incumbent directors to defeat a stockholder proposal, even when
certain stockholders view such proposal as in the best interests of the
Company or its stockholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS. Article 11 of the
Company's Articles of Incorporation generally provides that any amendment of
the Articles of Incorporation must be first approved by a majority of the
Board of Directors and then by the holders of a majority of the shares of the
Company entitled to vote in an election of directors, except that the
approval of 75% of the shares of the Company entitled to vote in an election
of directors is required for any amendment to Articles 6 (directors), 7
(preemptive rights), 8 (indemnification), 9 (meetings of stockholders and
stockholder proposals), 10 (restrictions on acquisitions) and 11
(amendments).
The Bylaws of the Company may be amended by a majority of the Board of
Directors or by the affirmative vote of a majority of the total shares
entitled to vote in an election of directors, except that the affirmative
vote of at least 75% of the total shares entitled to vote in an election of
directors shall be required to amend, adopt, alter, change or repeal any
provision inconsistent with certain specified provisions of the Bylaws.
LOUISIANA CORPORATE LAW
In addition to the provisions contained in the Company's Articles of
Incorporation, the Louisiana Business Corporation Law ("BCL") includes
certain provisions applicable to Louisiana corporations, such as the Company,
which may be deemed to have an anti-takeover effect. Such provisions include
(i) rights of stockholders to receive the fair value of their shares of stock
following a control transaction from a controlling person or group and (ii)
requirements relating to certain business combinations.
142
The BCL provides that any person who acquires "control shares" will be
able to vote such shares only if the right to vote is approved by the
affirmative vote of at least a majority of both (1) all the votes entitled to
be cast by stockholders and (2) all the votes entitled to be cast by
stockholders excluding "interested shares". "Control shares" is defined to
include shares that would entitle the holder thereof, assuming the shares had
full voting rights, to exercise voting power within any of the following
ranges: (a) 20% or more but less than one-third of all voting power; (b)
one-third or more but less than a majority of all voting power; or (c) a
majority or more of all voting power. Any acquisition that would result in
the ownership of control shares in a higher range would require an additional
vote of stockholders. "Interested shares" includes control shares and any
shares held by an officer or employee director of the corporation. If the
control shares are provided full voting rights, all stockholders have
dissenters' rights entitling them to receive the "fair cash value" of their
shares, which shall not be less than the highest price paid per share to
acquire the control shares.
The BCL defines a "Business Combination" generally to include (a) any
merger, consolidation or share exchange of the corporation with an
"Interested Shareholder" or affiliate thereof, (b) any sale, lease, transfer
or other disposition, other than in the ordinary course of business, of
assets equal to 10% or more of the market value of the corporation's
outstanding stock or of the corporation's net worth to any Interested
Shareholder or affiliate thereof in any 12-month period, (c) the issuance or
transfer by the corporation of equity securities of the corporation with an
aggregate market value of 5% or more of the total market value of the
corporation's outstanding stock to any Interested Shareholder or affiliate
thereof, except in certain circumstances, (d) the adoption of any plan or
proposal for the liquidation or dissolution of the corporation in which
anything other than cash will be received by an Interested Shareholder or
affiliate thereof, or (e) any reclassification of the corporation's stock or
merger which increases by 5% or more the ownership interest of the Interested
Shareholder or any affiliate thereof. "Interested Shareholder" includes any
person who beneficially owns, directly or indirectly, 10% or more of the
corporation's outstanding voting stock, or any affiliate thereof who had such
beneficial ownership during the preceding two years, excluding in each case
the corporation, its subsidiaries and their benefit plans.
Under the BCL, a Business Combination must be approved by any vote
otherwise required by law or the articles of incorporation, and by the
affirmative vote of at least each of the following: (1) 80% of the total
outstanding voting stock of the corporation; and (2) two-thirds of the
outstanding voting stock held by persons other than the Interested
Shareholder. However, the supermajority vote requirement shall not be
applicable if the Business Combination meets certain minimum price
requirements and other procedural safeguards, or if the transaction is
approved by the Board of Directors prior to the time that the Interested
Shareholder first became an Interested Shareholder.
The BCL authorizes the board of directors of Louisiana business
corporations to create and issue (whether or not in connection with the
issuance of any of its shares or other securities) rights and options
granting to the holders thereof (1) the right to convert shares
143
or obligations into shares of any class, or (2) the right or option to
purchase shares of any class, in each case upon such terms and conditions as
the Company may deem expedient.
ANTI-TAKEOVER EFFECTS OF THE ARTICLES OF INCORPORATION AND BYLAWS AND
MANAGEMENT REMUNERATION ADOPTED IN THE CONVERSION
The foregoing provisions of the Articles of Incorporation and Bylaws of
the Company and Louisiana law could have the effect of discouraging an
acquisition of the Company or stock purchases in furtherance of an
acquisition, and could accordingly, under certain circumstances, discourage
transactions which might otherwise have a favorable effect on the price of
the Company's Common Stock.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of
Directors of the Company. The Board of Directors believes that these
provisions are in the best interests of the Company and its future
stockholders. In the Board of Directors' judgment, the Board of Directors is
in the best position to determine the true value of the Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Company and its future stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors and
that these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the Board of Directors' view that these
provisions should not discourage persons from proposing a merger or other
transaction at prices reflective of the true value of the Company and where
the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the
Company's stockholders of the foregoing provisions, these provisions also may
have the effect of discouraging a future takeover attempt in which
stockholders might receive a substantial premium for their shares over then
current market prices and may tend to perpetuate existing management. As a
result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. The Board of Directors, however, has
concluded that the potential benefits of these provisions outweigh their
possible disadvantages.
The Board of Directors of the Company and the Association are not aware
of any effort that might be made to acquire control of the Company or the
Association.
REGULATORY RESTRICTIONS
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings institution unless the OTS has been given 60
days' prior written notice. The HOLA provides that no company may acquire
"control" of a savings institution without the prior
144
approval of the OTS. Any company that acquires such control becomes a savings
and loan holding company subject to registration, examination and regulation
by the OTS. Pursuant to federal regulations, control of a savings institution
is conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of the institution
or the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock,
or of more than 25% of any class of stock, of a savings institution where
certain enumerated "control factors" are also present in the acquisition. The
OTS may prohibit an acquisition if (i) it would result in a monopoly or
substantially lessen competition, (ii) the financial condition of the
acquiring person might jeopardize the financial stability of the institution,
or (iii) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or of the
public to permit the acquisition of control by such person. The foregoing
restrictions do not apply to the acquisition of a savings institution's
capital stock by one or more tax-qualified employee stock benefit plans,
provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the savings
institution.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 25,000,000 shares of capital stock,
of which 20,000,000 are shares of common stock, par value $.01 per share
(the "Common Stock") and 5,000,000 are shares of preferred stock, par value
$.01 per share (the "Preferred Stock"). The Company currently expects to
issue up to a maximum of 2,990,000 shares of Common Stock and no shares of
Preferred Stock in the Conversion. Each share of the Company's Common Stock
issued in the Conversion will have the same relative rights as, and will be
identical in all respects with, each other share of Common Stock issued in
the Conversion. Upon payment of the Purchase Price for the Common Stock in
accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable based on the laws and regulations in
effect as of the date of consummation of the Conversion.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
145
COMMON STOCK
DIVIDENDS. The Company can pay dividends if, as and when declared by
its Board of Directors, subject to compliance with limitations which are
imposed by law. See "Dividend Policy." The holders of Common Stock of the
Company will be entitled to receive and share equally in such dividends as
may be declared by the Board of Directors of the Company out of funds legally
available therefor. If the Company issues Preferred Stock, the holders
thereof may have a priority over the holders of the Common Stock with respect
to dividends.
VOTING RIGHTS. Upon completion of the Conversion, the holders of Common
Stock of the Company will possess exclusive voting rights in the Company.
They will elect the Company's Board of Directors and act on such other
matters as are required to be presented to them under Louisiana law or the
Company's Articles of Incorporation or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition
of the Company and the Association," each holder of Common Stock will be
entitled to one vote per share and will not have any right to cumulate votes
in the election of directors. If the Company issues Preferred Stock, holders
of the Preferred Stock may also possess voting rights.
LIQUIDATION. In the event of any liquidation, dissolution or winding up
of the Association, the Company, as the sole holder of the Association's
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of the Association (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible Account Holders and
Supplemental Eligible Account Holders (see "The Conversion - Liquidation
Rights"), all assets of the Association available for distribution. In the
event of any liquidation, dissolution or winding up of the Company, the
holders of its Common Stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of
the Company available for distribution. If Preferred Stock is issued, the
holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company will not
be entitled to preemptive rights with respect to any shares which may be
issued in the future. The Common Stock is not subject to any required
redemption.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock
with voting, dividend, liquidation and conversion
146
rights which could dilute the voting strength of the holders of the Common
Stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
EXPERTS
The financial statements of the Association as of December 31, 1995 and
1994 and for each of the years ended December 31, 1995 and 1994 included in
this Prospectus have been included herein in reliance upon the report of
LaPorte, Sehrt, Romig & Hand, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
RP Financial has consented to the publication herein of the summary of
its report to the Association and the Company setting forth its opinion as to
the estimated pro forma market value of the Common Stock to be outstanding
upon completion of the Conversion and its opinion with respect to
subscription rights.
CHANGE IN AUDITORS
Prior to the fiscal year ended December 31, 1994, the Association's
financial statements were audited by Spilsbury, Hamilton, Legendre and
Paciera. The engagement of Spilsbury, Hamilton, Legendre and Paciera was
terminated and Laporte, Sehrt, Romig and Hand, was engaged in January 1994,
and remains as the independent auditors of the Association. The decision to
change auditors was approved by the Board of Directors of the Association.
The Bank's financial statements as of December 31, 1995 and 1994, and for
each of the years in the two-year period ended December 31, 1995, and
included in this Prospectus, were audited by Laporte, Sehrt, Romig and Hand.
During fiscal 1994 and 1993, there were no disagreements between the
Association and Spilsbury, Hamilton, Legendre and Paciera on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to the satisfaction of
Spilsbury, Hamilton, Legendre and Paciera, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
reports. During fiscal 1994 and 1993, Spilsbury, Hamilton, Legendre and
Paciera did not issue any adverse opinion with respect to the Association's
financial statements or any disclaimer of opinion or any opinion which was
qualified or modified as to uncertainty, audit scope or accounting
principles.
During 1994 and 1993, the Association did not consult Laporte, Sehrt,
Romig and Hand prior to such firm's engagement with respect to: the
application of accounting principles to a specified transaction, either
completed or proposed; the type of audit opinion that might be rendered on
the Association's financial statements; or, any matter that was the subject
of either a disagreement or a reportable event, in each case, as defined in
Item 304(a) of Regulation S-K under the Exchange Act.
147
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences
of the Conversion will be passed upon for the Association and the Company by
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to
the Association and the Company. The Louisiana income tax consequences of
the Conversion will be passed upon for the Association and the Company by
LaPorte, Sehrt, Romig & Hand, Metairie, Louisiana. Certain legal matters
will be passed upon for Webb by Silver, Freedman & Taff, L.L.P., Washington,
D.C.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the Registration Statement. Such information,
including the appraisal report which is an exhibit to the Registration
Statement, can be examined without charge at the public reference facilities
of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such material can be obtained from the SEC at prescribed rates.
The statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
are, of necessity, brief descriptions thereof and are not necessarily
complete; each such statement is qualified by reference to such contract or
document. This Prospectus contains a description of the material provisions
of such contracts or documents.
The Association has filed an Application for Conversion with the OTS and
OFI with respect to the Conversion. This Prospectus omits certain
information contained in that application. The application may be examined
at the principal office of the OTS, 1700 G Street, N.W., Washington, D.C.
20552 and at the Midwest Regional Office of the OTS located at 122 W. John
Carpenter Freeway, Suite 600, Irving, Texas 75039.
If the Company has more than 500 stockholders upon completion of the
Conversion, the Company will register its Common Stock with the SEC under
Section 12(g) of the Exchange Act, and, upon such registration, the Company
and the holders of its stock will become subject to the proxy and tender
offer rules, insider trading reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
and certain other requirements of the Exchange Act. If the Company has less
than 500 stockholders, it will be subject to certain annual and periodic
reporting requirements under Section 15(d) of the Exchange Act for so long as
it has 300 or more stockholders. Under the Plan, the Company has undertaken
that it will not terminate such registration for a period of at least three
years following the Conversion.
A copy of the Articles of Incorporation and the Bylaws of the Company
are available without charge from the Company.
148
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . F-1
Statements of Financial Condition as of September 30, 1996
and December 31, 1995 and 1994. . . . . . . . . . . . . . . . F-2
Statements of Income for the nine months ended
September 30, 1996 and 1995 and for the
years ended December 31, 1994 and 1995. . . . . . . . . . . . 42
Statements of Changes in Equity for the nine months
ended September 30, 1996 and 1995 and for
the years ended December 31, 1995 and 1994. . . . . . . . . . F-4
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 and for the
years ended December 31, 1995 and 1994. . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-7
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements
or in the notes thereto.
Because GS Financial Corp. was incorporated in December 1996, has not
issued any shares of capital stock and has engaged in only minimal
activities, the financial statements of the Company have been omitted because
of their immateriality.
149
GUARANTY SAVINGS AND
HOMESTEAD ASSOCIATION
SEPTEMBER 30, 1996
Audits of Financial Statements
September 30, 1996
and
December 31, 1995 and 1994
C O N T E N T S
Independent Auditor's Report F-1
Statements of Financial Condition as of
September 30, 1996 (Unaudited) and December 31,
1995 and 1994 F-2 - F-3
Statements of Changes in Equity For The Nine Months
Ended September 30, 1996 (Unaudited) and the Years
Ended December 31, 1995 and 1994 F-4
Statements of Cash Flows For The Nine Months Ended
September 30, 1996 and 1995 (Unaudited) and the
Years Ended December 31, 1995 and 1994 F-5 - F-6
Notes to Financial Statements F-7 - F-29
[LETTERHEAD OF LAPORTE SEHRT ROMIG & HAND]
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
The Board of Directors
Guaranty Savings and Homestead Association
Independent Auditor's Report
We have audited the accompanying statements of financial condition of
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION as of December 31, 1995 and 1994,
and the related statements of income, changes in equity capital and, cash
flows for the years then ended. These financial statements are the
responsibility of the Association'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 text 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 managment, 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 financial position of GUARANTY SAVINGS
AND HOMESTEAD ASSOCIATION as of December 31, 1995 and 1994, and the results
of its operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note D and Note Q to the financial statements, GUARANTY
SAVINGS AND HOMESTEAD ASSOCIATION, adopted Statement of Financial Accounting
Standard (SFAS) 107 and Statement of Financial Accounting Standard (SFAS) 114
in 1995.
/s/ LaPorte, Sehrt, Romig & Hand
--------------------------------
A Professional Accounting Corporation
January 12, 1996
F-1
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
ASSETS
September 30, December 31,
------------- -----------------------
1996 1995 1994
------------- -------- --------
(Unaudited)
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from Depository Institutions $ 395,538 $ 861,991 $ 1,276,556
Interest-Bearing Deposits in Other Banks 2,302,527 243,186 843,596
Federal Funds Sold 6,000,000 1,250,000 500,000
----------- ----------- -----------
Total Cash and Cash Equivalents 8,698,065 2,355,177 2,620,152
----------- ----------- -----------
Time Deposits - - 113,308
----------- ----------- -----------
INVESTMENT SECURITIES
Securities Held-to-Maturity (Fair Value of
$30,440,028 in 1995 and $31,745,816 in 1994) - 30,100,334 32,306,999
Securities Available-for-Sale, at Fair Value 23,068,105 3,259,475 3,189,116
----------- ---------- -----------
Total Investment Securities 23,068,105 33,359,809 35,496,115
----------- ---------- -----------
Mortgage-Backed Securities (Fair Value of
$7,008,606 (unaudited), $6,305,035 and $5,557,902 )
at September 30, 1996, December 31, 1995 and
December 31, 1994, respectively 7,298,654 6,367,347 6,063,250
Loans, Net 43,058,009 39,888,418 40,041,997
Accrued Interest Receivable 526,298 506,820 495,568
Premises and Equipment, Net 2,779,257 2,670,581 2,644,072
Foreclosed Real Estate, Net - 23,971 37,327
Real Estate Held-for-Investment 94,647 94,763 -
Stock in Federal Home Loan Bank, at Cost 717,600 686,900 644,300
Prepaid Income Tax - Current 157,122 22,346 23,976
Deferred Charges 78,186 22,630 27,125
Other Assets 45,282 40,983 42,800
----------- ----------- -----------
Total Assets $86,521,225 $86,039,745 $88,249,990
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-2
LIABILITIES AND EQUITY CAPITAL
September 30, December 31,
------------- ---------------------------
1996 1995 1994
------------- ------------ -------------
(Unaudited)
LIABILITIES
Deposits $60,494,560 $60,945,112 $64,642,176
Advance Payments by Borrowers
for Taxes and Insurance 413,443 506,442 548,271
Deferred Income Tax 425,161 297,610 157,481
Other Liabilities 687,804 344,215 63,453
----------- ----------- -----------
Total Liabilities 62,020,968 62,093,379 65,411,381
----------- ----------- -----------
EQUITY CAPITAL
Retained Earnings 23,822,268 23,457,486 22,585,139
Unrealized Gain on Securities Available-for-Sale,
Net of Applicable Deferred Income Tax 677,989 488,880 253,470
----------- ----------- -----------
Total Equity Capital 24,500,257 23,946,366 22,838,609
----------- ----------- -----------
Total Liabilities and Equity Capital $86,521,225 $86,039,745 $88,249,990
------------ ----------- -----------
------------ ----------- -----------
F-3
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
STATEMENTS OF CHANGES IN EQUITY CAPITAL
Nine Months Ended September 30, 1996 (Unaudited) and
The Years Ended December 31, 1995 and 1994
Unrealized
Gain on Securities
Available-for-Sale,
Net of Applicable Total
Retained Deferred Equity
Earnings Income Tax Capital
----------- ------------------- -----------
BALANCES AT DECEMBER 31, 1993 $21,590,854 $309,715 $21,900,569
Net Income -
Year Ended December 31, 1994 994,285 - 994,285
Reduction in Unrealized Gain
on Securities - (56,245) (56,245)
----------- -------- -----------
BALANCES AT DECEMBER 31, 1994 22,585,139 253,470 22,838,609
Net Income -
Year Ended December 31, 1995 872,347 - 872,347
Increase in Unrealized Gain
on Securities - 235,410 235,410
----------- -------- -----------
BALANCES AT DECEMBER 31, 1995 23,457,486 488,880 23,946,366
Net Income (Unaudited) 364,782 364,782
Increase in Unrealized Gain
on Securities - 189,109 189,109
----------- -------- -----------
BALANCE AT SEPTEMBER 30, 1996
(UNAUDITED ) $23,822,268 $677,989 $24,500,257
----------- -------- -----------
----------- -------- -----------
The accompanying notes are an integral part of these financial statements.
F-4
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
STATEMENTS OF CASH FLOWS
For the Nine Months Ended For The Years Ended
September 30, December 31,
--------------------------- ---------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 364,782 $ 858,211 $ 872,347 $ 994,285
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 91,491 92,749 128,009 107,559
Discounts Accretion Net of Premium Amortization (323,157) (666,032) (857,480) (753,117)
Provision for Losses 14,027 - 12,107 28,156
Gain on Sale of Real Estate Held-for-Investment - - - (14,237)
Loss on Sale of Loans - - - 10,168
Loss on Disposal of Fixed Assets - 6,168 6,168 -
(Gain) on Sale of Foreclosed Real Estate (7,325) (11,006) (11,181) (10,065)
Loss on Sale of Investments 100,464 - - -
(Increase) Decrease in Prepaid Income Taxes - Current (134,776) 46,605 1,630 45,563
Deferred Income Tax 29,861 - 18,829 26,858
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accrued Interest Receivable (19,478) (7,182) (11,252) 7,625
(Increase) Decrease in Deferred Charges (55,556) (52,590) 4,495 (4,014)
Increase in Other Liabilities 343,589 388,385 280,762 2,328
(Increase) Decrease in Other Assets (4,299) (171,797) 1,817 34,945
---------- ---------- ---------- ----------
Net Cash Provided by Operating Activities 399,623 483,511 446,251 476,054
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net Decrease (Increase) in Time Deposits - 113,308 113,308 (3,918)
Purchase of Held-to-Maturity Securities - (25,375,281) (31,810,501) (38,200,000)
Proceeds from Maturities of Held-to-Maturity Securities - 26,900,000 34,800,000 40,516,754
Proceeds from Sale of Held-to-Maturity Securities 6,888,437 - - -
Purchase of Available-for-Sale Securities (16,957,787) (1,457,710) (2,138,845) (1,800,000)
Proceeds from Maturities of Available-for-Sale Securities 21,600,000 2,300,000 2,800,000 2,453,444
Purchases of Mortgage-Backed Securities (2,435,822) (490,000) (865,769) (980,000)
Proceeds from Maturities of Mortgage-Backed Securities 1,513,328 417,396 563,427 1,028,302
(Purchase) of ARM Mutual Fund (738,267) - (301,942) -
Proceeds from Sales of Loans and Investment Securities - - - 26,917
Loan (Originations) or Principal Repayments - Net (3,183,618) (138,618) 141,472 578,932
Purchases of Premises and Equipment (195,751) (65,168) (255,449) (1,618,914)
Proceeds from Sales of Foreclosed Real Estate - - 82,605 245,428
Investment in Foreclosed Real Estate (15,161) - (58,069) (242,240)
Proceeds from Sale of Foreclosed Real Estate 46,457 67,188 - -
Non-Cash Dividend - FHLB (30,700) (31,700) (42,600) (29,400)
Investment in Real Estate Held-for-Investment (4,300) - - -
Proceeds from Sale of Real Estate Held-for-Investment - - - 73,794
---------- ---------- ---------- ----------
Net Cash Provided by Investing Activities 6,486,816 2,239,415 3,027,637 2,049,099
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
F-5
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
STATEMENTS OF CASH FLOWS
For the Nine Months Ended For The Years Ended
September 30, December 31,
-------------------------- ----------------------
1996 1995 1995 1994
----------- ------------ ---------- ---------
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) in Deposits (450,552) (2,971,161) (3,697,034) (2,789,999)
Net Increase (Decrease) in
Advance Payments by Borrowers
for Taxes and Insurance (92,999) (38,273) (41,829) 1,965
---------- ------------ ---------- -----------
Net Cash (Used in)
Financing Activities (543,551) (3,009,434) (3,738,863) (2,788,034)
---------- ------------ ---------- -----------
NET CASH EQUIVALENTS 6,342,888 (286,508) (264,975) (262,881)
CASH AND CASH EQUIVALENTS -
Beginning of Year 2,355,177 2,620,152 2,620,152 2,883,033
---------- ------------ ---------- -----------
CASH AND CASH EQUIVALENTS -
End of Year $8,698,065 $ 2,333,644 $2,355,177 $2,620,152
========== =========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest $1,962,507 $ 2,006,688 $2,663,904 $2,408,343
Income Taxes 379,623 393,353 459,353 469,265
Loans Transferred to Foreclosed
Real Estate During the Year - 32,820 68,957 13,700
Premises and Equipment (Former
Branch Location)
Transferred to Real Estate
Held-for-Investment
at Cost Net of Accumulated
Depreciation - - 94,763 -
Unrealized Gain on Securities
Available-for-Sale Credited to
Equity Capital as a Result of
the Adoption of SFAS 115 1,028,564 597,993 740,728 384,046
The accompanying notes are an integral part of these financial statements.
F-6
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Association provides financial services primarily to individuals,
and is subject to competition from other financial institutions. The
Association is also subject to the regulations of certain Federal and
State agencies and undergoes periodic examinations by those regulatory
authorities.
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, 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.
INVESTMENT SECURITIES
At December 31, 1994, the Association adopted Statement of Financial
Accounting Standards (SFAS) 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS 115 requires the classification of
securities into one of three categories: Trading, Available-for-Sale or
Held-to-Maturity. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates this classification
periodically.
Investment securities that management has the ability and intent to
hold to maturity are classified as held-to-maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts using
the interest method. Marketable securities classified as
available-for-sale are carried at fair value in 1995 and 1994.
Unrealized gains and losses on securities available-for-sale are
recognized as direct increases or decreases in equity capital effective
December 31, 1994, in accordance with the adoption of SFAS 115. Cost of
securities sold is recognized using the specific identification method.
F-7
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent participating interests in
pools of first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts.
Premiums and discounts are amortized using the interest method over the
remaining period to contractual maturity. Management intends and has the
ability to hold such securities to maturity. Should any be sold, cost of
securities sold is determined using the specific identification method.
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 nonaccrual 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.
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
Office property and equipment are carried at cost. Depreciation is
computed using the straight-line method, over the estimated useful lives of
those properties and equipment acquired prior to 1981.
Property and equipment acquired after 1986 are depreciated under
the Modified Accelerated Cost Recovery System. The depreciation under
these methods does not differ materially from that calculated in
accordance with generally accepted accounting principles.
When these assets are retired or otherwise disposed of, the cost and
related accumulated depreciation or amortization is removed from the
accounts, and any resulting gain or loss is reflected in income for the
period.
F-8
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORECLOSED REAL ESTATE
Foreclosed real estate includes formally foreclosed property. 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. 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
and is carried at amortized costs.
INCOME TAXES
Effective January 1, 1994, the Association adopted SFAS 109,
"Accounting for Income Taxes." Under SFAS 109, the liability method is
used in accounting for income taxes.
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.
Financial Institutions are exempt from Louisiana income tax.
PENSION PLAN
The Association has a Simplified Employee Pension (SEP) plan covering
substantially all employees. It is the policy of the Association to fund
the plan at a percentage, based on annual profits, of total compensation of
plan participants, not to exceed the maximum allowable for Federal income
tax purposes.
STATEMENTS OF CASH FLOWS
The Association considers all cash and amounts due from depository
institutions, interest-bearing deposits in other banks and Federal funds
sold to be cash equivalents for purposes of the statements of cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
F-9
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The balance sheet as of September 30, 1996, and the related
statements of income, changes in equity capital and cash flows for the
nine months period ended September 30, 1996 and all related footnote
information for that period are unaudited and reflect all normal and
recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the Association's results of operations and
cash flows.
NOTE B
INVESTMENT SECURITIES
As discussed in Note A, the Association adopted SFAS 115 December 31,
1994. Prior to December 31, 1994, the Association classified securities as
held-for-sale securities (available-for-sale) and investment securities
(held-to-maturity) based on criteria which did not differ significantly
from that required by SFAS 115.
Securities available-for-sale consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
(Unaudited)
SEPTEMBER 30, 1996
U. S. Government
and Federal Agencies $20,964,083 $ 195,942 $ 7,221 $21,152,804
Adjustable Rate Mortgage
Mutual Fund 1,040,209 - 3,530 1,036,676
FHLMC Common Stock 35,250 843,375 - 878,625
----------- ---------- ---------- -----------
$22,039,542 $1,039,317 $10,752 $23,068,105
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Securities held-to-maturity consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
DECEMBER 31, 1995
U. S. Government
and Federal Agencies $30,100,334 $ 366,733 $ 27,039 $30,440,028
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
DECEMBER 31, 1994:
U. S. Government
and Federal Agencies $32,306,999 $ 22,727 $583,910 $31,745,816
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
F-10
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE B
INVESTMENT SECURITIES (CONTINUED)
Securities available-for-sale consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ -----------
DECEMBER 31, 1995
U.S. Government
and Federal Agencies $ 2,181,555 $ 24,478 $ - $ 2,206,033
Adjustable Rate Mortgage
Mutual Fund 301,942 - - 301,942
FHLMC Common Stock 35,250 716,250 - 751,500
----------- ---------- ------------- -----------
$ 2,518,747 $ 740,728 $ - $ 3,259,475
----------- ---------- ------------- -----------
----------- ---------- ------------- -----------
DECEMBER 31, 1994:
U.S. Government
and Federal Agencies $ 2,769,820 $ 985 $ 36,188 $ 2,734,616
FHLMC Common Stock 35,250 419,250 - 454,500
----------- ---------- ------------- -----------
$ 2,805,070 $ 420,235 $ 36,188 $ 3,189,116
----------- ---------- ------------- -----------
----------- ---------- ------------- -----------
The following is a summary of maturities of securities
held-to-maturity and available-for-sale.
September 30, 1996
(Unaudited)
----------------------------------------------------------
Securities Securities
Held-to-Maturity Available-for-Sale
------------------------ ---------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------- ---------- ----------- -----------
Amounts Maturing in:
One Year or Less $ - $ - $ 9,451,772 $10,321,645
After One Year
Thru Five Years - - 10,586,760 10,693,366
After Five Years
Thru Ten Years - - 2,001,010 2,053,094
--------- ---------- ----------- -----------
$ - $ - $20,039,542 $23,068,105
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
F-11
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE B
INVESTMENT SECURITIES (CONTINUED)
December 31, 1995
-------------------------------------------------------------------
Securities Securities
Held-to-Maturity Available-for-Sale
------------------------------ -----------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ----------- ---------- -----------
Amounts Maturing in:
One Year or Less $17,617,589 $17,674,403 $1,520,466 $2,238,881
After One Year
Thru Five Years 11,184,051 11,357,438 799,131 811,844
After Five Years
Thru Ten Years 1,298,694 1,408,187 199,150 208,750
----------- ----------- ---------- ----------
$30,100,334 $30,440,028 $2,518,747 $3,259,475
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
December 31, 1994
-------------------------------------------------------------------
Securities Securities
Held-to-Maturity Available-for-Sale
------------------------------ -----------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ----------- ---------- -----------
Amounts maturing in:
One Year or Less $21,219,234 $21,131,997 $1,807,640 $2,227,678
After One Year
thru Five Years 10,588,394 10,130,631 798,396 780,625
After Five Years
thru Ten Years 499,371 483,188 199,034 180,813
----------- ----------- ---------- ----------
$32,306,999 $31,745,816 $2,805,070 $3,189,116
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Accrued interest receivable on available-for-sale investment
securities at September 30, 1996 was $273,257. Accrued interest receivable
on available-for-sale and held-to-maturity investment securities at
December 31, 1995 was $23,180 and $262,300. Accrued interest receivable on
available-for-sale and held-to-maturity investment securities at December
31, 1994 was $23,180 and $238,040, respectively.
In September, 1996, the Association sold investment securities
held-to-maturity with a book value of $6,988,911 for $6,888,447. This
resulted in a loss of $100,464. During 1995 and 1994, the Association had
no sales of securities available-for-sale.
F-12
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE B
INVESTMENT SECURITIES (CONTINUED)
There were no securities transferred between classifications during
1995 and 1994.
Included in other assets are two equity securities being carried at
cost of $27,228. The fair market value for these securities approximate
cost.
NOTE C
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- --------
(Unaudited)
SEPTEMBER 30, 1996:
FNMA $3,064,893 $ 1,211 $112,140 $2,953,964
FHLMC 4,233,761 6,429 185,548 4,054,642
---------- ------- -------- ----------
$7,298,654 $ 7,640 $297,688 $7,008,606
---------- ------- -------- ----------
---------- ------- -------- ----------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- --------
DECEMBER 31, 1995:
FNMA $1,772,462 $ 3,480 $ 17,224 $1,758,718
FHLMC 4,594,885 12,588 61,156 4,546,317
---------- ------- -------- ----------
$6,367,347 $16,068 $ 78,380 $6,305,035
---------- ------- -------- ----------
---------- ------- -------- ----------
DECEMBER 31, 1994:
FNMA $1,909,550 $ - $195,322 $1,714,228
FHLMC 4,153,700 - 310,026 3,843,674
---------- ------- -------- ----------
$6,063,250 $ - $505,348 $5,557,902
---------- ------- -------- ----------
---------- ------- -------- ----------
F-13
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE C
MORTGAGE-BACKED SECURITIES (CONTINUED)
The amortized cost and fair value of mortgage-backed securities at
September 30, 1996, December 31, 1995 and December 31, 1994 by contractual
maturity, are shown below. 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
Cost Value
--------- ---------
(Unaudited)
SEPTEMBER 30, 1996
Mortgage-Backed Securities Maturing:
In One Year or Less $ 106,499 $ 110,823
After One Year Thru Five Years 3,860,230 3,712,240
After Five Years Thru Ten Years 994,506 1,005,535
After Ten Years 2,337,419 2,219,834
----------- ----------
$7,298,654 $7,048,432
----------- ----------
----------- ----------
Amortized Fair
Cost Value
--------- ---------
DECEMBER 31,1995
Mortgage-Backed Securities Maturing:
In One Year or Less $ 704,440 $ 709,300
After One Year Thru Five Years 3,118,629 3,091,529
After Five Years Thru Ten Years - -
After Ten Years 2,544,278 2,504,206
----------- ----------
$6,367,347 $6,305,035
----------- ----------
----------- ----------
DECEMBER 31, 1994
Mortgage-Backed Securities Maturing:
In One Year or Less $ - $ -
After One Year Thru Five Years 3,311,340 3,119,596
After Five Years Thru Ten Years - -
After Ten Years 2,751,910 2,438,306
----------- ----------
$6,063,250 $5,557,902
----------- ----------
----------- ----------
There were no sales of mortgage-backed securities in 1996, 1995 or 1994.
F-14
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE D
LOANS
Loans at September 30, 1996, December 31, 1995 and 1994 are summarized
as follows:
December 31,
September 30, --------------------------
1996 1995 1994
------------- ----------- ------------
(Unaudited)
Loans Secured by First Mortgages
on Real Estate:
One to Four Family
Residential $41,378,072 $38,449,360 $38,236,565
FHA and VA 540,570 675,223 854,273
Construction 411,545 -- --
Commercial Real Estate 441,959 484,451 601,319
Other 154,282 145,631 181,500
----------- ----------- -----------
Total Real Estate Loans 42,926,428 39,754,665 39,873,657
Consumer Loans
Second Mortgage 289,974 266,530 349,573
Loans on Deposits 173,383 186,460 160,835
------------ ----------- -----------
43,389,785 40,207,655 40,384,065
------------ ----------- -----------
Allowance for Loan Losses (337,482) (323,455) (345,348)
Net Deferred Loan Origination Costs 5,706 4,218 3,280
------------ ----------- -----------
$43,058,009 $39,888,418 $40,041,997
------------ ----------- -----------
------------ ----------- -----------
An analysis of the allowance for loan losses as follows:
Nine Months Ended Years Ended
September 30, December 31,
--------------------- -------------------
1996 1995 1995 1994
-------- -------- ------- --------
(Unaudited)
Balance, Beginning of Year $323,455 $345,348 $345,348 $369,680
Provision for Losses 14,027 - 12,107 20,785
Loans Charged Off - (10,001) (34,000) (47,617)
Recoveries - - - 2,500
-------- --------- -------- --------
Balance, End of Year $337,482 $335,347 $323,455 $345,348
-------- --------- -------- --------
-------- --------- -------- --------
F-15
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE D
LOANS (CONTINUED)
The Financial Accounting Standards Board issued SFAS 114, "Accounting
by Creditors for Impairment of a Loan, as amended by SFAS 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures", which is effective for fiscal years beginning after December
15, 1994. This statement establishes standards, including the use of
discounted cash flow techniques, for measuring the impairment of a loan
when it is probable that the contractual terms will not be met.
The Association adopted SFAS 114 on January 1, 1995. Adoption of
this standard had no impact on the Association's net income, stockholders'
equity or total assets.
At September 30, 1996, December 31, 1995 and 1994, the Association had
loans totaling approximately $355,003, $337,867 and $378,600, respectively,
for which impairment had been recognized. The allowance for loan losses
related to these loans totaled $121,400, $123,400 and $143,000 at September
30, 1996, December 31, 1995 and 1994, respectively. During the year ended
December 31, 1995, the amount of interest income that would have been
recorded on loans in nonaccrual status at December 31, 1995, had such loans
performed in accordance with their terms, was approximately $16,881. The
actual interest income recorded on these loans during the year ended
December 31, 1995 was approximately $-0-. Such interest foregone during
the nine months ended September 30, 1996 was approximately $18,975.
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:
September 30, December 31,
1996 -------------------
----------- 1995 1994
(Unaudited) -------- --------
Balance, Beginning of Year $224,412 $383,069 $336,308
Net Decrease (15,203) (158,657) 46,761
----------- -------- --------
Balance, End of Year $209,209 $224,412 $383,069
---------- -------- --------
---------- -------- --------
The Association's lending activity is concentrated within the
metropolitan New Orleans area. The economy in the area has been affected
because of the economic decline in oil and gas related businesses. The
Association's major emphasis in lending has been the origination of
permanent single-family dwelling loans, and such loans comprise the
majority of the Association's loan portfolio.
F-16
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE E
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30, 1996, December 31, 1995
and 1994 consists of the following:
September 30, December 31,
1996 ------------------
------------- 1995 1994
(Unaudited) -------- -------
Loans $218,094 $190,700 $202,197
Mortgage-Backed Securities 34,948 30,640 29,811
Investments and Other 273,256 285,480 263,560
--------- -------- --------
Totals $526,298 $506,820 $495,568
--------- -------- --------
--------- -------- --------
NOTE F
PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
September 30, December 31,
-------------------
1996 1995 1994
------------- --------- -------
(Unaudited)
Land $780,616 $780,616 $800,616
Buildings and Improvements 2,060,145 1,900,647 1,828,048
Furniture, Fixture and Equipment 382,131 345,880 378,503
Leasehold Improvements - - 43,683
-------------- --------- ---------
3,222,892 3,027,143 3,050,850
Accumulated Depreciation
and Amortization (443,635) (356,562) (406,778)
-------------- --------- ---------
$2,779,257 $2,670,581 $2,644,072
-------------- --------- ---------
-------------- --------- ---------
Depreciation expense for the nine months ended September 30, 1996
and 1995 was $87,075 and $92,749, respectively. Depreciation expense for
the years ended December 31, 1995 and 1994 was $128,022 and $107,559,
respectively.
F-17
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE G
FORECLOSED REAL ESTATE
A comparative summary of foreclosed real estate is as follows:
September 30, December 31,
-------------------
1996 1995 1994
-------------- -------- ---------
(Unaudited)
Acquired in Settlement of Loans $ - $23,971 $37,327
Less: Allowance for Losses on
Foreclosed Real Estate - - -
------------- --------- ---------
$ - $23,971 $37,327
------------- --------- ---------
------------- --------- ---------
An analysis of the allowance for losses on foreclosed real estate is
as follows:
Nine Months Ended Year Ended
September 30, December 31,
----------------- --------------
1996 1995 1995 1994
------- ------- ------- -------
(Unaudited)
Balance, Beginning of Year $ - $ - $ - $10,191
Provision for Losses - - - -
Charge-Offs, Net - - - (10,191)
------- ------- ------- --------
Balance, End of Year $ - $ - $ - $ -
------- ------- ------ --------
------- ------- ------ --------
NOTE H
REAL ESTATE HELD-FOR-INVESTMENT
Real estate held-for-investment at December 31, 1995 consists of a
former branch location as summarized below.
September 30, December 31,
1996 1995
------------- --------------
(Unaudited)
Land $70,000 $70,000
Building and Improvements 117,528 113,228
------------ ---------------
187,528 183,228
Accumulated Depreciation (92,881) (88,465)
------------ ---------------
94,647 94,763
Allowance for Losses - -
------------ ---------------
$94,647 $94,763
------------ ---------------
------------ ---------------
F-18
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE I
DEPOSITS
Deposit account balances at September 30, 1996, December 31, 1995 and
1994, are summarized as follows:
Weighted Nine Months Ended Years Ended
Average September 30, December 31,
-------------------------------------
Rate at 1996 1995 1994
----------------- ----------------- -----------------
9/30/96 12/31/95 12/31/94 Amount Percent Amount Percent Amount Percent
------- -------- -------- ------ ------- ------ ------- ------ -------
(Unaudited) (Unaudited)
Balance by Interest Rate:
Regular Savings Accounts 4.00% 3.25% 3.75% $24,009,715 39.69% $24,119,701 39.58% $26,365,116 40.79%
Certificate of Deposit: 5.05% 4.94% 4.24% 36,484,845 60.31 36,825,411 60.42 38,277,060 59.21
----------- ------ ----------- ------ ----------- ------
$60,494,560 100.00 $60,945,112 100.00 $64,642,176 100.00
----------- ------ ----------- ------ ----------- ------
----------- ------ ----------- ------ ----------- ------
Certificate accounts maturing
Under 12 months 29,192,738 80.01 28,164,704 76.48 30,221,752 78.96
12 months to 24 months 4,624,821 12.68 5,994,982 16.28 6,290,857 16.44
24 months to 36 months 2,431,642 6.66 2,272,634 6.17 1,323,374 3.46
36 months to 48 months 235,644 .65 272,486 .74 156,452 .41
48 months to 60 months - 0 120,605 .33 284,625 .74
----------- ----- ------------ ----- ----------- -----
$36,484,845 100.00% $36,825,411 100.00% $38,277,060 100.00%
----------- ----- ------------ ----- ----------- -----
----------- ----- ------------ ----- ----------- -----
F-19
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE I
DEPOSITS (CONTINUED)
The aggregate amount of certificates with a minimum balance of
$100,000 was approximately $1,362,915, $1,053,966 and $888,565 at September
30, 1996 and December 31, 1995 and 1994, respectively. Deposits in excess
of $100,000 are not federally insured.
Interest expense for each of the following periods is as follows:
Nine Months Ended Year Ended
September 30, December 31,
----------------- -----------------
1996 1995 1995 1994
------------------ -----------------
(Unaudited)
Certificates $1,378,123 $1,326,345 $1,784,221 $1,509,028
Passbook Savings 584,384 680,343 879,683 897,980
---------- ---------- ---------- ----------
$1,962,507 $2,006,688 $2,663,904 $2,407,008
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The Association held deposits of approximately $948,700, $917,916 and
$1,188,882 for officers and directors at September 30, 1996, December 31,
1995 and 1994, respectively.
NOTE J
FEDERAL INCOME TAXES
As discussed in Note A, the Association adopted SFAS 109 effective
January 1, 1994. Prior year financial statements were restated with no
cumulative effect adjustment at adoption required.
The provision for income taxes for 1995 and 1994 consists of the
following:
Year Ended
December 31,
September 30, ---------------------
1996 1995 1994
------------- --------- ----------
(Unaudited)
Current Federal Tax Expense $ 184,477 $439,205 $502,545
Deferred Federal Tax Expense 60,370 40,636 26,859
------------- --------- ----------
$ 244,847 $479,841 $529,404
------------- --------- ----------
------------- --------- ----------
F-20
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE J
FEDERAL INCOME TAXES (CONTINUED)
The provision for Federal income taxes differs from that computed by
applying Federal statutory rates to income (loss) before Federal income
tax expense, as indicated in the following analysis:
December 31,
September 30, ---------------------------
1996 1995 1995 1994
------------- ------------ ------------ -----------
(Unaudited) (Unaudited)
Expected Tax Provision
at a 34% Rate $ 207,274 $ 441,377 $ 459,740 $ 518,054
Effect of Tax-Exempt Income (2,249) (1,929) (2,570) (2,228)
Effect of Net Loan and R/E/O
Losses Charged
Directly to Tax Bad Debt
Reserve 35,053 27,227 36,303 35,609
(Decrease) in Deferred Tax
Asset Valuation Allowance 4,769 (26,717) (13,632) (22,031)
----------- ----------- ----------- ------------
$ 244,847 $ 439,958 $ 479,841 $ 529,404
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Effective Tax Rate 40.16% 33.89% 35.49% 34.74%
----- ----- ----- -----
----- ----- ----- -----
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:
December 31,
September 30, ---------------------------
1996 1995 1994
------------ ----------- ----------
(Unaudited)
Deferred Tax Liabilities $ (433,520) $ (305,310) $ (166,102)
Deferred Tax Assets 123,103 117,675 132,228
Deferred Tax Asset
Valuation Allowance (114,744) (109,975) (123,607)
-------------- ------------ -----------
Net Deferred Tax
Assets or (Liabilities) $ (425,161) $ (297,610) $ (157,481)
-------------- ------------ -----------
-------------- ------------ -----------
F-21
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE J
FEDERAL INCOME TAXES (CONTINUED)
Included in retained earnings at September 30, 1996, December 31, 1995
and 1994 is approximately $4,944,337, $4,940,983 and $4,958,086,
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
$1,681,075, $1,679,900 and $1,685,750 for September 30, 1996, December 31,
1995 and 1994.
NOTE K
PENSION PLAN
The Association established a Simplified Employee Pension (SEP) plan
in 1993, covering substantially all employees.
The present plan (SEP) was funded in 1995 and 1994 at 12% of total
compensation of plan participants. The total expense (contributions)
amounted to $127,566 and $125,361 for the years ended December 31, 1995
and 1994, respectively. There was no pension expense during the period
ended September 30, 1996, or September 30, 1995.
NOTE L
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 noninvestments grade
corporate debt and certain other investments. FIRREA also increases the
required ration of housing-related assets in order to qualify as a savings
institution.
F-22
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE L
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989
(FIRREA) (CONTINUED)
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-bases 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 September 30, 1996, December 31, 1995 and 1994.
1996 1995 1994
----------------------- ---------------------- ----------------------
Dollars Percentage Dollars Percentage Dollars Percentage
------- ---------- ------- ---------- ------- ----------
(Thousands) (Thousands) (Thousands)
Tangible Capital $23,822 27.79 $23,457 27.26% $22,839 25.9%
Tangible Equity $23,822 27.79 $23,457 27.26% $22,839 25.9%
Core/Leverage Capital $23,822 27.79 $23,457 27.26% $22,839 25.9%
Tier 1 Risk-Based Capital $23,822 78.38 $23,680 92.80% $22,585 90.3%
Total Risk-Bases Capital $24,038 80.10 $23,680 91.75% $22,499 90.0%
NOTE M
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
Nine Months Ended as of
September 30, 1996 September 30, 1996
------------------ ------------------
(In Thousands)
Per GAAP $365 $24,500
---- -------
---- -------
Total Assets $86,521
-------
-------
Capital Ratio 28.32%
-----
-----
F-23
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE M
REGULATORY CAPITAL (CONTINUED)
Core/ Tier 1 Total
Tangible Tangible Leverage Risk-Based Risk-Based
Capital Equity Equity Capital Capital
-------- -------- -------- ---------- -----------
Per GAAP $24,500 $24,500 $24,500 $24,500 $24,500
Assets Required
to be Deducted
Unrealized Gain
on Securities
Available-for-Sale (678) (678) (678) (678) (678)
General Valuation
Allowance 216
------- ------- ------- ------- -------
Regulatory Capital
Measure $23,822 $23,822 $23,822 $23,822 $24,038
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Adjusted Total
Assets $86,521 $86,521 $86,521
------- ------- -------
------- ------- -------
Risk-Weighted
Assets $30,010 $30,010
------- -------
------- -------
Capital Ratio 27.79% 27.79% 27.79% 79.38% 80.10%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Required Capital $ 1,298 $ 2,596 $ 2,408
------- ------- -------
------- ------- -------
Excess Capital $22,524 $21,226 $21,630
------- ------- -------
------- ------- -------
Net Income Capital
Year Ended as of
December 31, 1995 December 31, 1995
----------------- -----------------
(In Thousands)
Per GAAP $872 $23,946
--- -------
--- -------
Total Assets $86,040
-------
-------
Capital Ratio 27.83%
-------
-------
F-24
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE M
REGULATORY CAPITAL (CONTINUED)
Core/ Tier 1 Total
Tangible Tangible Leverage Risk-Based Risk-Based
Capital Equity Equity Capital Capital
-------- -------- -------- ---------- -----------
Per GAAP $23,946 $23,946 $23,946 $23,946 $23,946
Assets Required
to be Deducted
Unrealized Loss
on Securities
Available-for-Sale (489) (489) (489) (489) (489)
Other (467)
General Valuation
Allowance 200
------- ------- ------- ------- -------
Regulatory Capital
Measure $23,457 $23,457 $23,457 $23,457 $23,190
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Adjusted Total
Assets $86,040 $86,040 $86,040
------- ------- -------
------- ------- -------
Risk-Weighted
Assets $25,275 $25,275
------- -------
------- -------
Capital Ratio 27.35% 27.35% 27.35% 92.81% 93.60%
Required Ratio 1.50% 2.00% 3.00% 4.00% 8.00%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Required Capital $ 1,291 $ 2,581 $ 2,022
------- ------- -------
------- ------- -------
Excess Capital $22,166 $20,876 $21,635
------- ------- -------
------- ------- -------
NOTE N
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 are as follows:
LOAN COMMITMENTS:
Outstanding mortgage loan commitments as of September 30, 1996,
December 31, 1995 and 1994 were approximately $967,055, $318,460 and
$756,500, respectively. These commitments, normally extended for thirty
days, are for first mortgage loans at a fixed rate, ranging from 7.75%
to 9%.
F-25
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE N
COMMITMENTS AND CONTINGENCIES (CONTINUED)
INVESTMENT COMMITMENTS:
Outstanding commitments to purchase investment securities as of
December 31, 1995 were approximately $300,000.
SAIF COMMITMENT
During 1995 legislation was proposed by Congress to recapitalize the
Savings Association Insurance Fund (SAIF). The Association has accrued
$413,324 toward this commitment at September 30, 1996. The charge was
paid in December, 1996.
NOTE O
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 N). 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 P
CONCENTRATION OF CREDIT RISK
The Association has deposits in another financial institution for more
than the insured limit. The Association is required to keep a minimum
compensating balance of approximately $250,000.
F-26
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE Q
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
On January 1, 1995, the Association adopted SFAS 107, "Disclosures
about Fair Value of Financial Instruments", which requires the disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate
the value. Quoted market prices, when available, are used as the measure
of fair value. In cases where quoted market prices are not available, fair
values are based on present value estimates or other valuation techniques.
These derived fair values are significantly affected by assumptions used,
principally the timing of future cash flows and the discount rates.
Because assumptions are inherently subjective in nature, the estimated fair
values cannot be substantiated by comparison to independent market quotes
and, in many cases, the estimated fair values would not necessarily be
realized in an immediate sale or settlement of the instrument. The
disclosure requirements of SFAS 107 exclude certain financial instruments
and all nonfinancial instruments. Accordingly, the aggregate fair value
amounts presented do not represent management's estimation of the
underlying value of the Association.
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 and mortgage-backed securities fair value
is based on quoted market prices.
For mortgage loan receivables the fair values is 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 equal to the amount payable 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.
F-27
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE Q
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Estimated fair values of the financial instruments are as follows:
1995
------------------------------------------------------
September 30, December 31,
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ----------- -----------
(Unaudited)
Financial Assets
Cash and Short-Term Investment $ 8,698,000 $ 8,698,000 $ 2,355,000 $ 2,355,000
Investment Securities 23,068,000 23,068,000 33,360,000 33,700,000
Mortgage-Backed Securities 7,299,000 7,009,000 6,367,000 6,305,000
Loans (Net of Loan Allowance) 43,058,000 45,040,000 39,888,000 42,907,000
Financial Liabilities
Deposits $60,495,000 $63,889,000 $60,873,000 $60,913,000
Unrecognized Financial
Instruments
Commitments to Extend Credit $ 967,000 $ 971,000 $ 318,000 $ 332,000
NOTE R
ADOPTION OF PLAN OF CONVERSION
On October 10, 1996, the Board of Directors of GUARANTY SAVINGS AND
HOMESTEAD ASSOCIATION adopted a Plan of Conversion ("the Plan"), which
proposes the conversion of the Association from a Louisiana-chartered
mutual savings and loan association to a Louisiana-chartered stock savings
and loan association to be known as "Guaranty Savings and Homestead
Association" (the "Association", in its mutual or stock form, as the sense
of the reference requires) and the concurrent issuance of its capital stock
to G S Financial Corporation. ("the newly formed Holding Company").
F-28
GUARANTY SAVINGS AND HOMESTEAD ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995 (Unaudited) and
The Years Ended December 31, 1995 and 1994
NOTE R
ADOPTION OF PLAN OF CONVERSION (CONTINUED)
The Plan provides that non-transferable subscription rights to
purchase Common Stock will be offered first to Eligible Account Holders of
record as of the Eligibility Record Date, then to Tax-Qualified Employee
Stock Benefit Plans, then to Supplemental Eligible Account Holders, if
applicable, then to Other Members, and then to Directors, Officers and
Employees. Shares of Common Stock remaining unsold after the Subscription
Offering, if any, will be offered for sale to the public through a
Community Offering and/or Syndicated Community Offering, as determined by
the Boards of Directors of the Holding Company and the Association in their
sole discretion.. The common stock will be offered at a price to be
determined by the Board of Directors based upon an appraisal to be made by
an independent appraisal firm. The exact number of shares to be offered
will be determined by the Board of Directors in conjunction with the
determination of the price at which the shares will be sold. The costs of
issuing the common stock will be deferred and deducted from the sale
proceeds. The Association had incurred no stock issuance costs as of
September 30, 1996. If the conversion is not completed, deferred costs
will be charged to operations.
In accordance with OTS Regulations, at the time that the Association
converts from a mutual savings and loan association to a stock savings and
loan association, the Association will establish a liquidation account with
an initial balance equal to the Association's retained earnings as of the
date of the latest balance sheet appearing in the prospectus. The
liquidation account will be maintained for the benefit of eligible holders
who continue to maintain their accounts at the Association after the
Conversion. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest
in the liquidation account. In the event of a complete liquidation of the
Association, and only in such event, each account holder will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the adjusted qualifying account balances then held. The
Association may not pay dividends if those dividends would reduce retained
earnings below the required liquidation account amount.
F-29
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE ASSOCIATION OR WEBB. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER FOR OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE ASSOCIATION SINCE ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
_____________________
TABLE OF CONTENTS
_____________________
PAGE
----
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial and Other Data. . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposed Management Purchases. . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Common Stock. . . . . . . . . . . . . . . . . . . . . . .
Regulatory Capital . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro Forma Data . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management of the Company. . . . . . . . . . . . . . . . . . . . . .
Management of the Association. . . . . . . . . . . . . . . . . . . .
The Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restrictions on Acquisition of the Company and the
Association. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of the Company. . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Auditors . . . . . . . . . . . . . . . . . . . . . . . . .
Legal and Tax Opinions . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements. . . . . . . . . . . . . . . . . . . .
UNTIL _________ __, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,990,000 Shares
(Anticipated Maximum)
GS FINANCIAL CORP.
(PROPOSED HOLDING COMPANY
GUARANTY SAVINGS AND HOMESTEAD
ASSOCIATION)
COMMON STOCK
_____________________
PROSPECTUS
_____________________
____ __, 1997
CHARLES WEBB & COMPANY
A Division of Keefe,
Bruyette & Woods, Inc.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Louisiana Business Corporation Law, Article 8 of the
Registrant's Articles of Incorporation provides as follows:
A. PERSONAL LIABILITY OF DIRECTORS AND OFFICERS. A director or officer
of the Corporation shall not be personally liable for monetary damages for any
action taken, or any failure to take any action, as a director or officer except
to the extent that by law a director's or officer's liability for monetary
damages may not be limited.
B. INDEMNIFICATION. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, including actions by or in the right of
the Corporation, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under Louisiana law.
C. ADVANCEMENT OF EXPENSES. Reasonable expenses incurred by an officer,
director, employee or agent of the Corporation in defending an action, suit or
proceeding described in Section B of this Article 8 may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding if authorized by the board of directors (without regard to whether
participating members thereof are parties to such action, suit or proceeding),
upon receipt of an undertaking by or on behalf of such person to repay such
amount if it shall ultimately be determined that the person is not entitled to
be indemnified by the Corporation.
D. OTHER RIGHTS. The indemnification and advancement of expenses
provided by or pursuant to this Article 8 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, insurance or other agreement, vote of
stockholders or directors (regardless of whether directors authorizing such
indemnification are beneficiaries thereof) or otherwise, both as to actions in
their official capacity and as to actions in another capacity while holding an
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
E. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance or other similar arrangement on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership,
joint venture or other enterprise, against any liability asserted against or
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article 8.
F. SECURITY FUND; INDEMNITY AGREEMENTS. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Corporation
may create and fund a trust fund or other fund or form of self-insurance
arrangement of any nature, and may enter into agreements with its officers,
directors, employees and agents for the purpose of securing or insuring in any
manner its obligation to indemnify or advance expenses provided for in this
Article 8.
G. MODIFICATION. The duties of the Corporation to indemnify and to
advance expenses to any person as provided in this Article 8 shall be in the
nature of a contract between the Corporation and each such person, and no
amendment or repeal of any provision of this Article 8, and no amendment or
termination of any trust or other fund or form of self-insurance arrangement
created pursuant to Section F of this Article 8, shall alter to the detriment of
such person the right of such person to the advance of expenses or
indemnification related to a claim based on an act or failure to act which took
place prior to such amendment, repeal or termination.
H. PROCEEDINGS INITIATED BY INDEMNIFIED PERSONS. Notwithstanding any
other provision of this Article 8, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an action,
suit or proceeding initiated (which shall not be deemed to include
counter-claims or affirmative defenses) or participated in as an intervenor or
amicus curiae by the person seeking indemnification unless such initiation of or
participation in the action, suit or proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the directors
in office.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC filing fees.................................................. $ 10,420
OTS filing fees.................................................. 8,400
OFI filing fees.................................................. 1,750
Printing, postage and mailing.................................... 115,000
Legal fees....................................................... 90,000
Blue Sky legal fees and expenses................................. 18,000
Agent's management fee........................................... 30,000
Accounting fees.................................................. 50,000
Agent's out-of-pocket expenses, including legal fees............. 40,000
Appraiser's fees and expenses.................................... 15,250
Conversion agent fees and expenses............................... 13,500
Transfer agent and stock certificates............................ 12,000
Miscellaneous.................................................... 45,680
--------
TOTAL............................................................ $450,000
--------
--------
In addition to the foregoing expenses, Charles Webb & Company will receive
fees based on the number of shares of Common Stock sold in the Conversion, plus
expenses.
II-2
Based upon the assumptions and the information set forth under "Pro Forma
Data" and "The Conversion - Marketing and Underwriting Arrangements" in the
Prospectus, it is estimated that such fees will amount to $277,815, $331,635,
$375,000 and $375,000 in the event that 2,210,000, 2,600,000, 2,990,000 and
3,428,500 shares of Common Stock are sold by the Association in the
Conversion, respectively.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
II-3
LIST OF EXHIBITS (filed herewith unless otherwise noted)
1.1 Form of Agency Agreement with Charles Webb & Company
2.1* Plan of Conversion
3.1* Articles of Incorporation of GS Financial Corp.
3.2* Bylaws of GS Financial Corp.
4.1* Form of stock certificate of GS Financial Corp.
5.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding legality
of securities
8.1 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. regarding federal
income tax consequences
8.2 Opinion of LaPorte, Sehrt, Romig & Hand regarding Louisiana income
tax consequences
8.3* Opinion of RP Financial, LC regarding subscription rights
10.1* Form of Employment Agreement to be entered into among GS Financial
Corp., Guaranty Savings and Homestead Association and Donald C.
Scott
10.2* Form of Employment Agreement to be entered into among GS Financial
Corp., Guaranty Savings and Homestead Association and Bruce A.
Scott
10.3* Form of 1997 Stock Option Plan
10.4* Form of 1997 Recognition and Retention Plan and Trust Agreement
16.1 Letter from former auditors regarding change in auditors
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in
Exhibits 5.1 and 8.1, respectively)
23.2 Consent of LaPorte, Sehrt, Romig & Hand
23.3 Consent of RP Financial, LC
24.1* Power of Attorney (included in Signature Page of this Registration
Statement)
27.1* Financial Data Schedule
99.1* Stock Order Form
99.2* Transmittal letters
99.3* Question and Answer Brochure
99.4 Form of Proxy
99.5 Proxy Statement
99.6 Appraisal Report of RP Financial, LC dated December 20, 1996
_______________
*Previously filed.
II-4
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act will be
governed by the final adjudication of such issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Pre-effective
Amendment No. 1 to its registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Metairie, State of
Louisiana, on February 5, 1997.
GS FINANCIAL CORP.
By: /s/ Donald C. Scott
____________________________________________
Donald C. Scott, President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Donald C. Scott President and Chief Executive Officer February 5, 1997
___________________________
Donald C. Scott
/s/ Kenneth B. Caldcleugh Director February 5, 1997
___________________________
Kenneth B. Caldcleugh
/s/ Stephen L. Cory Director February 5, 1997
___________________________
Stephen L. Cory
II-6
/s/ Bradford A. Glazer* Director February 5, 1997
___________________________
Bradford A. Glazer
/s/ J. Scott Key* Director February 5, 1997
___________________________
J. Scott Key
/s/ Victor Kirschman* Director February 5, 1997
___________________________
Victor Kirschman
/s/ Mannie D. Paine, Jr. Director February 5, 1997
___________________________
Mannie D. Paine, Jr.
/s/ Bruce A. Scott Director and Executive Vice President February 5, 1997
___________________________
Bruce A. Scott
/s/ Albert J. Zahn Director February 5, 1997
___________________________
Albert J. Zahn
/s/ Glenn R. Bartels Controller (also principal financial February 5, 1997
___________________________ and accounting officer)
Glenn R. Bartels
- ---------------------------------------
* By Donald C. Scott, attorney in fact.
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